ANNUAL REPORT. Walton Big Lake Development L.P. ANNUAL REPORT For the year ended December 31, 2011

Transcription

1 ANNUAL REPORT Walton Big Lake Development L.P Walton Big Lake Development L.P. Edmonton, Alberta March 2012 ANNUAL REPORT For the year ended December 31, 2011

2 Walton Big Lake Development L.P. Edmonton, Alberta ANNUAL REPORT 2011

3 CONTENTS Walton Big Lake Development L.P. Edmonton, Alberta Fall 2011 Walton Big Lake Development L.P. Edmonton, Alberta March 2012 CEO Message to Unitholders Management s Discussion and Analysis Financial Statements Directors and Officers 2011 Annual Report Walton Big Lake Development L.P. 3

4 CEO Message to Unitholders We are pleased to present the Annual Report for Walton Big Lake Development L.P. (the Partnership ). Launched in 2010, the Partnership owns a three-phase residential development located in northwest Edmonton. As you read through this report, which details the Partnership s full year of operations, you will see the factors that contribute to our confidence in this project it is strategically situated in the anticipated path of growth, it is professionally-managed and it follows a well-developed strategy that is consistent with local priorities. Project Milestones We have focused our efforts on meeting specific development criteria throughout the life of this project. While the project has experienced some delays in achieving the Phase 1 development objectives during the year, management expects that the project will be completed within the approximate time frame disclosed in the prospectus. The following summarizes several milestones relating to the Partnership: Q Obtained Phase 1 financing of $27.4 million from Sun Life Financial consisting of $25.2 million in construction financing and $2.2 million in letters of credit. Q Obtained signed purchase and sale agreements from four home builders for Phase 1 of the project. These agreements represented approximately 66% of Phase 1 s anticipated single-family and semi-detached lot inventory. Q Completed onsite grading for Phase 1. Additionally, we obtained approvals for Phase 1 rezoning and for the plan of subdivision, which are notable and important steps in the development process. Q Completed construction of onsite underground utilities for Phase 1-committed lots. Also in the fourth quarter of 2011, a cash distribution was made to limited partners in the amount of $1.00 per unit. East facing Walton Big Lake Development L.P. Edmonton, Alberta Walton Big Lake Development L.P. Edmonton, Alberta Grading Annual Report Walton Big Lake Development L.P.

5 Edmonton Market Environment Edmonton s GDP is forecasted to grow 3.4% in 2012 and unemployment is projected to drop from 5.5% at the end of 2011 to 5.2% in Edmonton s economy is fuelled by a strong energy sector comprised of primary and secondary industries that support the exploration, mining and processing of oil from the Athabasca oilsands of the industrial north. There is renewed interest and significant investment into several long-term mega projects that should provide stimulus and benefits not only to Edmonton s energy-related industries but also to increasingly diversified non-related industries within the larger economy. Edmonton s strong economic prospects are anticipated to create a significant number of new jobs in 2012, increasing total employment in Edmonton. Edmonton is forecasted to add approximately 10,000 jobs in 2012, bringing total employment in Edmonton to approximately 681,000 jobs 1. Increased employment will contribute to accelerated in-migration, and will result in population growth, further supporting housing demand. Lot servicing activity has continued its positive trend in 2011 since hitting low levels during the recession in Given the expected increase in housing demand, combined with the slowdown in the growth of housing supply seen in 2009, we anticipate that new housing units will need to be brought to market to keep up with expected demand which will benefit the project. Total housing starts for 2012 are forecasted to be approximately 9,820 units 2. Goals Overall, the Partnership s development project is proceeding as planned. Our goals for 2012 are to: complete Phase 1 construction and open showhomes to public; obtain contractual commitments from homebuilders for the remaining Phase 1 lots; initiate Phase 2 construction approval; and make a second distribution to limited partners before year-end. As Canada and the U.S. move into the next phase of economic growth in 2012, Walton maintains an optimistic outlook for our managed real estate investments. Our investment team is working collaboratively with local authorities to create successful, smart-growth communities that realize the highest and best use of our lands, ultimately achieving your and our investment goals. Our experience is that, with expert management and Walton s carefully crafted approach, quality investments prevail. Thank you for your investment in the Partnership, and thank you for your support and confidence in the Walton Group of Companies. Best regards, Bill Doherty Chief Executive Officer Walton Big Lake Development Corporation, General Partner of Walton Big Lake Development L.P. 1) Conference Board of Canada, Metropolitan Outlook Winter 2012, retrieved February 27, ) Conference Board of Canada, Metropoitan Outlook 1 Winter 2012, Economic Insights Into 13 Canadian Metropolitan Economies 2011 Annual Report Walton Big Lake Development L.P. 5

6 Management s Discussion & Analysis For the three and twelve months ended December 31, 2011 March 26, 2012 The following management s discussion and analysis ( MD&A ) is a review of the financial condition and results of operations of Walton Big Lake Development L.P. (the Partnership ) for the three month and twelve months ended December 31, The MD&A should be read in conjunction with the Partnership s audited financial statements for the year ended December 31, All financial information is reported in Canadian dollars. The Partnership has completed its transition to International Financial Reporting Standards ( IFRS ) with a transition date of September 13, 2010, the date the Partnership was formed. As a result, all financial information reported has been prepared in accordance with IFRS, unless specifically indicated otherwise. 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 that have the most significant effect on the amounts recognized in the Partnership s financial statements are for the recoverability of land held for development and land development costs. In assessing the recoverability of land held for development and land development costs, 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 amount of the recovery of land held for development and land development costs to differ materially from the carrying amount of those assets. Forward-looking Statements Certain information set forth in this material, including the disclosure of the anticipated completion dates of key project milestones, are 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, the estimated time required for construction, 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 as 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 Big Lake Development Corporation (the General Partner ) Annual Report Walton Big Lake Development L.P. Management s Discussion & Analysis

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 March 26, Business Overview The Partnership was established on September 13, 2010 for the purpose of providing investors with the unique opportunity to participate in the development of the acre "Big Lake" property located in Edmonton, Alberta (the "Property"). The Partnership s investment objectives are: i.) to preserve limited partners' capital; and ii.) to provide annual cash distributions to the limited partners beginning in 2011 until the completion of the project, which is anticipated to be in December of 2015 and projected to represent a net internal rate of return of 13.5% over this period. The Partnership intends to meet its investment objectives through a four- step strategy: i.) acquire the Property without the use of leverage; ii.) obtain contractual commitments from home builders to purchase lots to be serviced in each of the three planned phases of the development of the Property before construction commences on that phase; iii.) construct municipal services infrastructure on the Property in phases to provide a controlled supply of serviced lots to the marketplace; and iv.) use the revenue from the sale of the serviced lots to repay construction loans and other obligations of the Partnership and then make distributions to the limited partners. The Property is located in Edmonton s northwest quadrant. It is situated approximately one kilometre north of Yellowhead Trail (Highway 16) and about two kilometres northwest of the major new interchange at Yellowhead Trail and Anthony Henday Drive (which is part of the new Edmonton ring road). The Property is situated just west of Edmonton s Transportation Utility Corridor (TUC), in which the Edmonton ring road is being constructed to provide convenient access to the employment centres in both north and south Edmonton. Overall, the Big Lake development plan consists of three phases of development over an anticipated five- year time frame, including approximately 551 single- family and semi- detached homes, plus one multi- family site and two mixed- use sites. Project amenities include a central wetland area, a future school park site, Big Lake itself, Lois Hole Centennial Provincial Park, which borders Big Lake to the north, and a series of interconnected walkways and trails that should enhance the overall amenity value of the community Annual Report Walton Big Lake Development L.P. Management s Discussion & Analysis 7

8 Distributions by the Partnership are neither guaranteed nor will they be paid in a steady or stable stream. The amounts 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 ( WAM ) and Walton Development and Management L.P. ( WDM ) (including the performance fee), and (ii) any amounts outstanding, on a phase by phase basis, under the construction loans required to develop the Property. The performance fee is only payable provided that the limited partners have received distributions equal to $10.00 per unit, plus a simple cumulative priority return thereon, equal to 6% per annum. The registered office and principal place of business is 23 rd floor, th Avenue SW, Calgary, Alberta, T2P 3H5. Annual Financial Data For the year ended December 31, 2011 For the period September 13, 2010 to December 31, 2010 Total revenues ($) 39,213 22,238 Total expenses ($) 671, ,523 Net loss and comprehensive loss ($) 632, ,285 Weighted average units outstanding 1 2,098, ,344 Basic and diluted net loss per unit ($) 1, Distributions declared on limited partnership units ($) 1.00/unit - As at December 31, 2011 As at December 31, 2010 As at September 13, 2010 Total assets ($) 25,338,516 22,010, Total liabilities ($) 6,647, ,114 2,559 Total equity ($) 18,690,863 21,655,380 (2,459) Limited partner units outstanding end of period 2,3 2,098,360 2,331, Weighted average units outstanding and basic net loss per unit 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 As at September 13, 2010, the only limited partnership unit outstanding was the initial limited partner unit. In accordance with the Limited Partnership Agreement, the initial limited partnership unit was redeemed by the Partnership for total consideration of $50 as a return of capital during the fourth quarter of On November 28, 2011, the limited partnership units were consolidated such that 1 limited partnership unit prior to the consolidation became of a unit after the consolidation Annual Report Walton Big Lake Development L.P. Management s Discussion & Analysis

