TSE SYMBOL: BEI NYSE SYMBOL: BEI August 15, 2003
August 15, 2003 Conference Call Web Page
Q2 2003 Webcast and Conference Call Information
BOARDWALK ANNOUNCES SECOND QUARTER RESULTS
ANNUAL DIVIDEND SIGNIFICANTLY INCREASED TO $0.30 PER SHARE
$50 MILLION OF ADDITIONAL ACQUISITIONS COMPLETED, EXPANDING MONTREAL
AND QUEBEC CITY PRESENCE
DOWNLOAD AUGUST 15, 2003 PRESS RELEASE (Printer Friendly 121Kb PDF File)
Calgary, Alberta – August 15, 2003
Boardwalk Announces Second Quarter Results
Annual Dividend Significantly Increased to $0.30 Per Share
$50 Million of Additional Acquisitions Completed, Expanding Montreal and
Quebec City Presence
CALGARY, Aug. 15 /CNW/ - Boardwalk Equities Inc. ("BEI" - TSX, NYSE)
today announced its financial results for the second quarter of 2003. For the
three-month period ended June 30, 2003, the Company reported Funds From
Operations ("FFO"), a key performance measurement for real estate companies,
of $17.1 million and FFO per share of $0.34 on a diluted basis, compared to
FFO of $18.0 million and FFO per share of $0.36 for the same period last year.
Excluding property sales, FFO per share amounted to $0.34 on a diluted basis
in the second quarter of 2003, unchanged compared to $0.34 in the same period
last year.
Funds From Operations ("FFO") is a generally accepted measure of
operating performance of real estate companies, however, it is a non-GAAP
measurement. The Company calculates FFO by taking Net Earnings after
discontinued operations and adding non-cash items including Future Income
Taxes and Amortization. The amount is referenced in Boardwalk's MD&A. The
determination of this amount may differ from that of other real estate
companies.
Highlights of the Company's second quarter 2003 financial results
include:
- Rental revenues of $66.7 million, an increase of 12.1% compared to
$59.5 million for the three-month period ended June 30, 2002.
- Net operating income of $44.1 million, a 5.2% increase from $41.9
million in the same period last year.
- Total FFO of $17.1 million, a decrease of 5.0% compared to $18.0
million for the three-month period ended June 30, 2002. FFO, excluding
all property sales, of $17.1 million, an increase of 0.4% from $17.0
million for the three-month period ended June 30, 2002.
- Total FFO per share of $0.34 on a diluted basis, a decrease of 5.6%
compared to $0.36 for the three-month period ended June 30, 2002. FFO
per share, excluding all property sales, of $0.34 on a diluted basis,
unchanged compared to $0.34 for the three-month period ended June 30,
2002.
- Net income of $2.6 million, a 35.9% decrease compared to $4.0 million
in the same period last year. EPS of $0.05 compared to $0.08 in the
first quarter of last year.
Highlights of the Company's first-half financial results include:
- Rental revenues of $132.4 million, an increase of 16.0% compared to
$114.2 million for the six-month period ended June 30, 2002.
- Net operating income of $84.8 million, a 7.6% increase from $78.8
million in the same period last year.
- Total FFO of $32.6 million, an increase of 0.9% compared to $32.3
million for the six-month period ended June 30, 2002. FFO, excluding
all property sales, of $31.5 million, an increase of 0.8% compared to
$31.2 million for the six-month period ended June 30, 2002.
- Total FFO per share of $0.64 on a diluted basis, a decrease of 1.5%
compared to $0.65 for the six-month period ended June 30, 2002. FFO
per share, excluding all property sales, was $0.62 on a diluted basis,
a decrease of 1.5% compared to $0.63 for the six-month period ended
June 30, 2002.
- Excluding a $3.2 million non-recurring utility rebate which
contributed $0.07 to FFO per share in the first half of 2002, as well
as excluding all property sales, the FFO per share comparison would be
$0.62 compared to $0.56 last year, representing an 10.7% increase.
- Net income of $4.1 million, a 31.2% decrease compared to $5.9 million
in the same period last year. EPS of $0.08 compared to $0.12 in the
first six months of last year.
Sam Kolias, Boardwalk's President and Chief Executive Officer, said, "The
operating environment has remained competitive and the strength in housing
markets has had an impact on our occupancy levels in the first half of the
year as well as on rent and incentive levels in certain markets. In addition,
our utility and other operating costs including those related to turnover have
been somewhat higher than expected, resulting in margin pressure in the latest
quarter. Overall, our utility costs in the latest quarter increased by $2.4
million compared to the same period last year, representing a 43% increase,
and in our stabilized portfolio our utility expenses increased by
approximately 24%. We also had a charge of just under $500,000 in the second
quarter relating to the refinancing of Boardwalk Centre in Edmonton that
adversely impacted FFO by $0.01. The payback on this charge, given the
significant reduction in the interest rate on the property, is less than six
months and we expect this to be reversed by year-end."
"There is a degree of fluctuation in these operating variables on a
seasonal and quarter-to-quarter basis, to which an evaluation of our
performance over the full course of a year, to complement our interim
reporting, would provide a more meaningful analysis of our results. In the
quarters ahead we will be focusing on driving occupancies higher and
maximizing rental revenues while containing controllable costs and non-
essential capital expenditures. We are encouraged by the progress which we are
seeing in our rental operations, particularly the strides that we are making
in improving our occupancy rates. We anticipate that occupancy levels in the
second half of the year will improve over last year. The company remains well-
positioned to benefit from an improvement in the operating environment, with a
high quality portfolio geographically concentrated in markets with attractive
long-term fundamentals."
