WALTON BIG LAKE DEVELOPMENT L.P. ANNUAL REPORT 2013 For the years ended December 31, 2013 and December 31, 2012

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1 WALTON BIG LAKE DEVELOPMENT L.P. ANNUAL REPORT 2013 For the years ended December 31, 2013 and December 31, 2012

2 TABLE OF CONTENTS CEO MESSAGE TO UNITHOLDERS MANAGEMENT S DISCUSSION AND ANALYSIS FINANCIAL STATEMENTS WALTON GROUP OF COMPANIES BOARD OF DIRECTORS Edmonton

3 CEO MESSAGE TO UNITHOLDERS Included in this report are the 2013 fiscal results for Walton Big Lake Development L.P. (the Partnership ). Launched in 2010, the Partnership owns a acre residential project in northwest Edmonton, Alberta. The project is being developed in three phases and marketed under the name Hawk s Ridge at Big Lake. We continue to be excited about the opportunity to create a unique community in harmony with nature. In 2013, the Partnership received closing proceeds from home builders for 107 lots and secured commitments, including deposits, for the remaining 55 lots in Phase 1. With continued demand as we move into Phase 2A, we expect that an additional 155 lots will be released to home builders this spring. As further evidence of the growing interest in Edmonton s residential market, 15 single-family third-party sales from January 1 to April 13, 2014 were reported by the home builders, bringing the total number of single-family third-party sales to 69 since the project s inception. We encourage you to learn more about the Hawk s Ridge community by visiting its website at HIGHLIGHTS FOR 2013 In a lot draw held on July 4, 2013, the builders committed to the remaining 55 lots in Phase 1; Expressions of interest were received from builders for lot inventory in Phase 2; Rezoning approval from the City of Edmonton for Phase 2 was received on August 26, 2013; Subdivision approval from the City of Edmonton for Phase 2 was received on December 19, 2013; and Construction commenced on 215 th Street and the first segment of the roadway was completed. Construction of the remainder of the roadway will commence subject to weather in 2014 and is anticipated to be complete by the end of the year. Construction on Phase 2 commenced in the fourth quarter of Site work and the installation of underground utilities are anticipated to begin in the second quarter of Construction begins on the first segment of 215 th Street Paving begins on the first segment of 215 th Street Completed paving of the first segment of 215 th Street Annual Report 2013 Walton Big Lake Development L.P. 3

4 HIGHLIGHTS FOR 2013 CONTINUED As a result of previously reported delays in Phase 1, management has implemented a number of strategies to reduce costs, increase revenues and accelerate lot absorptions by introducing new types of lots to diversify product types and create opportunities for additional builders to participate. Other strategies include establishing a pooled lot inventory for the builders and executing a marketing campaign with increased signage and advertising focusing on the community s natural amenities, including a wildlife corridor, a centrally located wetlands, and proximity to Lois Hole Provincial Park. We are participating with other developers in a joint marketing campaign to promote the neighbourhoods of Big Lake to increase sales traffic. Overall, the timing and amount of cash flows is not consistent with the timing and amount of cash flows originally anticipated by management. Specifically for fiscal 2013, proceeds from the first release of lots that closed in August 2013 were used to pay back the construction loan for Phase 1. Proceeds from the lot draw held July 4, 2013, for the second release of lots, are not scheduled to be received until the lots close in 2014.This timing caused management to conclude that the Partnership was not able to make a distribution in 2013 to investors. Notwithstanding current efforts, the overall time frame for completing the project has increased from five years to six years and the current projected internal rate of return is expected to be revised downward, compared to the investment objectives as set out in the prospectus. Management will report to investors no later than the release of the financial results for Q2 2014, on the extent of the anticipated downward revision of the projected internal rate of return once the following occurs: Greater cost certainty is obtained for servicing Phase 2 and construction of offsite infrastructure, including the sanitary lift station and 215 th Street bridge; Builder commitments are received for the first release of lots in Phase 2; and The impact of previously implemented marketing strategies on third-party sales is quantified. The key milestones anticipated for Phase 2 of the project during 2014 are shown below: MILESTONE DATE Builder commitment for the first release of lots in Phase 2 (Phase 2A) May 2014 Registration of subdivision (including availability of building permits) September 2014 Completion of roadway paving for first release of Phase 2 (Phase 2A) October 2014 Completion of 215th Street* November 2014 *Includes construction of a bridge which will be the last item completed. The roadway should be completed during the summer of Walton Big Lake Development L.P. Annual Report 2013

5 MARKET ENVIRONMENT Alberta s economy continues to benefit from an energy sector that has experienced significant recovery and growth during the past three years, and which continues to gain momentum. The total value of major Alberta construction projects including proposed, announced, under construction, nearing completion, completed (within the last 30 days), and on hold projects had reached $219.9 billion, as of March 31, Anchored by investment in the oil sands and a very strong labour market, Alberta s real gross domestic product is forecast to expand by 3.4% in Edmonton is uniquely situated to capitalize on the significant investment in Alberta s oil sands due to its proximity to the oil sands and the industrial projects being built in Alberta s Industrial Heartland ( AIH ). AIH is a land use planning and development initiative initiated by local governments in the Edmonton Capital Region to attract investment in the chemical, petrochemical, and oil and gas industries to the area. During the fourth quarter of 2013, employment in the Edmonton Census Metropolitan Area ( CMA ) averaged 730,100 jobs, an increase of 4% over the same period in On an annual average basis, employment rose 3.6% year-over-year, resulting in the creation of 25,000 jobs. 3 All of these job gains were in full-time positions, as part-time employment declined. Full-time employment increased 5.6% in 2013, while part-time employment fell 6.4%. 3 Job gains realized in 2013 will continue to support housing demand in Employment growth and wage increases continued to draw people into Alberta during the third quarter of Net migration into the province reached 26,705 in the third quarter of 2013, a 4% increase over the corresponding period in Net international migration, including non-permanent residents increased 39% year-over-year to 16, Walton believes that continued job growth and gains in net migration will support housing construction thus driving housing starts in Edmonton during The total number of single-family building permits issued in northwest Edmonton during 2013 was 940 as compared to 563 in Northwest Edmonton accounted for 22.48% of the total building permits issued in the city during 2013, an increase from 15.64% in The increase in the number of permits issued in the northwest sector reinforces our confidence in the success of real estate investments in this region. 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. 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, WILLIAM K. DOHERTY Chief Executive Officer Walton Big Lake Development Corporation, General Partner of Walton Big Lake Development L.P. 1. Government of Alberta, Alberta Enterprise and Advanced Education, Inventory of Major Alberta Projects, March Conference Board of Canada Provincial Outlook, December CMHC, Housing Now Edmonton CMA, December City of Edmonton, Monthly Building Permit Summary Annual Report 2013 Walton Big Lake Development L.P. 5

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23 SUMMARY OF QUARTERLY RESULTS Annual Report 2013 Walton Big Lake Development L.P. 23

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35 FINANCIAL STATEMENTS Walton Big Lake Development L.P. For the years ended December 31, 2013 and December 31, 2012 (Expressed in Canadian dollars) Annual Report 2013 Walton Big Lake Development L.P. 35

