enantFsimilarPre-taxfa05-01-2014 V5
GENESIS LAND DEVELOPMENT CORP.
––––––––––
MANAGEMENT’S DISCUSSION AND ANALYSIS
For the three months ended March 31, 2014
1
STRATEGY AND BUSINESS FOCUS
Genesis Land Development Corp. (“Genesis” or the “Corporation”) is an integrated, land developer and residential home builder in
the Calgary Metropolitan Area (“CMA”).
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 and industrial
communities. Home building includes the acquisition of lots, and the construction and sale of single-family homes and townhouses.
The common shares of the Corporation are listed for trading on the Toronto Stock Exchange under the symbol “GDC”.
MARKET OVERVIEW
Both land development and home building are negatively impacted by Alberta’s continuing slowdown in general economic activity
caused by the sharp drop in oil and natural gas prices over the last few years. Somewhat offsetting the decline in Alberta’s major
industry are low interest rates and a stable low-inflation environment. Genesis has also benefitted from its portfolio of entitled
residential and mixed-use land as the low level of serviced lot inventory in Calgary and approvals process have restricted the
supply of new entitled land.
We focus our land development and home building activities primarily on the entry level and first-time move-up segments, which in
2015 proved to be relatively less susceptible to market fluctuations than the higher end and custom segments.
The weaker overall market conditions are expected to constrain margins and volumes in Calgary’s home building industry
throughout 2016 and likely beyond.
Our core assets consist of a portfolio of entitled residential and mixed-use land, which is well positioned to deal with the economic
downturn and will benefit from a strengthening of the Alberta economy. These various factors, along with careful control of costs,
positive cash position and significant unutilized debt capacity, provide a strong base for 2016’s challenging economic conditions.
The Management’s Discussion and Analysis ("MD&A") of the financial condition and results of operations of Genesis Land
Development Corp. (“Genesis”, “the Corporation”, “we”, “us”, or “our”) should be read in conjunction with the audited
consolidated financial statements and the notes thereto for the year ended December 31, 2015 and 2014, prepared in
accordance with International Financial Reporting Standards (“IFRS”).
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 of the Corporation. Additional information,
including the Corporation’s annual information form (“AIF”) and the Corporation’s MD&A for the year ended December 31,
2015 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 22, 2016.
2
CORPORATE HIGHLIGHTS
Key financial results and operating data for the Corporation are as follows:
Three months ended
December 31,(1)
Year ended December
31, (2)
2015
2014
2015
2014
Key Financial Data
Total revenues
Direct cost of sales
(Write-down) recovery of real estate held for development and sale
Gross margin
Earnings before income taxes
Net earnings attributable to equity shareholders
Net earnings per share – basic and diluted
Cash flows (used in) from operating activities
Cash flows (used in) 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
Homes sold (units)
Average revenue per home sold
New home orders (units)
36,575
(26,215)
(1,129)
9,231
5,674
5,365
0.13
(7,193)
(0.16)
50
41
114
191
51
460
36
28,509
(20,938)
(184)
7,387
3,125
2,858
0.07
4,099
0.09
3
18
-
208
66
422
38
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) Three months ended December 31, 2015 and 2014 (“Q4 2015” and “Q4 2014”)
(2) Year ended December 31, 2015 and 2014 (“YE 2015” and “YE 2014”)
119,088
(84,189)
(12,390)
22,509
4,043
11,014
0.25
(18,325)
(0.41)
69
115
118
188
209
489
135
134,245
(99,421)
4,177
39,001
24,117
17,395
0.39
42,169
0.94
124
147
122
192
220
436
239
As at December 31,
2015
December 31,
2014
As at December 31,
63
2014
137
2015
11,399
331,045
63,819
106,054
212,125
224,991
19%
2014
33,048
309,742
23,892
78,468
208,101
231,274
8%
3
Highlights
Volumes and Revenue:
! December 31, 2015 order book of 63 firm sales contracts compared to 137 at December 31, 2014.
! Genesis sold 51 homes in Q4 2015 with revenues of $24,068 (Q4 2014 – 66 and $27,832) and 209 homes in YE 2015 with
revenues of $102,846 (YE 2014 - 220 and $96,029).
! Genesis sold 91 residential lots in Q4 2015 with revenues of $15,304 (Q4 2014 – 21 and $4,169) and 184 residential lots in
YE 2015 with revenues of $31,577 (YE 2014 – 271 and $45,026).
! The declines relate to the challenging economic conditions in the Calgary Metropolitan Area.
Net earnings and dividends:
! Net earnings were $5,365 for Q4 2015 compared to $2,858 for Q4 2014 and $11,014 for YE 2015 compared to $17,395 for
YE 2014.
! Dividends of $0.12 per share were paid in each of 2014 and 2015.
Financing:
! Genesis obtained two new land development loan facilities totaling $18,840 during Q4 2015 at an interest rate of prime +
0.75% and drew $6,495 on them during the quarter.
4
RESULTS OF OPERATIONS
The following factors affect the results of our operations, particularly in land development:
1. The development and sale of residential lots and development land occurs over a substantial period of time which
creates volatility in the revenues, earnings and cash flows from operating activities.
2. Land and lot prices and gross margins vary by community based on the nature of the development work to be
undertaken before the land and lots are ready for sale, and for how long the Corporation has owned the land.
3. Seasonality results in higher lot and home building revenues in the summer and fall months when home building sales
peak.
4. A significant portion of developed lots are sold to our home building business segment which defers the related revenues
and earnings from those lots until the sale of the home and lot.
Three months ended December 31,
Year ended December 31,
2015
2014
% change
2015
2014
% change
Direct cost of sales
(13,148)
(1,851)
15,304
3,500
4,169
-
267.1%
N/R(5)
610.3%
31,577
3,600
45,026
14,000
(20,704)
(38,715)
(29.9%)
(74.3%)
(46.5%)
(1,129)
(184)
513.6%
(12,390)
4,177
N/R(5)
Land Development
Key Financial Data
Residential lot sales(1)
Development land sales
(Write-down) recovery of real
estate held for development and
sale(2)
Gross margin
Gross margin (%)(3)
Equity income from joint venture
Other expenses(4)
Earnings (loss) before taxes
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
4,527
24.1%
2,669
(2,955)
4,241
50
41
91
114
168
31
2,134
51.2%
903
(2,558)
479
3
18
21
-
199
-
112.1%
195.6%
15.5%
785.4%
N/R(5)
127.8%
333.3%
N/R(5)
(15.6%)
N/R(5)
2,083
5.9%
4,238
(10,744)
(4,423)
69
115
184
118
172
30
24,488
41.5%
4,580
(8,528)
20,540
124
147
271
122
166
115
(1) Includes residential lot sales to third parties and to the home building business segment and other revenue
(2) Relates to lands owned by Genesis as well as by limited partnerships
(3) Gross margin amount divided by the sum of residential lot sales and development land sales
(4) Other expenses includes general and administrative, selling and marketing and net finance expense
(5) Not reflective due to percentage increase
(91.5%)
(7.5%)
26.0%
N/R(5)
(44.4%)
(21.8%)
(32.1%)
(3.3%)
3.6%
(73.9%)
5
Volumes and Revenues
Revenues were higher for Q4 2015 compared to Q4 2014 due to higher volumes of residential lot sales made to third parties and
through the home building business segment and the sale of a non-core parcel of land. The volume of lot sales to third parties is
usually higher when new sub-divisions are brought on stream and lot inventory is available, which was the case for Q4 2015.
Revenues and volumes were lower for YE 2015 compared to YE 2014 due to the challenging economic conditions. In addition,
revenues from the sale of (non-core) development land parcels was $3,600 in YE 2015 compared to $14,000 in YE 2014 for which
the margins are low or negligible.
Residential lots are sold to the home building business segment at market prices.
Gross Margin by Source of Revenue
Residential lot sales(1)
Direct cost of sales
Gross margin
Gross margin (%)
Development land sales
Direct cost of sales
Gross margin
Write-down recovery of real estate held for development and sales
Land development gross margin
(1) Includes other revenue
Three months ended December
31,
Year ended December
31,
2015
15,304
(9,671)
5,633
36.8%
3,500
(3,477)
23
(1,129)
4,527
2014
4,169
(1,735)
2,434
58.4%
-
(116)
(116)
(184)
2,134
2015
31,577
2014
45,026
(16,746)
(24,655)
14,831
47.0%
3,600
(3,958)
(358)
(12,390)
2,083
20,371
45.2%
14,000
(14,060)
(60)
4,177
24,488
The change in gross margin percentages for single-family lots relates to the mix of sales by community for the two years as the
gross margin percentage on residential lots 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. Development lands sold during
2015 and 2014 were non-core lands for which the margins were low or negligible.
Third party appraisals were prepared as at June 30, 2015 and December 31, 2015 resulting in certain write-downs. These write-
downs occurred primarily due to increased time lines to develop certain parcels of non-core land as a result of challenging
economic conditions. The write-down for YE 2015 was $12,390 compared to a recovery of $4,177 for YE 2014. Genesis’ portion of
the write-down was $4,365 (YE 2014 – recovery of $1,274) and the remaining $8,025 (YE 2014 – recovery of $2,903) related to
limited partnerships and is reflected in earnings attributable to non-controlling interest.
Equity Income from Joint Venture
Equity income from joint venture was higher during Q4 2015 compared to Q4 2014 mainly due to the sale of a multi-family land
parcel and with no corresponding sale for Q4 2014. Equity income from joint venture was lower during YE 2015, compared to YE
2014, due to lower volumes. Homes built on joint venture lots by the home building business segment result in Genesis recognizing
deferred gains and deferred margins. The joint venture community is now sold out and activity and revenues will be nominal in
future years as the joint venture is wound down. Refer to consolidated entities section in this MD&A for information on the joint
venture.