9 Review of Operations Summary The year ended December 31, 2011 marked the first full year of operations for the Partnership. During the year, the Partnership continued to take steps toward the fulfillment of its project plan. The key activities undertaken by the Partnership during the year were as follows: During the second quarter of 2011, the Partnership obtained signed purchase and sale agreements from four builders who will participate in Phase 1 of the Big Lake Development Project. The purchase and sale agreements secured 66% of Phase 1 s anticipated single family and semi- detached lot inventory. Onsite grading for Phase 1 was completed in the third quarter of The Phase 1 rezoning and plan of subdivision was approved by the City of Edmonton in the third quarter of The construction of onsite underground utilities for Phase 1 committed lots was completed during the fourth quarter of The construction of offsite underground utilities and onsite underground utilities for the remaining lots commenced during the fourth quarter of Onsite and offsite road construction commenced during the fourth quarter of In September 2011, the Board of Directors approved a cash distribution on limited partnership units in the amount of $1.00 per unit, and a cash distribution on the general partner unit of $23. The total amount of the distributions paid out by the Partnership in November 2011 was $2,331,955. This was followed by a consolidation of the limited partnership units, which resulted in a decrease in the limited partnership units outstanding from 2,331,932 to 2,098,360. During the year ended December 31, 2011, the Partnership generated total revenues and expenses of $39,213 and $671,775, respectively. The revenues for the year consisted of interest revenue earned on the Partnership s cash balance. The most significant expenses of the Partnership during year were the asset management fees of $433,976, which were paid in accordance with the Management Services Agreement; and the servicing fees of $104,674, which were paid in accordance with the Agency Agreements. The nature and amount of the expenses incurred by the Partnership during the year were consistent with management s expectations. The overall net loss incurred by the Partnership during the year was also consistent with management s expectations because the Partnership is not expected to generate significant revenue, except during periods when the sale of lots is completed. The revenues, expenses and net loss generated by the Partnership during the year ended December 31, 2011 were significantly higher than the revenues, expenses and net loss generated by the Partnership during the year ended December 31, Management does not consider the results to be comparable however, because the year ended December 31, 2010 was the first year of operations of the Partnership, and hence was only a partial year. Although the project remains on track financially, the project has experienced some delays in achieving the Phase 1 milestones during the year. Notwithstanding these delays, management expects that the project will be completed within the approximate five- year time frame disclosed in the Prospectus and Offering Memorandum (collectively, the Offering Documents ). Analysis of Financial Condition As at December 31, 2011, the Partnership had total assets of $25,338,516, total liabilities of $6,647,653 and total partners equity of $18,690,863. The major components of the Partnership s total assets were land held for development of $18,750,986, capitalized land development costs of $6,218,634, GST recoverable of $205,760 and cash of $162,073. The major components of the total liabilities were trade payables and accrued liabilities of $2,909,354, project debt of $2,200,955 and deferred revenue of $1,465, Annual Report Walton Big Lake Development L.P. Management s Discussion & Analysis 9

10 Although the balance of trade payables as at December 31, 2011 was significant relative to the Partnership s balance of cash and receivables, the Partnership is adequately capitalized with $23 million in available capacity on the construction loan (see liquidity and capital resources). Of the trade payables and accrued liabilities balance of $2,909,354, $2,826,644 was related to land development costs and will be funded through the construction loan. The remaining balance of trade payables and accrued liabilities will be funded through the cash balance of the Partnership. Management expects that the Phase 1 construction loan will be sufficient to finance the remaining development costs for Phase 1 of the project. Management also expects that the aggregate of the cash on hand as at December 31, 2011 and the expected cash receipts during the 2012 year will be sufficient to finance the operating costs of the Partnerships during Phase 1 of the project. As long as the project continues as anticipated, the Partnership does not foresee any significant challenges in financing or completing the remaining phases of the project. Partnership Distributions and Unit Consolidation On September 27, 2011, the Board of Directors approved a cash distribution on limited partnership units in the amount of $1.00 per unit, and a cash distribution on the general partner unit of $23. On November 28, 2011, the distributions were made by the Partnership, resulting in total distributions of $2,331,932 to the limited Partners and $23 to the General Partner. 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 2,331,932 to 2,098,360. Replacement unit certificates were not issued by the Partnership to reflect this consolidation. Land Development Costs The following table provides a breakdown of the amounts capitalized to land development costs by nature as at December 31, As at December 31, 2011 $ As at December 31, 2010 $ As at September 13, 2010 $ Land development 4,209,680 22,887 - Planning 1,368,669 78,003 - Financing 515, ,000 - Project management 75, Legal 49,462 4,784 - Total land development costs 6,218, ,674 - Land development costs can be divided into two primary categories: hard construction costs, which are the costs related to the physical improvement of the land, and soft costs, which include but are not limited to, costs associated with architectural control consultants, financing fees for establishing construction loans and security, legal fees, municipal taxes and construction management, and appraisal fees. Planning, legal, financing and project management fees are all soft costs associated with the project, while land development costs include both hard development costs and soft costs Annual Report Walton Big Lake Development L.P. Management s Discussion & Analysis

11 In total, land development costs increased by $5,987,960 during the year from $230,674 at December 31, 2010 to $6,218,634 at December 31, The increase in land development costs were attributed to: Hard construction costs for the physical development of Phase 1 - $3,472,937 Soft costs for the financing of Phase 1 - $390,696 Other soft costs for the planning, design, development, and management of Phase 1 $2,124,327 The land development costs incurred from December 31, 2010 to December 31, 2011 were consistent with the amounts anticipated by management for the work completed during the year. Asset Management Fees Asset management fees are paid in accordance with the Management Services Agreement between the Partnership and WAM. Under the terms of the Management Services Agreement, WAM will provide management and administrative services to the Partnership at an annual 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 organizational costs of $267,839; b.) the net proceeds raised from the private placement ( Private Placement ) of $4,284,145, calculated as the gross proceeds raised of $4,644,060, net of selling commissions of $243,813, work fees of $46,441 and organizational costs of $69,661; 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. During the year ended December 31, 2011, the Partnership incurred total asset management fees of $433,976, compared to total asset management fees incurred during the period from September 13, 2010 to December 31, 2010 of $42,826. The year over year increase in the asset management fees was a result of such fees commencing on November 17, 2010, which was the date that the initial public offering was completed. Servicing Fees Under the terms of the Agency Agreements between the Partnership and the agents contracted to sell units in the Partnership through the IPO and Private Placement, the Partnership has servicing fees payable to WAM (which it will then pay to the agents on behalf of the Partnership) equal to 0.5% of the net proceeds raised through the IPO and the Private Placement, until the earlier of the dissolution of the Partnership and December 31, During the year ended December 31, 2011, the Partnership incurred total servicing fees of $104,674, compared to total servicing fees incurred during the period from September 13, 2010 to December 31, 2010 of $10,623. The year over year increase in the asset management fees were a result of such fees commencing on November 17, 2010 for the units issued through the IPO and December 21, 2010 for the units issued through the Private Placement Annual Report Walton Big Lake Development L.P. Management s Discussion & Analysis 11

12 Transactions with Related Parties On January 1, 2011, WDM acquired from WDMI all of its contracts and agreements, including WDMI s Project Management Agreement with the Partnership. As the management and staff of WDMI were also acquired as part of the transaction, the change in the counterparty of the Project Management Agreement has not had, and is not expected to have, any impact on the future operations of the Partnership. WAM, WDM, Walton International Group Inc. ( WIGI ) and the Partnership are all related to the General Partner of the Partnership by virtue of common management. The balances due to these related parties as at December 31, 2011, December 31, 2010 and September 13, 2010 are outlined in the table below. With the exception of the development fee payable to WDM and the amounts payable to WAM for the servicing fee, these amounts are unsecured, due on demand, bear no interest and have no fixed terms of repayment. The development fee payable to WDM is payable within 60 days of quarter- end. The servicing fee which is paid to WAM is payable semi- annually. As at December 31, 2011 $ As at December 31, 2010 $ As at September 13, 2010 $ Walton Development and Management L.P Walton International Group Inc. 1, ,324 2,559 Walton Asset Management L.P. - 53,449 - Total 71, ,773 2,559 The following transactions entered into between the related parties during the period were under terms and conditions agreed upon between the parties. Walton Asset Management L.P. In accordance with the Management Services Agreement between the Partnership and WAM, the Partnership incurred total asset management fees during the year ended December 31, 2011 of $433,976 (December 31, 2010 $42,826). In accordance with the Agency Agreements between the Partnership and its agents, the Partnership incurred total servicing fees during the year ended December 31, 2011 of $104,674 (December 31, $10,623). This servicing fee is payable to WAM, which is responsible for the distribution of the servicing fee to the agents. Walton Development and Management L.P. 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: i.) WDM will receive a development fee, plus applicable taxes, equal to 2% of certain development costs incurred in the calendar quarter. 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 6% priority return on any portion of unreturned capital Annual Report Walton Big Lake Development L.P. Management s Discussion & Analysis

