A developer behind suburban communities in Calgary and Edmonton has landed in severe financial turmoil that it blames on two recessions, including the latest rout in Alberta.
Walton International Group Inc. and 32 of its affiliates have obtained protection from their creditors and will attempt to restructure under the Companies' Creditors Arrangement Act.
The Calgary-based developer, which has $245 million in assets and $253 million in liabilities, is the Canadian arm of the Walton group of companies that's involved in real estate projects spanning 105,000 acres in North America.
Ten of Walton International's projects have been caught up in its financial difficulties and are part of the restructuring process, including two Calgary industrial parks and five residential neighbourhoods in Edmonton.
Walton International, which posted more than $200 million in losses over the past three years, is involved with several major Alberta projects, but not all of them are in the same financial trouble.
The northeast Calgary communities of SkyView Ranch and Cornerstone are among several segments of the company that are not part of the restructuring process and are expected to continue operating as normal.
The Walton group's operations in the U.S., Europe and Asia are also not involved in the CCAA process, while the court has approved a stay of proceedings for a few of the companies to protect their investments.
The group began as a single company in Calgary in 1979 and has grown to control real estate holdings through a complex network of more than 600 corporations, limited partnerships and other entities.
William Doherty, chief executive of Walton International, said in an affidavit that the Walton group has been hit by lingering effects of the 2008 recession, a general decline in the U.S. real estate market and the latest recession in Alberta.
Doherty said the 2008 downturn, widely linked to a housing bubble that helped trigger a global financial crisis, changed the behaviour of builders and developers south of the border.
Their less aggressive approach, combined with a slower than expected recovery in the U.S. economy and real estate market, extended the timelines for Walton projects.
Although the 2008 recession was short-lived in Alberta, the province was sent plunging into a much longer downturn late 2014 after a commodity price crash and has continued to suffer the effects.
Doherty said the province's "depressed" economy has led to weakened demand for real estate, lower property values and sales declines.
"These economic conditions have in turn created a tight credit market for real estate developers, making it relatively difficult to obtain financing extensions and new project financing," Doherty said, adding it's also been difficult raising funds from investors.
Sales volumes for the Walton group's pre-development land investments, which involve buying land in the path of anticipated growth and selling at a profit when the growth occurs, fell from $117 million in 2013 to nearly $20 million last year, an 83% drop.
Walton International posted a $67.3-million loss in each of the past three years.
Doherty said the Walton group has been slashing costs in an attempt to control the losses, having cut its North American workforce from 469 people in 2013 to just 96 as of late April.
As a result of "declining revenues and cash flow, pressure has increased from a number of ... bank lenders to accelerate pay downs of outstanding loans," Doherty said in the affidavit.
"This combination of bank demands, slowing demand for real estate and lower sales revenue has created short-term liquidity issues," which mean Walton International and 32 affiliates aren't able to pay their debts, the CEO said.
Walton International's lender, HSBC Bank Canada, has been requiring "substantial monthly pay downs" on debt owed for Point Trotter Industrial Park in southeast Calgary. More than $6 million is due May 28. Point Trotter spans 142 acres west of Stoney Trail with a little more than 80 acres left to be developed.
Also involved in the CCAA proceeding are:
- Shepard industrial park, a 1,500-acre Calgary project from which Walton has sold most of its holdings;
- Five Edmonton residential projects (Henley Heights at Secord, Marquis, Vita at Crystallina Nera, McConachie and Woodhaven);
- Two Edmonton industrial parks (Pilot Sound Industrial and Stony Industrial Park); and
- West Country residential project north of Toronto.
Walton International plans to sell assets and restructure its debt while it enjoys court-ordered protection from its creditors. Doherty said the sale of developed real estate holdings owned and managed by the 33 companies involved in the CCAA process would allow them to pay their lenders in full.
The sales are expected to be finished by early fall.
Doherty said the Walton group also plans to restructure its holdings that aren't involved in creditor protection, to strengthen its financial standing.
The company did not respond to requests for comment.