"Boardwalk has continued to make progress in executing key elements of
our strategic plan," said Mike Hough, Boardwalk's Senior Vice President. "We
have broadened and strengthened the Company's geographic platform
significantly over the past year and a half, having established a high-quality
portfolio and operating team in major markets areas in Quebec. With our
recently completed acquisitions, the Company's portfolio in Quebec has grown
to approximately 5,400 units. We believe that our expanded platform will
enable the Company to capitalize on additional expansion opportunities over
time and serves to enhance the Company's long-term growth potential."
Financial Statement Changes
Effective January 1, 2003, the Corporation adopted the new Canadian
accounting recommendations with respect to the disposal of long-lived assets
on or after that date. As a result, the Corporation now presents FFO per share
from continuing operations and FFO per share from discontinued operations, as
well as total FFO per share. Previously, the Corporation distinguished between
FFO per share from rental operations, FFO per share from property sales and
total FFO per share. With the new recommendations, the results of operations
and cash flows associated with the disposal of long-lived assets on or after
January 1, 2003 are now a component of discontinued operations rather than a
component of continuing rental operations.
Operational Highlights
The average vacancy rate across the Company's portfolio for the second
quarter of 2003 was 5.0%, compared to 4.9% in the first quarter of 2003, and
down from 5.9% in the second quarter of last year.
The average monthly rent realized in the first six months of 2003 was
$727 per unit, up $25, or 3.5%, from $702 per unit for the 6-month period
ended June 30, 2002. Management estimates that market rents for its properties
at the end of June 2003 averaged $788 per unit per month which compares to an
average in-place monthly rent per occupied unit of $765 for the six-month
period ended June 30, 2003. This translates into an estimated "loss-to-lease"
of approximately $10.6 million, or $0.21 per share, maintaining existing
occupancy rate levels.
Same-Property Results
The "same-property" results for the Company's stabilized properties
(defined as properties owned for a period of over 24 months) for the six-month
period ended June 30, 2003 showed rental growth of 1.9%, an increase in
operating expenses of 15.6% and a decline in NOI of 4.1% compared to the same
period last year. The year-to-year comparison is affected by the impact of a
non-recurring gas utility rebate received in the first quarter of 2002 for a
significant portion of the Company's Alberta properties.
Excluding the non-recurring rebate, the Company's stabilized properties
in the first six months of 2003 would have showed rental growth of 1.9%, an
increase in operating expenses of 5.4% and NOI growth of 0.2% compared to the
same period last year.
The "same-property" results for the Company's stabilized properties for
the three-month period ended June 30, 2003 showed rental growth of 2.1%, an
increase in operating expenses of 13.5% and a decline in NOI of 2.5% compared
to the same period last year.
A total of 25,064 units, representing approximately 82% of Boardwalk's
total portfolio, were classified as stabilized as at June 30, 2003. None of
the Company's Quebec properties are currently classified as stabilized.
Same-Property Results - Stabilized Portfolio
Six Months Ended June 30, 2003 vs. Six Months Ended June 30, 2002
Net
Rental Utility Operating
Revenues Utilities Rebate Other Total Income
-------------------------------------------------------------------------
Calgary -1.8% -6.5% -100.0% 14.8% 8.6% -5.4%
Edmonton 3.0% -3.7% -100.0% 15.8% 32.2% -7.0%
Other Alberta -1.0% -2.7% -100.0% 7.1% 20.9% -8.6%
Ontario 4.5% 14.6% - 3.8% 8.2% 1.7%
Saskatchewan 3.2% -8.3% - 4.4% 0.0% 5.4%
-------------------------------------------------------------------------
Total 1.9% -1.5% -100.0% 10.4% 15.6% -4.1%
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Excluding
one time
rebate 1.9% -1.5% 0.0% 10.4% 5.4% 0.2%
-------------------------------------------------------------------------
Same-Property Results - Stabilized Portfolio
Three Months Ended June 30, 2003 vs. Three Months Ended June 30, 2002
Net
Rental Utility Operating
Revenues Utilities Rebate Other Total Income
-------------------------------------------------------------------------
Calgary -1.1% 27.4% -100.0% 10.9% 17.5% -6.7%
Edmonton 2.8% 32.7% -100.0% 10.1% 18.1% -2.8%
Other Alberta -1.1% 25.9% -100.0% 0.3% 8.6% -4.9%
Ontario 4.3% 16.9% - 2.5% 7.6% 2.2%
Saskatchewan 4.4% 28.4% - 1.9% 7.9% 2.5%
-------------------------------------------------------------------------
Total 2.1% 27.3% -100.0% 6.5% 13.5% -2.5%
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Acquisition/Disposition Activity
In the second quarter of 2003, the Company completed one property
acquisition:
Les Jardins Bourassa, Montreal - an apartment complex in north Montreal
consisting of two concrete high-rise buildings with a total of 178
residential units and total rentable area of 85,900 square feet. The
transaction closed on June 25, 2003. The acquisition price of $7.0
million equates to approximately $39,100 per unit. The going-in cap rate
for the acquisition is estimated at approximately 8%.
This brought the total acquisitions the Company completed in the first
six months of 2003 to 1,307 units at a total acquisition price of
$61.0 million. This equates to an average acquisition price of approximately
$46,600 per unit, and approximately $66 per rentable square foot, which is
estimated to be less than 50% of replacement cost.
There were no property dispositions in the second quarter of 2003. In the
first quarter of 2003, the Company completed the disposition of a non-core 40-
unit property in Edmonton. The property was sold for $3.0 million and
contributed $1.0 million to total FFO. In the second quarter of 2002, property
dispositions amounted to $7.5 million and contributed $1.0 million to FFO.
