TSX SYMBOL: BEI.UN August 10, 2006
Boardwalk REIT Announces Solid Second Quarter 2006 Financial Results,
FFO Per Unit Up 14.3%
Over Same Period Last Year, and Further Upward Revision in Guidance.
DOWNLOAD Q2-2006 August 10, 2006 PRESS RELEASE (Printer Friendly PDF File - 84 Kb)
SUPPLEMENTAL NOTES - Q2-2006 (Printer Friendly PDF File - 429 Kb)
CALGARY, Aug. 10 /CNW/ - Boardwalk Real Estate Investment Trust
("Boardwalk REIT" or the "Trust") today announced solid financial results for
the second quarter of 2006, FFO per unit up 14.3% over the same period last
year, and a further upward revision in guidance.
For the second quarter ended June 30, 2006, the Trust reported Funds From
Operations ("FFO") of $22.2 million and FFO per unit of $0.40 on a diluted
basis, compared to FFO of $18.7 million and FFO per unit of $0.35 for the same
period last year. Distributable income ("DI") for the quarter was
$22.7 million and DI per unit was $0.40 on a diluted basis, compared to
$19.4 million and $0.37 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,
it is a non-GAAP measure. 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
expenses 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 Second Quarter 2006 Financial Results include:
- Rental revenues of $78.7 million, an increase of 6.2% compared to
$74.1 million for the three-month period ended June 30, 2005.
- Net operating income (NOI) of $47.5 million, representing a 8.2%
increase from $43.9 million in the same period last year.
- Funds from operations (FFO) of $22.2 million, an increase of 18.8%
compared to $18.7 million for the three-month period ended June 30,
2005.
- FFO per unit was $0.40 on a diluted basis, up 14.3% compared to $0.35
in the same period last year.
- Distributable Income (DI) was $0.40 per unit, up 8.1% from $0.37 for
the three months ended June 30, 2005
>>
Commenting on the Trust's Q2 2006 results, Sam Kolias, President and
C.E.O., said
"We are pleased to report another strong second quarter for our Trust.
Though expenses are up approximately 3% over last year, operating margins grew
as revenues increased on an accelerated basis. As anticipated, rental market
fundamentals continued to improve, particularly in the Alberta markets.
Vacancy decreased, incentives have been virtually eliminated, and the market
is bearing increased capacity for rental increases, all of which are
significantly contributing to improvement in our overall revenue."
"Alberta's significant net in-migration continues to place upward
pressure on the rental market, resulting in a year over year drop in vacancy
in each of our markets in the province. Across our Alberta market, which makes
up in excess of 50% of our entire portfolio, average market rents increased by
more than $200 during the first half of 2006. Today's strong rental market
allows the Trust to make up ground lost to a weak rental market between 2001
and 2005. Though rental rate increases have been substantial of late, we are
only now catching up in terms of operating expenses that have continued to
increase over the last several years."
"At all times, we remember that our customers are the cornerstone of our
business. We are committed to pursuing a balance between profitability and
customer relationship. Developing long-term, positive associations with our
customers ensures corporate sustainability into the future. While we are
certainly pleased to benefit from the Alberta market's increased rental rate
capacity, we stand by our internal, customer-focused rental rate policies.
However, given that approximately 50% of our suites turn over each year and
new leases are signed at market rents, revenues are on a solid foundation for
continued growth."
"This quarter's positive results can be attributed to our superior
operating platform; our on-going focus on developing a nationally diversified,
sustainable portfolio; and the continued strength and improvement in many of
our major rental markets across the country. Our diversification into 17
markets in five provinces underlines our long-sighted and sustainability
focused strategic plan. Currently, our Alberta markets are providing the bulk
of our strong performance due to the exceptionally positive rental
fundamentals in Alberta. However, the remaining 49% of our units, which
continue to perform as per our expectations, are equally important to the long
term viability of the Trust, as they provide necessary diversification and
market resiliency."
Operational Highlights
The average vacancy rate across the Trust's portfolio for the second
quarter of 2006 was 3.87%, down from 4.17% in the first quarter of 2006, and
down from 5.04% for the second quarter of 2005.
The average monthly rent realized in the second quarter of 2006 was $776
per rental unit, up $27 from $749 per rental unit for the same period last
year. The average market rent for the Trust's properties at the end of June
2006, was an estimated $926 per rental unit per month, which compares to an
average in-place monthly rent per occupied unit of $810 for the three-month
period ended June 30, 2006. This translates to an estimated 'loss-to-lease' as
at June 30, 2006 of approximately $43.1 million on an annualized basis, given
existing occupancy levels.
