EXPERIENCED
AND EVOLVING
B O A R D WA L K R E I T
2 0 17 A N N U A L R E P O R T
TA B L E O F C O N T E N T S
2017 Highlights ........................................ 1
Operations Review .................................. 2
Letter to Unitholders ................................ 4
Resident Members .................................10
In the Community ...................................14
Team Boardwalk .....................................19
Integrity in Governance ..........................24
Sustainability ..........................................27
Experienced & Evolving ..........................28
Financial Review .....................................33
Management’s Discussion & Analysis ....34
Management’s Report ............................95
Independent Auditors’ Report .................96
Financial Statements ..............................97
Notes to Financial Statements ............. 101
Five Year Summary ............................... 148
2017 Quarterly Results ......................... 150
Market and Unitholder Information....... 152
Corporate Information ..........................IBC
C O R P O R AT E P R O F I L E
Boardwalk REIT strives to provide
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; providing
Unitholders with enhanced returns;
increasing the value of its Trust Units
CONFIRM COPY
100 WORDS
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 with 1,700 Associates
bringing Residents home to
properties located in Alberta,
Saskatchewan, Ontario, and Quebec.
T S X : B E I . U N
In 2017, we used our experience,
to evolve through rebranding,
re-positioning and enhancing
product quality and service.
Revenue opportunity of over $70 million
or $1.40 per Trust Unit in the reduction
of vacancy loss and incentives’
Launch of three new Boardwalk
brands: Boardwalk Living; Boardwalk
Communities and Boardwalk Lifestyle
Under Construction: Pines Edge
Phase III, Regina; and Brio, Calgary
(joint venture with RioCan)
1,775 CLEAR-TITLE
APARTMENT UNITS
$327 MILLION
of available liquidity at
the end of 2017
>25%
management ownership
Development
pipeline of over
4,000
APARTMENT
UNITS
$17.9 MILLION
invested in
development in 2017
OVER
99%
of the Trust’s mortgages
are CMHC insured
Net Asset Value,
including cash of
$60.37
PER TRUST UNIT
OVER
$107 MILLION
invested in Suite
Capital in 2017
2 0 1 7 A N N U A L R E P O R T
1
BOARDWALK REAL ESTATE INVESTMENT TRUST OPERATIONS REVIEW
F O R T M C M U R R AY
352 units
1.1% of portfolio
G R A N D P R A I R I E
645 units
1.9% of portfolio
S P R U C E G R O V E
160 units
0.5% of portfolio
V I C T O R I A
VA N C O U V E R
B A N F F
76 units
0.2% of portfolio
E D M O N T O N / S T. A L B E R T
12,746 units
38.3% of portfolio
S A S K AT O O N
1,988 units
6.0% of portfolio
W I N N I P E G
R E D D E E R
939 units
2.8% of portfolio
C A L G A RY / A I R D R I E
5,581 units
16.8% of portfolio
R E G I N A
2,115 units
6.4% of portfolio
U N I T B R E A K D O W N B Y P R O V I N C E
As at December 31, 2017
BOARDWALK CURRENT PORTFOLIO
Boardwalk’s current portfolio is concentrated in Western
Canada, which has historically provided strong returns in
periods of cyclical expansion.
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2 0 1 7 A N N U A L R E P O R T
AB 61.7%
QC 18.1%
ON 7.8%
SK 12.4%
BOARDWALK REAL ESTATE INVESTMENT TRUST LONG-TERM PORTFOLIO DIVERSIFICATION
Boardwalk has identified these key growth markets for
long-term expansion to provide both growth and diversification
in undersupplied, high-growth markets.
Q U É B E C C I T Y
1,319 units
4.0% of portfolio
H A L I FA X
M O N T R É A L
4,681 units
14.1% of portfolio
K I T C H E N E R
329 units
1.0% of portfolio
O T TAWA
G R E AT E R
T O R O N T O
A R E A
L O N D O N
2,256 units
6.8% of portfolio
Boardwalk REIT
T O TA L N U M B E R O F R E S I D E N T I A L U N I T S
33,187
33,773
32,947
34,626
35,386
35,277
35,277
35,277
36,419
36,785
36,487
34,207
33,298
32,159
31,239
29,326
25,889
24,821
22,441
19,480
8,787
2017
2016
2015
2014
2013
2012
2011
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
2 0 1 7 A N N U A L R E P O R T
3
BOARDWALK REAL ESTATE INVESTMENT TRUST LETTER TO UNITHOLDERS
2017 was a transitional year for Boardwalk. A bottoming of the Western Canadian
economy allowed us to further enhance our product quality and service with a focus
on utilizing historically high market vacancy rates to renovate and reposition a large
number of apartment suites.
This strategy of counter-cyclical investment in our own portfolio
diverse product will allow Boardwalk to attract a larger
was similar to the approach Boardwalk undertook when we
demographic to the Boardwalk brand.
began in the 1980s by acquiring and improving multi-family
communities through renovation. This counter-cyclical approach
required blood, sweat and tears, but allowed us to improve our
product quality and service to create significant long-term value
as reflected by our track record of value creation.
At the beginning of 2017, Boardwalk tested a small number
of suite renovations to evaluate the demand for large,
well-located, high-quality, and high-service renovated apartment
homes. Our initial success created excitement across our team
to revamp our suite materials and supplies to a higher quality,
This strategy of continuous re-investment in the preservation
more durable, and modernized specification. The onset of our
and enhancement of our communities has allowed us to create
renovation program was delayed by the procurement of these
a company today with a net asset value of over $60 per Trust
revised materials and supplies, which subsequently resulted
Unit in addition to returning over $25 of cash distributions to
in a backlog of labour and trade scheduling; this in turn resulted
our Unitholders since our initial split-adjusted public offering in
in increased vacancies due to suites being un-rentable for
1994 of $0.0625 per share. The current disconnect between our
renovation. Today, we are pleased to report over 3,000 suites
public market valuation and our net asset value offers a unique
were renovated in 2017. The majority of these suites were
investment opportunity for our investors to capitalize on an
completed in the last six months of 2017 as our production
opportunity to partner with our team as we focus in the
process gained traction. The investment of additional capital
near-term on recapturing vacancy loss and incentives in our
and impact of increased vacancy loss of our suite renovations
core portfolio, while also preparing to invest in the medium to
improved throughout the year. The full absorption of these
long term in the acquisition and development of Boardwalk’s
renovated units in the latter quarter of 2017 and first month of
brand of communities in new, high-growth, undersupplied
2018, along with a significant improvement of over 300 basis
markets. We believe this will further enhance value to all of
points in our overall occupancy at the end of 2017, reflects the
our stakeholders.
EVOLVING PRODUCT AND BRAND
positive long-term benefits that outweigh the short-term
sacrifice in higher vacancy. Our high-graded suites and longer
lasting specifications (20+ year warranty on flooring as an
example), have positioned the Trust to create superior results
The spectrum of rental housing in Canada has expanded over
the last few years with rental demand ranging from affordability
going forward.
to high-end luxury. As a result, the ability to offer a more
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2 0 1 7 A N N U A L R E P O R T
BOARDWALK REAL ESTATE INVESTMENT TRUST “Building Better Communities”
William Wong, Chief Financial Officer; Dean Burns, Vice President and General Counsel;
Roberto Geremia, President; Lisa Russell, Senior Vice President, Acquisition and Development;
Van Kolias, Senior Vice President, Quality Control; Sam Kolias, Chief Executive Officer and Chairman of the Board
FROM LEFT TO RIGHT
2 0 1 7 A N N U A L R E P O R T
5
BOARDWALK REAL ESTATE INVESTMENT TRUST To better understand the renovation program and provide
periods and positioning its communities to outperform during
Boardwalk with the ability to efficiently target capital
growth cycles. Boardwalk’s approach during this cycle has been
investment to maximize returns, we launched three distinct
similar with counter-cyclical investment in suite renovations and
brands under the Boardwalk umbrella:
new development projects such as our joint-venture
development project with RioCan REIT in Calgary, our
continued phasing of excess land in Regina, and continued
procurement of over 4,000 apartment unit development
pipeline in our core markets. As the Western Canadian
economy continues its recovery, Boardwalk is beginning to
study available density on its existing Ontario and Quebec
portfolio and is well-positioned to deliver above-average returns.
With the large level of economic torque upcoming in our core
markets, the Trust is focused on maximizing the value of its
investments, and recapturing operating income over the
short-term by reducing vacancy loss and incentives and
improving long-term revenues with better product and service.
Over the long-term, the Trust has devised and published a ten
to fifteen-year plan to grow its portfolio by ten to fifteen
thousand apartment units in undersupplied, high-growth
markets which will provide net asset value (“NAV”) creation
and offer diversification amongst its portfolio. Boardwalk’s
acquisition and development strategy is focused on NAV
creation which will be unique to each opportunity, but will,
however, include development, strategic partnerships,
and acquisitions.
CONTINUED FINANCIAL STRENGTH
One of Boardwalk’s key pillars is resilient financial strength. The
Trust’s strategic decision to fortify its balance sheet in previous
cycles to reduce its debt/assets, ladder its debt maturities,
ensure strong liquidity, and eliminate renewal risk by using
CMHC-insured mortgages, has positioned the Trust to complete
counter-cyclical investment without sacrificing balance sheet
strength. Despite two challenging years in our core markets,
the Trust continues to have low debt, with net debt to assets of
46% and strong liquidity of over $300 million at the end of 2017.
BOARDWALK LIVING – AFFORDABLE VALUE
Boardwalk Living features classic suites for our Resident Members 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 demographic, affordability, and demand for
rental housing continues to increase, the Trust is well
positioned to provide a home that suits all Resident Members.
In addition, over 99% of Boardwalk’s outstanding debt is
EVOLVING PORTFOLIO GROWTH
In 2017, Boardwalk provided details of its long-term strategic
plan. Resource-based economies such as Alberta and
Saskatchewan have historically provided long periods of gains
only to be tempered by periods of decline through various
economic cycles. Boardwalk has historically taken advantage of
this cyclicity by investing and acquiring assets during trough
backed by CMHC insurance. Our long-term partnership
with CMHC has allowed Boardwalk to continue to provide
high-quality, affordable housing to Canadians in our core
markets. The benefits of CMHC insurance include access to
low-cost financing, with current five- and 10-year interest rates
of approximately 2.90% and 3.20%, as well as certainty of
debt renewal as the Government of Canada guarantee, through
CMHC, remains in force for the full 30- to 40-year amortization
of its mortgages.
6
2 0 1 7 A N N U A L R E P O R T
BOARDWALK REAL ESTATE INVESTMENT TRUST FA I R VA L U E O F I N V E S T M E N T A S S E T S ,
E X C L U D I N G S O L D P R O P E R T I E S
(in $ Millions)
$5,603
$5,378
$5,424
$5,466
$5,371
$5,483
$4,683
$4,219
2
0
1
0
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4
2
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1
1
-
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4
2
0
1
2
-
Q
4
2
0
1
3
-
Q
4
2
0
1
4
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Q
4
2
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1
5
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6
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7
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Q
4
In 2017, Boardwalk’s Board of Trustees adopted a revised
distribution policy to align with Boardwalk’s strategic initiatives
focused on long-term NAV creation and growth. When balanced
with Boardwalk’s conservative balance sheet, the new
minimum distribution policy allows the Trust to retain a
significant amount of cashflow for re-investment and will
accelerate the Trust’s growth capability going forward.
2018 OUTLOOK
Key macro-economic indicators have identified that a recovery
has begun in the Trust’s core market of Alberta:
§ Positive inter-provincial migration in the second half of
2017, combined with consistent international migration
into the province
§ Increasing job vacancies in Alberta
§ Decreasing unemployment rate
§ Stabilizing world oil prices
§ New construction of purpose-built rentals has moderated
Boardwalk in 2018, is focused on recapturing revenues and
its operating margin. The largest current opportunity for the
Trust is the reduction of vacancy loss and incentives which
represent approximately $33 and $40 million, respectively,
or over $1.40 per Trust Unit in annual FFO combined.
To begin recapturing its revenues, Boardwalk’s primary focus
in early 2018 is on occupancy, with an already achieved goal
of less than 5% vacancy at the end of December of 2017, and
a further goal of achieving less than 3% vacancy before the
Financial and
Operating Highlights
$423 MILLION
TOTAL REVENUE 2017
AFFO PER TRUST UNIT OF
$1.68
FFO PER TRUST UNIT OF
$2.11
N O I B R E A K D O W N B Y P R O V I N C E
As at December 31, 2017
AB 61%
QC 20%
ON 7%
2 0 1 7 A N N U A L R E P O R T
SK 12%
7
BOARDWALK REAL ESTATE INVESTMENT TRUST spring turnover season. To date, Boardwalk’s success in reducing
positioned Boardwalk to excel in 2018 and beyond.
vacancy has been a result of completing previously vacant units
that were held for renovation to a much higher standard. By
ensuring Boardwalk has ready and available product, and when
combined with our best in class service, our team is able to
lease new units, and has done a remarkable job of exceeding our
initial 5% vacancy goal during the seasonally slower winter rental
months. Boardwalk’s lease terms with its Resident Members are
for twelve months, and when combined with lower vacancy, has
positioned the Trust well to reduce incentives going forward
In 2018, Boardwalk will continue to invest in its suite renovation
and re-positioning program, however as occupancy increases,
it is anticipated these renovations will decrease from the pace
undertaken in 2017. We believe our suite renovation program
will provide the best returns by improving our brand, balancing
our renovation program with natural vacancy, create a scarcity of
supply of renovated product, and continue with our production
efficiencies, including the procurement of materials from offshore
manufacturers and improvement in construction time, have
allowed for a lower cost of renovation while also producing a
faster turnaround. Overall, we anticipate investing approximately
$40 to $60 million in our suite renovation and re-positioning
program in 2018.
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.
Operating performance visibility has improved for 2018 along
with improvement in the macro-environment in our core
markets, and with the previously announced change to the
timing of release of our forward-looking financial guidance
THANK YOU
Since our inception in 1984, Boardwalk’s approach and
commitment to our Residents has remained unchanged: to
provide our Residents with the best quality communities and
superior customer service. Boardwalk continues to offer
Resident-friendly programs such as our internal subsidy
program (offering rental increase forgiveness to Resident
Members who would experience financial hardship as a result
of a rental increase), a self-imposed rent protection program
(limiting the amount of a rental increase in any given year), and
Community engagement and experience opportunities such as
family movie nights, wine and cheese events, and many others.
Our friendly, community and member-experience focused
approach to our operational strategy makes Boardwalk a
premier housing option, and when coupled with our strategic
initiatives of brand diversification, suite renovations, new
partnership/development opportunities and NAV creation
focused portfolio growth, will create value for our Unitholders.
Thank you to all of our stakeholders, financial and operating
partners for their continued support. A special thanks to CMHC,
Boardwalk’s largest financial partner, as they continue to provide
mortgage insurance products which maintain low interest rates
and mitigate renewal risks, all of which allows Boardwalk to
continue to provide the best value in rental housing for Canadians.
Thanks also to the Board of Trustees for their discipline,
guidance and continued focus on excellence in governance and
corporate strategy.
which is updated and reported in our quarterly financial
Thank you to our Resident Members for their continued loyalty
statements, conference calls and press releases.
and engagement in our Boardwalk Community and for calling
Boardwalk home.
Description
2018 Financial Guidance
And lastly, thank you to each of Boardwalk’s Associates across
STABILIZED BUILDING NOI GROWTH:
2% to 7%
Canada for their dedication and commitment to our continued
FFO PER TRUST UNIT:
$2.15 to $2.35
AFFO PER TRUST UNIT:
(BASED ON $695/YEAR/APT)
$1.70 to $1.90
The Trust is estimating stabilized building NOI growth of
2% to 7% in 2018, as the Trust focuses on balancing its
renovation program with higher occupancy. As a result, the
growth and evolution.
Over our 33-year history, we have learned to evolve,
successfully creating value for all our stakeholders, and with
this timeless evolution, we are positioned, again, to enhance
value and growth for all our stakeholders.
Respectfully,
Trust is anticipating FFO growth in 2018 from the prior year
[signed]
with an estimated range of $2.15 to $2.35 per Trust Unit.
The investments made throughout 2017 and into 2018 in
our communities and in improving our service levels have
Sam Kolias
C H A I R M A N A N D C E O
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2 0 1 7 A N N U A L R E P O R T
BOARDWALK REAL ESTATE INVESTMENT TRUST Q & A WITH SAM
Boardwalk’s Chief Executive Officer answers some of our
Stakeholder’s most commonly asked questions.
As we close out 2017 and begin to see the success of our
Long term strategic plan – what do you see in some of
investments made in the year, we have compiled and
these markets?
summarized the most commonly asked questions by our
stakeholders through the year.
As part of our ten to fifteen-year strategic plan, we have
identified a number of growth markets which Boardwalk may
Our team strives to provide transparency to our stakeholders,
expand into. Each of these markets represent large markets
and we welcome questions and/or comments from all of
in Canada, that have a strong labour market, and growing
our stakeholders.
population. The Trust seeks markets which have an under-supply
of rental housing and estimate that these factors will allow
Why have you made an investment in product quality
Boardwalk to create significant value for our stakeholders by
and service during a cyclical down period?
investing in great locations within these type of secular
Boardwalk has always strived to provide the best product quality
growth markets.
and service in housing. The investments made in 2017 surpass
We will continue to update our stakeholders on our progress
our previous investment both in quantity and value due to:
as we create and develop opportunities in these markets.
a) The opportunity to utilize cyclically high market vacancy
to renovate.
b) An expansion and diversification of our product offering to
include affordable value, enhanced value and affordable luxury.
c) Regardless of market conditions, Boardwalk will always
strive to provide the best product quality and service.
How is Boardwalk positioned for the improving
Alberta economy?
What is a minimum distribution policy?
In November of 2017, Boardwalk’s Board of Trustees adopted
a minimum distribution policy. This formal distribution policy
allows the Trust to retain a significant amount of cashflow for
re-investment. As a Trust, Boardwalk must distribute at least its
taxable income to its Unitholders, and this current policy allows
for the minimum distribution of at least its annual taxable
income – however also providing maximum cashflow to fund
future growth projects and opportunities such as our renovation
Our counter-cyclical investments in 2017 have positioned the
program, new development, and potential acquisitions. As our
Trust to enhance our operating results going forward. In 2017,
cashflow improves in our core markets, we are well positioned
our total vacancy loss and incentives equated to over $70 million
to begin utilizing free cashflow to once again grow Boardwalk.
and represents a large opportunity for Boardwalk to begin
recapturing lost revenue as the Alberta economy improves.
We are most excited for what lies ahead. In the near-term, the
recapture of our incentives and vacancy loss from the last two
Our initial focus is to recapture vacancy loss. Once vacancy is
years will provide significant year over year growth, while our
reduced to between two and three percent, the Trust can then
investment in suite renovations, repositioning, and service have
begin to reduce incentives. Boardwalk’s approach to incentive
set us up to propel past our previous peak revenues as our core
reduction is bound by its own self-rental rate control, and may take
markets are once again entering a state of balance. In addition,
two to three years to recapture these incentives. Boardwalk’s
our minimum distribution policy will allow us to utilize cashflow
long-term strategic plan is to grow the Trust to include other
as a source of capital to fund further growth for the Trust.
high-growth markets, which will provide additional value creation
as well as further geographic diversification for our stakeholders.
2 0 1 7 A N N U A L R E P O R T
9
BOARDWALK REAL ESTATE INVESTMENT TRUST RESIDENT MEMBERS
Boardwalk strives to be Canada’s friendliest and preeminent landlord, continually
looking for new and innovative ways to build and strengthen long-lasting
relationships with its Resident Members.
With superior customer service, high-quality rental apartments
These annual surveys help to quantify Boardwalk’s level of
and welcoming communities, Boardwalk offers a variety of home
customer service and where it can be improved, allowing us to
options for our current and prospective Resident Members.
implement immediate changes and effectively respond to the
Boardwalk is committed to providing quality rental apartments
changing needs and priorities of Resident Members.
coupled with superior customer service to more than 50,000
To further enhance Members experience, Boardwalk actively
Resident Members across four provinces in Canada, which has
searches for new ways to connect with Resident Members
earned Boardwalk the Recognizing Outstanding Organizations
and has found success through its secure, Resident Member
and People in Housing (ROOPH) award for outstanding
website which offers a “Lease and Balance” page to display
community partnerships and the Calgary Residential Rental
expected transactions for the coming month; the ability to add
Association Community Service award.
multiple images to feedback and contact forms and use of a
To continue providing the best in customer service, Boardwalk
provides Resident Members access to a Customer Call Centre
24 hours a day, 7 days a week, 365 days a year by phone,
email, or live chat. In addition, Residents are provided 24-hour
on-call maintenance for their buildings and a Maintenance
Guarantee that ensures all standard maintenance requests will
be completed within 72 hours.
In 2017, Boardwalk’s main website: www.bwalk.com received
731,000 visitors and 3.8 million page views, more than
161,000 phone calls; 104,000 emails; and nearly 18,000 live
chats were received through the Customer Service Centre.
Ensuring service is consistent and Resident Members are
satisfied, automated telephone and online surveys were
conducted with Resident Members who had either recently
moved into a Boardwalk Community (59% satisfaction), had
maintenance work completed (58% satisfaction), or had moved
out (decreased to 7,487 compared to 7,613 in 2016), with the
most common reason being “personal”. Residents transferring
to other Boardwalk buildings increased by 1.96% from 2016.
“Community Corner”. Through Community Corner, Resident
Members have an opportunity to connect online with others
living in the same community, as a way of making new friends
or utilizing the “Buy and Sell” section. As a testament to its
success, registration on the Resident Member website
increased by 28.6% since 2016. Plans are in place to further
develop the website in 2018 to make it an even more
convenient and user-friendly way for Residents to connect
with Boardwalk’s team of Associates and with others living
in the community.
Boardwalk continued to publish and distribute its member
magazine “Across the Board”, online and in print, to Resident
Members across Canada three times yearly. The magazine
features a variety of information including household tips,
community stories, city profiles, etc., and offers Resident
Members an opportunity to get involved by writing a story of
their own. In 2018, Boardwalk will continue to distribute the
magazine as it provides an excellent way to connect
communities and Resident Members across Canada.
1 0
2 0 1 7 A N N U A L R E P O R T
BOARDWALK REAL ESTATE INVESTMENT TRUST Entrance to Renovated Show Suite at Centre Pointe West
LOBBY AT CHATEAU
RENOVATED 2-BEDROOM SUITE
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2 0 1 7 A N N U A L R E P O R T
BOARDWALK REAL ESTATE INVESTMENT TRUST In addition to superior service and Resident Member focus
since it’s inception in 1999, Boardwalk provides an internally-
mandated, self-regulated, rent assistance program (the
“Internal Subsidy Program”) under which eligible Resident
Members who are experiencing financial hardship are offered
various methods of rental forgiveness, including reducing or
withholding rental increases and subsidizing suites across its
portfolio, maximizing its dedicated budget of $150,000 annually,
which fluctuates according to need of its Resident Members.
To meet the demand for lifestyle changes amongst our
senior citizens, the Trust established Boardwalk Retirement
Communities, in many major Canadian Cities, offering a
lifestyle free from everyday living responsibilities such as meal
preparation, housekeeping and maintenance. As well as offering
healthy living, excellent service, superior food, social activities,
and the peace of mind that comes with assisted living.
As Boardwalk is always looking for new ways to connect with
community, it increased its focus in 2017 on using social media
to connect with and engage current and potential new Resident
Members, with a presence now on a variety of social media
websites, seeing demonstrated and substantial success with its
Facebook page with more than 17,000 followers. With the help of
social media, Boardwalk also ran its 2017 corporate re-branding
campaign, which saw great success in creating positive brand
awareness amongst the Community and Resident Members.
Believing that a connected community is the basis for the most
fulfilling and rewarding community living experience, Boardwalk
invites and encourages Residents to participate in numerous
sponsored “Resident Appreciation Events” across Canada. To
further enhance to the community experience, Boardwalk added
a dedicated team of “Member Experience” Associates to
expand the number and frequency of such appreciation events in
2017, including: meet your neighbour parties, movie nights, zoo
days, festival tickets, fitness classes, art classes, concerts,
picnics, pet days, block parties, family swim days, community
resource information sessions, afternoon teas, cocktail parties,
sporting events, barbeques, family photo sessions, bowling
nights, contests, among others, and more to engage Resident
Members in its Golden Foundation.
There is no greater demonstration of the love of community
than Associates and Resident Members working side by side to
build and better their communities. With over 19,000 Resident
Members attending our events in 2017, Boardwalk continues to
find that these events foster relationships between Associates
and Residents and provide opportunities for Residents to form
relationships within their Boardwalk Community.
Connecting with Our
Resident Members
RESIDENT MEMBER WEBSITE
A Resident Member specific website offers various
services to Residents, including a “Community
Corner”, “Buy and Sell” and a “Lease and Balance”
page. Registration for the Resident Member-website
increased by 28.6% since 2016.
ACROSS THE BOARD
To help promote community and connections,
Boardwalk publishes and distributes a Resident
Member-focused magazine 3 times a year.
RESIDENT APPRECIATION
Boardwalk encourages a sense of community
through various Resident Appreciation Events, such
as BBQs, movies, pet days, block parties, contests,
cocktail parties and much more.
2 0 1 7 A N N U A L R E P O R T
1 3
BOARDWALK REAL ESTATE INVESTMENT TRUST IN THE COMMUNITY
Boardwalk strives to provide and foster communities that encourage Residents,
Associates and Stakeholders to create an environment which local and global
relationships can be made, which lead to Boardwalk’s goal of better communities.
The resiliency of community leads to Residents choosing
Guided by our Golden Vision to Love Community, Boardwalk is
Boardwalk as their preferred housing option, resulting in
committed to making a meaningful difference by ensuring our
sustainable returns for Unitholders, welcoming homes for
youth today are inspired to create positive change and was
Resident Members and a great place to work for Associates.
proud to be a platinum sponsor of WE Day Alberta for the third
In 2017, Boardwalk continued its involvement in more than
60 community sponsorships and initiatives across Canada,
including: Walk for Wellspring, The Coldest Night of the Year,
Hockey Helps the Homeless, blood and food drives, Operation
consecutive year. In addition, Boardwalk offered its young
Resident Members an opportunity to attend the event by
completing a short entry, including what Community means to
them and how they give back locally, nationally and globally.
Christmas Child, KidSport, We are One benefit concert, Five
Boardwalk strongly believes in building better communities
Days for the Homeless; seniors and homelessness events/
and is excited to be part of an event that motivates youth to
fundraisers, National Housing Day Conference, youth mentor
do the same.
programs, Iron and Frost Gala, Stuff a Suite, Feed the Hungry,
Clothesline (72 collection locations and 260,593 lbs donated),
community clean-up events and many more.
Each year, in partnership with the Community Service Learning
Program at the University of Alberta, Boardwalk provides an
opportunity to encourage students to give back to their
Boardwalk offers many opportunities for both Associates
communities and challenge them to create a community
and Resident Members to get involved in charitable events
initiative in the hopes of receiving The Boardwalk Learning and
and is one of the reasons that Boardwalk developed the
Change Award (a $10,000 grant, to put their plan into action).
Boardwalk Angels Program (the “Angels Program”) for
From all submissions, three to five projects are selected to
Resident Members. The Angels Program recognizes
be presented in front of a panel of judges.
Boardwalk buildings where Resident Members have been
involved in sponsored charitable events, giving back to their
community. Boardwalk is pleased to have recognized more
than 150 sites in the Angels Program for volunteering for
charities, hosting Seniors events and spearheading toy,
food bank and blood drives, among many others.
The grant winner for 2017 was Kenzie Gordon, who in
partnership with SACE and the University of Alberta,
developed a video game surrounding bystander intervention
in situations of violence. The game will be part of Bystander
Intervention Training offered by both partners, ensuring young
adults are well-informed about what constitutes consent
WE Day Alberta (“WE Day”) is hosted annually by Free
and/or violence in a relationship as well as their rights, giving
the Children to encourage youth to get involved and bring
them the tools to establish healthy relationship patterns that
about change in their local and global communities, with a
last into their adult lives.
goal to empower youth to become the leaders of tomorrow.
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BOARDWALK REAL ESTATE INVESTMENT TRUST Renovated Resident Lounge
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BOARDWALK REAL ESTATE INVESTMENT TRUST 540+
VOLUNTEER
HOURS PROVIDED
to various charities across
Canada through Boardwalk’s
‘Annual Week of Giving’ initiative.
COMMUNITY BBQ
EDMONTON PANCAKE BREAKFAST
$25,000
donation dollars matched
by Boardwalk through
their Charitable Match
Donation Program.
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MONTREAL CORPORATE CHALLENGE
BOARDWALK REAL ESTATE INVESTMENT TRUST Boardwalk strives to ensure that everyone has a place to call
Child”, a Samaritan’s Purse initiative. During Week of Caring,
home and was involved in many community events across
Resident Members joined Associates in filling 2,033 shoeboxes
Canada to help end homelessness, including: “Hockey Helps
with gifts for Operation Christmas Child, while others dedicated
the Homeless” in numerous cities; and “Five Days for the
additional hours at the Operation Christmas Child warehouses,
Homeless”, held at post-secondary institutions nationally.
preparing shoeboxes for children in need around the world.
Additionally, Boardwalk partners with many government and
other organizations to provide affordable housing across
Canada. These organizations include: Calgary Homeless
Foundation; Homeward Trust; London Housing Company;
Red Deer Housing; the Mustard Seed; and many others.
In total, Boardwalk provides approximately 1,000 affordable
housing units to these programs.
To further support charity organizations, Boardwalk offers
Associates the “Charitable Match Donation Program”. This
Program enables Associates to donate a portion of their salary
to a specific charitable organization. Boardwalk then matches
these donations (up to $1,000 per Associate, per year). In 2017,
Boardwalk matched over $25 thousand in donations under the
Charitable Match Donation Program.
In addition to the programs and initiatives listed above,
Boardwalk provides Associates with opportunities to give to
international communities. Under its “Homes of Hope”
benefit, in partnership with “Youth With a Mission”, Boardwalk
sends Associates to Tijuana, Mexico to build homes for families
in need; sponsoring three trips in 2017, allowing 94 Associates
to travel to Tijuana to build 6 homes.
Boardwalk continues to work toward building better
communities, both locally and globally, encouraging its
Resident Members and Associates to get involved in the
communities in which they live and work and to “give where
they live”. Charitable events held in 2017 continued to
demonstrate the resilience of community, and the positive
effect that community has on all stakeholders. Strong and
In December of 2017, Boardwalk hosted its annual Week of
lasting communities are best built when we support one
Caring, giving Associates the opportunity to volunteer for up to
another and work together!
four paid hours at their favorite local charitable organizations,
under which Associates collectively gave over 540 hours to
their charities of choice, including “Operation Christmas
60+
COMMUNITY
INITIATIVES
were sponsored by Boardwalk
across Canada in 2017.
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LIFESTYLE LAUNCH AT CENTRE POINTE WEST
BOARDWALK REAL ESTATE INVESTMENT TRUST 1 8
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A Boardwalk Associate at Centre Pointe West
BOARDWALK REAL ESTATE INVESTMENT TRUST TEAM BOARDWALK
Boardwalk’s mission to provide the best quality communities for its Resident
Members is achieved through the collaboration of its dedicated team of Associates.
Boardwalk provides Associates with ongoing training,
development, education, benefits, advancement opportunities,
BENEFITS
competitive compensation, frequent communication and
opportunities to give back to our local, national and global
communities. These efforts foster a strong sense of community
engagement while providing an exceptional place for its
Associates to work. As a result, Boardwalk has been a past
recipient of Waterstone Canada’s 10 Most Admired Corporate
Cultures (Western Canada).
ASSISTANCE
Working to support Associates in and outside the workplace,
Boardwalk has established an internal committee (“The
Rainbow of Hope” or “ROH”) in each region that they
operate, and are dedicated to raising funds to provide
Associates with additional assistance, support and relief during
times of need. Wishes are initiated when an Associate contacts
The Rainbow of Hope, or have they been nominated for a wish
by another Associate. To ensure anonymity and privacy, all
personal details are removed from a wish request, which is
then presented to, reviewed and granted by volunteer
Committee members.
Ensuring enough resources are available within every region,
Conducting regular benefits research and utilizing industry
comparisons, Boardwalk ensures that it offers Associates a
comprehensive benefits package, including an RRSP Match
Program (“RRSP Match”). Through the RRSP Match,
Associates can opt to have a portion of their salary deposited
directly into an RRSP, where Boardwalk will then match a
percentage of their contributions, which varies based on an
Associate’s length of service.
In 2017, Boardwalk dedicated over $2.8 million for contributions
under the RRSP Match and multi-tiered comprehensive
benefits programs, in addition to contributing nearly
$2.1 million to comprehensive benefits for Associates.
Boardwalk refers to its Associates as being part of the
Boardwalk Family and, by extension, strives to also be
supportive of the families of its Associates. To accomplish this,
Boardwalk established the Chairman’s Scholarship fund to help
with the cost of post-secondary education for the children of
Associates. In 2017, 29 children of Associates were awarded
with scholarships, totaling $236,500.
CHARITABLE MATCHING
Boardwalk matches dollar-for-dollar, the fundraising efforts
Fostering the spirit of giving, Boardwalk encourages Associates
for each ROH Committee.
to give back to their communities in many ways; one of which is
through its Charitable Match Donation Program, where Associates
can donate a portion of their salary to a registered charity of
their choice that the Trust then matches (up to $1,000 per
Associate, annually). In 2017, Boardwalk matched over $25,000.
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BOARDWALK REAL ESTATE INVESTMENT TRUST COMMUNICATION
COMPENSATION
A key component in growing the best team is to ensure
In striving to provide Associates with a rewarding place to
information is provided to Associates in a timely matter. With its
work, Boardwalk encourages Associates to maintain a healthy
team spanning across four provinces, Boardwalk has developed
work-life balance and frequently conducts market research to
and implemented a strategic internal communications program
ensure that Associates are offered competitive compensation
which utilizes numerous communication vehicles, including an
packages. In addition, Boardwalk offers a Profit Share Program
intranet (the “Bistro”); a secure website Associates can access
that rewards Associates for helping to meet and surpass its
either from work or home, ensuring every Associate has
corporate strategy and goals each year.
convenient and easy access to relevant information. The Bistro
hosts information regarding Associate Health and Safety,
benefits, Human Resources, important announcements and
information concerning community events. Additionally,
Boardwalk publishes a quarterly, bilingual, internal magazine (the
“Community Chest”) that relays Health & Safety information,
messages from Senior Management, financial updates,
community events and features Associate content (i.e.
employment milestones, births, weddings and life events) and
more, which is distributed to all its Associates across Canada.
Through internal communications, Associates are regularly
updated respecting changes in their benefits, including articles
and tips for achieving and maintaining optimal physical,
emotional and mental well being, as well as updates from their
benefits providers.
Boardwalk hosts The Executive Associate Meetings (“TEAM”)
annually for Associates across Canada which provides
opportunities for each Associate to connect with members of
Senior Management and to receive updates on its operations.
TEAM continues to shift its focus towards recognizing and
celebrating Boardwalk’s family of outstanding Associates,
providing Senior Management with the opportunity to
acknowledge outstanding and long-term Associates for their
continued commitment to providing the best quality communities.
Finally, Site Associates participate in monthly group meetings,
during which they meet with Leaders to discuss any concerns
and review Boardwalk updates, all of which contribute to
Associate communication and engagement.
COMMUNITY INVOLVEMENT
DEVELOPMENT AND TRAINING
New associates are introduced to Boardwalk’s culture through
orientation sessions, including information on Boardwalk’s
history, mission, vision, values, corporate culture and outlining
its Health and Safety Program). Boardwalk then provides a
mentorship program, helping Associates continue to develop
their skills and improve the level of customer service provided
to Resident Members, by ensuring Associates receive
additional training specific to their needs and are supported in
their positions.
Boardwalk’s Customer Service Representative Best Practices
Program (“CSRBPP”), created and implemented in 2016,
currently consists of three types of training: informational
brochures, video and role-playing exercises developed using
both actual life examples received from Resident Members and
feedback from Site Associates. In 2017, Boardwalk found the
CSRBPP to be very successful at encouraging Associates to
work together to solve problems while learning from each
other’s experience and expertise. Boardwalk plans to continue
to expand the CSRBPP in 2018, including new scenarios for
training videos and role-playing exercises to ensure content
remains current and relevant.
Continuing to invest in Associate training, development and
education, Boardwalk ensures that each Associate is given the
opportunity to excel and reach their full potential. In 2017, the
Trust invested more than $148,000 in Associate training and
development (books, tuition and membership fees), furthering
Associate education, advancing their skills and assist
Associates in achieving their goals.
In addition to offering opportunities throughout the year for
In addition to financial compensation and incentives,
Associates to be involved in more than 60 community-based
Boardwalk ensures opportunities for advancement through its
initiatives, Boardwalk also hosts an annual “Week of Caring”,
Succession Planning Program, fostering engagement and
encouraging Associates to volunteer with a registered charity of
workplace satisfaction.
their choice for up to four (4) paid work hours during the month
of December. In 2017, Associates dedicated 544 volunteer
hours during Week of Caring.
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BOARDWALK REAL ESTATE INVESTMENT TRUST LOBBY AT ROYAL PARK PLAZA
ASSOCIATE AND RESIDENTS AT CENTRE POINTE WEST
HEALTH AND SAFETY STANDARDS AND TRAINING
By carrying forward its Zero Injury Campaign, focusing on
safe work environments and a goal to eliminate all workplace
injuries and illnesses, each Boardwalk Community which
accomplishes the Zero Injury goal is rewarded for their
commitment to safety by Senior Management through
recognition in the Community Chest; on Bistro and in-person
at TEAM luncheons. To ensure that all Associates understand
that Health and Safety is a priority and is everyone’s
responsibility, a Health and Safety component is included in all
annual performance reviews. In 2017, 171 Boardwalk
Communities remained injury free for the entire year.
An internal Health and Safety audit was conducted in 2017,
consisting of three verification methods: documentation
reviews; interviews; and site observations. The audit
measured and evaluated Boardwalk’s Health and Safety
Program against standards established by The Alberta
Employment and Immigration – Workplace Partnership –
which yielded a final score of 97%. Areas where Boardwalk
excelled were: Management Leadership, Organizational
Commitment, Hazard Control, Ongoing Inspections, and
Accident/Incident Investigation. Along with identifying areas
of excellence, the audit identified areas in the Program
where Boardwalk can still improve. Proactively, Boardwalk
has already begun implementing improvements based on
those results.
Training options (several of which are outlined to your right),
ensure Associates receive appropriate knowledge and
education for their positions, and they remain safe in
the workplace.
§ Asbestos Management Plan
§ Associate Training
§ Bed Bugs
§ Bodily Fluids & Dead
Animal Cleanup
§ Chainsaw Safety
§ Communication
§ Company Vehicle Safety
§ Confined Spaces
§ Electrical Safety
§ Emergency Response
§ Environmental Policy
§ Fall Protection
§ Firearms / Weapons
Found on-site
§ First Aid
§ Forklift Safety
§ Hazard Detection Program
§ Hazardous Materials,
Storage & Disposal
§ Housekeeping
§ Incident Reporting
§ Indoor Air Quality
§ Job Hazard Analysis
§ Joint Health &
Safety Committee
§ Ladder Safety
§ Lockout and Tagging
§ Material Safety Data
Sheets (MSDS)
§ Modified Duties
§ Monthly Site
Safety Inspections
§ Mould Remediation
§ Needle / Syringe Safety
§ Noise Exposure &
Hearing Conservation
§ Office Ergonomics
§ Pandemic Response
§ Personal Protective
Equipment
§ Pesticides
§ Pool Safety
§ Power Tool Safety
§ Respirator Code of Practice
§ Right to Refuse
Unsafe Work
§ Safety Infractions
§ Site Safety Meetings
§ Slip, Trip & Fall
§ Snow Shoveling
§ Sun & Heat Protection
§ Transportation of
Dangerous Goods
§ Visitor Policy
§ Workplace Hazardous
Materials Information
Systems (WHMIS) 2015
§ Working Alone
§ Workplace Violence
§ Zero Injury Campaign
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RENOVATED SUITE AT CENTRE POINTE WEST
BOARDWALK REAL ESTATE INVESTMENT TRUST POLICY UPDATES
The Province of Ontario adopted significant changes to the
Accessibility for Ontarians with Disabilities Act (the “AODA”) in
2016. In response to those changes, Boardwalk completed a
comprehensive examination of its Health and Safety Program,
making the necessary adjustments to ensure the Program
remains in compliance with the AODA.
RECOGNITION
To celebrate exceptional service and to recognize Associates
who go above and beyond and receive a compliment from a
Resident Member, Boardwalk continued its “Bravo Program”.
In 2017, 774 Bravos and 12 Foundation of Excellence Awards
(“FOE Awards”) were awarded to well-deserving Associates.
FOE Awards are given to Associates who have been recognized
by their peers for going above and beyond, and living
Boardwalk’s Mission, Vision, and Values.
Boardwalk values long-term Associates and offers recognition
for those who achieved milestones of three years, five years,
10 years and 20 years with Boardwalk by offering varying
rewards, including recognition in the Community Chest,
additional vacation days and travel vouchers.
RESULTS
Boardwalk’s efforts to maintain a happy, healthy, and safe work
environment for Associate continue to see success. However, in
2017 restructuring and improvement of Boardwalk’s quality and
service created slightly higher turnover of 30%, up slightly from
27% in 2016. Additionally, 25% of Associates have chosen to be
part of the Boardwalk Family for between five and ten years, while
23% have been with the Boardwalk Family for more than
10 years, resulting in a successful team of experienced, dedicated
and passionate Associates who deliver on Boardwalk’s mission,
vision and values.
Creating Value
for Our Associates
30%
Low associate turnover is a testament
to Boardwalk’s team culture
$148,000
invested in Associate training
and development initiatives
23%
of Associates have been with
Boardwalk for 10+ years
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RESIDENT TERRACE AT CHATEAU
BOARDWALK REAL ESTATE INVESTMENT TRUST INTEGRITY IN GOVERNANCE
Integrity is one of Boardwalk’s core values and the Trust prides itself on being
honest, accountable and transparent to all Stakeholders, and is evident in Boardwalk’s
corporate reporting.
Excellence in corporate governance has been a foundation over
to the best interests of the Trust and its Unitholders. Currently,
the past 33 years and Boardwalk was proud to be recognized
five of the seven Board members are independent. In addition to
by The Journal of the Institute of Corporate Directors for
assuming responsibility for the stewardship of the Trust, the
effective communication regarding its transition to International
Board of Trustees is specifically charged with:
Financial Reporting Standards (“IFRS”), and the winner of the
Chartered Professional Accountants of Canada Award of
Excellence in Corporate Reporting in each of 2015 and 2016
for the Real Estate sector.
The Trust strives to provide information to stakeholders in a
timely manner, following which, open dialogue with
stakeholders is encouraged to ensure transparency. The Board
of Trustees follows a mandate, as described in their Statement
of Corporate Governance Practices, which explicitly defines the
expectations and limits of both the Board and of Management.
This comprehensive statement of governance principles gives
§ Reviewing, discussing and approving the Trust’s Strategic
Plan which addresses, among other things, opportunities and
risks of the business;
§ Identifying principal risks (including those risks concerning
credit, market, liquidity and operations), in addition to
reviewing risk management policies and processes of the
Trust’s business and ensuring implementation of appropriate
systems to manage those risks;
§ Reviewing the performance of the CEO and other senior
executives of the Trust;
both authority and autonomy to the Board through the
§ Creating and maintaining the communication policy of the
articulation of key issues, including: specific functions of the
Trust, including approving the contents of major disclosure
Board; Board integrity and independence; Trustee selection;
documents of the Trust;
and composition of the Board of Trustees and committees.
§ Reviewing policies and programs related to the image of the
As a publicly traded Trust listed on the Toronto Stock Exchange
Trust and ensuring appropriate processes are in place for
(“TSX”), Boardwalk either meets or exceeds the guidelines set
communicating with all stakeholders;
§ Reviewing how the Trust communicates and interacts with
analysts and the public to avoid selective disclosure; and
§ Managing the integrity of internal controls and management
information systems;
out by the TSX and Canadian Securities Administrators regarding
effective corporate governance. Governance of the Trust is based
on the mandate of its Board of Trustees, its Code of Business
Conduct and its guiding Mission, Vision and Values, which all
Associates, Management and Trustees are expected to uphold.
Under the Trust’s mandate, a Trustee majority must be
independent of Management and free from any business or
other relationship which could, or could reasonably be perceived
to, materially interfere with a Trustee’s ability to act with a view
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BOARDWALK REAL ESTATE INVESTMENT TRUST Renovated One-Bedroom Suite
The Board of Trustees is also responsible for three
integrity of Boardwalk’s financial statements, performance of
committees, each of which is composed solely of outside,
the external auditors, adequacy and effectiveness of internal
independent Trustees:
controls, and compliance with legal and regulatory matters.
§ the Compensation, Governance and Nominations Committee
In 2017, Boardwalk REIT was recognized by the Globe and
(the “CG&NC”), which is responsible for identifying and
Mail’s annual ‘Board Games’ as one of Canada’s corporate
evaluating candidates to fill Board vacancies and assessing
boards who provide governance well beyond the minimum
Board/Committee effectiveness. The CG&NC assists
mandatory requirements imposed by regulators, and ranked the
management in devising its strategic goals and priorities;
Trust in the Top 20 in Canada.
§ the Corporate Development Committee (the “CDC”) assists
Financial sustainability is attained through the guidance of
the Board in assessing and evaluating the implementation of
Boardwalk’s Board of Trustees, Management team and
the Trust’s strategic plan, investigating and considering the
stakeholders. Through valued input and guidance from its
nature and quality of the assets owned by the Trust and
Trustees and conservative fiscal management, Boardwalk
ensuring the Board is aware of any matters of concern that
continues to maintain a strong balance sheet and provide: value
may affect the business and strategic position of the Trust; and
to Unitholders; opportunities enhance its net asset value, and
§ the Audit and Risk Management Committee (the “ARM
Committee”), which assists the Board in overseeing
continue the Trust’s mandate of “building better communities”
which provides happy, safe, and sustainable communities for
Boardwalk’s Resident Members and Associates to live and work.
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BOARDWALK REAL ESTATE INVESTMENT TRUST 2 6
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Lobby at Chateau
BOARDWALK REAL ESTATE INVESTMENT TRUST SUSTAINABILITY
Boardwalk prides itself in its commitment to being sustainable, recognizing
sustainability means much more than solely being environmentally conscious.
Boardwalk believes that to excel in its stewardship it
variable frequency drives across the portfolio, allows for better
must provide sustainable places for Associates to work
monitoring and regulation of energy consumption and reduced
and Resident Members to live.
Aside from environmental sustainability, Boardwalk strives to
be both socially and financially sustainable. Boardwalk works
towards social sustainability through its various involvements in
community initiatives and projects across its portfolio. This is
operating costs and emissions. Use of water and gas meters
on both high and standard-efficiency systems demonstrates
provable effectiveness of these measures, noting that, across
Boardwalk’s portfolio, carbon emissions have been reduced by
one-third of what was previously being produced.
accomplished through partnerships with community
Providing communication, information and updates for
organizations, financial sponsorships and encouraging
Associates and Resident Members electronically resulted in
volunteerism amongst Associates and Resident Members.
decreased paper use, while encouraging Associates to turn off
Boardwalk also aims to bring awareness of, and find solutions
lights and computers in all offices when not in use and offering
to, social issues, with a particular focus on homelessness. As a
recycling programs for cardboard, paper, plastic, scrap metal,
result, Boardwalk partners with various organizations across
computer/printer parts ensures every effort is being made to
Canada to provide affordable housing to those in need, making
foster accountability and sustainability.
long strides to be both socially sustainable and a positive
influence in local and global communities. Boardwalk is
encouraged by its team of Associates, who drive community
involvement, and continues to empower its Associates and
Resident Members to make a difference.
Financial sustainability and governance is driven through the
guidance of Boardwalk’s Board of Trustees, Management team
and stakeholders. Through the valued input and guidance from
each of these groups, Boardwalk continues to maintain a
strong balance sheet and conservative fiscal management.
Environmental impact has been reduced by installing low flow
Continued financial sustainability provides value to Boardwalk’s
showerheads, toilets, timers and photocells for outdoor
Unitholders, opportunities to grow and build better local and
lighting; purchasing ENERGY STAR appliances; utilizing energy
global communities and to provide Resident Members and
efficient fixtures, LED lighting, using low VOC paint; replacing
Associates with happy, safe, resilient communities in which
and/or upgrading attic insulation, ventilation, roofing, building
to live and work.
envelopes, siding and windows. Each of these measures has
lowered the amount of energy Boardwalk buildings consume.
Installation of high-efficiency domestic hot water systems and
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BOARDWALK REAL ESTATE INVESTMENT TRUST EXPERIENCED & EVOLVING
Boardwalk is built upon its Golden Foundation
G O L D E N V I S I O N
Love community
L
A
O
G
N
E
D
L
O
G
d
o
o
g
e
B
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a
v
e
f
u
n
G
O
L
D
E
N
M
I
S
S
I
O
N
G O L D E N R U L E
Treat others as you want to be treated
With the guiding mission, “To serve and provide our Resident Members with quality rental communities”, Boardwalk persists
in exploring excellence and diversity in community, focusing on the benefits it creates for its Associates, Resident Members,
Communities and Unitholders. Regardless of economic conditions, Boardwalk is committed to abiding by its Golden Foundation
and our friendly, community-living, member experience-driven approach reflects that Boardwalk remains focused on maximizing
value for all its stakeholders.
TABLE OF QUALITATIVE AND QUANTITATIVE GOALS AND TARGETS
Each year, Boardwalk sets goals and targets that allow measurement of its strategies and constantly strives to exceed these goals
and targets. Boardwalk also acknowledges that it operates in an industry where market conditions are often beyond its control and
accepts that exceeding targets is not always possible as it continues to strive to overcome and mitigate obstacles to ensure
excellence, wherever and whenever possible.
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BOARDWALK REAL ESTATE INVESTMENT TRUST
Though individual interests place varying levels of importance on such objectives, Boardwalk recognizes each is intertwined and vital
to its business and believes in transparency and accountability to its goals and targets, desiring that its continued performance
encourages discussion between stakeholders. Boardwalk believes its communities are the foundation that continues to drive
performance, providing exceptional benefits and opportunities for all its stakeholders.
A C H I E V E D A N D A I M T O F U RT H E R I M P R O V E
A C H I E V E D
I N P R O G R E S S
PA RT I A L LY A C H I E V E D
D I D N O T A C H I E V E
IMPROVING FOR RESIDENT MEMBERS: WORKING PROACTIVELY TO ENSURE BOARDWALK REMAINS CANADA’S MULTI-FAMILY,
RESIDENTIAL LANDLORD OF CHOICE.
2017 Targets
2017 Results
Continually improve
Customer Service.
Boardwalk’s competitive advantage is due, in large part, to providing excellent service to
Resident Members through:
§ Boardwalk has implemented the Net Promoter Score as a metric to measure Boardwalk’s
success in providing the best quality service to our Resident Members;
2018 Targets
Continually improve
the level of Customer
Service provided.
