Walton Ontario. Third Quarter Report 2013 For the three and nine months ended September 30, 2013 and September 30, 2012

Transcription

1 Walton Ontario Land L.P. 1 Third Quarter Report 2013 For the three and nine months ended 2013 and 2012

2 Table of Contents CEO Message to Unitholders Management s Discussion and Analysis Financial Statements (Unaudited) Walton Group of Companies Ottawa

3 CEO Message to Unitholders Please find the 2013 third quarter fiscal results for Walton Ontario Land L.P. 1 (the Partnership ). Launched in January 2010, the Partnership s objective is to maximize returns to limited partners through the acquisition, management, concept planning, and eventual sale of the Ottawa Property (the Property ), which consists of 300 acres adjacent to the southwest urban boundary of Ottawa, and the Alliston Property, which was sold in October 2012 and consisted of two parcels totaling acres near the Toronto area in Alliston. THIRD QUARTER HIGHLIGHTS During the third quarter of 2013, the Partnership has continued working on the concept planning phase of its overall investment strategy for the Ottawa Property. During this concept planning phase, engineering, planning and legal professionals are positioning the land to obtain municipal approval for development. The Partnership is participating in the City of Ottawa s 2014 Official Plan review process to support and position the Ottawa Property in future expansions to the City s urban boundary. Management believes that the Ottawa Property is well suited for an urban boundary expansion in 2014 from an employment and mixed-use perspective, and can become an initial phase in a regional southwest Ottawa development plan. The Ottawa Property is surrounded to the north and northwest by residential subdivisions, and is located along two arterial roads based on the City of Ottawa s hierarchy of road networks. Overall, the Partnership is performing as expected by management and consistent with the Partnership s intention of holding its interest in the Property as an investment until time of sale. Walton Ontario Land L.P. 1, Ottawa Property Third Quarter Report 2013 Walton Ontario Land L.P. 1 3

4 Top: Walton Ontario Land L.P. 1, Alliston Property (Sold in October of 2012) Plan. Bottom: Walton Ontario Land L.P. 1, Ottawa Property Outline 4 Walton Ontario Land L.P. 1 Third Quarter Report 2013

5 Market Environment Ottawa s economy is anticipated to expand by 0.8% in 2013, with both real gross domestic product and job growth forecast to grow by 1.6% in Metro Ottawa s population is expected to increase by approximately 1.0% in 2013 to million. This growth is driving the need for new housing. 1 Walton believes that the residential and commercial development activity currently occurring near the Property demonstrates the strength of the new home market in the area, and that the Partnership s land is well positioned for future development. Our belief is supported by the growth of the following neighboring developments in the area: Monahan Landing, a subdivision comprising single-family and townhouse units, located just inside Ottawa s urban boundary and directly adjacent to the Property, has just launched Phase 2 of its development; Blackstone, a community of single detached and town homes, northwest of the Property, is in Phase 1 of its five-phase development; and The new SmartCentres Kanata Retail Plaza, approximately two km northwest of the Ottawa Property, includes a Wal-Mart Supercenter and many other retail outlets. Walton believes strongly in the quality of our assets and is proud to offer our clients and investors the opportunity to participate in our land-based real estate projects. Since 1979, Walton has returned 1.5 billion CAD 2 in client distributions. We will continue to work with municipal governments and other stakeholders in the planning and development of our projects to realize the most effective use of our lands to attain our investment goals. Thank you for investing in the Partnership, and for your support and confidence in the Walton Group of Companies. Best regards, Bill Doherty Chief Executive Officer Walton Ontario Land 1 Corporation, General Partner of Walton Ontario Land L.P Conference Board of Canada, Metropolitan Outlook 1 Autumn Economic Insights Into 13 Canadian Metropolitan Economies 2. As of 2013, the amount returned is unaudited and consists of: a. Exit proceeds on sales of pre-development land b. Distributions, interest and principal repayment on development projects c. Interest and principal repayment on corporate bonds Third Quarter Report 2013 Walton Ontario Land L.P. 1 5

6 MANAGEMENT S DISCUSSION & ANALYSIS For the three and nine months ended 2013 November 20, 2013 The following management s discussion and analysis ( MD&A ) is a review of the financial condition and results of operations of Walton Ontario Land L.P.1 (the Partnership ) for the three and nine months ended The MD&A should be read in conjunction with the Partnership s unaudited interim condensed financial statements for the three and nine months ended 2013, and the Partnership s audited financial statements for the year ended December 31, All financial information is reported in Canadian dollars and has been prepared in accordance with International Accounting Standard 34: Interim Financial Reporting and using accounting policies that are consistent with International Financial Reporting Standards ("IFRS ) as issued by the International Accounting Standards Board. In limited situations, IFRS has not issued rules and guidance applicable to the real estate investment and development industry. In such instances, the Partnership has followed guidance issued by the Real Property Association of Canada to the extent that such guidance does not conflict with the requirements under IFRS or the definitions, recognition criteria and measurement concepts for assets, liabilities, income and expenses in the IFRS framework. Additional information about the Partnership is available on SEDAR at CRITICAL ACCOUNTING ESTIMATES The preparation of financial information in conformity with IFRS requires management to make estimates and assumptions that affect the reported amount of assets, liabilities and equity at the date of the financial statements, and the reported amount of revenues and expenses during the year. The estimates and assumptions which have the most significant effect on the financial statements and note disclosures are related to the recoverability of land and the fair value of land, which are determined using a discounted expected cash flow model. This requires management to make estimates and assumptions regarding the comparability of recent land sales, the anticipated exit date, cost of capital and the remaining concept planning costs for the property. Changes in these estimates and assumptions could cause the actual results to differ materially from those estimates. FORWARD-LOOKING STATEMENTS Certain information set forth in this material is based on the Partnership s current expectations, intentions, plans, and beliefs, which are based on experience and the Partnership s assessment of historical and future trends. Such forward-looking statements necessarily involve known and unknown risks and uncertainties, many of which are beyond management s control. These risks and uncertainties include, but are not limited to, the timing of approval by municipalities, and the business and general economic environment. These uncertainties may cause the Partnership s actual performance, as well as financial results in future periods, to differ materially from any projections of future performance or results expressed or implied by such forward-looking statements. Investors are cautioned against attributing undue certainty to forward-looking statements because actual results could differ materially from management s targets, expectations or estimates. RESPONSIBILITY OF MANAGEMENT This MD&A has been prepared by, and is the responsibility of, the management of the general partner of the Partnership, Walton Ontario Land 1 Corporation (the General Partner ). 6 Walton Ontario Land L.P. 1 Third Quarter Report 2013

