Genesis Land Development Corp.
Annual Report 2012

Plain-text annual report

Genesis Land Development Corporation L A N D - H O M E S - C O M M E R C I A L - C O M M U N I T I E S Dream a Big Dream Once upon a time, you were an architect, an engineer, an interior designer, a carpenter and a landscaper with a bold vision of how you would live. You spent hours in the sand, bucket and shovel in hand, pouring over every detail. You built sturdy towers, each taller than the last. Vast halls for royal processions. Walls armored with dazzling shells. Expansive grounds for your cavalry. And a driftwood drawbridge crossing the crocodile-infested moat. And when it was done, when your sandcastle was perfect, all that was left was to show your parents your handiwork: “Mom! Dad! Come see what I made!” We invite you to relive those days of wonder, a time of unfettered imagination and excitement. It’s a time and place that’s at the very heart of who we are as an organization. It fuels our creativity as we conceive of the ultimate community and the ultimate new home. Sure, the materials have changed (we don’t build with sand anymore), but the sense of infinite possibilities, our desire to surprise and delight and our pride remain the same. We dream. We design. We build. We create inspired communities – one home, one family, one neighbourhood at a time. Genesis Come dream with us. G ENESIS LAND DE VELOP ME NT CORPOR AT ION TABLE O F CONTE NTS CEO's Message Calgary Projects Map Community Involvement Management’s Discussion and Analysis Consolidated Financial Statements 02 06 10 12 38 01 G ENESIS LAND DE VELOP ME NT CORPOR AT ION ■ Residential home building sales increased by 38% to earnings. The Alberta economy has evolved from the ■ Profitably grow our existing businesses in land 90 homes, representing the first step in a return to boom/bust cycle of petroleum drilling to larger, longer-term development, commercial development and home profitability for the home building business; and oil sands projects that are capturing international attention building; ■ A landmark $32.5 million commercial sale was completed in the 150 acre Sage Hill Crossing and investment. This evolution has significant ramifications ■ Develop a comprehensive “people plan”; and for our business, resulting in a more stable market in which ■ Simplify the Genesis organization. development project. to grow. G ENE SIS 2012 A NNUAL REP ORT CEO ’S MESSAGE Refocusing Direction & Building on Strengths Genesis is an established real estate company with over 15 years of experience in the land development and home building industry. Throughout this time, we’ve experienced both the ups and downs of the real estate market, and have persevered in our goal to grow our core businesses. As a result, the Corporation today has a number of key assets and strengths, as well as challenges, as we move forward with the next step in our growth. "This is only the beginning of things to come for Genesis." I joined Genesis because I saw great potential and opportunity in what could be created from the Corporation’s extensive land base, current economic fundamentals, and the Board of Directors’ commitment to enhance long-term value. With that goal in mind, we’re moving forward with the creation and implementation of a strategic plan aligning Genesis with its key strengths and core businesses. Genesis continues to evolve and adapt as highlighted by A STRONG FOUNDATION a number of significant changes over the past 18 months. In February 2012, the Board concluded a strategic review process that determined it was in the best interest of shareholders to continue to develop and grow the company. In response, the Board was revitalized with the addition of several new and well respected business leaders, while a new Executive team was engaged in February 2013, with the objective of refocusing and redefining the organization and its objectives. There are many reasons why I believe that Genesis offers its stakeholders significant opportunity. First, our asset base includes some of the best located development lands in the Calgary region that provides many years of inventory and development potential. This is important since it is becoming increasingly difficult to bring new developments on stream in a timely manner. Second, we have a passionate team of professionals. In the past few months we have adjusted and further augmented the team to capitalize on These changes were put in place to build a strong foundation existing strengths, while adding skills in areas that required upon which we can create the Corporation’s future. Despite development. We will continue to do so as requirements a year of transition, we achieved solid operational results in dictate. Third, we have the financial resources to be able 2012, highlighted as follows: to invest in our future growth as strategic development ■ Earnings (attributable to shareholders, before opportunities appear. impairment charges and net of related income tax In addition, positive general economic conditions are effects) increased to $22.6 million, revenues increased expected through 2013 with solid fundamentals, including by 48%, and gross margin (before extraordinary items) low unemployment and interest rates, low and stable was 33%; inflation rates, positive net in-migration and above average The combination of these and other factors provides Profitably grow our existing businesses. Genesis with a healthy environment to produce strong Land development is the historical backbone of Genesis returns from its core land development and homebuilding and we have significant holdings in a diverse group of lands activities. Our goal is to access the value in our assets in terms of geography, use and approvals status. It is one going forward while staying open to opportunities as they of our core strengths and as such, we will continue to appear, effectively conveying our accomplishments to methodically expand our activities in this area to the benefit stakeholders. of our stakeholders. As our development activities are refocused and redefined, we may identify non-core assets ALIGNING STRATEGY WITH STRENGTHS for disposal, provided we obtain a fair price that reflects In order to unlock the Corporation’s full value, we need to focus on the right things – our strengths and opportunities. Our overall goal is to align Genesis with its key areas of full value. In return, additional capital could be utilized to judiciously acquire new assets that serve our core market in and around the Calgary area. strength and maximize its potential in accordance with our Home building is a natural extension of land development, core values. We will accomplish this through the successful execution of a three-point business strategy: GROWTH PEOPLE VALUE SIMPLIFY offering financial benefits from vertical integration. In order to maximize its value, we are focused on increasing the profitability of this business, managing and growing our residential building activities better than we have in the past. We are striving to continuously improve results through increased volume and our ability to lever such volume to better manage costs, targeting our core market where we have strengths of land base and expertise. We realize we help make dreams a reality for our home buyers and their families, and a positive purchase experience is critical to our success. In that regard, we are working to improve our customers’ experience through better communication, quality control and on-time delivery, every time. The result is a quality product and a satisfied customer. Finally, our commercial projects offer significant long-term potential. In addition to considering outright land sales, we will look to establish strategic relationships that provide complementary expertise in order to maximize their potential. 02 03 G ENE SIS 2012 A NNUAL REP ORT G ENESIS LAND DE VELOP ME NT CORPOR AT ION We help make dreams a reality. Underlying our success will be a heightened focus on our POISED FOR THE FUTURE capital management. We will strive to accelerate the use of our existing capital and financial resources, recognizing returns from investment more quickly. Develop a Comprehensive “People Plan”. As Genesis continues to grow its business, its human resource requirements will evolve. We recognize recruiting and keeping the best people in the industry is a must in order to reach our full potential. We are developing a comprehensive human resource management plan that addresses planning, recruitment, performance management, training and development and staff relations. Simplify the Genesis Organization. We recognize our current corporate structure can be confusing to our shareholders due to our many non- controlling entities. We plan to simplify our structure, making our financial results more transparent and allowing a better understanding of our business. We are streamlining our information systems and work processes to increase efficiency. Such improvements are intended to benefit the quality and timeliness of information on which decisions are made, enhance communication with our customers and reduce costs. I’d like to thank our employees and directors for all their hard work over the past year, and shareholders for their continuing support. Genesis is in a great position for the future and is working to become a more significant player in the industry. We have sustainable value from both a substantial and diversified land base and the time required to access its potential, combined with the financial capital to add to our portfolio of opportunities. We have the expertise of a strong board, management and staff focused on long- term value accretion. In addition, the Alberta economy and industry trends continue to provide positive support for the Corporation’s future growth. Looking forward, we will continue to meet our promises, delivering on our strategy for growth and our opportunities. I’m confident the market will better recognize our assets and potential over time, resulting in improved value and return for shareholders. I look forward to the future and delivering on the Corporation’s potential for the benefit of all its stakeholders. BRUCE RUDICHUK, CA, CIRP President & Chief Executive Officer July 2013 04 G ENE SIS 2012 A NNUAL REP ORT GENE SIS COMMUNITI ES & COMME R CIA L S IT ES CA L GA RY AND ARE A BAYSIDE IN AIRDRIE West Airdrie Lands (LP) Bayview CITY OF AIRDRIE Genesis Place (Airdrie Rec Centre) CITY LIMITS STONEY TRAIL Delacour (LP) Delacour CALGARY INTERNATIONAL AIRPORT North Conrich Taravista/Taralake Genesis Centre of Community Wellness (Calgary NE Rec Centre) S T I M I L Y T I C CITY OF CALGARY TRANS CANADA HWY S T I M I L Y T I C Mountain View Village I I S T M L Y T C I I I S T M L Y T C I CITY LIMITS 06 GE NESI S L AND DEVELOPME NT CORPORATION G ENESIS 2 01 2 ANN UAL RE P OR T COM MUN ITY INVOLVEMENT We create inspired communities - one home, one family, one neighbourhood at a time. 2012 SAM AWARDS WINNER THE GENESIS CENTRE OF COMMUNITY WELLNESS From Dream to Reality The Genesis Centre of Community Wellness is a great example of our role as a community builder. Community leaders in North East Calgary were determined to bring the dynamic and diverse cultures of the local communities together to promote safe, cooperative and actively healthy neighbourhoods. To realize their dream, these visionary leaders founded the North East Centre of Community Society (NECCS), an organization dedicated to the challenge of building a facility that would serve the sport, recreation, educational and cultural needs of the northeast. We saw the opportunity to support and fund this incredible facility MAIN LOBBY THE GENESIS CENTRE OF COMMUNITY WELLNESS A SPECIAL EVENT AT THE GENESIS CENTRE OF COMMUNITY WELLNESS as a perfect alignment of our core values. The dream Genesis continues to play a part in the support of the quickly started to take shape, gaining support and funding Genesis Centre of Community Wellness – a 225,000 GENESIS PLACE from the City of Calgary and YMCA, along with a generous square foot, $120 million multi-purpose complex built to CHBA - Calgary Region Northeast Calgary. naming sponsorship from Genesis. enrich the health, wellness, and unity of communities in Genesis Place, the amazing recreation facility in Airdrie, acts as a gathering place, hub of activity and true heart of the community. We are proud of our commitment and on- going support of Genesis Place and the what it means to the quality of life for the community of Airdrie. We dream. We design. We build. We create inspired communities - one home, one family, one neighbourhood at a time. GENESIS PLACE AIRDRIE, AB THE GENESIS CENTRE OF COMMUNITY WELLNESS 2012 AN AWARD WINNING HOME BUILDER We are proud to announce the Genesis Builders Group is a 2012 SAM Award Winner The Canadian Home Builders’ Association – Calgary Region presented The 26th Annual SAM Awards, celebrating innovation and excellence in the Calgary and area’s residential construction industry at a Gala event held on April 13, 2013. There were more than 1,600 people in attendance. Genesis Builders Group, the home building arm of Genesis Land Corporation, was awarded the winner of the SAM Award for best new home (up to $199,900). The award process is very detailed with volunteer industry peers judging the submissions and awarding points in each category. A record number of entries were submitted from members vying for the prestigious awards. The results are authenticated by an independent auditing firm. 10 11 MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS For the three months and year ended December 31, 2012 (All amounts are in thousands Canadian dollars, except per share amounts or unless otherwise noted. ) DATED MARCH 20, 2013 The following management’s discussion and analysis (MD&A) of the financial condition and results of operations of Genesis Land Development Corp. (“Genesis” or the “Corporation”) should be read in conjunction with the consolidated financial statements and the notes thereto for the year ended December 31, 2012 prepared in accordance with International Financial Reporting Standards (“IFRS”). Readers should also read the “Forward-Looking Statements” legal advisory contained at the end of this document. The audited consolidated financial statements and comparative information have been prepared in Adjusted earnings per share (adding back after-tax write-down) - basic and diluted accordance with International Financial Reporting Standards (“IFRS”). They have been reviewed by the Corporation’s Audit Committee, consisting of three independent directors, and adopted by the Board of Directors. Additional information, including the Corporation’s Annual Information Form (“AIF”), is available on SEDAR at www.sedar.com. Total assets Loans and credit facilities (1) Net of income tax expense. G ENE SIS LAN D DE VE LOP M EN T CORP ORATION BUSINESS OF GENESIS Genesis is a real estate development and home building corporation headquartered in Calgary, Alberta. It is engaged in the acquisition, development and sale of land, residential lots and homes in Alberta and British Columbia. The commercial, industrial and urban communities, and resort destinations; and ■ the construction and sale of single- and multi-family homes through Genesis Builders Group (“GBG”), a wholly-owned subsidiary of the Corporation. Corporation reports its activities as two business segments: All business activities of Genesis are conducted in Western land development and residential home building. Within Canada, with active development primarily in and around land development are two areas: development of land and the cities of Calgary and Airdrie. residential lots. Genesis’ vertically integrated operations include: The Corporation is listed for trading on the Toronto Stock Exchange (the “Exchange” or “TSX”) under the symbol ■ the acquisition of land held for future development, “GDC”. including the planning, servicing and marketing of EXECUTIVE SUMMARY Total revenues Gross margin Impairment (recovery) of real estate held for development and sale Gross margin, before write-downs (recoveries) Gross margin, before write-downs (%) Net earnings(1) attributable to shareholders Net earnings(1) per share - basic Net earnings(1) per share - diluted 2012 2011 2010 141,582 14,171 33,146 47,317 33% 8,861 0.20 0.20 0.51 95,760 29,792 2,474 32,266 34% 11,060 0.25 0.25 0.29 137,383 68,972 (3,714) 65,258 48% 33,514 0.76 0.75 0.75 383,317 102,242 378,018 88,231 350,466 81,320 General economic conditions were positive in 2012 in The gross margin percentage before write-downs Canada and in the land development/housing industry, decreased slightly by 1% due to a different mix of properties resulting in an improved market over 2011. Genesis sold during 2012, particularly the sales mix of single-family realized a 48% increase in revenues to $141,582, largely homes that included a higher number of entry level homes. due to a major sale of 34.35 acres in the Sage Hill Crossing Genesis expects single-family home gross margins to property (amounting to $32,526), and higher lot and improve as the volume of home sales increases and sites residential home sales. The Corporation participated in continue development in 2013. Refer to pages 18-25 for multiple active projects during the year ended December detailed analysis of revenue, cost and gross margin. 