§ 24-hour, on-call maintenance;
§ 72-hour maintenance guarantee;
§ 24/7/365 Call Centre access (161,486 calls; 104,536 emails; and 17,818 live chats received);
§ Secure, user-friendly Resident Member website (8,747 registered members, up 28.6%
from 2016, 40,331 visitors and 666,803 page views); and
§ Positive survey responses: new move-ins 59%; maintenance work 58%; and move-outs
36% (most common reason being “personal”).
Develop innovative
ways to further
improve long-term
relationships with
Resident Members.
§ Internal Subsidy Program provides aid to Resident Members in financial hardship.
§ Continued internal rent control mandate.
§ Community partnerships supporting 100 plus charity and community events across Canada.
§ Distributed resident member magazine.
§ New, dedicated community lifestyle team hosted site-specific “pop up” events for
Continue to
develop innovative
ways to further
improve long-term
relationships with
Resident Members.
Respond to the
changing priorities
of Resident Members.
Improve and diversify
brand offerings,
responding changing
priorities of Resident
Members and the
market place.
Resident Members.
§ Dedicated Seniors living communities
§ Built and fostered lasting relationships with Resident Members by giving back to their
communities and meeting our objective of “building better communities”.
Regular evaluation of Resident Member survey results, making immediate positive changes,
more efficiently meeting the evolving needs and priorities of Resident Member.
Creation of new Suite Repositioning Program:
§ Created “Living”, “Community” and “Lifestyle” brands, diversifying brand offerings; and
§ High-graded suites and buildings with desirable locations, across the portfolio:
° Large-scale renovations initially took a longer-than-expected turnaround time
(up to 180 days in some cases);
° Delays due to procurement/supply chain issues and contract complications; and
° Higher-than-predicted occupancy.
The program has been well received, with all repositioned suites being leased.
The learning curve was tempered through ongoing evaluation, resulting in immediate
changes being made to the program including:
§ Streamlining procurement;
§ Limiting the annual number of renovations under each brand; and
§ Changing the scope and specification of renovations.
All resulted in reduced costs, higher efficiencies, shortened turnaround times and lowered vacancy.
Continue to respond to
the changing priorities
of Resident Members.
Continue to
improve and diversify
brand offerings,
responding changing
priorities of Resident
Members and the
market place.
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BOARDWALK REAL ESTATE INVESTMENT TRUST CARING FOR COMMUNITY: POSITIVELY IMPACTING COMMUNITIES IN WHICH WE OPERATE, AND THE LARGER GLOBAL COMMUNITY.
2017 Targets
2017 Results
Expand and continue
to focus on Community
Development to further
foster collaboration
with Government and
Social Services.
Encouraging corporate
and individual
contribution to,
and involvement
in Boardwalk
communities to give
where we live!
Expand personal and
corporate boundaries
by taking an active
role in the global
community.
Partnerships with 94 organizations across Canada to provide affordable housing to individuals
in need.
§ Approximately 1,000 units subsidized in 2017 through such partnerships.
§ Annual December “Week of Caring” (collectively, 544 volunteer hours donated to charities).
§ Sponsorship of more than 50 charity and community events across the portfolio.
§ Payroll Charitable Deduction Program continued.
§ Continued “Angels” Program (150 communities recognized in 2017 – up from 100 in 2016).
§ Continued partnership with Youth with a Mission and Homes of Hope to build homes for
families in need in Tijuana, Mexico.
° Three trips and six homes built for families in need in 2017; and
° 94 Associates/family members participated.
§ Continued support of Samaritan’s Purse & Operation Christmas Child programs:
° 2,033 boxes filled by Associates and Resident Members; and
° Additional volunteer hours dedicated at the charity warehouse preparing shoeboxes for
travel to the global community.
§ Continued sponsorship of WE Day, promoting youth empowerment worldwide.
2018 Targets
Expand and continue
to focus on Community
Development, further
fostering collaboration
with Government and
Social Services.
Continue encouraging
corporate and
individual contribution
to, and involvement
in Boardwalk
communities to give
where we live!
To expand personal
and corporate
boundaries by taking
an active role in the
global community.
OPPORTUNITIES FOR ASSOCIATES: INVESTING IN ASSOCIATE EDUCATION, MENTORSHIP AND FOSTERING SUPPORTIVE, ENGAGING,
LONG-TERM EMPLOYMENT.
2018 Targets
Continue to facilitate
a corporate culture of
on-going, open, two-
way dialogue between
all levels of Associates.
Continue to enhance
strategic internal
communications plan.
Encourage a positive
workplace, effectively
engaging Associates
and encouraging
work-life balance.
2017 Targets
2017 Results
§ Maintain Associate website, providing Associates easy access to current and relevant:
° Health and Safety documents;
° Associate Handbook;
° Human Resources policies; and
° Upcoming community events.
§ Regular internal focus groups held to identify potential areas of improvement in operations.
§ Distribute Associate magazine.
§ Hosting of annual TEAM luncheons across Canada.
Routine market research conducted into industry compensation and benefits, including
Profit Share, RRSP match, and Charitable Contribution match programs.
Maintain a corporate
culture of on-going,
open, two-way
dialogue amongst all
levels of Associates.
Enhance
strategic internal
communications plan.
Encourage a positive
workplace, effectively
engaging Associates
and encouraging
work-life balance.
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2 0 1 7 A N N U A L R E P O R T
BOARDWALK REAL ESTATE INVESTMENT TRUST OPPORTUNITIES FOR ASSOCIATES (CONTINUED): INVESTING IN ASSOCIATE EDUCATION, MENTORSHIP AND FOSTERING SUPPORTIVE,
ENGAGING, LONG-TERM EMPLOYMENT.
2017 Targets
2017 Results
Constantly adjust
internal policy,
focusing on changing
priorities of Associates
while maintaining
a balance between
Associates, Resident
Members, Unitholders
and Communities.
Foster safe, respectful
work practices and
environments.
Further develop
Associate training
and support.
Create a safe work
environment by
educating Associates
and enforcing Health
and Safety Procedures.
Strive to constantly
enhance ability to
attract, support,
encourage and
recognize high-
performing, innovative
team members.
Ongoing support of long-standing internal ROH committee/charity in each region.
Boardwalk matches 100% of fundraising efforts (dollar for dollar) for each Committee.
§ Acclimatize new Associates through orientation sessions, with a focus on Boardwalk’s
history/culture/internal practices, Health and Safety standards and legislations.
§ Mentorship program continued.
§ $148,000 invested in Associate training and development, books, tuition and member fees.
§ Zero Injury Campaign continued:
° 171 sites remained injury free for 2017.
§ Health and Safety objective remains a mandatory component of performance reviews.
§ Internal Health and Safety Audit conducted (97% score).
§ Ongoing monitoring of Health & Safety program, ensuring compliance with all legislations.
§ 12 Associates awarded with Foundation of Excellence Awards.
§ 29 post-secondary scholarships awarded over $235,000 through the Chairman’s
Scholarship Program.
§ 774 Bravos awarded to Associates.
§ Six Associates with tenure of 20+ years recognized and rewarded.
§ Associate Referral Bonus continued.
§ $2.1 million contributed to comprehensive benefits package.
§ $2.8 million dedicated to the RRSP Match and comprehensive group benefits.
§ Over $25,000 contributed to Charitable Match.
Retain long term
Associates, and further
develop succession
planning policy and
procedures.
§ Mentorship Program ensures Associates are supported and receive additional training.
§ CSR Best Practices Program continued.
§ Succession Planning Program provides opportunities to develop and excel.
§ Associate turnover was 30%:
° 25% have tenure of five to 10 years; and
° 23% have tenure of more than 10 years.
STEWARDSHIP OF THE ENVIRONMENT: POSITIVELY IMPACTING THE ENVIRONMENT THROUGH SUSTAINABLE PRACTICES.
2017 Targets
2017 Results
Increase corporate
sustainability by
creating opportunities
for positive
environmental change.
§ Installation of high-efficiency, hi-consumption and domestic hot water systems and variable
frequency drives as well as continued use of energy star appliances, low-flow showerheads,
toilets, low VOC paint, LED lighting, timers and photocells across the portfolio lead to reduced
consumption, operating costs and carbon emissions (by two-thirds).
§ Reduced paper use/waste:
° Online availability of investor materials at www.bwalk.com/investors; and
° Distribution of information to Resident Members and Associates via intranet or secure website.
2018 Targets
Continue adjusting
internal policy,
focusing on changing
priorities of Associates,
while maintaining
a balance between
Associates, Resident
Members, Unitholders
and Communities.
Foster safe, respectful
work practices and
environments.
Further develop
Associate training
and support.
Continue to create a
safe work environment
by educating
Associates and
enforcing Health and
Safety Procedures.
Strive to constantly
enhance ability to
attract, support,
encourage and
recognize high-
performing, innovative
team members.
Support continued
through mentor
program, including
regular and additional
training.
Retain long-term
Associates by further
developing succession
plan policy and
procedures.
Continue and expand
Best Practices Program.
2018 Targets
Increase corporate
sustainability by
creating opportunities
for positive
environmental change.
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BOARDWALK REAL ESTATE INVESTMENT TRUST EXCELLENCE IN CORPORATE GOVERNANCE: PROVIDING FULLY TRANSPARENT, CURRENT CORPORATE INFORMATION TO ALL STAKEHOLDERS
AND MEETING OR EXCEEDING EFFECTIVE CORPORATE GOVERNANCE GUIDELINES SET OUT BY THE TSX.
2017 Targets
2017 Results
Independence of the
Board of Trustees.
Further improve
transparency and
promote open,
honest dialogue with
Unitholders.
Further enhance
procedures and
systems for the
consistent, timely
dissemination of
corporate and
industry information.
Currently there are seven (7) Trustees, five (5) of whom are independent.
§ Corporate documents/webcasts are available online at: www.bwalk.com/investors with
links to current and historical materials.
§ Telephone access available to quarterly conference calls (audio recordings accessible
following each teleconference).
§ Senior Management and Investor Relations teams are jointly committed to being available
to answer and address specific Unitholder questions.
§ Continued demonstration of success and improvement with quarterly reporting format.
§ Utilizing feedback from all Stakeholders, Boardwalk strives to provide transparent and
useful financial documents.
§ Boardwalk ranked inside of the top 20 in Canada amongst Canadian boards in the 2017
Globe and Mail Board Games, highlighting our commitment to corporate governance.
2018 Targets
Maintain Board
independence.
Continue to improve
transparency and
promote open,
honest dialogue with
Unitholders.
Further enhance
procedures and
systems for the
consistent, timely
dissemination of
corporate and
industry information.
VALUE FOR UNITHOLDERS: PROVIDING A CONSISTENT, SUSTAINABLE AND ATTRACTIVE INVESTMENT OPTION FOCUSED ON MAINTAINING A
STABLE MONTHLY CASH FLOW AND INCREASING OVERALL RETURNS FOR UNITHOLDERS.
2017 Targets
2017 Results
Realize FFO target
of $2.70 to $2.90
per Trust Unit.
Stabilized buildings
NOI performance of
-8% to -3%.
Realize a total return
on the REIT units that
outperforms the S&P/
TSX Composite and
the S&P/TSX Capped
REIT Indices.
Complete performance
enhancing transactions
to maximize
Unitholder value.
Transparency and
financial disclosure.
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2 0 1 7 A N N U A L R E P O R T
§ FFO performance in 2017 of $2.11 was below original target.
§ Financial guidance updated each quarter.
§ Revised financial guidance of $2.10 to $2.20 was met in 2017.
§ 2018 financial guidance provided.
§ Stabilized buildings NOI performance of -15.8%.
§ NOI target revised each quarter.
§ Stabilized NOI performance was slightly above revised guidance of -19% to -17%.
§ Total return of -7.4% on REIT units, compared to the posted return of 9.9% for the
S&P/TSX Capped REIT index.
§ Boardwalk believes that the near-term recapture of incentives and vacancy loss will
enhance shareholder return in the short-term.
§ The advancement of the Trust’s long-term strategic plan will enhance and provide long-term
shareholder value.
§ Joint venture with RioCan REIT to develop a mixed-use tower in Calgary, AB progressing.
§ Continued development of Pines Edge Community on excess land the Trust owns.
§ Invested over $100 million in 2017 on suite and common area renovations which have
provided significant returns, while also positioning Boardwalk to be able to recapture
vacancy loss and incentives going forward.
§ Accretive CMHC mortgage renewals, combined with low-cost CMHC financing in 2017.
§ Introduction of new distribution policy to allow for maximum re-investment of cashflow to
grow the Trust.
Through the continued guidance and leadership of the Trust’s experienced management,
Boardwalk continues to be an industry leader in transparency and financial disclosure.
Boardwalk’s quarterly financial reports are an excellent source of information for stakeholders
and can be found on our investor website: www.BoardwalkREIT.com. As highlighted in its
reports, Boardwalk continues to provide stakeholders with financial guidance on a quarterly
basis. Boardwalk finds this full transparency provides opportunities for prospective and current
Unitholders to adequately evaluate the Trust’s long-term value propositions.
2018 Targets
Realize FFO target of
$2.15 to $2.35.
Stabilized buildings
growth of 2% to 7%.
Realize a total return
on the REIT units that
outperforms the S&P/
TSX Composite and
the S&P/TSX Capped
REIT Indices.
Complete performance
enhancing transactions
to maximize
Unitholder value.
Transparency and
financial disclosure.
BOARDWALK REAL ESTATE INVESTMENT TRUST FINANCIAL REVIEW CONTENTS
MANAGEMENT’S DISCUSSION AND ANALYSIS
FINANCIAL STATEMENTS
Forward-Looking Statements .............................................. 34
Management’s Report ........................................................... 95
Executive Summary .............................................................. 35
Independent Auditors’ Report ............................................. 96
Business Overview .............................................................. 35
Financial Statements ............................................................ 97
MD&A Overview .................................................................. 35
Notes to Financial Statements ........................................... 101
SUPPLEMENTAL INFORMATION
Five Year Summary .............................................................. 148
Quarterly Summary ............................................................. 150
Market and Unitholder Information ................................... 152
Corporate Information ......................................................... IBC
Outlook ................................................................................ 35
Declaration of Trust............................................................... 38
Values, Vision and Objectives............................................... 39
Non-GAAP Financial Measures ............................................ 41
Investment Philosophy ......................................................... 41
Performance Review of 2017 ............................................... 42
Consolidated Operations and Earnings Review ................. 47
Overall Review ..................................................................... 47
Segmented Operational Review .......................................... 48
Operational Sensitivities ..................................................... 50
Stabilized Property Results .................................................. 53
Financing Costs ................................................................... 55
Administration ...................................................................... 57
Depreciation ......................................................................... 57
Other Income and Expenses ............................................... 57
Financial Condition ................................................................ 58
Review of Consolidated Statements of Cash Flows ........... 58
Capital Structure and Liquidity ............................................ 67
Risks and Risk Management ................................................ 70
General Risks ....................................................................... 70
Specific Risks ....................................................................... 72
Certain Tax Risks ................................................................. 76
Risks Associated with Disclosure Controls and Procedures
& Internal Control over Financial Reporting ...................... 78
Accounting and Control Matters .......................................... 78
Critical Accounting Policies .................................................. 78
Application of New and Revised IFRSs and Future
Accounting Policies .......................................................... 89
Annual Improvements to IFRSs 2014-2016 Cycle ................ 92
International Financial Reporting Standards ......................... 92
Disclosure Controls and Procedures & Internal Control
over Financial Reporting ...................................................... .92
2018 Financial Outlook and Market Guidance .................... 93
Selected Consolidated Financial Information ...................... 93
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BOARDWALK REAL ESTATE INVESTMENT TRUST
MANAGEMENT’S DISCUSSION AND ANALYSIS
For the Years Ended, December 31, 2017 and 2016
FORWARD-LOOKING STATEMENTS
Caution Regarding Forward-looking Statements:
The terms “Boardwalk”, “Boardwalk REIT”, the “Trust”, “we”, “us” and “our” in the following Management’s Discussion and Analysis (“MD&A”)
refer to Boardwalk Real Estate Investment Trust, its consolidated financial position, and results of operations for the twelve months ended
December 31, 2017 and 2016. Financial data provided has been prepared in accordance with International Financial Reporting Standards (“IFRS”),
as issued by the International Accounting Standards Board (“IASB”). This MD&A is current as of February 26, 2018 unless otherwise stated, and
should be read in conjunction with Boardwalk’s audited annual consolidated financial statements for the years ended December 31, 2017 and 2016,
which have been prepared in accordance with IFRS, together with the MD&A related thereto, copies of which have been filed electronically with
securities regulators in Canada through the System for Electronic Document Analysis and Retrieval (“SEDAR”) and may be accessed through the
SEDAR web site at www.sedar.com. Historical results and percentage relationships contained in the annual consolidated financial statements and
MD&A related thereto, including trends, which might appear, should not be taken as indicative of future operations.
Unless otherwise indicated, all amounts are expressed in Canadian dollars.
Forward-looking Statement Advisory:
Certain information included in this MD&A contains forward-looking statements within the meaning of applicable securities laws. These
statements include, but are not limited to, statements made concerning Boardwalk’s objectives, its strategies to achieve those objectives, as well
as statements with respect to management’s beliefs, plans, estimates, intentions, and similar statements concerning anticipated future events,
results, circumstances, performance, or expectations that are not historical facts. Forward-looking statements generally can be identified by the
use of forward-looking terminology such as “outlook”, “objective”, “may”, “will”, “would”, “expect”, “intend”, “estimate”, “anticipate”, “believe”, “should”,
“plan”, “continue”, or similar expressions suggesting future outcomes or events. Such forward-looking statements reflect management’s current
beliefs and are based on information currently available to management. All forward-looking statements in this MD&A are qualified by these
cautionary statements.
These forward-looking statements are not guarantees of future events or performance and, by their nature, are based on Boardwalk’s current
estimates and assumptions, which are subject to risks and uncertainties, including those described in Boardwalk REIT’s 2017 Annual Information
Form (“AIF”) dated February 23, 2018 under the heading “Challenges and Risks”, which could cause actual events or results to differ materially from
the forward-looking statements contained in this MD&A. Those risks and uncertainties include, but are not limited to, those related to liquidity in
the global marketplace associated with current economic conditions, tenant rental rate concessions, occupancy levels, access to debt and equity
capital, changes to Canada Mortgage and Housing Corporation rules regarding mortgage insurance, interest rates, joint ventures/partnerships, the
relative illiquidity of real property, unexpected costs or liabilities related to acquisitions, construction, environmental matters, uninsured perils, legal
matters, reliance on key personnel, Unitholder liability, income taxes, and changes to income tax rules that impair the ability of Boardwalk to qualify
for the REIT Exemption (as defined below). Material factors or assumptions that were applied in drawing a conclusion or making an estimate set
out in the forward-looking information may include, but are not limited to, the rental environment compared to several years ago, relatively stable
interest costs, access to equity and debt capital markets to fund (at acceptable costs), the future growth program to enable the Trust to refinance
debts as they mature, the availability of purchase opportunities for growth in Canada, and the impact of accounting principles under IFRS adopted
by the Trust effective January 1, 2011. Although the forward-looking information contained in this MD&A is based upon what management believes
are reasonable assumptions, there can be no assurance actual results will be consistent with these forward-looking statements. Certain
statements included in this MD&A may be considered “financial outlook” for purposes of applicable securities laws, and such financial outlook may
not be appropriate for purposes other than this MD&A.
The Income Tax Act (Canada) (the “Tax Act”) contains legislation affecting the tax treatment of publicly traded trusts (the “SIFT Legislation”).
The SIFT Legislation generally will not impose tax on a trust which qualifies under such legislation as a real estate investment trust (the “REIT
Exemption”) provided all of the Trust’s taxable income each year is paid, or made payable to, its Unitholders. Boardwalk qualified for the REIT
Exemption and will continue to qualify for the REIT Exemption provided all of its taxable income continues to be distributed to its Unitholders.
Further discussion of this is contained in this MD&A.
Except as required by applicable law, Boardwalk undertakes no obligation to publicly update or revise any forward-looking statement, whether as a
result of new information, future events, or otherwise.
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2 0 1 7 A N N U A L R E P O R T
BOARDWALK REAL ESTATE INVESTMENT TRUST EXECUTIVE SUMMARY
BUSINESS OVERVIEW
Boardwalk Real Estate Investment Trust (“Boardwalk REIT”, “Boardwalk” or the “Trust”) is an unincorporated, open-ended real
estate investment trust created pursuant to a Declaration of Trust, dated January 9, 2004, and as amended and restated on various
dates between May 3, 2004 and May 11, 2017 (the “Declaration of Trust” or “DOT”), under the laws of the Province of Alberta.
Boardwalk REIT was created to invest in revenue producing multi-family residential properties, or interests, initially through the
acquisition of assets and operations of Boardwalk Equities Inc. (the “Corporation”).
Boardwalk REIT Units trade on the Toronto Stock Exchange (“TSX”) under the trading symbol ‘BEI.UN’. Boardwalk REIT’s
principal objectives are to provide its Unitholders (“Unitholders”) with stable and growing monthly cash distributions, partially on
a Canadian income tax-deferred basis, and to increase the value of its units through the effective management of its residential
multi-family investment properties and the acquisition and development of additional, accretive properties. As at December 31, 2017,
Boardwalk REIT owned and operated in excess of 200 properties, comprised of over 33,000 residential units and totaling over
28 million net rentable square feet. At the end of 2017, Boardwalk REIT’s property portfolio was concentrated in the provinces of
Alberta, Saskatchewan, Ontario and Quebec.
At December 31, 2017 and 2016, the fair value of Boardwalk’s Investment Property assets was approximately $5.7 billion and
$5.6 billion, respectively, which generated a profit of $91.3 million and $129.3 million for the years ended December 31, 2017 and
2016 (before insurance settlement proceeds, loss on sale of assets, fair value losses and income taxes). During the years ended
December 31, 2017 and 2016, the Trust earned $107.0 million and $144.5 million, respectively, of Funds From Operations (“FFO”),
or $2.11 and $2.84 per Unit on a diluted basis. Adjusted Funds From Operations (“AFFO”) for the years ended December 31, 2017
and 2016 were $85.3 million and $126.9, respectively, or $1.68 and $2.50 per Unit on a diluted basis.
MD&A OVERVIEW
This MD&A focuses on key areas from the consolidated financial statements and pertains to major known risks and
uncertainties relating to the real estate industry, in general, and the Trust’s business, in particular. This discussion should
not be considered all-inclusive as it excludes changes that may occur in general economic, political, and environmental
conditions. Additionally, other elements may or may not occur, which could affect the organization in the future. To ensure
that the reader is obtaining the best overall perspective, this discussion should be read in conjunction with material contained
in other parts of Boardwalk REIT’s 2017 Annual Report, the audited consolidated financial statements for the years ended
December 31, 2017 and 2016, and the Annual Information Form (“AIF”) dated February 23, 2018, along with all other publicly
posted information on the Corporation and Boardwalk REIT. It is not our intent to reproduce information that is located in
these other reported documents, but rather to highlight some of the key points and refer you to these documents for more
detailed information.
OUTLOOK
The Bank of Canada, in its January 2018 Monetary Policy Report, revised Canada’s real Gross Domestic Product (“GDP”) growth
to 3.0% for 2017 and 2.2% from 2.1% for 2018, a positive expectation compared to the 1.4% economic performance for 2016.
Analysts are also predicting Alberta will emerge from one of the worst recessions in recent history, with oil prices beginning to
show signs of stabilization, and supported by recent approvals of oil pipeline expansions by the federal government and the
Keystone XL pipeline project by the U.S. President, notwithstanding the rising U.S. shale oil production and technological
improvements and efficiencies to oil extraction partly offsetting OPEC’s rebalancing efforts. Royal Bank of Canada, in its latest
provincial outlook report, projected Alberta’s GDP growth for 2017 to 4.1% from 2.9% in June 2017, but revised 2018 to 2.3% due
to a projected slower, but more sustainable, recovery in global oil prices. The province is seeing positive population growth from
2 0 1 7 A N N U A L R E P O R T
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BOARDWALK REAL ESTATE INVESTMENT TRUST in-migration, primarily from international immigration. GDP growth for the province of Saskatchewan was revised upward to
2.1% for 2017 from 1.4%, but downward to 2.7% from 2.9% for 2018.
In October 2017, new rules on mortgage lending were introduced which took effect at the beginning of 2018. A new minimum
stress test has been introduced for uninsured mortgages (where consumers have a down payment of 20% or greater on their
house prices). The minimum qualifying rate will be the greater of the 5-year mortgage rate published by the Bank of Canada or
200 basis points above the mortgage holder’s contractual mortgage rate. First-time buyers will be most affected by the new rules
as the affordability of home ownership has declined.
In 2017, Boardwalk continued to offer short-term incentives to its new and existing Resident Members in an attempt to increase
overall occupancy. Maintaining higher occupancy levels by offering incentives and focusing on excellence in customer service was
Boardwalk’s key performance strategy for 2017. Canada Mortgage and Housing Corporation (“CMHC”) projected vacancy levels for
Calgary to be 6.3% for 2017, down from 7.0% for 2016 and Edmonton to be 7.0% for 2017 from 7.1% for the prior year. While the
projected vacancy level for Alberta has come down slightly, new rental supply continues to put upward pressure on vacancy levels
and downward pressure on rental rates.
During 2016, Boardwalk capitalized on certain strategic initiatives to position itself for a recovery in Western Canada’s rental
market. Using its strong and healthy balance sheet, Boardwalk acquired four newly built multi-family properties. A total of
747 apartment units were acquired in Calgary and Edmonton, Alberta, at a total cost of $144.4 million. Boardwalk also moved
forward with its development pipeline. Lease up of Pines Edge 1 in Regina, Saskatchewan, launched in February of 2016 and
consisting of 79 units, exceeded expectations with full occupancy after four months. Phase 2, consisting of 79 units, started
construction in May 2016 and, on June 28, 2017, the Trust received a temporary occupancy permit, allowing it to commence leasing
the suites. The Trust has commenced construction of Phase 3, consisting of 71 units, and estimates the building to be completed
mid-2018. Boardwalk’s development pipeline includes additional projects built on the Trust’s excess land density. These
developments are in various stages of planning and approval, and will further add newly-constructed assets to the Trust’s portfolio.
In November of 2016, Boardwalk announced the formation of a joint venture with RioCan REIT (“RioCan”) to build a mixed use
retail and residential tower at RioCan’s Brentwood Village Shopping Centre. The project will include a twelve-storey tower with
approximately 120,000 square feet of residential and 10,000 square feet of retail space that will provide premium rental housing at
a desirable location that is along the Calgary Light Rail Transit Line, and in close proximity to the University of Calgary, Foothills
Hospital, and McMahon Stadium. The Trust closed on the 50% land purchase from RioCan in November of 2017. Boardwalk looks
forward to forming more strategic partnerships as a means of realizing its long-term vision of building better communities.
During 2017, the Trust was able to renew or forward-lock approximately $289.0 million, or 100%, of 2017 mortgage maturities, with
an average term of five years at a weighted average interest rate of 2.20%, a decrease from the average maturing rate on these
mortgages, and a further decrease in the Trust’s interest expense. In addition, the Trust obtained $256.9 million of additional
mortgage funds. As of February 2018, CMHC-insured five and ten-year mortgage rates were estimated to be 2.90% and 3.20%,
respectively. The Trust does, however, take a balanced approach with its mortgage program with a priority to, first, stagger its
maturities to limit future interest rate risk, second, capitalize on the current low rate environment by renewing maturities at
accretive interest rates, and, third, ensure sufficient liquidity for the Trust’s strategic initiatives.
Boardwalk’s Long-term Strategic Plan
Boardwalk’s long-term strategic plan focuses on continuing to create value for all its stakeholders. In addition to continued investment in
its core markets by acquiring newly-built rental product, developing new rental units and reinvesting back into the Trust’s existing
portfolio, Boardwalk will also be strategically diversifying geographically into new high-growth, but economically stable, rental markets.
Alberta and Saskatchewan, Boardwalk’s core markets, have historically outperformed the broader rental market and, despite the cyclical
decline experienced over the past two years, will continue to provide the Trust with a solid base to grow its property portfolio.
Boardwalk will continue to undertake a counter-cyclical approach to its portfolio by utilizing the recent cyclical downturn to
high-grade its portfolio through repositioning efforts as well as from new development on lands the Trust intends to acquire
individually, through strategic partnerships or on its own portfolio of excess land.
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2 0 1 7 A N N U A L R E P O R T
BOARDWALK REAL ESTATE INVESTMENT TRUST For the most part, the Trust will be focusing its expansion investment outside Alberta and Saskatchewan, through the acquisition
and development of assets in high-growth markets, to allow the Trust to provide its brand of housing into new markets, which will
result in Net Operating Income (“NOI”) growth and capital appreciation for its stakeholders.
Boardwalk’s strategic goal is to have a portfolio that is approximately 50% in the high growth markets of Alberta and Saskatchewan
(“ABSK”) and 50% in other secularly high growth and undersupplied markets including, but not limited to, the Greater Toronto Area
and Vancouver. To accomplish this, the Trust intends to strategically partner, acquire and/or develop, 10,000 to 15,000 apartment
units in these secularly high growth, undersupplied markets, while also divesting a small portion of its non-core assets in ABSK.
The Trust’s portfolio growth will primarily focus on value creation in major Canadian markets.
The funding for this Strategic Plan will be consistent with its balanced approach of using debt and equity. As will be discussed later
in this document, Boardwalk has an adequate level of liquidity to commence the funding of this strategy. In order to balance this
approach, its Board of Trustees has agreed to reduce the Trust’s current distribution to Unitholders from its current annual rate of
$2.25 to $1.00 per Trust unit, commencing with the January 31, 2018 Record Date. This reallocation will increase Boardwalk’s free
cash flow allocation towards this strategic strategy by approximately $63.5 million annually. Built into this strategic plan is
Boardwalk’s brand diversification initiative.
Brand Diversification
It is the goal of the Trust to not only diversify geographically, but also to diversify through its brand.
The spectrum of rental housing in Canada has expanded over the last few years, with rental demand seen across the price
spectrum from affordability to high-end luxury. As a result, the ability to offer a more diverse product offering will allow Boardwalk
to attract a larger demographic to the Boardwalk brand.
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.
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 Living – Affordable Value
Boardwalk Living features classic suites for our Resident’s who appreciate flexibility, reliability, and value that comes with a
quality home.
Boardwalk brand diversification, once fully completed, will have about 5% Lifestyle, 43% Communities and 52% Living suites.
Boardwalk’s Branding Initiative
Boardwalk increased its capital allocation to its current building repositioning and rebranding program, creating long-term value
while continuing to offer many upgraded affordable communities. Each of the three brands being created will receive a different
level of renovations depending on need and anticipated returns. Reported market rents are adjusted upward based on the cost of
a suite renovation specification. In some instances, Boardwalk was unable to adjust market rents to achieve its targeted return,
particularly for suites in its Boardwalk Living brand, due to current economic conditions. However, Boardwalk was able to achieve
its targeted rate of return on an overall basis. Boardwalk believes these renovations will achieve future upward excess market rent
adjustments once the economy starts to recover.
‘Boardwalk Lifestyle’, which will exemplify upgraded, luxury suites, will receive the highest level of overall renovations, including
significant upgrades to suites and common areas. Additional amenities such as upgraded fitness facilities, wi-fi bars and added
2 0 1 7 A N N U A L R E P O R T
3 7
BOARDWALK REAL ESTATE INVESTMENT TRUST concierge services may be added when appropriate. ‘Boardwalk Communities’, the Trust’s core brand, which will convey enhanced
value and will receive major suite upgrades based on need as well as upgrades to existing common areas. Boardwalk’s most
affordable brand, ‘Boardwalk Living’, will receive suite enhancements on an as-needed basis, with the focus being on providing
affordable units to this demographic segment. In determining a brand that a particular rental community will represent, the Trust looks
at a number of criteria, including the building’s location, proximity to existing amenities, suite size and suite layout. Once renovations
are complete, Boardwalk adjusts the rents on these individual suites with the goal of achieving an 8% return on investment.
The Trust believes these investments will enhance long-term value, however, recognizes the short-term effects of this program,
with higher vacancies and incentives. Rebranding and repositioning communities will take time and, as such, construction causes
disruption to existing Resident Members and, depending on the level of investment, may result in higher turnover. Towards the end
of the year, Boardwalk managed to reduce the vacancy loss associated with suites being renovated, by reducing the time to
completion while still lowering the cost of the renovations.
DECLARATION OF TRUST
The investment guidelines and operating policies of the Trust are outlined in the Trust’s DOT, a copy of which is available on request
to all Unitholders. Further information of the DOT can also be located in the AIF. Some of the main financial guidelines and
operating policies set out in the DOT are as follows:
Investment Guidelines
1. Acquire, develop, and operate multi-family residential property in Canada; and,
2. No investment will be made that would disqualify Boardwalk REIT as a “mutual fund trust” or a “registered investment” as
defined in the Income Tax Act (Canada).
Operating Policies
1. Interest Coverage Ratio of at least 1.5 to 1;
2. No guaranteeing of third-party debt unless related to direct or indirect ownership or acquisition of real property, including
potential joint venture partner structures;
3. Third-party surveys of structural and environmental conditions are required prior to the acquisition of a multi-family asset; and,
4. Commitment to expending at least 8.5% of its gross consolidated annual rental revenues generated from properties that have
been insured by CMHC on on-site maintenance compensation to Associates, repairs and maintenance, as well as capital upgrades.
Distribution Policy
Boardwalk REIT may distribute to holders of REIT Units on or about each Distribution Date, respectively, such percentage of
Funds From Operations for the calendar month then ended as the Trustees determine in their discretion. Distributions will not be
less than Boardwalk REIT’s taxable income, unless the Trustees, in their absolute discretion, determine another amount. The Board
of Trustees reviews the distributions on a quarterly basis, and takes into consideration distribution sustainability and whether there
are more attractive alternatives to the Trust’s current capital allocation strategy, such as its value-added renovation program, brand
diversification initiative, and new construction of multi-family communities in supply-constrained markets.
Compliance with DOT
At December 31, 2017, the Trust was in material compliance with all investment guidelines and operating policies as stipulated in
the DOT, as amended. More details will be provided later in this document with respect to certain detailed calculations.
For the year ended December 31, 2017, Boardwalk REIT’s overall interest coverage ratio of adjusted EBITDA (i.e. Earnings Before
Interest, Taxes, Depreciation and Amortization) to interest expense, excluding distributions on LP B Units and fair value
adjustments, was 2.60 (December 31, 2016 – 3.14).
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2 0 1 7 A N N U A L R E P O R T
BOARDWALK REAL ESTATE INVESTMENT TRUST VALUES, VISION AND OBJECTIVES
Boardwalk REIT is a fully-integrated, customer-oriented, multi-family residential real estate owner and property management
organization. The Trust was built by focusing on its Values, Vision and Golden Foundation.
A Commitment to Value
Boardwalk REIT’s Vision and business strategy are targeted on effectively meeting the needs of our customers, or Resident
Members. It is our belief that this focus will result in long-term value creation for all our stakeholders. Our key stakeholders include
our Associates, major financial and mortgage partners, including CMHC, strategic operational partners and Unitholders.
Our Vision
Boardwalk REIT’s Vision is to continue to be Canada’s leading provider of multi-family residential housing. Boardwalk will
accomplish this through the continued careful cultivation of internal growth, selective development on excess land density it owns,
and a targeted and disciplined acquisition and disposition program.
Golden Foundation
Boardwalk REIT and its Associates operate under a Golden Foundation, which is built on the following objectives:
The Golden Rule: “Treat others as you would like to be treated”
The Golden Goal: “Be Good”
The Golden Vision: “Love Community”
The Golden Mission: “Have Fun”
Our Associates are expected to adhere to the following guiding principles:
We Will:
§ Work together in a team environment of mutual respect, trust, and honesty between all Associates and Resident Members;
§ Serve our Resident Members’ need for an affordable, quality, well-kept home;
§ Maintain building exteriors and landscaping, thereby increasing “curb appeal”, have well-kept common areas, and ensure our
homes are clean and well maintained;
§ Maintain a balance between the needs of our Resident Members, Associates, Unitholders, communities and families;
§ Nurture and promote a learning environment where our Associates’ skills and capabilities grow with the needs of both the Trust
and our Resident Members, and accept that these needs will be consistently evolving and improving the definition of “Rental
Communities”; and
§ Provide access to and utilize the latest tools and technology to increase the operating efficiency of the Trust as a whole.
We Value:
§ Integrity
We will be honest, accountable, transparent, respectful, and trusting in our dealings with others, appreciating their views
and differences.
2 0 1 7 A N N U A L R E P O R T
3 9
BOARDWALK REAL ESTATE INVESTMENT TRUST § Teamwork
We will effectively work as a team, appreciating and benefiting from each other’s unique talents and skills in an open
environment while recognizing that the team’s successes are our successes.
§ Resident Member Service
We will promptly respond to Resident Member concerns and needs with thoughtfulness, compassion and innovation. We will
strive to develop proactive solutions through a support network and a positive service attitude.
§ Social Responsibility
We will contribute to our communities and encourage our Associates to contribute in ways that reflect our Golden Foundation.
We will all practice the Golden Rule of ‘treating others in a way we would wish to be treated’, and balance our needs with those
of others; we will all also model our Golden Goal which is to ‘be good’, our Golden Mission which shows us how to ‘have fun’,
and our Golden Vision which asks each of us to ‘love community’.
§ Our Associates
We will provide a safe and respectful work environment that attracts, supports, develops, and recognizes high-performing and
innovative team members.
Boardwalk believes that by adhering to the above Vision and Values, and implementing strategies consistent with these principles,
Boardwalk REIT will produce higher sustainable operating cash flows and a continued appreciation of its property values. The result
will be enhanced value for all our stakeholders.
Achieving this goal requires the full integration of our core strategies of focused investing, superior property management, and the
implementation and effective use of new technologies. Boardwalk REIT can best achieve this goal by strategically:
§ Maximizing Resident Member satisfaction by providing above-average service and accommodation;
§ Acquiring select multi-family residential properties;
§ Selling properties (“Non-Core”) with lower future growth prospects or, on a limited basis and the reinvesting of these funds back
into other accretive opportunities;
§ Purchasing Trust Units on the open market;
§ Enhancing property values, operating returns and cash flows through pro-active management, property stabilization, and
capital improvements;
§ Reviewing and considering the development of new selective multi-family projects, if the economics support such projects;
§ Managing capital prudently while maintaining a conservative financial structure;
§ Pursuing opportunities to form selective partnerships, joint ventures, or an exchange of assets; and
§ Reinvesting the released equity from asset sales back into the Trust’s portfolio to create additional value-added opportunities.
To support our overall operating strategy, it is necessary to:
§ Ensure ample capital is available at all times for acquisitions and value-added enhancements;
§ Appropriately allocate available capital to existing project enhancement and on-going new acquisitions;
§ Utilize appropriate levels of debt leverage;
§ Determine and utilize sources with the lowest cost of capital;
§ Actively manage our exposure to interest rate and debt renewal risks; and
§ Optimize the use of NHA insurance, which is administered by CMHC, to access more cost-effective debt capital.
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2 0 1 7 A N N U A L R E P O R T
BOARDWALK REAL ESTATE INVESTMENT TRUST NON-GAAP FINANCIAL MEASURES
Boardwalk REIT assesses and measures operating results based on performance measures referred to as Funds From Operations
(“FFO”), and Adjusted Funds From Operations (“AFFO”). FFO and AFFO are widely accepted supplemental measures of the
performance of a Canadian real estate entity; however, are not measures defined by IFRS. In February 2017, REALpac, Canada’s
senior national industry association for owners and managers of investment real estate, issued its newest financial best practices
White Paper of FFO and AFFO, as well as a White Paper on the new cash flow metric, “Adjusted Cash Flow From Operations”
(“ACFO”). FFO, AFFO, and ACFO do not have standardized meanings prescribed by IFRS and, therefore, may not be comparable
to similar measures presented by other entities. The IFRS measurement most comparable to FFO and AFFO is Profit and the
IFRS measurement most comparable to ACFO is Cash Flow From Operating Activities. We define FFO, after the adoption of IFRS,
as income before fair value adjustments, distributions on the LP B Units, gains or losses on the sale of Investment Properties,
non-recurring insurance settlements, depreciation, deferred income tax, and certain other non-cash adjustments, if any.
The reconciliation from Profit under IFRS to FFO can be found below, under the section titled “Performance Measures”. AFFO is
determined by taking the amounts reported as FFO and deducting what is commonly referred to as “Maintenance Capital
Expenditures”. Maintenance Capital Expenditures are referred to as expenditures that, by standard accounting definition, are
account for as capital in that the expenditure itself has a useful life in excess of the current financial year and also adds or
maintains the value of the related assets. A more detailed discussion of this topic will be provided in the “Maintenance of
Productive Capacity” section later in this document.
FFO and AFFO, however, should not be construed as an alternative to profit determined in accordance with IFRS as indicators of
Boardwalk REIT’s performance. In addition, Boardwalk REIT’s calculation methodology for FFO and AFFO may differ from that of
other real estate companies and trusts.
A reconciliation of ACFO to cash flow from operating activities as shown in the Trust’s Consolidated Statements of Cash Flows is
also provided below in the section titled, “Review of Consolidated Statement of Cash Flows”, along with added commentary on
the sustainability of Boardwalk REIT’s Trust Unit distributions.
INVESTMENT PHILOSOPHY
Throughout Boardwalk REIT’s history, the Trust continuously looked for opportunities to create value for its Unitholders. This is
achieved by investing managerial resources and capital in activities that increase FFO per unit, AFFO per unit and ACFO per unit on
a sustaining basis and Net Asset Value (“NAV”) per unit. Prior to 2008, the Trust focused on capital improvements of our existing
portfolio and through acquisition of additional properties. In 2012, Boardwalk also expanded thorough the development of new
apartments on existing land as well as investigated the acquisition of new land for future development projects. In 2017, the Trust
adopted a long-term strategic plan, which includes expanding its investments outside of Alberta and Saskatchewan and into
high-growth markets, including, but not limited to, the Greater Toronto Area and Vancouver, to allow the Trust to geographically
diversify its brand of housing into new, undersupplied markets. Built into this strategic plan is Boardwalk’s brand diversification
initiative, which includes suite renovations and upgrading, to create the best long-term value for the Trust’s Unitholders.
Cost of Capital
The Trust’s cost of capital is generally defined as its weighted average cost of raising incremental capital. Investment opportunities
are evaluated by comparing their internal rate of return against the Trust’s cost of capital among other metrics. As with most real
estate entities, the cost of capital is the combination of the leverage target, the marginal cost of debt, and the marginal cost of
equity. As will be discussed in a later section, the Trust currently has access to a lower cost of debt through its access to the NHA
insured market. However, even this market has different levels of risk that are mainly priced through the term selected on the
related mortgage. That is, the longer the mortgage finance term, the longer the borrower is removing the interest rate risk from
the investment. As of February 2018, estimated CMHC-insured five and ten-year mortgage rates were estimated to be 2.90% and
3.20% respectively. The other major component in the cost of capital relates to the marginal cost of equity required for the
investment. The determination of this cost has a number of different models and definitions. However, for simplicity purposes,
2 0 1 7 A N N U A L R E P O R T
4 1
BOARDWALK REAL ESTATE INVESTMENT TRUST Boardwalk determines its current cost of equity as the amount of AFFO reported compared to its current market capitalization.
For 2017, the Trust reported AFFO per Unit of $1.68 on a fully diluted basis. When compared to the Trust Unit’s market price of
$43.09 as at December 31, 2017, this equates to approximately 3.90% as its cost of equity. Further details of the Trust’s cost of
capital can be found in Note 28 to the consolidated financial statements for the year ended December 31, 2017.
PERFORMANCE REVIEW OF 2017
Boardwalk REIT generates revenues, cash flows, and earnings from two separate sources: rental operations and the sale of
“Non-Core” real estate properties.
Boardwalk REIT’s most consistent and largest source of income comes from its rental operations. Income from this source is
derived from leasing individual apartment units to Customers (referred to as “Resident Members”) who have varying lease terms
ranging from month-to-month to twelve-month leases.
In the past, Boardwalk REIT has generated additional income from the sale of selective Non-Core real estate properties. The sale
of these properties is part of Boardwalk REIT’s overall operating strategy whereby the equity generated through the sale is then
utilized by Boardwalk REIT for the acquisition and/or development of new rental properties, to assist in its property value
enhancement program, or for the acquisition of Boardwalk REIT’s Trust Units in the public market. The Trust, however, will only
proceed with the sale of Non-Core real estate properties if market conditions justify the dispositions and Boardwalk has an
alternative use for the net proceeds generated. During the fourth quarter of 2017, the Trust sold 641 units in Regina, Saskatchewan,
resulting in a total loss on asset sales of $1.7 million for the year. As Investment Properties are carried at fair value, a loss on sale
arises primarily from the transaction costs related to the sale.
Unlike many REITs and real estate companies, Boardwalk REIT does not include any gains reported on the sale of its properties in
its calculation of FFO. The Trust feels that such income is volatile and unpredictable, and would significantly dilute the relevance of
FFO as a measure of performance.
Performance Measures
It continues to be the intention of the Trust to pay out, at a minimum, all taxable income to Unitholders in the form of monthly
distributions, unless the Board of Trustees, in its absolute discretion, determines a different amount. For 2017, the Trust distributed
$0.1875 per Trust Unit on a monthly basis (or $2.25 on an annualized basis). For 2018, the Board has decided to distribute
$0.0834 per Trust Unit on a monthly basis (or $1.00 on an annualized basis) and redeploy its capital towards long-term value
creation, including its suite renovation program, brand diversification initiative, and development of new multi-family units in
supply-constrained markets.
For the year ended December 31, 2017, the Trust declared regular distributions of $114.2 million (inclusive of distributions paid to
the LP Class B Unitholders), representing approximately 106.8% of FFO. On a quarterly basis, the Trust’s Board of Trustees reviews
the current level of distributions and determines if any adjustments to the distributed amount is warranted. On an overall basis, the
Trust aims to maintain a consistent and sustainable payout ratio while optimizing its capital allocation strategy, and reviews this
with its Board of Trustees.
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2 0 1 7 A N N U A L R E P O R T
BOARDWALK REAL ESTATE INVESTMENT TRUST How Did We Do?
At the beginning of the 2017 fiscal year, certain selective performance targets were set out for fiscal 2017. The assumptions used in
these performance targets were reviewed on a quarterly basis and the full-year guidance was adjusted if such assumptions
changed. The following table compares our forecasted performance to our actual results in fiscal 2017:
Description
2017 Actual
2017 Revised Objectives
(released Q2 2017)
2017 Revised Objectives
(released Q4 2016)
2017 Original Objectives
(released Q3 2016)
Acquisition of
Investment Properties
No new apartment
acquisitions
No new apartment
acquisitions
No new apartment
acquisitions
No new apartment
acquisitions
Dispositions of
Investment Properties
Sold 641-unit Boardwalk
Estates, Regina, Saskatchewan
No dispositions
No dispositions
No dispositions
Development
Phase 2 of Pines Edge,
Regina, Saskatchewan –
79 Units
Phase 2 of Pines Edge,
Regina, Saskatchewan –
79 Units
Phase 2 of Pines Edge,
Regina, Saskatchewan –
79 Units
Phase 2 of Pines Edge,
Regina, Saskatchewan –
79 Units
Continue with Phase 3
of Pines Edge – Regina,
Saskatchewan – 71 Units
Continue with Phase 3
of Pines Edge – Regina,
Saskatchewan – 71 Units
Continue with Phase 3
of Pines Edge – Regina,
Saskatchewan – 71 Units
Continue with Phase 3
of Pines Edge – Regina,
Saskatchewan – 71 Units
Commencement of Brentwood
Village joint venture with
RioCan, Calgary, Alberta –
162 Units
Commencement of
Brentwood Village joint
venture with RioCan,
Calgary, Alberta – 162 Units
Commencement of
Brentwood Village joint
venture with RioCan,
Calgary, Alberta – 162 Units
Commencement of
Brentwood Village joint
venture with RioCan,
Calgary, Alberta – 162 Units
Stabilized Building
NOI Growth
FFO Per Unit
AFFO Per Unit
-15.8%
$2.11
$1.68
-19% to -17%
-15% to -9%
-8% to -3%
$2.10 to $2.20
$2.30 to $2.65
$2.70 to $2.90
$1.68 to $1.78
$1.96 to $2.31
$2.36 to $2.56
Both actual FFO and AFFO for fiscal 2017 were within the revised guidance reported as part of the Trust’s disclosure for the second
quarter of 2017. Lower rental revenue due to lower occupancy, suites not available for rent while undergoing renovation, higher
incentives in Western Canada, coupled with increased operating expenses, were the primary drivers of current quarter’s financial
results being lower than the Trust’s 2017 financial guidance.
FFO Reconciliation from 2016 to 2017
The following table shows a reconciliation of changes in FFO from December 31, 2016 to December 31, 2017. It should be noted
that FFO, as disclosed in the table below, reflects FFO derived from the Trust’s consolidated financial statements prepared in
accordance with IFRS. As previously noted, we define the calculation of FFO as net income before fair value adjustments,
distributions on the LP Class B Units, gains (losses) on the sale of Investment Properties, depreciation, deferred income taxes,
and certain other non-cash items. A more detailed disclosure of the calculation of FFO will be provided later in this report.
FFO Reconciliation
FFO Opening – Dec. 31, 2016
Net Operating Income (“NOI”) from Stabilized Properties
NOI from Unstabilized Properties
Administration and other
FFO Closing – Dec. 31, 2017
12 Months
$
2.84
(0.79)
0.09
(0.03)
(0.73)
2.11
$
$
2 0 1 7 A N N U A L R E P O R T
4 3
BOARDWALK REAL ESTATE INVESTMENT TRUST
FFO and AFFO Reconciliations
In the following table, Boardwalk REIT provides a reconciliation of FFO (a non-IFRS measure) to profit for the period, its closely
related financial statement measurement for the years ended December 31, 2017 and 2016. Adjustments are explained in the
notes below, as appropriate:
FFO Reconciliation (In $000’s, except per Unit amounts)
Profit (loss) for the year
Adjustments
Proceeds on insurance settlement
Loss on sale of assets
Fair value losses (1)
Add back distributions to LP Class B Units recorded
as financing charges (2)
Deferred income tax expense
Depreciation expense on property plant & equipment
Funds from operations
Funds from operations – per Unit
12 Months
Dec. 31, 2017
12 Months
Dec. 31, 2016
$
57,258
$
(57,440)
% Change
(3,162)
1,678
35,418
10,069
140
5,586
-
-
186,681
9,990
15
5,219
$
$
106,987
2.11
$
$
144,465
2.84
(25.9)%
(25.7)%
(1) Under IFRS, the Trust has a number of Statement of Financial Position items, which are measured using a fair value model with fluctuations related to these fair
value amounts from period to period flowing through the Statement of Comprehensive (Loss) Income. These fair value adjustments are considered “non-cash
items” and are added back in the calculation of FFO.
