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INVESTOR GUIDE 2014

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Notice Regarding Material Non-Public Information This Confidential Information Memorandum contains material non-public information concerning Highlands of Parshall, LLC, its subsidiaries, and affiliates. By accepting this Confidential Information Memorandum, the Recipient agrees to use any such information in accordance with the terms hereof, its compliance policies, contractual obligations and applicable law. This confidential information memorandum and the information contained therein, as well as any additional documents and explanations (together, the “Memorandum”) has been prepared by Highlands of Parshall, LLC (the “Company”) solely for information purposes. This Memorandum is being furnished the Company and is solely for use by prospective parties in considering their interest in considering a strategic or financial transaction with the Company (the “Transaction”). The Memorandum is not intended as, and does not constitute, an offer or solicitation for the purchase or sale of any security or other financial instrument of the Company or of any other entity. Similarly, the Memorandum is not intended to constitute, and does not constitute, advice or a recommendation by, or with respect to, the Company or any other entity. Any offer of securities would be made pursuant to definitive documentation prepared by the Company that may contain material information not contained herein and to which all prospective purchasers would be referred. The Memorandum is intended for the information of sophisticated, financial institutions and corporate entities only. The information contained herein has been prepared to assist parties in making their own evaluation of the Company and does not purport to contain all of the information that a prospective party may desire. In all cases, interested parties should conduct their own investigation and analysis of the Company in addition to reviewing the data contained in this Memorandum. HOP has not independently verified the information contained herein; neither the Company nor any of its affiliates or agents make any representation or warranty as to the accuracy or completeness of this Memorandum. None of such persons shall have any liability for any representations (expressed or implied) contained in, or for any omissions from, this Memorandum or any other written or oral communication transmitted to the recipient in the course of the recipient’s evaluation of the Company. This Memorandum includes certain statements, estimates and projections provided by the Company with respect to the anticipated future perfor-

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mance of the Company. Such statements, estimates and projections reflect various assumptions by the Company concerning anticipated results, which assumptions may or may not prove correct. No representations are made as to the accuracy of such statements, estimates or projections. The Company reserves the right to negotiate with one or more prospective parties at any time and to enter into definitive agreements with respect to a Transaction without prior notice to the recipient or other interested parties. The Company reserves the right, which it shall be entitled to exercise in its sole discretion, to modify, suspend or terminate, at any time and in any matter, all solicitations of indications of interest in a Transaction, the further participation in the investigation and proposal process by any party, or the negotiation of a definitive agreement with any party. The Company intends to conduct business in the ordinary manner during the Transaction process; however, the Company reserves the right to take any action, whether in or out of the ordinary course of business, including but not limited to the acquisition or divestiture of any assets, which the Company deems necessary or prudent in the conduct of such business. By accepting this Memorandum, the recipient acknowledges and agrees that all information contained herein is confidential. Without limiting the generality of the foregoing, (i) the recipient will not reproduce this Memorandum, in whole or in part, and will use this Memorandum solely for the purposes of evaluating the recipient’s interest in an investment in the Transaction and (ii) if the recipient does not wish to pursue this matter, the recipient will return this Memorandum to the Company as soon as possible, together with any other materials relating to the Company that the recipient may have received at any time from the Company or any of its affiliates or agents. Any proposed action by the recipient, which is inconsistent in any manner with the foregoing agreements, will require the prior written consent of the Company. This Notice and Acknowledge shall be governed by and construed in accordance with the law of the State of North Dakota, without regard to principles of conflicts of law.


Table of Contents 1.0 1.1 1.2 2.0 2.1 2.2 2.3 2.4 3.0 3.1 3.2 3.3 3.4 3.5 3.6 3.7 3.8 3.9 3.10 4.0 4.1 5.0 5.1 5.2 5.3 5.4 5.5

EXECUTIVE SUMMARY INTRODUCTION DEVELOPMENT AND FINANCIAL SUMMARY INVESTMENT CONSIDERATIONS BALANCED AND DIVERSIFIED DEVELOPMENT PLAN COMPELLING TENANT AND CUSTOMER DRIVERS UNEXPLOITED DEVELOPMENT OPPORTUNITY ROBUST DEMAND COMPANY OVERVIEW INTRODUCTION PROJECT LOCATION - PARSHALL, NORTH DAKOTA DEVELOPMENT ELEMENTS DEVELOPMENT PLAN STATUS OF ENTITLEMENTS PROJECT PARTNERS HOTEL OPERATING PARTNERS REAL ESTATE MARKETING STRATEGY MARKET OVERVIEW AND TRENDS REGIONAL MARKET DRIVERS MANAGEMENT & ORGANIZATION MANAGEMENT TEAM FINANCIAL ASSUMPTIONS AND PROJECTIONS REVENUE PROJECTIONS OPERATING EXPENSES AND NOI/EBITDA CORPORATE EXPENSES SOURCES AND USES FINANCING ASSUMPTIONS

All nature photography by Mark Reinig pinterest.com/mreinig12

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1 1 2 3 3 3 3 5 7 7 8 12 17 18 20 20 21 22 23 26 26 28 28 28 29 29 29


1.0 EXECUTIVE SUMMARY 1.1 Introduction Highlands of Parshall, LLC (the “Company” or “Highlands”) is a project company formed by Arfa Contracting Company and its partners and affiliates for the purpose of developing a 270 acre extension to the City of Parshall, North Dakota into an Approved Preliminary Plat. Arfa and its partners have acquired the property, received approval from the City of Parshall for the Planned Community Development and have provided all the necessary utilities of water, power, fiber optics and sanitary. Located in the central oil window of the Bakken oil shale region within the state of North Dakota, Parshall is undergoing a remarkable growth period and requires critical residential and communal infrastructure needed to service the expanding population as a result of the prolific oil and gas drilling activity in the city and its surrounding areas. Highlands’ project is well positioned to provide this much sought after housing, commercial, and multi-family space. With an estimated trillion barrels of reserves and up to 200 active rigs within the Bakken shale, the longevity of the drilling, refining, and production activity of the region is estimated to be consistent for decades to come. With its considerable experience in real estate development, Arfa and its team brings in-depth knowledge of the real estate industry and a successful track record developing various real estate projects nationally. Highlands’ project is designed to be the core component of Parshall’s rapidly growing community. The Company has brought in key design and planning personnel and management with a long track record for developing nationally renowned master plan communities. The Highlands of Parshall community consists of the following elements: ● ● ● ● ● ●