Subsequent to the end of the second quarter, the Company closed on the
acquisition of a total of 646 additional units in Quebec City for a total
acquisition price of $45.0 million. The acquisition price equates to an
average acquisition price of approximately $69,700 per unit, and approximately
$91 per rentable square foot, which is estimated to be less than 55% of
replacement cost. In aggregate, the going-in cap rate on these acquisitions is
estimated at approximately 8%. The properties acquired were:
Les Appartements du Verdier, Quebec City (Sainte-Foy) - an apartment
complex consisting of 14-buildings with a total of 195 residential units
and total rentable area of 152,600 square feet. The transaction closed
on July 30, 2003. The acquisition price of $11.5 million equates to
approximately $59,000 per unit.
Quebec City Portfolio - On August 6, 2003, the Company closed on the
acquisition of a 451-unit portfolio in Quebec City. The acquisition price
of the portfolio was $33.5 million, which equates to approximately
$74,300 per unit. The properties acquired in the portfolio are:
- Le Laurier, Quebec City - a high-rise apartment building with a total
of 105 residential units and total rentable area of 75,000 square
feet. The property is situated in the central core of Quebec City on
Avenue Wilfred-Laurier in close proximity to Old Quebec, and overlooks
Battlefield Park at the Plains of Abraham with views of the Saint
Lawrence River.
- Place Samuel De Champlain, Quebec City - a high-rise apartment
building located in downtown Quebec City consisting of 130 units and
total rentable area of 104,200 square feet.
- Place du Parc, Quebec City - a high-rise apartment building consisting
of 111 residential units and total rentable area of 81,700 square
feet.
- Place Charlesbourg, Quebec City (Charlesbourg) - an apartment complex
consisting of 2 mid-rise concrete buildings with a total of 105
residential units and total rentable area of 82,600 square feet.
In aggregate, to date in 2003, the Company has completed the acquisition
of a total of 1,953 units at a total acquisition price of $106 million. This
has increased the Company's portfolio by 7% since December 31, 2002, to a
total of approximately 31,200 units.
Boardwalk's portfolio in Montreal now stands at over 4,050 units, its
portfolio in Quebec City at almost 1,000 units, and its total portfolio in the
province of Quebec at approximately 5,400 units.
Continued Financial Strength
The Company maintained its solid financial position in the quarter.
Boardwalk's mortgage debt totalled $1.34 billion as at June 30, 2003, up from
$1.31 billion at December 31, 2002. The increase is largely attributable to
the additional debt related to property acquisitions that the Company
completed during the first half of the year. As of June 30, 2003, the
Company's debt had an average maturity of 4.5 years with a weighted average
interest rate of 5.79%. The Company's debt-to-total-market-capitalization
ratio was 63.5% as at June 30, 2003, which compares to 62.7% at the same time
last year.
The Company's interest coverage ratio, excluding gains, for the three-
month period ended June 30, 2003 was 2.01 times compared to 1.99 times in the
same period last year.
Dividend Increased To Annualized Rate of $0.30 Per Common Share
Yesterday, the Board of Directors declared a quarterly cash dividend of
$0.075 (Canadian) per share on the outstanding common shares. The dividend is
payable on September 10, 2003 to shareholders of record at the close of
business on August 28, 2003. The dividend equates to an annual cash dividend
rate of $0.30 per common share, which is an increase from the previous
annualized dividend rate of $0.08 per common share. The Board of Directors
indicated that the increase in the dividend rate is a reflection of the
Company's financial strength and future prospects. Management believes that
this dividend rate continues to enable the Company to retain a significant
amount of internally generated cash flow for reinvestment and growth
opportunities going forward.
Revised 2003 Earnings Guidance
"We are revising downward our previous FFO guidance for 2003 due
primarily to our revenues being below expectations in the first half of 2003
as a result of increased incentive levels and lower than anticipated rental
rate achievement in certain major markets combined with utility and other
operating cost pressures we have experienced," stated Rob Geremia, Senior Vice
President, Finance and CFO. "Our revised 2003 guidance is for total FFO per
share of between $1.34 and $1.38, down from the previous range of between
$1.40 and $1.44. We remain firmly on track to beat last year's record
results."
Supplementary Information
Boardwalk produces Quarterly Supplemental Information that provides
detailed information regarding the Company's activities during the quarter.
The Second Quarter Supplemental Information is available on the INVESTOR
section of our website (www.bwalk.com).
Teleconference on Second Quarter, 2003 Financial Results
We invite you to participate in the teleconference that will be held to
discuss the Company's second quarter results this morning at 9:00am EST.
Senior management will speak to the financial results and provide a corporate
update. Presentation materials will be made available on the INVESTOR section
of our website (www.bwalk.com) prior to the call.
Participation & Registration: Please RSVP to Investor Relations at
403-531-9255 or by email to investor@bwalk.com.
Teleconference: The telephone numbers for the conference are:
416-640-4127 (within Toronto) or toll-free 1-800-814-3911 (outside Toronto).
Webcast: Investors will be able to listen to the call and view our slide
presentation over the Internet by visiting http://investor.bwalk.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/webcast/viewEventCNW.html?eventID(equal
sign)592460.
Replay: An audio recording of the teleconference will be available
approximately one hour after the call until 11:59pm EST on August 22nd, 2003.
You can access it by dialing 416-640-1917 and using the passcode 21010308
followed by the pound key. An audio archive will also be available on our
Investor site (http://investor.bwalk.com) approximately two hours after the
conference call.
Corporate Profile
Boardwalk Equities Inc. is Canada's largest owner/operator of multi-
family rental communities. Boardwalk currently owns and operates in excess of
250 properties with over 31,200 units totalling approximately 26 million net
rentable square feet. The Company's portfolio is concentrated in the provinces
of Alberta, Saskatchewan, Ontario and Quebec. Boardwalk is headquartered in
Calgary and its shares are listed on both the Toronto Stock Exchange and the
New York Stock Exchange and trade under the symbol BEI. The Company has a
total market capitalization of approximately $2.1 billion.
