Walton Westphalia Development Corporation

Transcription

1 2012 Walton Westphalia Development Corporation ANNUAL REPORT ANNUAL REPORT For the period January 4, 2012 to December 31, 2012

2 Walton Westphalia Development Corporation Concept Plan Contents CEO Message to Shareholders Management s Discussion and Analysis Financial Statements Directors and Officers Washington D.C Annual Report Walton Westphalia Development Corporation

3 CEO Message to Shareholders We are pleased to present the 2012 Annual Report for Walton Westphalia Development Corporation (the Corporation ). 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 Westphalia Property ). The Westphalia Property is located in Prince George s County, Maryland, U.S., approximately 21.7 km from the U.S. Capitol Hill in Washington D.C., which is the site of the White House, the National Mall and the U.S. Capital Building. Project Milestones During the year the Corporation achieved several significant milestones in planning the development of the Westphalia Property. They included: Q Completing the Corporation s initial public offering. Q Submitting a Detailed Site Plan for Phase 1 infrastructure to Prince George s County. Approval was subsequently received in Q Q Revising the preliminary development plan. In Phase 1, the number of townhomes was increased from 300 to 347 units, and approximately 250,000 square feet of retail was moved from Phase 2 to Phase 1. Approximately 150,000 square feet of the Phase 1 portion of the office development component was shifted to Phase 2. Selling an 11.3% interest in the Westphalia Property to Walton Westphalia Europe, LP ( WWE ), a company related by virtue of common management. Subsequently in the fourth quarter, WWE acquired an additional 3.1% interest in the Westphalia Property bringing its aggregate ownership interest to 14.4%. Q Receiving several critical approvals from county and state agencies on its detailed site plan, technical specifications for water and sewer construction, and concept plan for an interchange to a primary state highway. Approval of the detailed site plan by the County was the critical step to initiating site work. The steps remaining to start site work are administrative in nature. Walton Westphalia Development Corporation 2012 Annual Report Walton Westphalia Development Corporation 3

4 Project Milestones Continued Subsequent to the year-end, the Corporation announced on March 4, 2013, it had participated, along with other companies in the Walton Group of Companies, in submitting a response to a Request for Information from the United States General Services Administration ( GSA ) in relation to a new headquarters facility for the Federal Bureau of Investigation ( FBI ). This is an important opportunity for the future development of the Westphalia Property, with significant benefits for Prince George s County, Maryland, the FBI and the GSA. Market Environment The Washington D.C. housing market continued to recover during New home inventory fell approximately 29%. Current inventory levels are at a new low and 64% below the peak set in May Housing permits are expected to increase to 24,730 in 2013, up 28.8% from By 2016, the number of residential housing permits issued is estimated to be 34,979 units, which is a 112% increase from the end of The retail real estate market in Washington D.C. continues to be among the best in the nation. Vacancy rates in the inner ring (which includes Prince George s County where the Westphalia Property is located) of Washington D.C. decreased from 4.8% in 2011 to 4.1% in Market fundamentals are quite strong in Washington D.C. The metropolitan area s Gross Domestic Product is projected to increase by 2.2% in During the last 12 months ending October 2012, 37,400 new jobs were created in Washington D.C. The unemployment rate at the end of October 2012 was 5.1% compared to the national average of 7.9% for the same period. 3 Job growth from 2012 to 2016 is forecasted to average 41,600 jobs per annum. 3 Walton believes that the improving economic activity will strengthen demand for serviced land, which will benefit the residential and commercial components of the Westphalia Project Goals During 2013, the Corporation plans to: obtain a grading permit; close construction loan for Phase 1; begin onsite and offsite of Phase 1 construction; and record the Phase 1 plan of subdivision Annual Report Walton Westphalia Development Corporation

5 The project is proceeding as anticipated and management expects that the project will be completed within the approximate seven-year time frame, and achieve a net internal rate of return of 15% as disclosed in the Corporation s prospectus dated February 27, Walton believes strongly in the quality of our assets and is proud to offer our clients and investors the opportunity to participate in our land-based real estate projects. Since 1979, Walton has returned over $1.3 billion CAD 4 in client distributions. As the economy recovers we will continue to work with municipal governments and other stakeholders in the planning and development of our projects to realize the most effective use of our lands to attain your and our investment goals. Thank you for investing in the Corporation, and for your support and confidence in the Walton Group of Companies. Best regards, Bill Doherty Chief Executive Officer Walton Westphalia Development Corporation 1) J.P. Morgan, Homebuilding, Regional Inventory Summary 2) Moody s Analytics, Precis US Metro, Northeast 3) Delta Associates, Washington D.C. Metro Retail Outlook 4) Amount returned is unaudited and consists of: Exit proceeds on sales of pre-development land Distributions, interest and principal repayment on development projects Interest and principal repayment on corporate bonds 2012 Annual Report Walton Westphalia Development Corporation 5

6 Management s Discussion & Analysis For the period from January 4, 2012 to December 31, 2012 March 26, 2013 The following management s discussion and analysis ( MD&A ) is a review of the consolidated financial condition and consolidated results of operations of Walton Westphalia Development Corporation (the Corporation ) for the period from January 4, 2012 to December 31, The MD&A should be read in conjunction with the Corporation s audited consolidated financial statements for the period from January 4, 2012 to December 31, 2012, and the prospectus ( Prospectus ) of the Corporation dated February 27, 2012, which includes the Corporation s audited financial statements as at and for the period ended January 4, All financial information is reported in Canadian dollars and has been prepared in accordance with International Financial Reporting Standards ("IFRS ) as issued by the International Accounting Standards Board. In limited situations, IFRS has not issued rules and guidance applicable to the real estate investment and development industry. In such instances, the Corporation has followed guidance issued by the Real Property Association of Canada to the extent that these do 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 Corporation 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 period. The estimates and assumptions that have the most significant affect on the amounts recognized in the Corporation s consolidated financial statements are related to the recoverability of land held for development and land development costs, and the recognition of future tax assets. Recoverability of land held for 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 Corporation s cost of capital. Changes in these estimates and assumptions could cause actual results to differ materially from those reported. Deferred tax asset In assessing the amount of deferred tax assets to recognize, significant judgment is required in estimating the likelihood, timing and level of future taxable profits. Changes in the timing and level of future taxable profits could cause the amount of the deferred tax assets to be recovered to differ materially from the carrying amount Annual Report Walton Westphalia Development Corporation

7 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 Corporation s current expectations, intentions, plans and beliefs, which are based on experience and the Corporation 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 Corporation 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 Corporation. Approval by the Board of Directors The MD&A was authorized for issue by the Board of Directors on March 26, Business Overview The Corporation, which is managed by Walton Asset Management L.P. ("WAM"), was established on January 4, 2012 under the laws of the province of Alberta. The wholly owned subsidiary of the Corporation ( U.S. Subsidiary ), Walton Westphalia Development (USA), LLC., is a limited liability company organized under the laws of the state of Maryland on January 6, The Corporation and the U.S. Subsidiary were formed for the purpose and objective of providing investors with the opportunity to participate in the acquisition and development of the approximately 310 acre Westphalia property located in Prince George s County in Maryland, U.S.A. (the Property ), approximately 7 miles southeast of the District of Columbia. The Property is located along the north side of Maryland State Route 4 directly across from Joint Base Andrews, approximately 1.5 miles east of the Capital Beltway. The Capital Beltway is the 64 mile long ring road that encompasses Washington D.C. and its inner suburbs in Maryland and Virginia. The southern edge of the Property runs parallel to Pennsylvania Avenue with over 1.5 miles of frontage. Pennsylvania Avenue is a major commuter route, which runs 13.5 miles from the Property all the way to the U.S. Capitol Hill, the site of the White House, the National Mall and the U.S. Capitol Building. The preliminary development plan that has been prepared by Walton Development and Management (USA), Inc. ( WDM ), the manager of the project, includes three phases over an estimated seven year time horizon. When completed, it is anticipated that the project will provide approximately 66 single family homes, 779 townhomes, 884 rental apartments, 533,759 square feet of retail space, 2,240,000 square feet of office space and 600 hotel rooms. On August 20, 2012 the U.S. Subsidiary sold an 11.3% interest in the Property to Walton Westphalia Europe, LP ( WWE ), a company related by virtue of common management. On October 31, 2012 the U.S. Subsidiary sold an additional 3.1% interest in the Property bringing the aggregate sale of interests to WWE to 14.4%. As a co owner of the Property, WWE will co develop the Property with the Corporation, all revenues and expenses incurred for the development of the Property will be allocated proportionately based on each party s ownership interest in the Property, which is not expected to impact the Corporation s ability to achieve its investment objective Annual Report Walton Westphalia Development Corporation 7

8 In order to raise sufficient capital for the acquisition and development of the Property, the Corporation completed an initial public offering ( IPO ) in March The completion of the IPO was followed by a private placement offering (the Private Placement ) which was completed in multiple closings under the offering memorandum ( Offering Memorandum ) dated March 26, The final closing of the Private Placement was completed on October 31, Each unit issued by the Corporation ( Unit ) through the IPO or Private Placement (collectively, the Offerings ) was comprised of a $5.00 principal amount of unsecured, subordinated, convertible, extendable debenture bearing simple interest at a rate of 8% ( Debenture ) and one class B non voting common share ( Class B share ) having a price of $5.00. The Corporation s investment objectives are to: i) preserve the capital investment of the purchasers in the Units; ii) make annual cash distributions on the Units beginning in June of 2013 until the final distribution of funds from the project, which is anticipated to be in March of 2019; and iii) achieve a net internal rate of return of 15.0% on the $10.00 purchase price of the Units. The Corporation intends to preserve the capital investment of the purchasers of Units in the Corporation and provide cash distributions on the Units by executing the following four step investment strategy: i) acquire the Westphalia Property through the U.S. Subsidiary; ii) obtain letters of intent or expressions of interest from vertical developers and other end users to purchase lots and parcels 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 and parcels to the marketplace; and iv) use the revenue from the sale of the serviced lots and parcels to repay construction loans and other obligations of the Corporation and the U.S. subsidiary and then pay the remainder to the holders of the Debentures and Class B shares by paying the interest and principal on the Debentures and by declaring a dividend or dividends on the Class B shares through the life of the investment in the Property and/or winding up the Corporation and distributing its assets to the holders of the Class B shares. Although management expects that the execution of the investment strategy will allow the Corporation to pay distributions on the Units, distributions by the Corporation are neither guaranteed nor will they be paid in a steady or stable stream. The amount and timing of any distributions will be at the sole discretion of the Corporation and only after the Corporation has paid or reserved funds for its expenses, liabilities and commitments (other than with respect to the Debentures), including (i) the fees payable to WAM and 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 investors of Units in the Corporation have received cash payments on the Debentures or cash distributions on the Class B shares equal to $10.00 per Unit, plus a cumulative compounded priority return thereon, equal to 8% per annum. The registered office and principal place of business is 23 rd floor, th Avenue SW, Calgary, Alberta, T2P 3H Annual Report Walton Westphalia Development Corporation