13 For the year ended December 31, 2011, the total development fee charged to the Partnership was $69,459 (December 31, $nil). These costs have been capitalized as part of land development costs. No performance fee was incurred by the Partnership during the year ended December 31, 2011, nor for the period September 13, 2010 to December 31, 2010 because the $10 per unit amount and the cumulative priority return have not been received by the limited partners. The balance payable to WDM as at December 31, 2011 was comprised of costs the development fee and other costs of the Partnership which were initially funded by WDM but are reimbursable by the Partnership. Walton International Group Inc. The balance outstanding as at December 31, 2011 was comprised of costs which were initially funded by WIGI associated with the preparation of the Partnership s annual report which were initially funded by WIGI on behalf of the Partnership but are reimbursable by the Partnership. Key Management Compensation Key management personnel are comprised of the Partnership s directors and executive officers. The total compensation expense incurred by the Partnership relating to directors was as follows: For the year ended December 31, 2011 $ For the period September 13, 2010 to September 30, 2010 $ Director fees 52,090 14,136 All services performed for the Partnership by its executive officers 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. Non-Financial Indicators The amount of revenues generated by the Partnership is not expected to be significant until the sale of lots commences. As a result, the financial statements alone are not a good indicator of the progress of the Partnership toward its investment objectives. Included below are key non- financial indicators used by management in evaluating the performance of the Partnership. Key Milestones For Phase 1 of the project, the key milestones used by management include those presented in the Offering Documents. The Partnership s progress toward these milestones has been summarized in the following table Annual Report Walton Big Lake Development L.P. Management s Discussion & Analysis 13

14 Walton Big Lake Development L.P. Key Project Milestones for Phase 1 Anticipated steps to completion Anticipated completion date per Offering Documents Status Form home builder syndicate and meet lender pre- sale test requirement October December, 2010 Completed first quarter 2011 Initiate preliminary grading of Phase 1 lands for show homes only November December, 2010 Completed in September 2011 Purchase Property December 2010 February 2011 Completed December 2010 Submit application to subdivide Property and obtain subdivision approval. Negotiate final terms of bank financing for construction loan Execute home builder purchase and sale agreements for Phase 1 single- family lots and obtain deposits January February, 2011 Completed in July 2011 January February, 2011 Completed November 2010 January, 2011 Purchase and sale agreements for 66% of Phase 1 single- family and duplex lots were obtained in May Complete onsite grading April May, 2011 Completed in September 2011 Complete underground utility construction (onsite and offsite) June July, 2011 Onsite underground utility construction for committed Phase 1 lots completed November Onsite underground utility construction for remaining Phase 1 lots are anticipated to be completed by the end of June Complete roadway construction (onsite and offsite) August September, 2011 Obtain subdivision plan registration October, 2011 Offsite underground utility construction commenced in November 2011 and is anticipated to be completed by the end of June Onsite roadway construction commenced in November 2011 and is anticipated to be completed in June Offsite roadway construction commenced in November 2011 and is anticipated to be completed by the end of December Anticipated to be completed in April Annual Report Walton Big Lake Development L.P. Management s Discussion & Analysis

15 In comparison with the anticipated completion dates included in the Offering Documents, the milestones for Phase 1 are behind initial expectations. This was primarily a result of: i.) approvals to initiate construction from the City of Edmonton taking longer than anticipated; and ii.) rezoning and subdivision approvals from the City of Edmonton for Phase 1 taking longer than anticipated. Despite the delays experienced for Phase 1 of the project, management expects that the development schedule for the overall project will be achieved. Lot Activity Report The table below provides an update on lot activity for Phase 1 of the project as at December 31, 2011 and December 31, As at December 31, 2011 As at December 31, 2010 Lots released Lots committed to by home builders Third- party sales Lot closings (1) Lots released refer to the number of single- family lots that were made available to the home builders for the construction and sale of new homes. (2) Lots committed to by home builders refer to the number of lots that the home builders commit to purchasing. (3) Third- party sales refer to the number of single- family home sales achieved by the home builders. (4) Lot closings refer to the number of lots for which full payment is received. The Partnership will not initiate construction on any phase of the project until contractual commitments to acquire a minimum of 40% of the single- family home lots are secured or such other amount as is acceptable to the lenders of the construction facility. The Partnership reached the minimum contractual commitment level relating to Phase 1 during the second quarter of 2011, when four builders made contractual commitments for 107 of the 162 available lots. As a result, the Partnership commenced construction for Phase 1 during the second quarter of Management anticipates that commitments for the remaining 55 Phase 1 lots will be secured from homebuilders before the end of Due to the seasonality of the housing market and the amount of planning, construction and marketing efforts required to bring Phase 1 to a stage where third- party sales will commence, the Partnership does not expect there to be a significant change in the lots committed until the second half of Until that time, the Partnership will continue to work toward completing the remaining milestones for Phase 1, and begin working toward some of the milestones for Phase 2. Phases 2 and 3 The steps to complete Phases 2 and 3 of the project are substantially the same as the milestones for Phase 1. Management is currently in the process of finalizing the anticipated completion dates for the Phase 2 milestones. The commencement dates for Phase 3 and the expected completion dates of the Phase 3 milestones will be determined closer to the completion of Phase Annual Report Walton Big Lake Development L.P. Management s Discussion & Analysis 15

16 Review of Fourth Quarter Operations During the fourth quarter of 2011, the Partnership continued to take steps toward the fulfillment of its project plan. The Partnership undertook the following activities during the fourth quarter of 2011: the construction of onsite underground utilities for Phase 1 committed lots was completed; the construction of offsite underground utilities and onsite underground utilities for the uncommitted lots was commenced; onsite and offsite road construction was commenced; cash distributions were paid to the limited partners and the general partner totalling $2,331,955 and $23, respectively; and a consolidation of the limited partnership units was completed, which resulted in a decrease in the limited partnership units outstanding from 2,331,932 to 2,098,360. Although some of the above activities were commenced or completed later than initially anticipated by management, these delays are not expected to affect the ability of the Partnership to complete the project within the approximate five- year time frame disclosed in the Offering Documents. During the fourth quarter of 2011, the Partnership generated total revenues of $7,447 compared to $22,238 in total revenues during the fourth quarter of The quarter over quarter decrease in revenue was a result of a decrease in the interest income earned on the Partnership s cash balance. The total expenses of the partnership incurred during the fourth quarter of 2011 were $186,114 compared to total expenses during the fourth quarter of 2010 of $415,523 during the fourth quarter of The total expenses incurred during the fourth quarter of 2010 were significantly higher than the costs incurred during the fourth quarter of 2011 due to a one- time charge of $337,500 for costs relating to the Partnership s IPO and Private Placement. This was partially offset by an increase in the total servicing fees and management fees incurred during the fourth quarter of 2011, which were only in effect for a portion of the fourth quarter of The nature and amount of the expenses incurred by the Partnership during the fourth quarter of 2011 were consistent with management s expectations. The overall net loss incurred by the Partnership during the fourth quarter of 2011 was also consistent with management s expectations because the Partnership is not expected to generate significant revenue, except during periods when the sale of lots is completed Annual Report Walton Big Lake Development L.P. Management s Discussion & Analysis

17 Summary of Quarterly Results A summary of operating results for the past five quarters is as follows: Three months ended December 31, 2011 September 30, 2011 June 30, 2011 March 31, 2011 December 31, ,3 Total assets ($) 25,338,516 23,997,427 23,873,911 22,246,613 22,010,494 Total liabilities ($) 6,647,653 5,127,897 2,520, , ,114 Total equity ($) 18,690,863 18,869,530 21,353,665 21,505,354 21,655,380 Total revenue ($) 7,447 12,732 10,895 8,139 22,238 Total expenses ($) 186, , , , ,523 Net loss and comprehensive loss ($) 178, , , , ,285 Weighted average units outstanding 1,4 2,098,360 2,098,360 2,098,360 2,098, ,344 Basic net loss per unit 4 ($) Limited partner units issued during the period ,331,932 Limited partner units outstanding 2,098,360 2,331,932 2,331,932 2,331,932 2,331,932 end of period Distributions declared ($) /unit 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 Partnership was formed on September 13, As a result, the period ended December 31, 2010 was from September 13, 2010 December 31, Management has assessed the impact of IFRS on the opening balance sheet as at September 13, 2010 and on the results of operations for the period from September 13, 2010 to December 31, 2010 as a result of the adoption of IFRS. The transition to IFRS did not have any impact on the opening balance sheet or the results of operations for the period ended December 31, 2010, and as a result, there were no Canadian GAAP to IFRS adjustments for the period ended December 31, Weighted average units outstanding and net loss per unit for all periods presented has been restated to reflect the unit consolidation which was completed on November 28, During the period ended December 31, 2010, the main focus of the Partnership was to raise sufficient capital to enable the Partnership to execute its investment strategy. This was accomplished through the successful completion of the IPO and Private Placement on November 17, 2010 and December 21, 2010, respectively. The Partnership incurred organizational costs of $337,500 relating to these offerings. Having successfully completed the offerings in 2010, the majority of the Partnership s contractual expenses commenced during the fourth quarter of As a result, total expenses of the Partnership from the first quarter of 2011 to the fourth quarter of 2011 have remained relatively stable with the exception of the fourth quarter of 2011 where expenses were higher than the previous quarters due to expenses relating the Partnership s annual financial reporting obligations. The amount and nature of the expenses incurred over the past five quarters are consistent with the costs anticipated by management and as disclosed in the Offering Documents. Since the expenses incurred by the Partnership during the three months ended December 31, 2011 and each of the previous four quarters have exceeded the revenues earned, the Partnership has incurred a net loss in each of those periods. These losses are consistent with management s expectations because the ongoing expenses of the Partnership are expected to exceed the revenues earned, until the sale of lots commences Annual Report Walton Big Lake Development L.P. Management s Discussion & Analysis 17

