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2007 Boardwalk REIT Press Release

Boardwalk Rental Communities




TSX SYMBOL:  BEI.UN
				 
February 16, 2007

Boardwalk REIT Announces Solid Fourth Quarter and Full Year 2006 Financial Results; FFO Per Unit Up 29.4% YOY for the Fourth Quarter; Acquisition of 1435 Residential Units in Western Canada; and its February 2007 Distribution.

2006 Q4 Press ReleaseDOWNLOAD Q4-2006 February 16, 2007 PRESS RELEASE (Printer Friendly PDF File - 99Kb)

2006 Q4 Supplemental NotesSUPPLEMENTAL NOTES - Q4-2006 (Printer Friendly PDF File - 184Kb)


Calgary, Alberta  February 16, 2007
- Boardwalk Real Estate Investment Trust ("BEI.UN" - TSX)



CALGARY, Feb. 16 /CNW/ - Boardwalk Real Estate Investment Trust
("Boardwalk REIT" or the "Trust") today announced solid financial results for
both the fourth quarter of 2006 and fiscal 2006; FFO Per Unit up 29.4% YOY for
the fourth quarter; the acquisition of 1435 residential units in Western
Canada; and its February 2007 Distribution.
    For the fourth quarter ended December 31, 2006, the Trust reported Funds
From Operations(1) ("FFO") of $25.0 million and FFO per unit of $0.44 on a
diluted basis, compared to FFO of $17.8 million and FFO per unit of $0.34 for
the same period last year. Distributable income ("DI") for the quarter was
$25.9 million and DI per unit was $0.46 on a diluted basis, compared to
$18.8 million and $0.35 per unit for the same period last year.

    Highlights of the Trust's fourth quarter 2006 financial results include:

    <<
    -   Rental revenues of $83.6 million, an increase of 10.7%, compared to
        $75.5 million for the three-month period ended December 31, 2005.

    -   Net operating income of $50.5 million, representing a 15.6% increase,
        from $43.7 million in the same period last year.

    -   FFO of $25.0 million, an increase of 40.4%, compared to $17.8 million
        for the three-month period ended December 31, 2005.

    -   FFO per unit was $0.44 on a diluted basis, up 29.4%, compared to
        $0.34 for the three-month period ended December 31, 2005.

    -   DI was $0.46 per unit, up 31.4%, from $0.35 for the three months
        ended December 31, 2005.

    Highlights of the Trust's financial results for fiscal 2006 include:

    -   Rental revenues of $319.4 million, an increase of 7.7% compared to
        $296.5 million for the twelve-month period ended December 31, 2005.

    -   Net operating income of $192.1 million, representing a 10.0% increase
        from $174.7 million in the same period last year.

    -   FFO from continuing operations of $91.4 million, an increase of 22.2%
        compared to $74.8 million for the twelve-month period ended
        December 31, 2005.

    -   FFO per unit from continuing operations of $1.64 on a diluted basis,
        up 16.3% compared to $1.41 for the twelve-month period ended
        December 31, 2005.

    -   DI from continued operations was $1.69 per unit, up 15.8% compared to
        $1.46 for the twelve months ended December 31, 2005.
    >>

    Commenting on the Trust's Q4 2006 results, Sam Kolias, President and
C.E.O., said: "Fiscal 2006 will be remembered as Boardwalk's best operating
year to date. We are pleased not only to have delivered financial and
operating results that beat all of our expectations, but to have done so while
remaining firmly committed to our Customer-focused operating policies. In
2006, Boardwalk maximized return by responding to exceptionally strong rental
market fundamentals. As occupancy tracked upward due to positive supply and
demand forces, rental rates followed suit, resulting in strong revenue growth
for the Trust."
    "With 52% of our property portfolio located in Alberta, Alberta's strong
market fundamentals yielded an extraordinary year for the Trust. Our years of
experience, quality assets, superior people, and proactive operating policies
allowed Boardwalk to gain early and on-going advantage of the market
fundamentals, maximizing value for our Unitholders. Looking forward, we
believe that our geographic diversity and accretive acquisitions, our proven
and Customer-focused business strategy, our strong financial position, and our
judiciously cultivated corporate sustainability will keep opportunities
knocking over the long term."
    "Vacancy continued to decrease across Alberta, declining from 3.73% in
the third quarter of 2006 to 3.51% in the fourth quarter of 2006. This
decrease is of particular note because traditionally we expect to see vacancy
increase slightly in the fourth quarter due to seasonally decreased demand. As
maximizing revenues is a balancing act of supply and demand, we continue to
monitor our markets on a constant basis, adjusting rents and incentives with
agility and market sensitivity. On a year-over-year basis, occupancy remains
higher than last year, despite higher rental rates."
    "While we are certainly pleased by the positive gains noted in Alberta,
our priority remains balanced and sustainable growth. Today's most exciting
investment story surrounds our Alberta portfolio. However, our key objective
remains to provide Unitholders with a stable and growing cash flow
distribution while building long term value. We continue to be pleased with
Boardwalk's ability to fulfill this objective. Our diversification into 18
markets across five provinces greatly increases our sustainability over the
long term and makes Boardwalk a proven and attractive investment."

    Operational Highlights

    The average vacancy rate across the Trust's portfolio for the fourth
quarter of 2006 was 3.51%, down from 3.73% in the third quarter of 2006, and
down from 3.73% compared to the same period last year.
    The average monthly rent on our entire portfolio realized in the fourth
quarter of 2006 was $820 per rental unit, up $54 from $766 per rental unit for
the same period last year.
    The average market rent for the Trust's properties at the end of December
2006 was an estimated $995 per rental unit per month, which compares to an
average in-place monthly rent per occupied unit of $850 for the quarter ended
December 31, 2006.
    At the end of December 2006, the potential between occupied rents and
market rents (mark-to-market) totaled $55.9 million, or $0.97 per unit, down
from $57 million or $1.01 at the end of September 2006.
    More detail on our operations will be found in our conference call
presentation to be posted on our web site today at
www.boardwalkreit.com/FinancialReports/r2006/. The conference call audio for
this presentation can also be found on our web site at
www.boardwalkreit.com/FinancialReports/r2006/ following the call.

    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 December 31, 2006 showed rental revenue growth of
7.9% on a year-over-year basis. Operating expenses increased 0.1%, resulting
in an increase in NOI of 13.4% compared to the same period last year. The
"same-property" results for the twelve-month period ended December 31, 2006
showed rental revenue growth of 5.1%, and an increase in total operating
expenses of 1.8%, resulting in an increase in NOI of 7.3% compared to the same
period last year. A total of 31,689 units, representing approximately 93% of
Boardwalk's total portfolio, were classified as stabilized as at December 31,
2006.