9 Summary Consolidated Financial Data 1 Weighted average shares outstanding exclude the 100 Class A voting common shares issued. Based on the Corporation s articles of incorporation, Class A shareholders are not entitled to participate in any dividends declared by the Corporation, or the distributions of any part of the assets of the Corporation. For the period January 4, 2012 to December 31, 2012 Total revenues ($) 3,771,118 Total cost of sales ($) 3,771,118 Gross margin ($) Other income/(expenses) ($) Net loss ($) Comprehensive loss ($) (1,008,238) (1,008,238) (1,029,897) Weighted average shares outstanding 1 1,832,208 Basic and diluted net loss per share ($) (0.55) December 31, 2012 Total assets ($) 28,465,010 Total non current liabilities ($) 14,290,951 Total liabilities ($) 15,279,707 Total equity ($) 13,185,303 Class B shares outstanding end of period 3,017,170 Review of Operations Summary During the period from January 4, 2012 to December 31, 2012, the main priority of the Corporation was to raise capital through the Private Placement to help the Corporation carry out its investment strategy through the offering memorandum dated March 26, In working towards this objective, the Corporation completed several closings under the Private Placement during the period, which resulted in the issuance of a total of 1,574,870 Units for gross proceeds of $15,748,700. As at December 31, 2012 the corporation issued a total of 3,017,170 Units for gross proceeds of $30,171,700, of which $15,085,850 was received for the issued Debentures and $15,085,850 was received for the Class B shares. The Corporation also undertook certain planning activities during the period January 4, 2012 to December 31, The following activities were undertaken by the Corporation during the period: 2012 Annual Report Walton Westphalia Development Corporation 9

10 On October 9, 2012, the Maryland State Highway Administration (SHA) approved the Interchange Analysis and Concept Plan for the Maryland 4/Woodyard Road interchange. In December 2012, preliminary design drawings were completed for submittal to SHA for the Phase 1 offsite construction relating to the reconfiguration and ramp improvements for the interchange. These drawings are currently under review. On October 18, 2012, the Prince George s County Planning Board unanimously approved the Detailed Site Plan for infrastructure. The Board adopted the Resolution in the same meeting. No appeals were filed during the following 30 day appeal period. The County Council, acting as District Council, did not elect to review the application during the mandatory thirty day review period. On November 30, 2012 the Planning Board s decision was final. The steps remaining to obtain a grading permit following this approval are purely administrative. These plans have been submitted for certification. On December 7, 2012, the Washington Suburban Sanitary Commission approved an Amended Letter of Findings which updates and confirms line sizing, layout, phasing and alignments for water and sewer construction. Construction plans are nearing completion and will be submitted for review in January. From a timing perspective, the project is proceeding as anticipated and management expects that the project will be completed within the approximate seven year time frame disclosed in the Prospectus and Offering Memorandum (collectively, the Offering Documents ). For the period January 4, 2012 to December 31, 2012 the Corporation recognized revenues of $3,771,118, cost of sales of $3,771,118, other income of $41,275, other expenses of $1,049,513 and comprehensive loss of $1,029,897. The revenues earned by the Corporation during the period from January 4, 2012 to December 31, 2012 were comprised of the proceeds from the land sale to WWE of $3,771,118 with a corresponding cost of sales of $3,771,118. The other expenses for the period January 4, 2012 to December 31, 2012 primarily consisted of $452,576 in costs incurred for the preparation of the IPO and Private Placement (collectively, the Offerings ) and $336,602 in costs for the management of the Corporation. The nature and amount of the expenses incurred by the Corporation for the period from January 4, 2012 to December 31, 2012 were consistent with management s expectations for the period. The net loss incurred by the Corporation for period from January 4, 2012 to December 31, 2012 was also consistent with management s expectations because the Corporation is not expected to generate significant revenue, except during periods when the sale of lots is completed. Given that the project remains on track both financially and from a timing perspective, management believes that the project remains on track for achieving its investment objectives. Analysis of Financial Condition As at December 31, 2012, the Corporation had total assets of $28,465,010, total liabilities of $15,279,707 and total shareholders equity of $13,185,303. The most significant assets of the Corporation as at December 31, 2012 were land held for development of $21,390,406 and cash of $4,126,027. The most significant liabilities of the Corporation as at December 31, 2012 were Debentures payable of $14,290,951. During the period ended December 31, 2012, the Corporation received $15,748,700 from the private placement and $3,771,118 from the sale of the Property to pay down the principal and accrued interest on the related party loan. On each close of the Private Placement a portion of the use of proceeds was set aside as working capital to fund the ongoing administrative and operating expenses, development fees, pre development costs, construction costs, interest accruing on debentures and other expenses of the Corporation, until such time that the Corporation enters into a construction loan for Phase 1 of the project. The balance of the Corporation s liabilities as at December 31, 2012 was significant relative to its cash and receivables. The Corporation plans to fund its liabilities as follows: Annual Report Walton Westphalia Development Corporation

11 Debentures payable The balance of the debentures payable will be repaid from the proceeds from completed lot sales after the repayment of project debt. Initial Public Offering and Private Placement and Sale of Land On February 27, 2012, the Corporation commenced the IPO of 3,450,000 Units of the Corporation at a price of $10 per Unit. The IPO of the Corporation was completed on March 20, 2012 and resulted in the issuance of 1,442,300 Units of the Corporation for gross proceeds of $14,423,000. The closing of the IPO was followed by the commencement of the Private Placement on March 26, 2012, which offered a maximum of 2,007,700 Units for a maximum of $20,077,000. As at December 31, 2012, the Corporation has issued 1,574,870 Units of the Corporation for gross proceeds of $15,748,700 through the Private Placement. As at December 31, 2012 the Offerings had raised gross proceeds of $30,171,700, of which $15,085,850 was received for the issued Debentures and $15,085,850 was received for the Class B shares. The total costs incurred to date by the Corporation in respect of the Offerings were $2,194,076. This amount is comprised of commissions paid to agents of $1,584,013, work fees of $157,487 and costs associated with the preparation of the Offering Documents of $452,576. The commissions and work fees have been allocated equally to the Debenture and share component based on their proportionate share of the gross proceeds raised. The costs associated with the preparation the Offering Documents have been expensed by the Corporation and totalled $2,194,076 for the period January 4, 2012 to December 31, On August 20, 2012, the Corporation received $2,882,119 and sold an 11.3% interest in the Property in execution of this planned joint operation with WWE. On October 31, 2012, the Corporation sold a 3.1% interest in the Property for $888,999. As a co owner of the Property, all revenues and expenses incurred for the development of the Property will be allocated proportionately based on each party s ownership interest in the Property, which is not expected to impact either the ability of the Corporation to achieve its investment objectives. Acquisition of the Property On October 26, 2011, Walton Maryland entered into a Purchase and Sale Agreement for an aggregate of 479 acres of real property, located in Prince George s County, Maryland. The purchase price payable under the Purchase and Sale Agreement was denominated in U.S. dollars. On February 6, 2012, the Corporation entered into an Assignment Option Agreement with Walton Maryland, whereby Walton Maryland assigned their right related to 310 acres of the total 479 acres of real property to the Corporation under the Purchase and Sale Agreement to the Corporation. In order to fix the cost of the Property in Canadian dollars, the Corporation entered into two forward contracts to exchange an aggregate of CDN $25,643,390 in return for U.S. $25,300,000. On February 14, 2012, the Corporation exercised its rights under the Land Option Agreement for 310 acres of the property. The purchase price of the Property was U.S. $23,714,149 ($23,692,806 CDN), plus closing costs of U.S. $1,496,975 ($1,496,963 CDN) Annual Report Walton Westphalia Development Corporation 11

12 The carrying amount of land held for development as at December 31, 2012 was comprised of the following: December 31, 2012 $ Cost of the property 23,692,806 Closing costs 1,496,963 Effect of changes in foreign exchange rates (107,221) Sale of land (3,692,142) Total land held for development 21,390,406 Land Development Costs 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, interest on the construction loan and Debentures payable, legal fees, municipal taxes and construction management, and appraisal fees. The following table provides a breakdown of the amounts capitalized to land development costs. Planning and financing costs are comprised of soft costs associated with the project. December 31, 2012 $ Financing 1,284,215 Planning 1,428,616 Effect of changes in foreign exchange rates 136,678 Land development costs included in land sale (95,218) Total land development costs 2,754,291 The total development costs incurred during the period from January 4, 2012 to December 31, 2012 were consistent with the amounts anticipated by management for the work completed during that period. Interest on Debentures During the period January 4, 2012 to December 31, 2012, the Corporation issued a total of 3,017,170 Debentures with a face value of $15,085,850. The Debentures are unsecured and bear interest at a rate of 8%. As at December 31, 2012, Walton International Group Inc. ( WIGI ), a related party of the Corporation by virtue of common management, owned approximately 6.3% of the Units of the Corporation. As a result, approximately 6.3% of the debentures payable and interest payable at December 31, 2012 is payable to WIGI Annual Report Walton Westphalia Development Corporation