Forward-Looking Statements
This release contains forward-looking statements within the meaning of
the U.S. Private Securities Litigation Reform Act of 1995. The forward-looking
statements are statements that involve risks and uncertainties, including, but
not limited to, changes in the demand for apartment and town home rentals, the
effects of economic conditions, the impact of competition and competitive
pricing, the effects of the Company's accounting policies and other matters
detailed in the Company's filings with Canadian and United States securities
regulators available on SEDAR in Canada and by request through the Securities
and Exchange Commission in the United States, including matters set forth in
the Company's Annual Report to Shareholders under the heading ``Management's
Discussion and Analysis''. Because of these risks and uncertainties, the
results, expectations, achievements, or performance described in this release
may be different from those currently anticipated by the Company.
CONSOLIDATED BALANCE SHEETS
(CDN$ THOUSANDS)
AS AT June 30, December 31,
2003 2002
(Unaudited) (Audited)
--------------------------------
Assets
Revenue producing properties $1,665,381 $1,604,277
Properties held for development 7,263 7,038
Mortgages and accounts receivable 10,943 14,704
Other assets 13,113 13,723
Deferred financing costs 36,175 37,521
Segregated tenants' security deposits 7,153 7,596
Cash and cash equivalents 1,121 23,631
------------------------------------------------------------------------
$1,741,149 $1,708,490
--------------------------------
--------------------------------
Liabilities
Mortgages payable $1,336,490 $1,307,177
Accounts payable and accrued
liabilities 16,120 21,498
Refundable tenants' security
deposits and other 10,097 10,496
Capital lease obligations 4,069 4,598
Future income taxes (NOTE 7) 67,183 62,976
------------------------------------------------------------------------
1,433,959 1,406,745
--------------------------------
Shareholders' Equity
Share capital (NOTE 5) 270,290 266,516
Retained earnings 36,900 35,229
------------------------------------------------------------------------
307,190 301,745
------------------------------------------------------------------------
$1,741,149 $1,708,490
--------------------------------
--------------------------------
SEE ACCOMPANYING NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATED STATEMENTS OF EARNINGS
(CDN$ THOUSANDS, EXCEPT PER SHARE AMOUNTS)
3 months 3 months 6 months 6 months
ended ended ended ended
June 30, June 30, June 30, June 30,
2003 2002 2003 2002
-----------------------------------------------
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
Revenue
Rental income $66,675 $59,487 $132,382 $114,171
Sales - properties
held for resale (NOTE 2) - 7,498 - 7,498
-------------------------------------------------------------------------
$66,675 $66,985 $132,382 $121,669
-----------------------------------------------
Expenses
Revenue producing
properties:
Operating expenses $8,141 $6,261 $16,379 $11,780
Utilities 8,061 5,686 18,294 15,978
Utility rebate (NOTE 8) - (67) - (3,302)
Property taxes 6,376 5,708 12,889 10,909
Cost of sales -
properties held for
resale (NOTE 2) - 6,531 - 6,531
Administration 5,826 4,958 11,678 9,685
Financing costs 19,002 18,568 37,975 35,331
Deferred financing costs
amortization 1,169 496 1,833 1,023
Amortization 12,442 11,594 24,617 22,487
-------------------------------------------------------------------------
$61,017 $59,735 $123,665 $110,422
---------------------------------------------
Earnings from continuing
operations before income
taxes $5,658 $7,250 $8,717 $11,247
Large corporations taxes 1,018 862 1,840 1,523
Future income taxes
(NOTE 7) 2,085 2,409 3,555 3,823
-------------------------------------------------------------------------
Earnings from continuing
operations $2,555 $3,979 $3,322 $5,901
Earnings from discontinued
operations, net of tax
(NOTE 4) - 7 751 19
---------------------------------------------
Net earnings for the
period $2,555 $3,986 $4,073 $5,920
---------------------------------------------
---------------------------------------------
Basic earnings per share
(NOTE 6)
- from continuing
operations $0.05 $0.08 $0.07 $0.12
- from discontinued
operations $0.00 $0.00 $0.01 $0.00
---------------------------------------------
Basic earnings per share $0.05 $0.08 $0.08 $0.12
---------------------------------------------
---------------------------------------------
Diluted earnings per share
(NOTE 6)
- from continuing
operations $0.05 $0.08 $0.07 $0.12
- from discontinued
operations $0.00 $0.00 $0.01 $0.00
---------------------------------------------
Diluted earnings per share $0.05 $0.08 $0.08 $0.12
---------------------------------------------
---------------------------------------------
SEE ACCOMPANYING NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATED STATEMENTS OF RETAINED EARNINGS
(CDN$ THOUSANDS)
6 months 6 months
ended ended
June 30, June 30,
2003 2002
-------------------------------
(Unaudited) (Unaudited)
Retained earnings, beginning of period $35,229 $26,782
Net earnings for the period 4,073 5,920
Dividends paid (2,010) (2,477)
Premium on share repurchases (392) (579)
------------------------------------------------------------------------
Retained earnings, end of period 36,900 $29,646
-------------------------------
-------------------------------
SEE ACCOMPANYING NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATED STATEMENTS OF CASH FLOWS
(CDN$ THOUSANDS)
3 months 3 months 6 months 6 months
ended ended ended ended
June 30, June 30, June 30, June 30,
2003 2002 2003 2002
-----------------------------------------------
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
Cash obtained from
(applied to):
Operating activities
Net earnings for the
period $2,555 $3,986 $4,073 $5,920
Earnings from
discontinued operations
(NOTE 4) - (7) (751) (19)
Income taxes 2,085 2,409 3,555 3,823
Amortization 12,442 11,594 24,617 22,487
-------------------------------------------------------------------------
Funds from continuing
operations $17,082 $17,982 $31,494 $32,211
Funds from discontinued
operations - 24 33 56
Net change in operating
working capital 2,828 426 324 3,538
Net change in properties
held for development 1,783 5,990 1,672 5,857