    <<
    Same-Property Results - Stabilized Portfolio

                                             Operating
    Dec 31 2006 - 3 M               Revenue   Expenses        NOI   % of NOI
    Calgary                           16.9%      -6.0%      29.0%        20%
    Edmonton                          10.9%      -4.2%      22.2%        33%
    Other Alberta                     16.3%      -5.3%      28.7%         7%
    Saskatchewan                       5.0%       3.0%       6.5%        11%
    Ontario                            2.1%       3.4%       0.8%        10%
    Quebec                            -0.3%       7.6%      -5.4%        19%
    -------------------------------------------------------------------------
                                       7.9%       0.1%      13.4%       100%
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


                                             Operating
    Dec 31 2006 - 12 M              Revenue   Expenses        NOI   % of NOI
    Calgary                           11.0%      -3.4%      18.1%        19%
    Edmonton                           6.6%      -2.3%      12.3%        34%
    Other Alberta                     12.1%      -4.8%      21.7%         6%
    Saskatchewan                       3.0%       4.2%       2.0%        11%
    Ontario                            1.8%       2.9%       0.7%        10%
    Quebec                             0.0%      10.2%      -6.3%        20%
    -------------------------------------------------------------------------
                                       5.1%       1.8%       7.3%       100%
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    >>


    Commenting on Boardwalk's same-property results, President and CEO, Sam
Kolias, said, "In the fourth quarter, we were pleased to see revenue growth
accelerating more quickly than expense increases on a stabilized property
basis for the fifth straight quarter. Overall, our portfolio operating
expenses continued to rise. However, increasing expenses were somewhat
tempered by savings in natural gas expenditures, and property taxes were flat
after the massive increases of the past couple years."

    <<
    Real Estate Acquisition/Disposition Activity

    Acquisitions



    Building Name           City            Closing Date     Type      Units
    -------------------------------------------------------------------------
    Complexe Deguire
     (Blouin
     Portfolio)(*)       Montreal, QC      March 13, 2006  High Rise     322
    Braemar/Gateway
     (Jones
     Portfolio)(*)      Vancouver, BC      March 30, 2006    Walk Up     238
    Sturgeon Point
     Villas(*)         St. Albert, AB        May 25, 2006    Walk Up     280
    Parkwest
     Apartments(*)       Victoria, BC    November 9, 2006   Low Rise      96
    California Gardens    Burnaby, BC   December 19, 2006    Walk Up      79
    Parke Avenue Square  Red Deer, AB   December 19, 2006    Walk Up      88
                                                                      -------
                                                                       1,103

    Subsequent to
     December 31, 2006
    Ridgement
     Apartments         Coquitlam, BC    January 25, 2007   Low Rise      41
    St. Charles Place
     & Parkview Manor    Edmonton, AB    January 26, 2007    Walk Up      51
    West Edmonton
     Village(xx)         Edmonton, AB   February 28, 2007    Various   1,176
                                                                      -------
                                                                       1,268

    -------------------------------------------------------------------------
    Total                                                              2,371
                                                                      -------




    Building Name                          Year 1               Avg.    $/Sq.
                                Price     Cap Rate   $/Unit   Sq. Ft.    Ft.
    -------------------------------------------------------------------------
    Complexe Deguire
     (Blouin
     Portfolio)(*)          $ 24,000,000   7.10%    $74,534      858     $87
    Braemar/Gateway
     (Jones
     Portfolio)(*)          $ 17,550,000   6.39%    $73,739    1,022     $72
    Sturgeon Point
     Villas(*)              $ 18,500,000   7.00%    $66,071    1,018     $65
    Parkwest
     Apartments(*)          $  9,400,000   5.83%    $97,917      745    $131
    California Gardens      $  9,350,000   5.00%   $118,354    1,046    $113
    Parke Avenue Square     $  9,300,000   5.52%   $105,682      992    $107

    Subsequent to
     December 31, 2006
    Ridgement
     Apartments             $  3,700,000   5.03%    $90,244      634    $142
    St. Charles Place
     & Parkview Manor       $  4,150,000   4.52%    $81,373      795    $102
    West Edmonton
     Village(xx)            $143,500,000   5.47%   $122,024      968    $126

    -------------------------------------------------------------------------
    Total                   $239,450,000   5.94%   $100,991      949    $106
                           --------------------------------------------------

    (*) Denotes previously announced acquisitions.

    (xx) The acquisition of West Edmonton Village will be financed through
        the assumption of $31 million in mortgages and the leveraging of
        existing rental properties and/or cash from Boardwalk's acquisition
        and operating line.


    Dispositions

    Building Name           City          Closing Date       Type      Units
    -------------------------------------------------------------------------
    Glamis Green         Calgary, AB      March 6, 2006      Walk Up     156
    Leighton House       Calgary, AB     March 10, 2006     Mid Rise      40
    -------------------------------------------------------------------------
    Total                                                                196
                                                                       ------

                                                                Avg.    $/Sq.
                                Price    Cap Rate   $/Unit    Sq. Ft.    Ft.
    -------------------------------------------------------------------------
    Glamis Green            $ 16,700,000   5.50%   $107,051    1,115     $96
    Leighton House          $  4,000,000   5.40%   $100,000      684    $146
    -------------------------------------------------------------------------
    Total                   $ 20,700,000   5.48%   $105,612    1,027    $103
                           --------------------------------------------------
    >>


    At the end of the third quarter of 2006, one property, consisting of
90 units located in Calgary, Alberta, was reclassified as properties held for
redevelopment as a result of Boardwalk's plan to convert these suites to
condominium units for sale.
    Commenting on the Trust's property acquisitions and dispositions, Bill
Chidley, Senior Vice President, Corporate Development, said: "The acquisitions
completed in 2006 and the beginning of 2007 add quality assets in the
traditionally strong rental markets of British Columbia, Alberta and Quebec to
our overall portfolio. We are pleased to have met our acquisition target of
approximately 1000 units in 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. Our key growth over the short term
will be based on internal growth, enhanced through external acquisition."

    Continued Financial Strength

    The Trust strengthened its financial position through 2006 due to lower
interest rates. We remain focused on maintaining a strong and healthy balance
sheet. Boardwalk's total mortgage and long-term debt was $1.54 billion as at
December 31, 2006, virtually unchanged to that owing at December 31, 2005. As
at December 31, 2006, the Trust's total debt had an average term maturity of 3
years with a weighted average interest rate of 5.31%. The Trust's
debt-to-total-market-capitalization ratio was approximately 40%. The Trust's
interest coverage ratio of adjusted EBITDA (i.e. earnings before interest,
taxes, depreciation and amortization) to interest expense, after excluding
gains, was 2.29 times for the three months ended December 31, 2006, compared
to 1.93 times for the same period last year. During the fourth quarter of
2006, Boardwalk successfully completed approximately $67.6 million in mortgage
refinancings and renewals. Of note in 2006, the Trust sold a total of
2.9 million trust units into the public market on a bought deal basis through
a group of underwriters led by National Bank Financial. This transaction was
completed in March of 2006, with an issue price of $22.80 per unit.

    Outlook and 2007 Financial Guidance

    Commenting on the outlook for the Trust, Rob Geremia, Senior Vice
President, Finance and CFO, said "We are confirming our previously announced
fiscal 2007 guidance for FFO and Distributable Income is between $1.85 to
$2.00 and $1.87 to $2.02, respectively. These forecasts are based on the
assumptions of approximately 8.0% stabilized NOI growth and new property
acquisitions of between 1,000 to 2,000 new residential units for the year. In
the fourth quarter, our final results exceeded our revised guidance due to
lower-than-expected utility expenses. Because these same decreased expense
pressures can not be estimated for 2007, we are not increasing the 2007
guidance, originally stated at the beginning of the fourth quarter of 2006, at
this time. As is Boardwalk's current policy, we will update the market on our
Annual 2007 Guidance on a quarterly basis.
    Given Alberta's strong rental market fundamentals, we expect strong
internal rental revenue growth through 2007. This growth will be tempered
slightly by increasing turnover and operating expenses, particularly due to
inflationary pressures on wages and supply costs in our Alberta markets. The
2007 guidance assumes that the existing Alberta Natural Gas Rebate program
will be extended in its current form. It is Management's intention to update
the market on a quarterly basis regarding our guidance estimates."

