ANNUAL
REPO RT
20 1 8
Genesis Land Development Corp.
BAYSIDE
AIRDRIE
BAYVIEW
AIRDRIE
SADDLESTONE
NE CALGARY
SAGE MEADOWS
NW CALGARY
NORTH CONRICH
ROCKY VIEW COUNTY
CANALS LANDING
AIRDRIE
SAGE HILL CROSSING
NW CALGARY
CREATE MOMENTS
2
TABLE OF CONTENTS
MESSAGE FROM THE PRESIDENT AND CEO
5
GENESIS PROJECTS AND COMMUNITIES
6
COMMUNITY INVOLVEMENT
8
MANAGEMENT’S DISCUSSION AND ANALYSIS
10
CONSOLIDATED FINANCIAL STATEMENTS
38
CONTACT INFORMATION
71
3
RICH IN TRADITION
4
MESSAGE FROM THE PRESIDENT AND CEO
Genesis enters 2019 with renewed energy. Our balance sheet
is strong, with real estate assets of $202 million and debt (net of
cash) of only $7.6 million (3.8% of real estate assets); our excellent
core land holdings position us well and the management team and
staff are motivated, energized, and focused on creating inspiring
communities for residents and creating value for shareholders.
In mid-2018 Genesis’ strategic plan was updated to look to take
advantage of the weak economic conditions and acquire additional
residential development lands in the Calgary Metropolitan Area
(“CMA”). New lands will only be acquired if they meet stringent
acquisition parameters, complement our existing land holdings,
and effectively replenish our inventory of developed lots and land
parcels over time.
In September, shortly after the strategic plan was updated, and after
spending 5 years as a member of the Board of Directors, I joined
the management team as President and CEO. I am excited to be
in the action and working day-to-day with a first-rate, experienced
executive team and staff.
The Alberta economy continued to struggle in 2018 as the oil and
gas industry, the primary economic driver, has been unable to
secure approvals to get additional production to market and thus
investors have been reluctant to fund capital projects and related
employment growth remains muted. The impact of the weak
economy was compounded by rising interest rates and changes to
federal mortgage lending rules resulting in a significant slowdown in
home and lot sales activity. Nonetheless, in this difficult environment
Genesis produced solid results.
Highlights included:
• Producing strong cash flows from operations of $14.7 million
or $0.34 per share;
• Net earnings of $4.1 million $0.10 per share;
• Rewarding shareholders with a dividend of $10.3 million or
$0.24 per share;
• Selling 121 homes and 176 lots and 2 large multifamily land
parcels;
• Receiving confirmation of Area Structure Plan approval for
our 185 acre Omni commercial and retail project;
• Servicing 4 additional communities, creating 362 lots and
6 serviced multi-family sites;
We are optimistic about the future. Despite economic challenges,
Calgary’s population grew by 1.7% in 2018, creating demand for
additional housing. We anticipate this pace of growth to continue
and perhaps accelerate in the next few years. Genesis is well
positioned to take advantage of today’s slower market conditions
and I look forward to working with the talented management team
to enhance value for shareholders in the years ahead.
IAIN STEWART
President and Chief Executive Officer
5
GENESIS PROJECTS & COMMUNITIES
6
7
COMMUNITY INVOLVEMENT
NE CALGARY
Genesis Centre
Inspiring Community Wellness
The Genesis Centre of Community Wellness is a great example of
our role as a community builder Community leaders in Northeast
Calgary were determined to bring the dynamic and diverse cultures
of the local communities together to promote safe, cooperative and
actively healthy neighbourhoods. To realize their dream, these vi-
sionary 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 cultur-
al needs of the northeast. We 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 Cen-
tre – a 225,000 square foot, $120 million multi-purpose complex built
to enrich the health, wellness, and unity of communities in Northeast
Calgary.
8
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.
9
10
STRATEGY AND 2018 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 and developing 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 acquires, plans, rezones, subdivides, services and sells residential lots and commercial and industrial
lands to third-party developers and builders, and also sells lots and completed homes through its home building division. 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 net cash flow.
Home building 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 division is
to deliver an acceptable return and cash flow from the capital invested in it and to sell Genesis single-family lots and townhouse
land parcels.
