Boardwalk announces record fourth quarter and full year 2003
financial results; 11% increase in 2003 FFO per share, excluding
gains BOARDWALK PROVIDES UPDATE ON PROPOSED REIT CONVERSION
CALGARY, Feb. 16 /PRNewswire-FirstCall/ -- Boardwalk Equities Inc.
("BEI" - TSX, NYSE) today announced record unaudited financial
results for the fourth quarter of 2003 and for fiscal 2003. For the
fourth quarter ended December 31, 2003, the Company reported Funds
From Operations ("FFO"), a key performance measurement for real
estate companies, of $18.3 million and FFO per share of $0.36 on a
diluted basis, compared to FFO of $13.5 million and FFO per share
of $0.27 for the same period last year. For the year ended December
31, 2003, the Company reported FFO of $70.6 million and FFO per
share of $1.39 on a diluted basis, compared to FFO of $63.1 million
and FFO per share of $1.26. 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 fourth quarter 2003 financial results
include: - Rental revenues of $69.9 million, an increase of 9.6%
compared to $63.8 million for the three-month period ended December
31, 2002. - Net operating income of $44.9 million, representing a
12.0% increase from $40.1 million in the same period last year. -
FFO from rental operations, which excludes any gains on property
dispositions, of $18.3 million, an increase of 35.6% compared to
$13.5 million for the three-month period ended December 31, 2002.
There were no property dispositions in the fourth quarter of 2003
or 2002. - FFO per share from rental operations, which excludes
gains, was $0.36 on a diluted basis, up 33.3% compared to $0.27 for
the three-month period ended December 31, 2002. Highlights of the
Company's financial results for the fiscal 2003 include: - Rental
revenues of $271.0 million, an increase of 12.2% compared to $241.6
million for the twelve-month period ended December 31, 2002. - Net
operating income of $176.2 million, representing a 8.2% increase
from $162.9 million in the same period last year. - FFO of $70.6
million, an increase of 11.9% compared to $63.1 million for the
twelve-monthperiod ended December 31, 2002. FFO from rental
operations, which excludes gains, of $69.5 million, an increase of
12.1% compared to $62.0 million for the twelve-month period ended
December 31, 2002. - FFO per share of $1.39 on a diluted basis,
compared to $1.26 for the twelve-month period ended December 31,
2002, representing a 10.3% increase. FFO per share from rental
operations, which excludes gains, was $1.37 on a diluted basis, an
increase of 10.5% compared to $1.24 for the twelve-month period
ended December 31, 2002. Commenting on the Company's fourth quarter
and fiscal 2003 results, Sam Kolias, President and C.E.O., said,
"We are pleased to report that in 2003 Boardwalk achieved another
year of record financial results and achieved solid operating
results in the fourth quarter. The Company's portfolio continued to
deliver solid operating results, notwithstanding the ongoing
strength and level of activity in housing markets across the
country. This performance was driven in large part by our focus on
operations and on the progress made in improving our portfolio
occupancy levels, particularly in the second half of the year."
Operational Highlights The average vacancy rate across the
Company's portfolio for the fourth quarter of 2003 was 3.7%,
unchanged from the third quarter of 2003, and down from 4.9% in the
fourth quarter of 2002. The average monthly rent realized in fiscal
2003 was $734 per unit, an increase of $18, or 2.5%, from $716 per
unit for the twelve-months ended December 31, 2002. Management
estimates that market rents for its properties at the end of
December, 2003 averaged $788 per unit per month, which compares to
an average in-place monthly rent per occupied unit of $757 forthe
twelve- months ended December 31, 2003. This translates into an
estimated "loss-to- lease" of approximately $11.3 million,
maintaining existing occupancy rates. Same-Property Results
Boardwalk continued to show solid performance in its
stabilizedproperties (defined as properties owned for over 24
months). The "same- property" results for the Company's stabilized
portfolio for the three-month period ended December 31, 2003 showed
rental growth of 1.3% and NOI growth of 1.4% compared to the
sameperiod last year. For the twelve-month period ended December
31, 2003, the stabilized property portfolio had rental growth of
2.1% and a decline in NOI of 0.8% compared to the same period last
year. Excluding the impact of a non-recurring gas rebate in2002,
"same-property" NOI for the three and twelve month periods ended
December 31, 2003 increased by 2.3% and 1.5%, respectively. A total
of 25,715 units, representing approximately 82% of Boardwalk's
total portfolio, were classified as stabilized as at December 31,
2003. None of the Company's Quebec properties are currently
classified as stabilized. Same-Property Results - Stabilized
Portfolio Three Months Ended December 31, 2003 vs. Three Months
Ended December 31, 2002 --------------------------- Rental Expenses
Rental --------------------------- % of Stab Revenues Utilities
Other Total NOI NOI
-------------------------------------------------------------------------
Calgary 0.4% -13.5% -10.4% -8.3% 4.5% 23% Edmonton 0.6% -5.9% -4.6%
-0.3% 1.1% 42% Other Alberta 4.6% -7.0% -8.8% -3.8% 8.9% 7%
Saskatchewan 0.2% 12.6% 0.5% 7.1% -3.9% 14% Ontario 4.5% 20.7% 1.8%
11.5% -0.7% 13%
-------------------------------------------------------------------------
Total 1.3% -1.6% -3.6% 1.3% 1.4% 100%
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Excluding one time non- recurring rebate in 2002 1.3% -5.0% -3.6%
-0.2% 2.3%
--------------------------------------------------------------
--------------------------------------------------------------
Same-Property Results - Stabilized Portfolio Twelve Months Ended
December 31, 2003 vs. Twelve Months Ended December 31, 2002
--------------------------- Rental Expenses Rental
--------------------------- % of Stab Revenues Utilities Other
Total NOI NOI
-------------------------------------------------------------------------
Calgary -0.5% -4.5% 6.6% 2.1% -1.5% 24% Edmonton 2.5% 19.9% 11.0%
14.5% -2.5% 43% Other Alberta 1.0% 26.4% 8.8% 14.8% -4.4% 7%
Saskatchewan 2.7% -2.8% 2.6% 0.9% 3.9% 14% Ontario 4.7% 14.7% 6.1%
9.1% 2.9% 13%
-------------------------------------------------------------------------
Total 2.1% 10.8% 7.4% 8.6% -0.8% 100%
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Excluding one time non- recurring rebate in 2002 2.1% -3.9% 7.4%
3.2% 1.5%
--------------------------------------------------------------
--------------------------------------------------------------
Acquisition/Disposition Activity In 2003, Boardwalk acquired a
total of 1,953 units for approximately $106 million, increasing its
portfolio to over31,200 units at year-end. This represents a 6.5%
increase in the Company's portfolio from the end of 2002. The
Company had one disposition in 2003, a 40-unit apartment complex in
Edmonton, Alberta which was sold for $3.0 million. There were no
acquisitions or dispositions in the fourth quarter of 2003.
