CALGARY, Alberta–(BUSINESS WIRE)–Walton Westphalia Development Corporation (the “Corporation”) announced today its results for the fiscal year ended December 31, 2017 and fourth 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 or the “Project”) located in Prince George’s County, Maryland, United States of America.
2017 Highlights
During the period ended December 31, 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;
– Completed the paving of Woodyard Road as well as the streets and alleys associated with Block F lots;
– Continued activities to permit the street construction for Block G lots;
– Continued negotiations for the Westphalia Green (Phase 1 circular park amenity) to be constructed mid 2018;
– Began installation of the dry utility conduit for the northern Phase 1 lots and crossings within the alleys and internal streets in all of Phase 1; and
– Proceeded with the design of the Pennsylvania Avenue / Woodyard Road interchange (estimated to be complete by the 2nd quarter of 2018).
Subsequent to December 31, 2017, the following activities have taken place:
– Completed construction activities on the northern lots by installing water, sanitary sewer, and storm sewer;
– Completed the paving of Woodyard Road as well as the streets and alleys associated with townhome lots in Blocks F and G;
– Issued notice to proceed to the landscape contractor to construct the initial phase of the Westphalia Green in 2nd Quarter 2018;
– Continued installation of the dry utility conduit; and
– Continued with the design of the Pennsylvania Avenue / Woodyard Road interchange.
Financing Activities
– Finalized a loan modification with the Senior Lender and the Mezzanine Lender to extend the maturity dates on the respective loans to July 15, 2018, subject to various conditions, including but not limited to the completion of certain development requirements or, in lieu thereof, a payment to the Senior Lender of US$1,000,000 on or before May 31, 2018;
– On November 14, 2017, the Prince George’s County Council unanimously approved the TIF bond issuance legislation for the Westphalia Town Center development;
– The Corporation continues to work with the County to complete the due diligence requirements in order to market and sell the TIF bonds; bonds are expected sold by July 2018;
– The Maryland Center 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”).
Management is engaged in a comprehensive strategy to refinance the Project. They have engaged an external mortgage broker consultant to assist in identifying lenders to provide replacement financing, as well as directly contacting banks and other capital providers and has launched a mezzanine funding program through an overseas affiliate of WGI. Management has also been actively discussing significant developed and bulk land sales opportunities, with the intention of bringing forward cash flow to repay debt.
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 April 30, 2018 NVR, Inc. had closed on 96 lots, Haverford Homes had closed on 67 lots, and Mid-Atlantic Builders had closed on 42 lots. NVR reported 108 home sales (contracts with future home owners), Haverford reported 72 home sales and Mid-Atlantic reported 51 home sales. There have been 140 occupancies; 76 for NVR, 50 for Haverford, and 14 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 in conjunction with the establishment of a joint venture with a large, experienced retail developer, which can increase the attractiveness for other future retail tenants to locate on the Project and positively impact retail values, lease rates, and Project absorptions. The securing of a grocery anchor tenant by the retail developer partner should also positively impact 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, our retail joint venture partner, continues to market the site to potential anchor grocer tenants. Kimco received two letters of intent in the 1st quarter of 2018. Kimco is negotiating with one of the grocers and expects to have a fully executed LOI complete by the 2nd quarter of 2018. Many smaller retailers have expressed interest in both in-line stores and individual pad sites. 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 received three letters of intent for the purchase of parcels in Phase 2 and 3. Two of the three interested purchasers have also submitted LOIs for large portions of the adjacent WUSF1 Westphalia LLC (“WUSF1”) land (also managed by Walton). One of the letters of intent was from is from a well-established regional developer with the intent to become involved in the development of the core of the town center and possibly the entire Project. The Corporation is continuing discussions with this developer. Additionally, WDM received a separate site specific LOI for the adjacent WUSF1 land.
– The Corporation received three letters of intent for the purchase of Phase 1A. The Corporation is evaluating these offers.
