Genesis Land Development Corp.
Annual Report 2013

Plain-text annual report

2013 ANNUAL REPORT / GENESIS LAND DEVELOPMENT CORP. DEBT HAS DECREASED TO $50,373,000(2013) $97,224,000(2012) We create inspired communities: one home, one family, one neighbourhood at a time. WE DESIGNWE DREAMWE BUILDTABLE OF CONTENTS 5 8 PRESIDENT’S MESSAGE SENIOR MANAGEMENT AND BOARD OF DIRECTORS 14 GENESIS COMMUNITIES 22 MANAGEMENT’S DISCUSSION & ANALYSIS 10 COMMUNITY INVOLVEMENT 45 CONSOLIDATED FINANCIAL STATEMENTS 12 GENESIS PROJECTS 83 CONTACT INFORMATION 4 MESSAGE TRANSFORMATION TOWARDS A BRIGHTER FUTURE The past year was transformative for Genesis and its stakeholders. A number of significant changes were implemented to build a strong foundation upon which we can create our future. In 2013, we focused on reviewing and re-engineering Genesis: investigating and evaluating our assets, businesses and markets in order to move forward strategically. We began the year with the execution of a three-point business initiative: to profitably grow our business; develop a people plan; and simplify our organization. (continued on page 6) 4 PRESIDENT’SBRUCE RUDICHUKPresident & Chief Executive OfficerWe have delivered on this initiative, is the first time in several years that a • Grow land development operations, and I’m proud to report on our multi-year strategy has been developed for securing approvals and advancing accomplishments. During 2013, we: Genesis, and is a significant positive step development of our prime mixed-use • Achieved a turnaround in the home building business, increasing house sales from 91 to 164, managing costs and reaching profitability for the first time in several years; • Simplified the organization through various initiatives, including identifying non-core assets. We implemented a sales process and closed on one parcel in March 2014, which represents the bulk of our non-core book value; and • Began the development of our “People Plan” in order to align key values with staff throughout the organization. A STRATEGIC DIRECTION, A STRONGER COMPANY of significant shareholders, allowing for a stronger voice. It is much more involved, guiding our strategic direction. What’s most evident is that there is more collaboration within the Board and with Management now, pulling in one direction for the company’s future. Together with the Board, we created a new strategic plan in late 2013. This towards our future success. We now have land holdings while acquiring mid-term a coherent and cohesive direction to head land for future development; towards for the next 12 to 24 months. Our goals are to: 1. Maximize shareholder value by increasing long-term sustainable • Sell non-core assets that are either outside the Calgary Metropolitan Area or do not have development characteristics that fit within our core earnings (inclusive of appreciation), business; shareholder liquidity, operating capacity and capability, and by implementing communication with stakeholders that builds trust, confidence and understanding; and 2. Position the platform through clean- up of the balance sheet, growth of our land development business and the establishment of profitable home building operations. • Simplify and streamline the organization to manage costs and improve efficiency; • Improve communication with our investors; • Focus on financing strategies to ensure the optimal allocation and use of our capital resources; • Create liquidity by considering various alternatives for the return of capital to shareholders; • Capitalize on new opportunities involving potential land acquisitions, our multi-family home building business and multi-use development projects; and pursuing several objectives throughout the organization. In 2014, we plan to: • Create a strategy to build a multi- • Continue to build a sustainable and highly profitable home building business, with a near-term goal of increasing home sales toward 300 per year to improve net margin and profitability; family home building business in order to benefit from our large land base, which equates to a multi-year supply of product. All of these things will position us for future profitable growth. 6 One of the most significant events over the past year has been the transformation of our Board of Directors. Our Board is now Once these steps are complete, we will consider longer-term strategies to identify additional opportunities for future growth. more aligned through its representation In order to achieve these goals, we are PRESIDENT’S MESSAGE We couldn’t achieve these things without working on improving operating metrics, shareholders for their continuing support. a strong staff and management team increasing the size/growth of our company I look forward to communicating our focused on growing the business. We have and improving product quality. Such results, accomplishments and success that. I’m proud of the team’s commitment growth often taxes resources. To date, as we execute our plan, delivering on and their response to driving Genesis we have managed this well and expect to our promises to build the platform and forward. Our team has welcomed change, continue to do so in the future. maximize shareholder value. It’s time to embracing the strategic plan and creating a company with higher value. In addition, we continue to focus on improving our customers’ experience, knowing that if we do the right things by our customers, profitability will follow. WHAT LIES AHEAD One of our major challenges is to close the gap between our net asset value and common share trading price. The last two years have been difficult for shareholders as we’ve undergone various changes to transition Genesis to where it is today. We are committed to improving shareholder communication, better explaining our build our future. BRUCE RUDICHUK President & Chief Executive Officer We believe that 2014 is going to be a year assets, business and potential to the March 28, 2014 of growth and profitability. We are land market to gain their understanding, trust rich in a market where land development and, eventually, the appropriate valuation. is being constrained and prices are increasing. Vertical integration and I expect shareholders will see a significant improvement in communications, enabling efficient operations will allow us to benefit better decisions to be made regarding from a growing economy. These factors Genesis and its future opportunity. should give us a number of wins over the next few years. This is not to say we won’t have some challenges to deal with. The approval Our future is bright and I believe that a greater possibility can unfold for our company. I base this belief on a combination of the things that provide process for land development is becoming our underlying value: our people, our more complicated and longer. Continuing teamwork, our assets, the growing to find mid-term viable development economy and the marketplace in general. land opportunities is becoming harder. All of these are solid or improving and will Fortunately, we have ample land for result in a good year for Genesis and its several years of development, but we do stakeholders. need to add to our portfolio for the future. Our pace of growth presents unique challenges. We are simultaneously Once again, I’d like to thank our employees and directors for all their hard work over the past year, and the 7 BRUCE RUDICHUK, CA, CIRP President & Chief Executive Officer MARK SCOTT Executive Vice President & Chief Financial Officer RAUF MUHAMMAD, CPA Corporate Controller With 20 years of diverse experience in the real estate industry Bruce has been involved in a variety of markets and product offerings, but with an emphasis on home building. Prior to joining Genesis, Bruce was the CEO at Intracorp Projects Ltd., a privately held real estate company. He also served on the executive committee of BILD (Building Industry and Land Development Association) for the Greater Toronto Area. He is a Chartered Accountant (member of the Institute of Chartered Accountants of Ontario) and a Chartered Insolvency and Mark has nearly 30 years of experience in real Rauf is a CPA (Certified as CPA in Colorado, USA) estate, investment banking and international with 18 years of experience in financial reporting, business. His real estate experience is in finance, internal controls, creating sustainable processes mergers and acquisitions, asset sales, and property and controllership in Canada and abroad. He has asset management. Mark spent 17 years at Scotia experience in the public practice, media, oil and gas, Capital in Toronto, Hong Kong, and most recently, and real estate sectors. Prior to joining Genesis, as Managing Director & Office Head in their Rauf worked with Spectra Energy, KPMG, Middle Vancouver office. Prior to joining Genesis, he was a East Broadcasting Centre, Ernst and Young, and private investor and director. Mark earned a B.A. in Arthur Andersen. He joined Genesis in November Management and Economics from the University of 2011 and served as Manager of Financial Reporting Guelph and has served on the Board of Trustees of and Assistant Controller prior to becoming Controller Restructuring Professional (member of the Canadian the Fraser Institute and various public companies. in 2013. Association of Insolvency and Restructuring Professionals). Bruce earned an Honours Bachelor of Economics and Business from York University. BOARD OF DIRECTORS STEPHEN J. GRIGGS, B.A., J.D. Chair of the Board of Directors WILLIAM (“BILL”) PRINGLE, B.Comm., C.A. Vice Chair of the Board of Directors YAZDI BHARUCHA, C.A., ICD.D Director MICHAEL BRODSKY, B.A., I.D., M.B.A. Director 8 SENIOR MANAGEMENT PS SIDHU, MBA General Manager, Home Building ARNIE STEFANIUK, P.ENG. General Manager of Land Development KRISTEN WILKINSON General Manager, Sales & Marketing Since his appointment as General Manager of With over two decades of experience in land Kristen brings more than 15 years of strategic Home Building in 2008, PS has tripled division development and municipal engineering, Arnie has marketing and communications expertise to her role revenues. An MBA graduate who is enrolled in served as General Manager of Land Development as General Manager of Sales & Marketing with the Professional Home Builders Institute, PS has a at Genesis since 2010. His experience as a Genesis. Her extensive experience in the real estate strong background in organizational leadership and professional engineer, working in the field, led to a and land development sector includes marketing residential construction operations. He has been passion for community development. Arnie provides positions with the renowned North America resort working with Genesis since 2005. expertise in land investment, community design and real estate company, Intrawest, and the Lora Bay construction. Corporation. Prior to joining Genesis in 2012, Kristen served as VP of Marketing & Communications with an energy solutions and renewables company. In 2013, Kristen helped facilitate the successful redevelopment of Genesis’ strategic vision and was able to deliver eighty percent growth of the home building division. She currently oversees the company’s corporate brand assets. STEVEN GLOVER, M.B.A., FCA Chair of the Audit Committee MARK W. MITCHELL, B.A., M.B.A. Director LOUDON OWEN, B.A., J.D., M.B.A. Director IAIN STEWART, B.Comm., C.A. Director 9 THE GENESIS CENTRE OF COMMUNITY WELLNESS CALGARY, AB COMMUNITY INVOLVEMENT A SPECIAL EVENT AT THE GENESIS CENTRE OF COMMUNITY WELLNESS GENESIS PLACE - AQUATIC AREA GENESIS PLACE SAM AWARDS FINALIST FOR 2013 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 Northeast 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 Northeast 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 as a perfect alignment of our core values. The dream quickly started to take shape, gaining support and funding from the City of Calgary and YMCA, along with a generous naming sponsorship from Genesis. Genesis continues to play a part in the support of the Genesis Centre of Community Wellness – a 225,000 square foot, $120 million multi-purpose complex Best Moving Media Canals Landing Show Home Grand Opening Best New Design Villa/Duplex/Townhome up to 1,199 sq. ft. The Roxbury 58 Sage Meadows Terrace NW, Calgary Best Townhomes $350,000 and over The Brownstones at Sage Meadows 57 Sage Meadows Terrace NW, Calgary Best New Home $270,000 - $309,999 The Roosevelt in EvansRidge 789 Evanston Drive NW, Calgary 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 what it means to built to enrich the health, wellness, and the quality of life for the community of unity of communities in Northeast Calgary. Airdrie. MAIN LOBBY - THE GENESIS CENTRE OF COMMUNITY WELLNESS GENESIS PLACE AIRDRIE, AB 11 LANDS UNDER DEVELOPMENT FOWLER NW CALGARY AIRDRIE AIRDRIE CITY OF AIRDRIE FOWLER CITY LIMITS NE CALGARY DELACOUR NW CALGARY CITY OF AIRDRIE STONEY TRAIL CALGARY INTERNATIONAL AIRPORT NORTH CONRICH TRANS-CANADA HWY CITY OF CALGARY S T O N E Y T R A I L S T I M I L Y T I C MOUNTAINVIEW SAGE HILL CROSSING S T I M I L Y T I C S T I M I L Y T I C CITY LIMITS NE CALGARY DELACOUR STONEY TRAIL CALGARY INTERNATIONAL AIRPORT NORTH CONRICH TRANS-CANADA HWY CITY OF CALGARY S T O N E Y T R A I L S T I M I L Y T I C MOUNTAINVIEW SAGE HILL CROSSING S T I M I L Y T I C S T I M I L Y T I C RESIDENTIAL DEVELOPMENT MIXED USE DEVELOPMENT RESIDENTIAL DEVELOPMENT MIXED USE DEVELOPMENT CITY LIMITS CITY LIMITS 12 GENESIS PROJECTS LANDS HELD FOR FUTURE DEVELOPMENT AIRDRIE “FOWLER” AIRDRIE CITY OF AIRDRIE NW CALGARY CITY LIMITS SAGE HILL CROSSING STONEY TRAIL NE CALGARY CALGARY INTERNATIONAL AIRPORT NORTH CONRICH LANDS S T I M I L Y T I C CITY OF CALGARY TRANS-CANADA HWY S T O N E Y T R A I L S T I M I L Y T I C MOUNTAINVIEW S T I M I L Y T I C CITY LIMITS 13 1,631 HOMESBAYSIDE1,386 HOMESBAYVIEW1,631 HOMESBAYSIDE1,386 HOMESBAYVIEW1,689 HOMESTHE CANALS1,689 HOMESTHE CANALS1,056 HOMESSADDLESTONE1,056 HOMESSADDLESTONE2,441 HOMESSAGE MEADOWS2,441 HOMESSAGE MEADOWSMANAGEMENT’S DISCUSSION & ANALYSIS 2013 FOR THE THREE MONTHS AND YEAR ENDED DECEMBER 31, 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, 2013 and 2012 prepared in accordance with International Financial Reporting Standards (“IFRS”). The consolidated financial statements and comparative information have been prepared in accordance with 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. All amounts are in thousands of Canadian dollars, except per share amounts or unless otherwise noted. This MD&A is dated as of March 28, 2014. NON-GAAP FINANCIAL MEASURES AND ADVISORIES This MD&A includes references to certain financial measures which do not have standardized meanings prescribed by IFRS. As such, these financial measures are considered additional GAAP or non-GAAP financial measures and therefore are unlikely to be comparable with similar financial measures presented by other issuers. These additional GAAP and non-GAAP financial measures include, Net Asset Value, Gross Margin before impairment and Adjusted earnings per share. For a full description of these and other non-GAAP financial measures and a reconciliation of these measures to their most directly comparable GAAP measures, please refer to “Non-GAAP Financial Measures” and “Forward Looking Statements” advisories contained at the end of this MD&A. 22 OVERVIEW Genesis Land Development Corp. (“Genesis” or the “Corporation”) is an integrated, award-winning land developer and residential homebuilder creating innovative and successful communities in the Calgary Metropolitan Area. Genesis is committed to supporting its communities through partnerships like the Genesis Centre of Community Wellness, and Genesis Place Recreational Centre. We report our activities as two business segments: land development and home building. Land development involves the acquisition of land held for future development, and the planning, servicing and marketing of residential, commercial, industrial and urban communities. Home building includes the acquisition of lots, and the construction and sale of single- and multi-family homes. The common shares of the Corporation We own a large portfolio of entitled are listed for trading on the Toronto Stock residential and mixed-use land, which Exchange (the “Exchange” or “TSX”) under is well positioned to benefit from the continued robust activity in the Alberta economy. Land values in Calgary are rising for both entitled land and home building lots, reflecting the tightening of entitled land supply and the continuing strong demand for homes in the Calgary Metropolitan Area. the symbol “GDC”. MARKET OVERVIEW Alberta’s general economic conditions continue to be strong, supporting expectations of a robust pace of activity in Calgary’s home building industry throughout the balance of 2014. Solid economic fundamentals include low unemployment and interest rates, low and stable inflation rates, positive net migration to Alberta and above average earnings by Albertans. These market dynamics provide a continued healthy environment for development and growth of our core land positions, sale of lots and expansion of our home building activities. 23 GENESIS LAND DEVELOPMENT CORP. MANAGEMENT’S DISCUSSION & ANALYSIS FOR THE THREE MONTHS AND YEAR ENDED DECEMBER 31, 2013 CORPORATE HIGHLIGHTS Key financial results and operating data for the Corporation were as follows: Three months ended December 31, Year ended December 31, 2013 2012(1) 2013 2012(1) 26,331 (23,978) 2,353 (4,155) 6,508 24.7% 2,485 4,980 0.11 0.12 0.12 94 - 62 36 - 154 - 42 396 54 57,377 (76,768) (19,391) (34,215) 14,824 25.8% (24,529) (7,126) (0.16) 0.15 0.15 (17,245) (0.39) 46 25 37.59 184 929 34 409 37 96,077 129,460 (86,230) (120,409) 9,847 (16,282) 26,129 27.2% (1,850) 5,713 0.13 0.31 0.31 53,473 1.19 150 110 11.28 171 591 164 387 189 9,051 (33,146) 42,197 32.6% (2,661) 8,861 0.20 0.51 0.50 (2,794) (0.06) 238 56 49.37 184 921 91 433 152 As at December 31, 2013 2012(1) 17,678 10,005 313,846 374,341 50,373 95,920 195,483 217,926 7.18 6.67 16.1% 97,224 148,032 189,590 226,309 7.23 6.70 26.0% Key Financial Data Total revenues (2) Cost of sales (3) Gross margin Impairment Gross margin before impairment (4) Gross margin before impairment (%) (4) Earnings (loss) before income taxes Net earnings (loss) (5) attributable to equity shareholders Net earnings (loss) (5) per share - basic and diluted Adjusted earnings per share - basic (4),(6) Adjusted earnings per share - diluted (4),(6) Cash flows from (used in) operating activities Cash flows from (used in) operating activities per share (7) Key Operating Data Residential lots sold to third parties (units) Residential lots sold through the home building business segment (units) Development land sold (acres) Average revenue per lot sold to third parties Average revenue per acre Homes sold (units) Average revenue per home sold Net new home orders (units) Key Balance Sheet Data Cash and cash equivalents Total assets Loans and credit facilities Total liabilities Shareholders’ equity Total equity Pre-tax net asset value per share (4) After-tax net asset value per share (4) Debt to total assets (1) The figures for 2012 have been restated to incorporate the impact of adopting IFRS 11 Joint Arrangements (2) Includes other revenues (3) Includes impairment of real estate held for development and sale (4) Non-GAAP financial measure. Refer to page 40 (5) Net of income tax expense (6) Before impairment related to equity shareholders and before proxy contest costs (7) Basic and diluted amounts per share 24 HIGHLIGHTS Improved cash flows from operations: • Cash flows from (used in) operating activities for year ended December 31, 2013 were $53,473 or $1.19 per share compared to ($2,794) or ($0.06) per share in 2012. • Accounts receivable decreased to $23,342 at December 31, 2013 from $73,239 at December 31, 2012 primarily due to the Sage Hill Crossing proceeds ($27,713) received in January 2013 Improved management of balance sheet: • Significantly reduced Loans and Credit Facilities from $97,224 at December 31, 2012 to $50,373 at December 31, 2013 • This was largely due to the proceeds from the sale of development land at Sage Hill Crossing and other cash flow from operating activities • Debt