Subsequent Events Subsequent to December 31, 2003, the Company
closed on the acquisition of a 183-unit property in the Quebec City
(Sainte-Foy) area at an acquisition price of $16.9 million. The
acquisition price equates to approximately $92,000 per unit, and
approximately $124.8 per rentable square foot. The property
acquired was: - Complexe Laudance - Quebec City (Sainte-Foy), QC -
a luxury apartment complex consisting of 183 units in two mid-rise
concrete buildings. The buildings were constructed and completed in
1989 and 1990. The transaction closed on February 11, 2004.
Beginning January 1, 2004, the Corporation will adopt the
straight-line method to compute amortization of its revenue
producing buildings. The adoption of the straight-line method from
the sinking-fund method will be applied prospectively in accordance
with the transitional provision of CICA Handbook Section 1100 and
is consistent with the recommendations of the Canadian Institute of
Public and Private Real Estate Companies ("CIPPREC"). Continued
Financial Strength The Company maintained its solid financial
position in the fourth quarter of 2003. Boardwalk's total mortgage
debt was $1.39 billion as at December 31, 2003, up from $1.31
billion at December 31, 2002, reflecting the additional debt on
acquisitions completed during the year. As at December 31, 2003,
the Company's debt had an average maturity of 4.2 years with a
weighted average interest rate of 5.68%, and the Company's
debt-to-total-market-capitalization ratio was 60.3%. The Company's
interest coverage ratio, excluding gains, for the twelve- month
period ended December 31, 2003 increased to 2.00 times compared to
1.93 times in the same period last year. During 2003, Boardwalk
successfully completed approximately $177 million in mortgage
refinancings and renewals. Update on Proposed REIT Conversion
Commencing in August 2003 through October 2003, Boardwalk
management and Boardwalk Properties Company Limited, with the
assistance of professional advisors, including CIBC World Markets
Inc. acting as financial advisor to the Corporation, explored
potential transactions to reorganize the Corporation into a real
estate investment trust ("REIT"). On November 5, 2003, the Board of
Directors of Boardwalk considered management's proposal to
reorganize the business of the Corporation into a REIT. The Board
of Directors considered, among others, the following factors in its
review and discussion of the proposal: (a) monthly cash
distributions were anticipated to provide an attractive return to
Unitholders without impairing the Corporation's ability to finance
capital expenditures and to meet external debt payments; (b) the
Corporation has characteristics that are suited to a REIT
structure, in particular the Corporation's diversified portfolio of
multi-family residential properties which provide a relatively
stable cash flow; (c) the new trust structure would result in a
higher level of cash distributions than would be available under
the existing corporate structure of the Corporation; (d) a
significant portion of Boardwalk REIT's distributions to
Unitholders would be tax-deferred; (e) the anticipated improved
access that Boardwalk REIT would have to the public capital markets
to fund growth initiatives than is or would be available to the
Corporation under current market conditions and given its existing
corporate structure; and (f) Boardwalk REIT would be the largest
and most geographically diverse publicly traded multi-family
residential trust in Canada. Following their review the Board of
Directors resolved to appoint a special committee of independent
directors to consider the proposed REIT transaction. The Special
Committee retained RBC Capital Markets as its financial advisor to
provide its opinion as to the fairness of consideration under the
proposed transaction, from a financial point of view, to the Public
Shareholders. On December 10, 2003, the Special Committee reported
to the Board of Directors that, on the basis of the preliminary
views of RBC Capital Markets as to the fairness of consideration
under the proposed transaction, from a financial point of view, to
the Public Shareholders, the Special Committee unanimously
concluded that the proposed transaction is in the best interests of
the Corporation and its Public Shareholders. The Board of Directors
met again on January 8, 2004 to receive the Fairness Opinion and
authorize the filing of the Information Circular with the SEC. The
negotiation of the final terms of the proposed transaction was
concluded, and the Acquisition and Arrangement Agreement was signed
effective January 9, 2004. An information circular has been
prepared in connection with the proposed transaction and filed with
the United States Securities and Exchange Commission via EDGAR. A
copy of the information circular has also been made available on
SEDAR although readers are cautioned that information contained
therein may change as a result of SEC review. We are currently
awaiting comments from the SEC at which time it will be determined
if any additional disclosure tothe existing public documents will
be required. Upon successful completion of this process the Company
intends to mail out the completed information circular concerning
the proposed transaction and Special Meeting to all
securityholders. At this point,management expects the proposed
conversion to be completed by late March 2004 or early April 2004
timeframe. Commenting on the proposed conversion, Sam Kolias,
President and CEO, said "We are excited about the prospect of
completing Boardwalk's conversion into a REIT. This conversion is
aimed at enhancing shareholder value and providing a stronger
platform to expand the Company's operations in the future. We will
rank among the largest REITs in Canada, with an equity market
capitalization of approximately $1 billion." Quarterly Dividend
Announced On February 13, 2004 the Board of Directors declared a
quarterly cash dividend in the amount of $0.075 (Canadian) per
common share outstanding, which is payable on March 10, 2004 to all
common shareholders of record as of February 27, 2004. The dividend
equates to an annual dividend rate of $0.30 per share. Outlook and
2004 Earnings Guidance Commenting on the outlook for the Company,
Rob Geremia, Senior Vice President, Finance and CFO, said "We are
reaffirming our fiscal 2004 guidance for total 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, 1,000 to 2,000 new units, and $1.0
million in large corporations tax savings. Assuming the REIT
conversion takes place, all of Boardwalk's current 2.4 million
stock options would vest bringing the total outstanding shares up
to 53.3 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 Fourth Quarter 2003 Supplemental Information is available on
the INVESTOR section of our website (http://www.bwalk.com/).
Teleconference on Fourth Quarter and Year End 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 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/en/webcast/viewEvent.cgi?eventID(equal
sign)728640 Replay: An audio recording of the teleconference will
be available approximately one hour after the call until 11:59pm
EST on February 23rd, 2004. You can access it by dialing
416-640-1917 and using the passcode 21035473 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 and operates in excess of 250
properties with over 31,400 units (inclusive of the 183 units
acquired subsequent to December 31, 2003) 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 $2.3 billion.