    February 2007 Monthly Distribution

    The Trust has declared its February 2007 distribution in the amount of
12.33 cents per unit ($1.48 annualized). The February distribution will be
payable on March 15, 2007 to unitholders of record on February 28, 2007. To
encourage participation and reward unitholders, investors registered in the
Distribution Reinvestment Plan ("DRIP") will continue to receive a "bonus"
distribution of additional Trust Units representing 3% of the amount of their
cash distributions reinvested pursuant to the Plan. A full copy of the DRIP
can be found on Trust's website at www.boardwalkREIT.com.

    Supplementary Information

    Boardwalk produces Quarterly Supplemental Information that provides
detailed information regarding the Trust's activities during the quarter. The
fourth quarter 2006 Supplemental Information is available on our investor
website at www.boardwalkreit.com.

    Teleconference on Fourth 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 fourth 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 http://www.newswire.ca/en/webcast/viewEvent.cgi?eventID=1697520
    Replay: An audio recording of the teleconference will be available from
1:00 pm ET on Friday, February 16, 2007 until 11:59 pm ET on Friday,
February 23, 2006. You can access it by dialing 416-640-1917 and using the
passcode 21216134 followed by the pound (No.) 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 35,400 units totalling approximately 29 million net
rentable square feet, and is Canada's largest owner/operator of multi-family
rental communities. Boardwalk REIT's portfolio is concentrated in the
provinces of Alberta, British Columbia, Saskatchewan, Ontario and Quebec.

    (1) 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.

    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                                           December 31, December 31,
                                                           2006         2005
                                                  ---------------------------
    Assets

    Revenue producing properties (NOTE 5)            $1,836,429   $1,782,648
    Deferred financing costs (NOTE 4)                    43,405       42,853
    Other assets (NOTE 8)                                13,873       11,328
    Future income taxes (NOTE 14)                           316          929
    Mortgages and accounts receivable (NOTE 7)            4,388        9,039
    Segregated tenants' security deposits                 9,998        7,280
    Cash and cash equivalents                                 -       11,145
    Discontinued operations (NOTE 6)                      5,456       18,164
    -------------------------------------------------------------------------
                                                     $1,913,865   $1,883,386
                                                  ---------------------------
                                                  ---------------------------

    Liabilities

    Mortgages payable (NOTE 9)                       $1,422,431   $1,409,375
    Debentures (NOTE 10)                                120,000      120,000
    Accounts payable and accrued liabilities             35,423       32,196
    Refundable tenants' security deposits and other      13,102       10,486
    Bank indebtedness                                     4,042            -
    Discontinued operations (NOTE 6)                          -       15,587
    -------------------------------------------------------------------------
                                                     $1,594,998   $1,587,644
                                                  ---------------------------

    Unitholders' Equity

    Unitholders' equity                                 318,867      295,742
    -------------------------------------------------------------------------
                                                     $1,913,865   $1,883,386
                                                  ---------------------------
                                                  ---------------------------

    SEE ACCOMPANYING NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS



    CONSOLIDATED STATEMENTS OF EARNINGS
    (CDN$ THOUSANDS, EXCEPT NUMBER OF UNITS AND PER UNIT AMOUNTS)

                                Three        Three
                               Months       Months
                                ended        ended   Year ended   Year ended
                          December 31, December 31, December 31, December 31,
                                 2006         2005         2006         2005
                           (Unaudited)  (Unaudited)    (Audited)    (Audited)
                          ---------------------------------------------------

    Revenue

      Rental income           $83,635      $75,548     $319,440     $296,516
                          ---------------------------------------------------

    Expenses

      Revenue producing
       properties:

        Operating expenses     14,690       12,985       56,797       51,617
        Utilities              11,097       11,683       40,443       39,618
        Utility rebate
         (NOTE 2 (g) (iii))      (605)      (1,205)      (2,032)      (1,823)
        Property taxes          7,942        8,340       32,143       32,445
      Administration            4,360        4,271       17,072       15,050
      Financing costs          20,115       20,473       80,806       81,796
      Deferred financing
       costs amortization         960        1,243        3,193        3,941
      Amortization of capital
       assets (NOTE 2 (e))     18,805       19,020       73,425       74,693
    -------------------------------------------------------------------------
                               77,364       76,810      301,847      297,337
                          ---------------------------------------------------

    Earnings (loss) from
     continuing operations
     before the following       6,271       (1,262)      17,593         (821)

      Gain on extinguishment
       of option to acquire
       property                  (750)           -         (750)           -
      Recovery of write-down
       on technology business
       unit                         -            -            -         (739)
    -------------------------------------------------------------------------
      Earnings (loss) from
       continuing operations
       before income taxes      7,021       (1,262)      18,343          (82)

      Large corporations
       taxes (recovery)           (38)         243          (30)         613
      Future income taxes
       (recovery) (NOTE 14)       391          311          613         (493)
    -------------------------------------------------------------------------

    Earnings (loss) from
     continuing operations      6,668       (1,816)      17,760         (202)

      Earnings from
       discontinued
       operations,
       net of tax (NOTE 6)       (139)       3,019        7,629        5,232
    -------------------------------------------------------------------------

    Net earnings               $6,529       $1,203      $25,389       $5,030
                          ---------------------------------------------------
                          ---------------------------------------------------

    Basic earnings (loss)
     per unit (NOTE 13)

      - from continuing
        operations              $0.12       $(0.04)       $0.32       $(0.01)

      - from discontinued
        operations               0.00         0.06         0.14         0.10
    -------------------------------------------------------------------------
    Basic earnings per unit     $0.12        $0.02        $0.46        $0.09
                          ---------------------------------------------------
                          ---------------------------------------------------

    Diluted earnings
     (loss) per unit
     (NOTE 13)

      - from continuing
        operations              $0.12       $(0.04)       $0.32       $(0.01)

      - from discontinued
        operations               0.00         0.06         0.14         0.10
    -------------------------------------------------------------------------
    Diluted earnings per
     unit                       $0.12        $0.02        $0.46        $0.09
                          ---------------------------------------------------
                          ---------------------------------------------------

    Weighted average
     number of units       56,326,003   53,213,332   55,542,918   53,167,640
                          ---------------------------------------------------
                          ---------------------------------------------------

    SEE ACCOMPANYING NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS



    CONSOLIDATED STATEMENTS OF UNITHOLDERS' EQUITY
    (CDN$ THOUSANDS, EXCEPT NUMBER OF UNITS)

                                                     Year ended   Year ended
                                                    December 31, December 31,
                                                           2006         2005
                                                   --------------------------

    Trust units (NOTE 12)
    Balance, beginning of year                         $295,696     $293,503
    Units issued under equity financing,
     net of issue costs                                  63,583            -
    Units issued under distribution
     reinvestment plan                                    5,784        2,202
    Restructuring costs                                    (140)          (9)
    Deferred unit plan (NOTE 11)                            821            -
    -------------------------------------------------------------------------
    Balance, end of year                               $365,744     $295,696
                                                   --------------------------
    Cumulative earnings
    Balance, beginning of year                         $129,528     $124,498
    Net earnings                                         25,389        5,030
    -------------------------------------------------------------------------
    Balance, end of year                               $154,917     $129,528
                                                   --------------------------
    Cumulative distributions to unitholders
    Balance, beginning of year                        $(129,482)    $(62,485)
    Distributions declared to unitholders (NOTE 13)     (72,312)     (66,997)
    -------------------------------------------------------------------------
    Balance, end of year                              $(201,794)   $(129,482)
                                                   --------------------------