– The Corporation received and evaluated two letters of intent on the Phase 1 hotel site. After negotiations, the Corporation has executed a letter of intent with a hotel developer/operator for a 100-key hotel with an option for additional 100-key hotel. Both parties are moving forward with the preparation of a purchase and sales agreement.
– The Corporation has executed an LOI with a prominent regional multi-family developer. We continue to work closely with that developer to determine our next steps.
– Partnering with the Prince George’s County Economic Development Corporation (“EDC”) to assist with marketing the office site, with a strategic focus related to locating future government office buildings in the Project.
Fourth Quarter and Year End Financial Results
During the fourth quarter of 2017, The Corporation recognized revenue of $1,629,185 on Phase 1 single family lot sales in the fourth quarter of 2017, and the Corporation recorded cost of sales and an impairment in the fourth quarter of 2017 of $33,880,861. The impairment of $32,111,709 ($25,259,280 USD) was recorded on Phase 1 and Phase 1A, as the expected realizable value of these phases were lower than carrying value. The impairment was driven by the change in the strategy to focus on repayment of debt through bulk selling future phases of development rather than servicing the lands and future sale to builders, as well as other changes in estimates regarding future revenues and the associated development and interest costs.
The Corporation’s other expenses increased by $56,027 from $292,572 for the three month period ended December 31, 2016 to $348,599 for the three month period ended December 31, 2017. Professional fees increased by $79,593, due to an increase in audit expenses and the incurrence of corporate secretarial services that in 2016 were provided by WIGI for no additional charge. This increase was partially offset by a decrease of $44,161 in marketing expenses as higher client communication, media placement and signage expenses were incurred in 2016 as builders heavily marketed lots.
During the years ended December 31, 2017 and December 31, 2016, the Corporation recognized revenue on contracts of $9,272,423 and $5,954,770, respectively, from single family lot sales in Phase 1. The Corporation recorded $40,622,922 on cost of sales and land impairments. The cost of sales relating to the lot sales was $8,511,213 and $5,756,046, respectively. The revenue and cost of sales recognized in 2017 and 2016 were in respect to the sale of 87 and 60 Phase 1 single family lots to home builders, respectively.
Total expenses increased by $89,172 from $1,190,101 for the year ended December 31, 2016 to $1,279,273 for the year ended December 31, 2017. The increase in total expenses was primarily due to higher professional fees of $146,915 related to higher audit costs and fees for legal secretarial services that in 2016 were provided by WIGI at no additional charge. These increases were partially offset by a reduction of $54,003 in marketing expenses as higher client communication, media placement and signage expenses were incurred in 2016 as builders heavily marketed lots and $25,866 lower director fees in 2017 due to the entity having only one independent director during the second and third quarters of 2017.
Total Other Items consists of foreign exchange losses and has increased by $872,531 from total Other Item expenses of $759,000 for the year ended December 31, 2016, to total Other Item expenses of $1,631,531 for the year ended December 31, 2017. The Canadian dollar has strengthened in 2017 compared to 2016, resulting in the underlying Canadian Dollar intercompany debentures and the intercompany debt contracts in the U.S. subsidiary reflecting a foreign exchange loss that is not eliminated upon consolidation.
Comprehensive loss increased by $31,631,365 from a loss of $2,052,850 for the year ended December 31, 2016 to a loss of $33,684,215 for the year ended December 31, 2017. The increase is due to the items discussed above as well, as a $89,314 increase in other comprehensive loss due to cumulative translation losses recorded on the translation of the U.S. subsidiary accounts.
On March 22, 2018 the management agreement between WAM and the Corporation was assigned to Walton Global Investment Ltd (“WGI”).
Late Filing of Fiscal Year-End Financial Statements
The Corporation advises that the filing of its financial statements for the fiscal year-ended December 31, 2017, the related management’s discussion and analysis and its officer certifications for the fiscal year-ended December 31, 2017 (collectively, the “Annual Filings”) was not completed by the deadline of April 30, 2018. As a result, the Alberta Securities Commission issued a cease trade order (“CTO”) against the Corporation. Now that the Annual Filings have been completed, the Corporation will seek to have the CTO revoked.