-------------------------------------------------------------------------
Total cash provided by
operating activities $21,693 $24,422 $33,523 $41,662
----------------------------------------------
Financing activities
Issue of common shares
for cash
(net of issue costs) $1,310 $4,472 $4,013 $5,584
Stock repurchase program - - (628) (1,045)
Dividends paid (1,008) - (2,010) (2,477)
Financing of revenue
producing properties 46,061 15,702 88,864 100,883
Repayment of debt on
revenue producing
properties (51,982) (17,727) (75,888) (75,929)
Deferred financing costs
incurred (net of deferred
financing costs
amortization) (664) (39) (937) (1,854)
-------------------------------------------------------------------------
$(6,283) $2,408 $13,414 $25,162
----------------------------------------------
Investing activities
Purchases of revenue
producing properties
(NOTE 3) $(3,915) $(71,991) $(46,433) $(74,817)
Project improvements to
revenue producing
properties (11,812) (8,410) (23,299) (14,946)
Net cash proceeds from
sale of properties - - 1,223 -
Technology for real
estate operations (648) (119) (938) (673)
-------------------------------------------------------------------------
$(16,375) $(80,520) $(69,447) $(90,436)
----------------------------------------------
Decrease in cash and cash
equivalents balance
during the period $(965) $(53,690) $(22,510) $(23,612)
Cash and cash equivalents,
beginning of period $2,086 $55,750 $23,631 $25,672
-------------------------------------------------------------------------
Cash and cash equivalents,
end of period $1,121 $2,060 $1,121 $2,060
----------------------------------------------
----------------------------------------------
Taxes paid $918 $1,200 $1,734 $1,809
----------------------------------------------
----------------------------------------------
Interest paid $19,235 $17,095 $38,088 $33,487
----------------------------------------------
----------------------------------------------
SEE ACCOMPANYING NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the three and six months ended June 30, 2003
(TABULAR AMOUNTS IN CDN$ THOUSANDS, EXCEPT NUMBER OF SHARES AND PER SHARE
AMOUNTS UNLESS OTHERWISE STATED)
1. BASIS OF PRESENTATION
These unaudited interim consolidated financial statements of Boardwalk
Equities Inc. (the "Corporation") have been prepared in accordance with the
recommendations of the handbook of the Canadian Institute of Chartered
Accountants ("CICA Handbook") and with the recommendations of the Canadian
Institute of Public and Private Real Estate Companies ("CIPPREC") and are
consistent with those used in the audited consolidated financial statements as
at and for the year ended December 31, 2002, except as described in Note 2
below. These interim financial statements do not include all of the
disclosures required by Canadian generally accepted accounting principles
("Canadian GAAP") applicable to annual financial statements, and therefore,
they should be read in conjunction with the audited consolidated financial
statements.
The preparation of financial statements in accordance with Canadian GAAP
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities, and to make disclosure of contingent assets
and liabilities at the date of the financial statements, and the reported
amounts of revenues and expenses during the reporting period. Actual results
may differ from those estimates.
Due to seasonality, the operating results for the three and six months
ended June 30, 2003 are not necessarily indicative of the results that may be
expected for the full year ending December 31, 2003.
2. ACCOUNTING POLICY CHANGES
Stock-based compensation plans
Effective January 1, 2003, the Corporation changed its accounting policy
for stock options granted on or after that date to reflect early adoption of
the CICA exposure draft on section 3870 of the CICA Handbook. Under the new
policy, the Corporation now determines the fair value of stock options, using
an accepted option-pricing model, on their grant date and recognizes this
amount as compensation expense over the period the stock options vest, with a
corresponding increase to contributed surplus in shareholders' equity. The new
accounting policy has been applied prospectively. If there are any further
changes to the exposure draft, the Corporation will adjust the policy to
reflect section 3870 in its final form.
Previously under the Corporation's intrinsic value method policy, the
Corporation did not record compensation expense for stock options granted to
directors, executives and employees in the financial statements because there
was no intrinsic value at the date of grant. Note 5 discloses the pro forma
amounts to the Corporation's net earnings and net earnings per share for the
three and six months ended June 30, 2003 and 2002 had the impact of
compensation costs using the fair value method been applied effective
January 1, 2002.
Disposal of long-lived assets
Effective January 1, 2003, the Corporation adopted the new CICA Handbook
Section 3475, Disposal of Long-Lived Assets and Discontinued Operations, for
disposals on or after January 1, 2003. The recommendations of this section
requires disposal of long-lived assets be classified as held for sale, and the
results of operations and cash flows associated with the assets disposed be
reported separately as discontinued operations, less applicable income taxes.
A long-lived asset is classified by the Corporation as an asset held for sale
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.
The impact of adopting the new recommendations for disposals of long-
lived assets on or after January 1, 2003 is disclosed in Note 4.
Disclosure of guarantees
Effective January 1, 2003, the Corporation adopted Accounting
Guideline 14 (AcG-14), Disclosure of Guarantees. This guideline provides
assistance regarding the identification of guarantees and requires a guarantor
to disclose the significant details of guarantees that have been given,
regardless of whether it will have to make payments under the guarantees.
Please refer to Note 10 for further disclosure on the Corporation's
guarantees.
Comparative figures
Certain comparative figures have been reclassified to conform with the
presentation of the current period, or as a result of accounting changes.