In mid-2018, the strategic plan of the Corporation was updated. As a part of this update, the Corporation identified that there was
the potential to acquire additional residential development lands in the CMA, primarily with the objective of replacing the lots and
parcels sold by the Corporation. The Corporation is actively exploring potential CMA land acquisitions, although there is no
assurance that any suitable transactions can be completed.
As part of its overall strategy, Genesis continues to focus on minimizing overhead costs and long-term commitments, where
possible, to preserve flexibility.
When considered prudent, excess cash on hand is generally used to pay dividends to shareholders and/or buy back common
shares and opportunistically acquire additional development land.
Market Overview
The Alberta economy continues to slowly recover from the major recession brought on by the collapse in global oil prices near the
end of 2014. Global oil prices have improved although, with insufficient “take-away” capacity in pipelines for Alberta production,
material and volatile discounts from international prices have continued. In addition, natural gas prices continue to be very weak,
in part due to a similar takeaway capacity issue. As a result, the Alberta energy sector continues to experience low levels of capital
investment and reduced employment.
Gross domestic product (“GDP”) growth in Alberta was positive in 2018 at an estimated 3.02%, down from 4.75% in 2017. The
Conference Board of Canada forecasts 2019 GDP growth of 2.27%, suggesting that the economy will continue to slowly recover
in 2019. Reflecting the slow recovery, Calgary’s unemployment rate improved to 7.6% at December 2018 from 8.4% at December
2017 and Calgary’s population grew by an estimated 21,000 (1.7%) in 2018.
These economic challenges, combined with short term interest rate increases of roughly 1% and changes to the federal mortgage
lending rules introduced on January 1, 2018, have resulted in a marked slowdown in home sales in the CMA. For 2018, the Calgary
Real Estate Board (“CREB”) reported 16,144 homes were sold in Calgary (down 14.5% from 2017), the lowest sales level in the
last decade in the CMA. As at December 31, 2018, CREB reported 6 months of supply for home listings in Calgary, up 44% over
2017.
Most land developers and home builders in the CMA, including Genesis, experienced a significant slowdown in sales activity in all
areas in 2018 compared to 2017, with fewer sales of residential homes, fewer lots sold to third party builders and lower sales of
development lands.
11
1
Business Plan
Overall, despite this environment, Genesis generated positive cash flows from operating activities of $14,747 and net earnings of
$4,124 in 2018. In addition, dividends of $10,309 ($0.24 per share) were paid to shareholders and $3,501 of shares were
repurchased. The Corporation maintained a solid financial position with $24,042 in cash and cash equivalents and $31,696 in loans
and credit facilities (being 11% of total assets) at December 31, 2018.
The following highlights progress on the business plan:
1) Maximizing the return of capital to shareholders and investing in additional lands
Genesis paid $10.3 million in dividends ($0.24 per common share) and repurchased 1,069,100 shares for a total of $3.5 million in
2018.
Since 2014 when it paid its first dividend, Genesis has returned to shareholders $51.9 million by way of dividends and bought back
over 2.7 million common shares for approximately $8.3 million under its normal course issuer bids (approximately 6.1% of the
common shares outstanding at the commencement of the program in 2015).
($000s, except for number of shares and per share
items)
Dividend per
share
2018
2017
2016
2015
2014
Total
$0.24
0.46
0.25
0.12
0.12
$1.19
Total
dividends
declared
$10,309
19,896
10,936
5,331
5,386
Shares
repurchased
and cancelled
1,069,100
493,085
551,796
628,598
-
$51,858
2,742,579
Cost of
repurchases
$3,501
1,456
1,420
1,887
-
$8,264
In addition Genesis acquired $5.1 million of land and housing assets in the CMA from the receiver of a third-party builder in a
Genesis community in May 2018.
2) Obtaining Additional Zoning and Servicing Entitlements
Genesis continues to make progress in obtaining additional zoning and servicing entitlements including:
Sage Hill Crossing Outline Plan: Sage Hill Crossing is a mixed-use development in Calgary’s northwest quadrant with
49 acres remaining to be developed. Calgary City Council approved an Area Structure Plan (“ASP”) amendment for Sage
Hill Crossing in September 2017. Genesis submitted its Outline Plan and land use application in December 2017 and
has subsequently filed amendments to its original ASP to split the plan into two segments and to make certain
modifications to improve their marketability. The southern segment is fully serviced and will be marketable once the
required regulatory approvals are in place. The northern segment is currently not serviced and will take two years to be
substantially serviced once the required approvals have been obtained. Both applications are in circulation to the
appropriate City departments for comments. It is anticipated that Calgary City Council will approve the two applications
in 2019.
