Boardwalk REIT Reports Third Quarter 2018 Financial Results

Highlights for three and nine month periods ended September 30, 2018:

• Q3 2018 FFO per unit of $0.59, including $0.02 of adjustments relating to associate transition costs, an 11.3% increase from the same period a year ago
• Revenue recovery leading to solid NOI growth
• Q3 Same Property Rental Revenue increased 4.3%, Same Property NOI increased 6.5%
• Q3 Operating Margin increased to 53.8%
• Operating and Administration expense improvements in 2018
• $0.03 of adjustments relating to associate transition costs in the first 9M of 2018 ($0.02 in Q3)
• Additional associate transition costs anticipated in Q4
• Suite and common area investment accelerating growth
• Returns continue to exceed expectations
• Increased focus on common area investment while vacancy is low
• Accretive acquisition of high-quality portfolio in Calgary
• Four communities totaling 299-units, purchase price of $66.5 million or $222,000 per door
• Value-add opportunity; mark-to-market on in-place rents coupled with operating efficiencies
• Solid development opportunities
• Substantially completed: Pines Edge 3; Regina, SK and Under Construction: Brio; Calgary, AB
• Increased internal development opportunities to 6,000 apartment units on excess density
• Long-term growth target of 10,000 to 15,000 apartment units over the next 10 to 15 years
• Strong Financial Position
• Approximately $300 million of liquidity
• Net Asset Value of $63.05 per trust unit
• Tightens range for 2018 Financial Guidance
• Distribution of $1.00 per Trust Unit on an annualized basis confirmed for the months of November, December of 2018 and January of 2019

CALGARY, Nov. 14, 2018 /CNW/ - Boardwalk Real Estate Investment Trust -TSX: BEI.UN

Boardwalk Real Estate Investment Trust ("Boardwalk", the "REIT" or the "Trust") today announced its financial results for the third quarter of 2018.

"We are pleased to report on a solid third quarter for the Trust.  Our recovering financial results are the product of our team's commitment to the best product quality, service and experience which has resulted in higher revenues by maintaining high occupancy, a decrease of incentives, and increasing revenues. This approach has resulted in a positive revenue trend that began in 2018, and we continue to see a sequential and compounding improvement in our revenue.  With the rental market in Alberta trending to a level of balance, we continue to focus on executing on this revenue growth strategy and are in the early stages of this significant opportunity." said Sam Kolias; Chairman and Chief Executive Officer of Boardwalk REIT.

Rob Geremia; President of Boardwalk REIT added: "The demand for our renovated product in each of our three brands remains strong.  We continue to improve both our cost and delivery of renovated units and are better balancing renovations with vacancy.  We have increased our investment in lobbies and common areas, and to date, have seen strong returns in the form of higher occupancy, tenant retention, and increasing net rental rates.  Despite an increase in competition during our busy summer turnover season, our team successfully reduced incentives while balancing only a slight decrease in our occupancy levels.  Many of our communities which were offering significant incentives this time last year, are now being leased with limited to no incentives.  Additionally, our approach of flexible rental rate increases on lease renewal continues, and has resulted in successfully reducing in-place incentives.  Overall, total incentives have begun to decrease, and the compounding impact of these incentive reductions, when combined with high occupancy levels will further our recovery and growth."

Mr. Kolias added: "Our results reflect a rental market re-balancing and improvement from a cyclical bottom and has provided us the confidence to expand our portfolio in Alberta and are proud to announce the acquisition of a 299-unit portfolio in Calgary which provides a significant mark-to-market opportunity on in-place rents while also adding further operating efficiencies given their proximity to our existing communities.  This acquisition is anticipated to be immediately accretive, and create significant Net Asset Value once optimized.  This is an example of an opportunistic acquisition within our core market which provides growth and a value-add opportunity in the early stages of a rental market improvement in Alberta."