7 APPROVAL BY THE BOARD OF DIRECTORS The MD&A was authorized for issue by the board of directors of the General Partner (the Board of Directors ) on November 20, BUSINESS OVERVIEW The Partnership was established on October 2, 2009, for the purpose of acquiring and syndicating undeveloped strategically-located land within Ontario growth corridors. The Partnership s investment objective is to maximize returns to its limited partners through the acquisition, management, concept planning and sale of two properties, consisting of an aggregate of 455 acres of undeveloped land in southern Ontario (the Properties ). The Properties which were acquired by the Partnership consist of: Toronto Area: The property was located near Toronto in Alliston, Ontario (the Alliston Property ) and was made up of two parcels of land, comprised of 155 acres. These parcels were designated as Urban Industrial Holding (UM*H), and are adjacent to the Honda Canada manufacturing facility. City of Ottawa: The property is located in the southwest quadrant of the City of Ottawa (the Ottawa Property ) and is made up of a single parcel of land, comprised of 300 acres. This land was designated as Agriculture Resource Area. It is adjacent to an existing residential subdivision, and is immediately south of Ottawa s current urban area boundary. On October 12, 2012, the Partnership sold the Alliston Property. As a result, the interest in the Ottawa Property is the remaining investment held by the Partnership as at The Partnership is managed by Walton International Group Inc. ( WIGI ). The project manager is Walton Development and Management (Alberta) LP (formerly Walton Development and Management L.P. ) ( WDM ). It is the current intention of the Partnership to hold its interest in the Ottawa Property as an investment and to dispose of it prior to its physical development. If the limited partners determine that the Partnership should participate in the development of the Ottawa Property (other than pre-development concept planning), the activities of the Partnership also may include the partial or full development of the Ottawa Property prior to its sale. The net proceeds from the disposition of the Ottawa Property, after satisfaction of liabilities and payment of, or provision for, all fees and expenses, including any amounts that the General Partner reasonably considers necessary to retain in order to replenish the refundable expense reserve, will be distributed by the Partnership. Included in such fees and expenses is a performance fee payable to WIGI, provided that the limited partners receive distributions equal to the amount of their purchase price allocation, plus an amount equal to an 8% annual cumulative return on contributed capital that has not been paid to the limited partners in respect of previous distributions. Net income, if any, earned from the Property prior to, or between its sale has not been, and is not anticipated to be, significant. As a result, the Partnership is not expected to distribute a significant amount of cash to unitholders other than at such time that the Property is sold. The address of the registered office is 23rd Floor, 605 5th Avenue SW, Calgary, Alberta, T2P 3H5. Third Quarter Report 2013 Walton Ontario Land L.P. 1 7

8 THIRD QUARTER FINANCIAL DATA Three months ended September 30 Nine months ended September Total revenue () 39,778 13,520 65,343 46,702 Total expenses () 233, , , ,902 Net loss and comprehensive loss () 194, , , ,200 Weighted average units outstanding 1,2 1,961,840 1,961,840 1,961,840 1,961,840 Basic and diluted net loss per unit () The weighted average units outstanding exclude the general partner unit issued. Based on the terms of the Limited Partnership Agreement, the holder of the general partner unit does not share equally in the income/loss of the Partnership but instead receives 0.001% of the net income/loss. 2 The weighted average units outstanding and net income/(loss) per unit for all periods presented have been restated to reflect the November 15, 2012 unit consolidation, which resulted in a 1,618,160 reduction in the limited partnership units outstanding. As at 2013 As at December 31, 2012 Total assets () 17,862,186 18,531,875 Total liabilities () 74,740 82,319 Total equity () 17,787,446 18,449,556 Limited partnership units outstanding end of period 1,961,840 1,961,840 REVIEW OF OPERATIONS Summary During the third quarter of 2013, the Partnership continued with the execution of the concept planning phase of its overall investment strategy for the Ottawa Property. During this concept planning phase, engineering, planning and legal professionals will position the land to obtain municipal approval to permit development on the land. To obtain such approvals, the Partnership works with the City of Ottawa planning authorities to conceptually plan the Property for build-out in order to achieve the highest and best development potential. These approvals generally attract an expanded audience of potential buyers. This process is not limited to land-use planning, as the positioning of the parcel incorporates fiscal, environmental, agricultural, and infrastructure solutions in a comprehensive and holistic manner, for the benefit of the parcel, the entire planning region of southwest Ottawa, and all of the City of Ottawa. As such, the Partnership continues to participate in the 2014 Official Plan review process to support and position the Ottawa lands in future expansions to Ottawa s urban boundary. Management believes that the Ottawa Property is well suited for an urban boundary expansion in 2014 from an employment and mixed use perspective, and can become an initial phase in a regional Southwest Ottawa development plan. The Ottawa Property is surrounded to the north and north-west by residential subdivisions, and is located along two arterial roads based on the City of Ottawa s hierarchy of road networks. These roads have and continue to undergo tremendous development pressure to be widened and/or modified. In 2014, Eagleson Road which fronts the western edge of the property, will see the completion of a traffic roundabout at its current stop sign intersection with Flewellyn Road. Hope Side Road which fronts the northern edge of the property is currently undergoing an EA (Kanata South Class Environmental Assessment Study) for its widening to a 4-lane arterial road. The property will be further exposed to land requirements for the widening and 3 proposed roundabouts. 8 Walton Ontario Land L.P. 1 Third Quarter Report 2013

9 During the third quarter of 2013, the Partnership generated total revenues of 39,778 ( ,520), total expenses of 233,980 ( ,234), and a net loss and comprehensive loss of 194,202 ( ,714). On a year-to-date basis, the Partnership generated total revenues of 65,343 ( ,702), total expenses 727,453 ( ,902) and a net loss and comprehensive loss of 662,110 ( ,200). The total expenses generated by the Partnership, both during the third quarter of 2013 and on a year-to-date basis, was comparable to the comparative period in the 2012 year. In the third quarter of 2013, the Partnership incurred new revenue with regards to granting Temporary Access to portions of the Ottawa Land, this resulted in an increase in revenue of 28,049 for the three and nine months ended The Partnership s expenses are expected to remain fairly constant throughout the life of the Partnership because the expenses of the Partnership, being the management fees, servicing fees and directors fees, are fixed over the life of their respective contracts. The net loss incurred by the Partnership was consistent with management s expectations because the Partnership is not expected to generate significant revenue, except during periods when property is sold. Overall, the Partnership is performing as expected by management and consistent with the Partnership s intention of holding its interest in the Ottawa Property as an investment. ANALYSIS OF FINANCIAL CONDITION As at 2013, the Partnership had total assets of 17,862,186 (December 31, ,531,875), total liabilities of 74,740 (December 31, ,319) and total partners equity of 17,787,446 (December 31, ,449,556). The major components of the Partnership s total assets were land of 15,043,372 (December 31, ,992,521) and cash of 2,780,822 (December 31, ,398,200). The Partnership is expected to generate positive net income in the year of sale of the Ottawa Property, as it did in October 2012 when the Alliston Property was sold. Both the expenses and land development costs of the Partnership are funded through the cash reserve set aside by the Partnership out of the gross proceeds from the IPO and Private Placement (collectively, the Offerings ) and the retained cash of 308,136 from the sale of the Alliston Property in October The cash on hand as at 2013, is expected by management to be adequate to fund operations over the next 12 months, and anticipated to be sufficient for the Partnership to carry out its investment objectives. LAND The carrying amount of land increased from 14,992,521 at December 31, 2012 to 15,043,372 as at The increase in the carrying value of the land was a result of the capitalized costs associated with the concept planning for the Ottawa Property throughout the first, second and third quarter of This increase in land was offset by the sale of acres to the City of Ottawa. The cost of the acres resulted in a 12,559 decrease land. Proceeds received for the acres were 12,530 which resulted in a 29 loss on disposal. The acres of Ottawa property was sold to the City of Ottawa in order to construct a fourth leg of a 3-leg roundabout. The amount of concept planning costs incurred for both the third quarter of 2013 and on a year-to-date basis was consistent with the Partnership s expectations for those periods. MANAGEMENT FEES Under the terms of the Management Services and Fee Agreement between the Partnership and WIGI, the Partnership is required to pay WIGI an annual management fee for providing ongoing management and administrative services to the Partnership. The amount of the fee is calculated as 2% of 33,294,000, being the net proceeds raised by the Partnership through its IPO and Private Placement, less organizational costs. The management fee is paid quarterly in arrears, for a period of up to five years, commencing on June 10, 2010, which was the date of the final closing of the Private Placement. Third Quarter Report 2013 Walton Ontario Land L.P. 1 9

