CALGARY, Alberta--(BUSINESS WIRE)--Walton Edgemont Development Corporation (the “Corporation”) announced today its results for the first quarter of 2017. 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 Corporation planned to develop the community in four phases over an anticipated ten-year time frame and upon completion, the community was anticipated to be comprised of 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.
Companies’ Creditor Arrangement Act Update
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”), construction of Phase 2 and future phases may not occur. Under the terms of the Initial Order, Ernst & Young Inc. will serve as the Court-appointed monitor (the “Monitor”) of the CCAA Entities.
On May 9, 2017 (the “May 9 Hearing”), the Corporation obtained a Court Order (the “Order”) for the implementation of a sale and investment solicitation process (the “SISP”) to be conducted within the CCAA proceedings under the supervision of the Monitor which will be used to identify one or more purchasers and/or investors in the Corporation’s business and/or property. The SISP is scheduled to commence on June 6, 2017. The SISP sets forth the manner in which potential purchasers/investors must submit bids, including the applicable deadlines for the submission of bids. It is anticipated that the SISP process will be concluded by November 23, 2017. The May 9, 2017 Order also granted three secured charges (Administrative Charge, KERP Charge and Note holder Charge) over the Corporation for an amount of approximately $589,000.
As part of the Initial Order, liabilities outstanding as of April 28, 2017 have been stayed, including the principal and interest on the Interim Bridge Facility. At the May 9 Hearing, the Court approved an extension of the stay period from May 26, 2017 to August 15, 2017 on the Corporation’s assets and liabilities, as well as the other applicants’ assets and liabilities, as well as other applicant’s assets and liabilities.
Concurrently with the SISP, Management will negotiate with the senior lender for construction financing to complete Phase 2. If successful, this would likely delay the delivery of serviced lots to later in 2018, but may allow the Corporation to be removed from the CCAA proceedings.
Any services provided subsequent to April 28, 2017, including the management fees incurred by Walton Asset Management LP (“WAM”) will be paid with existing cash balances and working capital. Management believes the working capital is sufficient as at March 31, 2017 to cover costs of the SISP, including the Administrative Charge and management fees payable to WAM subsequent to April 28, 2017.
First Quarter Highlights
During the period ended March 31, 2017, the Corporation continued to take steps towards the fulfillment of its Project plan. The key activities undertaken by the Corporation were as follows:
- Continued to actively engage homebuilders to obtain commitments for lot inventory in Phase 2 resulting in a lot draw held on March 17, 2017 for the three (3) RSL builder positions and agreements for purchase and sale being prepared and sent to all participating builders;
- 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;
- Woodhaven Stage 2 servicing agreement was requested from the City of Edmonton on February 14, 2017 with a draft prepared on May 10, 2017 and placed on hold by the City of Edmonton pending direction on the CCAA proceedings;
- An amending agreement was executed on February 21, 2017, incorporating the Edgemont Cost Share Corporation into the existing servicing agreement relative to 5 single-family lots in Phase 1 to ensure all lands within the Project are included pursuant to the Edgemont Neighbourhood Cost Sharing Agreement;
- Received rebates recorded in Other Receivables from EPCOR Water in the amount of $147,536 on January 9, 2017 for the remaining 10% holdback for 199th Street water transmission main rebate; and
- Received rebates recorded in other receivables from EPCOR Water in the amount of $8,385 relating to the water mains constructed per the Edgemont Stage 1 servicing agreement with the City of Edmonton.
Subsequent to the three month period ended March 31, 2017, the following additional steps and developments occurred:
- Phase 1 surface works final acceptance certificates (“FAC”) pre-inspection commenced with the City of Edmonton on May 9, 2017 to note concrete repairs prior to final surface maintenance works and inspections;
- Phase 1 fencing construction completion certificate (“CCC”) pre-inspection was conducted on May 10, 2017, to determine final repairs. Fencing does not require a FAC inspection or approval;
- Phase 2 onsite and storm outfall engineering design drawings, received approval on April 4, 2017 from the City of Edmonton. An additional offsite redline was submitted to the City of Edmonton on April 13, 2017 as per the request of Brookfield Residential to accommodate their adjacent development;
- Received recoveries from the City of Edmonton in the amount of $69,625 for Woodhaven Phase 1 Storm Outfall to Wedgewood Creek on April 3, 2017 with Brookfield Residential paying permanent area contribution (“PAC”) assessments for Edgemont Stage 15 Servicing Agreement;
- Received recoveries from the City of Edmonton in the amount of $67,669 for Woodhaven Phase 1 Storm Outfall to Wedgewood Creek on April 28, 2017 with Brookfield paying PAC assessments for Edgemont Stage 15 Servicing Agreement;
- On April 28, 2017 the Corporation filed and received creditor protection under CCAA;
- Due to the CCAA proceedings, the aforementioned agreements for purchase and sale with the builders were not executed and any deposits that had been received were subsequently returned to the respective builder; and
- On May 9, 2017, the SISP, as described above, was approved by the Court. All Phase 2 construction has been deferred until the SISP is concluded, which is anticipated to occur on or before November 23, 2017.
Based on management’s information as at the end of 2016, the Project Internal Rate of Return (“IRR”) is forecasted to be in the range of 3% to 4%. The revised forecast is based on a 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 based on proceeding with development of the remaining phases of the Project. The IRR is based on achieving certain revenue targets, maintaining current construction schedules, the timely receipt of recoveries from benefiting developments, third-party sales and commitments for additional lots from the builders and access to funding for construction. Further material changes to the IRR forecast and the projected hold period could occur due to changes in the aforementioned and other factors. On May 9, 2017, the Court approved a SISP. All construction on Phase 2 has been deferred until the conclusion of the SISP. The implications of the SISP may have significant impacts on the disclosed IRR noted above.
There were 178 third-party sales of single family homes in the Edgemont community as of March 31, 2017. 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 and developments on the SISP.
First Quarter Financial Results
During the three months ended March 31, 2017 and March 31, 2016, 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 $43,149 from $217,224 for the three months ended March 31, 2016 to $260,373 for the three months ended March 31, 2017. The increase in other expenses is mainly due to increase in asset management fees of $73,514 and an increase in professional fees of $11,045. The increase was offset by decrease in servicing fees of $34,725 and a decrease in marketing expenses of $3,487.
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 (the "Management Services Agreement"), 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. Professional fees increased as a result of the Corporation engaging external legal services that had previously been provided by WIGI for no additional charge. The servicing fees, effective July 1, 2016, were no longer charged as part of the Management Services Agreement and marketing costs were 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 SISP, therefore an allowance has been taken on the amount of the deferred tax asset recognized in the current period.
The balance payable to WAM as at March 31, 2017 was in respect of the management fees and servicing fees. As the Court provided a stay on the Corporation’s assets and liabilities, the amounts of $2,483,981 due to WAM as at April 28, 2017 are stayed. Under the stay, WAM is required to continue to provide management services as manager of the Corporation. For management services provided subsequent to April 28, 2017, WAM will be paid from working capital reserves.
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. 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 May 9, 2017, the stay on the CCAA Entities was extended from May 26, 2017 to August 15, 2017.
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.
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.