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 fourth quarter of 2018 and fiscal year ended December 31, 2018. Launched in 2010, the Partnership owns a residential project in northwest Edmonton, Alberta. The project is being developed in three phases over a fifteen-year time frame and marketed under the name “Hawks Ridge at Big Lake”, (the “Project”).
Project Debt Update
The Partnership had received forbearance on the previously reported defaults until February 1, 2019 for the Phase 2 Facility and March 15, 2019 for the Second Mortgage Loan. There have been no further extensions to these forbearance periods. While the Partnership has not been provided with any further notices of default, and is negotiating loan maturity and forbearance extensions with its lenders, the expiry of the forbearance periods means the loans are currently due and payable.
The expired forbearance extension terms of the Second Mortgage Loan and Phase 2 Facility were conditional on the Partnership funding interest costs and fees payable to the Second Mortgage Loan lender and Phase 2 Facility lender on a monthly basis due immediately. The Partnership has been reliant on Walton Global Investments Ltd. (“WGIL”) funding monthly interest payments, which WGIL has continued to do even after the expiry of the forbearance period up to and including the most recent interest payments on May 1, 2019 but there is no guarantee that this financing will continue. The Partnership continues to work with its lenders on strategies that result in repayment of debt including but not limited to continuing development of the Project.
During the year ended December 31, 2018, the key activities undertaken by the Partnership were as follows:
- Completed the commissioning of the sanitary lift station to the City of Edmonton (including issuance of Construction Completion Certificate) thus removing the liability and ongoing obligation to operate the lift station including monthly utility costs;
- Completed Phase 2B engineering drawing and zoning revisions to accommodate current market and builder needs (increase in semi-detached and duplex housing and rear lane access products, and decrease front attached garage product) resulting in 18 additional lots in Phase 2B;
- Received over $885,000 in Arterial Roadway Assessment (“ARA”) recoveries for construction of 215th street, which was used to repay project debt;
- Received reports from homebuilders indicating only 15 third-party sales in 2018; and
- Amended the Phase 3 concept plan in accordance with the updated slope failure report from June 2018.
Overall market conditions for new residential home construction have not recovered from the recession period over the past several years with new single permits in NW Edmonton still being below 50% of the 2014 peak. Continued uncertainty in energy prices including the large discount applied to Canadian oil producers versus global oil prices has adversely impacted overall market conditions for suburban single-family residential housing in Edmonton. Lingering pipeline and rail capacity concerns continue to severely impact capital investment in Alberta’s largest industry. The historical pace of sales and current sales activity is well behind the original targeted sales pace for the Project. Given management believes there will be continued muted demand for new housing in Edmonton, management anticipates pricing discounts on current and future lots may be necessary in order to capture market share and increase existing sales velocity or, if the existing project debt can be restructured and additional construction financing obtained, obtain new builder commitments on future inventory.
Management will continue to provide regular updates on market conditions and project performance based on the key economic indicators for Edmonton.
Fourth Quarter and Year End Financial Results
During the year ended December 31, 2018, the Partnership generated revenue of $564,377 (December 31, 2017 – $847,579) and recorded cost of sales of $964,789 (December 31, 2017 - $772,741), thereby arriving at a negative gross margin of $400,412. The revenue and cost of sales recognized in 2018 and 2017 was in respect to the sale of two and three Phase 2A single family lots, respectively, to a home builder. Pursuant to the terms of the purchase and sales agreements for the lots, final payment from the purchaser is typically due 365 days after receipt of the second deposit, but varies based on negotiated terms including market conditions, pricing and absorption factors.
The Partnership generated a net and comprehensive loss for the year ended December 31, 2018 of $11,065,054 (December 31, 2017 – loss of $3,680,295). This loss was driven largely by other expenses of $2,534,085 and a non-cash impairment recognized on land development inventory of $8,130,557 (December 31, 2017 - $2,000,000). Other expenses primarily consists of interest expenses of $1,177,465 (December 31, 2017 - $848,127), management fees of $509,012 (December 31, 2017 – $545,159), financing expenses of $354,072 (December 31, 2017 - $196,804), marketing expenses of $281,481 (December 31, 2017 – 139,751) and professional fees of $233,181 (December 31, 2017 - $181,420). The non-cash impairment recorded on Phases 2A, 2B and 3 of the Project is largely driven by the change in financing assumptions between what was expected at December 31, 2017 and at December 31, 2018. The non-cash impairment recognized has been included in the Cost of Sales line item in the financial statements and all cash received from the sale of land during the year was used to directly pay off debt.
Late Filing of Fiscal Year-End Financial Statements
The Partnership advises that the filing of its financial statements for the fiscal year-ended December 31, 2018, the related management’s discussion and analysis and its officer certifications for the fiscal year-ended December 31, 2018 (collectively, the “Annual Filings”) was not completed by the deadline of April 30, 2019. As a result, the Alberta Securities Commission issued a cease trade order (“CTO”) against the Partnership on May 6, 2019. Now that the annual Filings have been completed, the Partnership will seek to have the CTO revoked.
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 audited financial statements for the year ended December 31, 2018 and related notes, prepared in accordance with International Financial Reporting Standards.