TSX SYMBOL: BEI.UN November 10, 2005
Boardwalk REIT Announces Third Quarter Financial Results
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Calgary, Alberta – November 10, 2005
- Boardwalk Real Estate Investment Trust ("BEI.UN" - TSX)
CALGARY, Nov. 10 /PRNewswire-FirstCall/ - Boardwalk Real Estate
Investment Trust ("BEI.UN" - TSX)
Boardwalk Real Estate Investment Trust ("Boardwalk REIT" or the "Trust")
today announced solid financial results for the three-month and nine-month
periods ending September 30, 2005.
For the three-month period, the Trust reported Funds From Operations
("FFO") of $21.8 million and FFO per unit of $0.41 on a diluted basis,
compared to FFO of $22.7 million and FFO per unit of $0.43 for the same period
last year. Distributable Income ("DI") for the quarter was $22.3 million and
DI per unit was $0.42 on a diluted basis, compared to $23.3 million and $0.44
per unit for the same period last year.
Funds From Operations ("FFO") is a generally accepted measure of
operating performance of real estate investment trusts and companies, however
is a non-GAAP measurement. The Trust calculates FFO by taking net earnings
after discontinued operations, adjusting for gains or losses on disposal of
discontinued operation assets and extraordinary items, and adding non-cash
items including future income taxes and amortization. The determination of
this amount may differ from that of other real estate investment trusts and
companies. Distributable Income ("DI") is calculated based on the definition
as set out in the Trust's declaration of trust and is computed by taking FFO
and adding back amortization on any deferred financing charges incurred prior
to May 3, 2004 as well as adjusting for any discounts or premiums relating to
the amortization of mark-to-market debt adjustment incurred subsequent to the
real estate investment trust conversion date of May 3, 2004.
Highlights of the Trust's third quarter 2005 financial results include:
- Rental revenues of $75.2 million, an increase of 6.8% compared to
$70.4 million for the three-month period ended September 30, 2004.
- Net operating income of $50.7 million, representing a 4.8% increase
from $48.4 million in the same period last year.
- FFO of $21.8 million, a decrease of 4.0% compared to $22.7 million for
the three-month period ended September 30, 2004.
- FFO per unit was $0.41 on a diluted basis, down 4.7% compared to $0.43
for the three-month period ended September 30, 2004.
- DI was $0.42 per unit, down 4.5% from $0.44 for the three months ended
September 30, 2004.
Highlights for the nine-month period ended September 30, 2005 include:
- Rental revenues of $223.1 million, an increase of 6.6% compared to
$209.3 million for the nine-month period ended September 30, 2004.
- Net operating income of $142.8 million, representing a 4.8% increase
from $136.2 million in the same period last year.
- FFO of $57.0 million, a decrease of 1.4% compared to $57.8 million for
the nine-month period ended September 30, 2004.
- FFO per unit was $1.07 on a diluted basis, down 2.7% compared to $1.10
for the nine-month period ended September 30, 2004.
- DI was $1.11 per unit, down 2.6% from $1.14 for the nine months ended
September 30, 2004.
Commenting on the Trust's third quarter results, Sam Kolias, President
and C.E.O., said, "Revenues are rising as we continue to benefit from our
three-pronged internal rental revenue strategy. The combination of an
experienced team and elaborate information technology system allows us to
track daily rental prices, incentives and vacancy. The combination of these
three variables is then applied to affect a balance on the supply and demand
for our rental units. Adjustments are made quickly, ensuring our gross rental
revenues are maximized. Overall, in the third quarter, move-outs due to
homeownership and corresponding vacancy rates continued to drop. Our increased
rental revenues reflect we are in the recovering part of the rental revenue
cycle.
Increasing energy prices have fueled significant increases of
in-migration and job growth in our largest market, the province of Alberta,
which represents over 50% of our rental units. Higher energy prices have also
fueled increased wages and salaries, utility costs, property taxes and repair
and maintenance expenses. Our lease terms are a maximum of one year. Higher
wage and salaries, along with continued price inflation for homes and
condominiums make our rents more affordable. This in turn is increasing the
demand for our rental units, increasing our occupancy levels and driving
revenues higher, helping us to offset growing expenses."
Operational Highlights
Vacancy in the current quarter is down substantially by 94 basis points
at 4.54% compared to 5.48% last year, showing a strong July and August,
seasonally our strongest rental months. In addition, the combined amount of
customer incentives and vacancy loss is dropping on a quarterly and year over
year basis. Vacancy in the first month of Q4 is even lower by 81 basis points
at 3.73% compared to the current quarter. Historically, this leading indicator
gives us good insight as to what vacancy in the fourth quarter will be.
The average monthly rent realized in the first nine months of 2005 was
$749 per unit, an increase of $12 from $737 per unit for the nine-month period
ended September 30, 2004. Management estimates that market rents for its
properties at the end of September, 2005 averaged $805 per unit per month,
which compares to an average in-place monthly rent per occupied unit of $795
for the same period. This translates into an estimated "loss-to-lease" of
approximately $3.6 million, or $0.07 per unit, maintaining existing occupancy
rates.
Same-Property Results
The "same-property" results for the Trust's stabilized portfolio (defined
as properties owned for over 24 months) for the three-month period ended
September 30, 2005 had rental revenue growth of 1.6%, an increase in total
operating expenses by 6.8%, resulting in a decrease of 0.7% in NOI compared to
the same period last year. The "same-property" results for the nine-month
period ended September 30, 2005 showed rental revenue growth of 1.1%, an
increase in total operating expenses by 5.0%, resulting in a decrease in NOI
of 0.9% compared to the same period last year. A total of 31,058 units,
representing approximately 93% of Boardwalk's total portfolio, were classified
as stabilized as at September 30, 2005.