36 April 29, 2014 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 December 31, 2013 and December 31, 2012 and the statements of comprehensive 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 opinions. 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 December 31, 2013 and December 31, 2012 and its financial performance and its cash flows for the years then ended in accordance with International Financial Reporting Standards. Chartered Accountants PricewaterhouseCoopers LLP 111-5th Avenue SW, Suite 3100, Calgary, Alberta, Canada T2P 5L3 T: , F: PwC refers to PricewaterhouseCoopers LLP, an Ontario limited liability partnership. 36 Walton Big Lake Development L.P. Annual Report 2013

37 WALTON BIG LAKE DEVELOPMENT L.P. Statements of Financial Position At December 31, 2013 and December 31, 2012 (Expressed in Canadian dollars) December 31, 2013 $ December 31, 2012 $ ASSETS (Revised note 3) Land development inventory (note 5) 30,494,197 24,794,570 Recoverable costs receivable (note 6) 5,206,900 2,561,520 Accounts receivable (note 7) 6,794,225 11,607,976 Prepaid expenses 15, Other receivables 835 5,935 GST recoverable 98,168 87,207 Cash 132, ,938 TOTAL ASSETS 42,742,557 39,222,538 LIABILITIES Project debt (note 8) 7,954,326 14,457,205 Provision for land development costs (note 9) 6,130,210 1,673,071 Due to related parties (note 10) 7,938,643 6,000,103 Accounts payable and accrued liabilities 6,314,930 2,146,010 TOTAL LIABILITIES 28,338,109 24,276,389 PARTNERS EQUITY Partner s capital (note 11) 21,711,165 21,711,165 Accumulated deficit (7,306,717) (6,765,016) 14,404,448 14,946,149 TOTAL LIABILITIES AND EQUITY 42,742,557 39,222,538 The accompanying notes to the financial statements are an integral part of these statements. Approved by the Board of Directors of the General Partner Director Clifford H. Fryers Director Jon N. Hagan Annual Report 2013 Walton Big Lake Development L.P. 37

38 WALTON BIG LAKE DEVELOPMENT L.P. Statements of Comprehensive (Loss)/Income For the years ended December 31, 2013 and December 31, 2012 (Expressed in Canadian dollars) December 31, 2013 $ December 31, 2012 $ REVENUE Land development sales 8,492,782 14,639,728 COST OF SALES Land development 7,679,874 12,726,508 GROSS MARGIN 812,908 1,913,220 OTHER INCOME/(EXPENSES) Interest expense (note 10) (525,000) (28,767) Management fees (note 10) (433,977) (433,976) Marketing expenses (177,326) (185,182) Servicing fees (note 10) (104,674) (104,674) Director fees (note 10) (52,129) (52,129) Office and other expenses (36,627) (26,013) Professional fees (29,673) (29,469) Interest income 4,797 8,439 (1,354,609) (851,771) NET AND COMPREHENSIVE (LOSS)/INCOME (541,701) 1,061,449 Basic and diluted net (loss)/income per unit specifically attributable to limited partnership units (note 11) (0.32) 0.63 The accompanying notes to the financial statements are an integral part of these statements. 38 Walton Big Lake Development L.P. Annual Report 2013

39 WALTON BIG LAKE DEVELOPMENT L.P. Statements of Changes in Partners Equity For the years ended December 31, 2013 and December 31, 2012 (Expressed in Canadian dollars) Limited Partnership Units (Revised note 3)(note 11) General Partner Unit (note 11) Accumulated Deficit (Revised - note 3) Total # of Units $ # of Units $ $ $ DECEMBER 31, ,098,360 21,711, (3,020,302) 18,690,863 Amendment to the limited partnership units outstanding (note 11) Partnership distributions Net income and comprehensive income Units consolidation (note 11) (4,806,163) (4,806,163) ,061,449 1,061,449 (418,616) DECEMBER 31, ,680,124 21,711, (6,765,016) 14,946,149 Net loss and comprehensive loss (541,701) (541,701) DECEMBER 31, ,680,124 21,711, (7,306,717) 14,404,448 The accompanying notes to the financial statements are an integral part of these statements. Annual Report 2013 Walton Big Lake Development L.P. 39

40 WALTON BIG LAKE DEVELOPMENT L.P. Statements of Cash Flows For the years ended December 31, 2013 and December 31, 2012 (Expressed in Canadian dollars) December 31, 2013 $ December 31, 2012 $ (Revised note 3) CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES Comprehensive (loss)/income for the year (541,701) 1,061,449 Adjustments for: Interest income (4,797) (8,439) Interest expense 525,000 28,767 Changes in non-cash operating items (Increase)/decrease in land development inventory (5,668,151) 175,050 Increase in recoverable costs receivable (2,645,380) (2,561,520) Decrease/(increase) in accounts receivable 4,813,751 (11,607,976) Increase in prepaid expenses (14,868) (392) Decrease/(increase) in other receivables 4,410 (4,409) Increase/(decrease) in GST recoverable (10,961) 118,553 Increase in deferred revenue - (1,465,729) Decrease in provision for land development costs 4,457,139 1,673,071 Increase in due to related parties 482, ,721 Increase/(decrease) in accounts payable and accrued liabilities 4,168,920 (763,344) Interest received 5,487 7,976 FINANCING ACTIVITIES 5,570,913 (12,447,222) Advances from project debt 7,382,476 13,875,814 Project debt repayment (13,885,355) (1,619,564) Advances from related parties 900,000 5,000,000 Partnership distribution - (4,806,163) (5,602,879) 12,450,087 (Decrease)/increase in cash (31,966) 2,865 Cash Beginning of year 164, ,073 Cash End of year 132, ,938 SUPPLEMENTAL INFORMATION Excluded from the statement of cash flow is non-cash interest of $31,476 (December 31, nil) capitalized to land development inventory. Interest paid of $560,684 (December 31, $360,049) is capitalized to land development inventory. The accompanying notes to the financial statements are an integral part of these statements. 40 Walton Big Lake Development L.P. Annual Report 2013

41 WALTON BIG LAKE DEVELOPMENT L.P. Notes to the Financial Statements For the years ended December 31, 2013 and December 31, 2012 (Expressed in Canadian dollars) 1. 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 as may be incidental or ancillary to or arising from the foregoing purposes as 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 ) and Walton Development and Management (Alberta) LP ( WDM ) (including the performance fee note 10), and (ii) any amounts outstanding, on a phase by phase basis, under the construction loans required to develop the Property. The registered office and principal place of business is 23 rd floor, th Avenue SW, Calgary, Alberta, T2P 3H5. These financial statements were authorized for issue by the Board of Directors on April 29, BASIS OF PREPARATION Statement of Compliance These financial statements, including comparatives, have been prepared in full compliance with International Financial Reporting Standards ( IFRS ) and using accounting policies that are consistent with IFRS as issued by the International Accounting Standards Board ( IASB ). 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 4. Annual Report 2013 Walton Big Lake Development L.P. 41