Mr. Geremia concluded: "We have made substantial progress in the last couple of years to ensure our Communities provide our Residents with the best product quality, service and experience at an affordable price point and are well positioned to further accelerate through this rental market recovery.  Throughout 2018, the Trust has reviewed and improved its controllable operating and administration expense by focusing on a culture of a peak performing team.  This philosophy provides more responsibility to high-performing team members and has allowed the Trust to reduce its overall team size from 1,850 to approximately 1,700 Associates.  In the first nine months of 2018, the Trust has incurred approximately $0.03 of FFO/Trust Unit of transition costs relating to this re-structuring.  The Trust anticipates additional charges in the fourth quarter, however will be well positioned as we head into 2019.  Technology is one place where Boardwalk has expanded its Administration investment as we look to expand and include modern advancements into our product offering for our Resident Members, and provide additional tools to empower our team to efficiently provide the best product quality, service and experience."

Third quarter financial highlights

$ millions, except per unit amounts
Highlights of the Trust's Third Quarter 2018 Financial Results
		3 Months Sep 30, 2018				3 Months Sep 30, 2017			% Change				9 Months Sep 30, 2018				9 Months Sep 30, 2017			% Change
Same Store Total Rental Revenue		$	108.4			$	103.9			4.3	%		$	323.3			$	311.9			3.7	%
Total Rental Revenue		$	108.8			$	105.5			3.1	%		$	324.2			$	316.6			2.4	%
Same Store Net Operating Income (NOI)		$	59.6			$	55.9			6.5	%		$	174.9			$	165.7			5.6	%
Net Operating Income (NOI)		$	58.5			$	54.3			7.6	%		$	169.9			$	161.4			5.3	%
Profit for the period		$	33.1			$	44.4			-25.5	%		$	159.1			$	125.0			27.3	%
Funds From Operations (FFO)		$	29.8			$	27.0			10.3	%		$	84.8			$	80.2			5.6	%
Adjusted Funds From Operations (AFFO)		$	24.0			$	21.7			10.8	%		$	67.4			$	64.3			4.9	%
FFO Per Unit		$	0.59			$	0.53			11.3	%		$	1.67			$	1.58			5.7	%
AFFO Per Unit		$	0.47			$	0.43			9.3	%		$	1.33			$	1.27			4.7	%
Regular Distributions Declared (Trust Units & LP B Units)		$	12.7			$	28.6			-55.5	%		$	38.2			$	85.7			-55.5	%
Regular Distributions Declared Per Unit (Trust Units & LP B Units)		$	0.250			$	0.563			-55.5	%		$	0.751			$	1.688			-55.5	%
Regular Payout as a % FFO			42.7	%			105.7	%						45.0	%			106.8	%
Interest Coverage Ratio (Rolling 4 quarters)			2.68				2.64							2.68				2.64
Operating Margin			53.8	%			51.5	%						52.4	%			51.0	%

NOI, FFO and AFFO are widely accepted supplemental measures of the performance of a Canadian Real Estate entity; however, they are not measures defined by International Financial Reporting Standards ("IFRS").  The reconciliation of FFO and other financial performance measures can be found in the Management Discussion and Analysis ("MD&A") for the third quarter ended September 30, 2018, under the section titled, "Performance Measures".

Portfolio highlights for the third quarter

Portfolio Highlights for the Third Quarter of 2018
	Sep-18			Dec-17			Sep-17
Average Occupancy (Period Average)(Same Store)		95.88	%		94.37	%		93.20	%
Average Monthly Rent (Period Ended)	$	1,082		$	1,048		$	1,023
Average Market Rent (Period Ended)	$	1,168		$	1,117		$	1,124
Average Occupied Rent (Period Ended)	$	1,124		$	1,094		$	1,091
Loss -to-Lease (Period Ended) ($ millions )	$	14.8		$	8.4		$	12.3
Loss -to-Lease Per Trust Unit (Period Ended)	$	0.29		$	0.17		$	0.24
				% Change Year- Over-Year - 3			% Change Year- Over-Year - 9
Same Property Results				Months Sep-18			Months Sep-18
Rental  Revenue					4.3	%		3.7	%
Operating Costs					1.8	%		1.5	%
Net Operating Income (NOI)					6.5	%		5.6	%

Same property results exclude 71-units from Pines Edge 3 completed July 2018 and 79-units from Pines Edge 2 completed June 2017.
All rental rates noted are net of incentives.