Forward-Looking Statements This release contains forward-looking
statements within the meaning of the U.S. Private Securities
Litigation Reform Act of 1995. The forward-looking statements are
statements that involve risks and uncertainties, including, but not
limited to, changes in the demand for apartment and town home
rentals, the effects of economic conditions, the impact of
competition and competitive pricing, the effects of the Company's
accounting policies and other matters detailed in the Company's
filings with Canadian and United States securities regulators
available on SEDAR in Canada and by request through the Securities
and Exchange Commission in the United States, including matters set
forth in the Company's Annual Report to Shareholders under the
heading "Management's Discussion and Analysis". Because of these
risks and uncertainties, the results, expectations, achievements,
or performance described in this release may be different from
those currently anticipated by the Company. CONSOLIDATED BALANCE
SHEETS (CDN$ THOUSANDS) AS AT December December 31, 2003 31, 2002
--------------------------- (Unaudited) (Audited) Assets Revenue
producing properties (NOTE 2) $1,713,171 $1,604,277 Properties held
for resale 7,493 7,038 Mortgages and accounts receivable (NOTE 4)
13,126 14,704 Other assets (NOTE 5) 14,652 13,723 Deferred
financing costs 38,044 37,521 Segregated tenants' security deposits
6,771 7,596 Cash and cash equivalents 10,123 23,631
-------------------------------------------------------------------------
$1,803,380 $1,708,490 ---------------------------
--------------------------- Liabilities Mortgages payable (NOTE 7)
$1,387,067 $1,307,177 Accounts payable and accrued liabilities
19,801 21,498 Refundable tenants' security deposits and other 9,730
10,496 Capital lease obligations (NOTE 6) 3,515 4,598 Future income
taxes (NOTE 10) 74,765 62,976
-------------------------------------------------------------------------
$1,494,878 1,406,745 --------------------------- Shareholders'
Equity Share capital (NOTE 8) 275,509 266,516 Retained earnings
32,993 35,229
-------------------------------------------------------------------------
$308,502 301,745
-------------------------------------------------------------------------
$1,803,380 $1,708,490 ---------------------------
--------------------------- SEE ACCOMPANYING NOTES TO THE
CONSOLIDATED FINANCIAL STATEMENTS CONSOLIDATED STATEMENTS OF
EARNINGS (CDN$ THOUSANDS, EXCEPT PER SHARE AMOUNTS) 3 months 3
months Year Year ended ended ended ended December December December
December 31, 2003 31, 2002 31, 2003 31, 2002
------------------------------------------------ (Unaudited)
(Unaudited) (Unaudited) (Audited) Revenue Rental income $ 69,893 $
63,844 $ 270,992 $ 241,575 Sales - properties held for resale - - -
7,498
-------------------------------------------------------------------------
69,893 63,844 270,992 249,073
------------------------------------------------ Expenses Revenue
producing properties: Operating expenses 8,816 7,54833,819 26,182
Utilities 9,591 10,145 34,736 32,489 Utility rebate (NOTE 1 (g)
(iii)) - (390) - (3,692) Property taxes 6,626 6,427 26,217 23,664
Cost of sales - properties held for resale - - - 6,531
Administration 5,755 5,557 23,290 19,921 Financing costs 19,264
19,109 76,630 74,181 Deferred financing costs amortization 662 738
3,227 3,239 Amortization (NOTE 1) 13,176 12,732 50,766 46,691
-------------------------------------------------------------------------
63,890 61,866 248,685 229,206
------------------------------------------------ Operating earnings
before the following: 6,003 1,978 22,307 19,867 Gain on debt
settlement - (692) - (692)
------------------------------------------------ Earnings from
continuing operations before income taxes 6,003 2,670 22,307 20,559
Large corporations taxes 878 1,253 3,546 3,600 Future income taxes
(recovery) (NOTE 10) 6,592 (797) 11,761 5,406
-------------------------------------------------------------------------
(Loss) earnings from continuing operations $ (1,467) $ 2,214 $
7,000 $ 11,553 Earnings (loss) from discontinued operations, net of
tax - (1) 751 23
-------------------------------------------------------------------------
Net (loss) earnings for the period $ (1,467) $ 2,213 $ 7,751 $
11,576 ------------------------------------------------
------------------------------------------------ Basic earnings per
share (NOTE 9) - from continuing operations $(0.03) $0.04 $0.14
$0.23 - from discontinued operations - 0.00 0.01 0.00
-------------------------------------------------------------------------
Basic earnings per share $(0.03) $0.04 $0.15 $0.23
------------------------------------------------
------------------------------------------------ Diluted (loss)
earnings per share (NOTE 9) - from continuing operations $(0.03)
$0.04 $0.14 $0.23 - from discontinued operations - 0.00 0.01 0.00
-------------------------------------------------------------------------
Diluted (loss) earnings per share $(0.03) $0.04 $0.15 $0.23
------------------------------------------------
------------------------------------------------ SEE ACCOMPANYING
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONSOLIDATED
STATEMENTS OF RETAINED EARNINGS (CDN$ THOUSANDS) 3 months 3 months
Year Year ended ended ended ended December December December
December 31, 2003 31, 2002 31, 2003 31, 2002
------------------------------------------------ (Unaudited)
(Unaudited) (Unaudited) (Audited) Retained earnings, beginning of
period $ 38,260 $ 33,089 $ 35,229 $ 26,782 Net (loss) earnings for
the period (1,467) 2,213 7,751 11,576 Dividends paid (3,800) -
(9,595) (2,477) Premium on share repurchases - (73) (392) (652)
-------------------------------------------------------------------------
Retained earnings, end of period $ 32,993 $ 35,229 $ 32,993 $
35,229 ------------------------------------------------
------------------------------------------------ SEE ACCOMPANYING
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONSOLIDATED
STATEMENT OF CASH FLOWS (CDN$ THOUSANDS) 3 months 3 months Year
Year ended ended ended ended December December December December
31, 2003 31, 2002 31, 2003 31, 2002
------------------------------------------------ (Unaudited)
(Unaudited) (Unaudited) (Audited) Operating activities Net (loss)
earnings for the period $ (1,467) $ 2,213 $ 7,751 $ 11,576
(Earnings) loss from discontinued operations, net of tax - 1 (751)
(23) Future income taxes (recovery) 6,592 (797) 11,761 5,406
Amortization 13,176 12,732 50,766 46,691 Gain on debt settlement -
(692) - (692)
-------------------------------------------------------------------------
Funds from continuing operations 18,301 13,457 69,527 62,958 Funds
from discontinued operations - 15 33 94 Net change in operating
working capital (1,405) 5,402 (489) 7,434 Net change in properties
held for resale (107) (39) 1,442 5,702
-------------------------------------------------------------------------
Total operating cash flows 16,789 18,835 70,513 76,188
------------------------------------------------ Financing
activities Issue of common shares for cash (net of issue costs)
4,615 1,313 9,229 8,828 Stock repurchase program - (122) (628)
(1,167) Dividends paid (3,800) - (9,595) (2,477) Financing of
revenue producing properties 27,390 175,212 177,208 305,841
Repayment of debt on revenue producing properties (22,928)
(126,273) (138,292) (238,708) Deferred financing costs incurred
(net of deferred financing costs amortization) (597) (4,377)
(3,342) (5,544)
-------------------------------------------------------------------------
4,680 45,753 34,580 66,773
------------------------------------------------ Investing
activities Purchases of revenue producing properties (NOTE 2) -
(27,484) (68,831) (102,926) Project improvements to revenue
producing properties (10,321) (12,647) (49,047) (39,433) Net cash
proceeds from sale of properties - - 1,223 - Technology for real
estate operations (1,057) (152) (1,946) (2,643)
-------------------------------------------------------------------------
(11,378) (40,283) (118,601) (145,002)
------------------------------------------------ Net (decrease)
increase in cash and cash equivalents balance during period 10,091
24,305 (13,508) (2,041) Cash and cash equivalents, beginning of
period 32 (674) 23,631 25,672
-------------------------------------------------------------------------
Cash and cash equivalents, end of period $ 10,123 $ 23,631 $ 10,123
$ 23,631 ------------------------------------------------
