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 2018. 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, 2018, the Partnership continued to take steps towards the fulfillment of its Project plan. The key activities undertaken by the Partnership were as follows:
– Fully completed the transfer of operations of the sanitary lift station to the City of Edmonton, removing the obligation to operate the lift station, including the full transfer of electrical (EPCOR) and gas (ATCO) monthly utility costs, providing greater cost certainty for the project and removing the Partnership’s obligations on the maintenance and operation of the lift station;
– Completed chain link fencing along the top of bank and bioswale in Phase 1 and Phase 2A, and wood screen fencing in Phase 2A.
– Engaged with the City of Edmonton to confirm the terms and conditions of the Servicing Agreement for Phase 2B;
– Continued negotiations with homebuilders for the first release of 56 lots, including showhomes, in Phase 2B.
– Completed stage 2B engineering drawing 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, increasing phase 2B by 18 lots to 140);
– Requested an amendment to the Phase 2 Facility from the Senior Lender to revise the construction milestones for 2018 based on the current project schedule, increase the Letter of Credit limit based on the security requirements of the Phase 2B Servicing Agreement and adjust the lot price list for the homebuilders based on market conditions; and
– Received reports from homebuilders indicating 6 third-party sales to date in 2018.
Based on the recommended setback identified in the original slope stability study completed by the engineering consultant in January 2016 on Phase 3 of the Project, and as previously reported, management continues to evaluate options to economically maximize yield. The preliminary results of a further slope stability study was released in January 2018. The report is expected to be finalized in the second quarter of 2018 and support submission of land use and subdivision applications later in 2018.
Overall market conditions for new residential home construction have not recovered substantively from the recession period over the past several years. In order to capture market share, increase sales velocity and obtain builder commitments for remaining lot inventory in the project, current and projected lot pricing assumptions have been reduced. This has decreased the estimated overall revenue for the project
Despite the recent gains in global oil prices, the adverse impacts to the overall market conditions for suburban single family residential housing in Edmonton continue to persist into early 2018 as a result of the prolonged recovery from the 2015/2016 economic recession. Beginning in late 2017, the Edmonton region began to show positive trends in certain key economic indicators such as gross domestic product, net migration and housing starts. 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 2020/2021. 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, 2018 and March 31, 2017, the Partnership recognized revenue on contracts of $nil and $279,508, respectively, from lot sales. The cost of sales relating to those lot sales was $nil and $249,517, respectively, resulting in a gross margin of $nil and $29,991, 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. There were no lot sales recognized in the first quarter of 2018.
Total other expenses increased by $194,237 from $341,416 for the three months ended March 31, 2017 to $535,653 for the three months ended March 31, 2018. The increase in other expenses is mainly due to an increase in marketing fees of $37,079, professional fees of $12,473, interest expense of $33,474, financing expenses of $32,688 and a decrease in interest income of $81,767.
Interest expense and Financing expenses have increased as the principal balance of the Second Mortgage Loan Facility increased and a portion of the transaction costs relating to the Phase 2 Facility anticipated to be unutilized is amortized into financing expenses over the remaining term of the Phase 2 Facility.
Professional fees have increased in the first quarter of 2018 compared to the first quarter of 2017, due to an increase in audit fees. Marketing expenses have increased in the first quarter of 2018 compared to the first quarter of 2017 as the Partnership hosted a show home event to showcase the development and replaced signage in the Community.
Interest income was higher in 2017 due to interest being charged on outstanding receivable balances with deferred payment terms from January 2017 to July 2017. There was no additional interest on deferral of lot payments made in the first quarter of 2018.