3. ACQUISITIONS AND DISPOSITIONS OF REVENUE PRODUCING PROPERTIES
Acquisitions
3 months 3 months 6 months 6 months
ended ended ended ended
June 30, June 30, June 30, June 30,
2003 2002 2003 2002
------------------------------------------------
Cash paid $3,915 $71,991 $46,433 $74,817
Debt assumed 3,165 109,597 15,468 109,597
------------------------------------------------------------------------
Total purchase price $7,080 $181,588 $61,901 $184,414
Fair value adjustment
to debt - 19,500 869 19,500
------------------------------------------------------------------------
Book value $7,080 $201,088 $62,770 $203,914
------------------------------------------------
------------------------------------------------
Units acquired 178 3,100 1,307 3,160
------------------------------------------------
------------------------------------------------
Dispositions
3 months 3 months 6 months 6 months
ended ended ended ended
June 30, June 30, June 30, June 30,
2003 2002 2003 2002
------------------------------------------------
Cash received $- $3,026 $1,385 $3,026
Vendor take back mortgage - 500 - 500
Debt assumed by the purchaser - 3,972 1,655 3,972
------------------------------------------------------------------------
Total proceeds $- $7,498 $3,040 $7,498
Net book value $- $6,531 $1,993 $6,531
------------------------------------------------------------------------
Gain on sales before income
taxes $- $967 $1,047 $967
------------------------------------------------
------------------------------------------------
Units sold - 121 40 121
------------------------------------------------
------------------------------------------------
4. DISPOSAL OF LONG-LIVED ASSETS AND DISCONTINUED OPERATIONS
During the first quarter of 2003, the Corporation received a $3.0 million
unsolicited offer to purchase a 40-unit property located in Edmonton, Alberta.
The sale was completed by the end of the first quarter. There were no
dispositions during the second quarter of 2003. Note 3 discloses the carrying
amounts of the major assets and liabilities included in the disposition. The
following tables set forth the results of operations and cash flows associated
with the long-lived asset, separately reported as discontinued operations for
the current and prior periods.
Earnings from Discontinued Operations
3 months 3 months 6 months 6 months
ended ended ended ended
June 30, June 30, June 30, June 30,
2003 2002 2003 2002
------------------------------------------------
Revenue
Rental income $- $79 $86 $157
Expenses
Revenue producing
properties:
Operating expenses $- $7 $4 $17
Utilities - 15 17 19
Utility rebate
(NOTE 8) - - - (1)
Property taxes - 5 6 10
Administration - 26 24 51
Deferred financing costs
amortization - (1) - -
Amortization - 14 - 27
------------------------------------------------
$- $69 $53 $128
------------------------------------------------
Operating earnings from
discontinued operations
before undernoted items
and income taxes $- $10 $33 $29
Future income taxes - (3) (12) (10)
Operating earnings from
discontinued operations $- $7 $21 $19
Gain on disposition - - 1,047 -
Future income taxes - - (317) -
------------------------------------------------
Earnings from discontinued
operations $- $7 $751 $19
------------------------------------------------
------------------------------------------------
5. SHARE CAPITAL
(a) Issued
June 30, 2003 December 31, 2002
------------------------------------------------
Number Amount Number Amount
------ ------ ------ ------
Common shares outstanding
(THOUSAND) 50,437 $270,294 50,109 $266,516
------------------------------------------------
------------------------------------------------
(b) Stock Options
The Corporation has a stock option plan that provides for the granting of
options to directors, executives and employees. The stock option plan provides
for the granting of options to purchase up to 10,643,636 (December 31, 2002 -
10,643,636) common shares. The exercise price is equal to the market value of
the common shares at the date of grant. As at June 30, 2003, there was a total
of 2,928,733 (December 31, 2002 - 3,480,072) options outstanding to directors,
officers and employees. The exercise prices range from $9.11 to $17.15
(December 31, 2002 - $9.11 to $22.92). These options expire up to August 28,
2012.
June 30, 2003 December 31, 2002
------------------------------------------------
Weighted Weighted
average average
6 months exercise 12 months exercise
options price options price
------------------------------------------------------------------------
Outstanding, beginning
of period 3,480,072 $12.46 3,647,834 $12.60
Granted - - 930,722 $12.16
Exercised (371,300) $10.56 (801,633) $11.02
Forfeited (180,039) $19.85 (296,851) $17.14
------------------------------------------------------------------------
Outstanding, end of
period 2,928,733 $12.27 3,480,072 $12.46
--------------------------------------------------
--------------------------------------------------
Options exercisable at period end
The following table summarized information about the options outstanding
at June 30, 2003:
Options outstanding Options exercisable
------------------------------------------------------------------------
Weighted Weighted
average average
remaining Weighted remaining Weighted
Range of contractual average contractual average
exercise Number life exercise Number life exercise
prices outstanding (years) price exercisable (years) price
------------------------------------------------------------------------
$9.01 to
$11.00 460,000 6.7 $9.52 418,200 6.7 $9.51
$11.01 to
$13.00 1,801,822 6.1 $11.97 1,105,164 6.5 $11.90
$13.01 to
$15.00 381,011 5.7 $14.01 271,629 5.3 $13.86
$15.01 to
$17.00 270,900 5.9 $16.19 201,320 5.8 $16.26
$17.01 to
$18.00 15,000 0.1 $17.15 15,000 0.1 $17.15
------------------------------------------------------------------------
2,928,733 6.1 $12.27 2,011,313 6.2 $12.15
--------------------------------------------------------------
--------------------------------------------------------------
The following table illustrates the impact on the Corporation's net
income and earnings per share if compensation expense had been recorded in the
current and prior periods based on the fair value of all stock options granted
on or after January 1, 2002:
3 months 3 months 6 months 6 months
ended ended ended ended
June 30, June 30, June 30, June 30,
2003 2002 2003 2002
------------------------------------------------
Compensation Costs $(509) $(528) $(1,046) $(846)
Net Earnings
As reported $2,555 $3,986 $4,073 $5,920
Pro forma $2,046 $3,458 $3,027 $5,074
Net Earnings per Common
Share
Basic
As reported $0.05 $0.08 $0.08 $0.12
Pro forma $0.04 $0.07 $0.06 $0.10
Diluted
As reported $0.05 $0.08 $0.08 $0.12
Pro forma $0.04 $0.07 $0.06 $0.10
The fair value of options granted in the prior year was estimated to be
$6.74 on the date of grant using the Black-Scholes option-pricing model with
weighted average assumptions for grants as follows:
6 months 6 months
ended ended
June 30, June 30,
2003 2002
Risk free interest rate 5.33% 5.34%
Expected lives (years) 7 - 10 years 7 - 10 years
Expected volatility 42.56% 42.64%
Dividend per share $0.05 $0.05
6. PER SHARE CALCULATIONS
The Corporation has adopted a CIPPREC requirement to disclose a funds
from operations ("FFO") calculation versus the traditional cash flow from
operations calculation. The following table sets forth the computation of FFO
as well as basic and diluted earnings per share with respect to earnings from
continuing operations and earnings from discontinued operations.