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600 residential housing lots 400 apartment units in 5 apartment buildings 400 hotel rooms in 4 hotel buildings 10 acres for commercial spaces and restaurant store pads Community center and parks with associated amenities Development of over 9 miles of roads, sidewalks and improvements


10 HOTEL 350,265 sq. ft. 8.04 acres

9 8 COMMERCIAL 177,277 sq. ft. 4.06 acres

COMMERCIAL 60,631 sq. ft. 1.39 acres

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COMMERCIAL 2 43,820 sq. ft. 1.00 acres

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MULTI FAMILY 2 427,461 sq. ft. 9.80 acres

MULTI FAMILY 266,609 sq. ft. 6.12 acres

1 HOTEL/COMMERCIAL 216,357 sq. ft. 4.96 acres

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SF/MULTI FAMILY 365,847 sq. ft. 8.39 acres

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2 MULTI FAMILY/COM 2 201,362 sq. ft. 4.62 acres

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MULTI FAMILY/COMMERCIAL 197,407 sq. ft. 4.53 acres

HOTEL/COMMERCIAL 179,185 sq. ft. 4.11 acres


1.2 Development and Financial Summary The Company is seeking a co-investment partner and joint developer to partner on the project. The project is estimated to generate an equity internal rate of return as a whole of over 20.4% with individual sectors achieving varying rates. Total project cost is approximately $198 million that will be deployed over a five-year build out period. The Company requires investment capital of $67.95 million consisting equally of 50% debt and equity. The remaining capital required will be generated through internally produced cash flows and the sale of residential homes. The project is expected to earn robust margins during a 15 year estimated holding period. The average EBITDA during this holding period is approximately $17 million with average annual revenues of approximately $36 million. The Company will average over 57% gross margins and over 49% EBITDA margins during the holding period.

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The Highlands  of  Parshall Investment  Analysis  –  Summary Sources New  Equity  and  Debt  Capital Hotels Residential Apartments Commercial Total  Sources Unlevered  Cash  Flow  Analysis

Uses $41,231,220 13,363,942 41,342,724 $17,112,813 $113,050,699

Hotels Residential Apartments Commercial Total Uses

$41,231,220 13,363,942 41,342,724 17,112,813 $113,050,699

Year 0 –

Year 1 $29,629,750

Year 2 $53,769,500

Year 3 $68,692,000

Year 4 $64,991,500

Year 5 $61,853,500

EBITDA /  NOI Capital  Expenditures Working  Capital Cash  Flow  to  Equity Terminal  Value Cash  Flow  to  Equity  After  Terminal  Value

– (32,854,553) – ($32,854,553) – ($32,854,553)

$9,478,173 (22,854,553) (5,939,530) ($19,315,909) – ($19,315,909)

$17,920,994 (22,854,553) (4,454,647) ($9,388,206) – ($9,388,206)

$26,254,695 (22,854,553) (742,441) $2,657,701 – $2,657,701

$27,818,004 (8,268,545) – $19,549,460 – $19,549,460

$28,546,652 – – $28,546,652 – $28,546,652

IRR Cash-­‐on-­‐Cash Return NPV

25.4% 3.2x $148,902,932

Year 1 $80,196,146 – (19,315,909) $60,880,236

Year 2 $60,880,236 – (9,388,206) $51,492,030

Year 3 $51,492,030 – 2,657,701 $54,149,731

Year 4 $54,149,731 – 19,549,460 $73,699,191

Year 5 $73,699,191 – 28,546,652 $102,245,842

Revenue

Cash Balance Cash,  Starting  Balance New  Equity  and  Debt  Capital Cash  Flow  to  Equity  After  Terminal  Value Cash,  Ending  Balance

Year 0 – 113,050,699 (32,854,553) $80,196,146


2.0 INVESTMENT CONSIDERATIONS 2.1 Balanced & Diversified Development Plan The Company has developed a balanced product mix among the real estate types within the project location. The project will house single-family homes, multi-family apartments, commercial shopping space as well as hotels. The incremental development plan and flexible zoning provided by the city allows the Company to refine the development mix in order to optimize pricing and returns during the five-year development period. In addition to the direct project elements, management has also identified ancillary real estate opportunities such as an industrial site adjacent to the project whereby commercial strong can be developed with direct rail access. Given the enormous growth in the area, the project affords Highlands and its partners a unique and diverse opportunity that allows management to mitigate market risks and identify and pursue the most optimal property mix.

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2.2 Compelling Tenant And Customer Drivers The Company has retained a world-renowned architect, master planner and designer of the project. Mr. Chuck Kubat is an MIT graduate and worldrenowned for his unique projects. Mr. Kubat has developed numerous projects throughout the United States and brings a considerable level of design and planning expertise to the project. The project has been designed to appeal to homeowners and customers of the project by incorporating world-class design along with practical elements to create a community that is both efficient and beautiful for its residence. The project will focus on providing communal spaces and various amenities that have not been readily available to the local community. As out of state residents move to the area, in response to the expanding oil and gas industrial base, they expect to enjoy a comparable lifestyle to their prior location. Highlands’ project will offer a high quality product to these new residents while offering long time members of the Parshall community the added benefits of this project.