10 SERVICING FEES Servicing fees are paid in accordance with the Agency Agreements between the Partnership and its agents. Under the terms of the Agency Agreements, the Partnership is required to pay a servicing fee equal to 0.50% annually of the net proceeds raised through the IPO and Private Placement, less organizational costs. The portion of the servicing fee relating to the Partnership s Private Placement is payable to WIGI, which is responsible for the distribution of the servicing fee to the agents. The servicing fee is calculated and paid semi-annually commencing on June 30, 2010, until the earlier of the dissolution of the Partnership and June 30, TRANSACTIONS WITH RELATED PARTIES WIGI and WDM are related to the General Partner of the Partnership by virtue of common management. All transactions entered into between the related parties during the three months ended were under terms and conditions agreed upon between the parties and recorded at exchange amounts. The balances due from these related parties are outlined in the table below. These amounts are unsecured, due on demand, bear no interest and have no fixed terms of repayment. As at 2013 As at December 31, 2012 Walton International Group Inc. - 5,641 Walton Alliston Development L.P. - 9,573-15,214 Included in accounts payable and accrued liabilities are the following amounts which were payable to related parties. These amounts are unsecured, due on demand, bear no interest and have no fixed terms of repayment. As at 2013 As at December 31, 2012 Walton Development and Management (Alberta) LP 3,775 1,996 Walton Ontario Land 1 Corporation ,775 2,211 Walton International Group Inc. In accordance with the terms of the Management Services and Fee Agreement between the Partnership and WIGI, the Partnership incurred management fees during the three months and nine months ended 2013, of 166,470 ( ,470) and 449,410 ( ,410), respectively. In accordance with the Agency Agreements between the Partnership and its agents, the Partnership incurred total servicing fees during the three and nine months ended 2013, of 41,618 (June 30, ,618) and 124,853 ( ,853), respectively. The servicing fees are payable to WIGI, which is responsible for the distribution of the servicing fees to the agents. Under the terms of the Management Services and Fee Agreement, the Partnership is also subject to a performance fee equal to 25% of the priority return of 8% divided by 0.75, plus 25% of the balance remaining after the priority return is calculated on the partner s investment amount from the closing date of the Partnership s unit offering, on contributed capital that has not been paid to the limited partners in respect of all dispositions. 10 Walton Ontario Land L.P. 1 Third Quarter Report 2013

11 Walton Development and Management (Alberta) LP In accordance with the Concept Planning Services Agreement with WIGI and WDM, the fees and costs for services provided by WDM in relation to concept planning are divided into the following two categories: i) the services conducted internally by WDM ( WDM Services ), which will be provided at a rate of 25 per acre per year; and ii) the services, with respect to the Properties, coordinated and managed by WDM ( Managed Services ) where outside consultants are engaged by WDM to undertake work in relation to concept planning. The Partnership will be responsible to pay, from the refundable expense reserve, the fees, expenses and cost of the outside consultants engaged by WDM. In addition, WDM will be entitled to receive a fee in an amount equal to 10% of the fees paid to outside consultants engaged by WDM in relation to such Managed Services. Both the WDM Services fee and Managed Services fee are capitalized as part of land development costs. During the three and nine months ended 2013, the Partnership incurred total services fees of 1,874 ( ,858) and 5,623 ( ,512). This was lower than the service fee in the second quarter and year to date as the fees are based on acres owned. Due to the Alliston sale in the fourth quarter of 2012 there was less acres for which to base the service fees on which explains the decrease in service fees from year to year. This was consistent with management s expectations because the amount of the services fees is based on a fee per acre rate over the life of the Concept Planning Services Agreement. The total services fees incurred during the second quarter of 2013, and on a year-to-date basis were consistent with the terms of the Concept Planning Services Agreement and management s expected use of funds. The total Managed Services fee charged to the Partnership during the three and nine months ended 2013, were 1,766 ( ,380) and 5,230 ( ,620), respectively. These amounts were charged as 10% of the Managed Services of the Properties during the year. The year over year decrease in Managed Services was due to a decrease in the concept planning work performed during the first three quarters of 2013 compared to the first three quarters of Key Management Compensation Key management personnel are comprised of the directors and executive officers of the General Partner. The independent directors are paid a fixed amount of compensation for the life of the Partnership, which is payable quarterly in advance. The amount of compensation expense incurred by the Partnership relating to its independent directors was as follows: Three months ended September 30 Nine months ended September Directors fees () 20,903 20,903 62,710 62,710 All services performed for the Partnership by its executive officers and non-independent director are governed by the Management and Service Fee Agreement. The annual management fee that WIGI receives under the Management and Services Fee Agreement has been disclosed above. Third Quarter Report 2013 Walton Ontario Land L.P. 1 11

12 SUMMARY OF QUARTERLY RESULTS A summary of operating results for the past eight quarters is as follows: September 30, 2013 June 30, 2013 March 31, 2013 Three months ended December 31, 2012 September 30, 2012 June 30, 2012 March 31, 2012 December 31, 2011 Total assets () 17,862,186 18,046,854 18,486,360 18,531,875 31,180,614 31,410,190 31,623,171 31,993,457 Total liabilities () 74,740 65, ,911 82,319 69,859 66,720 53, ,502 Total equity () 17,787,446 17,981,649 18,216,449 18,449,556 31,110,755 31,343,470 31,569,420 31,800,955 Total revenue () 39,778 12,711 12,854 24,045,000 13,520 16,287 16,895 18,253 Total expenses () 233, , ,961 15,225, , , , ,878 Net income / (loss) and comprehensive (194,202) (234,800) (233,107) 8,819,015 (232,714) (225,950) (231,535) (235,625) income / (loss) () Weighted average units outstanding 1,2 1,961,840 1,961,840 1,961,840 1,961,840 1,961,840 1,961,840 1,961,840 1,961,840 Basic and diluted net income / (loss) per unit () Limited partnership units outstanding end of year (0.10) (0.12) (0.12) 4.50 (0.12) (0.12) (0.12) (0.12) 1,961, ,961, ,961, ,961, ,580,000 3,580,000 3,580,000 3,580,000 1 Weighted average units outstanding exclude the general partner unit issued. Based on the terms of the Limited Partnership Agreement, the holder of the general partner unit does not share equally in the income/loss of the Partnership but instead receives 0.001% of the net income/loss. 2 The weighted average units outstanding and net income/(loss) per unit for all periods presented have been restated to reflect the November 15, 2012 unit consolidation, which resulted in a 1,618,160 reduction in the limited partnership units outstanding. 3 Change in limited partnership units outstanding are a result of a unit consolidation on November 15, 2012, immediately following the distribution due to the Alliston sale in Each outstanding unit became approximately of a unit. SUPPLEMENTAL INFORMATION Liquidity and Capital Resources The Partnership is not expected to generate significant net income prior to the sale of the remaining property. As a result, the Partnership has two sources of capital to finance its operations: i) Of the gross proceeds raised under the IPO and the Private Placement, approximately 17.9% (6.4 million) was set aside by the Partnership in a refundable expense reserve. This reserve will be used to fund the annual management fee, the Partnership s ongoing administrative and operating expenses (including, but not limited to, the servicing fee, disclosure costs, accounting, audit and legal expenses, investor communications costs and directors fees), and for any concept planning costs incurred with respect to the Properties over the next five years. Upon the sale of the Alliston Property in 2012, the Partnership retained cash of 308,136 to be maintained in the refundable expense reserve before making a distribution to the partners. The balance of the refundable expense reserve as at 2013, was 2,780,822 (December 31, ,398,200). ii) The Partnership has also entered into a Funding Agreement with WIGI, pursuant to which WIGI, if required, will fund as a loan, to a maximum of 1,790,000, being 5% of the gross proceeds raised by the Partnership 12 Walton Ontario Land L.P. 1 Third Quarter Report 2013