Other Expenses
Other expenses were higher for Q4 2015 and YTD 2015 compared to Q4 2014 and YTD 2014 mainly due to $658 and $2,633
respectively of imputed interest expense related to the land acquisition which occurred in January 2015. The increase in interest
expense was partially offset by lower compensation and benefits expense and professional services expense. The land
development segment and corporate personnel was 31 for YE 2015 compared to 32 for YE 2014.
6
Home Building
Key Financial Data
Revenues(1)
Cost of sales
Gross margin
Gross margin (%)
Other expenses(2)
Earnings before taxes
Key Operating Data
Homes sold ( single-family units)
Homes sold ( townhouse units)
Total homes sold (units)
Average revenue per single-family
home sold
Average revenue per townhouse
sold
Average revenue per home sold
(single-family and townhouse)
New home orders (units)
Three months ended December 31,
Year ended December 31,
2015
2014
% change
2015
2014
% change
24,068
(19,361)
4,707
19.6%
(3,271)
1,436
39
12
51
479
396
460
36
27,832
(23,407)
4,425
15.9%
(2,607)
1,818
54
12
66
458
258
422
38
(13.5%)
(17.3%)
6.4%
25.5%
(21.0%)
(27.8%)
-
(22.7%)
4.6%
53.5%
9.0%
(5.3%)
102,846
(84,326)
18,520
18.0%
96,029
(79,985)
16,044
16.7%
(11,960)
(10,936)
6,560
5,108
186
23
209
501
394
489
135
207
13
220
447
267
436
239
7.1%
5.4%
15.4%
9.4%
28.4%
(10.1%)
76.9%
(5.0%)
12.1%
47.6%
12.2%
(43.5%)
(1) Revenues include residential home sales and other revenue
(2) Other expenses includes general and administrative, selling and marketing and net finance expense
Volumes and Revenues
New home orders declined to 36 for Q4 2015 from 38 for Q4 2014 and to 135 for YE 2015 from 239 for YE 2014 reflecting a
weaker housing market.
Sales mix affects revenues, cost of sales and margins and is influenced by the community in which the home is built, the type of
home and factors specific to the home and the lot on which the home is built. Genesis sold a lower number of homes for Q4 2015
and for YE 2015 compared to Q4 2014 and YE 2014. However, the average revenue per home and gross margin percentage was
higher during both Q4 2015 and YE 2015. This was due to the mix of homes sold and delivering some homes for which orders
were contracted in 2014 when the housing market was stronger.
Other Expenses
Other expenses increased by 25.5% for Q4 2015 compared to Q4 2014 due to higher compensation and benefits, sales and
marketing and depreciation expenses partially offset by lower professional services expenses.
Other expenses increased by 9.4% for YE 2015 compared to YE 2014 primarily due to higher compensation and benefits. The
higher compensation expense was more than offset by the improved margins during 2015.
7
Finance Expense
Interest incurred
Finance expense relating to VTB(1)
Financing fees amortized
Interest and financing fees
capitalized
Three months ended December 31,
Year ended December 31,
2015
255
658
87
(102)
898
2014
360
-
201
% change
(29.2%)
N/R(2)
(56.7%)
(294)
(65.3%)
267
236.3%
2015
1,248
2,633
606
(623)
3,864
2014
1,853
-
991
% change
(32.6%)
N/R(2)
(38.8%)
(1,736)
(64.1%)
1,108
248.7%
(1) Vendor-take-back mortgage related to southeast lands acquisition
(2) Not reflective due to percentage increase
Higher interest expense incurred for Q4 2015 and for YE 2015 compared to the same periods in 2014 was mainly due to $658 and
$2,633 of imputed interest expense on the VTB for the new land acquired at the beginning of 2015. The weighted average interest
rate of loan agreements with various financial institutions was 4.75% (YE 2014 – 5.57%) based on December 31, 2015 balances.
The imputed rate on the VTB (which has a 0% face rate) is 8%. The weighted average interest rate of loan agreements was 3.82%
(YE 2014 – 4.65%), based on YE 2015 balances after excluding $8,125 relating to a limited partnership.
SEGMENTED BALANCE SHEETS
December 31, 2015
December 31,
2014
Land Development
Genesis
LPs
Intra-
segment
eliminations
Home
Building
Inter-
segment
Eliminations
Consolidated
Consolidated
215,380
47,524
(5,381)
31,109
(341)
288,291
240,123
Assets
Real estate held for development
and sale
Amounts receivable
Cash and cash equivalents
Other assets
Total assets
Liabilities
17,052
9,790
48,209
2
486
197
-
-
(26,420)
180
1,123
3,271
290,431
48,209
(31,801)
35,683
Loans and credit facilities
50,603
8,062
Provision for future development
costs
17,065
-
-
-
Other liabilities(1), (2)
18,515
26,732
(26,704)
Total liabilities
Net assets
86,183
34,794
(26,704)
204,248
13,415
(5,097)
5,154
1,861
15,902
22,917
12,766
-
-
(11,136)
(11,477)
-
-
(11,136)
(11,136)
(341)
17,234
11,399
14,121
17,660
33,048
18,911
331,045
309,742
63,819
18,926
23,309
106,054
224,991
23,892
21,945
32,631
78,468
231,274
(1) Other liabilities under the home building business segment includes $9,095 (December 31, 2014 - $14,164) due to the land development segment related to land
and lot purchases, overhead costs and general and administrative expenses.
(2) Other liabilities under the LPs segment comprises customer deposits and accounts payable and accrued liabilities and includes $26,704 (December 31, 2014 -
$24,091) due to Genesis.
8
LIQUIDITY AND CAPITAL RESOURCES
Genesis has significant unutilized debt capacity, 63 homes with firm sales contracts at December 31, 2015, and a portfolio of
entitled land which positions the Corporation to handle the challenging economic conditions in 2016 and possibly beyond. During
YE 2015 Genesis paid a dividend of $5,331 (YE 2014 – $5,386) and commenced a normal course issuer bid. At YE 2015, 628,598
common shares (1.40% of common shares outstanding at the beginning of the year) had been purchased and cancelled under the
NCIB for a total cost of $1,886 (average $3.00 per share).
VTB
Other loans and credit facilities
Total loans and credit facilities
Total liabilities to equity (1)
Loans and credit facilities (“Debt”) to total assets
(1) Calculated as total liabilities divided by total equity
December 31,
2015
34,321
29,498
63,819
47%
19%
2014
-
23,892
23,892
34%
8%
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 currently and at all period ends.
Real Estate Held for Development and Sale
Real estate held for development and sale
Provision for write-downs
December 31,
2015
351,397
(63,106)
288,291
2014
% change
292,013
(51,890)
240,123
20.3%
21.6%
20.1%
Real estate held for development and sale increased by $48,168 at YE 2015 compared to YE 2014. This was primarily due to the
acquisition of the southeast lands with a carrying value of $44,265, in addition to land development and home building development
activities. Genesis’ portion of the provision for write-downs relates to non-core lands. Refer to note 4 in the consolidated financial
statements for the years ended December 31, 2015 and 2014.
9
The following tables present our real estate held for development and sale, and estimated equivalent of single-family lots,
townhouse/multi-family units and commercial acreages held by Genesis as at December 31, 2015.
Land development segment
Net carrying
value
Acres(1)
Lots
Net carrying
value
Acres(1)
Net carrying
value
Acres(1)
Lots
Land under development
Land held for future
development
Total
Residential
Airdrie(2)
Calgary NW(3)
Calgary NE(4)
Calgary SE(5)
Mixed use(6)
Other assets(7) – non-core
39,106
27,901
16,144
-
83,151
55,367
-
Total land development segment
138,518
Home building business
segment(8)
Total land and home building
segments
Limited Partnerships(9)
Real estate held for development
and sale
169
34
13
-
216
71
-
287
310
90
120
-
520
-
14
534
8,617
-
5,879
44,267
58,763
3,986
14,113
76,862
90
-
33
349
472
312
3,463
4,247
47,723
27,901
22,023
44,267
141,914
59,353
14,113
215,380
259
34
46
349
688
383
3,463
4,534
30,768
-
246,148
42,143
288,291
4,534
2,387
6,921
310
90
120
-
520
-
14
534
34
568
-
568
Developed Lots
Single-family
(units)
To be Developed - Estimated Equivalent
Single-family (lots)
Townhouse/multi-
family (units)
Commercial
(acres)
Total
Single- and multi-
family (units)
Acres(1)
Residential
Airdrie(2)
Calgary NW(3)
Calgary NE(4)
Calgary SE(5)
Mixed use(6)
Other assets(7) – non-core
Total land development segment
Home building business segment
Total land and home building
segments
Limited Partnerships(9)
Real estate held for development
and sale
259
34
46
349
688
383
3,463
4,534
-
4,534
2,387
6,921
310
90
120
-
520
-
14
534
34
568
-
568
1,208
34
340
1,245
2,827
-
1,947
4,774
-
4,774
2,621
7,395
620
1,869
78
834
3,401
2,450
-
5,851
-
5,851
1,060
6,911
-
2
-
-
2
319
-
321
-
321
441
762
2,138
1,993
538
2,079
6,748
2,450
1,961
11,159
34
11,193
3,681
14,874
(1) Acres comprises townhouse /multi-family, commercial acres and land not yet subdivided into single-family lots
(2) Airdrie comprises the communities of Bayside, Bayview and Canals
(3) Calgary NW comprises the community of Sage Meadows
(4) Calgary NE comprises the community of Saddlestone
(5) Calgary SE comprises southeast lands acquired in 2015
(6) Mixed use comprises North Conrich and Sage Hill Crossing
(7) Other assets are non-core and actively being marketed for disposal. These assets represent 6.6% (YE 2014 – 4.2%) of Genesis’ land portfolio with a carrying
value of $14,113 (YE 2014 - $6,621). The change in carrying value is due to the property reclassifications and disposals.
