THE RIDGE AT
SAGE MEADOWS
NW CALGA RY
SAGE MEADOWS
NW CALGARY
SADDLESTONE
NE CALGARY
BAYSIDE
AIRDRIE
BAYVIEW
AIRDRIE
PIER 11
AIRDRIE
CANALS
LANDING
AIRDRIE
Enriching
LIVES THROUGH
INSPIRED COMMUNITIES
TABLE OF CONTENTS
4 Message from the Chair and CEO
5 Genesis Projects & Communities
7 Community Involvement
11 Management’s Discussion and Analysis
37 Consolidated Financial Statements
66 Contact Information
2
3
MESSAGE FROM THE CHAIR AND CEO
4
GENESIS PROJECTS & COMMUNITIES
AIRDRIE
CITY OF
AIRDRIE
NW CALGARY
NW CALGARY
NE CALGARY
CALGARY
INTERNATIONAL
AIRPORT
ROCKY VIEW COUNTY
NORTH
CONRICH
CITY OF CALGARY
SE CALGARY
SOUTH EAST LANDS
RESIDENTIAL DEVELOPMENT
MIXED USE DEVELOPMENT
5
BAYVIEW
SADDLESTONE
PIER 11
THE RIDGE IN SAGE HILL
BAYSIDE ESTATES
SAGE MEADOWS
SAGE HILL CROSSING
6
THE OMNI
COMMUNITY INVOLVEMENT
NE CALGARY
THE GENESIS CENTRE
Inspiring Community Wellness
leaders
The Genesis Centre of Community Wellness is a great
example of our role as a community builder.
Community
in Northeast Calgary were
determined to bring the dynamic and diverse cultures
of the local communities together to promote safe,
cooperative and actively healthy neighbourhoods. To
realize their dream, these visionary leaders founded
the Northeast Centre of Community Society (NECCS),
an organization dedicated to the challenge of building
a facility that would serve the sport, recreation,
educational and cultural needs of the northeast. We
saw the opportunity to support and fund this incredible
facility as a perfect alignment of our core values. The
dream quickly started to take shape, gaining support
and funding from the City of Calgary and YMCA, along
with a generous naming sponsorship from Genesis.
Genesis continues to play a part in the support of The
Genesis Centre – a 225,000 square foot, $120 million
multi-purpose complex built to enrich the health,
wellness, and unity of communities in Northeast
Calgary.
7
AIRDRIE
GENESIS PLACE
Genesis Place, the amazing recreation facility in
Airdrie, acts as a gathering place, hub of activity and
true heart of the community. We are proud of our
commitment and on-going support of Genesis Place
and what it means to the quality of life for the
community of Airdrie.
8
9
10
MANAGEMENT’S
DISCUSSION &
ANALYSIS 2017
FOR THE THREE MONTHS AND YEAR ENDED DECEMBER 31, 2017
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 consolidated financial statements and the notes
thereto for year ended December 31, 2017 and 2016, 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, 2017 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 14, 2018.
11
STRATEGY AND 2017 BUSINESS PLAN
Strategy
Genesis Land Development Corp. (“Genesis” or the “Corporation”) is a land developer and residential home builder operating in
the Calgary Metropolitan Area (“CMA”), holding a significant portfolio of well-located, entitled and unentitled residential,
commercial and mixed-use lands and serviced lots in the CMA.
As a land developer, Genesis plans, rezones, subdivides, services and sells residential communities and commercial and
industrial lands to third parties, and sells lots and completed homes through its home building business. The land portfolio is
planned, developed, serviced and sold at opportune times with the objective of maximizing the risk adjusted net present value of
the land and to maximize the cash flow available for distribution to shareholders. Excess cash on hand is generally used to
reduce debt, opportunistically acquire additional development land, issue dividends to shareholders and/or buy back common
shares.
The home building business is operated through a wholly-owned subsidiary, Genesis Builders Group Inc. (“GBG”). GBG designs,
constructs and sells single-family homes and townhouses primarily on lands developed by Genesis. The objective of the home
building business is to deliver an acceptable return and cash flow from the capital invested in it and to sell incremental Genesis
single family lots and townhouse land parcels.
Genesis continues to focus on minimizing overhead costs and to avoid long term commitments, where possible, to preserve
flexibility.
2017 Business Plan
The business plan for 2017 included:
1) maximizing the return of capital to shareholders through dividends and/or buying back shares;
2)
3)
4)
5)
6)
obtaining additional land servicing and zoning entitlements which are expected to materially increase the value and
marketability of these lands;
developing detailed plans for the development and ultimate disposition of all core lands to maximize the net present
value of each project;
adding one or more third-party builders acquiring lots in Genesis communities, in addition to the seven third-party
builders already working with Genesis at the end of 2016;
increasing the number of units sold by GBG, including constructing townhouse complexes, at reasonable construction
margins while optimizing the amount of required capital;
servicing a phase of the “Saddlestone” community in Calgary (expected to yield 102 residential lots) and an additional
phase in Airdrie (expected to yield 73 residential lots); and
7)
selling the remaining non-core land.
Dividends and/or Share Buybacks
On December 19, 2017, the Board of Directors declared a cash dividend of $0.25 per common share for a total of $10,813
payable to shareholders of record on December 27, 2017, which was paid in January 2018. Total dividends declared in the year
ended December 31, 2017 (“YE 2017”) were $19,896 or $0.46 per common share, compared to $10,936 or $0.25 per common
share in the year ended December 31, 2016 (“YE 2016”).
1
12
Since 2014 when it paid its first dividend, Genesis has returned over $41,500 to shareholders by way of dividends and bought
back nearly 1.7 million common shares for over $4,700 as follows:
Cash Dividends ($000s, except for per share items)
December 2017 (paid on January 5, 2018)
September 2017
Total 2017
December 2016
December 2015
June 2014
Total
A summary of the common shares repurchased and cancelled is provided below:
Share Buybacks under Normal Course Issuer Bid ($000s, except for number of shares)
2017
2016
2015
Total
Dividend per
share
0.25
0.21
0.46
0.25
0.12
0.12
0.95
Total
dividends
paid
10,813
9,083
19,896
10,936
5,331
5,386
$41,549
Shares
repurchased
and cancelled
Cost of
repurchases
493,085
551,796
628,598
1,673,479
$1,456
1,420
1,887
$4,763
Obtain Additional Land Servicing and Zoning Entitlements
During 2017, significant progress was made by Genesis in obtaining additional land servicing and zoning entitlements including:
•
•
•
In September 2017, the City of Calgary unanimously approved an amendment to the Sage Hill Area Structure Plan
(“ASP”) where Genesis currently owns 64 acres of land. This approval enables Genesis to proceed with securing land
use and outline plan approval for a low to medium density residential and commercial development, rather than the
previous high density high rise residential and big box commercial zoning.
In September 2017, the County of Rocky View approved the Omni ASP, which includes the 610 acres of the “North
Conrich” lands owned by Genesis (51.2%), Genesis Limited Partnership #4 (32.5%) and GLP5 NE Calgary
Developments Inc. (16.3%). The City of Calgary has appealed this ASP to the Municipal Government Board, and the
City of Calgary and the County of Rocky View are currently in a mediation process in an effort to resolve this matter.
Genesis expects that once finalized, this ASP approval will enable Genesis to proceed with securing land use and
outline plan approval for development.
In the second quarter of 2017 (“Q2 2017”), the Council of the City of Airdrie passed Land Use and Outline Plan
amendments for the remaining Bayview lands and a portion of the remaining Bayside lands owned by Genesis. These
amendments will allow Genesis to meet current community requirements including a full range of residential product
mix along with attractive amenities such as open spaces, a school site and a neighborhood retail center.
In addition, in January 2018, the City of Calgary formally began the development of an ASP for the “Cell E” lands, which includes
Genesis’ southeast lands, which is an important step to permit the future development of these lands.
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13
Plans for the Development and Disposition of Core Lands
Genesis continues to develop detailed plans for each of its core lands, with the objective of maximizing the net present value of
the land and to sell the land at the most opportune time. In 2017, Genesis disposed of the following significant parcels and
serviced lots:
•
132 serviced lots were sold to third-party builders for gross revenue of $27,992
•
•
134 serviced lots were sold through GBG for $21,214 along with constructed homes
3 parcels of land were sold for $55,234
In 2017, Genesis entered into conditional agreements to sell several parcels of multi-family and commercial lands which are
expected to close in 2018. These transactions provide for cash payments of the purchase price on closing, subject to customary
adjustments. Genesis expects, but cannot provide any assurances that these transactions will close. These transactions include
the following:
•
•
In the third quarter of 2017 (“Q3 2017”) Genesis entered into an agreement with an arms-length third-party for the sale
of two sites totaling 8.65 acres and is approximately half of Phase 5 of Genesis’ Sage Meadows development located
in northwest Calgary, Alberta. The aggregate sale price for the sites is $11,270. The first 3.91 acre site is expected to
close in the second half of 2018 for $4,985. The second 4.74 acre site is expected to close in mid-2020. The
agreement is conditional on Genesis subdividing the subject lands prior to the initial closing in 2018. The purchaser
has paid a deposit and will pay the sale price in cash at each closing.
In the three months ended December 31, 2017 (“Q4 2017”), Genesis entered into an agreement with a third-party
builder for the sale of lands in the community of Sage Meadows, located in northwest Calgary, Alberta. The lands are a
part of Phase 3 of the Genesis Sage Meadows development and consist of two sites of 8.18 acres and 1.4 acres
respectively, and are zoned for multi-family and commercial development respectively. The aggregate sale price of the
lands is $10,498 and requires Genesis to subdivide the lands prior to closing. The transaction is expected to close
thirty days after registration of the subdivision plan, which is anticipated to occur in the second quarter of 2018. The
purchaser has paid a deposit and is to pay the full sale price on closing.
Add Third-party Builders in Genesis Communities
In the first quarter of 2017 (“Q1 2017”), Genesis entered into an agreement with a new builder and in 2017 sold 54 lots to this
group in Airdrie. This builder has become an active member of the Genesis builder partner group in Airdrie, comprised of GBG
and four independent builders.
In Q4 2017, a third-party builder in Airdrie breached its purchase contracts relating to single-family lots. On November 2, 2017
the Court of Queen’s Bench of Alberta granted a consent order permitting a receiver to take control of the assets of several
companies associated with this builder. Genesis is actively working to protect its interests in connection with this receivership
and to contract with one or more replacement builder groups for this development.
Increase Homes Sold by Genesis Builders Group
New homes sold in 2017 were 148 units, below management’s expectations for the year, compared to 166 units in 2016. Sales
in 2017 are believed to have been negatively impacted by a number of external factors, including changes to the bank mortgage
rules and increasing mortgage rates. The following table shows the new homes sold in Q4 2017 and the previous seven
quarters:
Homes sold (units)
Q4
2017
44
Q3
2017
49
Q2
2017
36
Q1
2017
19
Q4
2016
56
Q3
2016
28
Q2
2016
40
Q1
2016
42
Revenues from the sale of homes by GBG in 2017 were $67,707, down 18.7% from $83,249 in 2016. Revenues were down due
to a combination of lower volumes and product mix, with 127 being single-family homes and 21 being lower priced townhouses,
while all 166 homes sold in 2016 were single-family homes. Gross margins from the sale of homes by GBG in 2017 were
$11,257, down 18.6% from $13,833 in 2016.
3
14
GBG ended 2017 with 31 homes with firm sales contracts expected to be completed in 2018, down from 39 at the end of 2016.
The lower number of homes with firm sales orders may be an indicator of a demand for “quick possession” homes, those which
are contracted and delivered within 90 days. In 2017, 65% of the 148 homes sold were quick possessions homes, compared to
49% of the 166 homes sold in 2016. Genesis maintains an active quick possession home inventory to meet the expected
demand.
In Q3 2017, GBG completed construction of its “Ashbury” 24-unit townhouse development in Saddlestone in northeast Calgary.
As of March 14, 2018, 2 units remain without firm sales contracts. Genesis also began construction of the nearby 54 townhouse
unit “The Laurels” and had 8 units with firm sales contracts as of March 14, 2018. Late in Q2 2017, construction commenced on
“The Newport”, an 85-unit townhouse development in the community of “Canals” in Airdrie. There were no firm sales contracts in
“The Newport” as of March 14, 2018.
Service Additional Phases
In Q2 2017, Genesis began the servicing of a new phase in the “Saddlestone” community in Calgary (to create 102 residential
lots available for sale in 2018) and a new phase in the “Bayview” community in Airdrie (to create 73 residential lots, 28 of 73
being already contracted to a third-party builder) financed using credit facilities from major Canadian banks. Construction of
homes on serviced lots in these new phases began in early 2018.
Sale of Development lands
Total development land sales in 2017 was $55,234. This included the sale of the “Fowler” and “Worthington” properties by a
limited partnership controlled by Genesis for $ $46,234 and the sale by Genesis of its “Duhn” lands for $9,000. In 2016, three
properties were sold by Genesis for $21,237. As a result, the Corporation has no remaining substantial non-core properties to be
disposed of.
The limited partnership closed the sale of Worthington in August for gross proceeds of $5,234. Of the cash received, $5,000 was
used to partially pay down the third-party loan owed by the limited partnership. The remainder was used to pay sales
commissions and legal fees. The limited partnership closed the sale of the Fowler lands in December 2017 for gross proceeds of
$41,000. The limited partnership received $20,500 in cash and a $20,500 three year vendor-take-back first mortgage. Of the
cash received, $4,055 was used to fully pay down the third-party loan owed by the limited partnership, $15,547 was used to
partially pay down the loan due to Genesis and the remainder was used to pay for sales commissions and legal fees. As at
December 31, 2017, the limited partnership had a loan amounting to $12,272 (2016 - $26,590) due to Genesis, which is secured
by a charge on the $20,500 vendor-take-back mortgage.
