FINANCIAL STATEMENTS. Walton Big Lake Development L.P. For the years ended December 31, 2016 and December 31, (Expressed in Canadian Dollars)

Transcription

1 FINANCIAL STATEMENTS Walton Big Lake Development L.P. For the years ended and

2 May 1, 2017 Independent Auditor s Report To the Partners of Walton Big Lake Development L.P. We have audited the accompanying financial statements of Walton Big Lake Development L.P., which comprise the statements of financial position as at and and the statements of comprehensive income/(loss), changes in partners equity and cash flows for the years then ended, and the related notes, which comprise a summary of significant accounting policies and other explanatory information. Management s responsibility for the financial statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with International Financial Reporting Standards, and for such internal control as management determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. Auditor s responsibility Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with Canadian generally accepted auditing standards. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained in our audits is sufficient and appropriate to provide a basis for our audit opinion. PricewaterhouseCoopers LLP th Avenue SW, Suite 3100, Calgary, Alberta, Canada T2P 5L3 T: , F: , PwC refers to PricewaterhouseCoopers LLP, an Ontario limited liability partnership.

3 Opinion In our opinion, the financial statements present fairly, in all material respects, the financial position of Walton Big Lake Development L.P. as at and and its financial performance and its cash flows for the years then ended in accordance with International Financial Reporting Standards. Emphasis of matter Without qualifying our opinion, we draw attention to note 1 in the financial statements which describes matters and conditions that indicate the existence of a material uncertainty that may cast significant doubt about Walton Big Lake Development L.P. s ability to continue as a going concern. Chartered Professional Accountants

4 Statements of Financial Position As at and ASSETS $ $ Land development inventory (note 3) 26,777,670 37,824,826 Recoverable costs receivable (note 4) 7,082,060 7,086,720 Other asset (note 5) 192, ,495 Deferred financing and transaction costs (note 7) 384, ,000 Accounts receivable (note 6) 16,656,456 - Due from related party (note 10) Prepaid expenses 1, Other receivables 21,417 45,222 GST recoverable 101,005 46,921 Cash 935, ,615 TOTAL ASSETS 52,152,481 46,559,632 LIABILITIES Project debt (note 7) 27,657,152 14,233,879 Provision for land development costs (note 8) 3,591,425 1,555,536 Deferred revenue (note 9) 65,949 2,100,566 Builders deposits 75,000 75,000 Due to related parties (note 10) 3,723,866 3,789,727 Accounts payable and accrued liabilities 3,275,585 12,695,367 TOTAL LIABILITIES 38,388,977 34,450,075 PARTNERS EQUITY Partners capital 21,711,165 21,711,165 Accumulated deficit (7,947,661) (9,601,608) 13,763,504 12,109,557 TOTAL LIABILITIES AND EQUITY 52,152,481 46,559,632 Commitments (note 13) Going Concern (note 1) The accompanying notes to the financial statements are an integral part of these statements. Approved by the Board of Directors of the General Partner (signed) William K. Doherty Director William K. Doherty (signed) Jon Hagan Director Jon N. Hagan

5 Statements of Comprehensive Income/ (Loss) For the years ended and REVENUE Land development sales $ $ 22,385,266 5,777,150 COST OF SALES Land development (note 3 and 8) 18,899,958 4,998,097 GROSS MARGIN 3,485, ,053 OTHER INCOME/(EXPENSES) Forfeited deposits (note 9) - 83,871 Interest and finance income 12,509 15,199 Interest expense (note 7) (759,129) (669,803) Management fees (note 10) (626,973) (433,977) Marketing expenses (163,069) (353,449) Financing expenses (note 7) (113,495) (107,492) Directors fees (note 10) (102,302) (70,902) Professional fees (65,759) (99,692) Office and other expenses (13,143) (50,297) Servicing fees (note 10) - (104,674) (1,831,361) (1,791,216) NET AND COMPREHENSIVE INCOME/(LOSS) 1,653,947 (1,012,163) Basic and diluted net income/(loss) per unit specifically attributable to limited partnership units (note 11) 0.98 (0.60) The accompanying notes to the financial statements are an integral part of these statements.

6 Statements of Changes in Partners Equity For the years ended and Limited Partnership Units General Partner Unit Accumulated Deficit Total # of Units $ # of Units $ $ $ JANUARY 1, 1,680,124 21,711, (8,589,445) 13,121,720 Net and comprehensive loss (1,012,163) (1,012,163) DECEMBER 31, 1,680,124 21,711, (9,601,608) 12,109,557 Net and comprehensive income ,653,947 1,653,947 DECEMBER 31, 1,680,124 21,711, (7,947,661) 13,763,504 The accompanying notes to the financial statements are an integral part of these statements.