Southeast Lands ASP: Genesis owns 349 acres of undeveloped land in Calgary’s southeast quadrant. The City of
Calgary (the “City”) began the process for the creation and subsequent approval of the developer funded “Ricardo Ranch”
ASP in January, 2018, with Genesis leading discussions with the City on behalf of the three landowners involved. A draft
report of the ASP policies has been circulated to landowners for review, and once all terms and policies are agreed to,
the formal circulation process will begin. This ASP is anticipated to be approved by Calgary Planning Commission by
mid-2019, and then by Calgary City Council later in 2019. The vast majority of Genesis’ land in this ASP is expected to
be approved for residential development.
12
2
OMNI ASP: Genesis controls 610 acres of undeveloped land in Rocky View County bordering the northwest quadrant of
the City of Calgary, which lands are included in an ASP known as the “OMNI ASP”. The OMNI ASP was approved by
Rocky View County (the “County”) in September 2017. The City, as the neighboring municipality, appealed this approval
to the Alberta Municipal Government Board (the “MGB”) in October 2017 which held a hearing of this appeal in mid-
2018. On December 17, 2018 the MGB issued its ruling and confirmed that the 185 acre OMNI commercial and retail
project on the Genesis controlled lands can proceed to the next stage of the development process while the remainder
of the lands in the ASP are included in a study area. Genesis is currently preparing a conceptual scheme for submission
to the County later in 2019 for the 185 acre OMNI commercial and retail project.
3) Planning for the Development and Sale of Lands
Genesis continues to develop and implement detailed plans for each of its core land holdings, with the objective of maximizing the
net present value of the land and to sell or develop the land at the most opportune time. Please see information provided under
the heading Real Estate Held for Development and Sale in this MD&A.
In 2018, the Corporation completed the sale of three parcels of multi-family and commercial land (13.2 acres) in Calgary for gross
proceeds of $15,126.
Genesis has a multi-family parcel of 4.9 acres under contract to sell, which is expected to be completed in 2020, although there
can be no assurances that it will close.
4)
Servicing Additional Phases
Servicing of four new phases with a three year estimated budget of approximately $57,000 commenced in Q2 2018. Approximately
$20,900 of this was incurred in 2018. All four projects are proceeding on or below budget and within planned timelines. These
phases are being financed by land servicing project credit facilities from two major Canadian chartered banks. Servicing is expected
to be substantially completed in 2019 and will provide a substantial number of future lots and parcels of land for sale, including:
1) Saddlestone community: The final phase of Saddlestone of 121 single-family lots, two multi-family sites totaling 1.9 acres
and a 3.2 acre park;
2) Sage Meadows community: The final phase of Sage Meadows, servicing 18.1 acres with four multi-family sites (of which
one was sold in Q4 2018 and another has been contracted for sale), 31 single-family lots on which GBG is expected to
build and sell houses and a previously dedicated school site; and
3) Bayside and Bayview communities: Two new phases in Airdrie, including Bayside phase 10 adding 108 lots and Bayview
phase 1 adding a 6 acre park and 102 lots.
5) Adding Third-party Builders in Genesis Communities
To diversify offerings within its residential communities, Genesis is assessing various third-party builders to be included in future
phases in Genesis’ communities, in addition to the four third-party builders currently working with Genesis.
6)
Increasing velocity of homes sold by GBG
Genesis continues to seek ways to sustain and grow sales volumes through innovative designs and creative marketing alternatives
while maintaining margins through careful cost control. The difficult housing market conditions, largely due to a weak economic
environment, regulatory changes in early 2018 to mortgage loans issued by federally regulated lenders and also generally adopted
by provincially regulated lenders and higher mortgage interest rates, have resulted in a material decline in home sales by GBG in
2018 when compared to prior years. In 2018, Genesis sold 121 homes, compared to 148 in 2017. This trend continued in the
quarter ended December 31, 2018 with Genesis selling 32 homes in comparison to 44 in the same period in 2017. As at December
31, 2018 Genesis had 34 homes with lots subject to firm sales contracts compared to 31 at December 31, 2017.