More detail on our operations can be found in our conference call
presentation posted on our web site at
www.boardwalkreit.com/FinancialReports/r2006/. The conference call audio for
this presentation is found on our web site at
http://investor.bwalk.com/PressReleases/p2006/pr060511.asp
Same-Property Results
Boardwalk continued to show solid performance in its stabilized
properties (defined as properties owned for over 24 months). The "same-
property" results for the Trust's stabilized portfolio for the three-month
period ended June 30, 2006 had rental revenue growth of 3.8%. Operating
expenses increased 2.9% over the year prior, resulting in a NOI increase of
4.3% compared to the period prior. For the six-month period ending June 30,
2006, same property rental revenues increased 3.2%, while same property NOI
increased 5.1%. A total of 31,921 units, representing approximately 94% of
Boardwalk's total portfolio, were classified as stabilized as of June 30,
2006.
<<
Same-Property Results - Stabilized Portfolio
Rental Rental
3 Months revenue expenses NOI % of NOI
Calgary 7.3% 0.5% 11.0% 19%
Edmonton 5.0% -2.2% 9.6% 34%
Other Alberta 9.2% -4.9% 17.1% 6%
Saskatchewan 2.1% 10.7% -4.5% 10%
Ontario 2.0% 1.5% 2.4% 11%
Quebec -0.1% 9.9% -6.1% 20%
------------------------------------------------
3.8% 2.9% 4.3% 100%
------------------------------------------------
------------------------------------------------
Rental Rental
6 Months revenue expenses NOI % of NOI
Calgary 6.3% -5.3% 12.6% 19%
Edmonton 4.1% -2.6% 8.6% 34%
Other Alberta 8.9% -7.0% 19.0% 6%
Saskatchewan 1.9% 2.3% 1.6% 11%
Ontario 1.7% -1.1% 5.0% 10%
Quebec 0.0% 11.0% -7.6% 20%
------------------------------------------------
3.2% 0.7% 5.1% 100%
------------------------------------------------
------------------------------------------------
>>
Commenting on Boardwalk's same-property results, President and CEO, Sam
Kolias, said,
"In the second quarter, we were pleased to see revenue growth
accelerating more quickly than expense increases on a same store basis for the
third straight quarter."
Acquisition/Disposition Activity
No new acquisitions or dispositions were announced in the second quarter
of 2006. Previously announced acquisions in the first quarter of 2006
consisted of 840 rental units in the provinces of Quebec, Alberta and British
Columbia for a total combined purchase price of $60.05 million. These
acquisitions had, in aggregate, a going-in cap rate of 6.86%. The acquisition
of 560 of the announced units was completed in the first quarter of the year,
while the purchase of the remaining 280 units closed midway through the second
quarter, with details as follows:
<<
- Sturgeon Point Villas, a 280 suite portfolio in St. Albert (Edmonton),
Alberta, was purchased for an aggregate of $18,500,000, which
represents $66,071 per residential unit, or $65 per sq. ft. The
transaction has a first year cap rate of 7.0%. The project has a
total rentable square footage of 284,953 sq. ft, which equates to a
sizeable, 1,018 sq. ft. average per residential unit. The portfolio
consists of one four-storey, wood-frame walkup building constructed in
1978. The property is situated along the Sturgeon River
>>
Previously announced disposition activity in the first half of 2006
occurred in the first quarter of the year. The sale involved two multi-family
residential properties consisting of 194 units sold for $20.7 million in
total. Further details on the Trust's acquisition and disposition activities
can be found in the supplemental information package available on Boardwalk
REIT's website, located at www.boardwalkreit.com.
Commenting on the Trust's property acquisitions and dispositions, Bill
Chidley, Senior Vice President, Corporate Development, said:
"Though no new acquisitions were announced during the second quarter of
2006, the acquisitions completed during the first and second quarters added
quality assets in traditionally strong rental markets to our overall
portfolio. We remain on track with our guidance of acquiring 1,000 - 2,000 new
units during 2006."
"The acquisition market for multi-family rentals in Canada continues to
be a highly competitive 'seller's market'. We are in discussion on a number of
possible acquisitions; however, we cannot be certain of closing on any of
these transactions. While market forces are making acquisitions more
difficult, Cap Rate compression continues to positively impact our portfolio's
overall value. This compression is expected to continue, further increasing
our portfolio's value as we look forward."
Continued Financial Strength
The Trust built upon its solid financial position in the second quarter
of 2006. Boardwalk's total mortgage debt was $1.41 billion as of June 30,
2006, equal to the amount owing March 31, 2006, but down from $1.42 billion at
December 31, 2005. As of June 30, 2006, the Trust's debt had an average term
maturity of 3.5 years with a weighted average interest rate of 5.35%, and the
Trust's debt-to-total-market capitalization ratio was 51.5%.