7 Statements of Cash Flows For the years ended and CASH PROVIDED BY (USED IN) $ $ OPERATING ACTIVITIES Comprehensive income/(loss) for the year 1,653,947 (1,012,163) Adjustments for : Interest and finance income (12,509) (15,199) Interest expense 759, ,803 Financing expense 113, ,492 Changes in non-cash operating items Decrease/(increase) in land development inventory 11,599,734 (3,358,281) Decrease/(increase) in recoverable costs receivable 4,660 (4,568,599) Decrease in deposits held in trust - 524,250 Increase in accounts receivable (16,656,456) - Increase in due from related party (569) - (Increase)/decrease in prepaid expenses (177) 12,771 Decrease in other receivables 30,734 13,303 Increase in GST recoverable (54,084) (46,921) Increase/(decrease) in provision for land development costs 2,537,871 (81,236) Decrease in deferred revenue (2,034,617) (425,295) Increase in builders deposits - 25,000 (Decrease)/increase in due to related parties (65,861) 1,560,208 Decrease in GST payable - (6,927) (Decrease)/increase in accounts payable and accrued liabilities (9,419,782) 1,256,269 Interest received 67,819 11,417 Interest paid (1,616,270) (1,067,525) (13,092,936) (6,401,633) FINANCING ACTIVITIES Advances from project debt 25,246,050 13,260,960 Financing and transaction costs on origination of Phase 2 Facility - (1,363,994) Project debt repayment (11,687,139) (6,576,930) 13,558,911 5,320,036 Increase/(decrease) in cash 465,975 (1,081,597) Cash Beginning of year 469,615 1,551,212 Cash End of year 935, ,615 SUPPLEMENTAL INFORMATION Interest paid capitalized to land development inventory 469, ,788 Interest paid and applied to provision for land development costs 387, ,934 Non-cash accretion capitalized to land development inventory 144, ,527 Non-cash accretion applied to provision for land development costs 114,762 47,784 Interest received applied to land development inventory 62,239 - Other asset (note 5) - 192,495 The accompanying notes to the financial statements are an integral part of these statements.

8 For the years ended and 1. NATURE OF BUSINESS, GOING CONCERN & BASIS OF PREPARATION Nature of Business Walton Big Lake Development L.P. (the Partnership ) was formed on September 13, 2010 when the certificate of limited partnership was filed under the Partnership Act (Alberta). The Limited Partnership Agreement was entered into between Walton Big Lake Development Corporation (the General Partner ), and the initial limited partner. The Partnership was formed for the purposes of (i) purchasing an interest in a property comprised of acres of undeveloped land in Edmonton, Alberta (the Property ), (ii) holding the Property as inventory for the purpose of development thereof on a residential and commercial basis, (iii) eventually selling or otherwise disposing of the Property over time in a number of parcels with a view to making a profit, and (iv) performing such other activities that may be incidental or ancillary to or arising from the foregoing purposes that may be reasonably determined by the General Partner. The Partnership is entitled to sell all or any part or parts of the Property or its assets at any time during the development thereof, even if they have not been fully developed. Distributions by the Partnership are neither guaranteed nor will they be paid in a steady or stable stream. The amount and timing of any distributions by the Partnership will be at the sole discretion of the General Partner and only after the General Partner has paid or reserved funds for the Partnership's expenses, liabilities and commitments, including (i) the fees payable to Walton Asset Management L.P. ( WAM ), the manager of the Partnership, (ii) the fees payable to Walton Development and Management LP ( WDM ) (including the performance fee note 10), the project manager, and (iii) any amounts outstanding, on a phase by phase basis, under the construction loans required to develop the Property. The performance fee is only payable if the holders (the Limited Partners ) of Units in the Partnership ( Unit ) have received cash payments or distributions equal to $10.00 per Unit, plus a cumulative return of 6% per annum. The registered office and principal place of business is 25 th floor, nd Street SW, Calgary, Alberta, T2P 1M4. These financial statements were authorized for issue by the Board of Directors on May 1, The Board of Directors has the power to amend the financial statements after they are issued. Going Concern These financial statements have been prepared on a going concern basis in conformity with International Financial Reporting Standards ( IFRS ) and using accounting policies that are consistent with IFRS as issued by the International Accounting Standards Board ( IASB ). Management believes that the going concern basis of presentation continues to be appropriate and assumes the Partnership will continue to operate for the foreseeable future and will be able to realize its assets and discharge its liabilities in the normal course of business as they become due. For the year ended,, the Partnership reported income of $1,653,947 ( net loss of $1,012,163), an accumulated deficit of $7,947,661 ( - $9,601,608) and negative operating cash flows of $13,092,936 ( - $6,401,633) as at that date. As at, the Partnership has $847,142 of interest reserve remaining on its Phase 2 Facility, which is sufficient to cover the expected interest cost associated with the Phase 2 Facility for the year ended The Partnership currently does not have sufficient working capital to pay monthly interest on the Second Mortgage Loan Facility estimated to be $80,000 per month. In addition, the Partnership is in breach of certain bank covenants as it has defaulted on the reporting requirements under the Second Mortgage Loan Facility and the Phase 2 Facility as described in note 7, in addition, there has been material adverse changes that have occurred relating to the guarantor (as described below). The Partnership anticipates collections of $5,008,441 on the Phase 2A lot receivables in July 2017 and an additional $2,690,030 throughout the balance of Of the receivables outstanding at year-end, $5,698,953 was collected in January The amounts collected on the receivables will be applied against the Phase 2 Facility. The amounts collected and anticipated to be collected will not be sufficient to repay all of the Phase 2 Facility and cannot be used to pay the interest 1