OVERVIEW OF ALBERTA REAL ESTATE MARKET
The Alberta economy relies significantly on the oil and gas industry, including the levels of capital investment and employment in
the industry, which are generally driven by the price of oil and gas and expectations of future prices. The Alberta real estate
market has been slowly improving as oil prices have stabilized and the overall market and economy has adjusted.
The 2017 gross domestic product (“GDP”) growth in Alberta is forecast at 6.7% by the Conference Board of Canada, compared
to declines of 3.8% in 2016 and 3.7% in 2015. However, the Conference Board of Canada has forecast Alberta GDP growth for
2018 to be 2.1%. The GDP of Alberta has not yet returned to its 2014 level, and there have been reduced levels of home
purchases in the CMA since late 2014. Detached home sales in the CMA in 2017 were up year over year, with average prices
increasing modestly in 2017 compared to 2016, although inventory levels increased, likely placing downward pressure on prices.
While historically low mortgage rates continue to support the affordability of homes for many buyers, interest rate increases and
the tightening of bank mortgage lending rules in 2017 negatively impacted sales and are generally expected to continue to do so
in 2018. Prices for lower and mid-market homes in the CMA were generally stable in 2017 and were less impacted by the
downturn of the Alberta economy than higher valued homes.
There has been a significant shift over the last several years in the timing of the buying of new CMA homes by many purchasers,
with many homes now sold at or close to completion on a quick possession basis, rather than being contracted before
construction commences.
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15
OPERATING HIGHLIGHTS
Key financial results and operating data for Genesis were as follows:
($000s, except for per share items or unless otherwise noted)
Three months ended
December 31,
Year ended
December 31,
2017
2016
2017
2016
Key Financial Data
Total revenues
Direct cost of sales
Gross margin
Gross margin (%)
Net earnings attributable to equity shareholders
Net earnings per share – basic and diluted
Cash flows from operating activities
Cash flows from operating activities per share – basic and diluted
Key Operating Data
Land Development
Total residential lots sold (units)
Residential lot sales
Gross margin on residential lot sales
Gross margin (%) on residential lot sales
Average revenue per lot sold
Revenue - Development land sold
Home Building
Homes sold (units)
Revenues
Gross margin on homes sold
Gross margin (%) on homes sold
Average revenue per home sold
Homes (with lots) subject to 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
65,644
(36,833)
28,811
43.9%
8,713
0.20
27,298
0.62
78
12,203
6,432
52.7%
156
41,000
44
18,463
2,656
14.4%
420
31
28,145
(24,203)
3,942
14.0%
(1,216)
(0.03)
6,229
0.14
65
10,961
4,681
42.7%
169
-
56
24,456
4,633
18.9%
437
39
150,933
(97,704)
53,229
35.3%
16,998
0.39
46,908
1.08
266
49,206
22,782
46.3%
185
55,234
148
67,707
11,257
16.6%
457
31
115,957
(89,339)
26,618
23.0%
5,906
0.13
42,952
0.98
204
36,966
16,831
45.5%
181
21,237
166
83,249
13,833
16.6%
501
39
As at December 31,
2017
23,585
301,425
30,135
81,884
201,397
219,541
10%
2016
14,318
288,995
43,295
77,330
205,751
211,665
15%
5
16
Land Development
Key Financial Data
Residential lot sales(1)
Development land sales
Direct cost of sales
Gross margin
Gross margin (%)(2)
Write-down of real estate held for
development and sale
Other expenses(3)
Earnings (loss) before taxes
Key Operating Data
Residential lots sold to third
parties
Residential lots sold through
GBG - home building
Total residential lots sold
Average revenue per lot sold
Development land sold (acres)
Three months ended December 31,
Year ended December 31,
2017
2016
% change
2017
2016
% change
12,203
41,000
(27,048)
26,155
49.2%
10,961
-
(6,280)
4,681
42.7%
11.3%
N/R(4)
330.7%
458.7%
49,206
55,234
36,966
21,237
(61,373)
(36,753)
43,067
41.2%
21,450
36.9%
33.1%
160.1%
67.0%
100.8%
-
(5,372)
N/R(4)
(1,095)
(8,665)
(87.4%)
(2,642)
23,513
(2,853)
(3,544)
(7.4%)
N/R(4)
(9,374)
32,598
(9,657)
3,128
(2.9%)
N/R(4)
37
41
78
156
319
12
53
65
169
-
208.3%
(22.6%)
20.0%
(7.7%)
N/R(4)
132
134
266
185
58
146
204
181
2,412
1,674
127.6%
(8.2%)
30.4%
2.2%
44.1%
(1) Includes residential lot sales to third parties and to GBG
(2) Gross margin amount divided by the sum of residential lot sales and development land sales
(3) Other expenses includes general and administrative, selling and marketing, (expense) or income from joint venture and net finance expense
(4) Not reflective due to percentage change
Gross Margin by Source of Revenue
Residential lot sales
Direct cost of sales
Gross margin
Gross margin (%)
Development land sales(1)
Direct cost of sales
Gross margin
Residential lot and development land gross margin
(1) Includes rebate of $100 on early closing of a 14 acre development land parcel in 2016
Three months ended
December 31,
Year ended
December 31,
2017
12,203
(5,771)
6,432
52.7%
41,000
(21,277)
19,723
26,155
2016
10,961
(6,280)
4,681
42.7%
-
-
-
4,681
2017
49,206
(26,424)
22,782
46.3%
55,234
(34,949)
20,285
43,067
2016
36,966
(20,135)
16,831
45.5%
21,237
(16,618)
4,619
21,450
The change in gross margin percentages for single-family lots was primarily due to the mix of sales by community and product
type as the gross margin percentage on residential lots typically varies by community and lot type, 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.
6
17
Revenues
Tol residential lot sales in 2017 were $49,206 (266 lots), up 33% from $36,966 (204 lots) in 2016. During 2017, 132 lots were
sold to third-party builders, more than twice the 58 lots sold to third-party builders in 2016. 34 of the lots sold to third-party
builders in 2017 were premium lots in the Calgary community of Sage Meadows and 98 were in the City of Airdrie (2016 - 10 and
48 lots, respectively). In 2017, GBG sold 134 homes on Genesis lots, down from 146 homes sold in 2016.
Revenues from land development in 2017 were higher than in 2016, mainly due to development land sales of $55,234 in 2017,
an increase of $33,997 over the $21,237 in development land sales in 2016. Development land sales are lumpy in nature and
comprise sales of non-core lands, commercial lands and other lands that Genesis does not intend to build on.
Q4 2017 residential lot sales were $12,203 (78 lots), an increase of 11% over the $10,961 (65 lots) sold in Q4 2016. This
increase was partially offset by lower residential lot sales through GBG of 41 lots in Q4 2017 compared to 53 lots in Q4 2016. Q4
2017 revenues included the sale of a 319 acre parcel of land belonging to a limited partnership for $41,000 while there were no
development land sales in Q4 2016.
Gross margin
Residential lot sales had a gross margin in 2017 of 46%, the same as in 2016. Residential lot sales in Q4 2017 had a gross
margin of 53%, compared to 43% in Q4 2016.
Write-down of real estate held for development and sale
In 2017, the Corporation recorded a write-down of $1,095 (2016 - $8,665), mainly related to land under development to reflect
the estimated returns realizable from completion of development and sale of this land.
Other expenses
Other expenses were slightly lower for the year ended 2017 and in Q4 2017 compared to the same periods in 2016 with
increases in sales and marketing expenses being offset by lower general and administrative expenses and lower net finance
expense. Net finance expense was lower mainly due to the reduction in the outstanding balance of a vendor-take-back loan
("VTB”) on Genesis’ Calgary southeast lands following an $8,000 payment in January 2017.
Factors Affecting Results of Operations
A number of factors affect the results of operations, particularly in land development, including:
•
•
•
•
the development and servicing of land and the sale of residential lots occurs over a substantial period of time which
creates volatility in the revenues, earnings and cash flows from operating activities;
land and lot prices and gross margins vary by community including due to the nature of the development work required
to be undertaken before the land and lots are ready for sale, and the length of time the Corporation has owned the
land;
the sale of developed lots to GBG is recognized on the sale of the home and lot to the end purchaser; and
seasonality which has historically resulted in higher revenues in the summer and fall months when home building sales
closings peak.
7
18
Home Building – Genesis Builders Group Inc. (GBG)
The homebuilding business of Genesis is operated through its wholly-owned subsidiary, GBG.
Key Financial Data
Revenues
Direct cost of sales
Gross margin
Gross margin (%)
Other expenses(1)
Earnings before taxes
Key Operating Data
Homes sold (units)
Average revenue per home sold
Homes (with lots) subject to firm
sales contracts (units)
Three months ended December 31,
Year ended December 31,
2017
2016
% change
2017
2016
% change
18,463
(15,807)
2,656
14.4%
(2,067)
589
44
420
31
24,456
(19,823)
4,633
18.9%
(2,497)
2,136
56
437
39
(24.5%)
(20.3%)
(42.7%)
(17.2%)
(72.4%)
(21.4%)
(3.9%)
(20.5%)
67,707
(56,450)
11,257
16.6%
(8,842)
2,415
148
457
31
83,249
(69,416)
13,833
16.6%
(9,497)
4,336
166
501
39
(18.7%)
(18.7%)
(18.6%)
(6.9%)
(44.3%)
(10.8%)
(8.8%)
(20.5%)
(1) Other expenses includes general and administrative, selling and marketing and net finance expense
Revenues and Unit Volumes
The number of homes sold by GBG were lower for the year ended in 2017 and in Q4 2017 than in the same periods in 2016.
Revenues were $67,707 (148 units) in 2017, 19% lower than $83,249 (166 units) in 2016. Revenues were $18,463 (44 units) in
Q4 2017, 25% lower than $24,456 (56 units) in Q4 2016.
Homes sold in 2017 had an average price of $457 per home, down 9% compared to $501 in 2016. Of the 148 homes sold in
2017, 127 were single-family homes and 21 were lower priced townhouses, while all 166 homes sold in 2016 were single-family
homes. Homes sold in Q4 2017 had an average price of $420 per home compared to $437 in Q4 2016, primarily due to
differences in product mix, with 32 single-family homes and 12 townhouses being sold in Q4 2017 compared to 56 single-family
homes in Q4 2016.
In 2017, 134 of the 148 homes sold by GBG were built on residential lots supplied by Genesis, generating residential lot
revenues of $21,214. In 2016, 146 of 166 homes were built on residential lots supplied by Genesis, generating residential lot
revenues of $25,495. All 44 homes sold in Q4 2017 were built on residential lots supplied by Genesis, with lot revenues of
$6,022, while in Q4 2016, 53 of 56 homes were built on residential lots supplied by Genesis, with lot revenues of $7,272. The
remaining 3 homes sold in Q4 2016 were on lots previously acquired by GBG from a third-party developer.
GBG builds homes either after receiving a firm sale contract (a “pre-construction home”) or on a quick possession (“spec”) basis.
The delivery time of a pre-construction home can be determined in advance, with a home typically being delivered within 8 to
10 months of a customer signing a purchase agreement. Quick possession homes are built in advance of receiving a firm sale
contract to meet the market demand from those buyers seeking quick possession. GBG has seen that many buyers are looking
for quick possession of their home, rather than being prepared to wait 8 to 10 months for a home to be built. This requires GBG
to build homes on a spec basis and to hold them in inventory until sold. The timing of the sale of spec homes is unpredictable,
and spec home buyers are usually time sensitive, wanting to take possession in a short time frame. Genesis monitors its home
building work-in-progress closely to anticipate and react to market conditions in a timely manner.
GBG had 96 quick possession closings (i.e., contracted and delivered within 90 days) in 2017 compared to 81 in 2016. GBG had
35 quick possession closings in Q4 2017 compared to 25 in Q4 2016.
8
19
Gross margin
Gross margin in 2017 remained the same at 17% as in 2016, although there was a change in product mix to lower priced homes
including townhomes in 2017. GBG gross margin was 14% in Q4 2017 compared to 19% in Q4 2016.
Other expenses
Other expenses decreased by 7% in 2017 compared to YE 2016 due to lower general and administrative expenses and sales
and marketing expenses including lower sales commissions due to lower volumes of homes sold. Other expenses in Q4 2017
were 17% lower than in Q4 2016.
Finance Expense
Interest incurred
Finance expense relating to VTB(1)
Financing fees amortized
Interest and financing fees capitalized
(1) VTB related to Calgary southeast lands acquisition
Three months ended December 31,
Year ended December 31,
2017
166
426
65
(101)
556
2016
215
547
76
(98)
740
% change
(22.8%)
(22.1%)
(14.5%)
3.1%
(24.9%)
2017
770
1,702
361
(383)
2,450
2016
1,014
2,185
300
(500)
2,999
% change
(24.1%)
(22.1%)
20.3%
(23.4%)
(18.3%)
Interest incurred during 2017 was less than in 2016 due to lower loan balances in 2017. The Corporation paid the third
installment of $8,000 on the VTB in January 2018. The imputed rate on the VTB, which has a 0% face rate, is 8%. Interest
expense on the VTB in 2017 is less than in 2016 due to the payment of the second installment of $8,000 in January 2017.
