2014
ANNUAL
REPORT
GENESIS LAND DEVELOPMENT CORP.
1
1
ENRICHING LIVES
THROUGH INSPIRED
COMMUNITIES
2 President’s Message
4 Senior Management and Board of Directors
8 Community Involvement
10 Genesis Projects
12 Genesis Communities
24 Management’s Discussion and Analysis
45 Consolidated Financial Statements
73 Contact Information
1
A TURNAROUND YEAR FOR GENESIS
Last year, we predicted that 2014 was going to be ‘a year of growth and
profitability’ for Genesis. I am pleased to report that this transpired –
2014 was our most successful year since inception, both financially and
operationally. We achieved significantly improved results in our land
development business and a fundamental turnaround in our home building
business. This was a direct result of the successful execution of our strategic
plan, supported by strong general economic conditions in Alberta over the
majority of 2014.
Our team drove this success – by implementing the strategic plan and
making lasting operational and financial changes that will add value to our
company. This was the first opportunity this team had to show their strength
and abilities, and they proved that Genesis is more than capable of delivering
great results. We are now well positioned to build on these results for future
success.
I’m proud to report that we achieved some significant milestones in 2014.
During this time, we:
• Built a profitable home building business, achieving record growth in
home sales from 164 to 220 and significantly improving margins and
profitability;
• Completed the sale of the majority of our non-core lands by value;
• Acquired 350 acres of Calgary’s finest mid-term land in Southeast Calgary,
our first purchase in seven years. The Southeast Lands provide long-term
growth potential in one of the most sought after communities in Calgary
due to its near proximity to the South Calgary Health Campus/Regional
Hospital and beautiful views of the Bow River Valley;
• Rolled out our investor relations plan, increasing and improving
communication with shareholders;
• Paid our first ever special dividend payment of $0.12 per share to
shareholders; and
• Greatly strengthened our financial position in the areas of profitability,
cash flow, and reduced debt levels, resulting in a balance sheet poised to
support our operations during economic uncertainty, future growth and,
when appropriate, shareholder distributions.
While we have a much stronger company today than we did three years ago,
our work is not complete. We will continue to strive to improve and maximize
the value of Genesis. We will utilize our solid foundation to maintain
our continued growth, adjust our operations to deal with varying market
conditions and most importantly, continue to enrich lives – for our customers,
our employees and our shareholders.
REFINING THE PLAN FROM A POSITION OF STRENGTH
We formally implemented a new strategic plan in early 2014 that provided a
coherent and cohesive directional framework. Its primary focus is on building,
and integrating, our existing land development and home building businesses
in order to maximize shareholder value and position the platform for future
growth, amongst other supporting initiatives. We’ve seen positive results
to date from the successful integration of our land development and home
2
building businesses focused on the Calgary Municipal Area (“CMA”) market,
We expect that our debt will increase modestly in 2015 as we execute our
resulting in improved strength for Genesis.
development programs, but we will maintain a strong balance sheet with a
However, we recognize the need to continually re-evaluate and prepare for and
adapt to change. The Board and Management have been working on refining
the plan, building on its core strategies as we continue its execution going
forward. We have created a number of strategic principles that define the
company and clarify how we will operate over the next several years:
• Genesis is a sustainable and growing long-term business. We manage
our land holdings to deliver growing unit volumes, cash flow, earnings and
returns to shareholders well into the future;
• Genesis focuses its investments in residential lands in clearly aligned
ownership structures;
conservative debt to equity ratio. In order to advance our plans and maximize
value of our businesses, we will continue to push through development
applications, look for sale or joint venture opportunities on lands such as the
Sage Hill Crossing Town Centre development, and plan for our expansion
into the four storey multi-family market.
With the strength of our operations and cash position, the most pressing
question we have to answer this year is ‘what are we going to do with the
excess generated cash?’ Do we invest in our existing assets? Should we
consider new acquisitions to further supplement our land base and grow
operations? Provide dividends to shareholders? Retain our cash until the
economy shows signs of full recovery? The answer lies in a balance of
• Genesis operates and structures itself to withstand and profit from the
the above. Your Board is carefully evaluating both timing and weighting of
volatility of the CMA market;
options in light of the current economic environment.
• Genesis balances the allocation of capital between dividends to
shareholders and sustaining and growing the business; and
WELL-POSITIONED FOR THE FUTURE
• Genesis will continue to consult with shareholders regarding options to
We believe that 2015 is going to be a year of possibility for Genesis. We
optimize shareholder liquidity over the longer term.
We are striving to achieve greater benefits through economies of scale by
growing our single-family home business and entering into the four storey
multi-family market to take better advantage of our existing land holdings.
At the same time, we will regularly assess our inventory to ensure that we
have the future capability to supply our businesses and to opportunistically
acquire assets when circumstances warrant.
Looking forward, we expect a more competitive and challenging market in
2015. During the second half of 2014 and into 2015, Alberta saw a softening
of economic fundamentals, primarily due to a significant drop in crude oil and
natural gas prices that began in the middle of 2014. In addition, the overall
economy is expected to be flat this year with a depressed Canadian dollar,
which will likely contribute to some substantial headwinds. These factors
are expected to constrain margins, erode profitability and the pace of activity
in our local home building industry throughout 2015. More uncertainty
approach the year with a number of factors working in our favour. We have
created a strong company with a solid financial position, more cash on
hand than outstanding loans and significant unutilized debt capacity. Our
core businesses are running more efficiently. Our current large portfolio of
entitled residential and mixed-use land is capable of supporting our business
for years to come as we continue to grow our profitable home building
business. We have a strong team capable of translating actions into results
and focused on continuing to improve Genesis on all fronts – operating
efficiencies, financial standing and reputation.
We will celebrate our success, but temper it with a diligent, methodological
approach to building the company and its future. This is not to say that 2015
and 2016 won’t have challenges, but we are well situated to withstand
market fluctuations and changes in the economic environment as well as
seizing opportunities if they arise. As such, Genesis will benefit significantly
as, and when, a rebound and strengthening of the Alberta economy occurs.
surrounds 2016, depending on how long this softening continues. The depth
Our future continues to be bright. We have the ability to grow our businesses
of any potential impact will be highly dependent on changes to the economy,
while balancing the needs of all our stakeholders, including shareholders.
and more specifically to the oil and gas industry in Alberta, in the second half
I’d like to thank the Genesis team and the Board for their commitment
of 2015.
Fortunately, we stand in a position of strength that will allow us to respond
to market fluctuations as needed. Today, Genesis is a well-managed
company with solid financials, a wealth of developable assets, a strong
and response to driving Genesis forward, and shareholders for their
continued belief and support in what we are doing. I’m proud of what we’ve
accomplished, and look forward to continuing our success as we deliver
results, further grow the company and maximize value.
team, and a good but challenging market overall. We provide affordable
Enriching lives through inspired communities – that is what we love to do –
homes to our customers, many of which are first-time home buyers. As they
and we do it one home, one family, one neighbourhood at a time.
do not need to sell existing homes, we believe this segment of the market is
more resilient in a downturn and lessens any potential impact on our results.
Targeting this group also aligns with our strategic and operational focus
to build a sustainable and highly profitable home building business. I feel
confident about our success in 2015 due to the strength of our order book
of firm home sales contracts. As of the beginning of 2015, approximately
two-thirds of our 2015 home building sales were firm sales that we expect to
BRUCE RUDICHUK
President & Chief Executive Officer
close this year (137 contracts). We are well on our way to meeting our target
March 28, 2015
of 200 homes sold.
3
BRUCE RUDICHUK, CA, CIRP
President & Chief Executive Officer
With over 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 of a privately
held real estate company. He currently serves on
the board of the Urban Development Institute -
Calgary and previously 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 Alberta)
and a Chartered Insolvency and Restructuring
Professional (member of the Canadian Association
of Insolvency and Restructuring Professionals).
Bruce earned an Honours Bachelor of Economics
and Business from York University.
MARK SCOTT
Executive Vice President &
Chief Financial Officer
Mark has nearly 30 years of experience in real
estate, investment banking and international
business. His real estate experience is in finance,
mergers and acquisitions, asset sales, and
property asset management. Mark spent 17 years
at Scotia Capital in Toronto, Hong Kong, and most
recently, as Managing Director & Office Head in
their Vancouver office. Prior to joining Genesis, he
was a private investor and director. Mark earned
a B.A. in Management and Economics from the
University of Guelph and has served on the Board
of Trustees of the Fraser Institute and various
public companies.
RAUF MUHAMMAD, CPA
Corporate Controller
Rauf is a CPA (Certified as CPA in Colorado, USA)
with 19 years of experience in financial reporting,
internal controls, creating sustainable processes
and controllership in Canada and abroad. He
has experience in the public practice, media, oil
and gas, and real estate sectors. Prior to joining
Genesis, Rauf worked with Spectra Energy, KPMG,
Middle East Broadcasting Centre, Ernst and
Young, and Arthur Andersen. He joined Genesis
in November 2011 and served as Manager of
Financial Reporting and Assistant Controller prior
to becoming Controller in 2013.
BOARD OF DIRECTORS
STEPHEN J. GRIGGS, B.A., J.D.
Chair of the Board of Directors
4
WILLIAM PRINGLE, B.Comm.,
C.A.
Vice Chair of the Board of
Directors
YAZDI BHARUCHA, C.A., ICD.D
Director
MICHAEL BRODSKY, B.A., J.D.,
M.B.A.
Director
ARNIE STEFANIUK, P.ENG.
General Manager of Land Development
KRISTEN WILKINSON
General Manager, Sales & Marketing
PS SIDHU, MBA
General Manager, Home Building
With over two decades of experience in land
development and municipal engineering, Arnie has
served as General Manager of Land Development
at Genesis since 2010. His experience as a
professional engineer, working in the field, led
to a passion for community development. Arnie
provides expertise in land investment, community
design and construction.
Kristen brings more than 16 years of strategic
marketing and communications expertise to her
role as General Manager of Sales & Marketing
with Genesis. Her extensive experience in
the real estate and land development sector
includes marketing positions with the renowned
North America resort real estate company,
Intrawest, and the Lora Bay Corporation. Prior
to joining Genesis in 2012, Kristen received
her Digital Marketing Leadership Certificate
from the Interactive Advertising Bureau of
Canada. She has also gained accreditation from
the Professional Home Building Institute for
Sales Management. She currently sits on the
Marketing Council for the Calgary Home Builders’
Association.
Since his appointment as General Manager of
Home Building in 2008, PS has tripled division
revenues. An MBA graduate who is enrolled in
the Professional Home Builders Institute, PS has
a strong background in organizational leadership
and residential construction operations. He has
been working with Genesis since 2005.
STEVEN GLOVER, M.B.A., FCA
Chair of the Audit Committee
MARK W. MITCHELL, B.A.,
MBA
Director
LOUDON OWEN, B.A., J.D.,
MBA
Director
IAIN STEWART, B.Comm., C.A.
Director
5
HOMES WITH
FIRM SALES
CONTRACTS
AT YEAR END
16%
FROM 2013
137
2014
118
2013
NEW HOME
ORDERS
26%
FROM 2013
239
2014
189
2013
305%
INCREASE
IN EARNINGS
FROM 2013
,
0
0
0
5
9
3
,
7
1
$
6
DEBT
53% FROM
2013
,
0
0
0
2
9
8
,
3
2
$
CASH ON
HAND
CASH FLOW
FROM
OPERATIONS
,
0
0
0
8
4
0
,
3
3
$
,
0
0
0
9
6
1
,
2
4
$
CASH FLOW
PER SHARE
4
9
.
0
$
7
THE GENESIS CENTRE
Inspiring Community Wellness
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 – a 225,000 square foot, $120 million
multi-purpose complex built to enrich the health,
wellness, and unity of communities in Northeast
Calgary.
8
GENESIS PLACE
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 the quality of life for the
community of Airdrie.
SAM AWARDS FINALIST FOR 2014
Community of the Year – Calgary Region
Canals Landing, Airdrie
9
CURRENT PROJECTS
AIRDRIE
SAGE HILL
CROSSING
NE CALGARY
NW CALGARY
CALGARY
INTERNATIONAL
AIRPORT
CITY OF CALGARY
10
AIRDRIE
FOWLER
CITY OF AIRDRIE
NW
CALGARY
NE
CALGARY
CALGARY
INTERNATIONAL
AIRPORT
DELACOUR
NORTH
CONRICH
LANDS
SOUTH
EAST
LANDS
SAGE HILL
CROSSING
NE CALGARY
NW CALGARY
CALGARY
INTERNATIONAL
AIRPORT
CITY OF CALGARY
GENESIS PROJECTS
AIRDRIE
FUTURE PROJECTS
AIRDRIE
FOWLER
CITY OF AIRDRIE
NW
CALGARY
NE
CALGARY
CALGARY
INTERNATIONAL
AIRPORT
DELACOUR
NORTH
CONRICH
LANDS
SOUTH
EAST
LANDS
11
12
BAYSIDE
1
14
BAYVIEW
16
CANALS
18
SADDLESTONE
20
SAGE
MEADOWS
122
SOUTH EAST
LANDS
MANAGEMENT’S
DISCUSSION &
ANALYSIS 2014
FOR THE THREE MONTHS AND YEAR ENDED DECEMBER 31, 2014
24
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, 2014 and 2013, prepared in
accordance with International Financial Reporting Standards (“IFRS”).
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 consolidated financial statements and comparative information
have been reviewed by the Corporation’s Audit Committee, consisting
of three independent directors, and approved by the Board of Directors.
Additional information, including the Corporation’s Annual Information
Form (“AIF”) are 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 26, 2015.
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 reporting issuers. These
additional GAAP and non-GAAP financial measures include net asset
value, gross margin before recovery or write-down, and adjusted
earnings per share. For a full description of these non-GAAP financial
measures and a reconciliation of these measures to their most directly
comparable GAAP measures, please refer to “Non-GAAP Financial
Measures” on page 40. Please also refer to page 43 for the “Non-GAAP
Financial Measures” advisory and the “Forward Looking Statements”
advisory.
OVERVIEW
Genesis is an integrated, award-winning land developer and residential
home builder 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.
The common shares of the Corporation are listed for trading on the
Toronto Stock Exchange under the symbol “GDC”.
MARKET OVERVIEW
Alberta’s general economic conditions were strong throughout the
majority of 2014, based on continuing low unemployment and interest
rates, low and stable inflation rates, positive net migration to Alberta
and above average earnings by Albertans. Our current financial
strength is a direct result of the execution of our strategic plan which,
among other things, has a focus on reducing debt to enable Genesis to
withstand market disruptions, consider shareholder distributions and
pursue opportunistic investments.