9 For the years ended and on the Second Mortgage Loan Facility. Management of the General Partner has received a limited waiver from the lenders in which the lenders have agreed to not act on the Event of Default until the earlier of (a) further written notice from the lender to the Partnership of their intention to act on the default, or (b) May 9, 2017, the date of the come-back hearing in the Court of Queen s Bench of Alberta (the Court ). In the interim period, management will continue discussions with the lenders to renegotiate terms. If management is unable to come to terms with the lenders by May 9 th, 2017, the Partnership may file for creditor protection under the Companies Creditors Arrangement Act ( CCAA ). There is no assurance the lender will provide additional interest reserve or will renegotiate terms on either the Second Mortgage Loan or the Phase 2 Facility. Without an increase in the interest reserves and forbearance from the lenders, the Partnership does not have the ability to pay the Second Mortgage Loan Facility monthly interest expense and therefore may need to file for creditor protection under the CCAA. On April 28, 2017, WIGI and certain affiliates, (the CCAA Entities ), including the general partner of WDM and the general partner of WAM voluntarily filed and obtained creditor protection under the CCAA (collectively WIGI CCAA Application ) pursuant to an order (the Initial Order ) granted by the Court. The Initial order authorizes the CCAA Entities to begin a courtsupervised restructuring and provides for a broad stay of proceedings against the CCAA Entities in order to provide the opportunity to finalize and present a CCAA plan to creditors for approval. While WDM and WAM are not CCAA Entities, they are covered by the stay of proceedings. Ernst & Young Inc., will serve as the Court-appointed monitor (the Monitor ). As WDM is the project manager of the Project and WAM is the manager of the Partnership, it is uncertain as to what impact, if any, the CCAA proceedings will have on the Partnership. WAM and WDM will continue to provide management and project management services respectively; however, there is no guarantee that WAM will be able to continue to provide management services with the deferral of the payment of management fees, or that WAM will have the ability to accept the deferral of those management fees under the CCAA proceedings. In addition, there is no guarantee that the Partnership will continue to have WDM and WAM provide project management and management services, respectively. These conditions lend significant doubt as to the ability of the Partnership to meet its obligations as they come due and accordingly, the appropriateness of the use of accounting principles applicable to a going concern. It is not possible to predict the outcome of these matters and there is substantial doubt about the Partnership s ability to continue as a going concern. These financial statements do not reflect the adjustments to the carrying values of assets and liabilities and the reported expenses that would be necessary if the Partnership were unable to realize its assets and settle its liabilities as a going concern in the normal course of operations. If the Partnership were unable to operate in the normal course of operations, the adjustments required could be material. Basis of Presentation The Partnership s financial statements have been prepared on the historical cost basis, except for certain financial instruments which are initially measured at fair value, as explained in the accounting policies set out in note 2. The statements of financial position have been prepared using a liquidity based presentation because the operating cycle of the Partnership revolves around the sale of land, the timing of which is uncertain. As a result, presentation based on liquidity is considered by management to provide information that is more reliable and relevant to the users of the financial statements. With the exception of land development inventory (note 3), recoverable costs receivable (note 4), other asset (note 5), certain accounts receivable (note 6), all assets and liabilities are current in nature and are expected to be settled in less than twelve months. 2. ACCOUNTING POLICIES, ESTIMATES AND JUDGMENTS Use of Estimates and Judgments The preparation of financial statements in conformity with IFRS requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities and equity at the date of the financial statements, and the reported 2

10 For the years ended and amounts of revenue and expenses during the year. The estimates and assumptions that have the most significant effect on the amounts recognized in the Partnership s financial statements are as follows: Recoverability of land development inventory In assessing the recoverability of the land development inventory, management is required to make estimates and assumptions regarding the sale price for serviced lots, the costs to service the lots, the timing of lot sales, the completion date for the serviced lots and the Partnership s costs of borrowing. Changes in these estimates and assumptions could cause the net recoverable value of land development inventory to differ significantly from the carrying amount. Capitalization of borrowing costs The Partnership capitalizes borrowing costs to qualifying assets by determining if borrowings are general or specific to the Property. The Big Lake development project ( Project ) will be active throughout the period of capitalization and will take a substantial period of time to prepare the Property for its intended use or sale. The Partnership considers a substantial period of time to be a period that is greater than one year. If the General Partner of the Partnership files for CCAA protection, and if the Court grants protection for the General Partner and extends a stay for the Partnership to prepare a restructuring plan, and if the restructuring plan, included the approval of a sale and Investment solicitation process, material adjustments may be required of the carrying value of the land development inventory. Provision for land development costs - In estimating the amount of the provision to be recognized for land development costs, significant judgment is required in estimating the costs required to complete the development of lots for which revenue has been recognized. These estimates are based on internal cost budgets prepared for each phase of development, which are reviewed regularly to determine what adjustments are needed to the provision for land development costs. The provision for land development costs includes, but is not limited to, construction costs, consulting costs, project management fees and financing costs. Changes in these estimates and assumptions could cause the total costs required to satisfy the obligations to differ significantly from the amount of this provision. Revenue recognition In assessing when to recognize revenue, significant judgment is required in estimating when the purchaser can commence construction and when collection of sales proceeds are reasonably assured. Changes in the market and the economy or the credit worthiness of the purchaser may impact the amount of deposit required prior to recognizing revenues, which would impact the timing of revenue recognition. Cost of sales - In determining the amount of cost of sales to recognize in respect of completed lot sales, significant judgment is required in estimating each lot s proportionate share of land development inventory, as well as any remaining costs to complete the development of the lots sold. Changes in these estimates and assumptions could cause the actual cost of each lot sold to differ significantly from the cost of sales recognized at the time that revenue was recognized. Land Development Inventory Land development inventory consists of land held for development and land development costs. Land development inventory is acquired or constructed for sale in the ordinary course of business and is held as inventory and measured at the lower of cost and net realizable value. The land is recorded at the acquisition cost, which is based on the price paid by the Partnership for the Property. All direct costs related to land development are capitalized to land development inventory. These costs include, but are not limited to, construction costs, consultant costs, project management fees, property taxes and borrowing (financing) costs such as interest on debt specifically related to the land development inventory, but excludes marketing and general and administrative overhead expenses. Land development inventory are then relieved through cost of sales proportionately, based on the discounted sale price of each lot. 3