Stabilized Revenue Growth	# of Units			Q3 2018 vs Q2 2018			Q2 2018 vs Q1 2018			Q1 2018 vs Q4 2017			Q4 2017 vs Q3 2017
Edmonton		12,906			0.2	%		1.4	%		1.5	%		0.5	%
Calgary		5,657			1.4	%		1.2	%		4.7	%		1.2	%
Red Deer		939			0.5	%		1.9	%		9.7	%		4.0	%
Grande Prairie		645			3.7	%		4.1	%		2.0	%		7.4	%
Fort McMurray		352			-3.4	%		0.8	%		0.5	%		0.0	%
Quebec		6,000			0.5	%		0.3	%		-0.2	%		1.3	%
Saskatchewan		4,024			-1.4	%		1.3	%		0.5	%		0.5	%
Ontario		2,585			0.4	%		0.8	%		1.7	%		0.4	%
		33,108			0.3	%		1.1	%		1.8	%		0.9	%

Suite and common area investment accelerating growth

To better understand the renovation program and provide Boardwalk with the ability to efficiently target capital investment to maximize returns, the Trust launched three distinct brands under the Boardwalk umbrella:

Boardwalk Living – Affordable Value

Boardwalk Living features classic suites for our Residents who appreciate flexibility, reliability, and value that comes with a quality home.

Boardwalk Communities – Enhanced Value

Boardwalk Communities feature modernized suites and choice amenities for those who value flexibility with all the comforts that come with the perfect place to call home.

Boardwalk Lifestyle – Affordable Luxury

Boardwalk Lifestyle features luxury living with modern amenities, designer suites, and a contemporary style for those who value life experiences and prefer the freedom to enjoy them. 

With three distinct brands offering various price points, value, and service, Boardwalk offers a product across the rental spectrum.  As the demand for high quality and affordable rental housing continues to increase, the Trust is well positioned to provide a home that suits all Residents.

	Lifestyle		Communities		Living		Total
Additional Renovation Revenue	$	758,000	$	5,142,000	$	5,607,000	$	11,507,000
Market Strengthening Revenue	$	-	$	2,195,000	$	243,000	$	2,438,000
	$	758,000	$	7,337,000	$	5,850,000	$	13,945,000
Value Added Capital	$	7,084,000	$	29,406,000	$	37,156,000	$	73,646,000
Maintanence Capital	$	707,136	$	4,876,176	$	5,976,552	$	11,559,864
	$	7,791,136	$	34,282,176	$	43,132,552	$	85,205,864
Simple Return on Value Added Capital	10.7%		25.0%		15.7%		18.9%
Simple Return on Total Capital	9.7%		21.4%		13.6%		16.4%

Calgary portfolio acquisition

The Trust has agreed to acquire a 299-unit portfolio located in Calgary, AB.  The acquisition represents a unique opportunity to acquire an accretive portfolio in our core market that is in the early stages of a cyclical recovery that has both income and NAV growth opportunities with Boardwalk's operational optimization.  Three of the four assets are located in close proximity to existing Boardwalk Communities representing an opportunity to achieve significant operating efficiency. 

The total purchase price of this portfolio is $66,500,000 equating to approximately $222,000/door and $217/sq.ft.  The Trust anticipates closing to occur on or around November 27, 2018.

		Suite Mix			Total Suites	Suite Size (Ave Sq.Ft.)
Property	Address	1-Bed	2-Bed	3-Bed		1-Bed	2-Bed	3-Bed
Dorsett Square	1339 - 15 Avenue SW	22	87		109	700	882
Randal House	309 - 15 Avenue SW	47	23		70	700	1030
Beddington Court	230 Huntington Close NE	27	39		66	661	848
Village Vale	47 Glamis Drive SW		36	18	54		1,151	1,385
	TOTAL	96	185	18	299

Development opportunities

The addition of newly constructed rental communities is consistent with the Trust's strategy of high-grading and growing its portfolio.  Leasing of the recently completed 71-unit, Pines Edge 3 is underway, and construction of Brio, a 162-unit mixed use Joint Venture development in partnership with RioCan continues to be on schedule.  The Trust has also identified an internal development opportunity of approximately 6,000 apartment units on excess land the Trust already owns.  Approximately 4,400 of these units are located in Alberta and Saskatchewan, and 1,600 apartment units in its Ontario and Quebec portfolio. 