(8) Housing projects under development comprise $7,287 in lots and $23,481 of work-in-progress. Refer to note 4 in the consolidated financial statements for the
year ended December 31, 2015 and 2014.
(9) 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, 2015 and 2014. Net of intra-segment eliminations of $5,381.
10
The following tables present the continuity of the each segment’s lot supply for the year ended December 31, 2015:
Land Development
Project
Airdrie
Bayside
Canals
Calgary NW
Sage Meadows
Calgary NE
Saddlestone
Brooks (non-core)
Total
Home Building
Project
Airdrie
Bayside
Canals
Calgary NW
Evansridge
Kinwood
Sage Meadows
Sherwood
Calgary NE
Saddlestone
Total
Amounts Receivable
Amounts receivable
Lots at
Jan. 1, 2015
Additions
made during
2015
Sold to third-
party builders
Sold to
home
building
Lots at
December 31,
2015
148
18
166
27
184
14
391
237
-
237
90
-
-
327
(67)
(2)
(69)
-
-
-
(69)
(18)
(6)
(24)
(27)
(64)
-
(115)
300
10
310
90
120
14
534
Lots at January 1,
2015
Lots purchased in
2015
Homes sold in
2015
Lots at December
31, 2015
Price range of
homes sold
17
-
17
29
75
23
3
130
4
151
18
6
24
-
-
4
-
4
64
92
(32)
(6)
(38)
(7)
(66)
(27)
(3)
(103)
(68)
(209)
3
-
3
22
9
-
-
31
-
34
$340-$626
$548-$726
$340-$726
$386-$415
$446-$624
$374-$505
$747-$871
$386-$871
$357-$708
$340-$871
December 31,
2015
17,234
2014
17,660
% change
(2.4%)
Genesis generally retains title to lots and homes until full payment is received in order to mitigate credit exposure. The year over
year change was a nominal $426.
11
Other Operating Assets
Other operating assets
December 31,
2015
7,574
2014
13,993
% change
(45.9%)
Other operating assets consist of deposits, prepayments, restricted cash and property and equipment. These decreased by $6,419
at YE 2015 from YE 2014, mainly due to a net reduction in cash secured letters of credit by $4,746 and a reduction of $2,500 in
deposits on closing of the purchase of southeast lands in 2015. This was partially offset by increases in prepayments and property
and equipment.
Cash Flows from Operating Activities
Cash flows (used in) from operating activities
Cash flows (used in) from operating activities per
share – basic and diluted
Three months ended December
31,
Year ended December
31,
2015
(7,193)
(0.16)
2014
4,099
0.09
2015
(18,325)
(0.41)
2014
42,169
0.94
The decrease in cash flows in Q4 2015 to $(7,193) from Q4 2015 was due to a decrease in receipts from the sale of residential
homes and increased activity in both the land development and home building business segments. The decrease was partially
offset by release of $2,960 associated with letters of credit and lower disbursement towards income taxes.
The $60,494 change in cash flows between YE 2015 (cash outflow of $18,325) and YE 2014 (cash inflow of $42,169) is explained
by the following:
Reduced cash in-flow due to lower land and lot sales
Higher cash out-flow due to increased investment in land servicing
Cash out-flow due to acquisition of southeast lands
Higher cash out-flow for income taxes due to higher profitability
Changes in various operating cash flows
Total change in cash flows
LIABILITIES AND SHAREHOLDERS’ EQUITY
28,127
21,159
7,500
4,202
(494)
60,494
The following table presents Genesis’ liabilities and equity at the end of YE 2015 and YE 2014.
December 31,
December 31,
Loans and credit facilities
Customer deposits
Accounts payable and accrued liabilities
Provision for future development costs
Income taxes payable
Total liabilities
Non-controlling interest
Shareholders’ equity
2015
63,819
3,820
19,219
18,926
270
106,054
12,866
212,125
331,045
% of Total
19%
1%
6%
6%
-
32%
4%
64%
100%
2014
23,892
5,515
22,683
21,945
4,433
78,468
23,173
208,101
309,742
Loans and Credit Facilities
The change in the Corporation’s loans and credit facilities were as follows:
% of Total
8%
2%
7%
7%
1%
25%
7%
68%
100%
12
Balance, beginning of period
Vendor-take-back mortgage – land acquisition
Advances for land development and home building
Repayments from the proceeds of land and home sales
Interest and financing fees incurred
Interest and financing fees paid
Balance, end of period
The Corporation’s loans and credit facilities consisted of the following segmented amounts:
Land development
Limited partnerships
Home building
For the year ended December 31,
2015
23,892
34,321
45,524
(42,719)
4,276
(1,475)
63,819
2014
50,373
-
27,484
(55,347)
2,693
(1,311)
23,892
For the year ended December 31,
2015
50,603
8,062
5,154
63,819
2014
8,310
7,804
7,778
23,892
The following is a summary of drawn and outstanding loan and credit facility balances as at Q4 2015 and as at the end of the
previous four quarters:
Vendor-take-back mortgage
Land development loans
Home building loans
Unamortized deferred financing fees
Balance, end of period
Total liabilities to equity follows:
Total liabilities
Total equity
Total liabilities to equity(1)
(1) Calculated as total liabilities divided by total equity
Q4 2015
34,321
24,734
5,194
64,249
(430)
63,819
Q3 2015
33,663
7,940
5,545
47,148
(80)
47,068
Q2 2015
33,006
8,427
8,028
49,461
(74)
49,387
Q1 2015
Q4 2014
32,348
10,235
8,706
51,289
(125)
51,164
December 31,
2015
106,054
224,991
47%
-
16,600
7,818
24,418
(526)
23,892
2014
78,468
231,274
34%
During 2015, Genesis obtained four new land project loan facilities totaling $65,800 and increased an existing facility by $11,500.
Interest on these facilities ranges from prime + 0.75% to prime + 1.25% per annum and draws on these facilities can be made as
land development activities progress. $16,609 was drawn against these facilities as at YE 2015.
In addition, Genesis has a demand operating line of credit of up to $10,000 for general corporate purposes at an interest rate of
prime + 1% per annum. The balance on this facility was nil as at YE 2015.
The home building business segment has a demand operating line of $6,500 at an interest rate of prime +1.5% per annum. $1,427
was drawn on this facility as at YE 2015. In addition, a capital project loan at an interest rate of prime +1.5% per annum is also
available to the home building business segment with $3,767 drawn as at YE 2015.
13
Genesis also assumed a VTB on the purchase of the southeast lands in January 2015. The $40,000 VTB has an unamortized
discount of $5,679 as at YE 2015 and is payable in five equal installments of $8,000 each, commencing January 2016 and ending
in January 2020.
Genesis also guaranteed an $8,125 loan relating to a limited partnership bearing interest at the greater of 7.25% or prime +3% per
annum. The loan is secured by lands held by the limited partnership.
Genesis has various covenants in place with its lenders with respect to certain contracted credit facilities. Such covenants include
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 line has a financial covenant requiring that Genesis
Builders Group Inc. maintain a net worth of at least $11,500 at all times. Net worth is defined by the lender as “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 at YE 2015 and at YE 2014. 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 cash flows from 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.
Provision for Future Development Costs
Genesis sells lots and homes for which it is responsible to pay for costs-to-complete. For the home building business segment,
costs-to-complete estimates are mainly estimates of the costs likely to be incurred on seasonal work and estimated warranty
charges over the one year warranty period. The cost of these remaining services is recognized as a liability when the related
revenue is recognized. Provision for future development costs decreased by $3,019 at YE 2015 compared to YE 2014, due to
lower lot sales during the period as well of completion of previously recognized cost-to-complete liabilities on lots and on homes.
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
For the year ended December 31,
2014
2015
4,433
5,671
(9,834)
270
3,112
6,953
(5,632)
4,433
The decreased in income tax payable is due to lower net earnings during 2015 and higher net payments made during the year.
14
Shareholders’ Equity
As at March 22, 2016, the Corporation had 44,117,802 common shares issued and outstanding. In addition, options to acquire
800,000 common shares of Genesis were issued and outstanding under our stock option plan. On February 17, 2016, the
Corporation cancelled 285,000 regular options and all 1,272,000 performance options on the departure of the President and CEO
and the CFO from Genesis.
On September 4, 2015, the Corporation announced a normal course issuer bid to repurchase for cancellation up to 2,246,310
common shares (representing 5% of the Corporation’s common shares issued and outstanding as at September 3, 2015). The
NCIB commenced on September 10, 2015 and will terminate on the earlier of (i) September 9, 2016; and (ii) the date on which the
maximum number of common shares are purchased pursuant to the NCIB.
During Q4 2015, 379,498 common shares (0.85% of common shares outstanding at the beginning of the period) were purchased
and cancelled for a total cost of $1,118 (average $2.95 per share). During YE 2015, 628,598 common shares (1.40% of common
shares outstanding at the beginning of the year) were purchased and cancelled for a total cost of $1,886 (average $3.00 per
share).Under the NCIB, the Corporation repurchased for cancellation an additional 257,700 shares for $606,627 between January
1, 2016 and March 22, 2016.
