Walton Edgemont Development Corporation Reports Fiscal Year-End and Q4 Quarter 2014 Results, Resignation of Richard R. Singleton as a Director and Appointment of William K.Doherty as a Director

CALGARY, Alberta--(BUSINESS WIRE)-- Walton Edgemont Development Corporation (the “Corporation”) announced today its results for the fiscal year ended December 31, 2014 and the fourth quarter of 2014. 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 the southwest corner of Edmonton, Alberta.

Marketed under the name “Woodhaven Edgemont,” the community will be developed in four phases and upon completion, is anticipated to comprise 670 single-family lots, 5.1 acres of multi-family development, parks and natural areas. Phase 1, which is currently underway, consists of 181 lots and approximately 2.1 acres of multifamily development. As economic and market conditions warrant, and the project picks up momentum, we look forward to delivering the first release of lots in Phase 2 to homebuilders to meet housing market demand in the project. Management continues to anticipate the delivery of Phase 2 serviced lots to builders in 2016.

2014 Highlights

Major activities undertaken or completed by the Corporation during 2014 were as follows:

• completed geotechnical boreholes to obtain greater certainty of soil conditions;
• received conditional approval in February from the City of Edmonton Subdivision Authority for the Phase 2 subdivision;
• received approval in August from Edmonton’s City Council for the Corporation’s Road Closure Application for 35th Avenue;
• acquired the closed portion of the roadway in October and consolidated it to allow the future subdivision of four single-family lots;
• received proceeds from the Phase 1B lot closings and received a commitment letter for the financing of a $13,000,000 interim bridge facility and $4,576,500 letter of credit facility;
• achieved substantial completion of the surface works on the 199th Street arterial roadway;
• reached an agreement with the City of Edmonton to assign the obligation for the offsite sanitary forcemain to another developer active in the basin in accordance with the Edgemont Cost Sharing Agreement;
• closed competitive tenders for and commenced construction of the Edgemont Sanitary Pump Station;
• addressed the second circulation comments received from the City of Edmonton and resubmitted the engineering drawings for Phase 2; and
• submitted rezoning applications to the City for Phases 3 and 4 and received first circulation comments.

From an overall timing perspective, the completion of Phase 1 of the project is behind the schedule initially anticipated by management and as disclosed in the Corporation’s offering documents. Municipal approvals and construction delays have contributed to third-party sales to date being behind management’s initial expectations. This has in turn, impacted the timing of lot absorptions and obtaining further lot commitments, and the resulting collection of revenue from Phase 2.

Geotechnical information for Phase 2 indicates saturated soil conditions similar to those being encountered in other areas of the overall Edgemont neighbourhood. Management has completed additional site and soil analysis to provide more detailed information on the conditions and the impact on the construction budget. The contracts for earthworks and underground utility installation in Phase 2 were competitively tendered to qualified contractors to obtain price quotes based on the available information. The bids received exceeded the initial construction cost assumptions for Phase 2 contained in the offering documents.

Greater cost certainty was obtained on the anticipated costs for constructing the remaining offsite infrastructure for the project. Notwithstanding the negotiation of contracts for 199th Street and the competitive tendering for the offsite sanitary forcemain and Edgemont Sanitary Lift Station, the current budget for offsite infrastructure exceeds the original cost assumptions used by management in preparing the offering documents. As of November 17, 2014, the total forecasted increases in hard construction costs and soft costs, before financing and net of recoveries, are $30.0 million and $4.6 million, respectively.

The overall pricing strategy for the remainder of the project has been revised to reflect the distinctive values created by the natural amenities while remaining competitive with comparable communities in the southwest sector of the city. This has resulted in an increase in the projected revenue for the remaining lots that will be developed in Phases 2, 3 and 4 when compared to management’s initial expectations. This pricing strategy is supported by current market prices and consumer demand. The proposed weighted average front foot price for Phase 2A is approximately 16% higher than the average front foot price in Phase 1B released to the builders in May 2013.

Based on the current anticipated timing for the release for Phase 2 and the current pace of third-party sales, collection of the revenue for the final phase of the project, including recoveries, is not anticipated until 2018, based on the anticipated timing for receipt of recoveries for the last phase of development. This represents an additional two years for completion of the project when compared to the original six-year timeframe as disclosed in the offering documents and an additional year when compared to the seven-year timeframe previously reported in the news release issued on May 29, 2014.