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2.3 Unexploited Development Opportunity A senior manager at Continental Resources Inc. (NYSE: CLR) declared that the “Bakken play could become one of the world’s largest oil discoveries in the last 30 to 40 years, as ultimate recovery from the overall play is now estimated at about 50 billion barrels.” At $90/barrel, this could represent a tremendous resource base. As oil and gas drilling continues for the foreseeable future in this region of North Dakota, the main oil window of the Bakken shale is not only shifting eastwards but also expanding with exploration and production companies adjusting to the geological data in order to maximize their production. This shift in the primary reserve base of the shale has placed Parshall in the middle of this prolific oil window. The City of Parshall is located in southeast area of Mountrail County, North Dakota. According to North Dakota’s Department of Mineral Resources estimates, the state’s portion of the Bakken formation alone could hold more than 167 billion barrels of oil. Based on present technology, they estimate that producers could extract between two and 11 billion barrels of oil from North Dakota’s 10


portion of the Bakken Shale. Mountrail County is tied with Williams County, its western neighboring county, as having the second largest estimated reserves of all counties in the state at 28.9 billion barrels of oil. McKenzie County, the southwestneighboring county to Mountrail, is estimated to be the most resource rich county in the state with estimated reserves of 36.4 billion barrels of oil. Recent data indicates that Mountrail county is experiencing the highest production levels. At approximately over 5 million barrels per month of production, Mountrail has surpassed all counties in North Dakota in terms of production. These figures illustrate an eastern shift in the primary production area within North Dakota’s portion of the Bakken shale. As such, this project represents a unique opportunity to developers and investors to take early advantage of this shift in the primary Bakken Shale reserve base. The flames of natural gas (as shown in this infrared picture) burn off can be seen from space. By law, the energy companies will have to ultimately reclaim the natural gas that is currently being released. The industry estimates that 34% of natural gas production is currently being flared in the Bakken shale due to a lack of transportation infrastructure. E&P companies are highly incentivized to capture and sell this gas. This will inevitably result in additional natural gas processing piping and facilities being built within miles of Parshall and will bring a multitude of jobs to the area for the foreseeable future. The production of natural gas in North Dakota is expected to increase by 600% by the year 2025, according to a report by Bentek Energy. It is estimated that production will go from today’s rate of 536 million cubic feet per day to a staggering 3.1 billion cubic feet by 2025. 11

In addition, this shift is also evident by the planned opening of a 15,000-barrel per day refinery within close proximity to the project site. This refinery will draw from the expanding production within the area. During its development, the refinery is expected to employ over 1,000 workers per year. The facility is estimated to employ 262 full time employees at stabilized operating capacity, in addition to thousands of ancillary jobs (such as truckers, construction workers, etc.). Located in the town of Makoti, the refinery is within a twenty-minute drive of Parshall. The refinery will span 460 acres at the northeast corner of the Fort Berthold Reservation. Estimated to consume up to 15,000 barrels of Bakken crude oil per day, the refinery will produce diesel fuel, gasoline transportation fuel, and propane. After opening, the refinery will continue to expand in size and capability. The refinery will have access to a rail spur operated by Canadian Pacific Railway, N.D. Highway 23 and an Enbridge operated pipeline. Total estimated project costs for building the refinery is approximately $320 million. “US crude imports fell 9.2% in October from a year earlier to 8.091 million barrels per day. The lowest amount of imported crude since January 2000, according to DOE data. The data are the latest illustration of how drilling in North Dakota is remaking the US energy picture. Wall Street Journal” – John M Biers.


2.4 Robust Demand

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Oil and gas industry job growth and sustainability is estimated to grow and be consistent for the next several decades. According to North Dakota’s Department of Mineral Resources, North Dakota should sustain over 200 drilling rigs per year until the year 2025. During the peak of drilling, estimated to be during 2020, the oil and gas jobs attributable to North Dakota Bakken drilling and production should reach nearly 65,000 jobs. Over the long term, North Dakota’s Department of Mineral Resources estimates that the region will permanently employ nearly 47,000 production employs well into the future through a projection period ending in the year 2050. Total permanent jobs for the sector should reach over 50,000 jobs throughout the projection period.

development. Today, unemployment is under 4.5%. Median wages increased in McKenzie and Williams counties at a rate of 21% and 23%, respectively, and unemployment in McKenzie and Williams counties at a rate of 1.5% and 1.0%, respectively, as of the end of 2010.

North Dakota’s Department of Mineral Resources estimates that every rig employs approximately 120 people. At over 2000 wells drill over the next tenyear period, the cumulative employment impact is over 240,000 jobs. Considering that the total population of the state is only 699,000, these jobs reflect nearly 35% of the total population. Unemployment was over 40% in Mountrail and surrounding counties prior to the Bakken

“Bakken Estimates Now Approaching a Trillion Barrels” – Harold Hamm, Chairman & CEO Continental Resources

As a result, residential market prices in the counties surrounding Mountrail County, McKenzie, Williams, and Ward counties, have experienced considerable growth. The average home price in Minot, a city in Ward County, is approximately $300,000. During 2010, listed homes prices in McKenzie and Williams counties increased 40% and 23% respectively. Building permits increased in the same counties at a rate of 129% and 174%, respectively.


Stanley

Williston

(44 Minutes)

(2 Hours)

Van Hook Crude Terminal

Parshall

(22 Minutes)

New Town (25 Minutes)

Frac Water Filling Station

Fort Berthold Indian Reservation

Parshall Distance Map

As this map illustrates, Parshall is located near exciting new developments along Highway 23. 13

Minot (1 Hour)

Makoti

(23 Minutes)

Thunder Butte Refinery

(10 Minutes)

Frac Sand Facility (20 Minutes)

Garrison (1 Hour)


3.0 COMPANY OVERVIEW 3.1 Introduction

Highlands of Parshall, LLC (the “Company” or “Highlands”) is a project company formed by Arfa Contracting Company and its partners and affiliates for the purpose of developing 270 acres in the city of Parshall, North Dakota into an integrated master plan community. Arfa and its partners have acquired the property, received approval from the City of Parshall for the Planned Community Development and have provided all the necessary utilities of water, power, fiber optics and sanitary. Located in the central oil window of the Bakken oil shale region within the state of North Dakota, Parshall is undergoing a remarkable growth period and requires critical residential and communal infrastructure needed to service the expanding population as a result of the prolific oil and gas drilling activity in the city and its surrounding areas. Highlands’ project is well positioned to provide this much sought after housing, commercial, and multi-family space. With an estimated 503 billion barrels of reserves and over 200 active rigs within the Bakken shale, the longevity of the drilling, refining, and production activity of the region is estimated to be consistent for many decades to come. With its considerable experience in real estate development, Arfa and its team brings in-depth knowledge of the real estate industry and a successful track record developing various real estate projects nationally. Highlands’ project is designed to be the core component of Parshall’s rapidly growing community. The Company has brought in key design and planning personnel and management with a long track record for developing nationally renowned master plan communities. The Highlands of Parshall community consists of the following elements: • 600 residential housing lots • 400 apartment units in 5 apartment buildings • 400 hotel rooms in 4 hotel buildings • 10 acres for commercial spaces and restaurant store pads • Community center and parks with associated amenities • Development of over 9 miles of roads, sidewalks and improvements