to equity ratio decreased to 0.44 at December 31, 2013 from 0.65 at December 31, 2012 • Debt to total assets dropped by 10% to 16% for 2013 from 26% in 2012 • Total interest expense reduced by 34% to $3,771 in 2013 from $5,686 in 2012 Achieved turnaround in the home building business segment: • This business segment achieved essentially a breakeven outcome for 2013 • Sales volume increased by 80% to 164 units in 2013 from 91 units in 2012 • Revenues increased to $63,570 from $39,497 for the year ended December 31, 2013 compared to 2012 Implemented comprehensive planning and control: • Completed the sale of the largest portion for proceeds of $14,000 in • The new management team and renewed board have led the establishment of sophisticated planning and control policies, systems and procedures that affect all aspects of the organization from accounting, administration, compensation to governance February 2014 • Remaining non-core assets represent only 3.3% (2012 – 7.9%) of Genesis’ land portfolio with an appraised value of $7,210 (2012 – $17,490) and carrying value of $5,843 (2012 – $14,015) • All aspects of the administrative • Made significant progress on design infrastructure and systems have been reviewed and necessary changes made or pending and planning for the development of the Sage Hill Crossing mixed use development • Home building sales and Further information on the Corporation’s administrative infrastructure and performance is presented in the land systems are substantially in place to development and home building sections support our continued turnaround • A comprehensive and focused strategic plan is in place and we are executing related business plans with careful attention to economy, efficiency and effectiveness • The interests of the new CEO and CFO are aligned with those of shareholders through a new compensation structure that includes an equity based incentive plan • Performance targets cover all aspects of operations, with a determined effort to close the gap between our net asset value and share value Substantially completed asset rationalization: • Identified non-core assets and appraised such assets accordingly, resulting in the majority of the impairment write-down of $26,453 on lands directly owned by Genesis over the last two years (plus $22,975 applicable to lands owned by the limited partnerships) • Established a process to sell all non- core assets: 25 of this MD&A. These sections are to be read in conjunction with note 19 (segmented information) in the consolidated financial statements for the year ended December 31, 2013 and 2012. These sections of the MD&A present the business segment revenues and expenses before inter-company eliminations. STRATEGY AND BUSINESS FOCUS We will continue to focus on our two core businesses of land development and home building in the Calgary Metropolitan Area, where our three primary residential communities continue to generate attractive earnings and cash flows. In addition to our residential strength, we own several major mixed-use land holdings in the greater Calgary area, which are expected to contribute future earnings and cash flows as the projects mature and sites are sold or developed. Over the course of 2013, management and the Board of Directors (“Board”) developed a comprehensive strategic plan focused towards building our existing land development and home building GENESIS LAND DEVELOPMENT CORP. MANAGEMENT’S DISCUSSION & ANALYSIS FOR THE THREE MONTHS AND YEAR ENDED DECEMBER 31, 2013 businesses to maximize shareholder value and position the platform for future 2. Grow Land Development Operations growth. This plan will drive our focus and activities in 2014 and beyond. We made substantial progress on the plan’s strategies in 2013, which are outlined as follows: 1. Build a Sustainable and Highly Profitable Home Building Business Home building unit volume grew 80% from 91 homes sold in 2012 to 164 in 2013, and we are well-advanced in meeting our objective of growing this by a further 41% to 231 home closings in 2014 and beyond. We have assembled a strong production team and sufficient infrastructure capable of building 300 homes per year, improving net margin and profitability of our home building business segment as volume rises. As volume in the home building business segment rises, we expect improvements in both gross and net margins as a result of more efficient use of our home building platform. The land business generates regular revenue from the sale of home building lots, which is a relatively predictable business in normal market conditions. As mixed-use sites mature and are sold, Genesis will generate large, but irregular, increases in earnings and cash flow. The timing of these sales depends on the progress of development for these large, mixed-use land positions We hold a valuable bank of residential land in our three primary communities in Airdrie, Calgary NE and Calgary NW in Alberta, which continues to fuel growth in our lot sales and home building business segment. Residential lot sales are expected to grow by 7% from 260 lots in 2013 to 277 lots in 2014. In addition, we are aggressively securing approvals and advancing development for our prime mixed-use land holdings at Sage Hill Crossing and North Conrich. These development lands represent some of the best located and developable mixed-use land in the Calgary Metropolitan Area. 3. Sell Non-core Assets We have identified seven properties that are either outside the Calgary Metropolitan Area or do not have software systems. The implementation of a new accounting and operations software system is underway and planned to be fully operational in the third quarter of 2014. We will continue to examine our operations to identify future opportunities to improve efficiencies. We are committed to improving communication with our shareholders and the market. In 2014, our shareholders can expect management to further increase its focus on investor communication through a variety of investor relations activities. We believe that better explaining our assets, business and potential to the market will help gain understanding, trust and, eventually, improved market valuation. 5. Focus on Financing Strategies Genesis strengthened its balance sheet by reducing debt by $46,851 in 2013 (2012 development characteristics that fit within - $8,993). Subsequent to the year end, our core business. The appraised value of these properties is $21,150. In order to more efficiently deploy our capital, we have decided to pursue the sale of these Genesis’ highest interest loan (excluding limited partnerships) was prime +2.5%. A comprehensive financing focus is being applied to ensure the optimal allocation properties. We have largely met our and use of our capital resources, and short-term sale objectives with the sale of achieve a prudent capital structure and the first and largest of these properties for long-term returns. Going forward, our $14,000 in February 2014, and now have 98% of our real estate assets within the objective is to better match the term of financing with the underlying land asset Calgary Metropolitan Area. The balance as follows: of the non-core properties is expected to be sold over the next 12 to 24 months. Part of our strategy to increase growth We continue to evaluate several other and profitability is to use our developed lot ancillary parcels to determine whether supply primarily in our own home building they fit into our long-term development business segment. This provides a reliable and building program. long-term supply of land to grow the home building business segment and enables us to capture additional margin from the sale of homes. 4. Simplify and Streamline the Organization To provide cost savings and operating efficiencies, we are in the process of eliminating redundant and inefficient 26 • Obtain the maximum amount of financing available for land servicing and home building, which is generally at a lower rate due to the nature of the assets’ short-term earnings potential and lower risk; and • Finance long term land with equity, except in certain cases when acquisition financing is obtained from a vendor or other advantageous sources. 6. Create Liquidity for Shareholders There three factors that affect the results In management’s opinion, Genesis’ of our operations: share price does not currently reflect 1. The strategic decision to reserve a the underlying net asset value of the significant portion of developed lots Corporation. In an effort to help reduce for home building defers the related this significant gap and improve trading revenues and earnings from those lots liquidity of our common shares, we will until the house and lot are sold. When be considering various alternatives for lots are sold to a third party home the return of capital to shareholders. Any builder, lot sale revenue is recognized strategy would be implemented if, and pursuant to the terms of the contract when, appropriate with sufficient retained and corporate accounting policies. The cash flow to sustain and grow earnings impact on reported results will be less pronounced once housing volumes achieve optimal levels. 2. The development and sale of development land (typically multi-family, industrial or commercial developments) is a lengthy business cycle. The sales of such parcels do not occur on a predictable or regular schedule as is the general pattern for residential lots. Consequently, the sale of development land creates significant volatility in the revenues, earnings and cash flows from operating activities of Genesis. 3. The seasonal implications to land development and home construction in the Calgary Metropolitan Area impacts when costs are incurred and sales are generated, which again creates quarterly volatility. over the long-term. 7. Capitalize on New Opportunities We actively identify and evaluate potential, and appropriate, land acquisitions to sustain and grow the land development and home building businesses in the Calgary Metropolitan Area. We plan to create a strategy to enter the multi-family home building business in order to benefit from our large land base, which equates to a multi-year supply. In addition, our multi-use development projects present potentially significant opportunities to extend our development capabilities and enter joint venture arrangements to capitalize on potential profitable commercial opportunities. RESULTS OF OPERATIONS Genesis evaluates its land development and home building businesses internally on a segmented basis. The home building business segment is also evaluated against external industry benchmarks for other home builders in the City of Calgary. All costs are segmented, including selling costs, general and administrative costs and finance expense. 27 GENESIS LAND DEVELOPMENT CORP. MANAGEMENT’S DISCUSSION & ANALYSIS FOR THE THREE MONTHS AND YEAR ENDED DECEMBER 31, 2013 Land Development Our strategy is to profitably grow housing operations and sell more lots through our home building segment, thus realizing both the land development margin and the home building margin. In the short-term, home is built and sold. Future quarters will land development revenue is expected benefit once the homes are built, and the to decline as those lots sold through the home and lot sold to a third party. home building business segment, and related profits, are not recognized until the Three months ended December 31, Year ended December 31, Residential lot sales (2) Development land sales Cost of sales Gross margin before impairment (3) Gross margin before impairment (%) (3) Impairment (4) Equity income from joint venture Proxy contest costs Other net expenses (6) Segmented EBIT (7) Residential lots sold to third parties Residential lots sold through the home building business segment Total residential lots sold Development land sold (acres) Average revenue per lot sold Average revenue per acre sold 2013 14,421 - (8,698) 5,723 39.7% (4,155) 3,213 (64) 2012(1) 13,705 34,910 (32,551) 16,064 33.0% % 5.2% - (73.3%) (64.4%) 2013 40,817 6,668 2012(1) 55,360 45,460 (27,912) (60,832) 19,573 39,988 41.2% 39.7% % (26.3%) (85.3%) (54.1%) (51.1%) (34,215) (87.9%) (16,282) (33,146) (50.9%) (277) - N/R (5) N/R (5) (2,369) (4,810) (50.7%) 2,348 (23,238) 62 36 98 - 154 - 46 25 71 37.59 193 929 N/R (5) 34.8% 44.0% 38.0% - (20.2%) - 6,038 (2,889) (8,544) (2,104) 150 110 260 11.28 155 591 4,505 - (12,318) (971) 238 56 294 49.37 188 921 34.0% N/R (5) (30.6%) 116.7% (37.0%) 96.4% (11.6%) (77.2%) (17.6%) (35.8%) (1) The figures for 2012 have been restated to incorporate the impact of adopting IFRS 11 Joint Arrangements (2) Includes residential lot sales and other revenue (3) Non-GAAP financial measure. Refer to page 40 (4) Impairment of real estate held for development and sale (5) Not reflective due to percentage increase (6) Other expenses includes general and administrative, selling and marketing, finance expense and finance income (7) Segmented earnings (loss) before income taxes (“EBIT”) Revenues for the three months and year The gross margin percentage before On July 26, 2013, Smoothwater Capital ended December 31, 2013 were lower impairment increased for the three Corporation (“Smoothwater”) announced than those compared to 2012 due to our months and year ended December 31, that it would propose a slate of seven strategy of selling more lots through our 2013 compared to 2012. Gross margin on nominees for election to the Board of home building business segment, thus single family lots varies by community the Corporation, and would file and mail realizing both the land development based on the nature of the development a dissident proxy circular in response to margin and the home building margin. In addition, the fourth quarter of 2012 work to be undertaken before the lots are ready for sale. Gross margins from the the Management Information Circular dated July 17, 2013, previously sent included development land revenues from sale of development lands also vary and to shareholders of the Corporation. the sale of phases 1 and 2 in Sage Hill are dependent on a variety of factors such Subsequently, Smoothwater filed its Crossing phases while there were lower as supply of land, zoning regulations and dissident proxy circular on July 29, 2013, development land sales in 2013. interest rates. and a proxy contest ensued between 28 Genesis and Smoothwater. On August 19, agreement are available under the 2012. The decrease was due to the higher 2013, the Corporation and Smoothwater Corporation’s profile at www.sedar.com. allocation of costs to the home building announced that they arrived at a settlement in respect of Smoothwater’s proposal to nominate an alternate slate of directors at the 2013 annual general and special meeting of shareholders. Pursuant to a settlement agreement (the “Settlement Agreement”), the Corporation and Smoothwater entered into a standstill agreement on August 28, 2013, whereby we agreed, subject to certain assumptions and the coverage of reasonable costs related to the proxy contest, to certain standstill provisions and to the support of Board nominees for election to the Board through to the close of the 2015 annual meeting of shareholders. A copy of the Settlement Agreement and the standstill As a result of the proxy contest, Genesis incurred $64 and $2,889 towards proxy contest costs for the three months and year ended December 31, 2013, respectively. This included an amount of $996 paid to cover the costs incurred by Smoothwater as part of the Settlement Agreement. The impact on basic and diluted earnings per share due to proxy contest costs for the three months and year ended December 31, 2013 were $Nil and $0.05 per share, respectively. Refer to the table on page 42 for the calculation of adjusted earnings per share. Other expenses decreased during the three months and year ended December 31, 2013 as compared to the same periods in business segment and the decrease in selling and marketing costs, and finance expense. The selling and marketing costs decreased as we achieved greater efficiencies due to integration of the selling and marketing operations, which resulted in a decrease in combined costs for both segments. This decrease in costs was partially offset by an increase in the land development segment and corporate personnel to 27 at the end of 2013 from 25 in 2012, and severance paid to the former Chief Executive Officer. Home Building Revenues (2) Cost of sales Gross margin Gross margin (%) Other expenses (3) Segmented EBIT (4) Homes sold Average revenue per home sold Three months ended December 31, Year ended December 31, 2013 2012(1) 16,668 13,904 (14,700) (12,525) 1,968 11.8% (1,831) 137 42 396 1,379 9.9% (2,670) (1,291) 34 409 % 19.9% 17.4% 42.7% 31.4% N/R (5) 23.5% (3.2%) 2013 2012(1) 63,570 39,497 (55,831) (34,817) 7,739 12.2% (7,485) 254 164 387 4,680 11.8% (6,370) (1,690) 91 433 % 60.9% 60.4% 65.4% 17.5% N/R (5) 80.2% (10.6%) (1) The figures for 2012 have been restated to incorporate the impact of adopting IFRS 11 Joint Arrangements (2) Revenues include residential home sales and other revenue (3) Other expenses includes general and administrative, selling and marketing and net finance expense (4) Segmented earnings before income taxes (5) Not reflective due to percentage increase The increased revenues was due to a date, and more growth is expected in the periods in 2012. Margins are expected to higher number of homes sold for the three future as the strategic plan is implemented increase gradually as higher volumes and months and year ended December 31, and benefits are gradually realized. greater efficiencies are realized as part of 2013 and reflected the growth that was achieved in the home building business segment during 2012 and early 2013. Revenues and volumes have increased to Gross margin percentage for the three the new operational strategy. months and year ended December 31, Average revenue per home sold was lower 2013 increased compared to the same in 2013 compared to 2012 for both the 29 GENESIS LAND DEVELOPMENT CORP. MANAGEMENT’S DISCUSSION & ANALYSIS FOR THE THREE MONTHS AND YEAR ENDED DECEMBER 31, 2013 year and three month period due to the During the fourth quarter of 2013, in 2013 from 25 in the previous year in sales mix of homes sold during the period. other expenses decreased due to a order to support increased home building During the three months ended December lower allocation of costs from the land operations. The increase in other expenses 31, 2013, we sold 29 single-family and 13 development segment, which were was partially offset by lower selling and multi-family homes compared to 34 single- offset by severance costs and increased marketing costs due to integration of family homes and no multi-family homes personnel costs. On an annual basis, selling and marketing operations, resulting in 2012. In 2013, a larger number of multi- other expenses increased during 2013 in a decrease in combined costs for both family homes were sold as compared to compared to the same period in 2012 segments. 