TSE SYMBOL: BEI NYSE SYMBOL: BEI MAY 23, 2001 - 09:28 EDT Boardwalk Announces Strong First Quarter Results; Well Positioned for Continued Solid Performance CALGARY, ALBERTA--Boardwalk Equities Inc. (BEI - TSE/NYSE) announced today strong financial results for its first quarter ending March 31, 2001. For the quarter the Company reported Total Revenues of $68 million, Funds From Operations (FFO) of $18.5 million and FFO per share of $0.37. Effective December 31, 2000, the Company changed its fiscal period end to December 31 from May 31. Due to this change, comparable results for the same period are not available. For illustrative purposes only, where applicable, we have presented the Company's results for the three month period ending February 29, 2000. Readers are cautioned that these periods are not for identical comparable periods and that the real estate industry is subject to seasonal fluctuations that will affect straight comparisons of these amounts. Highlights of the Company's first quarter 2001 financial results include: * Rental Revenues of $50.0 million, which compares to $46.2 million for the three month period ending February 29, 2000 * Total Revenues of $68.0 million, compared to $48.1 million for the three month period ending February 29, 2000 * Net Rental Income of $32.4 million, which compares to $30.2 million for the three month period ending February 29, 2000 * Funds from Operations (FFO) of $18.5 million, compared to $9.8 million for the three month period ending February 29, 2000 * FFO per share of $0.37, compared to $0.20 for the three month period ending February 29, 2000 * Net Earnings of $4.9 million, compared to $3.4 million for the three month period ending February 29, 2000 * EPS of $0.10, compared to $0.07 for the three month period ending February 29, 2000 Commenting on the Company's first quarter results, Sam Kolias, President and C.E.O. said "We have gotten off to an excellent start in 2001 and are pleased with our financial performance. We are optimistic that we can continue to demonstrate solid performance for the balance of the year." The first quarter results include a sale of a property which resulted in $18.0 million of revenues and $7.5 million of pre-tax operating profit. The sale provided a $0.15 contribution to FFO per share in the quarter. The Company continues to realize the benefit of improved efficiencies from the roll out last year of its web-enabled real time property management system, which management believes is the first of its kind in North America. General and Administrative expenses in the quarter were consistent with those posted in the more recent quarters. The Company continues to mitigate the risk associated with energy costs throughout the portfolio. As previously announced, the Company locked in electricity prices in Alberta for a period of 3 to 5 years. The Company also recently locked in natural gas prices for its Alberta portfolio at around CDN $7.90 per gigajoule for a one year term. The Company also continues to pursue other conservation and sub-metering initiatives to further minimize the impact of any future energy price increases. Portfolio Performance The Company continues to see improvement in its portfolio performance, in part a result of the company's value added capital and service programs designed to improve both the quality and service to existing and new customers. Boardwalk's overall occupancy was at 94%; which is consistent with the amounts reported for the three months ended February 29, 2000. Average rents across the Company's portfolio in the quarter increased to $667 per unit per month compared to $616 for the three months ended February 29, 2000. Same-Store Results Boardwalk also showed solid improvement in its stabilized properties (defined as properties owned for over 24 months). A total of 20,221 units were classified as stabilized for the latest quarter, representing 80% of Boardwalk's total portfolio. Again, due to the change in the Company's fiscal year end, for illustrative purposes only, we have made the prior period comparison to the three month period ending February 29, 2000. On this basis, "same-store" results for the Company's stabilized portfolio for the three month period ending March 31, 2001 showed improved results with rental revenue growth of 6.6% and NOI growth of 15.4% compared to the three month period ended February 29, 2000. /T/ --------------------------------------------------------------- Rental Rental Revenues Expenses NOI --------------------------------------------------------------- Edmonton +9.09% -9.34% +19.11% Calgary +2.57% -26.03% +15.52% Other Alberta +10.26% +10.46% +10.20% Saskatoon +11.96% -0.87% +22.25% Regina +1.30% +4.59% -1.19% Total Stabilized +6.64% -9.76% +15.43% --------------------------------------------------------------- /T/ Acquisition and Disposition Activity The Company completed the acquisition