The weighted average interest rate of loan agreements with various financial institutions was 3.99% (YE 2016 - 5.77%) based on
December 31, 2017 balances.
LIQUIDITY AND CAPITAL RESOURCES
Genesis further reduced its debt from $43,295 at YE 2016 (which included an $8,531 loan to a limited partnership guaranteed by
Genesis and which was fully repaid in December 2017) to $30,135 at YE 2017. A further $8,000 was paid in early January 2018
on the VTB relating to the acquisition of Genesis’ southeast Calgary lands.
VTB
Land development servicing and home building loans
Loan to a limited partnership
Total Loans and Credit Facilities
(1) Not reflective due to percentage change
December 31,
2017
22,208
7,927
30,135
-
30,135
2016 % change
28,506
(22.1%)
6,258
26.7%
34,764
(13.3%)
8,531
N/R(1)
43,295
(30.4%)
9
20
Loans and credit facilities as a percentage of total assets
VTB
Land development servicing and home building loans
Loan to a limited partnership
Loans and credit facilities (debt) to total assets(1)
Total liabilities to equity(2)
December 31,
2017
7.4%
2.6%
10.0%
0.0%
10.0%
2016
9.9%
2.2%
12.1%
3.0%
15.1%
37%
37%
(1) Calculated as each component of loans and credit facilities divided by total assets
(2) Calculated as total liabilities divided by total equity
Refer to “Loans and Credit Facilities” section on page 24 which provides additional information.
Real Estate Held for Development and Sale
Real estate held for development and sale
Provision for write-downs
December 31,
2017
2016
% change
213,629
(12,872)
200,757
308,824
(30.8%)
(66,824)
(80.7%)
242,000
(17.0%)
Real estate held for development and sale decreased by $41,243 as at YE 2017 compared to YE 2016 due to sales of
development land, residential lots and homes, and was partially offset by development activities. Refer to note 4 in the
consolidated financial statements for the year ended December 31, 2017 and 2016 which details the gross book value and net
book value of real estate held for development and sale. Genesis spent $16,000 on land development activities in 2017 relating
to phases already under development, two new phases that commenced in 2017, as well as some preliminary costs associated
with future phases.
The following tables present Genesis’ real estate held for development and sale, and estimated equivalent of single-family lots,
townhouse/multi-family units and commercial acreages as at December 31, 2017.
Net carrying value of
Serviced Lots and
Land
37,772
26,152
Serviced Lots (units)
138
43
Land (acres)(1)
251
34
Land development
Airdrie - Bayside, Bayview, Canals
Calgary NW - Sage Meadows
Calgary NE - Saddlestone
Calgary NW - Sage Hill Crossing
Calgary SE - Southeast lands
Rocky View County - North Conrich
Other assets(2) - non-core
Total land development
Home building work in progress
Total land and home building
Limited Partnerships(3)
Real estate held for development and sale
53
-
-
234
-
14
248
14,700
43,729
44,799
167,152
4,537
1,981
173,670
20,156
193,826
6,931
200,757
35
64
349
733
312
334
1,379
1,437
2,816
10
(1) Land comprises townhouse/multi-family, commercial and lands not yet subdivided into single-family and other lots
(2) Other assets are non-core and actively being marketed for disposal. These assets represent 1.1% (YE 2016 - 5.6%) of Genesis’ land portfolio with a carrying value of $1,981
(YE 2016 - $10,612).
(3) Net of intra-segment eliminations of $4,194.
21
Estimated Equivalent if/when Developed
Townhouse/multi-
family (units)
Single-family (lots)
Commercial (acres)
2
Land development
Airdrie - Bayside, Bayview, Canals
Calgary NW - Sage Meadows
Calgary NE - Saddlestone
Calgary NW - Sage Hill Crossing
Calgary SE - Southeast lands
Rocky View County - North Conrich
Other assets(2) - non-core
Land development
Limited Partnerships
Total land development
Land (acres)(1)
251
34
35
64
349
733
312
334
1,379
1,437
2,816
1,324
31
215
-
1,984
3,554
-
69
3,623
278
3,901
373
1,869
93
2,925
-
5,260
-
-
5,260
5,260
(1) Land comprises townhouse/multi-family, commercial and lands not yet subdivided into single-family and other lots
(2) Other assets are non-core and actively being marketed for disposal. These assets represent 1.1% (YE 2016 - 5.6%) of Genesis’ land portfolio with a carrying value of $1,981
(YE 2016 -
$10,612).
22
1
-
19
-
22
312
-
334
441
775
11
Amounts Receivable
Amounts receivable
December 31,
2017
30,820
2016
21,059
% change
46.4%
Genesis generally receives a minimum 15% non-refundable deposit at the time of entering into a sale agreement. Genesis does
not transfer title to lots and homes that are contracted for sale until full payment is received thus mitigating credit risk. Individual
balances due from customers at YE 2017 that were 10% or more of total amounts receivable were $25,752 from five customers
(2016 - $19,040 from five customers). This increase of $9,761 in amounts receivable was mainly due to the timing of residential
lot sales and closings. As at YE 2017 the Corporation had $28,500 in amounts receivable related to the sale of 156 lots to third-
party builders and a non-core development land parcel located in British Columbia compared to $19,778 in amounts receivable
as at YE 2016 related to the sale of 110 lots to third-party builders and the non-core development land parcel.
Amounts receivable of $30,820 as at YE 2017 includes a past due amount of $1,764 from a third-party builder in receivership
which is also in breach of its purchase and sale contract for single-family lots purchased from Genesis. As provided in that
contract, title to the lots has not passed to the builder. Genesis is confident it will recover the entire amount of the receivable and
is pursuing all available legal remedies. Total amounts receivable from this builder as at December 31, 2017, including past due
amounts, was $3,710.
Cash Flows from Operating Activities
Cash flow from the operating activities of Genesis varies quarter to quarter due to the nature of land sales and the timing of the
receipt of sale proceeds. The sale of a lot or of a parcel of land to a third-party is recognized as sales revenue at the time of
entering into a firm sales contract, provided that a deposit is made of at least 15% of the purchase price. The balance of the
purchase price is generally received in cash at the time of closing of the sale by the third-party builder to a home buyer, which
can be many months later, resulting in a timing difference between sales revenue recognition and the actual receipt of cash. The
sale of a lot by GBG to an end buyer is recognized on receipt of the full sale proceeds and the transfer of title to the lot.
Cash flows from operating activities
Cash flows from operating activities per share –
basic and diluted
Three months ended
December 31,
Year ended
December 31,
2017
27,298
0.62
2016
6,229
0.14
2017
46,908
1.08
2016
42,952
0.98
The increase in 2017 cash flows from operating activities over 2016 is explained by the following:
Cash inflows from sale of residential lots and development land
Cash inflows from sale of residential homes
Cash outflows for land servicing
Cash outflows for home building activity
General and administrative, income taxes and other cash (payments) receipts
Total change in cash flows
Year ended December 31,
2017
52,755
67,367
(17,993)
(36,384)
(18,837)
46,908
2016
27,795
83,100
(13,921)
(37,425)
(16,597)
42,952
change
24,960
(15,733)
(4,072)
1,041
(2,240)
3,956
Higher cash inflows from the sale of residential lots and development land was due to higher volumes of lots sold in 2017 and the
sale of three development land parcels in 2017.
Lower cash inflows from the sale of residential homes was due to the lower volumes of homes sold in 2017 and due to the
product mix, with sales in 2017 comprising both single-family and townhomes, while in 2016 only single-family homes were sold.
12
23
Higher cash outflows for land servicing were mainly due to the commencement of the development of two new phases of land in
2017 to meet expected future demand for finished lots, whereas the servicing of no new phases was commenced in 2016.
Cash outflows for home building activity will vary due to the product mix (i.e. single-family or townhouse) and as Genesis
changes the pace of construction to maintain an appropriate level of work-in-progress including spec homes to meet anticipated
demand.
LIABILITIES AND SHAREHOLDERS’ EQUITY
The following table presents Genesis’ liabilities and equity at YE 2017 and YE 2016:
Loans and credit facilities
Dividend payable
Customer deposits
Accounts payable and accrued liabilities
Income tax payable
Provision for future development costs
Total liabilities
Non-controlling interest
Shareholders’ equity
Total liabilities and equity
Total liabilities to equity is as follows:
Total liabilities
Total equity
Total liabilities to equity(1)
(1) Calculated as total liabilities divided by total equity
Loans and Credit Facilities
December 31,
December 31,
2017
30,135
10,813
4,629
8,938
2,785
24,584
81,884
18,144
201,397
301,425
% of Total
10%
4%
2%
3%
1%
8%
28%
6%
66%
100%
2016
43,295
-
2,587
10,195
-
21,253
77,330
5,914
205,751
288,995
% of Total
15%
-
1%
4%
-
7%
27%
2%
71%
100%
December 31
2017
81,884
219,541
37%
2016
77,330
211,665
37%
The following is a summary of outstanding loan and credit facility balances as at YE 2017 and as at the end of the previous four
quarters:
Land development servicing loans
Home building loans
Demand operating line
Vendor-take-back loan
Land loan relating to a limited partnership
Unamortized deferred financing fees
Balance, end of period
Q4 2017
6,164
Q3 2017
8,757
Q2 2017
1,993
Q1 2017
3,090
Q4 2016
5,566
871
-
21,782
31,410
4,125
35,535
(154)
35,381
-
-
21,357
23,350
8,963
32,313
(47)
32,266
-
4,000
20,931
28,021
8,739
36,760
(144)
36,616
903
-
28,506
34,975
8,531
43,506
(211)
43,295
13
1,896
-
22,208
30,268
-
30,268
(133)
30,135
24
The continuity of Genesis’ VTB and land development servicing loans, excluding deferred financing fees, is as follows:
Balance, beginning of period
Advances
Repayments
Interest expense
Balance, end of period
Year ended December 31, 2017
Vendor-take-
back loan
28,506
-
(8,000)
1,702
22,208
Land
development
servicing
loans
5,566
30,574
(29,976)
-
6,164
Year ended
December 31,
2016
50,930
12,512
(31,559)
2,185
34,068
Total
34,072
30,574
(37,976)
1,702
28,372
Genesis has various covenants in place with its lenders with respect to its 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, GBG has a secured revolving operating line repayable on demand to be used for home construction. This line has a
financial covenant requiring that GBG maintain a net worth of at least $6,500 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 2017 and at YE 2016. Loans and credit facilities are
used primarily to finance the costs of developing land, building houses and for land purchases.
Genesis has sufficient liquidity from its cash flows from operating activities, supplemented by credit facilities, to meet the above
liabilities as they become due. Project financing facilities are paid down with some or all of the sale proceeds of secured lands.
Genesis intends to develop new phases by obtaining financing that is specific to each new phase or phases of land development
and also for significant townhouse projects.
Land development servicing loans
As at December 31, 2017, Genesis had four land project loan facilities with the ability to fund up to $24,107 of future
development and servicing costs. Interest on these facilities is charged at prime + 0.75% per annum. Draws on these facilities
can be made as land development activities progress. As at December 31, 2017, $6,164 was drawn under these facilities (YE
2016 – four loans and $5,566).
Home building loans
GBG has a demand operating line of $6,500 bearing interest at prime + 0.75% per annum. As at YE 2017, the amount drawn on
this facility was Nil (YE 2016 - Nil).
GBG has a townhouse project loan facility of $12,905, bearing interest at prime +0.90% per annum, due on August 31, 2020. As
at YE 2017, $1,896 was drawn under this facility.
Demand operating line
Genesis has a demand operating line of credit of up to $10,000 for general corporate purposes at an interest rate of prime +
1.00% per annum. As at YE 2017, the outstanding balance of this facility was Nil (YE 2016 - Nil). This facility was used in 2017
and in 2016 for short term cash flow purposes.
Vendor-take-back loan
Genesis granted the VTB on the purchase of the southeast lands in January 2015. As at YE 2017, the VTB had an outstanding
balance of $24,000 with an unamortized discount of $1,792 (YE 2016 - $32,000 and $3,494 respectively). The outstanding
balance is payable in three equal installments of $8,000 each in January 2018, 2019 and 2020. Genesis paid $8,000 on the VTB
in January 2018, leaving an outstanding balance of $16,000 excluding the unamortized discount.
14
25
Loan to a limited partnership
Genesis guaranteed a loan to a limited partnership managed by it which bore interest at the greater of 7.85% or prime + 4% per
annum. The loan was secured by lands held by the limited partnership and was re-paid in full in Q4 2017 on the sale of the
relevant land.
Provision for Future Development Costs
When Genesis sells lots and homes, it often remains responsible to pay for future development costs known as “costs-to-
complete”.
For the land development business, the provision for future development costs represents the estimated remaining construction
costs related to and/or allocated to land that has been sold. This includes all direct construction costs and indirect costs expected
to be incurred during the remainder of the construction period, net of expected future recoveries from third parties, allocable to
the portions of the development that have been sold. The provision is reviewed periodically and, 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.
For GBG, costs-to-complete estimates are the costs estimated to be incurred on seasonal and other work (such as paving and
landscaping) and estimated warranty charges over the one year warranty period.
Provision for future development costs as at December 31, 2017 was $23,809 for the land development business (YE 2016 -
$20,064) and $775 (YE 2016 - $1,189) for GBG. These changes were due to normal sales activity in land and home building.
The increase was partially offset by completion of previously recognized cost-to-complete liabilities on residential lots and
residential homes.