Same-Property Results - Stabilized Portfolio
Three Months Ended September 30, 2005 vs. Three Months Ended
September 30, 2004
-------------------------------------------------------------------------
Rental Revenues Total Expenses NOI % of NOI
--------------------------------------------------------------------
Calgary 1.3% 8.9% -1.1% 18.5%
Edmonton 2.2% -1.1% 3.7% 32.9%
Other Alberta 5.4% 22.7% -0.1% 5.8%
Saskatchewan 1.4% 8.3% -1.7% 12.1%
Ontario 0.0% 7.3% -5.2% 10.3%
Quebec 1.0% 15.6% -4.2% 20.3%
--------------------------------------------------------------------
Total 1.6% 6.8% -0.7% 100.0%
--------------------------------------------------------------------
------------------------------------------------------
-------------------------------------------------------------------------
Same-Property Results - Stabilized Portfolio
Nine Months Ended September 30, 2005 vs. Nine Months Ended
September 30, 2004
-------------------------------------------------------------------------
Rental Revenues Total Expenses NOI % of NOI
--------------------------------------------------------------------
Calgary 1.5% 6.3% -0.4% 18.8%
Edmonton 0.9% 2.1% 0.3% 33.2%
Other Alberta 4.8% 14.2% 1.0% 5.8%
Saskatchewan 0.4% 3.5% -1.7% 11.6%
Ontario 0.2% 5.9% -4.6% 10.3%
Quebec 1.1% 7.1% -1.7% 20.3%
--------------------------------------------------------------------
Total 1.1% 5.0% -0.9% 100.0%
--------------------------------------------------------------------
------------------------------------------------------
-------------------------------------------------------------------------
As with the prior year, the Trust was the recipient of an Alberta natural
gas rebate based on usage and price in the first quarter of 2005. If we were
to exclude these rebates from the analysis, NOI for the nine-month period
ended September 30, 2005 would only have decreased by 0.8%.
Acquisition/Disposition Activity
There were no acquisitions announced in Q3 2005. To date in 2005, the
Trust has closed on 1,325 rental units in a series acquisitions spanning the
provinces of Alberta, British Columbia and Quebec. These previously announced
acquisitions had a total purchase price of $115.2 million, and in aggregate, a
going-in cap rate of 6.68%. Further details on the Trust's acquisition and
disposition activities can be found in the supplemental information package
available on Boardwalk REIT's website.
Commenting on the Trust's future property acquisitions, Bill Chidley,
Senior Vice President, Corporate Development, said, "The acquisition market
for multi-family rentals in Canada continues to be highly competitive, with
most markets experiencing aggressive vendor expectations and compression in
cap-rates. These same lower cap-rates have also enhanced the value of our
existing portfolio. We have in recent months seen more properties come to
market and we are in various stages of discussion regarding a number of
potential acquisitions. We cannot however be certain of closing any of these
transactions."
Continued Financial Strength
The Trust maintained its solid financial position in the third quarter of
2005. Boardwalk's total mortgage and long-term debt was $1.55 billion as at
September 30, 2005. This is up from $1.41 billion at September 30, 2004
reflecting the additional debt on acquisitions completed during the year, and
also includes the issuance of unsecured debentures which the Trust completed
on January 21, 2005, in the aggregate amount of $120 million. The debentures
are rated "BBB" with a stable trend by Dominion Bond Rating Services, carry a
coupon rate of 5.31% and will mature on January 23, 2012. Net proceeds of
approximately $119 million were used to fund acquisitions, repay operating
lines of credit and for general trust purposes.
As at September 30, 2005, the Trust's total debt had an average maturity
of 3.6 years with a weighted average interest rate of 5.38%, and the Trust's
total debt-to-total-market-capitalization ratio was 57.6%.
The Trust's interest coverage ratio, excluding gains, for the three-month
period ended September 30, 2005 was 2.10 times compared to 2.24 times in the
same period last year.
Revised 2005 Guidance
Commenting on the outlook for the Trust, Rob Geremia, Senior Vice
President, Finance and CFO, said, "Given the information we have received to
date, we are adjusting our guidance range for 2005 FFO and DI. The range for
FFO has been changed to $1.40 to $1.45 from the original range of $1.42 to
$1.49. The range for DI has been changed to $1.45 to $1.50 from $1.46 to
$1.53.
2006 Guidance
We are introducing FFO and DI guidance for fiscal 2006 of between $1.37
to $1.46 and $1.41 to $1.51, respectively. These forecasts are based on the
assumptions of unchanged stabilized NOI growth and new property acquisitions
of between 1,000 to 2,000 residential units for the year. Commenting on the
Trust's 2006 guidance, Rob Geremia said, "Although we are anticipating strong
internal rental revenue growth, overall operating expenses are expected to
continue increasing.
Our guidance for 2006 FFO and DI is slightly more conservative compared
to our 2005 revised forecast. The 2006 guidance takes into consideration
higher natural gas prices and overall operating costs. We believe we will not
be able to fully recover these increased costs from our customers during the
2006 year. We have also assumed that the existing Alberta Natural Gas Rebate
program will be extended, in its current form, past the March 2006 expiry
date. The Alberta Provincial Government has not yet confirmed this. This
anticipated extension is estimated to benefit Boardwalk's 2006 financial
results by approximately $0.03 per outstanding unit.
We have not included the potential recovery in terms of Edmonton property
tax appeals. It is management's intention to update the market on a quarterly
basis regarding our guidance estimates."
Supplementary Information
Boardwalk produces Quarterly Supplemental Information that provides
detailed information regarding the Trust's activities during the quarter. The
Third Quarter 2005 Supplemental Information is available on the INVESTOR
section of our website (http://www.bwalk.com).
Teleconference on the Third Quarter Financial Results
We invite you to participate in the teleconference that will be held to
discuss these results today at 12:00 noon ET. Senior management will speak to
the financial results and provide an update. Presentation materials will be
made available on our website (http://www.boardwalkreit.com/) prior to the
call.
Participation & Registration: Please RSVP to Investor Relations at
403-531-9255 or by email to investor@bwalk.com.