13 in connection with the issuance of units, the ongoing administrative and operational costs of the Partnership, other than the servicing fee. Management regularly reviews the levels of its cash reserves to determine if sufficient cash is available to fund the operating costs, concept planning costs and management expenses that the Partnership expects to incur over the next twelve months. As at 2013, no cash deficiency is anticipated and, as a result, no funds have been advanced under the terms of the Partnership s Funding Agreement. Off-Balance Sheet Arrangements There were no off-balance sheet arrangements as at Financial Instruments The Partnership's financial instruments consist of accounts receivable, due from related parties, cash, and accounts payable and accrued liabilities. Accounts receivable, due from related parties and cash have been classified as loans and receivables, and are carried at amortized cost using the effective interest rate method. Accounts payable and accrued liabilities has been classified as other financial liabilities, and is carried at amortized cost using the effective interest rate method. The fair value of these financial instruments approximates their carrying value due to the shortterm nature of these items. It is management s opinion that the Partnership is not exposed to significant liquidity, credit, interest or currency risk. Outstanding Units As of the date of this MD&A, the Partnership had 1,961,840 limited partnership units outstanding. Commitments The following table presents future commitments of the Partnership under the Agency Agreements, Management Services and Fee Agreement, and the Concept Planning Services Agreement. It does not include the Partnership s commitment relating to the performance fee and disposition fee payable to WIGI in accordance with the Management Services and Fee Agreement, which will be determined at the time land sales are completed. Service fee Management fee WDM Service fee Total , ,470 1, , , ,880 7, , , ,453 7, , ,497 7, ,497 7,497 Thereafter - - 3, , ,380 1,128,803 35,610 1,421, The commitments for the WDM services fee will extend for the length of the project. Third Quarter Report 2013 Walton Ontario Land L.P. 1 13

14 FUTURE CHANGES IN ACCOUNTING POLICY Financial instruments IFRS 9: Financial Instruments ( IFRS 9 ) was issued in November 2009 and addresses classification and measurement of financial assets. It replaces the multiple category and measurement models in International Accounting Standard 39: Financial Instruments Recognition and measurement ( IAS 39 ) for debt instruments with a new mixed measurement model having only two categories: amortized cost and fair value through profit or loss. Requirements for financial liabilities were added to IFRS 9 in October 2010 and they largely carried forward existing requirements in IAS 39, except that fair value changes due to credit risk for liabilities designated at fair value through profit and loss are generally recorded in other comprehensive income. IFRS 9 is effective for annual periods beginning after January 1, 2015, with early adoption permitted. The Partnership will adopt IFRS 9 for the annual year beginning on January 1, The adoption of IFRS 9 will result in a change in the classification of the Partnership s financial assets from amortized cost to fair value through profit or loss, this change is not expected to result in a material change to the carrying amount of these financial assets. IFRS 9 is not expected to result in any changes to the classification or carrying amount the Partnership s financial liabilities. 14 Walton Ontario Land L.P. 1 Third Quarter Report 2013

15 UNAUDITED CONDENSED INTERIM FINANCIAL STATEMENTS Walton Ontario Land L.P.1 For the three and nine months ended 2013 and 2012 (Expressed in Canadian dollars) NOTICE OF NO AUDITOR REVIEW OF INTERIM FINANCIAL STATEMENTS Section 4.3(3) of National Instrument , Continuous Disclosure Obligations, provides that if an auditor has not performed a review of the interim financial statements, the interim financial statements must be accompanied by a notice indicating that the interim financial statements have not been reviewed by an auditor. The Partnership s external auditors have not performed a review of these interim financial statements of Walton Ontario Land L.P.1 Third Quarter Report 2013 Walton Ontario Land L.P. 1 15

16 WALTON ONTARIO LAND L.P.1 Statements of Financial Position Unaudited As at 2013 and December 31, 2012 (Expressed in Canadian Dollars) 2013 December 31, 2012 ASSETS Land (note 4) 15,043,372 14,992,521 Prepaid expenses 24, GST recoverable 8, ,271 Accounts receivable 5,352 3,336 Due from related parties (note 5) - 15,214 Cash (note 6) 2,780,822 3,398,200 TOTAL ASSETS 17,862,186 18,531,875 LIABILITIES Accounts payable and accrued liabilities (note 7) 69,057 82,319 Deferred revenue (note 8) 5,683 - TOTAL LIABILITIES 74,740 82,319 PARTNERS EQUITY 17,787,446 18,449,556 TOTAL LIABILITIES AND EQUITY 17,862,186 18,531,875 The accompanying notes to the interim financial statements are an integral part of these statements. 16 Walton Ontario Land L.P. 1 Third Quarter Report 2013

17 WALTON ONTARIO LAND L.P. 1 Statements of Comprehensive Loss Unaudited For the three and nine months ended 2013 and 2012 (Expressed in Canadian Dollars) REVENUE Three months ended Nine months ended Interest income 8,479 10,520 27,544 35,100 Other revenue (note 4) 31,299 3,000 37,799 11,602 39,778 13,520 65,343 46,702 EXPENSES Management fees (note 5) 166, , , ,410 Servicing fees (note 10) 41,618 41, , ,853 Directors fees (note 5) 20,903 20,903 62,710 62,710 Office and other 1,771 12,455 22,452 34,082 Professional fees 3,189 4,788 17,999 15,847 Loss on land disposal (note 4) , , , ,902 NET LOSS AND COMPREHENSIVE LOSS (194,202) (232,714) (662,110) (690,200) Basic and diluted loss per unit (note 9) (0.10) (0.12) (0.34) (0.35) The accompanying notes to the interim financial statements are an integral part of these statements. Third Quarter Report 2013 Walton Ontario Land L.P. 1 17