Income Tax (Payable) Recoverable
The continuity in income tax (payable) recoverable is as follows:
Balance, beginning of period
Provision for current income tax
Net payments
Balance, end of period
For the year ended December 31,
2017
42
(6,882)
4,055
(2,785)
2016
(270)
(4,397)
4,709
42
The increase in income tax payable is a result of the higher income in 2017 and because income tax installment payments are
estimated based on the income of the prior year.
15
26
Shareholders’ Equity
As at March 14, 2018, the Corporation had 43,252,721 common shares issued and outstanding. The common shares of the
Corporation are listed for trading on the Toronto Stock Exchange under the symbol “GDC”.
Genesis commenced a normal course issuer bid (“NCIB”) in 2015 and renewed it in 2016 and 2017. The current NCIB
commenced on September 12, 2017 and terminates on the earlier of (i) September 11, 2018; and (ii) the date on which the
maximum number of common shares are purchased pursuant to the bid. The Corporation may purchase for cancellation up to
2,163,022 common shares under this NCIB. The Corporation purchased and cancelled common shares under its NCIB as
follows:
Number of shares purchased and cancelled
Total cost
Average price per share purchased
Beginning of period
Shares cancelled as a % of common shares outstanding
at beginning of period
Three months ended
December 31,
2016
2017
-
-
-
36,178
92
2.54
Year ended
December 31,
2016
551,796
1,420
2.60
2017
493,085
1,456
2.95
Oct 1, 2017
Oct 1, 2016
Jan 1, 2017
Jan 1, 2016
-
0.08%
1.13%
1.25%
The Corporation repurchased no common shares between January 1, 2018 and March 14, 2018 for cancellation. As of the date
of this MD&A, there are 2,163,022 common shares remaining for purchase under the currently authorized NCIB.
During 2017, the Corporation purchased and cancelled 493,085 common shares for $1,456 at an average cost of $2.95 per
share (representing 1.13% of issued and outstanding shares at the beginning of the year) compared to 551,796 common shares
for $1,420 at an average cost of $2.60 in 2016 (representing 1.25% of issued and outstanding shares at the beginning of the
year).
Contractual Obligations and Debt Repayment
Contractual obligations (excluding accounts payable, accrued liabilities, income taxes payable, customer deposits and provision
for future development costs) at YE 2017 were as follows:
Current
January 2019 to December 2019
January 2020 to December 2020
January 2021 and thereafter
Total
(1) Excludes deferred financing fees
Loans and
Credit
Facilities(1)
12,007
9,530
8,731
-
Naming
Rights
500
Lease
Obligations
574
500
500
500
487
427
25
30,268
2,000
1,513
Total
13,081
10,517
9,658
525
33,781
In 2008, Genesis entered into an agreement with the City of Airdrie to contribute $2,000 over 10 years for 40-year naming rights
to “Genesis Place”, a recreation complex in the city of Airdrie ($200 each year, terminating in 2017). All ten installments totaling
$2,000 had been paid by YE 2017.
In 2012, Genesis entered into a memorandum of understanding with the Northeast Community Society to contribute $5,000 over
10 years for 15-year naming rights to the “Genesis Centre for Community Wellness”, a recreation complex in northeast Calgary
($500 each year, terminating in 2021). The first six installments totaling $3,000 were paid up to and through to the end of
December 2017. Genesis paid the seventh installment of $500 in January 2018.
In Q1 2017, the Corporation amended its head office lease agreement with Morguard Real Estate Investment Trust to extend the
term by 38 months to September 30, 2020. The total basic rent over the extension period is $364. Genesis also has other minor
operating leases.
16
27
As a normal part of business, Genesis has 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 for the years ended December 31, 2017 and 2016.
Current Contractual Obligations, Commitments and Provision
Loans and credit facilities, excluding deferred financing fees
Accounts payable and accrued liabilities
Dividend payable
Total short-term liabilities
Commitments(1)
(1) Commitments comprises naming rights and lease obligations
December 31
2017
12,007
8,938
10,813
31,758
1,074
32,832
2016
22,990
10,195
-
33,185
1,371
34,556
At YE 2017, Genesis had obligations due within the next 12 months of $32,832, of which $12,007 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.
Management is confident that Genesis has the ability to continue to renew or to repay its financial obligations as they become
due. The dividend payable amount of $10,813 was paid on January 5, 2018.
Provision for Litigation
Two former employees filed a statement of claim against the Corporation on May 27, 2016 alleging wrongful termination of their
employment and seeking damages, legal costs and other relief arising out of the termination of their employment contracts with
the Corporation. The aggregate amount of the claim is approximately $1,600 and the Corporation has recorded a provision for
this amount. The former employees brought a motion before a Master in Chambers of the Court of Queen’s Bench of Alberta for
summary judgment asking for awards of liquidated damages, being the amount of their severance entitlements set out in their
employment contracts. On April 24, 2017, the Master granted the former employees’ application for summary judgment. The
Corporation filed a Notice of Appeal on April 28, 2017 and intends to vigorously defend against the claim. The appeal is set down
for a hearing on May 2, 2018.
On March 8, 2018, the two former employees served an application for leave to amend their claim to add claims in the amount of
$1,100 plus costs and interest in connection with a disputed purported exercise of options. It is too early in the process to assess
potential liability with respect to the new claims.
Contingencies
On September 22, 2017, Limited Partnership Land Pool (“LPLP 2007”), Genesis, GP LPLP 2007 Inc. (a wholly owned subsidiary
of Genesis and the general partner of LPLP) (“GP LPLP”), two limited partners, two affiliated limited partnerships and various
third parties were named as co-defendants in a statement of claim initiated in the Province of Alberta by a limited partner of LP
RRSP Limited Partnership #1, a limited partner of LP RRSP Limited Partnership #2 and a limited partner of the LPLP 2007. The
statement of claim seeks pecuniary and non-pecuniary damages of $60,000, including general and special damages. Genesis
and GP LPLP are of the view that this claim is without merit and, on their behalf and on behalf of LPLP 2007, are actively
contesting both the certification proceeding and the claim itself. Any potential liability to Genesis, GP LPLP and/or the
Partnership is currently indeterminate.
OFF BALANCE SHEET ARRANGEMENTS
Letters of Credit
Genesis has an ongoing requirement to provide irrevocable letters of credit to municipalities as part of the sub-division plan
registration process to indemnify the municipalities in the event that Genesis does not perform its contractual obligations. At YE
2017, these letters of credit totalled approximately $5,491 (YE 2016 - $4,429).
17
28
Lease Agreements
Genesis has 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 on the balance sheet as at YE 2017 and YE 2016. In the event the lease for the office building is
terminated early, Genesis is liable to pay the landlord for the loss of its income for the unexpired portion of the lease, in addition
to damages and other expenses incurred by the landlord, 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
Cash dividends per share, declared(1)
2017
150,933
53,229
16,998
0.39
301,425
30,135
0.46
2016
115,957
26,618
5,906
0.13
2015
119,088
22,509
11,014
0.25
2014
134,245
39,001
17,395
0.39
2013
96,007
11,135
5,713
0.13
288,995
331,045
309,742
313,846
43,295
0.25
63,819
0.12
23,892
50,373
0.12
-
(1) A cash dividend of $0.25 per share declared in December 2017 was paid in January 2018
Return on shareholders’ equity (“ROE”)(1)
2017
8.3%
2016
2.8%
2015
5.2%
2014
8.6%
2013
3.0%
Average shareholders’ equity(2)
203,574
208,938
210,113
201,792
192,537
(1) Calculated as Net earnings attributable to equity shareholders’ divided by average Shareholders’ equity
(2) Calculated as the sum of Shareholders’ equity at the beginning and end of each year divided by two
Refer to the Factors Affecting Results of Operations section of this MD&A (page 18)
Summary analysis for last 3 years
Total revenues comprise residential lot sales, development land sales, residential home sales and other revenues. Residential lot
sales volumes were 266, 204 and 184 units in 2017, 2016 and 2015 respectively, reflecting the market conditions. In addition,
development land sales were $55,234, $21,237 and $3,600 for 2017, 2016 and 2015 respectively. Development land sales are
lumpy in nature and comprise sales of non-core lands, commercial lands and other lands that Genesis does not intend to build
on.
Residential homes sold were 148, 166 and 209 in 2017, 2016 and 2015 respectively. Both 2017 and 2015 included sales of
townhouse units (2017 – 21, 2015 - 23) while there were no townhouse sales in 2016.
Gross margins in 2017 significantly improved due to stronger development land margins while gross margins in 2016 and 2015
were impacted by a write-down of real estate held for development and sale which were $1,095, $8,665 and $12,390 in 2017,
2016 and 2015 respectively. Net earnings and net earnings per share were affected as a result of the above.
Total assets increased by $12,430 in 2017 compared to 2016. This was mainly due to an increase in cash and cash equivalents
by $9,267 and the $20,558 vendor-take-back mortgage relating to a limited partnership, partially offset by a reduction in real
estate held for development and sale during 2017, as a result of sales of residential lots, development lands and residential
homes.
Total assets decreased by $42,050 in 2016 compared to 2015. Real estate held for development and sale decreased by $46,291
due to increased sales volumes and reduced work in progress in both land development and home building.
Total loans and credit facilities decreased in 2017 compared to 2016 and 2015 mainly due to the repayment of loans and credit
facilities, including $8,000 annual payments on the VTB in both January 2016 and January 2017.
18
29
ROE is calculated as net earnings attributable to equity shareholders’ divided by average shareholders’ equity. Factors that
affect net earnings have been explained above. In addition, retained earnings, a component of shareholders’ equity, was affected
by dividends of $19,896, $10,936, and $ 5,331 in 2017, 2016 and 2015 respectively. In addition, Genesis’ NCIB reduced
shareholders equity by $1,456, $1,420 and $1,187 in 2017, 2016 and 2015 respectively.
SUMMARY OF QUARTERLY RESULTS
Revenues
Net earnings(1)
Q4
2017
65,644
8,713
EPS(2)
(1) Net earnings attributable to equity shareholders
(2) Net earnings per share - basic and diluted
0.20
Q3
2017
Q2
2017
Q1
2017
31,128
38,497
15,664
3,372
0.08
4,209
0.09
704
0.02
Q2
2017
Q1
2017
Dividends
Dividends declared
Dividends paid
Dividends declared – per
share
Dividends paid – per share
Residential lots sold to third
parties (units)
Homes sold (units)
Q4
2017
10,813
-
0.25
-
Q4
2017
37
44
Q3
2017
9,083
9,083
0.21
0.21
Q3
2017
13
49
-
-
-
-
Q2
2017
45
36
Development land revenues
41,000
5,234
9,000
(1) Includes rebate of $100 on early closing of a 14 acre development land parcel in 2016
-
-
-
-
Q1
2017
37
19
-
Q4
2016
28,145
(1,216)
(0.03)
Q4
2016
10,936
10,936
0.25
0.25
Q4
2016
12
56
-
Q3
2016
Q2
2016
Q1
2016
29,240
26,148
32,424
2,184
0.05
2,828
0.06
2,110
0.05
Q3
2016
Q2
2016
Q1
2016
-
-
-
-
Q3
2016
24
28
-
-
-
-
-
-
-
-
Q2
2016
Q1
2016
22
40
-
42
9,437
1,650
10,150(1)
Cash flows from (used in)
operating activities
Amount
Per share basic and diluted
Q4
2017
27,298
0.62
Q3
2017
8,888
0.21
Q2
2017
12,251
0.28
Q1
2017
(1,529)
(0.03)
Q4
2016
6,229
0.14
Q3
2016
10,060
0.23
Q2
2016
14,394
0.33
Q1
2016
12,269
0.28
In general, net earnings are mainly affected by the volume of residential lot and home sales, development land parcel sales, and
write-downs or recoveries, if any. Seasonality affects the land development and home building industry in Canada, particularly
winter weather conditions. Refer to the Factors Affecting Results of Operations section on page 18 of this MD&A which
discusses the factors that affect Genesis’ results and seasonality further.
During Q4 2017, Genesis sold 37 residential lots to third parties and 44 homes. Genesis completed the sale of 319 acres of
undeveloped land belonging to a limited partnership for $41,000. On an overall basis, this resulted in higher revenues during Q4
2017 compared to Q3 2017. Genesis incurred lower general and administrative expenses and net finance expense during Q4
2017 offset by higher selling and marketing expenses compared to Q3 2017.
During Q3 2017, Genesis sold 13 residential lots to third parties and 49 homes. Genesis completed the sale of a 617 acre parcel
of land belonging to a limited partnership for $5,234. On an overall basis, lower revenues from residential lot sales and
development land sales, partially offset by higher revenues from residential home sales resulted in lower revenues during Q3
2017 compared to Q2 2017. Genesis incurred slightly lower general and administrative, selling and marketing expenses during
Q3 2017 compared to Q2 2017. In addition, Genesis had no write-down in Q3 2017.
19
30
During Q2 2017, Genesis sold 45 residential lots to third parties and 36 homes. Genesis also sold a 1,476 non-core
development land parcel in Q2 2017 for $9,000. On an overall basis, this resulted in higher revenues during Q2 2017 compared
to Q1 2017. Genesis incurred lower general and administrative, selling and marketing expenses and net finance expenses during
Q2 2017 compared to Q1 2017. In addition, Genesis had a write-down of $1,095 in Q2 2017.