13 Management Fees On February 27, 2012, the Corporation and WAM entered into a Management Services Agreement. In accordance with the terms of the Management Services Agreement, WAM will provide management and administrative services to the Corporation in return for an annual management fee equal to: i) from March 20, 2012 until the earlier of the date of termination of the Management Services Agreement and March 31, 2019, 2% of the aggregate of: a) the net proceeds raised from the IPO of $13,449,548, calculated as the gross proceeds raised of $14,423,101, net of selling commissions of $757,208 and organizational costs of $216,345; b) the net proceeds raised from the Private Placement; and c) the amount of the servicing fee (see below), which will be distributed by WAM on behalf of the Corporation; and ii) thereafter, from April 1, 2019 until the termination date of the Management Services Agreement, an amount equal to 2% of the book value of the Properties. Servicing Fees Under the terms of the Agency Agreements between the Corporation, WAM, and the Corporation s agents, the Corporation has servicing fees payable to WAM (which it will then pay to the agents on behalf of the Corporation) equal to 0.5% of the net proceeds raised from the initial public offering and any follow on Private Placement, until the earlier of the dissolution of the Corporation and December 31, Transactions with Related Parties Walton Maryland LLC, WAM, WIGI, WDM, WWE and Alberta Ltd. are all related to the Corporation by virtue of common management. All transactions entered into between the related parties during the period from January 4, 2012 to December 31, 2012 were under terms and conditions agreed upon between the parties. With the exception of the amounts payable to WAM for the management and servicing fee and the amounts payable to WDM LP for the development fee, all amounts receivable from related parties and payable to related parties are unsecured, due on demand, bear no interest and have no fixed terms of repayment. The balance due to the related party as at December 31, 2012 is outlined in the table below. December 31, 2012 $ Walton Asset Management L.P. 10,467 Walton Development & Management (USA), Inc. 3,266 Total Due to related parties 13, Annual Report Walton Westphalia Development Corporation 13

14 The balance due from the related party as at December 31, 2012 is outlined in the table below. December 31, 2012 $ Walton Westphalia Europe, LP 26,427 Total Due from related party 26,427 The following transactions entered into between the related parties were under terms and conditions agreed upon between the parties. Walton Maryland, LLC On February 6, 2012, Walton Maryland, the U.S. Subsidiary and the Corporation entered into a loan agreement whereunder Walton Maryland agreed to loan the amount of U.S. $12,000,000 to the U.S. Subsidiary at an interest rate of the U.S. base rate of HSBC Bank Canada, from time to time, plus 1.75%. The purpose of the loan was to provide the U.S. Subsidiary with cash to acquire an interest in the Property. On March 23, 2012, the U.S. Subsidiary repaid the full amount of the loan, plus accrued interest, through the U.S. dollars provided to the U.S. Subsidiary by the Corporation. The funds were provided to the U.S. Subsidiary from the net proceeds received from the IPO. All interest incurred on this loan has been capitalized to land development costs because the loan was entered into for the purpose of acquiring the Property. Walton Asset Management L.P. In accordance with the Management Services Agreement between the Corporation and WAM, the Corporation incurred total management fees of $336,602 during the period January 4, 2012 to December 31, In accordance with the Agency Agreements between the Corporation and its agents, the Corporation incurred total servicing fees of $84,151 during the period January 4, 2012 to December 31, The servicing fees are payable to WAM, which is responsible for the distribution of the servicing fees to the agents. Walton International Group Inc. The Corporation entered into a loan agreement dated February 6, 2012, as amended February 27, 2012, with WIGI whereunder WIGI agreed to provide the Corporation with a loan in the maximum amount of CDN $23,100,000 bearing an interest rate of the U.S. base rate of HSBC Bank of Canada, from time to time, plus 1.75%. The loan is secured by security over the assets of the Corporation and the U.S. Subsidiary, including over the Property. All available funds from the Offerings, other than amounts placed into working capital, will be utilized by the Corporation to pay down the amounts owing under the loan within ten business days of receipt of the available funds. The total amount owing under this loan was fully repaid on November 1, All interest incurred on the loan has been capitalized to land development costs because the proceeds of the loan were used to finance the acquisition of the Property Annual Report Walton Westphalia Development Corporation

15 Walton Development and Management (USA), Inc. In accordance with the Project Management Agreement between the Corporation 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, payable within 60 days of the end of such quarter. ii) WDM will receive a performance fee, plus applicable taxes, equal to 25% of cash distributions after all investors of Units in the Corporation have received cash payments or distributions equal to $10 per Unit, plus a cumulative compounded priority return of 8% per annum. The priority return is calculated on that $10 amount per Unit, reduced by any cash payments or distributions by the Corporation. During the period from January 4, 2012 to December 31, 2012, the total development fee charged to the Corporation was $23,440. Walton Westphalia Europe, LP On May 15, 2012, Walton Maryland, the U.S. Subsidiary and WWE entered into an assignment agreement under which WWE had an option to acquire certain interests in the Property from the Corporation. On August 20, 2012 and October 31, 2012 WWE acquired 11.3% and 3.1% respectively of interest in the Property held for development. WWE s purchase price for the August 20, 2012 and October 31, 2012 acquisitions were $2,882,119 (USD $2,917,420) and $888,999 (USD $889,355), respectively for a total price of $3,771,118. The cost of the sales amount of $3,771,118 was comprised raw land, other land costs, land development costs and capitalized foreign exchange. The funds were used by the Corporation to repay the principle and accrued interest owing on the WIGI loan. Key Management Compensation Key management personnel are comprised of the Corporation s directors and executive officers. The independent directors are paid a fixed amount of compensation for the life of the Corporation, which is payable quarterly in advance. The amount of compensation expense incurred by the Corporation relating to its independent directors was as follows: For the period from January 4, 2012 to December 31, 2012 Director fees ($) 52,129 All services performed for the Corporation by its executive officers and non independent director are governed by the Management Services Agreement. The annual management fee that WAM receives under the Management Services Agreement has been disclosed above Annual Report Walton Westphalia Development Corporation 15

16 Non-Financial Indicators The amount of revenues generated by the Corporation 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 Corporation toward its investment objectives. The Corporation makes use of the following non financial indicators in evaluating its performance. Key Milestones For Phase 1 of the project, the key milestones used by management include those presented in the Offering Documents. The Corporation s progress toward these milestones has been summarized in the following table. Walton Westphalia Development Corporation Key Project Milestones for Phase 1 Anticipated steps to completion Anticipated completion date per the Prospectus Status Obtain detailed site plan approval September, 2012 Completed October 2012 Negotiate final terms of bank financing for construction loan and obtain lender September, 2012 Completed March 2013 commitment Recorded Plat of Subdivision November, 2012 Amended to April 2013 Obtain permits February, 2013 Amended to April 2013 Close construction loan February, 2013 Amended to April 2013 Commence Phase 1 construction February, 2013 Amended to May 2013 Deliver finished lots to builders January, 2014 Unchanged from Prospectus Grand Opening March, 2014 Unchanged from Prospectus The first of our key critical path approvals towards our ability to obtain a grading permit by April 2013 is the approval of our Detailed Site Plan for infrastructure by the Prince George s County Planning Board. On October 18, 2012, the Planning Board unanimously approved our application. We were also able to get the Board to adopt the Resolution in the same meeting. We were then subject to a 30 day appeal period during which any party of record could appeal the approval. No appeals were filed. We worked with our Councilman s staff to get the Resolution on the Council Agenda in the category of Pending Finality on November 5, to finalize the approval pending the expiration of the appeal period. The desired outcome, which can be described as taking no action, was achieved. Acting on the agenda item would have meant referring the item to District Council, which would have caused a delay in the approval. On November 30, 2012 we were officially notified that the Planning Board s decision was final. We will be back in front of the Planning Board for additional approvals prior to subdividing lots for builders, but this approval is the one that will enable us to break ground on the project. The steps remaining to obtain a grading permit following this approval are purely administrative. Subsequently, we have submitted the plans for certification. We would not expect this variance in time from the original Prospectus schedule to materially impact the schedule going forward. The anticipated date for the completion of the Record Plat of Subdivision has been revised to April The recordation of this plat is no longer a pre requisite to receiving a grading permit, and is not anticipated to impact other scheduled items Annual Report Walton Westphalia Development Corporation

17 The negotiation of the terms of the construction loan and subsequent closing has been delayed to early We do not expect this variance in time from the original Prospectus schedule to materially impact the schedule going forward. On July 31, 2012, the Corporation announced that it had refined and updated its preliminary development plan for the Property to better align the development plan with current and future market opportunities. The significant changes to the Phase 1 development plan are as follows: increase in the number of townhomes from 300 units to 347 units; approximately 250,000 square feet of retail will be accelerated from Phase 2 to Phase 1; and approximately 150,000 square feet of the Phase 1 portion of the office component will be shifted to Phase 2. Overall, these changes are not expected to have a material impact on the project or the ability of the Corporation to achieve its investment objectives. Management believes the Corporation remains on track for achieving its projected internal rate of return of 15%. 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. The commencement dates for Phase 2 and 3 have not yet been determined, and the expected completion dates of their key milestones will be determined closer to the commencement of those phases. Review of Fourth Quarter Operations During the fourth quarter of 2012, the Corporation generated total revenues of $888,999, cost of sales of $888,999, other income of $17,117, other expenses of $277,143 and comprehensive loss of $281,685. The revenues earned by the Corporation were comprised of the proceeds from the land sale to WWE of $888,999 with a corresponding cost of sales of $888,999. The other expenses for the fourth quarter primarily consisted of $58,465 in costs incurred for the Private Placement and $135,074 in costs incurred for the management of the Corporation. The nature and amount of the expenses incurred by the Corporation during the fourth quarter of 2012 were consistent with management s expectations. The net loss incurred by the Corporation during the fourth quarter of 2012 was also consistent with management s expectations because the Corporation is not expected to generate significant revenue, except during periods when the sale of lots is completed Annual Report Walton Westphalia Development Corporation 17

18 Summary of Quarterly Results A summary of operating results for the past four quarters is as follows: Three months ended December 31, 2012 September 30, 2012 June 30, 2012 March 30, Total assets ($) 28,465,010 28,885,604 30,780,363 29,799,092 Total liabilities ($) 15,279,707 17,245,631 20,225,813 23,212,881 Total equity ($) 13,185,303 11,639,973 10,554,550 6,586,211 Total revenues ($) 888,999 2,882,119 Total cost of sales ($) 888,999 2,882,119 Gross margin ($) Other income/(expenses) ($) (260,026) (226,382) (275,045) (246,785) Net income (loss) (260,026) (226,382) (275,045) (246,785) Comprehensive income / (loss) ($) (281,685) (226,382) (275,045) (246,785) Weighted average shares outstanding 1 2,896,887 2,436,074 1,722, ,360 Basic and diluted net income (loss) per share ($) (0.09) (0.09) (0.16) (1.35) Class B shares issued during the period 389, , ,255 1,442,300 Class B shares outstanding end of period 3,017,170 2,627,407 2,347,555 1,442,300 1 Class A shares outstanding have not been included in the weighted average shares outstanding because the Class A shares do not participate in the profits or losses of the Corporation 2 The Corporation was formed on January 4, As a result, the period ended March 31, 2012 was from January 4, 2012 March 31, Annual Report Walton Westphalia Development Corporation