    Total unitholders' equity                          $318,867     $295,742
                                                   --------------------------
                                                   --------------------------

    Units issued and outstanding (NOTE 12)           56,351,783   53,224,194
                                                   --------------------------
                                                   --------------------------

    SEE ACCOMPANYING NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS



    CONSOLIDATED STATEMENTS OF CASH FLOWS
    (CDN$ THOUSANDS)

                                Three        Three
                               Months       Months
                                ended        ended   Year ended   Year ended
                          December 31, December 31, December 31, December 31,
                                 2006         2005         2006         2005
                           (Unaudited)  (Unaudited)    (Audited)    (Audited)
                          ---------------------------------------------------

    Operating activities
      Net earnings             $6,529       $1,203      $25,389       $5,030
      Earnings from
       discontinued
       operations,
       net of tax                 139       (3,019)      (7,629)      (5,232)
      Future income taxes
       (recovery)                 391          311          613         (493)
      Amortization of
       capital assets          18,805       19,020       73,425       74,693
      Gain on
       extinguishment of
       option to acquire
       property                  (750)           -         (750)           -
      Recovery of write-
       down on technology
       business unit                                          -         (739)
    -------------------------------------------------------------------------
      Funds from continuing
       operations              25,114       17,515       91,048       73,259

      Funds from discontinued
       operations                (75)          326          308        1,536

      Net change in operating
       working capital          3,846        6,373        4,458        6,401
    -------------------------------------------------------------------------
      Total operating cash
       flows                   28,885       24,214       95,814       81,196
                          ---------------------------------------------------

    Financing activities
      Issuance of trust units
       (net of issue costs)
       (NOTE 12)                1,765          405       69,367        2,202
      Restructuring costs          25           (9)        (140)          (9)
      Distributions paid      (18,753)     (16,760)     (70,952)     (66,990)
      Issuance of debentures
       (NOTE 10)                    -            -            -      120,000
      Financing of revenue
       producing properties    47,566       18,656       67,605      146,245
      Repayment of debt on
       revenue producing
       properties             (33,184)     (25,483)     (72,987)    (149,361)
      Capital lease
       obligations                  -          (84)           -          (84)
      Deferred financing
       costs incurred (net
       of amortization)             8          227         (371)      (4,545)
    -------------------------------------------------------------------------
                               (2,573)     (23,048)      (7,478)      47,458
                          ---------------------------------------------------
    Investing activities
      Purchases of revenue
       producing properties
       (NOTE 5)               (25,017)         215      (85,812)    (103,074)
      Improvements to revenue
       producing properties    (7,825)     (11,176)     (37,448)     (29,676)
      Net cash proceeds from
       sale of properties
       (NOTE 5)                     -       10,318       20,274       19,723
      Net cash proceeds from
       extinguishment of
       option to acquire
       property                   750            -          750            -
      Additions to corporate
       technology assets         (280)        (235)      (1,287)      (1,759)
    -------------------------------------------------------------------------
                              (32,372)        (878)    (103,523)    (114,786)
                          ---------------------------------------------------

    Net increase (decrease)
     in cash and cash
     equivalents balance       (6,060)         288      (15,187)      13,868

    Cash and cash equivalents
     (bank indebtedness),
     beginning of year          2,018       10,857       11,145       (2,723)
    -------------------------------------------------------------------------

    Cash and cash equivalents
     (bank indebtedness),
     end of year              $(4,042)     $11,145      $(4,042)     $11,145
                          ---------------------------------------------------
                          ---------------------------------------------------

    Supplementary cash
     flow information:
    Capital taxes paid           $446         $200         $120       $1,100
    Interest paid             $18,595      $22,256      $81,129      $79,787
                          ---------------------------------------------------
                          ---------------------------------------------------
    `
    SEE ACCOMPANYING NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS



    NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
    YEARS ENDED DECEMBER 31, 2006 AND 2005
    (TABULAR AMOUNTS IN CDN$ THOUSANDS, EXCEPT NUMBER OF UNITS AND PER UNIT
    AMOUNTS UNLESS OTHERWISE STATED)

    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.  SIGNIFICANT ACCOUNTING POLICIES

        (a)  Basis of presentation

        These consolidated financial statements have been prepared in
        accordance with the recommendations of the handbook of the Canadian
        Institute of Chartered Accountants ("CICA Handbook").

        The preparation of financial statements in accordance with Canadian
        generally accepted accounting principles ("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.

        (b)  Principles of consolidation

        The consolidated financial statements include the accounts of
        Boardwalk REIT and its wholly-owned subsidiaries, as well as 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.

        (c)  Revenue recognition

             i.   Revenue from a rental property is recognized once the Trust
                  has attained substantially all of the benefits and risks of
                  ownership of the rental property. Rental revenue includes
                  rents, parking and other sundry revenues. All residential
                  leases are for one-year terms or less; consequently, the
                  Trust accounts for leases with its tenants as operating
                  leases.

             ii.  Revenue from the sales of property held for resale or
                  redevelopment and sale is recognized when all conditions of
                  the purchase and sale agreement have been met, a sufficient
                  purchaser deposit (usually 15%) has been received and there
                  is reasonable assurance on the collectibility of any
                  outstanding amount.

        (d)  Revenue producing properties

        Revenue producing real estate properties, which are held for
        investment, are stated at the lower of cost less accumulated
        amortization or "net recoverable amount". Cost includes all amounts
        relating to the acquisition and improvement of the properties. All
        costs associated with upgrading the existing facilities, other than
        ordinary repairs and maintenance, are capitalized and amortized as
        project improvements.

        Prior to 2005, certain excess land located in the province of
        Saskatchewan that was being developed and 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. In 2005, the excess land
        in the amount of $8.0 million was reclassified as part of revenue
        producing properties.

        Revenue producing properties are reviewed periodically for
        impairment. An impairment loss will be recognized in the period when
        the carrying amount of the revenue producing properties exceeds the
        net recoverable amount represented by the undiscounted estimated
        future cash flows expected to be received from the ongoing use of the
        properties plus their residual value. If it is determined that an
        impairment exists, the carrying value of the revenue producing
        properties will be reduced to their estimated fair value.

        In accordance with the requirements of the CICA Handbook, when
        acquiring revenue producing properties, Boardwalk REIT allocates a
        portion of the purchase price to in-place operating leases that is
        acquired in connection with the real estate property and to a
        separate customer relationship intangible asset relating to the
        possibility or probability that existing tenants will renew their
        leases.

        (e)  Amortization of capital assets

        Revenue producing real estate properties are amortized over the
        estimated useful lives of the assets. Revenue producing building
        assets are amortized using the straight-line method over periods
        ranging from 40 to 50 years. Non-building assets are amortized using
        the declining-balance method at rates ranging from 8% to 35%.

        Estimated useful lives of buildings and non-building assets are
        periodically evaluated by management and any changes in these
        estimates are accounted for on a prospective basis.

        (f)  Deferred financing costs

        Insurance premiums paid to Canada Mortgage and Housing Corporation
        ("CMHC") to obtain insurance through the National Housing Act ("NHA")
        are amortized on a straight-line basis over the insured term of the
        mortgage loans. Upon the refinancing of a mortgage, any unamortized
        insurance premium associated with the previous mortgage is written
        off to income. Costs of refinancing are amortized on a straight-line
        basis over the term of the new loan.