31, 2012. Approximately 13 phases/sites were under development and 15 phases/sites were in the process of being sold (see table on page 19). The Corporation holds some of the best located development lands in the Calgary region that provide many years of inventory and development potential. This is 13 MANAGEMENT’S DISCUSSION AND ANALYSIS 2012 A NN UA L REPORT G ENE SIS LAN D DE VE LOP M EN T CORP ORATION important since it is becoming increasingly difficult to bring positioning itself for future growth. With a diversified and new developments on stream in a timely manner. Partially substantial land base, the Corporation is well positioned as a result of these conditions, there has been some to focus on developing those projects that offer the best impairment of real estate held for development and sale, return in the market going forward. which increased in 2012 for certain properties, primarily: Delacour, Rocky View County; Acheson, Parkland County; OUTLOOK 4. Strengthening the Corporation’s relationships within 4. Debt to gross book value: a leverage measure that the lending and investment community with a view to calculate the percentage that a company’s value would maximizing access to competitively priced capital. cover its debt obligations. A lower percentage indicates With a diversified and substantial land base, the Corporation a greater ability for the company to repay its debt. is well positioned to focus on developing those projects 5. Debt (total liabilities) to equity ratio: a leverage and Spur Valley, Regional District of East Kootenay. The The positive trend in general economic conditions that offer the best return in the market going forward. measure that indicates what proportion of equity and decline in value resulted from specific market conditions, and the industry is expected through 2013 with solid geographical locations and estimated monetization horizons economic fundamentals, including low unemployment of each of the properties. The Corporation’s portion of and interest rates, low and stable inflation rates, positive the impairment (net of joint venture and non-controlling net in-migration and above average earnings, among other interests) was $18,268 of the $33,146 write-down. The factors. The combination of these factors provides Genesis impairment impacted overall results for the Corporation, with a healthy environment for its core development and KEY FINANCIAL PERFORMANCE INDICATORS Genesis measures the performance of the Corporation through the following Key Financial Performance Indicators (“KPIs”): including gross margin and net earnings. Despite this, net homebuilding activities in the coming year. During this time, 1. Cash flows from operating activities: a measure that debt a company is using to finance its assets. A high debt to equity ratio indicates that a company has utilized a higher amount of debt to finance its growth. 6. Return on equity: a measure of return of a company’s profitability by indicating how much profit a company generates with shareholders’ invested capital. The higher the number, the better return from use of earnings attributable to shareholders, before impairment Genesis will continue to pursue a strategy of positioning represents a company’s ability to generate cash through shareholder funds. charges and net of related income tax effects, were itself for future growth, focusing its activities in Alberta operations in order to finance capital programs and $22,562, which is a substantial improvement over 2011 for and, more particularly, the greater Calgary area. repay debt. which the comparable amount was $13,010. Subsequent to the end of the year, Genesis announced the The Corporation achieved net earnings of $0.20 per share appointment of a new President and Chief Executive Officer, for the year and incurred a loss of $0.16 per share for the Bruce Rudichuk, as well as Executive Vice-President and 2. Cash flows from operating activities per share: a measure that represents the portion of a company’s cash flows allocated to each outstanding share of three months ended December 31, 2012, compared to Chief Financial Officer, Mark Scott. These appointments are common stock flows. 7. Return on assets: a measure of return that indicates how profitable a company is relative to its total assets, and how efficient it is at using assets to generate earnings. This measure can vary substantially between industries. The higher the number, the better the company is at earning more money on less investment. net earnings of $0.05 and $0.25 per share for the three intended to build the Corporation’s capacity to organically months and year ended December 31, 2011, respectively. grow its operations in the future as well as drive improved Setting aside these impairment charges, Genesis achieved financial results through operational efficiencies and fiscal solid results in 2012 with earnings per share attributable discipline. In that regard, management will dedicate a to shareholders (before impairment charges and net of substantial amount of its efforts for 2013 in the following related income tax effects) of $0.51, as compared with areas: $0.29 in 2011. Loans and credit facilities increased in 2012 due to seven new credit facilities secured for servicing of land in Sage 1. Growing the Corporation’s approved and well-located core land positions and expand its development activities, primarily within the City of Calgary and Hill Crossing, Saddlestone Phase 6, Canals phase 6 and for Airdrie; the home building division. The proceeds from the sale of 2. Building a stronger and more profitable homebuilding sites 1 and 2 in Sage Hill Crossing were used to repay credit operation that measures its success in terms of brand facilities subsequent to year end, reducing the balance of recognition, customer satisfaction, and volume in loans and credit facilities by $31,411. This reduced the addition to improved financial performance; loans and credits facilities outstanding to $70,831 and the debt to equity ratio to 0.55. Refer to pages 28-29 for detailed analysis of liquidity and capital resources. 3. Assessing the Corporation’s long-term land holdings, specifically its long term land development and homebuilding requirements, and implementing the The positive trend in general economic conditions and appropriate strategic acquisition and /or divestiture the housing industry is expected through 2013. During plans to increase management’s focus on adding this time, Genesis will continue to pursue a strategy of shareholder value; and 3. Net earnings per share: an earnings measure that 8. Net Asset Value per share (“NAV”): a measure that serves as an indicator of a company’s profitability. It represents the portion of a company’s profit allocated to the weighted average outstanding shares of common stock. indicates the value of Corporation’s assets allocated to each outstanding share of common stock flows. Three Months Ended December 31 Year Ended December 31 Cash flows from operating activities Cash flows from operating activities per share Net earnings per share - basic and diluted 2012 (18,166) (0.40) (0.16) 2011 (4,548) (0.10) 0.05 Net Asset Value per share Return on equity Return on assets Debt to equity ratio Debt to gross book value 2012 (1,672) (0.04) 0.20 6.61 4.8% 2.3% 0.69 27.1% 2011 13,656 0.31 0.25 7.44 6.4% 3.0% 0.60 23.6% Cash out flows from operating activities increased for the construction as at December 31, 2012 compared with 70 three months and year ended December 31, 2012 as a result homes at December 31, 2011. As a result, the revenues of funding requirements to support the growth in the home from the 2012 sales will be recognized upon home building division. The home building division experienced completion, increasing cash flows from operating activities strong growth in sales over 2012 with 156 homes under at that time. 14 15 MANAGEMENT’S DISCUSSION AND ANALYSIS 2012 A NN UA L REPORT G ENE SIS LAN D DE VE LOP M EN T CORP ORATION Debt to gross book value is calculated as follows: Debt Loans and credit facilities excluding deferred financing fees 104,554 89,989 December 31, 2012 December 31, 2011 Gross Book Value(1) Real estate held for development and sale Property and equipment Other assets(2) Deferred financing fees Gross book value Debt to gross book value 271,845 688 110,994 2,312 385,839 27.1% 299,916 2,062 77,654 1,758 381,390 23.6% (1) Gross book value is calculated as total assets before depreciation on property and equipment, net of impairment losses. Gross book value is a non-IFRS measure as described in the ‘Advisories’ section of this document. (2) Other assets consist of amounts receivable, other operating assets, deferred income taxes and cash and cash equivalents. The debt to equity ratio is calculated as total liabilities divided by total equity as follows: Total liabilities Total equity Debt to equity ratio December 31, 2012 December 31, 2011 157,008 226,309 0.69 141,399 236,619 0.60 The Corporation’s debt decreased by $31,411 subsequent received on January 10, 2013. This reduced the loans and to year end 2012, when proceeds from sale of sites 1 and credits facilities outstanding to $70,831 and the debt to 2 in the Sage Hill Crossing commercial development were equity ratio to 0.55. NET ASSET VALUE CALCULATION Independent appraised value(2) Serviced Single-family lot Inventory Serviced Multi-family sites Fully approved Commercial/Industrial Sites Fully approved developable lands - Calgary & Airdrie Other raw and partially approved lands Total pre-tax land value Other balance sheet assets (see page 12 for details) Balance sheet liabilities (see page 12 for details) Add amount due from related entities Estimated pre-tax NAV Estimated tax(3) Estimated after-tax NAV Total shares outstanding as at December 31 Estimated after-tax NAV per share outstanding 2012 2011 51,150 11,130 55,600 145,480 55,271 318,631 141,676 (157,008) 26,834 330,133 (34,403) 295,730 44,767 6.61 92,963 24,700 76,194 136,568 82,066 412,491 88,231 (141,399) 25,133 384,456 (53,329) 331,127 44,484 7.44 (1) NAV is a non-IFRS measure as described in the ‘Advisories’ section of this document. (2) Appraised value represents 100% Genesis owned lands. Limited partnership lands owned by other limited partnership investors (and the corresponding NCI liability) are excluded from the calculation. Appraised values of lands represents market value based on comparative figures of similar market transactions. (3) Genesis has used corporate income tax rate of 25% for 2012 and 26.5% for 2011 to calculate taxes in determining its NAV. The decrease in estimated NAV to $6.61 in 2012 from $7.44 sheet assets less balance sheet liabilities and corporate in 2011 is mainly attributable to a decline in value of real income tax as at December 31, 2012 and 2011. The book estate (primarily raw and partially approved lands outside value of all remaining assets and liabilities as set forth in of the cities of Airdrie and Calgary), net of non-controlling the consolidated financial statements of the Corporation interest. In addition it is attributable to the payments for the year ended December 31, 2012 and 2011 has been of interest on financings, taxes and other general and added to calculate the pre-tax NAV. Estimated taxes have administrative expenses during the year ended December been deducted as if all properties were sold at their market 31, 2012. values to determine NAV. The estimated NAV was calculated using the independent appraiser’s total pre-tax land value plus additional balance 16 17 MANAGEMENT’S DISCUSSION AND ANALYSIS 2012 AN NU AL R EPO RT G ENE SIS LAN D DE VE LOP M EN T CORP ORATION Other balance sheet assets and liabilities in the NAV Calculation include the following: YEAR ENDED DECEMBER 31, 2012 YEAR ENDED DECEMBER 31, 2011 ($’s) Assets Housing projects under development Accounts receivable Deferred tax assets Other operations assets Cash Total Liabilities Loans and credit facilities Customer deposits Accounts payable and accrued liabilities Income taxes payable Deferred tax liabilities Land development service costs Total 2012 2011 30,204 85,230 - 16,237 10,005 141,676 102,242 4,352 21,309 4,617 60 24,428 10,129 43,451 2,859 20,942 10,850 88,231 88,231 7,582 16,415 12,970 - 16,201 157,008 141,399 RESULTS OF OPERATIONS REVENUE, COST OF SALES AND GROSS MARGIN Revenues Cost of sales Gross margin Gross margin, before write-downs Gross margin, before write-downs (%) Three months ended December 31, Year ended December 31, 2012 57,706 (77,308) (19,602) 14,614 25% 2011 25,668 (19,712) 5,956 9,559 37% % 125% 292% (429%) 53% 2012 141,582 (127,411) 14,171 47,317 33% 2011 95,760 (65,968) 29,792 32,266 34% % 48% 93% (52%) 47% The revenue mix for the three months and year ended December 31, 2012 and 2011 is as follows: THREE MONTHS ENDED DECEMBER 31, 2012 THREE MONTHS ENDED DECEMBER 31, 2011 24% Residential Homes 61% Development Land(1) 15% Residential Lots 58% Residential Lots (1) Development land sales increased substantially in the fourth quarter of 2012 due to the sale of commercial land in Sage Hill Crossing. 19% Development Land 23% Residential Homes 35% Development Land 37% Residential Lots 28% Residential Homes 23% Development Land 43% Residential Lots Genesis’ active projects during 2012 follow: 34% Residential Homes Community Bayside Canals Sage Meadows Kinwood Sage Hill Crossing Saddlestone (1) Multi-family. Location Airdrie Airdrie NW Calgary NW Calgary NW Calgary NE Calgary Phases/Sites Under Development Phases/Sites Being Sold - 6 4 2 1, 2, 3, 4, 5, 6, 7 5A, 6, 12(1) 7, 9 - 1, 2 2 3, 4, 5, 6, 7 1, 2, 3, 4, 12(1) For a complete list of all properties please refer to the AIF for the year ended December 31, 2012. LAND DEVELOPMENT Residential Lots Residential lot revenue Cost of sales Gross margin Gross margin, before write-downs Gross margin, before write-downs (%) Number of lots sold Average revenue per lot Average cost of sales per lot Three months ended December 31, Year ended December 31, 2012 8,470 (3,542) 4,928 4,928 58% 46 184 77 2011 15,138 (7,206) 7,932 7,932 52% 93 163 77 % (44%) (51%) (38%) (38%) (51%) 13% 0% 2012 51,933 (24,412) 27,521 27,521 53% 287 181 85 2011 40,739 (24,083) 16,656 16,721 41% 255 160 94 % 27% 1% 65% 65% 13% 13% (10%) 18 19 MANAGEMENT’S DISCUSSION AND ANALYSIS 2012 A NN UA L REPORT G ENE SIS LAN D DE VE LOP M EN T CORP ORATION $19,729 $19,729 Airdrie were as follows: Residential lot revenues decreased during the three in 2012. The timely development of such phases and months ended December 31, 2012 compared to the same resulting lot sales reflect the improvement of Calgary’s period in 2011 as revenues for the newly released phase housing market in general year over year. 1 of the Calgary community of Kinwood were included in 2011. Lot revenues for the year ended December 31, 2012 were higher due primarily to strong sales in newly released The revenue per lot for the year ended December 31, 2012 was higher than 2011 due to the sales mix of properties in 2011, which contained duplex houses with lower sales phases 3 and 4 of the Calgary community of Saddlestone, price. phase 2 of the Calgary community of Kinwood, and phase 6 of the Airdrie community of Canals, which were completed The number of lots sold by community during the three months and year ended December 31, 2012 and 2011 in Calgary and Community Calgary Sherwood Saddlestone Sage Meadows Kinwood Airdrie Bayside Canals Total Three months ended December 31, Year ended December 31, # of lots sold Average revenue per lot # of lots sold Average revenue per lot 2012 2011 2012 2011 2012 2011 2012 2011 - 5 1 - - 40 46 - 8 2 53 29 1 93 - 226 163 - - 179 184 - 209 241 167 139 226 163 - 88 31 49 56 63 287 3 10 82 53 103 4 255 - 197 198 167 156 183 181 209 211 187 165 128 191 160 Development Land Development land revenues Cost of sales(1) Gross margin Gross margin, before write-downs Gross margin, before write-downs (%) Three months ended December 31, Year ended December 31, 2012 35,239 (62,831) (27,592) 6,623 19% % 687% 663% 633% N/R(2) 2011 4,475 (8,239) (3,764) (188) (4%) 2012 49,389 (71,840) (22,451) 10,695 22% % 119% 302% (584%) 52% 2011 22,523 (17,885) 4,638 7,020 31% THREE MONTHS ENDED DECEMBER 31, ($ in thousands) REVENUE COST OF SALES GROSS MARGIN GM% $3,974 $4,034 $5,226 $24,955 79% $15,138 $15,138 #0% $35,570 52% $7,206 $7,932 $8,470 $3,542 $4,928 58% YEAR ENDED DECEMBER 31, ($ in thousands) REVENUE COST OF SALES GROSS MARGIN GM% $12,729 $10,409 $8,985 $23,128 45% $35,570 $26,585 75% -2% -2% 9 0 0 2 $-60 0 1 0 2 1 1 0 2 2 1 0 2 9 0 0 2 0 1 0 2 1 1 0 2 2 1 0 2 $40,739 (2) Not reflective due to percentage increase. (1) Includes impairment losses for the three month ended December 31, 2012 of $34,215 (2011 - $3,576) and for the year ended December 31, 2012 of $33,146 (2011 - $2,382) $24,019 41% $16,720 $24,412 $27,521 20 $51,933 53% 21 MANAGEMENT’S DISCUSSION AND ANALYSIS 2012 A NN UA L REPORT G ENE SIS LAN D DE VE LOP M EN T CORP ORATION THREE MONTHS ENDED DECEMBER 31, ($ in thousands) REVENUE COST OF SALES GROSS MARGIN GM% 0 1 0 2 $2,800 $1,059 $1,741 1 1 0 2 -4% $-188 2 1 0 2 $4,475 $4,663 19% $6,623 YEAR ENDED DECEMBER 31, ($ in thousands) 62% $10,089 $35,239 $28,616 REVENUE COST OF SALES GROSS MARGIN GM% 0 1 0 2 1 1 0 2 2 1 0 2 $14,859 $27,653 $22,523 $15,503 31% $7,020 22% $10,695 $42,512 65% $49,389 $38,694 The increase in development land sales for the three months ended December 31, 2011 was due to a cost to months and year ended December 31, 2012 compared to complete adjustment for a development land parcel sold the same periods in 2011 was a result of the sale of sites during three months ended September 30, 2011. The 1 and 2 in the commercial development project of Sage Hill gross margin before the adjustment was $401 or 9%. Crossing for $32,526 in December 2012. The increase in gross margin for the three months ended The decrease in gross margin before write downs from 31% to 22% for the year ended December 31, 2012 compared to 2011 is due to the comparatively lower margin in Sage Hill Crossing sites 1 and 2. The margin on the project is expected to improve with an increase in the value due to development of sites 1 and 2 by the purchaser. The negative gross margin before write-downs for three December 31, 2012 was due to sale of sites 1 and 2 of the Sage Hill Crossing commercial development in 2012, compared to sale of a multi-family site in the Calgary community of Kincora, which had a 10% gross margin. The multi-family parcel sold in 2011 had unique characteristics that required additional on-site development costs, which affected its selling price. RESIDENTIAL HOME BUILDING Single-family Single-family revenues Cost of sales Gross margin Gross margin, before write-downs Gross margin, before write-downs (%) Number of homes sold Average revenue per home Average cost of sales per home Three months ended December 31, Year ended December 31, 2012 13,901 (10,934) 2,967 2,967 21% 34 409 322 2011 6,002 (4,237) 1,765 1,765 29% 11 546 385 % 132% 158% 68% 68% 209% (25%) (16%) 2012 39,312 2011 31,477 (31,037) (23,429) 8,275 8,275 21% 90 437 345 8,048 8,048 26% 65 484 360 % 25% 32% 3% 3% 38% (10%) (4%) 22 23 MANAGEMENT’S DISCUSSION AND ANALYSIS 2012 A NN UA L REPORT G ENE SIS LAN D DE VE LOP M EN T CORP ORATION THREE MONTHS ENDED DECEMBER 31, ($ in thousands) REVENUE COST OF SALES GROSS MARGIN GM% 9 0 0 2 0 1 0 2 1 1 0 2 2 1 0 2 $10,089 42% $5,823 $4,266 $6,897 $4,803 30% $6,002 $4,237 $35,570 #0% 29% $2,094 $1,765 21% $10,984 $13,901 $2,917 YEAR ENDED DECEMBER 31, ($ in thousands) REVENUE COST OF SALES GROSS MARGIN GM% $45,025 $46,297 $30,778 32% $31,561 32% $14,247 $14,736 $31,477 $23,429 26% 21% $31,037 $39,312 $8,048 $8,275 9 0 0 2 0 1 0 2 1 1 0 2 2 1 0 2 The increase in the number of single-family homes sales decreased by five percentage points in 2012. Genesis closed during the three months and year ended December expects single-family home gross margins to improve as 31, 2012 compared to the same period in 2011 was due to the volume of home sales increases