Boardwalk announces record third quarter results 15% INCREASE IN
FFO PER SHARE FROM RENTAL OPERATIONS IN THIRD QUARTER CALGARY, Nov.
17 /PRNewswire-FirstCall/ -- Boardwalk Equities Inc. ("BEI" - TSX,
NYSE) is pleased to report strong financial results for the third
quarter of 2003. For the third quarter ended September 30, 2003,
the Company reported Total Revenues of $68.7 million and Funds From
Operations ("FFO"), a key performance measurement for real estate
companies, of $19.7 million. FFO per share for the third quarter
was $0.39 on a diluted basis. Funds From Operations ("FFO") is a
generally accepted measure of operating performance of real estate
companies, however is a non-GAAP measurement. The Company
calculates FFO by taking Net Earnings and adding non cash items
including Future Income Taxes and Amortization. The determination
of this amount may differ from that of other real estate companies.
Highlights of the Company's third quarter 2003 financial results
include: - Rental revenues of $68.7 million, an increase of 8.0%
compared to $63.6 million for the three-month period ended
September 30, 2002. - Net operating income of $46.5 million,
representing a 5.7% increase from $44.0 million in the same period
last year. - Net earnings for the period of $5.0 million compared
to $3.4 million in the same period last year, an increase of 50%.
Earnings per share for the most recent three-month period of $0.10
on a diluted basis, versus $0.07 for the three-month period ended
September 30, 2002, representing a 42.9% increase. - Funds From
Operations (FFO) of $19.7 million, an increase of 13.9% compared to
$17.3 million for the three-month period ended September 30, 2002.
FFO from rental operations, which excludes any gains on property
dispositions, of $19.7 million, an increase of 13.9% compared to
$17.3 million for the three-month period ended September 30, 2002.
- FFO per share of $0.39 on a diluted basis, compared to $0.34 for
the three-month period ended September 30, 2002, representing a
14.7% increase. FFO per share from rental operations, which
excludes gains, was $0.39 on a diluted basis, up 14.7% compared to
$0.34 for the three- month period ended September 30, 2002.
Highlights of the Company's financial results for the first nine
months of 2003 include: - Rental revenues of $201.1 million, an
increase of 13.2% compared to $177.7 million for the nine-month
period ended September 30, 2002. - Net operating income of $131.4
million, representing a 7.0% increase from $122.8 million in the
same period last year. - Net earnings for the period of $9.2
million compared to $9.4 million in the same period last year, a
decrease of 2.1%. Earnings per share for the most recent nine-month
period of $0.18 on a diluted basis, versus $0.19 for the nine-month
period ended September 30, 2002, representing a 5.3% decrease. -
Funds From Operations (FFO) of $52.3 million, an increase of 5.4%
compared to $49.6 million for the nine-month period ended September
30, 2002. FFO excluding gains of $51.3 million, an increase of 5.6%
compared to $48.5 million for the nine-month period ended September
30, 2002. - FFO per share of $1.03 on a diluted basis, compared to
$0.99 for the nine-month period ended September 30, 2002,
representing a 4.0% increase. FFO per share from rental operations,
which excludes gains, was $1.01 on a diluted basis, up 4.0%
compared to $0.97 for the nine- month period ended September 30,
2002. Ex 2002 utility rebate, FFO per share from rental operations
for the 9 months was up 12% from $.90 in 2002. Commenting on the
Company's third quarter results, Sam Kolias, President and C.E.O.,
stated "We are pleased with our record financial results in the
third quarter. Operationally, we were able to continue to make
improvements in our portfolio occupancy levels, which was a
significant achievement in light of the continued strength in the
housing markets. This helped drive improved same-property
performance in the quarter." Operational Highlights The average
vacancy rate across the Company's portfolio for the third quarter
of 2003 was 3.7%, down from 5.0% in Q2 of 2003, and down from 4.4%