(2) Under IFRS, the LP Class B Units are considered financial instruments in accordance with IAS 32 – Financial Instruments: Presentation (“IAS 32”). As a result of
this classification, their corresponding distribution amounts are considered “financing charges” under IFRS. The Trust believes these distribution payments do not
truly represent “financing charges”, as these amounts are only payable if the Trust declares distributions, and only for the amount of any distributions declared, both
of which are at the discretion of the Board of Trustees as outlined in the DOT. Therefore, these distributions are excluded from the calculation of FFO, consistent
with the treatment of distributions paid to all other Unitholders.
Overall, Boardwalk REIT earned FFO of $107.0 million for fiscal 2017 compared to $144.5 million for the same period in 2016.
FFO, on a per Unit fully-diluted basis, for the year ended December 31, 2017, decreased approximately 25.7% compared to the
prior year from $2.84 to $2.11. The decrease was primarily driven by lower rental revenue due to higher incentives and lower
occupancy levels in Alberta and Saskatchewan, coupled with higher rental operating expenses and utility costs.
The following table provides a reconciliation of FFO to AFFO:
($000’s)
Funds From Operations (FFO)
Maintenance Capital Expenditures (1)
Adjusted Funds From Operations (AFFO)
FFO per Unit (Trust and LP B Units)
AFFO per Unit (Trust and LP B Units)
Unitholder Distributions-Regular (Trust Units and LP B Units)
Distribution as a % of FFO
Distribution as a % of AFFO
12 Months
Dec. 31, 2017
12 Months
Dec. 31, 2016
$
$
$
$
$
106,987
$
144,465
21,737
85,250
2.11
1.68
114,238
106.8%
134.0%
$
$
$
$
17,534
126,931
2.84
2.50
113,390
78.5%
89.3%
(1) Details of the calculation of Maintenance Capital Expenditures can be found in the section titled “Maintenance of Productive Capacity”.
Liquidity
The access to liquidity is an important element of the Trust as it allows the Trust to implement its overall strategy. The continued
current low interest rate environment has allowed Boardwalk to renew its existing maturing mortgages at more favourable interest
rates than the maturing interest rates. In addition, Boardwalk has been able to access additional capital from its properties through
the continued use of the current NHA insurance program, which is being offered at attractive rates. Further interest savings,
however, will become more limited as interest rates have started to reverse their declining trends seen over the past several years.
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2 0 1 7 A N N U A L R E P O R T
BOARDWALK REAL ESTATE INVESTMENT TRUST
Boardwalk defines liquidity to include cash and cash equivalents on hand and any unused committed revolving credit facility,
plus any committed secured upfinancings. The Trust’s cash position was $70.8 million at December 31, 2017, compared to
$99.1 million reported on December 31, 2016. As at December 31, 2017, the Trust also had $199.7 million of unused credit
facility (December 31, 2016 – $194.0 million) and committed secured upfinancing of $54.3 million, bringing total liquidity to
$324.8 million (December 31, 2016 – $293.1 million).
New Property Acquisitions and Dispositions
For the year ended December 31, 2017, there were no new investment property acquisitions. On February 28, 2017, the Trust
acquired its London Warehouse (which it had previously leased) for a purchase price of $1.4 million.
In the fourth quarter of 2017, the Trust sold 641 units in Regina, Saskatchewan for $71.6 million before selling costs. The purchaser
assumed the existing first mortgage of $24.4 million at an interest rate of 2.19% while Boardwalk provided a Vendor-Take-Back
mortgage (“VTB”) in the amount of $38.8 million at an annual interest rate of 2.19%.
In 2016, the Trust closed on the purchase of four properties, three located in Edmonton, Alberta and one located in Calgary, Alberta.
The newly-built properties totaled 747 units and had a purchase price of $144.4 million (including transactions costs).
Development
At the end of January 2016, the Trust completed the first phase of construction for a 79-unit, wood frame building on excess land
on our property known as Pines of Normanview in Regina, Saskatchewan. The project, named Pines Edge 1, was completed with
a total cost of $13.4 million, below the original budget of $14.1 million. The four-story building consists of 13 one-bedroom and
66 two-bedroom units with a single level of underground parking. The stabilized un-levered return is estimated to range from
6.50% to 7.00% excluding land. Lease-up of the project began in February of 2016. As of the end of December 2017, the project
was over 87% leased.
In 2016, the Trust commenced construction on Phase 2 of the project consisting of 79 rental units. This phase was substantially
completed at the end of June 2017 and, once stabilized, is estimated to operate with a stabilized un-levered return range of
6.25% to 6.75%.
Phase 3 of Pines Edge is a similar project, consisting of 71 rental units. Construction has started on Phase 3 and is expected to be
completed by mid-2018.
The entire development consists of a total of five (5) phases and will add 364 apartment units to Boardwalk’s Regina,
Saskatchewan property portfolio when all phases have been completed.
We continue to explore other development opportunities in Regina, Calgary, and Edmonton. Each of these opportunities will be
evaluated separately to determine the viability of these projects.
Joint Venture Agreement
In the fourth quarter, Boardwalk and RioCan Real Estate Investment Trust (“RioCan”) entered into a joint venture agreement to
develop a mixed use tower consisting of an at-grade retail podium totaling approximately 10,000 square feet and a 12-storey
residential tower with approximately 130,000 square feet of residential space, totaling approximately 162 apartment units at
RioCan’s Brentwood Village Shopping Centre in Calgary, Alberta. The development will include two (2) levels of underground
parking and will provide premium rental housing minutes from downtown Calgary along the Northwest Light Rail Transit line,
while providing close proximity to the University of Calgary, McMahon Stadium and Foothills Hospital. Boardwalk views RioCan
as a like-minded partner who shares similar values and goals as its own, namely to maximize the potential of well-located,
transit-oriented mixed-use developments that can be constructed to create new communities that residents are proud to call
home. The joint venture involves an equal 50% interest in which both RioCan and Boardwalk will provide its best-in-class retail
and residential expertise, respectively, to co-develop the asset. To maximize the value of the development, RioCan will manage
the retail component and Boardwalk will manage the residential component, each on a cost basis.
2 0 1 7 A N N U A L R E P O R T
4 5
BOARDWALK REAL ESTATE INVESTMENT TRUST The land was 100% owned by RioCan. Pursuant to a purchase and sale agreement dated October 19, 2016 between Boardwalk
and RioCan, Boardwalk purchased a 50% interest in the parcel of land on November 23, 2017. The land value was based on the
total buildable area and, as such, Boardwalk paid $3.2 million for its 50% interest. Construction of the project began in Q4 of 2017
of which Boardwalk incurred $1.6 million in development costs for its 50% interest in fiscal 2017. Subject to the finalization of
building plans and specifications, it is estimated that the total construction for the project will be between $75 million to
$80 million ($37.5 million to $40 million per partner).
Financial Performance Summary
At a Glance (In $000’s, except per Unit amounts)
Total Assets
Total Rental Revenue
Profit (Loss)
Total Funds From Operations
Profit (Loss) Per Unit
Funds from Operations Per Unit
2017
5,865,075
422,926
57,258
106,987
1.24
2.11
$
$
$
$
$
$
2016
% Change
$
$
$
$
$
$
5,768,613
438,846
(57,440)
144,465
(1.24)
2.84
1.7%
(3.6)%
199.7%
(25.9)%
199.8%
(25.7)%
Total Assets increased from the amounts reported in the prior year, mainly due to an increase in asset value from the Trust’s
renovation program. Total Rental Revenue decreased by 3.6%, the result of higher incentives and lower occupancy in western
Canada. Profit (loss) increased by 199.7% compared to the prior year, due primarily to a significantly smaller fair value loss of
$35.8 million recognized on its investment properties and financial liabilities in 2017 compared to a $186.7 million loss in 2016.
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2 0 1 7 A N N U A L R E P O R T
BOARDWALK REAL ESTATE INVESTMENT TRUST
CONSOLIDATED OPERATIONS AND EARNINGS REVIEW
OVERALL REVIEW
Consolidated Statements of Comprehensive Income (Loss)
Rental Operations
Boardwalk REIT’s Net Operating Income Strategy includes a rental revenue strategy that focuses on enhancing overall rental
revenues through the balance between market rents, rental incentives, turnovers, and occupancy losses. The application of this
rental revenue strategy is ongoing, on a market-by-market analysis, again with the focus on obtaining the optimal balance of these
variables given existing market conditions.
(In $000’s, except number of suites)
Total rental revenue
Expenses
Operating expenses
Utilities
Property taxes
Net operating income
Operating margin
Number of suites at December 31
12 Months
Dec. 31, 2017
12 Months
Dec. 31, 2016
$
422,926
$
438,846
113,986
47,967
44,890
$
$
206,843
216,083
$
$
51.1%
33,187
97,620
44,711
43,416
185,747
253,099
57.7%
33,773
% Change
(3.6)%
16.8%
7.3%
3.4%
11.4%
(14.6)%
Overall, Boardwalk REIT’s rental operations for the year ended December 31, 2017, reported lower results compared to the same
period in the prior year, with total rental revenue decreasing 3.6%, driven by higher incentives and vacancy losses mainly in its
Western Canada portfolio. Total rental expenses increased 11.4% for the twelve months ended December 31, 2017, compared to
2016, due primarily to higher on-site wages and salaries, repairs and maintenance, advertising expenses, utilities and property taxes.
The Trust continues to track, in detail, the actual work performed by our on-site Associates to assist in the operating effectiveness
of its overall operations. This program results in overall lower costs while allowing the Trust greater control over the timing of its
capital improvement projects, compared to contracting these same projects out to third parties. As with other estimates used by
the Trust, key assumptions used in estimating the amount of salaries and wages to be capitalized are reviewed on a regular basis
and, based on this review, Management will adjust the amount allocated to more accurately reflect how many internal resources
were directed towards specific capital improvements.
Operating expenses increased by 16.8%, due to increased wages and salaries, building and suite maintenance costs and
advertising expenses. Wages and salaries were higher as the Trust invested in additional maintenance, landscaping, cleaning and
customer service personnel to enhance and elevate its excellence in customer service program. Repairs and maintenance was
higher primarily due to mechanical, electrical, plumbing and preventative maintenance. Higher advertising expenses are a reflection
of the softer rental market in Western Canada.
Utility costs increased by 7.3% for the year ended December 31, 2017. The increase is attributable to higher cable costs in
Saskatchewan as this province includes new bulk cable and internet services for Boardwalk’s Resident Members, coupled with the
introduction of a carbon tax levy in Alberta. Fixed price physical commodity contracts have also helped to partially or fully-hedge its
exposure to fluctuating natural gas prices. Further details regarding the hedges on natural gas, as well as electricity prices in
Alberta, can be found in NOTE 27 to the consolidated financial statements for the year ended December 31, 2017.
The reported increase in property taxes from the prior year period, is mainly attributed to higher overall property tax assessments.
The Trust is constantly reviewing property tax assessments and related charges and, where it feels appropriate, will appeal all,
2 0 1 7 A N N U A L R E P O R T
4 7
BOARDWALK REAL ESTATE INVESTMENT TRUST
or a portion, of the related assessment. It is not uncommon for the Trust to receive property tax refunds and adjustments;
however, due to the uncertainty of the amount and timing of the refunds and adjustments, these amounts are only reported when
they are received. Additionally, property taxes have increased due to the 2016 acquisitions.
Overall the operating margin decreased from 57.7% in fiscal 2016 to 51.1% for the twelve months ended December 31, 2017.
Boardwalk REIT closely monitors and individually manages the performance of each of its rental properties. For the reader’s
convenience, we have provided the following summary of our operations on a province-by-province basis.
SEGMENTED OPERATIONAL REVIEW
Alberta Rental Operations
(In $000’s, except number of suites)
Total rental revenue
Expenses
Operating expenses
Utilities
Property taxes
Net operating income
Operating margin
Number of suites at December 31
12 Months
Dec. 31, 2017
12 Months
Dec. 31, 2016
$
264,558
$
280,333
71,615
28,127
27,702
$
$
127,444
137,114
$
$
51.8%
20,499
57,915
25,577
27,690
111,182
169,151
60.3%
20,499
% Change
(5.6)%
23.7%
10.0%
0.0%
14.6%
(18.9)%
Alberta is Boardwalk’s largest operating segment, representing 63.5% of total reported net operating income for the year ended
December 31, 2017. In addition, Alberta represents 61.8% of total apartment units. Boardwalk REIT’s Alberta operations for the
year ended December 31, 2017, reported a 5.6% decrease in total rental revenue, when compared to the same period reported in
2016. The reported rental revenue change is the combined effect of higher incentives, lower in-place rents and lower occupancy
levels compared to the prior year. Total rental expenses have increased by 14.6% compared to the prior year due to increases in
operating expenses and utilities.
Operating expenses increased by 23.7% from the prior year due to increased on-site wages and salaries, building and suite
maintenance costs, and advertising.
Reported utilities for the year ended December 31, 2017 were up 10.0% compared to the prior year. The reported increase is
mainly the result of the carbon tax introduced by the Alberta Provincial Government in 2017, coupled with higher electricity costs
and higher natural gas consumption. Currently, the Trust has two outstanding electricity contracts, one for Southern Alberta and
one for Northern Alberta, with two utility companies to supply the Trust with its electrical power needs. The Trust also has four
outstanding natural gas contracts to hedge the price of its natural gas usage. More details can be found in NOTE 27 to the
consolidated financial statements.
Property taxes were flat compared to the prior year as a result of successful property tax appeals.
Net operating income for Alberta decreased $32.0 million, or 18.9% for the twelve months ended December 31, 2017. Alberta’s
operating margins for the year ended December 31, 2017 was 51.8% compared to 60.3% for the same period in 2016.
4 8
2 0 1 7 A N N U A L R E P O R T
BOARDWALK REAL ESTATE INVESTMENT TRUST
Saskatchewan Rental Operations
(In $000’s, except number of suites)
Total rental revenue
Expenses
Operating expenses
Utilities
Property taxes
Net operating income
Operating margin
Number of suites at December 31 (1)
12 Months
Dec. 31, 2017
12 Months
Dec. 31, 2016
$
56,378
$
58,996
12,088
9,002
5,632
$
$
26,722
29,656
$
$
52.6%
4,127
10,835
8,475
4,523
23,833
35,163
59.6%
4,689
% Change
(4.4)%
11.6%
6.2%
24.5%
12.1%
(15.7)%
(1) Includes 79 units from the Pines Edge 1 development project that was substantially completed in January 2016. Includes 79 units from the Pines Edge 2
development that was substantially completed in June 2017.
For the year ended December 31, 2017, Saskatchewan total rental revenue decreased by 4.4% compared to the prior year.
The revenue decrease is mainly due to higher incentives offered in both Regina and Saskatoon. Rental expenses increased by
12.1% for the year ended December 31, 2017, compared to the prior year, primarily due to higher operating expenses, utilities
and property taxes.
Operating expenses for the year ended December 31, 2017 increased due mainly to higher on-site wages and salaries and suite
maintenance costs.
Utility costs for the year increased from the previous year due primarily to higher cable and internet costs. The program provides
Resident Members a more cost-effective alternative to cable and internet service compared to subscribing individually with cable
service providers. Additionally, there was an increase in water and sewer costs compared with the prior year. The Trust also has
three outstanding contracts to hedge its natural gas price for its Saskatchewan natural gas usage. Details of the hedging contracts
can be found in NOTE 27 to the consolidated financial statements for the current period.
Property taxes increased by 24.5% for the year ended December 31, 2017 due to higher property tax assessments and an
increase in the reported mill rates.
Reported operating margins for the year ended December 31, 2017 decreased to 52.6% compared to 59.6% reported for the
prior year.
Ontario Rental Operations
(In $000’s, except number of suites)
Total rental revenue
Expenses
Operating expenses
Utilities
Property taxes
Net operating income
Operating margin
Number of suites at December 31
12 Months
Dec. 31, 2017
12 Months
Dec. 31, 2016
$
27,269
$
26,430
% Change
3.2%
4,665
3,921
3,299
$
$
11,885
15,384
$
$
56.4%
2,585
4,447
4,041
3,156
11,644
14,786
55.9%
2,585
4.9%
(3.0)%
4.5%
2.1%
4.0%
2 0 1 7 A N N U A L R E P O R T
4 9
BOARDWALK REAL ESTATE INVESTMENT TRUST
Boardwalk REIT’s Ontario operations reported an increase in total rental revenue of 3.2% for the year ended December 31, 2017,
compared to the prior year, due to higher occupied rents and occupancy levels. Total rental expenses increased by 2.1% for the twelve
months ended December 31, 2017 compared to the prior year, due primarily to increased operating expenses and property taxes.
Operating expenses increased for the year ended December 31, 2017 as compared to the prior year, due to increased on-site
wages and salaries.
Utility costs were lower for the twelve months due primarily to savings on electricity costs. The Trust has one outstanding fixed
price natural gas contract hedging 50% of its Ontario and Quebec natural gas usage. Details of the contract can be found in
NOTE 27 to the consolidated financial statements.
Property taxes were higher for the year ended December 31, 2017 as compared to the prior year, due to higher property
tax assessments.
Net operating income increased by 4.0% for the year ended December 31, 2017 , as compared to the prior year. Reported
operating margins for the year ended December 31, 2017 were 56.4% as compared to 55.9% for the prior year.
Quebec Rental Operations
(In $000’s, except number of suites)
Total rental revenue
Expenses
Operating expenses
Utilities
Property taxes
Net operating income
Operating margin
Number of suites at December 31
12 Months
Dec. 31, 2017
12 Months
Dec. 31, 2016
$
74,473
$
72,865
% Change
2.2%
18,827
6,693
8,060
$
$
33,580
40,893
$
$
54.9%
6,000
17,957
6,463
7,893
32,313
40,552
55.7%
6,000
4.8%
3.6%
2.1%
3.9%
0.8%
Boardwalk REIT’s Quebec operations reported a total rental revenue increase of 2.2% for the year ended December 31, 2017,
compared to the prior year.
Total rental expenses for the year increased by 3.9%, when compared to 2016, mainly due to higher operating expenses, utilities
and property taxes.
Operating expenses increased by 4.8%, when compared to 2016 due to increased building maintenance and landscaping costs.
The reported increase of 3.6% in utilities for the twelve months ended December 31, 2017, was due to higher natural gas and
electricity expenses. In addition, the Trust had one outstanding fixed price natural gas contract to hedge 50% of its Ontario and
Quebec natural gas usage. The details of the natural gas contracts are reported in NOTE 27 of the Trust’s consolidated financial
statements for the current period.
Property taxes increased 2.1% for the year ended December 31, 2017 , compared to the prior year due to higher property
tax assessments.
Reported operating margins for the twelve months ended December 31, 2017 decreased from 55.7% to 54.9%.
OPERATIONAL SENSITIVITIES
Net Operating Income Optimization
Boardwalk continues to focus on optimizing its Net Operating Income. This focus requires us to manage not only revenues but also
related operating costs, and take both into consideration when determining a service and pricing model. Lowering overall turnover
5 0
2 0 1 7 A N N U A L R E P O R T
BOARDWALK REAL ESTATE INVESTMENT TRUST
while maintaining reasonable lease rental rates and a focus on a high quality level of service continue to be the model that
has delivered the most stable and long-term income source to date. This strategy is region specific and these variables are in
constant flux.
In a more competitive market, the Trust takes a more preventive approach of increasing its offering of suite-specific rental
incentives as well as, where warranted, adjusting reported market rents. The higher frequency of these incentives, particularly in
Alberta and Saskatchewan, is an attempt by the Trust to keep occupancy levels higher than the overall market. When the market
returns to balance, the Trust will be well-positioned to unwind these incentives and increase market rents. It has been our
experience that this preemptive approach has resulted in optimizing net operating income.
In addition, in these competitive markets, the Trust approaches future upcoming maturing leases prior to lease maturity with the
intent of renewing their lease at this time rather than waiting for term maturity. In select markets, the Trust may also forward-lock
future rentals while not collecting revenues for certain months in the immediate future. This means the Trust may decide to rent a
suite in December with the Customer not moving in until the following year. Although the suite is rented, it will not generate
revenue until the Customer actually moves in, for example, in January, which corresponds to the next fiscal period. The
percentages reported as occupancy levels (see table below) represent those occupied units generating revenue for the period
noted. The Trust closely monitors ‘apartment availability’, which represents unoccupied units not generating revenue for the period,
after taking into account forward-committed leases. Although occupancy rates provide a good indication of current revenue,
apartment availability provides the reader a more relevant indication of future potential revenue. As a result of the acquisitions in
the year of newly built assets, portfolio occupancy is on a same store basis.
The Trust believes that when the Net Operating Income Optimization strategy is combined with our new strategic investment
program, the outcome will be a more diverse product offering for our Resident Members and greater overall value creation for the
Trust. The Trust also understands that the implementation and completion of these strategies will have some short-term
consequences, as the timing of these enhancements and extensive renovations are resulting in longer periods of time that suites
are not available to be rented, including short-term increases in vacancy losses. It is the Trust’s belief, however, that a focus on the
longer-term value creation is in the best interest of all stakeholders.
Boardwalk constantly reviews its existing programs, measuring them against resident demand, viability and expected return.
Where appropriate, the Trust will make any necessary changes and fine-tuning to them.
Boardwalk REIT’s Portfolio Occupancy (Same Store)
City
Calgary
Edmonton
Fort McMurray
Grande Prairie
Kitchener
London
Montreal
Quebec City
Red Deer
Regina
Saskatoon
Verdun
Total
2017
92.14%
93.62%
93.61%
89.97%
97.89%
97.72%
97.01%
96.23%
88.01%
93.17%
92.98%
99.05%
94.28%
2016
95.14%
95.31%
87.85%
90.09%
98.27%
98.05%
97.61%
95.46%
92.30%
96.45%
94.62%
98.35%
95.69%
Q4 2017
Q4 2016
91.12%
94.05%
92.35%
95.51%
97.87%
97.70%
96.80%
96.07%
86.08%
92.76%
95.66%
99.24%
94.37%
92.79%
93.42%
95.87%
83.77%
98.68%
98.15%
97.49%
95.60%
87.38%
96.11%
91.24%
98.69%
94.24%
2 0 1 7 A N N U A L R E P O R T
5 1
BOARDWALK REAL ESTATE INVESTMENT TRUST In fiscal 2017, the Trust reported a year-over-year decrease of 141 basis points in its overall same store occupancy rate, a
decline from 95.69% to 94.28%. A softening in the Western Canadian markets contributed to the overall occupancy rate
decrease. Boardwalk’s overall rental revenue strategy focuses on the Trust balancing the key inputs, including occupancy levels,
incentives and existing rental market rates. As a strategy, the Trust is constantly adjusting market rents and incentives based on
property-specific demand and supply. Year-over-year, Calgary and Edmonton saw occupancy levels decline by 300 and 169 basis
points, respectively, to 92.14% and 93.62%, respectively, as renovated suites took longer-than-anticipated to complete. Similarly,
Regina saw occupancy levels decrease to 93.17% in 2017 compared to 96.45% for 2016. Note that Regina does not include the
79-unit Phase 1 new development, which commenced lease-up in February of 2016, nor the 79-unit Phase 2 building substantially
completed at the end of June 2017. Including the new developments in the current quarter would result in an occupancy rate of
90.38% for Regina. Saskatoon saw occupancy levels decrease to 92.98% in 2017 compared to 94.62% in 2016.
Supply versus Demand & Impact on Reported Occupancy (Same Store)
OCCUPANCY
MOVE-OUTS
RENTALS
2,000
1,800
1,600
1,400
1,200
1,000
800
600
400
200
0
S
T
U
O
-
E
V
O
M
/
S
L
A
T
N
E
R
100%
99%
98%
97%
96%
95%
94%
93%
92%
91%
90%
89%
Y
C
N
A
P
U
C
C
O
N
A
J
B
E
F
R
A
M
R
P
A
Y
A
M
N
U
J
L
U
J
G
U
A
P
E
S
T
C
O
V
O
N
C
E
D
N
A
J
B
E
F
R
A
M
R
P
A
Y
A
M
N
U
J
L
U
J
G
U
A
P
E
S
T
C
O
V
O
N
C
E
D
N
A
J
B
E
F
R
A
M
R
P
A
Y
A
M
N
U
J
L
U
J
G
U
A
P
E
S
T
C
O
V
O
N
C
E
D
N
A
J
B
E
F
R
A
M
R
P
A
Y
A
M
N
U
J
L
U
J
G
U
A
P
E
S
T
C
O
V
O
N
C
E
D
N
A
J
2014
2015
2016
2017
The issue of demand and supply, as with any industry, is an important performance indicator for multi-family real estate. The above
chart attempts to show the total move-outs (supply) compared to total move-ins (demand) and the resulting impact on reported
occupancy relating to our portfolio. The cumulative impact of demand being greater than supply, or vice versa, is the primary driver
in the reported occupancy rate. In recent years, Boardwalk focused on maintaining high occupancy levels while optimizing turnover
costs. The reader is cautioned that adjusting market rental rates is an ongoing process for the Trust and is consistent with its
overall strategy of optimizing overall net operating income; consequently, it will adjust rents upward or downward when it is
deemed necessary.
Occupancy Sensitivity
As with all real estate rental operators, Boardwalk REIT’s financial performance is sensitive to occupancy rates. Based on the
current reported market rents, a 1% annualized change in reported occupancy is estimated to impact overall rental revenue by
approximately $4.2 million, or $0.08 per Trust Unit on a diluted basis.
5 2
2 0 1 7 A N N U A L R E P O R T
BOARDWALK REAL ESTATE INVESTMENT TRUST
STABILIZED PROPERTY RESULTS
Boardwalk defines stabilized property as one that has been owned by the Trust for a period of 24 months or more from the
reporting date. Boardwalk REIT’s overall percentage of stabilized properties was 97.3% of its total rental unit portfolio as at
December 31, 2017, or a total of 32,282 units. The tables below provide a regional breakdown on these properties for fiscal 2017,
as compared to fiscal 2016:
Dec. 31 2017 – 12 M
Edmonton
Calgary
Red Deer
Grande Prairie
Fort McMurray
Quebec
Saskatchewan
Ontario
# of Units
12,397
5,419
939
645
352
6,000
3,945
2,585
32,282
% Revenue
Growth
% Operating
Expense Growth
% Net Operating
Income Growth
% of NOI
(8.0)%
(8.7)%
(12.5)%
(9.2)%
2.4%
2.2%
(4.6)%
3.2%
(5.3)%
9.5%
18.4%
28.3%
5.4%
(1.2)%
3.9%
13.2%
2.1%
10.1%
(20.3)%
(22.9)%
(41.1)%
(24.3)%
5.3%
0.8%
(16.0)%
4.0%
38.1%
19.1%
1.7%
1.2%
1.4%
19.0%
12.3%
7.2%
(15.8)%
100.0%
Stabilized revenue decreased by 5.3% for the year ended December 31, 2017, compared to the prior year. Operating
expenses reported for the year increased by 10.1% from 2016, resulting in a NOI decrease of 15.8% compared to the prior year.
The decrease in reported stabilized revenue was driven by lower in-place occupied rents and higher incentives in Alberta and
Saskatchewan, which accounts for approximately 74% of the Trust’s reported stabilized Net Operating Income. Operating expenses
increased primarily as a result of higher on-site wages and salaries, repairs and maintenance expenses, advertising, utilities, and
property taxes.
Stabilized Revenue Growth
Edmonton
Calgary
Red Deer
Grande Prairie
Fort McMurray
Quebec
Saskatchewan
Ontario
# of Units
12,397
5,419
939
645
352
6,000
3,945
2,585
32,282
Q4 2017 vs
Q3 2017
Q4 2017 vs
Q2 2017
Q4 2017 vs
Q1 2017
Q4 2017
vs Q4 2016
0.5%
1.2%
4.0%
7.4%
-
1.3%
0.5%
0.4%
0.9%
(0.5)%
(0.2)%
1.2%
10.2%
2.2%
2.2%
(0.7)%
2.3%
0.5%
(1.6)%
(0.5)%
(0.2)%
13.4%
(2.3)%
2.7%
(1.2)%
2.1%
(0.1)%
(3.2)%
(2.1)%
(1.8)%
13.0%
(1.0)%
3.2%
(1.9)%
3.3%
(1.0)%
On a sequential basis, stabilized revenues reported in the fourth quarter of 2017 increased by 0.9% over Q3 2017, increased by
0.5% compared to Q2 2017, decreased by 0.1% compared to Q1 2017 and decreased 1.0% compared to Q4 2016. The increase in
the current quarter compared to the two previous quarters is a signal that the market is heading towards a more balanced market.
The Trust strives toward balancing the optimum level of market rents, rental incentives and occupancy rates in order to achieve its
net operating income optimization strategy.
2 0 1 7 A N N U A L R E P O R T
5 3
BOARDWALK REAL ESTATE INVESTMENT TRUST
Estimated Loss-to-lease Calculation
Boardwalk REIT’s estimated loss-to-lease, representing the difference between estimated market rents and actual occupied rents
in December 2017, and adjusted for current occupancy levels, totaled approximately $8.4 million on an annualized basis,
representing $0.17 per Unit (Trust & LP B Units). For the most part, Boardwalk REIT’s rental lease agreements last no longer
than twelve months. By managing market rents and providing suite-specific incentives to our Resident Members, the Trust and
all its stakeholders continue to benefit from lower turnover, reduced expenses, and high occupancy. The reader should note
estimated loss-to-lease, measured at a point in time, is a non-GAAP measure, and that reported market rents can be very
seasonal, and, as such, will vary from quarter to quarter. The significance of this change could materially affect Boardwalk REIT’s
“estimated loss-to-lease” amount. The importance of this estimate, however, is that it can be an indicator of future rental
performance, assuming continuing economic conditions and trends. The reader should also note that it would take significant time
for these market rents to be recognized by the Trust due to internal and external limitations on its ability to charge these new
market-based rents in the short term.
Dec. 2017
Occupied Rent (1)
Dec. 2017
Market Rent (1)
Mark to Market
Per Month
Annualized
Mark to
Market Adjusted
for Current
Occupancy levels
($000’s)
Weighted
Average
Apartment
Units % of Portfolio
$
1,112
$
1,119
$
7
$
1,229
962
857
1,301
1,279
986
863
1,307
50
24
6
6
1,004
3,051
257
46
26
12,397
5,419
939
645
352
1,132
$
1,151
$
19
$
4,383
19,752
1,055
$
1,038
$
(17)
$
(1,206)
1,087
912
1,092
1,077
5
165
$
1,095
$
1,117
$
22
$
222
5,028
8,427
6,000
3,945
2,585
32,282
$
$
38%
17%
3%
2%
1%
61%
19%
12%
8%
100%
Same Store
Edmonton
Calgary
Red Deer
Grande Prairie
Fort McMurray
Alberta Portfolio
Quebec
Saskatchewan (2)
Ontario
Total Portfolio
(1) Ancillary rental revenue is included in the calculation of market and occupied rent. Occupied rent and market rent are net of incentives.
(2) Saskatchewan market rent now includes an increase for cable and internet service.
The decrease in the loss-to-lease for our portfolio, from $12.3 million at September 2017 to $8.4 million at December 2017, was
due primarily to lower market rents in certain rental markets of Alberta and Saskatchewan and the sale of a 641-unit property
in Regina.
In fiscal 2017, as with prior periods, Boardwalk REIT continued to focus on the optimization of all rental revenue, with attention to
appropriate levels of market rents and certain occupancy level targets, as well as suite-selective incentives, when warranted.
5 4
2 0 1 7 A N N U A L R E P O R T
BOARDWALK REAL ESTATE INVESTMENT TRUST
Vacancy Loss and Incentives
Vacancy loss and rental incentives are strong indicators of current and future revenue performance. Depending on specific market
conditions, to best manage overall economic rental revenue, the correct balance between rental incentives and vacancy loss is
important. On a quarterly basis, the chart details rental incentives offered versus vacancy loss. Select incentives are continuing in
the Calgary, Edmonton, Regina and Saskatoon markets to maintain occupancy levels. Boardwalk REIT will continue to manage its
overall revenues through three key revenue variables, notably, market rents, occupancy levels, and suite-selective incentives.
The Trust continues to focus on maximizing overall revenues through the management of these key revenue variables.
NET RENTAL REVENUE
INCENTIVES
VACANCY LOSS
$120,000
$115,000
$110,000
$105,000
$100,000
$95,000
$90,000
$85,000
$80,000
$75,000
1
Q
2
Q
3
Q
4
Q
1
Q
2
Q
3
Q
4
Q
1
Q
2
Q
3
Q
4
Q
2015
2016
2017
As was previously mentioned, given a softening of the rental markets, particularly in Alberta and Saskatchewan, and the
uncertainty resulting from lower oil prices, Boardwalk’s continued focus is on maintaining and increasing, in certain regions,
occupancy in the short term by offering various suite-specific incentives in exchange for longer-term leases.
Investing in Our Properties
Boardwalk is continually re-investing in its properties. A detailed analysis of this investment can be found later in the MD&A under
the section titled, “Capital Improvements”. The purpose of the “Capital Improvements” section is to provide the reader with a
consolidated view of what the Trust spent on its real estate asset base.
FINANCING COSTS
Financing costs for the year ended December 31, 2017 increased from the same period in the prior year, from $84.6 million
to $85.8 million, primarily due to the Trust increasing its mortgage financing on renewal while being able to renew maturing
mortgages at interest rates below maturing rates. At December 31, 2017, the reported weighted average interest rate of
2.61% was down from the weighted average interest rate of 2.78% at December 31, 2016. Boardwalk REIT has continued to
take advantage of historically low interest rates to refinance and renew certain mortgages. The average term to maturity of the
Trust’s mortgage portfolio is approximately 4.2 years.
Boardwalk REIT concentrates on multi-family residential real estate. It is therefore eligible to obtain government-backed insurance
through the NHA program, administered by CMHC. The benefits of purchasing this insurance are two-fold.
The first benefit of using CMHC insurance is Boardwalk REIT can normally obtain lower interest rate spreads on its property
financing as compared to other financing alternatives in either the residential or any other real estate class, leading to lower overall
cost of debt, after including the cost of the NHA insurance.
2 0 1 7 A N N U A L R E P O R T
5 5
BOARDWALK REAL ESTATE INVESTMENT TRUST The second benefit of the CMHC insurance relates to lowering Boardwalk REIT’s overall renewal risk. Once insurance is obtained
on the related mortgage, the insurance is transferable and follows the mortgage for the complete amortization period, typically
between 25 and 40 years, depending on the type of asset being insured. With the insurance being transferable between approved
lenders, it lowers the overall risk of Boardwalk REIT not being able to refinance the asset on maturity.
Management cannot over-emphasize the importance of this Government-backed mortgage insurance program administered by
Canada Mortgage and Housing Corporation. Despite past volatility in the overall credit markets, the Trust has been able to find a
number of mortgage lenders willing to assume, or underwrite, additional mortgages under this program.
At December 31, 2017, over 99% of Boardwalk REIT’s mortgages were backed by this NHA insurance, with a weighted average
amortization period of approximately 31 years.
As was previously noted, the adoption of IFRS has also had an impact on the amount of financing costs reported on the Trust’s
Consolidated Statement of Comprehensive (Loss) Income. As a result of the Trust’s LP Class B Units being classified as financial
liabilities in accordance with IAS 32, the corresponding distributions paid to the Unitholders are classified as financing costs under
IFRS. The Trust believes these distribution payments do not truly represent “financing charges” as these amounts are only payable
if the Trust declares distributions, and only for the amount of any distributions declared, both of which are at the discretion of the
Board of Trustees as outlined in the DOT. The total amount of distributions paid to the LP Class B Unitholders for the year ended
December 31, 2017, which have been recorded as financing charges, was $10.1 million ($10.0 million for the year ended December 31,
2016). Based on this rationale, these amounts have been added back in the calculation of FFO.
The reader should also note that, under IFRS, financing charges are recorded net of interest income the Trust has earned for the
period. The total amount of interest income earned for the year ended December 31, 2017 was $1.7 million, compared to $1.7 million
for the prior year. Interest income will fluctuate depending on the cash on hand in the period. Further details on the Trust’s investment
of cash on hand using term deposits of 90 days or less can be found in NOTE 11 of the consolidated financial statements.
Amortization of Deferred Financing Costs
The amortization of deferred financing costs relates primarily to the amortization of CMHC premiums, which are paid as part of
mortgage financing. If Boardwalk REIT replaces an existing mortgage with a new mortgage, all costs associated with the original
mortgage, including the unamortized balance of the CMHC premium, are required to be charged to income in the period that this
occurs. As a result, and due to the variable timing and strategy of each mortgage at maturity, the amounts reported will vary.
Rather than refinance the entire mortgage on term maturity to a higher amount, Boardwalk REIT continues to take advantage of
supplementing, rather than extinguishing, the original mortgage to increase its leverage.
Boardwalk reviews its amortization estimates on an ongoing basis and, if warranted, will adjust these estimates on a
prospective basis.
The total amortization of deferred financing costs for the year ended December 31, 2017, was $5.8 million compared to $4.9 million
recorded for the same period in the prior year. Amortization of deferred financing costs is now included in financing costs.
Interest Rate Sensitivity
Although Boardwalk REIT manages its financing risk in a variety of ways, as discussed later in the MD&A, it is important the reader
understands how significant interest rate changes could impact the Trust as a whole. Due to the size of Boardwalk’s overall
mortgage portfolio, it has been prudent to spread out the maturity of these mortgages over a number of years. In fiscal 2018, the
Trust anticipates having approximately $203.5 million of secured mortgages maturing with a weighted average rate of 2.91%.
These maturing rates are above current NHA insured interest rates and the Trust should be able to recognize additional savings
upon renewal of these mortgages. If we were to renew these mortgages today with a 5-year term, based upon interactions with
possible lenders, the new rate would be approximately 2.90% (as of February 13, 2018).
5 6
2 0 1 7 A N N U A L R E P O R T
BOARDWALK REAL ESTATE INVESTMENT TRUST ADMINISTRATION
Included in administration expenses are costs associated with Boardwalk REIT’s centralized administrative functions. The
amount reported for the year ended December 31, 2017, which relates to corporate administration from continuing operations, was
$33.4 million, compared to $33.9 million for the same period in the prior year, a decrease of approximately 1.5% for the year.
For the current and prior comparative periods, Boardwalk REIT allocated certain administration costs between corporate and rental
operating expenses. The administration costs allocated to rental operating expenses consist primarily of specific amounts
associated with operation-specific staff and related support initiatives. Total administration costs, combining rental operating and
corporate, were $62.2 million for the year ended December 31, 2017, compared to $57.5 million for the same period in the prior
year. The increase in total administration costs of approximately $4.7 million, or approximately 8.2%, was due primarily to
increased wages and salaries as a result of additional operational personnel.
DEPRECIATION
Depreciation recorded on the Consolidated Statements of Comprehensive Income (Loss) is made up of the depreciation of
property, plant and equipment.
The Trust has elected to use the cost model under IAS 16 – Property, Plant and Equipment (“IAS 16”) to value its property, plant
and equipment, and, as a result of this method, depreciation expense is a charge taken against earnings to reflect the estimated
depreciation that has occurred to these assets as a result of their use during the reporting period in question.
Boardwalk reviews its key depreciation estimates on an ongoing basis and, if warranted, will adjust these estimates on a
prospective basis.
The total amount reported as depreciation for the year ended December 31, 2017, was $5.6 million compared to $5.2 million
recorded for the same period in the prior year.
OTHER INCOME AND EXPENSES
Income Tax Expense
Boardwalk REIT qualifies as a ‘mutual fund trust’ as defined in the Income Tax Act (Canada). The Tax Act also contains legislation
affecting the tax treatment of publicly traded trusts and the criteria for qualifying for the real estate investment trust exemption
(the “REIT Exemption”), which would exempt Boardwalk REIT from income tax under the SIFT Legislation. For 2016 and 2017 to
date, the Trust qualified for the REIT Exemption.
Although Boardwalk REIT is exempted from income taxes, provided it distributes all of its taxable income to its Unitholders, this
exemption does not apply to its corporate subsidiaries, which are subject to income taxes.
LP Class B Units and the Deferred Unit Compensation Plan
The LP Class B Units are non-transferable, except under certain circumstances, but are exchangeable, on a one-for-one basis, into
Boardwalk REIT Units at any time at the option of the holder. The LP Class B Units and the deferred unit-based compensation plan
are classified as financial liabilities in accordance with IFRS standards, and, as a result, are recorded at their fair value at each
reporting date. As at December 31, 2017, the Trust used a price of $43.09 based on the closing price of the TSX-listed Boardwalk
REIT Trust Units to determine the fair value of these financial liabilities at that date. The total fair value of these units recorded on
the Consolidated Statements of Financial Position at December 31, 2017, was $192.8 million, and a corresponding fair value gain of
$24.9 million (year ended December 31, 2016 – fair value loss of $5.4 million) was recorded on the Consolidated Statements of
Comprehensive (Loss) Income for the year ended December 31, 2017.
The deferred unit-based compensation plan had a fair value of $4.6 million, and a corresponding fair value gain of $0.6 million
(year ended December 31, 2016 – fair value loss of $0.5 million) was recorded on the Consolidated Statements of Comprehensive
(Loss) Income for the year ended December 31, 2017.
2 0 1 7 A N N U A L R E P O R T
5 7
BOARDWALK REAL ESTATE INVESTMENT TRUST FINANCIAL CONDITION
REVIEW OF CONSOLIDATED STATEMENTS OF CASH FLOWS
Operating Activities
Cash Flow from Operations
Boardwalk REIT prepares its financial statements in accordance with International Financial Reporting Standards and with the
recommendations of REALpac. REALpac has adopted measurements called Funds From Operations and Adjusted Funds From
Operations to supplement profits (or earnings) as measures of operating performance, as well as a cash flow metric called
Adjusted Cash Flow From Operations. These measurements are considered to be meaningful and useful measures of real estate
operating performance. Boardwalk REIT’s presentation of FFO, AFFO and ACFO are materially consistent with the definitions
provided by REALpac. These measurements, however, are not necessarily indicative of cash that is available to fund cash needs
and should not be considered alternatives to cash flow as a measure of liquidity. FFO, AFFO and ACFO do not represent cash flow
from operations as defined by IFRS. Boardwalk REIT considers FFO and AFFO to be appropriate measurements of the
performance of a publicly listed multi-family residential entity. In order to facilitate a clear understanding of the combined historical
operating results of Boardwalk REIT, management feels FFO and AFFO should be considered in conjunction with profit as
presented in the consolidated financial statements. Boardwalk REIT’s computation of FFO and AFFO from profit is highlighted
above in the section titled, “FFO and AFFO Reconciliations”.
A reconciliation of ACFO to cash flow from operating activities as shown in the Consolidated Statements of Cash Flow prepared in
accordance with IFRS is highlighted below:
ACFO Reconciliation (In $000’s, except per Unit amounts)
Cash flow from operating activities
Adjustments
Operating working capital
Proceeds on insurance settlement
Government grant earned
Add back distributions to LP Class B Units
recorded as financing charges (1)
Interest paid
Financing costs
Maintenance capital expenditures (2)
Adjusted Cash Flow From Operations (ACFO)
ACFO – per Unit
12 Months
Dec. 31, 2017
12 Months
Dec. 31, 2016
$
102,063
$
133,687
% Change
3,485
(3,162)
378
10,069
79,907
(85,763)
10
106,987
(21,737)
85,250
788
-
378
9,990
84,256
(84,634)
-
144,465
(17,534)
126,931
$
1.68
$
2.50
(32.8)%
(32.8)%
(1) Under IFRS, the LP Class B Units are considered financial instruments in accordance with IAS 32. As a result of this classification, their corresponding distribution
amounts are considered “financing charges” under IFRS. The Trust believes these distribution payments do not truly represent “financing charges”, as these
amounts are only payable if the Trust declares distributions, and only for the amount of any distributions declared, both of which are at the discretion of the Board of
Trustees as outlined in the DOT. Therefore, these distributions are excluded from the calculation of ACFO, consistent with the treatment of distributions paid to all
other Unitholders.
(2) Details of the calculation of Maintenance Capital Expenditures can be found in the section titled, “Maintenance of Productive Capacity”.
The reader is cautioned that Boardwalk REIT’s calculation of ACFO may be different from other real estate corporations or REITs
and, as such, a straight comparison may not be warranted. For the year ended December 31, 2017, Boardwalk REIT reported total
ACFO of $85.3 million, or $1.68 per fully diluted Trust Unit. This represented a decrease of approximately 32.8%, compared to
$126.9 million, or $2.50 per fully diluted Trust Unit, reported for the same twelve months in 2016. The decrease for the year 2017 is
5 8
2 0 1 7 A N N U A L R E P O R T
BOARDWALK REAL ESTATE INVESTMENT TRUST
primarily due to lower rental revenue (as a result of higher vacancy losses and increased incentives), higher on-site wages and
salaries, repairs and maintenance costs, utilities and property taxes.
For the year ended December 31, 2017, the Trust paid out an estimated 106.8% of FFO and 134.0% of ACFO, compared to 78.5%
and 89.3%, respectively, for the same period in 2016. ACFO, in the longer term, is indicative of the Trust’s ability to pay
distributions to its Unitholders. As regular distributions are funded by the Trust’s liquidity, cash flow from operations and mortgage
upfinancings tied to investment property capital appreciation, these distributions are reviewed on a quarterly basis by the Board of
Trustees to assess whether they are sustainable and whether a reduction is warranted given other effective use of capital. As a
result of the review in Q3 2017, the Board decided to reduce distributions from $2.25 to $1.00 per unit on an annualized basis,
effective for 2018. FFO, AFFO and ACFO are non-GAAP measures that do not have standardized meanings as defined by IFRS and,
therefore, may not be comparable to FFO, AFFO and ACFO as presented by other real estate entities.
Financing Activities
Distributions
Boardwalk distributes payments on a monthly basis to its Unitholders. These payments are referred to as regular distributions.
The distinct nature and classification of these payments are unique to each trust and the components of these distributions may
have differing tax treatments. For the year ended December 31, 2017, the Trust paid regular distributions of $114.2 million to its
Trust and LP Class B Unitholders, compared to $113.4 million for the same period in 2016. Regular distributions declared for the
twelve months ended December 31, 2017 represented a FFO payout ratio of 106.8%, compared to 78.5% for the prior year.
Regular distributions (Trust and LP Class B Units) declared in 2017 represented approximately 111.9% of cash flow from operating
activities compared to 84.8% for 2016.
The excess of total distributions compared to cash flow from operating activities of 11.9% (or $12.2 million) for the year ended
December 31, 2017 were funded primarily by mortgage upfinancings tied to the capital appreciation of Boardwalk’s investment
property portfolio. These mortgage upfinancings, for the most part, have been used for major capital upgrades and suite renovations
to position the Trust’s property portfolio for long-term growth, with a targeted average return of 8% or more on capital invested.
Financing of Revenue Producing Properties
During the twelve months ended December 31, 2017, the financing and refinancing of existing properties totaled approximately
$288.0 million. During the financing and refinancing process, Boardwalk REIT was able to decrease the weighted average interest
rate on its mortgage portfolio from 2.78% at December 31, 2016 to 2.61% at December 31, 2017.
Acquisitions
On February 28, 2017, the Trust purchased a warehouse building in London, Ontario, which has been included in Trust’s property,
plant and equipment, for a purchase price of $1.4 million.
In 2016, the Trust closed on the purchase of a total of 747 apartment units in Calgary and Edmonton, Alberta, for a total cost of
$144.4 million. All of the acquisitions were paid for with cash on hand.
Due to the nature of multi-family residential real estate, the amount paid for apartment units may vary dramatically based on a
number of parameters, including location, type of ownership (free hold versus land lease) and type of construction. As required
under IFRS, on acquisition, an analysis is performed on the mortgage debt assumed, if any. The analysis focuses on the interest
rates of the debt assumed. If it is determined that the in-place rates are materially below or above market rates, an adjustment is
made to the book cost of the recorded asset. No mortgages were assumed in 2017 and 2016 and, therefore, no adjustment for
fiscal 2017 or 2016 was made.
Capital Improvements
In Q3 of 2017 the Trust implemented a new investment strategy designed to create long term value. The program is focused
around three separate levels of renovations and upgrades: Boardwalk Lifestyle, Boardwalk Communities and Boardwalk Living.
2 0 1 7 A N N U A L R E P O R T
5 9
BOARDWALK REAL ESTATE INVESTMENT TRUST Boardwalk has a continuous capital improvement program with respect to its investment properties. The program is designed to
extend their useful lives, improve operating efficiency, enhance appeal, enhance as well as maintain earnings capacity and meet
Resident Members’ expectations, as well as meet health and safety regulations.
A select few of the Trust’s communities will be selected to fall under the Boardwalk Lifestyle brand; although there are a number
of criteria used to select these properties, in general, these communities are located in extremely attractive locations and desirable
neighborhoods. Rebranding is the highest level of Investment the Trust will place in this community. Investment here will be
holistic in nature and include significant enhancement to the exterior. Common areas may not only be refreshed but may also be
modernized to include community areas with WiFi bars, barbeque areas and other in demand amenities. The suites in these
buildings will be significantly modernized and may include the removal of existing walls and substantial upgrades including all new
appliances, upgraded kitchens and extensive flooring, electrical and plumbing upgrades. These communities will be targeted to the
more discriminating renter and commonly referred to as a ‘renter by choice’.
A number of the Trust’s communities will be selected to be repositioned to the Boardwalk Communities category. These
communities will also be targeted based on location and will focus in on a modernization program. These communities tend to be
located in mature areas near schools, parks, downtown core, shopping and other desirable amenities. Investment in these
communities will enhance the already large suite size and will significantly upgrade most aspects of the suite, including new
upgraded flooring, all new appliances with modernized kitchens, modern electrical, plumbing and hardware fixtures. Modernization
of existing common areas such as hallways and lobbies will also be considered.
The majority of Boardwalk’s existing portfolio falls into the Boardwalk Living category. Resident members in this area are looking
for value, but tend to be more price sensitive. Again, many of these Boardwalk communities are located in established
communities with extensive local amenities. Although Boardwalk’s investment in this area will be less significant than in its
repositioning and rebranding communities, it will be value focused and thoughtfully targeted with those items that these price
sensitive renters appreciate most, such as upgraded flooring, and more modern electrical, plumbing and hardware fixtures.
In 2017, Boardwalk REIT invested approximately $201.9 million (comprised of $190.2 million on its stabilized investment properties
and $11.7 million on property, plant and equipment) back into its properties in the form of equipment and project enhancements to
upgrade existing suites, common areas, building exteriors and systems, compared to the $102.5 million ($97.7 million on its
stabilized investment properties and $4.8 million property, plant and equipment) invested in 2016. The amount of this investment
will vary from year-to-year, but increased significantly in 2017 as a result of Boardwalk’s suite upgrade and property
repositioning initiatives.
A significant part of Boardwalk’s capital improvement program
relates to projects that are carried out by Boardwalk’s
Associates. This internal capital program was initiated in 1996
as a way to create more value for the Trust. The Trust recognizes
that there are certain efficiencies and economies of scale
available from having Boardwalk Associates perform certain
capital projects ourselves, or “in-house”. This results in the
faster execution and greater control of these projects while at
the same time eliminating the profit charged by third-party
contractors. The Trust focuses on specific projects where there
is the largest opportunity for value creation, like flooring and
painting. Over the last few years, the Trust has intensified this
focus of performing capital projects “in-house” rather than
contracting such services. Included in capital improvements is
approximately $24.9 million of on-site wages and salaries that
have been incurred towards these projects for 2017, compared
to $19.4 million for 2016.