2012. We sold 113 single-family and 51 due to severance costs, higher personnel multi-family homes during 2013 compared costs and higher finance expense from to 90 single-family and one multi-family increased home building activity. The home during 2012. number of employees increased to 36 Impairment of Real Estate Held for Development and Sale Impairment related to Genesis Impairment related to limited partnerships Three months ended December 31, Year ended December 31, 2013 (314) (3,841) (4,155) 2012 (18,561) (15,654) (34,215) % 98.3% 75.5% 87.9% 2013 (8,185) (8,097) 2012 (18,268) (14,878) (16,282) (33,146) % 55.2% 45.6% 50.9% During 2013, we completed the appraisal The impairment in value related to Genesis for the three months and year ended of our portfolio of properties. As a result, assets relates to properties that have been December 31, 2013 is $0.01 and $0.18 per a provision for impairment of $4,155 and identified by management for disposal in share (2012 - $0.41 and $0.41 per share). $16,282 was made for the three months the near term. and year ended December 31, 2013 compared to $34,215 and $33,146 in the comparative periods in 2012, respectively. The pre-tax impact due to impairment on basic and diluted earnings per share Refer to the table on page 42 for the calculation of adjusted earnings per share. Finance Expense Interest incurred Financing fees accretion Interest and financing fees capitalized Three months ended December 31, Year ended December 31, 2013 896 378 (1,042) 232 2012(1) 1,589 508 (1,036) 1,061 % (43.6%) (25.6%) 0.6% (78.1%) 2013 3,771 1,518 (3,763) 1,526 2012(1) 5,686 1,438 (4,464) 2,660 % (33.7%) 5.6% (15.7%) (42.6%) (1) The figures for 2012 have been restated to incorporate the impact of adopting IFRS 11 Joint Arrangements Interest incurred relates to operating loans loan balances, lower weighted average of sites 1 and 2 in the Sage Hill Crossing secured by land and single-family home interest rates and lower fees paid on new commercial development and from lot building operations. The lower interest and renewed loans. In January 2013, we payouts received. incurred during 2013 compared to 2012 repaid outstanding loan balances with the was due to lower average outstanding $31,411 proceeds received from the sale 30 SEGMENTED BALANCE SHEETS Assets Land Development 2013 Home 2012 Genesis LPs Building* Eliminations Consolidated Consolidated Real estate held for development and sale 175,086 52,625 33,170 (3,461) 257,420 264,184 Amounts receivable Cash and cash equivalents Other assets Total assets Liabilities Loans and credit facilities Provision for future development costs Other liabilities Total liabilities Net assets 23,305 9,013 13,886 - 552 419 37 8,113 6,018 221,290 53,596 47,338 31,543 18,829 (322) 50,050 7,843 - 590 8,433 171,240 45,163 10,987 1,619 29,748 42,354 4,984 - - (4,917) (8,378) - - (4,917) (4,917) 23,342 17,678 15,406 73,239 10,005 26,913 313,846 374,341 50,373 20,448 25,099 95,920 97,224 18,220 32,588 148,032 (3,461) 217,926 226,309 *Other liabilities under the home building business segment includes $19,187 due to the land segment LIQUIDITY AND CAPITAL RESOURCES Real Estate Held for Development and Sale Real estate held for development and sale Accumulated impairment (1) The figures for 2012 have been restated to incorporate the impact of adopting IFRS 11 Joint Arrangements December 31, 2013 2012(1) 317,602 308,084 (60,182) (43,900) 257,420 264,184 % 3.1% 37.1% (2.6%) 31 GENESIS LAND DEVELOPMENT CORP. MANAGEMENT’S DISCUSSION & ANALYSIS FOR THE THREE MONTHS AND YEAR ENDED DECEMBER 31, 2013 Real estate held for development and sale decreased by $6,764 during the year ended December 31, 2013. This was due to the sale of real estate and a provision for impairment, which were partially offset by the development of lands. The following table presents our real estate held for development and sale at December 31, 2013: Land under development Land held for future development Total Land Development Segment Net book Appraised value value Acres Net book Appraised value value Lots Net book Appraised value value Acres Acres Lots Residential Airdrie (1) Calgary NW (2) Calgary NE (3) Mixed use (4) Other assets (5) Total Land development segment (6) Home Building Business Segment (6),(8) Total land and home building segments Limited Partnerships (7) Real estate held for development and sale 36,134 91,974 14,247 14,596 16,922 33,797 67,303 140,367 51,856 65,400 15,212 16,334 134,371 222,101 207 24 27 258 71 236 565 192 42 138 372 - 14 8,055 5,868 7,717 24,799 119 44,189 116,773 7,804 13,080 20 46 20,115 22,400 24,639 46,877 21,640 45,683 185 88,943 186,050 18,268 26,552 5,002 6,976 1,788 1,990 70,124 91,952 20,214 23,310 386 44,910 79,211 3,963 179,281 301,312 326 44 73 443 1,859 2,226 4,528 30,895 30,895 - 210,176 332,207 4,528 47,244 55,136 257,420 387,343 2,387 6,915 192 42 138 372 - 14 386 147 533 - 533 (1) Airdrie comprises the communities of Bayside, Bayview and Canals (2) Calgary NW comprises the communities of Sherwood, Sage Meadows and Evansridge (3) Calgary NE comprises the community of Saddlestone (4) Mixed use comprises Sage Hill Crossing, Delacour and North Conrich (5) Other assets comprises Acheson, Kamloops, Brooks, Dawson Creek, Mitford Crossing, Mountain View Village, Prince George and Spur Valley (6) Lots include 199 lots that have been reserved/contracted for sale to the home building business segment from the land segment (7) Comprises Land held for future development and land under development. Refer to note 5 in the consolidated financial statements for the year ended December 31, 2013 (8) Housing projects under development. Refer to note 5 in the consolidated financial statements for the year ended December 31, 2013 The following table presents home building business segment’s lot supply at December 31, 2103: Project Airdrie Bayside Canals Calgary NW Evansridge Kinwood Sage Meadows Sherwood Calgary NE Saddlestone Total Lot purchases Lots at Jan 1, 2013 during 2013 Homes made sold during Lots at Dec 31, 2013(1) 2013 Breakdown of unsold lots Lots with Unsold lots at Dec 31, firm sale 2013 contracts Vacant Spec. homes for quick lots possession Show- homes Price range of homes sold 13 50 63 42 82 35 5 164 119 346 (4) (11) (15) (12) (39) (8) (3) (62) (41) (118) 9 39 48 30 43 27 2 102 78 228 5 3 8 10 41 25 2 78 63 149 4 33 37 18 1 - - 19 13 69 - 3 3 2 1 2 - 5 $267-$742 $552-$552 $267-$742 $301-$514 $418-$569 $452-$661 $301-$661 2 $235-$561 10 $235-$742 66 - 66 67 49 57 - 173 85 324 - 51 51 - 44 8 5 57 (53) (1) (54) (25) (11) (30) - (66) 78 186 (44) (164) 32 Amounts Receivable Amounts receivable December 31, 2013 23,342 2012(1) 73,239 % (68.1%) (1) The figures for 2012 have been restated to incorporate the impact of adopting IFRS 11 Joint Arrangements Amounts receivable decreased by $49,897 In addition, the lower number of lots sold Genesis generally retains title to lots and in 2013 compared to 2012 mainly due during the period and repayment of certain homes until full payment is received in to the receipt of payment of $27,713 for vendor take-back mortgages contributed to order to mitigate credit exposure. the sale of sites 1 and 2 in the Sage Hill the reduction. Crossing commercial use development. LIABILITIES AND SHAREHOLDERS’ EQUITY Loans and credit facilities Customer deposits Accounts payable and accrued liabilities Land development service costs Income taxes payable Deferred tax liabilities Non-controlling interest Shareholders’ equity December 31, 2013 % of Total 2012(1) % of Total 50,373 5,228 16,759 20,448 3,112 - 22,443 195,483 313,846 16% 2% 5% 7% 1% 0% 7% 62% 100% 97,224 4,352 23,559 18,220 4,617 60 36,719 189,590 374,341 26% 1% 6% 5% 1% 0% 10% 51% 100% (1) The figures for 2012 have been restated to incorporate the impact of adopting IFRS 11 Joint Arrangements Loans and Credit Facilities met by using project-specific loans and facilities, to meet the above obligations We require funds to meet operating expenses, service debt, complete on-going land development projects, purchase lands and construct single- and multi- family homes. These requirements are credit facilities, and cash generated from as they become due. We regularly review operations. Management believes that Genesis has sufficient liquidity from its operating activities, supplemented by credit credit facilities and manage requirements in accordance with project development plans and operating requirements. 33 GENESIS LAND DEVELOPMENT CORP. MANAGEMENT’S DISCUSSION & ANALYSIS FOR THE THREE MONTHS AND YEAR ENDED DECEMBER 31, 2013 The following is a summary of drawn and outstanding loan and credit facility balances as at December 31, 2013 and as at this time period and as at the end of the previous four quarters: Land development loans Home building loans Deferred financing fees Balance, end of period Q4 2013 Q3 2013 Q2 2013 Q1 2013 Q4 2012 40,609 11,021 51,630 (1,257) 50,373 42,658 7,668 50,326 (1,420) 48,906 43,956 5,575 49,531 (1,589) 47,942 48,062 4,039 52,101 (1,967) 50,134 90,767 8,769 99,536 (2,312) 97,224 (1) The figures for 2012 have been restated to incorporate the impact of adopting IFRS 11 Joint Arrangements. The change in the Corporation’s loans and credit facilities was are follows: Balance, beginning of period Advances Repayments Finance expense Interest and financing fees paid and capitalized Balance, end of period December 31, 2013 97,224 46,511 2012(1) 86,066 89,941 (94,214) (77,906) 1,143 (291) 50,373 2,540 (3,417) 97,224 (1) The figures for 2012 have been restated to incorporate the impact of adopting IFRS 11 Joint Arrangements During the year ended December 31, 2013, Genesis received $46,511 (2012 - $89,941) in advances and made repayments of $94,214 ($77,906) on loans and credit facilities (see ‘Related Party Transactions’ on page 38). The debt to equity ratio was as follows: Total liabilities Total equity Debt to equity ratio (2) (1) The figures for 2012 have been restated to incorporate the impact of adopting IFRS 11 Joint Arrangements (2) Calculated as total liabilities divided by total equity December 31, 2013 95,920 217,926 0.44 2012 148,032 226,309 0.65 The Corporation’s debt decreased to equity ratio to 0.44 (2012 – 0.65) on completion of sales. Provision for future substantially in 2013 as funds received at December 31, 2013, substantially land development costs increased by from the sale of sites 1 and 2 in the Sage improving our financial strength. $2,228 at December 31, 2013 over those at Hill Crossing commercial use development and from lot payouts were used to pay down related project debt. This reduced loans and credits facilities outstanding to $50,373 (2012 – 97,224) and the debt Provision for Future Land Development Costs Genesis sells lots where all the associated costs to service such lands have not been incurred. We recognize these obligations December 31, 2012 mainly due to the sale of lots in the communities of Saddlestone, Sage Meadows and Bayside. The overall increase in the provision for future land development costs was partially offset by 34 the completion of previously accrued land distributions made by a limited partnership Return on equity was 3.0% at December development service costs, mainly in Sage and expenses incurred by the limited 31, 2013 compared to 4.8% at December partnerships and paid by Genesis. 31, 2012, calculated on a rolling 12 month Hill Crossing. Income Tax Payable Refer to note 22 in the consolidated financial statements for the year ended Income tax payable decreased by $1,505 December 31, 2013 and 2012 for additional (2012 - $8,353) to $3,112 at December 31, information on the limited partnerships. 2013 (2012 - $4,617) . We paid $3,925 of tax liability (2012 - $9,520), which was Shareholders’ Equity offset by a current tax provision of $2,420 (2012 - $1,167). Non-Controlling Interest Non-controlling interest decreased As at March 28, 2014, the Corporation had 44,861,200 common shares issued and outstanding. In addition, options to acquire 2,332,500 common shares of Genesis were issued and outstanding under our stock for the three months and year ended option plan. December 31, 2013 due to impairment, basis. Return on equity is calculated by dividing net income by average shareholders’ equity. Return on equity decreased in 2013 due to lower sales revenues and impairment booked on real estate held for development and sale, resulting in lower net income. Cash Flows from Operating Activities Cash flows from operating activities Cash flows from operating activities per share Three months ended December 31, Year ended December 31, 2013 94 - 2012 (17,245) (0.39) 2013 53,473 1.19 2012 (2,794) (0.06) Cash flows from (used in) operating ($0.06) for the same periods in 2012. The development and receipt of payments from activities per share for the three months increase was mainly due to the receipt purchasers of residential lots and homes and year ended December 31, 2013 were $27,713 from the sale of sites 1 and 2 in for the three months and year ended $Nil and $1.19 compared to ($0.39) and the Sage Hill Crossing commercial use December 31, 2013. Contractual Obligations and Debt Repayment Our contractual obligations as at December 31, 2013 were as follows, excluding accounts payable, income taxes payable, customer deposits and land development service costs: Current Years 2015 and 2016 Years 2017 and 2018 Thereafter (1) Excludes deferred financing fees Loans and Credit Facilities(1) Naming Rights Lease Obligations 36,159 15,471 - - 51,630 700 1,400 1,200 1,500 4,800 870 1,738 484 - 3,092 Total 37,729 18,609 1,684 1,500 59,522 35 GENESIS LAND DEVELOPMENT CORP. MANAGEMENT’S DISCUSSION & ANALYSIS FOR THE THREE MONTHS AND YEAR ENDED DECEMBER 31, 2013 Management believes that Genesis has contribute $2,000 for the naming rights 31, 2013, a liability of approximately sufficient liquidity from its operating to “Genesis Place”, a recreation complex $3,298 was recorded (December 31, 2012 activities, supplemented by credit in the city of Airdrie ($200 each year, - $3,051). Genesis is selling lots in the last facilities, to pay for operating expenses, terminating June 1, 2017). The first six phase covered under this development. incur development and construction costs, installments totaling $1,200 were made The payout of the 20% participation to the pay principal and interest on loans and through 2013. credit facilities, and purchase lands. Investment in naming rights demonstrates Genesis has entered into a memorandum our commitment to the communities we of understanding with the Northeast are involved in, and helps in the positive participants will be made on completion of the sale of lots in the last phase and collection of related proceeds along with an accounting of all related costs. Community Society, whereby we will recognition of our brand - not only in these As a normal part of business, we have contribute $5,000 for the naming rights communities, but also throughout the entered into arrangements and incurred to the “Genesis Centre for Community cities of Calgary and Airdrie. obligations that will impact future Wellness”, a recreation complex in northeast Calgary ($500 each year, terminating October 31, 2021). The first two installments totaling $1,000 were made through 2013. Pursuant to the terms of a participating mortgage, the principal of which was repaid during 2002, the former mortgage holders have the right to a 20% participation in the profits from the Genesis entered into an agreement with development of approximately 39 acres the City of Airdrie, whereby we will of land under development. At December operations and liquidity, some of which are reflected as short-term liabilities and commitments in the consolidated financial statements. Current Contractual Obligations Loans and credit facilities, excluding deferred financing fees Accounts payable and accrued liabilities Total short-term liabilities Commitments (2) December 31, 2013 36,159 16,759 52,918 1,570 54,488 2012(1) 19,091 23,559 42,650 1,406 44,056 (1) The figures for 2012 have been restated to incorporate the impact of adopting IFRS 11 Joint Arrangement. (2) Commitments are composed of naming rights and lease obligations At December 31, 2013, we had obligations receivables and sales proceeds; or (ii) to continue to renew or repay its financial due within the next 12 months of $54,488, due at maturity. Based on our operating obligations as they come due. of which $36,159 relates to loans and history, our relationship with lenders and credit facilities. Repayment is either (i) committed sales contracts, management linked directly to the collection of lot is confident that Genesis has the ability 36 SELECTED ANNUAL INFORMATION Total revenues Gross margin Net earnings attributable to equity shareholders Net earnings per share - basic and diluted Total assets Loans and credit facilities 2013 96,077 9,847 5,713 0.13 2012(1) 129,460 9,051 8,861 0.20 313,846 374,341 50,373 97,224 2011 95,760 29,792 11,060 0.25 378,018 88,231 (1) The figures for 2012 have been restated to incorporate the impact of adopting IFRS 11 Joint Arrangements. The figures for 2011 are not affected as that year is prior to the effects of adoption of IFRS 11 Revenues were lower in 2013 compared in 2013 and 2011 mainly due to the sale compared to the previous years due to the to 2012 and similar to those in 2011 due of sale of sites 1 and 2 in the Sage Hill sale of real estate and due to impairment to lower residential lot and development Crossing commercial development. Gross of real estate held for development and land sales. These lower sales were offset margins in 2013 and 2012 were affected sale. Loans and credit facilities decreased by higher residential home sales in 2013 by higher impairment of real estate held in 2013 as the sale proceeds from Sage compared to 2012 and 2011. Development for development and sale compared to Hill Crossing were used to pay down debt. land sales in 2012 were higher than those 2011. Total assets decreased in 2013 when SUMMARY OF QUARTERLY RESULTS Q4 2013 Q3 2013 Q2 2013 Q1 2013 Q4 2012(1) Q3 2012(1) Q2 2012(1) Q1 2012(1) Revenues (1),(2) EBIT (3) Net earnings (4) EPS (5) 26,223 2,485 4,980 0.11 19,678 (10,488) (4,644) (0.10) 22,327 27,560 1,500 1,697 0.04 4,653 3,680 0.08 57,281 (24,529) (7,126) (0.16) 23,281 29,708 18,378 7,788 4,956 0.11 6,240 4,839 0.11 7,840 6,192 0.14 (1) The figures for 2012 have been restated to incorporate the impact of adopting IFRS 11 Joint Arrangements (2) Revenues exclude other revenue (3) Earnings (loss) before income taxes and non-controlling interest (4) Net earnings (loss) attributable to equity shareholders (5) Net earnings (loss) per share - basic and diluted Seasonality affects the land development to 17 residential lots and 40 homes in the The development and sale of the real and home building industry in Canada third quarter. Lower impairment of real estate pertaining to the JV is expected to particularly as a result of weather estate, higher gross margins on residential be completed by 2015. conditions during winter operations. As a lots, lower general and administrative result, we will typically realize higher home costs and proxy contest costs in the fourth building revenues in the summer and fall quarter contributed to improved EBIT, net months when home building activity is at earnings and EPS. its peak. Revenues can be impacted by the timing of lot sales, which is less weather dependent. In the fourth quarter of 2013, we sold 62 residential lots and 42 homes compared JOINT VENTURE Genesis formed a joint venture (“JV”) on April 30, 2010, for the purpose of acquiring, developing and selling certain real estate. Refer to note 3 of the consolidated financial statements dated December 31, 2013 and 2012 for the effects of change in accounting policy. Refer to note 18 of the consolidated financial statements dated December 31, 2013 and 2012 for the summarized financial information of the JV and reconciliation of the summarized financial information to the carrying amount 37 GENESIS LAND DEVELOPMENT CORP. MANAGEMENT’S DISCUSSION & ANALYSIS FOR THE THREE MONTHS AND YEAR ENDED DECEMBER 31, 2013 of the Corporation’s interest in the JV, which $4,748 of interest and fees were SUMMARY OF ACCOUNTING CHANGES which is accounted for using the equity paid to the lender. Of this amount, $1,244, method. OFF BALANCE SHEET ARRANGEMENTS Letters of Credit We have an ongoing requirement to provide irrevocable letters of credit to municipalities as part of the subdivision plan registration process. As at December 31, 2013, these letters of credit totalled approximately $6,279, 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 fulfill these obligations. 