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3.2 Project Location Parshall, ND The City of Parshall is located in southeast area of Mountrail County, North Dakota. According to North Dakota’s Department of Mineral Resources estimates, the state’s portion of the Bakken formation alone could hold more than 167 billion barrels of oil. Mountrail County is tied with Williams County as having the second largest estimated reserves of all counties in the state at 28.9 billion barrels of oil. McKenzie County was estimated to be the most resource rich county in the state with estimated reserves of 36.4 billion barrels of oil. Recently, further finds have stretched the boundaries of the deposits eastward putting Parshall in the middle of future development. The maps below illustrate the size and scope of the reserve base in each county of North Dakota. Currently, North Dakota is the second ranked state in the US for oil production behind Texas and ahead of Alaska. North Dakota production grew

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42% to 510,000 barrels a day in Q4 of 2012 and now as of October 2013, production has surged an additional 90.8% to 973,239 barrels per day in North Dakota. According to the Mayor’s Office of Williston, as of April 2, 2013, Mountrail County had 36 active production wells. Williams County had 44 active wells, and McKenzie County had 58 active wells. However, the drilling activity in Mountrail County is the most prolific as the map above illustrates the number of drill sites as of July 2013. Projections for the future drilling activity number in excess of 50,000 sites including re-drills. Recent data indicates that Mountrail county is experiencing the highest production levels. At approximately over 5 million barrels per month of production, Mountrail has surpassed all counties in North Dakota in terms of production. These figures illustrate an eastern shift in the primary production area within North Dakota’s portion of the Bakken shale. The demand for jobs at these drill sites is considerable. North Dakota’s Department of Mineral Resources estimates that every rig employs 120 people and five permanent employees needed to maintain every well. At over 2000 wells drill during the next ten-year period, the cumulative employment impact is over 240,000 jobs. Considering that the total population of the state is only 699,000, these jobs reflect nearly 35% of the total population. Unemployment was over 40% in Mountrail and surrounding counties prior to the Bakken development. Today, unemployment is under 3%. Median wages increased in McKenzie and Williams counties at a rate of 21% and 23%, respectively, and unemployment in McKenzie and Williams counties is at a rate of 1.5% and 1.0%, respectively, as of the end of 2012. 16


since ground water either needs to be treated/ filtered or is not potable. Also, even though the city is surrounded by tribal land, this city is considered to be “deeded” property, which means that the property can be owned and sold by private parties just like anywhere else in the US.

Bakken Mining Activity Map

Completion Dates

1951 - 2000: 125427 Wells 2000 - 2005: 167471 Wells 2006 - 2010: 279685 Wells

The City of Parshall is currently a community of around 1,000 people which are serviced with fresh water from the Lake Sakakawea, and sanitary systems provided by the city. The city is home to the corporate office for the local power company, the telephone utility. Other amenities include a private airstrip, a 9-hole golf course, restaurants, a grocery store, and a bowling alley. As seen below, Parshall is highlighted in red and is located in the

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2011 2010 2009 2008 2007 2006 Pre-2006

390 Wells 832 Wells 494 Wells 503 Wells 296 Wells 237 Wells 800 Wells

southeast section of Mountrail County. To the east is Ward County and to the west are Williams and McKenzie counties. To the north is Burke County and to the south are McLean and Dunn counties. The City of Parshall is uniquely situated in the central region of North Dakota and within sight of Lake Sakakawea. The Lake provides the main source for fresh water to the surrounding areas

Along with the current benefits of the city, the first new oil refinery constructed in the US in over 35 years has been placed less than ten miles east of Parshall. This refinery has started construction with the installation of the power generation lines to the site and the railroad spur currently being extended. The refinery will undoubtedly bring the need for additional living requirements for both construction workers expected to be over 1,000 workers per year during its development followed by housing for the people working at the facility once it is open. The facility is estimated to employ 262 full time employees at stabilized operating capacity. This is in addition to thousands of ancillary positions that will need to be filled to service the plant and surrounding businesses. Owned by the native American tribal nation of Mandan, Hidatsa and Arikara (the “MHA Nation”), the refinery will be developed and operated by Thunder Butte Petroleum Services, Inc. (“Thunder Butte”), a corporate entity formed by the MHA Nation to manage and operate the facility. Located in the city of Makoti, the refinery is within a twentyminute drive of Parshall. The refinery will span 460 acres at the northeast corner of the Fort Berthold Reservation. Estimated to consume up to 15,000 barrels of Bakken crude oil per day, the refinery


will produce diesel fuel, gasoline transportation fuel, and propane. The refinery will have access to a rail spur operated by Canadian Pacific Railway, N.D. Highway 23, and an Enbridge operated pipeline. According the Thunder Butte’s CEO, total development costs for the refinery is estimated to be up to $320 million. Construction on the extension to the power grid and the railroad spur started in 2012. Earthwork for the site preparation started in 2013 “The Bakken has proved its potential to investors”, Star Tribune 9/8/12

North Dakota

Continental Resources, Inc. announced in December 2012 that it successfully completed the Charlotte 3-22H (91% WI), the first horizontal well to test the third bench (TF3) of the Three Forks zone in the Bakken field of North Dakota and Montana. The Charlotte 3-22H flowed 953 barrels of oil equivalent per day (Boepd) at 1700 psi on a 28/64 choke in its initial one-day test period. Located in McKenzie County, North Dakota, it was drilled to a total depth of 21,324 feet, including a 9,701-foot lateral section, and was completed with Continental’s standard 30-stage fracture stimulation Continental estimated in late 2010 that the Bakken field would eventually yield 24 billion barrels of oil equivalent (Boe), based on technology available at that time. This estimate included 20 billion barrels of oil and 4 billion Boe of natural gas, and assumed 577 billion barrels of original oil in place in the Bakken and TF1. With the addition of oil found in the lower Three Forks benches, which includes the TF2, TF3 and TF4, The company now estimates the field has 903 billion barrels of original oil in place, a 57 percent increase.