For the second quarter of 2006, Boardwalk REIT's overall interest
coverage ratio of adjusted EBITDA (i.e. earnings before interest, taxes,
depreciation and amortization) to interest expense after excluding gains was
2.13 as compared to 1.92 for the same period last year. During the second
quarter of 2006, Boardwalk successfully completed approximately $9.5 million
in mortgage refinancings and renewals.
Outlook and 2006 Earnings Guidance
Commenting on the outlook for the Trust, Rob Geremia, Senior Vice
President, Finance and CFO, said "Our fiscal 2006 guidance for FFO has been
revised from the initial guidance of $1.37 - $1.46 to $1.45 - $1.52. Our
fiscal 2006 guidance for Distributable Income has been similarly increased
from the initial guidance of $1.41 - $1.51 to $1.48 - $1.55. In the first
quarter of 2006, the Trust felt that given the reported strength of the
Alberta market, it would be reasonable to increase guidance from the amount
originally estimated. A similar analysis was performed in the second quarter
and the Trust has again increased guidance due to a stronger than expected
Alberta market. We have increased our estimated stabilized NOI growth to 3.0%,
up from the previously forecasted expectation of 0.00% as at December 31,
2005, and 2.00% as at March 31, 2006. These forecasts are further based on the
expectation of new property acquisitions of between 1,000 to 2,000 new
residential units for the year. The Trust reviews guidance every quarter and
provides the following year's guidance in the third quarter."
Supplementary Information
Boardwalk produces Quarterly Supplemental Information that provides
detailed information regarding the Trust's activities during the quarter. The
Second Quarter 2006 Supplemental Information is available on our investor
website at www.boardwalkreit.com.
Teleconference on First Quarter Financial Results
We invite you to participate in the teleconference that will be held to
discuss these results this same morning at 11:00 am EST. Senior management
will speak to the second quarter financial results and provide a corporate
update. Presentation materials will be made available on our investor website
at 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:
416-644- 3418 (within Toronto) or toll-free 1-800-814-4861 (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
www.newswire.ca/en/webcast/viewEvent.cgi?eventID=1527240
Replay: An audio recording of the teleconference will be available from
1:00 pm ET on Thursday, August 10, 2006 until 11:59 pm ET on Thursday,
August 17, 2006. You can access it by dialing 416-640-1917 and using the
passcode 21195786 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 an open-ended real estate investment trust formed to
acquire all of the assets and undertakings of Boardwalk Equities Inc.
Boardwalk REIT's principal objectives are to provide its unitholders with
monthly cash distributions, partially on a Canadian income tax-deferred basis,
and to increase the value of its units through the effective management of its
residential multi-family revenue producing properties and the acquisition of
additional properties. Boardwalk REIT currently owns and operates in excess of
260 properties with over 33,900 units totalling approximately 28 million net
rentable square feet, and is Canada's largest owner/operator of multifamily
rental communities. Boardwalk REIT's portfolio is concentrated in the
provinces of Alberta, British Columbia, Saskatchewan, Ontario and Quebec.
CAUTIONARY STATEMENTS REGARDING FORWARD-LOOKING STATEMENTS
This news release contains forward-looking statements relating to our
operations and the environment in which we operate, which are based on our
expectations, estimates, forecast and projections, which we believe are
reasonable as of the current date. These statements are not guarantees of
future performance and involve risks and uncertainties that are difficult to
control or predict. For more exhaustive information on these risks and
uncertainties you should refer to our most recently filed annual information
form which is available at www.sedar.com. Actual outcomes and results may
differ materially from those expressed in these forward-looking statements.
Readers, therefore, should not place undue reliance on any such forward-
looking statements. Further, a forward-looking statement speaks only as of the
date on which such statement is made and should not be relied upon as of any
other date. While we may elect to, we undertake no obligation to publicly
update any such statement to reflect new information or the occurrence of
future events or circumstances at any particular time.