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 We have certain lease agreements that are 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, 2013. RELATED PARTY TRANSACTIONS Mr. Sandy Poklar, an officer of a lender, Firm Capital Corporation, served as a director from July 12, 2012 until September 4, 2013. The lender and the Corporation were consequently considered related parties for this period during relates to 2013 and $3,504 relates to 2012. The related debt was in place prior to the director assuming office on July 12, 2012, and no new financing or refinancing occurred subsequent to July 12, 2012. All transactions were agreed to under normal commercial terms and conditions. Genesis is the general partner in four limited partnership arrangements (refer to note 22 of the consolidated financial The Corporation adopted IFRS 11 Joint Arrangements effective January 1, 2013. Under IFRS 11, the Corporation’s joint arrangements that are classified as joint ventures are now accounted for under the equity method of accounting, whereas they were previously proportionately consolidated. This change in accounting policy reduced total assets, total liabilities, revenues and expenses but had no impact on the Corporation’s net statements for the years ended December assets, net earnings or earnings per 31, 2013 and 2012) and a 50% partner in the JV, as described above (refer to note share. Comparative data for 2012 has been restated and the effects of these 18 of the consolidated financial statements changes on the Corporation’s consolidated for the years ended December 31, 2013 results for the three months and year and 2012). SUBSEQUENT EVENTS The Corporation was named as a co- defendant in a statement of claim filed on May 10, 2011 in the province of Ontario for $10,700 plus punitive damages (the “Action”). The Action against the Corporation has been discontinued pursuant to a court order in the Action ended December 31, 2012 are summarized in note 3 of the consolidated financial statements for the year ended December 31, 2013 and 2012. For additional information, refer to note 3, note 4, note 18 and note 23 of the consolidated financial statements for the year ended December 31, 2013 and 2012. CHANGES TO FUTURE ACCOUNTING POLICIES dated February 12, 2014 and issuance of a There were various accounting standards signed release from all claims relating to issued as at December 31, 2013 that the Action by the plaintiff. Refer to note 16 were not yet effective as of that date. (a) in the consolidated financial statements for the year ended December 31, 2013 and 2012 for further details. The Corporation closed the sale of a 121.91 acre industrial site (Acheson) located in Parkland County, west of We continue to analyze these standards to determine the impact on our financial statements. Refer to note 3 of the consolidated financial statements for the year ended December 31, 2013 and 2012 for a description of changes in accounting Edmonton, Alberta for $14,000 on February policy effective in future periods. 28, 2014. The proceeds from the sale were used to retire approximately $6.5 CRITICAL ACCOUNTING ESTIMATES million of related property debt and the balance was used for general corporate purposes. The preparation of consolidated financial statements requires management to make judgments and estimates that affect the reported amounts of revenues, expenses, 38 assets and liabilities, and the disclosure as it is based on estimates prepared by (ii) information required to be disclosed of contingent liabilities at the reporting independent consultants and management. in the annual filings, interim filings or date. On an ongoing basis, management evaluates its judgments and estimates in relation to revenues, expenses, assets and liabilities. Management uses historical experience and various other factors it believes to be reasonable under the given circumstances as the basis for its judgments and estimates. Actual outcomes may differ from these estimates under different assumptions and conditions. General Litigation We are subject to various legal Income taxes The Corporation applies judgment in determining the total provision for current and deferred taxes. There are many transactions and calculations for other reports filed or submitted under securities legislation is recorded, processed, summarized and reported on a timely basis. The CEO and CFO have also designed, or caused to be designed under their direct which the ultimate tax determination and supervision, Genesis’ ICFR to provide timing of payment is uncertain due to the reasonable assurance regarding the interpretation of complex tax regulations, reliability of financial reporting and the changes in tax laws, and the amount and preparation of financial statements for timing of future taxable income. Given the external purposes in accordance with IFRS. long-term nature and complexity of the business, differences arising between the proceedings and claims that arise in the actual results and the assumptions made, ordinary course of business operations. or future changes to such assumptions, We periodically review these claims to could necessitate future adjustments determine if amounts should be accrued to taxable income and expense already in the financial statements or if specific recorded. disclosure is warranted. Impairment of real estate held for future development and sale We estimate the net realizable value (‘NRV’) of real estate held for future development and sale at least annually for impairment or whenever events or changes in circumstances indicate the carrying value may exceed NRV. The estimate is 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. DISCLOSURE CONTROLS AND PROCEDURES AND INTERNAL CONTROL OVER FINANCIAL REPORTING The Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”) are responsible for establishing and maintaining disclosure controls and procedures (“DC&P”) and internal control over financial reporting (“ICFR”), as those terms are defined in National Instrument 52-109 Certification of Disclosure in Issuers’ Annual and Interim Filings. The CEO and CFO have designed, or caused to be designed under their direct supervision, Genesis’ DC&P to provide reasonable Provision for future land development costs assurance that: Changes in the estimated future development costs directly impact the amount recorded for the future development liability, cost of sales, gross margin and, in some cases, the value of real estate under development and held for sale. This liability is subject to uncertainty (i) material information relating to the Corporation, 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 39 The ICFR have been designed using the control framework established in Internal Control – Integrated Framework (1992) published by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). In May 2013, the COSO released an updated Internal Control – Integrated Framework: 2013. The Corporation currently uses the COSO 1992 original framework and will transition to the updated framework during the transition period which extends to December 15, 2014. Management is currently assessing the impact of this transition and will report any significant changes to the Corporation’s internal control over financial reporting that may result. 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 December 31, 2013. While Genesis’ CEO and CFO believe that the Corporation’s internal controls and procedures provide a reasonable level of assurance that such controls and procedures are reliable, an internal control system cannot prevent all errors and fraud. It is management’s belief that any control system, no matter how well conceived or operated, can provide only reasonable, not GENESIS LAND DEVELOPMENT CORP. MANAGEMENT’S DISCUSSION & ANALYSIS FOR THE THREE MONTHS AND YEAR ENDED DECEMBER 31, 2013 absolute, assurance that the objectives of RISKS AND UNCERTAINTIES the control system are met. In the normal course of business, we are There were no changes in the Corporation’s exposed to certain risks and uncertainties ICFR during the three months and year ended December 31, 2013 that have inherent in the real estate development industry. Risks and uncertainties faced by materially affected, or are reasonably likely Genesis are disclosed in the Corporation’s to materially affect the Corporation’s ICFR. AIF for the year ended December 31, 2013. There may be additional risks that TRADING AND SHARE STATISTICS Trading and share statistics for the Corporation for 2013 and 2012 are provided below. management may need to consider as circumstances require. For a more detailed discussion on the Corporation’s risk factors, refer to the AIF available on SEDAR at www.sedar.com. Average daily trading volume Share price ($/share) High Low Close Market capitalization at December 31 Shares outstanding 2013 35,436 2012 42,147 3.85 3.26 3.41 3.70 2.87 3.26 152,977 145,936 44,861,200 44,765,728 NON-GAAP MEASURES Non-GAAP measures do not have any standardized meaning according to IFRS, and therefore may not be comparable to similar measures presented by other companies. Net Asset Value (“NAV”) including pre-tax net asset value per share and after-tax net asset value per share is a non-GAAP financial measure and therefore may not be comparable to similar measures presented by other companies. The estimated NAV is calculated using independent appraisers total pre-tax land There is no comparable IFRS financial value plus additional balance sheet assets measure presented in the Corporation’s less balance sheet liabilities and corporate consolidated financial statements and thus income tax as at December 31, 2013 and no applicable quantitative reconciliation 2012. The book value of all remaining for such non-GAAP financial performance assets and liabilities as set forth in the measure has been provided. Management consolidated financial statements of the believes this measure provides information Corporation for the year ended December 31, 2013 and 2012 has been added to useful to its shareholders in understanding the Corporation’s value, and may assist calculate the pre-tax NAV. Estimated taxes in the evaluation of the Corporation’s have been deducted as if all properties business relative to that of its peers. were sold at their market values to determine NAV. 40 Independent appraised value of land (2) Housing projects under development Other balance sheet assets Balance sheet liabilities Add amount due from related entities Estimated pre-tax NAV Estimated pre-tax NAV per share Estimated tax (3) Estimated after-tax NAV Estimated after-tax NAV per share Total shares outstanding as at December 31 2013 301,312 30,895 332,207 56,426 2012(1) 303,071 30,630 333,701 110,157 (95,920) (148,032) 29,039 321,752 7.18 26,834 322,660 7.23 (22,784) (23,532) 298,968 299,128 6.67 44,861 6.70 44,766 (1) The figures for 2012 have been restated to incorporate the impact of adopting IFRS 11 Joint Arrangements (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 2013 and 2012 to calculate taxes Estimated pre-tax and after-tax NAV at in the NAV in 2013 can be attributed to a December 31, 2013 were $7.18 and $6.67, small decrease in the appraised value of respectively, compared to $7.23 and $6.70 lands. at December 31, 2012. The slight decrease Details of other balance sheet assets and balance sheet liabilities used in the calculation of NAV are given below. Other balance sheet assets Accounts receivable Investment in joint venture Deferred tax assets Other operations assets Cash Total Balance sheet liabilities Loans and credit facilities Customer deposits Accounts payable and accrued liabilities Income taxes payable Deferred tax liabilities Land development service costs Total (1) The figures for 2012 have been restated to incorporate the impact of adopting IFRS 11 Joint Arrangements 41 2013 2012(1) 23,342 7,894 397 7,115 17,678 56,426 50,373 5,228 16,759 3,112 - 20,448 95,920 73,239 10,680 - 16,233 10,005 110,157 97,224 4,352 23,559 4,617 60 18,220 148,032 GENESIS LAND DEVELOPMENT CORP. MANAGEMENT’S DISCUSSION & ANALYSIS FOR THE THREE MONTHS AND YEAR ENDED DECEMBER 31, 2013 Gross margin before impairment is a non-GAAP measure, and therefore may to the gross margin. Gross margin potentially distort the analysis of trends before impairment is used to assess the in business performance. Excluding this not be comparable to similar measures performance of the business without item does not imply it is non-recurring. The presented by other companies. Gross the effects of impairment. Management most comparable IFRS financial measure is margin before impairment is calculated believes it is useful to exclude impairment gross margin. by adding back impairment of real from the analysis as it could affect the estate held for development and sale comparability of financial results and could The table below shows the calculation of gross margin before impairment, which is derived from gross margin. Total revenues Gross margin Add back impairment (2) Gross margin, before impairment Gross margin, before impairment (%) (1) The figures for 2012 have been restated to incorporate the impact of adopting IFRS 11 Joint Arrangements (2) Impairment of real estate held for development and sale Three months ended December 31, Year ended December 31, 2013 26,331 2,353 4,155 6,508 24.7% 2012(1) 57,377 (19,391) 34,215 14,824 25.8% 2013 96,077 9,847 16,282 26,129 27.2% 2012(1) 129,460 9,051 33,146 42,197 32.6% Adjusted earnings per share is a non- GAAP measure, and therefore may not be contest costs, divided by the weighted as it could affect the comparability of average number of common shares (basic financial results and could potentially comparable to similar measures presented or diluted) outstanding at a specific date. distort the analysis of trends in business by other companies. Adjusted earnings Adjusted earnings per share is used to performance. Excluding these items does per share is calculated as net earnings assess the performance of the business not imply that they are non-recurring. The attributable to shareholders before without the effects of impairment and most comparable IFRS financial measure is impairment attributable to shareholders proxy contest costs. Management believes earnings per share. and proxy contest costs and net of income it is useful to exclude impairment and taxes relating to the impairment and proxy proxy contest costs from the analysis 42 The following table shows the calculation of adjusted earnings per share which is derived from net earnings attributable to equity shareholders. Net earnings (loss) (2) Add back impairment (3) Proxy contest costs Tax effect of additions @ 25% Adjusted earnings Basic number of shares (4) Diluted number of shares (4) Adjusted earnings per share - basic (5) Adjusted earnings per share - diluted (5) (1) The figures for 2012 have been restated to incorporate the impact of adopting IFRS 11 Joint Arrangements (2) Net earnings (loss) attributable to equity shareholders (3) Excludes impairment (recovery) related to properties held by limited partnerships (4) Weighted average number of shares (5) Adjusted earnings per share – basic and diluted after adding back after-tax impairment and proxy contest costs Three months ended December 31, Year ended December 31, 2013 4,980 314 64 (95) 5,263 2012(1) (7,126) 18,561 - (4,640) 6,795 2013 5,713 8,185 2,889 (2,769) 14,018 2012(1) 8,861 18,268 - (4,567) 22,562 44,861,200 44,763,214 44,838,401 44,664,086 44,917,233 44,890,662 44,900,321 44,774,623 0.12 0.12 0.15 0.15 0.31 0.31 0.51 0.50 OTHER Additional information relating to the Corporation can be found on SEDAR at www.sedar.com. funds from operations (“FFO”), return on assets and earnings in Alberta and the anticipated impact on debt to gross book value are not good performance Genesis’ development and home building activities, indicators of a land development company and the positive trend in the general economic conditions therefore the presentation of FFO, return on assets and the industry through 2014; the future development and debt to gross book value in the MD&A has been of raw lands held by LPLP 2007 which were annexed discontinued. Debt to gross book value has been by the City of Airdrie in 2012; Genesis’ business ADVISORIES Non-GAAP Financial Measures replaced by debt to total assets. Forward-Looking Statements Net asset value, gross margin before impairment and adjusted earnings per share are non-GAAP measures 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. Refer to pages 40-42 for an explanation on calculation of the net asset value, This MD&A contains certain statements which constitute forward-looking statements or information (“forward-looking statements”) within the meaning of applicable securities legislation, , including Canadian Securities Administrators’ National Instrument 51-102 ‘Continuous Disclosure Obligations’, concerning the business, operations and financial performance and gross margin before impairment and adjusted earnings condition of Genesis. per share. Net asset value has no comparable IFRS measure presented in the Corporation’s financial statements and therefore no applicable quantitative reconciliation for such non-GAAP measure exists. These non-GAAP measures have been described and presented in this document in order to provide shareholders and potential investors with additional information regarding the Corporation’s performance, liquidity and value. Management is of the view that Forward-looking statements include, but are not limited to, statements with respect to the nature of development lands held and the anticipated inventory and development potential of such lands, ability to bring new developments to market, anticipated general economic and business conditions in 2014 including low unemployment and interest rates, low stable inflation rates, positive net migration, petroleum commodity prices and above average strategy, including the geographic focus of its activities in 2014, the expected capital contribution of future earnings and cash flow from land holdings in the Greater Calgary area, the ability to meet the objective to increase the closing of home builds in 2014 as compared to 2013, including the ability to significantly increase home builds per year without substantial addition to costs to our production team or infrastructure so as to increase the effect on net margin and profitability, the timing and operation of newaccounting and operating software, anticipated areas of focus for Genesis in 2014; and the ability of Genesis to develop projects (and the nature of such projects). Generally, these forward-looking statements can be identified by the use of forward-looking terminology such as “plans”, “expects” or “does 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, 43 GENESIS LAND DEVELOPMENT CORP. MANAGEMENT’S DISCUSSION & ANALYSIS FOR THE THREE MONTHS AND YEAR ENDED DECEMBER 31, 2013 events or results “may”, “could”, “would”, “might” or of contractual arrangements and incurred obligations this MD&A and, except as required by applicable “will be taken”, “occur” or “be achieved”. Although on future operations and liquidity; local real estate law, Genesis does not undertake any obligation to Genesis believes that the anticipated future results, conditions, including the development of properties in publicly update or to revise any of the forward-looking performance or achievements expressed or implied close proximity to Genesis’ properties; timely leasing statements, whether as a result of new information, by the forward-looking statements are based upon of newly-developed properties and re-leasing of future events or otherwise. reasonable assumptions and expectations, the reader occupied square footage upon expiration; dependence should not place undue reliance on forward-looking on tenants’ financial condition; the uncertainties of statements because they involve assumptions, known real estate development and acquisition activity; the and unknown risks, uncertainties and other factors ability to effectively integrate acquisitions; fluctuations many of which are beyond the Corporation’s control, in interest rates; ability to raise capital on favourable which may cause the actual results, performance or terms; the impact ofnewly-adopted accounting achievements of Genesis to differ materially from principles on Genesis’ accounting policies and on anticipated future results, performance or achievement period-to-period comparisons of financial results; not expressed or implied by such forward-looking realizing on the anticipated benefits from transactions statements. Accordingly, Genesis cannot give any or not realizing on such anticipatedbenefits within assurance that its expectations will in fact occur and the expected time frame; and other risks and factors cautions that actual results may differ materially from described from time to time in the documents filed those in the forward-looking statements. by Genesis with the securities regulators in Canada Factors that could cause actual results to differ materially from those set forth in the forward-looking statements include, but are not limited to: the impact or unanticipated impact of general economic conditions in Canada, the United States and globally; the impact 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 statements contained in this MD&A are made as of the date of Caution should be exercised in the evaluation and use of the appraisal results. Theappraisal 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. 