11 For the years ended and Where the carrying amount exceeds the net realizable value, the difference is recognized as an impairment loss. If in a future period, the net realizable value of the land development inventory increases, the impairment is reversed up to the original cost of the inventory. Recoverable Costs Receivable and Deferred Recoverable Costs Recoverable costs receivable are recoveries that will be received associated with the development agreement with the City of Edmonton and EPCOR Utilities Inc. ( EPCOR ). Deferred recoverable costs represent recoveries received in advance of expenditures being incurred. Deferred recoverable costs are reduced as associated costs are incurred. Borrowing Costs General and specific borrowing costs directly attributable to the acquisition, construction or production of qualifying assets, which are assets that necessarily take a substantial period of time to get ready for their intended use or sale, are added to the cost of those assets, until such time as the assets are substantially ready for their intended use or sale. The Partnership considers land development inventory to be a qualifying asset. Investment income earned on the temporary investment of specific borrowings pending their expenditure on qualifying assets is deducted from the borrowing costs eligible for capitalization. Borrowing costs on debt not directly attributable to the acquisition, construction or production of qualifying assets are expensed. Financing and Transaction Costs Issuance costs of project debt obligations are capitalized against the associated debt and amortized using the effective interest rate method. Issuance costs incurred on debt that is fully expected to be utilized and that has not been drawn upon are deferred until draws are made, at which point a pro rata share of the deferred costs are capitalized against the associated debt and amortized using the effective interest method. Issuance costs incurred on the portion of the facilities not expected to be drawn are amortized over the related life of the facility. Financial Instruments Financial instruments are any contract that gives rise to a financial asset of one party and a financial liability or equity instrument of another party. Financial assets and liabilities are recognized when the Partnership becomes a party to the contractual provisions of the instrument. Financial assets are derecognized when the rights to receive cash flows from the assets have been transferred and the Partnership has transferred substantially all risks and rewards of ownership. Financial liabilities are derecognized when the obligation specified in the contract is discharged. Financial instruments are recognized initially at fair value, which is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. At each reporting period, the Partnership will assess whether there is any objective evidence that a financial asset, other than those classified as fair value through profit or loss, is impaired. Impairment, if any, is recorded in net income. 4

12 For the years ended and The following table lists the Partnership s financial instruments and the method of measurement subsequent to initial recognition: Financial Instrument Category Measurement Method Recoverable costs receivable Loans and receivables Amortized cost Accounts receivable Loans and receivables Amortized cost Due from related party Loans and receivables Amortized cost Other receivable Loans and receivables Amortized cost Cash Loans and receivables Amortized cost Project debt Other financial liabilities Amortized cost Builder deposit Other financial liabilities Amortized cost Due to related parties Other financial liabilities Amortized cost Accounts payable and accrued liabilities Other financial liabilities Amortized cost Cash Cash consists of amounts in demand deposit at financial institutions. Provision for Land Development Costs The provision for land development costs is comprised of the estimated costs to complete the development of lots for which revenue has been recognized. These amounts have not been discounted as the majority of the costs are expected to be utilized within one year. Partners Capital Both the general partner unit and the limited partnership units have been classified as equity because the units represent a residual interest in the Partnership after the payment of all liabilities, and do not provide the holder of the unit with the right to put the unit back to the Partnership. Costs directly attributable to the issuance of such units are recognized as a deduction from equity. Allocation of Partnership Income or Loss Income or loss is allocated to the limited partners and to the General Partner. These financial statements include only the assets, liabilities and operations of the Partnership, and do not include the assets, liabilities, revenues or expenses of the limited partners or the General Partner. Net income or net loss of the Partnership for a fiscal year will be allocated as follows: (a) the General Partner will be allocated, in its capacity as General Partner, 0.001% of the net income or net loss; and (b) the balance of the net income or net loss will be allocated to limited partners of record on the last day of such fiscal year in accordance with their respective sharing ratios at that time. Revenue Recognition Land is sold by way of an agreement of purchase and sale. Revenue is recognized on these sales once the agreement is duly executed, the collection of sales proceeds is reasonably assured, the purchaser can commence construction, and all other significant conditions, if any, are met. Management has determined that these conditions are generally met upon the 5