in the third quarter of last year. The Company's overall average
vacancy rate as of October 2003 was 3.5% compared to 4.4% as of
October of 2002. The average monthly rent realized in the first
nine-months of 2003 was $729 per unit, up $27, or 3.8% from $702
per unit for the same period last year. Management estimates that
market rents for its properties at the end of September, 2003
averaged $800 per unit per month which compares to an average
in-place rent per occupied unit of $757 for the nine months ended
September 30, 2002. This translates into an estimated
"loss-to-lease" of approximately $10.1 million, maintaining
existing occupancy rates. Same-Property Results The "same-property"
results for the Company's stabilized properties (defined as
properties owned for over 24 months) for the three month period
ended September 30, 2003 showed rental growth of 2.9% and NOI
growth of 3.2% compared to the same period last year. For the nine
month period ended September 30, 2003, the stabilized property
portfolio had rental growth of 2.3% and a decline in NOI of 1.6%
compared to the same period last year. Of special note is Calgary's
positive rental revenue and NOI growth, reversing the past two
quarters negative trend. The year-to-date 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 nine months of 2003
would have showed rental growth of 2.3% and NOI growth of 1.3%. A
total of 25,595 units, representing approximately 82% of
Boardwalk's total portfolio, were classified as stabilized as at
September 30, 2003. Same-Property Results - Stabilized Portfolio
Three Months Ended September 30, 2003 vs. Three Months Ended
September 30, 2002
-------------------------------------------------------------------------
Total Rental Utility Operating Revenue Utilities Rebate Other Costs
NOI -----------------------------------------------------------
Calgary 1.2% 0.3% - 3.1% 2.2% 0.9% Edmonton 3.3% -11.0% - 6.5%
-0.8% 5.1% Other Alberta -0.6% 1.7% - 21.8% 14.9% -6.0% Ontario
4.2% 8.1% - 10.5% 9.9% -0.4% Saskatchewan 4.3% -8.4% - -2.6% -3.9%
9.2% -----------------------------------------------------------
2.9% -4.8% - 5.7% 2.2% 3.2%
-----------------------------------------------------------
-----------------------------------------------------------
Same-Property Results - Stabilized Portfolio Nine Months Ended
September 30, 2003 vs. Nine Months Ended September 30, 2002
-------------------------------------------------------------------------
Total Rental Utility Operating Revenue Utilities Rebate Other Costs
NOI -----------------------------------------------------------
Calgary -0.8% -4.6% -100.0% 10.6% 6.5% -3.3% Edmonton 3.1% -5.9%
-100.0% 12.7% 20.4% -3.3% Other Alberta -0.9% -1.8% -100.0% 11.7%
18.9% -7.7% Ontario 4.7% 12.6% - 5.8% 8.2% 1.9% Saskatchewan 3.6%
-8.3% - 1.9% -1.2% 6.7%
----------------------------------------------------------- 2.3%
-2.3% -100.0% 8.6% 11.0% -1.6%
-----------------------------------------------------------
-----------------------------------------------------------
-----------------------------------------------------------
Excluding One Time Rebate 2.3% -2.3% 0 8.6% 4.31% 1.3%
-----------------------------------------------------------
-----------------------------------------------------------
Acquisition/Disposition Activity As previously disclosed, in the
third quarter of 2003, the Company completed the acquisition of a
total of 649 additional units in Quebec City for a total
acquisition price of $45.0 million. The estimated going-in cap rate
on these acquisitions averaged 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 454-unit portfolio in Quebec City.
The acquisition price of the portfolio was $33.5 million, which
equates to approximately $73,800 per unit. To date in 2003, the
Company has completed the acquisition of a total of 1,956 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. There were no property dispositions in
the third quarter of either 2003 or 2002. Continued Financial
Strength The Company maintained its strong financial position in
the quarter. Boardwalk's total mortgage debt was $1.38 billion as
at September 30, 2003, up from $1.31 billion at December 31, 2002.