        (g)  Risk management and fair value

        Risk management

        The Trust is exposed to financial risk that arises from the
        fluctuation in interest rates, the credit quality of its tenants, and
        the fluctuation in utility rates. These risks are managed as follows:

             i.   Interest rate risk

                  Interest rate risk is minimized through the Trust's current
                  strategy of having the majority of its mortgages payable in
                  fixed term arrangements. In addition, management is
                  constantly reviewing its operating facility and, if market
                  conditions warrant, the Trust has the ability to convert
                  its existing demand debt to fixed rate debt. The Trust had
                  demand debt outstanding of $6.2 million at December 31,
                  2006 (December 31, 2005 - $nil). In addition, the Trust
                  structures its financings so as to stagger the maturities
                  of its debt, thereby minimizing the Trust's exposure to
                  interest rates in any one year.

                  The majority of the Trust's mortgages are insured by CMHC
                  under the NHA mortgage program. This added level of
                  insurance offered to lenders allow the Trust to receive the
                  best possible financing and interest rates, and
                  significantly reduces the potential for a lender to call a
                  loan prematurely.

             ii.  Credit risk

                  Credit risk arises from the possibility that tenants may
                  experience financial difficulty and be unable to fulfill
                  their lease term commitments. The Trust mitigates this risk
                  of credit loss by geographically diversifying its existing
                  portfolio, by limiting its exposure to any one tenant and
                  by conducting thorough credit checks with respect to all
                  new rental leasing arrangements. In addition, where
                  legislation allows, the Trust obtains a security deposit
                  from a tenant to assist in the recovery of monies owed to
                  the Trust.

             iii. Utilities

                  At December 31, 2006, the Trust had a long-term supply
                  arrangement with one electrical utility company to supply
                  the Trust with its electrical power needs for southern
                  Alberta for the next twenty-four months at a blended rate
                  of approximately $0.068/kwh. The agreement provides that
                  the Trust purchase its power for all southern Alberta
                  properties under contract for the upcoming months.

                  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 approximately $1.4 million. For October through
                  December 2006, Boardwalk REIT was eligible for estimated
                  rebates totalling $0.6 million. For January to March 2005,
                  Boardwalk REIT was eligible for rebates totalling
                  approximately $0.6 million. For October through December
                  2005, Boardwalk REIT was eligible for rebates totalling
                  approximately $1.2 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.

                  While the above utility contracts 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.

        Fair Value

        In accordance with the disclosure requirements of the CICA Handbook,
        Boardwalk REIT is required to disclose certain information concerning
        its "financial instruments", defined as a contractual right to
        receive or deliver cash or another financial asset. The fair values
        of the majority of the Trust's short-term financial assets and
        liabilities, representing net working capital, approximate their
        recorded values at December 31, 2006 and 2005 due to their short-term
        nature. In these circumstances, the fair value is determined to be
        the market or exchange value of the assets or liabilities.

        Fair value estimates are made at a specific point in time, based on
        relevant market information and information about the financial
        instrument. These estimates are subjective in nature and involve
        uncertainties and matters of significant judgment and therefore
        cannot be determined with precision. Changes in assumptions could
        significantly affect estimates. The significant financial instruments
        of Boardwalk REIT and their carrying values as of December 31, 2006
        and 2005 are as follows:


        AS AT                                       December 31, December 31,
                                                           2006         2005
                                                  ---------------------------

        Mortgages and accounts receivable
          Carrying value                                 $4,388       $9,039
          Fair market value                              $4,388       $9,039
        ---------------------------------------------------------------------
        Mortgages payable and debentures
         (including discontinued operations)
          Carrying value                             $1,542,431   $1,544,962
          Fair market value                          $1,575,664   $1,588,024


        The fair value of the Trust's mortgages payable and debentures exceed
        the recorded value by approximately $33.2 million at December 31,
        2006 (December 31, 2005 - $43.1 million) due to changes in interest
        rates since the dates on which the individual mortgages and
        debentures were assumed. The fair value of the mortgages payable and
        debentures have been estimated based on the current market rates for
        mortgages and debentures with similar terms and conditions. The fair
        value of the Trust's mortgages payable and debentures is an amount
        computed based on the interest rate environment prevailing at
        December 31, 2006 and 2005, respectively; the amount is subject to
        change and the future amounts will converge. There are no additional
        costs to Boardwalk REIT, assuming no early extinguishment of existing
        debt is delivered upon.

        (h)  Use of estimates

        The accounting process requires that management make, and
        periodically review, a number of estimates including the following
        material items:

             i.   economic useful life of buildings for purposes of
                  calculating amortization as disclosed in Note 2 (e);
             ii.  forecast of economic indicators in order to measure fair
                  values of buildings for purposes of determining net
                  recoverable amount under Canadian generally accepted
                  accounting principles as discussed in Note 2 (d);
             iii. amount of capitalized on-site wages which relate to project
                  improvements, as discussed in Note 5; and
             iv.  amount of utility accrual for charges related to the
                  current period. Actual results may differ from these
                  estimates.

        (i)  Cash and cash equivalents

        Boardwalk REIT considers highly liquid investments with an original
        maturity of three months or less to be cash equivalents.

        (j)  Disposal of long-lived assets

        Disposal of long-lived assets are classified as held for sale or
        redevelopment, and the results of operations and cash flows
        associated with the assets disposed are reported separately as
        discontinued operations, less applicable income taxes. A long-lived
        asset is classified as an asset held for sale or redevelopment at the
        point in time when it is available for immediate sale, management has
        committed to a plan to sell the asset and is actively locating a
        buyer for the asset at a sales price that is reasonable in relation
        to the current fair value of the asset, and the sale is probable and
        expected to be completed within a one-year period. For unsolicited
        interest in a long-lived asset, the asset is classified as held for
        sale only if all the conditions of the purchase and sale agreement
        have been met, a sufficient purchaser deposit has been received and
        the sale is probable and expected to be completed shortly after the
        end of the current period.

        (k)  Hedging relationships

        Boardwalk REIT appropriately documents and monitors to ensure that
        there is a reasonable assurance, both in inception and throughout the
        term of the hedge, that the hedging relationship will be effective.
        Relationships that do not qualify for hedge accounting will be
        carried at fair value on the consolidated balance sheets, and changes
        in fair value will be recorded in the consolidated statements of
        earnings. Hedge accounting was applied to a bond forward contract
        (see NOTE 10) entered into by the Trust to mitigate future cash
        interest payments associated with our unsecured debentures, which was
        completed on January 21, 2005.

        (l)  Disclosure of guarantees

        In accordance with the disclosure requirements of the CICA Handbook,
        Boardwalk REIT is required to disclose significant details of
        guarantees that have been given, regardless of whether it will have
        to make payments under the guarantees.

        (m)  Comparative figures

        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)  DEFERRED UNIT PLAN

             The deferred unit plan is described in NOTE 11. Deferred units
             granted to trustees and executives in respect of their trustee
             fees and bonuses, respectively, are considered to be in respect
             of past services and are recognized in compensation expense upon
             grant. Deferred units granted relating to amounts matched by the
             Trust are considered to be in respect of future services and are
             recognized in compensation expense on a straight-line basis over
             the vesting period. Compensation cost is measured based on the
             market price of the Trust's units on the date of grant of the
             deferred units. The deferred units earn additional deferred
             units for the distributions that would otherwise have been paid
             on the deferred units had they instead been issued as Trust
             Units on the date of grant. No additional compensation cost is
             recorded for additional deferred units issued. Deferred units
             that have vested, but for which the corresponding Trust Units
             have not been issued and where the ultimate issuance of such
             Trust Units is simply a matter of the passage of time, are
             considered to be outstanding units from the date of vesting for
             basic income per unit calculations.