6 0
2 0 1 7 A N N U A L R E P O R T
APPLIANCES
5%
12%
INTERNAL
CAPITAL
PROGRAM
4% ELEVATORS
SUITE
IMPROVEMENTS
48%
7% OTHER (INCL.
EQUIPMENT)
HALLWAY
IMPROVEMENTS
3%
BUILDING
IMPROVEMENTS
18%
3% BOILERS / MECH
BOARDWALK REAL ESTATE INVESTMENT TRUST Maintenance of Productive Capacity
The Trust has two separate areas in which capital is invested back into its residential buildings. These are referred to as
‘maintenance capital expenditures’ and ‘value enhancing capital expenditures’.
Maintenance capital expenditures over the longer term are funded from operating cash flows. These expenditures are deducted
from FFO in order to estimate a sustainable amount, called Adjusted Funds From Operations, which can be distributed to
Unitholders. Maintenance capital expenditures include those expenditures that, although capital in nature are not considered
betterments, and relate more to maintaining the existing earnings capacity of our property portfolio. In contrast, value enhancing
capital expenditures are more discretionary in nature and focus on increasing the productivity of the property, with the goal of
increasing the FFO generated at that location. In addition, the Trust invests funds in its portfolio in the form of ongoing repairs and
maintenance as well as on-site maintenance Associates. Both of these expenditures are designed to maintain the operating
capacity of our assets.
The following table provides management’s estimate of these expenditure categories:
(in $000’s, except for per suite amounts)
Maintenance Capital Expenditures (1)
Value Enhancing Capital (including suite upgrades)
12 Months
Dec. 31, 2017
Per Suite
12 Months
Dec. 31, 2016
$
$
21,737
$
655
$
17,534
$
180,194
5,430
85,052
201,931
$
6,085
$
102,586
$
Per Suite
525
2,518
3,043
(1) Details of the calculation of Maintenance Capital Expenditures can be found below.
Items reported as capital are determined as investments in assets that have a useful economic life longer than one year.
Management has estimated that for fiscal 2017 and 2016, the amount allocated to maintenance capital was approximately
$21.7 million, or $655 per apartment unit, and $17.5 million, or $525 per apartment unit, respectively, with investment in
value-enhancing expenditures to its stabilized investment properties totaling $180.2 million and $85.1 million, respectively,
or $5,430 and $2,518 per apartment unit.
The amount allocated to maintenance capital 2017 of approximately $21.7 million, or $655 per apartment unit, was higher than the
$525 per apartment unit in 2016.
Maintenance Capital Expenditures (“Maintenance CAPEX”)
Maintenance CAPEX is defined as capital expenditures related to maintaining the existing space of a property. This is in contrast to
expenditures related to development or revenue-enhancing activities in nature. Boardwalk’s determination of Maintenance CAPEX
is based on an estimated reserve amount per apartment unit rather than on actual amounts and utilizing a three-year rolling
average. Boardwalk’s viewpoint is that the categorization of expenditures between maintenance and value-enhancing will be
subject to wide variations in professional judgment, especially as it relates to the multi-family real estate asset class. As a result,
Boardwalk has determined that a reserve amount based a three-year rolling average and calculated using an annual $938 per
apartment unit for 2017, $525 per apartment unit for 2016 and $500 per apartment unit for 2015. Capital budget amounts, revised if
necessary, are used to calculate Maintenance CAPEX for the three-year rolling average during the interim quarters, with actual
amounts used at year-end. For each of the fiscal periods, the first-year amortization of major capital expenditure categories is taken
as a reliable metric of Maintenance CAPEX for the year, since such an amount would have been expended in the first year in any
event in lieu of repair and maintenance expenses. The economic useful lives of capital expenditures after the first year are,
therefore, deemed to be value-enhancing as these will inevitably benefit higher revenue generation in future years. The three-year
rolling average is being applied prospectively, commencing with the current quarter.
2 0 1 7 A N N U A L R E P O R T
6 1
BOARDWALK REAL ESTATE INVESTMENT TRUST
For 2017, the reserve amount has been determined to be $655 per apartment unit on an annualized basis, or $21.7 million.
The Trust’s calculation of standardized maintenance capital expenditures per suite is outlined below:
Category
2017 Capital
Expenditures
($000’s)
Economic
Useful Life
(Years)
Maintenance
Capital
Allocation
Value-added
Capital
Allocation
2017
Maintenance
Capital
Expenditures
($000’s, except
per Unit amount)
15.0
10.0
10.0
10.0
5.0
5.0
4.0
8.0
8.0
8.0
4.0
4.0
4.0
7%
10%
10%
10%
20%
20%
25%
13%
13%
13%
25%
25%
93%
$
2,330
90%
90%
90%
80%
80%
75%
88%
88%
88%
75%
75%
676
613
750
1,477
930
7,937
4,745
2,629
1,243
1,345
245
25%
75%
6,222
$
31,142
$
$
$
939
500
525
939
655
Building Exterior, Grounds & Parking
$
34,936
Hallways & Lobbies
Elevators
Mechanical & Electrical
Other – Information Technology
Site Equipment & Vehicles
Total Common Area
Paint & General
Flooring
Cabinets & Counter
Appliances
Suite Mechanical
Furniture, Fixtures & Equipment
Total Suites
Internal Capital Program
Subtotal
Corporate Capital Expenditures
Total Capital Expenditures
6,756
6,129
7,495
7,384
4,651
67,351
31,749
37,961
21,032
9,943
5,379
981
107,045
24,889
199,285
2,646
201,931
2017 Cash Flow from Investing Activities
Improvements to Investment Properties
Additions to Property, Plant & Equipment
190,203
11,728
$
201,931
Apartment Units
33,187
3-year Rolling Average
2015
2016
2017
3-year Rolling Average
6 2
2 0 1 7 A N N U A L R E P O R T
BOARDWALK REAL ESTATE INVESTMENT TRUST
A similar calculation for 2016 and 2015 maintenance capital expenditures, reconciled to Boardwalk’s 2016 and 2015 actual cash
flow from investing activities, are also provided below for comparison. In 2016, Boardwalk estimated Maintenance CAPEX to be
$17.5 million, or $525 per apartment unit for the year, compared to $17.9 million, or $530 per apartment unit per year, based on
actual capital expenditures for the 2016 year. In 2015, Boardwalk estimated Maintenance CAPEX to be $17.1 million, or $500 per
apartment unit for the year, compared to $16.0 million, or $485 per apartment per year, based on actual expenditures for the
2015 year.
Category
2016 Capital
Expenditures
($000’s)
Economic
Useful Life
(Years)
Maintenance
Capital
Allocation
Value added
Capital
Allocation
2016
Maintenance
Capital
Expenditures
($000’s, except
per Unit amount)
Building Exterior, Grounds & Parking
$
29,062
Hallways & Lobbies
Elevators
Mechanical & Electrical
Other – Information Technology
Site Equipment & Vehicles
Total Common Area
Paint & General
Flooring
Cabinets & Counter
Appliances
Suite Mechanical
Furniture, Fixtures & Equipment
Total Suites
Internal Capital Program
Subtotal
Corporate Capital Expenditures
Total Capital Expenditures
1,347
5,489
4,235
3,305
3,050
46,488
8,693
15,283
6,271
3,895
606
245
34,993
19,379
100,860
1,726
102,586
2016 Cash Flow from Investing Activities
Improvements to Investment Properties
Additions to Property, Plant & Equipment
97,744
4,842
$
102,586
Apartment Units
33,773
Standardized Maintenance CAPEX Per Unit
15.0
10.0
10.0
10.0
5.0
5.0
4.0
4.0
4.0
4.0
4.0
4.0
4.0
7%
10%
10%
10%
20%
20%
25%
25%
25%
25%
25%
25%
93%
$
1,938
90%
90%
90%
80%
80%
75%
75%
75%
75%
75%
75%
135
549
424
661
610
2,173
3,821
1,568
974
152
61
25%
75%
4,845
$
17,911
$
$
530
525
2 0 1 7 A N N U A L R E P O R T
6 3
BOARDWALK REAL ESTATE INVESTMENT TRUST
Category
2015 Capital
Expenditures
($000’s)
Economic
Useful Life
(Years)
Maintenance
Capital
Allocation
Value added
Capital
Allocation
2015
Maintenance
Capital
Expenditures
($000’s, except
per Unit amount)
15.0
10.0
10.0
10.0
5.0
5.0
3.5
3.5
3.5
3.5
3.5
3.5
3.5
10%
10%
10%
10%
20%
20%
30%
30%
30%
30%
30%
30%
90%
$
2,496
90%
90%
90%
80%
80%
70%
70%
70%
70%
70%
70%
186
398
708
262
278
1,507
3,062
757
734
204
29
30%
70%
5,358
$
15,979
Building Exterior, Grounds & Parking
$
24,959
Hallways & Lobbies
Elevators
Mechanical & Electrical
Other – Information Technology
Site Equipment & Vehicles
Total Common Area
Paint & General
Flooring
Cabinets & Counter
Appliances
Suite Mechanical
Furniture, Fixtures & Equipment
Total Suites
Wage Capitalization
Subtotal
Corporate Capital Expenditures
Total Capital Expenditures
2015 Cash Flow from Investing Activities
Improvements to Investment Properties
Additions to Property, Plant & Equipment
1,858
3,984
7,082
1,309
1,390
40,582
5,023
10,207
2,524
2,448
679
98
20,979
17,860
79,421
9,239
88,660
80,196
8,464
$
88,660
Apartment Units
32,947
Standardized Maintenance CAPEX Per Unit
$
$
485
500
Investment Properties
The Trust has elected to use the fair value model in accordance with IAS 40 – Investment Properties to report the value of its
investment properties at each reporting date.
External valuations were obtained from third-party appraisers (the “Appraisers”) based on a cross section of properties from
different geographical locations and markets across the Trust’s rental portfolio, as determined by management, to corroborate the
Trust’s internal fair value calculation for its entire investment property portfolio.
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2 0 1 7 A N N U A L R E P O R T
BOARDWALK REAL ESTATE INVESTMENT TRUST
External appraisals were obtained as follows:
Date
December 31, 2017
September 30, 2017
June 30, 2017
March 31, 2017
December 31, 2016
September 30, 2016
June 30, 2016
March 31, 2016
Number of
Properties
Aggregate
Fair Value
Percentage of
Portfolio as of That Date
5
4
5
4
5
5
4
4
575,360
125,232
152,681
99,593
511,224
177,677
82,027
97,993
10.1%
2.2%
2.7%
1.8%
9.1%
3.2%
1.5%
1.8%
The fair value of the Trust’s investment property portfolio was determined internally by the Trust using the same assumptions
and valuation techniques used by the external valuation professionals. In addition to performing a valuation on a selection of
Trust’s properties (and not performing a valuation on all of the Trust properties) to compare to the Trust’s internal valuation, the
Appraisers provided the Trust with a summary of the major assumptions and market data by city in order for the Trust to complete
its internal valuations.
The key valuation metrics for the Trust’s investment properties are set out in the following tables:
As at
Dec 31, 2017
Dec 31, 2016
Calgary
Edmonton
Other Alberta
Kitchener
London
Montreal
Quebec City
Regina
Saskatoon
Land Lease
Capitalization Rate
Minimum
Maximum
Forecasted Total
Standardized Net
Operating Income
Capitalization Rate
Minimum
Maximum
Forecasted Total
Standardized Net
Operating Income
4.50%
5.00%
5.75%
4.75%
4.75%
4.75%
5.25%
5.65%
5.75%
4.50%
4.50%
6.00%
$
5.50%
7.25%
4.75%
5.00%
5.75%
5.75%
6.20%
6.00%
7.25%
21.07%
$
$
63,390
120,518
18,271
2,320
14,251
5,788
10,250
19,127
18,377
272,292
28,100
4.50%
5.00%
5.75%
5.25%
5.25%
5.00%
5.25%
5.65%
5.75%
4.50%
4.75%
6.00%
$
5.52%
7.25%
5.25%
5.50%
5.75%
5.75%
6.00%
6.00%
7.25%
18.80%
$
$
62,802
120,325
17,920
2,003
12,186
5,669
10,116
23,426
19,127
273,574
27,847
Overall portfolio weighted average capitalization rate was 5.29% as at December 31, 2017 and 5.38% as at December 31, 2016.
The “Overall Capitalization Rate” method requires a forecasted stabilized net operating income (“NOI”) be divided by a
capitalization rate (“cap rate”) to determine a fair value. NOI is calculated as a one-year income forecast based on rental income
from current leases and key assumptions about rental income, vacancies and inflation rates, among other factors, less property
operating costs. As such, fluctuations in both NOI and cap rates could significantly alter the fair value. Generally, an increase in
stabilized NOI will result in an increase to the fair value of an investment property. An increase in capitalization rate will result in a
decrease to the fair value of an investment property. When the capitalization rate is applied to NOI to calculate fair value, there is a
significant impact whereby the lower the capitalization rate, the larger the impact.
2 0 1 7 A N N U A L R E P O R T
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BOARDWALK REAL ESTATE INVESTMENT TRUST
The following tables summarize the sensitivity impact of changes in both cap rates and NOI on the Trust’s fair value of its
investment properties (excluding development) as at December 31, 2017 and December 31, 2016:
As at December 31, 2017
Net Operating Income
Capitalization Rate
-0.25%
Cap Rate As Reported
+0.25%
-3%
-1% As Forecasted
+1%
+3%
$ 291,380
$ 297,388
$ 300,392
$ 303,396
$ 309,404
5.04%
$ 102,749
$ 221,914
$ 281,497
$ 341,080
$ 460,245
5.29%
5.54%
(170,303)
(418,719)
(56,768)
5,676,776
56,768
(310,305)
(256,099)
(201,892)
170,303
(93,478)
As at December 31, 2016
Net Operating Income
Capitalization Rate
-0.25%
Cap Rate As Reported
+0.25%
-3%
-1% As Forecasted
+1%
+3%
$ 292,378
$ 298,406
$ 301,421
$ 304,435
$ 310,463
5.13%
$
97,001
$ 214,592
$ 273,387
$ 332,183
$ 449,774
5.38%
5.63%
(168,185)
(409,806)
(56,062)
5,606,174
56,062
(302,664)
(249,093)
(195,522)
168,185
(88,381)
Investment properties with a fair value of $551.1 million as at December 31, 2017 ($522.9 million – December 31, 2016), are
situated on land held under ground (or land) leases.
Investment properties with a fair value of $948.3 million as at December 31, 2017 (December 31, 2016 – $770.5 million), are pledged
as security against the Trust’s committed revolving credit facility. In addition, investment properties with a fair value of $5.4 billion as at
December 31, 2017 (December 31, 2016 – $5.3 billion), are pledged as security against the Trust’s mortgages payable.
For the year ended December 31, 2017, the Trust capitalized $190.2 million in building improvements (and $17.9 million in
development expenditures) and recorded a fair value loss of $60.9 million on its financial statements as a result of changes in the
fair value of investment properties. Capitalized building improvements represent expenditures that provide future benefits to the
Trust for a period greater than twelve months, some of which may not be immediately reflected in the fair value of the investment
properties, under IFRS, for the current reporting period.
Investment Property Development
Over the last number of years, there has been a shift in the multi-family apartment environment in Canada. Over this period,
Boardwalk has witnessed a significant increase in the market value of rental apartments. This increase has been mainly driven
by a significant compression in market capitalization rates, which in turn has been the result of a prolonged low interest rate
environment in Canada.
With this increase in the market value of apartments, there has been a significant decrease in the expected returns from existing
multi-family assets to a level that warrants a measured allocation of capital to the area of new apartment development, particularly
on excess land the Trust currently owns. In 2012, the Trust received development approval from the City of Calgary in Alberta, and
commenced construction of a 109-unit four storey, elevatored, wood frame building in the Southwest part of the city. The
development was substantially completed on November 7, 2013, and an Occupancy Permit allowing Boardwalk to commence the
lease-up of the units was issued by the City of Calgary for the project. The project was completed on time and within budget
totaling approximately $19 million. To assist in the development cost of this property, the Trust had applied for, and received,
approval of a grant from the Province of Alberta in the amount of $7.5 million. In return for this grant, the Trust has agreed to
classify 54 of the 109 units as ‘affordable’, with market rents set at 10% below average market rates for Calgary for a term of
20 years. We estimated the stabilized capitalization rate on this project to be between 6.5% and 7.0%, including an estimated
allocation of $4.25 million, or $39,000 per apartment unit, for the excess land allocated to this project. In accordance with
IAS 20 – Accounting for Government Grants and Disclosure of Government Assistance under IFRS, this grant will be recognized
in profit or loss on a systematic basis over the periods in which the Trust recognizes revenue from the 54 units classified as
6 6
2 0 1 7 A N N U A L R E P O R T
BOARDWALK REAL ESTATE INVESTMENT TRUST
affordable units, resulting in achievable rents being much closer to market rents. For the year ended December 31, 2017
$378,000 was recognized in profit under rental revenue for this grant (December 31, 2016 – $378,000).
In October 2014, the Trust commenced the first phase of construction for a 79-unit, wood frame building on excess land on our
property known as Pines of Normanview in Regina, Saskatchewan. The project, called ‘Pines Edge 1’, was substantially completed
on January 29, 2016 with a total cost of $13.4 million, below the original budget of $14.1 million. The four-story building consists of
13 one-bedroom and 66 two-bedroom units with a single level of underground parking. The stabilized capitalization rate is
estimated to range from 6.50% to 7.00% excluding land. Lease-up of the project began in February of 2016, and at the end of
December 2017, over 87% of the units were leased up. The Trust commenced construction of Phase 2 of Pines Edge in 2016, an
identical 79 unit, four-storey wood frame building with construction being substantially complete at the end of June 2017, both on
time and on budget. Pines Edge 3, consisting of 71 units, began construction in June of 2017.
It is our intention to continue to investigate further development opportunities, particularity in Alberta and Saskatchewan; however,
each future opportunity will require a separate analysis and, depending on the analysis and economic conditions, Boardwalk REIT
will determine if additional development projects are warranted. Historically, one of the biggest risks to real estate evaluations is
the building of oversupply in a particular market, which results in significant corrections of property values market-wide.
For the year ended December 31, 2017, the Trust expended $17.9 million on total development costs compared to $6.2 million
for the prior year. Interest costs of $226,000 were capitalized for the year ended December 31, 2017. (December 31, 2016 – $69,000).
CAPITAL STRUCTURE AND LIQUIDITY
Liquidity refers to the Trust’s ability to generate, and have available, sufficient cash to fund our ongoing operations and capital
commitments as well as its distributions to Unitholders. Generally, distributions are funded from FFO. However, in common with
the majority of real estate entities, we rely on lending institutions for a significant portion of capital required to fund mortgage
principal payments, capital expenditures, acquisitions, unit buybacks, and repayment of maturing debt. Over the past number of
years, Boardwalk has observed a significant increase in borrowing standards of many of our key lending partners as a result of
heightened sensitivity to possible weaknesses in the economy.
To mitigate the risk of renewal, the Trust utilizes NHA mortgage insurance, the benefits of which we discussed in detail above.
Approximately 99% of Boardwalk REIT’s secured mortgages carry NHA insurance. In volatile times, the ability to access this
product was very beneficial to the Trust as a whole.
The Trust’s liquidity position as at December 31, 2017 remains stable as the following table highlights:
($000)
Cash position – December 31, 2017
Subsequent Committed Financing
Committed Revolving Credit Facility Available
Total Available Liquidity
$
70,834
54,273
199,750
$
324,857
In addition to this, the Trust currently has 1,775 rental apartment units of unencumbered assets, of which 257 units are pledged
against the Trust’s committed revolving credit facility. It is estimated under current CMHC underwriting criteria, that the Trust could
obtain an additional $189.3 million of new proceeds from the financing of its current unencumbered assets. Over 99% of
Boardwalk REIT’s secured mortgages carry NHA insurance.
The reader should also be aware that of the $203.5 million of secured mortgages coming due in 2018 (as shown in the table
below), all have NHA insurance, and represent in aggregate approximately 46% of current estimated “underwriting” values on
those individual secured assets. Interest rates on five and 10-year NHA-insured mortgages at year-end were 2.71% and 2.94%,
respectively. The reader, however, is cautioned these rates do fluctuate and, by the time these maturing mortgages are set for
renewal, with or without additional financing, interest rates may have changed materially. Even with the NHA insurance program
attached to its secured mortgages, the Trust is still susceptible to changes in market interest rates. To address a portion of this risk,
2 0 1 7 A N N U A L R E P O R T
6 7
BOARDWALK REAL ESTATE INVESTMENT TRUST
the Trust has forward locked or renewed $37.8 million, or 19%, of its $203.5 million of 2018 mortgage maturities. The weighted
average contracted interest rate on these renewals is 2.52%, for an average term of four years. These forward locked and renewed
mortgages represent an annualized interest savings of approximately $0.2 million.
Mortgage Schedule
Boardwalk REIT’s long-term debt consists entirely of low-rate, fixed-term secured mortgage financing. The maturity dates on the
secured mortgages have been staggered to lower the overall interest rate risk on renewal.
Total mortgages payable (net of unamortized transaction costs) on December 31, 2017, were $2.6 billion, compared to $2.4 billion
reported on December 31, 2016.
Boardwalk REIT’s overall weighted average interest rate on its long-term debt has decreased from the prior year. The weighted
average interest rate on December 31, 2017 was 2.61% compared to 2.78% on December 31, 2016. To better maintain cost
effectiveness and flexibility of capital, Boardwalk REIT continuously monitors short and long-term interest rates. If the environment
warrants, the Trust will convert short-term, floating rate debt, if any, to longer term, fixed rate mortgages to reduce interest rate
renewal risk.
Year of Maturity
2018
2019
2020
2021
2022
2023
2024
2025
2026
2027
2028
Total Principal Outstanding
Unamortized Deferred Financing Costs
Per Financial Statements
Interest Coverage
Principal Outstanding
as at Dec. 31, 2017
Weighted Average
Interest Rate
By Maturity
$
203,518
546,702
306,759
299,896
463,181
203,619
211,283
288,942
136,933
22,464
7,878
2,691,175
(97,195)
$
2,593,980
2.91%
2.50%
2.49%
2.26%
2.73%
2.86%
2.90%
2.63%
2.38%
2.56%
2.90%
2.61%
% of Total
7.6%
20.3%
11.4%
11.1%
17.2%
7.6%
7.9%
10.7%
5.1%
0.8%
0.3%
100.0%
Notwithstanding the Trust’s current liquidity situation, Boardwalk’s liquidity and access to capital resources is constrained by certain
tests that have been adopted in both its Declaration of Trust, as well as in its credit facility. The Declaration of Trust stipulates an
interest coverage ratio limit of 1.5 to 1. For the purpose of the interest coverage ratio calculation, gains or losses on the sale or
disposition of investment properties are excluded from earnings. Additionally, distributions on the LP Class B Units are excluded
from interest expense, despite the LP Class B Units being classified as a financial liability under IFRS.
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2 0 1 7 A N N U A L R E P O R T
BOARDWALK REAL ESTATE INVESTMENT TRUST
The following table sets out the Trust’s interest coverage ratio calculation as at December 31, 2017 and December 31, 2016, based
on the most recently completed four fiscal quarters.
As at
Net operating income
Administration expenses
Consolidated EBITDA (1) (12 months ended)
Consolidated interest expense (12 months ended)
Interest coverage ratio
Minimum threshold
(1) Earnings before interest, taxes, depreciation and amortization.
Dec. 31, 2017
Dec. 31, 2016
$
216,083
$
253,099
(33,402)
182,681
70,140
2.60
1.50
(33,947)
219,152
69,784
3.14
1.50
For the year ended December 31, 2017, Boardwalk REIT’s overall interest coverage ratio of adjusted EBITDA (i.e. Earnings Before
Interest, Taxes, Depreciation and Amortization) to interest expense, excluding distributions on LP B Units and fair value
adjustments, was 2.60, compared to 3.14 for the year ended December 31, 2016. The reader should note upon the adoption of
IFRS standards, the distributions made to the LP Class B Unitholders are now considered financing charges and is the result of the
reclassification of these Units as financial liabilities. The calculation of the interest coverage ratio above does not include these
distribution payments in the calculation of interest expense.
Unitholders’ Equity
The following table discloses the changes in REIT Trust Units issued and outstanding:
Summary of Unitholders’ Capital Contributions
December 31, 2015
Units issued for vested deferred units
Units purchased and cancelled
December 31, 2016
Units issued for vested deferred units
December 31, 2017
Units
46,847,464
82,165
(666,000)
46,263,629
74,407
46,338,036
Boardwalk REIT has one class of publicly-traded voting securities known as “REIT Units”. As at December 31, 2017, there were
46,338,036 REIT Units issued and outstanding. In addition, there were 4,475,000 special voting units issued to holders of “Class B
Units” of Boardwalk REIT Limited Partnership (“LP B Units”), each of which also has a special voting unit in the REIT. Each LP B
Unit is exchangeable for a REIT Unit on a one-for-one basis at the option of the holder. Each LP B Unit, through the special voting
unit, entitles the holder to one vote at any meeting of Unitholders. Accordingly, if all of the LP B Units were exchanged for REIT
Units, the total issued and outstanding REIT Units would be 50,813,036. These LP Class B Units are classified as “FVTPL” financial
liabilities under IFRS and are recorded at their fair value as liabilities on the Consolidated Statements of Financial Position.
On June 30, 2015, the Trust received regulatory approval for a Normal Course Issuer Bid (the “Bid”) to purchase and cancel up to
3,855,766 Trust Units, representing 10% of the public float at the time of the TSX approval. The Bid commenced July 3, 2015, and
terminated on July 2, 2016. The Trust’s daily purchase pursuant to this Bid was 38,006 Trust Units.
On June 29, 2016, the Trust received regulatory approval for a Normal Course Issuer Bid (the “Bid”) to purchase and cancel up to
3,700,292 Trust Units, representing 10% of the public float at the time of the TSX approval. The Bid commenced on July 3, 2016,
and terminated on July 2, 2017. The Trust’s daily purchases under this Bid was 57,614 Trust Units.
On June 29, 2017, the Trust received regulatory approval for a Normal Course Issuer Bid (the “Bid”) to purchase and cancel up to
3,712,403 Trust Units, representing 10% of the public float at the time of the TSX approval. The bid commenced on July 4, 2017, and
will terminate on July 3, 2018, or when the Bid is completed. The Trust’s daily purchases under this Bid will be limited to 35,909
Trust Units.
2 0 1 7 A N N U A L R E P O R T
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BOARDWALK REAL ESTATE INVESTMENT TRUST
During 2016, the Trust purchased and cancelled 666,000 Units at an average purchase cost of $49.02 per Trust Unit. During 2017,
the Trust purchased and awarded 100 Trust Units at a cost of $40.11 per Trust Unit as a prize under its customer loyalty program.
Equity
Boardwalk has an equity market capitalization of approximately $2.2 billion based on the Trust Unit closing price of $43.09 on the
Toronto Stock Exchange on December 31, 2017.
Enterprise Value
With a total enterprise value of approximately $4.8 billion (consisting of total debt of $2.6 billion and market capitalization of
$2.2 billion) as at December 31, 2017, Boardwalk’s total debt is approximately 54% of total enterprise value.
RISKS AND RISK MANAGEMENT
Boardwalk REIT, like most real estate rental entities, is exposed to a variety of risk areas. These areas are categorized between
general and specific risks. General risks are the risks associated with general conditions in the real estate sector, and consist
mainly of commonly exposed risks that affect the real estate industry. Specific risks focus more on risks uniquely identified with
the Trust, such as credit, market, liquidity and operational risks. The following will address each of these risks. In addition, this
section should be read in conjunction with the Trust’s AIF dated February 23, 2018, where additional risks and their related
management are also noted.
GENERAL RISKS
Real Estate Industry Risk: Real estate investments are generally subject to varying degrees of risk depending on the nature of
the property. These risks include changes in general economic conditions (such as the availability and cost of mortgage funds),
local conditions (such as an oversupply of space or a reduction in demand for real estate in the area), government regulations (such
as new or revised residential tenant legislation), the attractiveness of the properties to tenants, competition from others with
available space, and the ability of the owner to provide adequate maintenance at an economic cost. Currently, we operate in
Canada, in the provinces of Alberta, Saskatchewan, Ontario and Quebec. Neither of Alberta and Saskatchewan is subject to rent
control legislation; however, under Alberta legislation, a landlord is only entitled to increase rents once every twelve months. A
more detailed discussion on rent controls will follow in a later section.
Certain significant expenditures, including property taxes, maintenance costs, mortgage payments, insurance costs and related
charges, must be made regardless of whether or not a property is producing sufficient income to service these expenses.
Boardwalk REIT’s properties are subject to mortgages, which require significant debt service payments. If the Trust were unable or
unwilling to meet mortgage payments on any property, losses could be sustained as a result of the mortgagee’s exercise of its
rights of foreclosure or of sale. Real estate is relatively illiquid. Such illiquidity will tend to limit our ability to vary our portfolio
promptly in response to changing economic or investment conditions. In addition, financial difficulties of other property owners
resulting in distress sales may depress real estate values in the markets in which the Trust operates.
Multi-family Residential Sector Risk: Income-producing properties generate income through rent payments made by tenants of
the properties. Upon the expiry of any lease, there can be no assurance that the lease will be renewed or the tenant replaced. The
terms of any subsequent lease may be less favourable to us than the existing lease. To mitigate this risk, the Trust does not have
any one or small group of significant tenants. The majority of operating leases signed are for a period of twelve months or less. The
Trust is dependent on leasing markets to ensure vacant residential space is leased, expiring leases are renewed and new tenants
are found to fill vacancies. With the drastic drop in oil prices and speculation that lower oil prices will continue over an extended
period of time, the risk of a downturn in the economy has dramatically increased. A disruption in the economy could have a
significant impact on how much space tenants will lease and the rental rates paid by tenants. This would affect the income
produced by our properties as a result of downward pressure on rents.
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2 0 1 7 A N N U A L R E P O R T
BOARDWALK REAL ESTATE INVESTMENT TRUST Development Risk: Development risk arises from the possibility that completed developments will not be leased on a timely basis
or that costs of development will exceed original estimates, resulting in an uneconomic return from the leasing of such space.
Boardwalk’s construction commitments are subject to those risks usually attributable to construction projects, which include:
(i) construction or other unforeseen delays including municipal approvals; (ii) cost overruns; and (iii) the failure of tenants to occupy
and pay rent in accordance with existing lease agreements. Construction risks are minimized by utilizing established developers
and knowledgeable third-party consultants. In addition, construction is currently being undertaken on excess land the Trust
currently owns rather than on undeveloped land purchased from a third party.
Environmental Risks: As an owner and manager of real property, Boardwalk REIT is subject to various Canadian federal,
provincial, and municipal laws relating to environmental matters. These laws could encumber us with liability for the costs of
removal and remediation of certain hazardous substances or wastes released or deposited on or in its properties or disposed of at
other locations. The failure to remove or remediate such substances, if any, could adversely affect Boardwalk’s ability to sell its real
estate, or to borrow using real estate as collateral, and could potentially also result in claims or other proceedings against
Boardwalk REIT. Boardwalk REIT is not aware of any material non-compliance with environmental laws at any of its properties. The
Trust is also not aware of any pending or threatened investigations or actions by environmental regulatory authorities in connection
with any of its properties or any material pending or threatened claims relating to environmental conditions at its properties.
Boardwalk REIT has formal policies and procedures to review and monitor environmental exposure. The Trust has made, and will
continue to make, the necessary capital expenditures for compliance with environmental laws and regulations. Environmental laws
and regulations can change rapidly and may become more stringent in the future. Compliance with more stringent environmental
laws and regulations could have a material adverse effect on our business, financial condition or results of operation.
Ground Lease Risk: Five of our properties, located in Banff, Calgary, Edmonton, and two in Montreal, are subject to long-term
ground (or land) leases and similar arrangements; in each instance, the underlying land is owned by a third party and leased to the
Trust. Under the terms of a typical ground lease, the lessee must pay rent for the use of the land and is generally responsible for
all costs and expenses associated with the building and improvements, including taxes, utilities, insurance, maintenance, repairs
and replacements. Unless the lease term is extended, the land together with all improvements made will revert to the owner of
the land upon the expiration of the lease term. These leases are set to expire between 2028 and 2095. Approximately 10% of the
Trust’s FFO derives from the properties in its portfolio, which are held as long-term ground leases. The Trust will actively seek to
either renew the terms of such leases or purchase the freehold interest in the lands forming the subject matter of such leases
prior to the expiry of their terms. However, if the Trust cannot or chooses not to renew such leases, or buy the land of which they
form the subject matter, as the case may be, the net operating income and cash flow associated with such properties would no
longer contribute to Boardwalk’s results of operations and could adversely impact its ability to make distributions to Unitholders.
The ground lease for the largest Montreal property, known as the Nuns’ Island portfolio, was also subject to a rent revision clause,
which commenced on December 1, 2008 (based on a valuation date of March 16, 2008). The rent increases will be phased in on a
property-by-property basis through to 2019, and was based on 75% of the land value in its current use. After that revision, the land
rent will remain constant thereafter through to 2064. An event of default by us, under the terms of a ground lease, could also
result in a loss of the property, subject to such ground lease, should the default not be rectified in a reasonable period of time.
The Trust is not aware of any default under the terms of the ground leases.
Competition Risk: Each segment of the real estate business is competitive. Numerous other residential developers and
apartment owners compete in seeking tenants. Although it is our strategy to own multi-family properties in premier locations in
each market in which we operate, some of the apartments of our competitors may be newer, better located or better capitalized.
The existence of alternative housing could have a material adverse effect on our ability to lease space in our properties and on the
rents charged or concessions granted, and could adversely affect Boardwalk REIT’s revenues and its ability to meet its obligations.
General Uninsured Losses: Boardwalk REIT carries comprehensive general liability, fire, flood, extended coverage and rental loss
insurance with policy specifications, limits and deductibles customarily carried for similar properties. There are, however, certain
types of risks (generally of a catastrophic nature such as war or environmental contamination), which are either uninsurable or not
economically insurable. Boardwalk REIT currently has insurance for earthquake risks, subject to certain policy limits, deductibles
and self-insurance arrangements, and will continue to carry such insurance if it is economical to do so. Should an uninsured or
2 0 1 7 A N N U A L R E P O R T
7 1
BOARDWALK REAL ESTATE INVESTMENT TRUST underinsured loss occur, Boardwalk REIT could lose its investment in, and anticipated profits and cash flows from, one or more of
its properties, and would continue to be obligated to repay any recourse mortgage indebtedness on such properties.
Fluctuations of Cash Distributions: Although Boardwalk REIT intends to continue to make distributions, the actual amount of
distributions in respect of the REIT Units will depend upon numerous factors, including, but not limited to, the amount of principal
repayments, tenant allowances, leasing commissions, capital expenditures and REIT Unit redemptions and other factors that may
be beyond the control of Boardwalk REIT. The distribution policy of Boardwalk REIT is established by the Trustees and is subject to
change at the discretion of the Trustees. The recourse of Unitholders who disagree with any change in policy is limited and could
require such Unitholders to seek to replace the Trustees. Distributions may exceed actual cash available to Boardwalk REIT from
time to time because of items such as principal repayments, tenant allowances, leasing commissions, capital expenditures, and
redemption of REIT Units, if any. Boardwalk REIT may be required to use part of its debt capacity or to reduce distributions in order
to accommodate such items. Boardwalk REIT may temporarily fund such items, if necessary, through an operating line of credit in
expectation of refinancing long-term debt on its maturity.
Cybersecurity Risk: A cyber incident is considered to be any adverse event that threatens the confidentiality, integrity or
availability of Boardwalk REIT’s information resources. More specifically, a cyber incident is an intentional attack or an unintentional
event that can include gaining unauthorized access to information systems to disrupt operations, corrupt data or steal confidential
information. As Boardwalk REIT’s reliance on technology has increased, so have the risks posed to its systems. Boardwalk REIT’s
primary risks that could directly result from the occurrence of a cyber incident include operational interruption, damage to its
reputation, damage to Boardwalk’s business relationships with its Resident Members/Customers and disclosure of confidential
information regarding its Resident Members and Associates. Boardwalk REIT has implemented processes, procedures and
controls to help mitigate these risks, but these measures, as well as its increased awareness of a risk of a cyber incident, do not
guarantee that its financial results will not be negatively impacted by such an incident.
Workforce Availability
Boardwalk’s ability to provide services to its existing Customers is somewhat dependent on the availability of well-trained Associates
and contractors to service our Customers as well as complete required maintenance and capital upgrades on our buildings. The Trust
must also balance requirements to maintain adequate staffing levels while balancing the overall cost to the Trust.
Within Boardwalk, our most experienced Associates are employed full-time; this full-time force is supplemented by additional
part-time Associates as well as specific contract services needed by the Trust. We are constantly reviewing existing overall market
factors to ensure that our existing compensation program is in-line with existing levels of responsibility and, if warranted, we
adjust the program accordingly. We also encourage Associate feedback in these areas to ensure the existing programs are meeting
their personal needs.
SPECIFIC RISKS
Credit Risk is the risk of loss due to failure of a contracted Customer to fulfill the obligation of required payments.
For us, one of the key credit risks involves the possibility that our Resident Members will be unable or unwilling to fulfill their lease
term commitments. Due to the very nature of the multi-family business, credit risk is not deemed to be very high. The Trust
currently has 33,773 rental apartment units. The result of this is that we are not unduly reliant on any one Resident Member or
lease. To further mitigate this risk, Boardwalk REIT continues to diversify its portfolio to various major centers across Canada.
Further, each of our rental units has its own individual lease agreement, thus Boardwalk REIT has no material financial exposure to
any particular Resident Member or group of Resident Members. The Trust continues to utilize extensive screening processes for all
potential Resident Members including, but not limited to, detailed credit checks.
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BOARDWALK REAL ESTATE INVESTMENT TRUST Market Risk is the risk that the Trust could be adversely affected due to market changes in product supply, interest rates and
regional rent controls.
Our principal exposures to market risk are in the areas of new multi-family housing supply, changes to rent controls, utility price
increases, property tax increases, higher interest rates and mortgage renewal risk.
Supply Risk is the risk that the Trust would be negatively affected by the new supply of, and demand for, multi-family
residential units in its major market areas.
Key drivers of demand include employment levels, population growth, demographic trends and consumer confidence. Any
significant amount of new construction will typically result in an imbalance in supply and cause downward price pressure on rents.
No signs of significant new rental construction are currently evident in any of our existing markets. Past studies have shown that in
order to economically justify new rental construction in Boardwalk REIT’s major markets, an increase in existing rental rates of
hundreds of dollars will be necessary. In recent years, however, there has been a change in the multi-family apartment
environment in Canada. During this period, we have witnessed a significant increase in the market value of rental apartments. This
increase, although somewhat helped by a steady increase in reported market rental rates, has been mainly driven by a significant
compression in market capitalization rates, which in turn has been the result of a prolonged low interest rate environment here in
Canada. With this increase in the market value of apartments, there has been a significant decrease in the expected returns from
the acquisition of existing multi-family rental properties to a level that warrants a measured allocation of capital to the area of new
apartment development, particularly on excess land Boardwalk REIT currently owns. Accordingly, the Trust has pursued new
apartment development on some of its excess density.
Risk Management for Supply
Our performance will always be affected by the supply and demand for multi-family rental real estate in Canada. The potential for
reduced rental revenue exists in the event that Boardwalk REIT is not able to maintain its properties at a high level of occupancy, or
in the event of a downturn in the economy, which could result in lower rents or higher vacancy rates. Boardwalk REIT has
minimized these risks by:
§ Increasing Resident Member satisfaction;
§ Diversifying its portfolio across Canada, thus lowering its exposure to regional economic swings;
§ Acquiring properties only in desirable locations, where vacancy rates for properties are higher than city-wide averages but can be
reduced by repositioning the properties through better management and selective upgrades;
§ Holding a balanced portfolio which includes a variety of multi-family building types including high-rise, townhouse, garden and
walk-ups, each with its own market niche;
§ Maintaining a wide variety of suite mix, including bachelor suites, one, two, three and four-bedroom units;
§ Building a broad and varied Resident Member base, thereby avoiding economic dependence on larger-scale tenants;
§ Focusing on affordable multi-family housing, which is considered a stable commodity;
§ Developing a specific rental program characterized by rental adjustments that are the result of enhanced service and superior
product; and,
§ Developing regional management teams with significant experience in the local marketplace, and combining this experience
with our existing operations and management expertise.
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BOARDWALK REAL ESTATE INVESTMENT TRUST Interest Risk is the combined risk that the Trust would experience a loss as a result of its exposure to a higher interest rate
environment (Interest Rate Risk) and the possibility that at the term end of a mortgage the Trust would be unable to renew
the maturing debt with either the existing or an additional lender (Renewal Risk).
The Trust continues to manage this risk by maintaining a balanced maturing portfolio with no significant amount coming due in any
one particular period. In addition, the majority of Boardwalk REIT’s debt is insured with NHA insurance. This insurance allows us to
increase the overall credit quality of the mortgage and, as such, enable the Trust to obtain preferential interest rates as well as
facilitating easier renewal on its due dates.
The use of NHA insurance also assists Boardwalk REIT in managing its renewal risk. Given the increased credit quality of such
debt, the probability of the Trust being unable to renew the maturing debt or transfer this debt to another accredited lending
institution is significantly reduced.
In a separate agreement dated September 13, 2002, and as amended and restated on January 19, 2005 and April 25, 2006, the
Trust agreed to provide certain financial information to CMHC and be subject to certain restrictive covenants, including limitation
on additional debt, payment of distributions in respect of Unitholders’ capital in the event of default, and maintenance of certain
financial ratios. In the event of default, the Trust’s total financial liability under this Agreement is limited to a one-time penalty
payment of $250,000 under a Letter of Credit issued in favor of CMHC. If the Trust is non-compliant and not able to remedy, there
would be no impact on the renewal of any existing insured mortgages through the full amortization of the financing. However, such
non-compliance may impact the Trust from obtaining future insured loans under this program.
To date, the Trust continues to obtain mortgage renewals on term maturing loans, and additional funds, if needed, continue to be
available on its investment properties. Although we have seen fluctuations in the quoted interest spread over the corresponding
benchmark bonds, the all-in quoted rates, due to a general decline in interest rates, continue to be at levels below the term
maturing interest rate and, as such, are accretive to the Trust as a whole.
In 2013, the Canadian government announced it has capped the total amount of insurance that CMHC can have in force at
$600 billion. This decision has primarily affected the amount of portfolio or bulk insurance CMHC offers to banks, and, to date, has had
a minimal impact on the renewal of Boardwalk’s mortgages, or the cost of secured debt capital. However, there is no assurance the
decision to cap the amount of CMHC insurance will not affect mortgages for multi-family residential properties in future periods.
We continue to monitor this situation. Depending on the changes, if any, the Government of Canada places on the NHA insurance
product, the impact on the Trust could vary. It is our understanding that this cap would not affect any pre-existing insurance
agreements. Over 99% of Boardwalk’s secured debt has this insurance on it with an average of 30 years of amortization
remaining. The larger risk may be the ability to issue new secured debt under this program at a much lower cost due to the use of
this insurance, the proceeds of which the Trust uses to assist in the execution of its overall strategy.
Joint Ventures and Co-ownerships
Boardwalk commenced participating in joint ventures, partnerships and similar arrangements that may involve risks and
uncertainties associated with third-party involvement, including, but not limited to, Boardwalk’s dependency on partners,
co-tenants or co-venturers that are not under our control and that might compete with Boardwalk for opportunities, become
bankrupt or otherwise fail to fund their share of required capital contributions, or suffer reputational damage that could have an
adverse impact on the Trust. Additionally, our partners might at any time have economic or other business interests or goals that
are different than or inconsistent with those of the Trust, and may require Boardwalk to take actions that are in the interest of the
partners collectively, but not in Boardwalk’s sole best interests. Accordingly, Boardwalk may not be able to favourably resolve
issues with respect to such decisions, or the Trust could become engaged in a dispute with any of them that might affect its ability
to operate the business or assets in question.
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BOARDWALK REAL ESTATE INVESTMENT TRUST Structural Subordination
Liabilities of a parent entity with assets held by various subsidiaries may result in the structural subordination of the lenders of the
parent entity. The parent entity is entitled only to the residual equity of its subsidiaries after all debt obligations of its subsidiaries
are discharged. In the event of a bankruptcy, liquidation or reorganization of the Trust, holders of indebtedness of the Trust may
become subordinate to lenders to the subsidiaries of the Trust.
Certain subsidiaries of the Trust will provide a form of guarantee pursuant to which the Indenture Trustee will, subject to the Trust
Indenture, be entitled to seek redress from such subsidiaries for the guaranteed indebtedness. These guarantees are intended to
eliminate structural subordination, which arises as a consequence of the Trust’s assets being held in various subsidiaries. Although
all subsidiaries, which own material assets, will provide a guarantee, not all subsidiaries of the Trust will provide such a guarantee.
In addition, there can be no assurance the Indenture Trustee will, or will be able to, effectively enforce the guarantee.
Rent Control Risk is the risk of the implementation or amendment of new or existing legislative rent controls in the markets
Boardwalk REIT operates, which may have an adverse impact on the Trust’s operations.
Under Ontario’s rent control legislation, commonly known as “rent de-control”, a landlord is entitled to increase the rent for
existing tenants once every twelve months by no more than the “guideline amount” established by regulation. For the
calendar years 2016 and 2017, the guideline amounts have been established at 2.0% and 1.5%, respectively, and for 2018
the guideline amount has been set at 1.8%. Further details on Ontario’s Annual Rental Increase Guidelines can be found at
http://www.landlordselfhelp.com/RentIncreaseGuideline.htm. This adjustment is meant to take into account the income of the
building, the municipal and school taxes, the insurance bills, the energy costs, maintenance, and service costs. Landlords may
apply to the Ontario Rental Housing Tribunal for an increase above the guideline amounts if annual costs for heat, hydro, water,
or municipal taxes have increased significantly, or if building security costs have increased. In April 2017, the Ontario Government
introduced legislation that would expand rent control to all rental units. Previously, rent control in Ontario applied only to rental
units constructed before November 1, 1991. The new legislation will not have a material impact on Boardwalk, as all of its Ontario
properties were built prior to November 1, 1991. When a unit is vacated, however, the landlord is entitled to lease the unit to a new
tenant at any rental amount, after which annual increases are limited to the applicable guideline amount. The landlord may also be
entitled to a greater increase in rent for a unit under certain circumstances, including, for example, where extra expenses have
been incurred as a result of a renovation of that unit.
Under Quebec’s rent control legislation, a landlord is entitled to increase the rent for existing tenants once a year for the rent
period starting after April 1st of the current year but before April 1st of the following year. There is no fixed rate increase specified
by the regulation. Rent increases also take into account a return on capital expenditures (for 2018 this return is 2.4% compared to
2.4% for 2017, 2.5% for 2016, 2.9% for 2015 and 2.6% for 2014), if such expenditures were incurred, and an indexing of the net
income of the building. Average rent increase estimates for the period starting after April 1st, 2018 and before April 2nd, 2019,
before any consideration for increases to municipal and school taxes as well as capital expenditures, are: -0.9% for electricity
heated dwellings, 1.3% for gas heated dwellings, and 12.3% for oil heated dwellings, plus 3.5% to cover the cost of maintenance,
service and management contracts.
Presently, rent control legislation does not exist in, and is not planned for, Alberta or Saskatchewan, although in April of 2007, the
province of Alberta amended its existing rental legislation.
To manage this risk prior to entering a market where rent controls are in place, an extensive amount of time is spent researching
the existing rules, and, where possible, the Trust will ensure it employs Associates who are experienced in working in these
controlled environments. In addition, the Trust adjusts forecast assumptions on new acquisitions to ensure they are reasonable
given the rent control environment.
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BOARDWALK REAL ESTATE INVESTMENT TRUST Utility and Tax Risk relates to the potential loss the Trust may experience as a result of higher resource prices as well as its
exposure to significant increases in property taxes.
Over the past few years, property taxes have increased as a result of re-valuations of municipal properties and their adherent tax
rates. For us, these re-valuations have resulted in significant increases in some property assessments due to enhancements,
which are not represented on our balance sheet (as such representations are contrary to existing IFRS reporting standards). To
address this risk, Boardwalk REIT has compiled a specialized team of property reviewers who, with the assistance of outside
authorities, constantly review property tax assessments and, where warranted, appeal them.
Utility expenses, mainly consisting of natural gas and electricity service charges, have been subject to considerable price
fluctuations over the past several years. In recent years, water and sewer costs have increased significantly as another form of
“taxes” imposed by various municipalities. In addition, the recently introduced Alberta Carbon Tax will increase the costs
associated with natural gas usage. Effective January 1st, 2017, an additional $1.12 per gigajoule (“GJ”) consumed was charged. The
rate is set to increase to $1.65/GJ for 2018. Any significant increase in these resource costs that Boardwalk REIT cannot pass on to
the Customer may have a negative material impact on the Trust. To mitigate this risk, the Trust has begun to play a more active role
in controlling the fluctuation and predictability of this risk. Through the combined use of financial instruments and resource
contracts with varying maturity dates, exposure to these fluctuations has been reduced. In addition to this, the following steps
have been implemented:
§ Where possible, economical electrical sub-metering devices are being installed, passing on the responsibility for electricity
charges to the end Customer.
§ In other cases, rents have been, or will be, adjusted upward to cover these increased costs.
Operational Risk is the risk that a direct or indirect loss may result from an inadequate or failed technology, from a human process,
or from external events. The impact of this loss may be financial loss, loss of reputation, or legal and regulatory proceedings.
The Trust endeavors to minimize losses in this area by ensuring that effective infrastructure and controls exist. These controls are
constantly reviewed and improvements are implemented, if deemed necessary.
CERTAIN TAX RISKS
Mutual Fund Trust Status
Boardwalk qualified as a mutual fund trust for Canadian income tax purposes. It is the current policy of Boardwalk to annually
distribute all of its taxable income to Unitholders and is therefore generally not subject to tax on such amount. In order to maintain
its current mutual fund trust status, Boardwalk is required to comply with specific restrictions regarding its activities and the
investments held by it. If Boardwalk was to cease to qualify as a mutual fund trust, the consequences could be adverse.
In accordance with the Income Tax Act (Canada) (the “Tax Act”), for fiscal 2016 and 2017, the Trust qualified as a real estate
investment trust (“REIT”) for income tax purposes and, as such, was exempted from the specified investment flow-through rules
(the SIFT Rules).