Teleconference: The telephone numbers for the conference are:
416-640-4127 (within Toronto) or toll-free 1-800-814-4859 (outside Toronto).
Webcast: Investors will be able to listen to the call and view our
slide presentation over the Internet by visiting http://www.boardwalkreit.com/
15 min. prior to the start of the call. An information page will be provided
for any software needed and system requirements. The live audiocast will also
be available at
http://www.newswire.ca/en/webcast/viewEvent.cgi?eventID(equal sign)1257080.
Replay: An audio recording of the teleconference will be available from
2:00 pm ET on November 10th, 2005 until 11:59 pm ET on November 19th, 2005.
You can access it by dialing 416-640-1917 and using the passcode 21157012
followed by the pound sign. An audio archive will also be available on our
website (http://www.boardwalkreit.com/) approximately two hours after the
conference call.
Corporate Profile
Boardwalk REIT is Canada's largest owner/operator of multi-family rental
communities. Boardwalk REIT currently owns and operates in excess of 260
properties with over 33,000 rental units totalling approximately 28 million
net rentable square feet. The Trust's portfolio is concentrated in the
provinces of Alberta, British Columbia, Saskatchewan, Ontario and Quebec.
Boardwalk REIT's Trust units are listed on the Toronto Stock Exchange, trading
under the symbol BEI.UN. The Trust's total market capitalization at September
30, 2005 was $2.7 billion.
Forward Looking Information
This press release may contain forward looking statements. These
statements relate, but are not limited to, Boardwalk REIT's expectations,
intentions, plans and beliefs. These forward looking statements can generally
be identified by the use of words "anticipated", "expected" or the negative
thereof or other comparable terminology. You should be aware that these
statements are subject to known and unknown risks, uncertainties and other
factors, including the risks discussed under the heading "Risk Factors" in the
Annual Information Form of Boardwalk REIT available on http://www.sedar.com. Actual
events or results may differ materially from those suggested by any forward-
looking statements. You should not place undue reliance on any forward-looking
statements contained in this press release.
By their nature, forward-looking statements involve numerous assumptions,
inherent risks and uncertainties, both general and specific, that contribute
to the possibility that the predictions, forecasts, projections and various
future events will not occur. Although management of Boardwalk REIT believes
that the expectations reflected in the forward-looking statements are
reasonable, there can be no assurances that future results, levels of
activity, performance or achievements will occur as anticipated. None of
Boardwalk REIT nor any other person assumes responsibility for the accuracy
and completeness of any forward-looking statements, and no one has any
obligations to update or revise any forward-looking statement, whether as a
result of new information, future events or such other factors which affect
this information, except as required by law.
CONSOLIDATED BALANCE SHEETS
(CDN$ THOUSANDS)
As at September 30, December 31,
2005 2004
-------------------------------
(Unaudited) (Audited)
Assets
Revenue producing properties (NOTES 3,
4 and 5) $ 1,807,143 $ 1,740,932
Deferred financing costs 43,517 39,056
Other assets 13,871 14,125
Future income taxes (NOTE 9) 1,338 547
Mortgages and accounts receivable 7,790 8,019
Segregated tenants' security deposits 7,171 6,460
Cash and cash equivalents 10,857 -
Discontinued operations (NOTE 5) 7,105 -
-------------------------------------------------------------------------
$ 1,898,792 $ 1,809,139
-------------------------------
-------------------------------
Liabilities
Mortgages payable $ 1,427,136 $ 1,414,122
Debentures (NOTE 6) 120,000 -
Accounts payable and accrued liabilities 25,960 27,235
Refundable tenants' security deposits
and other 10,356 9,543
Bank indebtedness - 2,723
Discontinued operations (NOTE 5) 4,434 -
-------------------------------------------------------------------------
$ 1,587,886 $ 1,453,623
-------------------------------
-------------------------------
Unitholders' Equity
Unitholders' capital (NOTE 7) 295,300 293,503
Accumulated earnings 15,606 62,013
-------------------------------------------------------------------------
$ 310,906 $ 355,516
-------------------------------------------------------------------------
$ 1,898,792 $ 1,809,139
-------------------------------
-------------------------------
SEE ACCOMPANYING NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATED STATEMENTS OF EARNINGS
(CDN$ THOUSANDS, EXCEPT PER UNIT AMOUNTS)
3 months 3 months 9 months 9 months
ended ended ended ended
September September September September
30, 2005 30, 2004 30, 2005 30, 2004
-----------------------------------------------
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
Revenue
Rental income $75,205 $70,352 $223,089 $209,308
-----------------------------------------------
Expenses
Revenue producing
properties:
Operating expenses 9,247 8,143 28,542 24,565
Utilities 7,020 5,678 28,157 27,741
Utility rebate
(NOTE 10) - - (624) (812)
Property taxes 8,274 8,131 24,263 21,607
Administration 7,098 5,904 21,165 18,206
Financing costs 20,715 18,868 61,834 56,633
Deferred financing costs
amortization 864 679 2,727 2,199
Amortization of capital
assets 18,826 18,288 56,165 53,335
-------------------------------------------------------------------------
72,044 65,691 222,229 203,474
-----------------------------------------------
3,161 4,661 860 5,834
Recovery of write-down on
technology business unit - - (739) -
-------------------------------------------------------------------------
Earnings (loss) from
continuing operations
before income taxes 3,161 4,661 1,599 5,834
Large corporations taxes 251 255 370 1,455
Future income taxes
(recovery)(NOTE 9) 28 (201) (804) (1,544)
-------------------------------------------------------------------------
Earnings (loss) from
continuing operations 2,882 4,607 2,033 5,923
Earnings (loss) from
discontinued operations,
net of tax (NOTE 5) 47 (126) 1,794 (254)
-------------------------------------------------------------------------
Net earnings $2,929 $4,481 $3,827 $5,669
-----------------------------------------------
-----------------------------------------------