<<
CONSOLIDATED BALANCE SHEETS
(CDN$ THOUSANDS)
As at June 30, December 31,
2006 2005
---------------------------
(Unaudited) (Audited)
Assets
Revenue producing properties (NOTE 3) $ 1,830,726 $ 1,787,878
Deferred financing costs 43,228 43,029
Other assets (NOTE 4) 13,935 11,328
Future income taxes (NOTE 9) 1,154 929
Mortgages and accounts receivable 6,591 9,039
Segregated tenants' security deposits 8,661 7,280
Cash and cash equivalents 7,540 11,145
Discontinued operations (NOTE 5) - 12,758
-------------------------------------------------------------------------
$ 1,911,835 $ 1,883,386
---------------------------
---------------------------
Liabilities
Mortgages payable $ 1,411,637 $ 1,415,400
Debentures (NOTE 6) 120,000 120,000
Accounts payable and accrued liabilities 29,894 32,196
Refundable tenants' security deposits and other 12,057 10,486
Discontinued operations (NOTE 5) - 9,562
-------------------------------------------------------------------------
$ 1,573,588 $ 1,587,644
---------------------------
Unitholders' Equity
Unitholders' equity $ 338,247 $ 295,742
-------------------------------------------------------------------------
$ 1,911,835 $ 1,883,386
---------------------------
---------------------------
SEE ACCOMPANYING NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATED STATEMENTS OF EARNINGS
(CDN$ THOUSANDS, EXCEPT PER UNIT AMOUNTS)
3 months 3 months 6 months 6 months
ended ended ended ended
June 30, June 30, June 30, June 30,
2006 2005 2006 2005
-----------------------------------------------
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
Revenue
Rental income $ 78,738 $ 74,140 $ 155,241 $ 146,956
-----------------------------------------------
Expenses
Revenue producing
properties:
Operating expenses 14,289 13,268 28,162 26,182
Utilities 9,128 8,941 21,953 21,047
Utility rebate (NOTE 10) (6) 20 (1,397) (617)
Property taxes 7,861 8,034 16,195 15,919
Administration 4,453 3,818 8,859 7,045
Financing costs 20,199 20,788 40,602 40,899
Deferred financing
costs amortization 693 931 1,469 1,855
Amortization of capital
assets 18,295 18,689 35,829 37,113
-------------------------------------------------------------------------
74,912 74,489 151,671 149,443
-----------------------------------------------
3,826 (349) 3,570 (2,487)
Recovery of write-down
on technology business
unit - (739) - (739)
-------------------------------------------------------------------------
Earnings (loss) from
continuing operations
before income taxes 3,826 390 3,570 (1,748)
Large corporations taxes (141) (126) 8 119
Future income taxes
(recovery)(NOTE 9) (122) (744) (224) (832)
-------------------------------------------------------------------------
Earnings (loss) from
continuing operations 4,089 1,260 3,786 (1,035)
Earnings (loss) from
discontinued operations,
net of tax (NOTE 5) (28) 1,669 7,572 1,933
-------------------------------------------------------------------------
Net earnings $ 4,061 $ 2,929 $ 11,358 $ 898
-----------------------------------------------
-----------------------------------------------
Basic earnings (loss)
per unit (NOTE 8)
- from continuing
operations $ 0.07 $ 0.02 $ 0.07 $ (0.02)
- from discontinued
operations 0.00 0.04 0.14 0.04
-------------------------------------------------------------------------
Basic earnings per unit $ 0.07 $ 0.06 $ 0.21 $ 0.02
-----------------------------------------------
-----------------------------------------------
Diluted earnings (loss)
per unit (NOTE 8)
- from continuing
operations $ 0.07 $ 0.02 $ 0.07 $ (0.02)
- from discontinued
operations 0.00 0.04 0.14 0.04
-------------------------------------------------------------------------
Diluted earnings per unit $ 0.07 $ 0.06 $ 0.21 $ 0.02
-----------------------------------------------
-----------------------------------------------
SEE ACCOMPANYING NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATED STATEMENTS OF UNITHOLDERS' EQUITY
(CDN$ THOUSANDS, EXCEPT NUMBER OF UNITS)
6 months 6 months
ended ended
June 30, June 30,
2006 2005
---------------------------
(Unaudited) (Unaudited)
Trust units (NOTE 7)
Balance, beginning of period $ 295,696 $ 293,503
Unit issue proceeds under equity
financing, net 63,594 -
Unit issue proceeds under distribution
reinvestment plan 2,485 1,197
Restructuring costs (141) 35
-------------------------------------------------------------------------
Balance, end of period $ 361,634 $ 294,735
---------------------------
Cumulative earnings
Balance, beginning of period $ 129,530 $ 124,498
Net earnings 11,358 898
-------------------------------------------------------------------------
Balance, end of period $ 140,888 $ 125,396
---------------------------
Cumulative distributions to unitholders
Balance, beginning of period $ (129,483) $ (62,485)
Distributions declared to unitholders (NOTE 8) (34,792) (33,477)
-------------------------------------------------------------------------
Balance, end of period $ (164,275) $ (95,962)
---------------------------
Total unitholders' equity $ 338,247 $ 324,169
---------------------------
---------------------------
Units issued and outstanding (NOTE 7) 56,248,349 53,172,429
---------------------------
---------------------------
SEE ACCOMPANYING NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATED STATEMENTS OF CASH FLOWS
(CDN$ THOUSANDS)
3 months 3 months 6 months 6 months
ended ended ended ended
June 30, June 30, June 30, June 30,
2006 2005 2006 2005
-----------------------------------------------
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
Operating activities
Net earnings $ 4,061 $ 2,929 $ 11,358 $ 898
Loss (earnings) from
discontinued
operations, net of tax 28 (1,669) (7,572) (1,933)
Future income taxes