Return on equity was 5.2% at YE 2015 (YE 2014 – 8.6%). Return on equity is calculated by dividing net earnings by average
shareholders’ equity. Return on equity decreased mainly due to lower net earnings in YE 2015. Net earnings for YE 2015 were
largely impacted by lower residential lot sales and lower development land sales, imputed interest of $2,633 relating to the VTB
and due to the write-down of $12,390 of real estate held for development and sale of which Genesis portion was $4,365 with the
balance of $8,025 attributable to limited partnerships.
Contractual Obligations and Debt Repayment
Contractual obligations excluding accounts payable, accrued liabilities, income taxes payable, customer deposits and provision for
future development costs, at the end of YE 2015 were as follows,:
Current
January 2017 to December 2017
January 2018 to December 2018
January 2019 and thereafter
(1) Excludes deferred financing fees
Loans and
Credit
Facilities(1)
13,184
32,117
6,822
12,126
64,249
Naming
Rights
Lease
Obligations
700
700
500
1,500
3,400
1,008
636
50
11
1,705
Total
14,892
33,453
7,372
13,637
69,354
Based on our operating history, our relationship with lenders and committed sales contracts, management is confident that Genesis
has the ability to continue to meet its obligations as they come due.
Genesis signed a memorandum of understanding in 2012 to contribute $5,000 for the naming rights for 10 years to the “Genesis
Centre for Community Wellness”, a recreation complex in northeast Calgary ($500 each year, terminating in 2021). The first four
installments totaling $2,000 were paid up to and through to the end of December 2015.
Genesis entered into an agreement with the City of Airdrie, to contribute $2,000 for the naming rights for 10 years to “Genesis
Place”, a recreation complex in the City of Airdrie ($200 each year, terminating in 2017). The first eight installments totaling $1,600
were paid up to and through to the end of December 2015.
Genesis entered into an agreement with Morguard Real Estate Investment Trust (“Morguard”) to lease 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 also has other minor operating leases.
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.
15
Current Contractual Obligations
Loans and credit facilities, excluding deferred financing fees
Accounts payable and accrued liabilities
Total short-term liabilities
Commitments(1)
December 31,
2015
13,184
19,219
32,403
1,708
34,111
2014
16,568
22,683
39,251
11,634
50,885
(1) Commitments comprise naming rights and lease obligations. At YE 2014 this included $10,000 relating to the purchase of the southeast lands
At the end of YE 2015, Genesis had obligations due within the next 12 months of $34,111, of which $13,184 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.
OFF BALANCE SHEET ARRANGEMENTS
Letters of Credit
We have an ongoing requirement to provide irrevocable letters of credit to municipalities as part of the sub-division plan registration
process. At YE 2015, these letters of credit totalled approximately $6,309 (YE 2014 - $2,641).
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 at YE 2015 and 2014. 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.
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
Dividends per share
2015
2014
2013
119,088
134,245
96,077
22,509
11,014
0.25
39,001
11,135
17,395
5,713
0.39
0.13
331,045
309,742
313,846
63,819
23,892
50,373
0.12
0.12
-
Refer to the Results of Operations section of this MD&A for the factors that affected our results.
Total revenues comprise residential lot sales, development land sales, residential home sales and other revenues. Residential lot
volumes and sales in 2015 were lower than in 2014 and 2013. Development land sales were $3,600, $14,000 and $6,668 for 2015,
2014 and 2013 respectively and related to sale of non-core properties at low or negligible margins. Residential home sales
increased from 2013 through 2015, mainly due to increasing volume but also due to the mix of homes being sold. Gross margins in
2015 and 2013 were impacted by a write-down of real estate held for development and sale. In 2014, gross margins were positively
impacted by a recovery of write-downs previously made. Net earnings and net earnings per share were affected as a result of the
above.
Total assets and loans and credit facilities increased in 2015 mainly due to the purchase of the southeast lands secured by a VTB.
The reduction in loans and credit facilities in 2014 was due to the repayment of certain facilities with the proceeds from the sale of a
non-core development land parcel and from the sale of residential lots and homes.
16
SUMMARY OF QUARTERLY RESULTS
Q4
2015
Q3
2015
Q2
2015
Q1
2015
Q4
2014
Q3
2014
Q2
2014
Q1
2014
Revenues
Net earnings(1)
EPS(2)
36,575
34,918
31,822
15,773
28,509
32,984
34,765
37,987
5,365
0.13
4,256
0.09
1,333
0.03
60
0.00
2,858
0.07
4,366
0.09
7,231
0.16
2,940
0.07
(1) Net earnings attributable to equity shareholders
(2) Net earnings per share - basic and diluted
Seasonality affects the land development and home building industry in Canada, particularly as a result of winter weather
conditions. Refer to the Results of Operations section of this MD&A which discusses the factors that affect our results and
seasonality further.
During Q4 2015, we sold 50 residential lots to third parties, 51 homes (39 single-family and 12 townhouses) and a non-core
development land parcel compared to 13 residential lots and 67 homes (56 single-family and 11 townhouses) in the third quarter of
2015 (“Q3 2015”). The increase in revenues for Q4 2015 was mainly due to higher residential lot and development lot sales. During
Q4 2015, the joint venture in which Genesis is a 50% partner, sold a multi-family land parcel for which Genesis realized deferred
gains and its share of net income from the joint venture. These were the main factors that resulted in higher net earnings and EPS
for Q4 2015 compared to Q3 2015. Net earnings in the second quarter of 2015 were affected by a write-down of real estate held for
development and sales. Revenues and net earnings were low in the first quarter of 2015 due to lower residential lot and residential
home sales.
CONSOLIDATED ENTITIES
The Corporation is the general partner in four limited partnership arrangements and a 50% partner in the joint venture (refer to note
16 of the consolidated financial statements for the year ended December 31, 2015 and 2014).
SUMMARY OF ACCOUNTING CHANGES
The Corporation adopted no new IFRSs and interpretations during 2015.
STANDARDS AND AMENDMENTS TO EXISTING STANDARDS DURING 2015
The Corporation adopted no new IFRSs and interpretations during 2015.
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:
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, 2018, 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.
17
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 is effective for annual periods beginning on or after January
1, 2018, with early adoption permitted. 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 16, “Leases”
On January 13, 2016, the IASB published a new standard, IFRS 16, “Leases”. The new standard brings most leases on-balance
sheet for lessees under a single model, eliminating the distinction between operating and finance leases. The standard is effective
for annual periods beginning on or after January 1, 2019, with early application permitted but only if the entity is also applying IFRS
15, “Revenue from contracts with customers”. Under the new standard, a lessee recognizes a right-of-use asset and a lease
liability. The right-of-use asset is treated similarly to other non-financial assets and depreciated accordingly. The liability accrues
interest. The Corporation has not yet considered the impact of IFRS 16 on its financial statements.
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 2015 and for YE 2014. Refer to note 2(q) in the consolidated financial statements for the years ended
December 31, 2015 and 2014 for additional information on judgments and estimates.
Provision for Future 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 due to the longer time frames involved, specifically in land development.
Impairment of Real Estate Held for Development and Sale
The Corporation estimates the net realizable value (“NRV”) of real estate held for 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.
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
Management of the Corporation is 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. Genesis’ DC&P is designed 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.
Genesis’ ICFR is designed 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 in Internal Control – Integrated Framework (2013) published by the Committee of Sponsoring Organizations of the
Treadway Commission (“COSO”).
On February 17, 2016, Mr. Bruce Rudichuk was replaced as President and Chief Executive Officer by Mr. Stephen J. Griggs, a
Director and Chair of the Board, as interim Chief Executive Officer (“interim CEO”) and Mr. Mark Scott, Executive Vice President
18
and Chief Financial Officer also left the Corporation with immediate effect. On March 15, 2016, the Board appointed Mr. Rauf
Muhammad, CPA (Colorado) as the interim Chief Financial Officer (“interim CFO”) until April 18, 2016. Effective April 18, 2016
Kirsten Richter CPA, CA, will assume the position of interim Chief Financial Officer of the Corporation.
The interim CEO and interim CFO have evaluated the design and operating effectiveness of Genesis' DC&P and ICFR and
concluded that, even though there was a change in management subsequent to the year end, Genesis' DC&P and ICFR were
effective as at December 31, 2015. While Genesis’ interim CEO and interim 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, 2015 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.
Development and Construction Costs
Genesis may experience loss due to inflation causing higher prices of labor and consulting fees, and costs of materials. Costs of
development and building have fluctuated over the past several years and are typically passed on to the customer through higher
pricing. Any significant increase that Genesis cannot pass on to the customer may have a negative material impact on profits.
Credit and Liquidity Risk
Credit risk arises from the possibility that builders that acquire lots from Genesis may experience financial difficulty and be unable
to fulfill their lot payout commitments. Liquidity risk is the risk that Genesis will not be able to meet its financial obligations as they
fall due. If Genesis is unable to generate sufficient sales and renew existing credit facilities or secure additional financing, it will
impact the Corporation’s ability to meet its obligations as they become due. Based on the Corporation’s operating history,
relationship with lenders and committed sales contracts, Management believes that Genesis has the ability to continue to renew or
repay its financial obligations as they come due.
Finance Risk
Genesis uses debt and other forms of financing in its business to execute the corporate strategy. Genesis uses project specific
credit facilities to fund land development costs and a construction operating line for home construction purposes. Should Genesis
be unable to obtain required capital, its ability to achieve these goals could be impacted. In order to reduce finance risk, Genesis
endeavors to match the term of financing with the underlying land asset. Management regularly reviews the Corporation’s credit
facilities and manages the requirements in accordance with project development plans and operating requirements.
