Walton Big Lake Development L.P. Reports Third Quarter 2019 Fiscal Results


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 third quarter of 2019. 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”).

Asset Sale

The Partnership and the General Partner (together “Walton Big Lake”) announced on October 18, 2019 that Walton Big Lake has entered into an asset purchase and sale agreement with Anthem Properties Group Ltd. (“Anthem”) pursuant to which Walton Big Lake agreed to transfer to Anthem all of the lands, contracts and other assets (collectively, the “Property for Sale”) which are associated with Walton Big Lake’s ongoing development of the Project. The Property for Sale comprises all or substantially all of the assets of Walton Big Lake. In consideration for the transfer of the Property for Sale, Anthem has agreed to assume all of the indebtedness outstanding from Walton Big Lake to MCAN Mortgage Corporation, Concentra and Canadian Western Bank, as the senior lender syndicate, and Kingsett Capital as the mezzanine lender. As a result of the transactions described above (the “Transaction”), no payments will be made by Walton Big Lake to its equityholders, and no payments will be made to unsecured creditors that are related parties of Walton Big Lake. Transaction costs incurred by Walton Big Lake in relation to the Transaction and certain other trade payables will be satisfied by WGIL so that the closing of the Transaction may occur without additional cost to Walton Big Lake or its equityholders. Closing of the Transaction is subject to completion of customary closing conditions.

On October 31, 2019, the Court of Queen’s Bench of Alberta approved the General Partner’s application to dissolve the General Partner pursuant to the Business Corporations Act (Alberta) (the “Dissolution”). Following the closing of the Transaction, the General Partner will promptly dissolve the Partnership pursuant to the provisions of the October 26, 2010 Amended and Restated Limited Partnership Agreement, after which the Dissolution will be completed. The asset sale has been disclosed as a subsequent event in the unaudited condensed interim financial statements.

Project Debt Update

The forbearance periods on the Phase 2 Facility and Second Mortgage Loan have expired. The Partnership has not been provided with any further notices of default and the lenders have confirmed that they intend to take no action as a result of the expired forbearance period.

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 payment on November 1, 2019 but there is no guarantee that this financing will continue. In the event that the Transaction with Anthem does not close, management would continue negotiations with the Phase 2 Facility and Second Mortgage Loan lenders, or other sources, to secure the necessary capital to continue development but there is no guarantee that these negotiations would be successful.

Third Quarter Highlights

During the 3 month period ended September 30, 2019, the key activities undertaken by the Partnership were as follows:

Construction Completion Certificates have been received for Phase 1 Walkways, Phase 1 Boardwalk Bridge, Phase 1 Off-site Storm and Sanitary Sewers East, Phase 1 Sanitary Forcemain, Phase 2 On-site Storm and Sanitary Sewers, Phase 2 Surface Improvements, Off-site Storm Water Management Facility (infrastructure), and Off-site Creek Landscaping;
Construction Completion Certificate inspections were approved for Phase 2 Boulevards and Walkways, Phase 2 Lift Station, and Off-site Storm Water Management Facility Landscaping;
Executed Purchase and Sale Agreements (“PSAs”) for 2 semi-estate RSL lots, In Phase 2A, to home builders, with a 20% non-refundable deposit received.
The historical pace of sales and current sales activity is well behind the original targeted sales pace for the Project as a result of muted demand for new housing in Edmonton.

Third Quarter Financial Results

During the three and nine month periods ended September 30, 2019, the Partnership generated revenue of $450,000 (September 30, 2018 – $nil) and $647,766 (September 30, 2018 – $nil), respectively, and also recorded cost of sales of $7,634,925 (September 30, 2018 – $nil) and $7,832,691 (September 30, 2018 – $nil), respectively. The revenue and cost of sales recognized during the nine month period ended September 30. 2019, was in respect to the sale of three Phase 2A single family lots to a home builder and the impairment recognized on the land development inventory. 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. Due to the current state of the new home building market in Edmonton, builders are pushing for discounts on existing lots in order to move product and asking for concessions in terms of reduced pricing and extended terms to enter new commitments. The Partnership generated a net and comprehensive loss for the three and nine month periods ended September 30, 2019 of $7,546,544 (September 30, 2018 – loss of $623,005) and $8,840,047 (September 30, 2018 – loss of $1,730,155), respectively. The losses were driven by the impairment recognized on the land development inventory and the other expenses as detailed in the Management Discussion and Analysis (“MD&A”).