CALGARY, Alberta--(BUSINESS WIRE)--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 third 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”).
Third Quarter Highlights
During the period ended September 30. 2017, the Partnership continued to take steps towards the fulfillment of its Project plan. The key activities undertaken by the Partnership were as follows:
- Construction completion of pathway construction along the top-of-bank and bioswale in Phase 2A and Phase 2B, completing an approximate 2km pathway loop;
- Substantial completion in removal of unsuitable material from the Hawks Ridge School Site, allowing for final grading to be completed Spring 2018;
- Completed stage 2B lotting type revisions to accommodate current market and builder needs (increase in RFf4 semi-detached and duplex housing and laned RPL zero-lot line products, and decrease RSL front attached garage product);
- Received reports from the City of Edmonton indicating 41 single family permits have been issued and from homebuilders indicating 33 third-party sales in 2017; and
- Received deposits representing 20% of the purchase price from a homebuilder on the sale of 2 Phase 2A single family lots, with contracted revenue of $847,579 and cost of sales of $772,741 being recognized during 2017.
Based on the recommended setback identified in the original slope stability study completed by the engineering consultant in January 2016 on Phase 3 of the Project, and as previously reported, management is evaluating several retaining wall designs and construction methods to potentially lower costs from the initial estimates and increase both single family and multi-family yields in Phase 3, in support of the land use and subdivision applications, which is anticipated to be submitted in Q1 2018, upon receipt of the revised (preliminary) slope stability study along the NW corner of Phase 3. The preliminary study is expected to be released by December 2017. The internal rate of return (“IRR”) range of 2-4% reported in the first quarter of 2017 has been revised to 0 – 3%. This downward revision is a result of project timelines being extended and additional interest expense being incurred due to lot sales being slower and collection of proceeds being longer than anticipated.
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 mid-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 2020/2024. Management will continue to provide regular updates on market conditions and project performance based on the key economic indicators for Edmonton.
Third Quarter Financial Results
During the three and nine months ended September 30, 2017, the Partnership recognized revenue on contracts of $279,508 and $847,579, respectively, from lot sales. The cost of sales relating to those lot sales was $256,801 and $772,741 resulting a gross margin of $22,707 and $74,838, respectively. The revenue and cost of sales recognized in the three and nine months ended September 30, 2017 was in respect to the sale of a Phase 2A single family lots sold in each quarter of 2017 to a home builder. 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.
For the three months ended September 30, 2017, total other expenses increased by $828,215 from $466,384 for the three months ended September 30, 2016 to $1,294,599 for the three months ended September 30, 2017. The increase in other expenses is mainly due to increases in bad debts expense of $797,011, professional fees of $9,933, interest expense of $12,999 and financing expenses of $90,748 partially offset by increased interest income of $29,504, a decrease in director fees of $13,075, a decrease in marketing expenses of $26,789 and a decrease in management fees of $10,236.
For the nine months ended September 30, 2017, total other expenses increased by $618,751 from $1,396,911 for the nine months ended September 30, 2016 to $2,015,662 for the nine months ended September 30, 2017. The increase in other expenses is mainly due to increases in bad debt expense of $797,011, interest expense of $47,953, professional fees of $43,193 and financing expenses of $106,400 partially offset by increased interest income of $241,133 and decreases in management fees of $75,267, marketing expenses of $29,897 and director fees of $26,151.
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. The bad debt in 2017 relates to an allowance taken by the Partnership for receivables due from a homebuilder that has filed for receivership. The increase in interest income primarily relates to interest charged on lot sale receipts deferred from January 2017 to July 2017. The reduction in Director fees was due to there being only one independent Director in the second and third quarters of 2017 as compared to two in the same periods of 2016. Professional fees increased as a result of the Partnership incurring additional audit fees in 2017 and fees for legal secretarial services that in 2016 were provided by WIGI at no additional charge. The increase in financing expenses is primarily due to fees paid by the Corporation for the extension of the project debt.
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. On April 28, 2017, Walton International Group Inc. and certain affiliates (“CCAA Entities”), including the general partner of Walton Development and Management L.P. (“WDM”) and the general partner of 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. On August 15, 2017, the stay of the CCAA entities was extended from August 15, 2017 to November 30, 2017. The CCAA Entities intend to seek a further extension of the SISP process to March 31, 2018 in order to allow them to present plans of arrangement to creditors that will allow for the orderly wind up of the CCAA Entities and ultimately the final distribution to creditors and equity holders.
WAM has continued to provide its services as manager of the Partnership, notwithstanding that $3,321,923 remained outstanding to WAM as at September 30, 2017. However, there is no guarantee that WAM or 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.
Additional Information
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 and nine months ended September 30, 2017 and related notes, prepared in accordance with International Financial Reporting Standards.