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Mountrail County


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3.3 Development Elements The vision for this mixed-use community is to create a livable hometown extension of the small town of Parshall, North Dakota to serve the rapidly expanding workforce in the region. This community embraces the assets of a sloping site with long prairie vistas and the closeness of town features such as a high school and main street. This new high quality community of interconnected neighborhoods will be composed of various house sizes and types for different family lifestyles. It will incorporate the natural drainage features of the site into walking and bicycling paths and open spaces at key entries and focal points. The entire community is connected to the highly visible commercial conveniences that serve the entire town and create a public town park destination at the north end Main Street. This new part of Parshall is intended to be integral to the town yet provide new opportunities for hometown living, shopping, and working in close proximity to work sites for oil and gas industry employees. The Highlands of Parshall Development management plans to successfully develop 270 gross acres of the town into an outstanding residential and mixed-use development. ● The objectives of the Highlands of Parshall development are as follows: ● Manage the incremental development of the property over a 5 year period of time ● Attract investment and mortgage capital to support the incremental needs of the development’s growth ● Develop and market standard residential units ● Approach hotel and restaurant ownership companies to invest in planned properties ● Attract apartment managers/builders to invest in the community The business objective of Highlands is the incremental creation of a residential and commercial development, which will expand the City of Parshall with residential homes, apartments, commercial buildings and hotels.

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LAVENDER CT.

PRIMROSE CT.

COTTONWOOD CT.

WEST BIG BEAR AVE. ZACHER PARK

LE

LW AY

SF/MULTI FAMILY 317,437 sq. ft. 7.29 acres

RC

N ELSON CIR C L E

2 MULTI FAMILY/COM 2 201,362 sq. ft. 4.62 acres

E NU AV E NS ET SU

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MULTI FAMILY 2 427,461 sq. ft. 9.80 acres

NELSON PARK

MAIN STREET

www.highlandsofparshall.com

AV E. CE ER M

COMMERCIAL 2 43,820 sq. ft. 1.00 acres

6

CO M

WILD PLUM CT.

PA IN

W HE AT GR AS SL

TA VE

AN E

NU

E

FU AC E PE

E NU AV E ET NS

4

3 MULTI FAMILY/COMMERCIAL 197,407 sq. ft. 4.53 acres

E NU AV E N

SU

MICKEY LANE

NE

SADDLE LANE

5

EET

LA NE

8 IL STR

SO

E

COMMERCIAL 60,631 sq. ft. 1.39 acres

LA

LOIS LANE

AV E

NU

LA NE

LA

1

ISE

SUNRISE AVENUE

S

SU

NR

ANTELOPE AVENUE

BI

A

NE

LO I

EAGLE FEATHER WAY

GC IRC L

FOXTA

M EA DO W LA RK

AV EN UE

9

E

AN TE LO PE

MU ST AN

ET

STIRRUP LANE

E

HOTEL 350,265 sq. ft. 8.04 acres

STRE

NU VE A A

FLAX

CO L

N.

LE

21

CLE CIR

ON

DD

HOTEL/COMMERCIAL 216,357 sq. ft. 4.96 acres

NG STA MU

BR

SA

MULTI FAMILY 266,609 sq. ft. 6.12 acres

PACKINEAU PARK CK I IN E AU C

TRULSON PARK

CA NO L

11

10

EAST BIG BEAR AVE. PA

ELK MEADOW LANE

PHEASANT RUN LANE

PRAIRIE LANE

A

S OO AL PP

ARROWHEAD WAY

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HOTEL/COMMERCIAL 179,185 sq. ft. 4.11 acres

COMMERCIAL 177,277 sq. ft. 4.06 acres


Location

The property is located on the north side of Parshall with access from seven entrances situated around the perimeter with three of them considered to be major gateways. Each of these gateway entrances provide for access to the major elements of the site that include residential, commercial, hotel and restaurants. The new streets will be paved with curbs and gutters directing any run-off into the appropriate directions to shed water runoff.

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Residential

The residential properties are located throughout the site and currently consist of 600 lots. The majority of the lots are facing another lot located across the street. This eliminates any residential lots from facing major access roads. The starting lot size will be 50’x100’ with street widths averaging around 70’ throughout the development. Each home will be piped for electricity, fresh water, sanitary and fiber optics for TV, telephone and data. The home will have an average lot size that will gradually increase at higher elevations and up the hill northward. Each home is expected to have at least a single car garage with trees and vegetation planted in the front yard. Connected to the residential areas will be a park with playground equipment and recreational amenities. The residential market prices in the counties surrounding Mountrail County, McKenzie, Williams, and Ward counties, have experienced considerable growth. As seen above, the average home price in Minot, a city in Ward County is approximately $300,000. During 2011 and 2012, listed homes prices in McKenzie and Williams counties increased 40% and 23% respectively. Median wages increased in McKenzie and Williams counties at a rate of 21% and 23%, respectively, and unemployment in both counties is below 2%.

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Hotel

The development will also contain a series of hotel pads on the main street coming into Parshall. These locations are highly visible. These hotel pads will average 3 acres in size and with 100 keys per hotel will bring over 400 rooms. Management expects that three or more of the hotels will be owned and operated by the Highlands and its hotel management partners, generating significant returns and economizing operational management. These hotels may be converted to potential apartments in the future if management determines the optimal use. One of the hotels constructed will contain an indoor entertainment venue including an atrium and swimming pool. The construction of these hotels is expected to occur at the rate of one hotel per year. A standard hotel will include a manager’s apartment, lobby with reservation counter, back of house support, reception area, fireplace, storage area, laundry room, bathroom, meeting rooms and mechanical room. The hotels may have a partial basement that includes a laundry room with washers and dryers.

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Apartment The apartment buildings will be located in two areas of the site. One of the sites is directly across the street from the school and its playground and the other is at the southwest corner of the development. Apartments will be grouped into communal environments and with easy access to the roads, schools and commercial corridors. The plan currently contains five apartment buildings containing an average of 80 apartments for a total of 400 keys.