During Q1 2017, Genesis sold 37 residential lots to third parties and 19 homes. The 37 unit decrease in home closings between
Q1 2017 and Q4 2016 was partially offset by a 25 unit increase in residential lot sales to third parties. On an overall basis, this
resulted in lower revenues during Q1 2017 compared to Q4 2016. Genesis incurred lower general and administrative, selling and
marketing expenses and net finance expenses during Q1 2017 compared to Q4 2016. In addition, Genesis had no write-down in
Q1 2017. These were the main factors resulting in higher net earnings and EPS during Q1 2017 compared to Q4 2016.
During Q4 2016, Genesis sold 12 residential lots to third parties and 56 homes (all single-family). This resulted in revenues that
were slightly lower than Q3 2016. Genesis also had a write-down of $5,372 in Q4 2016, a difference of $2,079 compared to Q3
2016, which affected the net earnings in Q4 2016.
During Q3 2016, Genesis sold 24 residential lots to third parties, a 7 acre development land parcel for $9,437 and 28 homes (all
single-family). The development land parcel sale and higher residential lot sales resulted in higher revenues in Q3 2016
compared to the second quarter of 2016 (“Q2 2016”), but this was partially offset by the lower residential home revenues.
Genesis also had a write-down $3,293 related to of a single parcel of undeveloped non-core land located in Alberta.
During Q2 2016, Genesis sold 22 residential lots to third parties, a 1,653 acre non-core development land parcel for $1,650 and
40 homes (all single-family). The sale of a development land parcel in the first quarter of 2016 (“Q1 2016”) resulted in higher
revenues in Q1 2016 compared to Q2 2016, but this was partially offset by the higher volume of residential lot sales in Q2 2016.
During Q2 2016, Genesis also incurred $992 of cost of sales expense relating to townhouse projects that were not going to
proceed. These were the main factors resulting in lower net earnings during Q2 2016 compared to Q1 2016.
During Q1 2016, Genesis sold no residential lots to third parties, sold a development land parcel for $10,250 and 42 homes (all
single-family). During the fourth quarter of 2015, the joint venture in which Genesis is a 50% partner, sold a multi-family land
parcel for which Genesis realized a deferred gain of $1,184. Genesis also realized deferred gains from the sale of 10 single
family lots and its share of net income from the joint venture in the fourth quarter of 2015. There was no corresponding multi-
family land sale in Q1 2016, and Genesis realized deferred gains from five single-family lots during Q1 2016. These factors
resulted in lower net earnings and EPS during Q1 2016 compared to the fourth quarter of 2015.
RELATED PARTY TRANSACTIONS
Transactions occurred with the following related parties:
1. Underwood Capital Partners Inc. (“Underwood”) - controlled by an officer and director, Stephen J. Griggs; and
2.
Smoothwater Capital Corporation (“Smoothwater”) – a significant shareholder of Genesis. Stephen J. Griggs serves as
the CEO of Smoothwater.
Paid to Underwood for the services of
Stephen J. Griggs as CEO
Reimbursement of travel and other costs
incurred by Smoothwater
CONSOLIDATED ENTITIES
Three months ended
December 31,
2017
2016
86
-
86
80
-
80
Year ended
December 31,
2017
334
-
334
2016
368
11
379
Genesis Limited Partnership #6 and Genesis Limited Partnership #7, part of the LP6/7 group, paid a final distribution of $6,978 to
their unit holders during the year ended December 31, 2016. Genesis held an 11.75% equity interest in Genesis Limited
Partnership #6. The LP6/7 Group entities no longer have any assets or liabilities and are no longer being consolidated effective
January 1, 2017.
20
31
SUBSEQUENT EVENTS
Subsequent to YE 2017, the following occurred:
•
•
•
Genesis paid the third installment of $8,000 on the VTB in January 2018. The balance on the VTB after this payment,
but excluding the unamortized portion, is $16,000.
The cash dividend of $0.25 per share, which was declared in December 2017 was paid on January 5, 2018.
Refer to Provision for Litigation on page 28
SUMMARY OF ACCOUNTING CHANGES
The Corporation adopted no new IFRSs and interpretations during 2017.
RECENT ACCOUNTING PRONOUNCEMENTS
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 revenue recognition arising from
contracts with customers. The Corporation will adopt IFRS 15 as of January 1, 2018.
The Corporation has completed the assessment of the impact of IFRS 15. The assessment indicates that the revenue
recognition for the Corporation will remain unchanged, with the exception of revenues from development land sales.
IFRS 15 requires that the Corporation recognize development land sales when the land parcels have been delivered to the
customers and related services that have been contractually agreed to by the Corporation and the customers have been
substantially performed, without reference to receipt of a minimum 15% non-refundable deposit, which was an additional criterion
under the prior standard.
Revenues from development land sales are now expected to be recognized when the agreed-to services to the property have
been substantially performed and the transaction closes rather than when the agreed-to services to the property have been
substantially performed and on the receipt of a minimum 15% non-refundable deposit.
There were no development land transactions made during the year ended December 31, 2017 that would be impacted by the
transition to IFRS 15.
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 completed the assessment of the impact of IFRS 9 on its financial statements and is not expecting any
reclassification to occur during the transition to IFRS 9, or thereafter. The Corporation will assess on a case by case basis, as
needed, in the future. The Corporation will adopt IFRS 9 as of January 1, 2018.
NEW ACCOUNTING PRONOUNCEMENTS
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. The Corporation does not intend to
early adopt IFRS 16.
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32
CRITICAL ACCOUNTING ESTIMATES
The preparation of consolidated financial statements in accordance with IFRS 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 businesses. On an ongoing basis, management
evaluates its judgments and estimates in relation to revenues, expenses, assets and liabilities. Management uses historical
experience, third-party appraisals and reports 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 2017 and YE
2016. Refer to note 2(p) in the consolidated financial statements for the years ended December 31, 2017 and 2016 for additional
information on judgments and estimates.
Provision for Future Development Costs
Changes in estimated future development costs related to land, lots and homes previously sold by Genesis and for which it has
ongoing obligations directly impacts 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 valuations conducted by independent real estate appraisers, other professional reports and estimates and take into
account recent market transactions of similar and adjacent lands and housing projects in the same geographic area.
Valuation of Amounts Receivable
Amounts receivable are reviewed on a regular basis to estimate recoverability of balances. Any overdue amounts and any known
issues about the financial condition of debtors are taken into account when estimating recoverability.
DISCLOSURE CONTROLS AND PROCEDURES AND INTERNAL CONTROL OVER FINANCIAL REPORTING
The Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”) are responsible for establishing and maintaining
disclosure controls and procedures (“DC&P”) and internal control over financial reporting (“ICFR”), as those terms are defined in
National Instrument 52-109 Certification of Disclosure in Issuers’ Annual and Interim Filings. The CEO and CFO have designed,
or caused to be designed under their direct supervision, Genesis’ DC&P to provide reasonable assurance that:
(i)
(ii)
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
information required to be disclosed in the annual filings, interim filings or other reports filed or submitted under securities
legislation is recorded, processed, summarized and reported on a timely basis.
The CEO and CFO have also designed, or caused to be designed under their direct supervision, Genesis’ ICFR to provide
reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external
purposes in accordance with IFRS. The ICFR have been designed using the control framework established in Internal Control –
Integrated Framework (2013) published by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”).
The CEO and CFO have evaluated the design and operating effectiveness of Genesis' DC&P and ICFR and concluded that
Genesis' DC&P and ICFR were effective as at December 31, 2017. While Genesis’ CEO and CFO believe that the Corporation’s
internal controls and procedures provide a reasonable level of assurance that such controls and procedures are reliable, an
internal control system cannot prevent all errors and fraud. It is management’s belief that any control system, no matter how well
conceived or operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met.
There were no changes in the Corporation’s ICFR during the three months and year ended December 31, 2017 that have
materially affected, or are reasonably likely to materially affect the Corporation’s ICFR.
22
33
RISKS AND UNCERTAINTIES
In the normal course of business, Genesis is 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, the profitability of
Genesis could be adversely affected by external factors beyond the control of management. Risks and uncertainties faced by
Genesis include 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, cyber-
security and business continuity risk, environmental risk and government regulations.
Development and Construction Cost Risk
Genesis may be impacted by higher prices of labor, consulting fees, construction services and materials. Costs of development
and building have fluctuated over the past several years and are typically passed on to the end customer through higher pricing.
Any significant increase that Genesis cannot pass on to the end customer may have a negative material impact on profits.
Credit and Liquidity Risk
Credit risk arises from the possibility that third-party builders who agree to acquire lots from Genesis may experience financial
difficulty and be unable to fulfill their lot purchase 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, renew existing credit facilities or secure additional financing, its ability to meet its obligations as they
become due may be impacted. Based on the Corporation’s operating history, relationships with lenders and committed sales
contracts, management believes that Genesis has the ability to continue to renew or repay its financial obligations as they
become 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 construction operating lines for home construction purposes. Should Genesis
be unable to retain or obtain such credit facilities, its ability to achieve its goals could be impacted. In order to reduce finance risk,
Genesis endeavors to match the term of financing with the expected revenues of 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.
Litigation Risk
All industries are subject to legal claims, with or without merit. The Corporation may be involved from time to time in various legal
proceedings which may include potential liability from its operating activities and, as a public company, possibly from violations of
securities laws or breach of fiduciary duty by its directors or officers. Defense and settlement costs can be substantial, even with
respect to legal claims that have no merit. Due to the inherent uncertainty associated with litigation, the resolution of any
particular legal proceeding could have a material effect on the financial position and results of operations of the Corporation.
Cybersecurity and Business Continuity Risk
Genesis’ operations, performance and reputation depend on how its technology networks, systems, offices and sensitive
information are protected from cyberattacks. Genesis’ operations and business continuity depend on how well it protects, tests,
maintains and replaces its networks, systems and associated equipment. The protection and effective organization of Genesis’
systems, applications and information repositories are central to the security and continuous operation of its business.
Cyberattacks and threats (such as hacking, computer viruses, denial of service attacks, industrial espionage, unauthorized
access to confidential information, or other breaches of network or IT security) continue to evolve and Genesis’ IT defenses need
to be regularly monitored and adapted. Vulnerabilities could harm Genesis’ brand and reputation as well as its business
relationships, and could adversely affect its operations and financial results.
Genesis has the following in place to reduce and/or manage cybersecurity and business continuity risk: enterprise grade firewalls
with the ability to detect port scanning, denial of service attacks and content filtering and application control to permit or deny
traffic on the network. Genesis also has anti-virus software with behaviour based real-time threat end-point protection, ability to
scan and lock down unauthorised system changes and/or file encryption and prevent suspicious network behaviour. In addition,
all incoming and outgoing emails are scanned for content, suspicious URLs and the existence of recipients within the
organization. Regular internal backups of network databases and files are made in case of data corruption or encryption. The
23
34
Corporation maintains various types of insurance to cover certain potential risks and regularly evaluates the adequacy of this
coverage.
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 Genesis’ AIF for the year ended December 31, 2017 available on SEDAR at
www.sedar.com.
TRADING AND SHARE STATISTICS
The Corporation’s trading and share statistics for 2017 and 2016 are provided below.
Average daily trading volume
Share price ($/share)
High
Low
Close
Market capitalization at December 31,
Shares outstanding
OTHER
Additional information relating to the Corporation can be found on SEDAR at www.sedar.com.
2017
7,639
3.95
2.78
3.73
2016
12,188
3.17
2.01
2.99
161,333
43,252,721
130,800
43,745,806
24
35
ADVISORIES
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 are based on material factors or assumptions made by us with respect to, among other things, opportunities that
may or may not be pursued by us; changes in the real estate industry; fluctuations in the Canadian and Alberta economy; changes in the
number of lots sold and homes delivered per year; and changes in laws or regulations or the interpretation or application of those laws and
regulations.
Forward-looking statements in this MD&A include, but are not limited to, statements with respect to Genesis’ 2017 business plan, the payment
of dividends, plans and strategies surrounding the acquisition of additional land, plans and strategies surrounding the development and
disposition of the Corporation’s core lands, the expected completion dates of various projects that GBG is currently engaged in and anticipated
lot yields for projects under development, commencement of the servicing phase and the construction phase of various communities and
projects, the financing of these phases and expected increased leverage, anticipated general economic and business conditions, the Alberta
real estate cycle, expectations for lot and home prices, Genesis’ plan to minimize overhead costs, construction starts and completions,
development plans for Genesis’ core lands, the continued participation of a builder in Genesis’ builder partner group, the expected closing
dates for the sale of certain lands in the community of Sage Hill, expenditures on land development activities in 2017, GBG’s sales process and
construction margins, the ability to build an inventory of homes and sell units on a quick possession basis, the recovery of accounts receivable
from a third-party builder and the ability to continue to renew or repay financial obligations and to meet liabilities as they become due.
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 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.
25
36
CONSOLIDATED
FINANCIAL
STATEMENTS
DECEMBER 31, 2017 AND 2016
37
MANAGEMENT’S REPORT
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.
Stephen J. Griggs
Chief Executive Officer
March 14, 2018
Wayne King
Chief Financial Officer
38
3
INDEPENDENT AUDITORS’ REPORT
TO THE SHAREHOLDERS OF GENESIS LAND DEVELOPMENT CORP.
An audit involves performing procedures to obtain audit evidence about the
We have audited the accompanying consolidated financial statements of
Genesis Land Development Corp., which comprise the consolidated balance
sheet as at December 31, 2017 and December 31, 2016, and the consolidated
statements of comprehensive income, changes in equity, and cash flows for
the years then ended, and a summary of significant accounting policies and
other explanatory information.