42 WALTON BIG LAKE DEVELOPMENT L.P. Notes to the Financial Statements For the years ended December 31, 2013 and December 31, 2012 (Expressed in Canadian dollars) 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 5) and recoverable costs receivable (note 6), all assets and liabilities are current in nature and are expected to be settled in less than twelve months. Change in Presentation The Statement of Financial Position December 31, 2012 was changed to combine land held for development and land developments costs as a single item referred to as land development inventory, to be consistent with the current year presentation. In the Statement of Cash Flows, the treatment of interest income/receivable and interest paid/payable has been changed to be consistent with the current year presentation. 3. CHANGE IN ACCOUNTING POLICY AND REVISION OF PRIOR PERIOD BALANCES For the year ended December 31, 2013 the Partnership has changed its accounting policy for the development agreement with the City of Edmonton revised the presentation of offering costs. Prior period balances have been amended for both changes which are described in further detail below. Change in Accounting Policy for Development Agreement Previously, land development costs and recoverable costs from the City of Edmonton (note 5 and note 6) and a corresponding provision for land development costs were recognized upon approval of a development servicing agreement with the municipality. These costs and the associated provision were recognized within the statement of financial position at the amount estimated to be incurred to develop their land inventory under the development agreement with the City of Edmonton and costs that would be recoverable from the City of Edmonton. Management re-evaluated its accounting policy after determining that a reclassification on the balance sheet for recoverable costs would be required. The Partnership has changed its policy to only recognize those costs associated with activities that have been incurred to date with respect to the development of its land development inventory. A provision for land development costs is recognized in conjunction with land sales as part of the cost to complete. The Partnership believes that this change in accounting policy provides reliable and more relevant information as it aligns the carrying value underlying the land development inventory with the progress the Partnership has made with respect to the underlying development of the land and promotes comparability across the industry. Those costs that are recoverable from the City of Edmonton are recognized to recoverable costs receivable as they have been incurred. If in the event that recoverable costs are received in advance of incurring costs these amounts will be deferred and offset against associated costs as incurred. 42 Walton Big Lake Development L.P. Annual Report 2013

43 WALTON BIG LAKE DEVELOPMENT L.P. Notes to the Financial Statements For the years ended December 31, 2013 and December 31, 2012 (Expressed in Canadian dollars) Revision of Presentation of Offering Costs For the year ended December 31, 2013 the Partnership has revised the prior period balance for offering costs which were previously charged to profit and loss. The Partnership has determined that these costs are directly related to the issuance of partner s capital and therefore should be included as offering costs. As a result $337,500 of accumulated deficit has been reclassified to partner s capital as at January 1, 2012 and December 31, The change in presentation (note 2) and these revisions have resulted in the following changes to the financial statements as at December 31, 2012 and January 1, 2012: Impact as at January 1, 2012: Previously Reported Offering Costs Adjustment Change in Accounting Policy Adjusted Amount $ $ $ $ Land development costs 44,780,713 - (38,562,079) 6,218,634 Land held for development 18,750, ,750,986 Land development inventory 63,531,699 - (38,562,079) 24,969,620 Provision for development costs 38,562,079 - (38,562,079) - Partners capital 22,048,665 (337,500) - 21,711,165 Accumulated deficit (3,357,802) 337,500 - (3,020,302) Partners equity 18,690, ,690,863 Impact as at December 31, 2012: Previously Reported Offering Costs Adjustment Change in Accounting Policy Adjusted Amount $ $ $ Land development costs 38,939,001 (29,320,230) 9,618,771 Land held for development 15,175,799-15,175,799 Land development inventory 54,114,800 - (29,320,230) 24,794,570 Recoverable costs receivable - - 2,561,520 2,561,520 Provision for development costs 28,431,781 - (26,758,710) 1,673,071 Partners capital 22,048,665 (337,500) - 21,711,165 Accumulated deficit (7,102,516) 337,500 - (6,765,016) There was no impact on net loss, net loss per partnership unit and equity of the Partnership as a result of these changes. Annual Report 2013 Walton Big Lake Development L.P. 43

44 WALTON BIG LAKE DEVELOPMENT L.P. Notes to the Financial Statements For the years ended December 31, 2013 and December 31, 2012 (Expressed in Canadian dollars) 4. ACCOUNTING POLICIES 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 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 cost of capital. Changes in these estimates and assumptions could cause the net recoverable value of land development inventory to differ materially 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. 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 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 materially 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 the 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 materially from the cost of sales recognized at the time that revenue is recognized. 44 Walton Big Lake Development L.P. Annual Report 2013

45 WALTON BIG LAKE DEVELOPMENT L.P. Notes to the Financial Statements For the years ended December 31, 2013 and December 31, 2012 (Expressed in Canadian dollars) 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 exclude 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. 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. 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. Transaction Costs Issuance costs of project debt obligations are capitalized against the associated debt and amortized using the effective interest rate method. 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 Annual Report 2013 Walton Big Lake Development L.P. 45

46 WALTON BIG LAKE DEVELOPMENT L.P. Notes to the Financial Statements For the years ended December 31, 2013 and December 31, 2012 (Expressed in Canadian dollars) 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. 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 Other receivable Loans and receivables Amortized cost Cash Loans and receivables Amortized cost Project debt 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 deposits 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. Accumulated Deficit Accumulated deficit comprises the accumulated balance of income less losses arising from the operation of the Partnership, after taking into account distributions declared by the Partnership. 46 Walton Big Lake Development L.P. Annual Report 2013

47 WALTON BIG LAKE DEVELOPMENT L.P. Notes to the Financial Statements For the years ended December 31, 2013 and December 31, 2012 (Expressed in Canadian dollars) 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 and delivered, the collection of sales proceeds is reasonably assured, the purchaser can commence construction, and all other material conditions are met, including a deposit of not less than 20%. 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 phase specific costs being allocated proportionately based on the net yield of each lot in that phase, 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 a provision for land development costs for costs to complete the development of lots for which revenue is recognized. Income Taxes No provision has been made for income taxes of the Partnership, the liability for which is the responsibility of the partners. Current Changes in Accounting Policies 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 as explained below and as disclosed in note 3. Annual Report 2013 Walton Big Lake Development L.P. 47

48 WALTON BIG LAKE DEVELOPMENT L.P. Notes to the Financial Statements For the years ended December 31, 2013 and December 31, 2012 (Expressed in Canadian dollars) 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 the 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 to the financial statements. The Partnership does not carry any assets, liabilities or equity at fair value. The adoption of IFRS 13 has resulted in increased disclosure around fair value contained in note 12 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. 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. Future Changes in Accounting Policies Financial instruments In November 2009, as part of the IASB project to replace International Accounting Standard ( IAS ) 39 Financial Instruments: Recognition and Measurement, the IASB issued the first phase of IFRS 9 Financial Instruments. It contained requirements for the classification and measurement of financial assets, and was updated in October 2010 to incorporate financial liabilities. In November 2013, the IASB issued amendments to include the new general hedge accounting model and to postpone the mandatory effective date of this standard indefinitely. The full impact of this standard will not be known until the amendments addressing impairments, classification and measurement have been completed. When these projects are completed, an effective date will be added by the IASB. 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 amendments to IAS 32 are effective for annual periods beginning on or after January 1, The Partnership has assessed that there will be no impact of the adoption on the financial statements currently or retrospectively. 48 Walton Big Lake Development L.P. Annual Report 2013