In the second half of 2014 and into 2015, Alberta saw a softening of
economic fundamentals, primarily due to a significant drop in crude oil
and natural gas prices that began in the middle of 2014. These factors
have resulted in a more competitive and challenging market in 2015,
which is expected to constrain margins, profitability and the pace of
activity in Calgary’s home building industry throughout 2015 and possibly
into 2016. How long this softening continues and the depth of any
potential impact will be highly dependent on changes to the economy,
and more specifically to the oil and gas industry in Alberta, in the second
half of 2015.
Entering 2015, Genesis had 137 homes with firm sales contracts that
we expect to close in 2015. Our core businesses are running more
efficiently, supported by a large portfolio of entitled residential and
mixed-use land, which is well positioned and will benefit significantly
from a rebound and strengthening of the Alberta economy. These
various factors, along with more cash on hand than outstanding loans
and significant unutilized debt capacity, provide management with the
flexibility to adjust to a variety of changes in the economic environment.
25
GENESIS LAND DEVELOPMENT CORP. MANAGEMENT’S DISCUSSION & ANALYSIS
FOR THE THREE MONTHS AND YEAR ENDED DECEMBER 31, 2014
CORPORATE HIGHLIGHTS
Key financial results and operating data for the Corporation are as follows:
Key Financial Data
Total revenues
Cost of sales (1)
Gross margin
Gross margin (%)
(Write-down) recovery of real estate held for development and sale
Gross margin before (write-down) recovery (2)
Gross margin before (write-down) recovery (%) (2)
Earnings (loss) before income taxes
Net earnings (3) attributable to equity shareholders
Net earnings per share – basic and diluted
Adjusted earnings per share – basic and diluted (2)
Cash flows from operating activities
Cash flows from operating activities per share – basic and diluted
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
New home orders (units)
Homes with firm sale contracts (units)
Key Balance Sheet Data
Cash and cash equivalents
Total assets
Loans and credit facilities
Total liabilities
Shareholders’ equity
Total equity
Loans and credit facilities (“Debt”) to total assets
(1) Includes (write-down) recovery of real estate held for development and sale.
(2) Non-GAAP financial measure. Refer to page 40 for further information.
(3) Net of income tax expense.
26
Three months ended
December 31,
Year ended
December 31,
2014
2013
2014
2013
28,509
26,331
(21,122)
(23,697)
134,245
(95,244)
7,387
25.9%
(184)
7,571
26.6%
3,125
2,858
0.07
0.06
4,099
0.09
3
18
-
208
-
66
422
38
2,634
10.0%
(4,155)
6,789
25.8%
2,485
4,980
0.11
0.12
1,086
0.02
62
36
-
154
-
42
396
54
96,077
(84,942)
11,135
11.6%
(16,282)
27,417
28.5%
(1,850)
5,713
0.13
0.26
39,001
29.1%
4,177
34,824
25.9%
24,117
17,395
0.39
0.37
42,169
53,952
0.94
1.20
124
147
121.91
192
115
220
436
239
150
110
11.28
171
591
164
387
189
As at December 31,
2014
137
2013
118
As at December 31,
2014
2013
33,048
17,678
309,742
313,846
23,892
78,468
208,101
231,274
7.7%
50,373
95,920
195,483
217,926
16.1%
STRATEGY AND BUSINESS FOCUS
Home building profitability accelerated:
Highlights
The ongoing successful implementation of our strategic plan drove solid
performance across the Corporation in both our land development and
home building business segments in 2014. We realized a turnaround
in our home building business and in our overall financial position
throughout the year, taking advantage of a robust land and housing
market in the Calgary Metropolitan Area during the majority of 2014.
These factors resulted in the best overall year of operating results
for Genesis, achieving rapidly growing home sales, strengthening
profitability, strong cash flow, a reduction in debt levels and a balance
sheet poised to support future growth. While there has been softening
of economic fundamentals in Alberta during the second half of 2014 and
into 2015, we are well situated to weather the expected challenges and
continue to achieve positive results.
Earnings rose substantially to new levels:
• Earnings of $2,858 (2013 – $4,980) and $17,395 (2013 – $5,713) for
the fourth quarter of 2014 (“Q4 2014”) and the year ended December
31, 2014 (“YE 2014”), respectively.
• Large gains in our home building segment resulted in total revenue
growth of 8.3% and 39.7% to $28,509 (2013 – $26,331) in Q4 2014
and $134,245 (2013 – $96,077) for YE 2014. Revenue for YE 2014
included the sale of Acheson development land for $14,000.
Continued strong cash flows from operations:
• Cash flow from operating activities for Q4 2014 was $4,099 ($0.09
per share) compared to $1,086 ($0.02 per share) in the fourth quarter
of 2013 (“Q4 2013”) and was $42,169 ($0.94 per share) at YE 2014
compared to $53,952 ($1.20 per share) at December 31, 2013 (“YE
2013”).
• Receipts for YE 2014 included $13,784 from the sale of the non-core
Acheson development land parcel while YE 2013 included the receipt
of $27,713 from the sale of sites 1 and 2 in the Sage Hill Crossing
commercial development.
Balanced sheet strengthened:
• Significantly reduced utilization of loans and credit facilities to
$23,892 at YE 2014 from $50,373 at YE 2013.
○ Genesis had more cash on hand at YE 2014 ($33,048) than drawn
loans and credit facilities ($23,892), largely due to strong cash
flows from operating activities and the sale of the non-core
Acheson development land parcel in the first quarter of 2014 (“Q1
2014”).
○ Debt to total assets dropped to 7.7% at YE 2014 from 16.1% at
YE 2013. We have significant unutilized debt capacity to execute
our strategic plan, further grow our business and to provide
support in the event of a deeper economic downturn.
• The home building business segment achieved continued
performance improvements with revenues, gross margins, earnings
and volumes up significantly in Q4 2014 and YE 2014 compared to the
same periods in 2013.
• Improved efficiencies and higher sales volumes produced increased
gross margins of 15.9% and 16.7% for Q4 2014 and YE 2014,
respectively, compared to 13.5% and 14.2% for the same periods in
2013.
• Earnings before income taxes and non-controlling interest (“NCI”)
increased for Q4 2014 and YE 2014 to $1,818 (2013 - $137) and
$5,108 (2013 - $254).
Sharply higher increase in YE 2014 new home orders and firm sale
contracts:
• Home sales were 66 and 220 for Q4 2014 and YE 2014, compared to
42 and 164 from the same periods in 2013.
• New home orders were 38 and 239 for Q4 2014 and YE 2014 as
compared to 54 and 189 in the same periods in 2013. New home
orders for the year increased by 26.5% despite a 29.6% decline in
new home orders for the quarter.
• Homes with firm sale contracts increased 16.1% to 137 at YE 2014
compared to 118 homes with firm sale contracts at YE 2013, providing
a strong base of committed revenue for 2015.
The land development segment continued revenue growth and
improved profitability:
• Revenues increased by 24.3% for YE 2014 despite a decrease of
71.1% for Q4 2014.
• Earnings before income taxes and NCI for Q4 2014 and YE 2014 were
$1,463 (2013 – $6,716) and $19,629 (2013 – $7,579), respectively.
First ever dividend payment:
• In 2014, Genesis took advantage of its strong earnings and balance
sheet to pay its first dividend, a special dividend of $0.12 per share.
Major land acquisition:
• We acquired approximately 350 acres of land located in southeast
Calgary along the Bow River for $52.5 million with $40.0 million
payable over 5 years at 0% interest rate. The community is expected
to include nearly 2,100 homes, parkland and supporting community
commercial development. Once completed it will encompass a large
scale residential community with multiple product categories in a
rapidly growing area within the City of Calgary, and the development
time-frame will support the planned growth of both our land
development and homebuilding businesses. This transaction closed
on January 6, 2015.
27
GENESIS LAND DEVELOPMENT CORP. MANAGEMENT’S DISCUSSION & ANALYSIS
FOR THE THREE MONTHS AND YEAR ENDED DECEMBER 31, 2014
2.
3.
4.
The development and sale of land (typically represented by a
community with one, or a combination, of multi-family, industrial
or commercial zoned components) occurs over a substantial period
of time. The sales of such parcels do not occur on a predictable
schedule as is the general pattern for residential lots. Consequently,
the sale of development land and collection of proceeds can create
significant volatility in the revenues, earnings and cash flows from
operating activities of Genesis.
Seasonality affects the land development and home building industry
in Canada, particularly as a result of weather conditions during
winter operations. As a result, we typically realize higher lot and
home building revenues in the summer and fall months when home
building sales peak.
Lot prices and gross margin on single family lots varies by
community based on the nature of the development work to be
undertaken before the lots are ready for sale, and are dependent on
how long the Corporation has owned the land.
The Highlights section of this MD&A should be read in conjunction
with the rest of this MD&A, which contains additional information and
analysis. Further information on the Corporation’s performance is also
presented in the Land Development and Home Building sections of
this MD&A. These sections are to be read in conjunction with note 17
(segmented information) in the consolidated financial statements for the
years ended December 31, 2014 and 2013. These sections of the MD&A
present the business segment revenues and expenses before inter-
company eliminations.
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 Calgary Metropolitan Area. All costs are segmented,
including selling costs, general and administrative costs and finance
expense.
Major factors affect the results of our operations, including:
1.
The strategic decision to reserve a significant portion of developed
lots for our rapidly growing home building business segment defers
the related revenues and earnings from those lots until the sale of
the home and lot. When lots are sold to a third party home builder,
lot sale revenue is recognized pursuant to the terms of the contract
and corporate accounting policies. The impact on reported results
will be less pronounced as home building volume growth moderates.
28
Land Development
Our strategy is to continue to profitably grow our land development and
housing operations in unison, thereby enabling more lots to be sold
through our home building business segment. This strategy allows us to
realize both the land development margin and the home building margin.
In the short-term, and to the extent that lots sold through our home
building business segment would otherwise have been sold to third party
builders, land development revenue would be deferred as those lots sold
through the home building business segment and related profits are not
recognized until the home is built and delivered. The impact of the deferral
will be reduced as targeted growth in our home building business segment
is achieved.
Key Financial Data
Residential lot sales (1)
Development land sales
Total revenue
Direct cost of sales
Gross margin before recovery (write-down) (2)
Gross margin before recovery (write-down) (%) (2)
(Write-down) recovery of real estate held for
development and sale
Equity income from joint venture
Other net expenses (3)
Land development EBIT (4)
Key Operating Data
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
Three months ended December 31,
Year ended December 31,
2014
2013
% change
2014
2013
% change
4,169
14,421
(71.1%)
45,026
40,817
-
4,169
(1,851)
2,318
55.6%
-
14,421
(8,698)
5,723
39.7%
-
(71.1%)
(78.7%)
(59.5%)
14,000
59,026
6,668
47,485
(38,715)
(27,912)
20,311
34.4%
19,573
41.2%
10.3%
110.0%
24.3%
38.7%
3.8%
(184)
(4,155)
(95.6%)
4,177
(16,282)
N/R (5)
903
(2,558)
479
3,213
(2,433)
2,348
(71.9%)
4,580
6,038
5.1%
(8,528)
(11,433)
(79.6%)
20,540
(2,104)
3
18
21
-
199
-
62
36
98
-
147
-
(95.2%)
(50.0%)
124
147
(78.6%)
271
-
121.91
35.4%
-
166
115
150
110
260
11.28
157
591
(24.1%)
(25.4%)
N/R (5)
(17.3%)
33.6%
4.2%
N/R (5)
5.7%
(80.5%)
(1) Includes residential lot sales and other revenue.
(2) Non-GAAP financial measure. Refer to page 40 for further information.
(3) Other net expenses includes general and administrative, selling and marketing and net finance expense.
(4) Segmented earnings (loss) before income taxes (“EBIT”).
(5) Not reflective due to percentage increase.
Revenues were lower for Q4 2014 than in Q4 2013 due to decreased
volumes of residential lot sales, both to third parties and to the home
building business segment. The volume of lot sales are usually higher
when new sub-divisions are brought on stream and are also impacted
by the pace at which pool lots are picked up by partner builders. Gross
margin percentage on residential lots increased to 55.6% in Q4 2014 from
39.7% in Q4 2013. Other net expenses were slightly higher in Q4 2014
compared to Q4 2013 mainly due to an increase in land development
segment and corporate personnel that were required for the increase in
activities in 2014.
Revenues for YE 2014 were higher than those for YE 2013 due to higher
residential lot sales and the sale of a non-core development land parcel
and a small multi-family parcel. 2014 included the sale of the non-core
Acheson property for $14,000 which was close to its carrying value and
thus generated a low gross margin. Eliminating the impact of the sale
of this non-core property on both revenue and cost of sales results in a
gross margin of 44.1% which is similar to 2013. Gross margin from the
sale of development lands is dependent on a variety of factors such as
location, supply of land, zoning regulations, interest rates and how long
the Corporation has owned the land.
Gross margin on single family lots was higher at YE 2014 at 44.1%
compared to 41.9% at YE 2013. This typically varies by community, based
on the nature of the development work to be undertaken before the lots
are ready for sale and how long the Corporation has owned the land.
29
GENESIS LAND DEVELOPMENT CORP. MANAGEMENT’S DISCUSSION & ANALYSIS
FOR THE THREE MONTHS AND YEAR ENDED DECEMBER 31, 2014
Other expenses decreased by 25.4% during YE 2014 compared to YE 2013,
mainly due to one-time proxy contest costs incurred in the third quarter of
2013 (“Q3 2013”). In YE 2014, we incurred higher selling and marketing
expenses related to the sale of the non-core Acheson development land
parcel and increased community marketing activity, offset by lower net
finance expenses. The land development segment and corporate personnel
increased to 32 at YE 2014 from 27 at YE 2013.
Home Building
Key Financial Data
Revenues (1)
Cost of sales
Gross margin
Gross margin (%)
Other net expenses (2)
Home building EBIT (3)
Key Operating Data
Homes sold
Average revenue per home sold
Three months ended December 31,
Year ended December 31,
2014
2013
% change
2014
2013
% change
27,832
16,668
(23,407)
(14,419)
4,425
15.9%
(2,607)
1,818
66
422
2,249
13.5%
(2,112)
137
42
396
67.0%
62.3%
96.8%
23.4%
N/R (4)
57.1%
6.6%
96,029
63,570
(79,985)
(54,543)
16,044
16.7%
(10,936)
5,108
9,027
14.2%
(8,773)
254
220
436
164
387
51.1%
46.6%
77.7%
24.7%
N/R (4)
34.1%
12.7%
(1) Revenues include residential home sales and other revenue.
(2) Other net expenses includes general and administrative, selling and marketing and net finance expense.
