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 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.
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.