------------------------------------------------ Taxes paid $ 833 $
1,344 $ 3,399 $ 3,691
------------------------------------------------
------------------------------------------------ Interest paid $
19,452 $ 18,224 $ 76,468 $ 72,486
------------------------------------------------
------------------------------------------------ SEE ACCOMPANYING
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Notes To
Consolidated Financial Statements Three months ended December 31,
2003 and 2002 (unaudited)and years ended December 31, 2003
(unaudited) and 2002 (audited) (TABULAR AMOUNTS IN CDN$ THOUSANDS,
EXCEPT NUMBER OF SHARES AND PER SHARE AMOUNTS UNLESS OTHERWISE
STATED) 1. SIGNIFICANT ACCOUNTING POLICIES (a) Operations Boardwalk
Equities Inc. (the "Corporation") is a real estate corporation that
specializes in multi-family residential housing. (b) Basis of
presentation and principles of consolidation The Corporation's
accounting policies and its standards of financial disclosure
conform 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"). These principles differ in
certain respects from those generally accepted in the United States
of America ("U.S. GAAP"). The preparation of financial statements
in accordance with Canadian generallyaccepted 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 dateof the financial statements, and the
reported amounts of revenues and expenses during the reporting
period. Actual results may differ from those estimates. The
consolidated financial statements include the accounts of the
Corporation, its wholly-owned subsidiaries, including Suite Systems
Inc. ("SSI"), and HomeXpress Limited ("HomeXpress"). HomeXpress is
a public company of which the Corporation owns 63%. That company is
no longer in operation as of October 11, 2001. All material inter-
company transactions have been eliminated. (c) Revenue recognition
i. Revenue from a rental property is recognized once the
Corporation 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 Corporation
accounts for leases with its tenants as operating leases. ii.
Revenue from the sales of property held for resale 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) Real estate properties i. 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
asproject improvements. The net recoverable amount represents the
undiscounted estimated future net cash flows expected to be
received from the ongoing use of the property plus its residual
value. To arrive at this amount, the Corporation projects future
net cash flows over a maximum of 10 years and includes the proceeds
from the estimated residual sale value at the end of that period.
The projections take into account management's best estimate of the
most probable set of economic conditions anticipated to prevail in
the market area. ii. Properties held for resale The Corporation
capitalizes all direct costs, net of related revenue. Direct costs
include property taxes, administration costs, finance costs and
other costs associated with the cost of property held for resale.
Realestate properties held for resale are recorded at the lower of
cost or net realizable value. (e) Amortization Revenue producing
real estate properties are amortized over the estimated useful
lives of the assets. Amortization is computed using the
sinking-fund method using an interest rate of 4% over a period of
40 to 50 years for buildings and the declining-balance method at
rates ranging from 8% to 35% for other non-building assets. Under
the sinking-fund method used to amortize revenue producing
buildings, an increasing amount is charged to income consisting of
a fixed annual sum, together with interest compounded at an
interest rate of 4%, so as to fullyamortize the buildings over
their estimated life from date of acquisition. At January 1, 2002,
the Corporation revised the estimates on the economic usefulness of
certain non-building assets. This change in accounting estimate was
treated prospectively. Beginning January 1, 2004, the Corporation
will adopt the straight- line method to compute amortization of its
revenue producing buildings. The adoption of the straight-line
method from the sinking- fund method will be applied prospectively
in accordance with the transitional provision of CICA Handbook
Section 1100. (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
over 25 years on a straight-line basis. Upon the refinancing of a
mortgage, any unamortized insurance premium associated with the
previous mortgage is written off toincome. 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 Corporation
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
Corporation'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 Corporation has the ability to
convert its existing demand debt to fixed rate debt. The
Corporation had demand debt outstanding of $nil at December 31,
2003 (December 31, 2002 - $nil). In addition, the Corporation
structures its financings so as to stagger the maturities of its
debt, thereby minimizing the Corporation's exposure to interest
rate fluctuations. The majority of the Corporation's mortgages are
insured by CMHC under the NHA mortgage program. This added level of
insurance offered to lenders allow the Corporation 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 difficultyand be unable to fulfill their
lease term commitments. The Corporation mitigates this risk of
credit loss through the diversification of its existing portfolio
and limiting its exposure to any one tenant. Thorough credit
assessments are conducted in respect to all new leasing. In
addition, where legislation allows, the Corporation obtains a
security deposit to assist in a potential recovery requirement.
iii. Utilities At December 31, 2003, 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 twenty-four to twenty-five 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 provides 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 ata 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. While the above utility contracts for both electrical
power and natural gas 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. As of March 2, 2002, ATCO Gas
("ATCO"), the transporter of all natural gas in Alberta,
distributed a non-recurring rebate. The Alberta Energy and Utility
Board instructed ATCO 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.
The Alberta Government introduced two separate rebate programs to
assist corporations with the increase in energy prices in 2001. The
natural gas rebate program expired in April 2001 (resulting in a
disproportionate share of this rebate in the first quarter of 2001)
and the electrical rebate program expired on December 31, 2001. Due
to the current electricity pricing environment, there was not an
extension of this program after 2001. Fair Value In accordance with
the disclosure requirements of the CICA Handbook, the Corporation
is required to disclose certain information concerningits
"financial instruments", defined as a contractual right to receive
or deliver cash or another financial asset. The fair values of the
majority of the Corporation's financial assets and liabilities,
representing net working capital, approximate their recorded values
at December 31, 2003 and 2002 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 the Corporation and their carrying values as of
December 31, 2003 and 2002 are as follows: AS AT December 31,
December 31, 2003 2002 ------------------------- (Unaudited)
(Audited) Mortgages and accounts receivable Carrying value $ 13,126
$ 14,704 Fair market value $ 13,126 $ 14,704
---------------------------------------------------------------------
Mortgages payable Carrying value $1,387,067 $1,307,177 Fair market
value $1,439,926 $1,349,780 The fair value of the Corporation's
mortgages payable exceeds the recorded value by approximately $52.9
million at December 31, 2003 (December 31, 2002 - $42.6 million)
due to changes in interest rates since the dates on whichthe
individual mortgages were assumed. The fair value of the mortgages
payable has been estimated based on the current market rates for
mortgages with similar terms and conditions. The fair value of the
Corporation's mortgages payableis an amount computed based on the
interest rate environment prevailing at December 31, 2003 and 2002,
respectively; the amount is subject to change and the future
amounts will converge. There are no additional costs to the
Corporation, 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 1(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 1(d); iii.