As of September 30, 2003, the Company's debt had an average
maturity of 4.3 years with a weighted average interest rate of
5.77%, and the Company's debt-to-total-market-capitalization ratio
was 64.1%. The Company's coverage ratio of adjusted EBITDA to
interest expense excluding gains for the nine month period ended
September 30, 2003 was 1.98 times compared to 1.97 times in the
same period last year. The coverage ratio of adjusted EBITDA to
interest expense excluding gains for the three month period ended
September 30, 2003 was 2.10 versus 1.99 in the same period last
year. Quarterly Dividend Announced On Friday November 14th, 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 December 10, 2003 to shareholders of record at the
close of business on November 28, 2003. The dividend equates to an
annual cash dividend rate of $0.30 per common share. Board
Reviewing Possible Conversion to a REIT Boardwalk has recently
announced that it has engaged CIBC World Markets, Deloitte &
Touche LLP, PricewaterhouseCoopers LLP and Stikeman Elliott LLP to
advise the Corporation on the reorganization of the Corporation as
a Real Estate Investment Trust. At a meeting held on November 5,
2003, the Board of Directors of BEI reviewed the proposal for the
reorganization and concluded that the proposal had the potential to
increase shareholder value. The Board of Directors determined to
form a Special Committee of Independent Board members to ensure
that the reorganization is fair to all shareholders. Management
anticipates a further press release in the near future outlining
the effects of the proposed reorganization once annual budgeting is
completed and various technical aspects of the reorganization are
reviewed. This reorganization is subject to shareholder and
regulatory approval, as well as final approval by the Board of
Directors of BEI. Various consents of the Corporation's lenders are
also necessary. There is no certainty at this time that the
reorganization will be implemented. 2003 and 2004 Earnings Guidance
Rob Geremia, Senior Vice President, Finance and CFO, stated, "We
are reaffirming our fiscal 2003 guidance for total FFO per share of
between $1.34 and $1.38. For 2004, we are introducing our guidance
for FFO per share of between $1.44 and $1.50 for the Corporation,
which does not include any contribution from property sales,
approximately 1.0 to 2.0 percent same store NOI growth, 1000 to
2000 new units, and $1.0 million in large corporations tax savings.
Boardwalk's Special Committee continues its process of reviewing
the proposed conversion to a Real Estate Investment Trust. Assuming
the REIT conversion takes place, all of Boardwalk's current 2.8
million stock options would vest bringing the total outstanding
shares up to 53.6 million. This action could result in additional
Large Corporation Tax savings. We will continue to update the
market as this process continues." Supplementary Information
Boardwalk produces Quarterly Supplemental Information that provides
detailed information regarding the Company's activities during the
quarter. The Third Quarter Supplemental Information is available on
the INVESTOR section of our website (http://www.bwalk.com/).
Teleconference on Third Quarter, 2003 Financial Results We invite
you to participate in the teleconference that will be held to
discuss the Company's third quarter 2003 results this morning at
11:00am EST. Senior management will speak to the financial results
and provide a corporate update. Presentation materials and a
Supplementary Information Package for the third quarter of 2003
will be made available on the INVESTOR section of our website
(http://www.bwalk.com/) prior to the call. Participation &
Registration: Please RSVP to Investor Relations at 403-531-9255 or
by email to . Teleconference: The telephone numbers for the
conference are: 416-640-4127 (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://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)676060. Replay: An audio recording of the teleconference will
be available approximately one hour after the call until 11:59pm
EST on November 24th, 2003. You can access it by dialing
416-640-1917 and using the passcode 21024037 followed by the number
sign. 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 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 $2.3 billion. Additional
information is available at Boardwalk's web site at
http://www.bwalk.com/. Recent investor information can be found on
the Internet at http://investor.bwalk.com/. Forward-Looking