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 AIF for the year ended December 31, 2015 available on SEDAR at
www.sedar.com
19
TRADING AND SHARE STATISTICS
The Corporation’s trading and share statistics for 2015 and 2014 are provided below.
Average daily trading volume
Share price ($/share)
High
Low
Close
Market capitalization at December 31
Shares outstanding
OTHER
2015
47,810
3.90
2.58
2.73
2014
45,322
5.10
3.30
3.85
120,932
44,297,602
172,985
44,931,200
Additional information relating to the Corporation can be found on SEDAR at www.sedar.com.
ADVISORIES
Non-GAAP Financial Measures
Management has discontinued the presentation of net asset value (“NAV”), gross margin before write-down or recovery, adjusted earnings and
adjusted earnings per share. Due to the widening gap between the stock price of the Corporation and its NAV, management is of the view that
NAV is not a useful measure and therefore presentation of this measure has been discontinued. Gross margin before write-down or recovery,
adjusted earnings and adjusted earnings per share are not useful measures due to the recurring nature of the write-downs or recoveries and
therefore the presentation of these measures has been discontinued. Gross margin before write-down or recovery is calculated by excluding any
write-down or recovery from the gross margin. This can be used to assess the performance of the business without the effects of write-down or
recovery. Adjusted earnings is calculated as net earnings attributable to shareholders excluding any write-down or recovery and net of income
taxes relating to the write-down or recovery. Adjusted earnings per share is calculated by dividing adjusted earnings by the weighted average
number of common shares (basic or diluted).
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. 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”.
Forward-looking statements in this MD&A include, but are not limited to, statements with respect to the nature of development lands held and the
anticipated inventory and development potential of such lands, ability to bring new developments to market, anticipated general economic and
business conditions in 2016 and beyond, including low interest rates, low stable inflation rates, the anticipated impact on Genesis' development
and home building activities, the constraint on margins and volumes in Calgary’s home building industry throughout 2016 and possibly beyond,
the activity levels and the revenues from the joint venture, the ability to close the book of homes with firm sales contracts and the ability to
continue to renew or repay financial obligations and to meet contractual obligations as they become due. 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.
20
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 election of governments
in Alberta and Canada and the direction of policy which could impact the overall pace of economic growth; 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; the uncertainties of real estate development and acquisition activity; fluctuations in interest rates; ability to access and
raise capital on favourable terms; not realizing on the anticipated benefits from transactions or not realizing on such anticipated benefits within the
expected time frame; labour matters, governmental regulations, stock market volatility 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 AIF 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.
21
GENESIS LAND DEVELOPMENT CORP.
––––––––––
CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2015 and 2014
22
GENESIS LAND DEVELOPMENT CORP.
CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2015 and 2014
TABLE OF CONTENTS
Management's Report .................................................................................................................................................................... 24
Independent Auditors’ Report ......................................................................................................................................................... 25
Consolidated Balance Sheets ......................................................................................................................................................... 26
Consolidated Statements of Comprehensive Income ..................................................................................................................... 27
Consolidated Statements of Changes in Equity ............................................................................................................................. 28
Consolidated Statements of Cash Flows ........................................................................................................................................ 29
Notes to the Consolidated Financial Statements ............................................................................................................................ 30
23
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.
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.
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 Professional 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.
/s/ Stephen J. Griggs,
Interim Chief Executive Officer
/s/ Rauf Muhammad
Interim Chief Financial Officer
March 22, 2016
24
25
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 development costs
Total liabilities
Commitments and contingencies
Equity
Share capital
Contributed surplus
Retained earnings
Shareholders’ equity
Non-controlling interest
Total equity
Notes
December 31, 2015
December 31, 2014
4
16
5
6
7
8
14
9, 10
288,291
2,854
17,234
7,574
3,693
11,399
331,045
63,819
3,820
19,219
270
18,926
106,054
55,591
5,577
150,957
212,125
12,866
224,991
240,123
3,560
17,660
13,993
1,358
33,048
309,742
23,892
5,515
22,683
4,433
21,945
78,468
56,393
5,349
146,359
208,101
23,173
231,274
Total liabilities and equity
331,045
309,742
See accompanying notes to the consolidated financial statements
Consolidated entities (note 19)
Subsequent events (note 20)
ON BEHALF OF THE BOARD:
/s/ Stephen J. Griggs
Director and Chair of the Board
/s/ Steven Glover
Director and Chair of the Audit Committee
26
GENESIS LAND DEVELOPMENT CORP.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
For the years ended December 31, 2015 and 2014
(In thousands of Canadian dollars except per share amounts)
Year ended December 31,
Notes
2015
2014
Revenues
Sales revenue
Other revenue
Direct cost of sales
(Write-down) recovery of real estate held for development and sale
Gross margin
Income from joint venture
General and administrative expense
Selling and marketing expense
Earnings from operations
Finance income
Finance expense
Earnings before income taxes
Income tax expense
Net earnings 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
Consolidated entities (note 19)
4
16
11
12
13
7
118,769
319
119,088
(84,189)
(12,390)
(96,579)
22,509
4,238
(13,521)
(5,405)
(14,688)
7,821
86
(3,864)
4,043
(3,336)
707
(10,307)
11,014
0.25
133,667
578
134,245
(99,421)
4,177
(95,244)
39,001
4,580
(13,272)
(5,451)
(14,143)
24,858
367
(1,108)
24,117
(5,992)
18,125
730
17,395
0.39
27
GENESIS LAND DEVELOPMENT CORP.
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
For the years ended December 31, 2015 and 2014
(In thousands of Canadian dollars except number of shares)
Equity attributable to Corporation’s shareholders
Common shares – Issued
At December 31, 2013
Number of
Shares
44,861,200
Share-based payments
70,000
Dividends(3)
Net earnings (1)
-
-
Amount
56,122
271
-
-
Contributed
Surplus
5,011
338
-
-
Retained
Earnings
134,350
-
(5,386)
17,395
Total
Shareholders’
Equity
Non-
Controlling
Interest
Total Equity
195,483
22,443
217,926
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
At December 31, 2014
44,931,200
56,393
5,349
146,359
208,101
23,173
231,274
Share-based payments
-
Cancellation of shares
(5,000)
-
-
Repurchase and
cancellation of shares(2)
Dividends(3)
Net earnings (loss)(1)
(628,598)
(802)
-
-
-
-
228
-
-
-
-
-
-
228
-
(1,085)
(1,887)
(5,331)
11,014
(5,331)
11,014
(10,307)
-
-
-
-
228
-
(1,887)
(5,331)
707
At December 31, 2015
44,297,602
55,591
5,577
150,957
212,125
12,866
224,991
See accompanying notes to the consolidated financial statements
(1) Net earnings (loss) being comprehensive earnings (loss)
(2) Repurchased and cancelled under normal course issuer bid (“NCIB”). Refer to note 9
(3) Special cash dividends of $0.12 per share were paid in each of 2014 and 2015
28
GENESIS LAND DEVELOPMENT CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the years ended December 31, 2015 and 2014
(In thousands of Canadian dollars)
Operating activities
Receipts from residential lot and development land sales
Receipts from residential home sales
Other receipts
Paid for land development
Paid for land acquisition
Paid for residential home construction
Paid to suppliers and employees
Interest received
Income taxes paid
Cash flows (used in) from operating activities
Investing activities
Acquisition of equipment
Distribution received from joint venture
Disposal of equipment
Cash 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
Cash settlement of options
Dividends paid
Repurchase and cancellation of shares under NCIB
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
Notes
Year ended December 31,
2015
2014
4
16
8
9
15,708
101,025
5,083
(41,418)
(10,000)
(60,266)
(18,709)
86
(9,834)
(18,325)
(1,187)
3,800
10
2,623
45,524
(42,719)
(1,475)
(59)
(5,331)
(1,887)
-
(5,947)
(21,649)
33,048
11,399
43,835
95,815
600
(20,259)
(2,500)
(48,159)
(21,898)
367
(5,632)
42,169
(864)
8,500
-
7,636
27,484
(55,347)
(1,311)
(79)
(5,386)
-
204
(34,435)
15,370
17,678
33,048
29
GENESIS LAND DEVELOPMENT CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2015 and 2014
(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.
The consolidated financial statements of Genesis were approved for issuance by the Board of Directors on March 22, 2016.
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 the 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.
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 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 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.
30
GENESIS LAND DEVELOPMENT CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2015 and 2014
(All tabular amounts and amounts in footnotes to tables are in thousands of Canadian dollars except number of shares)
2. SIGNIFICANT ACCOUNTING POLICIES (continued)
d)
Interest in joint venture
The Corporation has an interest in a joint venture, Kinwood Communities Inc., (the “JV”) which is a jointly controlled entity.
The Corporation recognizes its interest in the JV using the equity method of accounting.
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.
(iii)
Interest income
Interest income is recognized as it accrues using the effective interest rate method.
(iv) Other revenue
Rental income is recognized on a straight-line basis over the term of the rental agreement. Rental income is
incidental to ownership of real estate and does not result in classification of real estate as investment property. All
real estate is classified as inventory. 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 inventory and are
measured at the lower of cost and estimated net realizable value (“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.
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.