A REIT is defined under the SIFT Rules as a trust that is resident in Canada throughout the taxation year and that satisfies all of the
following criteria:
(a) at each time in the taxation year the total fair market value at that time of all non-portfolio properties that are qualified REIT
properties held by the trust is at least 90% of the total fair market value at that time of all non-portfolio properties held by the trust;
(b) not less than 90% of the trust’s gross REIT revenue for the taxation year is from one or more of the following: rent from real or
immovable properties, interest, dispositions of real or immovable properties that are capital properties, dividends, royalties, and
dispositions of eligible resale properties;
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BOARDWALK REAL ESTATE INVESTMENT TRUST (c) not less than 75% of the trust’s gross REIT revenue for the taxation year is from one or more of the following: rent from real or
immovable properties, interest from mortgages, or hypothecs, on real or immovable properties, and dispositions of real or
immovable properties that are capital properties;
(d) at each time in the taxation year an amount, that is equal to 75% or more of the equity value of the trust at that time, is the
amount that is the total fair market value of all properties held by the trust each of which is a real or immovable property that is
a capital property, an eligible resale property, an indebtedness of a Canadian corporation represented by a bankers’ acceptance,
a property described by either paragraph (a) or (b) of the definition “qualified investment” in section 204, or a deposit with a
credit union; and,
(e) investments in the trust are, at any time in the taxation year, listed or traded on a stock exchange or other public market.
For this purpose, “real or immovable property” includes a security of any trust, corporation or partnership that itself satisfies the above
criteria, but does not include any depreciable property of a prescribed class for which the rate of capital cost allowance exceeds 5%.
If Boardwalk REIT, or any other trust, does not qualify as a real estate investment trust, it will no longer be able to deduct for tax
purposes its taxable distributions, and, as such, will be required to pay tax on this amount prior to distribution. Any amount
distributed that is determined to be a return of capital would not be subject to this tax.
Existing Tax Filing Positions
Although Boardwalk REIT is of the view that all expenses to be claimed by Boardwalk REIT, the Operating Trust and the Partnership
will be reasonable and deductible, that the cost amount and capital cost allowance claims of entities indirectly owned by
Boardwalk REIT will have been correctly determined, and that the allocation of the Partnership’s income for purposes of the Tax Act
among its partners is reasonable, there can be no assurance that the Tax Act or the interpretation of the Tax Act will not change, or
that the Canada Revenue Agency (“CRA”) will agree. If the CRA successfully challenges the deductibility of such expenses or the
allocation of such income, the Partnership’s allocation of income to the Operating Trust, and indirectly the taxable income of
Boardwalk REIT and the Unitholders, may be adversely affected. The extent to which distributions will be tax-deferred in the future
will depend in part on the extent to which entities indirectly owned by Boardwalk REIT are able to deduct capital cost allowance
relating to the Contributed Assets held by them, which was acquired by Boardwalk REIT on May 3, 2004, pursuant to a Plan of
Arrangement under section 193 of the Business Corporations Act (Alberta).
Since the Partnership acquired the relevant properties on a tax-deferred basis, its tax cost in certain properties may be less than
their fair market value. Accordingly, if one or more properties are disposed of, the gain recognized by the Partnership may be in
excess of that which it would have realized if it had acquired the properties at their fair market values. Immediately prior to the
Plan of Arrangement becoming effective, the Corporation transferred the Contributed Assets to the Partnership and received, as
consideration therefore, (i) an assumption of all of the indebtedness of the Corporation associated with the Contributed Assets
(other than the Retained Debt), (ii) the LP Note, and (iii) a credit to the capital accounts in respect of each of the LP Class B Units
and the LP Class C Units, all of which were owned at that time by the Corporation. See “Overview of the Acquisition and the
Arrangement Replacing the Corporation as a Public Entity with Boardwalk REIT – Pre-Arrangement Reorganization” in the AIF
dated February 16, 2017. The transfer and contribution were effected as a “rollover” under subsection 97(2) of the Tax Act, and the
Corporation, based on the advice of legal counsel, is of the view that there is no income tax payable in connection therewith. There
can be no assurance that the CRA will not take a contrary view; however, the Corporation has been advised by counsel that, in
such event, the CRA would not be successful. If, contrary to this, the CRA successfully challenges the rollover, income tax may be
payable by the Corporation in connection with the transfer and contribution of the Contributed Assets at the applicable tax rate on
the value of the capital contribution in respect of the LP Class C Units. The Partnership has agreed to indemnify the Corporation for
all liabilities incurred by it in connection with the Acquisition and the Arrangement, including the transfer and contribution of the
Contributed Assets to the Partnership and any associated tax that might be payable by the Corporation in respect thereof. See
“Overview of the Acquisition and the Arrangement replacing the Corporation as a Public Entity with Boardwalk REIT – Ancillary
Agreements in Connection with the Arrangement” in the AIF dated February 23, 2018. The amount of such indemnification would
be significant and have a material adverse effect on the amount of distributable cash of the Partnership and, consequently, on the
distributions of Boardwalk REIT.
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BOARDWALK REAL ESTATE INVESTMENT TRUST RISKS ASSOCIATED WITH DISCLOSURE CONTROLS AND PROCEDURES & INTERNAL CONTROL
OVER FINANCIAL REPORTING
Our business could be adversely impacted if we have deficiencies in our disclosure controls and procedures or internal control over
financial reporting.
The design and effectiveness of our disclosure controls and procedures and internal control over financial reporting may not
prevent all errors, misstatements or misrepresentations. While management continues to review the design and effectiveness of
our disclosure controls and procedures and internal control over financial reporting, we cannot assure you that our disclosure
controls and procedures or internal control over financial reporting will be effective in accomplishing all control objectives all of the
time. Deficiencies, particularly material weaknesses, in internal control over financial reporting which may occur in the future could
result in misstatements of our results of operations, restatements of our financial statements, a decline in our trust unit price, or
otherwise materially adversely affect our business, reputation, results of operation, financial condition or liquidity.
ACCOUNTING AND CONTROL MATTERS
CRITICAL ACCOUNTING POLICIES
The Trust adopted IFRS as its basis of financial reporting, effective January 1, 2011. The significant accounting policies adopted by the
Trust are included in NOTE 2 of the notes to the audited Consolidated Financial Statements for the year ended December 31, 2017.
The preparation of the financial statements requires management to make estimates and judgments that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the
reported amounts of revenue and expenses during the reporting period. Actual results may differ from those estimates under
different assumptions and conditions. In determining estimates, management uses the information available to the Trust at the
time. Management reviews key estimates on a quarterly basis to determine their appropriateness. Any change to these estimates
is applied prospectively in compliance with IFRS. We believe that the application of judgments and assessments is consistently
applied and produces financial information that fairly depicts the results of operations for all periods presented. Boardwalk REIT
considers the following policies to be critical in determining the judgments that are involved in the preparation of the consolidated
financial statements and the uncertainties that could affect the reported results.
(a) Interest in joint operations
In accordance with IFRS 11 – Joint Arrangements, a joint operation is a joint arrangement whereby the parties that have joint control
of the arrangement have rights to the assets, and obligations for the liabilities, relating to the arrangement. Joint control is the
contractually agreed sharing of control of an arrangement, which exists only when decisions about the relevant activities require
unanimous consent of the parties sharing control. The Trust records only its share of the assets, liabilities and share of the revenue
and expenses of the joint operation. The assets, liabilities, revenue and expenses of joint operations are included within the respective
line items of the consolidated statement of financial position and consolidated statement of comprehensive income (loss).
(b) Investment properties
Investment properties consist of multi-family residential properties held to earn rental income and properties being constructed or
developed for future use to earn rental income, and include interests held under long-term operating land leases. Investment
properties are measured initially at cost (which is equivalent to fair value). Cost includes all amounts relating to the acquisition
(excluding transaction costs related to a business combination as outlined in NOTE 2(g)) and improvement of the properties. All
costs associated with upgrading and extending the economic life of the existing facilities, other than ordinary repairs and
maintenance, are capitalized to investment property. Included in these costs are internal amounts that are directly attributable to a
specific investment property, which are capitalized to the extent that they upgrade or extend the economic life of the asset.
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BOARDWALK REAL ESTATE INVESTMENT TRUST Subsequent to initial recognition, investment properties are recorded at fair value, in accordance with International Accounting
Standard (“IAS”) 40 – Investment Property (“IAS 40”). Fair value is determined based on a combination of internal and external
processes and valuation techniques. Gains or losses arising from differences between current period fair value and the sum of
previously measured fair value and capitalized costs as described above are recorded in profit or loss in the period in which they arise.
Properties owned by the Trust where a significant portion of the property is used for administrative purposes by the Trust are
considered “Property, Plant and Equipment” and, therefore, fall within the scope of IAS 16 – Property, Plant and Equipment
(“IAS 16”) and are recorded in accordance with that standard. Where part of a building is used for administrative purposes by
the Trust, but this portion is considered insignificant, this space is included as part of Investment Property under IAS 40.
Investment properties are reclassified to “Assets Held for Sale” when the criteria set out in IFRS 5 – Non-Current Assets Held for
Sale and Discontinued Operations (“IFRS 5”) are met (see NOTE 2(i)).
An investment property is derecognized upon disposal or when the investment property is permanently withdrawn from use and
no future economic benefits are expected from the disposal. Prior to its disposal, the carrying value of the investment property is
adjusted to reflect its fair value as outlined in the purchase and sale agreement (as the purchase and sale agreement is the best
evidence of fair value). This adjustment shall be recorded as a fair value gain or loss. Any remaining gain or loss arising on
derecognition of the property (calculated as the difference between the net disposal proceeds and the carrying amount of the
asset) is included in profit or loss in the period in which the property is derecognized.
Excess land represents land owned by the Trust located contiguous to land included as investment property. The Trust has the
ability to develop additional multi-family residential buildings on this land or sell it separately from the Investment Property at a
later date. Excess land is held for capital appreciation and, therefore, is treated as Investment Property and recorded in accordance
with IAS 40 as outlined above. When determining the fair value of a project with excess land, the capitalization rate used in
determining the value is adjusted accordingly.
(c) Properties under development
Properties under development include new development on excess land density or acquired land, re-development or re-positioning
of buildings the Trust currently owns that require substantial renovations and incomplete Apartment Units acquired from third
parties that will take 12 months or longer to complete. The cost of land, if applicable, and buildings under development or
re-development (consisting of development sites, density or intensification rights and related infrastructure) are specifically
identifiable costs incurred in the period before construction is complete. Capitalized costs include pre-construction costs essential
to the development or re-development of the property, construction costs, borrowing costs directly attributable to the
development, real estate taxes and other costs incurred during the period of development or re-development. Additions to
investment properties consist of costs of a capital nature and, in the case of properties under development and/or redevelopment,
capitalized interest. Directly attributable borrowing costs are also capitalized on land or properties acquired specifically for
development or redevelopment when activities necessary to prepare the asset for development or redevelopment are in progress
in accordance with IAS 23 – Borrowing Costs (“IAS 23”). Where borrowings are associated with specific developments, the
amount capitalized is the total cost incurred on those borrowings.
The capitalization of borrowing costs commences when the activities necessary to prepare an asset for development or
redevelopment begins, and continues until the date that substantially all of the construction is complete and all necessary
occupancy and related permits have been received, whether or not the space is leased. If the Trust is required, as a condition of a
lease, to construct tenant improvements that enhance the value of the property, then capitalization of costs continues until such
improvements are completed. Capitalization ceases if there is a prolonged period where development activity is interrupted.
Properties under active development are generally valued at market land values, if applicable, plus costs invested to date.
Where significant leasing and construction is in place and the future income stream is reasonably determinable, the valuation
methodology used is similar to that of revenue-producing properties, less estimates of future capital outlays, construction and
development costs, to determine a net “as-is” market value. Development risks such as planning, zoning, licenses, and building
permits are considered in the valuation process. Properties not under active development, such as land parcels held for future
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BOARDWALK REAL ESTATE INVESTMENT TRUST development, are valued based on comparable sales of land. Significant increases (decreases) in construction costs, cost
escalation rates and estimated time to complete construction in isolation would result in a significantly lower (higher) fair value for
properties under development.
(d) Property, plant and equipment
Tangible assets that are held for use in the production or supply of goods and services, or for administrative purposes, and are
expected to be used during more than one period, except when another accounting standard requires or permits a different
accounting treatment, are recorded in accordance with IAS 16 using the cost model. IAS 16, therefore, excludes tangible assets
that are accounted for in accordance with IAS 40 (see NOTE 2(e)) and IFRS 5 (see NOTE 2(i)).
In accordance with IAS 16, the cost model, after initial recognition of the property, plant and equipment, requires the tangible asset
to be carried at its cost less accumulated depreciation and any accumulated impairment losses (see NOTE 2(j)). Depreciation is
recognized in a manner that reflects the pattern in which the future economic benefits of the tangible asset are expected to be
consumed and realized by the Trust. The amount of depreciation will be charged systematically to the consolidated statement of
comprehensive income (loss) and is the cost less residual value of the asset over its useful economic life. IAS 16 also requires that
the cost and useful economic life of each significant component of a tangible asset be determined based on the circumstances of
each tangible asset. The method of depreciation, residual values and estimates of the useful economic life of a tangible asset, or
other property, plant and equipment, are reviewed at each financial year-end and any changes are accounted for as a change in
accounting estimate in accordance with IAS 8 – Accounting Policies, Changes in Accounting Estimates and Errors (“IAS 8”).
Property, Plant and Equipment (“PP&E”) is valued using the cost model under IAS 16. PP&E is categorized into the following
classes and their respective useful economic life is used to calculate the amount of depreciation or amortization for each period.
Categories of PP&E with the same or similar useful lives are included in the same class.
PP&E Class
PP&E Category (NOTE 5)
Useful Life / Depreciation Rate
Depreciation Method Used
Administrative building
Administrative building
Site equipment
Automobiles
Site equipment and other assets
Site equipment and other assets
Warehouse assets
Site equipment and other assets
Corporate assets
Site equipment and other assets
Computer hardware
Corporate technology assets
Computer software*
Corporate technology assets
40 years
15%
20%
10% to 20%
10% to 20%
35%
35%
Straight-line
Declining balance
Declining balance
Declining balance
Declining balance
Declining balance
Declining balance
*
In addition to the purchase of software from external sources, the Trust capitalizes certain programmers’ salaries related to internally developed software
applications used in the normal course of operations of Boardwalk REIT. The programmers’ work is directly attributable to software development.
(e) Business combinations
In accordance with IFRS 3 – Business Combinations (“IFRS 3”), the acquisition of an asset or group of assets is recorded as a
business combination if the assets acquired and the liabilities assumed constitute a business. A business is defined as an
integrated set of activities and assets that is capable of being conducted and managed for the purpose of providing a return in the
form of dividends, lower costs or other economic benefit. Building and other asset acquisitions, which meet the above definition of
a business, are recorded as business combinations and the acquisition method of accounting for these transactions is applied.
Building and other asset acquisitions, which do not meet the above definition of a business, are recorded as an asset addition.
The acquisition method requires that an acquirer be identified, a specific acquisition date be determined (which is typically the date
on which control changes), all identifiable assets and liabilities assumed, as well as any non-controlling interest in the acquiree, be
recognized and measured, and any goodwill or gains from a bargain purchase price are recognized and measured at fair value,
including contingent liabilities when these contingent considerations are part of the consideration being transferred. All acquisition
costs associated with a transaction identified as a business combination are expensed as incurred.
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2 0 1 7 A N N U A L R E P O R T
BOARDWALK REAL ESTATE INVESTMENT TRUST Goodwill is measured as the excess of the sum of the consideration transferred, the amount of any non-controlling interest in the
acquiree, and the fair value of the acquirer’s previously held equity interest in the acquiree (if any) over the net of the acquisition-
date amounts of the identifiable assets acquired and the liabilities assumed. If, after the assessment, the net of the acquisition-
date amounts of the identifiable assets acquired and liabilities assumed exceeds the sum of the consideration transferred, the
amount of any non-controlling interests in the acquiree and the fair value of the acquirer’s previously held interest in the acquiree
(if any), the excess is recognized immediately in profit as a bargain purchase gain.
Non-controlling interests that are present ownership interests and entitle their holders to a proportionate share of the entity’s net
assets in the event of liquidation may be initially measured either at fair value or at the non-controlling interests’ proportionate
share of the recognized amounts of the acquiree’s identifiable net assets. The choice of measurement basis is made on a
transaction-by-transaction basis. Other types of non-controlling interests are measured at fair value or, when applicable, on the
basis specified in another IFRS.
When the consideration transferred by the Trust in a business combination includes assets or liabilities resulting from a contingent
consideration arrangement, the contingent consideration is measured at its acquisition date fair value and included as part of the
consideration transferred in a business combination. Changes in the fair value of the contingent consideration that qualify as
measurement period adjustments are adjusted retrospectively, with corresponding adjustments against goodwill. Measurement
period adjustments are adjustments that arise from additional information obtained during the “measurement period” (which
cannot exceed one year from the acquisition date and is shorter than one year if all information is received) about facts and
circumstances that existed at the acquisition date.
The subsequent accounting for changes in the fair value of the contingent consideration that do not qualify as measurement period
adjustments depends on how the contingent consideration is classified. Contingent consideration that is classified as equity is not
remeasured at subsequent reporting dates and its subsequent settlement is accounted for within equity. Contingent consideration
that is classified as an asset or a liability is remeasured at subsequent reporting dates in accordance with IAS 39 – Financial
Instruments: Recognition and Measurement, or IAS 37 – Provisions, Contingent Liabilities and Contingent Assets, as appropriate,
with the corresponding gain or loss being recognized in profit or loss in the consolidated statement of comprehensive income (loss).
When a business combination is achieved in stages, the Trust’s previously held equity interest in the acquiree is remeasured to fair
value at the acquisition date (i.e. the date when the Trust obtains control) and the resulting gain or loss, if any, is recognized in
profit or loss in the consolidated statement of comprehensive (loss) income. Amounts arising from interests in the acquiree prior
to the acquisition date that have previously been recognized in other comprehensive income are reclassified to profit or loss where
such treatment would be appropriate if that interest was disposed of.
If the initial accounting for a business combination is incomplete by the end of the reporting period in which the combination
occurs, the Trust reports provisional amounts for the items for which the accounting is incomplete. These provisional amounts are
adjusted during the measurement period (see above), or additional assets or liabilities are recognized, to reflect new information
obtained about facts and circumstances that existed at the acquisition date that, if known, would have affected the amounts
recognized at that date.
(f) Assets held for sale and discontinued operations
(i) Assets (or disposal groups) held for sale
Non-current assets and groups of assets and liabilities, which comprise disposal groups, are categorized as assets (or
disposal groups) held for sale where the asset (or disposal group) is available for sale in its present condition, and the sale
is highly probable. For this purpose, a sale is highly probable: (a) if management is committed to a plan to achieve the sale,
(b) there is an active program to find a buyer, (c) the non-current asset (or disposal group) is being actively marketed at a
reasonable price, (d) the sale is anticipated to be completed within one year from the date of classification, and (e) it is
unlikely there will be changes to the plan. Where an asset (or disposal group) is acquired with a view to resale, it is classified
as a non-current asset (or disposal group) held for sale if the disposal is expected to take place within one year of the
acquisition and it is highly likely that the other conditions referred to above will be met within a short period following the
2 0 1 7 A N N U A L R E P O R T
8 1
BOARDWALK REAL ESTATE INVESTMENT TRUST acquisition. Retrospective application is not required; therefore, comparative figures will not be adjusted to reflect non-
current assets held for sale. The gains or losses arising on a sale of assets (or disposal groups) that does not meet the
definition of discontinued operations will be recognized as part of continuing operations, while the gains or losses arising on
a sale of assets (or disposal groups) that meets the definition of discontinued operations will be reported as part of
discontinued operations in the consolidated statement of comprehensive income (loss).
(ii) Discontinued operations
An asset or group of assets will be classified as a discontinued operation when it is a component of an entity that has either
been disposed of or is classified as held for sale and represents a separate major line of business, it is part of a single
coordinated plan to dispose of a separate major line of business or geographical area of operations, or it is a subsidiary
acquired exclusively with a view to resell. Profits and gains or losses related to the disposal of discontinued operations are
measured based on fair value less cost to sell or on the disposal of the assets (or disposal groups) and are presented in the
consolidated financial statements on an after-tax basis in accordance with IFRS 5. In addition, retrospective application is
required; therefore, comparative figures will be changed to reflect discontinued operations. As an individual building or a
group of buildings in a non-core municipal region does not constitute a major line of business, these sales are not treated as
discontinued operations.
(g) Impairment of assets
At the end of each reporting period, assets, other than those identified in the standard as not being applicable to
IAS 36 – Impairment of Assets (“IAS 36”), such as investment properties recorded at fair value, are assessed for any
indication of impairment. Should the indication of impairment exist, the recoverable amount (see below) of the asset is
estimated in order to determine the extent of the impairment loss (if any). Where it is not possible to estimate the
recoverable amount of an individual asset, the Trust estimates the recoverable amount of the cash-generating unit to which
the asset belongs. Where a reasonable and consistent basis of allocation can be identified, corporate assets are also
allocated to individual cash-generating units, or otherwise they are allocated to the smallest group of cash-generating units
for which a reasonable and consistent allocation basis can be identified.
Recoverable amount is defined as the higher of an asset’s “fair value less cost to sell” and its “value-in-use”. In assessing
value-in-use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects
current market assessments of the time value of money and the risks specific to the asset for which the estimate of future
cash flows have not been adjusted.
Where the carrying amount of an asset exceeds the recoverable amount determined, an impairment loss is recognized in the
consolidated statement of comprehensive income (loss). After the recognition of an impairment loss, the depreciation charge
related to that asset is also revised for the adjusted carrying amount on a systematic basis over the remaining useful life of the
asset. Should this impairment loss be determined to have reversed in a future period (with the exception of goodwill), a reversal
of the impairment loss is recorded in profit or loss. However, the reversal of an impairment loss will not increase the carrying
amount that would have been determined (net of amortization) had no impairment loss been recognized.
(h) Inventories
Inventories are measured at the lower of cost and net realizable value. The costs of inventories comprise the purchase price,
import duties and other taxes (other than those subsequently recoverable by the entity from the taxing authorities), and
third-party transport, handling and other costs directly attributable to the acquisition of goods and materials, less any trade
discounts, rebates and other similar items, using the first-in, first-out method of cost assignment. Net realizable value
represents the estimated selling price for inventories less all estimated costs necessary to make the sale.
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2 0 1 7 A N N U A L R E P O R T
BOARDWALK REAL ESTATE INVESTMENT TRUST (i) Taxation
For fiscal 2016 and 2017, Boardwalk REIT qualified as a “mutual fund trust” as defined under the Income Tax Act
(Canada) (the “Tax Act”) and as a Real Estate Investment Trust (“REIT”) eligible for the ‘REIT Exemption’ in accordance
with the rules affecting the tax treatment of publicly traded trusts. Accordingly, the Trust is not taxable on its income provided that
all of its taxable income is distributed to its Unitholders. This exemption, however, does not extend to the corporate subsidiaries of
Boardwalk REIT that are subject to income tax (NOTE 31 summarizes the Trust’s subsidiaries, including its corporate subsidiaries).
Current Tax
The tax currently payable, if any, is based on taxable profit for the year for certain corporate subsidiaries of the Trust. Taxable profit
differs from profit as reported in the consolidated statement of comprehensive income (loss) because of items of income or
expense that are taxable or deductible in other years and items that are never taxable or deductible. The Trust’s liability for current
tax is calculated using tax rates that have been enacted or substantively enacted by the end of the reporting period.
Deferred Tax
Deferred tax is recognized on temporary differences between the carrying amounts of assets and liabilities in the consolidated
financial statements and the corresponding tax bases used in the computation of taxable profit.
Deferred income tax liabilities are generally recognized for all taxable temporary differences. Deferred income tax assets are
recognized for all deductible temporary differences, carry forward of unused tax credits and unused tax losses, to the extent that it is
probable that deductions, tax credits and tax losses can be utilized. The carrying amounts of deferred income tax assets are reviewed
at each reporting date and reduced to the extent it is no longer probable that the income tax assets will be recovered. Deferred
income tax assets and liabilities are measured at the tax rates that are expected to apply in the year when the asset is realized or the
liability settled, based on tax rates and laws that have been enacted or substantively enacted at the reporting date. In addition,
deferred income tax assets and liabilities are measured using the rate that is consistent with the expected manner of recovery (i.e.
using the asset versus selling the asset). Where applicable, current and deferred income taxes relating to items recognized directly in
equity or comprehensive income (loss) are also recognized directly in equity or comprehensive income (loss), respectively.
(j) Provisions
In accordance with IAS 37 – Provisions, Contingent Liabilities and Contingent Assets (“IAS 37”), a provision is a liability of
uncertain timing or amount. Provisions are recognized when the entity has a present legal or constructive obligation as a result of
past events and when it is probable that an outflow of resources will be required to settle the obligation and the amount can be
reliably estimated. Provisions are not recognized for future operating losses. Provisions are measured at the present value of the
expenditures expected to be required to settle the obligation using a discounted rate that reflects current market assessment of
the time value of money and the risks and uncertainties specific to the obligation. Provisions are re-measured at each reporting
date using the current discount rate. The increase in the provision due to the passage of time is recognized as a financing cost.
(k) Unit-based payments
Equity-settled unit-based payments to employees and Trustees are measured at the fair value of the deferred unit at the grant date
and expensed over the vesting period based on the Trust’s estimate of the deferred units that will actually vest. At the end of each
reporting period, the Trust revises its estimate of the number of equity instruments expected to vest. The impact of the revision of
the original estimates, if any, is recognized in profit or loss prospectively such that the cumulative expense reflects the revised
estimate. In accordance with IAS 32 – Financial Instruments: Presentation (“IAS 32”), the deferred units are presented as a liability
on the consolidated statement of financial position as the Trust is obliged to provide the holder with REIT Units once the deferred
units vest. Under IAS 39 – Financial Instruments: Recognition and Measurement (“IAS 39”), the deferred units are classified as
‘fair value through profit or loss’ and are measured at each reporting period at fair value with changes in fair value recognized in the
consolidated statement of comprehensive income (loss). Fair value of the deferred units is calculated based on the observable
market price of Boardwalk REIT’s Trust Units.
2 0 1 7 A N N U A L R E P O R T
8 3
BOARDWALK REAL ESTATE INVESTMENT TRUST (l) Government assistance and grants
The Trust receives government assistance in order to complement and partially assist the Trust’s initiatives in providing affordable
housing to low income-earning individuals. Government grants are not recognized until there is reasonable assurance that the Trust
will comply with the conditions attached to them and that the grants will be received. In accordance with IAS 20 – Accounting for
Government Grants and Disclosure of Government Assistance, grant proceeds will be recognized in profit or loss on a systematic
basis over the periods in which the Trust recognizes revenue or incurs expenses.
(m) Revenue recognition
(i)
Rental revenue
The Trust has retained substantially all of the risks and benefits of ownership of its investment properties, and, therefore,
accounts for leases with its tenants as operating leases. Revenue recognition under a lease commences when the tenant
has a right to use the leased asset. Generally, this occurs on lease inception date when the tenant occupies their leased
space. Rental revenue is recognized systematically over the term of the lease, which is generally not more than twelve
months. Any suite specific incentives offered or initial direct costs incurred in negotiating and arranging an operating lease
are also amortized over the term of the operating lease. Rental revenue is recorded based on the amount received or to be
received in accordance with the operating lease.
(ii) Building sales
The gain or loss from the sale of an investment property is recognized when title passes to the purchaser (control is
transferred) upon closing at which time all or substantially all of the funds are receivable, or have been received, and the
conditions of the sale have been completed.
(iii)
Interest income
Interest income from a financial asset is recognized when it is probable that the economic benefits will flow to the Trust and
the amount of income can be measured reliably. Interest income is accrued on a time basis when earned, by reference to
the principal outstanding and at the effective interest rate applicable. Interest income is included in financing costs in the
consolidated statement of comprehensive income (loss).
(iv) Ancillary rental income
Ancillary rental income comprises revenue from coin laundry machines located on the Trust’s existing building sites, and
income received from telephone and cable providers and is recorded when earned.
(n) Financial instruments and derivatives
Financial instruments and derivatives are accounted for, presented, and disclosed in accordance with IFRS 7 – Financial
Instruments: Disclosures (“IFRS 7”), IAS 32 and IAS 39. Financial assets and financial liabilities are initially measured at fair value.
Transaction costs that are directly attributable to the acquisition or issue of financial assets and financial liabilities (other than
financial assets and financial liabilities at fair value through profit or loss) are added to or deducted from the fair value of the
financial assets or financial liabilities, as appropriate, on initial recognition. Transaction costs directly attributable to the acquisition
of financial assets or financial liabilities at fair value through profit or loss are recognized immediately in profit or loss.
Financial Assets
Financial assets are classified into the following specified categories: financial assets at ‘fair value through profit or loss’ (“FVTPL”),
‘held-to-maturity’ investments, ‘available-for-sale’ financial assets, and ‘loans and receivables’. The classification depends on the
nature and purpose of the financial asset and is determined at the time of initial recognition. Financial assets are classified as at
FVTPL when the financial asset either is held for trading or is designated as at FVTPL.
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2 0 1 7 A N N U A L R E P O R T
BOARDWALK REAL ESTATE INVESTMENT TRUST Financial assets categories are defined and measured as follows:
Classification
Definition
Measurement
FVTPL
Classified as FVTPL when the financial asset is either held for trading or it
is designated as at FVTPL as discussed below:
Classified as held for trading if: it has been acquired principally for
the purpose of selling it in the near term; or, on initial recognition, it
is part of a portfolio of identified financial instruments that the Trust
manages together, and has a recent actual pattern of short-term profit
taking; or, it is a derivative that is not designated and effective as a
hedging instrument.
Stated at fair value, with gains or
losses arising on measurement
recognized in profit or loss.
Classified as FVTPL upon initial recognition if: such designation eliminates
or significantly reduces a measurement or recognition inconsistency that
would otherwise arise; or the financial asset forms part of a group which
is managed and its performance is evaluated on a fair value basis; or it
forms part of a contract containing one or more embedded derivatives.
Stated at fair value, with gains or
losses arising on measurement
recognized in profit or loss.
Held-to-maturity investments
Non-derivative financial assets with fixed or determinable payments and
fixed maturity dates that the Trust has the positive intent and ability to
hold to maturity.
Measured at amortized cost
using the effective interest
method less any impairment. (1) (2)
Available-for-sale
Non-derivative financial assets that either are designated as available-for-
sale or are not classified as (a) loans and receivables;, (b) held-to-maturity
investments; or (c) financial assets at FVTPL.
Measured at fair value through
other comprehensive income.
Loans and receivables
Non-derivative financial assets with fixed or determinable payments that
are not quoted in an active market.
Measured at amortized cost
using the effective interest
method less any impairment. (1) (2)
(1) The effective interest method is a method of calculating the amortized cost of a debt instrument and of allocating interest income over the relevant period.
The effective interest rate is the rate that exactly discounts estimated future cash receipts through the expected life of the debt instrument or where appropriate,
a shorter period, to the net carrying amount on initial recognition.
(2) Financial assets, other than those at FVTPL, are assessed for indicators of impairment at the end of each reporting period. Generally, the carrying amount of the
financial asset is reduced by the impairment loss.
Boardwalk REIT’s financial assets are as follows:
Financial Asset
Classification
Mortgage receivable
Loans and receivables
Trade and other receivables
Loans and receivables
Segregated tenants’ security deposits
Loans and receivables
Cash and cash equivalents
Loans and receivables
Measurement
Amortized cost
Amortized cost
Amortized cost
Amortized cost
The Trust derecognizes a financial asset only when the contractual rights to the cash flows from the asset expire, or when it
transfers the financial asset and substantially all the risks and rewards of ownership of the asset to another entity.
Financial Liabilities and Equity
Debt and equity instruments issued are classified either as financial liabilities or as equity in accordance with the substance of the
contractual arrangements and the definitions of a financial liability and an equity instrument. An equity instrument is any contract
2 0 1 7 A N N U A L R E P O R T
8 5
BOARDWALK REAL ESTATE INVESTMENT TRUST that evidences a residual interest in the assets of an entity after deducting all of its liabilities. Equity instruments issued by the
Trust are recognized at the proceeds received, net of direct issue costs. Repurchase of Boardwalk REIT’s own equity instruments
is recognized and deducted directly in equity. No gain or loss is recognized in profit or loss on the purchase, sale, issue or
cancellation of the Trust’s own equity instruments. Distributions paid on the Trust’s equity instruments subsequent to, declared
prior to, and with a record date at or prior to, the reporting date, are recorded as a liability.
Financial liabilities are classified as either financial liabilities ‘at FVTPL’ or ‘other financial liabilities’. Financial liabilities categories are
defined and measured as follows:
Classification
Definition
Measurement
FVTPL
Classified as FVTPL when the financial liability is either held for trading or
it is designated as at FVTPL as discussed below:
Classified as held for trading if: it has been acquired principally for the
purpose of repurchasing it in the near term; or, on initial recognition,
it is part of a portfolio of identified financial instruments that the Trust
manages together and has a recent actual pattern of short-term profit
taking; or, it is a derivative that is not designated and effective as a
hedging instrument.
Classified as FVTPL upon initial recognition if: such designation
eliminates or significantly reduces a measurement or recognition
inconsistency that would otherwise arise; or the financial liability forms
part of a group which is managed and its performance is evaluated on
a fair value basis; or it forms part of a contract containing one or more
embedded derivatives.
Other financial liabilities
All other liabilities.
Stated at fair value, with gains or
losses arising on measurement
recognized in profit or loss.
Stated at fair value, with gains or
losses arising on measurement
recognized in profit or loss.
Measured at amortized cost using
the effective interest method. (1)
(1) The effective interest method is a method of calculating the amortized cost of a financial liability and of allocating interest expense over the relevant period.
The effective interest rate is the rate that exactly discounts estimated future cash payments through the expected life of the financial liability or where appropriate,
a shorter period, to the net carrying amount on initial recognition.
Boardwalk REIT’s financial liabilities are as follows:
Financial Liability
Classification
Mortgages payable
Other financial liabilities
LP Class B Units
Deferred unit-based compensation
FVTPL
FVTPL
Refundable tenants’ security deposits
Other financial liabilities
Trade and other payables
Other financial liabilities
Measurement
Amortized cost
Fair value
Fair value
Amortized cost
Amortized cost
The Trust derecognizes a financial liability when, and only when, the Trust’s obligations are discharged, cancelled or they expire. The
difference between the carrying amount of the financial liability derecognized and the consideration paid and payable is recognized
in profit or loss.
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2 0 1 7 A N N U A L R E P O R T
BOARDWALK REAL ESTATE INVESTMENT TRUST Derivatives
The Trust may enter into a variety of derivative financial instruments to manage its exposure to interest rate risks, including interest
rate swaps and bond forward contracts. Further details of derivative financial instruments are disclosed in NOTE 29. Derivatives
are initially recognized at fair value at the date the derivative contracts are entered into and are subsequently measured at their fair
value at the end of each reporting period. The resulting gain or loss is recognized in profit or loss immediately unless the derivative
is designated and effective as a hedging instrument, in which case the timing of the recognition in profit or loss depends on the
nature of the hedge relationship. Derivatives embedded in host contracts are treated as separate derivatives when their risks and
characteristics are not closely related to the host contracts and the host contracts are not measured at FVTPL. For the years ended
December 31, 2017 and 2016, the Trust had no embedded derivatives requiring separate recognition.
(o) Cash and cash equivalents
Cash is comprised of bank balances, interest-earning bank accounts and term deposits with maturities of 90 days or less.
(p) Critical judgment in applying accounting policies
The following are the critical judgments, apart from those involving estimations (see NOTE 2(t) below), that have been made in
applying the Trust’s accounting policies and that have the most significant effect on the reported amounts in the consolidated
financial statements:
(i)
Income taxes
The Trust applies judgment in determining the tax rates applicable to its corporate subsidiaries and identifying the temporary
differences in each of such legal subsidiaries in respect of which deferred income taxes are recognized. Deferred taxes
related to temporary differences arising from its corporate subsidiaries are measured based on the tax rates that are
expected to apply in the year when the asset is realized or the liability is settled. Temporary differences are differences that
are expected to reverse in the future and arise from differences between accounting and tax asset values.
(ii) Leases
The Trust’s revenue recognition policy related to leases is described in NOTE 2(p)(i). The Trust makes judgments in
determining whether certain leases, in particular tenant leases, as well as leased warehouse space and long-term land
leases, which are considered leases under IFRS, where the Trust is the lessor, are operating or finance leases. The Trust has
determined that all of its leases are operating leases.
(iii)
Investment property and internal capital program
The Trust’s accounting policy relating to investment property is described in NOTE 2(e) above. In applying this policy,
judgment is applied in determining the extent and frequency of utilizing independent, third-party appraisals to measure the
fair value of the Trust’s investment property. Additionally, judgment is applied in determining the appropriate classes of
investment properties in order to measure fair value. The Trust also undertakes internal capital improvements and upgrades.
Such work is specifically identified, and the Trust applies judgment in the estimated amount of directly attributable on-site
wages to be allocated to capital improvements and upgrades of its real estate assets.
(iv) Financial instruments
The Trust’s accounting policies relating to financial instruments are described in NOTE 2(q). Critical judgments inherent in
these policies related to applying the criteria set out in IAS 39 to designate financial instruments into categories (i.e. FVTPL,
etc.), assess the effectiveness of hedging relationships (for the Trust’s cash flow hedges) and determine the identification of
embedded derivatives, if any, in certain hybrid instruments that are subject to fair value measurement.
2 0 1 7 A N N U A L R E P O R T
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BOARDWALK REAL ESTATE INVESTMENT TRUST (v) Basis of consolidation
The consolidated financial statements of the Trust include the accounts of Boardwalk REIT and its wholly-owned subsidiaries,
as well as entities over which the Trust exercises control on a basis other than ownership of voting interest within the scope
of IFRS 10. Judgment is applied in determining if an entity meets the criteria of control as defined in the accounting standard.
(vi) Deferred unit-based compensation
The Trust applies judgment in determining the best available estimate of the number of deferred units that are expected to
vest at each reporting period.
(q) Key accounting estimates and assumptions
The following are the key assumptions concerning the future, and other key sources of estimation uncertainty at the end of the
reporting period, that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within
the next financial year. Actual results could differ from estimates.
(i)
Investment properties
The choice of valuation method for fair valuing and the critical estimates and assumptions underlying the fair value
determination of investment properties are set out in NOTE 4. Significant estimates used in determining the fair value of the
Trust’s investment properties includes capitalization rates and net operating income (which is influenced by market inflation
rates, vacancy rates and standard costs) used in the overall capitalization rate valuation method as well as discount rates and
forecasted cash flows used in the discounted cash flow valuation method. A change to any one of these inputs could
significantly alter the fair value of an investment property. Please refer to NOTE 4 for sensitivity analysis.
(ii) Property, plant and equipment
The useful economic life of property, plant and equipment for the purposes of calculating depreciation and amortization,
as disclosed in NOTE 5 and forecasts of economic factors to determine recoverable amounts for the purpose of determining
any impairment of assets, are based on data and information from various sources including industry practice and entity
specific history.
(iii)
Internal capital program
The Trust’s internal capital program is based on internal allocations, including parts, supplies and on-site wages identified as
part of a specific upgrade or capital improvement.
(iv) Utility accrual
The amount of utility accrual for charges related to the current or prior year is based on estimates of usage and price for the
time period in which invoices have not been received from the utility providers.
(v) Deferred unit-based compensation plan
The compensation costs relating to the deferred unit plan are based on estimates of how many deferred units will actually
vest and be exercised.
(vi) Deferred taxes
The amount of the temporary differences between the accounting carrying value of the Trust’s assets and liabilities held in
various corporate subsidiaries versus the tax bases of those assets and liabilities and the tax rates at which the differences
will be realized are outlined in NOTE 16.
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2 0 1 7 A N N U A L R E P O R T
BOARDWALK REAL ESTATE INVESTMENT TRUST APPLICATION OF NEW AND REVISED IFRSS AND FUTURE ACCOUNTING POLICIES
Boardwalk REIT monitors new IFRS accounting pronouncements to assess the applicability and impact, if any, these new
pronouncements may have on the consolidated financial statements and note disclosures.
(a) Application of new and revised IFRSs
In the current year, the Trust has applied a number of new and revised IFRSs issued by the IASB, and incorporated in the Chartered
Professional Accountants of Canada Handbook. The following highlights these changes and the effect, if any, on the Trust’s
consolidated financial statements.
Standard
Details of Amendment
Impact
Disclosure Initiative
(Amendment to IAS 7 –
Statement of Cash Flows)
The amendment clarifies that entities shall provide disclosures that
enable users of financial statements to evaluate changes in liabilities
arising from financing activities.
Recognition of Deferred Tax
Assets for Unrealized Losses
(Amendment to IAS 12 –
Income Taxes (“IAS 12”)
The amendments made to IAS 12 clarify the following items:
§ Unrealized losses on debt instruments measured at fair value and
measured at cost for tax purposes give rise to a deductible temporary
difference regardless of whether the carrying amount is expected to
be recovered.
§ The carrying amount of an asset does not limit the estimation of
probable future taxable benefits.
§ Estimates for future taxable profits exclude tax deductions resulting
from the reversal of deductible temporary differences.
§ An entity assesses a deferred tax asset in combination with other
deferred tax assets.
2014-2016 Cycle
IFRS 12 – Disclosure of
Interests in Other Entities
Provides clarification that the scope of the standard should include
interests that are classified as held for sale, held for distribution or as
discontinued operations.
The application of this
amendment has not resulted
in any material impact on the
consolidated financial statements
of the Trust.
The application of these
amendments has not resulted
in any material impact on
the consolidated financial
statements of the Trust.
This clarification was not
applicable for the current year
as the Trust did not have any
interests classified as held for
sale, held for distribution or as
discontinued operations.
2 0 1 7 A N N U A L R E P O R T
8 9
BOARDWALK REAL ESTATE INVESTMENT TRUST (b) Future accounting policies
The following accounting standards under IFRS have been issued or revised; however, they are not yet effective, and, as such,
have not been applied to these consolidated financial statements:
New or Amended Standards
Summary of Requirements
IFRS 9 – Financial Instruments
(“IFRS 9”)
IFRS 15 – Revenue from
Contracts with Customers
(“IFRS 15”)
IFRS 9, published in July 2014, replaces the existing
guidance in IAS 39. IFRS 9 includes revised guidance
on the classification and measurement of financial
instruments, including a new expected credit
loss model for calculating impairment on financial
assets, and the new general hedge accounting
requirements. It also carries forward the guidance
on recognition and derecognition of financial
instruments from IAS 39.
IFRS 9 is effective for annual reporting periods
beginning on or after January 1, 2018, with early
adoption permitted.
IFRS 15 establishes a comprehensive framework
for determining whether, how much, and when
revenue is recognized. It replaces existing revenue
recognition guidance, including IAS 18 – Revenue
(“IAS 18”), IAS 11 – Construction Contracts and
IFRIC 13 – Customer Loyalty Programmes.
IFRS 15 is effective for annual reporting periods
beginning on or after January 1, 2018, with early
adoption permitted.
Possible Impact on Consolidated
Financial Statements
The Trust has reviewed and assessed the new
standard and does not expect it to have a material
impact on its consolidated financial statements.
The mortgage receivable which is currently
being recorded at amortized cost will be recorded
at fair value through profit and loss under this
revised standard.
The Trust is in the final stages of its evaluation of the
potential impact of this standard on its consolidated
financial statements.
The Trust recognizes revenue from the following
sources:
§ Rental revenue and other charges based on operating
tenant leases, which should not change under IFRS
15, as they are scoped out of IFRS 15 and included in
IAS 17 – Leases for fiscal 2018 and IFRS 16 – Leases
(which is effective for periods beginning on or after
January 1, 2019 and is outlined below).
§ The Trust has determined that the relevant impact
as a result of the adoption of IFRS 15 will be the
separation of lease and non-lease components
within its lease arrangements to identify revenue
streams that fall under the scope of IFRS 15.
Specifically, the recovery of costs related to the
provision of services is considered a non-lease
component and would be within the scope of
IFRS 15. In respect of such recovery of services
revenue, the Trust has concluded that the pattern
of revenue recognition will remain unchanged.
However the Trust will be required to disclose the
separate components of each revenue stream,
including those included within gross leases, in
the notes to the consolidated financial statements.
§ Ancillary rental income comprises revenue from
coin laundry machines and income received from
telephone and cable providers
§ Interest income, which will be scoped out of
IFRS 15 and addressed under IFRS 9
(as discussed above).
Each revenue stream has been assessed under the
new standard. Based on the Trust’s assessment, both
the recognition of revenue and the measurement
of revenue will remain materially the same as under
current IFRS. Disclosures will be consistent with the
new requirements.
9 0
2 0 1 7 A N N U A L R E P O R T
BOARDWALK REAL ESTATE INVESTMENT TRUST New or Amended Standards
Summary of Requirements
Possible Impact on Consolidated
Financial Statements
IFRS 16 – Leases (“IFRS 16”)
IFRS 16 supersedes IAS 17 – Leases and has been
established to increase the transparency of lease
obligations reported on an entity’s financial report.
Under this new standard, entities may be required to
report more of their previously disclosed off balance
sheet leases on the face of the balance sheet. The
standard also provides guidance on the calculation
and presentation of the lease obligations.
IFRS 16 is effective for annual reporting periods
beginning on or after January 1, 2019, with early
adoption permitted, only if the entity also applies
IFRS 15.
The Trust is assessing the potential impact on its
consolidated financial statements.
It is expected that leases with tenants will be
accounted for as operating leases in the same manner
they are currently being reported.
The Trust has Investment Properties located on land
which is leased. Currently, these lease payments are
expensed. It is expected that under the new lease
standard, a right-of-use asset addition to Investment
Property and a lease obligation liability will be recorded
along with the corresponding financing charges.
The Trust will ensure these amendments are
considered when evaluating/determining its
Investment Properties.
The Trust has assessed these amendments and does
not expect them to have a material impact on its
consolidated financial statements.
Transfers of Investment
Properties (amendments
to IAS 40)
Classification and Measurement
of Share-based Payment
Transactions (Amendment to
IFRS 2 – Share-based Payment
(“IFRS 2”)
Paragraph 57 of IAS 40 has been amended to state
that an entity shall transfer a property to, or from,
investment property when, and only when, there is
evidence of a change in use. A change in use occurs
if property meets, or ceases to meet, the definition
of investment property. A change in management’s
intentions for the use of a property by itself does not
constitute evidence of a change in use.
This amendment is effective for annual periods
beginning on or after January 1, 2018.
The amendments made to IFRS 2 clarify the
following items:
§ In estimating the fair value of a cash-settled share-
based payment, the accounting for the effects of
vesting and non-vesting conditions should follow
the same approach as for equity-settled share-
based payments.
§ Where tax law or regulation requires an entity
to withhold a specified number of equity
instruments equal to the monetary value of
the employer’s tax obligation to meet the
employer’s tax liability which is then remitted to
the tax authority, such an arrangement should be
classified as equity-settled in its entirety, provided
that the share-based payment would have been
classified as equity-settled had it not included the
net settlement feature.
§ A modification of a share-based payment that
changes the transaction from cash-settled to
equity-settled should be accounted for as follows:
° the original liability is derecognized;
° the equity-settled share-based payment is
recognized at the modification date fair value;
° any difference in value should be recognized in
profit or loss immediately.
The amendment is effective for annual periods
beginning on or after January 1, 2018.
2 0 1 7 A N N U A L R E P O R T
9 1
BOARDWALK REAL ESTATE INVESTMENT TRUST Possible Impact on Consolidated
Financial Statements
The Trust is assessing the potential impact
of these amendments on its consolidated
financial statements.
New or Amended Standards
Summary of Requirements
Sale or Contribution of Assets
between an Investor and its
Associate or Joint Venture
(Amendments to IFRS 10 –
Consolidated Financial
Statements and IAS 28 –
Investments in Associates
and Joint Ventures)
The amendments deal with situations where there is
a sale or contribution of assets between an investor
and its associate or joint venture. Specifically, they
state that gains or losses resulting from the loss
of control of a subsidiary that does not contain
a business transaction with an associate or joint
venture that is accounted for using the equity
method, are recognized in the parent’s profit or
loss only to the extent of the unrelated investors’
interests in that associate or joint venture.
The effective date for this amendment has yet to
be determined.
The following interpretation is not expected to have any impact on the Trust’s consolidated financial statements:
§ IFRIC 22 – Foreign Currency Transactions and Advance Consideration.
Annual Improvements to IFRSs 2014-2016 Cycle
Within the Annual Improvements to IFRSs 2014-2016 Cycle, there were amendments to standards with an effective date of
January 1, 2018. None of these standards will have a significant impact on the Trust and, therefore, will not be discussed.
INTERNATIONAL FINANCIAL REPORTING STANDARDS
The Trust’s Consolidated Financial Statements have been prepared in accordance with International Financial Reporting Standards
as issued by the International Accounting Standards Board (“IASB”) and interpretations of the IFRS Committee (“IFRIC”).
DISCLOSURE CONTROLS AND PROCEDURES & INTERNAL CONTROL OVER FINANCIAL REPORTING
Disclosure controls and procedures are designed to provide reasonable assurance that all relevant information is gathered and
reported to senior management, including the CEO, President, and CFO on a timely basis so appropriate decisions can be made
regarding public disclosure.
The preparation of this information is supported by a set of disclosure controls and procedures (“DC&P”) implemented by
management. In fiscal 2017, these controls and procedures were reviewed and the effectiveness of their design and operation was
evaluated. This evaluation confirmed the effectiveness of both the design and the operation of disclosure controls and procedures
as at December 31, 2017 . The evaluation was performed in accordance with the Committee of Sponsoring Organizations of the
Treadway Commission (“2013 COSO”) control framework (the “2013 Framework”) adopted by the Trust and the requirements of
National Instrument 52-109 of the Canadian Securities Administrators titled, Certification of Disclosure in Issuers’ Annual and
Interim Filings.
There were no changes made to our disclosure controls and procedures during the year ended December 31, 2017. Boardwalk
REIT continues to review the design of disclosure controls and procedures to provide reasonable assurance that material
information relating to Boardwalk REIT is properly communicated to certifying officers responsible for establishing and maintaining
disclosure controls and procedures, as those terms are defined in National Instrument 52-109 Certification of Disclosure in Issuers’
Annual and Interim Filings.
As at December 31, 2017, Boardwalk REIT can confirm the effectiveness of both the design and the operation of its ICFR to
provide reasonable assurance regarding the reliability of financial statements and information. Boardwalk REIT may, from time to
time, make changes aimed at enhancing their effectiveness and ensuring that our systems evolve with our business. There were
9 2
2 0 1 7 A N N U A L R E P O R T
BOARDWALK REAL ESTATE INVESTMENT TRUST no changes made in our internal controls over financial reporting during the year ended December 31, 2017, that have materially
affected, or are reasonably likely to materially affect, our internal controls over financial reporting.
2018 FINANCIAL OUTLOOK AND MARKET GUIDANCE
As previously noted, the Trust is providing its outlook and financial guidance for the upcoming 2018 fiscal year as part of its year
end results. As such, the Trust’s 2018 objectives are as follows:
Description
2018 Objectives
2017 Actual
Stabilized Building NOI Growth
2%-7%
FFO Per Unit
AFFO Per Unit
$2.15-$2.35
-15.80%
$2.11
$1.70 - $1.90 utilizing a Maintenance CAPEX of
$695/suite/year
$1.68 utilizing a Maintenance CAPEX of
$655/suite/year
In deriving these forecasts, the Trust has adjusted for the treatment of the LP B Units to be treated as equity (versus debt under
IFRS) and their related treatment of the distributions paid (which are classified as financing charges under IFRS).