18 WALTON ONTARIO LAND L.P. 1 Statements of Changes in Partner s Equity Unaudited For the three and nine months ended 2013 and 2012 (Expressed in Canadian Dollars) Limited Partnership Units General Partnership Unit Accumulated Deficit Total (note 9) (note 9) # of Units # of Units DECEMBER 31, ,580,000 33,831, (2,030,095) 31,800,955 Net loss and comprehensive loss for the period (690,200) (690,200) SEPTEMBER 30, ,580,000 33,831, (2,720,295) 31,110,755 Net income and comprehensive income for the period ,819,016 8,819,016 General partner distribution (215) (215) Limited partnership distribution (21,480,000) (21,480,000) Unit consolidation (note 9) (1,618,160) DECEMBER 31, ,961,840 33,831, (15,381,494) 18,449,556 Net loss and comprehensive loss for the period (662,110) (662,110) SEPTEMBER 30, ,961,840 33,831, (16,043,604) 17,787,446 The accompanying notes to the interim financial statements are an integral part of these statements. 18 Walton Ontario Land L.P. 1 Third Quarter Report 2013

19 WALTON ONTARIO LAND L.P. 1 Statements of Cash Flows Unaudited For the three and nine months ended 2013 and 2012 (Expressed in Canadian Dollars) Three months ended Nine months ended CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES Net loss for the period (194,202) (232,714) (662,110) (690,200) Changes in non-cash working capital items Decrease in land 12,559-12,559 - Increase in prepaid expenses (23,686) 5,321 (23,686) (5,698) Increase in GST recoverable 9,392 (8,894) 113,650 (9,113) (Increase)/decrease in accounts receivable 547 1,574 (2,016) (2,729) (Increase)/decrease in due from related parties - (2,733) 15,214 3,062 Increase/(decrease)in accounts payable and accrued liabilities 3,852 3,139 (15,257) (44,185) Increase in deferred revenue 5,683-5,683 - (185,855) (234,307) (555,963) (748,863) INVESTING ACTIVITIES Land improvements* (21,555) (205,038) (61,415) (423,795) Decrease in cash (207,410) (439,345) (617,378) (1,172,658) Cash Beginning of period 2,988,232 3,889,152 3,398,200 4,622,465 Cash End of period 2,780,822 3,499,807 2,780,822 3,449,807 SUPPLEMENTAL CASH FLOW INFORMATION Cash interest received 5,876 11,594 28,278 35,100 *Included in investing activities are 1,995 in land improvements, which were included in the balance of accounts payable and accrued liabilities as of 2012 The accompanying notes to the interim financial statements are an integral part of these statements. Third Quarter Report 2013 Walton Ontario Land L.P. 1 19

20 WALTON ONTARIO LAND L.P. 1 Notes to Financial Statements Unaudited For the three and nine months ended 2013 and 2012 (Expressed in Canadian Dollars) 1. NATURE OF BUSINESS Walton Ontario Land L.P. 1 (the "Partnership") was formed on October 2, 2009, when the certificate of limited partnership was filed under the Partnership Act (Alberta). The Limited Partnership Agreement was entered into between Walton Ontario Land 1 Corporation (the General Partner ) and the initial limited partner. The Partnership was formed for the purpose of purchasing an interest in properties comprised of approximately 155 acres of undeveloped land in Alliston, Ontario (the Alliston Property ) and approximately 300 acres of undeveloped land (the Ottawa Property ) located in the southwest quadrant of Ottawa, Ontario (collectively, the "Properties"), holding that interest as an investment, and eventually selling or otherwise disposing of that interest with a view to making a profit, and performing such other activities as may be incidental to, or arising from, the foregoing purposes as may be reasonably determined by the General Partner, including, without limitation, participating in "concept planning" with respect to the Properties. On October 12, 2012, the Alliston Property was sold. The Partnership owns 100% of the Ottawa Property as an investment and plans to eventually dispose of it prior to physical development. Should the partners of the Partnership determine that it would be appropriate for the Partnership to participate in the development of the Ottawa Property (other than pre-development concept planning), the activities of the Partnership may also include the partial or full development of the Ottawa Property prior to the sale thereof. The net proceeds from the disposition of the Ottawa Property, after satisfaction of liabilities and payment of, or provision for, all fees and expenses, including any amounts that the General Partner reasonably considers necessary to retain in order to replenish the refundable expense reserve, will be distributed by the Partnership. Included in such fees and expenses is a performance fee payable (see note 5) to Walton International Group Inc. ( WIGI ), provided that the limited partners receive distributions equal to an amount equal to their purchase price allocation, plus an amount equal to an 8% annual cumulative return on contributed capital that has not been paid to the limited partners in respect of previous distributions. The address of the registered office is 23rd Floor, 605 5th Avenue SW, Calgary, Alberta, T2P 3H5. These financial statements were authorized for issue by the Board of Directors on November 20, The Board of Directors have the power to amend and reissue the financial statements. 2. BASIS OF PREPARATION These interim condensed financial statements including comparatives have been prepared in accordance with IAS 34: Interim Financial Reporting and using accounting policies that are in full compliance with IFRS as issued by the International Accounting Standards Board. They do not include all of the information required for full annual financial statements and should be read in conjunction with the Partnership s audited annual financial statements for the year ended December 31, Walton Ontario Land L.P. 1 Third Quarter Report 2013

21 WALTON ONTARIO LAND L.P. 1 Notes to Financial Statements Unaudited For the three and nine months ended 2013 and 2012 (Expressed in Canadian Dollars) The Partnership s interim condensed financial statements have been prepared on the historical cost basis except for certain financial instruments which are initially measured at fair value. 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 (note 4), all assets and liabilities are current in nature and are, expected to be settled in less than twelve months. 3. ACCOUNTING POLICIES 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, the disclosure of contingencies at the date of the financial statements, and the reported amounts of revenue and expenses during the period. The accounting policies used in the preparation of these financial statements are consistent with those which were disclosed in the Partnership s audited financial statements for the year ended December 31, 2012, except for the changes noted below. Fair value measurement The Partnership adopted IFRS 13: Fair Value Measurement ( IFRS 13 ) for the annual year beginning on January 1, IFRS 13 is a comprehensive standard for fair value measurement and disclosure for use across all IFRS standards. The new standard clarifies that fair value is the price that would be received upon sale of an asset, or paid to transfer a liability in an orderly transaction between market participants, at the measurement date. The standard also requires an increase in the disclosure around valuation methods and inputs used in measuring fair value in the notes financial statements. Since the Partnership does not carry any assets, liabilities or equity at fair value in the statements of financial position, the adoption of IFRS 13 has only resulted in an increase in the disclosure around the fair value disclosure in note 4 of these financial statements. Offsetting Financial Assets and Liabilities IAS 32 Financial Instruments - Presentation ( IAS 32 ) was issued with amendments in December The amendments clarify certain aspects of the existing guidance on offsetting financial assets and financial liabilities. The IASB also amended IFRS 7 Financial Instruments - Disclosure ( IFRS 7 ) to require information about all recognized financial instruments that are set off in accordance with IAS 32. The amendments also require disclosure of information about recognized financial instruments subject to enforceable master netting arrangements and similar agreements even if they are not set off under IAS 32. Third Quarter Report 2013 Walton Ontario Land L.P. 1 21