13 For the years ended and receipt of a deposit of not less than 20%. Final payment is typically due within one year from the receipt of the 20% deposit. If the final payment date extends beyond one year, the revenue is discounted and amortized to finance income over the term of the purchase and sale agreement. Customer deposits received for purchases of lots on which revenue recognition criteria have not been met are recorded as deferred revenue. The Partnership recognizes interest income on an accrual basis in the period when it is earned. Cost of Sales At the time that revenue recognition criteria are met, the Partnership recognizes cost of sales for the lots sold by allocating to each lot its proportionate share of land development inventory using the net yield method. Under the net yield method, land development inventory is allocated to each lot sold based on the discounted sales price of the lot over the estimated total discounted lot sales that will benefit from the land development inventory. This results in estimated phase specific costs being allocated proportionately based on the net yield of each lot in that phase, estimated general costs being allocated proportionately based on the net yield of each lot that will benefit from the general costs, and land held for development being allocated proportionately based on the aggregate net yield of each lot of the Project. Included in the cost of sales recognized is the costs incurred to date and the related provision for land development costs for costs to complete the development of lots for which revenue is recognized. Earnings per Unit The earnings per unit are based on the weighted average number of Units outstanding during the year. Income Taxes No provision has been made for income taxes of the Partnership, the liability for which is the responsibility of the partners. Future Changes in Accounting Policies Financial instruments IFRS 9 Financial Instruments ( IFRS 9 ) (July 2014) replaces earlier versions of IFRS 9 that had not yet been adopted by the Partnership and supersedes IAS 39 Financial Instruments: Recognition and Measurement. IFRS 9 introduces new models for classification and measurement of financial instruments, hedge accounting and impairment of financial assets and is mandatorily effective for periods beginning on or after January 1, The Partnership continues to review the standard as it is updated and monitor its impact on the Partnership s financial statements. Revenue from contracts with customers IFRS 15, Revenue from Contracts with Customers ( IFRS 15 ), was issued in May 2014 by the IASB and supersedes IAS 18, Revenue, IAS 11, Construction Contracts and other interpretive guidance associated with revenue recognition. IFRS 15 provides a single model to determine how and when an entity should recognize revenue, as well as requiring entities to provide more informative, relevant disclosures in respect of its revenue recognition criteria. IFRS 15 is to be applied retrospectively or through the recognition of the cumulative effect to opening retained earnings and is effective for annual periods beginning 6

14 For the years ended and on or after January 1, 2018, with earlier application permitted. The Partnership is currently in the process of evaluating the impact that IFRS 15 may have on the financial statements. 3. LAND DEVELOPMENT INVENTORY $ $ BALANCE BEGINNING OF YEAR 37,824,826 34,066,230 Development costs 4,093,508 14,982,201 Costs to be recovered through development agreement (note 4) (3,851,713) (10,150,354) Cost of sales (11,288,951) (1,073,251) BALANCE END OF YEAR 26,777,670 37,824,826 Included in the development costs is interest received of $62,239 ( - $nil) on recoveries from the City of Edmonton during the year ended. Cost of sales recognized of $18,899,958 ( - $4,998,097) during the year ended is comprised of $11,288,951 ( - $1,073,251) allocated to land development inventory and $7,611,007 ( - $3,924,846) (note 8) allocated to the provision for land development costs. Land development inventory is relieved through cost of sales at the time that revenue from lot sales is recognized. It is not possible for management to reasonably estimate the portion of land development inventory that will be realized within the next twelve months, as the timing of lot sales is subject to uncertainty based on market demand. 4. RECOVERABLE COSTS RECEIVABLE The table below reconciles the change in recoverable costs receivable: $ $ BALANCE BEGINNING OF YEAR 7,086,720 2,518,121 Cost incurred to be recovered 3,851,713 10,150,354 Recoveries received (3,856,373) (5,581,755) BALANCE END OF YEAR 7,082,060 7,086,720 Recoverable costs are collected from the City of Edmonton. These are in relation to the construction of infrastructure required as part of the development agreement with the City of Edmonton. The City of Edmonton will reimburse the Partnership for the proportionate share related to future developers. Future reimbursement will only be made as other developers sign their respective development agreements with the City of Edmonton. There is no guarantee as to the expected timing of when other developers may enter into their respective development agreements. Upon completion and acceptance by the City of Edmonton of the infrastructure, the recoverable costs accrue interest at the lower of a rate equal to the bank prime rate +1% or the Construction Price Index Variation, which is defined as the percentage change in the Edmonton Non-Residential Construction Price Index published by Statistics Canada. As these rates are representative of a risk-free interest rate, the recoverable costs are not discounted as the carrying value approximates the fair value at initial recognition. A portion of recoverable costs receivable included within the development agreement may be paid directly by EPCOR. 7

