CALGARY, Alberta--(BUSINESS WIRE)--Walton Edgemont Development Corporation (the “Corporation”) announced today its results for the fiscal year ended December 31, 2016 and the fourth quarter of 2016. The Corporation was launched in 2011 to provide investors with the opportunity to participate in the acquisition and development of the approximately 201.5 acres comprising the “Edgemont” properties located in southwest Edmonton, Alberta.
Marketed under the name “Woodhaven Edgemont,” the community will be developed in four phases over an anticipated ten-year time frame and upon completion, is anticipated to comprise 656 single-family lots, 2.0 acres of multi-family development, parks and natural areas. Phase 1 consists of 181 lots and approximately 2.0 acres of multi-family development. The timing for the release of Phase 2 lots to the homebuilder group will be based on general economic and market conditions, specific activity in the sector and obtaining financing to complete the construction of Phase 2.
With the Corporation filing and obtaining creditor protection under the Companies’ Creditor Arrangement Act (“CCAA”) on April 28, 2017, pursuant to an order (the ”Initial Order”) granted by the Court of Queen’s Bench of Alberta (the “Court”), Phase 2 construction may not occur. The Corporation and their advisors, in consultation with Ernst & Young Inc. as the Court-appointed Monitor (the “Monitor”) are currently performing an extensive review and evaluation of potential restructuring alternatives that will maximize value for all stakeholders, including implementing a sale and investment solicitation process to identify one or more purchasers and/or investors in the Corporation’s business and/or property. During the CCAA proceedings, it is expected that secured debtor-in-possession financing will be secured in order to carry on business, however this cannot be assured.
During 2016, the Corporation undertook the following initiatives:
- successfully carried out competitive tenders and negotiations for major onsite work (earthworks, underground utilities, surface works) in Phase 2 to obtain current market pricing resulting in a reduction in estimated construction costs of $6,478,000 or 13.9% for Phase 2 compared to the previous budget;
- secured remaining entitlements for Phase 3A of development by obtaining the subdivision approval on February 18, 2016 in accordance with the rezoning that received unanimous approval from the City Council on March 6, 2015;
- commissioned the Edgemont Sanitary Lift Station into operation on May 9, 2016 and transferred operation of the facility to the City of Edmonton on August 8, 2016;
- completed Construction Completion Certificate (“CCC”) inspections with the City of Edmonton for all major underground and surface works associated with Phase 1 including onsite underground utilities and surface works, 199th Street offsite roadway and the Edgemont Sanitary Lift Station that will allow for submission of Final Acceptance Certificates (“FAC”) applications to commence in spring of 2017;
- continued to actively engage homebuilders to obtain commitments for lot inventory in Phase 2;
- furthered negotiations on formal agreements with adjacent landowners for consent to register rights-of-way and construct infrastructure to service Phase 2 of the project;
- acceptance of the Neighbourhood Design Report (“NDR”) amendments, including a revised servicing plan to relocate the Edgemont West Sanitary Lift Station, was provided by the City of Edmonton on September 9, 2016;
- approval of the Natural Area Management Plan (“NAMP”) amendments was issued by the City of Edmonton on September 26, 2016;
- resubmission of Phase 2 engineering design drawings to the City of Edmonton on December 12, 2016 addressing City comments from the September 28, 2016 submission;
- invoiced participating developers in accordance with the Edgemont Neighbourhood Cost Share Agreement (the “cost share agreement”) based on current Sanitary Permanent Area Contribution calculations as of January 2016 and October 2016 in the amounts of $1,728,084 and $293,300, respectively;
- received recoveries from EPCOR Water in the amount of $602,583 on March 25, 2016 for the water mains installed in conjunction with Phase 1 offsite works and applied for the remaining 10% holdback for the 199th Street Water Transmission Main rebate; and
- the Corporation elected to exercise its right to convert the Debentures and Interest Debentures into Class B shares on September 30, 2016. Approximately $32.3 million of Debentures, Interest Debentures and accrued interest outstanding was converted into 38,350,643 Class B shares.
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 have persisted to the end of 2016. The fundamental economic indicators such as Gross Domestic Product (“GDP”), net migration, housing starts and oil prices are predicted to recover in 2017. Management continues to actively negotiate with homebuilders and is optimistic that commitments for lot inventory in Phase 2 can be obtained to allow construction of Phase 2 to commence in the spring of 2017 for serviced lot delivery to builders in the fall of 2017, aligning with the projected economic recovery. Management will continue to monitor key economic indicators such as the unemployment rate, Alberta GDP growth, interest rates and the resale and new home markets in the Edmonton market to determine any significant changes that may impact the ultimate timing for delivery of Phase 2 lots.