13
3
Leadership Transition
Effective September 20, 2018, the following executive appointments were made:
Iain Stewart was appointed President and Chief Executive Officer. Mr. Stewart had been an independent director of
Genesis since August 2013, and was Vice Chair of the Board since May 12, 2017 until his executive appointment. Mr.
Stewart remains as a member of the Board of Directors.
Stephen J. Griggs was appointed Executive Chair of the Board. Mr. Griggs has been a director and Chair of the Board
since August 2013, and was Chief Executive Officer or interim Chief Executive Officer since February 2016. Mr. Griggs
remains as a member of the Board of Directors.
In these new roles, Mr. Stewart and Mr. Griggs are working collaboratively to implement Genesis’s strategy and business plan as
outlined above.
Long Term Incentive Plan
An equity based long term incentive plan comprised of stock options and deferred share units was approved by the Board to align
management incentives with the interests of shareholders.
Outlook
In 2019, Genesis will continue to implement the strategy developed in 2017. The Corporation will focus on developing its assets in
a prudent manner and actively market lots, parcels and homes while controlling costs with the goal of maximizing cash flow and
maintaining its solid financial position.
With the expected completion in 2019 of the development program started in 2018 for four new phases, and with no additional
phases planned to be started in 2019, Genesis expects to have sufficient lot inventory to meet market needs. Genesis will continue
to pursue servicing and zoning approvals to maximize the value of its land holdings. The strong land base, integrated approach,
solid financial position and experienced team positions Genesis to take advantage of opportunities that may arise in this
environment.
For 2019 the business plan remains focused on:
Maximizing the return of capital to shareholders and investing in additional lands
Obtaining additional zoning and servicing entitlements
Planning for the development and sale of lands
Servicing additional phases
Adding third-party builders in Genesis communities
Increasing the velocity of homes sold
14
4
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, (1)
Year ended
December 31, (2)
2018
2017
2018
2017
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 revenues
Gross margin on residential lots sold
Gross margin (%) on residential lots sold
Average revenue per lot sold
Development and non-core land sold
Home Building
Homes sold (units)
Revenues (3)
Gross margin on homes sold
Gross margin (%) on homes sold
Average revenue per home sold
Homes with lots subject to firm sale contracts (units) at the period
end
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
20,935
(14,311)
6,624
31.6%
2,358
0.06
7,192
0.16
33
6,603
3,539
53.6%
200
4,628
32
16,033
2,451
15.3%
501
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
81,437
(61,024)
20,413
25.1%
4,124
0.10
14,747
0.34
176
31,769
12,726
40.1%
181
15,126
121
54,113
8,057
14.9%
447
34
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
As at Dec. 31,
2018
As at Dec. 31,
2017
24,042
278,156
31,696
68,387
191,970
209,769
11%
23,585
301,425
30,135
81,884
201,397
219,541
10%
(1) Three months ended December 31, 2018 and 2017 (“Q4 2018” and “Q4 2017”)
(2) Year ended December 31, 2018 and 2017 (“YE 2018” and “YE 2017”)
(3) Includes revenues of $6,329 for 32 lots in Q4 2018 and $19,571 for 121 lots in YE 2018 purchased by the Home Building division from the Land Development division (41 and $6,022
in Q4 2017; 134 and $21,214 in YE 2017) and sold with the home. These amounts are eliminated on consolidation.
15
5
As noted earlier, Genesis experienced a slowdown in sales activity in all areas in YE 2018 from YE 2017. Overall Revenues for
YE 2018 were $81,437 down $69,496 (46%) from $150,933 in YE 2017. The largest contributors to this decline were from
development land sales of $15,126 being realized in YE 2018 which compares to $55,234 in YE 2017, with the most significant
change being that in YE 2017 an undeveloped land parcel (“Fowler”) was sold for proceeds of $41,000; a reduction in residential
lots sales to third party builders to 55 lots ($12,132) in YE 2018 from 132 lots ($27,815) in YE 2017, a decline of $15,683 or 56%;
and home sales being lower by 18% with 121 units sold ($54,113) vs 148 ($67,707) in YE 2017.