amount of capitalized on-site wages which relate to project
improvements, as discussed in Note 2; iv. amount of utility accrual
for charges related to the current period; and v. amount of
provision for write-down of technology investments. Actualresults
may differ from these estimates. (i) Cash and cash equivalents The
Corporation considers highly liquid investments with an original
maturity of three months or less to be cash equivalents. (j)
Stock-based compensationplans 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 consolidated financial statements because there was no
intrinsic value at the date of grant. Note 8 discloses the pro
forma amounts to the Corporation's net earnings and net earnings
per share for the three months and years ended December 31, 2003
and 2002 had the impact of compensation costs using the fair value
method been applied effective January 1, 2002. (k) 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 thesale
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 3. (l) 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 requiresa 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 13 for further disclosure on
the Corporation's guarantees. (m) Comparative figures Certain
comparative figures have been reclassified to conform with the
current period's presentation, or as a result of accounting
changes. 2. REVENUE PRODUCING PROPERTIES AS AT December 31,
December 31, 2003 2002 ------------------------- (Unaudited)
(Audited) Land $ 113,568 $ 96,749 Building and non-building assets
1,834,724 1,695,092
---------------------------------------------------------------------
Total revenue producing properties 1,948,292 1,791,841 Less:
accumulated amortization (235,121) (187,564)
---------------------------------------------------------------------
$1,713,171 $1,604,277 -------------------------
------------------------- Acquisitions 3 months 3 months Year Year
ended ended ended ended December December December December 31,
2003 31, 2002 31, 2003 31, 2002
------------------------------------------------ (Unaudited)
(Unaudited) (Unaudited) (Audited) Cash paid $ - $ 27,484 $ 68,831 $
102,926 Debt assumed - 1 38,834 110,829
---------------------------------------------------------------------
Total purchase price - 27,485 107,665 213,755 Fair value
adjustments to debt - - 2,137 19,500
---------------------------------------------------------------------
Book value $ - $ 27,485 $ 109,802 $ 233,255
------------------------------------------------
------------------------------------------------ Units acquired -
346 1,956 3,558 ------------------------------------------------
------------------------------------------------ Dispositions 3
months 3 months Year Year ended ended ended ended December December
December December 31, 2003 31, 2002 31, 2003 31, 2002
------------------------------------------------ (Unaudited)
(Unaudited) (Unaudited) (Audited) Cash received $ - $ - $ 1,385 $
2,281 Vendor take back mortgage - - - 500 Debt assumed - - 1,655
4,717
---------------------------------------------------------------------
Total proceeds - - 3,040 7,498 Net book value - - 1,993 6,531
---------------------------------------------------------------------
Gain on sales $ - $ - $ 1,047 $ 967
------------------------------------------------
------------------------------------------------ Units sold - - 40
121 ------------------------------------------------
------------------------------------------------ Included in
revenue producing properties is capitalized wages of $1.3 million
for the three months ended December 31, 2003, $1.5 million for the
three months ended December 31, 2002, $5.1 million for the year
ended December 31, 2003 and $4.7 million for the year ended
December 31, 2002 relating to project improvements. Included in the
cost of properties held for resale for the year are capitalized
financing and property taxes costs of $0.1 million for the three
months ended December 31, 2003, $0.2 million for the three months
ended December 31, 2002, $0.4 million for the year ended December
31, 2003 and $0.5 million for the year ended December 31, 2002 less
net operating revenue of $nil for each of the respective periods.
Real estate assets are pledged as security against mortgages
payable. 3. 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 of 2003. There were no other
dispositions during the current year to date. Note 2 discloses the
carrying amounts of the major assets and liabilities included in
the disposition. The following table sets forth the results of
operations associated with the long- lived asset, separately
reported as discontinued operations for the current and prior
periods. 3 months 3 months Year Year ended ended ended ended
December December December December 31, 2003 31, 2002 31, 2003 31,
2002 ------------------------------------------------ (Unaudited)
(Unaudited) (Unaudited) (Audited) Revenue Rental income $ - $ 83 $
86 $ 321 ------------------------------------------------ Expenses
Revenue producing properties: Operating expenses - 17 4 47
Utilities - 28 17 58 Utility rebate (NOTE 1 (g) (iii)) - (12) -
(13) Property taxes - 6 6 22 Administration - 3 2 10 Financing
costs - 26 24 103 Amortization - 15 - 57
---------------------------------------------------------------------
- 83 53 284 ------------------------------------------------
Operating earnings from discontinued operations before income taxes
$ - $ - $ 33 $ 37 Future income taxes - 1 12 14 Operating earnings
(loss) from discontinued operations - (1) 21 23 Gain on disposition
- - 1,047 - Future income taxes - - (317) -
---------------------------------------------------------------------
Earnings (loss) from discontinued operations $ - $ (1) $ 751 $ 23
------------------------------------------------
------------------------------------------------ 4. MORTGAGES AND
ACCOUNTS RECEIVABLE The mortgages and accounts receivable comprise
an aggregate amount of $13.1 million at December 31, 2003 (December
31, 2002 - $14.7 million). In this balance, mortgages receivable
arising on sales of property represents $6.9 million at December
31, 2003 (December 31, 2002 - $8.5 million) which comes due
periodically up to May 2007. The Corporation is currently earning a
weighted average interest rate of 1.9% at December 31, 2003
(December 31, 2002 - 3.04%) on these amounts. The remaining balance
consists of mortgage holdbacks and incidental income earned but not
yet received. 5. OTHER ASSETS AS AT December 31, December 31, 2003
2002 ------------------------- (Unaudited) (Audited) Corporate
technology assets (net of amortization) $ 3,746 $ 4,658 Head office
building (net of amortization) 2,546 3,261 Deposits on properties
1,200 950 Inventory 1,524 1,606 Re-organization and restructuring
2,124 - Prepaid and other 3,512 3,248
---------------------------------------------------------------------
$ 14,652 $ 13,723 -------------------------
------------------------- Re-organization and restructuring costs
included in other assets of $2.1 million at December 31, 2003
(December 31, 2002 - $nil) is related to the Corporation's proposed
re-organization into a real estate investment trust as described in
Note 15 "Subsequent Events". 6. TECHNOLOGY INVESTMENTS There was no
provision for loss of technology investments made for the years
ended December 31, 2003 and 2002. The Corporation still has capital
leases totalling $3.5 million at December 31, 2003 (December 31,
2002 - $4.6 million) with a weighted average interest rate of 9.7%
(December 31, 2002 - 9.7%) relating to a telecommunication
initiative that was terminated on October 18, 2001. Future minimum
payments under capital leases together with the balance ofthe
obligation due under capital leases are as follows for the year
ending: December 31, December 31, 2003 2002
------------------------- (Unaudited) (Audited) 2003 $ - $ 1,481
2004 1,481 1,481 2005 1,330 1,330 2006 1,222 1,222 2007 - -
---------------------------------------------------------------------
Total 4,033 5,514 Less amount representing interest 518 916
---------------------------------------------------------------------
Total net obligation $ 3,515 $ 4,598 -------------------------
------------------------- 7. MORTGAGES PAYABLE AS AT December 31,
December 31, 2003 2002 ------------------------- (Unaudited)
(Audited) (a) Revenue producing properties Mortgages payable
bearing interest at a weighted average of 5.68% at December 31,
2003 (December 31, 2002 - 5.87%) per annum, payable in monthly
principal and interest instalments totalling $9.3 million for the
year ended December 31, 2003 (December 31, 2002 - $8.9 million),
mature from 2004 to 2020 and are secured by specific charges
against specific properties. $1,385,268 $1,305,349 (b) Other assets
Mortgages payable bearing interest at a weighted average of 7.92%
at December 31, 2003 and 2002 per annum, payable in monthly
principal and interest instalments totalling $15 thousand for the
years ended December 31, 2003 and 2002, mature in September 2010
and are secured by specific charges against specific properties.