Boardwalk's long-term strategic goal is to have a portfolio that is approximately 50% in the high growth markets of Alberta and Saskatchewan, and 50% in other high growth and under-supplied markets.

Developments Recently Completed and In Progress
Project	City	Gross Buildable Area (SF)	Est. Project Construction	Cost / Unit	Developable Land (Acres)	Demolition Required	New Units	Status
Pines Edge Phase 3	Regina	73,000	$13,200,000	$186,000	1.4	No	71	Completed July 2018
Brentwood RioCan JV (50/50)	Calgary	90,000	$37,500,000 to $40,000,000	$467,000*	1.3	Yes	81	Completion Q1-2020
Total		163,000	$51,800,000				152
*Excludes Commercial Component
Development Opportunities
Region	City	Properties		# of Sites	Land Size (Acres)	Demo	New Units	Gross Buildable
Western Canada	Calgary	Sarcee (Duo) & Russet Court		2	12.2	206	1,085	1,055,000
	Edmonton	Viking Arms & West Edmonton Village		2	14.0	112	1,260	1,280,000
	Regina	Pines Edge 4/5 & Wascana Park Estates		2	35.4	320	2,092	2,113,000
Western Canada Total				6	61.6	638	4,437	4,448,000
Eastern Canada	Kitchener	Kings Tower & Westheights Place		2	5.6	0	305	305,000
	London	Landmark Towers, Topping Lane Terrace, Forest City Estates, Maple Ridge on the Parc, The Bristol, Heritage Square, Castlegrove Estates, Sandford Apartments		8	49.1	0	1,040	1,040,000
	Montreal	Complexe Deguire & Le Bienville		2	9.7	0	190	190,000
	Quebec	Complexe Laudance & Du Verdier		2	9.8	0	120	120,000
Eastern Canada Total				14	74.3	0	1,655	1,655,000
GRAND TOTAL				20	136	638	6,092	6,103,000

Strong financial position

The Trust, over the past decade, has strengthened its balance sheet to maintain financial strength and flexibility and has positioned Boardwalk with the flexibility to deploy capital towards value enhancing opportunities such as the Trust's suite renovation program, acquisitions, development of new assets, joint ventures, and a continued investment in the Trust's own portfolio through value-added capital improvements.

At the end of September 30, 2018, the Trust had approximately $300 million in liquidity that it could deploy towards new investment opportunities.

Q3 2018
In $000's
Cash Position - Sep 2018	$	46,000
Subsequent Funded Financing (Oct/Nov)	$	31,000
Committed Financing (Dec)	$	23,000
Line of Credit	$	200,000
Total Available Liquidity	$	300,000
Liquidity as a % of Current Total Debt		11%
Current Debt (net of cash) as a % of reported asset value		46%

  

Over 99% of the Trust's mortgages are insured by Canada Mortgage and Housing Corporation ("CMHC"), providing the benefit of lower interest rates and limiting the renewal risk of these mortgage loans for the entire amortization period, which can be up to 40 years.  The Trust's total debt had an average term to maturity of approximately 3.7 years, with a remaining amortization of 30 years.  The Trust's debt (net of cash) to reported asset value ratio was approximately 46% as of September 30, 2018.

Net Asset Value

Same property fair value for the Trust's portfolio increased slightly relative to the previous quarter, primarily a result of increased market rents in select communities in Alberta, increasing rents relating to the Trust's suite renovation program, and the continued stabilization of recently acquired and developed investment properties.  Overall, fair value increased approximately $61.9 million versus the previous quarter.