Statements This release contains forward-looking statements within
the meaning of the U.S. Private Securities Litigation Reform Act of
1995. The forward-looking statements are statements that involve
risks and uncertainties, including, but not limited to, changes in
the demand for apartment and town home rentals, the effects of
economic conditions, the impact of competition and competitive
pricing, the effects of the Company's accounting policies and other
matters detailed in the Company's filings with Canadian and United
States securities regulators available on SEDAR in Canada and by
request through the Securities and Exchange Commission in the
United States, including matters set forth in the Company's Annual
Report to Shareholders under the heading "Management's Discussion
and Analysis". Because of these risks and uncertainties, the
results, expectations, achievements, or performance described in
this release may be different from those currently anticipated by
the Company. CONSOLIDATED BALANCE SHEETS (CDN$ THOUSANDS) AS AT
September December 30, 31, 2003 2002 (Unaudited) (Audited)
----------- ----------- Assets Revenue producing properties
$1,714,227 $1,604,277 Properties held for development 7,386 7,038
Mortgages and accounts receivable 10,975 14,704 Other assets 13,036
13,723 Deferred financing costs 37,161 37,521 Segregated tenants'
security deposits 7,039 7,596 Cash and cash equivalents 32 23,631
-------------------------------------------------------------------------
$1,789,856 $1,708,490 ----------- ----------- -----------
----------- Liabilities Mortgages payable $1,382,602 $1,307,177
Accounts payable and accrued liabilities 16,119 21,498 Refundable
tenants' security deposits and other 10,013 10,496 Capital lease
obligations 3,795 4,598 Future income taxes (NOTE 7) 68,173 62,976
-------------------------------------------------------------------------
$1,480,702 $1,406,745 ----------- ----------- Shareholders' Equity
Share capital (NOTE 5) $ 270,894 $ 266,516 Retained earnings 38,260
$ 35,229
-------------------------------------------------------------------------
$ 309,154 $ 301,745
-------------------------------------------------------------------------
$1,789,856 $1,708,490 ----------- ----------- -----------
----------- See accompanying notes to the consolidated financial
statements CONSOLIDATED STATEMENTS OF EARNINGS (CDN$ THOUSANDS,
EXCEPT PER SHARE AMOUNTS) 3 months 3 months 9 months 9 months ended
ended ended ended September September September September 30, 30,
30, 30, 2003 2002 2003 2002
----------------------------------------------- (Unaudited)
(Unaudited) (Unaudited) (Unaudited) Revenue Rental income $ 68,717
$ 63,560 $ 201,099 $ 177,731 Sales - properties held for resale
(NOTE 2) - - 7,498
-------------------------------------------------------------------------
$ 68,717 $ 63,560 $ 201,099 $ 185,229
----------------------------------------------- Expenses Revenue
producing properties: Operating expenses $ 8,624 $ 6,854 $ 25,003 $
18,634 Utilities 6,851 6,366 25,145 22,344 Utility rebate (NOTE 8)
- - - (3,302) Property taxes 6,702 6,328 19,591 17,237 Cost of
sales - properties held for resale (NOTE 2) - - - 6,531
Administration 5,857 4,679 17,535 14,364 Financing costs 19,391
19,741 57,366 55,072 Deferred financing costs amortization 732
1,478 2,565 2,501 Amortization 12,973 11,472 37,590 33,959
-------------------------------------------------------------------------
$ 61,130 $ 56,918 $ 184,795 $ 167,340
----------------------------------------------- Earnings from
continuing operations before income taxes $ 7,587 $ 6,642 $ 16,304
$ 17,889 Large corporations taxes 828 824 2,668 2,347 Future income
taxes (NOTE 7) 1,614 2,380 5,169 6,203
-------------------------------------------------------------------------
Earnings from continuing operations $ 5,145 $ 3,438 $ 8,467 $ 9,339
Earnings from discontinued operations, net of tax (NOTE 4) - 5 751
24 ----------------------------------------------- Net earnings for
the period $ 5,145 $ 3,443 $ 9,218 $ 9,363
-----------------------------------------------
----------------------------------------------- Basic earnings per
share (NOTE 6) - from continuing operations $0.10 $0.07 $0.17 $0.19
- from discontinued operations $0.00 $0.00 $0.01 $0.00
----------------------------------------------- Basic earnings per
share $0.10 $0.07 $0.18 $0.19
-----------------------------------------------
----------------------------------------------- Diluted earnings