19 Supplemental Information Liquidity and Capital Resources As at December 31, 2012, the Corporation s capital resources consisted of cash which the Corporation raised through the Offerings. Out of the net proceeds raised through the Offerings, $4.1 million of cash remains. The cash on hand will be used by the Corporation to pay for the ongoing administrative and operating expenses, management fees, development fees, predevelopment costs, grading costs, construction costs and other expenses of the Corporation. Management regularly reviews the levels of its capital resources to determine if sufficient capital is available to fund the ongoing costs of the Corporation over the next twelve months. As at December 31, 2012, sufficient capital exists to fund the Corporation s activities for at least the next 12 months. Off-Balance Sheet Arrangements There were no off balance sheet arrangements as at December 31, Financial Instruments The Corporation s financial instruments consist of due from related party, cash, Debentures payable, interest payable, accounts payable and accrued liabilities, and amounts due to related parties. Due from related party and cash are classified as loans and receivables, and are carried at amortized cost using the effective interest rate method. Debentures payable, interest payable, accounts payable and accrued liabilities and amounts 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 Debentures payable, the fair value of these financial instruments approximate their carrying value due to the short term nature of these items. The fair value of Debentures payable approximates the carrying amount of these liabilities because the interest rate on these liabilities approximates the interest rate on debt issued by comparable entities. Financial instruments often expose an entity to liquidity, credit, currency or interest rate risk. While it is management s opinion that the financial instruments of the Corporation do not give rise to significant liquidity or credit risk, the Corporation is exposed to significant interest rate risk and currency risk. The Corporation is exposed to foreign exchange risk because the operations, development expenditures and loans are denominated in currencies other than in the Canadian dollar, primarily being the U.S. dollar. A change in the exchange rate between the Canadian and U.S. dollar would have impacted the net asset of the Corporation as follows: Rate Analysis January 4, 2012 to December 31, 2012 Carrying Amount of Assets 5% increase in CAD to USD exchange rates 5% decrease in CAD to USD exchange rates $ $ $ Net assets exposed to currency risk (CDN) 24,302,713 1,215,136 (1,215,136) 2012 Annual Report Walton Westphalia Development Corporation 19

20 To manage this risk, the Corporation monitors changes in foreign exchange rates to determine if and when U.S. dollars should be converted to Canadian dollars and vice versa. During the period of January 4, 2012 to December 31, 2012, the Corporation entered into foreign exchange forward contracts to fix the purchase price of the Property thereby eliminating the foreign exchange risk from raising funds in Canadian dollars while property costs were in U.S. dollars. These contracts were settled during the first quarter of As part of the Corporation s on going risk management strategy, U.S. construction funding will be used for U.S. denominated expenditures to further mitigate foreign currency risk exposure. As at December 31, 2012, the Corporation did not have any outstanding foreign currency forward contracts. Outstanding Shares As of the date of this MD&A, the Corporation had 100 Class A shares outstanding and 3,017,170 Class B shares outstanding. Outstanding Debentures As of the date of this MD&A, the Corporation had 3,017,170 Debentures payable outstanding with a principal value of $14.2 million. The Corporation may in its sole discretion, convert all or any principal amount of the Debentures payable into a variable number of Class B shares, based on the fair market value per Class B share on the date of the conversion. Commitments The following table presents future commitments of the Corporation 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 Corporation. These commitments will be funded through future revenues generated by the Corporation and the capital resources available to the Corporation. Servicing fee Management fee Total $ $ $ , , , , , , , , , , , , and thereafter 279,776 1,257,077 1,536,853 Total 839,328 3,495,285 4,334,613 The commitment for the management fee will extend for the length of the project. However, after April 1, 2019, 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. Changes in Accounting Policies and Future Changes in Accounting Policy Early Adoption of IFRS 11: Joint Arrangements IFRS 11: Joint Arrangements ( IFRS 11 ) is effective for annual periods beginning after January 1, The Corporation has elected to early adopt IFRS 11 for the fiscal year beginning on January 1, Annual Report Walton Westphalia Development Corporation

21 IFRS 11 establishes the accounting principles for parties to a joint arrangement in classifying its interest in the joint arrangement as a joint venture or joint operation. Joint ventures will be accounted for using the equity method of accounting whereas for a joint operation each party will recognize its share of the assets, liabilities, revenue and expenses of the joint operation. Under the pre existing IFRS, entities have the choice to proportionately consolidate or to account under the equity method for interests in joint ventures. IFRS 11 supersedes IAS 31: Interests in Joint Ventures, and SIC 13: Jointly Controlled Entities Nonmonetary Contributions by Venturers. During the period ended December 31, 2012, the Corporation entered into a joint arrangement with a related party which was assessed by management to be a joint operation in accordance with IFRS 11. This arrangement is discussed further in the Transactions with related parties section. 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 ( 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 Corporation 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 Corporation 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 Corporation s financial liabilities. Consolidated financial statements IFRS 10: Consolidated Financial Statements ( IFRS 10 ), requires an entity to consolidate an investee when it has power over the investee, is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee. Under existing IFRS, consolidation is required when an entity has the power to govern the financial and operating policies of an entity so as to obtain benefits from its activities. IFRS 10 replaces SIC 12: Consolidation Special Purpose Entities and parts of IAS 27: Consolidated and Separate Financial Statements. IFRS 10 is effective for annual periods beginning after January 1, The Corporation will adopt IFRS 10 for the annual year beginning on January 1, The Corporation has assessed the impact that IFRS 10 will have on the consolidated financial statements of the Corporation, and concluded that the accounting for the Corporation s 100% interest in the U.S. Subsidiary will be unaffected by the adoption of IFRS 10. Disclosure of interests in other entities IFRS 12: Disclosure of Interests in Other Entities ( IFRS 12 ), establishes disclosure requirements for interests in other entities, such as subsidiaries, joint arrangements, associates, and unconsolidated structured entities. The standard carries forward existing disclosures and also introduces significant additional disclosure that address the nature of, and risks associated with, an entity s interests in other entities Annual Report Walton Westphalia Development Corporation 21

22 IFRS 12 is effective for annual periods beginning after January 1, The Corporation will adopt IFRS 12 for the annual year beginning on January 1, 2013 and prepare financial statement note disclosures in full compliance with IFRS 12 beginning for the first quarter of 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, The Corporation will adopt IFRS 13 for the annual year beginning on January 1, All financial instruments of the Corporation are initially recognized at fair value and subsequently carried at amortized cost. The Corporation 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 land or its financial instruments. Offsetting Financial Assets and Liabilities IAS 32 Financial Instruments Presentation ( IAS 32 ) was issued with amendments in December The amendments clarify certain aspects of the existing guidance on offsetting financial assets and financial liabilities. The IASB also amended IFRS 7 Financial Instruments Disclosure ( IFRS 7 ) to require information about all recognized financial instruments that are set off in accordance with IAS 32. The amendments also require disclosure of information about recognized financial instruments subject to enforceable master netting arrangements and similar agreements even if they are not set off under IAS 32. The amendments to IAS 32 are effective for annual periods beginning on or after January 1, However, the new offsetting disclosure requirements are effective for annual periods beginning on or after January 1, 2013 and interim periods within those annual periods. These amendments need to be applied retrospectively to all comparative periods. The Corporation is currently assessing the impact of adopting these amendments on the financial statements. Corporate Governance Board of Directors The mandate of the Board of Directors is to oversee the management of the business of the Corporation, with a view to maximizing the Corporation s shareholder 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 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 Directors written mandate for its audit committee, that the audit committee be comprised solely of directors that are independent of management Annual Report Walton Westphalia Development Corporation

23 The Board of Directors 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 Corporation, while Clifford H. Fryers is not independent as his spouse is the Corporate Secretary of the Corporation. Mr. Fryers is the Chairman of the Board of Directors. The only standing committee of the Board of Directors is the audit committee (the Audit Committee ), which consists of Richard R. Singleton and Jon N. Hagan. Mr. Hagan is the Chairman of the Audit Committee. 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 Big Lake Development Corporation, being the general partner of Walton Big Lake Development L.P.; 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. 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 Big Lake Development Corporation, being the general partner of Walton Big Lake Development L.P.; 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 Annual Report Walton Westphalia Development Corporation 23

24 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 Big Lake Development Corporation, being the general partner of Walton Big Lake Development L.P.; 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 neighbourhoods. Compensation The Corporation 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 Corporation and the directors prior to the retention of the directors. The executive officers of the Corporation do not receive any compensation from the Corporation. Orientation and Continuing Education New directors will attend a briefing with existing directors on all aspects of the nature and operation of the Corporation s business from the existing directors and the senior management of the Corporation. 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 Corporation 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 Class A shareholder of the Corporation. 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 Class A shareholder of Corporation. Assessments The directors will regularly assess themselves with respect to their effectiveness and contribution Annual Report Walton Westphalia Development Corporation

25 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 Corporation 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 Corporation 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 Corporation. 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 Corporation 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 Corporation, to act in a manner that exemplifies ethical business conduct. The Corporation has established a Code of Business Conduct and Ethics to which all directors, officers and employees of the Corporation 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. Whistleblower Policy The Corporation has established a Whistleblower Policy to ensure the integrity of the accounting records and financial statements of the Corporation 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 Westphalia Development Corporation 25

26 Consolidated Financial Statements Walton Westphalia Development Corporation For the period January 4, 2012 to December 31, 2012 (Expressed in Canadian dollars) Annual Report Walton Westphalia Development Corporation

27 2012 Annual Report Walton Westphalia Development Corporation 27

28 Walton Westphalia Development Corporation Consolidated Statements of Financial Position AS AT DECEMBER 31, 2012 AND JANUARY 4, 2012 (expressed in Canadian dollars) December 31, 2012 $ January 4, 2012 $ ASSETS Land development costs (note 4) 2,754,291 Land held for development (note 5) 21,390,406 Accounts receivable 3,871 GST recoverable 6,888 Due from related party (note 8) 26,427 Prepaid expenses 157,100 Cash 4,126, TOTAL ASSETS 28,465, LIABILITIES Debentures payable (note 6) 14,290,951 Interest payable (note 6) 683,945 Accounts payable and accrued liabilities 291,078 Due to related party (note 8) 13,733 TOTAL LIABILITIES 15,279,707 SHAREHOLDERS EQUITY Share capital (note 9) 14,215, Accumulated deficit (1,008,238) Accumulated other comprehensive loss (21,659) TOTAL EQUITY 13,185, TOTAL LIABILITIES & EQUITY 28,465, The accompanying notes to the consolidated financial statements are an integral part of these statements. Approved on behalf of the Board of Directors Clifford H. Fryers Director Jon N. Hagen Director Annual Report Walton Westphalia Development Corporation