Basic earnings (loss) per
unit (NOTE 8)
- from continuing
operations $0.06 $0.08 $0.04 $0.11
- from discontinued
operations - - $0.03 -
-------------------------------------------------------------------------
Basic earnings per unit $0.06 $0.08 $0.07 $0.11
-----------------------------------------------
-----------------------------------------------
Diluted earnings (loss)
per unit (NOTE 8)
- from continuing
operations $0.06 $0.08 $0.04 $0.11
- from discontinued
operations - - $0.03 -
-------------------------------------------------------------------------
Diluted earnings per unit $0.06 $0.08 $0.07 $0.11
-----------------------------------------------
-----------------------------------------------
SEE ACCOMPANYING NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATED STATEMENTS OF ACCUMULATED EARNINGS
(CDN$ THOUSANDS)
9 months 9 months
ended ended
September September
30, 2005 30, 2004
------------------------
(Unaudited) (Unaudited)
Accumulated earnings, beginning of period $62,013 $32,993
Net earnings 3,827 5,669
Distributions declared on units (50,234) (31,297)
Premium on unit repurchases - (1,397)
Elimination of future income taxes on
conversion to trust - 73,553
-------------------------------------------------------------------------
Accumulated earnings, end of period $15,606 $79,521
------------------------
------------------------
SEE ACCOMPANYING NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATED STATEMENTS OF CASH FLOWS
(CDN$ THOUSANDS)
3 months 3 months 9 months 9 months
ended ended ended ended
September September September September
30, 2005 30, 2004 30, 2005 30, 2004
-----------------------------------------------
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
Operating activities
Net earnings $2,929 $4,481 $3,827 $5,669
Loss (earnings) from
discontinued operations,
net of tax (47) 126 (1,794) 254
Future income taxes
(recovery) 28 (201) (804) (1,544)
Amortization of capital
assets 18,826 18,288 56,165 53,335
Recovery of write-down on
technology business unit - - (739)
-------------------------------------------------------------------------
Funds from continuing
operations 21,736 22,694 56,655 57,714
Funds from discontinued
operations 47 (19) 215 71
Net change in operating
working capital (3,037) 928 112 10,930
-------------------------------------------------------------------------
Total operating cash flows 18,746 23,603 56,982 68,715
-----------------------------------------------
Financing activities
Issue of trust units (net
of issue costs) (NOTE 7) 565 127 1,797 28,769
Unit repurchase program - (530) - (2,163)
Restructuring costs - (1,020) - (9,520)
Distributions paid (16,749) (16,419) (50,230) (31,297)
Issue of debentures
(NOTE 6) - 120,000
Financing of revenue
producing properties 14,627 25,485 127,589 95,340
Repayment of debt on
revenue producing
properties (17,634) (26,173) (123,878) (92,646)
Capital lease obligations - (2,786) - (3,370)
Deferred financing costs
incurred (net of
amortization) (211) 1,827 (4,772) (1,140)
-------------------------------------------------------------------------
(19,402) (19,489) 70,506 (16,027)
-----------------------------------------------
Investing activities
Purchases of revenue
producing properties
(NOTE 4) - - (103,289) (22,263)
Project improvements to
revenue producing
properties (6,187) (10,101) (18,500) (22,860)
Net cash proceeds from
sale of properties - - 9,405 -
Technology for real estate
operations (592) (258) (1,524) (540)
-------------------------------------------------------------------------
(6,779) (10,359) (113,908) (45,663)
-----------------------------------------------
Net increase (decrease) in
cash and cash equivalents
balance (7,435) (6,245) 13,580 7,025
Cash and cash equivalents
(bank indebtedness),
beginning of period 18,292 23,393 (2,723) 10,123
-------------------------------------------------------------------------
Cash and cash equivalents,
end of period $10,857 $17,148 $10,857 $17,148
-----------------------------------------------
-----------------------------------------------
Supplementary cash flow
information:
Taxes paid $242 $425 $900 $1,667
Interest paid $19,188 $18,934 $57,531 $57,225
-----------------------------------------------
-----------------------------------------------
SEE ACCOMPANYING NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Three and nine months ended September 30, 2005
(TABULAR AMOUNTS IN CDN$ THOUSANDS, EXCEPT NUMBER OF UNITS AND PER UNIT
AMOUNTS UNLESS OTHERWISE STATED)
(UNAUDITED)
1. ORGANIZATION OF TRUST
Boardwalk Real Estate Investment Trust ("Boardwalk REIT" or the
"Trust") is an unincorporated, open-ended real estate investment
trust created pursuant to the Declaration of Trust, dated January 9,
2004 and as amended and restated on May 3, 2004, under the laws of
the Province of Alberta. Boardwalk REIT was created to invest in
revenue producing multi-family residential properties or interests
within Canada, initially through the acquisition of operations of
Boardwalk Equities Inc. (the "Corporation"), which was acquired on
May 3, 2004.
2. BASIS OF PRESENTATION
These unaudited interim consolidated financial statements of
Boardwalk Real Estate Investment Trust (the "Trust") have been
prepared in accordance with the recommendations of the handbook of
the Canadian Institute of Chartered Accountants ("CICA Handbook") and
are consistent with those used in the audited consolidated financial
statements as at and for the year ended December 31, 2004, except as
described in Note 3 below. These interim financial statements do not
include all of the disclosures required by Canadian generally
accepted accounting principles ("Canadian GAAP") applicable to annual
financial statements and, therefore, they should be read in
conjunction with the audited consolidated financial statements.
The preparation of financial statements in accordance with Canadian
GAAP requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities, and to make
disclosure of contingent assets and liabilities at the date of the
financial statements, and the reported amounts of revenues and
expenses during the reporting period. Actual results may differ from
those estimates.
Due to seasonality, the operating results for the three and nine
months ended September 30, 2005 are not necessarily indicative of the
results that may be expected for the full year ending December 31,
2005 due to seasonal variations in utility costs and other factors.