per share (NOTE 6) - from continuing operations $0.10 $0.07 $0.17
$0.19 - from discontinued operations $0.00 $0.00 $0.01 $0.00
----------------------------------------------- Diluted earnings
per share $0.10 $0.07 $0.18 $0.19
-----------------------------------------------
----------------------------------------------- See accompanying
notes to the consolidated financial statements CONSOLIDATED
STATEMENTS OF RETAINED EARNINGS (CDN$ THOUSANDS) 9 months 9 months
ended ended September September 30, 30, 2003 2002
----------------------- (Unaudited) (Unaudited) Retained earnings,
beginning of period $ 35,229 $ 26,782 Net earnings for the period
9,218 9,363 Dividends paid (5,795) (2,477) Premium on share
repurchases (392) (579)
-------------------------------------------------------------------------
Retained earnings, end of period $ 38,260 $ 33,089
----------------------- ----------------------- See accompanying
notes to the consolidated financial statements CONSOLIDATED
STATEMENTS OF CASH FLOWS (CDN$ THOUSANDS) 3 months 3 months 9
months 9 months ended ended ended ended September September
September September 30, 30, 30, 30, 2003 2002 2003 2002
----------------------------------------------- (Unaudited)
(Unaudited) (Unaudited) (Unaudited) Cash obtained from (applied
to): Operating activities Net earnings for the period $ 5,145 $
3,443 $ 9,218 $ 9,363 Earnings from discontinued operations (NOTE
4) - (5) (751) (24) Income taxes 1,614 2,380 5,169 6,203
Amortization 12,973 11,472 37,590 33,959
-------------------------------------------------------------------------
Funds from continuing operations $ 19,732 $ 17,290 $ 51,226 $
49,501 Funds from discontinued operations - 23 33 79 Net change in
operating working capital 592 (1,506) 916 2,032 Net change in
properties held for development (123) (116) 1,549 5,741
-------------------------------------------------------------------------
Total cash provided by operating activities $ 20,201 $ 15,691 $
53,724 $ 57,353 -----------------------------------------------
Financing activities Issue of common shares for cash (net of issue
costs) $ 601 $ 1,931 $ 4,614 $ 7,515 Stock repurchase program - -
(628) (1,045) Dividends paid (3,785) - (5,795) (2,477) Financing of
revenue producing properties 60,954 29,746 149,818 130,629
Repayment of debt on revenue producing properties (39,578) (36,506)
(115,364) (112,435) Deferred financing costs incurred (net of
deferred financing costs amortization) (1,808) 687 (2,745) (1,167)
-------------------------------------------------------------------------
$ 16,384 $ (4,142) $ 29,900 $ 21,020
----------------------------------------------- Investing
activities Purchases of revenue producing properties (NOTE 3) $
(22,296) $ (625) $ (68,831) $ (75,442) Project improvements to
revenue producing properties (15,427) (11,840) (38,726) (26,786)
Net cash proceeds from sale of properties - - 1,223 - Technology
for real estate operations 49 (1,818) (889) (2,491)
-------------------------------------------------------------------------
$ (37,674) $ (14,283) $(107,223) $(104,719)
----------------------------------------------- Decrease in cash
and cash equivalents balance during the period $ (1,089) $ (2,734)
$ (23,599) $ (26,346) Cash and cash equivalents, beginning of
period $ 1,121 $ 2,060 $ 23,631 $ 25,672
-------------------------------------------------------------------------
Cash and cash equivalents, end of period $ 32 $ (674) $ 32 $ (674)
-----------------------------------------------
----------------------------------------------- Taxes paid $ 832 $
824 $ 2,566 $ 2,347 -----------------------------------------------
----------------------------------------------- Interest paid $
18,928 $ 20,775 $ 57,016 $ 54,262
-----------------------------------------------
----------------------------------------------- See accompanying
notes to the consolidated financial statements NOTES TO THE
CONSOLIDATED FINANCIAL STATEMENTS For the three and nine months
ended September 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 nine months ended September 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 the adoption of the revised CICA
Handbook section 3870. 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 in accordance with the transitional provision of
section 3870. 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 nine months ended September 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 9 months 9 months ended
ended ended ended September September September September 30, 30,
30, 30, 2003 2002 2003 2002