29 Walton Westphalia Development Corporation Consolidated Statements of Comprehensive Loss FOR THE PERIOD JANUARY 4, 2012 TO DECEMBER 31, 2012 (expressed in Canadian dollars) For the period January 4, 2012 to December 31, 2012 $ REVENUE Land sales (note 8) 3,771,118 COST OF SALES Cost of land sales (note 8) (3,771,118) GROSS MARGIN OTHER INCOME/(EXPENSES) Interest income 41,275 Organizational costs (452,576) Management fees (note 8) (336,602) Servicing fees (note 8) (84,151) Professional fees (62,627) Director fees (note 8) (52,129) Office and other expenses (30,515) Realized foreign exchange loss (27,305) Unrealized foreign exchange loss (3,608) (1,008,238) NET LOSS (note 10) (1,008,238) OTHER COMPREHENSIVE LOSS Foreign currency translation adjustment (21,659) COMPREHENSIVE LOSS (1,029,897) Basic and diluted loss per share (note 9) (0.55) The accompanying notes to the consolidated financial statements are an integral part of these statements Annual Report Walton Westphalia Development Corporation 29

30 Walton Westphalia Development Corporation Consolidated Statement of Changes in Shareholders Equity FOR THE PERIOD JANUARY 4, 2012 TO DECEMBER 31, 2012 (expressed in Canadian dollars) Class A Voting Common Shares Class B Non-voting Common Shares (note 9) (note 9) # of Amount # of Amount Shares $ Shares $ Accumulated Deficit Amount $ Accumulated Other Comprehensive Loss Amount $ Total Amount $ Balance January 4, Shares issued for cash 3,017,170 15,085,850 15,085,850 Share issuance costs (870,750) (870,750) Net loss (1,008,238) (1,008,238) Other comprehensive loss (21,659) (21,659) Balance December 31, ,017,170 14,215,100 (1,008,238) (21,659) 13,185,303 The accompanying notes to the consolidated financial statements are an integral part of these statements Annual Report Walton Westphalia Development Corporation

31 Walton Westphalia Development Corporation Consolidated Statements of Cash Flows FOR THE PERIOD JANUARY 4, 2012 TO DECEMBER 31, 2012 (expressed in Canadian dollars) For the period January 4, 2012 to December 31, 2012 $ For the period ended January 4, 2012 $ CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES Net loss for the period (1,008,238) Items not affecting cash Unrealized foreign exchange loss (3,608) Changes in non cash working capital items Acquisition of land held for development (25,189,769) Sale of land held for development (note 8) 3,771,118 Increase in land development costs (2,647,283) Increase in accounts receivable (3,871) Increase in GST recoverable (6,888) Increase in due from related party (note 8) (26,427) Increase in prepaid expenses (157,100) Increase in interest payable 759,796 Increase in accounts payable and accrued liabilities 291,078 Increase in due to related party (note 8) 13,733 (24,207,459) FINANCING ACTIVITIES Issuance of Class A voting common shares 100 Issuance of Class B non voting common shares, net of issuance costs (note 9) 14,215,100 Issuance of debentures, net of issuance costs (note 6) 14,215,100 Loan proceeds received from Walton Maryland, LLC (note 8) 11,839,335 Repayment of loan to Walton Maryland, LLC (note 8) (11,828,670) Loan proceeds received from Walton International Group Inc. (note 8) 15,376,158 Repayment of loan to Walton International Group Inc. (note 8) (15,376,158) 28,440,865 Effect of exchange rate on cash (107,479) Increase in cash 4,125, Cash Beginning of period 100 Cash End of period 4,126, SUPPLEMENTAL INFORMATION Cash interest received 37,404 Excluded from the change in land development costs is capitalized non cash interest on the Debentures (note 6) Included in interest payable is non cash interest on the Debentures The accompanying notes to the consolidated financial statements are an integral part of these statements Annual Report Walton Westphalia Development Corporation 31

32 Walton Westphalia Development Corporation Notes to Consolidated Financial Statements FOR THE PERIOD JANUARY 4, 2012 TO DECEMBER 31, 2012 (expressed in Canadian dollars) 1. Nature of Business Walton Westphalia Development Corporation (the Corporation ) was incorporated under the laws of the province of Alberta on January 4, The wholly owned subsidiary of the Corporation, Walton Westphalia Development Corporation (USA), LLC ( U.S. Subsidiary ) was incorporated under the laws of the state of Maryland on January 6, The Corporation and the U.S. Subsidiary were formed to provide investors with the opportunity to participate in the development of the approximately 310 acre Westphalia property located in Prince George s County, Maryland, U.S.A. (the Property ) through the purchase of units in the Corporation. Each unit issued by the Corporation ( Unit ) through its initial public offering ( IPO ) and private placement ( Private Placement ) was comprised of a $5.00 principal amount of offering debentures ( Debentures ) and one Class B non voting share ( Class B Shares ) at a price of $5.00 per share. The U.S. Subsidiary sold a 14.4% interest in the Property to Walton Westphalia Europe, LP ( WWE ). As a co owner of the Property, all revenues and expenses incurred for the development of the Property will be allocated proportionately based on each party s ownership interest in the Property, which is not expected to impact the Corporation s ability to achieve its investment objective. The Corporation intends to preserve the capital investment of the purchasers of Units in the Corporation, and provide cash distributions on the Units by executing the following four step strategy: a) acquire the Property; b) obtain letters of intent or expressions of interest from vertical developers and other end users to purchase lots and parcels to be serviced in each of the three planned phases of the development of the Property before construction commences on that phase; c) construct municipal services infrastructure on the Property in phases to provide a controlled supply of serviced lots to the marketplace; and d) use the revenue from the sale of the serviced lots and parcels to repay construction loans and other obligations of the Corporation and the U.S. Subsidiary and then pay the remainder to the holders of the Debentures and Class B Shares by paying the interest and principal on the Debentures and by declaring a dividend or dividends on the Class B Shares and/or winding up the Corporation and distributing its assets to the holders of the Class B Shares. Distributions by the Corporation are neither guaranteed nor will they be paid in a steady or stable stream. The amount and timing of any distributions will be at the sole discretion of the Corporation and only after the Corporation has paid or reserved funds for its expenses, liabilities and commitments (other than with respect to the Debentures), including (i) the fees payable to Walton Asset Management L.P. ( WAM ) and Walton Development & Management (USA), Inc. ( 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 investors of Units in the Corporation have received distributions equal to their invested capital of $10.00 per Unit plus a cumulative compounded priority return thereon equal to 8% per annum. The address of the registered office is 23rd Floor, 605 5th Avenue SW, Calgary, Alberta, T2P 3H Annual Report Walton Westphalia Development Corporation

33 Walton Westphalia Development Corporation Notes to Consolidated Financial Statements FOR THE PERIOD JANUARY 4, 2012 TO DECEMBER 31, 2012 (expressed in Canadian dollars) These consolidated 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 consolidated financial statements. 2. Basis of Preparation These consolidated financial statements, have been prepared in accordance with International Financial Reporting Standards ( IFRS ) and using accounting policies that are consistent with IFRS as issued by the International Accounting Standards Board ( IASB ). As this is the first year of operations of the Corporation, these financial statements have also been prepared in accordance with IFRS 1 First time Adoption of International Financial Reporting Standards. The Corporation s consolidated 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 statement of financial position has been prepared using a liquidity based presentation because the operating cycle of the Corporation 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 consolidated financial statements. With the exception of Land Development Costs (note 4), Land Held for Development (note 5) and Debentures Payable or Interest Payable (note 6), 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 consolidated financial statements in conformity with IFRS requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, equity and contingencies at the date of the financial statements, and the reported amounts of revenue and expenses during the period. The estimates and assumptions that have the most significant effect on the amounts recognized in the Corporation s consolidated financial statements are as follows: Recoverability of land development costs and land held for development In assessing the recoverability of the land development costs and land held for development, 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 Corporation s cost of capital. Changes in these estimates and assumptions could cause the amount of the recovery of land development costs and land held for development to differ materially from the carrying amount of those assets. Deferred tax asset In assessing the amount of deferred tax assets to recognize, significant judgment is required in estimating the likelihood, timing and level of future taxable profits. Changes in the timing and level of future taxable profits could cause the amount of the deferred tax assets to be recovered to differ materially from the carrying amount Annual Report Walton Westphalia Development Corporation 33

34 Walton Westphalia Development Corporation Notes to Consolidated Financial Statements FOR THE PERIOD JANUARY 4, 2012 TO DECEMBER 31, 2012 (expressed in Canadian dollars) Consolidation The consolidated financial statements include the accounts of the Corporation and its U.S. Subsidiary from the date of acquisition of January 6, The date of acquisition is the date on which the Corporation obtained control of U.S. Subsidiary through the Corporation s acquisition of all outstanding voting rights. Control exists on this date as the Corporation has the ongoing ability to directly control the operating, investing and financing activities of U.S. Subsidiary. The consolidation is accounted for in accordance with IAS 27: Consolidated and Separate Financial Statements and IFRS 3: Business Combinations. All inter company transactions and balances have been eliminated. Foreign Currency Translation The Corporation accounts for foreign exchange translation in accordance with IFRS 21: Effects of Changes in Foreign Exchange Rates. Items included in the consolidated financial statements of the Corporation and its U.S. Subsidiary are measured using the currency of the primary economic environment in which the individual entity operates (the Functional Currency ). The Corporation s Functional Currency is the Canadian dollar while the U.S. Subsidiary s Functional Currency is the U.S. dollar. Significant judgment was used by management in determining the Functional Currency of the Corporation. Management s selection of a Canadian dollar Functional Currency was based on the currency which influences the costs of the Corporation, the currency of the Corporation s financing and the currency in which dividends are received from the U.S. subsidiary. The Corporation has selected a presentation currency of Canadian dollars for the consolidated financial statements. (a) Foreign Currency Transactions Transactions completed in a currency other the Functional Currency are translated into the Functional Currency using the foreign currency exchange rate prevailing at the time of the transaction. Each reporting period, monetary assets and liabilities denominated in foreign currencies are translated in the statement of financial position at the foreign currency exchange rates prevailing at the reporting date. Non monetary assets and liabilities denominated in foreign currencies are translated at the historical foreign currency exchange rate at the date of the transaction. Foreign exchange gains and losses on the translation of monetary assets and liabilities are included in net income as unrealized gains and losses until the item has been settled, at which point the Corporation records them as realized gains and losses Annual Report Walton Westphalia Development Corporation