44 CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2013 AND 2012 45 MANAGEMENT’S REPORT Bruce Rudichuk President & Chief Executive Officer Mark Scott Executive Vice President & Chief Financial Officer March 28, 2014 To the Shareholders of Genesis Land Development Corp.: The consolidated financial statements and all information in the Management’s Discussion and Analysis (“MD&A”) 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 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. 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 management to review the activities of each. The Audit Committee is composed of three independent directors, and reports limits of materiality, and are in accordance to the Board of Directors. with International Financial Reporting MNP LLP, an independent firm of Chartered Standards (“IFRS”) appropriate in the Accountants, was engaged to audit circumstances. The financial information the consolidated financial statements in the MD&A has been reviewed by in accordance with Canadian generally management to ensure consistency with accepted auditing standards and IFRS to the consolidated financial statements. provide an independent auditors’ opinion. Management maintains appropriate systems of internal control. Policies and procedures are designed to give 46 INDEPENDENT AUDITORS’ REPORT 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. the appropriateness of accounting principles used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Those standards require that we comply We believe the audit evidence obtained in with ethical requirements and plan and our audits is sufficient and appropriate to perform an audit to obtain reasonable provide a basis for our audit opinion. assurance whether the consolidated financial statements are free of material Opinion misstatement. To the Shareholders of Genesis Land Development Corp.: We have audited the accompanying consolidated financial statements of Genesis Land Development Corp. and its subsidiaries, which comprise the balance sheets as at December 31, 2013 and 2012 and January 1, 2012, and the consolidated statement of earnings, comprehensive income and retained earnings, and consolidated statement of cash flows for the years ended December 31, 2013 and 2012, and a summary of significant An audit involves performing procedures accounting policies and other explanatory to obtain audit evidence about the 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. amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditors judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation an presentation of the consolidated financial statements in order to design audit procedures 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 assessing 47 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, 2013 and 2012 and January 1, 2012, and their financial performance and their cash flows for the years ended December 31, 2013 and December 31, 2012 in accordance with International Financial Reporting Standards. CHARTERED ACCOUNTANTS Calgary, Alberta March 28, 2014 December 31, Notes 2013 2012(1) 2012(1) January 1, 257,420 264,184 290,512 7,894 10,680 23,342 73,239 7,115 16,233 397 - 9,648 34,386 20,936 2,859 17,678 10,005 10,850 313,846 374,341 369,191 50,373 97,224 86,066 5,228 4,352 16,759 23,559 3,112 - 4,617 60 7,582 14,383 12,970 - 20,448 18,220 11,571 95,920 148,032 132,572 5 3, 18 6 7 8 9 8 8 16 10, 11 56,122 55,844 5,011 5,109 55,122 4,950 134,350 128,637 119,776 195,483 189,590 179,848 22 22,443 36,719 56,771 217,926 226,309 236,619 313,846 374,341 369,191 GENESIS LAND DEVELOPMENT CORP. CONSOLIDATED BALANCE SHEETS (In thousands of Canadian dollars) Assets Real estate held for development and sale Investment in joint venture Amounts receivable Other operating assets Deferred tax assets Cash and cash equivalents Total assets Liabilities Loans and credit facilities Customer deposits Accounts payable and accrued liabilities Income taxes payable Deferred tax liabilities Provision for future land development costs Total liabilities Commitments and contingencies Equity Share capital Contributed surplus Retained earnings Shareholders’ equity Non-controlling interest Total equity Total liabilities and equity See accompanying notes to the consolidated financial statements Loans and credit facilities (note 9) Subsequent events (note 9, note 24) (1) Refer to note 3 and note 23 for change in accounting policy ON BEHALF OF THE BOARD: Stephen Griggs Chair of the Board Steven Glover Chair of the Audit Committee 48 Year ended December 31, Notes 2013 2012(1) 95,788 128,648 289 812 96,077 129,460 (69,948) (87,263) (16,282) (33,146) (86,230) (120,409) 9,847 6,038 (11,172) (2,358) (3,187) 9,051 4,505 (9,294) (3,948) (1,039) (16,717) (14,281) (832) 508 (1,526) (1,850) (1,963) (3,813) (725) 724 (2,660) (2,661) (4,086) (6,747) (9,526) (15,608) 5,713 0.13 8,861 0.20 3,18 12 13 14 15 8 22 GENESIS LAND DEVELOPMENT CORP. CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (In thousands of Canadian dollars except per share amounts) Revenues Sales revenue Other revenue Cost of sales Direct cost of sales Write-down of real estate held for development and sale Gross margin Income from joint venture General and administrative Selling and marketing Other expenses Operating loss from continuing operations Finance income Finance expense Loss before income taxes Income tax expense Net loss being comprehensive loss Attributable to non-controlling interest Attributable to equity shareholders Net earnings per share - basic and diluted See accompanying notes to the consolidated financial statements (1) Refer to note 3 and note 23 for change in accounting policy 49 GENESIS LAND DEVELOPMENT CORP. CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY FOR THE YEARS ENDED DECEMBER 31, 2013 AND 2012 (In thousands of Canadian dollars except number of shares) Equity attributable to Corporation’s shareholders Common shares - Issued Number of Shares Amount Contributed Surplus Total Retained Shareholders’ Equity Earnings Non- Controlling Interest Total Equity At January 1, 2012 (1) 44,484,287 55,122 4,950 119,776 179,848 56,771 236,619 Share-based payments 281,441 722 159 Distributions (2) Net earnings (loss) (3) - - - - - - - - 881 - - (4,444) 8,861 8,861 (15,608) 881 (4,444) (6,747) At December 31, 2012 (1) 44,765,728 55,844 5,109 128,637 189,590 36,719 226,309 Share-based payments 95,472 278 (98) Distributions (2) Net earnings (loss) (3) - - - - - - - - 180 - 5,713 5,713 At December 31, 2013 44,861,200 56,122 5,011 134,350 195,483 - 180 (4,750) (9,526) 22,443 (4,750) (3,813) 217,926 See accompanying notes to the consolidated financial statements (1) Refer to note 3 and note 23 for change in accounting policy (2) Distributions to unit holders of Limited Partnership 6/7 (3) Net earnings (loss) being comprehensive earnings (loss) 50 GENESIS LAND DEVELOPMENT CORP. CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands of Canadian dollars) Year ended December 31, Notes 2013 2012(1) 87,532 67,029 1,210 49,077 40,545 6,856 (39,143) (41,560) (40,995) (38,863) (18,743) (10,053) 508 (3,925) 53,473 (317) 479 9,500 - 9,662 724 (9,520) (2,794) (449) (3,730) 4,000 36 (143) 46,511 89,941 (94,214) (77,906) (2,983) (4,750) (237) 211 (55,462) 7,673 10,005 17,678 (6,043) (4,444) - 544 2,092 (845) 10,850 10,005 Operating activities Receipts from residential lot and development land sales 6 Receipts from residential home sales Other receipts Paid to suppliers for land development Paid to suppliers for residential home construction Paid to other suppliers and employees Interest received Income taxes paid Cash flows from (used in) operating activities Investing activities Acquisition of property and equipment Change in restricted cash Distribution received from joint venture Proceeds on disposal of property and equipment Cash from (used in) investing activities Financing activities Advances from loans and credit facilities Repayments of loans and credit facilities Interest and fees paid on loans and credit facilities Distributions to unit holders of limited partnerships Settlement of options Issue of share capital Cash (used in) from financing activities Change in cash and cash equivalents Cash and cash equivalents, beginning of period Cash and cash equivalents, end of period See accompanying notes to the consolidated financial statements (1) Refer to note 3 and note 23 for change in accounting policy 51 GENESIS LAND DEVELOPMENT CORP. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2013 AND 2012 (All tabular amounts and amounts in footnotes to tables are in thousands of Canadian dollars except number of shares) 1. DESCRIPTION OF BUSINESS cost convention except for the financial Non-controlling interests represent the Genesis Land Development Corp. (the “Corporation” or “Genesis”) was incorporated as Genesis Capital Corp. under the Business Corporation Act (Alberta) on December 2, 1997. Genesis Land Development Corp. resulted from an amalgamation on January 1, 2002. assets classified as fair value through portion of profit or loss and net assets not profit or loss that have been measured held by the Corporation and are presented at fair value. The consolidated financial separately from shareholders’ equity in the statements are presented in Canadian consolidated statements of comprehensive dollars, and all values are rounded to the income (loss) and within equity in the nearest thousand, except per share values consolidated balance sheets. Losses and where otherwise indicated. within a subsidiary are attributed to the non-controlling interest even if that results in a deficit balance. The Corporation is engaged in the c) Basis of consolidation acquisition, development, and sale of land, residential lots and homes primarily in the greater Calgary area. The Corporation reports its activities as two business segments: land development and home building. The Corporation is listed for trading on the Toronto Stock Exchange under the symbol “GDC”. Genesis’ head office and registered office is located at 7315 - 8th Street N.E., Calgary, Alberta T2E 8A2. The consolidated financial statements of Genesis were approved for issuance by the Board of Directors on March 28, 2014. The consolidated financial statements include the accounts of the Corporation d) Interest in joint venture and its wholly-owned subsidiaries, as well The Corporation has an interest in a joint as the consolidated revenues, expenses, assets, liabilities and cash flows of limited venture, Kinwood Communities Inc., which is a jointly controlled entity, by partnership entities that the Corporation virtue of a contractual arrangement with controls. When the Corporation has another party. The Corporation recognizes less than 50% equity ownership in its interest in the joint venture using these limited partnership entities, the the equity method of accounting. Under Corporation may still have control over the equity method of accounting the net these entities’ activities, projects, financial assets of the joint venture are presented and operating policies due to contractual in a single line “Investment in Joint arrangements. As such, the relationship Venture”. The financial statements of the between the Corporation and the limited joint venture are prepared for the same partnership entities indicates that reporting period as the Corporation. 2. SIGNIFICANT ACCOUNTING POLICIES they are controlled by the Corporation. The significant accounting policies of the Corporation are set out below. These policies have been consistently applied Accordingly, the accounts of the limited partnerships have been consolidated in the Corporation’s financial statements. All unrealized gains and losses resulting from transactions between the Corporation and the joint venture are eliminated on consolidation. Losses on transactions to each of the years presented, unless Subsidiaries are fully consolidated from are recognized immediately if the loss otherwise indicated. the date of acquisition, being the date on which the Corporation obtains control, provides evidence of a reduction in the net realizable value of current assets or an a) Statement of compliance and continues to be consolidated until the impairment loss. The consolidated financial statements of the Corporation are prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”). b) Basis of presentation The consolidated financial statements have been prepared under historical date when such control ceases. Control exists when the Corporation has the power, directly or indirectly, to govern the financial and operating policies of an entity so as to obtain benefit from its activities. All intra-group transactions, balances, dividends and unrealized gains and losses resulting from intra- group transactions are eliminated on consolidation. Profits and losses resulting from the transactions with the joint venture are recognized in the Corporation’s consolidated financial statements only to the extent of interests in the joint venture that are not related to the Corporation. 52 e) Revenue recognition (i) Residential lot and development land sales Deposits forfeited are recognized as Borrowing costs consist of interest and income. other costs incurred in connection with the Land and lot sales to third parties are recognized when the risks and rewards of ownership have been transferred, the agreed-to services pertaining to the property have been substantially performed, a minimum 15% non- refundable deposit has been received, and the collection of the remaining unpaid balance is reasonably assured. Deposits received upon signing of contracts for purchases of lots on which revenue recognition criteria have not been met are recorded as customer deposits. f) Real estate held for development and sale 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 development and construction, borrowing costs, property 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 (ii) Residential home sales Revenue is recognized when title to marketing agents on the sale of real estate property is expensed when incurred. the completed home is conveyed to the Real estate held for development and purchaser, at which time all proceeds sale is reviewed at least annually for borrowing of the funds. The borrowing costs capitalized are determined first by reference to borrowings specific to the project, where relevant, and secondly by applying a weighted average interest rate for the Corporation’s non-project specific borrowings, less any investment income arising on temporary investing of funds, to eligible capital assets. Borrowing costs are not capitalized on real estate held for development and sale where no development activity is taking place. Borrowing costs are capitalized from the date 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. are received or collection is reasonably impairment or whenever events or h) Property and equipment assured. Deposits received from customers upon signing of contracts for purchases of completed homes for which revenue recognition criteria have not been met are recorded as changes in circumstances indicate the carrying value may exceed NRV. An impairment loss is recognized in the consolidated statements of comprehensive income (loss) when the carrying value exceeds its NRV. Property and equipment is stated at cost, net of any accumulated depreciation and accumulated impairment losses. Depreciation is provided on all operating property and equipment based on the straight-line method over the estimated customer deposits. NRV is the estimated selling price in the useful lives of the property and equipment. (iii) Interest income Interest income is recognized as it accrues using the effective interest rate method. (iv) Other revenue Rental income is recognized on a straight-line basis over the term of the rental agreement. Rental income is incidental to ownership of real estate and does not result in classification of real estate as investment property. All real estate is classified as inventory. ordinary course of the business at the balance sheet date, less costs to complete The useful lives of the properties are as follows: • Vehicles and other equipment 5 years • Office equipment and furniture 7 years • Computer equipment 3 years • Leasehold improvements Lesser of 5 years or remaining term of the lease and estimated selling costs. g) Borrowing costs 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 other borrowing costs are expensed in the period in which they are incurred. 53 GENESIS LAND DEVELOPMENT CORP. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2013 AND 2012 (All tabular amounts and amounts in footnotes to tables are in thousands of Canadian dollars except number of shares) An item of property and equipment is between the tax bases of assets and m) Share-based payments no longer recognized as an asset upon liabilities and their carrying amounts disposal, when held for sale or when no for financial reporting purposes. The Corporation provides equity-settled share-based payments in the form of future economic benefits are expected to arise from the continued 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 consolidated statements of comprehensive income (loss). All minor repair and maintenance costs are recognized in the consolidated statements of comprehensive income (loss) as incurred. The assets’ residual values, useful lives and methods of depreciation are reviewed at each financial year end and adjusted prospectively, if appropriate. i) Income taxes The Corporation’s consolidated financial statements include some entities that are limited partnerships (note 22) and are not subject to income taxes. The income attributable to the taxable income of the partners in accordance with the provisions of the Income Tax Act (Canada). The calculation of income tax expense reflects the exclusion of taxable income allocated to partners that form part of the non- controlling interest. (i) Current income tax Current income tax assets and Deferred tax assets are recognized a share option plan to its employees, to the extent that it is probable officers and directors. The costs of the that taxable profit will be available, share-based payments are calculated by against which deductible temporary reference to the fair value of the options differences, carried forward tax credits at the date on which they are granted. or tax losses can be utilized. The fair values are determined using Deferred tax assets and liabilities are measured at the tax rates that are expected to apply to the year when the asset is realized or the liability is settled, based on tax rates and tax laws that have been enacted or substantively enacted at the balance sheet date. the Black-Scholes Option-Pricing Model. The costs of the share-based payments are recognized on a proportionate basis over the related vesting period of each tranche of the grant as an 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 Current and deferred tax, relating to the date the options vested, is credited to items that are directly recognized in the share capital account. equity, is recognized in equity and not in the consolidated statements of comprehensive income (loss). 