Commercial The development currently contains over 10 acres of property set aside for commercial businesses and construction. The commercial lots are situated along the new extension to Main Street thereby connecting it to the existing community. The commercial lots vary in size and can be developed, as the market demands require. There is considerable space to accommodate restaurants, retail establishments, strip mall retail, combination residence/business products and office buildings to be constructed.

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3.4 Development Plan The Company plans to develop the project in two phases. Phase I and Phase II for developmental growth are defined below: Phase 1 - Scope of Work The first phase of work includes constructing the extension of Main Street along with the various commercial businesses located along this major corridor. This work includes apartments on both sides of the street, the development of one hotel site, construction of the first set of residential product and various commercial properties. The purpose would be to begin the development by investing in the center of the community, provide the needed housing for current people in the community and those moving in during the construction of major industrial projects found in the area. Phase 1 Estimate The phase 1 elements are generally described as follows and according to the highlighted diagram as attached. The areas of work are separated into the following business classifications: ● Apartments/condos for located on 18 acres ● Hotel site of approximately 4.6 acres ● Residential homes for models & sales of 20 units

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Total Projected Costs Phase 1 The costs for the initial Phase 1 efforts are summarized as follows:

Projected Costs Hotel Residential Apartments Commercial Operations Infrastructure and Off-sites Total ● Commercial pads and buildings on 7 acres ● Roads, infrastructure and off-site improvements (Phase 1 Estimate Cont.) This suggested Phase 1 is approximately 40 acres or about 15% of the overall project. In addition to the hotel, apartment and commercial, the city will require various improvements and common area amenities such as parks, off-sites, storm drainage, utility runs, water storage and emergency access. A proportionate cost of the Site Improvements has been allocated and included into each of the business classifications. Also, the lots are shown in their current configuration after our discussions with the City of Parshall related to Preliminary Plat. Construction sq ft costs for standard hotel, apartment and housing were validated through local general contractors and modular housing vendors such as Champion and American Buildings.

Quant

$

1

$8,481,318

20

4,224,087

192/8

25,997,208

3

10,445,352 1,500,000

2,274,297 $52,922,261


Apartment Development The apartments are located on each side of Main Street as it comes northward up from the current town of Parshall with each lot of approximately 5 acres each. Depending on the final layout of the lot, 3 to 5 buildings of 3 stories each containing 48 units can be located on each lot comfortably. The apartment buildings will be made up of either single bedroom or double bedroom with average sizes of 700 square feet to 1,000 square feet each respectively. The construction costs also include paving, utilities and site improvements. Another construction option using a modular method is viable and may be preferred due to the short construction season. This mix generates a per-building cost of $3,249,651 of which we are projected to build 2 in the first season, 3 in the second season and 3 additional for a total of 8 buildings at a total cost of $25,997,208. The average per key cost is $135,000, which has been validated through a local general contractor and the construction of a similar product. This investment forecasts a 14% IRR, a cash-over-cash return of 2.9x and a $43,182,770 valuation at an 8% cap.

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Apartments Construction cost per key Construction cost per sq ft Cost per building Total construction – 8 bldgs Net income per apartment Total Net Income ROI Cash on Cash Valuation at 8% Cap

The following are representations of a potential apartment showing the building floor plan, elevation and room configuration.

$135,402 $185 $3,249,651 $25,997,208 $872,467 $3,454,618 13.7% 2.9x $43,182,720


Hotel Site Development The first hotel site of approximately 8.6 acres is located along the east side of Main Street and has access roads along each of two sides. This site is very situated to benefit from the commercial corridor and be very visible to the traffic on the Highway 37 corridor. The hotel is modeled to have 100 rooms situated on three stories. The hotel services will be limited with linens and room service only on a weekly basis for extended stay travelers. A continental breakfast would easily be implemented into the program and a restaurant with catering services should be reviewed for viability. A hotel in this market is currently averaging $130 a night with complete occupancy during most of the season. An investment of $8,481,318 is projected to have an EBITDA of $2,476,890 per year which produces a 30% IRR, 8.9x cash on cash and a valuation of $32,681,188 at an 8% cap rate.

Hotel

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Construction cost per mod

$38,813

Construction cost per sq ft

$28,271

Total construction – 1 bldg

$8,481,318

Total Net Income

$2,476,890

ROI

30.8%

Cash on Cash

8.9x

Valuation at 8% Cap

$32,681,188


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Commercial Properties The commercial properties are located on the east side of Phase 1 and adjacent to the Highway 37 and also at the middle of the new Main Street. The commercial properties are assumed to be 3 properties of 40,000 sq ft with a strip mall or store-front simple design. Each unit is budgeted to cost $3,481,784 with a total cost for 3 buildings of $10,445,352. The units will generate rental income of $529,200 for each building and $1,587,600 total rent for all three buildings using a $12 per square foot rental. The investment forecasts a 15.3% IRR, a 3.13 cash-over-cash return and a $22,050,000 valuation at an 8% cap.

Commercial Properties

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Construction cost per sq ft

$87.04

Cost per building

$33,481,784

Total construction – 3 bldgs

$10,445,352

Net income per unit

$529,200

Total Net Income

$1,587,600

ROI Cash on Cash

15.3% 3.13x

Valuation at 8% Cap

$22,050,000


3.6 Project Partners The Highlands of Parshall LLC is established as a Limited Liability Corporation formed in the State of North Dakota. The Company is currently owned and operated by an operating company. The operating company is Arfa Contracting Company Inc. currently owned by two major partners: Barry Arfa and Jim Lukasiewicz. Barry Arfa, CEO, Highlands of Parshall and ARFA Contracting Company, Inc. Barry Arfa has extensive experience in creating and managing projects and organizations in the property development and construction arena. These development projects have included homes, apartments, hotels and commercial businesses. Barry has performed work for various companies such as Marriott, Felcor Lodging Trust, and Hilton and has partnered with numerous development companies such as The Parker Company, Hirsh Associates, Kajima, Grove and Turner.

