Walton Big Lake Development L.P. (the “Partnership”), and
its general partner, Walton Big Lake Development Corporation (the
“General Partner”), announced today the Partnership’s
financial results for the first quarter of 2017. Launched in 2010,
the Partnership owns a residential project in northwest Edmonton,
Alberta. The project is being developed in three phases over a
nine-year time frame and marketed under the name “Hawks Ridge at
Big Lake”, (the “Project”).
First Quarter Highlights
During the period ended March 31, 2017 the Partnership continued
to take steps towards the fulfillment of its Project plan. The key
activities undertaken by the Partnership were as follows:
- completed energization of the final
streetlights to service Phase 2A;
- began the transfer of operations of the
sanitary lift station to the City of Edmonton, removing the
obligation to operate the lift station, including the transfer of
electrical (EPCOR) and gas (ATCO) monthly utility costs, providing
greater cost certainty for the project and removing liability of
the maintenance and operation of the lift station;
- started pathway construction and
landscaping along the top-of-bank and bioswale in Phase 2A;
- submitted revisions to the final Phase
2B engineering drawings to the City of Edmonton split phase 2B into
two stages and adjust lot types to accommodate current market and
builder needs (increase in RF4 semi-detached and duplex housing and
laned RPL zero-lot line products, and decrease RSL front attached
garage product);
- re-confirmed-negotiated unit rate
contracts for the anticipated construction of Phase 2B in 2017 thus
providing greater cost certainty for the Project;
- received reports from the homebuilders
indicating 15 single family permits and 8 third-party sales,
including 1 lot within the semi-estate pooled inventory; and
- received deposits representing 20% of
the purchase price from a homebuilder on the sale of 1 Phase 2A
single family lot, with contracted revenue of $279,508 and cost of
sales of $249,517 being recognized during Q1 2017.
Based on the recommended setback identified in the slope
stability study completed by the engineering consultant in 2016 on
Phase 3 of the Project, management is evaluating several retaining
wall designs and construction methods to increase both single
family and multi-family yields in Phase 3, in support of the land
use and subdivision applications, which are anticipated to be
submitted in Q2 2017.The current changes to Phase 3 have resulted
in a decreased internal rate of return range of 2%-4% from the
3%-8% previously reported.
With the slowdown of Edmonton’s economy as a result of global
oil prices, the adverse impacts to the overall market conditions
for suburban single family residential housing in 2015 and 2016 has
persisted into early 2017. More recently the Edmonton region has
begun to show positive signs of a gradual economic recovery in some
of the key indicators such as gross domestic product, net
migration, housing starts and oil prices. While management remains
optimistic that there will be continued demand for new housing in
Edmonton, the current sales activity is behind the original
targeted sales pace for the Project. Subject to the timing and
extent of the projected economic recovery for Edmonton, the
forecasted Project duration for collection of final revenue and
receipt of recoveries owing to the Partnership is anticipated to be
2019. Management will continue to provide regular updates on market
conditions and project performance based on the key economic
indicators for Edmonton.
First Quarter Financial Results
During the three months ended March 31, 2017 and March 31, 2016,
the Partnership recognized revenue on contracts of $279,508 and
$19,011,467, respectively, from lot sales. The cost of sales
relating to those lot sales was $249,517 and $15,801,160,
respectively, resulting in a gross margin of $29,991 and
$3,210,307, respectively. The revenue and cost of sales recognized
in 2017 was in respect to the sale of 1 Phase 2A single family lot
to a home builder. The revenue and cost of sales recognized in 2016
was in respect of the sale of 118 Phase 2A single family lots to
home builders. Pursuant to the terms of the purchase and sale
agreements for the lots, final payment from the purchaser is
typically due 365 days after receipt of the second deposits. Total
other expenses decreased by $129,082 from $470,498 for the three
months ended March 31, 2016 to $341,416 for the three months ended
March 31, 2017. The decrease in other expenses is mainly due to
decreases in management fees of $55,236, marketing fees of $9,241,
and an increase in interest income of $98,269, offset by an
increase in interest expense of $18,168 and financing expenses of
$7,999.
