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 1
Fri Feb 16, 9:27 AMCALGARY, Feb. 16 /PRNewswire-FirstCall/ - 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)(x) Montreal, QC March 13, 2006 High Rise 322
Braemar/Gateway
(Jones
Portfolio)(x) Vancouver, BC March 30, 2006 Walk Up 238
Sturgeon Point
Villas(x) St. Albert, AB May 25, 2006 Walk Up 280
Parkwest
Apartments(x) 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)(x) $ 24,000,000 7.10% $74,534 858 $87
Braemar/Gateway
(Jones
Portfolio)(x) $ 17,550,000 6.39% $73,739 1,022 $72
Sturgeon Point
Villas(x) $ 18,500,000 7.00% $66,071 1,018 $65
Parkwest
Apartments(x) $ 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
--------------------------------------------------
(x) 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 (#) 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.
ADD: /FIRST AND FINAL ADD - TO470 - Boardwalk Real Estate Investment Trust/
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(x) 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
---------------------------
---------------------------
(x) 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.
SOURCE Boardwalk Real Estate Investment Trust
ContactsBoardwalk REITSam Kolias
President and CEO
(403) 531-9255 Roberto Geremia
Senior Vice President
Finance and Chief Financial Officer
(403) 531-9255/ /FIRST AND FINAL ADD TO FOLLOW