15 For the years ended and 5. OTHER ASSET Other asset is a partially constructed show home surrendered to the Partnership when a builder chose to withdraw from the development. The show home has been recorded at the lower of cost and net realizable value. As part of the executed agreement dated September 25, releasing each party from their obligations set out in the original purchase and sale agreements, the Partnership has agreed to reimburse the builder for the improvements made on the show home in the amount of $192,495. The obligation for reimbursement of costs has been recorded in accrued liabilities. The payment to the builder for the show home improvements is due the earlier of (i) three years from the execution date of the agreement and (ii) upon the sale or transfer date of the show home lot to a third party purchaser. A new builder was found to take over construction of the show home in December. Once the builder sells the show home to a homeowner, the Partnership intends to use the proceeds from the sale to repay the original builder for the costs agreed upon. 6. ACCOUNTS RECEIVABLE At, accounts receivable was comprised of amounts owing from builders for the sale of Phase 2A lots. At, there were no amounts past due. For the Phase 2A lots which were payable in January 2017, an extension of six months was granted to the builders on 50% of the lots due. In January 2017, $5,698,953 was collected in accordance with the purchase and sale agreements. Of the total receivable outstanding at, $3,389,512 of the receivable has payment terms that extend out to As part of the agreement, the Partnership considers the builders to be in good standing and not in default of their purchase and sale agreement. For all lot sales, the ownership of the lot is not transferred to the purchaser until the full purchase price has been received. 7. PROJECT DEBT The table below reconciles the change in the Project debt balance: Phase 1 Facility Construction Loan Phase 2 Facility Second Mortgage Loan Transaction Costs Total $ $ $ $ $ $ BALANCE JANUARY 1, 724, ,150,465 (129,174) 7,746,040 Advances 5,285 12,467, ,003-13,260,960 Transaction costs (470,994) (470,994) Interest incurred 4, , ,003-1,067,525 Interest paid through interest reserve (4,681) (274,841) - (788,003) - (1,067,525) Accretion expensed , ,492 Accretion capitalized , ,311 Repayments (730,034) (5,846,896) (6,576,930) BALANCE DECEMBER 31, - 6,620,776-7,938,468 (325,365) 14,233,879 Advances - 8,878 24,197,079 1,040,093-25,246,050 Transaction costs (508,791) (508,791) Interest incurred - 8, , ,093-1,616,270 Interest paid through interest reserve - (8,878) (714,299) (893,093) - (1,616,270) Accretion expensed , ,495 Accretion capitalized , ,658 Repayments - (6,629,654) (5,057,485) - - (11,687,139) BALANCE DECEMBER 31, ,139,594 8,978,561 (461,003) 27,657,152 8

16 For the years ended and Phase 1 Facility The Partnership had a $40.45 million construction loan with a Canadian-based international financial services company to help finance Phase 1 of the Project (the Phase 1 Facility ). The construction loan consisted of a $34.55 million non-revolving loan facility and a $5.9 million letter of credit facility. During February, the Phase 1 Facility was repaid using the proceeds from the Construction Loan Facility. Construction Loan Facility The Partnership had a $23.36 million construction loan with a Canadian-based international financial institution to help finance Phase 1 and Phase 2 of the Project (the Construction Loan Facility ). The construction loan consisted of a $19.15 million non-revolving loan facility and a $4.21 million letter of credit facility. During January, the Construction Loan Facility was repaid using the proceeds from the Phase 2 Facility. Phase 2 Facility The Partnership has a $41.86 million facility with a Canadian-based financial institution to help finance the remainder of Phase 1 of the Project and Phase 2 of the Project (the Phase 2 Facility ). The Phase 2 Facility consists of a $38.0 million nonrevolving demand loan and a $3.86 million letter of credit facility. The facility allows for an additional $7,315,197 in funding once certain conditions have been met, including the receipt of $7,315,197 of recoveries and the servicing agreement for Phase 2B has been executed with the City of Edmonton. The Partnership has received recoveries of $7,315,197 which has been applied to the loan balance, however have not executed the servicing agreement at the date the financial statements were approved. Included in the non-revolving demand loan is an interest reserve of $1,561,441. The non-revolving loan bears interest that is the greater of (i) bank prime % or (i) 4.60%, and the letters of credit bear interest at a rate of 1.75% per annum for all drawn amounts. Interest payments are made monthly through the use of the interest reserve. The Phase 2 Facility matures on February 1, 2018, 24 months from the first day of the month following the initial advance, which occurred on January 13,. As at, there was $847,142 ( - $nil) remaining of the interest reserve. Subsequent to year end, lot closing proceeds of $5,929,803 were applied as repayments to the loan. The outstanding balance of the Phase 2 Facility at April 30, 2017 was $14,190,191. The Phase 2 Facility is secured by a first priority security interest in all present and after acquired real and other property of the Partnership, and a first fixed and specific demand collateral land mortgage over the Property. Walton Global Investments Ltd. ( WGI ) has provided a limited guarantee of $19,000,000 to the lender and an assignment and postponement of claims by WGI and all shareholders of the General Partner related to claims against the General Partner. WGI also provided a guarantee that the Partnership will complete the development of the Project and fund all cost overruns. Second Mortgage Loan Facility The Partnership has a $9.13 million non-revolving Second Mortgage Loan ( Second Mortgage Loan Facility ) with a Canadian-based financial institution. Included in the Second Mortgage Loan Facility is an interest reserve of $1,998,000. The Second Mortgage Loan Facility bears interest at a rate of bank prime + 7.5% with a minimum rate of 10.50%, paid monthly through the use of the interest reserve. The Second Mortgage Loan Facility matures on January 1, 2018 and is due on demand. The loan is secured by a second mortgage charge over all the Phase 2 assets, Phase 1 and Phase 2 recoveries, and the remaining Phase 3 residual lands. 9