18 Supplemental Information Change in Accounting Standards In February 2008, the Accounting Standards Board announced that it would be mandatory in Canada for profit- oriented publicly accountable entities to report under IFRS for fiscal periods beginning on or after January 1, The Partnership adopted IFRS on January 1, 2011, with a transition date of September 13, 2010, the date the Partnership was formed. The guidance for the first time adoption of IFRS is set out in IFRS 1, which provides for certain mandatory and optional exemption for the first time adopters of IFRS. The Partnership has elected to not apply any of the optional exemptions in preparing the Partnership s opening balance sheet. The adoption of IFRS resulted in the following changes in the Partnership s financial statements and note disclosures: The statement of accumulated deficit is not required under IFRS and has been excluded from these financial statements. This information is now included as part of the statement of changes in partners equity; The balance sheet and statement of loss and comprehensive loss have been renamed to the statements of financial position and the statements of comprehensive loss, respectively; The statements of financial position under IFRS are required to be classified, except where presentation based on liquidity provides information that is more reliable and more relevant. The operating cycle of the Partnership revolves around the sale of land, the timing of which is uncertain. As a result, the Partnership has adopted a liquidity based presentation for the statement of financial position, which is considered by management to provide information that is more reliable and relevant to the users of the financial statements; The expenses included in the statements of comprehensive loss are required to be classified either by nature or by function. Where presentation by function is selected, additional disclosure is required regarding the nature of certain expenses. The Partnership has classified all expenses by nature; IFRS requires that the notes to the financial statements provide an unreserved statement of compliance with IFRS. A statement of compliance with IFRS has been included in the note 2 of the financial statements; and IFRS requires additional related party disclosures. This has resulted in the Partnership disclosing compensation arrangements for key management personnel in note 7 of the financial statements. IFRS also requires that real estate be evaluated by management to determine if it meets the definition of investment property, inventory property, owner- occupied property or non- current assets held for sale. Land held for development has been designated by management as inventory property, which did not result in any changes to the carrying amount under IFRS. Future Changes in Accounting Policies 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 Annual Report Walton Big Lake Development L.P. Management s Discussion & Analysis

19 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. Fair value measurement IFRS 13: Fair Value Measurement ( 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 to sell an asset, or paid to transfer a liability in an orderly transaction between market participants, at the measurement date. Under existing IFRS, guidance on measuring and disclosing fair value is dispersed among the specific standards requiring fair value measurements and does not always reflect a clear measurement basis or consistent disclosures. IFRS 13 is effective for annual periods beginning after January 1, 2013, with early adoption permitted. The Partnership will adopt IFRS 13 for the annual year beginning on January 1, Currently, all financial instruments are initially recognized at fair value and subsequently carried at amortized cost. The Partnership also discloses the fair value of financial instruments in the notes to the financial statements. The adoption of IFRS 13 is not expected to result in any changes to the measurement and disclosure of the fair value of financial instruments. Liquidity and Capital Resources The Partnership has two sources of capital to finance its operations: i.) Of the gross proceeds raised under the Offerings, approximately 13.8% ($3.1 million) was set aside by the Partnership to pay for its ongoing administrative and operating expenses, management fee, development fee, pre- development costs, grading costs, construction costs and other expenses of the Partnership. As at December 31, 2011, the Partnership has total cash on hand of $162,073 (December 31, $2,626,501, September 13, $100), and an other receivable of $1,063 (December 31, $458,602, September 13, $nil). ii.) The Partnership has a construction loan with Sun Life Financial to help finance Phase 1 of the project. The construction loan consists of a $25.2 million non- revolving loan facility and $5.9 million letter(s) of credit. This loan is partially guaranteed by WIGI, which is required to maintain a minimum level of net worth stated in the borrowing agreement. The $5.9 million letter of credit has been issued to the City of Edmonton but has not been drawn upon. The total amount drawn on the construction loan at December 31, 2011 is $2,200,955 (December 31, $nil; September 13, $nil). It is anticipated that further construction loans will be required to fund the costs of development for Phase 2 and 3 of the project. Management regularly reviews the levels of its capital resources to determine if sufficient cash is available to fund the ongoing costs of the Partnership over the next twelve months. As at December 31, 2011, management believes that sufficient capital exists to fund the Partnership s activities for at least the next 12 months. WIGI monitors, on a quarterly basis, its net worth to ensure compliance with its obligations as a guarantor. As at December 31, 2011, WIGI is in compliance with this requirement, and foresees no circumstances or conditions which may be reasonably likely to cause WIGI to be offside with its obligations as guarantor over the next 12 months. Off-Balance Sheet Arrangements There were no off- balance sheet arrangements as at December 31, Annual Report Walton Big Lake Development L.P. Management s Discussion & Analysis 19

20 Financial Instruments The Partnership s financial instruments consist of other receivables, cash, project debt, trade payables and accrued liabilities, and amounts due to related parties. Other receivables and cash are classified as loans and receivables, and are carried at amortized cost using the effective interest rate method. Project debt, trade payables and accrued liabilities, and due to related parties have been classified as other financial liabilities, and are carried at amortized cost using the effective interest rate method. With the exception of project debt, the fair value of these financial instruments approximate their carrying value due to the short- term maturities of these items. The fair value of project debt approximates its carrying amount because the debt is due on demand and the interest rate on the debt is variable based on the prime lending rate. Financial instruments often expose an entity to liquidity, credit, currency or interest rate risk. Although it is management s opinion that the financial instruments of the Partnership do not give rise to significant liquidity, credit or currency risk, the Partnership is exposed to significant interest rate risk due to the variable interest rate charged on the project debt. Changes in market interest rates will cause fluctuations in the interest expense incurred on any project debt outstanding. During the year- ended December 31, 2011, a 1% increase in prime interest rates would have resulted in a $7,333 increase in the financing costs capitalized by the Partnership. A 1% decrease in prime interest rates would have a resulted in a $7,333 decrease in the financing costs capitalized by the Partnership. In order to manage the Partnership s exposure to such risk, management regularly monitors prime lending rates to determine whether the Partnership should take the necessary steps to fix 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. Outstanding Units As of the date of this MD&A, the Partnership has 2,098,360 limited partnership units outstanding. Commitments The following table presents future commitments of the Partnership under the Management Services Agreement and the Agency Agreements over the next five years. It does not include the WDM s performance fee under the Project Management Agreement, 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 $ , , , , , , , , , , , ,650 Total 418,696 1,735,904 2,154,600 The commitment for the management fee will extend for the length of the project, however, after December 31, 2015, it is 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 Annual Report Walton Big Lake Development L.P. Management s Discussion & Analysis

21 Corporate Governance Board of Directors The mandate of the Board of Directors is to oversee the management of the business of the General Partner and the Partnership, with a view to maximizing the Partnership s unitholder value, and ensuring corporate conduct in an ethical and legal manner via an appropriate system of corporate governance and internal control processes and procedures. The Board of Directors facilitates its exercise of independent supervision over management of the General Partner through, among other things: The adoption by the Board of Directors of a written mandate requiring that a majority of the members of the Board of Directors be independent of management; and The requirement, in the Board of Director s written mandate for its audit committee, that the audit committee be comprised solely of directors that are independent of management. The Board is comprised of Clifford H. Fryers, Jon N. Hagan and Richard R. Singleton. Within the meaning of National Instrument Audit Committees ( NI ), Jon N. Hagan and Richard R. Singleton are independent of management of the General Partner, while Clifford H. Fryers is not independent as his spouse is the Corporate Secretary of the General Partner. The only standing committee of the Board of Directors is the audit committee (the Audit Committee ), which consists of Jon N. Hagan and Richard R. Singleton. Personal Profiles Clifford H. Fryers Mr. Fryers has been Chairman and Chief Executive Officer of the White Iron Group of Companies (a media production house) since He also is the chair of the board of the Manning Centre for Building Democracy and is on the board of directors of several companies in the Walton Group, including the following reporting issuers: Walton Ontario Land 1 Corporation, being the general partner of Walton Ontario Land L.P. 1; Walton Edgemont Development Corporation; Walton Yellowhead Development Corporation; and Walton Westphalia Development Corporation. 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 Fraser Milner Casgrain 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 - Mr. Hagan has been the principal of JN Hagan Consulting since December He provides assistance to major corporations regarding real estate capital markets, and acquisition and disposition transactions covering situations in Canada, the United States of America, Mexico and China Annual Report Walton Big Lake Development L.P. Management s Discussion & Analysis 21