Historically, Boardwalk REIT has experienced higher utility expenses
in the first quarter as a result of the winter months, which create
variations in the quarterly results.
The comparative figures for the three months ended September 30, 2004
represent the activities of Boardwalk REIT. The comparative figures
for the nine months ended September 30, 2004 represent the activities
of the Boardwalk Equities Inc. for the period from January 1, 2004 to
May 2, 2004 combined with the activities of Boardwalk REIT for the
period from May 3, 2004 to September 30, 2004. Certain comparative
figures have been reclassified to conform to the presentation of the
current period, or as a result of accounting changes.
3. ACCOUNTING CHANGES
a) ACCOUNTING POLICY CHANGES
(i) HEDGE ACCOUNTING
Beginning January 1, 2005, the Trust adopted hedge accounting in
accordance with the transitional provisions of CICA Handbook
Section 3865. Hedge accounting was applied to a bond forward
contract (see NOTE 6) entered into by the Trust to mitigate
future cash interest payments associated with our unsecured
debentures, which was completed on January 21, 2005.
(ii) CONSOLIDATION OF VARIABLE INTEREST ENTITIES
These consolidated financial statements include the accounts of
Boardwalk REIT and its wholly owned subsidiaries, as well as
variable interest entities over which it exercises control on a
basis other than ownership of voting interests in accordance with
CICA Handbook Accounting Guideline 15 (AcG-15), Consolidation of
Variable Interest Entities. All inter-company transactions have
been eliminated.
b) RECLASSIFICATION OF PROPERTIES HELD FOR RESALE
Prior to the commencement of the second quarter of 2005, certain
excess land located in the province of Saskatchewan that was
being developed and made readied for sale was classified as
"Properties Held for Resale". The Trust capitalized all direct
costs, including financing and property tax costs, net of related
revenue, associated with the land. Capitalization of costs
continued to the end of the first quarter of 2005, when the
development was substantially completed. Capitalized financing
and property tax costs totalled $0.1 million for the three months
ended March 31, 2005 ($0.4 million for the year ended
December 31, 2004).
Commencing in the second quarter of 2005, the excess land in the
amount of $8.0 million (December 31, 2004 - $7.9 million) was
reclassified as a component of revenue producing properties.
4. REVENUE PRODUCING PROPERTIES
Acquisitions
3 months 3 months 9 months 9 months
ended ended ended ended
September September September September
30, 2005 30, 2004 30, 2005 30, 2004
-----------------------------------------------
Cash paid $- $- $103,289 $22,263
Debt assumed - - 13,144 18,321
---------------------------------------------------------------------
Total purchase price $- $- $116,433 $40,584
Fair value adjustments
to debt - - (207) 1,334
---------------------------------------------------------------------
Book value $- $- $116,226 $41,918
-----------------------------------------------
-----------------------------------------------
Allocation of book value
to revenue producing
properties $- - $112,569 $40,145
Allocation of book value
to other assets $- - 3,657 1,773
---------------------------------------------------------------------
$- $- $116,226 $41,918
-----------------------------------------------
-----------------------------------------------
Units acquired - - 1,325 537
-----------------------------------------------
-----------------------------------------------
Dispositions
3 months 3 months 9 months 9 months
ended ended ended ended
September September September September
30, 2005 30, 2004 30, 2005 30, 2004
-----------------------------------------------
Cash received $- $- $9,405 $-
Cost of dispositions - - 127 -
---------------------------------------------------------------------
Total proceeds $- $- $9,532 $-
Net book value - - 8,025 -
---------------------------------------------------------------------
Gain on sale $- $- $1,507 $-
-----------------------------------------------
-----------------------------------------------
Units sold - - 186 -
-----------------------------------------------
-----------------------------------------------
5. DISCONTINUED OPERATIONS
During the first quarter of 2005, a commercial building in Calgary
was classified as discontinued operations as a result of the Trust
initiating an active program to dispose of this property. This
property is available for immediate sale and is being marketed for
sale at a price that is reasonable in relation to its current fair
value. During the second quarter of 2005, the Trust completed the
sale of a 186-unit rental property located in Edmonton, Alberta. This
rental property formed part of our Alberta segment in our segmented
information disclosure.
The following tables set forth the results of operations as well as
the assets and liabilities associated with the discontinued
operations.
3 months 3 months 9 months 9 months
ended ended ended ended
September September September September
30, 2005 30, 2004 30, 2005 30, 2004
-----------------------------------------------
Revenue
Rental income $191 $448 $1,227 $1,357
---------------------------------------------------------------------
Expenses
Revenue producing
properties:
Operating expenses 13 91 135 225
Utilities 9 129 176 327
Property taxes 24 39 92 92
Administration 10 10 41 49
Financing costs 87 194 481 584
Deferred financing cost
amortization 1 4 3 9
Amortization of capital
assets - 143 - 394
---------------------------------------------------------------------
144 610 928 1,680
-----------------------------------------------
47 (162) 299 (323)
Gain on disposition - - 1,507 -
-----------------------------------------------
Operating earnings (loss)
from discontinued
operations before
income taxes 47 (162) 1,806 (323)
Future income taxes
(recovery) - (36) 12 (69)
---------------------------------------------------------------------
Earnings (loss) from
discontinued operations $47 $(126) $1,794 $(254)
-----------------------------------------------
-----------------------------------------------
September
30, 2005
-------------
Discontinued Assets
Revenue producing properties $6,763
Other assets 342
---------------------------------------------------------------------
Total $7,105
-------------
-------------
Discontinued Liabilities
Mortgages payable $4,434
---------------------------------------------------------------------
Total $4,434
-------------
-------------
6. DEBENTURES
On January 21, 2005, Boardwalk REIT completed the issuance of
unsecured debentures in a public offering in the aggregate amount of
$120 million. The debentures are rated "BBB" with a stable trend by
Dominion Bond Rating Services, carry a coupon rate of 5.31% and will
mature on January 23, 2012. Net proceeds of approximately $119
million was be used to fund acquisitions, repay operating lines of
credit and for general trust purposes. In conjunction with the
debenture issue, the Trust also entered into a bond forward contract
to hedge the risk of interest rate fluctuations prior to the final
pricing of the debenture. The bond forward contract were settled when
the debentures were issued for the settlement amount of $0.7 million.