(3) Segmented earnings before income taxes.
(4) Not reflective due to percentage increase.
Genesis realized higher revenues as well as higher average revenues
per home during Q4 2014 and YE 2014 compared to the same periods
in 2013 due to a combination of the sales mix and the larger number of
homes sold compared to the same periods in 2013. Single-family homes
typically command higher sale prices than multi-family homes or attached
duplexes. Of the 66 homes sold during Q4 2014, 54 were single-family
homes and 12 were multi-family homes compared to 29 single-family and
13 multi-family homes in Q4 2013. Of the 220 homes sold in 2014, 207
were single-family homes and 13 were multi-family homes compared to
113 single-family homes and 51 multi-family homes in 2013.
Gross margin percentage for 2014 was higher compared to the same
periods in 2013 due to a combination of significantly higher volumes,
greater operating efficiencies and the overall strength of the home
building market in the Calgary Metropolitan Area during the year. The
strong housing market in the Calgary Metropolitan Area in 2014 allowed
for increases in the selling price of quick possession homes, adding to the
improved gross margin percentage.
Other expenses increased by 23.4% and 24.7% in Q4 2014 and YE 2014,
respectively, due to higher general and administrative expenses and
selling and marketing expenses, but were at a much slower pace of
increase than home building revenues. These expenses were necessary
to achieve aggressive revenue and profitability targets. The number of
employees at YE 2014 increased to 49 from 36 at YE 2013 in order to
achieve increased home building volume and customer service targets.
The increase in other expenses was partially offset by lower net finance
expenses due to reduced debt levels and lower interest rates.
Finance Expense
Interest incurred
Financing fees amortized
Interest and financing fees capitalized
30
Three months ended December 31,
Year ended December 31,
2014
360
201
(294)
267
2013
% change
896
378
(1,042)
232
(59.8%)
(46.8%)
(71.8%)
15.1%
2014
1,853
991
(1,736)
1,108
2013
% change
3,771
1,518
(3,763)
1,526
(50.9%)
(34.7%)
(53.9%)
(27.4%)
Interest incurred relates to operating loans secured by land and home
building operations. The lower interest incurred during Q4 2014 and
YE 2014 compared to the same periods in 2013 was mainly due to
significantly lower average outstanding loans and credit facilities. The
weighted average interest rate of loan agreements was 5.57% (YE 2013 –
5.83%), based on YE 2014 balances. This was 4.65% (YE 2013 – 5.58%),
based on YE 2014 balances, after excluding $7,850 relating to a limited
partnership.
SEGMENTED BALANCE SHEETS
December 31, 2014
December 31,
2013
Land Development
Genesis
LPs
Intra
-segment
Eliminations
Home
Building(1) Eliminations Consolidated Consolidated
Assets
Real estate held for development
and sale
Amounts receivable
Cash and cash equivalents
Other assets
Total assets
Liabilities
Loans and credit facilities
Provision for future development costs
Other liabilities (2)
Total liabilities
Net assets
152,429
55,528
17,516
21,019
55,512
4
477
1,059
246,476
57,068
-
-
-
(25,146)
(25,146)
35,557
(3,391)
240,123
257,420
140
11,552
4,781
52,030
-
-
(17,295)
17,660
33,048
18,911
23,342
17,678
15,406
(20,686)
309,742
313,846
8,310
18,279
17,018
43,607
202,869
7,804
-
25,190
32,994
24,074
-
-
7,778
3,666
(25,146)
32,870
(25,146)
-
44,314
7,716
-
-
(17,301)
(17,301)
23,892
21,945
32,631
78,468
50,373
20,448
25,099
95,920
(3,385)
231,274
217,926
(1) Other liabilities under the home building business segment includes $14,164 (2013 – $19,187) due to the land development segment related to land and lot purchases.
(2) Other liabilities under the LPs segment comprises customer deposits and accounts payable and accrued liabilities and includes $24,091 (2013 – $21,998) due to Genesis. Refer to note 20 in the
consolidated financial statements for the years ended December 31, 2014 and 2013.
LIQUIDITY AND CAPITAL RESOURCES
Genesis had more cash on hand than outstanding loans and also had
significant unutilized debt capacity, providing management with the
flexibility to adjust to a variety of changes in the economic environment.
We are able to meet our operating and capital needs through a number
of sources, including cash flows from operations and from our short-term
and long-term borrowings under our credit facilities. Our debt decreased
substantially during 2014 as funds received from the sale of the non-core
Acheson development land, lot payouts, and residential home sales were
used to pay down related project debt. These activities improved our
financial strength by reducing loans and credit facilities outstanding to
$23,892, total liabilities to equity ratio to 0.34 and debt to total assets to
7.7% at YE 2014 compared to $50,373, 0.44 and 16.1%, respectively at YE
2013. We regularly review credit facilities and manage requirements in
accordance with project development plans and operating requirements.
Genesis and its subsidiaries were in compliance with all covenants as at
YE 2014 and YE 2013.
31
GENESIS LAND DEVELOPMENT CORP. MANAGEMENT’S DISCUSSION & ANALYSIS
FOR THE THREE MONTHS AND YEAR ENDED DECEMBER 31, 2014
Real Estate Held for Development and Sale
Real estate held for development and sale
Provision for write-downs
Real estate held for development and sale decreased by $17,297 at YE
2014 compared to the YE 2013. This was primarily due to the sale of the
non-core Acheson development land parcel, recoveries of shared costs
and the sale of residential lots. This decrease was partially offset by land
development activities and recovery of write-downs previously made.
Refer to note 4 in the consolidated financial statements for the years
ended December 31, 2014 and 2013.
December 31,
2014
2013
% change
292,013
317,602
(51,890)
(60,182)
240,123
257,420
(8.1%)
(13.8%)
(6.7%)
The following table presents our real estate held for development and sale
at YE 2014. For additional information on Appraised Value below, see the
Non-GAAP measures section of this MD&A on page 40:
Land under development
Land held for future development
Total
Net
carrying Appraised
value
value
32,814
96,636
18,877
39,089
14,532
33,315
66,223
169,040
51,037
79,919
1,673
2,380
118,933
251,339
Land Development Segment
Residential
Airdrie (1)
Calgary NW (2)
Calgary NE (3)
Mixed use (4)
Other assets (5),(9)
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
Acres
Lots
carrying Appraised
value
value
Acres
carrying Appraised
value
value
Acres
Lots
Net
Net
213
44
4
261
71
114
446
166
27
184
377
-
14
8,018
31,860
-
-
7,394
16,000
90
-
46
40,832
128,496
18,877
39,089
21,926
49,315
15,412
47,860
136
81,635
216,900
18,448
26,552
5,018
6,780
1,788
1,990
69,485
106,471
6,691
9,160
391
38,878
81,192
3,914
157,811
332,531
303
44
50
397
1,859
2,104
4,360
32,165
35,557
-
189,976
368,088
4,360
50,147
60,170
240,123
428,258
2,387
6,747
166
27
184
377
-
14
391
151
542
-
542
(1) Airdrie comprises the communities of Bayside, Bayview and Canals.
(2) Calgary NW comprises the community of Sage Meadows.
(3) Calgary NE comprises the community of Saddlestone.
(4) Mixed use comprises Delacour, North Conrich and Sage Hill Crossing.
(5) Other assets comprises Brooks, Dawson Creek, Kamloops, Mitford Crossing, Mountain View Village, Prince George and Spur Valley.
(6) Lots include 308 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 4 in the consolidated financial statements for the year ended December 31, 2014.
(8) Housing projects under development. Refer to note 4 in the consolidated financial statements for the year ended December 31, 2014.
(9) Other assets includes non-core assets which represent 3.7% ( 2013 – 10.8%) of Genesis’ Land portfolio with a carrying value of $5,789 (2013 – $19,382).
32
The following table presents the home building business segment’s lot supply at YE 2014:
Project
Airdrie
Bayside
Canals
Calgary NW
Evansridge(2)
Kinwood(3)
Sage Meadows
Sherwood
Calgary NE
Saddlestone
Total
Lot
Homes
Lots at purchases sold during
2014
in 2014
Jan 1, 2014
Lots at
December
31, 2014(1) contracts
Unsold
Lots with
lots at
firm sale December
31, 2014
Breakdown of unsold lots
Vacant
Spec. homes
for quick
lots possession
Show-
homes
Price
range of
homes
sold
13
50
63
42
82
35
5
164
119
346
149
-
149
22
32
-
-
54
130
333
(23)
(43)
(66)
(35)
(39)
(8)
(2)
(84)
(70)
(220)
139
7
146
29
75
27
3
134
179
459
(4)
(5)
(9)
(7)
(44)
(27)
(3)
(81)
(47)
(137)
135
2
137
22
31
-
-
53
132
322
105
-
105
22
10
-
-
32
132
269
26
-
26
-
20
-
-
20
-
46
4
2
6
-
1
-
-
$277-$479
$298-$646
$277-$646
$371-$562
$433-$667
$383-$737
$789-$1065
1
$371-$1065
-
7
$254-$705
$254-$1065
(1) Closing supply of lots at YE 2014 includes 459 lots, of which 308 have been reserved/contracted for sale to the home building business segment from the land development segment and 151 lots
have been purchased from the land development segment and from the joint venture at market prices.
(2) Lots purchased from third parties.
(3) Lots purchased from joint venture.
Amounts Receivable
Amounts receivable
December 31,
2014
17,660
2013
% Change
23,342
(24.3%)
Amounts receivable decreased by $5,682 for YE 2014 as compared to the
prior year. This was mainly as a result of collections of receivables from
third parties and change in mix of sales due to our strategy to grow the
home building segment, resulting in lower sales to third party builders.
Genesis generally retains title to lots and homes until full payment is
received in order to mitigate credit exposure.
Cash Flows from Operating Activities
Cash flows from operating activities
Cash flows from operating activities per share – basic and diluted
Three months ended
December 31,
Year ended
December 31,
2014
4,099
0.09
2013
1,086
0.02
2014
42,169
0.94
2013
53,952
1.20
Cash flows from operating activities were higher in Q4 2014 compared to
Q4 2013 due to an increase in the number of sales of residential homes.
This increase was partially offset by lower cash receipts from the sale of
residential lots to third parties.
Cash flows from operating activities was $42,169 for YE 2014 compared
to $53,952 for YE 2013 due to lower receipts from land sales and from
the sale of residential lots in 2014. Receipts for YE 2014 included $13,784
from the sale of the non-core Acheson development land parcel while YE
2013 included the receipt of $27,713 from the sale of sites 1 and 2 in the
Sage Hill Crossing commercial development. Lower receipts from the sale
of residential lots in 2014 were partially offset by higher receipts from the
sale of residential homes.
33
GENESIS LAND DEVELOPMENT CORP. MANAGEMENT’S DISCUSSION & ANALYSIS
FOR THE THREE MONTHS AND YEAR ENDED DECEMBER 31, 2014
LIABILITIES AND SHAREHOLDERS’ EQUITY
Loans and credit facilities
Customer deposits
Accounts payable and accrued liabilities
Provision for future land development costs
Income taxes payable
Total liabilities
Non-controlling interest
Shareholders’ equity
December 31,
December 31,
2014
% of Total
2013
% of Total
23,892
5,515
22,683
21,945
4,433
78,468
23,173
208,101
309,742
8%
2%
7%
7%
1%
25%
7%
68%
100%
50,373
5,228
16,759
20,448
3,112
95,920
22,443
195,483
313,846
16%
2%
5%
7%
1%
31%
7%
62%
100%
Loans and Credit Facilities
Loans and credit facilities are used primarily to finance the costs of
developing land, building houses and for land purchases, in certain
circumstances.
Genesis has sufficient liquidity from its operating activities, supplemented
by credit facilities, to meet the above liabilities as they become due. We
regularly review credit facilities and manage requirements in accordance
with project development plans and operating requirements.
The following is a summary of drawn and outstanding loan and credit
facility balances as at YE 2014 and as at the end of the previous four
quarters:
Land development loans
Home building loans
Unamortized deferred financing fees
Balance, end of period
Q4 2014
Q3 2014
Q2 2014
Q1 2014
Q4 2013
16,600
7,818
24,418
16,788
457
17,245
16,168
4,525
20,693
(526)
(726)
(820)
23,892
16,519
19,873
23,473
10,569
34,042
(1,074)
32,968
40,609
11,021
51,630
(1,257)
50,373
The change in the Corporation’s loans and credit facilities was are follows:
Balance, beginning of period (1)
Advances
Repayments
Interest and financing fees incurred
Interest and financing fees paid
Balance, end of period (1)
(1) Loans and credit facilities includes $7,850 related to a limited partnership which is guaranteed by Genesis.
34
For the year ended
December 31,
2014
50,373
27,484
2013
97,224
46,511
(55,347)
(94,214)
2,693
(1,311)
23,892
3,835
(2,983)
50,373
Total liabilities to equity ratio was as follows:
Total liabilities
Total equity
Total liabilities to equity ratio (1)
(1) Calculated as total liabilities divided by total equity.
The Corporation’s debt decreased substantially during 2014 as funds
received from the sale of the non-core Acheson development land, lot
payouts, and residential home sales were used to pay down related
project debt. These activities improved our financial strength by reducing
loans and credit facilities outstanding to $23,892 and the total liabilities to
equity ratio to 0.34 at YE 2014 compared to $50,373 and 0.44 at YE 2013.
Genesis has various covenants in place with its lenders with respect to
certain contracted credit facilities. Such covenants include: other credit
usage restrictions; cancellation, prepayment, confidentiality and cross
default clauses; sales coverage requirements; conditions precedent for
funding; and other general understandings such as, but not limited to,
maintaining contracted lot prices, restrictions on encumbrances, liens and
charges, material changes to project plans, and material changes in the
Corporation’s ownership structure. In addition, the home building business
segment has a secured revolving operating line repayable on demand to
be used for home construction and the acquisition of serviced lots. This
Income Tax Payable
The changes in income tax payable are as follows:
Balance, beginning of period
Provision for current income tax
Net payments
Balance, end of period
December 31,
2014
78,468
2013
95,920
231,274
217,926
0.34
0.44
line has a financial covenant requiring that Genesis Builders Group Inc.
(“GBG”) maintain a net worth of at least $11,500 at all times. Net worth,
a non-GAAP financial measure, as defined by the lender is “Retained
Earnings plus Shareholders Loans plus Due to Related Parties (excluding
lot payables to related parties) minus Due from Related Parties”. Genesis
and its subsidiaries were in compliance with all covenants as at YE 2014
and YE 2013.
Provision for Future Land Development Costs
Genesis sells lots for which it is responsible to pay for costs-to-complete.