22 WALTON ONTARIO LAND L.P. 1 Notes to Financial Statements Unaudited For the three and nine months ended 2013 and 2012 (Expressed in Canadian Dollars) The amendments to IAS 32 are effective for annual periods beginning on or after January 1, However, the new offsetting disclosure requirements are effective for annual periods beginning on or after January 1, 2013, and interim periods within those annual periods. The Partnership has adopted the offsetting disclosure requirements for the period beginning January 1, The Partnership has assessed that there is no impact of the adoption on the financial statements currently or retrospectively. 4. LAND Land represents the Partnership s original 100% ownership of the Properties which were acquired on June 15, 2010, plus any costs necessary to bring the Properties to the condition intended by the Partnership. The land is reduced by the costs associated with the acres of Alliston Property which was sold on October 12, 2012 and the acres of Ottawa Property which was sold on July 18, The acres of Ottawa property was sold to the City of Ottawa in order to construct a fourth leg of a 3-leg roundabout. The cost of the acres was 12,559 and the total proceeds were 12,530, resulting in a 29 loss on disposal. The remaining amount in land represents the acres of Ottawa Property and the land improvement costs associated with it. The carrying amount of land is comprised of the following: 2013 December 31, 2012 BALANCE BEGINNING OF YEAR 14,992,521 27,350,246 Land improvements 63, ,953 Land costs Alliston Property - (12,157,527) Land improvement costs Alliston Property - (592,151) Land costs Ottawa Property (12,303) - Land improvement costs Ottawa Property (256) - BALANCE END OF YEAR 15,043,372 14,992,521 The fair value of the remaining Ottawa Property as at 2013, was estimated to be approximately 43,695,749 (December 31, ,669,240). The fair value was determined using a discounted expected cash flow model, which incorporated estimates and assumptions regarding the fair value of the property assuming full entitlement, the anticipated exit date, cost of capital, inflation and the remaining concept planning costs for the property. In determining the fair value of the Ottawa Property, the Partnership used the estimated fair value of the property assuming full entitlement as a starting point. The estimated fair value at the time of disposal was then determined by inflating the fair value of the property assuming full entitlement by the average inflation rate to arrive at the fair value of the property at the time of disposal. This number was then discounted back to the reporting date using a risk adjusted discount rate for the asset over a probability weighted exit date for the property. 22 Walton Ontario Land L.P. 1 Third Quarter Report 2013

23 WALTON ONTARIO LAND L.P. 1 Notes to Financial Statements Unaudited For the three and nine months ended 2013 and 2012 (Expressed in Canadian Dollars) Management assesses on a quarterly basis, whether there were any material events, or recent land sales in close proximity to the Ottawa Property to determine what adjustments, if any, are required to the fair value of the Ottawa Property assuming full entitlement. Management has changed the estimated fair value of the property assuming full entitlement (level 3 unobservable input) based on their quarterly assessment. The assumptions used in estimating the fair value are detailed in the following table below: 2013 December 31, 2012 Weighted average exit date - Ottawa Property (level 3 unobservable input) 2.55 years 1.50 years Weighted average cost of capital - Ottawa Property (level 2 other than quoted input) 15% 15% Weighted average inflation rate (level 2 other than quoted input) 2% 2% Assumptions underlying these estimates are limited by the availability of reliable comparable data and the uncertainty of predictions concerning future events. By nature, these estimates are subjective and do not necessarily result in precise determinations. With the exception of the appraised value, these assumptions and estimates were not evaluated by an independent valuator. Should the underlying assumptions change, the estimated proceeds from the ultimate sale may change by a material amount and may result in a write-down of the carrying amount of the land. During the third quarter, management completed a review of the project timeline and the probable date of exit of the Ottawa Property. Compared to the estimates used at December 31, 2012, the new estimates resulted in the weighted average of the exit date of the Ottawa Property to increase by 1.8 years and the disclosed fair value of the Ottawa Property to decrease by approximately 10.7 million as at As at 2013, the fair value of land exceeded its carrying value, and, as a result, an impairment has not been recognized in the carrying value of the land. The total rental income earned by the Partnership on the Ottawa Property during the three months ended 2013, was 3,250 ( ,000). For the nine months ended 2013, 9,750 ( ,750) of rental income was earned from the Ottawa Property. On May 1, 2013, the Partnership entered into an agreement to allow temporary access to a portion of the Ottawa Property. During the three months ended 2013, 28,049 ( nil) of revenue was earned from the temporary access granted by the Partnership. Third Quarter Report 2013 Walton Ontario Land L.P. 1 23

24 WALTON ONTARIO LAND L.P. 1 Notes to Financial Statements Unaudited For the three and nine months ended 2013 and 2012 (Expressed in Canadian Dollars) 5. RELATED PARTY TRANSACTIONS WIGI, Walton Development and Management (Alberta) LP (formerly "Walton Development and Management L.P. ) ( WDM ), Walton Alliston Development L.P., and Walton Ontario Land 1 Corporation are related to the Partnership by virtue of common management. All transactions entered into between the related parties during the year were under terms and conditions agreed upon between the parties and recorded at exchange amounts. The balances due from these related parties as at the date of these financial statements are outlined in the table below. These amounts are unsecured, due on demand, bear no interest and have no fixed terms of repayment December 31, 2012 Walton International Group Inc. - 5,641 Walton Alliston Development L.P. - 9,573-15,214 Included in accounts payable and accrued liabilities are the following amounts which were payable to related parties. These amounts are unsecured, due on demand, bear no interest and have no fixed terms of repayment December 31, 2012 Walton Development and Management (Alberta) LP 3,775 1,996 Walton Ontario Land 1 Corporation ,775 2,211 Walton International Group Inc. In accordance with the Management Services and Fee Agreement between the Partnership and WIGI, the Partnership is required to pay WIGI: 24 Walton Ontario Land L.P. 1 Third Quarter Report 2013

25 WALTON ONTARIO LAND L.P. 1 Notes to Financial Statements Unaudited For the three and nine months ended 2013 and 2012 (Expressed in Canadian Dollars) i) An annual management fee for providing ongoing management and administrative services to the Partnership. The amount of the fee is calculated as 2% of 33,294,000, being the net proceeds raised by the Partnership, less organizational costs, and is paid quarterly in arrears, commencing on the date of the final closing of the Partnership s Private Placement for a period of five years. The total management fee incurred by the Partnership during the three months ended 2013, was 166,470 ( ,470). The total management fee incurred by the Partnership during the nine months ended 2013, was 499,410 ( ,410). ii) A performance fee equal to 25% of the priority return of 8% divided by 0.75, plus 25% of the balance remaining after the priority return and the above portion of the performance fee. The priority return is calculated on the partners investment amount from the closing date of the Partnership s unit offering, on contributed capital that has not been paid to the limited partners in respect of all dispositions. No performance fee was incurred during the three or nine months ended 2013, or September 30, 2012, because no distributions were declared by the Partnership during either of those periods. iii) A disposition fee equal to 1.5% of the gross proceeds received by the Partnership when the Partnership sells all or any part of its interest in the Properties. No disposition fee was incurred during the three or nine months ended 2013, or 2012, because there were no sales of interests in the Properties during either of those periods. Walton Development and Management (Alberta) LP In accordance with the Concept Planning Services Agreement between the Partnership, WIGI and WDM, the fees and costs for services provided in relation to concept planning on the Properties are divided into the following two categories: i) the services conducted internally by WDM ( Services Fees ), which will be provided at a rate of 25 per acre per year; and ii) the services, with respect to the Properties, coordinated and managed by WDM ( Managed Services ) where outside consultants are engaged by WDM to undertake work in relation to concept planning. The Partnership will be responsible to pay from the Refundable Expense Reserve the fees, expenses and cost of the outside consultants engaged by WDM. In addition, WDM will be entitled to receive a fee in an amount equal to 10% of the fees of the outside consultants engaged by WDM in relation to such Managed Services. Third Quarter Report 2013 Walton Ontario Land L.P. 1 25