and sites continue a focused effort by the home building division to strengthen development in 2013. sales. Genesis realized a 38% increase in the number of residential home unit sales closed in 2012. The revenue per home declined for the three months and year ended December 31, 2012 due to increase in number of entry level home sales closed. Overall, gross margin percentage In addition, the sale of a custom home at a price of $959 and eight other homes with an average selling price of $533 in the communities of Bayside and Sage Meadows in Airdrie and Calgary resulted in a higher average price for the three months ended December 31, 2011. The number of home sales closed by community during the three months and year ended December 31, 2012 and 2011 in Calgary and Airdrie were as follows: Three months ended December 31, Year ended December 31, # of single-family homes closed Average amount per home # of single-family homes closed Average amount per home 2012 2011 2012 2011 2012 2011 2012 2011 9 - - 10 3 - 12 34 - - 1 2 3 - 5 11 390 - - 414 547 - 385 409 - - 959 401 759 - 397 547 32 2 - 17 9 - 30 90 - - 4 25 12 1 23 65 377 524 - 414 566 - 469 437 - - 659 440 648 461 417 484 Community Calgary Evansridge Kinwood Sherwood Saddlestone Sage Meadows Taralake Airdrie Bayside Total Multi-family The last unit in The Breeze multi-family project sold in community of Saddlestone, and Brownstones in the the first quarter of 2012. Currently, Genesis has two row community of Sage Meadows. housing projects in development: Saffron in the Calgary Impairment of real estate held for development and sale Land LP Total (1) Not reflective due to percentage increase. Three months ended December 31, Year ended December 31, 2012 18,562 15,654 34,216 2011 2,588 1,015 3,603 % 617% 1442% 850% 2012 18,268 14,878 33,146 2011 2,653 (179) 2,474 % 589% N/R(1) 1240% 24 25 MANAGEMENT’S DISCUSSION AND ANALYSIS 2012 A NN UA L REPORT G ENE SIS LAN D DE VE LOP M EN T CORP ORATION Valley, Regional District of East Kootenay. prefer a mixed-use development, resulting in a lower value Real estate held for development and sale The impairment of land held for future development for the The increase is primarily attributable to Delacour, amounting three months and year ended December 31, 2012 increased to $29,561 of which $13,488 is attributable to real estate as a result of specific market conditions, geographical held in a limited partnership. The main driver for this is the locations and estimated monetization horizons of those anticipated change in growth strategy of the county under properties. The properties mainly affected were: Delacour, which this property is located. The county may not allow for Rocky View County; Acheson, Parkland County; and Spur residential development on the entire site since they would GENERAL AND ADMINISTRATIVE EXPENSE of the property. Corporate administration Compensation and benefits Professional services Three months ended December 31, Year ended December 31, 2012 493 1,199 601 2,293 2011 454 1,574 980 3,008 % 9% (24%) (39%) (24%) 2012 2,054 4,982 3,028 2011 1,806 5,173 4,322 10,064 11,301 % 14% (4%) (30%) (11%) The general and administrative expense for the three associated with settlements of certain legal disputes and months and year ended December 31, 2012 compared to fees paid for professional services incurred in 2011. the same period in 2011 decreased mainly due to costs SELLING AND MARKETING ASSETS During the year ended December 31, 2012, the Corporation activities. At December 31, 2012, the consolidated cash generated net earnings of $8,861 for funding its operating balance was $10,005 as compared to $10,850 as at Amounts receivable Other operating expenses Deferred income taxes Cash and cash equivalents December 31, 2011. December 31, 2012 271,845 85,230 16,237 - 10,005 383,317 % 71% 22% 4% - 3% 100% December 31, 2011 299,916 43,451 20,942 2,859 10,850 % 79% 11% 6% 1% 3% 378,018 100% REAL ESTATE HELD FOR DEVELOPMENT AND SALE Real estate held for development and sale Provision for write-down December 31, 2012 December 31, 2011 315,759 (43,914) 271,845 310,670 (10,754) 299,916 % 2% 308% (9%) During the year ended December 31, 2012, the carrying in home division inventory due to ongoing development value of real estate held for development and sale work and ongoing residential land development relating to Three months ended December 31, Year ended December 31, decreased, primarily as a result of impairment of certain the Calgary communities of Sage Meadows, Saddlestone, Advertising and marketing Commission on sale of development land 2012 652 976 1,628 2011 151 - 151 % 332% - 978% 2012 2,863 1,085 3,948 2011 1,178 - % 143% - 1,178 235% The increase for the three months and year ended which commenced in 2012, and costs for higher marketing properties resulting from specific market conditions, Kinwood and Sage Hill Crossing, as well as the Airdrie geographical locations and estimated monetization horizons community of Canals. of each of the properties. In addition, sales of residential lots, development land parcels and housing inventory contributed to the reduction. This was offset by an increase December 31, 2012, was mainly due to the commission on efforts by the home building division to strengthen sales. Real estate held for development and sale changed during the year ended December 31, 2012 was as follows: the sale of sites 1 and 2 in Sage Hill Crossing commercial development, the addition of a $500 expense for naming rights to the “Genesis Centre for Community Wellness” FINANCE EXPENSE Interest incurred Financing fees accretion Interest and financing fees capitalized Three months ended December 31, Year ended December 31, 2012 1,590 507 (1,036) 1,061 2011 1,416 394 (825) 985 % 12% 29% 26% 8% 2012 5,669 1,438 (4,464) 2,643 2011 6,549 1,557 (2,937) 5,169 % (13%) (8%) 52% (49%) Interest expense relates to certain operating loans secured and fees paid on new and renewed loans. The increase in by land and single-family home building operations. The interest expense for the three months ended December decrease in interest expense for the year ended December 31, 2012 reflects new loans secured and drawn on during 31, 2012 compared to 2011 was mainly due to lower that period. average outstanding loan balances and lower interest rates December 31, 2011 Acquisitions & Transfers Development Sold Impairment adjustments December 31, 2012 Land Under Development Land Held for Future Development 149,188 1,938 39,137 (55,739) (1,087) 133,437 140,599 (1,938) 1,616 - (32,073) 108,204 Housing Projects 10,129 19,331 34,151 (33,407) - 30,204 Intersegment Elimination - (8,447) 8,447 - - - Total 299,916 10,884 83,351 (89,146) (33,160) 271,845 Genesis held a total of 425 single-family lots in both 2011 and 2012. The Corporation acquires land for new communities as existing land is developed and sold. 26 27 MANAGEMENT’S DISCUSSION AND ANALYSIS 2012 A NN UA L REPORT G ENE SIS LAN D DE VE LOP M EN T CORP ORATION The inventory mix of single-family lots by community based on the book value was as follows: The Corporation requires funds to meet operating expenses, from its operating activities, supplemented by credit DECEMBER 31, 2012 DECEMBER 31, 2011 18% Sage Meadows 77 Lots 13% Saddlestone 57 Lots 25% Canals 108 Lots 8% Kinwood 33 Lots 7% Saffron 29 Lots 5% Others 19 Lots 24% Bayside 102 Lots AMOUNTS RECEIVABLE Amounts receivable 7% Saddlestone 30 Lots 14% Kinwood 59 Lots 5% Canals 23 Lots 25% Sage Meadows 106 Lots 5% Other 19 Lots 44% Bayside 188 Lots December 31, 2012 December 31, 2011 85,230 43,451 % 96% Amounts receivable increased at December 31, 2012 to Sage Hill Crossing was received subsequent to the year compared to December 31, 2011 mainly due to the end on January 10, 2013, reducing the balance of loans and receivable for sites 1 and 2 in the Sage Hill Crossing credit facilities by $31,411. commercial development. In addition, sales achieved in the communities of Bayside, Canals, Saddlestone and Kinwood contributed to the increase. The amount receivable related The Corporation generally retains title to lots and homes until full payment is received in order to mitigate credit exposure. LIQUIDITY AND CAPITAL RESOURCES Loans and credit facilities Customer deposits Accounts payable and accrued liabilities Land development service costs Non-controlling interest Shareholders' equity December 31, 2012 102,242 4,352 21,309 24,428 36,719 189,590 378,640 % 27% 1% 6% 6% 10% 50% 100% December 31, 2011 88,231 7,582 16,415 16,201 56,771 179,848 365,048 % 24% 2% 4% 4% 16% 50% 100% service debt, complete on-going land development projects, facilities where needed, to pay for operating expenses, purchase lands, and construct single- and multi-family incur development and construction costs, pay principal homes. These requirements are met by using project- and interest on loans and credit facilities, and purchase specific loans and credit facilities, limited partnership lands. The Corporation regularly reviews its credit facilities capital and cash generated from operations. and manages the requirements in accordance with project Management believes that Genesis has sufficient liquidity development plans and operating requirements. LOANS AND CREDIT FACILITIES Loans and credit facilities from lending institutions, gross of deferred financing fees of $2,312, at December 31, 2012 totaled $104,554. The following is a summary of the Corporation’s drawn and outstanding loan and credit facility balances as at December 31, 2012 and as at the end of the previous four quarters: Land and land project loans Home building operations Other Deferred financing fees Fourth Quarter 2012 Third Quarter 2012 Second Quarter 2012 First Quarter 2012 Fourth Quarter 2011 95,785 8,769 - 104,554 (2,312) 102,242 78,138 338 216 78,692 (1,451) 77,241 79,212 - - 79,212 (1,232) 77,980 82,546 112 696 83,354 (1,446) 81,908 88,047 1,254 688 89,989 (1,758) 88,231 The loans and credit facilities increased mainly due to the new credit facilities secured for servicing properties seven new project loans offset by the payment of project including the Sage Hill Crossing commercial development, loans by lot closings achieved in the Calgary communities phase 6 in the community of Canals, phase 5 in the of Saddlestone and Sage Meadows. The project loans were community of Saddlestone and construction of single and obtained to complete servicing of properties including the multi-family projects. The proceeds from the sale of sites Sage Hill Crossing commercial development, phase 6 of 1 and 2 in Sage Hill Crossing were used to repay credit Canals, phase 5 of Saddlestone, and construction of home facilities related to servicing of that property subsequent to building projects. year end, reducing the balance of loans and credit facilities Loans and credit facilities increased in 2012 due to seven by $31,411. The change in the Corporation’s loans and credit facilities was as follows: Balance, beginning of year Advances Repayments Finance expense Interest and financing fees paid and capitalized Balance, end of year Year ended December 31, 2012 Year ended December 31, 2011 88,231 102,303 (87,396) 2,521 (3,417) 102,242 81,320 91,023 (83,613) 5,169 (5,668) 88,231 During the year ended December 31, 2012, Genesis received $102,303 in loans and credit facilities and made repayments of $87,396 (see ‘Related Party Transactions’ on page 34)s. 28 29 MANAGEMENT’S DISCUSSION AND ANALYSIS 2012 A NN UA L REPORT G ENE SIS LAN D DE VE LOP M EN T CORP ORATION CUSTOMER DEPOSITS of planned service work, thus incurring previously accrued Customer deposits are received from third party builders completion costs. Annual current contractual obligations were as follows: for the sale of lots. On completion of a sale, land service obligations are recognized as per the Corporation’s accounting policy. The decrease in customer deposits in 2012 is primarily due to a $4,754 deposit on site 1 and 2 of Sage Hill Crossing commercial development being realized from the completion of a sale. INCOME TAX PAYABLE NON-CONTROLLING INTEREST Non-controlling interest liability decreased primarily Loans and credit facilities, excluding deferred financing fees due to impairment of real estate assets owned by the Accounts payable and accrued liabilities partnerships. In addition, distributions to unit holders of a limited partnership driven by the sale of a commercial parcel in the community of Bayside contributed to this reduction. Total short-term liabilities Commitments(1) December 31, 2012 December 31, 2011 24,109 21,309 45,418 1,406 46,824 16,807 16,415 33,222 10,035 43,257 Refer note 4 to the consolidated financial statement for further details on non-controlling interest. SUMMARY OF QUARTERLY RESULTS (1) Commitments are composed of naming rights and lease obligations. At December 31, 2012, Genesis had obligations due within operating history, its relationship with its lenders and the next 12 months of $46,824 of which $24,109 relates to committed sales contracts, management is confident that loans and credit facilities, repayment of which is either (i) Genesis has the ability to continue to renew or repay its linked directly to the collection of lot receivables and sales financial obligations as they come due. proceeds; or (ii) due at maturity. Based on the Corporation’s Revenues Earnings (loss) before income taxes and non-controlling interest Net (loss) earnings Net earnings per share - Basic and Diluted Fourth Third Second First Fourth Third Second First Quarter 2012 Quarter 2012 Quarter 2012 Quarter 2012 Quarter 2011 Quarter 2011 Quarter 2011 Quarter 201 57,610 (24,529) 30,108 7,788 31,074 6,240 21,978 25,615 7,840 1,666 21,590 2,462 20,368 4,637 27,743 4,877 (7,126) 4,956 4,839 6,192 2,057 1,877 3,604 3,522 (0.16) 0.11 0.11 0.14 0.05 0.04 0.08 0.08 Income tax payable decreased significantly as the The Corporation paid the following cash distributions to Corporation paid its 2011 tax liability of $9,500 in full, which unit holders of the limited partnerships: was offset by a current tax provision amounting to $1,166. Refer to note 7 to the consolidated financial statements for further details. LAND DEVELOPMENT SERVICE COSTS Accrued land development service costs increased at December 31, 2012 compared to December 31, 2011 mainly due to increased lot and home sales during 2012. The overall increase was partially offset by performance Limited Partnership #6 and Limited Partnership #7 Limited Partnership #8 2012 4,445 - 4,445 2011 140 328 468 CONTRACTUAL OBLIGATIONS AND DEBT REPAYMENT The Corporation’s contractual obligations, other than accounts payable, income taxes payable, customer deposits and land development service costs, were as follows as of December 31, 2012: Current Years 2014 and 2015 Years 2016 and 2017 Thereafter (1) Excludes deferred financing fees. Loans and Credit Facilities(1) Naming Rights Lease Obligations 24,109 80,445 - - 104,554 700 1,400 1,400 2,000 5,500 706 1,450 1,244 - 3,400 Total 25,515 83,295 2,644 2,000 113,454 Genesis entered into an agreement with a community the City of Airdrie. Five of ten required payments have been society in northeast Calgary, whereby the Corporation will made and recorded as part of general and administrative contribute $500 per year for ten years commencing January expense, including the amount for 2012. 1, 2012, for the naming rights to the “Genesis Centre for Community Wellness”, a recreation complex in northeast Calgary. The amount for 2012 has been paid. As a normal part of business, Genesis has entered into arrangements and incurred obligations that will impact future operation and liquidity, some of which are reflected as Genesis has an agreement with the City of Airdrie, whereby short-term liabilities and commitments in the consolidated Genesis will contribute $200 per year for ten years for the financial statements. naming rights to “Genesis Place”, a recreation complex in 30 31 MANAGEMENT’S DISCUSSION AND ANALYSIS 2012 A NN UA L REPORT G ENE SIS LAN D DE VE LOP M EN T CORP ORATION Seasonality affects the land development and residential higher due to the sale of sites 1 and 2 in the Sage Hill home building industry in Canada due to weather conditions Crossing property for $32,526 in December 2012. Gross during winter operations. As a result, Genesis will typically margins and earnings decreased due to an impairment of realize higher revenues in the summer and fall months at land held for future development, resulting from specific which time home building is at its maximum. Revenues market conditions, geographical locations and estimated can be impacted by the timing of land sales, which is less monetization horizons of each of the properties. cyclical and weather dependent. The results of the fourth quarter of 2012 were impacted by two significant items. Revenues were significantly TRADING AND SHARE STATISTICS As at March 20, 2013, the Corporation had 44,798,538 common shares issued and outstanding. In addition, there were options to acquire 1,117,412 common shares of the Corporation issued under Genesis’ stock option plan. Average daily trading volume Share price ($/share) High Low Close 2012 42,147 3.70 2.87 3.26 2011 40,647 2010 53,443 5.07 2.30 2.88 5.39 1.97 3.35 ($ in thousands) REVENUES EARNINGS (Loss) before income taxes and non-controlling interest NET EARNINGS Market capitalization at December 31 145,936 128,115 148,671 Shares outstanding 44,765,728 44,484,287 44,379,448 $-22,742 $-6915 2 1 0 2 r t Q h t 4 2 1 0 2 r t Q d r 3 2 1 0 2 r t Q d n 2 2 1 0 2 r t Q t s 1 1 1 0 2 r t Q h t 4 1 1 0 2 r t Q d r 3 1 1 0 2 r t Q d n 2 1 1 0 2 r t Q t s 1 $7,788 $4,956 $6,240 $4,839 $7,840 $6,192 $3,196 $2,057 $2,462 $1,877 $4,637 $3,604 $4,877 $3,523 $57,610 JOINT VENTURE $30,108 $66,042 $31,074 On April 30, 2010, Genesis entered into a joint venture (‘JV’) agreement with another real estate development corporation for the purpose of conducting residential development of certain northwest Calgary lands known as the community of Kinwood. Genesis contributed 75 acres (net of JV interests) and has a 50% interest in the JV. The development is comprised of six phases. The first phase purchased these lots for its home building operations. The Corporation’s transactions with the JV are limited to the purchase of lots. On July 15, 2011, the JV obtained a credit facility in the amount of $17,000. The Corporation and the JV partner provided a guarantee for this facility. At December 31, 2012, the balance of the facility was $10,036 (2011 - $4,330). The Corporation recognized its proportionate 50% share in the $21,978 $25,615 $21,590 $20,368 $27,743 contained 192 lots and two multi-family sites, which were 2012 financial statements. all