The cost of these remaining services is recognized as a liability when
the related revenue is recognized. Provision for future land development
costs increased by $1,497 at YE 2014 compared to YE 2013, mainly due
to larger sale volumes net of recoveries from Sage Hill Crossing active
phases.
For the year ended
December 31,
2014
3,112
6,953
(5,632)
4,433
2013
4,617
2,420
(3,925)
3,112
The increase in income tax provision is due to the improved profitability of
the Corporation in 2014.
Non-Controlling Interest
Non-controlling interest increased at YE 2014 compared to YE 2013 mainly
due to recovery of write-downs on real estate held for development
and sale ($2,903), offset, in part, by expenses incurred by the limited
partnerships and paid by Genesis.
Refer to note 20 in the consolidated financial statements for the years
ended December 31, 2014 and 2013 for additional information on the
limited partnerships.
Shareholders’ Equity
As at March 26, 2015, the Corporation had 44,931,200 common shares
issued and outstanding. In addition, options to acquire 2,691,000 common
shares of Genesis were issued and outstanding under our stock option
plan.
35
GENESIS LAND DEVELOPMENT CORP. MANAGEMENT’S DISCUSSION & ANALYSIS
FOR THE THREE MONTHS AND YEAR ENDED DECEMBER 31, 2014
Return on equity was 8.6% at YE 2014 (YE 2013 – 3.0%) calculated on
a rolling 12 month basis. Return on equity is calculated by dividing net
income by average shareholders’ equity. Return on equity increased at
YE 2014 as the net income calculated on a rolling 12 month basis was
significantly higher than that at YE 2013. Average shareholders’ equity
as at YE 2014 was higher than that at YE 2013 even after payment of
a special cash dividend of $5,386 ($0.12 per share). Changes in the
Corporation’s net asset value are not reflected in the calculation of return
on equity mentioned above.
Contractual Obligations and Debt Repayment
Our contractual obligations as at YE 2014 were as follows, excluding accounts payable, accrued liabilities, income taxes payable, customer deposits and
provision for future land development costs:
Current
January 2016 to December 2016
January 2017 to December 2017
January 2018 and thereafter
(1) Excludes deferred financing fees.
Loans and
Credit Facilities(1)
Naming
Rights
Lease
Obligations
16,568
7,850
-
-
24,418
700
700
700
2,000
4,100
934
953
574
62
2,523
Southeast
Land
Purchase
10,000
8,000
8,000
24,000
50,000
Total
28,202
17,503
9,274
26,062
81,041
Management believes that Genesis has sufficient liquidity from its
operating activities, supplemented by credit facilities, to meet all
obligations.
recreation complex in the City of Airdrie ($200 each year, terminating June
1, 2017). The first seven installments totaling $1,400 were made up to and
through 2014.
Investment in naming rights demonstrates our commitment to the
communities we are involved in, and helps in the positive recognition of
our brand – not only in these communities, but also throughout the cities
of Calgary and Airdrie.
Genesis has entered into a memorandum of understanding with the
Northeast Community Society, whereby we will contribute $5,000 for
the naming rights to the “Genesis Centre for Community Wellness”, a
recreation complex in northeast Calgary ($500 each year, terminating
October 31, 2021). The first three installments totaling $1,500 were made
up to and through 2014.
Genesis entered into an agreement with the City of Airdrie, whereby
we will contribute $2,000 for the naming rights to “Genesis Place”, a
Current Contractual Obligations
Genesis entered into an agreement with Morguard Real Estate Investment
Trust (“Morguard”) to lease the Genesis’ office building. The basic rent per
annum was $349 in the first year, which increases progressively to $426
in the fifth year. The lease with Morguard commenced on August 1, 2012
and terminates on July 31, 2017. The lease includes an option in favor of
Genesis to extend the term for an additional five-year period at market
rent. Genesis has other minor operating leases as well.
As a normal part of business, we have entered into arrangements and
incurred obligations that will impact future operations and liquidity, some
of which are reflected as short-term liabilities and commitments in note 14
of the consolidated financial statements.
Loans and credit facilities, excluding deferred financing fees
Accounts payable and accrued liabilities
Total short-term liabilities
Commitments(1)
(1) Commitments comprise naming rights, lease obligations and payments for the southeast land acquisition.
36
December 31,
2014
16,568
22,683
39,251
11,634
50,885
2013
36,159
16,759
52,918
1,570
54,488
As at YE 2014, Genesis had obligations due within the next 12 months
of $50,885, of which $16,568 related to loans and credit facilities.
Repayment is either (i) linked directly to the collection of lot receivables
and sales proceeds; or (ii) due at maturity. Based on our operating history,
our relationship with lenders and committed sales contracts, management
is confident that Genesis has the ability to continue to renew or repay its
financial obligations as they come due.
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
(1) The figures for 2012 have been restated to incorporate the impact of adopting IFRS 11 Joint Arrangements.
2014
134,245
39,001
17,395
0.39
2013
96,077
11,135
5,713
0.13
309,742
313,846
23,892
50,373
2012(1)
129,460
9,051
8,861
0.20
374,341
97,224
SUMMARY OF QUARTERLY RESULTS
Q4 2014
Q3 2014
Q2 2014
Q1 2014
Q4 2013
Q3 2013
Q2 2013
Q1 2013
Revenues
Net earnings (1)
EPS (2)
28,509
32,984
34,765
37,987
26,331
2,858
0.07
4,366
0.09
7,231
0.16
2,940
0.07
4,980
0.11
19,734
(4,644)
(0.10)
22,402
1,697
0.04
27,610
3,680
0.08
(1) Net earnings (loss) attributable to equity shareholders.
(2) Net earnings (loss) per share – basic and diluted.
Seasonality affects the land development and home building industry
in Canada, particularly as a result of weather conditions during winter
operations. As a result, we typically realize higher home building revenues
in the summer and fall months when home building sales peak. Revenues
can be impacted by the timing of lot sales, which is less weather
dependent. The sale of development land is periodic and not predictable.
In Q4 2014, we sold 3 residential lots and 66 homes (comprising 54 single-
and 12 multi-family units) compared to 21 residential lots and 62 homes
(comprising 61 single- and 1 multi-family units) in Q3 2014. As a result,
revenues and gross margins for both residential lot sales and home sales
were lower. Gross margins were lower as residential lots generally have a
higher gross margin percentage than homes, which are a blend of lot and
home construction costs. In addition, single-family homes typically have
a higher gross margin percentage than multi-family homes. In addition,
Q4 2014 had lower income from our joint venture compared to Q3 2014.
These were the main factors that resulted in lower net earnings and EPS
in Q4 2014 compared to Q3 2014.
JOINT VENTURE
Genesis formed a joint venture (“JV”) on April 30, 2010, for the purpose of
acquiring, developing and selling certain real estate. The development and
sale of the real estate pertaining to the JV is expected to be completed in
2016.
Refer to note 16 of the consolidated financial statements for the years
ended December 31, 2014 and 2013 for the summarized financial
information of the JV and reconciliation of the summarized financial
information to the carrying amount of the Corporation’s interest in the JV,
which is accounted for using the equity 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
YE 2014, these letters of credit totalled approximately $2,641 (YE 2013 –
$6,279), and provide a source of funds for the municipalities to complete
construction and maintenance improvements to the subdivision should
37
GENESIS LAND DEVELOPMENT CORP. MANAGEMENT’S DISCUSSION & ANALYSIS
FOR THE THREE MONTHS AND YEAR ENDED DECEMBER 31, 2014
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. In the event of a letter of credit, provided to a municipality, is
cancelled by the issuing bank for any reason, Genesis will be required to
secure the cancelled letter of credit with cash.
Lease Agreements
We have certain lease agreements that are entered into in the normal
course of operations. All leases are treated as operating leases and lease
payments are included in general and administrative expenses. No asset
value or liability has been assigned to these leases in the balance sheet
as of YE 2014 and at YE 2013. In the event the lease for the office building
is terminated early, Genesis is liable to pay to Morguard for the loss of its
income for the unexpired portion of the lease, in addition to damages and
other expenses incurred by Morguard, if any.
RELATED PARTY TRANSACTIONS
There were no related party transactions for YE 2014 (2013 - $1,244).
CONSOLIDATED ENTITIES
The Corporation is the general partner in four limited partnership
arrangements (refer to note 20 of the consolidated financial statements for
the years ended December 31, 2014 and 2013) and a 50% partner in the
joint venture (refer to note 16 of the consolidated financial statements for
the years ended December 31, 2014 and 2013).
SUBSEQUENT EVENTS
In January 2015, Genesis paid $10,000 towards the acquisition of 350
acres of land located in southeast Calgary. The community is expected
to include nearly 2,100 homes, parkland and supporting community
commercial development and supplements the existing asset base of the
Corporation while ensuring a long term supply of land. This transaction
closed on January 6, 2015. Refer to note 14(a) of the consolidated
financial statements for the years ended December 31, 2014 and 2013 for
additional information.
Also in January 2015, the Corporation paid $1,777 to the former mortgage
holders of a participating mortgage as a partial payout of the 20%
participation in profits of a development activity. Refer to note 14(f) of the
consolidated financial statements for the years ended December 31, 2014
and 2013 for additional information.
In February 2015, the Corporation signed a commitment letter for a loan
facility of $10,000 to be used for general corporate purposes and this will
strengthen the Corporation’s liquidity resources. The annual interest rate
on this facility is prime + 1% and is secured by a continuing collateral
mortgage representing a first charge on certain properties held by the
Corporation and a general security agreement representing a first charge
on all the Corporation’s personal property.
SUMMARY OF ACCOUNTING CHANGES
The Corporation adopted IFRIC 21 Levies, amendments to IAS 36
Impairment of assets, amendments to IFRS 2 Share-based payments,
amendments to IAS 24 Related party disclosure, amendments to IFRS 8
Operating segments and amendments to IFRS 3 Business combinations
during 2014 and concluded that these do not have a material impact on
the Corporation’s financial position or performance. Refer to note 3 of the
consolidated financial statements for the years ended December 31, 2014
and 2013 for a description of these IFRS amendments and interpretations.
CHANGES IN ACCOUNTING POLICIES INCLUDING INITIAL
ADOPTION
Refer to note 3 of the consolidated financial statements for the years
ended December 31, 2014 and 2013 for information pertaining to
accounting pronouncements that were adopted during 2014 and for those
that will be effective in future periods.
CRITICAL ACCOUNTING 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 for the land development and
the home building business segments. 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. There
were no material changes made to the critical accounting estimates
for YE 2014 and for YE 2013. Refer to note 2(q) in the consolidated
financial statements for the years ended December 31, 2014 and 2013 for
additional information on judgments and estimates.
Provision for Future Land Development Costs
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 as it is based on
estimates prepared by independent consultants and management.
38
in Internal Control – Integrated Framework (2013) published by the
Committee of Sponsoring Organizations of the Treadway Commission
(“COSO”).
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, 2014. 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 absolute,
assurance that the objectives of the control system are met.
There were no changes in the Corporation’s ICFR during the three months
and year ended December 31, 2014 that have materially affected, or are
reasonably likely to materially affect the Corporation’s ICFR.
RISKS AND UNCERTAINTIES
In the normal course of business, we are exposed to certain risks and
uncertainties inherent in the real estate development and home building
industries. Real estate development and home building are cyclical
businesses; as a result, our profitability could be adversely affected
by external factors beyond the control of management. Risks and
uncertainties faced by Genesis are industry risk, competition, supply and
demand, geographic risk, development and construction costs, credit
and liquidity risks, finance risk, interest risk, management risk, mortgage
rates and financing risk, general uninsured losses, environmental
risk and government regulations. There may be additional risks that
management may need to consider as circumstances require. For a more
detailed discussion on the Corporation’s risk factors, refer to our Annual
Information Form available on SEDAR at www.sedar.com.
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, among
other factors.
Share-based payments
The Corporation uses an option pricing model to determine the fair value
of share-based payments. Inputs to the model are subject to various
estimates about volatility, interest rates, dividend 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.
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 taken into account
when estimating recoverability.
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 assurance that:
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
ii) information required to be disclosed in the annual filings,
interim filings or other reports filed or submitted under securities
legislation is recorded, processed, summarized and reported on a
timely basis.
The CEO and CFO have also designed, or caused to be designed under
their direct supervision, Genesis’ ICFR to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with IFRS.
The ICFR have been designed using the control framework established
39
GENESIS LAND DEVELOPMENT CORP. MANAGEMENT’S DISCUSSION & ANALYSIS
FOR THE THREE MONTHS AND YEAR ENDED DECEMBER 31, 2014
TRADING AND SHARE STATISTICS
The Corporation’s trading and share statistics for 2014 and 2013 are provided below.
Average daily trading volume
Share price ($/share)
High
Low
Close
Market capitalization at December 31
Shares outstanding
2014
45,322
2013
35,436
5.10
3.30
3.85
3.85
3.26
3.41
172,985
152,977
44,931,200
44,861,200
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 reporting issuers. Refer to Advisories on page 43 of this MD&A.
NAV, and NAV per share are non-GAAP financial measures and
therefore may not be comparable to similar measures presented by other
companies. There is no comparable IFRS financial measure presented in
the Corporation’s consolidated financial statements and thus no applicable
quantitative reconciliation for such non-GAAP financial performance
measure has been provided. Management believes this measure provides
information useful to its shareholders in understanding the Corporation’s
value, and may assist in the evaluation of the Corporation’s business
relative to that of its peers. There are risks and uncertainties associated
with appraisals and valuations and the NAV provided may not be
realizable.
NAV is calculated on a before tax basis, using total land value (prepared
by independent certified real estate appraisers) plus additional balance
sheet assets less balance sheet liabilities. The value of housing projects
under development used in the calculation of NAV is the book value of
the work in progress and the appraised value of lots of the home building
business. The book value of all remaining assets and liabilities as set
forth in the consolidated financial statements of the Corporation has been
added to calculate NAV.
The appraised value of lands is the sum of the estimated market value of
each property or phase. No discount, if any, has been taken for potential
en-bloc sale of assets. Appraisals obtained by Genesis reflect values as of
YE 2014. It should be noted that Genesis’ real estate appraisals primarily
rely on comparable sale transactions for their valuations. In rising markets,
valuations tend to lag current values since comparable transactions are
often negotiated months in advance of the recorded closing date. In falling
markets, valuations also tend to lag due to the absence of comparable
sales transactions as buyers and sellers adjust to new market conditions.
Management acknowledges that market conditions have softened since
YE 2014, however, the independent appraisals are the best estimates of
value.