22 Mr. Hagan is also a director and member of the audit and executive committees of the board of directors of First Capital Realty Inc, which is a reporting issuer in Canada. He was formerly a director and member of the audit, human resources, corporate governance and investment committees of Bentall Kennedy Group from 2001 to He was a trustee of Sunrise Senior Living Real Estate Investment Trust from 2004 to 2007 and was the chair of the audit committee thereof. He was the Chairman of Teranet Income Fund from 2006 to He was a director and on the audit committee of the board of directors of The Mills Corporation for the first three months of 2007 to assist in the sale of The Mills Corporation. Mr. Hagan is also on the board of directors of the following reporting issuers within the Walton Group: Walton Ontario Land 1 Corporation, being the general partner of Walton Ontario Land L.P. 1; Walton Edgemont Development Corporation; Walton Yellowhead Development Corporation; and Walton Westphalia Development Corporation. Mr. Hagan has held a number of executive finance positions in the real estate industry, beginning with Oxford in the 1970s. His career took him to Cambridge Shopping Centres in 1980, where he eventually became Senior Vice- President, Corporate Group and Chief Financial Officer. He then joined the Empire Company Limited where he was Executive Vice- President, Finance and Corporate Development. From 1996 through 2000, he was Executive Vice President and Chief Financial Officer of Cadillac Fairview Corporation. Mr Hagan's experience spans corporate strategy, corporate and real estate finance, real estate acquisition and disposition, compensation programs, computer systems, financial reporting, forecasting and budgeting. Mr. Hagan is a chartered accountant. He 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 Mr. Singleton was one of the lead architectural partners with Cohos Evamy Partners, Architects, Engineers, Planners (now called Dialogue Design) for 36 years. He primarily focused on larger commercial projects and planning work in Alberta and throughout Canada. Mr. Singleton has been retired since 2008, and, during that time, he has consulted and provided assistance to developers in various planning and building projects. During his career, Mr. Singleton s work included major land planning and land parcel development projects primarily in Alberta and other major commercial projects in other parts of Canada. His experience spanned land use project financial proforma analyses, budgeting for land use and development projects, concept design and approval agency policy planning initiatives. Mr. Singleton is also on the board of directors of the following reporting issuers within the Walton Group: Walton Ontario Land 1 Corporation, being the general partner of Walton Ontario Land L.P. 1; Walton Edgemont Development Corporation; Walton Yellowhead Development Corporation; and Walton Westphalia Development Corporation. Mr. Singleton 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 was previously a member of the Board of Advisors of Walton Global Investments Ltd. Mr. Singleton holds a Bachelor of Architecture from the University of Manitoba and is LEED (Leadership in Energy and Environmental Design) accredited. LEED is a set of rating systems for the design, construction and operation of high performance green buildings, homes and neighborhoods. Compensation The Partnership has agreed to pay to each of the directors who are independent within the meaning of NI , an annual retainer of $25,000 per year, paid quarterly in advance. This amount was determined by the General Partner and the directors prior to the retention of the directors. 22 The executive officers of the General Partner do not receive any compensation from the General Partner or the Partnership Annual Report Walton Big Lake Development L.P. Management s Discussion & Analysis

23 Orientation and Continuing Education New directors will attend a briefing with existing directors on all aspects of the nature and operation of the Partnership s business from the existing directors and the senior management of the General Partner. Directors will be afforded the opportunity to attend and participate in seminars and continuing education programs and are encouraged to identify their continuing education needs through a variety of means, including discussions with senior management of the General Partner and at meetings of the directors. Outside experts may be retained, as appropriate, to provide directors with ongoing education on specific subject matters. Nomination of Directors The original members of the Board of Directors were appointed by the shareholder of the General Partner. If and when a director resigns, the remaining directors will identify a new director with a view to ensuring overall diversity of experience and skill. The new director may be appointed by the remaining directors or by the shareholder of the General Partner. Assessments The directors will regularly assess themselves with respect to their effectiveness and contribution. Audit Committee The primary function of the Audit Committee is to assist the Board of Directors in fulfilling their responsibility of oversight and supervision of the Partnership s accounting and financial reporting practices and procedures, the adequacy of internal controls and procedures, and the quality and integrity of its financial statements. In addition, the Audit Committee will be responsible for directing the auditors examination of specific areas, for the selection of the Partnership s independent auditors and for the approval of all non- audit services for which its auditors may be engaged, including the fees for such services. The Audit Committee currently consists of Jon N. Hagan and Richard R. Singleton. Each member of the Audit Committee is independent as contemplated by NI and each is financially literate, meaning that each has the ability to read and understand a set of financial statements that present a breadth and level of complexity of accounting issues that are generally comparable to the breadth and complexity of issues that can reasonably be expected to be raised by the financial statements of the Partnership. Ethical Business Conduct Directors who have, or may be reasonably perceived to have, a personal interest in a transaction or agreement being contemplated by the Partnership are required to declare such interest at any meeting at which the matter is being considered and, where appropriate, leave the meeting during the discussion and abstain from voting on such matter. The directors encourage and promote a culture of ethical business conduct by expecting each director, as well as the officers of the General Partner, to act in a manner that exemplifies ethical business conduct. The Partnership has established a Code of Business Conduct and Ethics to which all directors, officers and employees of the General Partner are required to adhere. This code requires that all such individuals conduct themselves in a professional and ethical manner, and that they must not condone or encourage unethical conduct. This code also requires that any individuals who are aware of dishonest activities or conduct to report the conduct to the President and CEO of the General Partner Annual Report Walton Big Lake Development L.P. Management s Discussion & Analysis 23

24 Whistleblower Policy The Partnership has established a Whistleblower Policy to ensure the integrity of the accounting records and financial statements of the Partnership and its compliance with applicable laws. Under the whistleblower policy, any employee who becomes aware of any questionable accounting, internal accounting controls, auditing matters or potential violations of law are encouraged to contact their immediate supervisor, their immediate supervisor s manager, the President or the Chief Operating Officer. Employees also have the option of reporting such matters directly to the chair of the Audit Committee or the chair of the Board of Directors. Appropriate procedures are then undertaken to ensure that the report is promptly and thoroughly investigated Annual Report Walton Big Lake Development L.P. Management s Discussion & Analysis

25 Financial Statements Walton Big Lake Development L.P. For the year ended December 31, 2011 and the period September 13, 2010 to December 31, 2010 (Expressed in Canadian dollars) 2011 Annual Report Walton Big Lake Development L.P. Financial Statements 25

26 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, 2011 and 2010 and September 13, 2010 and the statements of comprehensive loss, changes in partners equity and cash flows for the year ended December 31, 2011 and the period September 13, 2010 to December 31, 2010, and the related notes, which comprise a summary of significant accounting policies. 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 audits to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained in our audits is sufficient and appropriate to provide a basis for our audit opinion. 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, 2011 and 2010 and September 13, 2010 and its financial performance and its cash flows for the year ended December 31, 2011 and period September 13, 2010 to December 31, 2010 in accordance with International Financial Reporting Standards. Chartered Accountants Calgary, Alberta March 26, 2012 PricewaterhouseCoopers LLP, Chartered Accountants th Avenue SW Suite 3100, Calgary, Alberta, Canada T2P 5L3 T: F: , PwC refers to PricewaterhouseCoopers LLP, an Ontario limited liability partnership Annual Report Walton Big Lake Development L.P. Financial Statements

27 Walton Big Lake Development L.P. Statements of Financial Position AS AT DECEMBER 31, 2011, DECEMBER 31, 2010 AND SEPTEMBER 13, 2010 (expressed in Canadian dollars) December 31, 2011 $ December 31, 2010 $ September 13, 2010 $ ASSETS Land development costs (note 4) 6,218, ,674 - Land held for development (note 5) 18,750,986 18,694,717 - Other receivables 1, ,602 - GST recoverable 205, Cash 162,073 2,626, TOTAL ASSETS 25,338,516 22,010, LIABILITIES Project debt (note 7) 2,200, Deferred revenue (note 9) 1,465, Trade payables and accrued liabilities 2,909,354 56,341 - Due to related parties (note 8) 71, ,773 2,559 TOTAL LIABILITIES 6,647, ,114 2,559 PARTNERS EQUITY Partners capital (note 10) 22,048,665 22,048, Accumulated deficit (3,357,802) (393,285) (2,559) TOTAL EQUITY 18,690,863 21,655,380 (2,459) TOTAL LIABILITIES AND EQUITY 25,338,516 22,010, The accompanying notes to the financial statements are an integral part of these statements. Approved on behalf of the Board of Directors of the General Partner Director Clifford H. Fryers Director Jon N. Hagan 2011 Annual Report Walton Big Lake Development L.P. Financial Statements 27

28 Walton Big Lake Development L.P. Statements of Comprehensive Loss FOR THE YEAR ENDED DECEMBER 31, 2011 AND THE PERIOD SEPTEMBER 13, 2010 TO DECEMBER 31, 2010 (expressed in Canadian dollars) Three months ended December 31, 2011 $ For the year ended December 31, 2011 $ For the period September 13, 2010 to December 31, 2010 $ REVENUE Interest income 7,446 39,213 22,238 EXPENSES Asset management fees (note 8) 109, ,976 42,826 Servicing fees (note 8) 26, ,674 10,623 Director fees (note 8) 12,994 52,090 14,136 Office and other expenses 19,172 45, Professional fees 85,364 35,162 10,000 Organizational costs , , , ,523 NET LOSS AND COMPREHENSIVE LOSS (245,853) (632,562) (393,285) Basic and diluted loss per unit (note 10) (0.12) (0.30) (0.57) The accompanying notes to the financial statements are an integral part of these statements Annual Report Walton Big Lake Development L.P. Financial Statements

29 Walton Big Lake Development L.P. Statements of Changes in Partners Equity FOR THE YEAR ENDED DECEMBER 31, 2011 AND THE PERIOD SEPTEMBER 13, 2010 TO DECEMBER 31, 2010 (expressed in Canadian dollars) Accumulated Limited Partnership units General Partner unit deficit Total # of units $ # of units $ $ $ Balance September 13, (2,559) (2,459) Initial limited partner unit redeemed (1) (50) (50) Units issued 2,331,932 23,276, ,276,306 Unit offering expenses and work fee - (1,227,691) (1,227,691) Net loss and comprehensive loss (390,726) (390,726) Balance December 31, ,331,932 22,048, (393,285) 21,655,380 Net loss and comprehensive loss (632,562) (632,562) Partnership distributions (note 10) (2,331,955) (2,331,955) Units consolidation (233,572) Balance December 31, ,098,360 22,048, (3,357,802) 18,690,863 The accompanying notes to the financial statements are an integral part of these statements Annual Report Walton Big Lake Development L.P. Financial Statements 29