    4.  DEFERRED FINANCING COSTS


        As at                                       December 31, December 31,
                                                           2006         2005
                                                  ---------------------------

        Legal and financing costs                       $17,273      $16,048
        CMHC fees                                        46,357       44,724
        ---------------------------------------------------------------------

        Total deferred financing costs                   63,630       60,772
        Less: accumulated amortization                  (20,225)     (17,475)
        ---------------------------------------------------------------------
                                                        $43,405      $43,297
                                                  ---------------------------
                                                  ---------------------------

        Continuing operations                           $43,405      $42,853
        Discontinued operations (NOTE 6)                      -          444
        ---------------------------------------------------------------------
                                                        $43,405      $43,297
                                                  ---------------------------
                                                  ---------------------------

    5.  REVENUE PRODUCING PROPERTIES


        As at                                       December 31, December 31,
                                                           2006         2005
                                                  ---------------------------

        Land                                           $162,839     $149,508
        Building and non-building assets              2,117,315    2,022,306
        ---------------------------------------------------------------------

        Total revenue producing properties            2,280,154    2,171,814
        Less: accumulated amortization                 (438,269)    (371,446)
        ---------------------------------------------------------------------
                                                     $1,841,885   $1,800,368
                                                  ---------------------------
                                                  ---------------------------

        Continuing operations                        $1,836,429   $1,782,648
        Discontinued operations (NOTE 6)                  5,456       17,720
        ---------------------------------------------------------------------
                                                     $1,841,885   $1,800,368
                                                  ---------------------------
                                                  ---------------------------

        Acquisitions
                                                     Year ended   Year ended
                                                    December 31, December 31,
                                                           2006         2005
                                                  ---------------------------

        Cash paid                                       $85,812     $103,074
        Debt assumed                                      3,539       13,144
        ---------------------------------------------------------------------

        Total purchase price                             89,351      116,218
        Fair value adjustments to debt                       19         (207)

        ---------------------------------------------------------------------
        Book value                                      $89,370     $116,011

        Allocation of book value to revenue
         producing properties                           $86,338     $112,354
        Allocation of book value to other
         assets (NOTE 2 (d))                              3,032        3,657
        ---------------------------------------------------------------------

                                                        $89,370     $116,011
                                                  ---------------------------
                                                  ---------------------------

        Multi-family units acquired                       1,103        1,325
                                                  ---------------------------
                                                  ---------------------------

        Dispositions
                                                     Year ended   Year ended
                                                    December 31, December 31,
                                                           2006         2005
                                                  ---------------------------

        Cash received                                   $20,274      $19,723
        Cost of dispositions                                426          309
        ---------------------------------------------------------------------

        Total proceeds                                   20,700       20,032
        Net book value                                   13,173       15,564
        ---------------------------------------------------------------------

        Gain on dispositions                             $7,527       $4,468
                                                  ---------------------------
                                                  ---------------------------

        Multi-family units sold
         (excluding commercial property)                    196          186
                                                  ---------------------------
                                                  ---------------------------

        Included in revenue producing properties is capitalized wages of
        $3.9 million for the year ended December 31, 2006 (December 31,
        2005 - $4.1 million) relating to capital upgrades.

    6.  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. During the end of the third quarter of 2006, a revenue
        producing property 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 being developed into
        condominium units for sale at a price that is reasonable in relation
        to its current fair value. These three 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.


                                                     Year ended   Year ended
                                                    December 31, December 31,
                                                           2006         2005
                                                  ---------------------------
        Revenue
        Rental income                                    $1,167       $4,192
        ---------------------------------------------------------------------

        Expenses

        Revenue producing properties:
          Operating expenses                                186          209
          Utilities                                         151          707
          Property taxes                                     96          335
        Administration                                       42          130
        Financing costs                                     208        1,236
        Deferred financing cost amortization                176           39
        Amortization of capital assets                      206          662
        ---------------------------------------------------------------------
                                                          1,065        3,318
                                                  ---------------------------

                                                            102          874

        Gain on disposition                               7,527        4,468
                                                  ---------------------------

        Operating earnings from discontinued
         operations before income taxes                   7,629        5,342

        Future income taxes                                   -          110
        ---------------------------------------------------------------------

        Earnings from discontinued operations            $7,629       $5,232
                                                  ---------------------------
                                                  ---------------------------


        As at                                       December 31, December 31,
                                                           2006         2005
                                                  ---------------------------

        Discontinued Assets
          Revenue producing properties
           held for sale                                     $-      $12,490
          Properties held for redevelopment               5,456        5,230
          Other assets on properties held
           for sale                                           -          268
          Other assets on properties held
           for redevelopment                                  -          176
        ---------------------------------------------------------------------
        Total                                            $5,456      $18,164
                                                  ---------------------------
                                                  ---------------------------

        Discontinued Liabilities
          Mortgages payable on properties
           held for sale                                     $-       $9,562
          Mortgages payable on properties
           held for redevelopment                             -        6,025
        ---------------------------------------------------------------------
        Total                                                $-      $15,587
                                                  ---------------------------
                                                  ---------------------------

    7.  MORTGAGES AND ACCOUNTS RECEIVABLE

        The mortgages and accounts receivable comprise an aggregate amount of
        $4.4 million at December 31, 2006 (December 31, 2005 - $9.0 million).
        The balance consists mainly of mortgage holdbacks and income earned
        but not yet received.


        As at                                       December 31, December 31,
                                                           2006         2005
                                                  ---------------------------

        Accounts receivable                              $4,388       $4,481
        Mortgage holdbacks and refundable
         mortgage fees                                        -        4,558
        ---------------------------------------------------------------------
                                                         $4,388       $9,039
                                                  ---------------------------
                                                  ---------------------------

    8.  OTHER ASSETS


        As at                                       December 31, December 31,
                                                           2006         2005
                                                  ---------------------------

        Corporate technology assets (net of
         amortization)                                   $3,436       $3,502
        Head office building (net of amortization)        2,329        2,350
        Deposits on potential property acquisitions         814          200
        Prepaid parts and supplies                        2,097        2,037
        Lease goodwill and customer relationship
         intangibles, net of accumulated amortization     1,271          125
        Prepaid property taxes                            1,193        1,151
        Prepaid and other                                 2,733        1,963
        ---------------------------------------------------------------------
                                                        $13,873      $11,328
                                                  ---------------------------
                                                  ---------------------------

        Accumulated amortization for corporate technology assets and head
        office building at December 31, 2006 were $12.1 million and
        $1.0 million, respectively (December 31, 2005 - $10.8 million and
        $0.8 million, respectively).

