Walton Big Lake Development L.P. Reports Fiscal Year-End and Q4 2015 Results

CALGARY, Alberta--()--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 fiscal year ended December 31, 2015 and the fourth quarter of 2015. Launched in 2010, the Partnership owns a residential project in northwest Edmonton, Alberta. The project is being developed in three phases and is marketed under the name “Hawks Ridge at Big Lake.”

2015 Highlights

During 2015, the Partnership undertook the following initiatives:

  • continued construction on the sanitary lift station required to service both the Hawks Ridge project and future development on adjacent lands, including the sewer connection to the existing sanitary mains in the neighbouring community, with completion anticipated in 2016;
  • substantial completion of underground utilities to service Phase 2A;
  • substantial completion of paved (or gravel) access to all Phase 2A lots;
  • facilitated release of building permits for commencement of construction on showhomes by the builders in Phase 2A and opened the showhomes to the public with a community event on October 3, 2015;
  • completed the 215th Street arterial roadway including the wildlife crossing bridge (“Hawks Ridge Pass”) and opened the roadway to public traffic on August 17, 2015. Subsequently, the Partnership received approval from the City of Edmonton Development Coordination confirming substantial completion and operation of 215th Street, allowing release of Arterial Road Assessment funds held in trust of approximately $2 million.
    The Partnership also received a further $465,822 from United (Trumpeter Community) for a portion of the 215th Street costs;
  • completed maintenance work in Phase 1 and submitted required documentation for the issuance of Final Acceptance Certificates from the City of Edmonton for Phase 1;
  • negotiated a cost sharing agreement with an adjacent developer for pre-servicing of underground utilities in Phase 2B and accelerated receipt of recoveries owing for mutually beneficial infrastructure previously constructed by the Partnership. Recoveries in the amount of $4,737,292 pursuant to this agreement were received on October 20, 2015;
  • addressed comments from the City of Edmonton on the Phase 2B engineering drawings required to facilitate the next phase of development in the project with final drawings being submitted on January 27, 2016;
  • entered into an agreement with a Canadian-based financial institution to provide the Phase 2 Facility, which includes funds for the development of Phase 1 and Phase 2 as well as to repay the existing Construction Loan Facility. The Phase 2 Facility was subsequently funded on January 13, 2016. The maturity date of the Second Mortgage Loan Facility was also extended and the interest reserve was increased;
  • closed on the sale of the two mixed-use sites in Phase 1 during the second quarter with revenues of $3,187,500 and cost of sales of $2,875,032 being recognized; and
  • closed on the sale of the multi-family site in Phase 1 during the third quarter with revenues of $2,589,650 and cost of sales of $2,123,065 being recognized.

Management commissioned a slope stability study by a qualified engineering firm to quantify the development setback from the top of bank in Phase 3 by collecting monitoring data throughout the spring and summer of 2015. The draft report was issued in November 2015 and identifies a 50-meter setback based on the analysis which exceeds the setback assumed when the original concept plan was prepared. Management is reviewing the options to either stabilize the slope and reduce the setback or reconfigure the layout for Phase 3 to respect the recommended setback. While it is anticipated that these alternatives will result in unexpected costs for the project, the costs are not currently expected to be such that it would change the forecasted internal rate of return (“IRR”) range of 3% - 8% previously reported.

As previously disclosed, the Partnership was advised by one of the builders that it was withdrawing from its commitment to acquire 13 lots in Phase 2A of the project (out of a total of 130 Phase 2A committed lots). The Partnership and the builder reached an agreement on September 25, 2015 providing for, among other provisions, the refund of 50% of the deposits back to the builder. In addition, the builder has surrendered possession of the showhome lot and the improvements constructed thereon. The Partnership is obligated to reimburse the builder for the costs of the improvements constructed on the showhome lot on the earlier of (i) September 25, 2018 or (ii) the sale or transfer of the showhome lot to a third-party purchaser. An agreement was executed on December 16, 2015 with a builder to purchase the 13 lots in Phase 2A at the same price as was committed to by the previous builder. In addition, the new builder will complete and occupy the showhome as a sales and marketing center until the earlier of (i) sale of the showhome to a third-party and (ii) September 24, 2018.

Management remains optimistic that there will be continued demand for new housing in Edmonton. Current activity in the community is 152 third-party sales of single-family homes to date as of March 8, 2016. This is behind the targeted sales pace for the project and, subject to the timing and extent of the projected economic recovery for Edmonton, may extend the overall 8-year hold period as previously reported. The Partnership 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 years ended December 31, 2015 and December 31, 2014, the Partnership recognized revenue of $5,777,150 and $nil, respectively, from lot sales. The cost of sales relating to the lot sales was $4,998,097 and $nil, resulting in a gross margin of $799,053 and $nil, respectively. The revenue and cost of sales recognized in 2015 was in respect of the two mixed-use sites which closed in April and May of 2015 and the multi-family site which closed in July 2015.

Total other expenses increased by $508,488 from $1,282,728 for the year ended December 31, 2014 to $1,791,216 for the year ended December 31, 2015. The increase in other expenses is mainly due to an increase of $410,615 in interest expenses and $105,090 in accretion of financing expenses relating to the Second Mortgage Loan Facility. Professional fees also increased by $44,071 due to an increase in legal costs and audit fees. Marketing expenses increased by $286,193 from $67,256 at December 31, 2014 due to the re-launch of the website used to generate interest in Phase 2 of the project in anticipation of the Spring 2016 market and the showhome grand opening as well as additional directional signage required during the construction of 215th Street. Director’s fees increased by $19,537 due to an increase in the compensation paid to each independent board member from $25,000 to $50,000 per year. As well, a previous board member who was not independent has been replaced with an independent board member who will receive compensation to act in that capacity. These increases were offset by the additional income earned of $83,871 from forfeited deposits when, as mentioned above, the builder withdrew from its commitment to acquire 13 single-family lots in September 2015. No revenue was previously recognized on the 13 lots as the revenue recognition criteria had not been met.

The Partnership did not recognize any revenue or associated cost of sales from lot sales during the fourth quarter of 2015 and the fourth quarter of 2014.

The Partnership incurred net other expenses during the fourth quarter of 2015 of $529,173 (December 31, 2014 - $350,442). The nature and amount of expenses incurred during the fourth quarter of 2015 was comparable to the total expenses incurred during the fourth quarter of 2014 except for marketing expenses which increased by $102,494 due to an increased marketing program to generate increased traffic in the community, financing and interest expenses which increased by $25,666 relating to the Second Mortgage Loan Facility accretion of financing fees and professional fees which increased by $5,918 relating to increased audit fees.

Additional Information

The Partnership is managed by Walton Asset Management L.P. 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.

Walton has been in business for over 35 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.

For more information about Walton Big Lake Development L.P., please visit www.sedar.com. For more information about Walton, visit Walton.com. For information about Hawks Ridge at Big Lake visit www.hawksridge.ca.

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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, 2015 and related notes, prepared in accordance with International Financial Reporting Standards.

Contacts

For media inquiries, please contact:
Walton Big Lake Development L.P.
Tony Deegan, +1-403-750-2292
tdeegan@Walton.com

Contacts

For media inquiries, please contact:
Walton Big Lake Development L.P.
Tony Deegan, +1-403-750-2292
tdeegan@Walton.com