31
GENESIS LAND DEVELOPMENT CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2015 and 2014
(All tabular amounts and amounts in footnotes to tables are in thousands of Canadian dollars except number of shares)
2. SIGNIFICANT ACCOUNTING POLICIES (continued)
g)
Borrowing costs
The acquisition or construction of real estate assets necessarily takes a substantial period of time to prepare for its intended
use or sale. Borrowing costs attributable to real estate held for development and sale are recorded as part of the respective
inventory carrying cost. 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 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 qualifying inventory. Borrowing costs are recorded as inventory from the date of
commencement of development work until the date of completion. The recording of interest as inventory is suspended if the
project development is suspended for a prolonged period.
h)
Property and equipment
Property and equipment is stated at cost, net of any accumulated depreciation and accumulated impairment 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:
• Vehicles and other equipment
• Office equipment and furniture
• Computer equipment
• Computer software
• Showhome furniture
• Leasehold improvements
5 years
7 years
3 years
3 years
3 years
Lesser of 5 years or remaining term of the lease
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 at the balance sheet date using the liability method on all temporary differences 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 income 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.
32
GENESIS LAND DEVELOPMENT CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2015 and 2014
(All tabular amounts and amounts in footnotes to tables are in thousands of Canadian dollars except number of shares)
2. SIGNIFICANT ACCOUNTING POLICIES (continued)
The Corporation’s consolidated financial statements include some entities that are limited partnerships (note 19) 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.
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
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.
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 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.
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.
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.
33
GENESIS LAND DEVELOPMENT CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2015 and 2014
(All tabular amounts and amounts in footnotes to tables are in thousands of Canadian dollars except number of shares)
2. SIGNIFICANT ACCOUNTING POLICIES (continued)
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.
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.
p)
Provision for future development costs
The provision for future 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 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 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.
34
GENESIS LAND DEVELOPMENT CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2015 and 2014
(All tabular amounts and amounts in footnotes to tables are in thousands of Canadian dollars except number of shares)
2. SIGNIFICANT ACCOUNTING POLICIES (continued)
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 the provision for
current and deferred taxes.
(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 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 due to the long time frames involved, specifically in land development.
(ii)
Impairment of real estate held for development and sale
The Corporation estimates the NRV of real estate held for 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.
35
GENESIS LAND DEVELOPMENT CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2015 and 2014
(All tabular amounts and amounts in footnotes to tables are in thousands of Canadian dollars except number of shares)
2. SIGNIFICANT ACCOUNTING POLICIES (continued)
(iii) 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 2015
The Corporation adopted no new IFRSs and interpretations during 2015.
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:
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, 2018, 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 consolidated financial statements.
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 is effective for annual periods beginning on or after January
1, 2018, with early adoption permitted. 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 consolidated financial
statements.
IFRS 16, “Leases”
On January 13, 2016, the IASB published a new standard, IFRS 16, “Leases”. The new standard brings most leases on-balance
sheet for lessees under a single model, eliminating the distinction between operating and finance leases. The standard is effective
for annual periods beginning on or after January 1, 2019, with early application permitted but only if the entity is also applying IFRS
15, “Revenue from contracts with customers”. Under the new standard, a lessee recognizes a right-of-use asset and a lease
liability. The right-of-use asset is treated similarly to other non-financial assets and depreciated accordingly. The liability accrues
interest. The Corporation has not yet considered the impact of IFRS 16 on its consolidated financial statements.
36
GENESIS LAND DEVELOPMENT CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2015 and 2014
(All tabular amounts and amounts in footnotes to tables are in thousands of Canadian dollars except number of shares)
4. REAL ESTATE HELD FOR DEVELOPMENT AND SALE
Land Under
Development
Land Held for
Future
Development
Home Building
Total
Limited
Partnerships
Consolidated
Total
Gross book value
As at December 31, 2014
Transfers
Acquisitions
Development
Sold
As at December 31, 2015
Less provision for write-downs
As at December 31, 2014
Sold
Write-down
As at December 31, 2015
Net book value
As at December 31, 2014
As at December 31, 2015
119,574
(17,015)
-
50,282
(14,323)
138,518
641
(641)
-
-
118,933
138,518
65,679
(1,921)
44,265
993
(1,521)
107,495
26,801
(533)
4,365
30,633
38,878
76,862
217,418
74,595
292,013
32,165
18,936
-
66,835
-
44,265
118,110
(87,168)
(103,012)
-
-
21
-
-
44,265
118,131
(103,012)
30,768
276,781
74,616
351,397
-
-
-
-
27,442
(1,174)
4,365
30,633
32,165
30,768
189,976
246,148
24,448
-
8,025
32,473
50,147
42,143
51,890
(1,174)
12,390
63,106
240,123
288,291
During the year ended December 31, 2015, interest of $623 (2014 - $1,736) was capitalized in the Development line above.
The projected development time line of certain parcels of agricultural land, held by Genesis and by a limited partnership, was
significantly extended and resulted in write-downs during 2015.
The Corporation acquired 350 acres of land in southeast Calgary on January 6, 2015. Refer to Loans and credit facilities (note 8).
5. AMOUNTS RECEIVABLE
Agreements receivable
Other receivables
2015
16,312
922
17,234
2014
17,122
538
17,660
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 mortgages receivable, if any, are interest bearing.
37
GENESIS LAND DEVELOPMENT CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2015 and 2014
(All tabular amounts and amounts in footnotes to tables are in thousands of Canadian dollars except number of shares)
6. OTHER OPERATING ASSETS
Deposits
Prepayments
Restricted cash
Property and equipment
2015
3,485
309
2,127
1,653
7,574
2014
11,343
146
1,360
1,144
13,993
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 for additional information). Restricted
cash is held in trust accounts.
7.
a)
INCOME TAXES
Income tax was recognized in the consolidated statements of comprehensive income as follows:
Current income tax
Deferred tax relating to origination and reversal of temporary differences
2015
5,671
(2,335)
3,336
2014
6,953
(961)
5,992
b)
Income tax expense differed from that which would be expected from applying the combined statutory Canadian federal and
provincial income tax rates of 26.01% (2014 – 25%) to earnings before income taxes. The difference resulted from the
following:
Earnings before income taxes
Statutory tax rate
Expected income tax expense
Utilization of previously recognized tax losses
Effect of tax rate change
Share-based payment transactions
Others
Non-controlling interest
Tax expense for the year
2015
4,043
26.01%
1,052
(160)
(190)
75
(122)
2,681
3,336
2014
24,117
25.0%
6,029
-
-
116
30
(183)
5,992
38
GENESIS LAND DEVELOPMENT CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2015 and 2014
(All tabular amounts and amounts in footnotes to tables are in thousands of Canadian dollars except number of shares)
7.
c)
INCOME TAXES (continued)
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 2035
2015
6,694
(3,001)
3,693
2015
2,219
182
(604)
1,923
(27)
3,693
2014
4,019
(2,661)
1,358
2014
2,587
114
(2,658)
1,318
(3)
1,358
39
GENESIS LAND DEVELOPMENT CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2015 and 2014
(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 agreements receivable and real estate held for development and sale
(a) Land project loans, payable on collection of agreements receivable, bearing interest ranging
from prime +0.75% to prime +1.25% per annum, secured by real estate held for development and
sale with a carrying value of $68,252, due between September 18, 2017 and December 18, 2017.
Secured by real estate held for development and sale
(b) Vendor-take-back mortgage (“VTB”) of $40,000 at 0% per annum is measured at amortized
cost and whose fair value is based on discounted future cash flows, using an 8% discount rate,
reflecting current market conditions for instruments with similar terms and risks. The VTB was
assumed on January 6, 2015 for the purchase of southeast Calgary lands and is secured by these
lands with a carrying value of $44,265. The VTB is to be paid in five annual installments of $8,000
each, commencing January 6, 2016 and ending January 6, 2020.
Unamortized portion of the discount on the VTB.
(c) Demand operating line of credit up to $10,000, bearing interest at prime +1.0% per annum,
secured by real estate held for development and sale with a carrying value of $12,918.
Secured by housing projects under development
(d) 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.
(e) Capital project loans, payable on collection of closing proceeds, bearing interest at prime
+1.5% per annum, secured by home building projects with a carrying value of $4,116 due by
September 11, 2016.
Secured by land held for future development - Limited Partnership
(f) Land loan, bearing interest at the greater of 7.25% or prime +3% per annum, secured by land
held for future development and sale with a carrying value of $28,795 maturing June 19, 2017.
Deferred fees on loans and credit facilities
2015
2014
16,609
8,750
40,000
(5,679)
-
-
-
-
1,427
2,839
3,767
4,979
56,124
16,568
8,125
64,249
(430)
63,819
7,850
24,418
(526)
23,892
The weighted average interest rate of loan agreements with financial institutions was 4.75% (December 31, 2014 – 5.57%) based
on December 31, 2015 balances. The VTB at 0% per annum is measured at amortized cost and its fair value is based on
discounted future cash flows using an 8% discount rate, resulting in interest expense of $2,633 (2014 - Nil) for the year ended
December 31, 2015 respectively.
During the year ended December 31, 2015, the Corporation received advances of $45,524 (2014 - $27,484) relating to various new
and existing loan facilities secured by agreements receivable and real estate held for development and sale, bearing interest
ranging from prime + 0.75% to the greater of 7.25% or prime + 3% per annum, with due dates ranging from September 11, 2016 to
December 18, 2017.
40
GENESIS LAND DEVELOPMENT CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2015 and 2014
(All tabular amounts and amounts in footnotes to tables are in thousands of Canadian dollars except number of shares)
8.
LOANS AND CREDIT FACILITIES (continued)
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, 2016 to December 31, 2016
January 1, 2017 to December 31, 2017
January 1, 2018 to December 31, 2018
January 1, 2019 to December 31, 2019
January 1, 2020 to December 31, 2020
13,184
32,117
6,822
6,305
5,821
64,249
The Corporation has various covenants in place with its lenders with respect to certain contracted credit facilities. Such covenants
include 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. As at December 31, 2015 and 2014, the Corporation and
its subsidiaries were in compliance with all loan covenants.