    9.  MORTGAGES PAYABLE


        As at                                       December 31, December 31,
                                                           2006         2005
                                                  ---------------------------

        (a)  Revenue producing properties

        Mortgages payable bearing interest at
        rates ranging between 3.82% and 8.85%
        per annum with a weighted average rate
        of 5.31% per annum at December 31, 2006
        (December 31, 2005 - 5.39%), payable in
        monthly principal and interest instalments
        totalling $9.0 million for the year ended
        December 31, 2006 (December 31, 2005 -
        $9.7 million), mature from 2007 to 2020
        and are secured by specific charges
        against specific properties. All interest
        rates are fixed for the term of the
        respective mortgage.                         $1,420,748   $1,423,237

        (b)  Other assets

        Mortgage payable bearing interest at the
        rate of 7.92% per annum at December 31,
        2006 and 2005, payable in monthly
        principal and interest instalments
        totalling $15 thousand for the years
        ended December 31, 2006 and 2005, matures
        in September 2010 and is secured by a
        specific charge against the head office
        building. The interest rate is fixed for
        the term of the mortgage.                         1,683        1,725
        ---------------------------------------------------------------------
                                                     $1,422,431   $1,424,962
                                                  ---------------------------
                                                  ---------------------------

        Continuing operations                        $1,422,431   $1,409,375
        Discontinued operations (NOTE 6)                      -       15,587
        ---------------------------------------------------------------------
                                                     $1,422,431   $1,424,962
                                                  ---------------------------
                                                  ---------------------------

        Estimated principal payments required to meet mortgage obligations as
        at December 31, 2006 are as follows:


                                 Revenue
                               Producing
                              Properties       Other Assets            Total
                          ---------------------------------------------------
        2007                    $351,278                $45         $351,323
        2008                     238,884                 48          238,932
        2009                     223,849                 53          223,902
        2010                     264,007              1,537          265,544
        2011                     117,951                  -          117,951
        Subsequent               224,732                  -          224,732
        ---------------------------------------------------------------------
                              $1,420,748             $1,683       $1,422,431
                          ---------------------------------------------------
                          ---------------------------------------------------

        Estimated principal payments required to meet mortgage obligations as
        at December 31, 2005 are as follows:


                                 Revenue
                               Producing
                              Properties       Other Assets            Total
                          ---------------------------------------------------
        2006                    $212,755                $42         $212,797
        2007                     269,070                 45          269,115
        2008                     226,677                 48          226,725
        2009                     200,556                 53          200,609
        2010                     243,960              1,537          245,497
        Subsequent               270,219                  -          270,219
        ---------------------------------------------------------------------
                              $1,423,237             $1,725        1,424,962
                          ---------------------------------------------------
                          ---------------------------------------------------

        CMHC provides mortgage loan insurance in connection with mortgages
        made to Boardwalk REIT. In an agreement dated September 13, 2002 and
        as amended and restated on January 19, 2005 and April 25, 2006, the
        Trust agreed to provide certain financial information to CMHC and be
        subject to certain restrictive covenants, including limitation on
        additional debt, distribution of dividends in respect of unitholders'
        capital in the event of default, and maintenance of certain financial
        ratios. In the event of default, the Trust's total financial
        liability under this Agreement is limited to a one-time penalty
        payment of $250 thousand under a Letter of Credit issued in favour of
        CMHC.

        (c)  Demand facilities

        During the year, the Trust had a demand facility in the form of an
        acquisition and operating line with a major financial institution.
        This demand facility was secured by a first or second mortgage charge
        of specific assets. The maximum amount available varied with the
        value of pledged assets to a maximum not to exceed $110 million.
        Approximately $103.0 million was available from this facility on
        December 31, 2006 (December 31, 2005 - $95.0 million). The amount of
        $6.2 million of the facility was outstanding at December 31, 2006
        (December 31, 2005 - $nil). In addition, three Letters of Credit
        ("LC") were issued and outstanding against the facility as at
        December 31, 2006. One LC was issued in favour of CMHC as noted
        above. The LC in the amount of $250 thousand was issued in favour of
        a utility company, Hydro Quebec. The third LC in the amount of
        $356 thousand was issued in favour of the City of London. The demand
        facility carried an interest rate ranging from prime to prime plus
        1.0% per annum and had no fixed terms of repayment. The facility was
        subject to annual reviews by the financial institution. Subsequent to
        year end, the maximum amount available under the acquisition and
        operating line demand facility increased from $110 million to
        $200 million (NOTE 19).

    10. 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 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.

    11. DEFERRED UNIT PLAN

        During 2006, the Trust implemented a deferred unit plan. The plan
        entitles trustees and officers, at the participant's option, to
        receive deferred units in consideration for trustee fees or executive
        bonuses, respectively, with the Trust matching the number of units
        received. The deferred units vest 50% on the third anniversary and
        25% on each of the fourth and fifth anniversaries, subject to
        provisions for earlier vesting in certain events. The deferred units
        earn additional deferred units for the distributions that would
        otherwise have been paid on the deferred units (i.e., had they
        instead been issued as Trust Units on the date of grant). Once
        vested, participants are entitled, at their option, to receive an
        equivalent number of Trust Units or the equivalent value in cash of
        the vested deferred units and the corresponding additional deferred
        units. The deferred unit plan was approved by unitholders on May 10,
        2006. At the end of December 31, 2006, total compensation costs of
        $0.8 million were recognized in income related to employee awards
        under the deferred unit plan.

        The status of the outstanding deferred units is as follows:


                                                    Outstanding       Vested

        Deferred units granted                           72,746            -
        Additional deferred units earned on
         unvested units                                   1,000            -

                                                  ---------------------------
        December 31, 2006                                73,746            -
                                                  ---------------------------
                                                  ---------------------------

    12.  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, Boardwalk Equities Inc. incurred
        $10.3 million in 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,
         net of issue costs                           2,915,000       63,583
        Units issued under distribution
         reinvestment plan                              212,589        5,784
        Restructuring costs                                   -         (140)
        Deferred unit plan (NOTE 11)                          -          821
                                                  ---------------------------
        December 31, 2006                            56,351,783     $365,744
                                                  ---------------------------
                                                  ---------------------------

        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                         51,876,783
        Special Voting Units issued to holders
         of LP Class B units                          4,475,000
                                                  ---------------------------
        Total trust units                            56,351,783     $365,744
                                                  ---------------------------
                                                  ---------------------------

    13. 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 the DOT, as amended and restated, the Trust is
        required to distribute, at a minimum, its reported taxable income.
        The reconciliation of distributable income and per unit information
        begins with total operating cash flows calculated in accordance with
        Canadian generally accepted accounting principles and is 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.


                                                     Year ended   Year ended
                                                    December 31, December 31,
                                                           2006         2005
                                                  ---------------------------

        Total operating cash flows                      $95,814      $81,196
        Net change in operating working capital          (4,458)      (6,401)
        Add:
          Deferred financing costs amortization           3,369        3,980
          Amortization of net discount on
           long-term debt assumed after May 2, 2004          67            9
        Deduct:
          Deferred financing costs amortization
           post May 2, 2004                              (1,183)        (916)
        ---------------------------------------------------------------------

        Distributable income                            $93,609      $77,868
        Distribution declared to unitholders            $72,312      $66,997
        Distributable income withheld                   $21,297      $10,871

        ---------------------------------------------------------------------
        ---------------------------------------------------------------------
        Weighted average units outstanding -
         basic and diluted                           55,542,918   53,167,640
        Distributable income earned per unit             $1.685       $1.465
        Actual distributions declared per unit           $1.302       $1.260
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------


        Earnings per unit
                                                     Year ended   Year ended
                                                    December 31, December 31,
                                                           2006         2005
                                                  ---------------------------

        Numerator
          Earnings (loss) from continuing operations    $17,760        $(202)
          Earnings from discontinued operations           7,629        5,232
        ---------------------------------------------------------------------
        Denominator
          Denominator for basic earnings per unit -
           weighted average units (THOUSANDS)            55,543       53,168
        ---------------------------------------------------------------------
          Denominator for diluted earnings
           per unit adjusted for weighted average
           units and assumed conversion (THOUSANDS)      55,543       53,168
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------
        Earnings (loss) per unit from continuing
         operations
          Basic                                           $0.32       $(0.01)
          Diluted                                         $0.32       $(0.01)
        ---------------------------------------------------------------------
        Earnings per unit from discontinued
         operations
          Basic                                           $0.14        $0.10
          Diluted                                         $0.14        $0.10
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------


    14. 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. 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.