Management’s Responsibility for the Consolidated
Financial Statements
Management is responsible for the preparation and fair presentation of these
consolidated financial statements in accordance with International Financial
Reporting Standards, and for such
internal control as management
amounts and disclosures in the consolidated financial statements. The
procedures selected depend on the auditors’ judgment, including the
assessment of the risks of material misstatement of the consolidated
financial statements, whether due to fraud or error. In making those risk
assessments, the auditor considers internal control relevant to the entity’s
preparation and fair presentation of the consolidated financial statements in
order to design audit procedures that are appropriate in the circumstances,
but not for the purpose of expressing an opinion on the effectiveness of the
entity’s
internal control. An audit also
includes evaluating
the
appropriateness of accounting policies used and the reasonableness of
accounting estimates made by management, as well as evaluating the overall
presentation of the consolidated financial statements.
determines is necessary to enable the preparation of financial statements
We believe that the audit evidence we have obtained in our audits is
that are free from material misstatement, whether due to fraud or error.
sufficient and appropriate to provide a basis for our audit opinion.
Auditors' Responsibility
Opinion
Our responsibility is to express an opinion on these consolidated financial
In our opinion, the consolidated financial statements present fairly, in all
statements based on our audits. We conducted our audits in accordance with
material respects, the consolidated financial position of Genesis Land
Canadian generally accepted auditing standards. Those standards require
Development Corp. as at December 31, 2017 and December 31, 2016 and its
that we comply with ethical requirements and plan and perform the audit to
consolidated financial performance and its consolidated cash flows for the
obtain reasonable assurance about whether the consolidated financial
years then ended in accordance with International Financial Reporting
statements are free from material misstatement.
Standards.
Calgary, Alberta
March 14, 2018
Chartered Professional Accountants
39
GENESIS LAND DEVELOPMENT CORP.
CONSOLIDATED BALANCE SHEET
(In thousands of Canadian dollars)
Assets
Real estate held for development and sale
Amounts receivable
Vendor-take-back mortgage
Other operating assets
Deferred tax assets
Income tax recoverable
Cash and cash equivalents
Total assets
Liabilities
Loans and credit facilities
Dividend payable
Customer deposits
Accounts payable and accrued liabilities
Income tax payable
Provision for future development costs
Total liabilities
Commitments and contingencies
Subsequent events
Equity
Share capital
Retained earnings
Shareholders’ equity
Non-controlling interest
Total equity
Notes
December 31, 2017 December 31, 2016
4
5
6, 19
7
8
9
7
2o
14
7, 9b, 15
10
19
200,757
30,820
20,558
18,083
7,622
-
23,585
301,425
30,135
10,813
4,629
8,938
2,785
24,584
81,884
54,260
147,137
201,397
18,144
219,541
242,000
21,059
-
5,019
6,557
42
14,318
288,995
43,295
-
2,587
10,195
-
21,253
77,330
54,888
150,863
205,751
5,914
211,665
Total liabilities and equity
301,425
288,995
See accompanying notes to the consolidated financial statements
ON BEHALF OF THE BOARD:
Stephen J. Griggs
Director and Chair of the Board
Steven Glover
Director and Chair of the Audit Committee
40
5
GENESIS LAND DEVELOPMENT CORP.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
For the years ended December 31, 2017 and 2016
(In thousands of Canadian dollars except per share amounts)
Year ended December 31,
Notes
2017
2016
Revenues
Sales revenue
Other revenue
Direct cost of sales
Write-down of real estate held for development and sale
Gross margin
General and administrative
Selling and marketing
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
4
11
12
13
8
19
10
150,746
187
150,933
(96,609)
(1,095)
(97,704)
53,229
(10,970)
(4,921)
(15,891)
37,338
125
(2,450)
35,013
(5,815)
29,198
12,200
16,998
0.39
115,179
778
115,957
(80,674)
(8,665)
(89,339)
26,618
(11,844)
(4,382)
(16,226)
10,392
71
(2,999)
7,464
(1,532)
5,932
26
5,906
0.13
41
6
GENESIS LAND DEVELOPMENT CORP.
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
For the years ended December 31, 2017 and 2016
(In thousands of Canadian dollars except number of shares)
Equity attributable to Corporation’s shareholders
Common shares – Issued
Number of
Shares
44,297,602
Amount
55,591
-
-
(551,796)
(703)
-
-
-
-
-
-
-
-
At December 31, 2015
Share-based payments
Normal course issuer bid
(Note 10c)
Distribution to unit holders of
Genesis Limited Partnership #6
Cancellation of stock options
Dividends declared (Note 10d)
Net earnings being comprehensive
earnings
At December 31, 2016
43,745,806
54,888
At December 31, 2016
43,745,806
54,888
Normal course issuer bid (Note 10c)
and misc.
Dividends declared (Note 10d)
Net earnings being comprehensive
earnings
(493,085)
(628)
-
-
-
-
At December 31, 2017
43,252,721
54,260
See accompanying notes to the consolidated financial statements
76
-
-
-
-
-
-
-
-
-
-
Contributed
Surplus
Retained
Earnings
Total
Shareholders’
Equity
Non-
Controlling
Interest
Total Equity
5,577
150,957
212,125
12,866
224,991
-
76
(717)
(1,420)
-
-
76
(1,420)
-
(5,653)
5,653
-
-
(10,936)
(10,936)
(6,978)
(6,978)
-
-
-
(10,936)
5,906
5,906
26
5,932
150,863
205,751
5,914
211,665
150,863
205,751
5,914
211,665
(828)
(1,456)
30
(1,426)
(19,896)
(19,896)
-
(19,896)
16,998
16,998
12,200
29,198
147,137
201,397
18,144
219,541
42
7
GENESIS LAND DEVELOPMENT CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the years ended December 31, 2017 and 2016
(In thousands of Canadian dollars)
Operating activities
Receipts from residential lot and development land sales
Receipts from residential home sales
Other (payments) receipts
Paid for land development
Paid for residential home construction
Paid to suppliers and employees
Interest received
Income taxes paid
Cash flows from operating activities
Investing activities
Acquisition of equipment
Distribution received from joint venture
Cash (used in) from investing activities
Financing activities
Advances from loans and credit facilities
Repayments of loans and credit facilities
Payment on vendor-take-back loan
Interest and fees paid on loans and credit facilities
Repurchase and cancellation of shares under NCIB
Distribution to unit holders of limited partnerships
Dividends
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,
2017
2016
52,755
67,367
(7)
(17,993)
(36,384)
(14,900)
125
(4,055)
46,908
(223)
-
(223)
32,471
(40,004)
(8,000)
(533)
(1,456)
-
(19,896)
(37,418)
9,267
14,318
23,585
27,795
83,100
2,910
(13,921)
(37,425)
(14,869)
71
(4,709)
42,952
(61)
3,200
3,139
42,462
(57,800)
(8,000)
(500)
(1,420)
(6,978)
(10,936)
(43,172)
2,919
11,399
14,318
9b
10c
10d
43
8
GENESIS LAND DEVELOPMENT CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2017 and 2016
(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 14, 2018.
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.
44
9
GENESIS LAND DEVELOPMENT CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2017 and 2016
(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) Finance income
Finance 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.
45
10
GENESIS LAND DEVELOPMENT CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2017 and 2016
(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’s 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.
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.
46
11
GENESIS LAND DEVELOPMENT CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2017 and 2016
(All tabular amounts and amounts in footnotes to tables are in thousands of Canadian dollars except number of shares)
2. SIGNIFICANT ACCOUNTING POLICIES (continued)
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)
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 FVTPL. 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.
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.
m) 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.
47
12
GENESIS LAND DEVELOPMENT CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2017 and 2016
(All tabular amounts and amounts in footnotes to tables are in thousands of Canadian dollars except number of shares)
2. SIGNIFICANT ACCOUNTING POLICIES (continued)
n)
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.
o)
Provision for future development costs
The Corporation sells land, lots and homes for which it is responsible to pay for future development costs. For home building,
the provision for future development costs represents the costs likely to be incurred on remaining seasonal work and
estimated warranty charges over the one year warranty period. For land development, the provision for future development
costs represents the estimated remaining construction costs related to previously sold land, including all direct and indirect
costs expected to be incurred during the remainder of the servicing period, net of expected recoveries. The provision is
reviewed periodically and, 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.
p)
Significant accounting judgments and estimates
The preparation of consolidated financial statements requires management to make judgments and estimates that affect the
reported amounts of revenues, expenses, assets and liabilities, and the disclosure of contingent liabilities at the reporting
date. On an ongoing basis, management evaluates its judgments and estimates in relation to revenues, expenses, assets
and liabilities. Management uses historical experience and various other factors it believes to be reasonable under the given
circumstances as the basis for its judgments and estimates. Actual outcomes may differ from these estimates under different
assumptions and conditions.
The following are the most significant accounting judgments and estimates made by the Corporation in applying accounting
policies:
Judgments
(i) Revenue Recognition
Revenue recognition for development lands requires judgment to determine when the risks and rewards of ownership
have been transferred. The Corporation reviews each contract and evaluates all the factors to determine the
appropriate transfer date.
(ii) Consolidation
The Corporation applies judgment in determining control over certain limited partnerships where the Corporation
holds less than 50% equity ownership. The judgment is based on a review of all contractual agreements to determine
if the Corporation has control over the activities, projects, financial and operating policies of the limited partnerships.
(iii)
Income Taxes
The Corporation applies judgment in determining the total provision for current and deferred taxes. There are many
transactions and calculations for which the ultimate tax determination and timing of payment is uncertain due to the
interpretation of complex tax regulations, changes in tax laws, and the amount and timing of future taxable income.
Given the long-term nature and complexity of the business, differences arising between the actual results and the
assumptions made, or future changes to such assumptions, could necessitate future adjustments to the provision for
current and deferred taxes.
(iv) Net realizable value(“NRV”)
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 including independent real estate appraisers and recent market transactions of similar and adjacent
lands and housing projects in the same geographic area.
48
13
GENESIS LAND DEVELOPMENT CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2017 and 2016
(All tabular amounts and amounts in footnotes to tables are in thousands of Canadian dollars except number of shares)
2. SIGNIFICANT ACCOUNTING POLICIES (continued)
(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 estimated future development costs, which are generally provided by third party service providers,
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 valuations conducted by independent real estate appraisers and other third party advisors, and is also based on
housing projects in the same geographic area.
(iii) Valuation of amounts receivable
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.
49
14
GENESIS LAND DEVELOPMENT CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2017 and 2016
(All tabular amounts and amounts in footnotes to tables are in thousands of Canadian dollars except number of shares)
3. STANDARDS AND AMENDMENTS TO EXISTING STANDARDS DURING 2017
The Corporation adopted no new IFRSs and interpretations during 2017.
RECENT ACCOUNTING PRONOUNCEMENTS
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 revenue recognition arising from contracts with
customers. The Corporation will adopt IFRS 15 as of January 1, 2018.
The Corporation has completed the assessment of the impact of IFRS 15. The assessment indicates that the revenue recognition
for the Corporation will remain unchanged, with the exception of revenues from development land sales.
IFRS 15 requires that the Corporation recognize development land sales when the land parcels have been delivered to the
customers and related services that have been contractually agreed to by the Corporation and the customers have been
substantially performed, without reference to receipt of a minimum 15% non-refundable deposit, which was an additional criterion
under the prior standard.
The assessment indicates that the revenue recognition for the Corporation will remain unchanged, with the exception of revenues
from development land sales which are now expected to be recognized when the agreed-to services to the property have been
substantially performed and the transaction closes rather than when the agreed-to services to the property have been substantially
performed and on the receipt of a minimum 15% non-refundable deposit.
There were no development land transactions made during the year ended December 31, 2017 that would be impacted by the
transition to IFRS 15.
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 completed the assessment of the impact of IFRS 9 on its financial statements and is not expecting any
reclassification to occur during the transition to IFRS 9, or thereafter. The Corporation will assess on a case by case basis, as
needed, in the future. The Corporation will adopt IFRS 9 as of January 1, 2018.
NEW ACCOUNTING PRONOUNCEMENTS
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. The Corporation does not intend to early
adopt IFRS 16.
50
15
GENESIS LAND DEVELOPMENT CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2017 and 2016
(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
Intra-
segment
Elimination
Consolidated
Total
Gross book value
As at December 31, 2016
122,896
98,693
19,400
240,989
72,029
(4,194)
308,824
Transfer
Development activities
3,870
11,973
(3,870)
-
-
2,263
35,575
49,811
-
421
Sold
(20,761)
(32,650)
(34,819)
(88,230)
(57,197)
-
-
-
-
50,232
(145,427)
As at December 31, 2017
117,978
64,436
20,156
202,570
15,253
(4,194)
213,629
Provision for write-downs
As at December 31, 2016
4,000
27,676
Sold
Write-down of real estate held for
development and sale during the
period
-
(24,007)
1,075
-
As at December 31, 2017
5,075
3,669
-
-
-
-
31,676
35,148
(24,007)
(31,040)
1,075
20
8,744
4,128
-
-
-
-
66,824
(55,047)
1,095
12,872
Net book value
As at December 31, 2016
As at December 31, 2017
118,896
112,903
71,017
19,400
209,313
36,881
(4,194)
242,000
60,767
20,156
193,826
11,125
(4,194)
200,757
During the year ended December 31, 2017, interest of $383 (2016 - $500) was capitalized as a component of the development
costs above.