In the second half of 2014 and early 2015, Alberta saw a softening of
economic fundamentals primarily due to a significant drop in crude oil and
natural gas prices. Genesis obtains appraisals at least annually for all of
its properties, with the exception of non–core properties that are actively
being marketed for sale. It is our practice to appraise approximately half
of our portfolio every six months, and provide and update of NAV at that
time.
40
The following table shows the calculation of NAV:
Appraised value of land(1)
Housing projects under development
Other balance sheet assets
Balance sheet liabilities
Add amount due from related entities
NAV
NAV per share
Total shares outstanding
December 31,
2014
332,531
35,557
368,088
69,619
(78,468)
31,033
390,272
8.69
44,931
2013
301,312
30,895
332,207
56,426
(95,920)
29,039
321,752
7.18
44,861
(1) 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.
NAV per share at YE 2014 was $8.69 compared to $7.18 at YE 2013.
The increase in the NAV in 2014 can be mainly attributed to increases
in the appraised value of the Corporation’s land throughout the Calgary
Metropolitan Area and profits from the operation of the homebuilding
business segment.
Other Items Used in the Calculation of Net Asset Value
Other balance sheet assets (1)
Accounts receivable
Investment in joint venture
Deferred tax assets
Other operating assets
Cash
Total
Balance sheet liabilities (1)
Loans and credit facilities
Customer deposits
Accounts payable and accrued liabilities
Income taxes payable
Provision for future land development costs
Total
(1) Book value per financial statements.
December 31,
2014
2013
17,660
23,342
3,560
1,358
13,993
33,048
69,619
23,892
5,515
22,683
4,433
21,945
78,468
7,894
397
7,115
17,678
56,426
50,373
5,228
16,759
3,112
20,448
95,920
41
GENESIS LAND DEVELOPMENT CORP. MANAGEMENT’S DISCUSSION & ANALYSIS
FOR THE THREE MONTHS AND YEAR ENDED DECEMBER 31, 2014
Gross margin before recovery or write-down is a non-GAAP
measure, and therefore may not be comparable to similar measures
presented by other reporting issuers. Gross margin before recovery or
write-down is calculated by adjusting for recovery or write-down of real
estate held for development and sale to the gross margin. Gross margin
before recovery or write-down of real estate held for development and
sale is used to assess the performance of the business without the effects
of recovery or write-down of real estate held for development and sale.
Management believes it is useful to exclude recovery or write-down from
the analysis as it could affect the comparability of financial results and
could potentially distort the analysis of trends in business performance.
Excluding this item does not imply it is non-recurring. The most
comparable GAAP financial measure is gross margin.
The table below shows the calculation of gross margin before recovery or
write-down, which is derived from gross margin.
Three months ended
December 31,
Year ended
December 31,
Total revenues
Gross margin
Adjust for (recovery) write-down (1)
Gross margin before (recovery) write-down
2014
28,509
7,387
184
7,571
Gross margin before (recovery) write-down (%)
26.6%
25.8%
(1) Recovery or write-down of real estate held for development and sale.
2013
2014
26,331
134,245
2,634
4,155
6,789
39,001
(4,177)
34,824
25.9%
2013
96,077
11,135
16,282
27,417
28.5%
Adjusted earnings per share is a non-GAAP measure, and therefore
may not be comparable to similar measures presented by other reporting
issuers. Adjusted earnings per share is calculated as net earnings
attributable to shareholders before recovery or write-down of real estate
held for development and sale attributable to shareholders and net of
income taxes relating to the recovery or write-down of real estate held
for development and sale, divided by the weighted average number of
common shares (basic or diluted) outstanding at a specific date. Adjusted
earnings per share is used to assess the performance of the business
without the effects of recovery or write-down of real estate held for
development and sale. Management believes it is useful to exclude
recovery or write-down of real estate held for development and sale from
the analysis as it could affect the comparability of financial results and
could potentially distort the analysis of trends in business performance.
Excluding this item does not imply that it is non-recurring. The most
comparable GAAP financial measure is earnings per share.
The following table shows the calculation of adjusted earnings per share
which is derived from net earnings attributable to equity shareholders.
Net earnings attributable to equity shareholders
Adjust for (recovery) write-down (1),(2)
Tax effect of adjustments @ 25%
Adjusted earnings
Weighted average number of shares – basic
Weighted average number of shares – diluted
Three months ended
December 31,
Year ended
December 31,
2014
2,858
(244)
61
2,675
2013
4,980
314
(79)
5,215
2014
17,395
(1,274)
319
16,440
2013
5,713
8,185
(2,046)
11,852
44,891,526
44,861,200
44,874,652
44,838,401
45,351,368
44,917,233
45,276,574
44,900,321
Weighted average number of shares – basic and diluted(3)
0.06
0.12
0.37
0.26
(1) Recovery or write-down of real estate held for development and sale.
(2) Excludes recovery or write-down related to properties held by limited partnerships.
(3) Adjusted earnings per share – basic and diluted after adjusting for after-tax recovery or write-down.
42
OTHER
Additional information relating to the Corporation can be found on SEDAR
at www.sedar.com.
ADVISORIES
Non-GAAP Financial Measures
NAV, gross margin before recovery or write-down 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 NAV, gross margin before
recoveries or impairment and adjusted earnings per share. NAV 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 after-tax NAV is not commonly reported in the industry and therefore
the presentation of after-tax NAV in this MD&A has been discontinued.
After-tax NAV was calculated by deducting estimated taxes payable if all
properties had been sold at their market values.
Forward-Looking Statements
This MD&A contains certain statements which constitute forward-
looking statements or information (“forward-looking statements”) within
the meaning of applicable securities legislation, including Canadian
Securities Administrators’ National Instrument 51-102 ‘Continuous
Disclosure Obligations’, concerning the business, operations and financial
performance and condition of Genesis.
Forward-looking statements include, but are not limited to, statements
with respect to the nature of development lands held and the anticipated
inventory and development potential of such lands, ability to bring new
developments to market, anticipated positive general economic and
business conditions in 2015 and beyond, including low unemployment
and interest rates, low stable inflation rates, positive net migration,
petroleum commodity prices and above average earnings in Alberta
and the anticipated impact on Genesis’ development and home building
activities, Genesis’ business strategy, including the geographic focus of its
activities in 2015 and beyond, the constraint on margins, profitability and
the pace of activity in Calgary’s home building industry throughout 2015
and possibly 2016, the expected capital contribution of future earnings
and cash flow from land holdings in the Calgary Metropolitan Area, the
ability to close the book of homes with firm sales contracts, the ability
to meet the objective to increase the closing of home builds in 2015 as
compared to 2014, 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, net
asset value and profitability, the timing and operation of new accounting
and operating software and the ability of management to close the gap
between net asset value and share price. 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, events or results “may”, “could”, “would”,
“might” or “will be taken”, “occur” or “be achieved”. Although Genesis
believes that the anticipated future results, performance or achievements
expressed or implied by the forward-looking statements are based upon
reasonable assumptions and expectations, the reader should not place
undue reliance on forward-looking statements because they involve
assumptions, known and unknown risks, uncertainties and other factors
many of which are beyond the Corporation’s control, which may cause
the actual results, performance or achievements of Genesis to differ
materially from anticipated future results, performance or achievement
expressed or implied by such forward-looking statements. Accordingly,
Genesis cannot give any assurance that its expectations will in fact occur
and cautions that actual results may differ materially from those in the
forward-looking statements.
Factors that could cause actual results to differ materially from those
set forth in the forward-looking statements include, but are not limited
to: the impact or unanticipated impact of general economic conditions
in Canada, the United States and globally; the impact of contractual
arrangements and incurred obligations on future operations and liquidity;
local real estate conditions, including the development of properties in
close proximity to Genesis’ properties; timely leasing of newly-developed
properties and re-leasing of occupied square footage upon expiration;
dependence on tenants’ financial condition; the uncertainties of real
estate development and acquisition activity; the ability to effectively
integrate acquisitions; fluctuations in interest rates; ability to raise
capital on favourable terms; the impact of newly-adopted accounting
principles on Genesis’ accounting policies and on period-to-period
comparisons of financial results; not realizing on the anticipated benefits
from transactions or not realizing on such anticipated benefits within the
expected time frame; and other risks and factors described from time
to time in the documents filed by Genesis with the securities regulators
in Canada available at www.sedar.com, including this MD&A under the
heading “Risks and Uncertainties” and the Annual Information Form under
the heading “Risk Factors”. Furthermore, the forward-looking statements
contained in this MD&A are made as of the date of this MD&A and,
except as required by applicable law, Genesis does not undertake any
obligation to publicly update or to revise any of the forward-looking
statements, whether as a result of new information, future events or
otherwise.
Caution should be exercised in the evaluation and use of the appraisal
results. The appraisal is an estimate of market value at specific dates and
43
GENESIS LAND DEVELOPMENT CORP. MANAGEMENT’S DISCUSSION & ANALYSIS
FOR THE THREE MONTHS AND YEAR ENDED DECEMBER 31, 2014
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, 2014 AND 2013
45
MANAGEMENT’S REPORT
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 limits of materiality, and are in accordance
with International Financial Reporting Standards (“IFRS”) appropriate
in the circumstances. The financial information in the MD&A has been
reviewed by management to ensure consistency with the consolidated
financial statements.
BRUCE RUDICHUK
President & Chief Executive Officer
Management maintains appropriate systems of internal control.
Policies and procedures are designed to give reasonable assurance
that transactions are properly authorized, assets are safeguarded and
financial records properly maintained to provide reliable information for
the preparation of consolidated financial statements.
MARK SCOTT
Executive Vice President &
Chief Financial Officer
March 26, 2015
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 to the Board of Directors.
MNP LLP, an independent firm of Chartered Accountants, was engaged
to audit the consolidated financial statements in accordance with
Canadian generally accepted auditing standards and IFRS to provide an
independent auditors’ opinion.
46
INDEPENDENT AUDITORS’ REPORT
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 consolidated balance sheets as at December 31, 2014 and 2013, and
the consolidated statements of comprehensive income (loss), changes
in equity and cash flows for the years then ended, and notes comprising
a summary of significant accounting policies and other explanatory
information.
Management’s Responsibility for the 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 consolidated financial statements that are free from material
misstatement, whether due to fraud or error.
Auditors’ Responsibility
Our responsibility is to express an opinion on these consolidated
financial statements based on our audits. We conducted our audits in
accordance with Canadian generally accepted auditing standards. Those
standards require that we comply with ethical requirements and plan
and perform the audit to obtain reasonable assurance about whether the
consolidated financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about
the 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 and fair 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
evaluating the appropriateness of accounting policies used and the
reasonableness of accounting estimates made by management, as well
as evaluating the overall presentation of the consolidated financial
statements.
We believe that the audit evidence we have obtained in our audits is
sufficient and appropriate to provide a basis for our audit opinion.
Opinion
In our opinion, the consolidated financial statements present fairly, in all
material respects, the financial position of Genesis Land Development
Corp. and its subsidiaries as at December 31, 2014 and 2013, and their
financial performance and their cash flows for the years then ended in
accordance with International Financial Reporting Standards.
Chartered Accountants
Calgary, Alberta
March 26, 2015
47
December 31,
Notes
2014
2013
4
16
5
6
7
240,123
257,420
3,560
17,660
13,993
1,358
33,048
7,894
23,342
7,115
397
17,678
309,742
313,846
8
23,892
50,373
5,515
5,228
22,683
16,759
7
4,433
21,945
78,468
3,112
20,448
95,920
14
9, 10
56,393
56,122
5,349
5,011
146,359
134,350
208,101
195,483
20
23,173
22,443
231,274
217,926
309,742
313,846
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
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.
Subsequent events (note 21).
ON BEHALF OF THE BOARD:
STEPHEN GRIGGS
Chair of the Board
STEVEN GLOVER
Chair of the Audit Committee
48
GENESIS LAND DEVELOPMENT CORP. CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(In thousands of Canadian dollars except per share amounts)
Revenues
Sales revenue
Other revenue
Direct cost of sales
Year ended December 31,
Notes
2014
2013
133,667
95,788
578
289
134,245
96,077
(99,421)
(68,660)
Recovery (write-down) of real estate held for development and sale
4
4,177
(16,282)
Gross margin
Income from joint venture
General and administrative
Selling and marketing
Operating earnings (loss) from continuing operations
Finance income
Finance expense
Earnings (loss) before income taxes
Income tax expense
Net earnings (loss) being comprehensive earnings
Attributable to non-controlling interest
Attributable to equity shareholders
Net earnings per share – basic and diluted
See accompanying notes to the consolidated financial statements.
16
11
12
13
7
20
(95,244)
(84,942)
39,001
4,580
11,135
6,038
(13,272)
(14,359)
(5,451)
(3,646)
(14,143)
(11,967)
24,858
367
(1,108)
24,117
(5,992)
18,125
730
17,395
0.39
(832)
508
(1,526)
(1,850)
(1,963)
(3,813)
(9,526)
5,713
0.13
49
GENESIS LAND DEVELOPMENT CORP. CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2014 AND 2013 (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 December 31, 2012
44,765,728
55,844
5,109
128,637
189,590
36,719
226,309
Share-based payments
95,472
278
(98)
Distributions (1)
Net earnings (loss) (2)
-
-
-
-
-
-
-
-
180
-
5,713
5,713
At December 31, 2013
44,861,200
56,122
5,011
134,350
195,483
-
(4,750)
(9,526)
22,443
180
(4,750)
(3,813)
217,926
At December 31, 2013
44,861,200
56,122
5,011
134,350
195,483
22,443
217,926
Share-based payments
70,000
271
338
Dividends (3)
Net earnings (2)
-
-
-
-
-
-
-
(5,386)
17,395
609
(5,386)
17,395
-
-
730
609
(5,386)
18,125
At December 31, 2014
44,931,200
56,393
5,349
146,359
208,101
23,173
231,274
See accompanying notes to the consolidated financial statements.
(1) Distributions to unit holders of Limited Partnership 6/7.
(2) Net earnings (loss) being comprehensive earnings.
(3) A special cash dividend of $5,386 ($0.12 per share) was paid on June 30, 2014.
50
GENESIS LAND DEVELOPMENT CORP. CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2014 AND 2013 (In thousands of Canadian dollars)
Operating activities
Receipts from residential lot and development land sales
Receipts from residential home sales
Other receipts
Paid to suppliers for land development
Paid to suppliers for land acquisition
Paid to suppliers for residential home construction
Paid to other suppliers and employees
Interest received
Income taxes paid
Cash flows from operating activities
Investing activities
Acquisition of property and equipment
Distribution received from joint venture
Cash flows from 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
Cash settlement of options
Dividends paid
Issue of share capital
Cash (used in) 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.