1,799 1,828
---------------------------------------------------------------------
$1,387,067 $1,307,177 -------------------------
------------------------- Estimated principal payments required to
meet mortgage obligations as at December 31, 2003 (unaudited) are
as follows: Revenue Producing Properties Other Assets Total
-------------------------------------------------------- 2004
$194,309 $36 $194,345 2005 153,260 39 153,299 2006 190,258 42
190,300 2007 242,752 45 242,797 2008 240,723 48 240,771 Subsequent
363,966 1,589 365,555
---------------------------------------------------------------------
$1,385,268 $1,799 $1,387,067
--------------------------------------------------------
-------------------------------------------------------- Estimated
principal payments required to meet mortgage obligations as at
December 31, 2002 (audited) are as follows: Revenue Producing
Properties Other Assets Total
-------------------------------------------------------- 2003
$213,220 $36 $213,256 2004 119,340 39 119,379 2005 92,241 42 92,283
2006 108,709 45 108,754 2007 223,616 49223,665 Subsequent 548,223
1,617 549,840
---------------------------------------------------------------------
$1,305,349 $1,828 $1,307,177
--------------------------------------------------------
-------------------------------------------------------- CMHC
provides mortgage loan insurance in connection with mortgages made
to the Corporation. On September 13, 2002, the Corporation and CMHC
entered into an agreement (the "Agreement") whereby the Corporation
will provide certain financial information and be subject to
certain restrictive covenants, including limitation on additional
debt, distribution of dividends in respect of capital stock in the
event of default, and maintenance of certain financial ratios. In
the event of default, the Corporation's total financial liability
under this Agreement is limitedto a one-time penalty payment of
$250 thousand under a Letter of Credit issued in favour of CMHC.
(c) Demand facilities The Corporation has a demand facility in the
form of an acquisition and operating line. This demand facility is
secured by a first or second mortgage charge of specific assets.
The maximum amount available varies with the value of pledged
assets to a maximum not to exceed $100.0 million. Approximately
$34.8 million was available from this facility on December 31, 2003
(December 31, 2002 - $34.0 million). An amount of $nil was
outstanding at December 31, 2003 and 2002. This facility carries an
interest rate ranging from prime plus 0.5% to prime plus 1.5% per
annum,and has no fixed terms of repayment. The facility is
reviewable annually by the Bank. 8. SHARE CAPITAL (a) Authorized:
Unlimited number of common shares Unlimited number of preferred
shares, issuable in series Issued: Preferred shares The Corporation
did not issue any preferred shares for the years ended December 31,
2003 and 2002. There was a total of 8,945,155 preferred shares
outstanding at December 31, 2003 and 2002. These preferred shares
are offset by non-interest bearing notes receivable from the
holders of the preferred shares for the equivalent amount. Both the
preferred shares and the notes receivable are retractable at either
party's option and may legally be offset against each other.
Accordingly, these have been offset for consolidated financial
statement presentation. Common shares Shares Amount
---------------------------- December 31, 2003 (unaudited)
50,868,119 $275,509 December 31, 2002 (audited) 50,109,314 $266,516
Details of shares issued are as follows: December 31,2001 (audited)
49,404,281 $258,202 On exercise of stock options 801,633 8,828
Share buy-back, recorded at book value of shares (96,600) (514)
---------------------------------------------------------------------
December 31, 2002 (audited) 50,109,314 266,516 On exercise of stock
options 802,805 9,229 Share buy-back, recorded at book value of
shares (44,000) (236)
---------------------------------------------------------------------
December 31, 2003 (unaudited) 50,868,119 $275,509
---------------------------- ---------------------------- The
Corporation commenced a normal course issuer bid on March 3, 2000
allowing it to purchase up to 2,236,400 common shares for
cancellation until its termination on March 2, 2001 or such earlier
time as the bid is complete. This bid was extended with a
termination date to March 22, 2002 or such earlier time as the bid
is complete. On August 6, 2002, the Corporation commenced a normal
course issuer bid allowing it to purchase up to 3,267,840 common
shares for cancellation until its termination on August 5, 2003 or
such earlier time as the bid is complete. On August 25, 2003, the
Corporation commenced a normal course issuer bid allowing it to
purchase up to 2,770,228 common shares for cancellation until its
termination on August 24, 2004 or such earlier time as the bid is
complete. The Corporation acquired and cancelled 44,000 common
shares at December 31, 2003 (December 31, 2002 - 96,600) at a cost
of $0.6 million (December 31, 2002 - $1.2 million). The excess of
the cost over stated value of the shares acquired of $0.4 million
at December 31, 2003 (December 31, 2002 - $0.7 million) has been
charged to retained earnings. (b) Stock options Under the stock
option plan, the Company grants options to directors, executives
and employees. The stock option plan provides for the granting of
options to purchase up to 10,643,636 common shares at December 31,
2003 (December 31, 2002 - 10,643,636). The exercise price is equal
to the market value of the common shares at the date of grant.