35 Walton Westphalia Development Corporation Notes to Consolidated Financial Statements FOR THE PERIOD JANUARY 4, 2012 TO DECEMBER 31, 2012 (expressed in Canadian dollars) (b) Translation to the Presentation Currency The U.S. Subsidiary s Functional Currency is the U.S. dollar, however, the presentation currency for the consolidated financial statements is the Canadian dollar. As a result, the financial statements of the U.S. Subsidiary are required to be translated into the Canadian dollar presentation currency before they can be consolidated with the Corporation s Canadian dollar financial statements. The financial statements of the U.S. Subsidiary are translated into the Canadian dollar using the following procedures: (i) revenues and expenses for each statement of comprehensive income is translated using the average foreign currency exchange rate for the period; (ii) assets and liabilities for each statement of financial position is translated using the foreign currency exchange rate prevailing at the reporting date; and (iii) all resulting exchange differences are recognized in other comprehensive income. Land Development Costs Land development costs are allocated to the land to which they relate. The Corporation capitalizes all direct costs related to land development. These costs include, but are not limited to, construction costs, project management fees, property taxes and borrowing (financing) costs such as interest on debt specifically related to the development, but exclude general and administrative overhead expenses. At the time sales are recognized, the Corporation will also capitalize the estimated unexpended portion 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 Corporation 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 Corporation 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 Annual Report Walton Westphalia Development Corporation 35

36 Walton Westphalia Development Corporation Notes to Consolidated Financial Statements FOR THE PERIOD JANUARY 4, 2012 TO DECEMBER 31, 2012 (expressed in Canadian dollars) 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 impairment to the land held for development 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 Corporation considers land development costs and land held for development to be qualifying assets. 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 Corporation 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 Corporation 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. Accounts receivable, due from related party and cash have been classified as loans and receivables, and are carried at amortized cost using the effective interest rate method. Debentures payable, interest payable, loan payable, accounts payable 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. All forward contracts entered into by the Corporation are classified as fair value through profit or loss and are carried at fair value. Changes in fair value flow through the statement of comprehensive income unless the hedge relates to a qualifying asset of the Corporation. Cash Cash consists of amounts on deposit with banks Annual Report Walton Westphalia Development Corporation

37 Walton Westphalia Development Corporation Notes to Consolidated Financial Statements FOR THE PERIOD JANUARY 4, 2012 TO DECEMBER 31, 2012 (expressed in Canadian dollars) Debentures Payable Debentures payable are financial liabilities of the Corporation and are carried at amortized cost using the effective interest rate method. Since the Debentures payable were initially recognized at a discount, the effective interest rate on the Debentures payable exceeds the stated interest rate on the debentures. Interest is calculated on the carrying amount of the debentures using the effective interest rate and is allocated to interest payable based on the stated interest rate, with the balance being allocated to Debentures payable. The Debentures payable issued by the Corporation are extendable at the option of the Corporation for a period of two years. This extension feature is a loan commitment under International Accounting Standard 39: Recognition and Measurement ( IAS 39 ), and, as a result, no asset or liability has been recognized is respect of this option. Share Capital Class A voting common shares ( Class A shares ) have been classified as equity because they represent residual assets of the entity after the deduction of all its liabilities, and do not provide the holder of the shares with the right to put the shares back to the Corporation. Class B Shares issued by the Corporation have been classified as equity because the shares represent a residual interest in the Corporation after the payment of all liabilities of the Corporation, and do not provide the holder of the shares with the right to put the shares back to the Corporation. Costs directly attributable to the issuance of such shares 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 Corporation, after taking into account dividends declared by the Corporation. 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. Customer deposits received for purchases of lots on which revenue recognition criteria have not been met are recorded as deferred revenue. The Corporation recognizes interest income on an accrual basis in the period when it is earned Annual Report Walton Westphalia Development Corporation 37

38 Walton Westphalia Development Corporation Notes to Consolidated Financial Statements FOR THE PERIOD JANUARY 4, 2012 TO DECEMBER 31, 2012 (expressed in Canadian dollars) Organizational Costs Organizational costs represent legal, accounting, audit, printing, filing, transfer agent and other costs incurred by the Corporation associated with the preparation of the IPO and Private Placement (collectively, the Offerings ). These costs are expensed as incurred. Current and Deferred Income Tax Income tax expense for the period comprises current and deferred tax. Income tax is recognized in the statement of comprehensive income except to the extent that it relates to items recognized directly in other comprehensive income or directly in equity, in which case the income tax is recognized directly in other comprehensive income or equity. Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted or substantively enacted, at the end of the reporting period. Deferred income tax is recognized using the liability method, recognized in respect of temporary differences between the tax basis of assets and liabilities and their carrying amounts. Deferred income tax is determined using tax rates that have been enacted, or substantially enacted, by the date of the financial statements and are expected to apply when the related deferred income tax asset is realized or the deferred income tax liability is settled. Deferred income tax assets are recognized only to the extent that it is probable that future taxable profit will be available against which the temporary differences and unused tax losses can be utilized. Comprehensive Loss Comprehensive loss consists of net loss and other comprehensive loss ( OCL ). OCL represents changes in shareholders equity during a period arising from transactions and other events with non owner sources, and includes, but is not limited to, exchange differences on the translation of financial statements into the presentation currency, and changes in the fair value of the effective portion of the cash flow hedging instruments. Current and Future Changes in Accounting Policy Early Adoption of IFRS 11: Joint Arrangements IFRS 11: Joint Arrangements ( IFRS 11 ) is effective for annual periods beginning after January 1, The Corporation has elected to early adopt IFRS 11 for the fiscal year beginning on January 1, IFRS 11 establishes the accounting principles for parties to a joint arrangement in classifying its interest in the joint arrangement as a joint venture or joint operation. Joint ventures will be accounted for using the equity method of accounting whereas for a joint operation each party will recognize its share of the assets, liabilities, revenue and expenses of the joint operation Annual Report Walton Westphalia Development Corporation

39 Walton Westphalia Development Corporation Notes to Consolidated Financial Statements FOR THE PERIOD JANUARY 4, 2012 TO DECEMBER 31, 2012 (expressed in Canadian dollars) Under the previous IFRS requirements, entities either chose to proportionately consolidate or to account under the equity method for interests in joint ventures. IFRS 11 supersedes IAS 31: Interests in Joint Ventures, and SIC 13: Jointly Controlled Entities Non monetary Contributions by Venturers. During the period January 4, 2012 to December 31, 2012, the Corporation entered into a joint arrangement with a related party which was assessed by management to be a joint operation in accordance with IFRS 11. This arrangement is discussed further in note 8, related party transactions. 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 ( 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 Corporation 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 Corporation 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 Corporation s financial liabilities. Consolidated financial statements IFRS 10: Consolidated Financial Statements ( IFRS 10 ), requires an entity to consolidate an investee when it has power over the investee, is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee. Under existing IFRS, consolidation is required when an entity has the power to govern the financial and operating policies of an entity so as to obtain benefits from its activities. IFRS 10 replaces SIC 12: Consolidation Special Purpose Entities and parts of IAS 27: Consolidated and Separate Financial Statements. IFRS 10 is effective for annual periods beginning after January 1, The Corporation will adopt IFRS 10 for the annual year beginning on January 1, The Corporation does not expect that the adoption of IFRS 10 will have a material impact to the financial statements. Disclosure of interests in other entities IFRS 12: Disclosure of Interests in Other Entities ( IFRS 12 ), establishes disclosure requirements for interests in other entities, such as subsidiaries, joint arrangements, associates, and unconsolidated structured entities. The standard carries forward existing disclosures and also introduces significant additional disclosures that address the nature of, and risks associated with, an entity s interests in other entities Annual Report Walton Westphalia Development Corporation 39

40 Walton Westphalia Development Corporation Notes to Consolidated Financial Statements FOR THE PERIOD JANUARY 4, 2012 TO DECEMBER 31, 2012 (expressed in Canadian dollars) IFRS 12 is effective for annual periods beginning after January 1, The Corporation will adopt IFRS 12 for the annual year beginning on January 1, 2013 and prepare financial statement note disclosures in full compliance with IFRS 12 beginning for the first quarter of 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, The Corporation will adopt IFRS 13 for the annual year beginning on January 1, As outlined in note 3, all financial instruments of the Corporation are initially recognized at fair value and subsequently carried at amortized cost. The Corporation 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 land or its financial instruments. Offsetting financial assets and liabilities IAS 32 Financial Instruments Presentation ( IAS 32 ) was issued with amendments in December The amendments clarify certain aspects of the existing guidance on offsetting financial assets and financial liabilities. The IASB also amended IFRS 7 Financial Instruments Disclosure ( IFRS 7 ) to require information about all recognized financial instruments that are set off in accordance with IAS 32. The amendments also require disclosure of information about recognized financial instruments subject to enforceable master netting arrangements and similar agreements even if they are not set off under IAS 32. The amendments to IAS 32 are effective for annual periods beginning on or after January 1, However, the new offsetting disclosure requirements are effective for annual periods beginning on or after January 1, 2013 and interim periods within those annual periods. These amendments need to be applied retrospectively to all comparative periods. The Corporation is currently assessing the impact of adopting these amendments on the financial statements Annual Report Walton Westphalia Development Corporation

41 Walton Westphalia Development Corporation Notes to Consolidated Financial Statements FOR THE PERIOD JANUARY 4, 2012 TO DECEMBER 31, 2012 (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, 2012: January 4, 2012 to December 31, 2012 $ BALANCE BEGINNING OF PERIOD Financing 1,284,215 Planning 1,428,616 Effect of changes in foreign exchange rates 136,678 Land development costs included in cost of land sales (note 8) (95,218) BALANCE END OF PERIOD 2,754,291 Land development costs are relieved through cost of goods sold at the time that revenue from sales is recognized. The timing of revenue recognition from the sale of lots is uncertain because it is dictated by factors that are beyond the control of management, such as market demand. 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 U.S. Subsidiary s interest in the Property which was acquired on February 14, A total of 14.4% interest in the Property was sold during the year to WWE, resulting in 85.6% interest in the Property remaining (see note 8). The carrying amount of land held for development as at December 31, 2012 was comprised of the following: January 4, 2012 to December 31, 2012 $ BALANCE BEGINNING OF PERIOD Purchase of land 23,692,806 Closing costs 1,496,963 Effect of changes in foreign exchange rates (107,221) Cost of land sales (note 8) (3,692,142) BALANCE END OF PERIOD 21,390, Annual Report Walton Westphalia Development Corporation 41