9. SHARE CAPITAL
a)
Authorized
Unlimited number of common shares without par value
Unlimited number of preferred shares without par value, none issued
b) Weighted average number of shares
The following table sets forth the weighted average number of common shares outstanding for the year ended December 31, 2015
and 2014:
Basic
Effect of dilutive securities – stock options
Diluted
Year ended December 31,
2015
2014
44,828,422
44,874,652
-
401,922
44,828,422
45,276,574
In calculating diluted earnings per share for the year ended December 31, 2015, the Corporation excluded all 2,357,000 options
(2014 – 500,000) as their exercise price was greater than the average market price of the Corporation’s shares during the period.
c)
Normal course issuer bid
On September 4, 2015, the Corporation announced the launch of a normal course issuer bid to repurchase for cancellation of up to
2,246,310 common shares (representing 5% of the Corporation’s common shares issued and outstanding as at September 3,
2015). The NCIB commenced on September 10, 2015 and will terminate on the earlier of (i) September 9, 2016; and (ii) the date
on which the maximum number of common shares are purchased pursuant to the NCIB.
41
GENESIS LAND DEVELOPMENT CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2015 and 2014
(All tabular amounts and amounts in footnotes to tables are in thousands of Canadian dollars except number of shares)
9. SHARE CAPITAL (continued)
The following table sets forth the number of common shares repurchased and cancelled during the year ended December 31, 2015
and 2014.
Number of shares repurchased and cancelled
Reduction in share capital
Reduction in retained earnings
Reduction in shareholders’ equity
Year ended December 31,
2015
628,598
802
1,085
1,887
2014
-
-
-
-
The average purchase price per share for the year ended December 31, 2015 was $3.00.
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:
Outstanding – beginning of period
Options granted
Options exercised
Options expired
Options forfeited
Options settled in cash
Outstanding – end of period
Exercisable – end of period
Year ended December 31,
2015
2014
Number of
Options
1,419,000
Weighted
Average
Exercise Price
$3.86
-
-
(115,000)
(75,000)
(144,000)
1,085,000
848,327
-
$3.53
$3.40
$3.27
$4.01
$3.93
Number of
Options
1,060,500
500,000
(70,000)
-
-
(71,500)
1,419,000
870,663
Weighted
Average
Exercise Price
$3.32
$4.71
$2.91
-
-
$2.71
$3.86
$3.66
No regular options were granted during the year ended December 31, 2015 (2014 – 500,000 regular options granted with an
average fair value of $0.72 per option).
42
GENESIS LAND DEVELOPMENT CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2015 and 2014
(All tabular amounts and amounts in footnotes to tables are in thousands of Canadian dollars except number of shares)
10. STOCK OPTIONS (continued)
Outstanding
Exercisable
Range of Exercise
Prices ($)
Number at
December 31, 2015
Weighted Average
Exercise Price
Number at
December 31, 2015
Weighted Average
Exercise Price
Weighted Average
Remaining
Contractual Life in
Years
3.01 – 4.00
4.01 – 5.00
585,000
500,000
1,085,000
$3.41
$4.71
$4.01
514,999
333,328
848,327
$3.43
$4.71
$3.93
2.50
3.81
3.10
Performance Options
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,
2015
2014
Number of
Options
1,272,000
Exercise Price
$3.35
Number of
Options
-
-
-
1,272,000
1,272,000
193,900
$3.35
$3.35
1,272,000
-
Exercise Price
-
$3.35
$3.35
-
Weighted average remaining contractual life
3.00 years
4.00 years
No performance options were granted during the year ended December 31, 2015 (2014 – 1,272,000 options with a fair value of
$0.30 per option). The fair value of each performance option granted was estimated on the date of grant using the Black-Scholes
Option-Pricing Model incorporating the Monte Carlo simulation.
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
2015
-
-
-
-
-
2014
1.10-1.13%
2.50
25.13-31.88%
16.93%
0.00%
Subsequent to December 31, 2015, 285,000 regular options and all 1,272,000 performance options expired in conjunction with two
executive officers leaving the Company.
43
GENESIS LAND DEVELOPMENT CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2015 and 2014
(All tabular amounts and amounts in footnotes to tables are in thousands of Canadian dollars except number of shares)
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
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 incurred
Finance expense relating to VTB (note 8)
Financing fees amortized
Interest and financing fees capitalized (note 4)
2015
3,040
9,230
1,251
13,521
2015
2,110
287
2,397
2015
3,197
2,208
5,405
2015
1,248
2,633
606
(623)
3,864
2014
2,645
8,537
2,090
13,272
2014
2,307
465
2,772
2014
2,681
2,770
5,451
2014
1,853
-
991
(1,736)
1,108
44
GENESIS LAND DEVELOPMENT CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2015 and 2014
(All tabular amounts and amounts in footnotes to tables are in thousands of Canadian dollars except number of shares)
14. COMMITMENTS AND CONTINGENCIES
a)
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 for 10 years to “Genesis Centre for Community Wellness”, a
recreation complex in northeast Calgary ($500 each year, terminating October 31, 2021). The first four installments totaling
$2,000 were paid up to and through to the end of December 2015.
b) 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 for 10 years to “Genesis Place”, a recreation complex in the city of Airdrie ($200 each
year, terminating June 1, 2017). The first eight installments totaling $1,600 were paid up to and through to the end of
December 2015.
c)
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, 2015, the letters of credit amounted to
$6,309 (December 31, 2014 – $2,641).
d) 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 Nil
(December 31, 2014 - $2,485).
e)
f)
g)
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 final
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.
The Corporation has office and other operating leases with the following annual payments: not later than one year - $1,008;
later than one year but not later than five years - $697; and later than five years - Nil.
LPLP 2007 has a credit facility in the amount of $8,125 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, 2015, the Corporation carried Nil (2014 - Nil) 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
estate held for development and sale. These lots are taken back 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.
45
GENESIS LAND DEVELOPMENT CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2015 and 2014
(All tabular amounts and amounts in footnotes to tables are in thousands of Canadian dollars except number of shares)
15. FINANCIAL INSTRUMENTS (continued)
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.
Aging of amounts receivable was as follows:
Not past due
2015
17,234
2014
17,660
Individual balances due from customers as at December 31, 2015, which comprise greater than 10% of total amounts receivable,
totaled $15,777 from three customers (December 31, 2014 - $17,122 from four customers).
(ii)
Liquidity risk
The following were the contractual maturities of financial liabilities and other commitments as at December 31, 2015:
Financial liabilities
Accounts payable and accrued liabilities
Loans and credit facilities excl. deferred fees (note 8)
Commitments
Lease obligations (note 14)
Naming rights (note 14)
<1 Year
>1 Year
Total
19,219
13,184
32,403
1,008
700
1,708
-
51,065
51,065
697
2,700
3,397
34,111
54,462
19,219
64,249
83,468
1,705
3,400
5,105
88,573
At December 31, 2015, the Corporation had obligations due within the next 12 months of $34,111 (2014 - $50,885). 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 $299 annually on floating rate loans.
46
GENESIS LAND DEVELOPMENT CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2015 and 2014
(All tabular amounts and amounts in footnotes to tables are in thousands of Canadian dollars except number of shares)
15. FINANCIAL INSTRUMENTS (continued)
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 loans and credit facilities and amounts receivable were estimated based on current market
rates for loans of the same risk and maturities.
Fair value through profit and loss
Cash and cash equivalents
Deposits (note 6)
Restricted Cash (note 6)
Loans and receivables
Amounts receivable (note 5)
Other financial liabilities
December 31, 2015
December 31, 2014
Carrying
value
Estimated Fair
value
Carrying
Value
Estimated Fair
Value
11,399
3,485
2,127
11,399
3,485
2,127
33,048
11,343
1,360
33,048
11,343
1,360
17,234
16,106
17,660
17,175
Accounts payable and accrued liabilities
Loans and credit facilities, excl. deferred loans and credit facilities fees
(note 8)
19,219
64,249
19,219
64,249
22,683
24,418
22,683
24,366
Fair value measurements recognized in the consolidated balance sheets 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, 2015 and 2014 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.
47
GENESIS LAND DEVELOPMENT CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2015 and 2014
(All tabular amounts and amounts in footnotes to tables are in thousands of Canadian dollars except number of shares)
15. FINANCIAL INSTRUMENTS (continued)
The Corporation considered its capital structure at the following dates to specifically include:
Loans and credit facilities
Shareholders’ equity
2015
63,819
212,125
275,944
2014
23,892
208,101
231,993
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.
16. JOINT VENTURE
The Corporation formed a joint venture (“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 and the following tables summarize the financial information of the JV.