The settlement amount will be amortized over the term of the
unsecured debentures.
7. UNITHOLDERS' CAPITAL
The Plan of Arrangement (the "Arrangement") to convert Boardwalk
Equities Inc. from a share corporation to a real estate investment
trust was completed on May 3, 2004. On conversion of Boardwalk
Equities Inc. to a trust, $10.1 million was incurred for
restructuring costs. Under the Arrangement, the former shareholders
of Boardwalk Equities Inc. received Boardwalk REIT units or Class B
Limited Partnership ("LP Class B") units of a controlled limited
partnership of the Trust, Boardwalk REIT Limited Partnership.
The LP Class B units are non-transferable, except under certain
circumstances, but are exchangeable, on a one-for-one basis, into
Boardwalk REIT units at any time at the option of the holder. Prior
to such exchange, distributions will be made on the exchangeable
units in an amount equivalent to the distributions which would have
been made had the units of Boardwalk REIT been issued. Each LP
Class B unit was accompanied by a Special Voting unit, which will
entitle the holder to receive notice of, attend and vote at all
meetings of unitholders. There is no value assigned to the Special
Voting units. The LP Class B units issued are included in the
unitholders' capital contributions on the balance sheet. The changes
in unitholders' capital contributions are as follow:
Shares Amount
Share capital of Boardwalk Equities Inc.
at December 31, 2003 50,868,119 $275,509
Options exercised 2,345,155 28,372
----------------------------
Share capital of Boardwalk Equities Inc.
at May 2, 2004 exchanged for trust units 53,213,274 $303,881
----------------------------
Summary of Unitholders' Capital
Contributions Units Amount
Units issued in exchange for Boardwalk
Equities Inc. shares 53,213,274 $303,881
Issuance of 15,000 units for cash at
$18.00 per unit on May 3, 2004 15,000 270
Unit repurchases, recorded at book value
of units (138,400) (766)
Units issued under distribution
reinvestment plan 17,693 292
Restructuring costs - (10,174)
----------------------------
December 31, 2004 53,107,567 $293,503
Units issued under distribution
reinvestment plan 94,312 1,797
----------------------------
September 30, 2005 53,201,879 $295,300
----------------------------
----------------------------
The Declaration of Trust authorizes Boardwalk REIT to issue an
unlimited number of units for the consideration and on terms and
conditions established by the Trustees without the approval of any
unitholders. The interests in Boardwalk REIT are represented by two
classes of units: a class described and designated as "REIT Units"
and a class described and designated as "Special Voting Units". The
beneficial interest of the two classes of units is as follows:
(a) REIT Units
REIT Units represent an undivided beneficial interest in
Boardwalk REIT and in distributions made by Boardwalk REIT. The
REIT Units are freely transferable, subject to applicable
securities regulatory requirements. Each REIT Unit entitles the
holder to one vote at all meetings of unitholders. Except as set
out under the redemption rights below, the REIT Units have no
conversion, retraction, redemption or pre-emptive rights.
REIT Units are redeemable at any time, in whole or in part, on
demand by the holders. Upon receipt by Boardwalk REIT of a
written redemption notice and other documents that may be
required, all rights to and under the REIT Units tendered for
redemption shall be surrendered and the holder shall be entitled
to receive a price per REIT Unit equal to the lesser of:
i) 90% of the "market price" of the REIT Units on the principal
market on which the REIT Units are quoted for trading during
the twenty-day period ending on the trading day prior to the
day on which the REIT Units were surrendered to Boardwalk
REIT for redemption; and
ii) 100% of the "closing market price" of the REIT Units on the
principal market on which the REIT Units are quoted for
trading on the redemption date.
(b) Special Voting Units
The Declaration of Trust provides for the issuance of an unlimited
number of Special Voting Units that will be used to provide voting
rights to holders of LP Class B units or other securities that are,
directly or indirectly, exchangeable for REIT Units.
Each Special Voting Unit entitles the holder to the number of votes
at any meeting of unitholders, which is equal to the number of REIT
Units that may be obtained upon surrender of the LP Class B unit to
which the Special Voting Unit relates. The Special Voting Units do
not entitle or give any rights to the holders to receive
distributions or any amount upon liquidation, dissolution or
winding-up of Boardwalk REIT.
The breakdown of trust units of Boardwalk REIT by class is as
follows:
Units Amount
Boardwalk REIT Units 48,726,879
Special Voting Units issued to holders
of LP Class B units 4,475,000
----------------------------
Total trust units 53,201,879 $295,300
----------------------------
----------------------------
8. DISTRIBUTABLE INCOME AND PER UNIT INFORMATION
Distributable income per unit
Boardwalk REIT makes distributions to unitholders on a monthly basis
on or about the 15th day of the following month. The reconciliation
of distributable income and per unit information begins with net
earnings calculated in accordance with Canadian generally accepted
accounting principles and as defined in the Declaration of Trust for
Boardwalk REIT. However, distributable income and the per unit
information are non-GAAP measures that do not have any standardized
meaning prescribed by Canadian GAAP and, therefore, unlikely to be
comparable to similar measures presented by other real estate
companies and trusts.
