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 2016. 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.”
Third Quarter Highlights
During the third quarter of 2016, the Partnership undertook the following initiatives:
– Commissioned the sanitary lift station required to service both the Hawks Ridge Project and future development on adjacent lands, including the sewer connection to the existing sanitary mains in the neighbouring community;
– completed construction of roadways in Phase 2A;
– energization of shallow utilities, including streetlights and power, to service Phase 2A;
– negotiated unit rate contracts for the anticipated construction of Phase 2B in 2017 thus providing greater cost certainty for the Project;
– held a public event onsite to support the builders marketing efforts and third party sales in the community;
– completed landscaping construction along 215th street boulevards and Central Area Stormwater Pond;
– commenced landscaping construction on the 215th Street wildlife passage which was completed on November 11, 2016; and
– received 20% deposits on two Phase 2A single family lots, with revenue of $568,071 and cost of sales of $503,608 being recognized.
As of October 2, 2016, there have been 30 single family third party sales year-to-date (179 out of 320 in total project to date). The construction program for 2016 includes completing the surface improvements in Phase 2A for the remaining 54 of the 162 single-family lots (substantially completed July 8, 2016) and landscaping of the central area, top-of-bank and 215 Street, which are currently underway.
Based on the recommended setback identified in the slope stability study, 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 Q1 2017.
The third quarter of 2016 represented the second consecutive quarter of increased single family home starts in Edmonton (source: City of Edmonton Economic Indicators Q3 2016, October 12, 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 2019. We will continue to provide regular updates on market conditions and project performance based on the key economic indicators for Edmonton.
Third Quarter Financial Results
During the three and nine months ended September 30, 2016, the Partnership recognized revenue of $568,071 and $19,868,101, respectively, from lot sales. The cost of sales relating to the lot sales was $503,608 and $16,543,159, resulting in a gross margin of $64,463 and $3,324,942. The revenue and cost of sales recognized in the three and nine months ended September 30, 2016 was in respect to the sale of 2 Phase 2A single family lots and 119 Phase 2A single family lots, respectively, to home builders. During the three and nine months ended September 30, 2015, the Partnership recognized revenue of $2,589,650 and $5,777,150, respectively, from lot sales. The cost of sales relating to the lot sales was $2,123,065 and $4,998,097, respectively, resulting in a gross margin of $466,585 and $779,053, respectively. The revenue and cost of sales recognized in the three and nine months ended September 30, 2015 was in respect of the sale of the 2 mixed-use sites and the 1 multi-family site.
For the three months ended September 30, 2016, total other expenses increased by $88,329 from $378,055 for the three months ended September 30, 2015 to $466,384 for the three months ended September 30, 2016. The increase in other expenses is mainly due to the increase in management fees of $38,460 which has been determined in accordance with the management agreement, an increase in interest expense of $22,393 due to a higher outstanding loan balance in 2016 and a decrease of $83,871 in forfeited deposit income as no lot deposits were forfeited in 2016. These were offset by a decrease in servicing fees of $26,383 as this fee is no longer payable as part of the Management Services Agreement. Marketing fees also decreased by $30,859 as there were no additional costs incurred for the website re-launch, additional directional signage or a showhome grand opening like there was in 2015 during the second and third quarter of 2016.
For the nine months ended September 30, 2016, total other expenses increased by $134,868 from $1,262,043 for the nine months ended September 30, 2015 to $1,396,911 for the nine months ended September 30, 2016. The increase in other expenses is mainly due to the increase in management fees of $156,896, an increase in director’s fees of $29,680 due to an increase in the compensation paid to independent board members effective in the third quarter of 2015 and due to the Partnership having only one independent director during the second quarter of 2015, compared to having two independent directors in the second quarter of 2016, and an increase in interest expense of $66,335. In accordance with the terms of the management agreement, the determination of the management fee is based on the book value of the Property, which has increased as a result of continued construction. The increase in director’s fees is 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. The increase in interest expense is due to a higher loan balance in 2016. These were offset by a decrease in professional fees of $25,341. Costs incurred in 2015 were higher than in 2016 due to costs associated with renewing the Second Mortgage Loan Facility. Marketing fees also decreased by $100,268 as there were no additional costs incurred for the website re-launch, additional directional signage or a showhome grand opening like there was in 2015 during the first nine months of 2016. Servicing fee decreased by $78,290 as this fee is no longer payable as part of the Management Services Agreement.
Walton Asset Management LP (“WAM”), which manages the Partnership, continues to undertake that management notwithstanding that its management fees are being accrued and will not be paid until the Partnership has sufficient capital for the payments of such amounts. In the third quarter of 2016, a total of $147,846 in management fees were accrued. The total amount of management and servicing fees outstanding and payable to WAM as at September 30, 2016 is $2,742,632.