----------------------------------------------- Cash paid $ 22,296
$ 625 $ 68,831 $ 75,442 Debt assumed 23,468 1,231 38,834 110,828
---------------------------------------------------------------------
Total purchase price $ 45,764 $ 1,856 $ 107,665 $ 186,270 Fair
value adjustment to debt 1,268 - 2,137 19,500
---------------------------------------------------------------------
Book value $ 47,032 $ 1,856 $ 109,802 $ 205,770
-----------------------------------------------
----------------------------------------------- Units acquired 649
52 1,956 3,212 -----------------------------------------------
----------------------------------------------- Dispositions 3
months 3 months 9 months 9 months ended ended ended ended September
September September September 30, 30, 30, 30, 2003 2002 2003 2002
----------------------------------------------- Cash received $ - $
- $ 1,385 $ 3,026 Vendor take back mortgage - - - 500 Debt assumed
by the purchaser - - 1,655 3,972
---------------------------------------------------------------------
Total proceeds $ - $ - $ 3,040 $ 7,498 Net book value $ - $ - $
1,993 $ 6,531
---------------------------------------------------------------------
Gain on sales before income taxes $ - $ - $ 1,047 $ 967
-----------------------------------------------
----------------------------------------------- Units sold - - 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 other dispositions during the current year
to date. 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 9 months 9 months ended
ended ended ended September September September September 30, 30,
30, 30, 2003 2002 2003 2002
----------------------------------------------- Revenue Rental
income $ - $ 81 $ 86 $ 238 Expenses Revenue producing properties:
Operating expenses $ - $ 13 $ 4 $ 30 Utilities - 11 17 30 Utility
rebate (NOTE 8) - - - (1) Property taxes - 6 6 16 Administration -
2 2 7 Financing costs - 26 24 77 Deferred financing costs
amortization - - - - Amortization - 15 - 42
----------------------------------------------- $ - $ 73 $ 53 $ 201
----------------------------------------------- Operating earnings
from discontinued operations before undernoted items and income
taxes $ - $ 8 $ 33 $ 37 Future income taxes - (3) (12) (13)
Operating earnings from discontinued operations $ - $ 5 $ 21 $ 24
Gain on disposition - - 1,047 - Future income taxes - - (317) -
----------------------------------------------- Earnings from
discontinued operations $ - $ 5 $ 751 $ 24
-----------------------------------------------
----------------------------------------------- 5. SHARE CAPITAL
(a) Issued September 30, 2003 December 31, 2002
--------------------------------------- Number Amount Number Amount
------ ------ ------ ------ Common shares outstanding (THOUSAND)
50,481 $270,894 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 September 30, 2003, there was a total of
2,851,300 (December 31, 2002 - 3,480,072) options outstanding to
directors, officers and employees. The exercise prices range from
$9.11 to $16.73 (December 31, 2002 - $9.11 to $22.92). These
options expire up to August 28, 2012. September 30, 2003 December
31, 2002 ------------------------------------------- Weighted
Weighted average average 9 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 (415,733) $ 11.10
(801,633) $ 11.02 Forfeited (213,039) $ 19.14 (296,851) $ 17.14
---------------------------------------------------------------------
Outstanding, end of period 2,851,300 $ 12.21 3,480,072 $ 12.46
-------------------------------------------
------------------------------------------- Options exercisable at
period end The following table summarized information about the
options outstanding at September 30, 2003: Options outstanding
Options exercisable
-------------------------------------------------------------------------
Weighted Weighted average average remaining Weighted remaining
Weighted Range of Number contrac- average Number contrac- average
exercise out- tual life exercise exerci- tual life exercise prices
standing (years) price sable (years) price
-------------------------------------------------------------------------
$9.01 to $11.00 456,000 6.5 $9.51 417,200 6.5 $9.51 $11.01 to
$13.00 1,782,622 5.8 $11.97 1,086,364 6.2 $11.89 $13.01 to $15.00
349,578 5.6 $14.00 283,182 5.4 $13.90 $15.01 to $17.00 263,100 5.6
$16.20 195,320 5.5 $16.27
-------------------------------------------------------------------------
2,851,300 5.9 $12.21 1,982,066 6.1 $12.11
------------------------------------------------------------