The reader is cautioned that this information is forward-looking and actual results may vary materially from those reported. One of
the key estimates is the performance of the Trust’s stabilized properties. Any significant change in assumptions deriving ‘Stabilized
Building NOI performance’ would have a material effect on the final reported amount. The Trust reviews these key assumptions
quarterly and, based on this review, may change its outlook on a going-forward basis.
In addition to the above financial guidance for 2018, the Trust’s Board of Trustee’s has approved the 2018 Capital Budget as follows:
Capital Budget ($000’s)
Maintenance Capital
Value-added Capital (including suite upgrades)
Total Operational Capital
Total Operational Capital
Development
Total Capital Investment
2018 Budget
Per Suite
2017 Actual
Per Suite
$
$
$
$
23,065
$
695
$
21,737
$
113,229
3,412
180,194
136,294
$
4,107
136,294
30,000
166,294
$
$
$
201,931
$
201,931
17,888
219,819
655
5,430
6,085
In total, the Trust expects to invest $136.3 million (or $4,107 per apartment unit) on operational capital in 2018 as compared to
$201.9 million (or $6,085 per apartment unit) actually spent in 2017. The Trust has estimated its Maintenance Capital for 2018 at
$695 per apartment unit per year, compared to $655 per apartment unit per year, using a three-year rolling average. Additionally,
for 2018, Boardwalk is estimating $30.0 million to be spent on development.
Value Added capital is subject to constant review and will only be invested if the Trust can earn a significant return on this investment.
SELECTED CONSOLIDATED FINANCIAL INFORMATION
The following selected financial information should be read in conjunction with ‘‘Management’s Discussion and Analysis’’, the audited
consolidated financial statements and accompanying notes for the years ended December 31, 2017 and 2016, and the unaudited
interim consolidated financial statements of Boardwalk REIT and accompanying notes, both incorporated herein by reference.
2 0 1 7 A N N U A L R E P O R T
9 3
BOARDWALK REAL ESTATE INVESTMENT TRUST
The statements of comprehensive income (loss) and financial position information set forth in the following tables has been
derived from the audited consolidated financial statements referred to above and the unaudited consolidated financial statements
of the Trust for various quarterly interim periods.
Annual Comparative (Cdn$ Thousands, except per Unit amount)
Total rental revenue
Profit (loss)
Funds from operations
Profit (loss) per unit
– Basic
– Diluted
Funds from operations per unit
– Basic
– Diluted
Mortgages
Total assets
Number of apartment units
Rentable square feet (000's)
Twelve Months Ended
Dec. 31, 2017
Dec. 31, 2016
$
422,926
$
438,846
57,258
106,987
(57,440)
144,465
$
$
$
$
1.24
0.84
2.31
2.11
$
$
$
$
2,593,980
5,865,075
33,187
28,539
(1.24)
(1.24)
3.12
2.84
2,435,666
5,768,613
33,773
28,924
Quarterly Comparative
(Cdn$ Thousands, except per Unit amount)
Dec. 31,
2017
Sep. 30,
2017
Jun. 30,
2017
Mar. 31,
Dec. 31,
Sep. 30,
2017
2016
2016
Jun. 30,
2016
Mar. 31,
2016
Three Months Ended
Total rental revenue
Profit (loss)
Funds from operations
Profit (loss) per unit
– Basic
– Diluted
Funds from operations per unit
– Basic
– Diluted
Additional Information
$ 106,307 $ 105,546 $ 105,579 $ 105,494 $ 106,121 $ 108,951 $ 110,406 $ 113,368
(67,766)
44,407
26,749
27,014
63,429
27,552
17,191
(84,687)
(35,518)
6,568
25,671
29,601
37,186
38,554
56,197
39,124
$
(1.46) $
0.96 $
1.37 $
0.37 $
(1.83) $
(0.77) $
0.14 $
$
(1.46) $
0.08 $
1.33 $
0.26 $
(1.83) $
(1.16) $
0.14 $
$
$
0.58 $
0.58 $
0.60 $
0.55 $
0.64 $
0.80 $
0.83 $
0.53 $
0.53 $
0.54 $
0.51 $
0.58 $
0.73 $
0.76 $
1.21
1.21
0.84
0.77
Additional information relating to Boardwalk Equities Inc. and Boardwalk REIT, including the Annual Information Form of Boardwalk
REIT, is available on SEDAR at www.sedar.com.
Respectfully,
[signed]
[signed]
Roberto A. Geremia
P R E S I D E N T
William Wong
C H I E F F I N A N C I A L O F F I C E R
February 26, 2018
9 4
2 0 1 7 A N N U A L R E P O R T
BOARDWALK REAL ESTATE INVESTMENT TRUST
MANAGEMENT’S REPORT
To the Unitholders of Boardwalk Real Estate Investment Trust
The accompanying consolidated financial statements and all information in the Annual Report are the responsibility of
management. The consolidated financial statements have been prepared by management in accordance with the accounting
policies in the notes to the consolidated financial statements. In the opinion of management, the consolidated financial statements
have been prepared within acceptable limits of materiality, and are in accordance with International Financial Reporting Standards
appropriate in the circumstances. The financial information elsewhere in the Annual Report has been reviewed to ensure
consistency with that in the consolidated financial statements.
Management maintains appropriate systems of internal control. Policies and procedures are designed to give reasonable
assurance that transactions are properly authorized, assets are safeguarded and financial records properly maintained to provide
reliable information for the preparation of consolidated financial statements.
The consolidated financial statements have been further examined by the Board of Trustees and by its Audit and Risk Management
Committee which meets regularly with the auditors and management to review the activities of each. The Audit and Risk
Management Committee, which comprises of three independent Trustees, reports to the Board of Trustees.
Deloitte LLP, an independent firm of chartered accountants, has been engaged to audit the consolidated financial statements in
accordance with Canadian generally accepted auditing standards and provide an independent auditors’ opinion.
[signed]
[signed]
[signed]
Sam Kolias
C H I E F E X E C U T I V E O F F I C E R
Roberto A. Geremia
P R E S I D E N T
William Wong
C H I E F F I N A N C I A L O F F I C E R
February 26, 2018
2 0 1 7 A N N U A L R E P O R T
9 5
BOARDWALK REAL ESTATE INVESTMENT TRUST INDEPENDENT AUDITORS’ REPORT
To the Unitholders of Boardwalk Real Estate Investment Trust
We have audited the accompanying consolidated financial statements of Boardwalk Real Estate Investment Trust, which comprise
the consolidated statements of financial position as at December 31, 2017 and 2016, and the consolidated statements of
comprehensive income (loss), consolidated statements of changes in unitholders’ equity and consolidated statements of cash
flows for the years then ended, and a summary of significant accounting policies and other explanatory information.
Management’s Responsibility for the Consolidated Financial Statements
Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with
International Financial Reporting Standards, and for such internal control as management determines is necessary to enable the
preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.
Auditor’s Responsibility
Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our
audits in accordance with Canadian generally accepted auditing standards. Those standards require that we comply with ethical
requirements and plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements
are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial
statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material
misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the
auditor considers internal control relevant to the entity’s preparation and fair presentation of the consolidated financial statements
in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on
the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used
and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the
consolidated financial statements.
We believe that the audit evidence we have obtained in our audits is sufficient and appropriate to provide a basis for our audit opinion.
Opinion
In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of Boardwalk
Real Estate Investment Trust as at December 31, 2017 and 2016, and its financial performance and its cash flows for the years then
ended in accordance with International Financial Reporting Standards.
Deloitte LLP
C H A R T E R E D P R O F E S S I O N A L A C C O U N TA N T S
February 22, 2018
Calgary, Alberta
2 0 1 7 A N N U A L R E P O R T
9 6
BOARDWALK REAL ESTATE INVESTMENT TRUST CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
(CDN $ THOUSANDS)
As at
ASSETS
Non-current assets
Investment properties
Property, plant and equipment
Mortgage receivable
Deferred tax assets
Current assets
Inventories
Prepaid assets
Trade and other receivables
Segregated tenants’ security deposits
Cash and cash equivalents
Total Assets
LIABILITIES
Non-current liabilities
Mortgages payable
LP Class B Units
Deferred unit-based compensation
Deferred tax liabilities
Deferred government grant
Current liabilities
Mortgages payable
Deferred unit-based compensation
Deferred government grant
Refundable tenants’ security deposits
Trade and other payables
Total Liabilities
Equity
Unitholders’ equity
Total Equity
Total Liabilities and Equity
See accompanying notes to these consolidated financial statements
On behalf of the Trust:
[signed]
Sam Kolias
T R U S T E E
[signed]
Gary Goodman
T R U S T E E
Note
Dec. 31, 2017
Dec. 31, 2016
4
$
5,688,125
$
5,612,568
5
6
16
7
8
9
10
11
30,221
38,280
74
24,147
-
164
5,756,700
5,636,879
14,870
7,824
5,218
9,629
70,834
108,375
7,277
9,148
5,502
10,705
99,102
131,734
$
5,865,075
$
5,768,613
12
$
2,334,035
$
2,091,844
13
14
16
17
12
14
17
15
18
192,828
2,856
55
5,641
217,709
3,219
4
6,019
2,535,415
2,318,795
259,945
343,822
1,724
378
12,346
77,660
352,053
2,887,468
2,977,607
2,977,607
2,762
378
13,275
68,262
428,499
2,747,294
3,021,319
3,021,319
$
5,865,075
$
5,768,613
2 0 1 7 A N N U A L R E P O R T
9 7
BOARDWALK REAL ESTATE INVESTMENT TRUST
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(CDN $ THOUSANDS)
Rental revenue
Ancillary rental income
Total rental revenue
Rental expenses
Operating expenses
Utilities
Property taxes
Net operating income
Financing costs
Administration
Depreciation
Profit before the undernoted
Proceeds on insurance settlement
Loss on sale of assets
Fair value losses
Profit (loss) before income tax
Income tax expense
Profit (loss) for the year
Other comprehensive income
Total comprehensive income (loss)
See accompanying notes to these consolidated financial statements
Note
Year Ended
Dec. 31, 2017
Year Ended
Dec. 31, 2016
19
$
416,504
$
432,140
20
21
22
23
24
25
16
6,422
422,926
113,986
47,967
44,890
216,083
85,763
33,402
5,586
91,332
3,162
(1,678)
(35,418)
57,398
(140)
57,258
-
6,706
438,846
97,620
44,711
43,416
253,099
84,634
33,947
5,219
129,299
-
-
(186,681)
(57,382)
(58)
(57,440)
-
$
57,258
$
(57,440)
9 8
2 0 1 7 A N N U A L R E P O R T
BOARDWALK REAL ESTATE INVESTMENT TRUST
CONSOLIDATED STATEMENTS OF CHANGES IN UNITHOLDERS’ EQUITY
(CDN $ THOUSANDS)
Trust Units
Cumulative
Profit
Cumulative
Distributions
to Unitholders
Accumulated
Other
Comprehensive
Income
Retained
Earnings
Balance, December 31, 2015
$
193,336
$ 4,151,947
$ (1,134,545)
$ 3,017,402
$
Units issued
Units purchased and cancelled
Loss for the year
Total comprehensive loss for the year
Distributions declared to Unitholders
4,066
(5,659)
-
-
-
-
(26,987)
(57,440)
(57,440)
-
-
-
-
-
(26,987)
(57,440)
(57,440)
-
(103,399)
(103,399)
Balance, December 31, 2016
$
191,743
$ 4,067,520
$ (1,237,944)
$ 2,829,576
$
Units issued
Profit for the year
Total comprehensive income for
the year
Distributions declared to Unitholders
3,199
-
-
-
-
57,258
57,258
-
-
-
-
57,258
57,258
-
(104,169)
(104,169)
-
-
-
-
-
-
-
-
-
-
-
Total
Unitholders’
Equity
$ 3,210,738
4,066
(32,646)
(57,440)
(57,440)
(103,399)
$ 3,021,319
3,199
57,258
57,258
(104,169)
Balance, December 31, 2017
$
194,942
$ 4,124,778
$ (1,342,113)
$ 2,782,665
$
-
$ 2,977,607
See accompanying notes to these consolidated financial statements
2 0 1 7 A N N U A L R E P O R T
9 9
BOARDWALK REAL ESTATE INVESTMENT TRUST
CONSOLIDATED STATEMENTS OF CASH FLOWS
Note
Year Ended
Dec. 31, 2017
Year Ended
Dec. 31, 2016
$
57,258
$
(57,440)
24
21
25
16
17
22
33
4
4
4
5
24
33
33
18
33
1,678
85,763
(79,907)
35,418
140
-
(10)
(378)
5,586
105,548
(3,485)
102,063
-
84,634
(84,256)
186,681
58
(43)
-
(378)
5,219
134,475
(788)
133,687
-
(144,406)
(190,203)
(17,888)
(11,728)
8,232
9,418
(97,744)
(6,167)
(4,842)
-
5,297
(202,169)
(247,862)
(104,155)
-
287,996
(32,538)
(60,399)
(18,990)
(76)
71,838
(28,268)
99,102
(149,537)
(32,646)
281,348
(56,404)
(54,878)
(11,683)
61
(23,739)
(137,914)
237,016
99,102
11
$
70,834
$
(CDN $ THOUSANDS)
Operating activities
Profit (loss) for the year
Loss on sale of assets
Financing costs
Interest paid
Fair value losses
Income tax expense
Income tax paid
Amortization of mortgage receivable discount
Government grant amortization
Depreciation
Net change in operating working capital
Investing activities
Purchase of investment properties
Improvements to investment properties
Development of investment properties
Additions to property, plant and equipment
Net cash proceeds from sale of investment properties
Net change in investing working capital
Financing activities
Distributions paid
Unit repurchase program
Proceeds from mortgage financings
Mortgage payments upon refinancing
Scheduled mortgage principal repayments
Deferred financing costs incurred
Net change in financing working capital
Net decrease in cash
Cash and cash equivalents, beginning of year
Cash and cash equivalents, end of year
See accompanying notes to these consolidated financial statements
1 0 0
2 0 1 7 A N N U A L R E P O R T
BOARDWALK REAL ESTATE INVESTMENT TRUST
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended, December 31, 2017 and 2016
(Tabular amounts in Cdn $ thousands, except number of units and per unit amounts UNLESS OTHERWISE STATED)
NOTE 1: ORGANIZATION OF THE TRUST
Boardwalk Real Estate Investment Trust (“Boardwalk REIT” or the “Trust” or the “Entity”) is an unincorporated, open-ended real
estate investment trust created pursuant to the Declaration of Trust (“DOT”), dated January 9, 2004, and as amended and restated
on various dates between May 3, 2004 and May 11, 2017, under the laws of the Province of Alberta. Boardwalk REIT was created
to invest in multi-family residential investment properties or similar interests, initially through the acquisition of the assets and
operations of Boardwalk Equities Inc. (the “Corporation”), which was acquired on May 3, 2004. Boardwalk REIT Trust Units are
listed on the Toronto Stock Exchange under the symbol ‘BEI.UN’. The registered office of the Trust and its head office operations
are located at First West Place, Suite 200, 1501 1st Street SW, Calgary, Alberta, T2R 0W1.
NOTE 2: SIGNIFICANT ACCOUNTING POLICIES
(a) Statement of compliance
These consolidated financial statements have been prepared in accordance with International Financial Reporting Standards
(“IFRS”), as issued by the International Accounting Standards Board (“IASB”).
(b) Basis of presentation
The Trust’s consolidated financial statements have been prepared on the historical cost basis, except for investment properties and
certain financial instruments that are measured at fair value, as explained in the accounting policies below. Historical cost is
generally based on the fair value of the consideration given in exchange for assets. These consolidated financial statements were
prepared on a going concern basis and have been presented in Canadian dollars rounded to the nearest thousand. The accounting
policies set out below have been applied consistently in all material respects. Standards and guidelines not effective for the current
accounting period are described in NOTE 3.
Certain comparative figures have been reclassified to conform to the presentation of the current period. Specifically, the
amortization of deferred financing costs has been reclassified and included in financing costs, when previously they were reported
as part of depreciation and amortization (NOTE 21).
(c) Basis of consolidation
These consolidated financial statements include the accounts of the Trust and its consolidated subsidiaries (see NOTE 31), which
are the entities over which Boardwalk REIT has control. Control is achieved when the entity has power over the investee; is
exposed, or has rights, to variable returns from its involvement with the investee; and has the ability to use its power to affect its
returns. The Trust reassesses whether or not it controls an investee if facts, circumstances and events indicate that there are
changes to one or more of the three elements of control listed above.
In accordance with IFRS 10 – Consolidated Financial Statements (“IFRS 10”), an entity can exercise control on a basis other than
ownership of voting interests. When the Trust has less than a majority of the voting rights of an investee, it has power over the
investee when the voting rights are sufficient to give it the practical ability to direct the relevant activities of the investee
unilaterally. The Trust considers all relevant facts and circumstances in assessing whether or not the Trust’s voting rights in an
investee are sufficient to give it power. These facts and circumstances can include: the size of the Trust’s holding of voting rights
relative to the size and dispersion of holdings of the other vote holders; potential voting rights held by the Trust, other vote holders
or other parties; rights arising from contractual arrangements; and any other additional facts or circumstances.
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BOARDWALK REAL ESTATE INVESTMENT TRUST Currently, the Trust has control over all of the subsidiaries reported in the consolidated financial statements (either directly or
indirectly) and non-controlling interests either do not exist or are immaterial for the Trust at this time. All intra-group transactions,
balances, revenues and expenses eliminate on consolidation.
(d) Interest in joint operations
In accordance with IFRS 11 – Joint Arrangements, a joint operation is a joint arrangement whereby the parties that have joint
control of the arrangement have rights to the assets, and obligations for the liabilities, relating to the arrangement. Joint control
is the contractually agreed sharing of control of an arrangement, which exists only when decisions about the relevant activities
require unanimous consent of the parties sharing control. The Trust records only its share of the assets, liabilities and share of the
revenue and expenses of the joint operation. The assets, liabilities, revenue and expenses of joint operations are included within
the respective line items of the consolidated statement of financial position and consolidated statement of comprehensive
income (loss).
(e) Investment properties
Investment properties consist of multi-family residential properties held to earn rental income and properties being constructed or
developed for future use to earn rental income, and include interests held under long-term operating land leases. Investment
properties are measured initially at cost (which is equivalent to fair value). Cost includes all amounts relating to the acquisition
(excluding transaction costs related to a business combination as outlined in NOTE 2(h)) and improvement of the properties. All
costs associated with upgrading and extending the economic life of the existing facilities, other than ordinary repairs and
maintenance, are capitalized to investment property. Included in these costs are internal amounts that are directly attributable to a
specific investment property, which are capitalized to the extent that they upgrade or extend the economic life of the asset.
Subsequent to initial recognition, investment properties are recorded at fair value, in accordance with International Accounting
Standard (“IAS”) 40 – Investment Property (“IAS 40”). Fair value is determined based on a combination of internal and external
processes and valuation techniques. Gains or losses arising from differences between current period fair value and the sum of
previously measured fair value and capitalized costs as described above are recorded in profit or loss in the period in which
they arise.
Properties owned by the Trust where a significant portion of the property is used for administrative purposes by the Trust are
considered “Property, Plant and Equipment” and, therefore, fall within the scope of IAS 16 – Property, Plant and Equipment
(“IAS 16”) and are recorded in accordance with that standard. Where part of a building is used for administrative purposes by the
Trust, but this portion is considered insignificant, this space is included as part of Investment Property under IAS 40.
Investment properties are reclassified to “Assets Held for Sale” when the criteria set out in IFRS 5 – Non-Current Assets Held for
Sale and Discontinued Operations (“IFRS 5”) are met (see NOTE 2(i)).
An investment property is derecognized upon disposal or when the investment property is permanently withdrawn from use and
no future economic benefits are expected from the disposal. Prior to its disposal, the carrying value of the investment property is
adjusted to reflect its fair value as outlined in the purchase and sale agreement (as the purchase and sale agreement is the best
evidence of fair value). This adjustment shall be recorded as a fair value gain or loss. Any remaining gain or loss arising on
derecognition of the property (calculated as the difference between the net disposal proceeds and the carrying amount of the
asset) is included in profit or loss in the period in which the property is derecognized.
Excess land represents land owned by the Trust located contiguous to land included as investment property. The Trust has the
ability to develop additional multi-family residential buildings on this land or sell it separately from the Investment Property at a
later date. Excess land is held for capital appreciation and, therefore, is treated as Investment Property and recorded in accordance
with IAS 40 as outlined above. When determining the fair value of a project with excess land, the capitalization rate used in
determining the value is adjusted accordingly.
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BOARDWALK REAL ESTATE INVESTMENT TRUST (f) Properties under development
Properties under development include new development on excess land density or acquired land, re-development or re-positioning
of buildings the Trust currently owns that require substantial renovations and incomplete Apartment Units acquired from third
parties that will take 12 months or longer to complete. The cost of land, if applicable, and buildings under development or
re-development (consisting of development sites, density or intensification rights and related infrastructure) are specifically
identifiable costs incurred in the period before construction is complete. Capitalized costs include pre-construction costs essential
to the development or re-development of the property, construction costs, borrowing costs directly attributable to the
development, real estate taxes and other costs incurred during the period of development or re-development. Additions to
investment properties consist of costs of a capital nature and, in the case of properties under development and/or redevelopment,
capitalized interest. Directly attributable borrowing costs are also capitalized on land or properties acquired specifically for
development or redevelopment when activities necessary to prepare the asset for development or redevelopment are in progress
in accordance with IAS 23 – Borrowing Costs (“IAS 23”). Where borrowings are associated with specific developments, the
amount capitalized is the total cost incurred on those borrowings.
The capitalization of borrowing costs commences when the activities necessary to prepare an asset for development or
redevelopment begins, and continues until the date that substantially all of the construction is complete and all necessary
occupancy and related permits have been received, whether or not the space is leased. If the Trust is required, as a condition of a
lease, to construct tenant improvements that enhance the value of the property, then capitalization of costs continues until such
improvements are completed. Capitalization ceases if there is a prolonged period where development activity is interrupted.
Properties under active development are generally valued at market land values, if applicable, plus costs invested to date. Where
significant leasing and construction is in place and the future income stream is reasonably determinable, the valuation
methodology used is similar to that of revenue-producing properties, less estimates of future capital outlays, construction and
development costs, to determine a net “as-is” market value. Development risks such as planning, zoning, licenses, and building
permits are considered in the valuation process. Properties not under active development, such as land parcels held for future
development, are valued based on comparable sales of land. Significant increases (decreases) in construction costs, cost
escalation rates and estimated time to complete construction in isolation would result in a significantly lower (higher) fair value for
properties under development.
(g) Property, plant and equipment
Tangible assets that are held for use in the production or supply of goods and services, or for administrative purposes, and are
expected to be used during more than one period, except when another accounting standard requires or permits a different
accounting treatment, are recorded in accordance with IAS 16 using the cost model. IAS 16, therefore, excludes tangible assets
that are accounted for in accordance with IAS 40 (see NOTE 2(e)) and IFRS 5 (see NOTE 2(i)).
In accordance with IAS 16, the cost model, after initial recognition of the property, plant and equipment, requires the tangible asset
to be carried at its cost less accumulated depreciation and any accumulated impairment losses (see NOTE 2(j)). Depreciation is
recognized in a manner that reflects the pattern in which the future economic benefits of the tangible asset are expected to be
consumed and realized by the Trust. The amount of depreciation will be charged systematically to the consolidated statement of
comprehensive income (loss) and is the cost less residual value of the asset over its useful economic life. IAS 16 also requires that
the cost and useful economic life of each significant component of a tangible asset be determined based on the circumstances of
each tangible asset. The method of depreciation, residual values and estimates of the useful economic life of a tangible asset, or
other property, plant and equipment, are reviewed at each financial year-end and any changes are accounted for as a change in
accounting estimate in accordance with IAS 8 – Accounting Policies, Changes in Accounting Estimates and Errors (“IAS 8”).
Property, Plant and Equipment (“PP&E”) is valued using the cost model under IAS 16. PP&E is categorized into the following
classes and their respective useful economic life is used to calculate the amount of depreciation or amortization for each period.
Categories of PP&E with the same or similar useful lives are included in the same class.
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BOARDWALK REAL ESTATE INVESTMENT TRUST PP&E Class
PP&E Category (NOTE 5)
Useful Life / Depreciation Rate
Depreciation Method Used
Administrative building
Administrative building
Site equipment
Automobiles
Site equipment and other assets
Site equipment and other assets
Warehouse assets
Site equipment and other assets
Corporate assets
Site equipment and other assets
Computer hardware
Corporate technology assets
Computer software*
Corporate technology assets
40 years
15%
20%
10% to 20%
10% to 20%
35%
35%
Straight-line
Declining balance
Declining balance
Declining balance
Declining balance
Declining balance
Declining balance
*
In addition to the purchase of software from external sources, the Trust capitalizes certain programmers’ salaries related to internally developed software
applications used in the normal course of operations of Boardwalk REIT. The programmers’ work is directly attributable to software development.
(h) Business combinations
In accordance with IFRS 3 – Business Combinations (“IFRS 3”), the acquisition of an asset or group of assets is recorded as a
business combination if the assets acquired and the liabilities assumed constitute a business. A business is defined as an
integrated set of activities and assets that is capable of being conducted and managed for the purpose of providing a return in the
form of dividends, lower costs or other economic benefit. Building and other asset acquisitions, which meet the above definition of
a business, are recorded as business combinations and the acquisition method of accounting for these transactions is applied.
Building and other asset acquisitions, which do not meet the above definition of a business, are recorded as an asset addition.
The acquisition method requires that an acquirer be identified, a specific acquisition date be determined (which is typically the date
on which control changes), all identifiable assets and liabilities assumed, as well as any non-controlling interest in the acquiree, be
recognized and measured, and any goodwill or gains from a bargain purchase price are recognized and measured at fair value,
including contingent liabilities when these contingent considerations are part of the consideration being transferred. All acquisition
costs associated with a transaction identified as a business combination are expensed as incurred.
Goodwill is measured as the excess of the sum of the consideration transferred, the amount of any non-controlling interest in
the acquiree, and the fair value of the acquirer’s previously held equity interest in the acquiree (if any) over the net of the
acquisition-date amounts of the identifiable assets acquired and the liabilities assumed. If, after the assessment, the net of the
acquisition-date amounts of the identifiable assets acquired and liabilities assumed exceeds the sum of the consideration
transferred, the amount of any non-controlling interests in the acquiree and the fair value of the acquirer’s previously held interest
in the acquiree (if any), the excess is recognized immediately in profit as a bargain purchase gain.
Non-controlling interests that are present ownership interests and entitle their holders to a proportionate share of the entity’s net
assets in the event of liquidation may be initially measured either at fair value or at the non-controlling interests’ proportionate
share of the recognized amounts of the acquiree’s identifiable net assets. The choice of measurement basis is made on a
transaction-by-transaction basis. Other types of non-controlling interests are measured at fair value or, when applicable, on the
basis specified in another IFRS.
When the consideration transferred by the Trust in a business combination includes assets or liabilities resulting from a contingent
consideration arrangement, the contingent consideration is measured at its acquisition date fair value and included as part of the
consideration transferred in a business combination. Changes in the fair value of the contingent consideration that qualify as
measurement period adjustments are adjusted retrospectively, with corresponding adjustments against goodwill. Measurement
period adjustments are adjustments that arise from additional information obtained during the “measurement period” (which
cannot exceed one year from the acquisition date and is shorter than one year if all information is received) about facts and
circumstances that existed at the acquisition date.
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BOARDWALK REAL ESTATE INVESTMENT TRUST The subsequent accounting for changes in the fair value of the contingent consideration that do not qualify as measurement
period adjustments depends on how the contingent consideration is classified. Contingent consideration that is classified as equity
is not remeasured at subsequent reporting dates and its subsequent settlement is accounted for within equity. Contingent
consideration that is classified as an asset or a liability is remeasured at subsequent reporting dates in accordance with
IAS 39 – Financial Instruments: Recognition and Measurement, or IAS 37 – Provisions, Contingent Liabilities and Contingent
Assets, as appropriate, with the corresponding gain or loss being recognized in profit or loss in the consolidated statement of
comprehensive income (loss).
When a business combination is achieved in stages, the Trust’s previously held equity interest in the acquiree is remeasured to fair
value at the acquisition date (i.e. the date when the Trust obtains control) and the resulting gain or loss, if any, is recognized in
profit or loss in the consolidated statement of comprehensive income (loss). Amounts arising from interests in the acquiree prior
to the acquisition date that have previously been recognized in other comprehensive income are reclassified to profit or loss where
such treatment would be appropriate if that interest was disposed of.
If the initial accounting for a business combination is incomplete by the end of the reporting period in which the combination
occurs, the Trust reports provisional amounts for the items for which the accounting is incomplete. These provisional amounts are
adjusted during the measurement period (see above), or additional assets or liabilities are recognized, to reflect new information
obtained about facts and circumstances that existed at the acquisition date that, if known, would have affected the amounts
recognized at that date.
(i) Assets held for sale and discontinued operations
(i) Assets (or disposal groups) held for sale
Non-current assets and groups of assets and liabilities, which comprise disposal groups, are categorized as assets
(or disposal groups) held for sale where the asset (or disposal group) is available for sale in its present condition, and the sale
is highly probable. For this purpose, a sale is highly probable: (a) if management is committed to a plan to achieve the sale;
(b) there is an active program to find a buyer; (c) the non-current asset (or disposal group) is being actively marketed at a
reasonable price; (d) the sale is anticipated to be completed within one year from the date of classification; and (e) it is
unlikely there will be changes to the plan. Where an asset (or disposal group) is acquired with a view to resale, it is classified
as a non-current asset (or disposal group) held for sale if the disposal is expected to take place within one year of the
acquisition and it is highly likely that the other conditions referred to above will be met within a short period following the
acquisition. Retrospective application is not required; therefore, comparative figures will not be adjusted to reflect non-
current assets held for sale. The gains or losses arising on a sale of assets (or disposal groups) that does not meet the
definition of discontinued operations will be recognized as part of continuing operations, while the gains or losses arising on
a sale of assets (or disposal groups) that meets the definition of discontinued operations will be reported as part of
discontinued operations in the consolidated statement of comprehensive income (loss).
(ii) Discontinued operations
An asset or group of assets will be classified as a discontinued operation when it is a component of an entity that has either
been disposed of or is classified as held for sale and represents a separate major line of business, it is part of a single
coordinated plan to dispose of a separate major line of business or geographical area of operations, or it is a subsidiary
acquired exclusively with a view to resell. Profits and gains or losses related to the disposal of discontinued operations are
measured based on fair value less cost to sell or on the disposal of the assets (or disposal groups) and are presented in the
consolidated financial statements on an after-tax basis in accordance with IFRS 5. In addition, retrospective application is
required; therefore, comparative figures will be changed to reflect discontinued operations. As an individual building or a
group of buildings in a non-core municipal region does not constitute a major line of business, these sales are not treated as
discontinued operations.
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BOARDWALK REAL ESTATE INVESTMENT TRUST (j) Impairment of assets
At the end of each reporting period, assets, other than those identified in the standard as not being applicable to
IAS 36 – Impairment of Assets (“IAS 36”), such as investment properties recorded at fair value, are assessed for any indication of
impairment. Should the indication of impairment exist, the recoverable amount (see below) of the asset is estimated in order to
determine the extent of the impairment loss (if any). Where it is not possible to estimate the recoverable amount of an individual
asset, the Trust estimates the recoverable amount of the cash-generating unit to which the asset belongs. Where a reasonable
and consistent basis of allocation can be identified, corporate assets are also allocated to individual cash-generating units, or
otherwise they are allocated to the smallest group of cash-generating units for which a reasonable and consistent allocation basis
can be identified.
Recoverable amount is defined as the higher of an asset’s “fair value less cost to sell” and its “value-in-use”. In assessing
value-in-use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects
current market assessments of the time value of money and the risks specific to the asset for which the estimate of future cash
flows have not been adjusted.
Where the carrying amount of an asset exceeds the recoverable amount determined, an impairment loss is recognized in the
consolidated statement of comprehensive income (loss). After the recognition of an impairment loss, the depreciation charge
related to that asset is also revised for the adjusted carrying amount on a systematic basis over the remaining useful life of the
asset. Should this impairment loss be determined to have reversed in a future period (with the exception of goodwill), a reversal of
the impairment loss is recorded in profit or loss. However, the reversal of an impairment loss will not increase the carrying amount
that would have been determined (net of amortization) had no impairment loss been recognized.
(k) Inventories
Inventories are measured at the lower of cost and net realizable value. The costs of inventories comprise the purchase price,
import duties and other taxes (other than those subsequently recoverable by the entity from the taxing authorities), and third-party
transport, handling and other costs directly attributable to the acquisition of goods and materials, less any trade discounts, rebates
and other similar items, using the first-in, first-out method of cost assignment. Net realizable value represents the estimated
selling price for inventories less all estimated costs necessary to make the sale.
(l) Taxation
For fiscal 2016 and 2017, Boardwalk REIT qualified as a “mutual fund trust” as defined under the Income Tax Act (Canada) (the “Tax
Act”) and as a Real Estate Investment Trust (“REIT”) eligible for the ‘REIT Exemption’ in accordance with the rules affecting the tax
treatment of publicly traded trusts. Accordingly, the Trust is not taxable on its income provided that all of its taxable income is
distributed to its Unitholders. This exemption, however, does not extend to the corporate subsidiaries of Boardwalk REIT that are
subject to income tax (NOTE 31 summarizes the Trust’s subsidiaries, including its corporate subsidiaries).
Current Tax
The tax currently payable, if any, is based on taxable profit for the year for certain corporate subsidiaries of the Trust. Taxable profit
differs from profit as reported in the consolidated statement of comprehensive income (loss) because of items of income or
expense that are taxable or deductible in other years and items that are never taxable or deductible. The Trust’s liability for current
tax is calculated using tax rates that have been enacted or substantively enacted by the end of the reporting period.
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BOARDWALK REAL ESTATE INVESTMENT TRUST Deferred Tax
Deferred tax is recognized on temporary differences between the carrying amounts of assets and liabilities in the consolidated
financial statements and the corresponding tax bases used in the computation of taxable profit.
Deferred income tax liabilities are generally recognized for all taxable temporary differences. Deferred income tax assets are
recognized for all deductible temporary differences, carry forward of unused tax credits and unused tax losses, to the extent that it is
probable that deductions, tax credits and tax losses can be utilized. The carrying amounts of deferred income tax assets are reviewed
at each reporting date and reduced to the extent it is no longer probable that the income tax assets will be recovered. Deferred
income tax assets and liabilities are measured at the tax rates that are expected to apply in the year when the asset is realized or the
liability settled, based on tax rates and laws that have been enacted or substantively enacted at the reporting date. In addition,
deferred income tax assets and liabilities are measured using the rate that is consistent with the expected manner of recovery (i.e.
using the asset versus selling the asset). Where applicable, current and deferred income taxes relating to items recognized directly in
equity or comprehensive income (loss) are also recognized directly in equity or comprehensive income (loss), respectively.
(m) Provisions
In accordance with IAS 37 – Provisions, Contingent Liabilities and Contingent Assets (“IAS 37”), a provision is a liability of
uncertain timing or amount. Provisions are recognized when the entity has a present legal or constructive obligation as a result of
past events and when it is probable that an outflow of resources will be required to settle the obligation and the amount can be
reliably estimated. Provisions are not recognized for future operating losses. Provisions are measured at the present value of the
expenditures expected to be required to settle the obligation using a discounted rate that reflects current market assessment of
the time value of money and the risks and uncertainties specific to the obligation. Provisions are re-measured at each reporting
date using the current discount rate. The increase in the provision due to the passage of time is recognized as a financing cost.
(n) Unit-based payments
Equity-settled unit-based payments to employees and Trustees are measured at the fair value of the deferred unit at the grant date
and expensed over the vesting period based on the Trust’s estimate of the deferred units that will actually vest. At the end of each
reporting period, the Trust revises its estimate of the number of equity instruments expected to vest. The impact of the revision of
the original estimates, if any, is recognized in profit or loss prospectively such that the cumulative expense reflects the revised
estimate. In accordance with IAS 32 – Financial Instruments: Presentation (“IAS 32”), the deferred units are presented as a liability
on the consolidated statement of financial position as the Trust is obliged to provide the holder with REIT Units once the deferred
units vest. Under IAS 39 – Financial Instruments: Recognition and Measurement (“IAS 39”), the deferred units are classified as
‘fair value through profit or loss’ and are measured at each reporting period at fair value with changes in fair value recognized in the
consolidated statement of comprehensive income (loss). Fair value of the deferred units is calculated based on the observable
market price of Boardwalk REIT’s Trust Units.
(o) Government assistance and grants
The Trust receives government assistance in order to complement and partially assist the Trust’s initiatives in providing affordable
housing to low income-earning individuals. Government grants are not recognized until there is reasonable assurance that the Trust
will comply with the conditions attached to them and that the grants will be received. In accordance with IAS 20 – Accounting for
Government Grants and Disclosure of Government Assistance, grant proceeds will be recognized in profit or loss on a systematic
basis over the periods in which the Trust recognizes revenue or incurs expenses.
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BOARDWALK REAL ESTATE INVESTMENT TRUST (p) Revenue recognition
(i) Rental revenue
The Trust has retained substantially all of the risks and benefits of ownership of its investment properties, and, therefore,
accounts for leases with its tenants as operating leases. Revenue recognition under a lease commences when the tenant
has a right to use the leased asset. Generally, this occurs on lease inception date when the tenant occupies their leased
space. Rental revenue is recognized systematically over the term of the lease, which is generally not more than twelve
months. Any suite specific incentives offered or initial direct costs incurred in negotiating and arranging an operating lease
are also amortized over the term of the operating lease. Rental revenue is recorded based on the amount received or to be
received in accordance with the operating lease.
(ii) Building sales
The gain or loss from the sale of an investment property is recognized when title passes to the purchaser (control is
transferred) upon closing at which time all or substantially all of the funds are receivable, or have been received, and the
conditions of the sale have been completed.
(iii)
Interest income
Interest income from a financial asset is recognized when it is probable that the economic benefits will flow to the Trust and
the amount of income can be measured reliably. Interest income is accrued on a time basis when earned, by reference to
the principal outstanding and at the effective interest rate applicable. Interest income is included in financing costs in the
consolidated statement of comprehensive income (loss).
(iv) Ancillary rental income
Ancillary rental income comprises revenue from coin laundry machines located on the Trust’s existing building sites, and
income received from telephone and cable providers and is recorded when earned.
(q) Financial instruments and derivatives
Financial instruments and derivatives are accounted for, presented, and disclosed in accordance with IFRS 7 – Financial
Instruments: Disclosures (“IFRS 7”), IAS 32 and IAS 39. Financial assets and financial liabilities are initially measured at
fair value. Transaction costs that are directly attributable to the acquisition or issue of financial assets and financial liabilities (other
than financial assets and financial liabilities at fair value through profit or loss) are added to or deducted from the fair value of the
financial assets or financial liabilities, as appropriate, on initial recognition. Transaction costs directly attributable to the acquisition
of financial assets or financial liabilities at fair value through profit or loss are recognized immediately in profit or loss.
Financial Assets
Financial assets are classified into the following specified categories: financial assets at ‘fair value through profit or loss’ (“FVTPL”),
‘held-to-maturity’ investments, ‘available-for-sale’ financial assets, and ‘loans and receivables’. The classification depends on the
nature and purpose of the financial asset and is determined at the time of initial recognition. Financial assets are classified as at
FVTPL when the financial asset either is held for trading or is designated as at FVTPL.
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BOARDWALK REAL ESTATE INVESTMENT TRUST Financial assets categories are defined and measured as follows:
Classification
Definition
Measurement
FVTPL
Classified as FVTPL when the financial asset is either held for trading or it
is designated as at FVTPL as discussed below:
Classified as held for trading if: it has been acquired principally for
the purpose of selling it in the near term; or, on initial recognition, it
is part of a portfolio of identified financial instruments that the Trust
manages together, and has a recent actual pattern of short-term profit
taking; or, it is a derivative that is not designated and effective as a
hedging instrument.
Stated at fair value, with gains or
losses arising on measurement
recognized in profit or loss.
Classified as FVTPL upon initial recognition if: such designation eliminates
or significantly reduces a measurement or recognition inconsistency that
would otherwise arise; or the financial asset forms part of a group which
is managed and its performance is evaluated on a fair value basis; or it
forms part of a contract containing one or more embedded derivatives.
Stated at fair value, with gains or
losses arising on measurement
recognized in profit or loss.
Held-to-maturity investments
Non-derivative financial assets with fixed or determinable payments and
fixed maturity dates that the Trust has the positive intent and ability to
hold to maturity.
Measured at amortized cost
using the effective interest
method less any impairment. (1) (2)
Available-for-sale
Non-derivative financial assets that either are designated as available-for-
sale or are not classified as (a) loans and receivables, (b) held-to-maturity
investments or (c) financial assets at FVTPL.
Measured at fair value through
other comprehensive income.
Loans and receivables
Non-derivative financial assets with fixed or determinable payments that
are not quoted in an active market.
Measured at amortized cost
using the effective interest
method less any impairment. (1) (2)
(1) The effective interest method is a method of calculating the amortized cost of a debt instrument and of allocating interest income over the relevant period.
The effective interest rate is the rate that exactly discounts estimated future cash receipts through the expected life of the debt instrument or where appropriate,
a shorter period, to the net carrying amount on initial recognition.
(2) Financial assets, other than those at FVTPL, are assessed for indicators of impairment at the end of each reporting period. Generally, the carrying amount of the
financial asset is reduced by the impairment loss.
Boardwalk REIT’s financial assets are as follows:
Financial Asset
Classification
Mortgage receivable
Loans and receivables
Trade and other receivables
Loans and receivables
Segregated tenants’ security deposits
Loans and receivables
Cash and cash equivalents
Loans and receivables
Measurement
Amortized cost
Amortized cost
Amortized cost
Amortized cost
The Trust derecognizes a financial asset only when the contractual rights to the cash flows from the asset expire, or when it
transfers the financial asset and substantially all the risks and rewards of ownership of the asset to another entity.
Financial Liabilities and Equity
Debt and equity instruments issued are classified either as financial liabilities or as equity in accordance with the substance of the
contractual arrangements and the definitions of a financial liability and an equity instrument. An equity instrument is any contract
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BOARDWALK REAL ESTATE INVESTMENT TRUST that evidences a residual interest in the assets of an entity after deducting all of its liabilities. Equity instruments issued by the
Trust are recognized at the proceeds received, net of direct issue costs. Repurchase of Boardwalk REIT’s own equity instruments
is recognized and deducted directly in equity. No gain or loss is recognized in profit or loss on the purchase, sale, issue or
cancellation of the Trust’s own equity instruments. Distributions paid on the Trust’s equity instruments subsequent to, declared
prior to, and with a record date at or prior to, the reporting date, are recorded as a liability.
Financial liabilities are classified as either financial liabilities ‘at FVTPL’ or ‘other financial liabilities’. Financial liabilities categories are
defined and measured as follows:
Classification
Definition
Measurement
FVTPL
Classified as FVTPL when the financial liability is either held for trading or
it is designated as at FVTPL as discussed below:
Classified as held for trading if: it has been acquired principally for the
purpose of repurchasing it in the near term; or, on initial recognition,
it is part of a portfolio of identified financial instruments that the Trust
manages together and has a recent actual pattern of short-term profit
taking; or, it is a derivative that is not designated and effective as a
hedging instrument.
Classified as FVTPL upon initial recognition if: such designation
eliminates or significantly reduces a measurement or recognition
inconsistency that would otherwise arise; or the financial liability forms
part of a group which is managed and its performance is evaluated on
a fair value basis; or it forms part of a contract containing one or more
embedded derivatives.
Other financial liabilities
All other liabilities.
Stated at fair value, with gains or
losses arising on measurement
recognized in profit or loss.
Stated at fair value, with gains or
losses arising on measurement
recognized in profit or loss.
Measured at amortized cost using
the effective interest method. (1)
(1) The effective interest method is a method of calculating the amortized cost of a financial liability and of allocating interest expense over the relevant period.
The effective interest rate is the rate that exactly discounts estimated future cash payments through the expected life of the financial liability or where appropriate,
a shorter period, to the net carrying amount on initial recognition.
Boardwalk REIT’s financial liabilities are as follows:
Financial Liability
Classification
Mortgages payable
Other financial liabilities
LP Class B Units
Deferred unit-based compensation
FVTPL
FVTPL
Refundable tenants’ security
Other financial liabilities
Trade and other payables
Other financial liabilities
Measurement
Amortized cost
Fair value
Fair value
Amortized cost
Amortized cost
The Trust derecognizes a financial liability when, and only when, the Trust’s obligations are discharged, cancelled or they expire.
The difference between the carrying amount of the financial liability derecognized and the consideration paid and payable is
recognized in profit or loss.
1 1 0
2 0 1 7 A N N U A L R E P O R T
BOARDWALK REAL ESTATE INVESTMENT TRUST Derivatives
The Trust may enter into a variety of derivative financial instruments to manage its exposure to interest rate risks, including interest
rate swaps and bond forward contracts. Further details of derivative financial instruments are disclosed in NOTE 29. Derivatives
are initially recognized at fair value at the date the derivative contracts are entered into and are subsequently measured at their fair
value at the end of each reporting period. The resulting gain or loss is recognized in profit or loss immediately unless the derivative
is designated and effective as a hedging instrument, in which case the timing of the recognition in profit or loss depends on the
nature of the hedge relationship. Derivatives embedded in host contracts are treated as separate derivatives when their risks and
characteristics are not closely related to the host contracts and the host contracts are not measured at FVTPL. For the years ended
December 31, 2017 and 2016, the Trust had no embedded derivatives requiring separate recognition.
(r) Cash and cash equivalents
Cash is comprised of bank balances, interest-earning bank accounts and term deposits with maturities of 90 days or less.
(s) Critical judgment in applying accounting policies
The following are the critical judgments, apart from those involving estimations (see NOTE 2(t) below), that have been made in
applying the Trust’s accounting policies and that have the most significant effect on the reported amounts in the consolidated
financial statements:
(i)
Income taxes
The Trust applies judgment in determining the tax rates applicable to its corporate subsidiaries and identifying the temporary
differences in each of such legal subsidiaries in respect of which deferred income taxes are recognized. Deferred taxes
related to temporary differences arising from its corporate subsidiaries are measured based on the tax rates that are
expected to apply in the year when the asset is realized or the liability is settled. Temporary differences are differences that
are expected to reverse in the future and arise from differences between accounting and tax asset values.
(ii) Leases
The Trust’s revenue recognition policy related to leases is described in NOTE 2(p)(i). The Trust makes judgments in
determining whether certain leases, in particular tenant leases, as well as leased warehouse space and long-term land
leases, which are considered leases under IFRS, where the Trust is the lessor, are operating or finance leases. The Trust has
determined that all of its leases are operating leases.
(iii)
Investment property and internal capital program
The Trust’s accounting policy relating to investment property is described in NOTE 2(e) above. In applying this policy,
judgment is applied in determining the extent and frequency of utilizing independent, third-party appraisals to measure the
fair value of the Trust’s investment property. Additionally, judgment is applied in determining the appropriate classes of
investment properties in order to measure fair value. The Trust also undertakes internal capital improvements and upgrades.
Such work is specifically identified, and the Trust applies judgment in the estimated amount of directly attributable on-site
wages to be allocated to capital improvements and upgrades of its real estate assets.
(iv) Financial instruments
The Trust’s accounting policies relating to financial instruments are described in NOTE 2(q). Critical judgments inherent in
these policies related to applying the criteria set out in IAS 39 to designate financial instruments into categories (i.e. FVTPL,
etc.), assess the effectiveness of hedging relationships (for the Trust’s cash flow hedges) and determine the identification of
embedded derivatives, if any, in certain hybrid instruments that are subject to fair value measurement.
2 0 1 7 A N N U A L R E P O R T
1 1 1
BOARDWALK REAL ESTATE INVESTMENT TRUST (v) Basis of consolidation
The consolidated financial statements of the Trust include the accounts of Boardwalk REIT and its wholly owned subsidiaries,
as well as entities over which the Trust exercises control on a basis other than ownership of voting interest within the scope
of IFRS 10. Judgment is applied in determining if an entity meets the criteria of control as defined in the accounting standard.
(vi) Deferred unit-based compensation
The Trust applies judgment in determining the best available estimate of the number of deferred units that are expected to
vest at each reporting period.
(t) Key accounting estimates and assumptions
The following are the key assumptions concerning the future, and other key sources of estimation uncertainty at the end of the
reporting period, that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within
the next financial year. Actual results could differ from estimates.
(i)
Investment properties
The choice of valuation method for fair valuing and the critical estimates and assumptions underlying the fair value
determination of investment properties are set out in NOTE 4. Significant estimates used in determining the fair value of the
Trust’s investment properties includes capitalization rates and net operating income (which is influenced by market inflation
rates, vacancy rates and standard costs) used in the overall capitalization rate valuation method as well as discount rates and
forecasted cash flows used in the discounted cash flow valuation method. A change to any one of these inputs could
significantly alter the fair value of an investment property. Please refer to NOTE 4 for sensitivity analysis.
(ii) Property, plant and equipment
The useful economic life of property, plant and equipment for the purposes of calculating depreciation and amortization,
as disclosed in NOTE 5, and forecasts of economic factors to determine recoverable amounts for the purpose of determining
any impairment of assets, are based on data and information from various sources including industry practice and entity
specific history.
(iii)
Internal capital program
The Trust’s internal capital program is based on internal allocations, including parts, supplies and on-site wages identified as
part of a specific upgrade or capital improvement.
(iv) Utility accrual
The amount of utility accrual for charges related to the current or prior year is based on estimates of usage and price for the
time period in which invoices have not been received from the utility providers.
(v) Deferred unit-based compensation plan
The compensation costs relating to the deferred unit plan are based on estimates of how many deferred units will actually
vest and be exercised.
(vi) Deferred taxes
The amount of the temporary differences between the accounting carrying value of the Trust’s assets and liabilities held in
various corporate subsidiaries versus the tax bases of those assets and liabilities and the tax rates at which the differences
will be realized are outlined in NOTE 16.
1 1 2
2 0 1 7 A N N U A L R E P O R T
BOARDWALK REAL ESTATE INVESTMENT TRUST NOTE 3: APPLICATION OF NEW AND REVISED IFRSS AND FUTURE ACCOUNTING POLICIES
(a) Application of new and revised IFRSs
In the current year, the Trust has applied a number of new and revised IFRSs issued by the IASB, and incorporated in the
Chartered Professional Accountants of Canada Handbook. The following highlights these changes and the effect, if any, on the
Trust’s consolidated financial statements:
Standard
Details of Amendment
Impact
Disclosure Initiative
(Amendment to IAS 7 –
Statement of Cash Flows)
The amendment clarifies that entities shall provide disclosures that
enable users of financial statements to evaluate changes in liabilities
arising from financing activities.