26 WALTON ONTARIO LAND L.P. 1 Notes to Financial Statements Unaudited For the three and nine months ended 2013 and 2012 (Expressed in Canadian Dollars) During the three months ended 2013, 1,874 ( ,858) was charged by WDM for Services Fees. During the nine months ended 2013, 5,623 ( ,512) was charged by WDM for Services Fees. These amounts have been capitalized as part of land improvements (note 4). During the three months ended 2013, 1,766 ( ,380) was charged by WDM for Managed Services of the Ottawa Property. During the nine months ended 2013, 5,230 ( ,620) was charged by WDM for Managed Services of the Properties. These amounts were calculated as 10% of the Managed Services of the Ottawa Property during the period, and have been capitalized as part of land improvement (note 4). Walton Alliston Development L.P. As at 2013, a receivable of nil (December 31, ,573) from Walton Alliston Development L.P. was outstanding relating to expenditure adjustments as a result of the sale of the Alliston Property. Key Management Compensation Key management personnel are comprised of the Partnership s directors and executive officers. Total compensation expense for the independent directors during the period was as follows: For the three months ended For the nine months ended Directors fees 20,903 20,903 62,710 62,710 All services performed for the Partnership by its executive officers and its non-independent director are governed by the Management and Services Fee Agreement. The annual management fee that WIGI receives under the Management and Services Fee Agreement has been disclosed above. 6. REFUNDABLE EXPENSE RESERVE The operations of the Partnership are funded by the refundable expense reserve of 6,408,165 that was initially set aside out of the net proceeds from the IPO and Private Placement (note 12). The refundable expense reserve, which is presented as cash in the statements of financial position, will be used to pay the annual management fee, the Partnership s ongoing administrative and operating expenses (including the servicing fee, disclosure costs, accounting, audit and legal expenses, investor communication costs and directors fees), and for any concept 26 Walton Ontario Land L.P. 1 Third Quarter Report 2013

27 WALTON ONTARIO LAND L.P. 1 Notes to Financial Statements Unaudited For the three and nine months ended 2013 and 2012 (Expressed in Canadian Dollars) planning expenses incurred with respect to the Properties. Any funds set aside for the refundable expense reserve which have not been used by the time the Partnership is terminated and dissolved will be included in the amounts distributed to the limited partners. Included in the table below is a reconciliation of the movement in the refundable expense reserve on a cash basis. This differs from the statements of cash flow, which has been prepared on an accrual basis, using the indirect method December 31, 2012 REFUNDABLE EXPENSE RESERVE BEGINNING OF PERIOD 3,398,200 4,622,465 Add income received (cash basis): GST recovered 113,650 - Other revenue 40,732 13,000 Interest 28,278 66,978 Land sales 12,530 - Retained cash - 308,136 Property tax recovery - 2, , ,120 Less expenses paid (cash basis): Servicing fees 131, ,197 Directors fees 83,613 83,613 Land improvements 52, ,987 Property taxes 10,922 19,794 Office and other expense 19,690 32,726 Professional fees 15,190 20,569 Management fees 499, ,880 GST - 112, ,568 1,614,385 REFUNDABLE EXPENSE RESERVE END OF PERIOD 2,780,822 3,398,200 Third Quarter Report 2013 Walton Ontario Land L.P. 1 27

28 WALTON ONTARIO LAND L.P. 1 Notes to Financial Statements Unaudited For the three and nine months ended 2013 and 2012 (Expressed in Canadian Dollars) 7. FINANCIAL INSTRUMENTS The Partnership s financial instruments consist of cash, accounts receivable, due from related parties, and accounts payable and accrued liabilities. The fair value of these financial instruments approximate their carrying value due to the short-term nature of these items. a) Risk overview The Partnership s financial instruments and the nature of the risks to which they may be subject are as set out in the following table. RISK CREDIT LIQUIDITY INTEREST RATE CURRENCY Accounts receivable X Due from related parties X Cash X X Accounts payable and accrued liabilities X a) Credit risk Credit risk is the risk that one party to a financial instrument will cause a financial loss for the other party by failing to discharge an obligation. Credit risk arises from accounts receivable, balances due from related parties and cash held with banks and financial institutions. While the maximum exposure to credit risk is equal to the carrying value of these financial instruments, management believes the Partnership s exposure to credit risk is minimal for the following reasons: Accounts receivable - The balance of accounts receivable outstanding is not material and is settled in accordance with the terms of contract. The balance of accounts receivable as at 2013 and December 31, 2012 were outstanding less than 90 days and considered collectible by the Partnership. Exposure to credit risk relating to these receivables is not significant. 28 Walton Ontario Land L.P. 1 Third Quarter Report 2013

29 WALTON ONTARIO LAND L.P. 1 Notes to Financial Statements Unaudited For the three and nine months ended 2013 and 2012 (Expressed in Canadian Dollars) Due from related parties - The amounts due from related parties is not material and have no fixed terms of repayment. Exposure to credit risk relating to this receivable is considered to have a minimal impact, if any, on the Partnership. Cash - Cash is on deposit with a major financial institution, which substantially minimizes its exposure to credit risk. b) Liquidity risk Liquidity risk arises from the possibility that the Partnership will encounter difficulties in meeting its financial obligations as they become due. The Partnership manages its liquidity risk by maintaining significant bank balances, continuously monitoring the level of its cash reserves and by managing cash receipts and payments. The liabilities which expose the Partnership to liquidity risk are a result of the normal operations of the Partnership and are current in nature. Management considers exposure to such liquidity risk to be minimal because the balances owing, as well as any obligations relating to such future commitments, will be funded by the refundable expense reserve set aside by the Partnership, as disclosed in note 6. Maturity Analysis of liabilities - As at 2013 Less than 90 days Between 91 days and 1 year Greater than 1 year Accounts payable and accrued liabilities () 46,849 22,208 - Maturity Analysis of liabilities As at December 31, 2012 Less than 90 days Between 91 days and 1 year Greater than 1 year Accounts payable and accrued liabilities () 52,049 30,270 - Third Quarter Report 2013 Walton Ontario Land L.P. 1 29

30 WALTON ONTARIO LAND L.P. 1 Notes to Financial Statements Unaudited For the three and nine months ended 2013 and 2012 (Expressed in Canadian Dollars) c) Interest rate risk Interest rate risk is the risk that the fair value or future cash flows of financial instruments will fluctuate because of changes in market interest rates. The financial instruments of the Partnership which give rise to interest rate risk are as follows: Cash - Changes in market interest rates will cause fluctuations in the future interest earned on cash balances. Any resulting impact on the Partnership s financial results would not be considered material. d) Currency risk The Partnership does not engage in foreign currency denominated transactions. As a result, it has no exposure to currency risk. 8. DEFERRED REVENUE Deferred revenue consists of amounts collected but not earned for amounts charged to grant temporary access to Properties. As of 2013, deferred revenue is 5,683 (September 31, nil). 9. PARTNERS CAPITAL Authorized 1 general partner unit 1 initial limited partnership unit Unlimited number of ordinary limited partnership units 2013 December 31, 2012 Number of units Amount Number of units Amount General partner unit Limited partnership units 1,961,840 35,800,000 3,580,000 35,800,000 Issuance costs - (1,969,000) - (1,969,000) Units consolidation - - (1,618,160) - 1,961,841 33,831,050 1,961,841 33,831, Walton Ontario Land L.P. 1 Third Quarter Report 2013