9 months
ended
September
30, 2005
------------
Net earnings $3,827
Add:
Amortization of capital assets 56,165
Amortization of deferred financing costs incurred
prior to May 3, 2004 2,082
Amortization of net discount on long-term debt assumed
after May 2, 2004 5
Deduct:
Future income tax recovery (792)
Gain on disposal (1,507)
Recovery of write-down on technology business unit (739)
---------------------------------------------------------------------
Distributable income $59,041
Distribution to unitholders $50,234
---------------------------------------------------------------------
---------------------------------------------------------------------
Weighted average units outstanding - basic and diluted 53,152,242
Distributable income earned per unit $1.111
Actual distributions declared per unit $0.945
---------------------------------------------------------------------
---------------------------------------------------------------------
Earnings per unit
3 months 3 months 9 months 9 months
ended ended ended ended
September September September September
30, 2005 30, 2004 30, 2005 30, 2004
-----------------------------------------------
Numerator
Earnings (loss) from
continuing operations $2,882 $4,607 $2,033 $5,923
Earnings (loss) from
discontinued operations $47 $(126) $1,794 $(254)
---------------------------------------------------------------------
Denominator
Denominator for basic
earnings per unit -
weighted average
units (THOUSANDS) 53,190 53,100 53,152 52,632
---------------------------------------------------------------------
Effect of dilutive
units
Units issued (stock
options before May 3,
2004) in respect of
long-term incentive
plan (THOUSANDS) - - - -
Denominator for diluted
earnings per unit
adjusted for weighted
average units and
assumed conversion
(THOUSANDS) 53,190 53,100 53,152 52,632
---------------------------------------------------------------------
---------------------------------------------------------------------
Earnings (loss) per unit
from continuing
operations
Basic $0.06 $0.08 $0.04 $0.11
Diluted $0.06 $0.08 $0.04 $0.11
---------------------------------------------------------------------
Earnings (loss) per unit
from discontinued
operations
Basic $0.00 $0.00 $0.03 $0.00
Diluted $0.00 $0.00 $0.03 $0.00
---------------------------------------------------------------------
---------------------------------------------------------------------
9. INCOME TAXES
Boardwalk REIT is a "mutual fund trust" as defined under the Income
Tax Act (Canada) and accordingly is not taxable on its income to the
extent that its income is distributed to its unitholders. This
exemption does not extend to the corporate subsidiaries of Boardwalk
REIT that are subject to income tax. Total future income tax recovery
for the nine months ended September 30, 2004 combines the results of
Boardwalk Equities Inc. prior to May 3, 2004 with the results of
Boardwalk REIT subsequent to May 2, 2004. The adjustment for change
in effective tax rate reflects the reduction of the current combined
federal and provincial substantially enacted rate in the province of
Alberta.
3 months 3 months 9 months 9 months
ended ended ended ended
September September September September
30, 2005 30, 2004 30, 2005 30, 2004
-----------------------------------------------
Continuing operations $28 $(201) $(804) $(1,544)
Discontinued operations - (36) 12 (69)
---------------------------------------------------------------------
Total future income
taxes (recovery) $28 $(237) $(792) $(1,613)
-----------------------------------------------
-----------------------------------------------
Future income taxes (recovery) consist of the following:
3 months 3 months 9 months 9 months
ended ended ended ended
September September September September
30, 2005 30, 2004 30, 2005 30, 2004
-----------------------------------------------
Tax (recovery) expense
based on expected rate $(25) $(237) $(164) $(36)
Adjustment to future
income tax liabilities 53 - (548) (26)
Adjustment for change
in effective tax rate - - (80) (1,551)
---------------------------------------------------------------------
Future income taxes
(recovery) $28 $(237) $(792) $(1,613)
-----------------------------------------------
-----------------------------------------------
The future income tax asset (liability) is calculated as follows:
As at September 30, December 31,
2005 2004
------------------------------
Tax assets related to operating losses $1,089 $1,034
Tax liabilities related to differences
in tax and book basis 249 (487)
---------------------------------------------------------------------
Future income tax asset (liability) 1,338 $547
------------------------------
------------------------------
10. COMMITMENTS AND CONTINGENCIES
At September 30, 2005, the Trust had long-term supply arrangements
with two electrical utility companies to supply the Trust with its
electrical power needs for Alberta for the next three to fifteen
months at a blended rate of approximately $0.066/kwh. These
agreements provide that the Trust purchase its power for all Alberta
properties under contract for the upcoming months.
In Saskatchewan, the Trust has a physical supply agreement to supply
100% of the Trust's natural gas requirements for that province. The
agreement extends until October 31, 2005 at a fixed price of
$5.20/GJ.
While the above utility contracts for both electrical power and
natural gas reduce the risk of exposure to adverse changes in
commodity prices, they also reduce the potential benefits of
favourable changes in commodity prices. For accounting purposes, all
settlements are recorded as utility expense in the period the
settlement occurs.
Beginning in November 2003, the Alberta government implemented a
natural gas rebate program covering the winter usage months of
November through March. In October 2005, the Alberta government
modified the natural gas rebate program to include the month of
October 2005. This program will be in effect for a remaining
six-month term ending March 31, 2006. The rebate program becomes
active when the natural gas consumer price exceeds $5.50/GJ for any
individual winter usage month. For January to March 2005, Boardwalk
REIT was eligible for rebates totalling approximately $0.6 million.
For January to March 2004, Boardwalk REIT's predecessor was eligible
for rebates totalling approximately $0.8 million.
Boardwalk REIT, in the normal course of operations, will become
subject to a variety of legal and other claims against the Trust.
Management and the Trust's legal counsel evaluate all claims on their
apparent merits, and accrue management's best estimate of the
estimated costs to satisfy such claims. Management believes that the
outcome of legal and other claims filed against the Trust or its
predecessor will not be material to Boardwalk REIT.
11. GUARANTEES
In the normal course of business, various agreements may be entered
that may contain features that meet the AcG-14 definition of a
guarantee. AcG-14 defines a guarantee to be a contract (including an
indemnity) that contingently requires an entity to make payments to
the guaranteed party based on (i) changes in an underlying interest
rate, foreign exchange rate, equity or commodity instrument, index or
other variable, that is related to an asset, a liability or an equity
security of the counterparty, (ii) failure of another party to
perform under an obligating agreement or (iii) failure of a third
party to pay its indebtedness when due.