30 Walton Big Lake Development L.P. Statements of Cash Flows FOR THE YEAR ENDED DECEMBER 31, 2011 AND THE PERIOD SEPTEMBER 13, 2010 TO DECEMBER 31, 2010 (expressed in Canadian dollars) CASH PROVIDED BY (USED IN) For the year ended December 31, 2011 $ For the period September 13, 2010 to December 31, 2010 $ OPERATING ACTIVITES Net loss (632,562) (393,285) Changes in non- cash working capital items Increase in land development costs (note 4) (5,987,960) (230,674) Increase in land held for development (note 5) (56,269) (17,918,411) Decrease/(increase) in other receivables 457,539 (458,602) Increase in GST recoverable (205,760) - Increase in deferred revenue 1,465,729 - Increase in trade payables and accrued liabilities 2,853,013 56,341 (Decrease)/increase in due to related parties (227,158) 298,773 (2,333,428) (18,645,858) FINANCING ACTIVITES Advances from project debt 2,200,955 - Partnership distribution (2,331,955) - Contributions from partners (net of issuance cost) (note 10) - 21,272,309 Issuance of general partner unit - 50 (131,000) 21,272,359 (Decrease)/increase in cash (2,464,428) 2,626,501 Cash Beginning of period 2,626,501 - Cash End of period 162,073 2,626,501 SUPPLEMENTAL CASH FLOW INFORMATION Cash interest received 52,874 7,515 Cash interest paid - - The accompanying notes to the financial statements are an integral part of these statements Annual Report Walton Big Lake Development L.P. Financial Statements

31 Walton Big Lake Development L.P. Notes to the Financial Statements FOR THE YEAR ENDED DECEMBER 31, 2011 AND THE PERIOD SEPTEMBER 13, 2010 TO DECEMBER 31, 2010 (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 amounts 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 L.P. ( WDM ) (including the performance fee see note 8), 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 March 26, The board of directors have the power to amend and reissue the financial statements. 2. Basis of Preparation Change in Accounting Standards In February 2008, the Accounting Standards Board announced that it would be mandatory in Canada for profit- oriented publicly accountable entities to report under International Financial Reporting Standards ( IFRS ) for fiscal periods beginning on or after January 1, The Partnership adopted IFRS on January 1, 2011, with a transition date of September 13, 2010, the date the Partnership was formed. The guidance for the first time adoption of IFRS is set out in IFRS 1: First- time adoption of International Financial Reporting Standards ( IFRS 1 ), which provides for certain mandatory and optional exemptions for the first time adopters of IFRS. The Partnership has elected to not apply any of the optional exemptions in preparing the Partnership s opening statement of financial position Annual Report Walton Big Lake Development L.P. Notes to Financial Statements 31

32 Walton Big Lake Development L.P. Notes to the Financial Statements FOR THE YEAR ENDED DECEMBER 31, 2011 AND THE PERIOD SEPTEMBER 13, 2010 TO DECEMBER 31, 2010 (expressed in Canadian dollars) The changes to these financial statements and note disclosures which resulted from the adoption of IFRS are as follows: The statement of accumulated deficit is not required under IFRS and has been excluded from these financial statements. This information is now included as part of the statement of changes in partners equity; The balance sheet and statement of loss and comprehensive loss have been renamed to be the statements of financial position and the statements of comprehensive loss, respectively; The statements of financial position under IFRS are required to be classified, except where presentation based on liquidity provides information that is more reliable and more relevant. The operating cycle of the Partnership revolves around the sale of land, the timing of which is uncertain. As a result, the Partnership has adopted a liquidity based presentation for the statement of financial position, which is considered by management to provide information that is more reliable and relevant to the users of the financial statements; The expenses included in the statements of comprehensive loss are required to be classified either by nature or by function. Where presentation by function is selected, additional disclosure is required regarding the nature of certain expenses. The Partnership has classified all expenses by nature; IFRS requires that the notes to the financial statements provide an unreserved statement of compliance with IFRS. A statement of compliance with IFRS has been included in the section below; and IFRS requires additional related party disclosures. This has resulted in the Partnership disclosing compensation arrangements for key management personnel in note 8. IFRS also requires that land be evaluated by management to determine if it meets the definition of investment property, inventory property, owner occupied property or non- current assets held for sale. Land held for development has been designated by management as inventory property (see note 3), which did not result in any changes to the carrying amount under IFRS. While IFRS also requires the Partnership to reconcile the changes to its opening statement of financial position, as well as the changes to the comparative figures included in its financial statements as a result of the adoption of IFRS, the conversion did not result in any such changes and, as a result, these reconciliations have not been included. Statement of Compliance These financial statements, including comparatives, have been prepared in full compliance with IFRS and using accounting policies that are consistent with IFRS as issued by the International Accounting Standards Board ( IASB ). As these financial statements are also the Partnership s first IFRS financial statements, they have also been prepared in accordance with IFRS 1. 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 3. 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 Annual Report Walton Big Lake Development L.P. Notes to Financial Statements

33 Walton Big Lake Development L.P. Notes to the Financial Statements FOR THE YEAR ENDED DECEMBER 31, 2011 AND THE PERIOD SEPTEMBER 13, 2010 TO DECEMBER 31, 2010 (expressed in Canadian dollars) With the exception of land development costs and land held for development (see note 3), all assets and liabilities are current in nature and are expected to be settled in less than twelve months. 3. Accounting Policies Use of Estimates 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 and the disclosure of contingencies 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 for the recoverability of land and land development costs. In assessing the recoverability of the land held for development and land development costs, 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 amount of the recovery of land held for development and land development costs to differ materially from the carrying amount of those assets. Land Development Costs Land development costs are allocated to the land to which they relate. The Partnership capitalizes all direct costs related to land development. These costs include borrowing (financing) costs such as interest on debt specifically related to the development and property taxes, but exclude general and administrative overhead expenses. At the time sales are recognized, the Partnership will also capitalize the estimated unexpended portions of costs relating to the lots that are sold. Land development costs are then relieved through cost of land sold on a per acre basis. Land development costs are assessed for indicators of impairment quarterly. When indicators of impairment exist, the aggregate of the carrying value of land development costs and land held for development is compared against the net realizable value. Where the carrying amount exceeds the net realizable value, the difference is recognized as an impairment loss. If the impairment to the land development costs subsequently decreases, the recovery is capitalized to land held for development to the extent of the improvement. Land Held for Development Land held for development has been designated by management as inventory property because it is the intention of the Partnership to service the Property, and to construct municipal services infrastructure on the Property, for eventual sale in the ordinary course of business. As inventory property, land held for development is carried at acquisition cost, which is based on the price paid by the Partnership for the Property plus other direct purchase expenses. Land held for development is relieved through cost of land sold on a per acre basis as sales are recognized. Land held for development is assessed for indicators of impairment quarterly. When indicators of impairment exist, the aggregate of the carrying value of land development costs and land held for development is compared against the net realizable value. Where the carrying amount exceeds the net realizable value, the difference is recognized as an impairment loss. If the 2011 Annual Report Walton Big Lake Development L.P. Notes to Financial Statements 33

34 Walton Big Lake Development L.P. Notes to the Financial Statements FOR THE YEAR ENDED DECEMBER 31, 2011 AND THE PERIOD SEPTEMBER 13, 2010 TO DECEMBER 31, 2010 (expressed in Canadian dollars) impairment to the land development costs subsequently decreases, the recovery is capitalized to land held for development to the extent of the improvement. 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 costs and land held for development to be qualifying assets. 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. 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 company becomes a party to the contractual provisions of the instrument. Financial assets are derecognized when the rights to receive cash flows from the assets have been transferred and the company 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 amount of consideration that would be agreed upon in an arm s length transaction between willing parties. Subsequent measurement depends on how the financial instrument has been classified. Cash and other receivables are classified as loans and receivables, and are carried at amortized cost using the effective interest rate method. Project debt, trade payables and accrued liabilities, and due to related parties have been classified as other financial liabilities and are carried at amortized cost using the effective interest rate method. Cash Cash includes cash in the Partnership s bank account. 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 Annual Report Walton Big Lake Development L.P. Notes to Financial Statements

35 Walton Big Lake Development L.P. Notes to the Financial Statements FOR THE YEAR ENDED DECEMBER 31, 2011 AND THE PERIOD SEPTEMBER 13, 2010 TO DECEMBER 31, 2010 (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. Organizational costs Organizational costs represent the legal, accounting, audit, printing, filing, transfer agent and other costs incurred by the Partnership associated with the initial public offering ( IPO ) and private placement ( Private Placement ). These costs are expensed as incurred. Income Taxes No provision has been made for income taxes of the Partnership, the liability for which is the responsibility of the partners. Comprehensive Loss Comprehensive loss consists of net loss and other comprehensive loss ( OCL ). OCL represents changes in unitholders equity during a period arising from transactions and other events with non- owner sources, and includes exchange differences on the translation of financial statements into the presentation currency, and changes in the fair value of the effective portion of cash flow hedging instruments. The Partnership did not have any OCL during the year ended December 31, 2011 and the period ended December 31, Annual Report Walton Big Lake Development L.P. Notes to Financial Statements 35

36 Walton Big Lake Development L.P. Notes to the Financial Statements FOR THE YEAR ENDED DECEMBER 31, 2011 AND THE PERIOD SEPTEMBER 13, 2010 TO DECEMBER 31, 2010 (expressed in Canadian dollars) Future Changes in Accounting Policies 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. Fair value measurement IFRS 13 Fair Value Measurement ( 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 to sell an asset, or paid to transfer a liability in an orderly transaction between market participants, at the measurement date. Under existing IFRS, guidance on measuring and disclosing fair value is dispersed among the specific standards requiring fair value measurements and does not always reflect a clear measurement basis or consistent disclosures. IFRS 13 is effective for annual periods beginning after January 1, 2013, with early adoption permitted. The Partnership will adopt IFRS 13 for the annual year beginning on January 1, As outlined in note 3, all financial instruments are initially recognized at fair value and subsequently carried at amortized cost. The Partnership also discloses the fair value of financial instruments in the notes to the financial statements. The adoption of IFRS 13 is not expected to result in any changes to the measurement and disclosure of the fair value of financial instruments Annual Report Walton Big Lake Development L.P. Notes to Financial Statements