(recovery) (122) (744) (224) (832)
Amortization of capital
assets 18,295 18,689 35,829 37,113
Recovery of write-down
on technology business
unit - (739) - (739)
-------------------------------------------------------------------------
Funds from continuing
operations 22,262 18,466 39,391 34,507
Funds from discontinued
operations (28) 248 45 664
Net change in operating
working capital (857) (1,500) (1,705) 3,149
-------------------------------------------------------------------------
Total operating cash
flows 21,377 17,214 37,731 38,320
-----------------------------------------------
Financing activities
Issue of trust units
(net of issue
costs) (NOTE 7) 1,509 840 66,079 1,197
Restructuring costs (29) (46) (141) 35
Distributions paid (17,705) (16,744) (34,474) (33,481)
Issue of debentures
(NOTE 6) - - - 120,000
Financing of revenue
producing properties 9,458 66,494 12,746 112,962
Repayment of debt on
revenue producing
properties (7,850) (76,430) (25,626) (106,244)
Capital lease
obligations - (21) - (84)
Deferred financing costs
incurred (net of
amortization) (413) (1,736) (199) (4,561)
-------------------------------------------------------------------------
(15,030) (27,643) 18,385 89,824
-----------------------------------------------
Investing activities
Purchases of revenue
producing properties
(NOTE 3) (18,500) - (60,795) (103,289)
Improvements to
revenue producing
properties (11,593) (6,233) (18,572) (12,313)
Net cash proceeds
from sale of properties - 9,405 20,274 9,405
Additions to corporate
technology assets (321) (537) (628) (932)
-------------------------------------------------------------------------
(30,414) 2,635 (59,721) (107,129)
-----------------------------------------------
Net increase (decrease)
in cash and cash
equivalents balance (24,067) (7,794) (3,605) 21,015
Cash and cash equivalents
(bank indebtedness),
beginning of period 31,607 26,086 11,145 (2,723)
-------------------------------------------------------------------------
Cash and cash equivalents,
end of period $ 7,540 $ 18,292 $ 7,540 $ 18,292
-----------------------------------------------
-----------------------------------------------
Supplementary cash flow
information:
Capital taxes paid $ 140 $ 668 $ 350 $ 658
Interest paid $ 18,668 $ 19,341 $ 40,658 $ 38,343
-----------------------------------------------
-----------------------------------------------
SEE ACCOMPANYING NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Three and six months ended June 30, 2006
(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 and May 10, 2006,
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 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, 2005. 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 six
months ended June 30, 2006 are not necessarily indicative of the
results that may be expected for the full year ending December 31,
2006 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.
Certain comparative figures have been reclassified to conform to the
presentation of the current period, or as a result of accounting
changes.
3. REVENUE PRODUCING PROPERTIES
Acquisitions
3 months 3 months 6 months 6 months
ended ended ended ended
June 30, June 30, June 30, June 30,
2006 2005 2006 2005
--------------------------------------------
Cash paid $ 18,500 $ - $ 60,795 $ 103,289
Debt assumed - - - 13,144
---------------------------------------------------------------------
Total purchase price 18,500 - 60,795 116,433
Fair value adjustments
to debt - - - (207)
---------------------------------------------------------------------
Book value $ 18,500 $ - $ 60,795 $ 116,226
--------------------------------------------
--------------------------------------------
Allocation of book
value to revenue
producing properties $ 17,797 $ - $ 58,562 $ 112,569
Allocation of book value
to other assets 703 - 2,233 3,657
---------------------------------------------------------------------
$ 18,500 $ - $ 60,795 $ 116,226
--------------------------------------------
--------------------------------------------
Multi-family units
acquired 280 - 840 1,325
--------------------------------------------
--------------------------------------------
Dispositions
3 months 3 months 6 months 6 months
ended ended ended ended
June 30, June 30, June 30, June 30,
2006 2005 2006 2005
--------------------------------------------
Cash received $ - $ 9,405 $ 20,274 $ 9,405
Cost of dispositions - 127 426 127
---------------------------------------------------------------------
Total proceeds - 9,532 20,700 9,532
Net book value - 8,025 13,173 8,025
---------------------------------------------------------------------
Gain on dispositions $ - $ 1,507 $ 7,527 $ 1,507
--------------------------------------------
--------------------------------------------
Multi-family units sold - 186 194 186
--------------------------------------------
--------------------------------------------
4. OTHER ASSETS
As at June 30, December 31,
2006 2005
---------------------------
Corporate technology assets
(net of amortization) $ 3,460 $ 3,502
Head office building (net of amortization) 2,304 2,350
Deposits on potential property acquisitions 100 200
Prepaid parts and supplies 1,763 2,037
Lease goodwill and customer relationship
intangibles, net of accumulated
amortization 1,716 125
Prepaid and other 4,592 3,114
---------------------------------------------------------------------
$ 13,935 $ 11,328
---------------------------
---------------------------
Accumulated amortization for corporate technology assets and head
office building at June 30, 2006 were $11.4 million and $0.9 million
respectively. (December 31, 2005 - $10.8 million and $0.8 million,
respectively).