Highlights of the Trust's Fair Value of Investment Properties
	Sep 30, 2018			Dec 31, 2017
IFRS Asset Value Per Diluted Unit (Trust & LP B)	$	116.09		$	111.94
Debt Outstanding per Diluted Unit	$	(53.94)		$	(52.96)
Net Asset Value (NAV) Per Diluted Unit (Trust & LP B)	$	62.15		$	58.98
Cash Per Diluted Unit (Trust & LP B)	$	0.90		$	1.39
Total Per Diluted Unit (Trust & LP B)	$	63.05		$	60.37

Weighted Average Capitalization Rate: 5.29% at September 30, 2018 and 5.29% at December 31, 2017

An additional metric utilized in real estate valuation is comparative value per apartment suite/door.  Boardwalk's current trading price of approximately $49 per Trust Unit equates to a per door value of $158,000, a significant discount to Boardwalk's estimated Fair Value of approximately $178,000 per door, and a large discount to recent transactions seen in the real estate investment market for well-located assets and additionally wider discount to replacement value.

2018 Financial guidance

The Trust provides a financial outlook for the upcoming year to enhance transparency in our financial reporting by sharing our own perspectives on the Trust's current position and objectives.  The Trust tightening its guidance range for the year with its third quarter results mainly inline with expectations.   

Description	Q3 2018 Revised Objectives	Q2 2018 Revised Objectives	2018 Original Objectives
Stabilized Building NOI Growth	4.5% - 6.0%	3% - 7%	2% - 7%
FFO Per Unit	$2.20 - $2.30	$2.20 - $2.35	$2.15 - $2.35
AFFO Per Unit	$1.75 - $1.85 utilizing a Maintenance CAPEX of $695/suite/year	$1.75 - $1.90 utilizing a Maintenance CAPEX of $695/suite/year	$1.70 - $1.90 utilizing a Maintenance CAPEX of $695/suite/year

The Trust estimates stabilized building NOI growth of 4.5% to 6.0% in 2018, as the Trust focuses on maintaining high occupancy levels and begins to reduce incentives.   As a result, the Trust anticipates FFO in 2018 of an estimated range of $2.20 to $2.30 per Trust Unit. The investments made throughout 2017 and into 2018 in our communities, and in improving our service levels, have positioned Boardwalk to excel in 2018 and beyond.

The reader is cautioned that this information is forward-looking and actual results may vary materially from those reported.  The Trust reviews these key assumptions quarterly and based on this review may change its outlook.

In addition to the above financial guidance for 2018, the Trust also provides its 2018 capital budget as follows:

Capital Budget ($000's)	2018 Budget			Per Suite			Nine Months Ended, September 30, 2018 Actual			Per Suite
Maintenance Capital	$	23,065		$	695		$	17,307		$	521
Value-added Capital (including suite upgrades and property, plant & equipment)		113,229			3,412			73,373			2,210
Total Property Capital	$	136,294		$	4,107		$	90,680		$	2,731
Total Property Capital	$	136,294					$	90,680
Development		30,000						13,642
Total Capital Investment	$	166,294					$	104,322

In total, we expect to invest $136.3 million (or $4,107 per apartment unit) on operational capital in 2018.  For the nine months ended September 30, 2018 Trust invested $90.7 million (or $2,731 per apartment unit) on operational capital.  The majority of the 2018 property capital budget is earmarked for strategic suite capital expenditures, with a targeted return on investment.  The Trust has also increased its Maintenance Capital estimate for 2018 to $695 per apartment unit per year.  For the nine months ended September 30, 2018, the Trust incurred $13.6 million of development capital.

Value Added Capital is subject to continuous review and will only be invested if the Trust can earn a significant return on this investment.

Q3 regular monthly distribution

Consistent with Boardwalk's revised minimum distribution policy which focuses on the re-investment of cashflow towards the Trust's NAV growth initiatives, Boardwalk's Board of Trustees has confirmed the next three months distributions as follows:

Month	Per Unit		Annualized		Record Date	Distribution Date
November-18	$	0.0834	$	1.00	30-Nov-18	17-Dec-18
December-18	$	0.0834	$	1.00	31-Dec-18	15-Jan-19
January-19	$	0.0834	$	1.00	31-Jan-19	15-Feb-19

The Trust's distribution policy to align with the Trust's long-term focus of NAV growth will comprise of an annual distribution, paid monthly, at least equal to the taxable portion of the Trust's income. 