The $44,709 lower revenues in Q4 2018 compared to Q4 2017 relate to volumes with land development sales in Q4 2018 of $4,628
(3.6 acres) compared to $41,000 (319 acres) in Q4 2017, with the latter being a much larger acreage. Only one residential lot was
sold in Q4 2018 compared to 37 lots in Q4 2017, generating revenues of $272 and $6,194 respectively. Genesis home sales were
lower by 27% in Q4 2018 with 32 units sold ($16,033) vs 44 ($18,463) in Q4 2017.
Gross margins were negatively impacted as the gross margin in YE 2018 was 25% compared to 35% in YE 2017. Gross margins
were 32% in Q4 2018 compared to 44% in Q4 2017. These are analyzed in detail in the Land Development and Home Building
sections of this MD&A.
The reduced sales activity resulted in net earnings attributable to equity shareholders for YE 2018 of $4,124 ($0.10 per share -
basic and diluted) compared to $16,998 ($0.39 per share - basic and diluted) in YE 2017. Net earnings attributable to equity
shareholders for Q4 2018 of $2,358 ($0.06 per share - basic and diluted) compared to $8,713 ($0.20 per share - basic and diluted)
in Q4 2017. Nonetheless, Genesis generated positive cash flows from operating activities of $14,747 ($0.34 per share - basic and
diluted) in YE 2018, compared to cash flows from operating activities of $46,908 ($1.08 per share - basic and diluted) for YE 2017.
Cash flows from operating activities were $7,192 ($0.16 per share - basic and diluted) in Q4 2018, compared to cash flows from
operating activities of $27,298 ($0.62 per share - basic and diluted) in Q4 2017.
Investment in the development of its properties in 2018 was increased with capital expenditures in 2018 of $28,307 which included
the development of four new phases. Taking advantage of market conditions and good weather, Genesis was able to realize
savings of over 6% as compared to budget, for these projects. During the year Genesis also purchased $5,124 of land and housing
assets in a Genesis community.
Genesis maintained a strong financial position and had $24,042 in cash and cash equivalents at December 31, 2018 compared to
$23,585 as at December 31, 2017. Total loans and credit facilities as at December 31, 2018 were $31,696, 5% higher than at
December 31, 2017. Loans and credit facilities outstanding at December 31, 2018 were 11% of total book value of assets,
compared to $30,135 or 10% of the total book value of assets at December 31, 2017.
In August 2018 a dividend aggregating $10.3 million ($0.24 per share) was declared, which was paid to shareholders in September
2018. During 2018 Genesis repurchased and cancelled 1,069,100 shares under its NCIB at a cost of $3,501 ($3.27 per share).
Factors Affecting Results of Operations
When reviewing the results year over year there are a number of factors that affect the results of operations, including:
the cyclicality of the oil and gas industry which impacts the Calgary area real estate market and economy;
the development and servicing of land and the sale of residential lots and other land parcels 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 and lot type, the nature of the development work required to
be undertaken before the land and lots are ready for sale, and the original cost of the land and servicing;
seasonality which has historically resulted in higher revenues in the summer and fall months when home building sales
often peak; and
changes to the regulatory environment both direct and indirect, for example land development approvals and mortgage
rules and interest rates.