5. DISCONTINUED OPERATIONS
During the first quarter of 2006, the Trust completed the sale of a
156-unit and a 38-unit rental property, both located in Calgary,
Alberta. These two properties 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 6 months 6 months
ended ended ended ended
June 30, June 30, June 30, June 30,
2006 2005 2006 2005
--------------------------------------------
Revenue
Rental income $ - $ 981 $ 219 $ 1,964
---------------------------------------------------------------------
Expenses
Revenue producing
properties:
Operating expenses 19 121 80 236
Utilities 9 113 34 262
Utility rebate - (13) (3) (13)
Property taxes - 77 28 138
Administration - 28 8 53
Financing costs - 403 27 614
Deferred financing
cost amortization - 4 - 10
Amortization of
capital assets - 113 - 226
---------------------------------------------------------------------
28 846 174 1,526
--------------------------------------------
(28) 135 45 438
Gain on dispositions
(NOTE 3) - 1,507 7,527 1,507
--------------------------------------------
Operating earnings (loss)
from discontinued
operations before
income taxes (28) 1,642 7,572 1,945
Future income taxes
(recovery) - (27) - 12
---------------------------------------------------------------------
Earnings (loss) from
discontinued operations $ (28) $ 1,669 $ 7,572 $1,933
--------------------------------------------
--------------------------------------------
June 30, December 31,
2006 2005
---------------------------
Discontinued Assets
Revenue producing properties $ - $ 12,490
Other assets - 268
---------------------------------------------------------------------
Total $ - $ 12,758
---------------------------
---------------------------
Discontinued Liabilities
Mortgages payable $ - $ 9,562
---------------------------------------------------------------------
Total $ - $ 9,562
---------------------------
---------------------------
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 was 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, $10.3 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 contribution are as follow:
Summary of Unitholders' Capital
Contributions Units Amount
December 31, 2004 53,107,567 $ 293,503
Units issued under distribution
reinvestment plan 116,627 2,202
Restructuring costs - (9)
---------------------------
December 31, 2005 53,224,194 $ 295,696
Units issued under equity financing 2,915,000 63,594
Units issued under distribution
reinvestment plan 109,155 2,485
Restructuring costs - (141)
---------------------------
June 30, 2006 56,248,349 $ 361,634
---------------------------
---------------------------
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 51,773,349
Special Voting Units issued to holders
of LP Class B units 4,475,000
---------------------------
Total trust units 56,248,349 $ 361,634
---------------------------
---------------------------
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 reported
distributable income is defined under the Trust's Declaration of
Trust ("DOT"). Under this current DOT, the Trust is required to
distribute, at a minimum, its reported taxable income. 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.