49 WALTON BIG LAKE DEVELOPMENT L.P. Notes to the Financial Statements For the years ended December 31, 2013 and December 31, 2012 (Expressed in Canadian dollars) Levies IFRIC 21 is an interpretation of IAS 37, Provisions, Contingent Liabilities and Contingent Assets. IAS 37 sets out criteria for the recognition of a liability to pay a levy imposed by government, other than an income tax. The interpretation requires the recognition of a liability when the event, identified by the legislation as triggering the obligation to pay the levy, occurs. This standard is required to be applied for accounting periods beginning on or after January 1, The Partnership has not yet determined the impact of IFRIC 21 on its financial statements. 5. LAND DEVELOPMENT INVENTORY December 31, 2013 December 31, 2012 $ $ (Revised note 3) BALANCE BEGINNING OF YEAR 24,794,570 24,969,620 Development costs 13,379,501 12,551,458 Cost of sales (7,679,874) (12,726,508) BALANCE END OF YEAR 30,494,197 24,794,570 Land development inventory is relieved through cost of sales at the time that revenue from lot sales is recognized. The timing of future lot sales is estimated by management, however, is subject to uncertainty because lot sales are influenced by factors that are beyond the control of management, such as market demand for residential lots and the timing of cash flows of the homebuilders. As a result, while a portion of land development inventory could be current in nature, it is not possible for management to reasonably estimate the portion that will be realized within the next twelve months. During the year, $592,161 (December 31, $394,292) of interest was capitalized to development costs. 6. RECOVERABLE COSTS RECEIVABLE The table below reconciles the change in recoverable costs receivable: December 31, 2013 December 31, 2012 $ $ (Revised note 3) BALANCE BEGINNING OF YEAR 2,561,520 - Cost incurred to be recovered 3,268,818 2,649,615 Recoveries received (623,438) (88,095) BALANCE END OF YEAR 5,206,900 2,561,520 Recoverable costs are received 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 Annual Report 2013 Walton Big Lake Development L.P. 49

50 WALTON BIG LAKE DEVELOPMENT L.P. Notes to the Financial Statements For the years ended December 31, 2013 and December 31, 2012 (Expressed in Canadian dollars) 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 are subject to receive interest at the lower of a rate equal to the 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. 7. ACCOUNTS RECEIVABLE Accounts receivable is comprised of amounts owing from builders for the sale of Phase 1 lots. At December 31, 2013 there were no amounts past due. For all lot sales, the ownership of the lot is not transferred to the purchaser until the full purchase price has been received. 8. PROJECT DEBT The Partnership entered into a $31.1 million construction loan with a Canadian-based international financial services company to help finance Phase 1 of the project. The construction loan consisted of a $25.2 million non-revolving loan facility and $5.9 million letter of credit facility. On September 18, 2013 the Partnership amended its existing non-revolving loan facility (the Phase 1 Facility ) to a) extend the maturity date of the facility to November 1, 2014, and b) increase the Phase 1 Facility by $9.35 million to finance the construction of 215 th Street, an offsite development obligation. With this amendment, the total Phase 1 Facility is now $34.55 million with no change to the $5.9 million existing letter of credit facility. Included in the Phase 1 Facility is an interest reserve of $2,053,117. The Phase 1 Facility is available to finance the construction costs for Phase 1 of the project, and the amended amount for the construction costs related to 215 th street, an offsite development obligation, while the letters of credit act as security for the completion of certain obligations pursuant to Phase 1 Development Servicing Agreement. The letters of credit typically decline as the Partnership s development obligations with the City of Edmonton are completed, through a series of staged reductions over a period of time and are ultimately extinguished when the municipality has issued final acceptance certificates. The Phase 1 Facility is due on demand and is anticipated to be repaid from the proceeds of the sale of single family lots, multi family and mixed use sites. The Phase 1 Facility bears interest at a rate of prime + 1.5%, interest is paid monthly through the use of the interest reserve initially set up in the amount of $2,053,117. Once the reserve is fully utilized the interest will be funded directly by the Partnership. At December 31, 2013 there was $1,398,597 (December 31, $394,292) of the interest reserve utilized. The lender reserves the right to stop advancing from the interest reserve account in the event of construction delays, slower than projected sales performances, or cost overruns. The Phase 1 Facility is partially guaranteed by Walton International Group Inc. ( WIGI ), which is required to maintain a minimum level of net worth, and is also secured by a first priority security interest in all present and after acquired personal property of the Partnership, a floating charge over all of the Partnership's present and after acquired real and other property, and a first fixed and specific demand collateral land mortgage over the Property. 50 Walton Big Lake Development L.P. Annual Report 2013

51 WALTON BIG LAKE DEVELOPMENT L.P. Notes to the Financial Statements For the years ended December 31, 2013 and December 31, 2012 (Expressed in Canadian dollars) WIGI entered into a guarantee with the lender of the Phase 1 Facility that contains a limited corporate guarantee in the amount of $6,294,090 or 25% (whichever is greater) of the loan plus interest and expense and an assignment and postponement of claims by the Guarantor and all unit holders of the Partnership related to claims against the Partnership. WIGI also provided a guarantee that the Partnership will complete the development of the Project and fund all cost overruns. As at December 31, 2013, a $5.0 million (December 31, $5.0 million) letter of credit has been issued but has not been drawn upon. The outstanding balance of the Phase 1 Facility as at December 31, 2013 was $7,954,326 (December 31, $14,457,205). Based on anticipated cash flows this entire facility will be repaid during the next twelve months. The Partnership was in compliance with all conditions under the Phase 1 Facility. All these conditions are non-financial in nature. 9. PROVISION FOR LAND DEVELOPMENT COSTS The following table provides a breakdown of the provision for land development costs: December 31, 2013 December 31, 2012 $ $ (Revised note 3) BALANCE BEGINNING OF YEAR 1,673,071 - Additional provisions 5,341,714 3,173,556 Less actual costs incurred during the year (884,575) (1,500,485) BALANCE END OF YEAR 6,130,210 1,673,071 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. 10. RELATED PARTY TRANSACTIONS See notes 1, 11, 12, 13 and 14 for additional disclosures relating to certain related parties and other related party transactions. Walton Finance Ltd. ( WFL ), WAM, WDM, WIGI, and the Partnership are all related to the General Partner of the Partnership by virtue of the fact that they are controlled by Walton Global Investments Ltd. ( WGIL ). The balances due to these related parties are outlined in the table below. With the exception of the development fee payable to WDM, the management fee and servicing fee payable to WAM, and the mezzanine loan ( Mezzanine Loan ), 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 quarter-end and any amounts that are past due bear interest at a rate of prime + 3%. The servicing fee is payable to WAM semi-annually and the management fee is payable to WAM quarterly. The terms of the Mezzanine Annual Report 2013 Walton Big Lake Development L.P. 51