This formal policy will allow the Trust to retain a significant portion of cashflow to re-invest in capital growth opportunities.  

The Board of Trustees will review the taxable portion of the Trust's income on a quarterly basis and may announce an increase or a special distribution from time to time to ensure that all taxable income is distributed to Unitholders.

Financial and Supplementary information

Boardwalk produces quarterly financial statements, management discussion and analysis, and a supplemental information package that provides detailed information regarding the Trust's activities during the quarter.  Financial and supplementary information is available on SEDAR and on Boardwalk's investor website at www.boardwalkreit.com.

Teleconference on Third Quarter 2018 Financial Results

Boardwalk invites you to participate in the teleconference that will be held to discuss these results tomorrow morning (November 15, 2018) at 11:00 am Eastern Time. Senior management will speak to the period's results and provide an update. Presentation materials will be made available on Boardwalk's investor website at www.boardwalkreit.com prior to the call.

Teleconference: The telephone numbers for the conference are 416-764-8688 (local/international callers) or toll-free 1-888-390-0546 (within North America).

Note: Please provide the operator with the below Conference Call ID or Topic when dialing in to the call.
Conference ID: 41424883
Topic: Boardwalk REIT Third Quarter Results

Webcast: Investors will be able to listen to the call and view Boardwalk's slide presentation by visiting http://www.boardwalkreit.com prior to the start of the call.  An information page will be provided for any software needed and system requirements.  The webcast and slide presentation will also be available at: https://event.on24.com/wcc/r/1847334/70B8FE822241BE5237A644970FADAB4E

Replay: An audio recording of the teleconference will be available on the Trust's website: www.boardwalkreit.com

Corporate Profile

Boardwalk REIT strives to be Canada's friendliest communities and currently owns and operates more than 200 communities with over 33,000 residential units totaling over 28 million net rentable square feet.  Boardwalk's principal objectives are to provide its Residents with the best quality communities and superior customer service, while providing Unitholders with sustainable monthly cash distributions, and increase the value of its trust units through selective acquisitions, dispositions, development, and effective management of its residential multi-family communities.  Boardwalk REIT is vertically integrated and is Canada's leading owner/operator of multi-family communities bringing Residents home to properties located in Alberta, Saskatchewan, Ontario, and Quebec.

Boardwalk REIT's Trust units are listed on the Toronto Stock Exchange, trading under the symbol BEI.UN.  Additional information about Boardwalk REIT can be found on the Trust's website at www.BoardwalkREIT.com.

CAUTIONARY STATEMENTS REGARDING FORWARD-LOOKING STATEMENTS

Information in this news release that is not current or historical factual information may constitute forward-looking information within the meaning of securities laws.  Implicit in this information, particularly in respect of Boardwalk's objectives for 2018 and future periods, Boardwalk's strategies to achieve those objectives, as well as statements with respect to management's beliefs, plans, estimates and intentions, and similar statements concerning anticipated future events, results, circumstances, performance or expectations are estimates and assumptions subject to risks and uncertainties, including those described in the Management's Discussion & Analysis of Boardwalk REIT's 2017 Annual Report under the heading "Risks and Risk Management", which could cause Boardwalk's actual results to differ materially from the forward-looking information contained in this news release.  Specifically, Boardwalk has assumed that the general economy remains stable, interest rates are relatively stable, acquisition capitalization rates are stable, competition for acquisition of residential apartments remains intense, and equity and debt markets continue to provide access to capital.  These assumptions, although considered reasonable by the Trust at the time of preparation, may prove to be incorrect.  For more exhaustive information on these risks and uncertainties you should refer to Boardwalk's most recently filed annual information form, which is available at www.sedar.com.  Forward-looking information contained in this news release is based on Boardwalk's current estimates, expectations and projections, which Boardwalk believes are reasonable as of the current date.  You should not place undue importance on forward-looking information and should not rely upon this information as of any other date.  While the Trust may elect to, Boardwalk is under no obligation and does not undertake to update this information at any particular time.

SOURCE Boardwalk Real Estate Investment Trust

Boardwalk REIT: Investor Relations, [phone], [email protected]

Related Links

http://www.bwalk.com