Walton Westphalia Development Corporation Reports Third Quarter 2017 Fiscal Results

CALGARY, Alberta--()--Walton Westphalia Development Corporation (the “Corporation”) announced today its results for the third quarter of 2017. Launched in March 2012, the Corporation was formed to provide investors with the opportunity to participate in the acquisition and development of the 310-acre Westphalia Property (the “Property”) located in Prince George’s County, Maryland, United States of America.

Third Quarter Highlights

During the period ended September 30, 2017, the Corporation continued to take steps toward its construction and financing activities. The key activities undertaken by the Corporation were as follows:

Construction Activities

  • Continued with construction activities on the northern lots by installing water, sanitary sewer, and storm sewer;
  • Continued activities to permit the street construction for the northern Phase 1 lots;
  • Continued negotiations for the Westphalia Green (Phase 1 circular park amenity) to be constructed early 2018;
  • Completed installation of the dry utility conduit for the lower Phase 1 lots and crossings within the alleys and internal streets in all of Phase 1 and the installation of the wet utilities in Phase 1 (estimated to be complete by the 4th quarter of 2017); and
  • Proceeded with the design of the Pennsylvania Avenue / Woodyard Road interchange (estimated to be complete by the 4th quarter of 2017).

Financing Activities

  • The Corporation and Prince George’s County executed tax increment financing (“TIF”) bond issuance incentive term sheet;
  • On November 14, 2017, the Prince George’s County Council unanimously approved the TIF bond issuance legislation for the Westphalia Town Center development;
  • The Maryland Centre for Foreign Investment, LLC (“MCFI”) continues to market this project in many overseas markets with the goal of raising $58 million under the EB-5 Immigrant investor visa program (“EB-5 Program”). A representative of WDM (USA) participated in seminars and presentations throughout Asia for two weeks to assist MCFI with their capital raise effort ;
  • Negotiated terms with MCAP for them to market the project and obtain 1st mortgage financing to replace both the Senior Lender and the Mezzanine Lender.

The single family market in the Washington, D.C. metropolitan statistical area (MSA), and specifically in the Prince George’s County submarket, continues to be strong. The Project is selling lots to three homebuilders, NVR, Inc., Mid-Atlantic Builders and Haverford Homes. As of September 30, 2017, NVR, Inc. had closed on 72 lots, Haverford Homes had closed on 52 lots, and Mid-Atlantic Builders had closed on 23 lots. As of September 30, 2017, NVR reported 93 home sales, Haverford reported 54 home sales and Mid-Atlantic reported 26 home sales. There have been 66 occupancies; 43 for NVR, 21 for Haverford, and two for Mid-Atlantic.

Management continues to focus on strategies to maximize the returns of the project, which include, but are not limited to:

  • Securing a grocery anchor for the retail site which can increase the attractiveness of the Project for other future retail tenants and positively impact retail values, lease rates, and project absorptions. Additionally, the securing of a grocery anchor tenant by Kimco, the Corporation’s retail developer partner, should also have a positive impact on the sales momentum for other components of the Project, including the development of townhomes and other future residential development, by providing an important retail based service and community amenity.
    • Kimco continues to market the site to potential anchor grocer tenants. It is anticipated that they will present a letter of intent from an anchor grocer in the 4th quarter of 2017. There has been significant interest in the inline and out parcels from various retailers. We will begin to negotiate leases with those potential clients after we have agreed to terms with the grocer anchor.
  • Engaging in discussions with commercial and residential developers to broaden the awareness of the Project and explore sales and/or partnering opportunities to realize the highest and best use and associated values for the Project.
    • The Corporation has received and is currently reviewing three letters of intent for the purchase of parcels in Phase 2 and 3 including one from a well-established regional developer. It is highly unlikely that all three interested parties would have compatible interests.
    • The Corporation has received and is currently reviewing two letters of intent for the purchase of parcels in Phase 1A.
  • Continuing efforts to attract a major hotel chain to enter into a vertical joint venture to develop, construct, and manage the up to 150-key hotel site in Phase 1. The Corporation has received one letter of intent from an interested hotel developer and anticipates receiving two or three more letters of intent.
  • Partnering with the Prince George’s County Economic Development Corporation (“EDC”) to assist with marketing the office site, and with a strategic focus related to locating future government office buildings in the Project.

Third Quarter Financial Results

During the three and nine months ended September 30, 2017, the Corporation recognized revenue of $1,737,747 (September 30, 2016 $2,168,140) and $7,643,238 (September 30, 2016 $3,955,616), respectively, from the sale of 23 and 80 single family lots related to Phase 1 in the three and nine months ended September 30, 2017 as compared to 22 and 40 lots for the same periods of 2016. The cost of sales relating to the lot sales was $1,430,795 (September 30, 2016 $1,993,673) and $6,742,061 (September 30, 2016 $3,613,607) respectively, resulting in a gross margin of $306,952 (September 30, 2016 $ 174,467) and $901,177 (September 30, 2016 $ 342,009).

Total expenses increased by $30,017 from $295,612 for the three months ended September 30, 2016 to $325,629 for the three months ended September 30, 2017. The increase in total expenses was largely due to increased office expenses of $15,478 relating to additional client communication on loan maturity extensions and amendments of financing agreements and travel in 2017 and $44,558 in higher professional fees related to additional audit fees related to 2016 and legal services previously included within the Walton management fees. These increases were partially offset by a reduction of $17,833 in marketing expenses and $13,075 lower director fees in 2017.