------------------------------------------------------------ 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 9 months 9 months ended ended ended ended September
September September September 30, 30, 30, 30, 2003 2002 2003 2002
----------------------------------------------- Compensation Costs
$ (509) $ (535) $ (1,555) $ (1,381) Net Earnings As reported $
5,145 $ 3,443 $ 9,218 $ 9,363 Pro forma $ 4,636 $ 2,908 $ 7,663 $
7,982 Net Earnings per Common Share Basic As reported $ 0.10 $ 0.07
$ 0.18 $ 0.19 Pro forma $ 0.09 $ 0.06 $ 0.15 $ 0.16 Diluted As
reported $ 0.10 $ 0.07 $ 0.18 $ 0.19 Pro forma $ 0.09 $ 0.06 $ 0.15
$ 0.16 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: 9 months 9 months ended ended September September 30,
30, 2003 2002 Risk free interest rate 5.33% 5.33% Expected lives
(years) 7 - 10 years 7 - 10 years Expected volatility 42.56% 42.56%
Dividend per share $0.05 $0.05 6. PER SHARE CALCULATIONS The
following table sets forth the computation of basic and diluted
earnings per share with respect to earnings from continuing
operations and earnings from discontinued operations. 3 months 3
months 9 months 9 months ended ended ended ended September
September September September 30, 30, 30, 30, 2003 2002 2003 2002
----------------------------------------------- Numerator Earnings
from continuing operations $ 5,145 $ 3,438 $ 8,467 $ 9,339 Earnings
from discontinued operations $ - $ 5 $ 751 $ 24
---------------------------------------------------------------------
Denominator Denominator for basic earnings per share - weighted
average shares (THOUSANDS) 50,458 49,879 50,304 49,600
---------------------------------------------------------------------
Effect of dilutive securities Stock options (THOUSANDS) 598 662 544
513 Denominator for diluted earnings per share adjusted for
weighted average shares and assumed conversion (THOUSANDS) 51,056
50,541 50,848 50,113
---------------------------------------------------------------------
---------------------------------------------------------------------
Basic and diluted earnings per share from continuing operations
$0.10 $0.07 $0.17 $0.19
---------------------------------------------------------------------
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 9 months 9
months ended ended ended ended September September September
September 30, 30, 30, 30, 2003 2002 2003 2002
----------------------------------------------- Continuing
operations $ 1,614 $ 2,380 $ 5,169 $ 6,203 Discontinued operations
- 3 329 13
---------------------------------------------------------------------
Total future income taxes $ 1,614 $ 2,383 $ 5,498 $ 6,216
-----------------------------------------------
----------------------------------------------- The future income
tax expense is computed as follows: 3 months 3 months 9 months 9
months ended ended ended ended September September September
September 30, 30, 30, 30, 2003 2002 2003 2002
----------------------------------------------- Tax expense based
on expected rate of 37% (2002 - 36%) $ 2,666 $ 2,385 $ 6,451 $
6,415 Non-taxable portion of capital gain - (2) (223) (199)
Adjustment to future income tax liabilities (144) - 772 -
Adjustment for change in effective tax rate (908) - (1,502) -
---------------------------------------------------------------------
Future income tax expense $ 1,614 $ 2,383 $ 5,498 $ 6,216
-----------------------------------------------
----------------------------------------------- The future income
tax liability is calculated as follows: AS AT September 30,
December 31, 2003 2002 ---------------------------- Tax assets
related to operating losses $73,869 $63,254 Tax liabilities related
to differences in tax and book basis (142,042) (126,230)
---------------------------------------------------------------------
Future income tax liability $(68,173) $(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 three to
fifteen months 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 months. 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, 2004 and provide the commodity at a price of
$5.44/GJ. The second contract runs from October 1, 2003 to
September 30, 2005 and provides the commodity at a price of
$6.16/GJ. In Saskatchewan, the Corporation has a 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
September 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 September 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 9
months 9 months ended ended ended ended September September