16
6
Land Development
Key Financial Data
Residential lot revenues(1)
Development land revenues
Direct cost of sales
Gross margin
Gross margin (%)(2)
Write-down of land held for
development
Other expenses(3)
Earnings before taxes
Key Operating Data
Residential lots sold to third-
parties
Residential lots sold through
GBG – home building
Total residential lots sold
Three months ended December 31,
Year ended December 31,
2018
2017
% change
2018
2017
% change
6,603
4,628
12,203
41,000
(6,158)
(27,048)
5,073
45.2%
(900)
(1,308)
2,865
1
32
33
26,155
49.2%
-
(2,642)
23,513
37
41
78
(45.9%)
(88.7%)
(77.2%)
(80.6%)
N/R(4)
(50.5%)
(87.8%)
(97.3%)
(22.0%)
(57.7%)
31,769
15,126
49,206
55,234
(32,719)
(61,373)
(35.4%)
(72.6%)
(46.7%)
(67.1%)
66.2%
(40.8%)
(79.1%)
(58.3%)
(9.7%)
(33.8%)
(2.2%)
43,067
41.2%
(1,095)
(9,374)
32,598
132
134
266
185
Average revenue per lot sold
(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, income or (expense) from joint venture and net finance expense
(4) Not reflective due to percentage change
28.2%
181
156
200
Gross margin by source of revenue
Three months ended
Residential lot sales(1)
Direct cost of sales
Gross margin
Gross margin (%)(2)
Development land sales
Direct cost of sales
Gross margin
Gross margin (%)
Residential lot and development land gross margin
(1) Includes residential lot sales to third-parties and to GBG
(2) Gross margin amount divided by residential lot sales
December 31,
2018
6,603
(3,064)
3,539
53.6%
4,628
(3,094)
1,534
33.1%
5,073
Year ended
December 31,
2018
2017
31,769
(19,043)
12,726
40.1%
49,206
(26,424)
22,782
46.3%
41,000
15,126
55,234
(21,277)
(13,676)
(34,949)
19,723
48.1%
26,155
1,450
9.6%
14,176
20,285
36.7%
43,067
14,176
30.2%
(1,820)
(5,546)
6,810
55
121
176
2017
12,203
(5,771)
6,432
52.7%
17
7
Revenues and Unit Volumes
Total lot sales revenues for the YE 2018 were $31,769 (176 lots), a 35% decrease from the $49,206 (266 lots) sold in YE 2017.
This was due, in large part, to 77 fewer lot sales to third-party builders in YE 2018 than in YE 2017 resulting in a decrease in
revenue of $15,683. In YE 2018, 55 lots were sold to third-party builders, down 58% from 132 lots sold to third-party builders in YE
2017. In YE 2017, Genesis added a new third-party builder in its Bayview community in Airdrie and, as a result, had higher lot
sales revenues due to contracting a large number of residential lots (54 lots) to this builder as it established an inventory of lots.
This builder did not purchase any lots in 2018.
GBG sold 121 homes on Genesis lots in YE 2018, down 10% from 134 homes sold on Genesis lots in YE 2017.
Total residential lot sales revenues in Q4 2018 were $6,603 (33 lots), down 46% from $12,203 (78 lots) in Q4 2017. During Q4
2018, one lot was sold to a third-party builder, down 97% from the 37 lots sold to third-party builders in Q4 2017. In Q4 2018, GBG
sold 32 homes on Genesis’ lots, down 22% from 41 homes sold on Genesis’ lots by GBG in Q4 2017.
In YE 2018, the Corporation completed the sale of three parcels of multi-family and commercial land (13.2 acres) in Calgary for
gross proceeds of $15,126. In YE 2017, three parcels of development land (2,412 acres) were sold for $55,234. One parcel of
development land was sold in Q4 2018 for $4,628, compared to one parcel sold for $41,000 in Q4 2017 by a limited partnership.
Development land sales occur periodically and comprise sales of commercial, multi-family and other lands that Genesis does not
intend to build on through GBG.
Gross margin
In YE 2018, the margin realized on residential lot sales was 40% compared to 46% in YE 2017. Residential lot sales in Q4 2018
had a gross margin of 54%, compared to 53% in Q4 2017. Gross margins realized on the sale of development lands were 10% in
YE 2018 compared to 37% in YE 2017 and 33% in Q4 2018 compared to 48% in Q4 2017. Q4 2017 and YE 2017 were positively
impacted by the sale of a 319 acre parcel of land belonging to a limited partnership for $41,000 at a gross margin of $19,723 (48%).
Gross margins vary primarily due to the mix of sales by community and product /lot type, the nature of the development work
required to ready the lots for sale and the original cost of the land
Write-down of land held for development
In YE 2018, the Corporation recorded a write-down of $1,820 (2017 - $1,095) due to: (1) $920 of costs capitalized during the period
(mainly property taxes and interest) relating to a parcel of land held for development that is carried at net realizable value; and (2)
$900 due to a reduction in the estimated development potential of a non-core parcel of land in British Columbia belonging to a
limited partnership. The provision for write-down may be reversed in the future if the net realizable value of the property exceeds
its book value.