3 months 3 months 6 months 6 months
ended ended ended ended
June 30, June 30, June 30, June 30,
2006 2005 2006 2005
--------------------------------------------
Net earnings $ 4,061 $ 2,929 $ 11,358 $ 898
Add:
Amortization of capital
assets 18,295 18,802 35,829 37,339
Amortization of deferred
financing costs
incurred prior to
May 3, 2004 452 686 963 1,549
Amortization of net
discount on long-term
debt assumed after
May 2, 2004 (11) 4 (23) 1
Deduct:
Gain on disposition
(NOTE 3) - (1,507) (7,527) (1,507)
Future income taxes
(recovery) (NOTE 9) (122) (771) (224) (820)
Amortization of net
premium on long-term
debt assumed after
May 2, 2004
Recovery of write-down
on technology business
unit - (739) - (739)
---------------------------------------------------------------------
Distributable income $ 22,675 $ 19,404 $ 40,376 $ 36,721
Distribution declared to
unitholders $ 17,712 $ 16,744 $ 34,792 $ 33,477
---------------------------------------------------------------------
---------------------------------------------------------------------
Weighted average units
outstanding - basic
and diluted 56,217,368 53,149,528 54,771,413 53,133,122
Distributable income
earned per unit $ 0.403 $ 0.365 $ 0.737 $ 0.691
Actual distributions
declared per unit $ 0.315 $ 0.315 $ 0.630 $ 0.630
---------------------------------------------------------------------
---------------------------------------------------------------------
Earnings per unit
3 months 3 months 6 months 6 months
ended ended ended ended
June 30, June 30, June 30, June 30,
2006 2005 2006 2005
--------------------------------------------
Numerator
Earnings (loss) from
continuing operations $ 4,089 $ 1,260 $ 3,786 $ (1,035)
Earnings (loss) from
discontinued
operations $ (28) $ 1,669 $ 7,572 $ 1,933
---------------------------------------------------------------------
Denominator
Denominator for basic
earnings per unit
- weighted average
units (THOUSANDS) 56,217 53,150 54,771 53,133
---------------------------------------------------------------------
Denominator for diluted
earnings per unit
adjusted for weighted
average units and
assumed conversion
(THOUSANDS) 56,217 53,150 54,771 53,133
---------------------------------------------------------------------
---------------------------------------------------------------------
Earnings (loss) per unit
from continuing operations
Basic $ 0.07 $ 0.02 $ 0.07 $ (0.02)
Diluted $ 0.07 $ 0.02 $ 0.07 $ (0.02)
---------------------------------------------------------------------
Earnings per unit from
discontinued operations
Basic $ 0.00 $ 0.04 $ 0.14 $ 0.04
Diluted $ 0.00 $ 0.04 $ 0.14 $ 0.04
---------------------------------------------------------------------
---------------------------------------------------------------------
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.
3 months 3 months 6 months 6 months
ended ended ended ended
June 30, June 30, June 30, June 30,
2006 2005 2006 2005
--------------------------------------------
Continuing operations $ (122) $ (744) $ (224) $ (832)
Discontinued operations - (27) - 12
---------------------------------------------------------------------
Total future income
taxes (recovery) $ (122) $ (771) $ (224) $ (820)
--------------------------------------------
--------------------------------------------
Future income taxes (recovery) consist of the following:
3 months 3 months 6 months 6 months
ended ended ended ended
June 30, June 30, June 30, June 30,
2006 2005 2006 2005
--------------------------------------------
Tax (recovery) expense
based on expected rate $ (166) $ (90) $ (321) $ (139)
Adjustment to future
income tax liabilities (47) (601) 6 (601)
Adjustment for change in
effective tax rate 91 (80) 91 (80)
---------------------------------------------------------------------
Future income taxes
(recovery) $ (122) $ (771) $ (224) $ (820)
--------------------------------------------
--------------------------------------------
The future income tax asset is calculated as follows:
As at June 30, December 31,
2006 2005
---------------------------
Tax asset related to operating losses $ 710 $ 403
Tax asset related to differences in tax
and book basis 444 526
---------------------------------------------------------------------
Future income tax asset $ 1,154 $ 929
---------------------------
---------------------------
10. COMMITMENTS AND CONTINGENCIES
At June 30, 2006, 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 six to thirty months
at a blended rate of approximately $0.0561/kwh. These agreements
provide that the Trust purchase its power for all Alberta properties
under contract for the upcoming months.
While the above utility contracts for electrical power 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 natural gas rebate
program was extended to cover the month of October. In January of
2006, the Alberta government announced a three-year extension to the
program covering the winter months of October through March. The
extension of the natural gas rebate program will end March 31, 2009.
The rebate program becomes active when the natural gas consumer price
charged by two of the three major gas companies in Alberta exceeds
$5.50/GJ for any individual winter usage month. For January through
March 2006, Boardwalk REIT was eligible for estimated rebates
totalling $1.4 million. For January to March 2005, Boardwalk REIT was
eligible for rebates totalling approximately $0.6 million.
The Trust has also entered into three natural gas supply contracts,
which provide a degree of price certainty for natural gas usage in
the provinces of Saskatchewan, Ontario and Quebec. The contracts
cover between 75 - 100% of the Trust's natural gas requirements for
each of the provinces. The physical supply agreement for Saskatchewan
runs from November 1, 2006 to October 31, 2007 and provides the
commodity at a price of $8.48/GJ. The physical supply agreements for
Eastern Canada run from June 1, 2006 to June 1, 2007 and provide the
commodity near $8.00/GJ.
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
June 30, 2006 is approximately $5.5 million (June 30, 2005 -
$5.8 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 June 30, 2006, 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 four provinces
located in Canada. The following summary presents segmented financial
information for Boardwalk REIT's business by geographic location.