The combined impact of these factors is a change in the timing and amount of cash distributions when compared to the original assumptions. As previously reported, delays in construction related approvals, builder lot absorptions and related revenue collection, coupled with increased construction costs, were expected to result in a downward revision of the internal rate of return (“IRR”) from the projected 13.5% disclosed in the offering documents. As previously reported, management believes that a forecasted IRR in the range of 4% to 8% is possible based on best information as at the end of the fourth quarter of 2014. The IRR is based on achieving certain revenue targets, maintaining construction schedules, the timely receipt of recoveries from benefiting developments, third-party sales and commitments for additional lots from the builders. Further changes to the IRR projection could occur due to changes in the aforementioned and other factors.

Management is continuing to explore and implement options and strategies to reduce costs, increase revenues and accelerate absorptions, including advancing the preliminary design of the remaining phases to obtain greater certainty on the servicing costs, and provide an opportunity for additional builders to participate in a variety of housing products to expand consumer choice within the community.

At a meeting of the Board of Directors of the Corporation held on March 24, 2015, after the audited financial statements and the management’s discussion and analysis of the Corporation for the years ended December 31, 2014 and December 31, 2013 were approved by the Board, the Board accepted the resignation of Mr. Singleton as a director and appointed William K. Doherty as a director of the Corporation. As a result, the Board of Directors is now comprised of Clifford H. Fryers, Jon N. Hagan and Mr. Doherty. Mr. Doherty is the President and Chief Executive Officer of the Corporation and is also the President and Chief Executive Officer of Walton Global Investments Ltd. With the resignation of Mr. Singleton, Mr. Fryers was appointed to the audit committee of the Board of Directors of the Corporation which now consists of Mr. Hagan and Mr. Fryers, with Mr. Hagan being the chairman of the audit committee. Mr. Fryers remains the chairman of the Board of Directors. Within the meaning of Canadian Securities Administrators’ National Instrument 52-110, Mr. Hagan is independent of management of the Corporation and Mr. Fryers and Mr. Doherty are not.

Year-end and Fourth Quarter Financial Results

During the year ended December 31, 2014, the Corporation recognized revenue of $2,083,415. The revenue recognized in 2014 is in relation to the sale of the Phase 1 multi-family site. During the year ended December 31, 2013, the Corporation recognized 181 single-family lots sold. It is expected that the revenue will fluctuate greatly from year to year depending on the timing of sales from each phase. The sale translated into cost of sales of $779,219 (December 31, 2013 - $33,982,997) and a gross margin of $1,304,196 (December 31, 2013 – ($1,340,097)).

The positive gross margin recognized on the sale of the multi-family lot in 2014 is because multi-family lots typically generate a higher gross margin than single-family lots.

Total other expenses were $999,712 for the year ended December 31, 2014 which was a decrease of $129,971 from $1,129,683 for the year ended December 31, 2013. The decrease in other expenses is mainly due to a reduction in marketing expenses of $152,185, which was partially offset by an increase in professional fees of $26,756. This was consistent with management’s expectations based on the current marketing plan.

During the fourth quarter of 2014, the Corporation did not recognize any revenue or associated cost of sales from lot sales. This is not consistent with the fourth quarter of 2013 where $16,838,000 of revenue was recognized on the sale of 90 single-family lots. The cost of sales relating to the lots sold was $16,982,380 which translated into a negative gross margin of $144,380.

The Corporation also incurred other income and expenses during the fourth quarter of 2014 of $248,446 (December 31, 2013 - $278,036). The nature and amount of expenses incurred during the fourth quarter of 2014 was comparable to the total expenses incurred during the fourth quarter of 2013. The Corporation’s expenses are expected to remain fairly constant throughout the life of the Corporation because the expenses of the Corporation, being the management fees, servicing fees and director’s fees, are fixed over the life of their respective contracts.

The net loss before tax of $248,446 (December 31, 2013 - $422,416) was partially offset by a deferred tax recovery of $62,111 (December 31, 2013 - $105,721), resulting in an overall net loss of $186,335 (December 31, 2013 – $316,695) for the fourth quarter of 2014.

Additional Information

The Corporation is managed by Walton Asset Management L.P. and the development of the project is managed by Walton Development and Management LP, both of which are members of the Walton Group of Companies.

The Walton Group of Companies (“Walton”) is a family-owned, 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.

Walton has been in business for over 30 years and takes a long-term approach to land planning and development. Walton’s industry-leading expertise in real estate investment, land planning and development uniquely positions Walton to responsibly transition land into sustainable communities where people live, work and play.

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 Edgemont Development Corporation, please visit www.sedar.com. For more information about Walton, visit www.Walton.com.

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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, 2014 and related notes, prepared in accordance with International Financial Reporting Standards.

For media inquiries, please contact: Rick Abbruzzese
Office: 1.646.790.4626
Email: [email protected]

Source: Walton Edgemont Development Corporation

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