of a total of 711 units in the quarter located primarily in Edmonton and Saskatoon. In aggregate, the acquisition cost of the properties totaled $27.9 million, or approximately $38,500 per unit, representing an amount well below replacement cost. The details of the transaction involved Boardwalk assuming approximately $14 million of existing mortgage debt, the issuance of 649,125 shares for proceeds of $7.1 million and the payment of $6.7 million in cash. The anticipated going-in unleveraged return on the properties is in excess of 9.5% and management believes that it will be able to enhance these returns through its proven property management and repositioning techniques and achieve very attractive returns on its equity investment in the projects. During the quarter the Company completed the sale of a project in Edmonton totaling 236 units. The project was sold for $18.0 million, or approximately $76,300 per unit, with a pre-tax profit of $7.5 million, or $0.15 per share. The profit that Boardwalk realized on the sale of the property is another illustration of the Company's ability to acquire, reposition and enhance returns and values significantly. The Company had acquired the property in mid-1996 as part of a portfolio purchase and subsequently had undertaken a major upgrade to the property which repositioned it in the marketplace and resulted in a significant increase in rental revenues and cash flows. The property sale is consistent with the Company's strategy of continuously looking at selective opportunities to dispose of certain properties within its portfolio where value has been created and where management believe it can re-deploy the capital into other opportunities offering higher returns, growth and value creation potential. Continued Balance Sheet Strength The Company maintained its strong financial position in the quarter. The Company's mortgage debt totaled $1.06 billion as at March 31, 2001, up marginally from $1.03 billion at December 31, 2001. All of the Company's outstanding mortgage debt as of March 31, 2001 was at fixed rates and carried a weighted average interest rate of 6.32% (compared to 6.27% at December 31, 2001 and 6.31% at February 29, 2000), with a weighted average remaining term to maturity of over 5 years. The Company's liquidity remained strong, with its operating and demand facility remained untapped and its cash resources continued to grow, amounting to over $18 million as at March 31, 2001. Suite Systems Inc. - Initial Roll Out Underway Suite Systems Inc. (SSI), currently 100%-owned by Boardwalk, began the initial roll-out of its services in the first quarter of the year. It began selling its digital TV and high-speed Internet services at two of Boardwalk's properties in Calgary. In just under two months since it began marketing its services at the two initial buildings it has over 100 subscribers, achieving healthy penetration rates over a short period of time. A number of additional Boardwalk properties have been pre-wired for SSI's services and a measured roll-out is anticipated over the balance of the year. SSI has also entered into initial agreements to service several non-Boardwalk owned properties. Sam Kolias, Boardwalk's President and C.E.O. said that "the roll-out of Suite Systems' services to our properties will give our residents an unprecedented level of communications and information services which we believe will serve as an attractive additional amenity to our properties. We remain committed to providing our residents with the best value, service and amenities in the multi-family industry." SSI continues to be in negotiation with several municipal electric utilities (MEU's) and other owners of rights of way and dark fiber assets regarding a variety of partnership arrangements including revenue share and equity participation arrangements. The Company anticipates concluding one or more of these agreements over the next several months. These relationships are expected to result in a number of benefits to SSI including allowing an accelerated roll-out in its target markets as well as a more cost-effective and scaleable business model. Boardwalk's investment in SSI totaled $34 million at the end of the first quarter, or approximately 2% of the Company's total assets. This amount includes over $6.5 million relating to the Centre 15 office building in Calgary, located one block away from Boardwalk's head office, which houses SSI's head office as well as its video head-end and central switch facilities. We certainly are not sitting still with respect to various other technology-related activities relating to our core business. We are now implementing the individual meter technology on close to 400 units with a goal to do about 3000 units over the next year. We estimate that this will save us over $1 million per year. We are also continuing to identify duplicate entry procedures with