Total other expenses increased by $33,145 from $897,529 for the nine months ended September 30, 2016 to $930,674 for the nine months ended September 30, 2017. Professional fees increased by $67,789 due to legal fees for corporate secretarial services that had previously been provided by WIGI for no additional charge and office expenses increased by $30,507 due to additional expenses relating to client communications on loan maturity extensions and amendments of financing agreements and travel. The increase was partially offset reduced marketing costs of $40,807 as higher client communication, media placement and signage expenses were incurred in 2016 as builders heavily marketed lots and a reduction of director fees of $26,151 due to the entity having only one independent director during the second and third quarters of 2017.

The loss from total other items increased by $1,140,446 from a gain of $192,317 for the three months ended September 30, 2016 to a loss of $948,129 for the three months ended September 30, 2017 as the result of additional foreign exchange losses in 2017.

Total other items increased by $479,391 from a loss of $1,288,379 for the nine months ended September 30, 2016 to a $1,767,770 loss for the nine months ended September 30, 2017. The increase is primarily due to an increase in unrealized foreign exchange loss of $1,141,345 in 2016 to a foreign exchange loss of $1,767,770 in 2017 as a result of the translation of the Canadian dollar loan to the U.S. Subsidiary from the Corporation. The U.S. dollar weakened against the Canadian dollar for the period ending September 30, 2017 compared to the U.S. Dollar strengthening for the period ending September 30, 2016.

For the three months ended September 30, 2017 the Corporation recognized a cumulative translation loss of $731,302 as compared to a cumulative translation gain of $60,098 in the same period of 2016. For the nine months ended September 30, 2017, the cumulative translation loss increased by $261,960 to a loss of $1,303,734 in 2017 as compared to $1,041,774 in 2016. The cumulative translation losses resulted from translation of the U.S. entity’s accounts from a functional currency of U.S. dollars to Canadian dollars for reporting purposes. The U.S. dollar has weakened against the Canadian dollar in the nine month period in 2017, primarily in the second quarter, compared to the U.S. dollar strengthened against the Canadian dollar in the nine month period in 2016.

Update on Project Debt

On June 30, 2017, the Corporation amended both the Senior Loan and the Mezzanine Loan. The Senior Lender agreed to extend the maturity date from June 30, 2017 to November 15, 2017. The Mezzanine lender has agreed to increase the Mezzanine Loan by $7.0 million USD and to extend the maturity date from July 6, 2017 to November 15, 2017. The rate of the Mezzanine Loan increased from 15% to 17.5% and will require a 3% fee at repayment. Of the $7.0 million USD increase, approximately $5.0 million USD was used to repay the partial amount demanded by the Senior Lender. The remaining increase will be used to fund costs, including finance closing costs. On November 15, 2017 the Corporation received forbearance until November 30, 2017 to negotiate a formal extension of the November 15, 2017 maturity date for the existing loans.

If the Corporation is unable to finalize the formal extension during the forbearance period or obtain forbearance for an additional period as the agreements are being finalized by the Borrowers and the lenders by the maturity date of November 30, 2017, the Corporation may need to file for creditor protection under the Companies’ Creditors Arrangement Act (“CCAA”).

Additional Information

The Corporation is managed by WAM and the development of the project is managed by Walton Development & Management (USA), Inc., both of which are members of the Walton Group of Companies.

The Walton Group of Companies (“Walton”) is a multinational real estate investment, planning, and development group concentrating on the research, acquisition, administration, planning and development of strategically located land in major North American growth corridors.

Its communities are comprehensively designed in collaboration with local residents for the benefit of community stakeholders. Its goal is to build communities that will stand the test of time: hometowns for present and future generations.

For more information about Walton Westphalia Development Corporation, please visit www.sedar.com. For more information about Walton, visit www.Walton.com.

This news release, required by Canadian laws, does not constitute an offer of securities, and is not for distribution or dissemination outside Canada. This news release contains forward looking information, and actual future results may differ from what is disclosed in this news release. Forward-looking information is based on the current expectations, estimates and projections of the Corporation at the time the statements are made. They involve a number of known and unknown risks and uncertainties which would cause actual results or events to differ materially from those presently anticipated. The risks, uncertainties and other factors that could cause the Corporation's actual results and performance in future periods to differ materially from the forward looking information contained in this news release include, among other things, renegotiation of loans, refinancing or extension of the existing loans, the amount and timing of the financing received, the amount of, timing and terms of any tax increment financing that may be received by the Corporation, the length of time it takes to develop and sell the Property, the ability of the Corporation to enter into joint ventures relating to, or to otherwise, vertically develop portions of the Property, the availability and terms of other construction financing required by the Corporation, the costs involved in the horizontal and/or vertical development of the Property, the prices at which the serviced lots and parcels from, or vertically developed structures on, the Property can be sold, the rate at which serviced lots and parcels from, or vertically developed structures on, the Property are purchased in the marketplace, general economic and market factors, including interest rates, a decline in the real estate market, changes in government policies and regulations or in tax laws, changes in municipal planning strategies and whether certain development approvals are obtained and changes in the Canadian/U.S. dollar exchange rate, in addition to those factors discussed or referenced in the prospectus and other documents filed with Canadian securities regulatory authorities and available online at www.sedar.com.

Except as otherwise noted, all amounts are in Canadian dollars, and are based on unaudited financial statements for the three and nine months ended September 30, 2017 and related notes, prepared in accordance with International Financial Reporting Standards.

Contacts

Walton Westphalia Development Corporation
For media inquiries, please contact:
Bill Doherty, 1-866-925-8668
Info@walton.com

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