42 Walton Westphalia Development Corporation Notes to Consolidated Financial Statements FOR THE PERIOD JANUARY 4, 2012 TO DECEMBER 31, 2012 (expressed in Canadian dollars) Land held for development is relieved through cost of land sales at the time that revenue is recognized. The timing of revenue recognition from the sale of lots is uncertain because it is dictated by factors that are beyond the control of management, such as market demand. 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. 6. Debentures Payable and Interest Payable As of December 31, 2012, the Corporation has issued a total of 3,017,170 Debentures as part of the Offerings. The Debentures are unsecured and bear interest at a rate of 8%. Interest on the Debentures is calculated based on the face value of the debentures on March 31, and is payable annually on June 30, commencing in the year The Debentures mature on March 31, 2019 at a face value of $5.00, although the maturity date can be extended by the Corporation at its sole discretion until March 31, The Corporation may also, in its sole discretion, (i) repay all or any portion of the principal amount of, or interest under, the Debentures payable through the issuance of Class B shares, (ii) evidence its obligation to pay all or any portion of the interest under the Debentures through the issuance of Interest debentures, and/or (iii) convert all or any principal amount of the offering Debentures into Class B shares. The following table shows the change in Debentures payable during the period: January 4, 2012 to December 31, 2012 $ BALANCE BEGINNING OF PERIOD Debentures issued through the IPO & Private Placement 15,085,850 Debenture issue costs (870,750) Non cash interest on the Debentures 75,851 BALANCE END OF PERIOD 14,290,951 The following table reconciles the change in interest payable during the period: January 4, 2012 to December 31, 2012 $ BALANCE BEGINNING OF PERIOD Accrued interest on the Debentures payable 683,945 BALANCE END OF PERIOD 683, Annual Report Walton Westphalia Development Corporation

43 Walton Westphalia Development Corporation Notes to Consolidated Financial Statements FOR THE PERIOD JANUARY 4, 2012 TO DECEMBER 31, 2012 (expressed in Canadian dollars) 7. Financial Instruments The Corporation s financial instruments consist of accounts receivable, due from related party, cash, Debentures payable, interest payable, accounts payable and accrued liabilities, and amounts due to related parties. Due from related party and cash are classified as loans and receivables, and are carried at amortized cost using the effective interest rate method. Debentures payable, interest payable, accounts payable and accrued liabilities and amounts 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 Debentures payable, the fair value of these financial instruments approximate their carrying value due to the short term nature of these items. The fair value of Debentures payable approximates the carrying amount of these liabilities because the interest rate on these liabilities approximates the interest rate on debt issued by comparable entities. a) Risk overview The Corporation 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 MEASURED AT COST OR AMORTIZED COST Cash X X X Due from related party X Debentures payable X X Interest payable X Accounts payable and accrued X liabilities Due to related party 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, accounts receivable and due from related party. While the maximum exposure to credit risk is equal to the carrying value of these financial instruments, management believes the Corporation s exposure to credit risk is minimal for the following reasons: Cash Cash is on deposit with a major financial institution, which substantially minimizes the exposure of cash to credit risk Annual Report Walton Westphalia Development Corporation 43

44 Walton Westphalia Development Corporation Notes to Consolidated Financial Statements FOR THE PERIOD JANUARY 4, 2012 TO DECEMBER 31, 2012 (expressed in Canadian dollars) Due from related party The balance of due from related party is typically not material and is settled in accordance with the terms of the contract with the related party, and as a result, the Corporation s exposure to credit risk from due from related party is also not significant. c) Liquidity risk Liquidity risk arises from the possibility that the Corporation will encounter difficulties in meeting its financial obligations as they become due. The Corporation 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 Corporation to liquidity risk are as follows: Accounts payable and accrued liabilities, and due to related party These liabilities are a result of the normal operations of the Corporation 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, 2012 will be funded by cash held by the Corporation. The obligations relating to such future commitments will be funded through a combination of future revenues generated by the Corporation, and the capital resources available to the Corporation, as disclosed in note 12. Debentures payable and interest payable The Corporation manages the liquidity risk associated with the Debentures payable by continuously monitoring its working capital to ensure it has sufficient capital to fund the annual interest payments due on the Debentures payable. Such capital is derived from a combination of future revenues generated by the Corporation, and the capital resources available to the Corporation. The Corporation intends to repay the Debentures payable through future revenues generated by the Corporation. Maturity Analysis of liabilities As at December 31, 2012 Between 91 Less than 90 days ($) days and 1 year ($) Greater than 1 year ($) Total ($) Debentures payable 14,290,951 14,290,951 Interest payable 683, ,945 Accounts payables and accrued liabilities 291, ,078 Due to related party 13,733 13,733 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 Corporation which give rise to interest rate risk are as follows: Annual Report Walton Westphalia Development Corporation

45 Walton Westphalia Development Corporation Notes to Consolidated Financial Statements FOR THE PERIOD JANUARY 4, 2012 TO DECEMBER 31, 2012 (expressed in Canadian dollars) Cash Changes in market interest rates will cause fluctuations in the future interest earned on cash balances. Any resulting impact on the Corporation s financial results would not be considered material. Debentures payable and debentures interest payable The debentures payable have a fixed 8% interest rate and, as a result, do not expose the Corporation to any interest rate risk. The fair value of debentures payable may fluctuate from time to time due to changes in market interest rates. Since the holders of the debentures are also the Class B shareholders of the Corporation, management does not plan on taking any action to address any interest rate differential between the stated interest rate on the debentures and market interest rates because this has no impact on the overall investment objectives of the Corporation. e) Currency risk Foreign exchange risk arises when future recognized assets or liabilities are denominated in a currency that is not the entity s functional currency. The Corporation is exposed to foreign exchange risk because the operations, development expenditures and construction loans are denominated in currencies other than in the Canadian dollar, primarily being the U.S. dollar. A change in the exchange rate between the Canadian and U.S. dollar would have impacted the net assets of the Corporation as follows: Net assets exposed to currency risk (CDN) Rate Analysis January 4, 2012 to December 31, % increase in CAD to USD exchange rates Carrying Amount of Assets 5% decrease in CAD to USD exchange rates $ $ $ 24,302,713 1,215,136 (1,215,136) To manage this risk, the Corporation monitors changes in foreign exchange rates to determine if and when U.S. dollars should be converted to Canadian dollars and vice versa. During the period of January 4, 2012 to December 31, 2012, the Corporation entered into foreign exchange forward contracts to fix the purchase price of the Property thereby eliminating the foreign exchange risk from raising funds in Canadian dollars while property costs were in U.S. dollars. These contracts were settled during the first quarter of As part of the Corporation s on going risk management strategy, U.S. construction funding will be used for U.S. denominated expenditures to further mitigate foreign currency risk exposure. As at December , the Corporation did not have any outstanding foreign currency forward contracts Annual Report Walton Westphalia Development Corporation 45

46 Walton Westphalia Development Corporation Notes to Consolidated Financial Statements FOR THE PERIOD JANUARY 4, 2012 TO DECEMBER 31, 2012 (expressed in Canadian dollars) 8. Related Party Transactions WAM, WIGI, WDM, Alberta Ltd., Walton Maryland, LLC ( Walton Maryland ), and WWE are all related to the Corporation by virtue of common management. All transactions entered into between the related parties during the period of January 4, 2012 to December 31, 2012 were under terms and conditions agreed upon between the parties. With the exception of the loan due to WIGI, the amounts payable to WAM for the management and servicing fee and the amounts payable to WDM for the development fee, all amounts receivable from related parties and payable to related parties are unsecured, due on demand, bear no interest and have no fixed terms of repayment. The balance due from related parties as at December 31, 2012 is outlined in the table below. December 31, 2012 $ January 4, 2012 $ Walton Westphalia Europe, LP 26,427 Total 26,427 The balances due to related parties as at December 31, 2012 are outlined in the table below. December 31, 2012 $ January 4, 2012 $ Walton Asset Management L.P. 10,467 Walton Development & Management (USA), Inc. 3,266 Total 13,733 Walton International Group Inc. The Corporation entered into a loan agreement dated February 6, 2012, as amended February 27, 2012, with WIGI whereunder WIGI agreed to provide the Corporation with a loan in the maximum amount of $23,100,000 bearing an interest rate of the U.S. base rate of HSBC Bank of Canada, from time to time, plus 1.75%. The loan was secured by security over the assets of the Corporation and the U.S. Subsidiary, including over the Property. All available funds from the Offerings, other than amounts placed into working capital, were utilized by the Corporation to pay down the amounts owing under the loan within ten business days of receipt of the available funds. On October 31, 2012 the Private Placement was completed which resulted in the repayment of the outstanding principal and all interest associated with the loan being repaid from the Corporation to WIGI. All interest incurred on the loan has been capitalized to land development costs because the proceeds of the loan were used to finance the acquisition of the Property Annual Report Walton Westphalia Development Corporation

47 Walton Westphalia Development Corporation Notes to Consolidated Financial Statements FOR THE PERIOD JANUARY 4, 2012 TO DECEMBER 31, 2012 (expressed in Canadian dollars) As at December 31, 2012, Walton International Group Inc. ( WIGI ) owned approximately 6.3% of the outstanding Units of the Corporation. As a result WIGI owns approximately 6.3% of the share capital and approximately 6.3% of the balance of debentures payable and interest payable was payable to WIGI. Walton Maryland, LLC On February 6, 2012, Walton Maryland, the U.S. Subsidiary and the Corporation entered into a loan agreement whereunder Walton Maryland agreed to loan the amount of U.S. $12,000,000 to the U.S. Subsidiary at an interest rate of the U.S. base rate of HSBC Bank Canada, from time to time, plus 1.75%. The purpose of the loan was to provide the U.S. Subsidiary with cash to acquire an interest in the Property. On March 23, 2012, the U.S. Subsidiary repaid the full amount of the loan, plus accrued interest, through the U.S. dollars provided to the U.S. Subsidiary by the Corporation. The funds were provided to the U.S. Subsidiary from the net proceeds received from the IPO. All interest incurred on this loan has been capitalized to land development costs (note 4) because the loan was entered into for the purpose of acquiring the Property. Walton Development and Management (USA), Inc. On February 14, 2012, U.S. Subsidiary, WDM, Walton Maryland and the Corporation entered into a Project Management Agreement. In accordance with the terms of the Project Management Agreement, 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, payable within 60 days of the end of such quarter; and ii. WDM will receive a performance fee, plus applicable taxes, equal to 25% of cash distributions after all investors of Units in the Corporation have received an cash payments or other distributions equal to $10.00 per Unit, plus an 8% priority return. The priority return is calculated on that $10.00 amount, reduced by any cash payments or distributions by the Corporation. During the period January 4, 2012 to December 31, 2012, the Corporation incurred $23,440 in relation to the development fees and performance fee. Walton Asset Management L.P. On February 27, 2012, the Corporation and WAM entered into a Management Services Agreement whereunder WAM will provide certain management related services to the Corporation in return for a management fee. The fee shall consist of the following: i. from March 20, 2012 until the earlier of the date of termination of the Management Services Agreement and March 31, 2019, an amount equal to 2% annually of the aggregate of the net proceeds raised from the Offerings, paid quarterly at the end of each fiscal calendar quarter; and 2012 Annual Report Walton Westphalia Development Corporation 47