3 months 3 months 6 months 6 months
ended ended ended ended
June 30, June 30, June 30, June 30,
2003 2002 2003 2002
------------------------------------------------
Numerator
Earnings from continuing
operations $2,555 $3,979 $3,322 $5,901
Earnings from
discontinued operations $- $7 $751 $19
Funds from continuing
operations $17,082 $17,982 $31,494 $32,211
Funds from discontinued
operations $- $24 $1,080 $56
------------------------------------------------------------------------
Denominator
Denominator for basic
earnings per share -
weighted average shares
(THOUSANDS) 50,356 49,554 50,225 49,445
------------------------------------------------------------------------
Effect of dilutive
securities Stock options
(THOUSANDS) 542 646 521 442
Denominator for diluted
earnings per share adjusted
for weighted average shares
and assumed conversion
(THOUSANDS) 50,898 50,200 50,746 49,887
------------------------------------------------------------------------
------------------------------------------------------------------------
Basic and diluted earnings
per share from continuing
operations $0.05 $0.08 $0.07 $0.12
------------------------------------------------------------------------
Basic and diluted earnings
per share from discontinued
operations $0.00 $0.00 $0.01 $0.00
------------------------------------------------------------------------
7. FUTURE INCOME TAXES
The Corporation's provision for future income taxes is comprised as
follows:
3 months 3 months 6 months 6 months
ended ended ended ended
June 30, June 30, June 30, June 30,
2003 2002 2003 2002
------------------------------------------------
Continuing operations $2,085 $2,409 $3,555 $3,823
Discontinued operations - 3 329 10
------------------------------------------------------------------------
Total future income taxes $2,085 $2,412 $3,884 $3,833
------------------------------------------------
------------------------------------------------
The future income tax expense is computed as follows:
3 months 3 months 6 months 6 months
ended ended ended ended
June 30, June 30, June 30, June 30,
2003 2002 2003 2002
------------------------------------------------
Tax expense based on
expected rate of 37%
(2002 - 36%) $2,255 $2,609 $3,785 $4,030
Non-taxable portion of
capital gain - (197) (223) (197)
Adjustment to future
income tax liabilities 380 - 916 -
Adjustment for change in
effective tax rate (550) - (594) -
------------------------------------------------------------------------
Future income tax expense $2,085 $2,412 $3,884 $3,833
------------------------------------------------
------------------------------------------------
The future income tax liability is calculated as follows:
AS AT June 30, 2003 December 31, 2002
-------------------------------------
Tax assets related to operating losses $76,329 $63,254
Tax liabilities related to
differences in tax and book basis (143,512) (126,230)
------------------------------------------------------------------------
Future income tax liability $(67,183) $(62,976)
-------------------------------------
-------------------------------------
8. UTILITY REBATE
As of March 2, 2002, ATCO Gas, the transporter of all natural gas in
Alberta, distributed a non-recurring rebate. The Alberta Energy and Utility
Board instructed ATCO Gas to rebate a portion of the sale proceeds of the
Viking-Kinsella producing assets to ATCO North customers in the form of a
one-time rebate. The rebate was distributed to all ATCO North customers, based
on historical usage, at a rate of $3.325/GJ.
9. COMMITMENTS AND CONTINGENCIES
The Corporation has long-term supply arrangements with two electrical
utility companies to supply the Corporation with its electrical power needs
for Alberta for the next one to three years at a blended rate of approximately
$0.07/kwh. These agreements provide that the Corporation purchase its power
for all Alberta properties under contract for the upcoming years.
The Corporation also has two physical settlement fixed-price supply
contracts for Alberta natural gas requirements. These contracts fix the price
of natural gas for 75% of the Corporation's requirements in Alberta. The two
contracts are for physical settlement, and each represents approximately 37.5%
of the Corporation's Alberta requirements. The first of these contracts runs
from January 1, 2003 to September 30, 2003, and the second contract runs from
January 1, 2003 to September 30, 2004. In aggregate, these contracts provide
the commodity at a price of $5.43/GJ. The remaining 25% supply will float at
spot prices.
In Saskatchewan, the Corporation has a three-year physical supply
agreement to supply 100% of the Corporation's natural gas requirements for
that province. The agreement extends until October 31, 2005 at a fixed price
of $5.20/GJ.