December 31,
2015
2014
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 development costs
Total liabilities
Net assets
Corporation’s share of net assets (50%)
Deferred gain
Carrying amount on the consolidated balance sheets
-
11,687
2,127
13,814
-
1,661
6,241
7,902
5,912
2,956
(102)
2,854
7,199
14,542
-
21,741
2,485
841
7,381
10,707
11,034
5,517
(1,957)
3,560
48
GENESIS LAND DEVELOPMENT CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2015 and 2014
(All tabular amounts and amounts in footnotes to tables are in thousands of Canadian dollars except number of shares)
16. JOINT VENTURE (continued)
Revenues
Cost of sales
General and administrative
Net 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
Year ended December 31,
2015
12,172
(9,115)
3,057
(679)
99
2,477
1,239
1,855
1,144
4,238
2014
17,661
(12,419)
5,242
(1,140)
394
4,496
2,248
1,918
414
4,580
Year ended December 31,
2015
12,212
(10,085)
2,127
2014
13,858
(14,514)
(656)
49
GENESIS LAND DEVELOPMENT CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2015 and 2014
(All tabular amounts and amounts in footnotes to tables are in thousands of Canadian dollars except number of shares)
16. JOINT VENTURE (continued)
At December 31, 2014
Share of net income in JV
Deferred gain recognized
Deferred margin from JV on lots sold
Distribution received
At December 31, 2015
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
Investment in JV
Income from JV
3,560
1,239
1,855
-
(3,800)
2,854
7,894
2,248
1,918
-
(8,500)
3,560
-
1,239
1,855
1,144
-
4,238
-
2,248
1,918
414
-
4,580
The Corporation’s transactions with the JV are limited to the purchase of home building lots. During the year ended December 31,
2015, the JV sold no lots (2014 – 32 lots at $5,998) to Genesis Builders Group, a wholly owned subsidiary of the Corporation. The
Corporation's accounts payable and accrued liabilities as at December 31, 2015 was Nil (December 31, 2014 - $4,809), related to
the purchase of home building lots.
The Corporation deferred $13,167 of gain when it contributed its share of land to the JV in 2010. As at December 31, 2015, the
Corporation had realized $13,065 (2014 – $11,210) of that amount as a result of sales through its home building business segment
and directly to third parties.
50
GENESIS LAND DEVELOPMENT CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2015 and 2014
(All tabular amounts and amounts in footnotes to tables are in thousands of Canadian dollars except number of shares)
17. SEGMENTED INFORMATION
The income producing business units of the Corporation reported the following activities for the year ended December 31, 2015
and 2014:
Land Development Segment
Genesis
35,719
(20,694)
(4,365)
10,660
4,238
LP
(542)
(10)
(8,025)
(8,577)
-
(8,662)
(2,082)
6,236
(10,659)
Intrasegment
Elimination
-
-
-
-
-
-
-
Home
Building
Segment
102,846
(84,326)
-
18,520
-
Total
35,177
(20,704)
(12,390)
2,083
4,238
(10,744)
(11,960)
(4,423)
290,431
86,183
204,248
48,209
34,794
13,415
(31,801)
306,839
(26,704)
94,273
(5,097)
212,566
Land Development Segment
Genesis
58,929
(38,705)
1,274
21,498
4,580
LP
97
(10)
2,903
2,990
-
(6,449)
(2,079)
19,629
911
Intrasegment
Elimination
-
-
-
-
-
-
-
Total
59,026
4,177
24,488
4,580
Intersegment
Elimination
(18,935)
20,841
-
1,906
-
-
1,906
(11,477)
(11,136)
(341)
Intersegment
Elimination
(20,810)
19,279
-
-
-
6,560
35,683
22,917
12,766
Home
Building
Segment
96,029
-
-
Total
119,088
(84,189)
(12,390)
22,509
4,238
(22,704)
4,043
331,045
106,054
224,991
Total
134,245
(99,421)
4,177
39,001
4,580
(19,464)
(38,715)
(79,985)
16,044
(1,531)
(8,528)
(10,936)
20,540
5,108
(1,531)
24,117
Year ended December 31, 2015
Revenues
Direct cost of sales
Write-down of real estate
Gross margin
Income from JV
G&A, selling & marketing and net
finance expense or income
Earnings (loss) before income
taxes and non-controlling interest
Segmented assets
Segmented liabilities(1),(2)
Segmented net assets(1),(2)
Year ended December 31, 2014
Revenues
Direct cost of sales
Recovery of real estate write-
down
Gross margin
Income from JV
G&A, selling & marketing and net
finance expense or income
Earnings (loss) before income
taxes and non-controlling interest
Segmented assets as at
December 31, 2014
Segmented liabilities as at
December 31, 2014(1),(2)
246,476
57,068
(25,146)
278,398
52,030
(20,686)
309,742
43,607
32,994
(25,146)
51,455
44,314
(17,301)
78,468
Segmented net assets(1),(2)
202,869
24,074
-
226,943
7,716
(3,385)
231,274
(1) Segmented liabilities under the home building segment include $9,095 (December 31, 2014 - $14,164) due to the land development segment.
(2) Segmented liabilities under the LP segment comprises customer deposits and accounts payable and accrued liabilities and includes $26,704
(December 31, 2014 - $24,091) due to Genesis.
51
GENESIS LAND DEVELOPMENT CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2015 and 2014
(All tabular amounts and amounts in footnotes to tables are in thousands of Canadian dollars except number of shares)
18. RELATED PARTY TRANSACTIONS
There were no related party transactions for the year ended December 31, 2015 (2014 - Nil).
19. CONSOLIDATED ENTITIES
The consolidated financial statements include the accounts of the Corporation and its wholly-owned subsidiaries, as well as the
consolidated revenues, expenses, assets, liabilities and cash flows of limited partnership entities that Genesis controls. The
Corporation has less than 50% equity ownership in these limited partnership entities; however, Genesis has control over these
entities’ activities, projects, financial and operating policies due to contractual arrangements. As such, the relationship between the
Corporation and the limited partnership entities indicates 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 $25,143 (2014 - $23,181) 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.
52
GENESIS LAND DEVELOPMENT CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2015 and 2014
(All tabular amounts and amounts in footnotes to tables are in thousands of Canadian dollars except number of shares)
19. CONSOLIDATED ENTITIES (continued)
All entities are incorporated in Canada and are listed in the following table:
% equity interest as at
December 31, 2015
December 31, 2014
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 and Townhouses
Genesis Builders Group Inc.
The Breeze Inc.
Generations Group of Companies Inc.
100%
100%
0.0002%
99.9998%
100%
100%
Dissolved
100%
100%
100%
100%
100%
Life at Solana Inc., Life at Waterstone Inc., Montura Inc. (previously Life at Skye Inc.)
Dissolved
Newport at Canals Landing Inc.
Ashbury at Saddlestone Inc.
Hutton at Bayview 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
100%
100%
100%
50%
0.001%
0%
100%
11.75%
0%
0.23%
0%
100%
0%
100%
0%
0%
0%
100%
100%
0.0002%
99.9998%
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%
53
GENESIS LAND DEVELOPMENT CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2015 and 2014
(All tabular amounts and amounts in footnotes to tables are in thousands of Canadian dollars except number of shares)
19. CONSOLIDATED ENTITIES (continued)
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
December 31, 2015
LP 4/5
LP 6/7
LP 8/9
LPLP 2007
Total
Real estate held for development and sale
7,943
8,212
2,574
28,795
47,524
Amounts receivable
Other operating assets
Cash and cash equivalents
Total assets
Liabilities
Loans and credit facilities
Customer deposits
Accounts payable and accrued liabilities
Due to related parties
Total liabilities
Net assets
Non-controlling interest (%)
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 (%)
-
-
-
7,943
-
-
-
159
159
7,784
100%
-
-
442
8,654
-
-
-
895
895
7,759
88.25%
-
-
1
2
197
43
2
197
486
2,575
29,037
48,209
-
-
-
507
507
2,068
100%
8,062
8,062
2
26
25,143
33,233
(4,196)
100%
2
26
26,704
34,794
13,415
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
54
GENESIS LAND DEVELOPMENT CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2015 and 2014
(All tabular amounts and amounts in footnotes to tables are in thousands of Canadian dollars except number of shares)
19. CONSOLIDATED ENTITIES (continued)
SUMMARIZED INCOME STATEMENTS
Year ended December 31, 2015
Revenues
Net earnings (loss) being comprehensive income
(loss)
LP 4/5
19
11
LP 6/7
(615)
(621)
Non-controlling interest (%)
100%
88.25%
-
(615)
100%
LP 8/9
LPLP 2007
54
Total
(542)
(9,434)
(10,659)
100%
Revenues
Net earnings (loss) being comprehensive income
(loss)
LP 4/5
19
10
Year ended December 31, 2014
LP 6/7
-
1,527
LP 8/9
LPLP 2007
-
(1,064)
78
438
Total
97
911
Non-controlling interest (%)
100%
88.25%
100%
100%
SUMMARIZED STATEMENT OF CASH FLOWS
Year ended December 31, 2015
LP 4/5
LP 6/7
LP 8/9
LPLP 2007
Total
Cash flows from operating activities
Net increase in cash and cash equivalents
-
-
3
3
-
-
6
6
Cash flows (used in) financing activities
Net decrease in cash and cash equivalents
20. SUBSEQUENT EVENTS
Year ended December 31, 2014
LP 4/5
LP 6/7
LP 8/9
LPLP 2007
-
-
-
-
-
-
(75)
(75)
9
9
Total
(75)
(75)
On February 17, 2016, the Board of Directors announced that the President and CEO, Mr. Bruce Rudichuk and the CFO, Mr. Mark
Scott left the Company with immediate effect. The board of directors appointed Mr. Stephen J. Griggs, a director and Chair of the
Board, as the interim CEO. On March 15, 2016, the Board appointed Mr. Rauf Muhammad, CPA (Colorado) as the interim CFO
and announced the appointment of Kirsten Richter, CPA, CA, as an interim CFO effective April 18, 2016.
55
GENESIS LAND DEVELOPMENT CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2015 and 2014
(All tabular amounts and amounts in footnotes to tables are in thousands of Canadian dollars except number of shares)
56
GENESIS LAND DEVELOPMENT CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2015 and 2014
(All tabular amounts and amounts in footnotes to tables are in thousands of Canadian dollars except number of shares)
57