Based on management’s information as at the end of 2016, the projected IRR is forecast to be in the range of 3% to 4%. The revised forecast is based on slower than anticipated recovery in Edmonton’s economy and overall housing market which has resulted in delays to complete the remaining phases of the Project. The overall duration to complete the project is now expected to be 10 years with collection of final revenues in 2021. The IRR is based on achieving certain revenue targets, maintaining construction schedules, the timely receipt of recoveries from benefiting developments, third-party sales and commitments for additional lots from the builders. Further material changes to the IRR forecast and the projected hold period could occur due to changes in the aforementioned and other factors.
There were 177 third-party sales of single family homes in the Edgemont community as of December 31, 2016. 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 Corporation is anticipated to be 2021. The Corporation will continue to provide regular updates on market conditions and project performance based on the key economic indicators for Edmonton.
Year-End and Fourth Quarter Financial Results
During the fourth quarters of 2016 and 2015 and for the years ended December 31, 2016 and December 31, 2015 the Corporation did not recognize any revenue from lot sales.
During the fourth quarter of 2016, the Corporations other expenses decreased by $648,727 from $210,199 of expense for the three month period ended December 31, 2015 to $438,528 of income primarily due to $679,769 of cost savings associated with Phase 1 recognized in the period. In addition, servicing fees decreased by $35,203 as this fee is no longer payable as part of the Management Services Agreement. The decrease in servicing fees was offset by an increase in management fees of $68,800.
Total other expenses decreased by $619,954 from $876,189 for the year ended December 31, 2015 to $256,235 for the year ended December 31, 2016. The decrease in other expenses is mainly due to the recognition of Phase 1 specific cost savings of $679,769, a reduction in servicing fees of $70,214 and a decrease in marketing expenses of $16,879. The decrease was offset by an increase in management fees of $134,896 and an increase in director fees of $31,062.
The recognition of Phase 1 cost savings is due to actual costs required and remaining estimated costs to complete Phase 1 coming in less than the original budget costs recorded when Phase 1 lot sales were recorded. As Phase 1 has been fully recognized in previous years, any change in the Phase 1 specific cost estimates to complete construction result in an adjustment recorded in the statement of comprehensive loss.
The increase in management fees has occurred in accordance with the terms of the management services agreement between the Corporation and WAM dated June 27, 2011, which changed the calculation of the management fees effective July 1, 2016, from being based on capital raised under the Offerings to being based on book value of the Properties, including land improvements. Director’s fees increased as a result of incurring a full year of fees at the compensation rates approved part way through 2015 and due to having two independent directors throughout the entire year. The servicing fees, effective July 1, 2016, were no longer charged as part of the management services agreement and marketing costs are lower as the marketing program was reduced with the deferral of the construction of Phase 2.
With the Corporation filing for CCAA protection, there is uncertainty as to if the deferred tax asset will be utilized as it will be dependent on the outcome of the Restructuring Plan, therefore al allowance has been taken on the full amount of the deferred tax asset in the current year.
Manager and Project Manager of the Project files for creditor protection under CCAA
On April 28, 2017, the Corporation, Walton International Group Inc. (“WIGI”) and certain affiliates (“CCAA Entities”) , including the general partner of Walton Development and Management L.P. (“WDM”) and the general partner of Walton Asset Management L.P. (“WAM”), voluntarily filed and obtained creditor protection under the CCAA pursuant to an Initial Order granted by the Court. The Initial Order authorizes the CCAA Entities to begin a court-supervised restructuring and provides for a broad stay of proceedings against the CCAA Entities in order to provide the opportunity to finalize and present a CCAA plan to creditors for approval. Ernst & Young Inc. will serve as the Monitor.
WAM and WDM continues to provide management and project management services to the Partnership. Management has communicated to WAM that it does not expect to make payments for any amounts payable to WAM, until such time that the Corporation has sufficient capital for the payment of such amounts. The total amount of management and servicing fees outstanding and payable to WAM as at December 31, 2016 is $3,198,576. There is no guarantee that WAM will continue to provide management services with the deferral of the management fees, or that it will have the ability to defer those management fees under the CCAA proceedings.
Announcement of Interim Director
The Board has appointed Michelle Cameron as an interim director of the Corporation and a member of the Audit Committee effective May 1, 2017. Ms. Cameron is currently the Chief Financial Officer of the General Partner of the Partnership and Vice President Corporate Reporting of WIGI. Prior to joining Walton, Ms. Cameron was with PricewaterhouseCoopers for over 13 years in the Audit & Assurance Practice. Ms. Cameron is a member of the Chartered Professional Accountants of Alberta. She holds a Bachelor of Commerce degree from the University of Saskatchewan.
The Corporation is managed by WAM and the development of the Project is managed by WDM, 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.
Walton has been in business for over 30 years and takes a long-term approach to land planning and development. Walton’s industry-leading expertise in real estate investment, land planning and development uniquely positions Walton to responsibly transition land into sustainable communities where people live, work and play.
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.
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 audited financial statements for the year ended December 31, 2016 and related notes, prepared in accordance with International Financial Reporting Standards.