52 WALTON BIG LAKE DEVELOPMENT L.P. Notes to the Financial Statements For the years ended December 31, 2013 and December 31, 2012 (Expressed in Canadian dollars) Loan have been described in detail under the section Walton Finance Ltd. Any balances due to related parties may be secured by a debenture recorded against the titles of the properties. The debenture would be discharged on settlement of amounts owing. December 31, December 31, $ $ Walton Finance Ltd.( WFL ) 6,485,244 5,028,767 Walton Asset Management L.P. ( WAM ) 1,116, ,023 Walton Development and Management (Alberta) LP ( WDM ) 328, ,364 Walton International Group Inc. ( WIGI ) 8, Total due to related parties 7,938,643 6,000,103 Walton Finance Ltd. On December 12, 2012 the Partnership entered into a $5.0 million Mezzanine Loan with WFL to provide capital to fund a cash distribution to the holders of the limited partnership units. The Mezzanine Loan was amended on July 3, 2013 to increase the loan by $900,000 for a maximum of $5.9 million. The purpose of this increase was to obtain capital to apply to the construction costs incurred for 215 th Street, as a condition of borrowing required for the extension of the Phase 1 Facility, see note 6. Interest on any borrowed funds is calculated at a rate of 10.5% monthly. The loan, plus any accrued interest is repayable on the earlier of: i. December 12, 2015; ii. such earlier date as the Partnership wishes to pay out the loan; or iii. the date payment is demanded by WFL in writing to the Partnership. The Mezzanine Loan is secured by a fixed and specific demand mortgage and charge of the Property which shall be second in priority only to the construction loan, and by a general security agreement in second position charging all other assets of the Partnership. Notwithstanding the repayment terms noted above, management does not expect repayment of the Mezzanine Loan to be demanded prior to the Partnership having sufficient capital to repay the Mezzanine Loan. As at December 31, 2013, the balance of principal outstanding on the Mezzanine loan was $5,900,000 (December 31, $5,000,000). In addition at December 31, 2013 $585,244 (December 31, $28,767) was payable to WFL for interest accrued on the Mezzanine Loan, of that amount $31,477 (December 31, $nil) of the interest accrued was capitalized to land development costs. The remaining amount $525,000 (December 31, $28,767) was expensed. There were no payments made to WFL during the year ended December 31, 2013 (December 31, $nil). 52 Walton Big Lake Development L.P. Annual Report 2013

53 WALTON BIG LAKE DEVELOPMENT L.P. Notes to the Financial Statements For the years ended December 31, 2013 and December 31, 2012 (Expressed in Canadian dollars) Walton Asset Management L.P. In accordance with the Management Services Agreement between the Partnership and WAM, WAM will provide services in connection with offering, 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 December 31, 2015, 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 offering 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 offering 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) from January 1, 2016 until the termination date of the Management Services Agreement, an amount equal to 2% of the book value of the Property. The fee is required to be paid quarterly at the end of each calendar quarter. For the year ended December 31, 2013, the total management fees charged to the Partnership was $433,977 (December 31, $433,976). There were no payments made to WAM during the year ended December 31, Also in accordance with the Management Services Agreement, commencing on December 31, 2010 and continuing until the earlier of the dissolution of the Partnership and December 31, 2015, the Partnership will pay to WAM a servicing fee equal to 0.50% annually of the net proceeds for each Unit sold under the IPO and Private Placement. WAM is responsible for paying the servicing fee to the Partnership agents in accordance with the Agency Agreements between WAM, WDM, the General Partner and the Partnership. The servicing fee is calculated from the date of the applicable closing, is calculated semi-annually and paid as soon as practicable. For the year ended December 31, 2013, the total servicing fees charged to the Partnership was $104,674 (December 31, 2012 $104,674). The balance payable to WAM as at December 31, 2013 was related to the 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 until such time that the Partnership has sufficient capital for the payment of such amounts. WAM has indicated that it will continue to provide its services as manager of the Partnership and to fund the servicing fee on behalf of the Partnership. All amounts that exceed the regular payment terms are due on demand and bear no interest. There were no payments made to WAM during the year ended December 31, 2013 (December 31, $71,774). The total amount charged for the year ended December 31, 2013 was $560,349 (December 31, $556,023), which includes a GST charged of $21,699 (December 31, $43,698). Walton Development and Management (Alberta) LP In accordance with the Project Management Agreement between the Partnership and WDM, the fees and costs for services provided by WDM are divided into the following two categories: Annual Report 2013 Walton Big Lake Development L.P. 53

54 WALTON BIG LAKE DEVELOPMENT L.P. Notes to the Financial Statements For the years ended December 31, 2013 and December 31, 2012 (Expressed in Canadian dollars) i) WDM will receive a development fee, plus applicable taxes, equal to 2% of certain development costs incurred in the calendar quarter; and ii) WDM will receive a performance fee, plus applicable taxes, equal to 25% of cash distributions after all partners have received distributions equal to $10 per unit, plus a simple cumulative priority return of 6% per annum. For the year ended December 31, 2013, the total development fee charged to the Partnership was $229,313 (December 31, $351,120), respectively. These costs have been capitalized as part of land development costs. The total development fee paid by the Partnership was $312,980 (December 31, ,831). No performance fee was incurred by the Partnership during the year ended December 31, 2013 or December 31, 2012 because the $10 per unit amount and the cumulative priority return have not been received by the limited partners. The balance due to WDM as at December 31, 2013 was comprised of the development fee and other costs of the Partnership that were paid by WDM on behalf of the Partnership, but are repayable by the Partnership. Of the development fee payable to WDM, $44,847 (December 31, $262,259) was past due. Management has communicated to WDM that it does not expect to make payments for any amounts payable to WDM for the development fee, until such time that the Partnership has sufficient capital for the payment of such amounts. WDM has indicated that it will continue to provide its services as project manager and has waived all of the interest on the balances past due up to December 31, During the year ended December 31, 2013, the Partnership incurred a total amount payable to WDM of $8,474(December 31, $534,305) for day to day expenses that were initially funded by WDM on the Partnership s behalf. The total amount paid to WDM for amounts that were incurred on behalf of the Partnership during the year ended December 31, 2013 was $10,358(December 31, ,703). Walton International Group Inc. At the balance sheet date, the amount of $8,213 (December 31, $949) is due to WIGI for costs incurred on behalf of the Partnership. The balance outstanding was comprised of costs that were initially funded by WIGI on behalf of the Partnership but were reimbursable by the Partnership. During the year ended December 31, 2013, the Partnership incurred a total amount payable to WIGI of $10,593 (December 31, 2012 $165,186) in costs initially funded by WIGI on the Partnership s behalf. The total amount paid to WIGI for amounts funded on the Partnership s behalf was $3,329 (December 31, 2012 $165,489). Key Management Compensation Key management personnel are comprised of the directors and executive officers of the General Partner. The total compensation expense incurred by the Partnership relating to its independent directors was as follows: For the years ended December 31, 2013 December 31, 2012 Directors fees 52,129 52, Walton Big Lake Development L.P. Annual Report 2013