Other expenses
Other expenses includes general and administrative, selling and marketing and net finance expense. Other expenses were $3,828
(41%) lower in YE 2018 compared to YE 2017, mainly due to lower sales commissions being paid due to lower development land
sales ($1,153) and lower net finance expense ($2,525). Net finance expense was lower due to (i) the reduction in the outstanding
balance of a vendor-take-back mortgage payable (“VTB”) on Genesis’ Calgary southeast lands following an $8,000 payment in
January 2018; (ii) the repayment of a third-party loan by a limited partnership in December 2017, and (iii) $336 and $1,333 of
finance income earned on the vendor-take-back mortgage receivable during Q4 2018 and YE 2018 respectively (2017 - $58 and
$58). Please see information provided under the heading Vendor-take-back Mortgage Receivable in this MD&A. In Q4 2018, other
expenses were 51% lower at $1,308 when compared to Q4 2017 ($2,642).
18
8
Home Building – Genesis Builders Group Inc. (GBG)
The home building business of Genesis is operated through its wholly-owned subsidiary, GBG.
Three months ended December 31,
Year ended December 31,
2018
2017
% change
2018
2017
% change
Key Financial Data
Revenues(1)
16,033
18,463
Direct cost of sales
(13,582)
(15,807)
54,113
67,707
(46,056)
(56,450)
(13.2%)
(14.1%)
(7.7%)
29.0%
2,656
14.4%
(2,067)
589
(136.7%)
44
420
(27.3%)
19.3%
(20.1%)
(18.4%)
(28.4%)
5.5%
11,257
16.6%
(8,842)
2,415
(152.8%)
148
457
31
(18.2%)
(2.2%)
9.7%
8,057
14.9%
(9,331)
(1,274)
121
447
34
Gross margin
Gross margin (%)
Other expenses(2)
(Loss) Earnings before taxes
Key Operating Data
Homes sold (units)
Average revenue per home sold
2,451
15.3%
(2,667)
(216)
32
501
Homes with lots subject to firm sales contracts (units) at the period end
(1) Revenues include residential home sales and other revenue
(2) Other expenses includes general and administrative, selling and marketing and net finance expense
Revenues and Unit Volumes
Revenues for single-family homes and townhomes sold by GBG were $54,113 (121 units) in YE 2018, 20% lower than the revenues
of $67,707 (148 units) in YE 2017. Revenues in Q4 2018 were lower than in Q4 2017, with revenues of $16,033 (32 units) in Q4
2018, 13% lower than the $18,463 (44 units) in Q4 2017.
Homes sold in YE 2018 had an average price of $447 per home, down 2% compared to $457 in YE 2017. Homes sold in Q4 2018
had an average price of $501 per home, up 19% compared to $420 in Q4 2017. Fluctuations in the average revenue per home
sold were due to differences in product mix and in some cases, the reduction of sales prices to reflect weaker market conditions.
In YE 2018, 103 single-family homes and 18 townhouses were sold compared to 127 single-family homes and 21 townhouses in
YE 2017. In Q4 2018, 27 single-family homes and 5 townhouses were sold compared to 32 single-family homes and 12 townhouses
in Q4 2017.
All homes sold by GBG in YE 2018 were built on residential lots or parcels purchased from Genesis, the parent company, with lot
or parcel revenues of $19,571, while in YE 2017, 134 of 148 homes were built on residential lots or parcels supplied by Genesis,
with lot revenues of $21,214. The remaining 14 homes sold in YE 2017 were on lots previously acquired by GBG from a third-party
developer. All homes sold in Q4 2018 and in Q4 2017 were built on residential lots or parcels supplied by Genesis, with revenues
of $6,329 and $6,022, respectively.
GBG builds single-family homes either after receiving a firm sale contract (a “pre-construction home”) or on a quick possession
(“spec”) basis, and builds townhomes generally on a quick possession 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.
Construction of quick possession homes is started before GBG receives a firm sale contract in order to have sufficient inventory
for buyers seeking possession within a short period of time (often 30-90 days), due to the multi-unit nature of town homes and to
obtain construction efficiencies. 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, with spec home buyers usually being 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. As at YE 2018, GBG had $25,252 of work in progress, of which approximately $16,459 was related to spec
homes (YE 2017 - $20,156 and $11,398).
Of the 121 homes sold in YE 2018, 64% or 77 homes were quick possession sales compared to 148 homes sold in YE 2017 of
which 65% or 96 homes were quick possession sales. Of the 32 homes sold in Q4 2018, 59% or 19 homes were quick possession
19
9
sales (i.e., contracted and delivered within 90 days), compared to 44 homes sold in Q4 2017 of which 80% or 35 homes were quick
possession sales.