31 WALTON ONTARIO LAND L.P. 1 Notes to Financial Statements Unaudited For the three and nine months ended 2013 and 2012 (Expressed in Canadian Dollars) Per Unit Amount Basic and diluted net loss per unit is calculated by dividing the Partnership s net loss by the weighted average number of limited partnership units outstanding during the period. The weighted average number of limited partnership units outstanding for the three months ended 2013, and 2012, were adjusted to reflect the unit consolidation on November 15, The weighted average number of limited partnership units outstanding during the three months ended 2013, was 1,961,840 ( ,961,840). The weighted average number of limited partnership units outstanding excludes the general partner unit issued. Based on the terms of the Limited Partnership Agreement, the holder of the general partner unit does not share equally in the income/loss of the Partnership but instead receives 0.001% of the net income/loss. The Partnership does not issue debt or equity instruments which could result in the issuance of additional Partnership units. As a result, the weighted average units outstanding are equal to the weighted average diluted units outstanding. General Partner Walton Ontario Land 1 Corporation was incorporated on October 1, 2009, under the laws of the Province of Alberta to act as the General Partner and manage the affairs of the Partnership, and is an indirect subsidiary of WIGI. Walton Ontario Land 1 Corporation s ultimate controlling owner through WIGI is Walton Global Investments Ltd. Unit Issuance Price The Limited Partner units outstanding for the Partnership were issued at a price of 10/unit. The General Partner unit issued and outstanding for the Partnership was issued at a price of 50/unit. 10. SERVICING FEES The Partnership has entered into Agency Agreements with various agents, whereby the Partnership will pay the agents, a servicing fee equal to 0.50% annually of the net proceeds raised under the Initial Public Offering and Private Placement, less organizational costs. The portion of the servicing fee relating to the Partnership s Private Placement is payable to WIGI, which is responsible for the distribution of the servicing fee to the agents in accordance with the Management Services and Fee Agreement. The servicing fee is calculated and paid semiannually out of the Refundable Expense Reserve commencing on June 30, 2010, until the earlier of the dissolution of the Partnership and June 30, The amount of the servicing fee incurred by the Partnership during the three and nine months ended on 2013, and 2012, respectively, was as follows: Third Quarter Report 2013 Walton Ontario Land L.P. 1 31

32 WALTON ONTARIO LAND L.P. 1 Notes to Financial Statements Unaudited For the three and nine months ended 2013 and 2012 (Expressed in Canadian Dollars) For the three months ended For the nine months ended Servicing fees 41,618 41, , , COMMITMENTS The following table presents future commitments of the Partnership under the Agency Agreements (note 10), Management Services and Fee Agreement (note 5), and the Concept Planning Services Agreement (note 5). It does not include any potential performance fee or disposition fee under the Management Services and Fee Agreement. The amount of any performance fee payable by the Partnership is determined at the time when distributions occur. The amount of the disposition fee is determined at the time land sales are completed. Servicing fee Management fee WDM Services Total , ,470 1, , , ,880 7, , , ,453 7, , ,497 7, ,497 7,497 Thereafter - - 3, , ,380 1,128,803 35,610 1,421, Commitments for WDM Services will extend for the length of the project. 32 Walton Ontario Land L.P. 1 Third Quarter Report 2013

33 WALTON ONTARIO LAND L.P. 1 Notes to Financial Statements Unaudited For the three and nine months ended 2013 and 2012 (Expressed in Canadian Dollars) 12. CAPITAL MANAGEMENT The Partnership has the following sources of capital to finance its operations: i) Of the gross proceeds raised under the IPO and the Private Placement, approximately 17.9% (6.4 million) was set aside by the Partnership in a refundable expense reserve. This reserve will be used to fund the annual management fee, the Partnership s ongoing administrative and operating expenses (including the servicing fee, disclosure costs, accounting, audit and legal expenses, investor communications costs and directors fees), and for any concept planning costs incurred with respect to the Properties over the next five years. Upon the sale of the Alliston Property in 2012, the Partnership retained cash of 308,136 to be maintained in the refundable expense reserve before making a distribution to the partners. The balance of the refundable expense reserve at 2013, was 2,780,822 (December 31, ,398,200). ii) The Partnership has also entered into a Funding Agreement with WIGI, pursuant to which WIGI will fund as a loan, to a maximum of 1,790,000, (being 5% of the gross proceeds raised by the Partnership in connection with the issuance of units), the ongoing administrative and operational costs of the Partnership, other than the servicing fee. This loan shall bear interest at an annual interest rate equal to Prime. Management regularly reviews the levels of its cash reserves to determine if sufficient cash is available to fund the operating costs, concept planning costs, and management expenses that the Partnership expects to incur over the next twelve months. As at 2013, no funds have been advanced under the terms of the Partnership s Funding Agreement. 13. COMPARATIVE FIGURES Certain comparative figures have been reclassified to conform to the current period s presentation adopted. Third Quarter Report 2013 Walton Ontario Land L.P. 1 33

34 Notes 34 Walton Ontario Land L.P. 1 Third Quarter Report 2013

35 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. With more than 79,000 acres of land under administration and management, Walton is one of North America s premier land asset administrators and managers. Since 1979, Walton has returned 1.5 billion in client distributions.* Walton has been in business for over 30 years. We take a long-term approach to land planning and development. Our 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. Our communities are comprehensively designed in collaboration with local residents for the benefit of all community stakeholders. Our goal is to build communities that will stand the test of time: hometowns for present and future generations Members of the Walton Group of Companies include: Walton Ontario Land 1 Corporation is the General Partner of the Walton Ontario Land L.P. 1. Walton International Group is the manager of Walton Ontario Land L.P. 1. Walton Development and Management is the project manager for Walton Ontario Land L.P. 1. Walton Capital Management is a registered exempt market securities dealer which distributed limited partnership units for Walton Ontario Land L.P. 1. Walton Asset Management is the Walton Group entity responsible for capital sourcing for real estate investments. Walton Global Investments is the parent company of the Walton Group of Companies. *As of 2013, the amount returned is unaudited and consists of: a. Exit proceeds on sales of pre-development land b. Distributions, interest and principal repayment on development projects c. Interest and principal repayment on corporate bonds Third Quarter Report 2013 Walton Ontario Land L.P. 1 35

36 Global Head Office Calgary 23 rd Floor, th Avenue SW Calgary, Alberta Canada T2P 3H5 Main: Fax: Toronto Suite 100, 20 Carlson Court Toronto, Ontario Canada M9W 7K6 Main: Fax: Auditor PricewaterhouseCoopers LLP Suite 3100, th Avenue SW Calgary, Alberta Canada T2P 5L3 Main: Fax: Walton Investor Services 23 rd Floor, th Avenue SW Calgary, Alberta Canada T2P 3H5 Main: Fax: To learn more about Walton contact your advisor or visit Walton.com W_WOLLP1_Q3_2013_CMYK_131128