the goal to further identify efficiencies like sites authorizing auto debit payments to contractors streamlining the payment process, tightening controls while providing more timely cash flow information. We will also focus on transferring our Boardwalk phone traffic to our new switch, which will further introduce savings on our general and administrative expenses. We are also stepping up our attention on our ownership database assets with a goal to widen discussions with potential vendors further, learning the status of more owners and being in a better position to react as vendor situations and markets change. Outlook Commenting on the outlook for the Company, George Reti, Executive Vice President, said "We remain optimistic that we are well positioned as a Company and in terms of our major market areas to generate strong growth over the next several years. As for the balance of the year, we remain optimistic about the Company's ability to show improved results." Boardwalk's largest portfolio concentration is in Alberta, which accounts for over 67% of its total units. Economists continue to predict that Alberta will lead the country in economic growth through 2002. CMHC recently released its Housing Outlook publications in which it predicted apartment rental rate growth in 2001 for Calgary of 5.0% and for Edmonton 7.5%. With respect to current "street" estimates, Rob Geremia, Chief Financial Officer, said "We are comfortable with the lower end of the the current analyst forecast range for FFO of between $1.15 and $1.20 per share for the current year, including a forecast contribution realized from our ongoing sales activity of approximately $0.25 per share for the full year." Conference Call Information Investors, analysts and interested parties are invited to join Boardwalk's quarterly conference call to be held today at 11:15am EST (9:15am MST) in which Sam Kolias, President and CEO, and other senior executives will speak to Company's fiscal 2001 first quarter results. The dial-in numbers for the conference call are: 416-620-2405 (within Toronto) or 1-888-209-3799 (outside Toronto). Presentation materials will be made available on the INVESTOR section of our website (www.bwalk.com) prior to the call. The Company will also have of a webcast of the conference call in which participants will be able to listen to the call and view our slide presentation simultaneously over the Internet. To access the webcast please visit http://investor.bwalk.com/reports/r2001/01_1.htm at least 15 minutes prior to the call. This page will provide information on software needed and system requirements. A live audiocast will also be available at http://www.newswire.ca/webcast/. An audio recording of the teleconference will be available approximately one hour after the call until 11:59pm EST on May 30, 2001. It can be accessed it by dialing 416-626-4100 and using the reservation number 18603364. An audio archive will also be available on our Investor site (http://investor.bwalk.com) two hours after the conference call until June 22, 2001. About the Company Boardwalk Equities Inc. is a customer oriented, technologically advanced real estate company specializing in the acquisition and management of multi-family residential projects throughout Canada. Boardwalk owns or has contracted to acquire over 25,000 units representing over 21 million net rentable square feet making it the largest owner and operator in Canada. Boardwalk is listed on the Toronto Stock Exchange and the New York Stock Exchange and trades under the symbol "BEI". Suite Systems Inc. (SSI) is a fully digital telecommunications company for the 21st century. It will be the first North American company to deliver voice, data, and video in one bundled service over a fiber optic network. In addition to phone, digital TV, video on demand, and high speed Internet access, SSI will also eventually be an Application Service Provider (ASP) and provide e-commerce services. Suite Systems is a wholly owned subsidiary of Boardwalk Equities. For more information about Boardwalk Equities Inc. visit our website at www.bwalk.com. For additional information about Suite Systems Inc. visit its website is www.suitesystems.com. Safe Harbor "Statement under the Private Securities Litigation Reform Act of 1995: Except for the historical information contained herein, this news release contains forward-looking statements regarding Company and property performance, and is based on the Company's current expectations and judgment. Actual results could vary materially depending on risks and uncertainties inherent to general and local real estate conditions, competitive factors specific to markets in which Boardwalk operates, legislative or other regulatory decisions, future interest rate levels or capital markets conditions. The Company assumes no liability to update this information. For more details, please refer