Vesting periods range from immediate vesting for certain executives
to five year vesting for remaining employees and directors. Options
are granted at management's discretion with Board of Directors'
approval being required. No option may be exercisable more than 10
years from the date of grant. There was a total of 2,398,828
options outstanding at December 31, 2003 (December 31, 2002 -
3,480,072) to directors, officers and employees. The exercise
prices range from $9.11 to $16.73 at December 31, 2003 (December
31, 2002 - $9.11 to $22.92). These options expire up to August 28,
2012. All options were issued at market price. Changes in options
outstanding during year The following table depicts the changes in
options in the years presented: December 31, 2003 December 31, 2002
(Unaudited) (Audited) ---------------------------------------------
Weighted Weighted average average exercise exercise Options price
Options price ---------------------------------------------
Outstanding at beginning of year 3,480,072 $12.46 3,647,834 $12.60
Granted - - 930,722 $12.16 Exercised (802,805) $11.50 (801,633)
$11.02 Forfeited (278,439) $18.01 (296,851) $17.14
---------------------------------------------------------------------
Outstanding at end of year 2,398,828 $12.20 3,480,072 $12.46
---------------------------------------------
--------------------------------------------- Options exercisable
at year end The following table summarized information about the
options outstanding and exercisable at December 31, 2003
(unaudited): Options outstanding Options exercisable
-------------------------------------------------------------------------
Weighted Weighted average average remaining remaining contrac-
Weighted contrac- Weighted Range of Number tual average Number tual
average exercise out-life exercise exer- life exercise prices
standing (years) price cisable (years) price
-------------------------------------------------------------------------
$9.01 to $11.00 283,300 6.4 $9.74 263,900 6.4 $9.75 $11.01 to
$13.00 1,694,792 5.6 $11.94 1,013,934 6.0 $11.85 $13.01 to $15.00
242,636 5.7 $13.85 178,640 5.5 $13.66 $15.01 to $17.00 178,100 5.3
$16.26 140,700 5.2 $16.46
-------------------------------------------------------------------------
2,398,828 5.7 $12.20 1,597,174 5.9 $12.11
---------------------------------------------------------
--------------------------------------------------------- The
following table summarized information about the options
outstanding and exercisable at December 31, 2002 (audited): Options
outstanding Options exercisable
-------------------------------------------------------------------------
Weighted Weighted average average remaining remaining contrac-
Weighted contrac- Weighted Range of Number tual average Number tual
average exercise out- life exercise exer- life exercise prices
standing (years) price cisable (years) price
-------------------------------------------------------------------------
$9.01 to $11.00 647,800 7.1 $9.41 605,000 7.1 $9.40 $11.01 to
$13.00 1,979,222 6.6 $11.95 910,698 7.4 $11.76 $13.01 to $15.00
401,450 6.1 $14.03 275,812 5.5 $13.88 $15.01 to $17.00 279,900 6.4
$16.17 178,520 6.3 $16.34 $17.01 to $19.00 79,700 0.2 $17.94 79,700
0.2 $17.94 $19.01 to $21.00 23,000 0.2 $19.73 23,000 0.2 $19.73
$21.01 to $23.00 69,000 0.3 $22.55 69,000 0.2 $22.55
-------------------------------------------------------------------------
3,480,072 6.3 $12.46 2,141,730 6.4 $12.41
---------------------------------------------------------
--------------------------------------------------------- The
Corporation did not record compensation expense for stock options
granted prior to January 1, 2003 to directors, executives and
employees in the financial statements because there was no
intrinsic value, as defined by CICA Handbook, Section 3870, at the
date of grant. As required by Canadian GAAP, the impact on
compensation costs of using a fair value based method, as if the
compensation costs had been recorded in net earnings, must be
disclosed. If the fair value basic method had been used for stock
options granted for the year ended December 31, 2002, the Company's
net earnings and net earnings per share would approximate the
following pro forma amounts for the three months and years ended
December 31, 2003 and 2002: 3 months 3 months ended ended Year
ended Year ended December December December December 31, 2003
31,2002 31, 2003 31, 2002
------------------------------------------------ (Unaudited)
(Unaudited) (Unaudited) (Audited) Compensation costs $(509) $(550)
$(2,064) $(1,931) Net (loss) earnings As reported $(1,467) $2,213
$7,751 $11,576 Pro forma $(1,976) $1,663 $5,687 $9,645 Net (loss)
earnings per common share Basic As reported $(0.03) $0.04 $0.15
$0.23 Pro forma $(0.04) $0.03 $0.11 $0.19 Diluted As reported
$(0.03) $0.04 $0.15 $0.23 Pro forma $(0.04) $0.03 $0.11 $0.19 The
fair value of each option granted 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: Risk free
interest rate 5.33% Expected lives (years) 7 - 10 years Expected
volatility 42.56% Dividend per share $0.05 The Corporation did not
grant any stock options subsequent to December 31, 2002. 9. 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 ended ended Year ended Yearended
December December December December 31, 2003 31, 2002 31, 2003 31,
2002 ------------------------------------------------ (Unaudited)
(Unaudited) (Unaudited) (Audited) Numerator (Loss) earnings from
continuing operations $(1,467) $2,214 $7,000 $11,553 Earnings
(loss) from discontinued operations - $(1) $751 $23
---------------------------------------------------------------------
Denominator Denominator for basic earnings per share - weighted
average shares (THOUSANDS) 50,603 50,067 50,380 49,717
---------------------------------------------------------------------
Effect of dilutive securities Stock options (THOUSANDS) 660 637 511
525 Denominator for diluted earnings per share adjusted for
weighted average shares and assumed conversion (THOUSANDS) 51,263
50,70450,891 50,242
---------------------------------------------------------------------
---------------------------------------------------------------------
(Loss) earnings per share from continuing operations Basic $(0.03)
$0.04 $0.14 $0.23 Diluted $(0.03) $0.04 $0.14 $0.23
---------------------------------------------------------------------
Earnings per share from discontinued operations Basic $0.00 $0.00
$0.01 $0.00 Diluted $0.00 $0.00 $0.01 $0.00
---------------------------------------------------------------------
---------------------------------------------------------------------
10. INCOME TAXES The Corporation has tax losses at December 31,
2003 (unaudited) of approximately $209 million available to reduce
future taxable income, the benefit of which has been accounted for
in computing future income taxes. These losses begin to materially
expire in 2005, subject to the ability of the Corporation to
re-file and further amend its income tax returns. The adjustment
for changes in the effective tax rate reflects the benefit of the
reduction of the current combined federal and provincial
substantially enacted rates from 37% reducing to 35% for the year
ended December 31, 2003 (December 31, 2002 - 39% reducing to 34%).