3 months 3 months 6 months 6 months
ended ended ended ended
June 30, June 30, June 30, June 30,
2006 2005 2006 2005
--------------------------------------------
Alberta
Revenue $ 41,355 $ 38,649 $ 81,632 $ 76,877
--------------------------------------------
Expenses
Operating 6,807 6,807 13,138 13,330
Utilities 4,255 4,865 10,796 10,471
Utility rebates (6) 11 (1,393) (625)
Property taxes 3,226 3,266 6,467 6,482
---------------------------------------------------------------------
14,282 14,949 29,008 29,658
--------------------------------------------
Net operating income $ 27,073 $ 23,700 $ 52,624 $ 47,219
--------------------------------------------
Saskatchewan
Revenue $ 8,721 $ 8,531 $ 17,414 $ 17,082
--------------------------------------------
Expenses
Operating 1,614 1,692 3,179 3,264
Utilities 1,291 826 2,760 2,432
Property taxes 1,187 1,276 2,438 2,502
---------------------------------------------------------------------
4,092 3,794 8,377 8,198
--------------------------------------------
Net operating income $ 4,629 $ 4,737 $ 9,037 $ 8,884
--------------------------------------------
Ontario
Revenue $ 9,389 $ 9,206 $ 18,767 $ 18,455
--------------------------------------------
Expenses
Operating 1,609 1,515 3,117 3,243
Utilities 1,396 1,431 3,279 3,457
Property taxes 1,668 1,649 3,527 3,326
---------------------------------------------------------------------
4,673 4,595 9,923 10,026
--------------------------------------------
Net operating income $ 4,716 $ 4,611 $ 8,844 $ 8,429
--------------------------------------------
British Columbia
Revenue $ 2,137 $ 1,483 $ 3,788 $ 2,415
--------------------------------------------
Expenses
Operating 359 416 749 500
Utilities 310 106 449 213
Property taxes 33 66 222 88
--------------------------------------------
702 588 1,420 801
--------------------------------------------
Net operating income $ 1,435 $ 895 $ 2,368 $ 1,614
--------------------------------------------
Quebec
Revenue $ 16,900 $ 16,063 $ 33,298 $ 31,731
--------------------------------------------
Expenses
Operating 3,566 2,738 6,920 5,316
Utilities 1,788 1,673 4,599 4,279
Property taxes 1,731 1,764 3,491 3,497
---------------------------------------------------------------------
7,085 6,175 15,010 13,092
--------------------------------------------
Net operating income $ 9,815 $ 9,888 $ 18,288 $ 18,639
--------------------------------------------
Total
Net operating income $ 47,668 $ 43,831 $ 91,161 $ 84,785
Unallocated revenue(*) 236 10,722 21,261 11,892
Unallocated expenses(xx) (43,843) (51,624) (101,064) (95,779)
---------------------------------------------------------------------
Net earnings for the
period $ 4,061 $ 2,929 $ 11,358 $ 898
--------------------------------------------
--------------------------------------------
As at June 30, December 31,
2006 2005
---------------------------
Alberta
Identifiable assets
Revenue producing properties $ 941,548 $ 934,503
Mortgages and accounts receivable 623 5,277
Deferred financing costs 26,576 26,083
Tenants' security deposit 6,854 5,688
---------------------------
$ 975,601 $ 971,551
---------------------------
Saskatchewan
Identifiable assets
Revenue producing properties $ 173,946 $ 176,116
Mortgages and accounts receivable 128 185
Deferred financing costs 4,361 4,320
Tenants' security deposits 1,459 1,341
---------------------------
$ 179,894 $ 181,962
---------------------------
Ontario
Identifiable assets
Revenue producing properties $ 211,212 $ 213,490
Mortgages and accounts receivable 206 236
Deferred financing costs 3,548 3,508
---------------------------
$ 214,966 $ 217,234
---------------------------
British Columbia
Identifiable assets
Revenue producing properties $ 78,884 $ 62,014
Mortgages and accounts receivable 40 285
Tenants' security deposits 348 250
---------------------------
$ 79,272 $ 62,549
---------------------------
Quebec
Identifiable assets
Revenue producing properties $ 421,378 $ 398,109
Mortgages and accounts receivable 497 5,032
Deferred financing costs 5,754 5,927
---------------------------
$ 427,629 $ 409,068
---------------------------
Total assets
Identifiable assets $ 1,877,362 $ 1,842,364
Unallocated assets(xxx) 34,473 41,022
---------------------------
$ 1,911,835 $ 1,883,386
---------------------------
---------------------------
(*) 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, corporate administration, financing costs,
amortization, income taxes and other provisions.
(xxx) Unallocated assets include discontinued assets, cash,
short-term investments and other assets.
>>
%SEDAR: 00020684E
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;