A limited partnership controlled by the Corporation closed the sale of a 617 acre parcel of land in the Calgary Metropolitan Area
(“CMA”) on August 28, 2017 for gross proceeds of $5,234. The net sale proceeds were used to partially pay down a third party loan
owed by the limited partnership. This limited partnership subsequently closed the sale of a 319 acre parcel of land in the CMA on
December 15, 2017 for gross proceeds of $41,000. The limited partnership received $20,500 in cash and a $20,500 three year
vendor-take-back first mortgage (refer to note 6). Of the cash received, $4,055 was used to fully pay down the third party loan
owed by the limited partnership (refer to note 9g), $15,547 was used to partially pay down the loan due to Genesis and the
remainder was used to pay for sales commissions and legal fees. As at December 31, 2017, the limited partnership had a loan
amounting to $12,272 (2016 - $26,590) due to Genesis, which is secured by a charge on the $20,500 vendor-take-back mortgage.
The Corporation closed the sale of a 1,476 acre non-core parcel of land located in Rocky View County on May 2, 2017 for gross
proceeds of $9,000.
During the year ended December 31, 2017, the Corporation recorded a write-down of $1,095, mainly related to land under
development to reflect the estimated returns realizable from the future completion of development and sale of this land.
51
16
GENESIS LAND DEVELOPMENT CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2017 and 2016
(All tabular amounts and amounts in footnotes to tables are in thousands of Canadian dollars except number of shares)
5. AMOUNTS RECEIVABLE
Agreements receivable
Other receivables
2017
28,500
2,320
30,820
2016
19,778
1,281
21,059
Agreements receivable for lot sales have various terms of repayment with purchasers generally having between 6 and 24 months
to pay the balance owing for the purchased lots. In order to mitigate credit risk, the Corporation does not transfer title to sold
residential lots until full payment is received. Certain agreements receivable and mortgages receivable, if any, are interest bearing.
6. VENDOR-TAKE-BACK MORTGAGE TO LIMITED PARTNERSHIP
Vendor-take-back mortgage to limited partnership
2017
20,558
2016
-
A limited partnership controlled by the Corporation closed the sale of a 319 acre parcel of land on December 15, 2017 for gross
proceeds of $41,000. The limited partnership received $20,500 in cash and a $20,500 three year vendor-take-back first mortgage
bearing interest at 6.5% per annum. Interest on the vendor-take-back mortgage is payable annually, in arrears.
7. OTHER OPERATING ASSETS
Deposits – construction projects
Deposit – dividend payable (note 10d)
Prepayments
Restricted cash
Property and equipment
2017
2,674
10,813
286
3,773
537
18,083
2016
2,497
-
262
1,353
907
5,019
Deposits include amounts paid to development authorities as security to guarantee the completion of construction projects under
development. 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 also provided letters of credit as security to guarantee the
completion of certain construction projects (see note 14 for additional information). Restricted cash is held in trust accounts.
52
17
GENESIS LAND DEVELOPMENT CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2017 and 2016
(All tabular amounts and amounts in footnotes to tables are in thousands of Canadian dollars except number of shares)
8.
a)
INCOME TAXES
Income tax was recognized in the consolidated statements of comprehensive income as follows:
Current income tax
Deferred income tax
Income tax expense
2017
6,882
(1,067)
5,815
2016
4,397
(2,865)
1,532
b)
Income tax expense differed from that which would be expected from applying the combined statutory Canadian federal and
provincial income tax rates of 27.00% (2016 – 27.00%) to earnings before income taxes. The difference resulted from the
following:
Earnings before income taxes
Statutory tax rate
Expected income tax expense
Benefit of (utilization of previous) loss not recognized
Change in estimate of a deferred tax component
Other
Non-controlling interest
Tax expense for the year
c)
The deferred tax assets (liabilities) of the Corporation were as follows:
Deferred tax assets
Deferred tax liabilities
Deferred tax assets
d)
The components of the deferred tax asset 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
Deferred tax assets
53
2017
35,013
27.00%
9,454
(63)
-
(282)
(3,294)
5,815
2017
11,097
(3,475)
7,622
2017
7,732
-
(3,475)
2,798
567
7,622
2016
7,464
27.00%
2,015
63
(533)
(6)
(7)
1,532
2016
8,461
(1,904)
6,557
2016
5,562
212
(1,690)
2,419
54
6,557
18
GENESIS LAND DEVELOPMENT CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2017 and 2016
(All tabular amounts and amounts in footnotes to tables are in thousands of Canadian dollars except number of shares)
9.
LOANS AND CREDIT FACILITIES
Secured by agreements receivable and real estate held for development and sale
(a) Demand land project servicing loans, payable on collection of agreements receivable, bearing
interest of prime +0.75% per annum, secured by real estate held for development and sale with a
carrying value of $47,843, due between April 1, 2018 and December 31, 2019.
Secured by real estate held for development and sale
(b) Vendor-take-back loan (“VTB”) 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. The $40,000 VTB was
entered into on January 6, 2015 in partial payment for the purchase of southeast Calgary lands
and is secured by these lands which have a carrying value of $44,799. The VTB is to be paid in
five annual installments of $8,000 each, commencing January 6, 2016 and ending January 6,
2020. The third installment of $8,000 was paid in January 2018.
Unamortized portion of the discount on the VTB.
(c) Demand operating line of credit up to $10,000, bearing interest at prime +1.00% per annum,
secured by real estate held for development and sale with a carrying value of $14,165 due on
March 31, 2018.
Secured by housing projects under development
(d) Demand operating line of credit up to $6,500, bearing interest at prime +0.75% per annum,
secured by a general security agreement over assets of the home building division.
(e) Demand lot purchase loan, payable on collection of closing proceeds, bearing interest at prime
+1.50% per annum, secured by home building projects. The loan was paid during the three months
ended March 31, 2017.
(f) Demand project specific townhouse construction loan, payable on collection of sale and closing
proceeds, bearing interest at prime +0.90% per annum, secured by the project with a carrying
value of $2,433, due on August 31, 2020.
Secured by land held for future development - Limited Partnership
(g) Demand land loan, bearing interest at the greater of 7.85% or prime +4.00% per annum,
secured by land held for future development and sale. The loan was paid during the three months
ended December 31, 2017. Refer to note 4, Real Estate Held For Development And Sale.
Deferred fees on loans and credit facilities
2017
6,164
2016
5,566
24,000
32,000
(1,792)
(3,494)
-
-
-
1,896
30,268
-
-
903
-
34,975
-
8,531
30,268
(133)
30,135
43,506
(211)
43,295
A lender has a general security agreement on all property of the Corporation and its subsidiaries, in addition to specific security,
mentioned above.
The weighted average interest rate of loan agreements with financial institutions was 3.99% (2016 - 5.77%) based on December
31, 2017 balances.
During the year ended December 31, 2017, the Corporation received advances of $32,471 (2016 - $42,462) relating to various
existing loan facilities secured by agreements receivable and real estate held for development and sale, bearing interest ranging
from prime + 0.75% to prime + 1.00% per annum, with due dates ranging from March 31, 2018 to August 31, 2020.
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 $1,702 (2016 - $2,185) for the year ended December 31, 2017.
54
19
GENESIS LAND DEVELOPMENT CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2017 and 2016
(All tabular amounts and amounts in footnotes to tables are in thousands of Canadian dollars except number of shares)
9.
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, 2018 to December 31, 2018
January 1, 2019 to December 31, 2019
January 1, 2020 to December 31, 2020
12,007
9,530
8,731
30,268
The Corporation and its subsidiaries have various covenants in place with their lenders with respect to credit facilities including
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. As at December 31, 2017 and 2016, the Corporation and its controlled entities were in compliance with all
loan covenants.
10. 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, 2017
and 2016:
Basic and diluted weighted average number of common shares
Year ended December 31,
2017
43,384,450
2016
43,969,313
In calculating diluted earnings per share for the year ended December 31, 2016, the Corporation excluded all options as they were
cancelled effective June 30, 2016 and their exercise price was greater than the average market price during the six months ended
June 30, 2016.
55
20
GENESIS LAND DEVELOPMENT CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2017 and 2016
(All tabular amounts and amounts in footnotes to tables are in thousands of Canadian dollars except number of shares)
10. SHARE CAPITAL (continued)
c)
Normal course issuer bid (“NCIB”)
On September 7, 2017, the Corporation announced the renewal of its NCIB which commenced on September 12, 2017 and
terminates on the earlier of (i) September 11, 2018; and (ii) the date on which the maximum number of common shares are
purchased pursuant to the bid. The Corporation may purchase for cancellation up to 2,163,022 common shares under the renewed
NCIB.
The prior NCIB, which expired on September 11, 2017, allowed the Corporation to purchase for cancellation up to 2,194,320
common shares. The Corporation purchased a total of 548,881 common shares at an average price of $2.95 per share under this
NCIB.
The following table sets forth the number of common shares repurchased and cancelled during the year ended December 31, 2017
and 2016 under the NCIB.
Number of shares repurchased and cancelled
Reduction in share capital
Reduction in retained earnings
Reduction in shareholders’ equity
Average purchase price per share
d)
Dividends
Years ended December 31,
2017
493,085
628
828
1,456
2.95
2016
551,796
703
717
1,420
2.60
Cash dividends of $9,083 ($0.21 per share) and $10,936 ($0.25 per share) were declared and paid in 2017 and 2016 respectively.
An additional cash dividend of $10,813 ($0.25 per share) was declared in December 2017 and payable on January 5, 2018. This
amount was transferred to a service provider as at December 31, 2017 in order to facilitate payout made on January 5, 2018.
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
56
2017
2,380
7,671
919
10,970
2017
1,788
-
1,788
2016
2,694
8,131
1,019
11,844
2016
1,924
76
2,000
21
GENESIS LAND DEVELOPMENT CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2017 and 2016
(All tabular amounts and amounts in footnotes to tables are in thousands of Canadian dollars except number of shares)
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 9)
Financing fees amortized
Interest and financing fees capitalized (note 4)
2017
2,279
2,642
4,921
2017
770
1,702
361
(383)
2,450
2016
2,020
2,362
4,382
2016
1,014
2,185
300
(500)
2,999
14. COMMITMENTS AND CONTINGENCIES
a)
b)
c)
d)
In 2012, the Corporation entered into a memorandum of understanding with the Northeast Community Society to contribute
$5,000 over 10 years for 15-year naming rights to “Genesis Centre for Community Wellness”, a recreation complex in
northeast Calgary ($500 each year, terminating in 2021). The first six installments totaling $3,000 were paid as at December
31, 2017.
In 2008, the Corporation entered into an agreement with the City of Airdrie to contribute $2,000 over 10 years for 40-year
naming rights to “Genesis Place”, a recreation complex in Airdrie ($200 each year, terminating in 2017). All ten installments
totaling $2,000 were paid as at December 31, 2017.
The Corporation has issued letters of credit pursuant to servicing agreements with municipalities to indemnify them in the
event that the Corporation does not perform its contractual obligations. As at December 31, 2017, the letters of credit
amounted to $5,491 (2016 – $4,429).
The Corporation has office and other operating leases with the following annual payments: not later than one year - $574;
later than one year but not later than five years - $939; and later than five years - Nil.
e) On September 22, 2017, Limited Partnership Land Pool (“LPLP 2007”), Genesis as manager, the general partner, two limited
partners, two affiliated limited partnerships and various third parties were named as co-defendants in a statement of claim
initiated in the Province of Alberta by a limited partner of LP RRSP Limited Partnership #1, a limited partner of LP RRSP
Limited Partnership #2 and a limited partner of LPLP 2007. The statement of claim seeks to be certified as a class action and
is seeking pecuniary and non-pecuniary damages of $60,000, including general and special damages. The Corporation’s
view is that this claim is completely without merit and, on its behalf and on behalf of LPLP 2007, is actively contesting both
the certification proceeding and the claim itself. Any potential liability to the Corporation and/or the Partnership is currently
indeterminate.
57
22
GENESIS LAND DEVELOPMENT CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2017 and 2016
(All tabular amounts and amounts in footnotes to tables are in thousands of Canadian dollars except number of shares)
15. PROVISION FOR LITIGATION
Two former employees filed a statement of claim against the Corporation and a director on May 27, 2016 alleging wrongful
termination of their employment and seeking damages, legal costs and other relief arising out of the termination of their
employment contracts with the Corporation. The aggregate amount of the claim is approximately $1,600 and the Corporation has
recorded this amount as a provision as at December 31, 2017. The former employees brought a motion before a Master in
Chambers of the Court of Queen’s Bench of Alberta for summary judgment asking for awards of liquidated damages, being the
amount of their severance entitlements set out in their employment contracts. On April 24, 2017, the Master granted the former
employees’ application for summary judgment. The Corporation filed a Notice of Appeal on April 28, 2017 and intends to vigorously
defend against the claim. The appeal is set down for a hearing on May 2, 2018.
On March 8, 2018, the two former employees served an application for leave to amend their claim to add claims in the amount of
$1,100 plus costs and interest in connection with a disputed purported exercise of options. It is too early in the process to assess
potential liability with respect to the new claims.
16. FINANCIAL INSTRUMENTS
a) Risks associated with financial instruments
(i) Credit risk
As at December 31, 2017, the Corporation carried Nil (2016 - Nil) as allowance for doubtful accounts.
The Corporation recognizes bad debt expense (or recovery) relating to amounts receivable on sold lots, net of the value of the
related sold lots, on the termination of the relevant agreement, which are taken back into the Corporation’s lot inventory.
Recovery of bad debt expense is included in the Corporation’s general and administrative expenses. In order to mitigate credit risk,
the Corporation does not transfer title to sold residential lots until full payment is received. Individual balances due from customers
as at December 31, 2017, which comprise greater than 10% of total amounts receivable, totaled $25,752 from five customers
(2016 - $19,040 from five customers).