37 Walton Big Lake Development L.P. Notes to the Financial Statements FOR THE YEAR ENDED DECEMBER 31, 2011 AND THE PERIOD SEPTEMBER 13, 2010 TO DECEMBER 31, 2010 (expressed in Canadian dollars) 4. Land Development Costs The following table provides a breakdown of costs capitalized to land development costs by nature as at December 31, 2011, December 31, 2010 and September 13, December 31, December 31, September 13, $ $ $ Land development 4,209,680 22,887 - Planning 1,368,669 78,003 - Financing 515, ,000 - Project management (note 8) 75, Legal 49,462 4,784-6,218, ,674 - The timing of sales are uncertain because it is dictated by the timing of cash receipts by the Partnership, which is influenced by factors that are beyond the control of management, such as market demand and the cash flows of our customers. As a result, while a portion of land development costs 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. 5. Land Held for Development Land held for development consists of the Partnership s 100% interest in the Property which was acquired during the fourth quarter of The acquisition of the Property was completed through the payment of $17,884,791 for a 95.8% interest the Property, the issuance of 81,932 units to Walton International Group Inc. ( WIGI ) for an equivalent value of $776,306 for the remaining 4.2% of the Property, the payment of $56,269 in legal fees and the payment of $33,620 for title insurance and registration. The timing of sales are uncertain because it is dictated by the timing of cash receipts by the Partnership, which is influenced by factors that are beyond the control of management, such as market demand and the cash flows of our customers. As a result, while a portion of land held for development 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 Annual Report Walton Big Lake Development L.P. Notes to Financial Statements 37

38 Walton Big Lake Development L.P. Notes to the Financial Statements FOR THE YEAR ENDED DECEMBER 31, 2011 AND THE PERIOD SEPTEMBER 13, 2010 TO DECEMBER 31, 2010 (expressed in Canadian dollars) 6. Financial Instruments The Partnership s financial instruments consist of other receivables, cash, project debt, trade payables and accrued liabilities, and amounts due to related parties. With the exception of project debt, the fair value of these financial instruments approximate their carrying value due to the short- term maturities of these items. The fair value of project debt approximates its carrying amount because the debt is due on demand and the interest rate on the debt is variable based on the prime lending rate. 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 Other receivables X Cash X X Project debt X X Trade payables and accrued liabilities X Due to related parties X b.) 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 and other receivable. 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: Other receivables - The balance of other receivables outstanding is typically not material and is settled monthly. The balance of other receivables as at December 31, 2011 was outstanding less than 90 days and considered collectible by the Partnership. Exposure to credit risk relating to these receivables is not significant. Cash - Cash is on deposit with a major financial institution, which substantially minimizes its exposure to credit risk Annual Report Walton Big Lake Development L.P. Notes to Financial Statements

39 Walton Big Lake Development L.P. Notes to the Financial Statements FOR THE YEAR ENDED DECEMBER 31, 2011 AND THE PERIOD SEPTEMBER 13, 2010 TO DECEMBER 31, 2010 (expressed in Canadian dollars) c.) 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 adequacy of its capital resources (see note 12) and by managing cash receipts and payments. The liabilities which expose the partnership to liquidity risk are as follows: Project debt Project debt is comprised of a construction loan with Sun Life Financial for Phase 1 of the project. The loan is secured by all assets of the Partnership, and is also partially guaranteed by WIGI, which is required to maintain a minimum level of net worth stated in the borrowing agreement. In order to minimize the Partnership s exposure to liquidity risk as a result of the project debt, management regularly monitors the net worth of WIGI to ensure compliance with the net worth requirements stated in the borrowing agreement. Trade payables and accrued liabilities, and due to related parties 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, 2011 will be funded through a combination of the cash held by the Partnership and the construction loan. The obligations relating to such future commitments will be funded through a combination of future revenues generated by the Partnership, and the capital resources available to the Partnership as disclosed in note 12. Maturity Analysis of liabilities December 31, 2011 Between 91 days and 1 > 1 year Total < 90 days year Project debt 1 ($) - 1,465, ,226 2,200,955 Trade payables and accrued liabilities ($) 2,909, ,909,354 Due to related parties ($) 71, ,615 1 Although the construction loan is due on demand, the timing of repayments is expected to be consistent with the timing of cash receipts from the sale of serviced lots. The amount of the principal repayments in each period is based on the anticipated loan repayments to be made out of the cash receipts from the sale of serviced lots. Maturity Analysis of liabilities December 31, 2010 Between 91 days and 1 > 1 year Total < 90 days year Trade payables and accrued liabilities ($) 56, ,341 Due to related parties ($) 298, , Annual Report Walton Big Lake Development L.P. Notes to Financial Statements 39

40 Walton Big Lake Development L.P. Notes to the Financial Statements FOR THE YEAR ENDED DECEMBER 31, 2011 AND THE PERIOD SEPTEMBER 13, 2010 TO DECEMBER 31, 2010 (expressed in Canadian dollars) Maturity Analysis of liabilities September 13, 2010 Between 91 days and 1 > 1 year Total < 90 days year Due to related parties ($) 2, ,559 d.) 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: 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, 2011, and that the change in interest rate was effective from the beginning of the year, a 1% increase in prime interest rates would have resulted in a $22,010 increase in the financing costs capitalized by the Partnership. A 1% decrease in prime interest rates would have a resulted in a $22,010 decrease in the financing costs capitalized by the Partnership. 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 risks. Such steps would result in 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. 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 material. e.) Currency risk The Partnership does not engage in foreign currency dominated transactions. As a result, it has no exposure to foreign currency risk. 7. Project Debt The Partnership has a $31.1 million construction loan with Sun Life Financial to help finance Phase 1 of the project. The construction loan consists of a $25.2 million non- revolving loan facility and $5.9 million letter of credit facility. The non- revolving loan facility is available to finance the construction costs for Phase 1 of the project, while the letters of credit act as security for the completion of certain obligations pursuant to development agreements signed with the City of Edmonton. This letter of credit typically declines as the Partnership s development obligations with the City of Edmonton are completed, through a series of staged reductions over a period of years and are ultimately extinguished when the municipality has issued final acceptance certificates. The construction loan is due on demand and is anticipated to be repaid in the year Annual Report Walton Big Lake Development L.P. Notes to Financial Statements

41 Walton Big Lake Development L.P. Notes to the Financial Statements FOR THE YEAR ENDED DECEMBER 31, 2011 AND THE PERIOD SEPTEMBER 13, 2010 TO DECEMBER 31, 2010 (expressed in Canadian dollars) The construction loan is due on demand and bears interest at a rate of prime + 1.5% although no interest is payable on this loan until the interest reserve set out in the loan agreement is fully 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 construction loan is partially guaranteed by 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. As at December 31, 2011, the $5.9 million letter of credit has been issued to the City of Edmonton but has not been drawn upon. The total amount drawn of the construction loan as at December 31, 2011 was $2,200,955 (December 31, $nil; September 13, $nil). 8. Related Party Transactions On January 1, 2011, WDM acquired from Walton Development and Management Inc. ( WDMI ) all of its contracts and agreements, including WDMI s Project Management Agreement with the Partnership. As the management and staff of WDMI were also acquired as part of the transaction, the change in the counterparty of the Project Management Agreement has not had, and is not expected to have, any impact on the future operations of the Partnership. WAM, WDM, WIGI and the Partnership are all related to the General Partner of the Partnership by virtue of common management. The balances due to these related parties as at December 31, 2011, December 31, 2010 and September 13, 2010 are outlined in the table below. With the exception of the development fee payable to WDM, these amounts are unsecured, due on demand, bear no interest and have no fixed terms of repayment. The development fee payable to WDM is payable within 60 days of quarter- end. December 31, December 31, September 13, $ $ $ Walton Development and Management L.P. 70, Walton International Group Inc. 1, ,324 2,559 Walton Asset Management L.P. - 53,449 - Total 71, ,773 2,559 The following transactions entered into between the related parties during the year were under terms and conditions agreed upon between the parties Annual Report Walton Big Lake Development L.P. Notes to Financial Statements 41

42 Walton Big Lake Development L.P. Notes to the Financial Statements FOR THE YEAR ENDED DECEMBER 31, 2011 AND THE PERIOD SEPTEMBER 13, 2010 TO DECEMBER 31, 2010 (expressed in Canadian dollars) Walton Development and Management L.P. 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: i.) WDM will receive a development fee, plus applicable taxes, equal to 2% of certain development costs incurred in the calendar quarter. 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 6% priority return on any portion of unreturned capital. For the year ended December 31, 2011, the total development fee charged to the Partnership was $69,459. During the period September 13, 2010 to December 31, 2010, the Partnership did not incur any development fees. These costs have been capitalized as part of land development costs. No performance fee was incurred by the Partnership during the year ended December 31, 2011 or for the period September 13, 2010 to December 31, 2010 because the $10 per unit amount and the cumulative priority return have not been received by the limited partners. The balance payable to WDM as at December 31, 2011 was comprised of costs the development fee and other costs of the Partnership which were initially funded by WDM but are reimbursable by the Partnership. Walton International Group Inc. The balance payable to WIGI as at December 31, 2011 was comprised of costs associated with the preparation of the Partnership s annual report which were initially funded by WIGI but are reimbursable by the Partnership. 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 at an annual fee equal to: i.) until the earlier of date of termination of the Management Services Agreement and December 31, 2015, 2% of the net proceeds raised through the IPO, the Private Placement, and the aggregate issue price of the units issued by the Partnership to WIGI in exchange for its interest in the Property; 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. For the year ended December 31, 2011, the total asset management fee charged to the Partnership was $433,976. The amount incurred by the Partnership during the period September 13, 2010 to December 31, 2010 was $42, Annual Report Walton Big Lake Development L.P. Notes to Financial Statements