Recognition of Deferred Tax
Assets for Unrealized Losses
(Amendment to IAS 12 –
Income Taxes (“IAS 12”)
2014-2016 Cycle
The amendments made to IAS 12 clarify the following items:
§ Unrealized losses on debt instruments measured at fair value
and measured at cost for tax purposes give rise to a deductible
temporary difference regardless of whether the carrying amount is
expected to be recovered.
§ The carrying amount of an asset does not limit the estimation of
probable future taxable benefits.
§ Estimates for future taxable profits exclude tax deductions resulting
from the reversal of deductible temporary differences.
§ An entity assesses a deferred tax asset in combination with other
deferred tax assets.
The application of this amendment
has not resulted in any material
impact on the consolidated
financial statements of the Trust.
The application of these
amendments has not resulted
in any material impact on the
consolidated financial statements
of the Trust.
IFRS 12 – Disclosure of Interests
in Other Entities
Provides clarification that the scope of the standard should include
interests that are classified as held for sale, held for distribution or as
discontinued operations.
This clarification was not applicable
for the current year as the Trust did
not have any interests classified as
held for sale, held for distribution or
as discontinued operations.
(b) Future accounting policies
The following accounting standards under IFRS have been issued or revised; however, they are not yet effective, and, as such,
have not been applied to these consolidated financial statements:
2 0 1 7 A N N U A L R E P O R T
1 1 3
BOARDWALK REAL ESTATE INVESTMENT TRUST New or Amended Standards
Summary of Requirements
IFRS 9 – Financial Instruments
(“IFRS 9”)
IFRS 15 – Revenue from
Contracts with Customers
(“IFRS 15”)
IFRS 9, published in July 2014, replaces the existing
guidance in IAS 39. IFRS 9 includes revised guidance
on the classification and measurement of financial
instruments, including a new expected credit
loss model for calculating impairment on financial
assets, and the new general hedge accounting
requirements. It also carries forward the guidance
on recognition and derecognition of financial
instruments from IAS 39.
IFRS 9 is effective for annual reporting periods
beginning on or after January 1, 2018, with early
adoption permitted.
IFRS 15 establishes a comprehensive framework
for determining whether, how much, and when
revenue is recognized. It replaces existing revenue
recognition guidance, including IAS 18 – Revenue
(“IAS 18”), IAS 11 – Construction Contracts and
IFRIC 13 – Customer Loyalty Programmes.
IFRS 15 is effective for annual reporting periods
beginning on or after January 1, 2018, with early
adoption permitted.
Possible Impact on Consolidated
Financial Statements
The Trust has reviewed and assessed the new
standard and does not expect it to have a material
impact on its consolidated financial statements.
The mortgage receivable which is currently
being recorded at amortized cost will be recorded
at fair value through profit and loss under this
revised standard.
The Trust is in the final stages of its evaluation of the
potential impact of this standard on its consolidated
financial statements.
The Trust recognizes revenue from the following
sources:
§ Rental revenue and other charges based on
operating tenant leases, which should not change
under IFRS 15, as they are scoped out of IFRS 15
and included in IAS 17 – Leases for fiscal 2018 and
IFRS 16 – Leases (which is effective for periods
beginning on or after January 1, 2019 and is
outlined below).
§ The Trust has determined that the relevant impact
as a result of the adoption of IFRS 15 will be the
separation of lease and non-lease components
within its lease arrangements to identify revenue
streams that fall under the scope of IFRS 15.
Specifically, the recovery of costs related to the
provision of services is considered a non-lease
component and would be within the scope of
IFRS 15. In respect of such recovery of services
revenue, the Trust has concluded that the pattern
of revenue recognition will remain unchanged.
However the Trust will be required to disclose the
separate components of each revenue stream,
including those included within gross leases, in
the notes to the consolidated financial statements.
§ Ancillary rental income comprises revenue from
coin laundry machines and income received from
telephone and cable providers
§ Interest income, which will be scoped out of
IFRS 15 and addressed under IFRS 9
(as discussed above).
Each revenue stream has been assessed under the
new standard. Based on the Trust’s assessment, both
the recognition of revenue and the measurement
of revenue will remain materially the same as under
current IFRS. Disclosures will be consistent with the
new requirements.
1 1 4
2 0 1 7 A N N U A L R E P O R T
BOARDWALK REAL ESTATE INVESTMENT TRUST New or Amended Standards
Summary of Requirements
Possible Impact on Consolidated
Financial Statements
IFRS 16 – Leases (“IFRS 16”)
IFRS 16 supersedes IAS 17 – Leases and has been
established to increase the transparency of lease
obligations reported on an entity’s financial report.
Under this new standard, entities may be required to
report more of their previously disclosed off balance
sheet leases on the face of the balance sheet. The
standard also provides guidance on the calculation
and presentation of the lease obligations.
IFRS 16 is effective for annual reporting periods
beginning on or after January 1, 2019, with early
adoption permitted, only if the entity also applies
IFRS 15.
The Trust is assessing the potential impact on its
consolidated financial statements.
It is expected that leases with tenants shall be
accounted for as operating leases in the same manner
they are currently being reported.
The Trust has Investment Properties located on land
which is leased. Currently, these lease payments are
expensed. It is expected that under the new lease
standard, a right-of-use asset addition to Investment
Property and a lease obligation liability shall be recorded
along with the corresponding financing charges.
The Trust will ensure these amendments are
considered when evaluating/determining its
Investment Properties.
The Trust has assessed these amendments and does
not expect them to have a material impact on its
consolidated financial statements.
Transfers of Investment
Properties (amendments
to IAS 40)
Classification and Measurement
of Share-based Payment
Transactions (Amendment to
IFRS 2 – Share-based Payment
(“IFRS 2”)
Paragraph 57 of IAS 40 has been amended to state
that an entity shall transfer a property to, or from,
investment property when, and only when, there is
evidence of a change in use. A change in use occurs
if property meets, or ceases to meet, the definition
of investment property. A change in management’s
intentions for the use of a property by itself does not
constitute evidence of a change in use.
This amendment is effective for annual periods
beginning on or after January 1, 2018.
The amendments made to IFRS 2 clarify the
following items:
§ In estimating the fair value of a cash-settled share-
based payment, the accounting for the effects of
vesting and non-vesting conditions should follow
the same approach as for equity-settled share-
based payments.
§ Where tax law or regulation requires an entity
to withhold a specified number of equity
instruments equal to the monetary value of
the employer’s tax obligation to meet the
employer’s tax liability which is then remitted to
the tax authority, such an arrangement should be
classified as equity-settled in its entirety, provided
that the share-based payment would have been
classified as equity-settled had it not included the
net settlement feature.
§ A modification of a share-based payment that
changes the transaction from cash-settled to
equity-settled should be accounted for as follows:
° the original liability is derecognized;
° the equity-settled share-based payment is
recognized at the modification date fair value;
° any difference in value should be recognized in
profit or loss immediately.
The amendment is effective for annual periods
beginning on or after January 1, 2018.
2 0 1 7 A N N U A L R E P O R T
1 1 5
BOARDWALK REAL ESTATE INVESTMENT TRUST Possible Impact on Consolidated
Financial Statements
The Trust is assessing the potential impact
of these amendments on its consolidated
financial statements.
New or Amended Standards
Summary of Requirements
Sale or Contribution of Assets
between an Investor and its
Associate or Joint Venture
(Amendments to IFRS 10 –
Consolidated Financial
Statements and IAS 28 –
Investments in Associates
and Joint Ventures)
The amendments deal with situations where there is
a sale or contribution of assets between an investor
and its associate or joint venture. Specifically, they
state that gains or losses resulting from the loss
of control of a subsidiary that does not contain
a business transaction with an associate or joint
venture that is accounted for using the equity
method, are recognized in the parent’s profit or
loss only to the extent of the unrelated investors’
interests in that associate or joint venture.
The effective date for this amendment has yet to
be determined.
The following interpretation is not expected to have any impact on the Trust’s consolidated financial statements:
§ IFRIC 22 – Foreign Currency Transactions and Advance Consideration.
Annual Improvements to IFRSs 2014-2016 Cycle
Within the Annual Improvements to IFRSs 2014-2016 Cycle, there were amendments to standards with an effective date of
January 1, 2018. None of these standards will have a significant impact on the Trust and, therefore, will not be discussed.
NOTE 4: INVESTMENT PROPERTIES
As at
Balance, beginning of year
Additions
Building acquisitions
Building improvements (incl. internal capital program)
Development of investment properties
Reclass from Property, plant and equipment
Dispositions
Fair value losses, unrealized
Balance, end of year
Revenue producing properties
Properties under development (1)
Total
Year Ended
Dec. 31, 2017
Year Ended
Dec. 31, 2016
$
5,612,568
$
5,540,299
-
144,406
190,203
17,888
-
(71,648)
(60,886)
5,688,125
5,676,776
11,349
$
$
97,744
6,167
4,795
-
$
$
(180,843)
5,612,568
5,606,174
6,394
$
5,688,125
$
5,612,568
(1) On June 28, 2017, a 79-unit development project in Regina, Saskatchewan, with costs totaling $12.9 million was transferred from development to revenue producing
properties. On January 29, 2016, a 79-unit development project in Regina, Saskatchewan, totaling $13.4 million in costs was transferred from development to
revenue producing properties.
On November 23, 2017, the Trust closed on its purchase of a 50% interest in a parcel of land in Calgary, Alberta. The Trust’s
purchase of its 50% interest totaled $3.2 million and will be used as part of a joint venture agreement to develop a mixed-use
tower. This acquisition has been included as development of investment properties.
1 1 6
2 0 1 7 A N N U A L R E P O R T
BOARDWALK REAL ESTATE INVESTMENT TRUST
On June 7, 2016, the Trust closed on the purchase of a 162-unit property for a purchase price of $29.6 million. On August 9, 2016,
the Trust closed on the purchase of a 165-unit property for a purchase price of $30.2 million. On August 17, 2016, the Trust closed
on the purchase of a 182-unit property for a purchase price of $33.3 million. All three properties were part of the portfolio of
509 units located in Edmonton, Alberta, which the Trust waived conditions on April 26, 2016. On June 22, 2016, the Trust closed
on the purchase of a 238-unit property in Calgary, Alberta for a purchase price of $51.2 million. All of the acquisitions were paid
for with cash on hand.
Acquisitions
Purchase price
Transaction costs
Total cash paid
Allocation of fair value to investment properties
Multi-family units acquired
Year Ended
Dec. 31, 2017
Year Ended
Dec. 31, 2016
$
$
$
$
$
$
-
-
-
-
-
144,190
216
144,406
144,406
747
Subsequent to initial recognition at cost, investment properties are recorded at fair value in accordance with IAS 40. Fair value is
determined based on a combination of internal and external processes and valuation techniques. Fair value under IFRS is defined
as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market
participants at the measurement date. Investment properties are valued on a highest and best use basis. For all of the Trust’s
investment properties, the current use is considered to be the highest and best use. For the year ended December 31, 2017, there
has been no change to the valuation techniques.
In determining the appropriate classes of investment properties in order to determine the fair value measurement, the Trust has
considered the nature, characteristics and risk of its properties. The classification of investment properties is based primarily on the
geographical location of the asset, with the exception of properties situated on land leases. Below is a continuity schedule based
on investment property classes:
Recurring measurements
investment properties
Calgary
Edmonton
Other Alberta
Kitchener
London
Montreal
Quebec City
Regina
Saskatoon
Land leases
Total
Year ended December 31, 2017
Building
Improvements
(incl. Internal
Capital
Building
Development
of Investment
Reclass from
Property,
Plant and
Program)
Acquisitions
Properties
Equipment Dispositions
Balance,
Beginning
of Year
Fair Value
Gains
(losses)
Balance,
End of Year
$ 1,251,968 $ 50,502 $
- $
5,794 $
- $
- $ (29,626) $ 1,278,638
2,274,320
67,159
280,536
17,410
38,160
2,063
231,709
9,994
107,932
1,743
185,861
3,366
397,699
12,233
321,450
11,640
522,933
14,093
-
-
-
-
-
-
-
-
-
(4)
-
-
-
-
-
12,098
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(53,901)
2,287,574
(11,185)
286,761
8,620
48,843
57,781
299,484
4,320
113,995
(823)
188,404
(71,648)
(25,867)
324,515
-
-
(24,261)
308,829
14,056
551,082
$ 5,612,568 $ 190,203 $
- $ 17,888 $
- $ (71,648) $ (60,886) $ 5,688,125
2 0 1 7 A N N U A L R E P O R T
1 1 7
BOARDWALK REAL ESTATE INVESTMENT TRUST
Recurring measurements
investment properties
Calgary
Edmonton
Other Alberta
Kitchener
London
Montreal
Quebec City
Regina
Saskatoon
Land leases
Total
Year ended December 31, 2016
Building
Improvements
(incl. Internal
Capital
Building
Development
of Investment
Reclass from
Property,
Plant and
Program)
Acquisitions
Properties
Equipment
Dispositions
Balance,
Beginning
of Year
Fair Value
Gains
(losses)
Balance,
End of Year
$ 1,197,629 $ 16,351 $ 51,222 $
85 $
1,300 $
2,279,601
35,977
93,184
11
2,030
285,064
6,483
34,232
1,532
211,999
6,341
104,384
1,780
183,254
4,463
398,033
5,281
329,439
3,638
516,664
15,898
-
-
-
-
-
-
-
-
-
-
-
-
-
6,071
-
-
412
36
248
-
-
242
445
82
$ 5,540,299 $
97,744 $ 144,406 $
6,167 $
4,795 $
-
-
-
-
-
-
-
-
-
-
-
$ (14,619)
$ 1,251,968
(136,483)
2,274,320
(11,423)
280,536
2,360
38,160
13,121
231,709
1,768
107,932
(1,856)
185,861
(11,928)
397,699
(12,072)
321,450
(9,711)
522,933
$ (180,843)
$ 5,612,568
Investment properties measured at fair value in the statement of financial position are categorized by level according to the
significance of the inputs used in making the measurements. The levels of inputs are defined as follows:
Level 1 inputs: Quoted prices (unadjusted) in active markets for identical assets or liabilities that the entity can access at the
measurement date.
Level 2 inputs: Inputs other than quoted prices included within Level 1 that are observable for the asset or the liability, either
directly or indirectly.
Level 3 inputs: Unobservable inputs for the asset or liability.
The Trust’s policy is to recognize transfers out of fair value hierarchy levels as of the date of the event or change in circumstances
that caused the transfer. As at December 31, 2017, all of the Trust’s investment properties were Level 3 inputs. There were
no transfers into or out of Level 3 fair value measurements for investment properties held as at December 31, 2017 and
December 31, 2016.
External valuations were obtained from third-party external valuation professionals (the “Appraisers”) based on a cross section of
properties from different geographical locations and markets across the Trust’s rental portfolio as determined by the Trust’s
management and approved by the Trust’s Board of Trustees. The Appraisers are an independent valuation firm not related to the
Trust and employ valuation professionals who are members of the Appraisal Institute of Canada and the Ordre des Evaluateurs
Agrees du Quebec who have appropriate qualifications and recent experience in the valuation of properties in the relevant
locations. External appraisals were obtained as follows:
Date
December 31, 2017
September 30, 2017
June 30, 2017
March 31, 2017
December 31, 2016
September 30, 2016
June 30, 2016
March 31, 2016
1 1 8
2 0 1 7 A N N U A L R E P O R T
Number of
Aggregate
Percentage of Portfolio
Properties
Fair Value
as of That Date
5
4
5
4
5
5
4
4
$ 575,360
$ 125,232
$ 152,681
$ 99,593
$ 511,224
$ 177,677
$ 82,027
$ 97,993
10.1%
2.2%
2.7%
1.8%
9.1%
3.2%
1.5%
1.8%
BOARDWALK REAL ESTATE INVESTMENT TRUST
The fair value of the remainder of the Trust’s investment property portfolio was determined internally by the Trust using the same
assumptions and valuation techniques used by the external valuation professionals. In addition to performing a valuation on a
selection of the Trust’s properties (and not performing a valuation on all of the Trust’s properties) to corroborate the Trust’s internal
valuation, the Appraisers provided the Trust with a summary of the major assumptions and market data by city in order for the Trust
to complete its internal valuations. This summary includes the Appraisers’ estimates of Capitalization Rates for each region (city) as
well as confirmation of the reasonableness of the assumptions used in determining stabilized net operating income used in
calculating fair values.
The third-party valuation technique of the Trust’s investment property portfolio primarily utilizes the “Overall Capitalization Rate”
method. This method requires that rental income from current leases and key assumptions about rental income, vacancies and
inflation rates, among other factors, be used to determine a one-year income forecast for each individual property within the Trust’s
portfolio, and also considers any capital expenditures anticipated within the year. Given the short-term nature of residential leases
(typically one year), revenue and costs are not discounted. A Capitalization Rate was also determined for each property based on
market information related to the external sale of similar buildings within a similar geographic location. These factors were used to
determine the fair value of investment properties at each reporting date.
Five of the Trust’s properties: one in Calgary, one in Banff, one in Edmonton and two in Montreal, are subject to long-term land
leases and similar arrangements in which the underlying land is owned by a third party and leased to the Trust. Under the terms of
a typical land lease, the lessee must pay rent for the use of the land and is generally responsible for all costs and expenses
associated with the building and improvements, including taxes, utilities, insurance, maintenance, repairs and replacements in
respect of all the leased premises. Unless the lease term is extended, the land together with all improvements made will revert to
the owner of the land upon the expiration of the lease term. Due to the relatively short term remaining on one of the land leases in
Montreal (with an expiry date of 2028), this property utilized the Discounted Cash Flow (“DCF”) approach to derive the fair value.
The DCF Method calculates the present value of the future cash flows over a specified time period to determine the fair value for
each property at each reporting date. The most significant assumption using the DCF method is the discount rate applied over the
term of the lease. The discount rate reflects the uncertainty regarding the renegotiation of the land lease payments and the ability
to extend the land lease at the expiry date. Forecasted cash flows are reduced for contractual land lease payments during the term
of the leases.
The key valuation metrics (and significant unobservable inputs in Level 3) for the Trust’s investment properties are set out in the
following tables:
As at
Calgary
Edmonton
Other Alberta
Kitchener
London
Montreal
Quebec City
Regina
Saskatoon
Land Lease
Dec. 31, 2017
Dec. 31, 2016
Capitalization Rate
Minimum
Maximum
Forecasted Total
Standardized Net
Operating Income
Capitalization Rate
Minimum
Maximum
Forecasted Total
Standardized Net
Operating Income
4.50%
5.00%
5.75%
4.75%
4.75%
4.75%
5.25%
5.65%
5.75%
4.50%
4.50%
6.00%
$
5.50%
7.25%
4.75%
5.00%
5.75%
5.75%
6.20%
6.00%
7.25%
21.07%
$
$
63,390
120,518
18,271
2,320
14,251
5,788
10,250
19,127
18,377
272,292
28,100
4.50%
5.00%
5.75%
5.25%
5.25%
5.00%
5.25%
5.65%
5.75%
4.50%
4.75%
6.00%
$
5.52%
7.25%
5.25%
5.50%
5.75%
5.75%
6.00%
6.00%
7.25%
18.80%
$
$
62,802
120,325
17,920
2,003
12,186
5,669
10,116
23,426
19,127
273,574
27,847
The overall weighted average Capitalization Rates for fair valuing the Trust’s investment properties at December 31, 2017 and 2016
was 5.29% and 5.38% respectively.
2 0 1 7 A N N U A L R E P O R T
1 1 9
BOARDWALK REAL ESTATE INVESTMENT TRUST
+3%
309,404
460,245
170,303
+3%
310,463
449,774
168,185
The “Overall Capitalization Rate” method requires that a forecasted stabilized net operating income (“NOI”) be divided by a
Capitalization Rate (“Cap Rate”) to determine a fair value. NOI is calculated as a one-year income forecast based on rental income
from current leases and key assumptions about rental income, vacancies and inflation rates, among other factors, less property
operating costs. As such, fluctuations in both NOI and Cap Rates could significantly alter the fair value. Generally, an increase in
stabilized NOI will result in an increase to the fair value of an investment property. An increase in capitalization rate will result in a
decrease to the fair value of an investment property. When the capitalization rate is applied to NOI to calculate fair value, there is a
significant impact as the lower the capitalization rate, the larger the impact. Below are tables that summarize the impact of
changes in both the Cap Rates and NOI on the Trust’s fair value of investment properties (excluding development):
As at December 31, 2017
Net Operating Income
Capitalization Rate
-0.25%
Cap Rate As Reported
+0.25%
5.04%
5.29%
5.54%
-3$
-1% As Forecasted
+1%
$
$
291,380
102,749
$
$
297,388
221,914
300,392
281,497
$
$
303,396
341,080
$
$
(170,303)
(418,719)
(56,768)
5,676,776
56,768
(310,305)
(256,099)
(201,892)
(93,478)
As at December 31, 2016
Net Operating Income
Capitalization Rate
-0.25%
Cap Rate As Reported
+0.25%
5.13%
5.38%
5.63%
-3$
-1% As Forecasted
+1%
$
$
292,378
97,001
$
$
298,406
214,592
301,421
273,387
$
$
304,435
332,183
$
$
(168,185)
(409,806)
(56,062)
5,606,174
56,062
(302,664)
(249,093)
(195,522)
(88,381)
Investment properties with a fair value of $551.1 million (December 31, 2016 – $522.9 million) are situated on land held under
land leases.
Investment properties with a fair value of $948.3 million (December 31, 2016 – $770.5 million) are pledged as security against
the Trust’s committed revolving credit facility. Assets pledged as security for the committed revolving credit facility may also be
pledged as security for the Trust’s mortgages payable. In addition, investment properties with a fair value of $5.4 billion
(December 31, 2016 – $5.3 billion) are pledged as security against the Trust’s mortgages payable. As at December 31, 2017, there
are no contractual obligations to purchase, construct or develop investment properties or for repairs, maintenance and
enhancements, except for the fixed-price contract in place for the construction of the new development project in Regina,
Saskatchewan and the joint venture project to develop a mixed-use tower in Calgary, Alberta.
For the years ended December 31, 2017 and 2016 , investment properties earned rental revenue (excluding ancillary rental income)
of $416.5 million and $432.1 million, respectively. Direct operating expenses in relation to investment properties were
$206.8 million and $185.7 million for the years ended December 31, 2017 and 2016, respectively.
1 2 0
2 0 1 7 A N N U A L R E P O R T
BOARDWALK REAL ESTATE INVESTMENT TRUST
NOTE 5: PROPERTY, PLANT AND EQUIPMENT
The carrying amounts of PP&E were as follows:
As at
Dec. 31, 2017
Accumulated
Depreciation
Cost
Carrying
Amount
Dec. 31, 2016
Accumulated
Depreciation
Cost
Administration building
Site equipment and other
Corporate technology assets
$
6,382
$
(3,327)
$
3,055
$
6,186
$
(3,079)
$
49,641
34,286
(28,807)
(27,954)
20,834
6,332
43,351
29,246
(25,629)
(25,928)
Carrying
Amount
3,107
17,722
3,318
Total
$
90,309
$
(60,088)
$
30,221
$
78,783
$
(54,636)
$
24,147
The following table outlines a reconciliation of the carrying amount of PP&E as at December 31, 2017:
Balance,
Beginning
of Year
Additions
Reclass to
Investment
Properties
Disposals Depreciation
Balance,
End of Year
Administration building
Site equipment and other
Corporate technology assets (1)
$
3,107
$
196
$
17,722
3,318
6,489
5,043
Total
$
24,147
$
$11,728
$
-
-
-
-
$
$
-
$
(248)
$
3,055
(66)
(2)
(3,311)
(2,027)
20,834
6,332
(68)
$
(5,586)
$
30,221
(1) Included in computer software for the year ended December 31, 2017 was $1.1 million of capitalized programmers’ salaries related to the internally developed
software applications used by the Trust in the normal course of its operations.
The following table outlines a reconciliation of the carrying amount of PP&E as at December 31, 2016:
Balance,
Beginning
of Year
Additions
Reclass to
Investment
Properties
Disposals Depreciation
Administration building
Site equipment and other
Corporate technology assets (1)
$
3,333
$
33
$
-
$
22,679
3,308
3,392
1,417
(4,795)
-
Total
$
29,320
$
4,842
$
(4,795)
$
-
-
-
-
$
(259)
$
(3,553)
(1,407)
Balance,
End of Year
3,107
17,722
3,318
$
(5,219)
$
24,147
(1) Included in computer software for the year ended December 31, 2016 was $0.6 million of capitalized programmers’ salaries related to the internally developed
software applications used by the Trust in the normal course of its operations.
2 0 1 7 A N N U A L R E P O R T
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BOARDWALK REAL ESTATE INVESTMENT TRUST
NOTE 6: MORTGAGE RECEIVABLE
As part of the disposition outlined in NOTE 24, the Trust issued a vendor take back mortgage to the purchaser in the amount of
$38.8 million. The mortgage receivable requires monthly interest payments and has a maturity date of May 1, 2022. The principal
amount of the mortgage must be reduced to $7.2 million by December 13, 2019, the remainder is due and payable at maturity.
The vendor take back mortgage is carried at amortized cost using the effective interest rate method, which resulted in recognizing
a discount of $0.5 million at inception.
As at
Dec. 31, 2017
Dec. 31, 2016
Weighted
Average Interest
Receivable
Balance
Weighted
Average Interest
Receivable
Balance
Mortgage receivable
Fixed rate
Total
Current
Non-current
NOTE 7: INVENTORIES
2.19%
$
$
$
$
38,280
38,280
-
38,280
38,280
-%
$
$
$
$
-
-
-
-
-
Inventories consists of parts and supplies and items such as baseboards, carpet and linoleum, which the Trust routinely uses in the
maintenance and upgrading of its investment properties. These items are kept on hand so they are readily available for use. When
items of inventory are used, they are expensed as part of maintenance expense or they are capitalized to investment properties,
depending on the nature of the inventory used and whether or not the useful life of an asset has been extended as a result of its
use. The Trust’s inventories are as follows:
As at
Cabinets, appliances, baseboard, carpet, linoleum and other
Dec. 31, 2017
Dec. 31, 2016
$
14,870
$
7,277
NOTE 8: PREPAID ASSETS
The major components of prepaid assets are as follows:
As at
Prepaid property taxes
Prepaid land leases
Prepaid expenses and other
Dec. 31, 2017
Dec. 31, 2016
$
870
$
2,913
4,041
$
7,824
$
822
2,886
5,440
9,148
1 2 2
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BOARDWALK REAL ESTATE INVESTMENT TRUST
NOTE 9: TRADE AND OTHER RECEIVABLES
Trade and other receivables consist mainly of mortgage holdbacks, refundable mortgage fees and amounts owed to
Boardwalk REIT by tenants, insurers and revenue-sharing business partners and totaled $5.2 million at December 31, 2017
(December 31, 2016 – $5.5 million).
As at
Trade and other receivables
Mortgage holdbacks and refundable mortgage fees
Dec. 31, 2017
Dec. 31, 2016
$
$
5,218
$
-
5,218
$
5,281
221
5,502
Refer to NOTE 30(b) for the Trust’s exposure to credit risk in relation to its trade and other receivables and how the Trust accounts
for past due balances.
NOTE 10: SEGREGATED TENANTS’ SECURITY DEPOSITS
Segregated tenants’ security deposits are considered restricted cash as they are held in trust bank accounts and subject to the
contingent rights of third parties. Restricted cash and deposits totaled $9.6 million at December 31, 2017 and $10.7 million at
December 31, 2016.
NOTE 11: CASH AND CASH EQUIVALENTS
Cash and cash equivalents include cash of $20.8 million and term deposits with maturities of 90 days or less of $50.0 million
(December 31, 2016 – bank indebtedness of $4.1 million and term deposits of $103.2 million).
NOTE 12: MORTGAGES PAYABLE
As at
Dec. 31, 2017
Dec. 31, 2016
Weighted
Average Interest
Debt
Balance
Weighted
Average Interest
Debt
Balance
Mortgage receivable
Fixed rate
Total
Current
Non-current
2.61%
$
$
$
2,593,980
2,593,980
259,945
2,334,035
$
2,593,980
2.78%
$
$
$
2,435,666
2,435,666
343,822
2,091,844
$
2,435,666
2 0 1 7 A N N U A L R E P O R T
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BOARDWALK REAL ESTATE INVESTMENT TRUST
Estimated future principal payments required to meet mortgage obligations as at December 31, 2017 are as follows:
12 months ending December 31, 2018
12 months ending December 31, 2019
12 months ending December 31, 2020
12 months ending December 31, 2021
12 months ending December 31, 2022
Subsequent
Unamortized deferred financing costs
Secured By
Investment Properties
$
259,945
580,765
327,492
309,958
438,167
774,848
2,691,175
(97,195)
$
2,593,980
Canada Mortgage and Housing Corporation (“CMHC”) provides mortgage loan insurance in connection with mortgages made
to Boardwalk REIT. In an agreement dated September 13, 2002, and as amended and restated on January 19, 2005 and
April 25, 2006, the Trust agreed to provide certain financial information to CMHC and be subject to certain restrictive covenants,
including limitation on additional debt, payment of distributions in respect of Unitholders’ capital in the event of default, and
maintenance of certain financial ratios. In the event of default, the Trust’s total financial liability under this Agreement is currently
limited to a one-time penalty payment of $250,000 under a Letter of Credit issued in favor of CMHC.
During the years ended December 31, 2017 and 2016, the Trust had a committed revolving credit facility with a major financial
institution. This credit facility is secured by a first or second mortgage charge on specific real estate assets. The maximum amount
available varies with the value of pledged assets to a maximum not to exceed $200 million and an available limit of $200 million as
at December 31, 2017 (December 31, 2016 – $200 million). The credit facility requires monthly interest payments and is renewable
annually subject to the mutual consent of the lender and the Trust. This credit facility currently has a maturity date of July 27, 2022.
In the event the committed revolving credit facility is not extended, the drawn-down principal would be due on the maturity date of
the credit agreement.
There was no amount outstanding at December 31, 2017 (December 31, 2016 – $5.0 million) under this facility, except for Letters
of Credit (“LCs”) issued and outstanding. The LCs totaled $0.3 million as at December 31, 2017 (December 31, 2016 – $6.0 million).
As such, approximately $199.7 million was unused and available from this facility on December 31, 2017 (December 31, 2016 –
$194.0 million). The credit facility carries interest rates ranging from prime to prime plus 1.0% per annum and has no fixed terms
of repayment.
The covenants in relation to the credit facility are discussed in NOTE 30(d).
NOTE 13: LP CLASS B UNITS
The LP Class B Units, as defined in NOTE 18, representing an aggregate fair value of $192.8 million at December 31, 2017
(December 31, 2016 – $217.7 million), are non-transferable, except under certain circumstances, but are exchangeable, on a
one-for-one basis, into Boardwalk REIT Units at any time at the option of the holder. Prior to such exchange, distributions will be
made on these exchangeable units in an amount equivalent to the distributions which would have been made had the units been
exchanged for Boardwalk REIT Units. Each LP Class B Unit is accompanied by a Special Voting Unit, which entitles the holder to
receive notice of, attend, and vote at all meetings of Unitholders. There is no value assigned to the Special Voting Units. The LP
Class B Units have been classified as “FVTPL” financial liabilities in accordance with IAS 39. Gains or losses resulting from changes
in the fair value at each reporting date are recorded in the consolidated statement of comprehensive income (loss) and are
included in NOTE 25.
As at December 31, 2017 and December 31, 2016 , there were 4,475,000 LP Class B Units issued and outstanding.
1 2 4
2 0 1 7 A N N U A L R E P O R T
BOARDWALK REAL ESTATE INVESTMENT TRUST
NOTE 14: DEFERRED UNIT-BASED COMPENSATION
Deferred unit-based compensation is comprised of the following:
As at
Current
Non-current
Dec. 31, 2017
Dec. 31, 2016
$
$
1,724
$
2,856
4,580
$
2,762
3,219
5,981
The total of $4.6 million represents the fair value of the underlying deferred units at December 31, 2017 (December 31, 2016 –
$6.0 million). These units have been classified as “FVTPL” financial liabilities in accordance with IAS 39. Gains or losses resulting
from changes in the fair value at each reporting date are recorded in the consolidated statement of comprehensive (loss) income
and are included in NOTE 25.
Details of the Deferred Unit-compensation Plan:
During 2006, the Trust implemented a deferred unit-based compensation plan. The plan entitles Trustees and executives, at the
participant’s option, to receive deferred units in consideration for trustee fees or a portion of executive cash bonuses, respectively,
with the Trust matching the number of units received. The deferred units in consideration for trustee fees or a portion of executive
cash bonuses vest immediately while the matching number of units received vest 50% on the third anniversary and 25% on each
of the fourth and fifth anniversaries, subject to provisions for earlier vesting in certain events. The deferred units earn additional
deferred units for the distributions that would otherwise have been paid on the deferred units (i.e. had they instead been issued as
Trust Units on the date of grant). Once vested, participants are entitled to receive an equivalent number of Trust Units representing
the vesting deferred units and the corresponding additional deferred units. Cash is granted for any fractional units. The deferred
unit plan was approved by Unitholders on May 10, 2006 and amended on May 13, 2008 and 2009.
As at December 31, 2017 and 2016, the unexpired deferred units, in whole or in part, were granted as follows:
Deferred Units granted in
Number
Grant Date
Expiry Date
2013
2014
2015
2016
2017
53,206
55,098
55,236
63,697
34,858
February, June & December 2013
February, June & December 2013
$
February, June & December 2014
February, June & December 2014
February, June & December 2015
February, June & December 2015
February, June & December 2016
February, June & December 2016
June & December 2017
June & December 2017
Fair Value at
Grant Date
3,234
3,409
3,094
3,065
1,614
$
14,416
2 0 1 7 A N N U A L R E P O R T
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BOARDWALK REAL ESTATE INVESTMENT TRUST
The initial cost of the deferred unit-based transactions is determined, in accordance with IFRS 2 – Share-based Payments,
as the fair value of the units on the grant date. The fair value of each unit granted is determined based on the weighted average
observable closing market prices of Boardwalk REIT’s Trusts Units ten trading days preceding the grant date. This initial cost
of deferred units in consideration for trustee fees or a portion of executive cash bonuses is expensed immediately while the
cost of the matching deferred units is generally expensed over the vesting period as follows, unless earlier vesting is triggered
in certain events:
One third of the 50%, which vests in year 3, is recognized in each of years 1, 2 and 3.
One quarter of the 25%, which vests in year 4, is recognized in each of years 1, 2, 3 and 4.
One fifth of the 25%, which vests in year 5, is recognized in each of years 1, 2, 3, 4 and 5.
For the year ended December 31, 2017, total costs of $2.4 million (December 31, 2016 – $3.6 million) were recorded in expenses
related to executive bonuses and trustee fees under the deferred unit plan.
The status of the outstanding deferred units was as follows:
Balance, December 31, 2015
Deferred units granted
Additional deferred units earned on units
Deferred units converted to Trust Units or cash
Balance, December 31, 2016
Deferred units granted
Additional deferred units earned on units
Deferred units converted to Trust Units or cash
Balance, December 31, 2017
NOTE 15: TRADE AND OTHER PAYABLES
The components of the Trust’s accounts payable and accrued liabilities are as follows:
As at
Trade payables and accrued liabilities
Distribution payable
Provisions
# of Units Outstanding
# of Units Vested
201,451
63,697
14,224
(82,165)
197,207
34,858
8,942
(74,407)
166,600
-
70,634
11,531
(82,165)
-
63,632
10,775
(74,407)
-
Dec. 31, 2017
Dec. 31, 2016
$
63,381
$
54,462
9,527
4,752
9,513
4,287
$
77,660
$
68,262
As at December 31, 2017 and 2016, the Trust’s most significant provision relates to vacation payable to its employees within each
employee’s individual employment agreement. The remaining provisions relate to insignificant legal claims arising from minor
tenant injuries. As at December 31, 2017 and 2016, the Trust does not have any material contingent liabilities.
1 2 6
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BOARDWALK REAL ESTATE INVESTMENT TRUST
NOTE 16: INCOME TAXES
Current Income Tax
For the year ended December 31, 2017 and 2016, none of the Trust’s corporate entities had current tax expense. As such,
none of current income tax expense was recorded for the Trust’s corporate entities for the year ended December 31, 2017
(December 31, 2016 – $43 thousand). All other corporate entities either have sufficient tax deductions to offset any taxable income
or have operating losses from previous years to apply against any taxable income.
Deferred Income Tax
For fiscal 2016 and 2017, Boardwalk REIT is a “mutual fund trust” as defined under the Income Tax Act (Canada) (the “Tax Act”)
and as a Real Estate Investment Trust (“REIT”) eligible for the “REIT Exemption” in accordance with the rules affecting the tax
treatment of publicly traded trusts. Accordingly, the Trust is not taxable on its income provided all of its taxable income is
distributed to its Unitholders. This exemption, however, does not extend to the corporate subsidiaries of Boardwalk REIT that
are subject to income tax.
The sources of deferred tax balances and movements were as follows:
As at
Deferred tax assets (liabilities) related to:
Operating losses
Differences in tax base and carrying amount, net,
investment properties and PP&E for corporate entities
Other
Net deferred tax assets (liabilities)
Deferred tax assets
Deferred tax liabilities
Net deferred tax assets (liabilities)
As at
Deferred tax assets (liabilities) related to:
Operating losses
Differences in tax base and carrying amount, net,
investment properties and PP&E for corporate entities
Other
Net deferred tax assets (liabilities)
Deferred tax assets
Deferred tax liabilities
Net deferred tax assets (liabilities)
Dec. 31, 2016
Recognized
in Profit (Loss)
Dec. 31, 2017
$
164
$
(90)
$
-
(4)
160
164
(4)
$
$
-
(50)
(140)
(90)
(50)
$
$
160
$
(140)
$
$
$
$
74
-
(55)
19
74
(55)
19
Dec. 31, 2015
Recognized
in Profit (Loss)
Dec. 31, 2016
$
192
$
(28)
$
-
(17)
175
192
(17)
$
$
-
13
(15)
(28)
13
$
$
175
$
(15)
$
$
$
$
164
-
(4)
160
164
(4)
160
2 0 1 7 A N N U A L R E P O R T
1 2 7
BOARDWALK REAL ESTATE INVESTMENT TRUST
No current income taxes or deferred income taxes were recognized in equity, other than through profit or OCI, for the years ended
December 31, 2017 and 2016.
As at December 31, 2017, wholly owned Canadian corporate subsidiaries have deferred tax assets of $0.1 million
(December 31, 2016 – $0.2 million) related to operating losses, which expire over the next fourteen to nineteen years. The Trust
believes that the future income of these entities will be sufficient to utilize these deferred tax assets prior to their expiration.
The major components of income tax expense include the following:
Current tax expense
Deferred tax expense
Total income tax expense
The income tax expense for the year can be reconciled to the accounting profit as follows:
Profit (loss) before income tax expense
(Remove) add profit from non-taxable entities
Accounting profit subject to tax
Deduct management fee charged to corporate entities
Taxable profit
Weighted average substantively enacted tax rate
Calculated income tax expense
Changes to other deferred tax liabilities
Total income tax expense
Year Ended
Dec. 31, 2017
Year Ended
Dec. 31, 2016
$
$
0
$
140
140
$
43
15
58
Year Ended
Dec. 31, 2017
Year Ended
Dec. 31, 2016
$
57,398
$
(57,382)
(14,559)
42,839
(42,125)
714
26.69%
191
(51)
$
140
$
99,541
42,159
(41,403)
756
26.80%
203
(145)
58
NOTE 17: DEFERRED GOVERNMENT GRANT
In December 2013, the Trust completed the construction of a 109-unit, four storey, elevatored, wood frame building in the
southwest part of Calgary, Alberta (the “Project” or “Development”). The Development was constructed on excess land density
the Trust currently had on a property known as ‘Spruce Ridge’. In conjunction with this Development, the Trust applied for and
received a government grant from the Province of Alberta totaling approximately $7.5 million. In return for this grant, the Trust has
agreed to provide 54 of the 109 units at rents to be 10% below the average market rates for Calgary (“affordable units”) for a term
of 20 years.
Since the $7.5 million grant did not exceed 65% of the contracted construction costs of the Development, including land value,
attributable to the affordable units, no amount of the grant required immediate repayment to the government. However, a portion
of the grant is repayable to the Province of Alberta, in proportion to the years remaining in the 20-year term, if the agreement to
provide affordable units terminates earlier.
In accordance with IAS 20 – Accounting for Government Grants and Disclosure of Government Assistance, this grant will be
recognized in profit or loss on a systematic basis over the periods in which the Trust recognizes revenue from the 54 units
classified as affordable units. For the year ended December 31, 2017, $378,000 was recognized in profit under rental revenue
for this grant (December 31, 2016 – $378,000).
1 2 8
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BOARDWALK REAL ESTATE INVESTMENT TRUST
NOTE 18: UNITHOLDERS’ EQUITY
The Plan of Arrangement (the “Arrangement”) converting the Corporation to a real estate investment trust was completed on
May 3, 2004. Under the Arrangement, the former shareholders of the Corporation received Boardwalk REIT Units or Class B
Limited Partnership Units (“LP Class B Units”) of a controlled limited partnership of the Trust, Boardwalk REIT Limited Partnership.
The interests in Boardwalk REIT are represented by two classes of units: a class described and designated as “REIT Units” and a
class described and designated as “Special Voting Units”. The LP Class B Units are classified as a financial liability in accordance
with IAS 32 and are discussed in NOTE 13.
(a) REIT Units
REIT Units represent an undivided beneficial interest in Boardwalk REIT and in distributions made by Boardwalk REIT. The REIT
Units are freely transferable, subject to applicable securities regulatory requirements. Each REIT Unit entitles the holder to one
vote at all meetings of Unitholders. Except as set out under the redemption rights below, the REIT Units have no conversion,
retraction, redemption or pre-emptive rights.
REIT Units are redeemable at any time, in whole or in part, on demand by the holders. Upon receipt by Boardwalk REIT of a
written redemption notice and other documents that may be required, all rights to and under the REIT Units tendered for
redemption shall be surrendered and the holder shall be entitled to receive a price per REIT Unit equal to the lesser of:
i)
90% of the “market price” of the REIT Units on the principal market on which the REIT Units are quoted for trading
during the 20-day period ending on the trading day prior to the day on which the REIT Units were surrendered to
Boardwalk REIT for redemption; and,
ii)
100% of the “closing market price” of the REIT Units on the principal market on which the REIT Units are quoted for
trading on the redemption date.
The Declaration of Trust authorizes Boardwalk REIT to issue an unlimited number of Units for the consideration and on terms and
conditions established by the Trustees without the approval of any Unitholders.
The Trust has the following capital securities outstanding:
As at
REIT Units outstanding, beginning of year
Units issued for vested deferred units
Units purchased and cancelled
REIT Units outstanding, end of year
Dec. 31, 2017
Dec. 31, 2016
46,263,629
46,847,464
74,407
-
82,165
(666,000)
46,338,036
46,263,629
On a periodic basis, Boardwalk REIT will apply to the Toronto Stock Exchange (“TSX”) for approval of Normal Course Issuer Bids
(the “Bids”). Pursuant to regulations of these Bids, Boardwalk REIT will receive approval to purchase and cancel a specified
number of Trust Units, representing 10% of the public float of its Trust Units at the time of the TSX approval. The Bids will terminate
on the earlier of the termination date or at such time as the purchases under the Bid are completed.
On June 30, 2015, Boardwalk REIT requested and received regulatory approval for a Normal Course Issuer Bid (a “Bid”)
(Boardwalk’s ninth Bid since its first Bid in August of 2007), which commenced on July 3, 2015 and terminated on July 2, 2016.
The Bid allowed Boardwalk REIT to purchase and cancel up to 3,855,766 Trust Units.
On June 29, 2016, Boardwalk REIT requested and received regulatory approval for a Bid (Boardwalk’s tenth Bid since its first Bid in
August of 2007), which commenced on July 3, 2016 and terminated on July 2, 2017. The Bid allowed Boardwalk REIT to purchase
and cancel up to 3,700,292 Trust Units.
On June 29, 2017, Boardwalk REIT requested and received regulatory approval for a Bid (Boardwalk’s eleventh Bid since its first Bid in
August of 2007), which commended on July 4, 2017 and terminates on July 3, 2018. The Bid allows Boardwalk REIT to purchase up to
3,712,403 Trust Units and cancel all but 1,200 Trust Units. Up to 1,200 Trust Units will be used to carry out its customer loyalty program.
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BOARDWALK REAL ESTATE INVESTMENT TRUST
For the year ended December 31, 2017, Boardwalk REIT purchased and awarded 100 Trust Units at a cost of $40.11 per Trust Unit
as prizes under its customer loyalty program.
For the year ended December 31, 2016, Boardwalk REIT purchased and cancelled the following Trust Units:
Bid Number
9/10
Number of Trust Units
Purchased and Cancelled
Purchase Cost Cost per Trust Unit
666,000
$
32,646
$
49.02
Since the Trust began utilizing normal course issuer bids in 2007, Boardwalk REIT has purchased and cancelled 6,421,647 Trust
Units at a total purchase cost of $271.9 million, or an average cost of $42.34 per Trust Unit.
(b) Special Voting Units
The Declaration of Trust provides for the issuance of an unlimited number of Special Voting Units that will be used to provide voting
rights to holders of LP Class B Units or other securities that are, directly or indirectly, exchangeable for REIT Units. Each Special
Voting Unit entitles the holder to the number of votes at any meeting of Unitholders, which is equal to the number of REIT Units
that may be obtained upon surrender of the LP Class B Units or other securities to which the Special Voting Unit relates. The
Special Voting Units do not entitle or give any rights to the holders to receive distributions or any amount upon liquidation,
dissolution or winding-up of Boardwalk REIT.
In summary, the Trust has the following capital securities outstanding:
Boardwalk REIT Units
Special Voting Units
Units Outstanding
Units Outstanding
Dec. 31, 2017 Monthly Distribution
Dec. 31, 2016
Monthly Distribution
46,338,036
4,475,000
$0.1875/unit
N/A
46,263,629
4,475,000
$0.1875/unit
N/A
Monthly distributions and special distributions are determined at the discretion of the Board of Trustees. The Board of Trustees
declares distributions to be paid on, or about, the 15th of the month following the record date. Distributions to be paid on the
Boardwalk REIT Units with a record date of January 31, 2018 (paid on February 15, 2018) totaled $3.9 million ($0.0834 per unit)
and have not been included as a liability in the consolidated statement of financial position as at December 31, 2017.
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(c) Earnings (loss) per unit
Numerator – basic
Profit (loss) – basic
Distribution declared on LP Class B units
Gain on fair value adjustments on LP Class B Units
Numerator – diluted
Denominator
Weighted average units outstanding – basic
Conversion of LP Class B units
Weighted average units outstanding – diluted
Earnings (loss) per unit
– basic
– diluted
Year Ended
Dec. 31, 2017
Year Ended
Dec. 31, 2016
$
57,258
$
(57,440)
10,069
(24,881)
-
-
$
42,446
$
(57,440)
46,295,727
4,475,000
50,770,727
46,343,403
-
46,343,403
$
$
1.24
0.84
$
$
(1.24)
(1.24)
All dilutive elements were included in the calculation of diluted per unit amounts. For the year ended December 31, 2017, all items
were dilutive and were included in the calculation of diluted earnings per unit. For the year ended December 31, 2016, all items
were anti-dilutive as the conversion of LP Class B Units would have increased the loss per unit. As such, they were excluded from
the calculation of diluted loss per unit.
NOTE 19: RENTAL REVENUE
As lessor, the Trust leases residential rental properties under operating leases generally with a term of not more than 12 months
and in many cases tenants lease rental space on a month-to-month basis. Rental incentives may be offered as part of a rental
agreement and the costs associated with these incentives are amortized over the term of the lease and netted against residential
rental revenue. As such, rental revenue represents all revenue earned from the Trust’s operating leases and totaled $416.5 million
for the year ended December 31, 2017 (December 31, 2016 – $432.1 million).
As at December 31, 2017, under its non-cancellable operating leases, Boardwalk REIT was entitled to the following minimum
future payments:
Operating leases
NOTE 20: ANCILLARY RENTAL INCOME
Ancillary rental income was comprised of the following:
Revenue from coin laundry machines
Revenue from telephone and cable providers
Total
Within 12 Months
2 to 5 Years
Over 5 Years
$
224,694
$
12,971
$
589
Year Ended
Dec. 31, 2017
Year Ended
Dec. 31, 2016
$
$
4,349
$
2,073
6,422
$
4,569
2,137
6,706
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BOARDWALK REAL ESTATE INVESTMENT TRUST
NOTE 21: FINANCING COSTS
Financing costs are comprised of interest on mortgages payable, distributions paid to the LP Class B Unitholders, other interest
charges and the amortization of deferred financing costs. Financing costs are net of interest income earned. Financing costs total
$85.8 million for the year ended December 31, 2017 (December 31, 2016 – $84.6 million) and can be summarized as follows:
Interest on secured debt (mortgages payable)
Interest capitalized to properties under development
LP Class B unit distribution
Other interest charges
Interest income
Amortization of deferred financing costs
Total
Year Ended
Dec. 31, 2017
Year Ended
Dec. 31, 2016
$
70,366
$
70,148
(226)
10,069
1,507
(1,733)
5,780
(69)
9,990
1,431
(1,726)
4,860
$
85,763
$
84,634
For the year ended December 31, 2017, interest was capitalized to properties under development at a weighted average effective
interest rate of 2.72%. (December 31, 2016 – 2.91%).
NOTE 22: DEPRECIATION
The components of depreciation were as follows:
Depreciation of property, plant and equipment
Total
NOTE 23: PROCEEDS ON INSURANCE SETTLEMENT
Year Ended
Dec. 31, 2017
Year Ended
Dec. 31, 2016
$
$
5,586
5,586
$
$
5,219
5,219
Proceeds realized on insurance settlement of $3.2 million represents funds received or receivable from the Trust’s insurance
providers relating to two buildings, consisting of a total of 20 apartment units located in Regina, Saskatchewan, that were lost by fire
(in 2014 and 2015), which the Trust is not planning to rebuild.
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NOTE 24: LOSS ON SALE OF ASSETS AND NET CASH PROCEEDS
On December 14, 2017, the Trust closed on the sale of 641 units in Regina, Saskatchewan, which forms part of the Saskatchewan
geographical segment, for the sale price of $71.6 million. The loss on sale of assets and net cash proceeds were as follows:
Sale price
Costs of disposition
Net proceeds
Net book value
Loss on sale of assets
Sale price
Mortgage receivable issued (NOTE 6)
Mortgage discharged on sale
Costs of disposition (cash only)
Net cash proceeds
NOTE 25: FAIR VALUE (LOSSES) GAINS
The components of fair value (losses) gains were as follows:
Investment properties (NOTE 4)
Financial liabilities designated as FVTPL
Deferred unit-based compensation
LP Class B Units
Total fair value losses
NOTE 26: OPERATING LEASES
Year Ended
Dec. 31, 2017
Year Ended
Dec. 31, 2016
$
71,648
$
(1,678)
69,970
71,648
(1,678)
$
71,648
$
(38,761)
(24,428)
(227)
8,232
$
$
$
-
-
-
-
-
-
-
-
-
-
Year Ended
Dec. 31, 2017
Year Ended
Dec. 31, 2016
$
(60,886)
$
(180,843)
587
24,881
(468)
(5,370)
$
(35,418)
$
(186,681)
As lessee, the Trust has entered into various lease agreements as part of the normal course of its operations. The following
represents the major type of leases the Trust maintains as lessee, all of which qualify as operating leases in accordance with
IAS 17 – Leases (“IAS 17”):
(i)
Land leases
The Trust has entered into non-cancellable land leases for land related to five of its properties, which sit on land that is not
owned by the Trust. Approximate remaining terms of the Trust’s land leases range from 7 to 78 years as at December 31,
2017. Two of the land leases provide for annual rent and one of the land leases provides for annual rent and additional rent
based on rental revenue collected.