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 Share-based payments may be settled in cash at the discretion of the Corporation and are accounted for as equity-settled plans. When options are settled in cash, the cash paid reduces the contributed surplus to the extent of previously recognized liability. Amounts paid in excess of previously recognized liability are expensed. The dilutive effect of outstanding options Restricted cash represents funds owed to is reflected in the computation of earnings the Corporation at a future indeterminable per share. date, when development of specific lands commences. Cash is returned to n) Financial assets or loss for Canadian tax purposes is j) Cash and cash equivalents liabilities are measured at the amount the Corporation upon completion of its expected to be paid to tax authorities, development obligation for that property. net of recoveries, using tax rates and laws that are enacted or substantively l) Leases All financial assets are initially recognized on the consolidated balance sheet at fair value and designated at inception into one of the following classifications: at fair enacted as at the balance sheet date. (ii) Deferred tax Deferred tax is provided using the liability method on all temporary differences at the balance sheet date Operating lease payments are recognized value through profit or loss (“FVTPL”); and as an operating expense in the loans and receivables. All financial assets consolidated statements of comprehensive are recognized initially on the trade date income (loss) on a straight-line basis over at which the Corporation becomes a the lease term. 54 party to the contractual provisions of the the assets are impaired as a result of one Financial liabilities are no longer instrument. or more events that have had a negative recognized as a liability when the Transaction costs related to financial assets classified as FVTPL are expensed, effect on the estimated future cash flows contractual obligations are discharged, of the asset. cancelled or expire. and for all other financial assets they are If there is objective evidence that a Financial assets and financial liabilities included in the initial carrying amount. financial asset has become impaired, are offset and the net amount presented in The financial assets classified as FVTPL are cash and cash equivalents, and deposits and restricted cash. 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 consolidated balance sheet at fair value with changes in fair value recognized in the consolidated statements of comprehensive income (loss). Financial assets classified as loans and receivables are amounts receivable. Financial assets 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 consolidated statements of comprehensive income (loss). Financial assets are no longer recognized when the contractual rights to the cash flows from the asset expire, or the Corporation transfers the rights to the amount of the impairment loss is the consolidated balance sheet when the calculated as the difference between its Corporation has a legal right to offset the carrying amount and the present value amounts and intends either to settle on a of the estimated future cash flows from net basis or to realize the asset and settle the asset, discounted at its original the liability simultaneously. effective interest rate. Impairment losses are recorded in earnings. If the amount p) Earnings per share of the impairment loss decreases in a subsequent period and the decrease can be objectively related to an event occurring after the impairment was recognized, the impairment loss is reversed up to the original carrying value of the asset. Any reversal is recognized in earnings. o) Financial liabilities The amount of basic earnings per share is calculated by dividing the comprehensive earnings attributable to equity holders by the weighted average number of shares outstanding during the period. The diluted earnings per 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 The financial liabilities classified as other stock options. The treasury stock method financial liabilities are accounts payable assumes that proceeds received from the and accrued liabilities, and loans and exercise of in-the-money stock options are credit facilities. All financial liabilities are initially recognized on the consolidated balance sheet at fair value less directly attributable transaction costs, and designated at inception as other financial liabilities. receive the contractual cash flows on the Other financial liabilities are subsequently financial asset in a transaction in which measured at amortized cost using the substantially all the risks and rewards of ownership of the financial assets are transferred. Any interest in transferred effective interest method. The effective interest method is a method of calculating the amortized cost of a financial liability financial assets that is created or retained and of allocating interest expense over is recognized as a separate asset or the relevant period. The effective interest liability. Financial assets are assessed at each reporting date in order to determine whether objective evidence exists that 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. 55 used to repurchase common shares at the average market price over the year. q) Provision for future land development costs The provision for future land development costs represents the construction costs expected to be incurred for each project phase currently under development to the extent that revenue has been recognized. The liability includes all direct construction costs and indirect costs expected to be incurred during the remainder of the construction period net of expected recoveries of certain development costs. The provision for future land development costs are reviewed on a phase by phase basis. When the estimate is known to be GENESIS LAND DEVELOPMENT CORP. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2013 AND 2012 (All tabular amounts and amounts in footnotes to tables are in thousands of Canadian dollars except number of shares) different from the actual costs incurred limited partnerships where the a provision and disclosure in the or expected to be incurred, an adjustment Corporation holds less than 50% equity consolidated financial statements is made to the provision for future land ownership. The judgment is based on is required. Among the factors development costs and a corresponding a review of all contractual agreements considered in making such judgments adjustment is made to land under development and/or cost of sales. to determine if the Corporation has are the nature of litigation, claim control over the activities, projects, or assessment, the legal process financial and operating policies of the and potential level of damages, the r) Significant accounting judgments limited partnerships. and estimates 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 in relation to revenues, expenses, assets and liabilities. Management uses historical experience and various other factors it believes to be reasonable under the given circumstances as the basis for its judgments and estimates. Actual outcomes may differ from these estimates under different assumptions and conditions. The following are the most significant accounting judgments and estimates made by the Corporation in applying accounting policies: Judgments (i) Revenue Recognition Revenue recognition for development lands requires 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 appropriate transfer date. (ii) Consolidation The Corporation applies judgment in determining control over certain (iii) Income Taxes The Corporation applies judgment in determining the total provision for current and deferred taxes. There are progress of the case, the opinions or views of legal advisers and any decision of the Corporation’s management as to how it will respond to the litigation, claim or assessment. many transactions and calculations for Estimates which the ultimate tax determination (i) Provision for future land development and timing of payment is uncertain costs 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 taxable income and expense already Changes in the estimated future land development costs directly impact the amount recorded for the future development liability, cost of sales, gross margin and, in some cases, the value of real estate under development and held for sale. This liability is subject to uncertainty as it is based on estimates prepared by independent consultants and management. recorded. (iv) Net realizable value (ii) Impairment of real estate held for future development and sale NRV for land and housing projects held The Corporation estimates the for development and sale is estimated NRV of real estate held for future with reference to market prices and conditions existing at the balance development and sale at least annually for impairment or whenever events sheet date. This is determined by the or changes in circumstances indicate Corporation having considered suitable the carrying value may exceed NRV. external advice from independent real The estimate is based on valuation estate appraisers and in light of recent conducted by independent real estate market transactions of similar and appraisers and in light of recent adjacent lands and housing projects in market transactions of similar and the same geographic area. (v) Legal contingencies adjacent lands and housing projects in the same geographic area. The Corporation applies judgment (iii) Share-based payments as it relates to the outcome of legal The Corporation uses an option pricing proceedings to determine whether model to determine the fair value of 56 share-based payments. Inputs to the and expenses but had no impact on the to variable returns from its involvement model are subject to various estimates Corporation’s net assets, net earnings, with the investee and has the ability to about volatility, interest rates, dividend cash flows or earnings per share. affect those returns through its power yields, forfeiture rates and expected life of the units issued. Fair value inputs are subject to market factors as well as internal estimates. The Corporation considers historic trends together with any new information to determine the best estimate of fair value at the date of grant. (iv) Valuation of amounts receivables Amounts receivable are reviewed on a regular basis to estimate recoverability of balances. Any amounts becoming overdue and any known issues about the financial condition of debtors are Refer to note 23 for the summarized adjustments made to the Corporation’s consolidated balance sheets at January 1, 2012 and December 31, 2012, its consolidated statements of comprehensive income (loss) and cash flows for the year ended December 31, 2012. 4. STANDARDS AND AMENDMENTS TO EXISTING STANDARDS EFFECTIVE JANUARY 1, 2013 over the investee. In accordance with the transitional provisions of IFRS 10, the Corporation has re-assessed the control conclusion for its investees at January 1, 2013 and concluded that the new standard will not change its control conclusion in respect of its investment in its subsidiaries. Impact of the application of IFRS 11 Refer to note 3, Change in Accounting Policy, for a description of and the impact The Corporation adopted new IFRSs and of the adoption of IFRS 11. interpretations as of January 1, 2013, as noted below: taken into account when estimating i) Application of new and revised IFRSs recoverability. 3. CHANGE IN ACCOUNTING POLICY The Corporation changed accounting for its interest in a joint venture from on consolidation, joint arrangements, associates and disclosures The Corporation has applied the requirements of IFRS 10 “Consolidated Financial Statements” (“IFRS 10”), IFRS the equity method of accounting beginning January 1, 2013. This is required under IFRS 11, “Joint Arrangements”, issued on May 12, 2011, which replaces IAS 31, “Interest in Joint Ventures”. The standard is effective for annual periods beginning in Other Entities” (“IFRS 12”) as well as the consequential amendments to IAS 27 (as revised in 2011) “Separate Financial Statements” (“IAS 27”) and IAS 28 (as revised in 2011) “Investments in Associates” (“IAS 28”) in the current on or after January 1, 2013. The new period. The impact of the application of these standards is set out below. Impact of the application of IFRS 12 IFRS 12 is a disclosure standard and is applicable to entities that have interests in subsidiaries, joint arrangements, associates and/or unconsolidated structured entities. In general, the application of IFRS 12 has resulted in additional disclosures in the consolidated Impact of the application of IAS 28 IAS 28 was amended in 2011 and prescribes the accounting for investments in associates and sets out the requirements for the application of the equity method when accounting for investments in associates and joint ventures. Under IFRS 11, the Corporation determined that its joint venture has to proportionately consolidated accounting to 11 and IFRS 12 “Disclosures of Interests financial statements. standard redefines joint operations and joint ventures, requiring joint operations to be proportionately consolidated and joint ventures to be equity accounted. Under IAS 31, joint ventures could be proportionately consolidated. The Corporation has applied IFRS 11 beginning on January 1, 2013 with retrospective application from the date of earliest period presented which is January 1, 2012. This change in accounting policy reduced total assets, total liabilities, revenues Impact of the application of IFRS 10 be consolidated under the equity method As a result of the adoption of IFRS 10, the Corporation has changed its accounting policies with respect to determining whether it has control over and consequently consolidates its investees. IFRS 10 changes the definition of control such that an investor controls an investee when it is exposed, or has rights, as described by IAS 28. This change in accounting policy reduced total assets, total liabilities, revenues and expenses but had no impact on the Corporation’s net assets, net earnings, cash flows or earnings per share. 57 GENESIS LAND DEVELOPMENT CORP. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2013 AND 2012 (All tabular amounts and amounts in footnotes to tables are in thousands of Canadian dollars except number of shares) ii) Application of IFRS 13 “Fair Value Measurement” (“IAS 39”). The standard were amended and the definitions of Measurement” was to be effective for annual periods ‘performance condition’ and ‘service improves consistency and reduces complexity by providing a precise definition of fair value and a single source of fair value measurement and disclosure requirements for use across IFRSs. The requirements do not extend the use of fair value accounting but provide guidance on how it should be applied where its use is already required or permitted by other standards within IFRS. In general, the application of IFRS 13 has resulted in additional disclosures in the consolidated financial statements as set out in note 17. There are no other standards, interpretations or amendments to existing standards that are effective that would be beginning on or after January 1, 2015. condition’ were added. An entity is In February 2014, the IASB tentatively required to prospectively apply that decided the mandatory effective date of amendment to share-based payment the final IFRS 9 would now be January 1, transactions for which the grant date is on 2018. The final standard is expected in or after 1 July 2014. The Corporation will mid-2014. IFRS 9 applies to classification apply the improvements on share-based and measurement of financial assets payment transactions, if any, made on or as defined in IAS 39. It uses a single after July 1, 2014. approach to determine whether a financial asset is measured at amortized cost or fair value, replacing the multiple classification options in IAS 39. The Corporation is currently evaluating the impact of IFRS 9 on its financial statements. ii) IAS 36, “Impairment of Assets” – Amendments to IAS 36 iv) IFRIC 21, “Levies” In May 2013, the IASB issued IFRIC 21, “Levies” (“IFRIC 21”) which provides guidance on accounting for levies in accordance with the requirements of IAS 37, “Provisions, Contingent Liabilities and Contingent Assets”. The interpretation clarifies that an entity is to recognize expected to have a significant impact on The amended standard requires entities a liability for a levy when the activity the Corporation. to disclose the recoverable amount of an that triggers payment, as identified by RECENT ACCOUNTING PRONOUNCEMENTS The Corporation has reviewed new and revised accounting pronouncements that have been issued but are not yet effective and determined that the following may impaired Cash Generating Unit (CGU). the relevant legislation, occurs. The The amendments to IAS 36 are effective interpretation also clarifies that a levy for annual periods beginning on or after liability is to be accrued progressively January 1, 2014 and require retrospective only if the activity that triggers payment application. This standard is not expected occurs over a period of time, in accordance to have an impact on the Corporation’s with the relevant legislation. IFRIC 21 is have an impact on the Corporation: financial position or performance. effective for annual period commencing i) IFRS 9, “Financial Instruments” iii) IFRS 2, “Share-based payment” On November 12, 2009, the IASB “Annual Improvements to IFRSs 2010– issued IFRS 9, “Financial Instruments” 2012 Cycle” was issued in December (“IFRS 9”), which will replace IAS 39 2013. The definitions of ‘vesting “Financial Instruments: Recognition and conditions’ and ‘market condition’ on or after January 1, 2014 and require retrospective application. The Corporation is currently evaluating the impact of IFRIC 21 on its financial statements. 58 5. REAL ESTATE HELD FOR DEVELOPMENT AND SALE Gross book value As at January 1, 2012 (1) Transfers Acquisitions Development Sold As at December 31, 2012 (1) Transfers Acquisitions Development Sold As at December 31, 2013 Provision for write-downs As at January 1, 2012 Write-downs As at December 31, 2012 Write-downs As at December 31, 2013 Net book value As at January 1, 2012 (1) As at December 31, 2012 (1) As at December 31, 2013 Land Held for Future Development Development Land Under Home Building Total Partnerships Limited Consolidated Total 135,956 (17,393) - 57,743 (52,285) 77,820 (1,938) - 3,055 10,422 19,331 23,914 10,370 224,198 77,068 301,226 - 23,914 71,168 - - 882 - 23,914 72,050 - (33,407) (85,692) (3,454) (89,146) 233,588 74,496 308,084 124,021 78,937 (2,950) (11,390) - 40,998 (21,907) - 4,403 30,630 14,340 6,521 34,699 - 6,521 80,100 - (55,295) (77,202) - - 99 - - 6,521 80,199 (77,202) 140,162 71,950 30,895 243,007 74,595 317,602 3,296 1,849 5,145 646 5,791 132,660 118,876 134,371 4,072 16,419 20,491 7,539 28,030 73,748 58,446 43,920 - - - - - 10,422 30,630 30,895 7,368 18,268 25,636 8,185 33,821 216,830 207,952 209,186 3,386 14,878 18,264 8,097 26,361 73,682 56,232 48,234 10,754 33,146 43,900 16,282 60,182 290,512 264,184 257,420 (1) 2012 information has been restated to reflect the changes due to the adoption of IFRS 11 as summarized in note 3 During the year ended December 31, 2013, interest of $3,763 (2012 - $4,464) and other carrying costs of $Nil (2012 - $5), respectively, were capitalized. 59 GENESIS LAND DEVELOPMENT CORP. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2013 AND 2012 (All tabular amounts and amounts in footnotes to tables are in thousands of Canadian dollars except number of shares) 6. AMOUNTS RECEIVABLE Agreements receivable Mortgages receivable Other receivables Allowance for doubtful accounts 2013 21,796 1,524 314 23,634 (292) 23,342 2012 64,096 9,501 1,285 74,882 (1,643) 73,239 Agreements receivable for lot sales balance owing for the purchased lots. 10, 2013. Certain agreements receivable are secured by the underlying real Agreements receivable as at December and all mortgages receivable are interest estate assets and have various terms of 31, 2012, include a receivable from one bearing. repayment. Purchasers generally have customer amounting to $27,714 which was between six and 24 months to pay the realized in the current year on January 7. OTHER OPERATING ASSETS Deposits Prepayments Restricted cash Property and equipment 2013 5,004 151 1,324 636 7,115 2012 4,989 1,151 9,615 478 16,233 Deposits include amounts paid to are refundable upon completion of the security to guarantee the completion of development authorities as security to related projects and earn interest at rates construction projects (see note 16 (d) for guarantee the completion of construction approximating those earned on guaranteed further details). Restricted cash is held in projects under development and deposits investment certificates. The Corporation trust accounts. on future land acquisitions. The deposits has further provided letters of credit as 8. INCOME TAXES (a) Income tax was recognized in the consolidated statements of comprehensive income as follows: Current income tax Deferred tax relating to origination and reversal of temporary differences 2013 2,420 (457) 1,963 2012 1,167 2,919 4,086 60 (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% (2012 – 25%) to loss before income taxes. The difference resulted from the following: Loss before income taxes Statutory tax rate Expected income tax expense Share-based payment transactions Other non-deductible (recoveries) expenses Non-controlling interest Tax expense for the year (c) The deferred tax assets (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 2028 2013 (1,850) 25.0% (463) 52 (8) 2,382 1,963 2012 (2,661) 25.0% (665) 84 765 3,902 4,086 2013 3,806 2012 6,420 (3,409) (6,480) 397 (60) 2013 2,413 84 (3,409) 1,299 10 397 2012 2,845 497 (4,532) 1,090 40 (60) The components of the deferred tax asset (liability) recognized in the consolidated statement of comprehensive income (loss) 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 2028 61 2013 (432) (413) 2012 270 345 1,123 (4,421) 209 (30) 457 827 60 (2,919) GENESIS LAND DEVELOPMENT CORP. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2013 AND 2012 (All tabular amounts and amounts in footnotes to tables are in thousands of Canadian dollars except number of shares) (e) The movement in income tax payable for the year was as follows: Balance as at January 1 Provision Payments Balance as at December 31 9. LOANS AND CREDIT FACILITIES Secured by land under development and agreements receivable I. Land project loans, payable on collection of agreements receivable, bearing interest at rates ranging from prime +1.25% to the greater of 7.2% or prime +4.2% (the loan bearing interest at the greater of 7.2% or prime +4.2% was paid in full subsequent to the year end), secured by land held for development and sale with a carrying value of $126,516, due between March 1, 2014 and December 1, 2015. Secured by housing projects under development II. 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. 2013 4,617 2,420 (3,925) 3,112 2012 12,970 1,167 (9,520) 4,617 2013 32,759 2012(1) 82,918 2,305 2,281 III. Projects loans, payable on collection of closing proceeds, bearing interest of prime +1.50%, 8,716 6,487 secured by home building projects with a carrying value of $13,369, due by December 10, 2014. Secured by land held for future development - Limited Partnership 7,850 7,850 IV. 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 $15,121 maturing March 1, 2014. The loan was renewed subsequent to the year end. Deferred loans and credit facilities fees (1) 2012 information has been restated to reflect the changes due to the adoption of IFRS 11 as summarized in note 3 51,630 (1,257) 50,373 99,536 (2,312) 97,224 The weighted average interest rate of of $46,511 (2012 - $89,941) relating prime + 4.2% per annum, with due dates loan agreements was 5.83% (December to various new and renewed loan ranging from March 1, 2014 to December 31, 2012 - 6.25%), based on December 31, facilities secured by real estate held for 1, 2015. 2013 balances. During the year ended December 31, 2013, the Corporation received advances development and sale, and agreements receivable, bearing interest ranging from prime + 1.25% to the greater of 7.2% or 62 Based on the contractual terms, the Corporation’s loans and credit facilities are to be repaid within the following time periods (excluding deferred financing fees): January 1, 2014 to December 31, 2014 January 1, 2015 to December 31, 2015 36,159 15,471 51,630 The Corporation has various covenants charges, material changes to project non-IFRS financial measure, is defined in place with its lenders with respect to plans, and changes in the Corporation’s as “Retained Earnings plus Shareholders certain contracted credit facilities. Such ownership structure. In addition, the Loans plus Due to Related Parties covenants include: other credit usage Corporation has a secured revolving (excluding lot payables to related parties) restrictions; cancellation, prepayment, operating line repayable on demand to minus Due from Related Parties”. confidentiality and cross default clauses; be used for its construction and serviced sales coverage requirements; conditions lot operations. This line has a financial precedent for funding; and other general covenant requiring that Genesis Builders As at December 31, 2013 and as at December 31, 2012, the Corporation and its subsidiaries were in compliance with understandings such as, but not limited Group Inc., the single-family home building to, maintaining contracted lot prices, business, maintain a net worth of at least all covenants. restrictions on encumbrances, liens and $11.5 million at all times. Net worth, a 10. 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 year ended December 31, 2013 and 2012: Year ended December 31, 2013 2012 44,838,401 44,664,086 61,920 110,537 44,900,321 44,774,623 Basic Effect of dilutive securities - stock options Diluted In calculating diluted earnings per share price of the Corporation’s shares during for the year ended December 31, 2013, those periods. the Corporation excluded 235,000 options (2012 – 760,500) as their exercise prices were greater than the average market The Corporation has not issued any preferred shares. 63 GENESIS LAND DEVELOPMENT CORP. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2013 AND 2012 (All tabular amounts and amounts in footnotes to tables are in thousands of Canadian dollars except number of shares) 11. STOCK OPTIONS The Corporation has established a stock option plan for employees, officers, and directors of the Corporation to purchase common shares. Vesting provisions and exercise prices are set at the time of The options must be issued at not less issuance by the Board of Directors. Options than the fair market value of the common vest over a number of years on various shares at the date of grant and are issued anniversary dates from the date of the with terms not exceeding five years from original grant. the date of grant. Details of outstanding stock options were as follows: Outstanding - beginning of period Options granted Options exercised Options expired Options forfeited Options settled in cash Outstanding - end of period Year ended December 31, 2013 2012 Weighted Average Exercise Price $3.21 $3.43 $2.21 $6.97 $3.45 $2.77 $3.32 Number of Options 1,788,221 400,000 (281,441) (281,500) (356,808) (36,750) 1,231,722 Weighted Average Exercise Price $3.60 $3.35 $1.93 $6.63 $3.73 $2.01 $3.21 Number of Options 1,231,722 435,000 (95,472) (60,000) (61,500) (389,250) 1,060,500 Outstanding Exercisable Weighted Average Range of Exercise Prices ($) Number at December 31, 2013 Weighted Average Exercise Price Number at December 31, 2013 Weighted Average Exercise Price Remaining Contractual Life in Years 0.01 - 3.00 3.01 - 4.00 51,500 1,009,000 1,060,500 $2.01 $3.39 $3.32 51,500 574,000 625,500 $2.01 $3.38 $3.27 0.91 3.45 3.33 There were 435,000 options granted during the year ended December 31, 2013 (2012 – 400,000) with an average fair value of $0.81 per share (2012 - $1.03). 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 2013 2012 0.99 - 1.24% 1.12 - 1.16% 2.50 2.50 34.46 - 38.27% 45.44 - 51.40% 24.22% 19.42 - 24.22% 0.00% 0.00% 64 12. GENERAL AND ADMINISTRATIVE The general and administrative expense of the Corporation consisted of the following: Corporate administration Compensation and benefits (note 20) Professional services 13. SELLING AND MARKETING Selling and marketing expenses of the Corporation consisted of the following: Advertising and marketing Showhome expenses 14. OTHER EXPENSES Other expenses of the Corporation consisted of the following: Proxy contest costs Share-based payments Depreciation Bad debt (recovery) expense Other expenses 15. FINANCE EXPENSE The finance expense of the Corporation consisted of the following: Interest expense Loans and credit facilities fees Interest and loans and credit facilities fees capitalized 65 2013 2,132 7,450 1,590 11,172 2013 2,023 335 2,358 2013 2,889 206 159 (82) 15 2012 1,967 4,981 2,346 9,294 2012 3,530 418 3,948 2012 - 337 336 314 52 3,187 1,039 2013 3,771 1,518 (3,763) 1,526 2012 5,686 1,438 (4,464) 2,660 GENESIS LAND DEVELOPMENT CORP. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2013 AND 2012 (All tabular amounts and amounts in footnotes to tables are in thousands of Canadian dollars except number of shares) 16. COMMITMENTS AND CONTINGENCIES ($200 each year, terminating June 1, and credit facilities balance in the 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 “Action”). 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 (note 22). The plaintiff is seeking $10,700 plus punitive damages relating to the ownership interests of LPLP 2007. The Corporation recognizes LPLP 2007’s non-controlling interest in these consolidated financial statements. The Action against the Corporation has been discontinued pursuant to a court order in the Action dated February 12, 2014 and issuance of a signed release from all claims relating to the Action by the plaintiff. A cross claim against the Corporation by the third party co-defendant for $400 remains extant. The amount of additional liability, if any, which exceeds the non-controlling interest, is currently indeterminate. b) The Corporation has entered into a memorandum of understanding with the Northeast Community Society, whereby the Corporation will contribute $5,000 for the naming rights to “Genesis Centre for Community Wellness”, a recreation complex in northeast Calgary ($500 each year, terminating October 31, 2021). The first two installments totaling $1,000 were made through 2013. c) On February 19, 2008, the Corporation entered into an agreement with the City of Airdrie, whereby the Corporation will contribute $2,000 for 2017). The first six installments totaling consolidated financial statements. The $1,200 were made through 2013. Corporation has provided a guarantee d) The Corporation has issued letters of for this facility. credit pursuant to service agreements with municipalities to indemnify them in the event that the Corporation does not perform its contractual obligations. As of December 31, 2013, the letters of credit amounted to $6,279 (December 31, 2012 – $3,801). e) On July 15, 2011, a joint venture (note 18) obtained a credit facility in the amount of $17,000. The Corporation and a joint venture partner have each provided guarantees for 50% of this facility. The current balance of the credit facility is $Nil (2012 - $10,036). f) Pursuant to the terms of a participating mortgage that was repaid during 2002, the former mortgage holders have the right to a 20% participation in the profits from the development of approximately 39 acres of land under development. At December 31, 2013, a liability of approximately $3,298 (December 31, 2012 - $3,051) was recorded. The Corporation is selling lots in the last phase covered under this development. The payout of the 20% participation to the participants will be made on completion of the sale of lots in the last phase and collection of related proceeds along with an accounting of all related costs. g) The Corporation has office and other operating leases with the following annual payments: not later than one year - $869; later than one year but not later than five years - $2,222; and later than five years - $Nil. the naming rights to “Genesis Place”, a h) LPLP 2007 has a credit facility in the recreation complex in the city of Airdrie amount of $7,850 included in loans 66 17. FINANCIAL INSTRUMENTS $1,643) as allowance for doubtful taken back into the Corporation’s lot a) Risks associated with financial instruments (i) Credit risk As at December 31, 2013, the Corporation carried $292 (2012 - accounts. The Corporation 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 inventory. The difference between an impaired amount receivable and the related bad debt expense or recovery is the cost of a lot for which impairment has been assessed. During the years ended December 31, 2013 and 2012, the Corporation recognized the following bad debt expense and change in allowance for doubtful accounts relating to amounts receivable on sold lots, net of the return of the real estate held for development and sale: Balance as at January 1 Recovery Allowance Bad debt (recovery) expense As at December 31 2013 1,643 (1,269) - (82) 292 2012 - - 1,329 314 1,643 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 Past due 91 - 120 days Past due 121 - 270 days > 270 days Allowance for doubtful accounts 2013 20,405 1,700 387 850 292 23,634 (292) 23,342 2012 73,094 145 927 716 - 74,882 (1,643) 73,239 Individual balances due from customers as at December 31, 2013, which comprise greater than 10% of total amounts receivable, totaled $19,877 from four customers (December 31, 2012 - $35,450 from two customers). 67 GENESIS LAND DEVELOPMENT CORP. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2013 AND 2012 (All tabular amounts and amounts in footnotes to tables are in thousands of Canadian dollars except number of shares) (ii) Liquidity risk The following were the contractual maturities of financial liabilities and other commitments as at December 31, 2013: Financial liabilities Accounts payable and accrued liabilities Loans and credit facilities excl. deferred fees (note 9) Commitments Lease obligations (note 16) Naming rights (note 16) < 1 Year > 1 Year Total 16,759 36,159 52,918 869 700 - 15,471 15,471 2,222 4,100 54,487 21,793 16,759 51,630 68,389 3,091 4,800 76,280 At December 31, 2013, the Corporation certain loans and credit facilities payable and accrued liabilities had obligations due within the are at a floating rate of interest. The approximate their carrying values as next 12 months of $54,487 (2012 - Corporation is also exposed to fair they are expected to be settled within $46,824). Based on the Corporation’ value risk to the extent that certain twelve months. The fair value of deposits operating history, its relationship loans and credit facilities, mortgages approximates their carrying value as the with its lenders and committed sales receivable and loans receivable are at terms of deposits are the comparable to contracts, management believes that a fixed rate of interest. A 1% change in the market terms for similar instruments. the Corporation has the ability to interest rates would result in a change continue to renew or repay its financial in interest incurred of approximately obligations as they come due. $516 annually on floating rate loans. (iii) Market risk The Corporation is exposed to interest rate risk to the extent that certain agreements receivable and b) Fair value of financial instruments The fair values of cash and cash equivalents, restricted cash, accounts The fair values of the Corporation’s deposits, loans and credit facilities and amounts receivable were estimated based on current market rates for loans of the same risk and maturities. Fair value through profit and loss Cash and cash equivalents Deposits Restricted cash Loans and receivables Amounts receivable Other financial liabilities December 31, 2013 2012 Carrying Value Estimated Fair Value Carrying Value Estimated Fair Value 17,678 17,678 10,005 5,004 1,324 5,004 1,324 4,990 9,615 10,005 4,990 9,615 23,342 22,750 73,239 71,668 Accounts payable and accrued liabilities Loans and credit facilities, excl. deferred loans and credit facilities fees 16,759 51,630 16,759 51,554 23,559 99,536 23,559 98,385 68 Fair value measurements recognized Cash and cash equivalents, deposits, and During the year ended December 31, 2013 in the consolidated balance sheet are restricted cash are classified under Level no transfers were made between the categorized using a fair value hierarchy 1 of the hierarchy and their fair value levels in the fair value hierarchy. that reflects the significance of inputs used approximates the carrying value due to in determining the fair values. The three the short term nature of the financial c) Capital management fair value hierarchy levels are as follows: instruments. Level 1: Quoted prices (unadjusted) in active markets for identical assets or liabilities; Level 2: Inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly (i.e., as prices) or indirectly (i.e. derived from prices); and Level 3: Inputs for the asset or liability that is not based on observable market data (unobservable inputs). The Corporation’s policy is to maintain a sufficient capital base in order to maintain The fair values of the Corporation’s amounts receivable and of loans and credit investor, creditor and market confidence facilities were estimated based on current and to sustain future development of the market rates for loans of the same risk and maturities. These are classified as Level 2 of the hierarchy. Accounts payable and accrued liabilities are classified under Level 2 of the hierarchy and their fair value approximates the carrying value due to the short term nature of the financial instruments. business. The Corporation is not subject to externally imposed capital requirements. The Corporation manages its capital structure and makes adjustments to it in light of changes in regional economic conditions and the risk characteristics of the underlying real estate industry within that region. The Corporation considered its capital structure at the following dates to specifically include: Loans and credit facilities Shareholders’ equity The Corporation continues to evaluate the need to leverage its land assets to secure sufficient loans and credit facilities to ensure the Corporation is able to meet its financial obligations as they come due. December 31, 2013 50,373 195,483 245,856 2012 97,224 189,590 286,814 69 GENESIS LAND DEVELOPMENT CORP. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2013 AND 2012 (All tabular amounts and amounts in footnotes to tables are in thousands of Canadian dollars except number of shares) 18. JOINT VENTURE The Corporation formed a joint venture (“JV”) on April 30, 2010, for the purpose of acquiring, developing and selling certain real estate. Refer to note 3 for the effects reconcile the summarized financial of change in accounting policy. information to the carrying amount of the The following tables summarize the financial information of the JV and Corporation’s interest in the JV, which is accounted for using the equity method. Assets Real estate held for development and sale Amounts receivable Other operating assets Cash and cash equivalents Total assets Liabilities Loans and credit facilities Accounts payable and accrued liabilities Land development service costs Total liabilities Net assets Corporation’s share of net assets (50%) Deferred gain and JV profit Carrying amount on the consolidated balance sheets Revenues Residential lot sales Development land sales Cost of sales Residential lots Development land General and administrative Finance income Earnings being comprehensive income Corporation’s share of earnings and comprehensive income (50%) Deferred gain recognized Deferred margin from JV on lots sold Amount on consolidated statements of comprehensive income 70 December 31, 2013 2012 January 1, 2012 22,478 25,272 - 656 30,446 30,680 - - 40,324 18,130 10 - 48,406 61,126 58,464 - 4,228 20,640 24,868 23,538 11,769 (3,875) 7,894 10,036 2,973 11,633 24,642 36,484 18,242 (7,562) 10,680 4,330 4,064 9,260 17,654 40,810 20,405 (10,757) 9,648 Year ended December 31, 2013 2012 36,276 - 36,276 (28,558) - (28,558) (2,034) 368 6,052 3,026 3,688 (676) 6,038 20,266 7,860 28,126 (15,756) (7,464) (23,220) (1,538) 306 3,674 1,837 3,196 (528) 4,505 Cash flows from operating activities Cash flows (used in) financing activities Net change in cash and cash equivalents As at December 31, 2011 Gain deferred on lands sold to JV Deferred gain recognized At January 1, 2012 Share of net income in JV Deferred gain recognized Deferred margin from JV on lots sold Distribution received At December 31, 2012 At January 1, 2013 Share of net income in JV Deferred gain recognized Deferred margin from JV on lots sold Distribution received At December 31, 2013 Year ended December 31, 2013 29,693 (29,037) 656 2012 2,293 (2,293) - Investment in JV Income from JV 20,405 (13,167) 2,410 9,648 1,837 3,195 - (4,000) 10,680 10,680 3,026 3,688 - (9,500) 7,894 - - - - 1,837 3,196 (528) - 4,505 - 3,026 3,688 (676) - 6,038 The Corporation’s transactions with the accrued liabilities as at December 31, Corporation had realized $9,292 of that JV are limited to the purchase of home 2013 included $6,477 (December 31, 2012 amount as a result of sales to third parties building lots. During the year ended - $6,740), related to the purchase of home (2012 – $5,605). The remaining amount of December 31, 2013 the JV sold 44 lots building lots. (2012 - 21) to Genesis Builders Group Inc. (“GBG”), a wholly owned subsidiary of the Corporation, for $8,096 (2012 - $3,880). The Corporation’s accounts payable and The Corporation deferred $13,167 when it contributed its share of land to the JV in 2010. As at December 31, 2013, the $3,875 will be realized on future sale and development of lots and lands by the JV. 71 GENESIS LAND DEVELOPMENT CORP. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2013 AND 2012 (All tabular amounts and amounts in footnotes to tables are in thousands of Canadian dollars except number of shares) 19. SEGMENTED INFORMATION units with distinct marketing strategies. Internal lot sales from the land segment The Corporation operates in two reportable segments, land development and home building, which represent separately managed strategic business The Corporation evaluates segment to the home building segment or a limited performance based on earnings or loss partnership have been eliminated and are before income taxes. Inter-segment sales not included in consolidated results until are accounted for as if the sale were to the home is sold to a third party purchaser. third parties at current market prices. The income producing business units of the Corporation reported the following activities for the year ended December 31, 2013 and 2012: Year ended December 31, 2013 Revenues Cost of sales Write-down of real estate Gross margin Income from JV Proxy contest costs G&A, selling & marketing, other expenses (1) Earnings (loss) before income taxes and non-controlling interest Segmented assets Segmented liabilities Net assets Year ended December 31, 2012 (2) Revenues Cost of sales Write-down of real estate Gross margin Income from JV Land Development Segment Genesis 47,380 (27,902) (8,185) 11,293 6,038 (2,889) (6,863) 7,579 221,290 50,050 171,240 LP 105 (10) (8,097) (8,002) - - (1,681) (9,683) 53,596 8,433 45,163 Home Building Intersegment Elimination Segment 63,570 (55,831) - 7,739 - - (7,485) 254 47,338 42,354 4,984 (14,978) 13,795 - (1,183) - - 1,183 - (8,378) (4,917) (3,461) Total 47,485 (27,912) (16,282) 3,291 6,038 (2,889) (8,544) (2,104) 274,886 58,483 216,403 Total(3) 96,077 (69,948) (16,282) 9,847 6,038 (2,889) (14,846) 7,997 313,846 95,920 217,926 Land Development Segment Genesis 96,042 (57,334) (18,268) 20,440 4,505 LP 4,778 (3,498) (14,878) (13,598) - Total 100,820 (60,832) (33,146) 6,842 4,505 Home Building Intersegment Elimination Segment Total(3) 39,497 (34,817) - 4,680 - (6,370) (1,690) 42,165 39,110 3,055 (10,857) 129,460 8,396 - (2,461) - (87,263) (33,146) 9,051 4,505 2,471 (16,217) - (2,661) (6,124) (6,140) 16 374,341 148,032 226,309 G&A, selling & marketing, other expenses (1) (10,547) (1,771) (12,318) Earnings (loss) before income taxes and non-controlling interest Segmented assets Segmented liabilities Net assets 14,398 (15,369) (971) 272,198 107,005 165,193 66,102 8,057 58,045 338,300 115,062 223,238 (1) Includes other expenses, finance expense and finance income (2) 2012 information has been restated to reflect the changes due to the adoption of IFRS 11 as summarized in note 3 (3) In view of the current strategic direction, cash and cash equivalents are no longer managed as a corporate asset and are now presented under the relevant segment. The Corporate segment has therefore been removed. 72 20. RELATED PARTY TRANSACTIONS Remuneration of the directors and other members of the key management personnel were as follows: Short-term benefits Share-based payments 2013 2,848 204 3,052 2012 1,433 190 1,623 Short-term benefits for 2013 included an for this period during which $4,748 transactions were agreed to under normal amount of $609 paid out as severance to of interest and fees were paid to the commercial terms and conditions. an-ex CEO of the Corporation. lender. Of this amount $1,244 relates to An officer of a lender and significant shareholder served as a director from July 12, 2012 until September 4, 2013. The lender and the Corporation were consequently considered related parties 2013 and $3,504 relates to 2012. The related debt was in place prior to the director assuming office on July 12, 2012 and no new financing or refinancing occurred subsequent to July 12, 2012. All The Corporation is the general partner in four limited partnership arrangements (note 22) and a 50% partner in the joint venture (note 18). 73 GENESIS LAND DEVELOPMENT CORP. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2013 AND 2012 (All tabular amounts and amounts in footnotes to tables are in thousands of Canadian dollars except number of shares) 21. COMPARATIVE FIGURES Limited partnerships 8/9 (LP 8/9): acquire the Delacour Lands. As a result, Certain comparative figures have been reclassified to conform to the current year’s presentation. L/P 8/9 holds 1,140 acres of raw land near Radium, British Columbia. The Corporation held a purchase right to acquire all LP 8/9 the Corporation completed the transaction with its own funds and assumed the loan obligations of LPLP 2007. 22. CONSOLIDATED ENTITIES units by February 28, 2009, which it did not The Corporation has no ownership interest exercise. Therefore, all LP unit holders are in LPLP 2007. However, as manager of entitled to share in the profits and losses LPLP 2007 properties, the Corporation is Details of each of the limited partnerships of the development. The project lands have approval for 272 single-family home sites on 53 acres, and 143 acres have been set aside for a golf course. Upon achieving and exceeding a 50% gross return to the LP 8/9 unit entitled to a management fee of 50% of the proceeds from the sale of any land parcels owned by LPLP 2007, provided that the limited partners receive sale proceeds equal to 150% of the acquisition cost of that land parcel. are as follows: Limited partnerships 4/5 (LP 4/5): 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. The Corporation 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): LP 6/7 holds land under development located in Airdrie. All required capital repayments have been made to unit holders in LP 6/7. The Corporation is entitled to management fees of 10% of the gross proceeds of the LP 6 offering memorandum payable to the Corporation as lands and lots are sold. The Corporation also owns 11.75% of LP 6’s units and participates proportionately in the profits of the partnership. holders, the Corporation is entitled to LPLP 2007 has a loan amounting to 50% of the remaining profits on the $21,167 (2012 - $19,481) due to the single-family lots. The Corporation is Corporation. The loan is secured by a also entitled to 100% of the profit on charge on land held by LPLP 2007. the golf course, and retains the right to purchase the balance of the lands at the conclusion of the project for a nominal amount. Additionally, the Corporation has a nominal ownership interest in LP 8 and is responsible for securing financing for the project development. Limited Partnership Land Pool 2007 (LPLP 2007): On June 29, 2007, LPLP 2007 was created to raise funds to secure funding for various land acquisitions. At the conclusion of the offering on February 28, 2009, LPLP 2007 had raised insufficient funds to close out the purchase of the lands and settle the land acquisition loan the entity used to 74 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. 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.) Joint Venture Kinwood Communities Inc. Limited Partnerships 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 GLP9 Inc., GLP9 Subco Inc. GP GLP8 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 0% LP RRSP Limited Partnership #2 75 % equity interest as at December 31, 2013 December 31, 2012 100% 100% 0.0002% 99.9998% 100% 100% 0.0002% 99.9998% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 50% 0.001% 0% 100% 11.75% 0% 0.23% 0% 100% 0% 100% 0% 0% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 50% 0.001% 0% 100% 11.75% 0% 0.23% 0% 100% 0% 100% 0% 0% 0% GENESIS LAND DEVELOPMENT CORP. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2013 AND 2012 (All tabular amounts and amounts in footnotes to tables are in thousands of Canadian dollars except number of shares) The following tables summarize the information relating to the Corporation’s subsidiaries that have material non-controlling interests (NCI) before any intra-group eliminations: Assets Real estate held for development and sale Other operating assets Cash and cash equivalents Total assets Liabilities Loans and credit facilities Customer deposits Accounts payable and accrued liabilities Due to related parties Total liabilities Net assets Non-controlling interest (%) Assets Real estate held for development and sale Amounts receivable Other operating assets Cash and cash equivalents Total assets Liabilities Loans and credit facilities Customer deposits Accounts payable and accrued liabilities Due to related parties Total liabilities Net assets Non-controlling interest (%) December 31, 2013 LP 4/5 LP 6/7 LP 8/9 LPLP 2007 Total 7,922 - - 7,922 - - - 160 160 7,762 100% 6,615 418 439 7,472 - - 418 201 619 6,853 88.25% 4,219 33,870 52,626 - 1 - 112 418 552 4,220 33,982 53,596 - - - 470 470 3,750 100% 7,843 2 169 21,167 29,181 4,801 100% 7,843 2 587 21,998 30,430 23,166 December 31, 2012 LP 4/5 LP 6/7 LP 8/9 LPLP 2007 Total 7,822 - - - 8,212 4,876 210 314 4,530 40,059 - - 1 - - 79 60,623 4,876 210 394 7,822 13,612 4,531 40,138 66,103 - - 3 70 73 - - 219 189 408 7,749 100% 13,204 88.25% - - 3 448 451 4,080 100% 7,798 2 34 19,481 27,315 12,823 100% 7,798 2 259 20,188 28,247 37,856 76 Assets Real estate held for development and sale Amounts receivable Other operating assets Cash and cash equivalents Total assets Liabilities Loans and credit facilities Customer deposits Accounts payable and accrued liabilities Due to related parties Total liabilities Net assets Non-controlling interest (%) Revenues Net earnings (loss) being comprehensive income (loss) Non-controlling interest (%) January 1, 2012 LP 4/5 LP 6/7 LP 8/9 LPLP 2007 Total 7,709 - - - 10,584 5,248 - 698 6,696 54,537 - 2 2 2 - 32 79,526 5,250 2 732 7,709 16,530 6,700 54,571 85,510 7,694 7,694 - 1 - 1 2 - - 25 650 675 7,707 100% 15,855 88.25% - - - 444 444 6,256 100% 28 - 17,772 25,494 29,077 100% Year ended December 31, 2013 LP 4/5 19 12 LP 6/7 265 (1,342) 100% 88.25% LP 8/9 LPLP 2007 - (331) 100% 86 (8,022) 100% Year ended December 31, 2012 29 25 18,867 26,615 58,895 Total 370 (9,683) Total 5,218 Revenues Net earnings (loss) being comprehensive income (loss) Non-controlling interest (%) LP 4/5 50 43 LP 6/7 5,044 2,027 100% 88.25% LP 8/9 LPLP 2007 124 - (2,175) 100% (15,265) (15,370) 100% Cash flows from operating activities Cash flows used in financing activities Net increase in cash and cash equivalents Cash flows from operating activities Cash flows used in financing activities Net (decrease) increase in cash and cash equivalents Year ended December 31, 2013 LP 6/7 5,134 (5,009) 125 LP 8/9 LPLP 2007 - - - 33 - 33 Year ended December 31, 2012 LP 6/7 4,292 (4,676) (384) LP 8/9 LPLP 2007 - - - 47 - 47 Total 5,167 (5,009) 158 Total 4,339 (4,676) (337) LP 4/5 - - - LP 4/5 - - - 77 GENESIS LAND DEVELOPMENT CORP. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2013 AND 2012 (All tabular amounts and amounts in footnotes to tables are in thousands of Canadian dollars except number of shares) 23. CHANGE IN ACCOUNTING POLICY – RECONCILIATIONS The following tables summarize the adjustments made to the Corporation’s balance sheets at January 1, 2012 and December 31, 2012, its statement of comprehensive income (loss) and cash flows for the year ended December 31, 2012. CONSOLIDATED BALANCE SHEET (In thousands of Canadian dollars) January 1, 2012 Previously reported Adjustments As restated 299,916 - 43,451 20,942 2,859 10,850 (a), (b) (9,404) 9,648 (9,065) (6) - - 290,512 9,648 34,386 20,936 2,859 10,850 378,018 (8,827) 369,191 88,231 7,582 16,415 12,970 16,201 141,399 55,122 4,950 119,776 179,848 56,771 236,619 378,018 (2,165) - (2,032) - (4,630) (8,827) - - - - - - (8,827) 86,066 7,582 14,383 12,970 11,571 132,572 55,122 4,950 119,776 179,848 56,771 236,619 369,191 Assets Real estate held for development and sale Investment in joint ventures Amounts receivable Other operating assets Deferred tax assets Cash and cash equivalents Total assets Liabilities Loans and credit facilities Customer deposits Accounts payable and accrued liabilities Income taxes payable Land development service costs Total liabilities Equity Share capital Contributed surplus Retained earnings Shareholders’ equity Non-controlling interest Total equity Total liabilities and equity 78 CONSOLIDATED BALANCE SHEET (In thousands of Canadian dollars) Assets Real estate held for development and sale Investment in joint ventures Amounts receivable Other operating assets Cash and cash equivalents Total assets Liabilities Loans and credit facilities Customer deposits Accounts payable and accrued liabilities Income taxes payable Deferred tax liabilities Land development service costs Total liabilities Equity Share capital Contributed surplus Retained earnings Shareholders’ equity Non-controlling interest Total equity Total liabilities and equity December 31, 2012 Previously reported Adjustments As restated (a), (b) 271,845 (7,661) 264,184 - 85,230 16,237 10,005 10,680 (11,991) (4) - 10,680 73,239 16,233 10,005 383,317 (8,976) 374,341 102,242 4,352 21,309 4,617 60 24,428 157,008 55,844 5,109 128,637 189,590 36,719 226,309 383,317 (5,018) - 2,250 - - (6,208) (8,976) - - - - - - (8,976) 97,224 4,352 23,559 4,617 60 18,220 148,032 55,844 5,109 128,637 189,590 36,719 226,309 374,341 79 GENESIS LAND DEVELOPMENT CORP. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2013 AND 2012 (All tabular amounts and amounts in footnotes to tables are in thousands of Canadian dollars except number of shares) CONSOLIDATED STATEMENT OF COMPREHENSIVE LOSS (In thousands of Canadian dollars except per share amount) Year ended December 31, 2012 Previously reported Adjustments As restated 51,933 49,389 39,448 812 (a), (c) (8,193) (3,929) - - 43,740 45,460 39,448 812 141,582 (12,122) 129,460 (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 4,458 2,544 - - 7,002 (5,120) 4,505 770 - - 770 155 (138) (17) - - - - - - (19,954) (36,150) (31,159) (33,146) (120,409) 9,051 4,505 (9,294) (3,948) (1,039) (14,281) (725) 724 (2,660) (2,661) (4,086) (6,747) (15,608) 8,861 0.20 Revenues Residential lot sales Development land sales Residential home sales Other revenue Cost of sales Residential lots (1) Development lands (1) Residential homes (1) Impairment of real estate held for development and sale (1) Gross margin Equity income from joint venture General and administrative (1) Selling and marketing (1) Other expenses Operating earnings from continuing operations Finance income Finance expense Earnings before income taxes Income taxes Net earnings being comprehensive loss Attributable to non-controlling interest Attributable to equity shareholders Net earnings per share - basic and diluted (1) Certain comparative figures have been reclassified to conform to the current year’s presentation. 80 CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands of Canadian dollars except per share amount) Operating activities Cash receipts from residential lot and development land 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 Incomes taxes paid Investing activities Acquisition of property and equipment Change in restricted cash Distribution received from joint venture Proceeds on disposal of property and equipment Financing activities Advances from loans and credit facilities 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 cash equivalents Cash and cash equivalents, beginning of period Cash and cash equivalents, end of period Year ended December 31, 2012 Previously reported Adjustments As restated 61,933 40,545 6,856 (51,360) (37,909) (13,079) 862 (9,520) (1,672) (449) (3,724) - 36 (4,137) (a), (d) (12,856) - - 9,800 (954) 3,026 (138) - (1,122) - (6) 4,000 - 3,994 102,303 (12,362) (87,396) 9,490 (6,043) (4,444) 544 4,964 (845) 10,850 10,005 - - - (2,872) - - - 49,077 40,545 6,856 (41,560) (38,863) (10,053) 724 (9,520) (2,794) (449) (3,730) 4,000 36 (143) 89,941 (77,906) (6,043) (4,444) 544 2,092 (845) 10,850 10,005 81 GENESIS LAND DEVELOPMENT CORP. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2013 AND 2012 (All tabular amounts and amounts in footnotes to tables are in thousands of Canadian dollars except number of shares) a) This change in accounting policy in the net earnings or comprehensive The Corporation closed the sale of a reduced total assets, total liabilities, income of the Corporation as a result 121.91 acre industrial site (Acheson) revenues and expenses but had no of adoption of IFRS 11. located in Parkland County, west of Edmonton, Alberta for $14,000 on February 28, 2014. The proceeds from the sale were used to retire approximately $6.5 million of related property debt and the balance was used for general corporate purposes. impact on the Corporation’s net assets, net earnings, cash flows or earnings per share. d) The changes made to the consolidated balance sheets and statements of comprehensive income due to the b) Equity accounting presents the net adoption of IFRS 11 has resulted in assets of the joint venture in a single reclassification of various amounts on line “Investment in Joint Venture”. the consolidated statements of cash The change from proportionate flows but has no impact on actual cash consolidation therefore results in the flows of the Corporation. reduction of various asset and liability line items. There has been no change in the Corporation’s shareholders’ 24. SUBSEQUENT EVENTS equity as a result of adoption of IFRS The Corporation was named as a co- 11. c) The changes made to the consolidated statements of comprehensive income has resulted in the removal of various line items that were consolidated under the proportionate method and by bringing in the Corporation’s share of the net income of the joint venture into a single line, “Equity income from joint venture”. There has been no change defendant in a statement of claim filed on May 10, 2011 in the province of Ontario for $10,700 plus punitive damages (the “Action”). The Action against the Corporation has been discontinued pursuant to a court order in the Action dated February 12, 2014 and issuance of a signed release from all claims relating to the Action by the plaintiff. Refer to note 16 (a) for further details. 82 CONTACT INFORMATION TRANSFER AGENT CORPORATE COUNSEL Computershare Trust Company of Canada 600, 530 - 8th Avenue SW Calgary, Alberta T2P 3S8 STOCK EXCHANGE Toronto Stock Exchange Stock Symbol - GDC AUDITORS MNP LLP 1500, 640 - 5th Avenue SW Calgary, Alberta T2P 3G4 Norton Rose Fulbright Canada LLP Legal Counsel Suite 3700, 400 - 3rd Avenue SW Calgary, Alberta T2P 4H2 CORPORATE OFFICE Genesis Land Development Corp. 7315 - 8th Street NE Calgary, Alberta T2E 8A2 Main 403 265 8079 Fax 403 266 0746 Email genesis@genesisland.com 83 GENESIS LAND DEVELOPMENT CORP. 7315 - 8th Street NE Calgary, Alberta, Canada T2E 8A2 Main 403 265 8079 Fax 403 266 0746 www.genesisland.com 

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