43 Walton Big Lake Development L.P. Notes to the Financial Statements FOR THE YEAR ENDED DECEMBER 31, 2011 AND THE PERIOD SEPTEMBER 13, 2010 TO DECEMBER 31, 2010 (expressed in Canadian dollars) In accordance with the Agency Agreements between the Partnership and the agents contracted to sell units in the Partnership through the IPO and Private Placement (collectively, the Offerings ), the Partnership has a servicing fee payable to WAM (which it will then pay to the agents) equal to 0.5% of the net proceeds raised through the Offerings, until the earlier of the dissolution of the Partnership and December 31, 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, 2011, the total servicing fee charged to the Partnership was $104,674. The amount incurred by the Partnership during the period September 13, 2010 to December 31, 2010 was $10,623. Key Management Compensation Key management personnel are comprised of the Partnership s directors and executive officers. The total compensation expense incurred by the Partnership relating to directors was as follows: For the period For the year September 13, ended 2010 to December 31, December 31, $ $ Director fees 52,090 14,136 All services performed for the Partnership by its executive officers 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. 9. Deferred Revenue The Partnership entered into purchase and sales agreements with various homebuilders for the purchase of developed lots. As at December 31, 2011, the non- refundable deposit amount from homebuilders is $1,465,729 (December 31, $nil; September 13, $nil) Annual Report Walton Big Lake Development L.P. Notes to Financial Statements 43

44 Walton Big Lake Development L.P. Notes to the Financial Statements FOR THE YEAR ENDED DECEMBER 31, 2011 AND THE PERIOD SEPTEMBER 13, 2010 TO DECEMBER 31, 2010 (expressed in Canadian dollars) 10. Partners Capital Authorized 1 general partner unit 1 initial limited partnership unit Unlimited number of ordinary limited partnership units Outstanding December 31, 2011 December 31, 2010 September 13, 2010 Number of units Amount $ Number of units Amount $ Number of units Amount $ General partner unit Initial limited partnership unit Limited partnership units issued through the initial public offering 2,250,000 22,500,000 2,250,000 22,500, and private placement` Limited partnership units issued in exchange for land held for 81, ,306 81, , development Offering expenses and work fee - (1,227,691) - (1,227,691) - - Consolidation of limited partnership units (233,572) ,098,361 22,048,665 2,331,933 22,048, Initial Public Offering and Private Placement On October 29, 2010 commenced the IPO of its limited partnership units. This was followed by a non- brokered Private Placement of limited partnership units which was filed on November 19, The IPO and the Private Placement were successfully completed on November 17, 2010 and December 21, 2010, respectively, resulting in the issuance of 2,250,000 units for total consideration of $22,500,000. The Partnership incurred issuance costs of $1,227,691 relating to the Offerings. 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 period. The weighted average number of limited partnership units outstanding during the year- ended December 31, 2011 and December 31, 2010 has been adjusted to reflect the November 14, 2011 unit consolidation which has been further discussed below. The weighted average number of limited partnership units outstanding during the year ended December 31, 2011 was 2,098,360 (December 31, ,344) Annual Report Walton Big Lake Development L.P. Notes to Financial Statements

45 Walton Big Lake Development L.P. Notes to the Financial Statements FOR THE YEAR ENDED DECEMBER 31, 2011 AND THE PERIOD SEPTEMBER 13, 2010 TO DECEMBER 31, 2010 (expressed in Canadian dollars) 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 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 Walton Big Lake Development Corporation 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. 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/unit. Distributions On September 27, 2011, the board of directors approved a cash distribution on limited partnership units in the amount of $1.00 per unit, and a cash distribution on the general partner unit of $23. The total distribution payable by the Partnership in respect of the limited Partnership units was $2,331,932 and the total distribution payable to the General Partner was $23. Payment was made on November 28, 2011 to limited partners of record as of the close of business on November 14, Pursuant to the terms of the Limited Partnership Agreement, 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 2,331,932 to 2,098,360. Replacement unit certificates were not issued by the Partnership to reflect this consolidation. Under the terms of the Phase 1 construction loan agreement, the Partnership was 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 can be made only after the Phase 1 construction loan has been fully repaid. The total amount of distributions paid by the Partnership as at December 31, 2011 was $2,331,955 (December 31, $nil). 11. Commitments The following table presents future commitments of the Partnership under the Management Services Agreement and the Agency Agreements over the next four years. It does not include the WDM s performance fee under the Project Management Agreement (note 8), 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 Annual Report Walton Big Lake Development L.P. Notes to Financial Statements 45

46 Walton Big Lake Development L.P. Notes to the Financial Statements FOR THE YEAR ENDED DECEMBER 31, 2011 AND THE PERIOD SEPTEMBER 13, 2010 TO DECEMBER 31, 2010 (expressed in Canadian dollars) Servicing fee Management fee Total $ $ $ , , , , , , , , , , , , ,696 1,735,904 2,154,600 The commitment for the management fee will extend for the length of the project, however, after December 31, 2015, it is 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. 12. Capital Management The Partnership has two sources of capital to finance its operations: i.) Of the gross proceeds raised under the Offerings, approximately 13.8% ($3.1 million) was set aside by the Partnership to pay for its ongoing administrative and operating expenses, management fee, development fee, pre- development costs, grading costs, construction costs and other expenses of the Partnership. As at December 31, 2011, the Partnership has total cash on hand of $162,073 (December 31, $2,626,501, September 13, $100), and a receivable of $1,063 (December 31, $458,602, September 13, $nil). ii.) The Partnership has a construction loan with Sun Life Financial to help finance Phase 1 of the project. The construction loan consists of a $25.2 million non- revolving loan facility and $5.9 million letter(s) of credit. This loan is partially guaranteed by WIGI, which is required to maintain a minimum level of net worth stated in the borrowing agreement. The total amount drawn on the construction loan at December 31, 2011 is $2,200,955 (December 31, $nil; September 13, $nil). It is anticipated that further construction loans will be required to fund the costs of development for Phase 2 and 3 of the project. Management regularly reviews the levels of its capital resources to determine if sufficient cash is available to fund the ongoing costs of the Partnership over the next twelve months. As at December 31, 2011, sufficient capital exists to fund the Partnership s activities for at least the next 12 months. WIGI monitors, on a quarterly basis, its net worth to ensure compliance with its obligations as a guarantor. As at December 31, 2011, WIGI is in compliance with this requirement, and foresees no circumstances or conditions which may be reasonably likely to cause WIGI to be offside with its obligations as guarantor over the next 12 months. The Partnership is not subject to any externally imposed financial covenants Annual Report Walton Big Lake Development L.P. Notes to Financial Statements

47 Notes 2011 Annual Report Walton Big Lake Development L.P. Notes to Financial Statements 47

48 Notes Annual Report Walton Big Lake Development L.P.

49 Walton Group of Companies The Walton Group of Companies constitutes one of North America s leading land-based real estate investment and development groups. Our professional teams research, acquire, syndicate, plan, develop and manage land assets with the goal of achieving the highest and best potential of the land and in doing so, maximizing returns for clients and investors. In business for more than 30 years, the Walton Group currently manages approximately CAD $3.1 billion of pre-development and development real estate assets, including nearly 65,000 acres of land in Alberta, Ontario, Arizona, Texas, Georgia, the Washington D.C. area and Charlotte, North Carolina for the Walton Group and on behalf of investors around the world, including primarily North America, Europe and Asia. Headquartered in Calgary, the Walton Group has over 700 employees in Canada, the United States, Hong Kong, Singapore, Malaysia and Germany. 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 L.P. is the manager of Walton Big Lake Development L.P. Walton Development and Management L.P. is the project manager for Walton Big Lake Development L.P. Walton Capital Management Inc. is a registered exempt market securities dealer which distributed limited partnership units for Walton Big Lake Development L.P. Walton International Group Inc. is a partner in the Walton Big Lake Development L.P., with a minority interest. Walton Global Investments Ltd. is the parent company of the Walton Group of Companies Annual Report Walton Big Lake Development L.P. 49

50 Clifford H. Fryers Director Walton Big Lake Development L.P. Cliff Fryers has been Chairman and Chief Executive Officer of the White Iron Group of Companies (a media production house) since He is also the chair of the board of the Manning Centre for Building Democracy, and 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, Previously, Cliff was Chief of Staff to the Leader of Her Majesty s Official Opposition in the House of Commons. He was a Senior Tax Partner and Managing Partner with law firm Milner Fenerty (now Fraser Milner Casgrain LLP), and he 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. 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, brokerdealers, 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 Edmonton, Ottawa, Toronto, Phoenix-Tucson, Dallas- Fort Worth, Austin-San Antonio, Atlanta, the Washington D.C. area and Charlotte, North Carolina Annual Report Walton Big Lake Development L.P. Richard 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. 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. 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.