Aging of amounts receivable was as follows:
Not past due
Past due
2017
29,056
1,764
30,820
2016
20,865
194
21,059
The past due amount of $1,764 is an amount receivable from a single third-party builder in receivership who is also in breach of the
purchase and sale contract for single family lots purchased from the Corporation. As provided in that contract, title to the relevant
lots has not passed to the builder which provides strong security in support of the receivable. The Corporation is confident it will
recover the entire amount of the receivable and is pursuing all available legal remedies. Total amounts receivable from this builder
as at December 31, 2017, including the past due amounts, is $3,710. The Corporation has received a non-refundable 15% deposit
of $655 on these lots.
58
23
GENESIS LAND DEVELOPMENT CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2017 and 2016
(All tabular amounts and amounts in footnotes to tables are in thousands of Canadian dollars except number of shares)
16. FINANCIAL INSTRUMENTS (continued)
(ii)
Liquidity risk
The following were the contractual maturities of financial liabilities and other commitments as at December 31, 2017:
Financial liabilities
Accounts payable and accrued liabilities
Dividend payable (note 10d)
Loans and credit facilities excl. deferred fees (note 9)
Commitments
Lease obligations (note 14)
Naming rights (note 14)
<1 Year
>1 Year
Total
8,938
10,813
12,007
31,758
574
500
1,074
32,832
-
-
18,261
18,261
939
1,500
2,439
20,700
8,938
10,813
30,268
50,019
1,513
2,000
3,513
53,532
At December 31, 2017, the Corporation had obligations due within the next 12 months of $32,832 (2016 - $34,556). Based on the
Corporation’s 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 $81 annually on floating rate loans.
b)
Fair value of financial instruments
The fair values of cash and cash equivalents, restricted cash, accounts payable and accrued liabilities approximate their carrying
values as they are expected to be settled within twelve months. The fair value of deposits approximates their carrying value as the
terms of deposits are comparable to the market terms for similar instruments. The fair value of the vendor-take-back mortgage
approximates its carrying value as the terms of vendor-take-back mortgage is 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 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).
59
24
GENESIS LAND DEVELOPMENT CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2017 and 2016
(All tabular amounts and amounts in footnotes to tables are in thousands of Canadian dollars except number of shares)
16. FINANCIAL INSTRUMENTS (continued)
The estimated fair value of financial assets and liabilities as at December 31, 2017, are presented in the following table:
December 31, 2017
December 31, 2016
Carrying
Value
Estimated
Fair Value
Carrying Value
Estimated Fair
Value
Fair value through profit and loss
Cash and cash equivalents
Deposits
Restricted cash
Loans and receivables
Amounts receivable
Vendor-take-back mortgage (note 6)
Other financial liabilities
Accounts payable and accrued liabilities
Loans and credit facilities, excluding deferred
loans and credit facilities fees (note 9)
23,585
2,674
3,773
30,820
20,558
8,938
30,268
23,585
2,674
3,773
30,192
20,558
8,938
30,268
14,318
2,497
1,353
21,059
-
10,195
43,506
14,318
2,497
1,353
20,057
-
10,195
43,506
During the years ended December 31, 2017 and 2016, no transfers were made between the levels in the fair value hierarchy.
Cash and cash equivalents, deposits and restricted cash are classified under Level 1 of the hierarchy.
The fair values of the Corporation’s amounts receivable, vendor-take-back mortgage, accounts payable and accrued liabilities and
loans and credit facilities are classified as Level 2 of the hierarchy.
c)
Capital management
The Corporation’s policy is to maintain a sufficient capital base in order to maintain investor, creditor and market confidence and to
sustain future development of the business. The Corporation is not subject to externally imposed capital requirements.
The Corporation manages its capital structure and makes adjustments to it in light of changes in regional economic conditions and
the risk characteristics of the underlying real estate industry within that region.
The Corporation considered its capital structure at the following dates to specifically include:
Loans and credit facilities (note 9)
Shareholders’ equity
2017
30,135
201,397
231,532
2016
43,295
205,751
249,046
60
25
GENESIS LAND DEVELOPMENT CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2017 and 2016
(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, 2017
and 2016:
Year ended December 31, 2017
Revenues
Direct cost of sales
Write-down of real estate held for
development and sale
Gross margin
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, 2017
Segmented liabilities as at
December 31, 2017(1),(2)
Segmented net assets as at
December 31, 2017(1), (2)
Land Development Segment
Genesis
58,152
LP
46,288
(35,089)
(26,284)
(1,075)
(20)
21,988
19,984
(6,650)
(2,724)
15,338
17,260
Intrasegment
Elimination
-
-
-
-
-
-
Home
Building
Segment
67,707
(56,450)
-
Total
104,440
(61,373)
(1,095)
41,972
11,257
(9,374)
(8,842)
32,598
2,415
Intersegment
Elimination
(21,214)
21,214
-
-
-
-
Total
150,933
(96,609)
(1,095)
53,229
(18,216)
35,013
264,021
31,743
(17,804)
277,960
26,531
(3,066)
301,425
76,638
13,625
(13,610)
76,653
8,297
(3,066)
81,884
187,383
18,118
(4,194)
201,307
18,234
-
219,541
Total
115,957
(80,674)
(8,665)
26,618
(19,154)
7,464
-
-
-
-
Year ended December 31, 2016
Revenues
Genesis
49,704
Land Development Segment
LP
9,204
Intrasegment
Elimination
(705)
Total
58,203
Home
Building
Segment
83,249
Intersegment
Elimination
(25,495)
Direct cost of sales
(29,696)
(8,244)
1,187
(36,753)
(69,416)
25,495
Write-down of real estate held for
development and sale
(5,990)
(2,675)
-
(8,665)
-
Gross margin
14,018
(1,715)
482
12,785
13,833
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, 2016
Segmented liabilities as at
December 31, 2016(1),(2)
Segmented net assets as at
December 31, 2016(1),(2)
(7,191)
(3,135)
669
(9,657)
(9,497)
6,827
(4,850)
1,151
3,128
4,336
258,583
36,971
(26,677)
268,877
24,929
(4,811)
288,995
64,658
36,145
(27,543)
73,260
8,692
(4,622)
77,330
193,925
826
866
195,617
16,237
(189)
211,665
(1) Segmented liabilities under the Genesis home building segment include $878 due to the land development segment (December 31, 2016 –
due from land segment to home building segment - $287).
(2) Segmented liabilities under the LP segment is comprised of accounts payable and accrued liabilities and includes $13,610 (December 31,
2016 - $27,543) due to Genesis.
61
26
GENESIS LAND DEVELOPMENT CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2017 and 2016
(All tabular amounts and amounts in footnotes to tables are in thousands of Canadian dollars except number of shares)
18. RELATED PARTY TRANSACTIONS
Fees for services provided by a corporation controlled by an officer
and director
Reimbursement of travel and other costs to a corporation which is a
significant shareholder of Genesis
Amounts in accounts payable and/or accrued liabilities
19. CONSOLIDATED ENTITIES
Years ended December 31,
2017
334
-
334
December 31,
2017
22
2016
368
11
379
2016
-
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. The
Corporation has less than 50% equity ownership in these limited partnership entities; however, the Corporation 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. Subsidiaries of the
Corporation are general partners in three limited partnership group structures.
Limited Partnership Land Pool (2007) (“LPLP 2007”) has a loan amounting to $12,272 (2016 - $26,590) due to the Corporation,
which is secured by a charge on the $20,500 vendor-take-back mortgage (note 6).
Genesis Limited Partnership #6 and Genesis Limited Partnership #7, part of the LP6/7 group, paid a final distribution of $6,978 to
their unit holders during the year ended December 31, 2016. Genesis held 11.75% equity interest in Genesis Limited Partnership
#6. The LP6/7 Group entities no longer have any assets or liabilities and the entities are no longer being consolidated effective
January 1, 2017.
62
27
GENESIS LAND DEVELOPMENT CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2017 and 2016
(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, 2017
December 31, 2016
Name
Land Development
Genpol Inc.
Genpol LP
1504431 Alberta Ltd.
Genesis Sage Meadows Partnership
Genesis Land Development (Southeast) Corp.
Polar Hedge Enhanced Income Trust
Home Building
Genesis Builders Group Inc.
The Breeze Inc.
Laurels by Genesis Inc.
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 (2)
Genesis Limited Partnership #5, GLP5 GP Inc., GLP5 NE Calgary Development Inc.
Genesis Northeast Calgary Ltd.
LP 6/7 Group
Genesis Limited Partnership #6
LP 8/9 Group
Genesis Limited Partnership #8 (2)
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.
LPLP 2007 Subco #2 Inc., LP RRSP Limited Partnership #1
LP RRSP Limited Partnership #2
100%
100%
0.0002%
99.9998%
100%
100%
100%
100%
Amalgamated (1)
Amalgamated (1)
Amalgamated (1)
Amalgamated (1)
50%
0.001%
0%
100%
Dissolved
53.63%
0%
100%
0.023%
100%
0%
0%
0%
(1) Amalgamated with Genesis Builders Group Inc. on May 1, 2017
(2) The allocation of profit or loss is 0% at December 31, 2017 and 2016 in accordance with the terms of the relevant limited partnership
agreement.
63
100%
100%
0.0002%
99.9998%
100%
100%
100%
100%
100%
100%
100%
100%
50%
0.001%
0%
100%
11.75%
53.63%
0%
100%
0.023%
100%
0%
0%
0%
28
GENESIS LAND DEVELOPMENT CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2017 and 2016
(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 and may include inter-group balances that are eliminated on consolidation and become a component of the net non-
controlling interest:
BALANCE SHEETS
Assets
Real estate held for development and sale
Amounts receivable
Cash and cash equivalents
Total assets
Liabilities
Accounts payable and accrued liabilities
Due to related parties
Total liabilities
Net assets (liabilities)
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 (liabilities)
Non-controlling interest (%)
December 31, 2017
LP 4/5
LP 6/7
LP 8/9
LPLP 2007
Total
8,546
1
-
8,547
-
827
827
7,720
100%
-
-
-
-
-
-
-
-
0%
2,579
-
1
-
20,616
-
2,580
20,616
-
511
511
2,069
100%
15
12,272
12,287
8,329
100%
11,125
20,617
1
31,743
15
13,610
13,625
18,118
December 31, 2016
LP 4/5
LP6/7
LP 8/9
LPLP 2007
Total
-
-
-
-
-
-
-
-
-
-
88.25%
8,186
-
-
8,186
-
-
-
427
427
7,759
100%
64
2,574
26,121
36,881
-
1
50
39
50
40
2,575
26,210
36,971
-
-
-
526
526
2,049
100%
8,514
8,514
2
86
26,590
35,192
(8,982)
100%
2
86
27,543
36,145
826
29
GENESIS LAND DEVELOPMENT CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2017 and 2016
(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
Revenues
Net (loss) earnings
Non-controlling interest (%)
Revenues
Net loss
Non-controlling interest (%)
SUMMARIZED STATEMENT OF CASH FLOWS
Cash flows from operating activities
Cash flows (used in) financing activities
Net decrease in cash and cash equivalents
Cash flows from operating activities
Cash flows (used in) financing activities
Net decrease in cash and cash equivalents
Year ended December 31, 2017
LP 6/7
LP 8/9
LPLP 2007
-
-
n/a
-
(11)
100%
46,262
17,310
100%
Year ended December 31, 2016
LP6/7
9,137
(21)
88.25%
LP 8/9
LPLP 2007
-
(19)
100%
50
(4,787)
100%
LP 4/5
26
(39)
100%
LP 4/5
17
(23)
100%
Year ended December 31, 2017
LP 4/5
LP 6/7
LP 8/9
LPLP 2007
-
-
-
LP 4/5
-
-
-
-
-
-
-
-
-
24,356
(24,395)
(39)
Year ended December 31, 2016
LP6/7
7,296
(7,738)
(442)
LP 8/9
LPLP 2007
-
-
-
19
(23)
(4)
Total
46,288
17,260
Total
9,204
(4,850)
Total
24,356
(24,395)
(39)
Total
7,315
(7,761)
(446)
65
30
TRANSFER AGENT
Computershare Trust Company of Canada
600, 530 - 8th Avenue SW
Calgary, AB T2P 3S8
STOCK EXCHANGE
Toronto Stock Exchange
Stock Symbol – GDC
AUDITORS
MNP LLP
1500, 640 - 5th Avenue SW
Calgary, AB T2P 3G4
CORPORATE OFFICE
Genesis Land Development Corp.
7315 - 8th Street NE
Calgary, AB T2E 8A2
Main 403 265 8079
Email info@genesisland.com
www.genesisland.com
OFFICERS
STEPHEN J. GRIGGS
Chair and CEO
WAYNE KING
Chief Financial Officer
PARVESHINDERA SIDHU
President, Genesis Builders Group Inc.
and Vice-President, Home Building
ARNIE STEFANIUK
Vice- President, Land Development
BRIAN WHITWELL
Vice-President, Land and Financing
DIRECTORS
STEPHEN J. GRIGGS
Chair of the Board
IAIN STEWART
Vice-Chair
STEVEN GLOVER
Lead Director
YAZDI BHARUCHA
Director
MICHAEL BRODSKY
Director
MARK W. MITCHELL
Director
LOUDON OWEN
Director
66
GENESIS LAND DEVELOPMENT CORP.
7315 - 8th Street NE
Calgary, Alberta, Canada T2E 8A2
Main 403 265 8079
Email info@genesisland.com
www.genesisland.com