55 WALTON BIG LAKE DEVELOPMENT L.P. Notes to the Financial Statements For the years ended December 31, 2013 and December 31, 2012 (Expressed in Canadian dollars) 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 WAM receives under the Management and Services Fee Agreement has been disclosed above. The compensation of Key Management does not include the remuneration paid to individuals who are paid directly by WGIL and WAM. The Officers of the General Partner and Partnership are also Officers and Directors of numerous entities controlled or managed by WGIL and it is not practicable to make a reasonable apportionment of their compensation in respect of each of those entities. 11. PARTNERS CAPITAL Authorized 1 general partner unit 1 initial limited partnership unit Unlimited number of ordinary limited partnership units Outstanding December 31, 2013 December 31, 2012 (Revised note 3) Number of units Amount $ Number of units Amount $ General partner unit Limited partnership units issued through the initial public offering and private placement 2,250,000 22,500,000 2,250,000 22,500,000 Limited partnership units issued in exchange for land held for development 81, ,306 81, ,306 Offering expenses - (1,565,191) - (1,565,191) Consolidation and amendment to limited partnership units (651,808) - (651,808) - 1,680,125 21,711,165 1,680,125 21,711,165 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 units outstanding during the year. The weighted average number of limited partnership units outstanding during the years ended December 31, 2013 and December 31, 2012 were adjusted to reflect the December 14, 2012 unit consolidation and the amendment to the Limited Partnership Agreement which was effective June 12, The weighted average number of limited partnership units outstanding for year ended December 31, 2013 was 1,680,124 (December 31, ,680,124). Of the outstanding units at December 31, 2013 WIGI owns approximately 3.51%. Annual Report 2013 Walton Big Lake Development L.P. 55

56 WALTON BIG LAKE DEVELOPMENT L.P. Notes to the Financial Statements For the years ended December 31, 2013 and December 31, 2012 (Expressed in Canadian dollars) The weighted average number of 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 or loss of the Partnership but instead receives 0.001% of the net income or loss. As the Partnership does not issue debt or equity instruments which could result in the issuance of additional Partnership units, the weighted average units outstanding is equal to the weighted average diluted units outstanding. General Partner The General Partner was incorporated on August 30, 2010 under the laws of the Province of Alberta to act as a General Partner and manage the affairs of the Partnership and is a subsidiary of Walton G.P. Holdco Ltd., a wholly owned subsidiary of WIGI. WIGI is a wholly owned subsidiary of WGIL. All or substantially all of the shares of WGIL are owned by or for the benefit of the Doherty family, including William K. Doherty, the Chief Executive Officer and director of WGIL. Unit Issuance Price The limited partnership units issued and outstanding for the Partnership were issued at a price of $10/unit, with the exception of the units issued to WIGI in connection with the land for unit exchange. These units were issued at a discounted price of $9.475 per unit because the Partnership is not responsible for agents fees on units issued to WIGI. The general partner unit issued and outstanding for the Partnership was issued at a price of $50.00/unit. Distributions and Unit Consolidation On December 14, 2012, the Partnership issued the Partnership s second cash distribution to Unitholders. The aggregate amount of the distribution was $4,806,163 ($2.29 per unit), bringing the total distributions paid out by the Partnership since inception to $7,138,118. Pursuant to the terms of the Limited Partnership Agreement and as disclosed in the Offering Documents, immediately after the distribution, the limited partnership units were consolidated such that 1 unit prior to the distribution became of a limited partnership unit after the distribution. As a result of the unit consolidation, the total limited partnership units outstanding decreased from 2,098,740 to 1,680,124. Replacement unit certificates were not issued by the Partnership to reflect this consolidation. Under the terms of the Phase 1 Facility agreement, the Partnership was only permitted to distribute to unitholders up to a maximum of $3.3 million ($1.42/unit) without prior consent from the lender. Any further distributions by the Partnership could be made only after the Phase 1 Facility has been fully repaid. The Partnership has paid total cash distributions to investors since inception, of $7,138,118 (December 31, 2012 $7,138,118). Permission was received from the lender on the Phase 1 Facility prior to distributing funds to the unitholders. Limited Partnership Agreement Amendment In November 2011, the Partnership paid a distribution on the limited partnership units. This was followed by a consolidation of the limited partnership units outstanding, which was calculated based on the formula set out in section 5.11 of the Limited Partnership Agreement. Due to a difference between the unit issuance price for the limited partnership units issued to WIGI (to reflect that the Partnership was not required to pay a commission on the Units issued to WIGI) and the limited 56 Walton Big Lake Development L.P. Annual Report 2013

57 WALTON BIG LAKE DEVELOPMENT L.P. Notes to the Financial Statements For the years ended December 31, 2013 and December 31, 2012 (Expressed in Canadian dollars) partnership units issued through the Offerings, this resulted in a number of brokerage firms sending out client statements which made it appear that the clients had disproportionately lost units on the consolidation due to rounding. In order to correct this, on March 22, 2012, the Partnership amended section 5.11 of the Limited Partnership Agreement. As a result of the amendment, effective June 12, 2012, the Limited Partnership Agreement was revised to increase the number of limited partnership units outstanding from 2,098,360 to 2,098,740. For the majority of unit holders, this amendment did not result in a change to the number of units held. Replacement unit certificates were not issued by the Partnership to reflect this change. 12. FINANCIAL INSTRUMENTS The Partnership s financial instruments consist of recoverable costs receivable, accounts receivable, other receivables, cash, project debt, amounts due to related parties, and accounts payable and accrued liabilities. With the exception of recoverable costs receivable, project debt, the fair value of these financial instruments approximate their carrying value due to the short-term nature of these items. The fair value of the recoverable costs receivable approximates its carrying value as the interest accruing with the City of Edmonton for amounts owing and inflation offset the impact of discounting. The fair value of project debt approximates its carrying value because the debt is due on demand and the interest rate on the debt is variable based on the prime lending rate. The following tables set out the Partnership s classification and carrying amount of the financial instruments along with the fair value as at December 31, 2013 and December 31, Annual Report 2013 Walton Big Lake Development L.P. 57

58 WALTON BIG LAKE DEVELOPMENT L.P. Notes to the Financial Statements For the years ended December 31, 2013 and December 31, 2012 (Expressed in Canadian dollars) DECEMBER 31, 2013 Fair Value Amortized Cost Totals Through profit and loss Loans and receivables Other financial liabilities Carrying amount Fair Value Asset (liability): Accounts receivable - 6,794,225-6,794,225 6,794,225 Recoverable costs receivable - 5,206,900-5,206,900 5,206,900 Other receivables Cash - 132, , ,972 Project debt - - (7,954,326) (7,954,326) (7,954,326) Due to related parties - - (7,938,643) (7,938,643) (7,938,643) Accounts payable and accrued liabilities - - (6,314,930) (6,314,930) (6,314,930) - 12,134,932 (22,207,899) (10,072,967) (10,072,967) DECEMBER 31, 2012 Fair Value Amortized Cost Totals Through profit and loss Loans and receivables Other financial liabilities Carrying amount Fair Value Asset (liability): Accounts receivable - 11,607,976-11,607,976 11,607,976 Recoverable costs receivable - 2,561,520-2,561,520 2,561,520 Other receivables - 5,935-5,935 5,935 Cash - 164, , ,938 Project debt - - (14,457,205) (14,457,205) (14,457,205) Due to related parties - - (6,000,103) (6,000,103) (6,000,103) Accounts payable and accrued liabilities - - (2,146,010) (2,146,010) (2,146,010) - 14,340,369 (22,603,318) (8,262,949) (8,262,949) 58 Walton Big Lake Development L.P. Annual Report 2013