September September 30, 30, 30, 30, 2003 2002 2003 2002
----------------------------------------------- Alberta Revenue $
38,505 $ 37,918 $ 114,033 $ 113,180 Expenses Operating 4,783 3,069
14,151 11,265 Utilities 3,924 4,070 13,750 14,305 Utility rebate -
- - (3,292) Property taxes 2,658 3,104 8,301 8,420
----------------------------------------------- 11,365 10,243
36,202 30,698 ----------------------------------------------- Net
operating income from continuing operations $ 27,140 $ 27,675 $
77,831 $ 82,482 -----------------------------------------------
----------------------------------------------- Saskatchewan
Revenue $ 8,510 $ 8,170 $ 25,353 $ 24,377 Expenses Operating 1,165
1,153 3,327 3,011 Utilities 643 684 2,716 2,939 Property taxes
1,217 1,270 3,616 3,657
----------------------------------------------- 3,025 3,107 9,659
9,607 ----------------------------------------------- Net operating
income from continuing operations $ 5,485 $ 5,063 $ 15,694 $ 14,770
-----------------------------------------------
----------------------------------------------- Ontario Revenue $
8,699 $ 8,369 $ 25,919 $ 24,851 Expenses Operating 1,136 1,054
3,582 3,340 Utilities 1,077 987 4,421 3,914 Property taxes 1,470
1,372 4,174 4,007 -----------------------------------------------
3,683 3,413 12,177 11,261
----------------------------------------------- Net operating
income from continuing operations $ 5,016 $ 4,956 $ 13,742 $ 13,590
-----------------------------------------------
----------------------------------------------- Quebec (2002 - 5
months of operations only) Revenue $ 12,767 $ 7,086 $ 34,771 $
12,399 Expenses Operating 1,488 712 3,812 1,077 Utilities 1,177 559
4,136 998 Property taxes 1,295 557 3,425 1,086
----------------------------------------------- 3,960 1,828 11,373
3,161 ----------------------------------------------- Net operating
income from continuing operations $ 8,807 $ 5,258 $ 23,398 $ 9,238
-----------------------------------------------
----------------------------------------------- Total Net operating
income from continuing operations $ 46,448 $ 42,952 $ 130,665 $
120,080 Unallocated revenue(x) 236 2,017 1,023 10,422 Unallocated
expenses(xx) (41,539) (41,531) (123,221) (121,163)
----------------------------------------------- Net income from
continuing operations $ 5,145 $ 3,438 $ 8,467 $ 9,339
-----------------------------------------------
----------------------------------------------- AS AT September 30,
December 31, 2003 2002 ---------------------------- Alberta
Identifiable Assets Revenue Producing properties $ 970,855 $
971,598 Mortgages and accounts receivable 6,178 8,550 Deferred
financing costs 25,638 25,464 Tenants' security deposit 5,951 6,559
---------------------------- $1,008,622 $1,012,171
---------------------------- ----------------------------
Saskatchewan Identifiable Assets Revenue producing properties $
179,809 $ 180,792 Mortgages and accounts receivable 36 22 Deferred
financing costs 4,494 4,714 Tenants' security deposits 1,088 1,037
---------------------------- $ 185,427 $ 186,565
---------------------------- ---------------------------- Ontario
Identifiable Assets Revenue producing properties $ 215,827 $
215,175 Mortgages and accounts receivable 229 1,166 Deferred
financing costs 2,755 2,954 ---------------------------- $ 218,811
$ 219,295 ---------------------------- ----------------------------
Quebec Identifiable Assets Revenue producing properties $ 340,383 $
229,272 Mortgages and accounts receivable 4,487 4,709 Deferred
financing costs 4,246 4,357 ---------------------------- $ 349,116
$ 238,338 ---------------------------- ----------------------------
Total Assets Identifiable assets $1,761,976 $1,656,369 Unallocated
assets(xxx) 27,880 52,121 ---------------------------- $1,789,856
$1,708,490 ----------------------------
---------------------------- (x) 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 On
November 6, 2003, the Corporation announced it was reviewing a
proposal for the reorganization of the company to a real estate
investment trust and has engaged a number of financial advisors to
advise the Corporation on the proposed reorganization. The
reorganization is subject to shareholder and regulatory approvals,
as well as approvals by the Corporation's lenders and board of
directors. There is no certainty at this time that the
reorganization will be implemented. DATASOURCE: Boardwalk Equities
Inc. CONTACT: 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) 206-6808
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