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Jim Lukasiewicz, President, Highlands of Parshall and ARFA Contracting Jim Lukasiewicz has managed over $2.3 billion of capital projects, which have included residential, hotels, hospitals, entertainment and restaurants facilities. Mr. Lukasiewicz will manage the operations of the development. His work also includes numerous project types such as hospitals, healthcare, entertainment arena/sports venues and for such owners as the 4-Seasons, Station Casinos, Caesars/ Harrah’s Entertainment. Highlands has additional key staff members and advisors to assist during the development, planning, and operational phases. They include a nationally renowned development master planner that has planned numerous communities and whose credentials are described herein. Additional local partners have constructed projects valued in excess of $300 million and are land development construction experts that have managed the process of planned community style properties. The most important task, at the beginning of this endeavor, is the development of a successful master plan for the community.

CONTRACTING COMPANY INC.


3.7 Hotel Operating Partners

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The Company has identified two established hotel operating companies to provide operational and management support to the project with respect to hotel development and operations. These operating partners offer the Company’s hotels meaningful and nationally recognized branding as well as significant operational expertise and services.

Wyndham Hotel Group

Cobblestone Hotels

The Microtel Inn & Suites by Wyndham is the fastest growing all-new construction economy hotel both in the United States as well as the State of North Dakota. Over the past two years, they have opened very successful hotel properties in many of the core areas of the Bakken. Parshall has been identified as a target market for the Microtel brand and the Wyndham Hotel Group feel strongly that the addition of a new hotel will be highly successful similar to their existing hotels located in the western part of the region.

Cobblestone Development is filling the lodging needs of many smaller communities by introducing their upper mid-scale product in smaller communities. They operate the Cobblestone Hotels brand as well as own and operate Boarders Inn & Suites in the states of North Dakota, Nebraska, Kansas, Iowa and Wisconsin. Their role in our partnership includes site selection, operations, standards, training, on-site property management and state of the art reservation and internet booking systems. The company currently operates 19 properties in the immediate region with four under construction and an additional 25 sites under development.


3.8 Real Estate Marketing Strategy A review of competitors’ marketing strategies reveals no other project targeting this market segment with a development of similar caliber within a one hundred mile area. The local developments consist of one-off homebuilders on a single lot or small developments of ten to twenty units with no real amenities. Management believes that these builders will become a part of the development and may want to offer their buyers the option of being it a larger development. They will become another extension to the sales channels because they will have a ready-made site to easily drop their options onto the site. They will not have to be concerned with finding land to develop. The project will provide them one self-contained location.

3.9 Market Overview & Trends

A number of market trends and business factors will impact Highlands’ project. These factors appear favorable as the project will be developed in a market with hyper growth, strong long-term economic stability, and a business friendly regulatory

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environment, leading to extremely strong demand and considerable local support. These elements have led to meaningful growth in business activity as illustrated in the figure below.


Economic Environment There are numerous positive economic forces include the generally prosperous economy that is currently found in the region, full employment, rising wages and increasing opportunities for jobs. This environment has created the need for housing as well as a consumer base that has the ability to invest in a home. The close locality of Lake Sakakawea and the Four Bears Casino also offers an affordable entertainment alternative. New business establishments have grown by about a third in the Bakken. Thus, wages have increased considerably as well. The demand for workers has pushed the average weekly wages higher in the Bakken as highly paid oil field related occupations gained a larger share of employment and wages across all sectors has increased due to the strong demand for labor. Average weekly wages are up around 25% in the Bakken since 2009 with wage growth up throughout the region. Geographical/Competitive Environment The Highlands of Parshall development fills a niche not presently available, namely a planned community that will be a moderately priced residential development. A new settler to the area supporting the oil industry as well as a worker building the refinery will have choices that include residential, multiple apartment options as well as a nightly or weekly stay option in a hotel. There are limited options in the surrounding community for new housing or apartments. Most of the developments are single-home options on single sites or smaller developments that are very limited.

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Legal/Political Environment The surrounding community has overwhelmingly accepted the Highlands of Parshall development. The Highlands Development management will be moving forward with the project and has started the initial civil engineering required for the project. The development has been presented to the City of

Parshall’s City Council who subsequently approved its release including the zoning to proceed. Management will obtain all the necessary building permits prior to construction. Present zoning allows for the residential homes, apartment buildings, multiple hotels and supporting commercial properties. The mix of each element will evolve as the sales for the properties evolve and the demand escalates.


3.10 Regional Market Drivers

The Highlands of Parshall project addresses the growing market need for housing and commercial infrastructure in the natural resource rich region of the Bakken Shale. The Bakken is a geological formation spanning the southern portion of Saskatchewan, Canada, northern Montana and North Dakota. The Bakken Shale is estimated to exceed 503 billion barrels of reserves. At an estimated ultimate recovery (“EUR�) rate of 10%, the oil recoverable is 50.3 billion barrels. At current market prices of approximately

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Parshall Bakken Shale NORTH DAKOTA Bismarck

MONTANA Billings

Williston Basin

SOUTH DAKOTA


$100 per barrel, this resource base is worth more than $5.0 trillion, and estimated to fully fuel the American economy for 2,041 years. According to North Dakota’s Department of Mineral Resources estimates, the state’s portion of the Bakken formation alone could hold more than 167 billion barrels of oil. Based on present technology, they estimate that producers could extract between two and 11 billion barrels of oil from North Dakota’s portion of the Bakken Shale. As the chart reveals, North Dakota surpassed Alaska in March of 2012 and California in December 2011. Currently, North Dakota is the second ranked state in the US for oil production behind Texas and ahead of Alaska. North Dakota production surged 42% to over 900,000 barrels a day in Q4 of 2013 that exceeds the output of OPEC member Ecuador. As of October 2013, production reached 947,239 barrels per day in North Dakota. The growth in drilling activity was made

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possible by changes in state regulations, advancements in technology and the ability to drill on private lands. The state is attracting unemployed workers from all corners of the country and boasts an unemployment rate of 3 percent – lowest in the country – with some areas of North Dakota falling to around 1 percent. North Dakota also leads all states with the largest percentage increase in employment over the past year. Job growth and sustainability is estimated to grow and be consistent for the next several decades. According to North Dakota’s Department of Mineral Resources, North Dakota should sustain up to 200 drilling rigs per year until the year 2025. During the peak of drilling estimated to be during 2020, the oil and gas jobs attributable to North Dakota Bakken drilling and production should reach nearly 65,000 jobs.