sold. Phase 2 is comprised of 126 single-family lots and The Corporation deferred $13,167 of margin on contribution one multi-family site. During 2012, the JV sold two multi-family sites and 119 single-family lots, including 21 to the Corporation’s home building division. The JV sold 135 lots in 2011, including 30 lots sold to the home building division. As part of the joint venture agreement, Genesis has the right to purchase 50% of the lots available for sale in these communities. Genesis of land to the JV in 2010. As at December 31, 2012, Genesis realized $5,605 of that amount as a result of sales to third parties (2011 – $2,409). Approximately $3,196 (2011 – $2,409) was recognized during 2012 with the remaining amount of $7,562 to be realized on the future sale and development of lots and lands by the JV. The amounts in the following table include the Corporation's proportionate share of the assets, liabilities, revenue, earnings and cash flow information of the JV that is proportionately consolidated in these financial statements. As at and for the year ended December 31, 2012 As at and for the year ended December 31, 2011 Cash Flow From (Used In) Assets Liabilities Revenue Earnings Activities 30,563 12,321 14,062 1,819 1,147 Operating 29,232 8,827 11,575 1,403 (2,290) Investing Activities - - Financing Activities (1,147) 2,280 32 33 MANAGEMENT’S DISCUSSION AND ANALYSIS 2012 A NN UA L REPORT G ENE SIS LAN D DE VE LOP M EN T CORP ORATION OFF BALANCE SHEET ARRANGEMENTS LETTERS OF CREDIT date. The Corporation continues to analyze these standards project specific basis. An impairment loss is recognized designed under their direct supervision, Genesis’ DC&P to to determine the impact on financial statements. Refer to to the extent that the carrying value of a project exceeds provide reasonable assurance that: note 2(v) to the consolidated financial statements for a the fair value of that project. Cost includes land acquisition description of changes in accounting policies effective in costs, other direct costs of development and construction, The Corporation has an ongoing requirement to provide future years. letters of credit to municipalities as part of the subdivision plan registration process. As at December 31, 2012, these CHANGES IN MANAGEMENT letters of credit totalled approximately $3,801, and provide a source of funds to the municipalities for completion of construction and maintenance improvements to the subdivision should the Corporation be unable to. The amount of any particular letter of credit is reduced at various stages of construction. Once the municipality issues a certificate acknowledging completion of the improvements to the project, the letter of credit is returned and cancelled. LEASE AGREEMENTS On February 11, 2013, Genesis appointed a new senior executive team. Bruce Rudichuk joined Genesis as President and Chief Executive Officer and Mark Scott as Executive Vice President and Chief Financial Officer. The former Chief Financial Officer of the Corporation resigned effective September 18, 2012 and the former Chief Executive Officer resigned effective February 8, 2013. interest on debt used to finance specific projects, property taxes and legal costs. Land acquisition costs are prorated to a phase of a project on an acreage basis. COSTS TO COMPLETE Genesis’ most significant estimates relate to future development costs for lot sales which are recognized prior to all costs being committed or known. The future development costs liability represents the construction i. material information relating to Genesis, including its consolidated subsidiaries, is made known to them by others within those entities, particularly during the period in which the annual filings are being prepared; and ii. information required to be disclosed in the annual filings, interim filings or other reports filed or submitted under securities legislation is recorded, processed, summarized and reported on a timely basis. costs remaining to be incurred for each project phase The CEO and CFO have also designed, or caused to be currently under development to the extent that revenue designed under their direct supervision, the Corporation’s has been recognized. The liability to complete sold lots ICFR to provide reasonable assurance regarding the is recognized when the first revenue is recognized in the reliability of financial reporting and the preparation of The Corporation has certain lease agreements that are CRITICAL ACCOUNTING ESTIMATES phase. The liability includes all direct construction costs financial statements for external purposes in accordance entered into in the normal course of operations. All leases are treated as operating leases whereby lease payments are included in operating expenses or general and administrative expenses, depending on the nature of the lease. No asset or liability value has been assigned to these leases in the balance sheet as of December 31, 2012. RELATED PARTY TRANSACTIONS The preparation of consolidated financial statements requires management to make judgments, estimates and assumptions that affect the reported amounts of revenues, and indirect costs including interest and property taxes with IFRS. The ICFR have been designed using the control expected to be incurred during the remainder of the framework established in ‘Internal Control – Integrated construction period. Framework’ published by the Committee of Sponsoring expenses, assets and liabilities, and the disclosure Changes in the estimated future development cost directly Organizations of the Treadway Commission. of contingent liabilities at the reporting date. Certain impact the amount recorded for the future development The CEO and CFO have limited the scope of the design of estimates are necessary due to the timing of transactional liability, cost of sales, gross margin and, in some cases, DC&P and ICFR to exclude controls, policies and procedures or legal proceedings until amounts are finalized. On an the value of real estate under development and held for of Kinwood Communities Inc., a joint venture in which the ongoing basis, management evaluates its judgments and sale. This liability is subject to significant measurement Corporation has 50% interest. The design was excluded Sandy Poklar, a director of Genesis appointed on July 12, estimates in relation to revenue, expenses, assets and uncertainty as it is based on estimated budgeted numbers from evaluation as the Corporation does not have the ability 2012, is an officer of a lender, Firm Capital Corporation. At liabilities. Due to the inherent uncertainty involved in prepared by independent consultants. Recent market to design and evaluate controls, policies and procedures December 31, 2012, the Corporation had loans totaling making estimates, actual results reported in future periods conditions in Alberta have been volatile, thereby increasing carried out by that entity. Genesis’ assessment is limited to $28,448 (December 31, 2011 – $53,196) outstanding with could differ significantly from those estimates. the risk of estimation errors. the internal controls over the inclusion of the Corporation’s this lender. During the year ended December 31, 2012, Genesis paid interest and fees to the lender of $3,504 (2011 – $4,523). During the year ended December 31, 2012, the Corporation obtained no new financing or re- financing on existing loans with the lender (2011 – $70,185). All transactions are under normal commercial terms and conditions. CHANGES TO FUTURE ACCOUNTING POLICIES There were various accounting standards issued as at December 31, 2012 that were not yet effective as of that GENERAL LITIGATION The Corporation is subject to various legal proceedings and claims that arise in the ordinary course of business operations. The Corporation periodically reviews these claims to determine if amounts should be accrued in the financial statements or if specific disclosure is warranted. VALUATION OF LAND Land under development, land held for future development and housing projects under development are recorded at the lower of cost and estimated net realizable value on a DISCLOSURE CONTROLS AND PROCEDURES AND INTERNAL CONTROL OVER FINANCIAL REPORTING share of the joint venture and its results in the consolidated financial statements. The CEO and CFO have evaluated the design and operating effectiveness of Genesis' DC&P and ICFR and concluded that Genesis' DC&P and ICFR were effective as at The Chief Executive Officer (“CEO”) and Chief Financial December 31, 2012. While Genesis’ CEO and CFO believe Officer (“CFO”) are responsible for establishing and that the Corporation’s internal controls and procedures maintaining disclosure controls and procedures (“DC&P”) provide a reasonable level of assurance that such controls and internal control over financial reporting (“ICFR”), as and procedures are reliable, an internal control system those terms are defined in National Instrument 52-109 cannot prevent all errors and fraud. It is management’s ‘Certification of Disclosure in Issuers’ Annual and Interim belief that any control system, no matter how well Filings’. The CEO and CFO have designed, or caused to be conceived or operated, can provide only reasonable, not 34 35 MANAGEMENT’S DISCUSSION AND ANALYSIS 2012 A NN UA L REPORT G ENE SIS LAN D DE VE LOP M EN T CORP ORATION statements contained in this MD&A are made as of the date of this MD&A and, except as required by applicable law, Genesis does not undertake any obligation to publicly update or to revise any of the forward-looking statements, whether as a result of new information, future events or otherwise. Caution should be exercised in the evaluation and use of the appraisal results. The appraisal is an estimate of market value at specific dates and not a precise measure of value, being based on subjective comparison of related activity taking place in the real estate market. The appraisal is based on various assumptions of future expectations and while the appraiser's assumptions are considered to be reasonable at the current time, some of the assumptions may not materialize or may differ materially from actual experience in the future. absolute, assurance that the objectives of the control looking terminology such as “plans”, “expects” or “does system are met. There were no changes in Genesis' ICFR during the three months and year ended on December 31, 2012 that have materially affected, or are reasonably likely to materially affect, the Corporation’s ICFR. RISKS AND UNCERTAINTIES In the normal course of business, the Corporation is exposed to certain risks and uncertainties inherent in the real estate development industry. Risks and uncertainties faced by Genesis are disclosed in the Corporations AIF for the year ended December 31, 2012. There may be additional risks that management may need to consider as circumstances require. For a more detailed discussion on the Corporation’ risk factors refer to the AIF, available on www.sedar.com. ADVISORIES NON-IFRS FINANCIAL MEASURES Net Asset Value per share and Gross book value are non- IFRS measure that do not have any standardized meaning as prescribed by IFRS and therefore they may not be comparable to similarly titled measures reported by other companies. These measures have been described and presented in this document in order to provide shareholders and potential investors with additional information regarding the Corporation’s liquidity and value. FORWARD-LOOKING STATEMENTS This MD&A contains certain statements which constitute forward-looking statements or information ("forward- looking statements") within the meaning of applicable securities legislation concerning the business, operations and financial performance and condition of Genesis. Forward-looking statements include, but are not limited to, statements with respect to the estimated corporate tax rate and the number of dwelling sites that Genesis will actually develop and sell. Generally, these forward- looking statements can be identified by the use of forward- not expect”, “is expected”, “budget”, “scheduled”, “estimates”, “forecasts”, “intends”, “anticipates” or “does not anticipate”, or “believes”, or variations of such words and phrases or state that certain actions, events or results “may”, “could”, “would”, “might” or “will be taken”, “occur” or “be achieved”. Although Genesis believes that the anticipated future results, performance or achievements expressed or implied by the forward-looking statements are based upon reasonable assumptions and expectations, the reader should not place undue reliance on forward-looking statements because they involve assumptions, known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of Genesis to differ materially from anticipated future results, performance or achievement expressed or implied by such forward- looking statements. Accordingly, Genesis cannot give any assurance that its expectations will in fact occur and cautions that actual results may differ materially from those in the forward-looking statements. Factors that could cause actual results to differ materially from those set forth in the forward-looking statements include, but are not limited to: general economic conditions; local real estate conditions, including the development of properties in close proximity to Genesis’ properties; timely leasing of newly-developed properties and re-leasing of occupied square footage upon expiration; dependence on tenants' financial condition; the uncertainties of real estate development and acquisition activity; the ability to effectively integrate acquisitions; interest rates; availability of equity and debt financing; the impact of newly-adopted accounting principles on Genesis' accounting policies and on period-to-period comparisons of financial results; economic conditions in Western Canada; not realizing on the anticipated benefits from transactions or not realizing on such anticipated benefits within the expected time frame; and other risks and factors described from time to time in the documents filed by Genesis with the securities regulators in Canada available at www.sedar. com, including this MD&A under the heading "Risks and Uncertainties" and the Annual Information Form under the heading “Risk Factors”. Furthermore, the forward-looking 36 37 F INANC IAL STATEMENTS 2012 ANNUAL REPORT MANAG EMENT’S REPO RT TO THE SHAREHOLDERS OF GENESIS LAND DEVELOPMENT CORP. The consolidated financial statements and all information in the Management’s Discussion and Analysis are the responsibility of management. The consolidated financial statements have been prepared by management in accordance with the accounting policies in the notes to the consolidated financial statements. In the opinion of management, the consolidated financial statements have been prepared within acceptable limits of materiality, and are in accordance with International Financial Reporting opinion. Standards (“IFRS”) appropriate in the circumstances. The financial information in the Management’s Discussion and Analysis has been reviewed by management to ensure consistency with the consolidated financial statements. Management maintains appropriate systems of internal control. Policies and procedures are designed to give reasonable assurance that transactions are properly authorized, assets are safeguarded and financial records properly maintained to provide reliable information for the preparation of consolidated financial statements. BRUCE RUDICHUK, CA, CIRP President & Chief Executive Officer March 20, 2013 MARK SCOTT Executive Vice President & Chief Financial Officer IN DEP ENDENT AUDITORS ’ REP OR T G ENE SIS LAN D DE VE LOP M EN T CORP ORATION The consolidated financial statements have been further examined by the Board of Directors and by its Audit Committee, which meets regularly with the auditors and TO THE SHAREHOLDERS OF GENESIS LAND DEVELOPMENT CORP.: An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures management to review the activities of each. The Audit We have audited the accompanying consolidated financial selected depend on the auditors’ judgment, including Committee is composed of three independent directors, statements of Genesis Land Development Corp. and its the assessment of the risks of material misstatement and reports to the Board of Directors. subsidiaries, which comprise the consolidated balance of the consolidated financial statements, whether due MNP LLP, an independent firm of chartered accountants, was engaged to audit the consolidated financial statements in accordance with Canadian generally accepted auditing standards and IFRS to provide an independent auditors’ sheets as at December 31, 2012 and 2011, and the to fraud or error. In making those risk assessments, the consolidated statements of comprehensive (loss) income, auditor considers internal control relevant to the entity’s changes in equity and cash flows for the years then ended preparation and fair presentation of the consolidated and notes comprising a summary of significant accounting financial statements in order to design audit procedures policies and other explanatory information. MANAGEMENT’S RESPONSIBILITY FOR CONSOLIDATED FINANCIAL STATEMENTS Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with International Financial Reporting Standards, and for such internal control as management determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. AUDITORS’ RESPONSIBILITY Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with Canadian generally accepted auditing standards. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement. that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that the audit evidence we have obtained in our audits is sufficient and appropriate to provide a basis for our audit opinion. OPINION In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of Genesis Land Development Corp. and its subsidiaries as at December 31, 2012 and 2011, and their financial performance and their cash flows for the years then ended in accordance with International Financial Reporting Standards. March 20, 2013 Calgary, Canada Chartered Accountants 38 39 F INANC IAL STATEMENTS 2012 ANNUAL REPORT G ENE SIS LAN D DE VE LOP M EN T CORP ORATION CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME For the years ended December 31, 2012 and 2011 (In thousands of Canadian dollars except per share amounts) 2012 2011 CONSOLIDATED BALANCE SHEETS (In thousands of Canadian dollars) Assets Real estate held for development and sale3 Amounts receivable5 Other operating assets6 Deferred tax assets7 Cash and cash equivalents Total assets Liabilities Loans and credit facilities11 Customer deposits Accounts payable and accrued liabilities Income taxes payable Deferred tax liabilities7 Land development service costs Total liabilities Commitments and contingencies14 Equity Share capital12 Contributed surplus Retained earnings Shareholders’ equity Non-controlling interest4 Total equity December 31, December 31, 2011 2012 271,845 85,230 16,237 - 10,005 383,317 102,242 4,352 21,309 4,617 60 24,428 157,008 55,844 5,109 128,637 189,590 36,719 226,309 299,916 43,451 20,942 2,859 10,850 378,018 88,231 7,582 16,415 12,970 - 16,201 141,399 55,122 4,950 119,776 179,848 56,771 236,619 Revenues Residential lot sales Development land sales Residential home sales Other revenue Cost of sales Residential lots Development lands Residential homes Impairment of real estate held for development and sale Gross margin General and administrative8 Selling and marketing Other expense9 Gain on sale of land to joint venture16 Operating earnings from continuing operations Finance income Finance expense10 (Loss) earnings before income taxes Income taxes7 51,933 49,389 39,448 812 141,582 24,412 38,694 31,159 33,146 127,411 14,171 10,064 3,948 1,039 - 15,051 (880) (862) 2,643 (2,661) 4,086 (6,747) (15,608) 8,861 0.20 40,739 22,523 32,054 444 95,760 24,019 15,503 23,972 2,474 65,968 29,792 11,301 1,178 1,335 (2,201) 11,613 18,179 (631) 5,169 13,641 4,264 9,377 (1,683) 11,060 0.25 Total liabilities and equity 383,317 378,018 Net (loss) earnings being comprehensive (loss) income Related party transactions (note 16 and 18) Subsequent events (note 19) See accompanying notes to the consolidated financial statements Attributable to non-controlling interest4 Attributable to equity shareholders Net earnings per share - basic and diluted12 See accompanying notes to the consolidated financial statements On behalf of the Board BRUCE RUDICHUK, CA, CIRP President & Chief Executive Officer MARK SCOTT Executive Vice President & Chief Financial Officer 40 41 F INANC IAL STATEMENTS 2012 ANNUAL REPORT G ENE SIS LAN D DE VE LOP M EN T CORP ORATION CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY For the years ended December 31, 2012 and 2011 (In thousands of Canadian dollars except number of shares) CONSOLIDATED STATEMENTS OF CASH FLOWS For the years ended December 31, 2012 and 2011 (In thousands of Canadian dollars) COMMON SHARES - ISSUED Number of Shares Amount Contributed Surplus Total Retained Shareholders’ controlling Interest Equity Earnings Non- Total Equity At December 31, 2010 44,379,448 54,798 4,575 108,716 168,089 58,922 227,011 Share-based payment transactions 104,839 324 375 Distributions to unit holders of limited partnerships Net (loss) earnings being comprehensive (loss) income - - - - - - - - 699 - - (468) 699 (468) 11,060 11,060 (1,683) 9,377 At December 31, 2011 44,484,287 55,122 4,950 119,776 179,848 56,771 236,619 Share-based payment transactions 281,441 722 159 Distributions to unit holders of limited partnerships Net (loss) earnings being comprehensive (loss) income - - - - - - - - 881 - - 881 (4,444) (4,444) 8,861 8,861 (15,608) (6,747) At December 31, 2012 44,765,728 55,844 5,109 128,637 189,590 36,719 226,309 See accompanying notes to the consolidated financial statements Operating activities Cash receipts from residential lot and development land sales Cash receipts from residential home sales Other cash receipts Cash paid to suppliers for land development Cash paid to suppliers for residential home construction Cash paid to other suppliers and employees Interest received Income taxes paid Investing activities Acquisition of property and equipment Change in restricted cash Proceeds on disposal of property and equipment Financing activities Advances from loans and credit facilities11 Repayments of loans and credit facilities Interest and loans and credit facilities fees paid Distributions to unit holders of limited partnerships Issue of share capital Change in cash and equivalents Cash and cash equivalents, beginning of year Cash and cash equivalents, end of year See accompanying notes to the consolidated financial statements 2012 2011 61,933 40,545 6,856 (51,360) (37,909) (13,079) 862 (9,520) (1,672) (449) (3,724) 36 (4,137) 102,303 (87,396) (6,043) (4,444) 544 (4,964) (845) 10,850 10,005 52,235 32,009 667 (35,676) (17,626) (14,056) 631 (4,528) 13,656 (68) (4,324) 4 (4,388) 91,023 (83,613) (8,056) (468) 241 (873) 8,395 2,455 10,850 42 43 F INANC IAL STATEMENTS 2012 ANNUAL REPORT G ENE SIS LAN D DE VE LOP M EN T CORP ORATION NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the years ended December 31, 2012 and 2011 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the years ended December 31, 2012 and 2011 (All tabular amounts and amounts in footnotes to tables are in thousands of Canadian dollars except number of shares) (All tabular amounts and amounts in footnotes to tables are in thousands of Canadian dollars except number of shares) 1. DESCRIPTION OF BUSINESS Genesis Land Development Corp. (the “Corporation” or all values are rounded to the nearest thousand, except per arrangement with another party. Genesis recognizes contracts for purchases of completed units for which share values and where otherwise indicated. its interest in the joint venture using the proportionate revenue recognition criteria have not been met are recorded “Genesis”) was incorporated as Genesis Capital Corp. (c) Basis of consolidation under the Business Corporation Act (Alberta) on December 2, 1997. Genesis Land Development Corp. resulted from an amalgamation on January 1, 2002. The Corporation is engaged in the acquisition, development, and sale of land, residential lots and homes in Alberta and British Columbia. The Corporation reports its activities as two business segments: land development and residential home building. All business activities of Genesis are conducted in Western Canada, with development lands held primarily in and around the cities of Calgary and Airdrie. The consolidated financial statements include the accounts of the Corporation and its wholly-owned subsidiaries, as well as the consolidated revenues, expenses, assets, liabilities and cash flows of limited partnership entities that Genesis controls. The Corporation has less than 50% equity ownership in these limited partnership entities; however, Genesis has control over these entities’ activities, projects, financial and operating policies due to contractual arrangements. As such, the relationship between the Corporation and the limited partnership entities indicates The Corporation is listed for trading on the Toronto Stock that they are controlled by the Corporation. Accordingly, Exchange under the symbol “GDC”. Genesis’ head office the accounts of the limited partnerships have been and registered office is located at 7315 - 8th Street N.E., consolidated in the Corporation’s financial statements. Calgary, Alberta T2E 8A2. 2. SIGNIFICANT ACCOUNTING POLICIES Subsidiaries are fully consolidated from the date of acquisition, being the date on which the Corporation obtains control, and continues to be consolidated until The significant accounting policies of the Corporation the date when such control ceases. Control exists when are set out below. These policies have been consistently the Corporation has the power, directly or indirectly, to consolidation method. The Corporation combines its as customer deposits. proportionate share of each of the assets, liabilities, income and expenses of the joint venture with similar items, line by line, in the consolidated financial statements. The financial statements of the joint venture are prepared (iii) Interest income Interest income is recognized as it accrues using the effective interest rate method. for the same reporting period as the Corporation. All intra- (iv) Other revenue group transactions, balances, and unrealized gains and Rental income is recognized on a straight-line basis losses resulting from transactions between Genesis and over the term of the rental agreement. Rental income is the joint venture are eliminated on consolidation. Losses incidental to ownership of real estate and does not result on transactions are recognized immediately if the loss in classification of real estate as investment property. All provides evidence of a reduction in the net realizable value real estate is classified as inventory. Deposits forfeited are of current assets or an impairment loss. recognized as income. Regarding transactions with the joint venture, profits and (f) Real estate held for development and sale losses resulting from the transactions are recognized in the Corporation’s consolidated financial statements only to the extent of interests in the joint venture that are not related to Genesis. (e) Revenue recognition Land under development, land held for future development and housing projects under construction are measured at the lower of cost and estimated net realizable value (“NRV”). Cost includes land acquisition costs, other direct costs of (i) Residential lot and development land sales development and construction, borrowing costs, property applied to each of the years presented, unless otherwise govern the financial and operating policies of an entity Land and lot sales to third parties are recognized when the indicated. so as to obtain benefit from its activities. All intra-group risks and rewards of ownership have been transferred, the (a) Statement of Compliance transactions, balances, and unrealized gains and losses agreed-to services pertaining to the property have been resulting from intra-group transactions and dividends are substantially performed, a minimum 15% non-refundable taxes and legal costs. These costs are allocated to each phase of the project in proportion to saleable acreage. Non- refundable commission paid to sales or marketing agents on the sale of real estate property is expensed when The consolidated financial statements represent the financial eliminated on consolidation. deposit has been received, and the collection of the incurred. statements of the Corporation prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”). Non-controlling interests represent the portion of profit or loss and net assets not held by the Corporation and are presented separately from shareholders’ equity in the statement of comprehensive (loss) income and within remaining unpaid balance is reasonably assured. Deposits Real estate held for development and sale is reviewed received upon signing of contracts for purchases of lots on annually for impairment or whenever events or changes which revenue recognition criteria have not been met are in circumstances indicate the carrying value may exceed recorded as customer deposits. NRV. An impairment loss is recognized in the statement of comprehensive (loss) income when the carrying value (b) Basis of presentation equity in the consolidated balance sheet. Losses within (ii) Residential home sales The consolidated financial statements have been prepared under historical cost convention, except for the financial a subsidiary are attributed to the non-controlling interest even if that results in a deficit balance. assets classified as fair value through profit or loss that (d) Interest in joint venture Revenue is recognized when title to the completed unit is exceeds its NRV. conveyed to the purchaser, at which time all proceeds are NRV is the estimated selling price in the ordinary course received or collection is reasonably assured. of the business at the balance sheet date, less costs to have been measured at fair value. The consolidated financial statements are presented in Canadian dollars, and The Corporation has an interest in a joint venture, which Deposits received from customers upon signing of complete and estimated selling costs. is a jointly controlled entity, by virtue of a contractual 44 45 F INANC IAL STATEMENTS 2012 ANNUAL REPORT G ENE SIS LAN D DE VE LOP M EN T CORP ORATION NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the years ended December 31, 2012 and 2011 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the years ended December 31, 2012 and 2011 (All tabular amounts and amounts in footnotes to tables are in thousands of Canadian dollars except number of shares) (All tabular amounts and amounts in footnotes to tables are in thousands of Canadian dollars except number of shares) (g) Borrowing costs economic benefits are expected to arise from the continued (j) Cash and cash equivalents related vesting period of each tranche of the grant as an Borrowing costs directly attributable to the acquisition or construction of an asset that necessarily takes a substantial period of time to prepare for its intended use or sale are capitalized as part of the cost of the respective assets. This generally entails a time period of 12 months or more. All use of the asset. Any gain or loss arising on the disposal of the asset, determined as the difference between the net disposal proceeds and the carrying amount of the asset, is recognized in the statement of comprehensive (loss) income. Cash and cash equivalents consist of cash held with banks and short-term deposits of original maturity of three months or less. (k) Restricted cash expense with recognition of the corresponding increase in contributed surplus. Any consideration paid on the exercise of stock options, together with any contributed surplus at the date the options vested, is credited to the share capital. There is no expense recognized for options that do not other borrowing costs are expensed in the period in which All minor repair and maintenance costs are recognized in Restricted cash represents funds owed to the Corporation ultimately vest. The dilutive effect of outstanding options they are incurred. Borrowing costs consist of interest and the statement of comprehensive (loss) income as incurred. at a future indeterminable date, when development of is reflected as additional dilution in the computation of other costs incurred in connection with the borrowing of The assets’ residual values, useful lives and methods of the funds. depreciation are reviewed at each financial year end and The borrowing costs capitalized are determined first by reference to borrowings specific to the project, where relevant, and secondly by applying a weighted average capitalization rate for the Corporation’s non-project specific borrowings, less any investment income arising on temporary investing of funds, to eligible expenditures. Borrowing costs are not capitalized on real estate held for development and sale where no development activity is adjusted prospectively, if appropriate. (i) Income taxes (i) Current income tax Current income tax assets and liabilities are measured at the amount expected to be paid to tax authorities, net of recoveries, using tax rates and laws that are enacted or substantively enacted at the balance sheet date. taking place. Borrowing costs are capitalized from the date (ii) Deferred tax specific lands commences. (l) Provisions earnings per share. (o) Financial assets A provision is a liability of uncertain timing or amount. All financial assets are initially recognized on the balance Provisions are recognized when the Corporation has a sheet at fair value and designated at inception into one present legal or constructive obligation as a result of past of the following classifications: at fair value through profit events, it is probable that an outflow of resources will be or loss (“FVTPL”); and loans and receivables. All financial required to settle the obligation, and the amount can be assets are recognized initially on the trade date at which the reliably estimated. Provisions are not recognized for future Corporation becomes a party to the contractual provisions operating losses. If the effect of the time value of money is of the instrument. material, provisions are discounted using a current pre-tax rate that reflects the risks specific to the liability. Where of commencement of development work until the date of completion. The capitalization of interest is suspended if the project development is suspended for a prolonged period. (h) Property and equipment Property and equipment is stated at cost, net of any accumulated depreciation and accumulated impairment Deferred tax is provided using the liability method on all discounting is used, the increase in the provision due to temporary differences at the balance sheet date between the passage of time is recognized as a finance cost in the the tax bases of assets and liabilities and their carrying statement of comprehensive (loss) income. amounts for financial reporting purposes. Deferred tax assets are recognized to the extent that it is probable that taxable profit will be available, against which deductible temporary differences, carried forward tax (m) Leases Operating lease payments are recognized as an operating expense in the statement of comprehensive (loss) income on a straight-line basis over the lease term. losses. Depreciation is provided on all operating property credits or tax losses can be utilized. and equipment based on the straight-line method over the Deferred tax assets and liabilities are measured at the tax (n) Share-based payments estimated useful lives of the property and equipment. The rates that are expected to apply to the year when the asset useful lives of the properties are as follows: is realized or the liability is settled, based on tax rates and ■ Vehicles and other equipment 5 years tax laws that have been enacted or substantively enacted ■ Office equipment and furniture 7 years at the balance sheet date. ■ ■ Computer equipment Leasehold improvements 3 years 5 years Current and deferred tax relating to items that are directly recognized in equity is recognized in equity and not in the An item of property and equipment is no longer recognized statement of comprehensive (loss) income. upon disposal, when held for sale or when no future The Corporation provides equity-settled share-based payments in the form of a share option plan to its employees, officers and directors. The costs of the share- based payments are calculated by reference to the fair value of the options at the date on which they are granted. The fair values are determined using the Black-Scholes Option-Pricing Model. The costs of the share-based payments are recognized on a proportionate basis over the 46 47 Transaction costs related to financial assets classified as FVTPL are expensed, and for all other financial assets included in the initial carrying amount. Financial assets at FVTPL include financial assets held for trading and financial assets designated upon initial recognition at fair value through profit or loss. Financial assets at FVTPL are carried on the balance sheet at fair value with changes in fair value recognized