Year ended December 31,
Notes
2014
2013
43,835
95,815
600
87,532
67,508
1,210
(20,259)
(39,143)
14(a)
(2,500)
-
(48,159)
(39,707)
(21,898)
(20,031)
367
(5,632)
42,169
(864)
8,500
7,636
508
(3,925)
53,952
(317)
9,500
9,183
16
8
27,484
46,511
(55,347)
(94,214)
10
10
(1,311)
-
(79)
(5,386)
204
(2,983)
(4,750)
(237)
-
211
(34,435)
(55,462)
15,370
17,678
33,048
7,673
10,005
17,678
51
GENESIS LAND DEVELOPMENT CORP. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2014 AND 2013
(All tabular amounts and amounts in footnotes to tables are in thousands of Canadian dollars except number of shares)
1. DESCRIPTION OF BUSINESS
Genesis Land Development Corp. (the “Corporation” or “Genesis”) was
incorporated as Genesis Capital Corp. under the Business Corporation Act
(Alberta) on December 2, 1997.
The Corporation is engaged in the 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 are located
at 7315 - 8th Street N.E., Calgary, Alberta T2E 8A2.
consolidated until the 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.
Non-controlling interests represent the portion of profit or loss and net
assets not held by the Corporation and are presented separately from
shareholders’ equity in the consolidated statements of comprehensive
income (loss) and within equity in the consolidated balance sheets. Losses
within a subsidiary are attributed to the non-controlling interest even if
that results in a deficit balance.
The consolidated financial statements of Genesis were approved for
issuance by the Board of Directors on March 26, 2015.
d. Interest in joint venture
2. SIGNIFICANT ACCOUNTING POLICIES
The significant accounting policies of the Corporation are set out below.
These policies have been consistently applied to each of the years
presented, unless otherwise indicated.
a. Statement of compliance
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 cost convention except for the financial assets classified as
fair value through profit or loss that have been measured at fair value.
The consolidated financial statements are presented in Canadian dollars,
which is the Corporation’s functional currency, and all values are rounded
to the nearest thousand, except per share values and where otherwise
indicated.
c. Basis of consolidation
The consolidated financial statements include the accounts of
the Corporation and its wholly-owned subsidiaries, as well as the
consolidated revenues, expenses, assets, liabilities and cash flows
of limited partnership entities that the Corporation controls. When
the Corporation has less than 50% equity ownership in these limited
partnership entities, the Corporation may still have control over these
entities’ activities, projects, financial and operating policies due to
contractual arrangements. As such, the relationship between the
Corporation and the limited partnership entities indicates that they are
controlled by the Corporation. Accordingly, the accounts of the limited
partnerships have been consolidated in the Corporation’s financial
statements.
Subsidiaries are fully consolidated from the date of acquisition, being
the date on which the Corporation obtains control, and continues to be
52
The Corporation has an interest in a joint venture, Kinwood Communities
Inc., (the “JV”) which is a jointly controlled entity, by virtue of a
contractual arrangement with another party. The Corporation recognizes
its interest in the JV using the equity method of accounting. Under the
equity method of accounting the Corporation’s share of the net assets of
the JV are presented in a single line “Investment in Joint Venture”. The
financial statements of the JV are prepared for the same reporting period
as the Corporation.
All unrealized gains and losses resulting from transactions between
the Corporation and the JV are eliminated on consolidation. Losses on
transactions are recognized immediately if the loss provides evidence of
a reduction in the net realizable value of current assets or an impairment
loss.
Profits and losses resulting from the transactions with the JV are
recognized in the Corporation’s consolidated financial statements only to
the extent of interests in the JV that are not related to the Corporation.
e. Revenue recognition
i) Residential lot and development land sales
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.
ii) Residential home sales
Revenue is recognized when title to the completed home is
conveyed to the purchaser, at which time all proceeds are
received or collection is reasonably 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 customer deposits.
h. Property and equipment
iii) Interest income
Interest income is recognized as it accrues using the effective
interest rate method.
iv) Other revenue
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 useful lives of the property and equipment. The useful
lives of the properties are as follows:
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.
Deposits forfeited are recognized as income.
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 marketing agents on
the sale of real estate property is expensed when incurred.
Real estate held for development and sale is reviewed at least annually
for impairment or whenever events or 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.
NRV is the estimated selling price in the ordinary course of the business
at the balance sheet date, less costs to complete 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.
Borrowing costs consist of interest and other costs incurred in connection
with the 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.
• Vehicles and other equipment - 5 years
• Office equipment and furniture - 7 years
• Computer equipment - 3 years
• Computer software - 3 years
• Showhome furniture - 3 years
• Leasehold improvements - Lesser of 5 years
or remaining term of the lease
An item of property and equipment is no longer recognized as an asset
upon disposal, when held for sale or when no 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
Income taxes comprise the following:
i) Current income tax
Current income tax assets and liabilities are measured at the
amount expected to be paid to tax authorities, net of recoveries,
using tax rates and laws that are enacted or substantively
enacted 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 between the
tax basis of assets and liabilities and their carrying amounts for
financial reporting purposes.
Deferred tax assets are recognized to the extent that it is probable
that taxable profit will be available, against which deductible
temporary differences, carried forward tax credits or tax losses
can be utilized.
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.
53
GENESIS LAND DEVELOPMENT CORP. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2014 AND 2013
(All tabular amounts and amounts in footnotes to tables are in thousands of Canadian dollars except number of shares)
Current and deferred tax, relating to items that are directly
recognized in equity, is recognized in equity and not in the
consolidated statements of comprehensive income (loss).
Transaction costs related to financial assets classified as FVTPL are
expensed, and for all other financial assets they are included in the initial
carrying amount.
The Corporation’s consolidated financial statements include some entities
that are limited partnerships (note 20) and are not subject to income
taxes. The income or loss for Canadian tax purposes is 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.
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).
j. Cash and cash equivalents
Cash and cash equivalents consist of cash held with banks and short-term
deposits of original maturity of three months or less.
k. Leases
Operating lease payments are recognized as an operating expense in the
consolidated statements of comprehensive income (loss) on a straight-line
basis over the lease term.
l. Share-based payments
The Corporation provides equity-settled share-based payments in the
form of a share option plan to its employees, officers and directors. The
share options issued are either regular options or performance options.
The costs of share-based payments are calculated by reference to the fair
value of the options at the date on which they are granted. The fair values
of regular options are determined using the Black-Scholes Option-Pricing
Model while the fair values of performance options are determined using
the Black-Scholes Option-Pricing Model incorporating the Monte Carlo
simulation. 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 related contributed surplus, is credited to the
share capital account.
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 is reflected in the computation
of earnings per share.
m. Financial assets
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 value through profit or loss (“FVTPL”); and loans and
receivables. All financial assets are recognized initially on the trade date
at which the Corporation becomes a party to the contractual provisions of
the instrument.
54
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 receive the contractual cash flows on the financial asset in a
transaction in which substantially all the risks and rewards of ownership
of the financial assets are transferred. Any interest in transferred financial
assets that is created or retained is recognized as a separate asset or
liability.
Financial assets are assessed at each reporting date in order to determine
whether objective evidence exists that the assets are impaired as a result
of one or more events that have had a negative effect on the estimated
future cash flows of the asset.
If there is objective evidence that a financial asset has become impaired,
the amount of the impairment loss is calculated as the difference between
its carrying amount and the present value of the estimated future
cash flows from the asset, discounted at its original effective interest
rate. Impairment losses are recorded in earnings. If the amount 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.
n. Financial liabilities
The financial liabilities classified as other financial liabilities are accounts
payable and accrued liabilities, and loans and 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.
Other financial liabilities are subsequently measured at amortized cost
using the effective interest method. The effective interest method is a
method of calculating the amortized cost of a financial liability and of
allocating interest expense over the relevant period. The effective interest
rate is the rate that exactly discounts estimated future cash payments
through the expected life of the financial liability, or, where appropriate, a
shorter period.
Financial liabilities are no longer recognized as a liability when the
contractual obligations are discharged, cancelled or expire.
Financial assets and financial liabilities are offset and the net amount
presented in the consolidated balance sheet when the Corporation has a
legal right to offset the amounts and intends either to settle on a net basis
or to realize the asset and settle the liability simultaneously.
o. Earnings per share
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 stock options. The
treasury stock method assumes that proceeds received from the exercise
of in-the-money stock options are used to repurchase common shares at
the average market price over the period.
p. 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 in proportion to the amount of such phase that has
been sold. 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 different from the
actual costs incurred or expected to be incurred, an adjustment is made
to the provision for future land development costs and a corresponding
adjustment is made to land under development and/or cost of sales.
q. Significant accounting judgments 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 limited partnerships where the Corporation holds less
than 50% equity ownership. The judgment is based on a review
of all contractual agreements to determine if the Corporation
has control over the activities, projects, financial and operating
policies of the limited partnerships.
iii) Income Taxes
The Corporation applies judgment in determining the total
provision for current and deferred taxes. There are many
transactions and calculations for which the ultimate tax
determination and timing of payment is uncertain due to the
interpretation of complex tax regulations, changes in tax laws,
and the amount and timing of future taxable income. Given the
long-term nature and complexity of the business, differences
arising between the actual results and the assumptions made,
or future changes to such assumptions, could necessitate future
adjustments to taxable income and expense already recorded.
iv) Net realizable value
NRV for land and housing projects held for development and
sale is estimated with reference to market prices and conditions
existing at the balance sheet date. This is determined by the
Corporation having considered suitable external advice from
independent real estate appraisers and in light of recent market
transactions of similar and adjacent lands and housing projects in
the same geographic area.
v) Legal contingencies
The Corporation applies judgment as it relates to the outcome
of legal proceedings to determine whether a provision and
disclosure in the consolidated financial statements is required.
Among the factors considered in making such judgments are the
nature of litigation, claim or assessment, the legal process and
potential level of damages, the 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.
Estimates
i) Provision for future land development costs
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.
55
GENESIS LAND DEVELOPMENT CORP. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2014 AND 2013
(All tabular amounts and amounts in footnotes to tables are in thousands of Canadian dollars except number of shares)
ii) Impairment of real estate held for future development
and sale
The Corporation estimates the 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.
iii) Share-based payments
The Corporation uses an option pricing model to determine the fair
value of share-based payments. Inputs to the model are subject to
various estimates about volatility, interest rates, dividend 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
taken into account when estimating recoverability.
3. STANDARDS AND AMENDMENTS TO EXISTING
STANDARDS DURING 2014
The Corporation adopted new IFRSs and interpretations during 2014, as
noted below:
i)
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 a liability for a levy when the activity
that triggers payment, as identified by the relevant legislation,
occurs. The interpretation also clarifies that a levy liability is to
be accrued progressively only if the activity that triggers payment
occurs over a period of time, in accordance with the relevant
legislation. IFRIC 21 is effective for annual periods commencing
on or after January 1, 2014 and requires retrospective application.
The Corporation has analyzed the impact of IFRIC 21 and
concluded that this standard does not have a material impact on
the Corporation’s financial position or performance.
The amendments to IAS 36 are effective for annual periods
beginning on or after January 1, 2014 and require retrospective
application.
The Corporation has analyzed the impact of the amended standard
and concluded that this standard does not have a material impact
on the Corporation’s financial position or performance.
iii) IFRS 2, “Share-based payment”
“Annual Improvements to IFRSs 2010–2012 Cycle” was issued
in December 2013. The definitions of ‘vesting conditions’
and ‘market condition’ were amended and the definitions of
‘performance condition’ and ‘service condition’ were added. An
entity is required to prospectively apply that amendment to share-
based payment transactions for which the grant date is on or after
1 July 2014. The Corporation is prospectively applying the revised
standard on share-based payment transactions, if any, made on or
after July 1, 2014.
The Corporation has analyzed the impact of the amended standard
and concluded that this standard does not have a material impact
on the Corporation’s financial position or performance.
iv) IAS 24, “Related party disclosures”
“Annual Improvements to IFRSs 2010–2012 Cycle” was issued
in December 2013. The amendments to IAS 24, issued in March
2014, clarify that a management entity, or any member of a group
of which it is a part, that provides key management services
to a reporting entity, or its parent, is a related party of the
reporting entity. The amendments require that an entity disclose
the amounts incurred for key management personnel services
provided by a separate management entity. The amendments
affect disclosure and are effective for annual periods beginning on
or after July 1, 2014.
The Corporation has analyzed the impact of the amended standard
and concluded that this standard does not have a material impact
on the Corporation’s financial position or performance.
v)
IFRS 8, “Operating segments”
“Annual Improvements to IFRSs 2010–2012 Cycle” was issued
in December 2013. The amendments to IFRS 8 require that an
entity disclose the judgments made by management in applying
the aggregation criteria to allow two or more operating segments
to be aggregated. The amendments affect disclosure and are
effective for annual periods beginning on or after July 1, 2014.
The Corporation has analyzed the impact of the amended standard
and concluded that this standard does not have a material impact
on the Corporation’s financial position or performance.
ii) IAS 36, “Impairment of assets” – Amendments to IAS 36
vi) IFRS 3, “Business combinations”
The amended standard requires entities to disclose the
recoverable amount of an impaired cash generating unit (CGU).
“Annual Improvements to IFRSs 2010–2012 Cycle” was issued in
December 2013. The amendments to IFRS 3 clarify the accounting
56
for contingent consideration in a business combination. At
each reporting period, an entity measures the contingent
consideration classified as an asset or a financial liability at fair
value, with changes in fair value recognized in profit or loss.
The amendments are effective for business combination for
which the acquisition date is on or after July 1, 2014. Additional
amendments also clarify that IFRS 3 does not apply to accounting
for the formation of all types of joint ventures in the financial
statements of the joint arrangements itself. The amendments are
effective for annual periods beginning on or after July 1, 2014.
The Corporation has analyzed the impact of the amended standard
and concluded that this standard does not have a material impact
on the Corporation’s financial position or performance.
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 have an impact on the Corporation:
4. REAL ESTATE HELD FOR DEVELOPMENT AND SALE
IFRS 9, “Financial instruments”
On November 12, 2009, the IASB issued IFRS 9, “Financial instruments”
(“IFRS 9”), which will replace IAS 39 “Financial Instruments: Recognition
and Measurement” (“IAS 39”). The standard was to be effective for
annual periods beginning on or after January 1, 2015. In February 2014,
the IASB tentatively decided the mandatory effective date of the final
IFRS 9 would now be January 1, 2018. IFRS 9 applies to classification and
measurement of financial assets as defined in IAS 39. It uses a single
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 has not yet considered the impact of IFRS 9 on its
financial statements.