to the Company's SEDAR filings, including its most recent Annual Report and Annual Information form. /T/ Financial Information Consolidated Balance Sheets (Thousands of dollars) March 31, 2001 December 31, 2000 (Unaudited) (Audited) Assets Revenue producing properties $ 1,354,409 $ 1,325,715 Properties held for development and resale 6,378 6,692 Mortgages & accounts receivable 21,461 17,230 Other assets 14,904 14,637 Deferred financing costs 32,178 31,460 Technology initiative 34,141 27,045 Cash and short term investments 18,785 21,055 -------------- -------------- $ 1,482,256 $ 1,443,834 -------------- -------------- -------------- -------------- Liabilities Mortgages payable $ 1,056,382 1,034,444 Accounts payable and accrued liabilities 22,799 24,795 Refundable security deposits and other 9,634 9,953 Capital lease obligations 9,967 8,404 Future income taxes 72,568 64,864 -------------- -------------- $ 1,171,350 $ 1,142,460 -------------- -------------- Shareholders' Equity Share capital 260,738 253,586 Retained earnings 50,168 47,788 -------------- -------------- 310,906 301,374 -------------- -------------- $ 1,482,256 $ 1,443,834 -------------- -------------- -------------- -------------- Consolidated Statement of Earnings - For the three months ended (Thousands of dollars, except per share amounts) (Unaudited) March 31 February 29 2001 2000 (restated Note 2) Revenue Rental income $ 49,970 $ 46,230 Sales - properties held for development and resale 18,009 1,898 ---------- ---------- 67,979 48,128 ---------- ---------- Expenses Revenue producing properties: Operating Expenses 5,967 5,375 Utilities 10,092 6,237 Utility Rebate (3,265) - Property taxes 4,810 4,378 Cost of sales - properties held for development and resale 10,525 1,718 Administration 3,883 4,586 Financing costs 16,687 15,395 Amortization 12,454 2,680 ---------- ---------- 61,153 40,369 ---------- ---------- Operating earnings before income taxes 6,826 7,759 ---------- ---------- Large corporations taxes 754 614 Future income taxes 1,194 3,787 ---------- ---------- Net earnings $ 4,878 $ 3,358 ---------- ---------- ---------- ---------- Earnings per share - Basic and fully diluted $ 0.10 $ 0.07 ---------- ---------- ---------- ---------- Consolidated Statement of Retained Earnings (Thousands of dollars, except per share amounts) (Unaudited) March 31 February 29 2001 2000 (restated Note 2) Retained earnings, as previously stated $ 47,788 $ 32,726 Adjustment for retroactive adoption of future income taxes (note 2) - (1,070) ----------- ----------- Retained earnings, beginning of period as restated 47,788 31,656 Net earnings 4,878 3,358 Dividends paid (2,496) - Premium on share repurchases (2) - ----------- ----------- Retained earnings, end of period $ 50,168 $ 35,014 ----------- ----------- ----------- ----------- Consolidated Statement of Cash Flows- For the three months ended (Thousands of dollars, except per share amounts) (Unaudited) March 31 February 29 2001 2000 (restated Note 2) Cash flow obtained from (applied to): Operating activities Net income $ 4,878 $ 3,358 Future income taxes 1,194 3,787 Amortization 12,454 2,680 ---------- ---------- Funds from operations 18,526 9,825 Net change in operating working capital (6,815) 2,745 Net change in property held for development 9,694 1,135 ---------- ---------- Total operating cash flows 2,879 3,880 ---------- ---------- Financing activities Issue of common shares (net of issue costs) 39 47 Stock repurchase program (5) (3,473) Dividends paid (2,496) - Financing of revenue producing properties 32,638 36,121 Repayment of debt on revenue producing properties (24,754) (7,625) Capital lease payments (286) - Deferred financing costs (1,063) (572) ---------- ---------- 4,073 24,498 ---------- ---------- Investing activities Purchases of revenue producing properties net of debt on acquisitions of $14,055 (2000 - $22,783) and shares issued of $7,116 (2000 - $nil) (6,738) (18,057) Project improvements to revenue producing properties (15,763) (21,360) Technology initiative (5,247) - ---------- ---------- (27,748) (39,417) ---------- ---------- Decrease in cash balance during the period (2,270) (1,214) Cash and cash equivalents (indebtedness), beginning of period 21,055 (2,730) ---------- ---------- Cash and cash equivalents (indebtedness), end of period $ 18,785 $ (3,944) ---------- ---------- ---------- ---------- Funds from operations per share, basic and fully diluted $ 0.37 $ 0.20 ---------- ---------- ---------- ---------- Taxes Paid $ 609 $ 409 ---------- ---------- ---------- ---------- Interest Paid $ 16,393 $ 14,917 ---------- ---------- ---------- ---------- /T/ Notes to Financial Statements For the Three Months Ended March 31, 2001 Note 1 - Basis of Presentation These unaudited interim consolidated financial statements have been prepared in accordance with Canadian generally accepted accounting principles ("GAAP") and