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North Dakota Oil Industry Jobs

Production Jobs

Gathering Jobs

Fracking Jobs

Drilling Jobs


Over the long term, North Dakota’s Department of Mineral Resources estimates that the region will permanently employ nearly 47,000 production staff well into the future through a projection period ending in the year 2050. Total permanent jobs for the sector should reach over 50,000 jobs throughout the projection term.

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4.0 MANAGEMENT & ORGANIZATION 4.1 Management Team Barry Arfa

Jim Lukasiewicz

Partner and Chief Executive Officer

Jim brings over 25 years of experience in the construction industry which has included holding executive positions in national general contracting and subcontracting companies as well as managing capital programs directly for owners. Jim has managed over the years in excess of $2 billion worth of design and construction. These projects have consisted of ground-up multimillion dollar developments through various tenant improvements in the fields of health care, hospitality, entertainment, retail, commercial office and many types of specialty projects. He has developed this expertise and respected reputation working for companies such as Henningson Durham and Richardson (“HDR”), Ellerbe Becket AECOM, Station Casinos, Caesar’s Entertainment, MGM Resorts and now as a partner in ARFA Contracting. Jim has also provided consulting services to Deloitte and Touche,

Barry has a lifetime of personal experiences creating and building hospitality and gaming related facilities including hotel remodels, restaurants, nightclubs, convention spaces and high-limit gaming. Barry is handson and understands how to create and build every element of a project. He started in the trenches with his father and grandfather and with hammer in hand learning how to create the solution at the same time he was building to meet the owner’s expectations and needs. Barry specializes in creative methods to build an exceptionally unique product. He is a visionary that can understand the overall importance of elements as well as the detailed solution required.

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Lawrence Livermore Labs and other firms to assist with their construction and operational issues. He has worked with such architects and designers as Adam Tihani, Jeffrey Beers, Friedmutter Group, Gensler, iCrave, Munge//Leung, Graft, Leo A Daly, Dougall Design Associates, RDH Associates, YWS Architects, HLW Architects, Morris & Brown, Ellerbe Becket, HDR, Westar Architects. His diverse experience from all sides of the spectrum, including owner, contractor, subcontractor and consultant, provides him a unique perspective on solutions and problem solving. Jim received his Bachelor’s degree from the University of Nebraska and received his MBA in Finance from the University of St. Thomas, Minneapolis MN.


Chuck Kubat, AIA NCARB Development Designer and Advisor To successfully build out the community, management has teamed up with a nationally renowned development master planner and operations executive, Chuck Kubat AIA NCARB. Chuck Kubat is an MIT graduate, previous principal in the firm RTKL and a nationally renowned professional that has architected and planned multiple communities and developments of varying sizes (including multiple developments over 20,000 acres in scale). A master planner analyzes all aspects of the available property and designs all facilities of the community including but not limited to the parks, walking paths, residential blocks, apartment locations, hotel areas and integration with commercial areas. A few noted communities in Chuck’s experience include: ● Summerlin master planned community ● Chattahoochie Hill Country, Atlanta GA ● Lowry Bombing Range, Denver CO ● Hickory Hills in Hanover County VA ● Pinebrook Neighborhood in Houston TX

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Steve Lim, Chairman & CEO, Viva Vina Inc. Senior Advisor Mr. Lim is the founder and currently serves as the Chairman and Chief Executive Officer of Viva Vina Inc. Mr. Lim has extensive experience as a Senior Executive and is currently serving as a Partner in several companies where he consults and provides executive guidance. Over his career, Mr. Lim has cultivated a vast network of business professionals and high-ranking government officials throughout the United States and Asia. Mr. Lim will leverage this network as he continues to work with domestic and international businesses and governments to raise capital, unite strategic partners, and create opportunities for business development. As a driven entrepreneur, Mr. Lim is motivated to expand Viva Vina’s aim at becoming the world’s premier Business Development and Marketing Company. Steve holds a Bachelor of Science in Electrical Engineering from the University of California, Los Angeles (UCLA).


5.0 FINANCIAL ASSUMPTIONS & PROJECTIONS 5.1 Revenue Projections The Company generates most of its revenues from its real estate properties that include hotels, multi-family apartments and commercial property rental income. In addition, revenues will also be generated from the sale of residential homes. ● Hotels units will be priced at an average of $135 per room per night. Each hotel will contain 100 rooms and will have an initial occupancy rate of approximately 90% although 99% is common in the market. Based on these assumptions, average annual revenues per hotel are approximately $4.4 million. ● Residential homes will be priced at a weighted average sale price of approximately $281,500 per home. This reflects the local market average for such premium residential units. The homes will consist of three different home types of varying amenities and square footage and will be priced at $240,000, $285,000, and $350,000, respectively. ● The Company anticipates developing five apartment buildings. At 80 to 100 units per building, an average rate starting of $1,600.00 per month, and

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a 95% occupancy rate, each apartment building should generate approximately $1.5 million in annual revenues, ● Four commercial buildings will also be part of the development at 50,000 square feet each. These commercial buildings will be priced at an average rent of $10.00 per square foot per year. At an estimated 95% occupancy, the revenue per building is approximately $475,000 per annum. The project will have various direct operating expenses per product type. These are listed in the table below.

5.2 Operating Expenses & NOI/EBITDA


5.3 Corporate Expenses

5.4 Sources And Uses

With respect to corporate expense, the Company anticipates total corporate level selling, general, and administrative costs to be approximately $1.75 million. This figure consists of corporate level salaries and benefits, corporate administrative costs, and general legal, tax and professional expenses. Although the corporate entity formed is a LLC, the effective corporate tax rate is estimated to be 35% of net income.

5.5 Financing Assumptions The Company anticipates an investment requirement of $68.0 million. Under management’s current assumptions, the Company estimates that the capital will be funded 50% in debt and in equity. The Company anticipates being able to secure long term,

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15-year senior secured debt for the real estate at a 20-year amortization and at a rate of 5.00%. These assumptions are general estimates and may vary with market conditions. Transaction fees and expense are approximately $3.2 million or approximately 4.8% of

the total financing transaction. The financing does not include capital generated from operating cash flow of $21.0 million and proceeds from the residential home sales which the Company anticipates will be selffunding after initial startup.

Hop investor guide 2014