17 For the years ended and As at, there was $298,439 ( - $1,191,532) remaining in the interest reserve. The interest reserve was fully depleted on March 1, The April 2017 interest charges were paid using an advance on a loan from WGI (see note 15). Management has requested a reduction in the Phase 2 Loan Facility to compensate and allow for a $1.25 million increase in the interest reserve of the Second Mortgage Loan Facility, which would allow for sufficient interest reserve to cover the anticipated interest expense for the period of April 1, 2017 to the loan maturity of January 1, WIGI and WGI entered into a guarantee with the lender of the Second Mortgage Loan Facility for the full amount of the loan plus interest and expenses. Loan Default and Temporary Waiver As at April 30, 2017, the Partnership was in breach of the covenants under the Phase 2 Facility and the Second Mortgage Loan Facility, including the financial covenants on the Second Mortgage Loan, which requires both WIGI and WGI to maintain a minimum net worth of $40 million and the reporting requirements on both of the loans to deliver audited consolidated financial statements for WGI, by April 30, 2017 to the lenders. In addition, the lenders have noted with WIGI filing for creditor protection, there has been a material adverse change in the guarantor. The Partnership has received a limited waiver from the lenders in which the lenders have agreed to not act on the Event of Default until the earlier of (a) further written notice from the lender to the Partnership of their intention to act on the default, or (b) May 9 th, 2017, the date of the come-back hearing in the Court. In the interim period, management will continue discussions with the lenders to renegotiate terms. If management is unable to come to terms with the lenders by May 9 th, 2017, the Partnership may file for creditor protection under the CCAA. There is no assurance the lender will provide additional interest reserve or to renegotiate terms on either the Second Mortgage Loan or the Phase 2 Facility. Without an increase in the interest reserves and forbearance from the lenders, the Partnership does not have the ability to pay the Second Mortgage Loan Facility monthly interest expense or principal called on the loans, and therefore may need to file for creditor protection under the CCAA. There is no change in the classification of the loans, as the loans were and continue to be demand in nature. Deferred Financing and Transaction Costs In November, the Partnership incurred financing and transaction costs of $513,000 on the execution of the Phase 2 Facility to the lender. The Partnership also incurred financing costs of $380,000 with WGI (note 10) relating to providing a guarantee of the Phase 2 Facility which has also been included in the deferred financing and transaction costs. As at, 53.40% ( nil%) of the Phase 2 Facility had been drawn upon; therefore, the Partnership has netted a pro rata share of the financing and transaction costs incurred against the loan and has deferred the remaining portion as an asset on the statement of financial position to be netted against future draws. The amount of deferred financing and transaction costs as at are as follows: $ $ BALANCE BEGINNING OF YEAR 893,000 - Deferred financing and transaction costs - 893,000 Transfer to Phase 2 Facility (508,791) - BALANCE END OF YEAR 384, ,000 10

18 For the years ended and Interest Costs Incurred The following table provides a breakdown of interest costs incurred for the year ended : Interest Capitalized Interest Through Provision Expense Total $ $ $ $ Second Mortgage Loan Facility 59,472 74, , ,093 Construction loan 5,039 3,839-8,878 Phase 2 Facility 405, , ,299 TOTAL INTEREST 469, , ,129 1,616,270 Accretion 144, , , ,153 TOTAL INTEREST AND FINANCING COSTS 614, , ,624 1,989,423 The following table provides a breakdown of interest costs incurred for the year ended : Interest Capitalized Interest Through Provision Expense Total $ $ $ $ Phase 1 facility - 4,681-4,681 Second Mortgage Loan Facility 84,442 33, , ,003 Construction loan 196,346 78, ,841 TOTAL INTEREST 280, , ,803 1,067,525 Accretion 119,527 47, , ,803 TOTAL INTEREST AND FINANCING COSTS 400, , ,295 1,342, PROVISION FOR LAND DEVELOPMENT COSTS The following table provides a breakdown of the provision for land development costs: $ $ BALANCE BEGINNING OF YEAR 1,555,536 1,801,490 Additional provisions 7,611,007 3,924,846 Less actual costs incurred during the year (5,575,118) (4,170,800) BALANCE END OF YEAR 3,591,425 1,555,536 The provision for land development costs includes accrued costs based on the estimated costs to complete for the land development projects for which revenue has been recognized. These amounts have not been discounted as the majority are expected to be incurred within one year. 11