in the statement of comprehensive (loss) income. The financial assets classified as FVTPL are cash and cash equivalents, and deposits and restricted cash. Financial instruments classified as loans and receivables are subsequently measured at amortized cost using the effective interest rate method, less impairment. The amortization and losses arising from impairment are recognized in the statement of comprehensive (loss) income. Financial assets classified as loans and receivables are amounts receivable. F INANC IAL STATEMENTS 2012 ANNUAL REPORT G ENE SIS LAN D DE VE LOP M EN T CORP ORATION NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the years ended December 31, 2012 and 2011 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the years ended December 31, 2012 and 2011 (All tabular amounts and amounts in footnotes to tables are in thousands of Canadian dollars except number of shares) (All tabular amounts and amounts in footnotes to tables are in thousands of Canadian dollars except number of shares) Financial assets are no longer recognized when the The financial liabilities classified as other financial liabilities equity holders by the weighted average number of shares different assumptions and conditions. contractual rights to the cash flows from the asset are accounts payable and accrued liabilities, and loans and outstanding during the period. The diluted earnings per realize the asset and settle the liability simultaneously. (s) Land development service costs expire, or the Corporation transfers the rights to receive credit facilities. the contractual cash flows on the financial asset in a transaction in which substantially all the risks and rewards of ownership of the financial assets are transferred. Any interest in transferred financial assets that is created or retained is recognized as a separate asset or liability. Financial assets are assessed at each reporting date in order to determine whether objective evidence exists that the assets are impaired as a result of one or more events Financial liabilities are no longer recognized when the contractual obligations are discharged, cancelled or expire. Financial assets and financial liabilities are offset and the net amount presented in the balance sheet when, and only when, the Corporation has a legal right to offset the amounts and intends either to settle on a net basis or to that have had a negative effect on the estimated future (q) Impairment of non-financial assets cash flows of the asset. The Corporation assesses at each balance sheet date If there is objective evidence that a financial asset has whether there is an indication that a non-financial asset become impaired, the amount of the impairment loss is may be impaired. If any indication exists, or when annual calculated as the difference between its carrying amount impairment testing for the asset is required, Genesis and the present value of the estimated future cash flows estimates the asset’s recoverable amount. Where it is not from the asset, discounted at its original effective interest possible to estimate the recoverable amount of an individual rate. Impairment losses are recorded in earnings. If the asset, the Corporation estimates the recoverable amount amount of the impairment loss decreases in a subsequent of the cash generating unit (“CGU”) to which the asset period and the decrease can be objectively related to an belongs. Recoverable amount is the higher of fair value less event occurring after the impairment was recognized, the costs to sell and value in use. In assessing the value in use, impairment loss is reversed up to the original carrying value the estimated future cash flows are discounted to their of the asset. Any reversal is recognized in earnings. present value using a pre-tax discount rate that reflects All financial liabilities are initially recognized on the balance less costs to sell, recent market transactions are taken into sheet at fair value less directly attributable transaction costs, account, if available; if no such transactions are available, and designated at inception as other financial liabilities. an appropriate valuation model is used. These calculations Other financial liabilities are subsequently measured at amortized cost using the effective interest method. The effective interest method is a method of calculating the amortized cost of a financial liability and of allocating interest expense over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash payments through the expected life of the financial liability, or, where appropriate, a shorter period. are corroborated by valuation multiples or other available fair value indicators. Where the carrying amount of an asset or CGU exceeds its recoverable amount, the asset is considered impaired and is written down to its recoverable amount. (r) Earnings per share The amount of basic earnings per share is calculated by dividing the comprehensive earnings attributable to share amount is calculated giving effect to the potential dilution that would occur if stock options were exercised. The treasury stock method is used to determine the dilutive effect of stock options. The treasury stock method The following are the most significant accounting judgments and estimates made by the Corporation in applying accounting policies: JUDGEMENTS assumes that proceeds received from the exercise of in- (i) Revenue Recognition the-money stock options are used to repurchase common Revenue recognition for development lands requires shares at the average market price over the year. judgment to determine when the risks and rewards of ownership have been transferred. The Corporation reviews each contract and evaluates all the factors to determine the The land development service costs liability represents the construction costs expected to be incurred for each project phase currently under development to the extent appropriate transfer date. (ii) Consolidation that revenue has been recognized. The liability includes The Corporation applies judgment in determining control all direct construction costs and indirect costs, including over certain limited partnerships where Genesis holds less interest and property taxes expected to be incurred than 50% equity ownership. The judgment is based on a during the remainder of the construction period. The land review of all contractual agreements to determine if the development service costs are reviewed on a phase by Corporation has control over financial and operating policies phase basis. When the estimate is known to be different of these limited partnerships. from the actual costs incurred or expected to be incurred, (iii) Taxes an adjustment is made to the provision for estimated land development service costs and a corresponding adjustment is made to land under development and/or cost of sales. The preparation of consolidated financial statements requires management to make judgments and estimates that affect the reported amounts of revenues, expenses, assets and liabilities, and the disclosure of contingent liabilities at the reporting date. On an ongoing basis, management evaluates its judgments and estimates The Corporation applies judgment in determining the total provision for current and deferred taxes. There are many transactions and calculations for which the ultimate tax determination and timing of payment is uncertain due to the interpretation of complex tax regulations, changes in tax laws, and the amount and timing of future taxable income. Given the long-term nature and complexity of the business, differences arising between the actual results and the assumptions made, or future changes to such assumptions, could necessitate future adjustments to tax income and expense already recorded. in relation to revenue, expenses, assets and liabilities. (iv) Net realizable value Management uses historical experience and various NRV for land parcels and housing projects held for other factors it believes to be reasonable under the given development and sale is estimated with reference to circumstances as the basis for its judgments and estimates. market prices and conditions existing at the balance Actual outcomes may differ from these estimates under sheet date. This is determined by the Corporation having (p) Financial liabilities current market assessments of the time value of money (t) Significant accounting judgments and and the risk specific to the asset. In determining fair value estimates 48 49 F INANC IAL STATEMENTS 2012 ANNUAL REPORT G ENE SIS LAN D DE VE LOP M EN T CORP ORATION NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the years ended December 31, 2012 and 2011 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the years ended December 31, 2012 and 2011 (All tabular amounts and amounts in footnotes to tables are in thousands of Canadian dollars except number of shares) (All tabular amounts and amounts in footnotes to tables are in thousands of Canadian dollars except number of shares) considered suitable external advice from independent real rates, dividend yields, forfeiture rates and expected life of the multiple classification options in IAS 39. The Corporation standard is effective for annual periods beginning on or after estate appraisers and in light of recent market transactions the units issued. Fair value inputs are subject to market is currently evaluating the impact of IFRS 9 on its financial January 1, 2013. The new standard requires information of similar and adjacent lands and housing projects in the factors as well as internal estimates. The Corporation statements. same geographic area. (v) Legal contingencies considers historic trends together with any new information to determine the best estimate of fair value at the date of The Corporation applies judgment as to the outcome of legal proceedings to determine a need for a provision and grant. (iv) Valuation of amounts receivables (ii) IFRS 10, “Consolidated Financial Statements” IFRS 10, “Consolidated Financial Statements”, issued by IASB on May 12, 2011, will replace Standing Interpretations Committee 12, "Consolidation – Special disclosure in the consolidated financial statements. Among Amounts receivable are reviewed on a regular basis Purpose Entities" and the consolidation requirements of the factors considered in making such judgments are the to estimate recoverability of balances. Any amounts IAS 27, "Consolidated and Separate Financial Statements". nature of litigation, claim or assessment, the legal process becoming overdue and any known issues about the The standard is effective for annual periods beginning on that will assist financial statement users to evaluate the nature, risks and financial effects associated with an entity’s interests in subsidiaries and joint arrangements. The Corporation has substantially completed analysis of IFRS 12 and expects to include additional disclosures in the annual consolidated financial statements for the year ended December 31, 2013. (v) IFRS 13, "Fair Value Measurement" and potential level of damages, the progress of the case, financial condition of builders are taken into account when or after January 1, 2013. The new standard eliminates the IFRS 13, "Fair Value Measurement", issued by IASB on the opinions or views of legal advisers and any decision of estimating recoverability. current risk and rewards approach and establishes control May 12, 2011, is effective for annual periods beginning the Corporation’s management as to how it will respond to the litigation, claim or assessment. ESTIMATES (i) Costs to complete (u) Change in accounting estimates The Corporation changed its depreciation method for property and equipment from the declining balance method to the straight-line basis ranging from three to Changes in the estimated future development costs directly seven years useful life, depending on asset category. The impact the amount recorded for the future development change was effective January 1, 2012. This change was liability, cost of sales, gross margin and, in some cases, made to better reflect the systematic amortization of the the value of real estate under development and held for assets over the economic useful life and their consumption sale. This liability is subject to uncertainty as it is based by the Corporation. Under IFRS, this change is considered on estimates prepared by independent consultants and a change in accounting estimate and accounted for management. (ii) Impairment of real estate held for future development The Corporation estimates the net realizable value on prospectively by amortizing the cumulative changes over the remaining useful life of the related assets. At January 1, 2012, property and equipment decreased by $232 as a result of this change. an annual basis to assess impairment. The estimate is (v) Changes to future accounting policies based on valuation conducted by independent real estate appraisers and in light of recent market transactions of similar and adjacent lands and housing projects in the same geographic area. (iii) Share-based payments (i) IFRS 9, “Financial Instruments” On November 12, 2009, the IASB issued IFRS 9, “Financial Instruments” (“IFRS 9”), which will replace IAS 39. The standard is effective for annual periods beginning on or after January 1, 2015. It applies to classification and The Corporation uses an option pricing model to determine measurement of financial assets as defined in IAS 39. It the fair value of share-based payments. Inputs to the model uses a single approach to determine whether a financial are subject to various estimates about volatility, interest asset is measured at amortized cost or fair value, replacing as the single basis for determining the consolidation of on or after January 1, 2013. The new standard provides a an entity. The Corporation does not expect any significant common definition of fair value, establishes a framework effect on the consolidated financial statements as a result for measuring fair value under IFRS and enhances the of adopting this standard. disclosures required for fair value measurements. The (iii) IFRS 11, “Joint Arrangements” IFRS 11, "Joint Arrangements", issued on May 12, 2011, will replace IAS 31, “Interest in Joint Ventures”. The standard is effective for annual periods beginning on or after January 1, 2013. The new standard redefines joint operations and joint standard applies where fair value measurements are required and does not require new fair value measurements. The Corporation is currently evaluating the impact of IFRS 13 on its financial statements. (vi) IFRS 32, "Financial Instruments: Presentation" ventures, requiring joint operations to be proportionately IFRS 32, “Financial Instruments: Presentation”, was consolidated and joint ventures to be equity accounted. amended May 2012 to address inconsistencies when Under IAS 31, joint ventures could be proportionately applying offsetting requirements. It is effective for annual accounted. The Corporation will apply IFRS 11 beginning periods beginning on or after January 1, 2013. on January 1, 2013 with retrospective application from the date of earliest period presented which will be January 1, 2012. The Corporation has analyzed its joint arrangement to determine appropriate accounting treatment under the new IFRS. The extent of the impact of adoption of IFRS 11 has not yet been determined. (iv) IFRS 12, “Disclosure of Interests in Other Entities” IFRS 12, "Disclosure of Interests in Other Entities", issued by IASB on May 12, 2011, outlines the required disclosures for interests in subsidiaries and joint arrangements. The 50 51 F INANC IAL STATEMENTS 2012 ANNUAL REPORT G ENE SIS LAN D DE VE LOP M EN T CORP ORATION NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the years ended December 31, 2012 and 2011 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the years ended December 31, 2012 and 2011 (All tabular amounts and amounts in footnotes to tables are in thousands of Canadian dollars except number of shares) (All tabular amounts and amounts in footnotes to tables are in thousands of Canadian dollars except number of shares) 3. REAL ESTATE HELD FOR DEVELOPMENT AND SALE The expense related to impairment of real estate held for development and sale is as follows: Gross book value As at January 1, 2011 Acquisitions and transfers Development Sold As at December 31, 2011 Acquisitions and transfers Development Sold As at December 31, 2012 Provision for write-down As at January 1, 2011 Write-downs (recoveries) for the year Adjustments from existing provision to carrying value of asset As at December 31, 2011 Write-downs (recoveries) for the year As at December 31, 2012 Net book value As at December 31, 2011 As at December 31, 2012 Land Under Development Land Held for Future Development Housing Projects Total Provision for write-down (Recovery) write-down directly against carrying value of assets 2012 33,160 (14) 33,146 2011 2,398 76 2,474 158,266 5,243 29,220 (39,483) 145,725 (3,551) 5,121 11,015 15,410 13,967 315,006 17,102 48,308 - (30,263) (69,746) 153,246 147,295 1,938 39,137 (55,739) (1,938) 1,616 10,129 19,331 34,151 310,670 19,331 74,904 - (33,407) (89,146) The Corporation recognized the following write-downs (recoveries) relating to impairment of carrying value of certain real estate held for development and sale during the years ended December 31, 2012 and 2011, which were included in cost of sales: Land held for future development Land under development Write-down (recovery) of real estate held for development and sale and other Land 16,419 1,849 18,268 2012 LP 15,564 (762) 14,892 Total 32,073 1,087 33,160 Land 620 1,941 2,561 2011 LP (163) - (163) Total 457 1,941 2,398 138,582 146,973 30,204 315,759 Adjustment from existing provisions to - - - (2,016) - (2,016) carrying value of asset Change in provision for write-down 18,268 14,892 33,160 545 (163) 382 2,117 1,941 - 4,058 1,087 5,145 6,239 457 2,016 - 10,372 2,398 - (2,016) (2,016) 6,696 32,073 38,769 - - - 10,754 33,160 43,914 149,188 133,437 140,599 108,204 10,129 30,204 299,916 271,845 4. NON-CONTROLLING INTEREST – The limited partnership units are non-redeemable and share LIMITED PARTNERSHIPS As shown in note 20, Genesis owns less than 50% of various entities and consequently, does not control more in the profits, if any, of the associated development held by the partnership. Limited partners cannot be cash-called for further funding with respect to the development. than half of the voting power of those shares. However, Details of each of the limited partnerships are as follows: based on contractual arrangement between the Corporation Limited partnerships 4/5 (LP 4/5): and these entities, Genesis has the power to direct the activities of their projects and hence, has control over financial and operating policies of these entities. Therefore, these entities may be controlled, at the option of Genesis LP 4/5 holds land held for future development located east of Calgary in the Municipal District of Rocky View, adjacent to the Corporation’s Taralake lands. No capital repayments are required with respect to LP 4/5. Genesis has a nominal ownership interest in LP 4 and is entitled to a management fee of 10% of the future development service costs payable on a per-lot basis as lots are sold. Limited partnerships 6/7 (LP 6/7): During the year ended December 31, 2012, interest of development of $8,212 (December 31, 2011 - $10,584) and are consolidated in these financial statements. $4,464 (2011 - $2,937) and other carrying costs of $5 (2011 were held in the limited partnerships controlled by Genesis - $448) were capitalized. (see note 4(a)). As at December 31, 2012, land held for future development of $52,411 (December 31, 2011 - $67,952) and land under The Corporation is the general partner in limited partnership arrangements described below. Genesis ultimately controls each of the limited partnerships, thereby requiring their consolidation within the accounts of the Corporation and recognition of a non-controlling interest. Additionally, any profit or charges between the Corporation and the limited LP 6/7 holds land under development located in Taralake partnerships are eliminated on consolidation. and Airdrie. All required capital repayments have been made to unit holders in LP 6/7. 