The decrease in management fees occurred as a result of the
terms of the management services agreement dated October 26, 2010
between the Partnership and WAM (the "Management Service
Agreement"), pursuant to which, effective January 1, 2016, the
management fee payable by the Partnership was based on the book
value, including land improvements, of the Property rather than
being based on the amount of capital raised by the Partnership
under its initial public offering ("IPO") and subsequent
private placement ("Private Placement") which closed in
November 2010 and December 2010, respectively. With the sale of
lots in 2016, land development inventory decreased by $11,288,951,
which resulted in a lower management fee recorded for the three
months ended March 31, 2017. The increase in interest income of
$98,269 primarily relates to interest charges on the lot sales
receipts deferred from January 2017 to July 2017. Marketing costs
were lower due to a reduced marketing program compared to 2016.The
increase in interest and financing expenses was due to a higher
loan balance in 2017. On April 28, 2017, the general partner of WAM
voluntarily filed and obtained creditor protection under the
Companies Creditors’ Arrangement Act (“CCAA”) pursuant to an
order (the “Initial Order”) from the Court of Queen’s Bench of
Alberta (the “Court”). WAM is covered under the stay of
proceedings within the CCAA filing. On a follow-up hearing on May
9, 2017, the stay period was extended from the original date of May
26, 2017 to August 15, 2017. WAM has continued to provide
management services to the Partnership, notwithstanding that
$3,035,975 remains outstanding to WAM as at March 31, 2017.
However, there is no guarantee that WAM and WDM will continue to
provide management and project management services, respectively,
with the deferral of the payment of management or project
management fees, respectively, or that WAM or WDM will have the
ability to accept the deferral of those management fees under the
CCAA proceedings, or that the Partnership will continue to have WAM
provide management services or WDM provide project management
services beyond the stay period.
Loan default and temporary waiver
The Partnership is in breach of its covenants under the Phase 2
Facility and Second Mortgage Loan Facility, including the financial
covenants required from the guarantors on the Second Mortgage Loan
and due to a material adverse change in the guarantor, with Walton
International Group Inc. filing for CCAA protection on April 28,
2017. As previously reported, the Partnership had received a
limited waiver from the lenders in which the lenders agreed to not
act on the Event of Default. The Partnership has received an
extension on the limited waiver from the lenders to not act on the
Event of Default until the earlier of (i) further written notice
from the lenders to the Partnership of their intention to act on
the default, (ii) June 15th, or (iii) the general partners, lenders
and the guarantor enter any other form of forbearance agreement. In
the interim period, management will continue discussions with the
lenders to renegotiate terms. Management believes they will be able
to negotiate terms with the lender to complete the development of
Phase 2; however, if management is unable to come to terms with the
lenders by June 15, 2017, the Partnership may file for creditor
protection under the CCAA. There is no assurance that the
Partnership will be able to successfully renegotiate terms. If the
Partnership was unable to renegotiate terms, the Partnership does
not have the ability to pay the monthly interest payments required
under the Second Mortgage Loan Facility.
Additional Information
The Partnership is managed by WAM and the development of the
property is managed by Walton Development and Management LP, both
of which are members of the Walton Group of Companies.
The Walton Group of Companies (“Walton”) is a
multinational real estate investment, planning, and development
group concentrating on the research, acquisition, administration,
planning and development of strategically located land in major
North American growth corridors.
Its communities are comprehensively designed in collaboration
with local residents for the benefit of community stakeholders. Its
goal is to build communities that will stand the test of time:
hometowns for present and future generations.
For more information about Walton Big Lake Development L.P.,
please visit www.sedar.com. For more information about Walton,
visit www.Walton.com. For information about Hawks Ridge at Big Lake
visit www.hawksridge.ca.
This news release, required by Canadian laws, does not
constitute an offer of securities, and is not for distribution or
dissemination outside Canada. This news release contains forward
looking information, and actual future results may differ from what
is disclosed in this news release. The risks, uncertainties and
other factors that could influence results are described in the
prospectus and other documents filed with Canadian securities
regulatory authorities and available online at www.sedar.com.
Except as otherwise noted, all amounts are in Canadian dollars,
and are based on unaudited financial statements for the three
months ended March 31, 2017 and related notes, prepared in
accordance with International Financial Reporting Standards.
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version on businesswire.com: http://www.businesswire.com/news/home/20170529005314/en/
For media inquiries, please contact:Walton Big Lake
Development L.P.William Doherty, 1 866-925-8668
(Office)info@walton.com