The Corporation's provision for future income taxes is comprised as
follows: 3 months 3 months ended ended Year ended Year ended
December December December December 31, 2003 31, 2002 31, 2003 31,
2002 ------------------------------------------------ (Unaudited)
(Unaudited) (Unaudited) (Audited) Continuing operations $6,592
$(797) $11,761 $5,406 Discontinued operations - 1 329 14
---------------------------------------------------------------------
Total future income taxes $6,592 $(796) $12,090 $5,420
------------------------------------------------
------------------------------------------------ The future income
tax expense is computed as follows: 3 months 3 months ended ended
Year ended Year ended December December December December 31, 2003
31, 2002 31, 2003 31, 2002
------------------------------------------------ (Unaudited)
(Unaudited) (Unaudited) (Audited) Tax expense based on expected
rate $2,265 $1,714 $8,716 $8,129 Non-taxable portion of capital
gains - 9 (223) (190) Adjustment to future income tax liabilities
843 1,685 1,615 1,685 Adjustment for change in effective tax rate
3,484 (4,204) 1,982 (4,204)
---------------------------------------------------------------------
Future income tax expense (recovery) $6,592 $(796) $12,090 $5,420
------------------------------------------------
------------------------------------------------ The future income
tax liability is calculated as follows: AS AT December 31, December
31, 2003 2002 ------------------------- (Unaudited) (Audited) Tax
assets related to operating losses $77,354 $63,254 Tax
liabilitiesrelated to differences in tax and book basis (152,119)
(126,230)
---------------------------------------------------------------------
Future income tax liability $(74,765) $(62,976)
------------------------- ------------------------- 11. RELATED
PARTY TRANSACTIONS There were no related party transactions for the
years ended December 31, 2003 and 2002. 12. COMMITMENTS AND
CONTINGENCIES The Corporation has long-term supply arrangements
with two electrical utility companies and commitments for
fixed-price natural gas supply contracts as describedin Note
1(g)(iii). The Corporation, in the normal course of operations,
will become subject to a variety of legal and other claims against
the Corporation. Management and the Corporation'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 Corporation will not be material to the
Corporation. The Corporation has established a group registered
retirement savings plan for its employees whereby the Corporation
will match the contributions of the employees to a maximum of 3% of
regular earnings earned in a calendaryear or one-half the
contribution limit set for registered retirement savings plans,
whichever is less. The Corporation's costs totalled approximately
$338 thousand for the year ended December 31, 2003 (December 31,
2002 - $127 thousand). There was no requirement for future
contributions in respect of past service. 13. 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 at December
31, 2003 is approximately $6.2 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, at December 31, 2003,
no amounts have been recorded in the consolidated financial
statements with respect to the above noted indirect guarantees. 14.
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
business by geographic location: 3 months 3 months ended ended Year
ended Year ended December December December December 31, 2003 31,
2002 31, 2003 31, 2002
------------------------------------------------ Alberta
(Unaudited) (Unaudited) (Unaudited) (Audited) Revenue $ 38,550 $
37,896 $ 152,583 $ 151,076
------------------------------------------------ Expenses Operating
4,862 4,190 19,013 15,455 Utilities 5,458 6,673 19,208 20,978
Utility rebate - (94) - (3,386) Property taxes 2,715 2,938 11,016
11,358
-------------------------------------------------------------------------
13,035 13,707 49,237 44,405
------------------------------------------------ Net operating
income $ 25,515 $ 24,189 $ 103,346 $ 106,671
------------------------------------------------ Saskatchewan
Revenue $ 8,685 $ 8,516 $ 34,038 $ 32,893
------------------------------------------------ Expenses Operating
1,258 1,152 4,585 4,163 Utilities 1,212 1,040 3,928 3,979 Property
taxes 1,107 1,121 4,723 4,778
-------------------------------------------------------------------------
3,577 3,313 13,236 12,920
------------------------------------------------ Net operating
income $ 5,108 $ 5,203 $ 20,802 $ 19,973
------------------------------------------------ Ontario Revenue $
8,931 $ 8,476 $ 34,850 $ 33,327
------------------------------------------------ Expenses Operating
1,256 1,133 4,838 4,473 Utilities 1,425 1,455 5,846 5,369 Utility
rebate - (295) - (295) Property taxes 1,505 1,357 5,679 5,364
-------------------------------------------------------------------------
4,186 3,650 16,363 14,911
------------------------------------------------ Net operating
income $ 4,745 $ 4,826 $ 18,487 $ 18,416
------------------------------------------------ Quebec (operations
commenced May 2002) Revenue $ 13,505 $ 8,646 $ 48,276 $ 21,962
------------------------------------------------ Expenses Operating
1,377 1,070 5,189 2,147 Utilities 1,514 908 5,650 1,906 Property
taxes 1,300 988 4,725 2,074
-------------------------------------------------------------------------
4,191 2,966 15,564 6,127
------------------------------------------------ Net operating
income $ 9,314 $ 5,680 $ 32,712 $ 15,835
------------------------------------------------ Total Net
operating income $ 44,682 $ 39,898 $ 175,347 $ 160,895 Unallocated
revenue(x) 221 393 4,370 10,136 Unallocated expenses(xx) (46,370)
(38,078) (171,966) (159,455)
-------------------------------------------------------------------------
Net (loss) income $ (1,467) $ 2,213 $ 7,751 $ 11,576
------------------------------------------------
------------------------------------------------ AS AT December
December 31, 2003 31, 2002 ------------------------- (Unaudited)
(Audited) Alberta Identifiable assets Revenue producing properties
$ 969,196 $ 971,598 Mortgages and accounts receivable 8,338 8,550
Deferred financing costs 26,621 25,464 Tenants' security deposit
5,674 6,559 ------------------------- $1,009,829 $1,012,171
------------------------- Saskatchewan Identifiable assets Revenue
producing properties $ 178,867 $ 180,792 Mortgages and accounts
receivable 11 22 Deferred financing costs 4,585 4,714 Tenants'
security deposits 1,096 1,037 ------------------------- $ 184,559 $
186,565 ------------------------- Ontario Identifiable assets
Revenue producing properties $ 215,428 $ 215,175 Mortgages and
accounts receivable 250 1,166 Deferred financing costs 2,709 2,954
------------------------- $ 218,387 $ 219,295
------------------------- Quebec Identifiable assets Revenue
producing properties $ 342,364 $ 229,272 Mortgages and accounts
receivable 4,425 4,709 Deferred financing costs 4,102 4,357
------------------------- $ 350,891 $ 238,338
------------------------- Total assets Identifiable assets
$1,763,666 $1,656,369 Unallocated assets(xxx) 39,714 52,121
------------------------- $1,803,380 $1,708,490
------------------------- ------------------------- (x) Unallocated
revenue includes property sales, interest income, revenue from
discontinued operations and other non-rental income. (xx)
Unallocated expenses include cost of property sales, operating
expenses from discontinued operations, non-rental operating
expenses, administration, financing costs, amortization, income
taxes and other provisions. (xxx) Unallocated assets include
properties held for development, cash, short-term investments and
other assets. 15. SUBSEQUENT EVENTS On January 13, 2004, the
Corporation filed a ManagementInformation Circular with respect to
a proposed re-organization of the Corporation into a real estate
investment trust and a secondary offering of the Corporation's
shares. In addition, the Corporation also executed the Acquisition
and Arrangement Agreement in connection with the proposed
reorganization. Subsequent to December 31, 2003, the Corporation
contracted to acquire 183 residential units from an unrelated third
party for a purchase price of $16.9 million. The acquisition will
be financed through cash of $8.7 million and the assumption of
existing mortgages. 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) 531-9255
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