In connection with the sales of properties, a mortgage assumed by the
purchaser will have an indirect guarantee provided to the lender
until the mortgage is refinanced by the purchaser. In the event of
default by the purchaser, the seller would be liable for the
outstanding mortgage balance. Boardwalk REIT's maximum exposure at
September 30, 2005 is approximately $5.7 million. In the event of
default, Boardwalk REIT's recourse for recovery includes the sale of
the respective building asset. Boardwalk REIT expects that the
proceeds from the sale of the building asset will cover, and in most
likelihood exceed, the maximum potential liability associated with
the amount being guaranteed. Therefore, at September 30, 2005, no
amounts have been recorded in the consolidated financial statements
with respect to the above noted indirect guarantees.
12. SEGMENTED INFORMATION
Boardwalk REIT specializes in multi-family residential housing and
operates primarily within one business segment in five provinces
located in Canada. The following summary presents segmented financial
information for Boardwalk REIT's business by geographic location. The
comparative nine-month figures represent the activities of Boardwalk
Equities Inc. for the period from January 1, 2004 to May 2, 2004
combined with the activities of Boardwalk REIT for the period from
May 3, 2004 to September 30, 2004.
3 months 3 months 9 months 9 months
ended ended ended ended
September September September September
30, 2005 30, 2004 30, 2005 30, 2004
-----------------------------------------------
Alberta
Revenue $39,524 $38,025 $117,330 $112,967
-----------------------------------------------
Expenses
Operating 4,471 4,084 14,441 13,278
Utilities 3,709 3,092 14,266 13,674
Utility rebates - - (629) (812)
Property taxes 3,438 3,860 9,991 9,227
---------------------------------------------------------------------
11,618 11,036 38,069 35,367
-----------------------------------------------
Net operating income $27,906 $26,989 $79,261 $77,600
-----------------------------------------------
Saskatchewan
Revenue $8,674 $8,553 $25,756 $25,663
-----------------------------------------------
Expenses
Operating 1,002 998 3,478 3,246
Utilities 670 568 3,101 3,355
Property taxes 1,210 1,103 3,712 3,338
---------------------------------------------------------------------
2,882 2,669 10,291 9,939
-----------------------------------------------
Net operating income $5,792 $5,884 $15,465 $15,724
-----------------------------------------------
Ontario
Revenue $9,198 $8,959 $27,653 $26,824
-----------------------------------------------
Expenses
Operating 1,112 985 3,661 3,159
Utilities 1,264 1,242 4,721 4,650
Property taxes 1,687 1,518 5,013 4,465
---------------------------------------------------------------------
4,063 3,745 13,395 12,274
-----------------------------------------------
Net operating income $5,135 $5,214 $14,258 $14,550
-----------------------------------------------
British Columbia
Revenue $1,514 $- $2,415 $-
-----------------------------------------------
Expenses
Operating 108 - 298 -
Utilities 152 - 213 -
Property taxes 163 - 88 -
-----------------------------------------------
423 - 599 -
-----------------------------------------------
Net operating income $1,091 $- $1,816 $-
-----------------------------------------------
Quebec
Revenue $16,159 $15,065 $47,890 $43,524
-----------------------------------------------
Expenses
Operating 1,947 1,638 5,417 4,500
Utilities 1,185 865 5,464 5,076
Property taxes 1,756 1,668 5,253 4,561
---------------------------------------------------------------------
4,888 4,171 16,134 14,137
-----------------------------------------------
Net operating income $11,271 $10,894 $31,756 $29,387
-----------------------------------------------
Total
Net operating income $51,195 $48,981 $143,648 $137,261
Unallocated revenue(x) 327 198 11,292 753
Unallocated
expenses(xx) (48,593) (44,698) (151,113) (132,345)
---------------------------------------------------------------------
Net earnings for the
period $2,929 $4,481 $3,827 $5,669
-----------------------------------------------
-----------------------------------------------
As at September 30, December 31,
2005 2004
------------------------------
Alberta
Identifiable assets
Revenue producing properties $952,823 $939,735
Mortgages and accounts receivable 976 297
Deferred financing costs 26,313 24,392
Tenants' security deposit 5,576 5,243
------------------------------
$985,688 $969,667
------------------------------
Saskatchewan
Identifiable assets
Revenue producing properties $177,333 $181,230
Mortgages and accounts receivable 96 102
Deferred financing costs 4,346 4,467
Tenants' security deposits 1,338 1,216
------------------------------
$183,113 $187,015
------------------------------
Ontario
Identifiable assets
Revenue producing properties $214,719 $218,740
Mortgages and accounts receivable 166 246
Deferred financing costs 3,577 3,329
------------------------------
$218,462 $222,315
------------------------------
British Columbia
Identifiable assets
Revenue producing properties $61,755 $-
Mortgages and accounts receivable 8 -
Tenants' security deposits 256 -
------------------------------
$62,019 $-
------------------------------
Quebec
Identifiable assets
Revenue producing properties $396,889 $389,866
Mortgages and accounts receivable 4,805 4,465
Deferred financing costs 6,032 5,417
------------------------------
$407,726 $399,748
------------------------------
Total assets
Identifiable assets $1,857,008 $1,778,745
Unallocated assets(xxx) 41,784 30,394
------------------------------
$1,898,792 $1,809,139
------------------------------
------------------------------
(x) Unallocated revenue includes property sales, interest income,
revenue from discontinued operations and other non-rental income.
(xx) Unallocated expenses include cost of property sales, operating
expenses from discontinued operations, non-rental operating
expenses, administration, financing costs, amortization, income
taxes and other provisions.
(xxx) Unallocated assets include discontinued assets, cash, short-term
investments and other assets.
For further information please contact:
Boardwalk REIT
Sam Kolias,
President and CEO,
(403) 531-9255;
Roberto Geremia,
Senior Vice President, Finance
and Chief Financial Officer,
(403) 531-9255;
Paul Moon,
Director of Corporate Communications,
(403) 531-9255.