                                                     Year ended   Year ended
                                                    December 31, December 31,
                                                           2006         2005
                                                  ---------------------------

        Continuing operations                              $613        $(493)
        Discontinued operations                               -          110
        ---------------------------------------------------------------------

        Total future income taxes (recovery)               $613        $(383)
                                                  ---------------------------
                                                  ---------------------------

        Future income taxes (recovery) consists of the following:


                                                     Year ended   Year ended
                                                    December 31, December 31,
                                                           2006         2005
                                                  ---------------------------

        Tax (recovery) expense based on expected rate      $546         $719
        Non-taxable portion of capital gains                  -         (470)
        Adjustment to future income tax liabilities         158         (552)
        Adjustment for change in effective tax rate         (91)         (80)
        ---------------------------------------------------------------------
        Future income taxes (recovery)                     $613        $(383)
                                                  ---------------------------
                                                  ---------------------------

        The future income tax asset is calculated as follows:


        As at                                       December 31, December 31,
                                                           2006         2005
                                                  ---------------------------

        Tax asset related to operating losses              $294         $403
        Tax asset related to differences in tax
         and book basis                                      22          526
        ---------------------------------------------------------------------
        Future income tax asset                            $316         $929
                                                  ---------------------------
                                                  ---------------------------

    15. RELATED PARTY TRANSACTIONS

        During the years ended December 31, 2006 and 2005, there were no
        related party transactions.

    16. COMMITMENTS AND CONTINGENCIES

        Boardwalk REIT has long-term supply arrangements with electrical
        utility companies and commitments for fixed-price natural gas supply
        contracts as described in Note 2(g)(iii).

        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.

    17. 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 may 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 December 31,
        2006 is approximately $5.4 million (December 31, 2005 -
        $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 December 31, 2006, no amounts have been recorded in the
        consolidated financial statements with respect to the above noted
        indirect guarantees.

    18. 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.


                                                     Year ended   Year ended
                                                    December 31, December 31,
                                                           2006         2005
                                                  ---------------------------

        Alberta
          Revenue                                      $170,261     $154,721
                                                  ---------------------------
          Expenses
            Operating                                    27,116       26,144
            Utilities                                    20,188       20,862
            Utility rebates                              (1,988)      (1,842)
            Property taxes                               12,278       13,055
        ---------------------------------------------------------------------
                                                         57,594       58,219
                                                  ---------------------------
          Net operating income                         $112,667      $96,502
                                                  ---------------------------

        Saskatchewan
          Revenue                                       $35,485      $34,460
                                                  ---------------------------
          Expenses
            Operating                                     6,375        6,234
            Utilities                                     4,815        4,040
            Property taxes                                4,813        4,977
        ---------------------------------------------------------------------
                                                         16,003       15,251
                                                  ---------------------------
          Net operating income                          $19,482      $19,209
                                                  ---------------------------

        Ontario
          Revenue                                       $37,573      $36,901
                                                  ---------------------------
          Expenses
            Operating                                     6,059        6,158
            Utilities                                     6,368        6,270
            Property taxes                                7,169        6,588
        ---------------------------------------------------------------------
                                                         19,596       19,016
                                                  ---------------------------
          Net operating income                          $17,977      $17,885
                                                  ---------------------------

        Quebec
          Revenue                                       $67,141      $64,164
                                                  ---------------------------
          Expenses
            Operating                                    13,680       10,203
            Utilities                                     7,878        7,683
            Property taxes                                7,335        7,356
        ---------------------------------------------------------------------
                                                         28,893       25,242
                                                  ---------------------------
          Net operating income                          $38,248      $38,922
                                                  ---------------------------

        British Columbia
          Revenue                                        $8,358       $5,567
                                                  ---------------------------
          Expenses
            Operating                                     1,943        1,001
            Utilities                                     1,015          560
            Property taxes                                  465          411
        ---------------------------------------------------------------------
                                                          3,423        1,972
                                                  ---------------------------
          Net operating income                           $4,935       $3,595
                                                  ---------------------------

        Total
          Net operating income                         $193,309     $176,113
          Unallocated revenue(*)                         22,489       24,927
          Unallocated expenses(xx)                     (190,409)    (196,010)
        ---------------------------------------------------------------------
          Net earnings for the period                   $25,389       $5,030
                                                  ---------------------------
                                                  ---------------------------


        As at                                       December 31, December 31,
                                                           2006         2005
                                                  ---------------------------

        Alberta
          Identifiable assets
            Revenue producing properties               $933,628     $929,273
            Mortgages and accounts receivable               863        5,277
            Deferred financing costs                     26,636       25,908
            Tenants' security deposit                     7,988        5,688
                                                  ---------------------------
                                                       $969,115     $966,146
                                                  ---------------------------
        Saskatchewan
          Identifiable assets
            Revenue producing properties               $172,269     $176,116
            Mortgages and accounts receivable               195          185
            Deferred financing costs                      4,213        4,320
            Tenants' security deposits                    1,491        1,341
                                                  ---------------------------
                                                       $178,168     $181,962
                                                  ---------------------------
        Ontario
          Identifiable assets
            Revenue producing properties               $208,927     $213,490
            Mortgages and accounts receivable               126          236
            Deferred financing costs                      3,645        3,508
                                                  ---------------------------
                                                       $212,698     $217,234
                                                  ---------------------------
        Quebec
          Identifiable assets
            Revenue producing properties               $419,962     $398,109
            Mortgages and accounts receivable               819        5,032
            Deferred financing costs                      5,547        5,927
                                                  ---------------------------
                                                       $426,328     $409,068
                                                  ---------------------------
        British Columbia
          Identifiable assets
            Revenue producing properties               $107,321      $62,014
            Mortgages and accounts receivable                46          285
            Deferred financing costs                        598            -
            Tenants' security deposits                      408          250
                                                  ---------------------------
                                                       $108,373      $62,549
                                                  ---------------------------

        Total assets
          Identifiable assets                        $1,894,682   $1,836,959
          Unallocated assets(xxx)                        19,183       46,427
                                                  ---------------------------
                                                     $1,913,865   $1,883,386
                                                  ---------------------------
                                                  ---------------------------

        (*)   Unallocated revenue includes discontinued operations, interest
              income and other non-rental income.

        (xx)  Unallocated expenses include 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.

    19. SUBSEQUENT EVENTS

        Subsequent to December 31, 2006, Boardwalk REIT contracted to acquire
        the following properties:

        (a)  a property consisting of 41 units located in Coquitlam, British
             Columbia from unrelated third parties for an aggregate purchase
             price of $3.7 million. The acquisition is scheduled to close on
             January 25, 2007 and will be funded by Boardwalk REIT's credit
             facility.

        (b)  a property consisting of 51 units located in Edmonton, Alberta
             from unrelated third parties for an aggregate purchase price of
             $4.2 million. The acquisition is scheduled to close on
             January 26, 2007 and will be funded by Boardwalk REIT's credit
             facility.

        (c)  a property consisting of 1,176 units located in Edmonton,
             Alberta from unrelated third parties for an aggregate purchase
             price of $143.5 million. The acquisition is scheduled to close
             on February 28, 2007 and will be funded by the assumption of
             mortgages totaling approximately $31.0 million and the balance
             from Boardwalk REIT's credit facility.

        Subsequent to December 31, 2006, Boardwalk REIT increased the maximum
        amount available on its acquisition and operating line demand
        facility from $110 million to $200 million.
    >>

    %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;







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