59 WALTON BIG LAKE DEVELOPMENT L.P. Notes to the Financial Statements For the years ended December 31, 2013 and December 31, 2012 (Expressed in Canadian dollars) 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 Recoverable costs receivable X X Other receivables X Cash X X Project debt X X Accounts payable and accrued liabilities X Due to related parties X 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 cash held with banks and financial institutions, recoverable costs receivable, accounts receivable and other receivable. The maximum exposure to credit risk is equal to the carrying value of these financial instruments. Accounts receivable The balance of accounts receivable are due from large reputable homebuilders who have demonstrated to management their ability to meet the payment terms included in the purchase and sale agreements. In addition, the balance of the receivable is secured by a 20% deposit on the sale price of each lot sold, and the Partnership retains title on the lots until such time that 100% of the sale proceeds has been received. The Partnership is exposed to concentration risk as all revenue is attributable to four homebuilders all having a concentration of greater than 10% of revenue. At December 31, 2013, the revenue and accounts receivable concentration from the four homebuilders was 26%, 29%, 18% and 27%, respectively. There were no additional customers. Recoverable costs receivable The recoverable costs receivable are received from future developers via the City of Edmonton. Future developers are required to pay their proportionate share of off-site costs at the time that they sign their development agreement with the City of Edmonton. The Partnership has a contractual right with the City of Edmonton whereby the City will not permit other developers to develop within the adjacent lands, without the collection of these amounts. Therefore, management believes the exposure to credit risk is minimal. Other receivables - The Partnership s exposure to credit risk associated with other receivables is not material because the balance of other receivables is typically not material and is settled monthly. Cash - Cash is on deposit with a major financial institution, which substantially minimizes the exposure of cash to credit risk. Annual Report 2013 Walton Big Lake Development L.P. 59

60 WALTON BIG LAKE DEVELOPMENT L.P. Notes to the Financial Statements For the years ended December 31, 2013 and December 31, 2012 (Expressed in Canadian dollars) i. 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 continuously monitoring the progress of the development, ensuring timely collection of lot sales, and managing cash receipts and payments. The liabilities which expose the Partnership to liquidity risk are as follows: Project debt Project debt is comprised of the Phase 1 Facility with a Canadian-based international financial services company for Phase 1 of the project. The Phase 1 Facility consists of a $34.5 million non-revolving loan facility and $5.9 million letter(s) of credit facility. Under the terms of the loan agreement, the total advance under the Phase 1 facility, including the authorized letters of credit, are not to exceed $40.4 million at any given time. The loan is secured by the property of the Partnership, and is also partially guaranteed by WIGI. There is no assurance that WIGI will provide future guarantees to secure the Partnership s future financing requirements or be able to maintain loan covenants, if applicable. In order to minimize the Partnership s exposure to liquidity risk as a result of the project debt, management ensures that all conditions and requirements under the loan agreement are adhered to, and that the collateral secured by the bank exceeds the balance of the project debt outstanding. The Partnership intends to repay the project debt through future lot sale revenues generated by the Partnership. It is anticipated that further construction loans will be required to fund the costs of development for Phase 2, and 3 of the Project. As at December 31, 2013, the outstanding balance of the loan facility was $7,594,326 (December 31, $14,457,205), and an $5.0 million (December 31, $5.0 million) letter of credit had been issued to the City of Edmonton, but had not been drawn upon. Accounts payable and accrued liabilities These liabilities are a result of the normal operations of the Partnership and are current in nature. Management considers exposure to liquidity risk from these financial instruments to be minimal because the balances owing at December 31, 2013 will be funded through a combination of the cash held by the Partnership and the Phase 1 Facility. As at December 31, 2013 the Partnership has a total cash on hand of $132,972 (December 31, ,938). Due to related parties These liabilities are a result of the normal operations of the Partnership and are payable in accordance with the terms of the related party agreements. Management considers exposure to liquidity risk from these financial instruments to be low because balances owing at December 31, 2013 will be funded through proceeds from the sale of lots, recoverable costs and construction loans. There is no assurance that the related parties will provide future funding. 60 Walton Big Lake Development L.P. Annual Report 2013

61 WALTON BIG LAKE DEVELOPMENT L.P. Notes to the Financial Statements For the years ended December 31, 2013 and December 31, 2012 (Expressed in Canadian dollars) The future undiscounted obligations of the Partnership as at December 31, 2013 are as follows: thereafter Project debt 7,954, Accounts payable and accrued liabilities 6,314, Due to related parties 7,938, ,207, ii. 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 and recoverable costs receivable- Changes in market interest rates will cause fluctuations in the future interest earned on these balances. Any resulting impact on the Partnership s financial results would not be considered material. Project debt Changes in market interest rates will cause fluctuations in the amount of interest incurred on any project debt outstanding. Assuming that the amount of project debt remains unchanged from December 31, 2013 and that the change in interest rate was effective from the beginning of the year, a 1% change in prime interest rates would have resulted in a $79,543 change in the financing costs capitalized by the Partnership during the year ended December 31, In order to manage the Partnership s exposure to such risk, management regularly monitors prime lending rates to determine what steps, if any, are required to minimize the Partnership s exposure to interest rate risk. Such steps may include the Partnership fixing the interest rate of all or any part of its project debt. Fluctuations in prime lending rates to date have not been significant and, as a result, such risk minimizing steps have not been undertaken. iii. Currency risk The Partnership does not engage in foreign currency dominated transactions. As a result, it has no exposure to foreign currency risk. Annual Report 2013 Walton Big Lake Development L.P. 61

62 WALTON BIG LAKE DEVELOPMENT L.P. Notes to the Financial Statements For the years ended December 31, 2013 and December 31, 2012 (Expressed in Canadian dollars) 13. COMMITMENTS The following table presents future commitments of the Partnership under the Management Services Agreement and the Agency Agreements until December 31, It does not include the performance fee payable to WDM under the Project Management Agreement (note 10), which is calculated based on the amount of distributions paid by the Partnership. These commitments will be funded through future revenues generated by the Partnership and the capital resources available to the Partnership. Servicing fee Management fee Total $ $ $ , , , , , , , ,952 1,077,300 The commitment for the management fee (note 10) will extend for the length of the project. However, after December 31, 2015, it will be calculated based on the book value of the Property at the end of the previous calendar quarter, which cannot be reasonably estimated at this time. As noted in note 6, the Partnership also has a commitment to complete construction of infrastructure required as part of the development agreement with the City of Edmonton. While a portion of these costs are recoverable in nature, there is an element of these costs that will be absorbed by the Partnership. 14. CAPITAL MANAGEMENT The Partnership defines capital as total Partners Equity, Project Debt and balances Due to Related Parties. At December 31, 2013 the total capital managed was $30,297,417 (December 31, $35,403,457) The Partnership s objectives when managing capital are to: (i) (ii) (iii) ensure adequate capital is retained by the Partnership to obtain construction loans to fund construction of the project; ensure that the Partnership is able to meet all obligations relating to the entity and the development of the land, through sale of the lots and maximize the rate of return to our unit holders. The Partnership manages the capital structure by using short and long term cash flow projections to determine that the amount of cash available to meet on-going obligations is either retained by the Partnership, available through construction loan facilities or is available through agreements with related parties. Project Debt is intended to be utilized to finance future phases of development which may require partial or full guarantees by WIGI to obtain or maintain facilities at market rates. 62 Walton Big Lake Development L.P. Annual Report 2013