(ii) Warehouse and office space leases
The Trust has entered into lease agreements for warehouse and some office and data centre space it utilizes but does not
own. All of the leasing arrangements related to warehouse space are for one to five years.
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BOARDWALK REAL ESTATE INVESTMENT TRUST
As at December 31, 2017, future minimum lease payments related to these leases were as follows:
Land leases
Warehouse and office space
Total future minimum lease payments
Within 12 Months
2 to 5 Years
Over 5 Years
$
$
5,283
$
20,956
$
184,581
1,173
3,983
190
6,456
$
24,939
$
184,771
The Trust recognized lease expenses of $7.2 million for the year ended December 31, 2017 ($6.1 million for the year ended
December 31, 2016).
NOTE 27: GUARANTEES, CONTINGENCIES, COMMITMENTS AND OTHER
As discussed in NOTE 26 above, the Trust has five properties that are situated on land leases. One of the land leases situated in
Montreal is set to expire in 2028. The Trust is actively seeking to either renew the term of this lease or purchase the freehold
interest in the land prior to the expiry of the lease term. However, if the Trust cannot or chooses not to renew the lease, or buy the
land, as the case may be, the net operating income and cash flow associated with the property would no longer contribute to
Boardwalk’s results of operations and could impact its ability to make distributions to Unitholders.
From time to time, the Trust enters into various physical supply contracts for energy commodities to hedge its own usage, which is
summarized below:
Natural Gas:
Area
Alberta
Alberta
Alberta
Alberta
Alberta
Saskatchewan
Saskatchewan
Saskatchewan
Saskatchewan
Ontario and Quebec
Electrical:
Area
Southern Alberta
Southern Alberta
Northern Alberta
Usage Coverage
Term
Cost
25%
25%
25%
25%
25%
50%
50%
50%
50%
50%
November 1, 2014 to October 31, 2016
$4.25/ Gigajoule (“GJ”)
November 1, 2014 to October 31, 2017
November 1, 2016 to October 31, 2018
November 1, 2016 to October 31, 2019
November 1, 2017 to October 31, 2020
November 1, 2014 to October 31, 2017
November 1, 2015 to October 31, 2016
November 1, 2016 to October 31, 2018
November 1, 2017 to October 31, 2020
November 1, 2015 to October 31, 2017
$4.22/GJ
$3.08/GJ
$3.17/GJ
$2.75/GJ
$4.53/GJ
$3.66/GJ
$3.19/GJ
$2.84/GJ
$2.93/GJ
Usage Coverage
Term
Cost
100%
100%
October 1, 2010 to September 30, 2017
$0.06/Kilowatt-hour (“kWh”)
October 1, 2017 to September 30, 2022
100% October 1, 2015 to September 30, 2020
$0.05/kWh
$0.05/kWh
Boardwalk REIT, in the normal course of operations, will become subject to a variety of legal and other claims against the Trust,
most of which are minor in nature. Management and the Trust’s legal counsel evaluate all claims on their apparent merits, and
accrue management’s best estimate of the estimated costs to satisfy such claims. Management believes the outcome of claims
of this nature at December 31, 2017 will not have a material impact on the Trust.
In the normal course of business, various agreements may be entered into that may contain features that meet the definition of a
contingent liability in accordance with IFRS. With the sale of properties in Regina, mortgages totaling $24.4 million were assumed
by the purchaser. The mortgages, with a term maturity of May 1, 2022, have an indirect guarantee provided to the lender by the
Trust until these mortgages are renewed or refinanced by the purchaser, whichever occurs sooner. With the BC Property Portfolio
sale, mortgage balances totaling approximately $62.0 million were assumed by the purchaser. One of the three mortgages, with a
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BOARDWALK REAL ESTATE INVESTMENT TRUST
term maturity of October 1, 2022 and a mortgage balance of approximately $21.6 million as at December 31, 2017, assumed by the
purchaser has an indirect guarantee provided to the lender by the Trust until this mortgage is renewed or refinanced by the
purchaser, whichever occurs sooner. With both guarantees, in the event of default by the purchaser, the Trust would be liable for
the outstanding mortgage balance. These guarantees are considered contingent liabilities as payment of the amount will only
occur if the purchaser defaults. If the purchaser does not default, the balance is not payable. Boardwalk REIT’s maximum exposure
at December 31, 2017 is approximately $46.0 million (December 31, 2016 – $22.1 million). In the event of default by the purchaser,
Boardwalk REIT’s recourse for recovery includes the sale of the respective building assets. Boardwalk REIT expects that the
proceeds from the sale of the building assets will cover, and most likely exceed, the maximum potential liability associated with
the amount being guaranteed. Therefore, at December 31, 2017 and 2016, no amounts have been recorded in the consolidated
financial statements with respect to the above noted indirect guarantees.
NOTE 28: CAPITAL MANAGEMENT AND LIQUIDITY
The Trust defines capital resources as the aggregate of Unitholders’ equity at market value, debt (both secured and unsecured),
cash flows from operations, and amounts available under credit facilities net of cash on hand. The Trust’s capital management
framework is designed to maintain a level of capital that allows it to implement its business strategy while complying with
investment and debt restrictions pursuant to Boardwalk REIT’s DOT as well as existing debt covenants and continue building
long-term Unitholder value while maintaining sufficient capital contingency. The main components of the Trust’s capital allocation
are approved by its Unitholders as stipulated in the Trust’s DOT and on a regular basis by its Board of Trustees (the “Board”)
through its annual review of the Trust’s strategic plan and budget, supplemented by periodic Board and Board Committee
meetings. Capital adequacy is monitored by the Trust by assessing performance against the approved annual plan throughout the
year, which is updated accordingly, and by monitoring adherence to investment and debt restrictions contained in the DOT and
debt covenants. Boardwalk REIT’s DOT, as amended, provides for a minimum interest coverage ratio of 1.5 to 1 calculated on the
most recently completed four fiscal quarters. The DOT also defines interest expense to exclude distributions on the LP Class B
Units, which under IFRS are considered financing charges.
The following table highlights Boardwalk REIT’s interest service coverage ratio in accordance with the DOT:
As at
Net operating income
Administration expenses
Consolidated EBITDA (1) (12 months ended)
Consolidated interest expense (12 months ended)
Interest coverage ratio
Minimum threshold
(1) Earnings Before Interest, Taxes, Depreciation and Amortization.
Dec. 31, 2017
Dec. 31, 2016
$
216,083
$
253,099
(33,402)
182,681
70,140
2.60
1.50
(33,947)
219,152
69,784
3.14
1.50
The Trust employs a broad range of financing strategies to facilitate growth and manage financial risk. The Trust’s objective is to
reduce its weighted average cost of capital and improve Unitholder distributions through value enhancement initiatives and
consistent monitoring of the balance between debt and equity financing. As at December 31, 2017, the Trust’s weighted average
cost of capital was calculated to be 3.20%.
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BOARDWALK REAL ESTATE INVESTMENT TRUST
The following schedule details the components of the Trust’s capital and the related costs thereof:
As at
Dec. 31, 2017
Dec. 31, 2016
Cost of Capital (1)
Underlying Value (2)
Cost of Capital (1)
Underlying Value (2)
Liabilities
Mortgages payable
LP Class B Units
Deferred unit-based compensation
Unitholders’ equity
Boardwalk REIT Units
Total
2.61%
$
2,586,198
2.78%
$
2,468,840
3.90%
3.90%
3.90%
3.20%
$
192,828
4,580
1,996,706
4,780,312
5.14%
5.14%
5.14%
3.96%
$
217,709
5,981
2,250,726
4,943,256
(1) As a percentage of average carrying value unless otherwise noted.
(2) Underlying value of liabilities represents carrying value or the cost to retire on maturity. Underlying value of equity is based on the closing stock price of the
Trust’s Units.
Mortgages payable – These are the mortgages outstanding on the Trust’s investment properties. The debt is primarily fixed rate
debt and approximately 99% of this debt at December 31, 2017 is insured under the National Housing Act (“NHA”) and
administered by Canada Mortgage and Housing Corporation (“CMHC”). These financings are typically structured on a loan to
appraised value basis between 75-80%. The Trust currently has a level of indebtedness of approximately 46% of the fair value of
the Trust’s investment properties. This level of indebtedness is considered by the Trust to be within its target.
LP Class B Units – These units are non-transferable, except under certain circumstances, but are exchangeable, on a one-for-one
basis, into Boardwalk REIT Units at any time at the option of the holder. Prior to such exchange, distributions will be made on the
exchangeable units in an amount equivalent to the distributions which would have been made had the units of Boardwalk REIT
been issued. Each LP Class B Unit was accompanied by a Special Voting Unit, which entitles the holder to receive notice of, attend
and vote at all meetings of Unitholders. There is no value assigned to the Special Voting Units. The LP Class B Units have been
classified as “FVTPL” financial liabilities in accordance with IAS 32. Gains or losses resulting from changes in the fair value at each
reporting date are recorded in the consolidated statement of comprehensive (loss) income.
As outlined in NOTE 30(d), Boardwalk REIT’s committed revolving credit facility agreements contain financial covenants.
Available liquidity as at December 31, 2017 included cash and cash equivalents on hand of $70.8 million (December 31, 2016 –
$99.1 million) as well as an unused committed revolving credit facility of $199.7 million (December 31, 2016 – $194.0 million). The
Trust monitors its ratios and as at December 31, 2017 and December 31, 2016, the Trust was in compliance with all covenants in
both its DOT and all existing debt facilities.
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NOTE 29: FAIR VALUE MEASUREMENT
(a) Fair value of financial instruments
Fair value is the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between
market participants at the measurement date. The fair value of interest bearing financial assets and liabilities is determined by
discounting the contractual principal and interest payments at estimated current market interest rates for the instrument. Current
market rates are determined by reference to current benchmark rates for similar term and current credit spreads for debt with
similar terms and risk. The fair values of the Trust’s financial instruments were determined as follows:
i)
the carrying amounts of trade and other receivables, segregated tenants’ security deposits, cash and cash
equivalents, refundable tenants’ security deposits and trade and other payables approximate their fair values due
to their short-term nature.
ii)
the fair values of the Trust’s mortgage receivable and mortgages payable are estimates made at a specific point in time,
based on relevant market information. These estimates are based on quoted market prices for the same or similar
issues or on the current rates offered to the Trust for similar financial instruments subject to similar risks and maturities.
iii)
the fair values of the deferred unit compensation plan and the LP Class B Units are estimates at a specific point in time,
based on the closing market price of the REIT Units listed on the Toronto Stock Exchange.
iv)
the fair values of the effective portion of the interest rate swaps, reported as other current liabilities, are estimates at a
specific point in time, based on quoted prices in markets that are not active for substantially the same term as the
remaining effective portion of the derivatives.
These estimates are subjective in nature and involve uncertainties and matters of significant judgment and, therefore, cannot be
determined with precision. Changes in estimates could significantly affect fair values. The significant financial instruments of
Boardwalk REIT and their carrying values as at December 31, 2017 and December 31, 2016 are as follows:
As at
Financial assets carried at amortized cost
Mortgages receivable
Financial liabilities carried at amortized cost
Mortgages payable
Financial liabilities carried at FVTPL
LP Class B Units
Deferred unit-based compensation
Dec. 31, 2017
Dec. 31, 2016
Carrying Value
Fair Value
Carrying Value
Fair Value
$
38,280
$
38,280
$
-
$
-
2,593,980
2,586,198
2,435,666
2,468,840
192,828
4,580
192,828
4,580
217,709
5,981
217,709
5,981
The fair value of the Trust’s mortgages payable was lower than the recorded value by approximately $7.8 million at
December 31, 2017 (December 31, 2016 – higher by $33.2 million), due to changes in interest rates since the dates on which the
individual mortgages were last contracted. The fair values of the mortgages payable have been estimated based on the current
market rates for mortgages with similar terms and conditions. The fair value of the Trust’s mortgages payable is an amount
computed based on the interest rate environment prevailing at December 31, 2017 and December 31, 2016, respectively; the
amount is subject to change and the future amounts will converge. There are no additional costs or penalties to Boardwalk REIT
if the mortgages are held to maturity.
As at December 31, 2017 and December 31, 2016, the Trust had no embedded derivatives requiring separate recognition.
The nature of these financial instruments and the Trust’s operations expose the Trust to certain principal financial risks. The main
objective of the Trust’s risk management process is to properly identify financial risks and minimize the exposure to potential
losses arising from those risks. The principal financial risks to which the Trust is exposed are described in NOTE 30.
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BOARDWALK REAL ESTATE INVESTMENT TRUST
(b) Assets and liabilities measured at fair value
The fair value hierarchy of assets and liabilities measured at fair value on a recurring basis in the consolidated statement of financial
position is as follows:
As at
Assets
Dec. 31, 2017
Dec. 31, 2016
Level 1
Level 2
Level 3
Level 1
Level 2
Level 3
Investment properties
$
-
$
-
$ 5,688,125
$
-
$
Liabilities
LP Class B Units
Deferred unit-based compensation
192,828
4,580
-
-
-
-
217,709
5,981
-
-
-
$ 5,612,568
-
-
The three levels of the fair value hierarchy are described in NOTE 4.
Transfers between levels in the fair value hierarchy are recognized on the date of the event or change in circumstances that caused
the transfer. For assets and liabilities measured at fair value as at December 31, 2017 and December 31, 2016, there were no
transfers between Level 1, Level 2 and Level 3 assets and liabilities.
NOTE 30: RISK MANAGEMENT
a)
Interest rate risk
The Trust is exposed to interest rate risk as a result of its mortgages payable and credit facilities; however, this risk is minimized
through the Trust’s current strategy of having the majority of its mortgages payable in fixed-term arrangements. As such, the Trust’s
cash flows are not significantly impacted by a change in market interest rates. In addition, the Trust structures its financings so as
to stagger the maturities of its debt, thereby minimizing the Trust’s exposure to interest rates in any one year. The majority of the
Trust’s mortgages are also insured by the CMHC under the National Housing Act (“NHA”) mortgage program. This added level of
insurance offered to lenders allows the Trust to receive advantageous interest rates while minimizing the risk of mortgage
renewals or extensions, and significantly reduces the potential for a lender to call a loan prematurely. In addition, management is
constantly reviewing its committed revolving credit facility (floating-rate debt) and, if market conditions warrant, the Trust has the
ability to convert its existing floating-rate debt to fixed rate debt.
As at December 31, 2017, the Trust had no amount outstanding on its committed revolving credit facility and, as such, of the Trust’s
total debt at December 31, 2017, 100% was fixed-rate debt and none was floating-rate debt. For the year ended December 31, 2017,
all else being equal, the increase or decrease in net earnings for each 1% change in market interest rates would be $nil
(December 31, 2016 – $50,000).
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b) Credit risk
The Trust is exposed to credit risk as a result of its trade and other receivables. This balance is comprised of mortgage holdbacks
and refundable mortgage fees, accounts receivable from significant customers and insurers and tenant receivables. As at
December 31, 2017 and December 31, 2016, no balance relating to mortgage holdbacks, refundable mortgage fees or accounts
receivable from significant customers and insurers was past due.
In relation to mortgage holdbacks and refundable mortgage fees, the Trust’s exposure to credit risk is low given the nature of
these balances. These funds will be advanced when the Trust has met the conditions pursuant to the mortgage agreement
(in the case of the mortgage holdback) or when financing is completed (in the case of refundable mortgage fees), both of which
are expected to occur.
Similar to mortgage holdbacks and refundable mortgage fees, the Trust assesses the credit risk on accounts receivable to be low
due to the assured collection of these balances. The majority of the balance relates to money owing from the Trust’s revenue
sharing initiatives. Given the Trust’s collection history and the nature of these customers, credit risk is assessed as low.
Additionally, an amount is owed by insurance companies in relation to current outstanding claims. In all circumstances, the
insurance deductible has been paid and amounts incurred and owing for reimbursement are due to an insurable event.
Recoverability may differ from the amount owing solely due to discrepancies between the Trust and the insurance provider
regarding the value of replacement costs.
With tenant receivables, credit risk arises from the possibility tenants may experience financial difficulty and be unable to fulfill
their lease term commitments. The maximum exposure to credit risk is equal to the carrying value of the financial assets. Rent
payments from tenants are due on the first of the month and tenants generally pay a security deposit – both of these actions
mitigate against bad debts.
As stated above, the carrying amount of tenant receivables reflects management’s assessment of the credit risk associated with
its tenants; however, the Trust mitigates this risk of credit loss by geographically diversifying its existing portfolio, by limiting its
exposure to any one tenant and by conducting thorough credit checks with respect to all new rental-leasing arrangements. In
addition, where legislation allows, the Trust obtains a security deposit from a tenant to assist in the recovery of monies owed to
the Trust.
Past due receivables (receivables which are greater than 30 days) are reviewed by management on a monthly basis and tenant
receivables are considered for impairment on a case-by-case basis. The Trust takes into consideration the tenant’s payment history,
their credit worthiness and the current economic environment; however, tenant receivable balances exceeding 60 days are
typically written off to bad debt expense as the Trust does not utilize an allowance for doubtful accounts. The amount of the loss is
recognized in the consolidated statement of comprehensive (loss) income as part of operating expenses. Subsequent recoveries
of amounts previously written off are credited against operating expenses during the period of settlement. As tenant receivables
are typically written off after 60 days, none of the balance is considered to be past due by the Trust. For the twelve months ended
December 31, 2017, bad debt expense totaled $4.7 million (twelve months ended December 31, 2016 – $5.5 million).
The credit risk of both Boardwalk REIT and the counter party have been taken into account in determining the fair value of
Boardwalk REIT’s trade and other receivables.
2 0 1 7 A N N U A L R E P O R T
1 3 9
BOARDWALK REAL ESTATE INVESTMENT TRUST c) Liquidity risk
Liquidity risk is the risk that the Trust will not be able to meet its financial obligations as they become due. The Trust maintains what it
believes to be conservatively leveraged assets and can finance any future growth through one or a combination of internally
generated cash flows, borrowing under an existing committed revolving credit facility, the issuance of debt, or the issuance of equity,
according to its capital management objectives. In addition, the Trust structures its financings so as to stagger the maturities of its
debt, thereby minimizing the Trust’s exposure to liquidity risk in any one year. In addition, cash flow projections are completed and
reviewed on a regular basis to ensure the Trust has sufficient cash flows to make its monthly distributions to its Unitholders. Finally,
financial assets, such as cash and trade and other receivables, will be realized within the next twelve months and can be utilized to
satisfy the Trust’s financial liabilities. Given the Trust’s currently available liquid resources (from both financial assets and on-going
operations) as compared to its contractual obligations, management assesses the Trust’s liquidity risk to be low.
The following table details the Trust’s remaining contractual maturity for its non-derivative and derivative (i.e. vested deferred units)
financial liabilities listed by year of maturity date:
Year of Maturity
2018
2019
2020
2021
2022
Subsequent
Weighted
Average
Interest
Rate
Mortgage
Principal
Outstanding
Mortgage
Interest (1)
Tenants’
Security
Deposits
Distribution
Payable
Trades
and Other
Payables
Total
2.91% $ 203,518 $ 66,139 $ 12,346 $
9,527 $ 68,133 $ 359,663
2.50%
546,702
57,634
2.49%
306,759
44,493
2.26%
299,896
36,561
2.73%
463,181
27,649
2.71%
871,119
40,724
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
604,336
351,252
336,457
490,830
911,843
2,691,175
273,200
12,346
9,527
68,133 3,054,381
Unamortized deferred financing costs
(97,195)
-
-
-
-
(97,195)
$ 2,593,980 $ 273,200 $ 12,346 $
9,527 $ 68,133 $ 2,957,186
(1) Based on current in-place interest rates for the remaining term to maturity.
1 4 0
2 0 1 7 A N N U A L R E P O R T
BOARDWALK REAL ESTATE INVESTMENT TRUST
d) Debt covenants
As outlined in its mortgages payable agreements, the Trust is required to make equal monthly payments of principal and interest
based on the respective amortization period. Additionally, the Trust must ensure that all property taxes have been paid in full when
they become due and that no arrears exist.
CMHC provides mortgage loan insurance in connection with mortgages made to Boardwalk REIT. In an agreement dated
September 13, 2002, and as amended and restated on January 19, 2005 and April 25, 2006, the Trust agreed to provide certain
financial information to the CMHC and be subject to certain restrictive covenants, including limitation on additional debt, payment
of distributions in respect to Unitholders’ capital in the event of default, and maintenance of certain financial ratios. In the event of
default, the Trust’s total financial liability under this agreement is currently limited to a one-time penalty payment of $250,000
under a Letter of Credit issued in favor of CMHC. The Trust may also not be able to obtain mortgage loan insurance on new
secured mortgages, which may result in higher borrowing costs.
The Trust has a committed revolving credit facility with a major financial institution. This credit facility is secured by a pledge of a
group of specific real estate assets (fair value at December 31, 2017 of approximately $948.3 million). The amount available
through the committed revolving credit facility varies with the value of the pledged assets, with a maximum limit not to exceed
$200.0 million and an available limit of $199.7 million as at December 31, 2017 (December 31, 2016 – $194.0 million). The revolving
facility requires monthly interest payments, is for a five-year term maturing on July 27, 2022, and can be extended annually
thereafter, subject to the mutual consent of the lender and the Trust. In the event the committed revolving credit facility is not
extended, the drawn-down principal would be due on the maturity date of the credit agreement.
The credit facility contains three financial covenants as follows:
i)
The Trust will maintain an overall Debt Service Coverage Ratio of at least 1.20, calculated on the most recent completed
trailing four fiscal quarter basis. As at December 31, 2017, this ratio was 1.40 (December 31, 2016 – 1.76).
ii)
The Trust will maintain a Debt Service Coverage Ratio, specific to the Security Portfolio of at least 1.15
(tested semi-annually). As at December 31, 2017, this ratio was 1.41 (December 31, 2016 – 1.44).
iii)
Total indebtedness of the Trust will not exceed 75% of the Gross Book Value (“GBV”) of all assets for the
two most recent quarters as defined in the credit agreement. As at December 31, 2017, this ratio was 43.4%
(December 31, 2016 – 41.5%).
As at December 31, 2017 and December 31, 2016, the Trust was in compliance with all financial covenants.
e) Utility risk
The Trust is exposed to utility risk as a result of fluctuations in the prices of natural gas and electricity. As outlined in NOTE 27, the
Trust has commitments to certain utility contracts to reduce the risk of exposure to adverse changes in commodity prices.
2 0 1 7 A N N U A L R E P O R T
1 4 1
BOARDWALK REAL ESTATE INVESTMENT TRUST NOTE 31: SUBSIDIARIES
The entities included in the Trust’s consolidated financial statements are as follows:
Entity
Type
Relationship
Boardwalk Real Estate Investment Trust (“BREIT”)
Trust
Parent
Boardwalk Real Estate Management Ltd.
Corporation
100% owned by BREIT
Top Hat Operating Trust (“TOT”)
Trust
100% owned by BREIT
BPCL Holdings Inc. (“BPCL”)
Corporation
Meets the principle of control
Boardwalk REIT Limited Partnership (“BLP”)
Partnership
A Units are 100% owned by TOT
B Units and C Units are 100% owned by BPCL
Boardwalk REIT Properties Holdings (Alberta) Ltd.
Corporation
100% owned by BLP
Boardwalk REIT Quebec Inc.
Corporation
100% owned by BLP
Boardwalk Quebec Trust
Trust
100% owned by BLP
Boardwalk St. Laurent Limited Partnership
Partnership
99.99% owned by Boardwalk Quebec Trust
9108-4749 Quebec Inc.
9165-5795 Quebec Inc.
Nun’s Island Trust 1
Nun’s Island Trust 2
Corporation
Corporation
Trust
Trust
0.01% owned by 9165-5795 Quebec Inc.
100% owned by BLP
100% owned by 9108-4749 Quebec Inc.
100% owned by BLP
100% owned by BLP
Metropolitan Structures (MSI) Inc.
Corporation
100% owned by BLP
Boardwalk GP Holding Trust
Trust
100% owned by BLP
6222285 Canada Inc.
Corporation
100% owned by BLP
Boardwalk GP Operating Trust
Trust
100% owned by 6222285 Canada Inc.
Boardwalk General Partnership (“BGP”)
Partnership
99.99% owned by Boardwalk GP Holding Trust
0.01% owned by Boardwalk GP Operating Trust
Boardwalk REIT Properties Holdings Ltd.
Corporation
100% owned by BGP
1 4 2
2 0 1 7 A N N U A L R E P O R T
BOARDWALK REAL ESTATE INVESTMENT TRUST BPCL represents the only entity which is not 100% owned by the Trust or one of its subsidiaries. BPCL (formerly called Boardwalk
Equities Inc.) was created to accomplish a narrow and well-defined objective, which was to transfer the beneficial interest in the
Corporation’s assets (the “Assets”) pursuant to the Master Asset Contribution Agreement. The Trust does not have any voting
interest in BPCL; however, the Trust controls BPCL because the Trust has the decision-making powers to obtain the majority of the
benefits of the activities of BPCL and the Trust retains the majority of the residual or ownership risks related to BPCL. Specifically,
BLP controls all of the Assets previously held by BPCL, and is responsible for BPCL’s debt by guaranteeing the principal and
interest owed to the lenders. BLP must make distributions to the LP Class C Units equivalent to the principal and interest owed on
BPCL’s debt. As beneficial owner of the Assets, BLP has power over BPCL as it can direct their relevant activities (i.e. impose and
collect rental income, manage and pay operating costs, etc.) in order to generate cash flows and make distributions on the
LP Class C Units. It has exposure, or rights, to variable returns based on its beneficial ownership of the Assets. The Trust controls
BPCL, because the Trust has the decision making power to obtain the majority of the benefits from the activities of BPCL. Due to
the above, BPCL is part of the Trust’s consolidated group.
NOTE 32: RELATED PARTY DISCLOSURES
IAS 24 – Related Party Disclosures requires entities to disclose in their financial statements information about transactions with
related parties. Generally, two parties are related to each other if one party controls, or significantly influences, the other party.
Balances and transactions between the Trust and its subsidiaries (as outlined in NOTE 31), which are related parties of the Trust,
have been eliminated on consolidation and are not disclosed in this note disclosure.
The following outlines the individuals considered key personnel of the Trust:
(a) Trustees
The Trustees of Boardwalk REIT during the year ended December 31, 2017 and up to the date of this report were:
James R. Dewald
Gary Goodman
Arthur L. Havener, Jr.
Sam Kolias
Samantha Kolias
Brian Robinson
Andrea Stephen
(b) Key management personnel
Key management personnel of the Trust during the year ended December 31, 2017 and up to the date of this report were:
P. Dean Burns, General Counsel & Corporate Secretary
Roberto Geremia, President
Sam Kolias, Chief Executive Officer
Van Kolias, Senior VP, Quality Control
Lisa Russell, Senior VP, Corporate Development
William Wong, Chief Financial Officer
2 0 1 7 A N N U A L R E P O R T
1 4 3
BOARDWALK REAL ESTATE INVESTMENT TRUST The remuneration of the Trust’s key management personnel was as follows:
Short-term benefits
Post-employment benefits
Other long-term benefits
Deferred unit-based compensation
Year Ended
Dec. 31, 2017
Year Ended
Dec. 31, 2016
$
980
$
1,246
56
5
1,093
$
2,134
$
52
5
1,358
2,661
In addition, the LP Class B Units are held by Mr. Sam Kolias (Chairman of the Board, Chief Executive Officer and Trustee) and
Mr. Van Kolias (Senior Vice President, Quality Control). Under IAS 32 – Financial Instruments: Presentation, the LP B Units issued
by a wholly-owned subsidiary of the Trust are considered financial liabilities, and are reclassified from equity to liabilities on the
consolidated financial statements. Additionally, as the LP Class B Units are liabilities, all distributions paid (both regular and special)
are recorded as a financing charge under IFRS. For the year ended December 31, 2017, distributions on the LP Class B Units
totaled $10.1 million (December 31, 2016 – $10.0 million). Distributions on the LP Class B Units are made on terms equal to
distributions made on Boardwalk REIT Units.
As at December 31, 2017, there was $839,000 owed to related parties (December 31, 2016 – $839,000) based on the LP Class B
Units distribution outlined above.
NOTE 33: OTHER INFORMATION
(a) Supplemental cash flow information
Net change in operating working capital
Net change in inventories
Net change in prepaid assets
Net change in trade and other receivables
Net change in segregated and refundable tenants’ security deposits
Net change in deferred unit-based compensation
Net change in trade and other payables
Net change in investing working capital
Net change in trade and other payables
Net change in financing working capital
Net change in trade and other payables
Distributions paid
Distributions declared
Distributions declared in prior period paid in current period (1)
Distributions declared in current period paid in next period
Distributions paid
Year Ended
Dec. 31, 2017
Year Ended
Dec. 31, 2016
$
(7,593)
$
1,324
284
147
2,301
52
(3,485)
$
(3,251)
(3,183)
(272)
124
3,645
2,149
(788)
9,418
$
5,297
(76)
$
61
$
$
$
$
(104,169)
$
(103,399)
(8,674)
8,688
(54,812)
8,674
$
(104,155)
$
(149,537)
(1) Included in distributions declared in prior period and paid in current period for the year ended December 31, 2016, is $46.8 million in relation to a $1.00 per unit
special distribution paid on January 15, 2016 to all Boardwalk REIT Units with a record date of December 31, 2015.
(b)
Included in administration costs was $2.8 million relating to Registered Retirement Savings Plan (“RRSP”) matching for
the year ended December 31, 2017 (December 31, 2016 – $2.7 million).
1 4 4
2 0 1 7 A N N U A L R E P O R T
BOARDWALK REAL ESTATE INVESTMENT TRUST
NOTE 34: SEGMENTED INFORMATION
Boardwalk REIT specializes in multi-family residential housing and operates primarily within one business segment in five
provinces located wholly in Canada. Each provincial segment operates with a high degree of autonomy. Management monitors the
operating results on a regional basis. Segment performance is evaluated on a number of measures, including net profit. Financial
information reported is on the same basis as used for internal evaluation and allocation of resources. Boardwalk REIT does not
have any one major tenant or a significant group of tenants. Either expiring leases are renewed or new tenants are found.
Net debt, interest income and expenses, and income taxes are managed on a group basis. Transfer prices between locations are set
on an arm’s-length basis in a manner similar to transactions with third parties and are eliminated upon inter-company consolidation.
Corporate represents corporate functions, technology assets, activities incidental to operations, and certain comparative data for
divested assets.
Details of segmented information are as follows:
As at
Assets
Liabilities
As at
Assets
Liabilities
December 31, 2017
Alberta Saskatchewan
Ontario
Quebec
Corporate
Total
$ 3,912,137
$
631,162
$
349,010
$
990,126
$
(17,360)
$ 5,865,075
1,797,502
256,136
103,720
472,887
257,223
2,887,468
December 31, 2016
Alberta
Saskatchewan
Ontario
Quebec
Corporate
Total
$ 3,876,081
$
716,127
$
270,324
$
818,622
$
87,459
$ 5,768,613
1,771,533
275,028
105,743
322,611
272,379
2,747,294
2 0 1 7 A N N U A L R E P O R T
1 4 5
BOARDWALK REAL ESTATE INVESTMENT TRUST
-
248
6,791
224
197
(6,964)
9,527
33,078
4,397
(53,966)
3,162
-
25,467
(25,337)
(140)
6,422
422,926
113,986
47,967
44,890
216,083
85,763
33,402
5,586
91,332
3,162
(1,678)
(35,418)
57,398
(140)
Year Ended December 31, 2017
Alberta Saskatchewan
Ontario
Quebec
Corporate
Total
$
260,115
$
56,004
$
26,703
$
73,434
$
248
$
416,504
Rental revenue
Ancillary rental income
Total rental revenue
Rental expenses
Operating expenses
Utilities
Property taxes
Net operating income (loss)
Financing costs (a)
Administration
Depreciation (b)
4,443
264,558
71,615
28,127
27,702
137,114
54,282
211
797
374
56,378
12,088
9,002
5,632
29,656
8,648
(13)
178
566
27,269
4,665
3,921
3,299
15,384
2,851
19
23
1,039
74,473
18,827
6,693
8,060
40,893
10,455
107
191
Profit (loss) before the undernoted
81,824
20,843
12,491
30,140
Proceeds on insurance settlement
Loss on sale of assets
Fair value (losses) gains
Profit (loss) before income tax
Income tax expense (c)
-
-
(101,746)
(19,922)
-
-
(1,678)
(50,128)
(30,963)
-
-
-
66,401
78,892
-
-
-
24,588
54,728
-
Profit (loss) for the year
$
(19,922)
$
(30,963)
$
78,892
$
54,728
$
(25,477)
$
57,258
Other comprehensive income
-
-
-
-
-
-
Total comprehensive (loss) income
Additions to non-current assets (d)
$
$
(19,922)
138,808
$
$
(30,963)
19,450
$
$
78,892
12,112
$
$
54,728
15,536
$
$
(25,477)
33,913
$
$
57,258
219,819
Alberta
Saskatchewan
Ontario
Quebec
Corporate
Total
$
275,606
$
58,591
$
25,903
$
71,834
$
206
$
432,140
Year Ended December 31, 2016
Rental revenue
Ancillary rental income
Total rental revenue
Rental expenses
Operating expenses
Utilities
Property taxes
Net operating income (loss)
Financing costs (a)
Administration
Depreciation (b)
Profit (loss) before the undernoted
Fair value (losses) gains
4,727
280,333
57,915
25,577
27,690
169,151
54,713
320
622
113,496
(162,636)
405
58,996
10,835
8,475
4,523
35,163
9,097
7
129
25,930
(24,000)
527
26,430
4,447
4,041
3,156
14,786
2,991
42
20
11,733
15,481
1,031
72,865
17,957
6,463
7,893
40,552
8,429
117
206
31,800
(9,689)
16
222
6,466
155
154
(6,553)
9,404
33,461
4,242
(53,660)
(5,837)
Profit (loss) before income tax
(49,140)
1,930
27,214
22,111
(59,497)
Income tax expense (c)
Profit (loss) for the year
-
-
-
-
(58)
$
(49,140)
$
1,930
$
27,214
$
$22,111
$
($59,555)
$
57,440)
Other comprehensive income
-
-
-
-
-
-
Total comprehensive (loss) income
Additions to non-current assets (d)
$
$
(49,140)
209,162
$
$
1,930
10,699
$
$
27,214
8,415
$
$
22,111
19,026
$
$
(59,555)
5,857
$
$
(57,440)
253,159
1 4 6
2 0 1 7 A N N U A L R E P O R T
6,706
438,846
97,620
44,711
43,416
253,099
84,634
33,947
5,219
129,299
(186,681)
(57,382)
(58)
BOARDWALK REAL ESTATE INVESTMENT TRUST
(a) Financing costs
Financing costs were as follows:
Interest on secured debt
(mortgages payable)
Interest capitalized to properties
under development
LP Class B unit distribution
Other interest charges
Interest income
Amortization of deferred financing costs
Alberta Saskatchewan
Ontario
Quebec
Corporate
Total
Year Ended December 31, 2017
$
50,352
$
8,080
$
2,586
$
9,348
$
0
$
70,366
-
-
113
-
3,817
(174)
-
84
-
658
-
-
39
-
226
-
-
28
-
1,079
(52)
10,069
1,243
(1,733)
-
(226)
10,069
1,507
(1,733)
5,780
Total
$
54,282
$
8,648
$
2,851
$
10,455
$
9,527
$
85,763
Interest on secured debt
(mortgages payable)
Interest capitalized to properties
under development
LP Class B unit distribution
Other interest charges
Interest income
Amortization of deferred financing costs
Alberta
Saskatchewan
Ontario
Quebec
Corporate
Total
Year Ended December 31, 2016
$
51,168
$
8,421
$
2,757
$
7,802
$
0
$
70,148
-
-
144
-
3,401
(9)
-
16
-
669
-
-
47
-
187
-
-
28
(4)
603
(60)
9,990
1,196
(1,722)
-
(69)
9,990
1,431
(1,726)
4,860
Total
$
54,713
$
9,097
$
2,991
$
8,429
$
9,404
$
84,634
(b) Depreciation
This represents depreciation on items carried at cost and primarily includes corporate assets, technology assets, site equipment
and other assets. These figures exclude any impairment charges.
(c) Income tax expense
This relates to any current and deferred taxes.
(d) Additions to non-current assets (other than financial instruments and deferred tax assets)
This represents the total cost incurred during the year to acquire non-current assets (other than financial instruments and deferred
tax assets), measured on an accrual basis.
NOTE 35: APPROVAL OF CONSOLIDATED FINANCIAL STATEMENTS
The consolidated financial statements were approved by the Board of Trustees and authorized on February 22, 2018.
2 0 1 7 A N N U A L R E P O R T
1 4 7
BOARDWALK REAL ESTATE INVESTMENT TRUST
FIVE YEAR SUMMARY
($000’s, except per Unit and per square foot)
2013 (IFRS)
2014 (IFRS)
2015 (IFRS)
2016 (IFRS)
2017 (IFRS)
Assets
Investment properties
Other assets
Total assets
Mortgages payable
Other liabilities
Deferred income taxes
Unitholders' equity
$ 5,745,207
$ 5,778,108 $ 5,540,299 $ 5,612,568 $ 5,688,125
180,476
193,537
293,543
156,045
176,950
$ 5,925,683 $ 5,971,645 $ 5,833,842 $ 5,768,613 $ 5,865,075
$ 2,261,412
$ 2,169,499 $ 2,272,447 $ 2,435,666 $ 2,593,980
364,699
444,145
350,640
311,624
293,433
$ 2,626,111 $ 2,613,644 $ 2,623,087 $ 2,747,290 $ 2,887,413
50
13
17
4
55
3,299,522
3,357,988
3,210,738
3,021,319
2,977,607
Total liabilities and unitholders’ equity
$ 5,925,683 $ 5,971,645 $ 5,833,842 $ 5,768,613 $ 5,865,075
Trust unit outstanding (000) (including LP B Units)
52,395
51,996
51,322
50,739
50,813
Trust unit price at year-end ($)
Market capitalization ($MM)
Number of rental units
Fair value per rental unit ($000)
Long-term debt per rental unit ($000)
Net rentable square feet (000)
Fair value per square foot ($)
Long-term debt per square foot ($)
Average net rentable SF per unit
$
59.85 $
61.54 $
47.45 $
48.65 $
43.09
3,135.8
35,386
162
64
3,199.8
34,626
167
63
2,435.2
32,947
168
69
2,468.4
33,773
166
72
2,189.5
33,187
171
78
30,022
29,466
28,199
28,924
28,539
191
75
848
196
74
851
196
81
856
194
84
856
199
91
860
L/T debt weighted average interest rate
3.46%
3.34%
3.01%
2.78%
2.61%
1 4 8
2 0 1 7 A N N U A L R E P O R T
BOARDWALK REAL ESTATE INVESTMENT TRUST FIVE YEAR SUMMARY
($000’s, except per Unit)
Rental revenue
Ancillary rental income
Total rental revenue
Rental expenses
Operating expenses
Utilities
Property taxes
Net operating income
Operating margin
Financing costs
Administration
Depreciation
Profit from continuing operations before
the undernoted
Proceeds on insurance settlement
Gain (loss) on sale of assets
Fair value gains (losses)
Profit from continuing operations
before income tax (expense) recovery
Income tax (expense) recovery
Profit from continuing operations
2013 (IFRS)
2014 (IFRS)
2015 (IFRS)
2016 (IFRS)
2017 (IFRS)
$ 446,626
$ 466,435
$ 469,209
$ 432,140
$ 416,504
6,958
6,810
6,939
6,706
6,422
453,584
473,245
476,148
438,846
422,926
89,002
42,121
38,272
93,969
47,572
40,091
94,172
46,200
41,074
97,620
44,711
43,416
113,986
47,967
44,890
284,189
291,613
294,702
253,099
216,083
63%
88,818
32,202
11,920
62%
91,977
32,943
11,933
62%
85,370
33,407
9,649
58%
84,634
33,947
5,219
51%
85,763
33,402
5,586
151,249
154,760
166,276
129,299
91,332
-
-
-
-
(235)
(6,855)
-
-
3,162
(1,678)
174,424
81,126
(130,361)
(186,681)
(35,418)
325,673
235,651
29,060
(57,382)
57,398
(538)
(41)
(212)
(58)
(140)
325,135
235,610
28,848
(57,440)
57,258
Profit from discontinued operations,net of tax
12,595
11,181
-
-
-
Profit (loss) for the year
Other comprehensive income
Total comprehensive income (loss)
Earnings per unit – continuing operations – diluted
Earnings per unit – discontinued operations – diluted
337,730
246,791
28,848
(57,440)
57,258
2,149
2,445
1,014
-
-
$ 339,879
$ 249,236
$ 29,862
$
$
5.98
0.24
$
$
4.93
0.23
$
$
(0.40)
-
$
$
$
(57,440)
$ 57,258
(1.24)
$
0.84
- $
-
Funds from operations
$ 168,184
$ 175,825
$ 184,852
$ 144,468 $ 106,987
Funds from operations per unit – fully diluted
$
3.21
$
3.37
$
3.56
$
2.84
$
Interest Coverage Ratio, Continuing operations
3.15
3.37
3.64
3.14
2.11
2.60
Fiscal year ended December 31, 2013 has been restated to present discontinued operations consistent with fiscal year ended December 31, 2014.
Fiscal year ended December 31, 2016 has been restated to present deferred financing cost amortization consistent with fiscal year ended December 31, 2017.
2 0 1 7 A N N U A L R E P O R T
1 4 9
BOARDWALK REAL ESTATE INVESTMENT TRUST
2017 QUARTERLY RESULTS
Rental revenue
Ancillary rental income
Total rental revenue
Rental expenses
Operating expenses
Utilities
Property taxes
Net operating income
Financing costs
Administration
Depreciation and amortization
Profit before the undernoted
Proceeds on insurance settlement
Loss on sale of assets
Fair value gains (losses)
Profit (loss) before income tax
Income tax (expense) recovery
Profit (loss) for the period
Other comprehensive income
Total comprehensive income (loss)
Earnings (loss) per unit – diluted
Funds from operations
Q1
Q2
Q3
Q4
Dec. 31, 2017
$ 103,951 $ 103,908 $ 103,905 $ 104,740 $
416,504
1,543
1,671
1,641
1,567
6,422
105,494
105,579
105,546
106,307
422,926
27,371
14,386
11,074
52,663
21,119
8,390
1,153
22,001
2,536
-
(7,372)
17,165
26
28,863
11,011
11,300
54,405
21,304
8,066
1,393
29,598
10,266
11,333
54,349
21,674
8,178
1,559
28,154
12,304
11,183
54,666
21,666
8,768
1,481
23,642
22,938
22,751
474
-
39,369
63,485
(59)
-
-
21,515
44,453
(46)
152
(1,678)
(88,930)
(67,705)
(61)
17,191
63,426
44,407
(67,766)
113,986
47,967
44,890
216,083
85,763
33,402
5,586
91,332
3,162
(1,678)
(35,418)
57,398
(140)
57,258
-
-
-
-
-
$
$
17,191
$ 63,426
$ 44,407
0.26
$
1.33
0.08
$
$
(67,766)
(1.46)
$ 25,671
$ 27,552
27,014 $ 26,749
$
$
$
$
$
$
57,258
0.84
106,986
2.11
Funds from operations per unit – fully diluted
$
0.51
$
0.54 $
0.53 $
0.53
1 5 0
2 0 1 7 A N N U A L R E P O R T
BOARDWALK REAL ESTATE INVESTMENT TRUST
2016 QUARTERLY RESULTS
Rental revenue
Ancillary rental income
Total rental revenue
Rental expenses
Operating expenses
Utilities
Property taxes
Net operating income
Financing costs
Administration
Depreciation and amortization
Profit before the undernoted
Loss on sale of assets
Fair value gains (losses)
Profit (loss) before income tax
Income tax (expense) recovery
Profit (loss) for the period
Other comprehensive income
Total comprehensive income (loss)
Earnings (loss) per unit – diluted
Funds from operations
Funds from operations per unit – fully diluted
Q1
Q2
Q3
Q4
Dec. 31, 2016
$ 111,590
$ 108,805
$ 107,283
$ 104,462
$
432,140
1,778
1,601
1,668
1,659
6,706
113,368
110,406
108,951
106,121
438,846
23,227
13,137
9,940
67,064
20,906
9,430
1,198
23,973
9,998
9,956
66,479
21,282
9,160
1,262
24,339
9,455
11,999
63,158
21,247
7,242
1,328
26,081
12,121
11,521
56,398
21,199
8,115
1,431
97,620
44,711
43,416
253,099
84,634
33,947
5,219
35,530
34,775
33,341
25,653
129,299
-
-
-
-
-
20,536
56,066
131
(28,122)
(68,900)
(110,195)
(186,681)
6,653
(35,559)
(84,542)
(57,382)
(85)
41
(145)
(58)
56,197
6,568
(35,518)
(84,687)
(57,440)
-
-
-
$ 56,197
$
1.21
$
$
6,568
0.14
$ 39,124
$ 38,554
$
0.77
$
0.76
$
$
$
$
(35,518)
(1.16)
$
$
(84,687)
(1.89)
37,186
$ 29,601
0.73
$
0.58
$
$
$
$
-
(57,440)
(1.70)
144,466
2.83
2 0 1 7 A N N U A L R E P O R T
1 5 1
BOARDWALK REAL ESTATE INVESTMENT TRUST
MARKET AND UNITHOLDER INFORMATION
SOLICITORS
Gowling WLG (Canada) LLP
1600, 421 – 7th Avenue SW
Calgary, Alberta T2P 4K9
First West Law
100, 1501 – 1st Street SW
Calgary, Alberta T2R 0W1
BANKERS
Toronto Dominion Bank
100, 421 – 7th Avenue SW
Calgary, Alberta T2P 4K9
AUDITORS
Deloitte LLP
700, 850 – 2nd Street SW
Calgary, Alberta T2P 0R8
REGISTRAR AND TRANSFER AGENT
Computershare Trust Company of Canada
Our Transfer Agent can help you with a variety of unitholder
related services, including change of address, tax forms,
accounts consolidation and transfer of stock.
600, 530 – 8th Avenue SW
Calgary, Alberta T2P 3S8
Telephone: 403-267-6800
INVESTOR RELATIONS
Unitholders seeking financial and operating information
may contact:
James Ha
Vice-President, Finance and Investor Relations
Telephone: 403-531-9255
Toll Free: 855-626-6739
Facsimile: 403-531-9565
Web: www.BoardwalkREIT.com
Email: investor@bwalk.com
1 5 2
2 0 1 7 A N N U A L R E P O R T
ONLINE INFORMATION
For an online version of the current and past annual reports,
quarterly reports, press releases and other Trust information,
please visit our investor website at www.BoardwalkREIT.com.
ANNUAL AND GENERAL MEETING
The Annual and Special Meeting of the Unitholders of Boardwalk
REIT will be held at the Calgary Petroleum Club: 319 – 5th Avenue SW,
Calgary, Alberta at 3:00pm (MT) on May 15, 2018.
Unitholders are encouraged to attend. Those unable to do so
are requested to complete the Form of Proxy and forward it at
their earliest convenience.
EXCHANGE LISTINGS
The Toronto Stock Exchange
Symbol: BEI.UN
TRADING PROFILE
TSX: January 1, 2017 to December 31, 2017
High: $51.18
Low: $37.96
Year-end Closing Price: $43.09
MONTHLY DISTRIBUTIONS
Month Per unit Annualized Record Date Distribution Date
Jan-17
$0.1875
Feb-17
$0.1875
Mar-17
$0.1875
Apr-17
$0.1875
May-17
$0.1875
Jun-17
$0.1875
Jul-17
$0.1875
Aug-17
$0.1875
Sep-17
$0.1875
Oct-17
$0.1875
Nov-17
$0.1875
Dec-17
$0.1875
Jan-18
$0.0834
Feb-18
$0.0834
Mar-18
$0.0834
Apr-18
$0.0834
$2.25
$2.25
$2.25
$2.25
$2.25
$2.25
$2.25
$2.25
$2.25
$2.25
$2.25
$2.25
$1.00
$1.00
$1.00
$1.00
31-Jan-17
28-Feb-17
31-Mar-17
28-Apr-17
31-May-17
30-Jun-17
31-Jul-17
31-Aug-17
29-Sep-17
31-Oct-17
30-Nov-17
29-Dec-17
31-Jan-18
28-Feb-18
30-Mar-18
30-Apr-18
15-Feb-17
15-Mar-17
17-Apr-17
15-May-17
15-Jun-17
17-Jul-17
15-Aug-17
15-Sep-17
16-Oct-17
15-Nov-17
15-Dec-17
15-Jan-18
15-Feb-18
15-Mar-18
16-Apr-18
15-May-18
BOARDWALK REAL ESTATE INVESTMENT TRUST CORPORATE INFORMATION
EXECUTIVE OFFICE
First West Professional Building
200, 1501 – 1st Street SW
Calgary, Alberta T2R 0W1
Phone: 403-531-9255
BOARD OF TRUSTEES
Sam Kolias
Chairman of the Board
Calgary, Alberta
James Dewald(3)
Calgary, Alberta
Gary Goodman(2)
Calgary, Alberta
Arthur Havener(1)(2)(3)
St. Louis, MO
Samantha Kolias
Calgary, Alberta
Brian Robinson(2)(3)
Calgary, Alberta
Andrea Stephen(2)
Calgary, Alberta
(1) Lead Trustee
(2) Member of the Audit & Risk Management Committee
(3) Member of the Compensation, Governance &
Nominations Committee
SENIOR MANAGEMENT
Jonathan Brimmell
Vice President, Operations
Ontario and Quebec
Dean Burns
General Counsel and Secretary
Roberto Geremia
President
James Ha
Vice President, Finance and Investor Relations
Bhavnesh Jairam
CIO, Vice President, Technology
Jeff Klaus
Vice President, Development and Acquisitions
Sam Kolias
Chief Executive Officer
Van Kolias
Senior Vice President, Quality Control
Kelly Mahajan
Vice President, Marketing and Customer Service
Helen Mix
Vice President, Human Resources
Lisa Russell
Senior Vice President, Acquisitions & Development
William Wong
Chief Financial Officer
Boardwalk REIT
First West Professional Building
Suite 200, 1501 – 1 Street SW
Calgary, Alberta T2R 0W1
Tel 403 531-9255
Fax 403 531-9565
W W W. B O A R D WA L K R E I T. C O M