IFRS 15, “Revenue from contracts with customers”
On May 28, 2014 the IASB issued IFRS 15, “Revenue from contracts with
customers”. IFRS 15 will replace existing standards and interpretations
on revenue recognition. The standard is effective for annual periods
beginning on or after January 1, 2017, with early adoption permitted. The
standard outlines a single comprehensive model for entities for revenue
recognition arising from contracts with customers. The Corporation has
not yet considered the impact of IFRS 15 on its financial statements.
Land Held
for Future
Development Development
Land Under
Home
Building
Total Partnerships
Limited Consolidated
Total
Gross book value
As at December 31, 2013
Transfers
Development
Sold
As at December 31, 2014
Provision for write-downs
As at December 31, 2013
Sold
(Recovery) of write-downs
As at December 31, 2014
Net book value
As at December 31, 2013
As at December 31, 2014
243,007
74,595
317,602
140,162
71,950
(10,311)
(10,501)
29,914
(40,191)
4,230
30,895
20,812
60,443
-
94,587
-
(79,985)
(120,176)
-
-
-
-
94,587
(120,176)
119,574
65,679
32,165
217,418
74,595
292,013
5,791
(4,115)
(1,035)
27,040
-
(239)
641
26,801
-
-
-
-
32,831
27,351
60,182
(4,115)
(1,274)
-
(2,903)
(4,115)
(4,177)
27,442
24,448
51,890
134,371
118,933
44,910
38,878
30,895
32,165
210,176
189,976
47,244
50,147
257,420
240,123
57
GENESIS LAND DEVELOPMENT CORP. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2014 AND 2013
(All tabular amounts and amounts in footnotes to tables are in thousands of Canadian dollars except number of shares)
The Corporation obtained third party appraisals on its real estate held for
development and sale as at December 31, 2014. There was a recovery of
write-downs previously made to certain properties (2013 – write-down),
due to the increasing demand for and the tightening supply of land in the
Calgary Metropolitan area.
During the year ended December 31, 2014, interest of $1,736 (2013 –
$3,763) was capitalized.
5. AMOUNTS RECEIVABLE
Agreements receivable
Mortgages receivable
Other receivables
Allowance for doubtful accounts
2014
17,122
-
538
2013
21,796
1,524
314
17,660
23,634
-
(292)
17,660
23,342
Agreements receivable for lot sales are secured by the underlying
real estate assets and have various terms of repayment. Purchasers
generally have between 6 and 24 months to pay the balance owing for
the purchased lots. Certain agreements receivable and all mortgages
receivable are interest bearing.
6. OTHER OPERATING ASSETS
Deposits (notes 14, 21)
Prepayments
Restricted cash
Property and equipment
2014
11,343
146
1,360
1,144
2013
5,004
151
1,324
636
13,993
7,115
Deposits include amounts paid to development authorities as security to
guarantee the completion of construction projects under development and
deposits on future land acquisitions. The deposits are refundable upon
completion of the related projects and earn interest at rates approximating
those earned on guaranteed investment certificates. The Corporation has
further provided letters of credit as security to guarantee the completion
of construction projects (see note 14(d) for additional information).
Restricted cash is held in trust accounts.
7. INCOME TAXES
a)
Income tax was recognized in the consolidated statements of comprehensive income (loss) as follows:
Current income tax
Deferred tax relating to origination and reversal of temporary differences
58
2014
6,953
(961)
5,992
2013
2,420
(457)
1,963
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% (2013 – 25%) to income (loss) before income
taxes. The difference resulted from the following:
Income (loss) before income taxes
Statutory tax rate
Expected income tax expense
Share-based payment transactions
Other non-deductible expenses (recoveries)
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 losses carry-forward amounts expire between 2030 and 2044.
2014
24,117
25.0%
6,029
116
30
(183)
5,992
2013
(1,850)
25.0%
(463)
52
(8)
2,382
1,963
2014
4,019
2013
3,806
(2,661)
(3,409)
1,358
397
2014
2,587
114
(2,658)
1,318
(3)
1,358
2013
2,413
84
(3,409)
1,299
10
397
59
GENESIS LAND DEVELOPMENT CORP. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2014 AND 2013
(All tabular amounts and amounts in footnotes to tables are in thousands of Canadian dollars except number of shares)
8. LOANS AND CREDIT FACILITIES
Secured by real estate held for development and sale and agreements receivable
I. Land project loans, payable on collection of agreements receivable, bearing interest at rates
ranging from prime +1.25% to prime +2.5%, secured by real estate held for development and sale
with a carrying value of $20,205, due between February 1, 2015 and October 30, 2015.
2014
8,750
2013
32,759
Secured by housing projects under development
2,839
2,305
II. Demand operating line of credit up to $6,500, bearing interest at prime +1.5% per annum, secured
by a general security agreement over assets of the home building division.
III. Project loans, payable on collection of closing proceeds, bearing interest at prime +1.5%, secured
4,979
8,716
by home building projects with a carrying value of $8,299 (2013 - $13,369) due by September 11, 2015.
Secured by land held for future development – Limited Partnership
IV. Land loan, bearing interest at the greater of 7.5% or prime +4.5% per annum, secured by land held
for future development and sale with a carrying value of $15,121 maturing March 1, 2016. [note 14 (h)]
Deferred loans and credit facilities fees
16,568
43,780
7,850
7,850
24,418
(526)
23,892
51,630
(1,257)
50,373
The weighted average interest rate of loan agreements was 5.57%
(December 31, 2013 – 5.83%), based on December 31, 2014 balances.
prime + 1.25% to prime + 2.0% per annum, with due dates ranging from
September 11, 2015 to October 30, 2015.
During the year ended December 31, 2014, the Corporation received
advances of $27,484 (2013 – $46,511) relating to various new and
renewed loan facilities secured by real estate held for development
and sale, and agreements receivable, bearing interest ranging from
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, 2015 to December 31, 2015
January 1, 2016 to December 31, 2016
16,568
7,850
24,418
The Corporation has various covenants in place with its lenders with
respect to certain contracted credit facilities. Such covenants include:
other credit usage restrictions; cancellation, prepayment, confidentiality
and cross default clauses; sales coverage requirements; conditions
precedent for funding; and other general understandings such as,
but not limited to, maintaining contracted lot prices, restrictions on
encumbrances, liens and charges, material changes to project plans, and
material changes in the Corporation’s ownership structure. In addition,
the home building business segment has a secured revolving operating
line repayable on demand, to be used for home construction and for the
acquisition of serviced lots. This line has a financial covenant requiring
that Genesis Builders Group Inc., (“GBG”) maintain a net worth of at
least $11,500 at all times. Net worth, a non-GAAP financial measure,
is defined as “Retained Earnings plus Shareholders Loans plus Due to
Related Parties (excluding lot payables to related parties) minus Due from
Related Parties”. As at December 31, 2014 and at December 31, 2013, the
Corporation and its subsidiaries were in compliance with all covenants.
60
9. SHARE CAPITAL
a. Authorized
b. Weighted average number of shares
Unlimited number of common shares without par value
Unlimited number of preferred shares without par value
The following table sets forth the weighted average number of common
shares outstanding for the year ended December 31, 2014 and 2013:
Basic
Effect of dilutive securities – stock options
Diluted
Year ended December 31,
2014
2013
44,874,652
44,838,401
401,922
61,920
45,276,574
44,900,321
In calculating diluted earnings per share for the year ended December
31, 2014, the Corporation excluded 500,000 options (2013 – 235,000)
as their exercise price was greater than the average market price of the
Corporation’s shares during those periods.
The Corporation has not issued any preferred shares.
10. 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 issuance by
the Board of Directors. Options vest over a number of years on various
anniversary dates from the date of the original grant.
The options must be issued at not less than the fair market value of
the common shares at the date of grant and are issued with terms not
exceeding five years from the date of grant.
Regular options
Details of outstanding regular options were as follows:
Year ended December 31,
2014
2013
Outstanding – beginning of period
Options granted
Options exercised
Options expired
Options forfeited
Options settled in cash
Outstanding – end of period
Exercisable – end of period
There were 500,000 regular options granted during the year ended
December 31, 2014 with an average fair value of $0.72 per option (2013 –
435,000 options with an average fair value of $0.81 per option).
Weighted
Average
Exercise
Price
$3.32
$4.71
$2.91
-
-
$2.71
$3.86
$3.66
Number of
Options
1,060,500
500,000
(70,000)
-
-
(71,500)
1,419,000
870,663
Number of
Options
1,231,722
435,000
(95,472)
(60,000)
(61,500)
(389,250)
1,060,500
625,500
Weighted
Average
Exercise
Price
$3.21
$3.43
$2.21
$6.97
$3.45
$2.77
$3.32
$3.27
61
GENESIS LAND DEVELOPMENT CORP. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2014 AND 2013
(All tabular amounts and amounts in footnotes to tables are in thousands of Canadian dollars except number of shares)
Outstanding
Exercisable
Weighted Average
Range of
Exercise Prices ($)
Number at
December 31, 2014
Weighted Average
Exercise Price
Number at
December 31, 2014
Weighted Average
Exercise Price
Remaining
Contractual Life
in Years
3.01 – 4.00
4.01 – 5.00
919,000
500,000
1,419,000
$3.40
$4.71
$3.86
703,999
166,664
870,663
$3.41
$4.71
$3.66
2.63
4.81
3.40
Performance Options
The Corporation granted performance options to the senior executives of
the Corporation in respect of long-term compensation. These performance
options would reward the executives only if the Corporation’s share price
achieves and sustains certain prescribed levels. Performance options vest
on a time basis, equally over three years commencing from January 1,
2015.
Details of outstanding performance options were as follows:
Outstanding – beginning of period
Options granted
Outstanding – end of period
Exercisable – end of period
Year ended December 31,
2014
2013
Number of
Options
Exercise
Price
Number of
Options
Exercise
Price
-
1,272,000
1,272,000
-
-
$3.35
$3.35
-
-
-
-
-
-
-
-
-
Outstanding
Exercisable
Weighted Average
Exercise Price ($)
Number at
December 31, 2014
Exercise Price
Number at
December 31, 2014
Exercise Price
Remaining
Contractual Life
in Years
3.35
1,272,000
$3.35
-
-
4.00
There were 1,272,000 performance options granted during the year ended
using the Black-Scholes Option-Pricing Model incorporating the Monte
December 31, 2014 (2013 – Nil), with a fair value of $0.30 per option
Carlo simulation.
(2013 - $Nil) and an exercise price of $3.35 per option. The fair value of
each performance option granted was estimated on the date of grant
The following assumptions were used in estimating the fair value of
options granted using the Black-Scholes Option-Pricing Model:
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
62
2014
2013
1.10 - 1.13%
0.99 - 1.24%
2.50
2.50
25.13 - 31.88%
34.46 - 38.27%
16.93%
0.00%
24.22%
0.00%
11. GENERAL AND ADMINISTRATIVE
The general and administrative expense of the Corporation consisted of the following:
Corporate administration
Compensation and benefits
Professional services
Compensation and benefits of the directors and key management personnel were as follows:
Salaries, wages and benefits
Share-based payments
Salaries, wages and benefits for 2013 included an amount of $609 paid out as severance to an-ex CEO of the Corporation.
12. SELLING AND MARKETING
Selling and marketing expenses of the Corporation consisted of the following:
Advertising and marketing
Sales commissions
13. FINANCE EXPENSE
The finance expense of the Corporation consisted of the following:
Interest expense
Financing fees amortized
Interest and financing fees capitalized
2014
2,645
8,537
2,090
2013
2,224
7,656
4,479
13,272
14,359
2014
2,307
465
2,772
2014
2,681
2,770
5,451
2014
1,853
991
(1,736)
1,108
2013
2,848
204
3,052
2013
2,358
1,288
3,646
2013
3,771
1,518
(3,763)
1,526
14. COMMITMENTS AND CONTINGENCIES
a) The Corporation entered into a firm purchase and sale agreement for
the acquisition of approximately 350 acres of land located in southeast
Calgary for $52,500 in October 2014. A total of $12,500 was due on
closing. The Corporation paid $2,500 during 2014 and $10,000 in January
2015. The transaction closed on January 6, 2015. The remainder of
$40,000 is to be paid in 5 installments of $8,000 each, without interest,
on the anniversary of the closing date, over five years. Refer to note 21,
Subsequent events.
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
63
GENESIS LAND DEVELOPMENT CORP. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2014 AND 2013
(All tabular amounts and amounts in footnotes to tables are in thousands of Canadian dollars except number of shares)
Wellness”, a recreation complex in northeast Calgary ($500 each year,
terminating October 31, 2021). The first three installments totaling $1,500
were made up to and through 2014.
c) On February 19, 2008, the Corporation entered into an agreement
with the City of Airdrie, whereby the Corporation will contribute $2,000
for the naming rights to “Genesis Place”, a recreation complex in the
city of Airdrie ($200 each year, terminating June 1, 2017). The first seven
installments totaling $1,400 were made up to and through 2014.
d) The Corporation has issued letters of 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, 2014, the letters of credit amounted to $2,641 (December 31, 2013 –
$6,279).
e) On July 15, 2011, a joint venture (note 16) 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 $2,485 (2013 – $Nil).
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. A liability for the payment has been
recorded. The Corporation is selling lots in the last phase covered under
this development. The payout will be made on completion of the sale of
lots in the last phase and collection of all related proceeds along with an
accounting of all related costs. A partial payout was made to the former
mortgage holders subsequent to December 31, 2014. Refer to note 21,
Subsequent events.
g) The Corporation has office and other operating leases with the
following annual payments: not later than one year – $934; later than one
year but not later than five years – $1,589; and later than five years – $Nil.
h) LPLP 2007 has a credit facility in the amount of $7,850 included in
loans and credit facilities balance (note 8) in the consolidated financial
statements. The Corporation has provided a guarantee for this facility.
15. FINANCIAL INSTRUMENTS
a. Risks associated with financial instruments
i) Credit risk
As at December 31, 2014, the Corporation carried $Nil (2013 –
$292) as allowance for doubtful accounts.
The Corporation recognizes bad debt expense or recovery relating
to amounts receivable on sold lots, net of the return of the real
into the Corporation’s lot 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, 2014 and 2013, 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
estate held for development and sale. These lots are taken back
development and sale:
Balance as at January 1
Recovery
Bad debt (recovery)
Recovery of bad debt expense is included in the Corporations general and
administrative expenses. In order to mitigate credit risk, the Corporation
retains title to sold residential lots until full payment is received.