63 WALTON BIG LAKE DEVELOPMENT L.P. Notes to the Financial Statements For the years ended December 31, 2013 and December 31, 2012 (Expressed in Canadian dollars) There were no changes to the way we define capital, our objectives, and our policies and processes for managing capital from the prior fiscal year. The Partnership is in compliance with all conditions under the Phase 1 Facility as at December 31, These conditions are non-financial in nature. Annual Report 2013 Walton Big Lake Development L.P. 63

64 WALTON GROUP OF COMPANIES The Walton Group of Companies (Walton) is a family-owned, multinational real estate investment, planning, and development firm concentrating on the research, acquisition, administration, planning and development of strategically located land in major North American growth corridors. With more than 83,000 acres* of land under administration and management, Walton is one of North America s premier land asset administrators and managers. Walton has been in business for over 30 years. We take a long-term approach to land planning and development. Our expertise in real estate investment, land planning and development 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 community stakeholders. Our goal is to build communities that will stand the test of time: hometowns for present and future generations. *As of December 31, Walton Big Lake Development L.P. Annual Report 2013

65 MEMBERS OF THE WALTON GROUP OF COMPANIES INCLUDE: WALTON BIG LAKE DEVELOPMENT CORPORATION is the General Partner of the Walton Big Lake Development L.P. WALTON ASSET MANAGEMENT is the manager of Walton Big Lake Development L.P. WALTON DEVELOPMENT AND MANAGEMENT is the project manager for Walton Big Lake Development L.P. WALTON CAPITAL MANAGEMENT is a registered exempt market securities dealer which distributed limited partnership units for Walton Big Lake Development L.P. WALTON INTERNATIONAL GROUP is a partner in the Walton Big Lake Development L.P., with a minority interest. WALTON GLOBAL INVESTMENTS is the parent company of the Walton Group of Companies. Annual Report 2013 Walton Big Lake Development L.P. 65

66 BOARD OF DIRECTORS WILLIAM (BILL) DOHERTY Chief Executive Officer Walton Big Lake Development L.P. Bill Doherty leads the Walton Group of Companies as Chief Executive Officer of Walton Global Investments Ltd., and as an actively-involved Director and Executive with several Walton Group affiliates. Overseeing an innovative and dynamic enterprise that has grown into a leading North American real estate investment and development group, Bill is deeply involved in Walton s growing array of business relationships with leading international investment banks, broker-dealers, financial advisors and institutional investors. He is central to Walton s strategic direction and expansion and has directed the launch of Walton s Asian, USA and European operations; recruited experienced industry leaders to form Walton Development and Management L.P.; and has overseen the diversification of Walton s real estate portfolio from an original base in Calgary to significant positions in and around Alberta, Ontario, Arizona, Texas, Georgia, Washington D.C., the Carolinas, California and Florida. D. BLAIR NIXON, QC, FCA, ICD.D Chief Financial Officer Walton Big Lake Development L.P. Blair Nixon is Chief Financial Officer of Walton Global Investments Ltd., responsible for finance operations across the Walton Group of Companies. Mr. Nixon is both an experienced tax lawyer and a chartered accountant. He was Co-Managing Partner of law firm Felesky Flynn LLP, where he practiced tax law for 20 years. He is ranked as a leading business lawyer by Chambers Global, Lexpert and Martindale-Hubbell. He has been a guest lecturer for the Canadian Tax Foundation, the Institute of Chartered Accountants of Alberta and the Canadian Institute of Chartered Accountants. Mr. Nixon is an elected Member and President of the Council for the Institute of Chartered Accountants of Alberta, and past Chair of the Canadian Bar Association s National Commodity Tax, Customs and Trade Section. He was appointed Queen s Counsel by the Province of Alberta, awarded the FCA designation by the Institute of Chartered Accountants of Alberta, and holds the ICD.D certification granted by the Institute of Corporate Directors. LESLIE L. FRYERS, QC, ICD.D Corporate Secretary Walton Big Lake Development L.P. Leslie Fryers, Executive Vice President, Law for Walton Global Investments Ltd., oversees the worldwide legal services for the Walton Group of Companies. Previously, Leslie enjoyed three decades of successful private practice, concentrating on mergers and acquisitions. She has lectured extensively at legal seminars, is a past Chair of the Board of Directors of the Legal Education Society of Alberta and is currently a Member of The Association of General Counsel of Alberta. Leslie was appointed Queen s Counsel by the Province of Alberta, and has been granted the ICD.D distinction from the Institute of Corporate Directors. She is a Member of the Law Society of Alberta, and holds a Law degree from McGill University. 66 Walton Big Lake Development L.P. Annual Report 2013

67 CLIFFORD H. FRYERS Director Walton Big Lake Development L.P. Clifford H. Fryers is the Chairman and Chief Executive Officer of White Iron Inc. and Stampede Entertainment Inc., both entertainment companies. He recently retired as the Chair of the Board of the Manning Centre for Building Democracy and the Manning Foundation for Democratic Education. He is also former Chairman of the Board of Directors for ENMAX Corporation. Mr. Fryers is on the board of directors of several companies in the Walton Group. He was on the Board of Advisors of Walton Global Investments Ltd. for eight years, retiring as Vice Chairman in November of From 1997 until 2000, Mr. Fryers was Chief of Staff to the Leader of Her Majesty s Official Opposition in the House of Commons. Prior to that, he was a Senior Tax Partner and Managing Partner with the law firm of Milner Fenerty (now Dentons LLP) which he joined in He worked in the Tax Litigation Section of the Department of Justice, Ottawa from 1971 to 1977 and then as General Tax Counsel for Mobil Oil Canada, Ltd. until Mr. Fryers holds the ICD.D certification granted by the Institute of Corporate Directors. JON N. HAGAN Director Walton Big Lake Development L.P. Jon N. Hagan is principal of JN Hagan Consulting, providing assistance to major corporations regarding real estate capital markets, and acquisition and disposition transactions covering situations across North America and China. He is also a director and member of the audit and executive committees of the board of directors of First Capital Realty Inc. and is a former director and member of various committees of Bentall Kennedy Group. Previously, he was a trustee of Sunrise Senior Living Real Estate Investment Trust and was the chair of the audit committee thereof. He has also been Chairman of Teranet Income Fund and a director and on the audit committee of the board of directors of The Mills Corporation. In addition to board service, Jon has held a number of executive finance positions with real estate industry leaders including Oxford, Cambridge Shopping Centres, Empire Company Limited and Cadillac Fairview Corporation. Jon is a chartered accountant, holds a BSc in Mechanical Engineering from the University of Saskatchewan and attended the Executive MBA program at the University of Alberta. RICHARD R. SINGLETON Director Walton Big Lake Development L.P. Richard R. Singleton was a lead architectural partner with Cohos Evamy Partners, Architects, Engineers and Planners (now Dialogue Design) for 36 years. Since retiring in 2008, he has consulted and provided assistance to developers in various planning and building projects. In addition, Richard is on the board of directors of several companies in the Walton Group. He is presently a director of the National Music Centre (Cantos Foundation), a member of the Advisory Board of Thermal Systems KWC. Ltd, a past member of the Calgary Arts Development Authority and a board member of a private real estate investment group. He is a former member of the Board of Advisors of Walton Global Investments Ltd. Richard holds a Bachelor of Architecture from the University of Manitoba and is LEED accredited. Annual Report 2013 Walton Big Lake Development L.P. 67