52 53 F INANC IAL STATEMENTS 2012 ANNUAL REPORT G ENE SIS LAN D DE VE LOP M EN T CORP ORATION NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the years ended December 31, 2012 and 2011 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the years ended December 31, 2012 and 2011 (All tabular amounts and amounts in footnotes to tables are in thousands of Canadian dollars except number of shares) (All tabular amounts and amounts in footnotes to tables are in thousands of Canadian dollars except number of shares) Genesis is entitled to management fees of 10% of the Additionally, Genesis has a nominal ownership interest The limited partnerships earnings and distributions were as follows: gross proceeds of the LP 6 offering memorandum payable in LP 8 and is responsible for securing financing for the to Genesis as lands and lots are sold. Genesis also owns project development. 11.75% of LP 6/7’s units and participates proportionately in Limited Partnership Land Pool 2007 (LPLP 2007): the profits of the partnership. Limited partnerships 8/9 (LP 8/9): On June 29, 2007, LPLP 2007 was created to raise funds to secure funding for various land acquisitions. At the L/P 8/9 holds 1,140 acres of raw land near Radium, British conclusion of the offering on February 28, 2009, LPLP 2007 Columbia. Genesis held a purchase right to acquire all LP had raised insufficient funds to close out the purchase of 8/9 units by February 28, 2009, which it did not exercise. the lands and settle the land acquisition loan the entity Therefore, all LP unit holders are entitled to share in the used to acquire the Delacour Lands. As a result, Genesis profits of the development. completed the transaction with its own funds and assumed Balance, January 1, 2011 Net (loss) earnings Distributions Balance - December 31, 2011 Net (loss) earnings Distributions Balance - December 31, 2012 The project lands have approval for 272 single-family home the loan obligations of LPLP 2007. (1)LPLP2007 refers to Limited Partnership Land Pool 2007 sites on 53 acres, and 143 acres have been set aside for Genesis has no ownership interest in LPLP 2007. However, a golf course. Upon achieving and exceeding a 50% gross as manager of LPLP 2007 properties, Genesis is entitled to return to the LP 8/9 unit holders, Genesis is entitled to 50% a management fee of 50% of the proceeds from the sale of the remaining profits on the single-family lots. Genesis of any land parcels owned by LPLP 2007, provided that the is also entitled to 100% of the profit on the golf course, limited partners receive sale proceeds equal to 150% of and retains the right to purchase the balance of the lands the acquisition cost of that land parcel. 5. AMOUNTS RECEIVABLE Agreements receivable Mortgages receivable Other receivables at the conclusion of the project for a nominal amount. Allowance for doubtful accounts The real estate held within the limited partnerships is as follows: 4&5 8,021 (341) - 7,707 43 - 7,750 Limited Partnership 6&7 8&9 LPLP2007(1) Total 14,190 645 (140) 14,695 1,788 (4,444) 12,039 6,657 (47) (328) 6,282 30,054 (1,967) - 58,922 (1,683) (468) 28,087 56,771 (2,175) (15,264) - - (15,608) (4,444) 4,107 12,823 36,719 2012 2011 73,659 11,025 2,189 86,873 (1,643) 85,230 32,805 9,863 783 43,451 - 43,451 2012 Limited Partnership 4&5 Limited Partnership 6&7 Limited Partnership 8&9 Limited Partnership Land Pool 2007 Balance - December 31, 2012 2011 Limited Partnership 4&5 Limited Partnership 6&7 Limited Partnership 8&9 Limited Partnership Land Pool 2007 Balance - December 31, 2011 Gross 7,822 8,212 6,696 57,161 79,891 7,709 11,346 6,696 57,161 82,912 Provision for Write-down - - (2,166) (17,102) (19,268) - (762) - (3,614) (4,376) Net 7,822 8,212 4,530 40,059 60,623 7,709 10,584 6,696 53,547 78,536 During the year, the Corporation recognized write-downs of development and sale held under limited partnership and is $14,892 (2011 – recovery of $163) relating to impairment included in cost of sales. of the carrying value of certain real estate held for Agreements receivables are secured by the underlying receivable as at December 31, 2012, include a receivable real estate assets and have various terms of repayment. from one customer amounting to $27,714 (2011 – Nil) Purchasers generally have between six and 24 months to which was realized subsequent to the year end on January pay the balance owing for the purchased lots. Agreements 10, 2013. Mortgages receivables are interest bearing. 6. OTHER OPERATING ASSETS Deposits Prepayments Restricted cash Property and equipment 2012 2011 4,989 1,155 9,615 478 11,830 2,773 5,891 448 16,237 20,942 Deposits include amounts paid to development authorities approximating those earned on guaranteed investment as security to guarantee the completion of construction certificates. The Corporation has further provided letters projects under development and deposits on future of credit as security to guarantee the completion of land acquisitions. The deposits are refundable upon construction projects (see note 14 (d) for further details). completion of the related projects and earn interest at rates Restricted cash is held in trust accounts. 54 55 F INANC IAL STATEMENTS 2012 ANNUAL REPORT G ENE SIS LAN D DE VE LOP M EN T CORP ORATION NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the years ended December 31, 2012 and 2011 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the years ended December 31, 2012 and 2011 (All tabular amounts and amounts in footnotes to tables are in thousands of Canadian dollars except number of shares) (All tabular amounts and amounts in footnotes to tables are in thousands of Canadian dollars except number of shares) 7. INCOME TAXES (a) Income tax was recognized in the statement of comprehensive (loss) income as follows: Current income tax Deferred tax relating to origination and reversal of temporary differences 2012 2011 1,167 2,919 4,086 10,510 (6,246) 4,264 (b) Income tax expense differed from that which would be expected from applying the combined statutory Canadian federal and provincial income tax rates of 25% (2011 – 26.5%) to income before income taxes. The difference resulted from the following: (Loss) earnings before income taxes Statutory tax rate Expected income tax expense Change in future income taxes resulting from tax rate reduction Share-based payment transactions Other non-deductible expenses Non-controlling interest Tax expense for the year (c) The deferred tax assets and liabilities of the Corporation were as follows: Deferred tax assets Deferred tax liabilities (d) The components of the deferred tax asset (liability) were as follows: Real estate held for development and sale Non-capital loss carry-forwards* Reserves from land sales Unamortized financing costs Other temporary differences *Non-capital loss carry-forward amounts begin to expire in 2028. 2012 (2,661) 25.0% (665) - 84 765 3,902 4,086 2012 6,420 (6,480) (60) 2012 2,845 497 (4,532) 1,090 40 (60) 2011 13,641 26.5% 3,615 69 122 12 446 4,264 2011 5,716 (2,857) 2,859 2011 2,575 152 (111) 263 (20) 2,859 (e) The components of the deferred tax asset (liability) recognized in the statement of comprehensive (loss) income were as follows: Real estate held for development and sale Non-capital loss carry-forwards* Reserves from land sales Unamortized loan and credit facilities costs Other temporary differences *Non-capital loss carry-forward amounts begin to expire in 2028. (f) The movement in income tax payable for the year was as follows: Balance as at January 1 Provision Payments Balance as at December 31 8. GENERAL AND ADMINISTRATIVE The general and administrative expense of the Corporation consisted of the following: Corporate administration Compensation and benefits Professional services 9. OTHER EXPENSES Other expenses of the Corporation consisted of the following: Share-based payments Depreciation Bad debt expenses Other recoveries 2012 270 345 2011 (463) 38 (4,421) 6,548 827 60 136 (13) (2,919) 6,246 2012 12,970 1,167 (9,520) 4,617 2011 6,988 10,510 (4,528) 12,970 2012 2,054 4,982 3,028 2011 1,806 5,173 4,322 10,064 11,301 2012 337 413 314 (25) 2011 459 163 716 (3) 1,039 1,335 56 57 F INANC IAL STATEMENTS 2012 ANNUAL REPORT G ENE SIS LAN D DE VE LOP M EN T CORP ORATION NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the years ended December 31, 2012 and 2011 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the years ended December 31, 2012 and 2011 (All tabular amounts and amounts in footnotes to tables are in thousands of Canadian dollars except number of shares) (All tabular amounts and amounts in footnotes to tables are in thousands of Canadian dollars except number of shares) 10. FINANCE EXPENSE The finance expense of the Corporation consisted of the following: Interest expense Loans and credit facilities fees accretion Interest and loans and credit facilities fees capitalized 11. LOANS AND CREDIT FACILITIES Secured by land held for future development I. Land loan, bearing interest at the greater of 7.2% or prime + 4.2% per annum, secured by land held for development and sale with a carrying value of $18,963, maturing March 1, 2014. 2012 5,669 1,438 (4,464) 2,643 2011 6,549 1,557 (2,937) 5,169 2012 2011 7,850 7,850 II. Other mortgages payable, bearing interest at 7% per annum, payable on demand. - 688 Secured by land under development and agreements receivable III. Land project loans, payable on collection of agreements receivable, bearing interest 87,936 80,197 at rates ranging from prime + 1.25% to the greater of 10.5% or prime + 7.5%, secured by land held for development and sale with a carrying value of $142,743, due between February 2, 2013 and December 1, 2015. Secured by housing projects under development IV. Demand operating line of credit up to $3,000, bearing interest at prime + 1.5% per annum, secured by a general security agreement over assets of the home building division. V. Project loans, payable on collection of closing proceeds, bearing interest ranging from prime + 1.25% to the greater of 5.25% or prime + 2% per annum, secured by home building projects with a carrying value of $11,128, due between June 13, 2013 to October 30, 2013. Deferred loans and credit facilities fees 2,281 1,254 6,487 - 104,554 (2,312) 102,242 89,989 (1,758) 88,231 Based on the contractural terms, the Corporation's loans and credit facilities are to be repaid within the following time periods (excluding deferred financing fees): January 1, 2013 to December 31, 2013 January 1, 2014 to December 31, 2014 January 1, 2015 to December 31, 2015 24,109 47,887 32,558 104,554 The Corporation has various covenants in place with its on encumbrances, liens and charges, material changes to lenders with respect to certain contracted credit facilities. project plans, and changes in the Corporation’s ownership Such covenants include: other credit usage restrictions; structure. cancellation, prepayment, confidentiality and cross default clauses; sales coverage requirements; conditions precedent for funding; and other general understandings such as, but not limited to, maintaining contracted lot prices, restrictions As at December 31, 2012 and 2011, the Corporation was in compliance with all covenants. 12. SHARE CAPITAL (a) Authorized Unlimited number of common shares Unlimited number of preferred shares (b) Weighted average number of shares The following table sets forth the weighted average number of common shares outstanding for the years ended December 31, 2012 and 2011: Basic Effect of dilutive securities - stock options Diluted 2012 2011 44,664,086 44,462,869 110,537 301,914 44,774,623 44,764,783 During the year ended December 31, 2012, the Corporation The weighted average interest rate of loan agreements was In calculating diluted earnings per share for the year ended December 31, 2012, the Corporation excluded 760,500 options received advances of $102,303 (2011 - $91,023) relating 6.25% (December 31, 2011 - 6.57%), based on December (2011 – 1,142,000) as their exercise prices were greater than the average market price of the Corporation’s shares during those to various new and renewed loan facilities secured by real 31, 2012 balances. estate held for development and sale, and agreements receivable, bearing interest ranging from the prime + 1.25% to the greater of 10.5% or prime + 7.5% per annum, with due dates ranging from June 13, 2013 to December 1, 2015. periods. 13. STOCK OPTIONS number of years on various anniversary dates from the date of the original grant. The Corporation has established a stock option plan for certain employees, officers, and directors of the The options must be issued at not less than the fair Corporation to purchase common shares. Vesting market value of the common shares at the date of grant provisions and exercise prices are set at the time of and are issued with terms generally not exceeding five issuance by the Board of Directors. Options vest over a years from the date of grant. 58 59 F INANC IAL STATEMENTS 2012 ANNUAL REPORT G ENE SIS LAN D DE VE LOP M EN T CORP ORATION NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the years ended December 31, 2012 and 2011 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the years ended December 31, 2012 and 2011 (All tabular amounts and amounts in footnotes to tables are in thousands of Canadian dollars except number of shares) (All tabular amounts and amounts in footnotes to tables are in thousands of Canadian dollars except number of shares) Details of outstanding stock options were as follows: Twelve Months Ended December 31, 2012 December 31, 2011 Outstanding - beginning of year Options granted Options exercised Options expired Options forfeited Outstanding - end of year Exercisable - end of year Range of Exercise Prices ($) 0.01 - 3.00 3.01 - 4.00 4.01 - 9.00 Number of Options 1,788,221 400,000 (281,441) (281,500) (393,558) 1,231,722 923,222 Weighted Average Exercise Price $3.60 $3.35 $1.93 $6.63 $3.57 $3.21 $3.17 Number of Options 2,262,934 - (104,839) (116,000) (253,874) 1,788,221 1,333,793 Outstanding Exercisable Number at December 31, 2012 Weighted Average Exercise Price Number at December 31, 2012 Weighted Average Exercise Price 286,222 885,500 60,000 1,231,722 $2.01 $3.35 $6.97 $3.21 286,222 577,000 60,000 923,222 $2.01 $3.35 $6.97 $3.17 Weighted Average Exercise Price $3.73 - $2.30 $5.48 $4.47 $3.60 $3.81 Weighted Average Remaining Contractual Life in Years 1.91 3.31 0.11 2.83 The fair value of each option granted was estimated on the date of grant using the Black-Scholes Option-Pricing Model with the following assumptions: Risk-free interest rate Estimated term period prior to exercise (years) Volatility in the price of the Corporation's common shares Forfeiture rate Dividend yield rate 2012 1.12 - 1.16% 2.5 45.44 - 51.40% 19.42 - 24.22% Nil 2011 N/A N/A N/A N/A N/A 14. COMMITMENTS AND CONTINGENCIES plaintiff is seeking $10,700 plus punitive damages relating (a) The Corporation has been named as a co-defendant in a statement of claim filed on May 10, 2011 in the province of Ontario. The plaintiff asserts that they contributed funds to a third party entity (one of the co-defendants), and through that entity, has an interest in LPLP 2007. The to the ownership interests of LPLP 2007. The Corporation recognizes LPLP 2007’s non-controlling interest in these consolidated financial statements. The amount of additional liability, if any, which exceeds the non-controlling interest, is currently indeterminate. (b) Genesis has entered into a memorandum of was recorded. The Corporation is selling lots in the last understanding with the Northeast Community Society, phase covered under this development. The payout to the whereby the Corporation will contribute $5,000 for participants would be made on completion of the sale of the naming rights to “Genesis Centre for Community lots in the last phase, which is expected in 2014. Wellness”, a recreation complex in northeast Calgary ($500 each year, terminating October 31, 2021). The first installment was paid in 2012. (g) The Corporation has office and other operating leases with the following annual payments: not later than one year - $706; later than one year but not later than five years - (c) On February 19, 2008, Genesis entered into $2,694; and later than five years - $Nil. an agreement with the City of Airdrie, whereby the Corporation will contribute $2,000 for the naming rights to “Genesis Place”, a recreation complex in the City of Airdrie ($200 each year, terminating June 1, 2017). The first five installments totaling $1,000 were made through 2012. (h) LPLP 2007 has a credit facility in the amount of $7,850 included in loans and credit facilities balance in the consolidated financial statements. The Corporation has provided a guarantee for this facility. (d) The Corporation has issued letters of credit pursuant to 15. FINANCIAL INSTRUMENTS service agreements with municipalities to indemnify them (a) Risks associated with financial instruments in the event that Genesis does not perform its contractual obligations. As of December 31, 2012, the letters of credit (i) Credit risk amounted to $3,801 (December 31, 2011 – $4,739). (e) On July 15, 2011, a joint venture (see note 16) obtained a credit facility in the amount of $17,000. The Corporation and a joint venture partner have provided guarantees for this facility. The current balance of the credit facility is $10,036 (2011 - $4,330). As at December 31, 2012, the Corporation carried $1,643 (2011 - $Nil) as allowance for doubtful accounts. Genesis recognizes bad debt expense or recovery relating to amounts receivable on sold lots, net of the return of the real estate held for development and sale. These lots are taken back into the Corporation’s lot inventory. Lots that have been recovered subsequent to impairment (f) Pursuant to the terms of a participating mortgage are removed from the Corporation’s lot inventory. The that was repaid during 2002, the former mortgage holders difference between an impaired amount receivable and the have the right to a 20% participation in the profits from related bad debt expense or recovery is the cost of a lot for the development of approximately 39 acres of land which impairment has been assessed. under development. At December 31, 2012, a liability of approximately $3,051 (December 31, 2011 - $1,876) 60 61 F INANC IAL STATEMENTS 2012 ANNUAL REPORT G ENE SIS LAN D DE VE LOP M EN T CORP ORATION NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the years ended December 31, 2012 and 2011 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the years ended December 31, 2012 and 2011 (All tabular amounts and amounts in footnotes to tables are in thousands of Canadian dollars except number of shares) (All tabular amounts and amounts in footnotes to tables are in thousands of Canadian dollars except number of shares) During the years ended December 31, 2012 and 2011, the Corporation recognized the following bad debt expense and change At December 31, 2012, Genesis had obligations due loans, with approximately $554 impacting pre-tax net in allowance for doubtful accounts relating to amounts receivable on sold lots, net of the return of the real estate held for within the next 12 months of $46,824. Based on Genesis’ earnings. development and sale: Balance as at January 1 Allowance for lots deemed uncollectable Bad debt expense As at December 31 2012 - 1,329 314 1,643 2011 - - - - Further allowances may be necessary. In order to mitigate credit risk, the Corporation retains title to sold residential lots until full payment is received. Aging of amounts receivable was as follows: Not past due Past due 0-90 days but not impaired Past due 91-120 days (impaired) Past due 121-270 days (impaired) Allowance for doubtful accounts 2012 85,085 145 927 716 86,873 (1,643) 85,230 2011 43,451 - - - 43,451 - 43,451 Individual balances due from customers as at December 31, 2012, which comprise greater than 10% of total amounts receivable, totaled $35,450 from two customers (December 31, 2011 - $9,856 from three customers). (ii) Liquidity Risk The following were the contractual maturities of financial liabilities and other commitments as at December 31, 2012: Financial Liabilites Accounts payable and accrued liabilities Loans and credit facilities excl. deferred loan and credit facilities fees (note 11) Commitments Lease obligations Naming rights < 1 Year > 1 Year Total 21,309 24,109 45,418 706 700 46,824 - 80,445 80,445 2,694 4,800 87,939 21,309 104,554 125,863 3,400 5,500 134,763 operating history, its relationship with its lenders and committed sales contracts, management believes that the (b) Fair value of financial instruments Corporation has the ability to continue to renew or repay its The fair values of cash and cash equivalents, restricted cash, financial obligations as they come due. (iii) Market risk The Corporation is exposed to interest rate risk to the extent that certain agreements receivable and certain loans and credit facilities are at a floating rate of interest. The accounts payable and accrued liabilities approximate their carrying values as they are expected to be settled within twelve months. The fair value of deposits approximates their carrying value as the terms of deposits are comparable to the market terms for similar instruments. Corporation is also exposed to fair value risk to the extent The fair values of the Corporation’s deposits, loans and that certain loans and credit facilities, mortgages receivable credit facilities and amounts receivable were estimated and loans receivable are at a fixed rate of interest. A 1% based on current market rates for loans of the same risk change in interest rates would result in a change in interest and maturities. incurred of approximately $974 annually on floating rate Fair value through profit and loss Cash and cash equivalents* Deposits* Restricted cash* Loans and receivables Amounts receivable Other financial liabilities Accounts payable and accrued liabilities Loans and credit facilities, excl. deferred loans and credit facilities fees December 31, 2012 December 31, 2011 Carrying Value Estimated Fair Value Carrying Value Estimated Fair Value 10,005 4,989 9,615 10,005 4,989 9,615 10,850 11,830 5,891 10,850 11,830 5,891 85,230 85,026 43,451 41,500 21,309 104,554 21,309 103,455 16,415 89,989 16,415 86,943 *All of the Corporation’s financial instruments recorded at fair value are categorized under Level 1 as defined below. Fair value measurements recognized in the balance sheet Level 2: Inputs other than quoted prices included in Level are categorized using a fair value hierarchy that reflects the 1 that are observable for the asset or liability, either directly significance of inputs used in determining the fair values. (i.e., as prices) or indirectly (i.e. derived from prices); and The three fair value hierarchy levels are as follows: Level 3: Inputs for the asset or liability that is not based on Level 1: Quoted prices (unadjusted) in active markets for observable market data (unobservable inputs). identical assets or liabilities; 62 63 F INANC IAL STATEMENTS 2012 ANNUAL REPORT G ENE SIS LAN D DE VE LOP M EN T CORP ORATION NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the years ended December 31, 2012 and 2011 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the years ended December 31, 2012 and 2011 (All tabular amounts and amounts in footnotes to tables are in thousands of Canadian dollars except number of shares) (All tabular amounts and amounts in footnotes to tables are in thousands of Canadian dollars except number of shares) (c) Capital management The Corporation’s policy is to maintain a sufficient capital The Corporation manages its capital structure and makes base in order to maintain investor, creditor and market adjustments to it in light of changes in regional economic confidence and to sustain future development of the conditions and the risk characteristics of the underlying real business. The Corporation is not subject to externally estate industry within that region. imposed capital requirements. The Corporation considered its capital structure at the following dates to specifically include: Loans and credit facilities Shareholders' equity December 31, 2012 December 31, 2011 102,242 189,590 291,832 88,231 179,848 268,079 In order to maintain or adjust its capital structure, the 16. JOINT VENTURE Corporation may adjust its gross margins to accelerate sales or adjust capital spending to manage current and projected debt levels. Genesis formed a joint venture on April 30, 2010, for the purpose of acquiring, developing and selling certain real estate. The amounts in the following table represent the The Corporation continues to evaluate the need to leverage Corporation's 50% proportionate share of the assets, its land assets to secure sufficient loans and credit facilities liabilities, revenue, earnings and cash flow information to ensure the Corporation is able to meet its financial of the JV at various periods, which was proportionately Assets Liabilities Revenue Earnings Cash Flow From (Used In) Operating Activities Investing Activities Financing Activities As at and for the year ended, December 31, 2012 As at and for the year ended, December 31, 2011 30,563 12,321 14,062 1,819 1,147 29,232 8,827 11,575 1,403 (2,290) - - (1,147) 2,280 The Corporation’s transactions with the JV are limited to the Genesis deferred $13,167 when it contributed its share purchase of lots. The JV sold 21 lots in 2012 (2011 - 30 lots) of land to the JV in 2010. As at December 31, 2012, the to Genesis Builders Group Inc. (“GBG”), a wholly owned Corporation had realized $5,605 of that amount as a result subsidiary of the Corporation, for $3,880 (2011 - $4,853). of sales to third parties (2011 – $2,409). Approximately The Corporation's accounts payable and accrued liabilities $3,196 (2011 – $2,409) had been recognized during the as at December 31, 2012 included $3,370 (December 31, year ended December 31, 2012. The remaining amount of 2011 - $1,941), representing the proportionate amount $7,562 will be realized on future sale and development of owed to the JV for the lots purchased in 2011 and 2012. lots and lands by the JV. 17. SEGMENTED INFORMATION The Corporation operates in two reportable segments, land development and home building, which represent separately managed strategic business units with distinct marketing strategies. The Corporation evaluates segment performance based on profit or loss from operations before income taxes. Inter-segment sales are accounted for as if the sale were to third parties at current market prices. Internal lot sales from the land division to the home building division or a limited partnership have been eliminated and are not included in consolidated results until the home is sold to a third party purchaser. The income producing business units of the Corporation reported the following activities for the years ended December 31, 2012 and 2011: Year ended December 31, 2012 Land Development Segment LP Genesis Total Corporate and Other Segment Intersegment Elimination 109,992 (70,016) (18,268) (7,257) 4,461 (3,504) (14,878) (1,766) 114,453 (73,520) (33,146) (9,023) Home Building Segment 39,497 (34,910) - (6,012) 14,451 (15,687) (1,236) (1,425) 278,499 124,653 65,707 8,057 344,206 132,710 38,093 35,634 71,607 (44,859) (2,626) (9,909) 6,547 (5,660) 179 (1,559) 78,154 (50,519) (2,447) (11,468) 32,085 (28,414) (27) (3,723) 14,213 (493) 13,720 (79) Total 141,582 (94,265) (33,146) (16,832) (12,368) 14,165 - (1,797) - (2,661) (8,987) (11,336) 383,317 157,008 (14,479) 15,439 - (960) 95,760 (63,494) (2,474) (16,151) - 13,641 - - - - - 10,005 - - - - - - Revenues Cost of sales Write-down of real estate Other expenses(1) Earnings (loss) before income taxes and non-controlling interest As at December 31, 2012: Segmented assets Segmented liabilities Revenues Cost of sales (Write-down) recovery of real estate Other expenses(1) Earnings (loss) before income taxes and non-controlling interest As at December 31, 2011 Segmented assets Segmented liabilities 272,151 131,156 83,787 7,749 355,938 138,905 17,435 12,769 10,851 - (6,206) (10,275) 378,018 141,399 (1) Other expense items include general and administrative, other expenses, finance income and expense, gain from joint venture, and gain or loss on disposal of property and equipment. obligations as they come due. consolidated in the financial statements. Year ended December 31, 2011 64 65 F INANC IAL STATEMENTS 2012 ANNUAL REPORT G ENE SIS LAN D DE VE LOP M EN T CORP ORATION NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the years ended December 31, 2012 and 2011 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the years ended December 31, 2012 and 2011 (All tabular amounts and amounts in footnotes to tables are in thousands of Canadian dollars except number of shares) (All tabular amounts and amounts in footnotes to tables are in thousands of Canadian dollars except number of shares) 18. RELATED PARTY TRANSACTIONS 21. PRINCIPAL SUBSIDIARIES AND JOINT VENTURE Remuneration of the directors and other members of the key management personnel were as follows: Short-term benefits Share-based payments 2012 1,433 190 1,623 2011 1,795 289 2,084 Payments to the former Chief Executive Officer under an 19. SUBSEQUENT EVENTS advisory service agreement for the year ended December 31, 2012 were $29 (2011 - Nil). The agreement ended March 31, 2012. On February 11, 2013, Genesis appointed a new senior executive team. Bruce Rudichuk joined Genesis as President and Chief Executive Officer and Mark Scott as A director of Genesis, appointed on July 12, 2012, is an Executive Vice President and Chief Financial Officer. officer of a lender. At December 31, 2012, the Corporation had loans totaling $28,448 (December 31, 2011 – $53,196) 20. COMPARATIVE FIGURES outstanding with this lender. During the year ended Certain comparative figures have been reclassified to December 31, 2012, Genesis paid interest and fees to the conform to the current year’s presentation. lender of $3,504 (2011 – $4,523), respectively. During the year ended December 31, 2012, the Corporation obtained no new financing or re-financing on existing loans (2011 – $70,185) with the lender. All transactions are under normal commercial terms and conditions. Genesis is the general partner in four limited partnership arrangements and a partner in a 50% real estate joint venture, which is discussed in detail in notes 4 and 16, respectively. The financial statements include the financial statements of Genesis and its subsidiaries and entities controlled by the Corporation. All entities are incorporated in Canada and are listed in the following table: Name Land Development Genpol Inc. Genpol LP 1504431 Alberta Ltd. Genesis Sage Meadows Partnership Polar Hedge Enhanced Income Trust New View Consulting Ltd. No.114 Corporate Ventures Ltd. Buena Vista Ranches Ltd. LP 4/5 Group Genesis Limited Partnership #4 Genesis Limited Partnership #5 GLP5 GP Inc. GLP5 NE Calgary Development Inc. Genesis Northeast Calgary Ltd. LP 6/7 Group Genesis Limited Partnership #6 Genesis Limited Partnership #7 GP GLP7 Inc. GLP7 Subco Inc. LP 8/9 Group Genesis Limited Partnership #8 Genesis Limited Partnership #9 GP GLP8 Inc. GP GLP9 Inc. GLP9 Subco Inc. LPLP 2007 Group Limited Partnership Land Pool (2007) GP LPLP 2007 Inc. GP RRSP 2007 Inc. LPLP 2007 Subco Inc. GP RRSP 2007 #2 Inc. LPLP 2007 Subco #2 Inc. LP RRSP Limited Partnership #1 LP RRSP Limited Partnership #2 Joint Venture Kinwood Communities Inc. Home Building Single-family Genesis Builders Group Inc. Multi-family The Breeze Inc. Generations Group of Companies Inc. Life at Solana Inc. Life at Waterstone Inc. Montura Inc. (previously Life at Skye Inc.) % equity interest as at December 31, 2012 December 31, 2011 100% 100% 0.0002% 99.9998% 100% 100% 100% 100% 0.001% 0% 0% 0% 100% 11.75% 0% 0% 0% 0.23% 0% 100% 0% 0% 0% 100% 0% 0% 0% 0% 0% 0% 50% 100% 100% 100% 100% 100% 100% 100% 100% 0.0002% 99.9998% 100% 100% 100% 100% 0.001% 0% 0% 0% 100% 11.65% 0% 0% 0% 0.23% 0% 100% 0% 0% 0% 100% 0% 0% 0% 0% 0% 0% 50% 100% 100% 100% 100% 100% 100% 66 67 F INANC IAL STATEMENTS 2012 ANNUAL REPORT FIVE YEAR SUMMARY CONSOLIDATED BALANCE SHEETS (Expressed in thousands of Canadian dollars, except per share amounts) Assets Real estate held for development and sale Amounts receivable Cash and cash equivalents Property and equipment Other operating assets Deferred income taxes Liabilities Financings Customer deposits Accounts payable and accrued liabilities Income taxes payable Land development service costs Deferred income taxes Non-controlling interest Equity Share capital Contributed surplus Retained earnings Shareholders’ equity Non-controlling interest 2012 (IFRS) 271,845 85,230 10,005 478 15,759 – 383,317 102,242 4,352 21,309 4,617 24,428 60 – 157,008 55,844 5,109 128,637 189,590 36,719 226,309 383,317 2011 (IFRS) 299,916 43,451 10,850 448 20,494 2,859 378,018 88,231 7,582 16,415 12,970 16,201 – 2010 (IFRS) 304,634 27,021 2,455 544 15,812 – 350,466 81,320 8,388 13,025 6,988 10,347 3,387 141,399 123,455 55,122 4,950 119,776 179,848 56,771 236,619 378,018 54,798 4,575 108,716 168,089 58,922 227,011 350,466 2009 (GAAP) 2008 (GAAP) 302,598 15,384 4,578 17,568 2,213 342,341 115,210 4,985 8,350 11,139 8,301 – 61,084 209,069 54,097 4,120 75,055 133,272 133,272 342,341 285,574 29,498 4,503 45,101 778 365,454 132,704 3,515 24,203 9,587 4,566 – 64,296 238,871 54,164 4,120 68,299 126,583 126,583 365,454 CONSOLIDATED STATEMENT OF EARNINGS (LOSS) (Expressed in thousands of Canadian dollars, except per share amounts) 2012 2011 2010 2009 2008 Revenue Sales Interest and other income Expenses Cost of sales Write-down (recovery) of real estate held for development and sale G&A and Selling and Marketing Other operating expense Finance expense and other (Loss) Earnings before income taxes Provision for income taxes Net (loss) earnings being comprehensive (loss) earnings Attributable to non-controlling interest Attributable to equity shareholders 140,770 812 141,582 94,265 33,146 14,012 1,039 1,781 144,243 (2,661) 4,086 (6,747) (15,608) 8,861 Net earnings Per Share - Basic and Diluted $ 0.20 95,316 444 95,760 63,494 2,474 12,479 1,335 2,337 82,119 13,641 4,264 9,377 (1,683) 11,060 $ 0.25 136,651 732 137,383 68,411 12,267 992 6,510 88,180 49,203 12,845 36,358 2,844 33,514 $ 0.75 85,851 711 86,562 61,275 7,643 10,946 (377) 1,470 80,957 5,605 3,579 2,026 (4,730) 6,756 $ 0.15 82,558 1,273 83,831 43,025 6,962 11,026 14,493 672 76,178 7,653 3,099 4,554 (4,730) 9,284 $0.20 68 G ENE SIS LAN D DE VE LOP M EN T CORP ORATION SENIOR MANAGEMENT TEAM TRANSFER AGENT Computershare Trust Company of Canada BRUCE RUDICHUK, CA, CIRP President and Chief Executive Officer MARK SCOTT Executive Vice President and Chief Financial Officer PS SIDHU, MBA General Manager, Home Building 600, 530 - 8th Avenue SW Calgary, Alberta T2P 3S8 STOCK EXCHANGE Toronto Stock Exchange Stock Symbol - GDC AUDITORS MNP LLP ARNIE STEFANIUK, P.ENG. 1500, 640 - 5th Avenue SW General Manager, Land Development Calgary, Alberta T2P 3G4 KRISTEN WILKINSON CORPORATE COUNSEL General Manager, Sales & Marketing Norton Rose Fulbright Canada LLP BOARD OF DIRECTORS MICHAEL BRODSKY Chairman of the Board of Directors STEVEN GLOVER, FCA Director, Chairman of the Audit Committee YAZDI BHARUCHA, CA Legal Counsel Suite 3700, 400 - 3rd Avenue SW Calgary, Alberta T2P 4H2 CORPORATE OFFICE 7315 - 8th Street NE Calgary, Alberta T2E 8A2 Ph: 403 265 8079 Fx: 403 266 0746 Director Email: genesis@genesisland.com MARK W. MITCHELL Director LOUDON OWEN Director SANDY POKLAR Director WILLIAM ("BILL") PRINGLE Director Genesis Land Development Corporation 7315 - 8th Street NE Calgary, Alberta Canada T2E 8A2 P 403 265 8079 F 403 266 0746 www.genesisland.com 

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