2014
292
(242)
(50)
-
2013
1,643
(1,269)
(82)
292
64
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
2014
17,660
-
-
-
-
17,660
-
17,660
2013
20,405
1,700
387
850
292
23,634
(292)
23,342
Individual balances due from customers as at December 31, 2014, which
comprise greater than 10% of total amounts receivable, totaled $17,122
from four customers (December 31, 2013 – $19,877 from four customers).
ii) Liquidity risk
The following were the contractual maturities of financial
liabilities and other commitments as at December 31, 2014:
Financial liabilities
Accounts payable and accrued liabilities
Loans and credit facilities excl. deferred fees (note 8)
Commitments
Land purchase (note 14)
Lease obligations (note 14)
Naming rights (note 14)
< 1 Year
> 1 Year
Total
22,683
16,568
39,251
-
7,850
7,850
10,000
40,000
934
700
11,634
50,885
1,589
3,400
44,989
52,839
22,683
24,418
47,101
50,000
2,523
4,100
56,623
103,724
At December 31, 2014, the Corporation had obligations due within the
next 12 months of $50,885 (2013 - $54,487). Based on the Corporation’
operating history, its relationship with its lenders and committed sales
contracts, management believes that the Corporation has the ability to
continue to renew or repay its financial obligations as they come due.
iii) Market risk
The Corporation is exposed to interest rate risk to the extent
that certain agreements receivable and certain loans and credit
facilities are at a floating rate of interest. A 1% change in
interest rates would result in a change in interest incurred of
approximately $244 annually on floating rate loans.
b. Fair value of financial instruments
The fair values of cash and cash equivalents, restricted cash, accounts
payable and accrued liabilities approximate their carrying values as
they are expected to be settled within twelve months. The fair value of
deposits approximates their carrying value as the terms of deposits are
the comparable to the market terms for similar instruments.
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.
65
GENESIS LAND DEVELOPMENT CORP. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2014 AND 2013
(All tabular amounts and amounts in footnotes to tables are in thousands of Canadian dollars except number of shares)
Fair value through profit and loss
Cash and cash equivalents
Deposits
Restricted cash
Loans and receivables
Amounts receivable
Other financial liabilities
December 31,
2014
2013
Carrying
Value
Estimated
Fair Value
Carrying
Value
Estimated
Fair Value
33,048
11,342
1,360
33,048
11,342
1,360
17,678
5,004
1,324
17,678
5,004
1,324
17,660
17,175
23,342
22,750
Accounts payable and accrued liabilities
Loans and credit facilities, excl. deferred loans and credit facilities fees
22,683
24,418
22,683
24,366
16,759
51,630
16,759
51,554
Fair value measurements recognized in the consolidated balance sheet are
categorized using a fair value hierarchy that reflects the significance of
inputs used in determining the fair values. The three fair value hierarchy
levels are as follows:
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).
Cash and cash equivalents, deposits, and restricted cash are classified
under Level 1 of the hierarchy and their fair value approximates the
carrying value due to the short term nature of the financial instruments.
The fair values of the Corporation’s amounts receivable and of loans and
credit facilities were estimated based on current 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.
During the years ended December 31, 2014 and 2013 no transfers were
made between the levels in the fair value hierarchy.
c. Capital management
The Corporation’s policy is to maintain a sufficient capital base in order
to maintain investor, creditor and market confidence and to sustain future
development of the 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:
2014
23,892
208,101
231,993
2013
50,373
195,483
245,856
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.
66
16. JOINT VENTURE
The Corporation formed the JV on April 30, 2010, for the purpose of
acquiring, developing and selling certain real estate. The Corporation is a
50% partner in the JV.
The following tables summarize the financial information of the
JV, prepared under the historical cost convention, and reconcile
the summarized financial information to the carrying amount of the
Corporation’s interest in the JV, which is accounted for using the equity
method.
Assets
Real estate held for development and sale
Amounts receivable
Cash and cash equivalents
Total assets
Liabilities
Loans and credit facilities
Accounts payable and accrued liabilities
Provision for future land development costs
Total liabilities
Net assets
Corporation’s share of net assets (50%)
Deferred gain
Carrying amount on the consolidated balance sheets
Revenues
Cost of sales
General and administrative
Finance income
Earnings being comprehensive earnings
Corporation’s share of earnings and comprehensive earnings (50%)
Deferred gain recognized
Deferred margin recognized on JV lots sold
Amount on consolidated statements of comprehensive income
Cash flows from operating activities
Cash flows used in financing activities
Net change in cash and cash equivalents
December 31,
2014
2013
7,199
14,542
-
21,741
2,485
841
7,381
10,707
11,034
5,517
(1,957)
3,560
22,478
25,272
656
48,406
-
4,228
20,640
24,868
23,538
11,769
(3,875)
7,894
Year ended December 31,
2014
17,661
(12,419)
5,242
(1,140)
394
4,496
2,248
1,918
414
4,580
2013
36,276
(28,558)
7,718
(2,034)
368
6,052
3,026
3,688
(676)
6,038
Year ended December 31,
2014
13,858
(14,514)
(656)
2013
29,693
(29,037)
656
67
GENESIS LAND DEVELOPMENT CORP. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2014 AND 2013
(All tabular amounts and amounts in footnotes to tables are in thousands of Canadian dollars except number of shares)
At December 31, 2013
Share of net income in JV
Deferred gain recognized
Deferred margin from JV on lots sold
Distribution received
At December 31, 2014
At December 31, 2012
Share of net income in JV
Deferred gain recognized
Deferred margin from JV on lots sold
Distribution received
At December 31, 2013
Investment
in JV
Income
from JV
7,894
2,248
1,918
-
(8,500)
3,560
10,680
3,026
3,688
-
(9,500)
7,894
-
2,248
1,918
414
-
4,580
-
3,026
3,688
(676)
-
6,038
The Corporation’s transactions with the JV are limited to the purchase
The Corporation deferred $13,167 of gain when it contributed its share
of home building lots. During the year ended December 31, 2014, the JV
of land to the JV in 2010. As at December 31, 2014, the Corporation
sold 32 lots at $5,998 (2013 – 44 lots at $8,096) to GBG, a wholly owned
had realized $11,210 (2013 – $9,292) of that amount as a result of sales
subsidiary of the Corporation. The Corporation’s accounts payable and
through its home building business segment and directly to third parties.
accrued liabilities as at December 31, 2014 included $4,809 (2013 –
The remaining amount of $1,957 will be realized on future sale and
$6,477), related to the purchase of home building lots.
development of lots and lands by the JV.
17. SEGMENTED INFORMATION
The Corporation operates in two reportable segments, land development
and home building, which represent separately managed strategic
business units with aligned but distinct strategies. The Corporation
parties at current market prices. Internal lot sales from the land segment
to the home building business segment or a limited partnership have been
eliminated and are not included in consolidated results until the home is
sold to a third party purchaser.
evaluates segment performance based on earnings or loss before income
The income producing business units of the Corporation reported the
taxes. Inter-segment sales are accounted for as if the sale were to third
following activities for the year ended December 31, 2014 and 2013:
Land Development Segment
Intrasegment
Elimination
-
-
-
-
-
-
-
Year ended December 31, 2014
Genesis
Revenues
Cost of sales
Recovery of real estate write-down
Gross margin
Income from JV
58,929
(38,705)
1,274
21,498
4,580
G&A, selling & marketing, other expenses (1)
(6,449)
Earnings before income taxes and
non-controlling interest
Segmented assets
Segmented liabilities (3),(4)
Segmented net assets (3),(4)
19,629
246,476
43,607
202,869
LP
97
(10)
2,903
2,990
-
(2,079)
911
57,068
32,994
24,074
68
Home
Building Intersegment
Elimination
Segment
Total(2)
96,029
(20,810)
134,245
Total
59,026
(38,715)
(79,985)
19,279
(99,421)
4,177
24,488
4,580
(8,528)
20,540
-
-
16,044
(1,531)
-
(10,936)
5,108
52,030
44,314
7,716
-
-
(1,531)
(20,686)
(17,301)
4,177
39,001
4,580
(19,464)
24,117
309,742
78,468
(3,385)
231,274
(25,146)
(25,146)
278,398
51,455
-
226,943
Land Development Segment
Year ended December 31, 2013
Genesis
Revenues
Direct cost of sales
Write-down of real estate
Gross margin
Income from JV
47,380
(27,902)
(8,185)
11,293
6,038
G&A, selling & marketing, other expenses (1)
(9,752)
Earnings (loss) before income taxes and
non-controlling interest
7,579
LP
105
(10)
(8,097)
(8,002)
-
(1,681)
(9,683)
Intrasegment
Elimination
-
-
-
-
-
-
-
Total
47,485
(27,912)
(16,282)
3,291
6,038
(11,433)
(2,104)
Home
Building Intersegment
Elimination
Segment
63,750
(54,543)
-
9,027
-
(8,773)
254
(14,978)
13,795
-
(1,183)
-
Total(2)
96,077
(68,660)
(16,282)
11,135
6,038
1,183
(19,023)
-
(1,850)
Segmented assets as at
December 31, 2013
Segmented liabilities
December 31, 2013 (3),(4)
263,401
53,596
(23,054)
293,943
47,338
(27,435)
313,846
69,237
31,487
(23,054)
77,670
43,410
(25,160)
95,920
Segmented net assets (3),(4)
194,164
22,109
-
216,273
3,928
(2,275)
217,926
(1) Includes other expenses, finance expense and finance income.
(2) 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.
(3) Segmented liabilities under the home building segment include $14,164 (December 31, 2013 – $19,187) due to the land development segment.
(4) Segmented liabilities under the LP segment comprises customer deposits and accounts payable and accrued liabilities and includes $24,091 (December 31, 2013 – $21,998) due to Genesis.
18. RELATED PARTY TRANSACTIONS
There were no related party transactions for the year ended December 31,
2014 (2013 - $1,244).
19. COMPARATIVE FIGURES
Certain comparative figures have been reclassified to conform to the
current year’s presentation. For the year ended December 31, 2013,
the Corporation re-classed $1,288 from direct cost of sales to selling
and marketing expenses and $3,187 of other expenses to general and
administrative expenses as this reflects the classification of expense more
accurately.
20. CONSOLIDATED ENTITIES
The Statements include the accounts of the Corporation and its wholly-
owned subsidiaries, as well as the consolidated revenues, expenses,
assets, liabilities and cash flows of limited partnership entities that
Genesis controls. The Corporation has less than 50% equity ownership
in these limited partnership entities; however, Genesis has control over
these entities’ activities, projects, financial and operating policies due
to contractual arrangements. As such, the relationship between the
Corporation and the limited partnership entities indicates that they are
controlled by the Corporation. Accordingly, the accounts of the limited
partnerships have been consolidated in the Corporation’s financial
statements. The Corporation is the general partner in four limited
partnership arrangements.
Limited Partnership Land Pool (2007) (“LPLP 2007”) has a loan amounting
to $23,181 (2013 – $21,167) due to the Corporation. The loan has been
secured by a second mortgage on a property owned by LPLP 2007. The
loan agreement has also been registered as a caveat on the titles of two
properties held by LPLP 2007.
69
GENESIS LAND DEVELOPMENT CORP. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2014 AND 2013
(All tabular amounts and amounts in footnotes to tables are in thousands of Canadian dollars except number of shares)
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
Genesis Land Development (Southeast) Corp.
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
LP RRSP Limited Partnership #2
70
% equity interest as at
December 31,
2014
December 31,
2013
100%
100%
0.0002%
99.9998%
100%
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%
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%
The following tables summarize the information relating to the Corporation’s subsidiaries that have material non-controlling interests before any intra-group
eliminations:
BALANCE SHEETS
Assets
Real estate held for development and sale
Amounts receivable
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
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, 2014
LP 4/5
LP 6/7
LP 8/9
LPLP 2007
Total
7,922
-
-
7,922
-
-
-
151
151
7,771
100%
8,212
3
439
8,654
-
-
10
264
274
8,380
88.25%
3,177
36,217
55,528
-
1
1
37
4
477
3,178
36,255
56,009
-
-
-
495
495
2,683
100%
7,804
7,804
2
28
23,181
31,015
5,240
100%
2
38
24,091
31,935
24,074
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
71
GENESIS LAND DEVELOPMENT CORP. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2014 AND 2013
(All tabular amounts and amounts in footnotes to tables are in thousands of Canadian dollars except number of shares)
SUMMARIZED INCOME STATEMENTS
Revenues
Net earnings (loss) being comprehensive income (loss)
Non-controlling interest (%)
Revenues
Net earnings (loss) being comprehensive income (loss)
Non-controlling interest (%)
SUMMARIZED STATEMENT OF CASH FLOWS
Cash flows from (used in) operating activities
Net increase (decrease) in cash and cash equivalents
Cash flows from operating activities
Cash flows (used in) financing activities
Net increase in cash and cash equivalents
21. SUBSEQUENT EVENTS
In January 2015, Genesis paid $10,000 towards the acquisition of 350
acres of land located in southeast Calgary. This transaction closed on
January 6, 2015. See note 14(a) for additional information.
In January 2015, the Corporation paid $1,777 to the former mortgage
holders of a participating mortgage as a partial payout of the 20%
participation in profits of a development activity. See note 14(f) for
additional information.
Year ended December 31, 2014
LP 4/5
LP 6/7
LP 8/9
LPLP 2007
19
10
-
1,527
100%
88.25%
-
(1,064)
100%
78
438
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%
Total
97
911
Total
370
(9,683)
Year ended December 31, 2014
LP 4/5
LP 6/7
LP 8/9
LPLP 2007
Total
-
-
-
-
-
-
(75)
(75)
(75)
(75)
Year ended December 31, 2013
LP 4/5
-
-
-
LP 6/7
5,134
(5,009)
125
LP 8/9
LPLP 2007
-
-
-
33
-
33
Total
5,167
(5,009)
158
In February 2015, the Corporation signed a commitment letter for a loan
facility of $10,000 to be used for general corporate purposes. The annual
interest rate on this facility is prime + 1% and is secured by a continuing
collateral mortgage representing a first charge on certain properties held
by the Corporation and a general security agreement representing a first
charge on all the Corporation’s personal property.
72
CONTACT INFORMATION
TRANSFER AGENT
Computersahare Trust Company of Canada
600, 530 - 8th Avenue SW
Calgary, AB T2P 3S8
STOCK EXCHANGE
Toronto Stock Exchange
Stock Symbol – GDC
AUDITORS
MNP LLP
1500, 640 - 5th Avenue SW
Calgary, AB T2P 3G4
CORPORATE COUNSEL
Norton Rose Fulbright Canada LLP
Legal Counsel
Suite 3700, 400 - 3rd Avenue SW
Calgary, AB 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
73
GENESIS LAND DEVELOPMENT CORP.
7315 - 8th Street NE
Calgary, Alberta, Canada T2E 8A2
Main 403 265 8079 Fax 403 266 0746
genesisland.com