are consistent with those used in the audited consolidated financial statements as at and for the seven months ended December 31, 2000, except for the adoption of a new Canadian Institute of Public Real Estate Companies ("CIPREC") requirement. The new standard requires the use of a funds from operations ("FFO") calculation, versus the traditional cash flow from operations calculation. As a result of this change, the Corporation will now calculate funds from operations per share instead of cash flow per share. Prior period figures have been restated. The interim financial statements should be read in conjunction with the audited financial statements. As a result of the Corporation changing its year end from May 31 to December 31, comparative figures for the quarter are February 29, 2000. Due to seasonality, the operating results for the three months ended March 31, 2001 are not necessarily indicative of the results that may be expected for the full year ended December 31, 2001. Note 2 - Changes in Accounting Policy Effective June 1, 2000, the Corporation adopted the liability method of accounting for income taxes as recommended by the Canadian Institute of Chartered Accountants ("CICA"). Under the liability method, the Corporation records future income taxes for the effect of any difference between the accounting and income tax basis of an asset or liability. The Corporation retroactively adopted the CICA recommendations. The following table illustrates the change on the income statement and opening retained earnings for the three months ended February 29, 2000. /T/ Effect of Adoption - As Restated Prior Method increase (decrease) ----------- ------------ ------------------- Amortization Expense $ 2,680 $ 2,540 $ 140 Deferred/Future Income Tax Expense 3,787 3,482 305 Net Earnings 3,358 3,803 (445) Retained Earnings, beginning of period $ 31,656 $ 32,726 $ (1,070) /T/ Effective June 1, 2000, the Corporation retroactively adopted the new CICA Handbook Section 3500. Under this section, fully diluted earnings per share and funds from operations per share are calculated using the "treasury stock" method, replacing the previous method of "imputed earnings per share". There was no effect on fully diluted earnings per share and fully diluted funds from operations per share for the three months ended February 29, 2000. /T/ Note 3 - Share Capital March 31, 2001 December 31, 2000 Number Amount Number Amount ------ ------ ------ ------ Common Shares outstanding (thousands) 49,921 $ 261,485 49,258 $ 253,586 /T/ Note 4 - Per Share Calculation The following table sets forth the computation of basic and diluted earnings per share with respect to income from continuing operations. /T/ March 31, 2001 February 29, 2000 -------------- ----------------- Net income $ 4,878 $ 3,358 -------- -------- -------- -------- Denominator for basic earnings per share - weighted average shares 49,908 48,843 Effect of dilutive stock options 272 363 -------- -------- Denominator for diluted earnings per share adjusted for weighted average shares and assumed conversion 50,180 49,206 -------- -------- -------- -------- Basic earnings per share $ 0.10 $ 0.07 Diluted earnings per share $ 0.10 $ 0.07 /T/ Note 5 - Commitments The Corporation has entered into a one year supply arrangement with a gas utility company to supply the Corporation with 80% of its natural gas needs in Alberta for the 12 month period ending April 30, 2002. The agreements provide that the gas utility company provides the commodity at $7.90 per gigajoule. The remaining 20% supply for November 2001 to March 2002 has been contracted at $6.60 per gigajoule. As disclosed in the December 31, 2000 annual report, the Corporation has entered into long-term supply arrangements with two electrical utility companies to supply the Corporation with its electrical power needs for Alberta for the next three to five years at a blended rate of approximately $0.07/kwh. The agreements provide that the Corporation purchase its power for all properties under contract for the upcoming years based on an approximation of the current year's demand levels. In regards to the Corporation's technology initiative, at March 31, 2001 the Corporation had remaining commitments totalling $2.0 million (December 31, 2000 - $ 4.0 million) with various suppliers with an average weighted interest rate of 10.3% (December 31, 2000 - 10.8%). Note 6 - Comparative Figures Certain comparative figures have been reclassified to conform with the current year's presentation. -30- FOR FURTHER INFORMATION PLEASE CONTACT: Boardwalk Equities Inc. Sam Kolias, President and C.E.O. (403) 531-9255 or George Reti, Executive Vice-President (403) 531-9255 or Roberto Geremia, Vice-President Finance and Chief Financial Officer (403) 531-9255 or Mike Hough, Vice President (403) 531-9255 or Paul Moon, Investor Relations (403) 531-9255 Website: www.bwalk.com