10. GUARANTEES
In the normal course of business, the Corporation enters into various
agreements 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 the Corporation 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 by the Corporation, a mortgage
assumed by the purchaser will have an indirect guarantee provided by Boardwalk
to the lender until the mortgage is refinanced by the purchaser. In the event
of default by the purchaser, Boardwalk would be liable for the outstanding
mortgage balance. The Corporation's maximum exposure as at June 30, 2003 is
approximately $8.1 million. In the event of default, the Corporation's
recourse for recovery includes the sale of the respective building asset. The
Corporation 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, as at June 30, 2003,
no amounts have been recorded in the consolidated financial statements with
respect to the above noted indirect guarantees.
11. SEGMENTED INFORMATION
The Corporation specializes in multi-family residential housing and
operates primarily within one business segment in four provinces located in
Canada. The following summary presents segmented financial information for the
Corporation's continuing operations by geographic location:
3 months 3 months 6 months 6 months
ended ended ended ended
June 30, June 30, June 30, June 30,
2003 2002 2003 2002
------------------------------------------------
Alberta
Revenue $37,885 $37,487 $75,528 $75,262
Expenses
Operating 4,652 4,376 9,368 8,196
Utilities 4,510 3,399 9,826 10,235
Utility rebate - (67) - (3,292)
Property taxes 2,738 2,657 5,643 5,316
------------------------------------------------
11,900 10,365 24,837 20,455
------------------------------------------------
Net operating income
from continuing
operations $25,985 $27,122 $50,691 $54,807
------------------------------------------------
------------------------------------------------
Saskatchewan
Revenue $8,389 $7,952 $16,843 $16,207
Expenses
Operating 1,004 943 2,161 1,858
Utilities 841 632 2,073 2,255
Property taxes 1,200 1,187 2,399 2,387
------------------------------------------------
3,045 2,762 6,633 6,500
------------------------------------------------
Net operating income from
continuing operations $5,344 $5,190 $10,210 $9,707
------------------------------------------------
------------------------------------------------
Ontario
Revenue $8,683 $8,293 $17,220 $16,482
Expenses
Operating 1,170 1,122 2,446 2,286
Utilities 1,367 1,152 3,344 2,927
Property taxes 1,353 1,313 2,704 2,635
------------------------------------------------
3,890 3,587 8,494 7,848
------------------------------------------------
Net operating income from
continuing operations $4,793 $4,706 $8,726 8,634
------------------------------------------------
------------------------------------------------
Quebec (2002 - 2 months
of operations only)
Revenue $11,454 $5,313 $22,004 $5,313
Expenses
Operating 1,203 365 2,324 365
Utilities 1,340 439 2,959 439
Property taxes 1,095 529 2,130 529
------------------------------------------------
3,638 1,333 7,413 1,333
------------------------------------------------
Net operating income from
continuing operations $7,816 $3,980 $14,591 $3,980
------------------------------------------------
------------------------------------------------
Total
Net operating income from
continuing operations $43,938 $40,998 $84,218 $77,128
Unallocated revenue(*) 348 8,018 786 8,405
Unallocated expenses(xx) (41,731) (45,037) (81,682) (79,632)
------------------------------------------------
Net income from continuing
operations $2,555 $3,979 $3,322 $5,901
------------------------------------------------
------------------------------------------------
AS AT June 30, 2003 December 31, 2002
-------------------------------------
Alberta
Identifiable Assets
Revenue Producing properties $970,208 $971,598
Mortgages and accounts receivable 6,278 8,550
Deferred financing costs 24,505 25,464
Tenants' security deposit 6,103 6,559
-------------------------------------
$1,007,094 $1,012,171
-------------------------------------
-------------------------------------
Saskatchewan
Identifiable Assets
Revenue producing properties $180,068 $180,792
Mortgages and accounts receivable - 22
Deferred financing costs 4,548 4,714
Tenants' security deposits 1,050 1,037
-------------------------------------
$185,666 $186,565
-------------------------------------
-------------------------------------
Ontario
Identifiable Assets
Revenue producing properties $215,395 $215,175
Mortgages and accounts receivable 180 1,166
Deferred financing costs 2,788 2,954
-------------------------------------
$218,363 $219,295
-------------------------------------
-------------------------------------
Quebec
Identifiable Assets
Revenue producing properties $292,319 $229,272
Mortgages and accounts receivable 4,442 4,709
Deferred financing costs 4,303 4,357
-------------------------------------
$301,064 $238,338
-------------------------------------
-------------------------------------
Total Assets
Identifiable assets $1,712,187 $1,656,369
Unallocated assets(xxx) 28,962 52,121
-------------------------------------
$1,741,149 $1,708,490
-------------------------------------
-------------------------------------
(*) Unallocated revenue includes interest income and other non-rental
income from continuing operations.
(xx) Unallocated expenses include non-rental operating expenses,
administration, financing costs, amortization, income taxes and
other provisions from continuing operations.
(xxx) Unallocated assets include properties held for development, cash,
short-term investments and other assets.
12. SUBSEQUENT EVENTS
Subsequent to June 30, 2003, the Corporation contracted to acquire 646
residential units from unrelated third parties for an aggregate price of
$45.0 million. The acquisition will be financed through cash of $5.7 million,
existing credit facilities of $15.7 million and the assumption of existing
mortgages.
Subsequent to the second quarter ended, the Corporation also increased
the quarterly cash dividend from $0.02 to $.075 (Canadian) per share on the
outstanding common shares. The dividend equates to an annual cash dividend
rate of $0.30 per common share compared to the previous annualized dividend
rate of $0.08 per common share.
For further information: Boardwalk Equities Inc:
Sam Kolias, President and CEO,
(403) 531-9255;
Roberto Geremia, Senior Vice President, Finance
and Chief Financial Officer,
(403) 531-9255;
Mike Hough, Senior Vice President,
(416) 364-0849;
Paul Moon, Director of Corporate Communications,
(403) 531-9255