48 Walton Westphalia Development Corporation Notes to Consolidated Financial Statements FOR THE PERIOD JANUARY 4, 2012 TO DECEMBER 31, 2012 (expressed in Canadian dollars) ii. for each calendar quarter after April 1, 2019 until the date of the termination of the Management Services Agreement, an amount to be paid on the last day of the quarter equal to 0.5% of the book value of the Property at the end of the previous fiscal quarter. Also in accordance with the Management Services Agreement, commencing on June 30, 2012 and continuing until the earlier of the dissolution of the Corporation and December 31, 2018, the Corporation will pay to WAM a servicing fee equal to 0.50% annually of the net proceeds for each Unit sold under the Offerings. WAM is then responsible for paying the servicing fee to the Corporation s agents. The servicing fee is calculated from the date of the applicable closing, calculated semi annually and paid as soon as practicable after that date. For the period January 4, 2012 to December 31, 2012, the Corporation incurred $336,602 in management fees, and $84,151 in servicing fees. Walton Westphalia Europe, LP On May 15, 2012, Walton Maryland, the U.S. Subsidiary and WWE entered into an assignment agreement under which WWE had an option to acquire certain interests in the Property from the Corporation. On August 20, 2012 and October 31, 2012 WWE acquired 11.3% and 3.1% respectively of undivided interest in the Property held for development. WWE s purchase price represented the original purchase price of the land by the US subsidiary plus other land costs and land development costs incurred by the US subsidiary from the acquisition to the date of sale. WWE s purchase price for the August 20, 2012 and October 31, 2012 acquisitions were $2,882,119 (USD $2,917,420) and $888,999 (USD $889,355) respectively for a total price of price of $3,771,118. The cost of the sales amount of $3,771,118 was comprised raw land, land development costs and other land costs. The funds were used by the Corporation to repay the principal and accrued interest owing on the WIGI loan. Key Management Compensation Key management personnel are comprised of the Corporation s directors and executive officers. The total compensation expense incurred by the Corporation relating to its independent directors during the period was as follows: For the period January 4, 2012 to December 31, 2012 $ Director fees 52, Annual Report Walton Westphalia Development Corporation

49 Walton Westphalia Development Corporation Notes to Consolidated Financial Statements FOR THE PERIOD JANUARY 4, 2012 TO DECEMBER 31, 2012 (expressed in Canadian dollars) All services performed for the Corporation by its executive officers and its non independent directors are governed by the Management Services Agreement. The annual management fee that WAM receives under the Management Services Agreement has been disclosed above. As at December 31, 2012, the directors fees are paid in full to the independent directors of the Corporation. 9. Share Capital Authorized: Unlimited Class A voting common shares Unlimited Class B non voting common shares Outstanding: December 31, 2012 January 4, 2012 # of shares Amount $ # of shares Amount $ Class A voting common shares Class B non voting common shares 3,017,170 15,085,850 Share issuance costs (870,750) 3,017,270 14,215, During the period of January 4, 2012 to December 31, 2012, the Corporation issued 100 Class A voting common shares for gross proceeds of $100, and 3,017,170 Class B non voting common shares were issued for gross proceeds of $15,085,850 less issuance costs of $870,750. All Class A shares of the Corporation are held by Alberta Ltd., which is a related party of the Corporation by virtue of common management. Initial Public Offering and Private Placements On February 27, 2012, the Corporation filed the prospectus for the IPO of its Units. The IPO was successfully completed on March 20, 2012 and resulted in the issuance of 1,442,300 Class B shares for gross proceeds of $7,211,500, and the issuance of 1,442,300 Debentures for gross proceeds of $7,211,500. The completion of the IPO was followed by the Private Placement which was completed in sixteen separate closings under the offering memorandum dated March 26, As of December 31, 2012, the Corporation has issued 1,574,870 Class B shares for gross proceeds of $7,874,350 and 1,574,870 Debentures through the Private Placement for gross proceeds of $7,874, Annual Report Walton Westphalia Development Corporation 49

50 Walton Westphalia Development Corporation Notes to Consolidated Financial Statements FOR THE PERIOD JANUARY 4, 2012 TO DECEMBER 31, 2012 (expressed in Canadian dollars) The total costs incurred to date by the Corporation in respect of the Offerings were $2,194,076. This amount was comprised of commissions paid to agents of $1,584,013, work fees of $157,487 and costs associated with the preparation of the prospectus and offering memorandum (collectively, the Offering Documents ) of $452,576. The commissions and work fees have been allocated equally to the Debenture and share component based on their proportionate share of the gross proceeds raised. The costs associated with the preparation the Offering Documents have been expensed by the Corporation. Per Share Amount Basic net loss per share is calculated by dividing the Corporation s net loss by the weighted average number of shares outstanding. Class A shares outstanding have not been included in the weighted average shares outstanding because the Class A shares do not participate in the profits or losses of the Corporation. The weighted average number of shares outstanding for the period of January 4, 2013 to December 31, 2012 was 1,832,208. As the Corporation has the right to convert any portion of the Debentures payable into Class B shares, this conversion feature could result in potentially dilutive shares in the determination of the weighted average diluted shares outstanding. For the period January 4, 2012 to December 31, 2012, the potentially dilutive shares were nil because the Corporation generated a net loss during the period. Share Issuance Price The Class A shares issued and outstanding of the Corporation were issued at a price of $1.00/share. The Class B shares issued and outstanding of the Corporation were issued at a price of $5.00/share. 10. Income Taxes The Corporation s temporary differences include non capital losses carried forward of $484,226 and deductible temporary differences of $889,307 arising from differences in debt and share issuance costs, and offering costs. These temporary differences result in a future income tax asset of $343,383 which has been fully offset by a valuation allowance. The unused non capital losses of $484,226 will expire in the year Annual Report Walton Westphalia Development Corporation

51 Walton Westphalia Development Corporation Notes to Consolidated Financial Statements FOR THE PERIOD JANUARY 4, 2012 TO DECEMBER 31, 2012 (expressed in Canadian dollars) 11. Commitments The following table presents future commitments of the Corporation under the Management Services Agreement (note 8). It does not include the performance fee payable to WAM under the Management Services Agreement, which is determined at the time land sales are completed. Servicing fee Management fee Total $ $ $ , , , , , , , , , , , , and thereafter 279,776 1,257,077 1,536, ,328 3,495,285 4,334,613 The commitment for the management fee will extend for the length of the project, however, after April 1, 2019, 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 As at December 31, 2012, the Corporation s capital resources consisted of shares, debentures and cash which the Corporation raised through the offerings. Out of the net proceeds raised through the Offerings, $4.1 million of cash remains. The cash on hand will be used by the Corporation to pay for the ongoing administrative and operating expenses, development fees, predevelopment costs, grading costs, construction costs, interest accruing on debentures and other expenses of the Corporation. Management regularly reviews the levels of its capital resources to determine if sufficient capital is available to fund the ongoing costs of the Corporation over the next twelve months. As at December 31, 2012, sufficient capital exists to fund the Corporation s activities for at least the next 12 months Annual Report Walton Westphalia Development Corporation 51

52 Walton Group of Companies Walton is a multinational group of real estate investment and development companies headquartered in Calgary, Alberta, Canada. As one of North America s leading landbased real estate investment and development firms, our expertise is in the research, acquisition, management and development of strategically located land in major growth corridors throughout Canada and the U.S. Walton currently manages over 73,000 acres, including 106 master-planning areas and 14 development communities. We lay the foundation for communities where people can live, work and play, while creating wealth for our clients around the globe. Since 1979 Walton has returned over $1.3 billion CAD* in client distributions. Members of the Walton Group of Companies include: Walton Asset Management is the manager of Walton Westphalia Development Corporation. Walton Development and Management is the project manager for Walton Westphalia Development Corporation. Walton Capital Management is a registered exempt market securities dealer which distributed units for Walton Westphalia Development Corporation. Walton International Group is a shareholder in the Walton Westphalia Development Corporation with a minority interest. Walton Global Investments is the parent company of the Walton Group of Companies. *Amount returned is unaudited and consists of: Exit proceeds on sales of pre-development land Distributions, interest and principal repayment on development projects Interest and principal repayment on corporate bonds Annual Report Walton Westphalia Development Corporation

53 Clifford H. Fryers Director Walton Westphalia Development Corporation 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 Westphalia Development Corporation 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 Westphalia Development Corporation Bill Doherty leads the Walton Group of Companies as Chief Executive Officer of Walton Global Investments Ltd., and as an actively-involved Director and Executive with several Walton Group affiliates. Overseeing an innovative and dynamic enterprise that has grown into a leading North American real estate investment and development group, Bill is deeply involved in Walton s growing array of business relationships with leading international investment banks, broker-dealers, financial advisors and institutional investors. He is central to Walton s strategic direction and expansion and has directed the launch of Walton s Asian, USA and European operations; recruited experienced industry leaders to form Walton Development and Management L.P.; and has overseen the diversification of Walton s real estate portfolio from an original base in Calgary to significant positions in and around Alberta, Ontario, Arizona, Texas, Georgia, Washington D.C., the Carolinas and California. Richard Singleton Director Walton Westphalia Development Corporation 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 Westphalia Development Corporation 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 Westphalia Development Corporation 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 Annual Report Walton Westphalia Development Corporation 53