19 For the years ended and 9. DEFERRED REVENUE Deferred revenue is comprised of builder deposits received for the sale of lots, for which revenue recognition criteria have not been met. The table below reconciles the change in deferred revenue: $ $ BALANCE BEGINNING OF YEAR 2,100,566 2,525,861 Recognition of sale of Phase 2A lots (2,168,617) - Receipt of Phase 2 initial deposits from homebuilders 134, ,584 Refund of deposits - (94,758) Recognition of forfeited deposits - (83,871) Recognition of sale of mixed-use sites - (474,250) BALANCE END OF YEAR 65,949 2,100, RELATED PARTY TRANSACTIONS See notes 1, 7, 11, 12, 13, 14 and 15 for additional disclosures relating to certain related parties and other related party transactions. WAM, WDM, WIGI, and the Partnership are all related to the General Partner of the Partnership by virtue of the fact that they are subsidiaries of WGI. As described under note 1, on April 28, 2017, WIGI, the general partner of WDM and the general partner of WAM applied for and received CCAA protection from the Court, which included a stay of proceedings on WDM and WAM. The balances due to these related parties are outlined in the table below. With the exception of the development fee payable to WDM, and the management fee and servicing fee payable to WAM, these amounts are unsecured, due on demand, bear no interest and have no fixed terms of repayment. The development fee is payable to WDM within 60 days of quarterend and any amounts that are past due bear interest at a rate of bank prime + 3%. The management fee is payable to WAM quarterly. Any balances due to related parties may be secured by a debenture recorded against the titles of the properties. At, the amounts due to WDM and WAM are not secured by a debenture. DUE FROM RELATED PARTY $ $ Walton Big Lake Development Corporation TOTAL DUE FROM RELATED PARTY

20 For the years ended and Walton Big Lake Development Corporation The other expenses incurred by the Partnership were for costs initially funded by the Partnership on the General Partner s behalf. $ $ BALANCE BEGINNING OF YEAR - - Other expenses incurred 75,036 56,446 Other expenses paid (75,605) (56,446) BALANCE END OF YEAR DUE TO RELATED PARTIES $ $ Walton Asset Management L.P. 2,895,392 2,237,071 Walton Global Investments Ltd. 471, ,300 Walton Development and Management LP 265, ,030 Walton International Group Inc. 91,300 96,326 TOTAL DUE TO RELATED PARTIES 3,723,866 3,789,727 Walton Asset Management L.P. In accordance with the Management Services Agreement between the Partnership and WAM, WAM will provide services in connection with offerings, investor communication and reporting, facilities, equipment and supplies in exchange for an annual management fee equal to: i) From November 17, 2010 until the earlier of date of termination of the Management Services Agreement and, 2% of the aggregate of: a) the net proceeds raised from the initial public offering ( IPO ) of $16,650,664, calculated as the gross proceeds raised of $17,855,940, net of selling commissions of $937,437 and organizational costs of $267,839; b) the net proceeds raised from the private placement ( Private Placement ) of $4,284,145, calculated as the gross proceeds raised of $4,644,060, net of selling commissions of $243,813, work fees of $46,441 and organizational costs of $69,661; and c) the product of the number of units issued by the Partnership to WIGI in exchange for its interest in the Property multiplied by $9.325, which was equal to $764,016; and ii) for each fiscal calendar quarter after until the termination date of the Management Services Agreement, an amount equal to 0.5% quarterly (or 2% annually) of the book value of the Property. 13

21 For the years ended and $ $ BALANCE BEGINNING OF YEAR 2,237,071 1,676,721 Management fees charged 626, ,977 Servicing fees charged - 104,674 GST charged 31,348 21,699 Payments made - - BALANCE END OF YEAR 2,895,392 2,237,071 In accordance with the Management Services Agreement, servicing fees are no longer incurred after. Prior to, the Partnership incurred a servicing fee equal to 0.50% annually of the net proceeds for each Unit sold under the IPO and Private Placement. WAM was then responsible for paying the servicing fee to the Partnership s agents in accordance with the Agency Agreements between WAM, WDM, the General Partner and the Partnership. The servicing fee was calculated from the date of the applicable closing, calculated semi-annually and paid as soon as practicable after that date. The balance payable to WAM as at was in respect of accrued management fees and servicing fees. Notwithstanding the payment terms for such fees, due to cash constraints of the Partnership, management has communicated to WAM that it does not expect to make payments for the management fees and servicing fees accrued until such time that the Partnership has sufficient capital for the payment of such amounts. WAM has continued to provide its services as manager of the Partnership; however, there is no guarantee that WAM will continue to provide management services with the deferral of the payment of management fees, or that WAM will have the ability to accept the deferral of those management fees under the CCAA proceedings, or that the Partnership will continue to have WAM provide management services. All amounts that exceed the regular payment terms are due on demand and bear no interest. Walton Global Investments Ltd. In accordance with the Guarantee Agreement between the Partnership and WGI, the Partnership is required to pay WGI a one-time fee equivalent to 2% of the total facility guaranteed. The guarantee fee was for providing a guarantee on the Phase 2 Facility and Second Mortgage Loan Facility. In addition, the other expenses incurred by the Partnership were for costs initially funded by WGI on the Partnership s behalf. $ $ BALANCE BEGINNING OF YEAR 471,300 - Guarantee fees incurred - 471,300 Guarantee fees paid - - Other expenses incurred 6,045 - Other expenses paid (6,045) - BALANCE END OF YEAR 471, ,300 14