CALGARY, Alberta--(BUSINESS WIRE)--Walton Edgemont Development Corporation (the “Corporation”) announced today its results for the second 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 and specific activity in the sector. Based on current market conditions management anticipates construction of Phase 2 to begin in 2016 with serviced lot delivery to the builders in 2017. Management will continue to monitor and assess the economic conditions in the Edmonton market to determine any significant changes that may impact the ultimate timing for delivery of Phase 2.
Second Quarter Highlights
During the second quarter of 2016, the Corporation undertook the following initiatives:
- The Edgemont Sanitary Lift Station became operational on May 9, 2016. Commissioning inspections were performed with the City of Edmonton and the contractor is addressing deficiencies that were noted prior to transferring the operation of the facility to the City of Edmonton which occurred August 8, 2016;
- Continued to actively engage home builders, including those who participated in Phase 1 of the project as well as new home builders interested in the project, to obtain commitments for lot inventory in Phase 2;
- Continued negotiations and preparation of formal agreements with adjacent landowners for consent to register right-of-ways and construct infrastructure to service Phase 2 of the project;
- Received recoveries from participating developers, in accordance with the Edgemont Ownership Cost Share Agreement, based on the current Sanitary Permanent Area Contribution calculation up to January 2016, for a total of $1,728,084;and
- Received acceptance from the City of Edmonton Drainage Branch on the revised servicing plan for Phase 2 with formal submission of the Neighbourhood Design Report amendment on July 7, 2016. Submission of the associated revisions to the engineering design drawings and Natural Area Management Plan are scheduled to be submitted to the City of Edmonton in August 2016 for approval.
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 in the first half of 2016. Notwithstanding the short term forecast for the remainder of 2016, the fundamental economic indicators such as Gross Domestic Product (“GDP”), net migration, housing starts and oil prices are predicted to recover to positive levels 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 2016 for serviced lot delivery to builders in 2017 to align 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.
There are 176 third-party sales of single family homes in the community as of June 30, 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 Partnership is anticipated to be 2021. The Corporation will continue to provide regular updates on market conditions and project performance during the key economic indicators for Edmonton. The Board and management continue to actively investigate strategies including pursuing vertical development opportunities to enhance the return on investment for investors.
The Corporation has an interim bridge facility of $17.7 million (“Interim Bridge Facility”) with a Canadian financial institution. The facility includes a $13.0 million non-revolving demand loan that will be used for Phase 2 development costs and obtaining further development approvals for future phases and ongoing construction obligations for the Project. In addition, included in the facility are four letters of credit segments totalling $4.70 million to be utilized for performance guarantees in Phase 1 of the Project. As at June 30, 2016, $4.62 million in letters of credit have been issued on this facility and are cash secured. Interest on the Interim Bridge facility and the letters of credit are at a rate of bank prime +1%. As at June 30, 2016, $11,564,833 and $4.62 million was outstanding on the non-revolving demand loan and letter of credit segment, respectively. The facility is secured by a first charge demand collateral mortgage in the amount of $50 million on all present and after acquired property of the Corporation, including the Corporation’s properties.
The Interim Bridge Facility had a maturity date of June 30, 2016. The lender under this facility has indicated verbally to the Corporation that the lender proposes to extend the maturity date thereof by at least 90 days (to at least September 30, 2016). The Corporation anticipates entering into a written extension with the lender to this effect in the next few days. The lender has verbally indicated to the Corporation that it does not consider the Corporation to be in default of the Interim Bridge Facility.
The Corporation believes the lender will extend the facility, however there can be no assurances that it will do so or that it will do so on terms and conditions that are acceptable to the Corporation. In the event that the lender does not grant an extension or grants an extension on terms that are not acceptable to the Corporation or demands repayment of the loan, the Corporation will be required to repay the loan. The Corporation does not currently have sufficient cash resources to do so which will result in the Corporation being in default on the loan. Such default would entitle the lender to, among other things, enforce its security on, and take possession of, the assets of the Corporation, including the Property. However, the Corporation believes that, even if the extension is not granted, the lender will allow the Corporation a reasonable period of time to find alternative financing. Any failure by the Corporation to repay the indebtedness under the facility referred to above could result in the acceleration of the maturity date of the Corporation’s debentures under the terms thereof.
Second Quarter Financial Results
During the three and six months ended June 30, 2016 and June 30, 2015, the Corporation did not recognize any revenue from lot sales and incurred no cost of sales related to lots sold. Total other expenses increased by $7,779 from $217,197 for the three months ended June 30, 2015 to $224,976 for the three months ended June 30, 2016. The increase in other expenses is mainly due to an increase in directors’ fees of $12,707 due to the entity having only one independent director during the second quarter of 2015, compared to having two independent directors in the second quarter of 2016. These were offset by a decrease in marketing expenses of $4,731 which is due to a reduced marketing program due to the deferral of Phase 2.
Total other expenses increased by $3,478 from $438,722 for the six months ended June 30, 2015 to $442,200 for the six months ended June 30, 2016. The increase in other expenses is mainly due to an increase in directors’ fees of $25,511 due to increased compensation paid to each independent board member. In addition, during the second quarter of 2015, there was only one independent director compared to two in 2016. This increase was offset by a decrease in marketing expenses of $8,731 which is due to a reduced marketing program due to the deferral of Phase 2 and an increase in interest income of $10,389 relating to interest accrued on the restricted cash balance.
Walton Asset Management LP (“WAM”), which manages the Corporation, continues to undertake that management notwithstanding that its management fees are being accrued and will not be paid until the Corporation has sufficient capital for the payments of such amounts. In the second quarter of 2016, a total of $144,472 in management fees were accrued. The total amount of management and servicing fees outstanding and payable to WAM as at June, 2016 is $2,771,563.
As the principal amount of the debentures and interest debentures mature on December 31, 2016, management and the Board of Directors of the Corporation is currently reviewing available options including (i) extending the maturity date on both the debentures and interest debentures (which extension up until December 31, 2018 is permitted under the terms thereof), and/or (ii) converting all or any portion of the principal amount of, or interest under, the debentures and interest debentures into Class B shares of the Corporation.
The Corporation is managed by WAM and the development of the project 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 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 unaudited financial statements for the three and six months ended June 30, 2016 and related notes, prepared in accordance with International Financial Reporting Standards.