Gross margin
Genesis had a gross margins on home sales of 15% in YE 2018 as compared to 17% in YE 2017. Gross margin on home sales
was 15% in Q4 2018 compared to 14% in Q4 2017. The year over year decline was a result of reducing sales prices marginally to
reflect weaker and more competitive market conditions and the change in product mix to lower priced and lower margin homes.
Other Expenses
Other expenses includes general and administrative, selling and marketing and net finance expense. Other GBG expenses in YE
2018 were 6% ($489) higher than in YE 2017, mainly due to higher marketing expenses ($537) and net finance expense ($219),
offset by lower general and administrative expenses due to lower compensation expenses ($254). Marketing efforts were increased
in an effort to increase home sales in the face of the market conditions in 2018. Other GBG expenses in Q4 2018 were 29% higher
than in Q4 2017 due to higher marketing expenses ($102), net finance expense ($135), increases in general and administrative
expenses ($311), and compensation expenses ($225).
Real Estate Held for Development and Sale
Real estate held for development and sale
Provision for write-downs
December 31,
2018
2017
% change
217,191
(14,692)
202,499
213,629
(12,872)
200,757
1.7%
14.1%
0.9%
Real estate held for development and sale increased by $1,742 as at YE 2018 compared to YE 2017. Refer to note 5 in the
consolidated financial statements for the years ended December 31, 2018 and 2017 which details the gross book value and net
book value of real estate held for development and sale.
The following table presents Genesis’ real estate held for development and sale as at December 31, 2018.
Real Estate Held for Development and Sale
Community
Airdrie - Bayside, Bayview, Canals
Calgary NW - Sage Meadows
Calgary NW - Sage Hill Crossing
Calgary NE – Saddlestone
Calgary SE - Southeast lands
Rocky View County - North Conrich(2)
Sub-total
Other assets(3) - non-core
Total land development
Home building work-in-progress
Total land development and home building
Limited Partnerships(2), (4)
Total real estate held for development and sale
(1) Land held for development comprises lands not yet subdivided into single-family lots or parcels
(2) Includes the undivided interest of Genesis and two limited partnerships in the “Omni” project.
(3) Other assets are non-core and being marketed for sale.
(4) Net of intra-segment eliminations of $4,194.
20
Net Book Value
Lots, multi-
family &
commercial
parcels
Land held for
development(1)
Total
13,831
9,191
9,457
8,457
-
-
40,936
13
40,949
34,479
7,623
29,699
6,708
44,806
4,798
128,113
1,976
130,089
48,310
16,814
39,156
15,165
44,806
4,798
169,049
1,989
171,038
25,252
196,290
6,209
202,499
10
The following table presents the breakdown of Genesis’ serviced single-family lots, multi-family and commercial parcels by
community as at December 31, 2018.
Serviced Lots, Multi-family and
Commercial Parcels by Community
Airdrie - Bayside, Bayview, Canals
Airdrie - Bayside, Bayview, Canals
Calgary NW - Sage Meadows
Calgary NW - Sage Hill Crossing
Calgary NE - Saddlestone
Other assets - non-core
Total
Net Book
Value
13,831
9,191
Single-family
lots
102
26
Townhouse
units
81
-
Townhouse/
multi-family
parcels
1
1
Commercial
parcels
-
-
9,457
8,457
40,936
13
40,949
-
102
230
14
244
-
43
124
-
124
1
-
3
-
3
1
-
1
-
1
The following table presents the estimated equivalent, if and when developed, by community of single-family lots and multi-family
and commercial acres of Genesis’ land held for development as at December 31, 2018. There can be no assurance as to if or
when any of these lands will be developed.
Land Held For Development by
Community
Airdrie - Bayside, Bayview
Calgary NW - Sage Meadows
Calgary NW - Sage Hill Crossing
Calgary NE - Saddlestone
Calgary SE - Southeast lands
Rocky View County - North Conrich(2)
Other assets - non-core
Limited Partnerships(2)
Total land held for development
Net Book
Value
34,479
7,623
29,699
6,708
44,806
4,798
128,113
1,976
130,089
6,209
136,298
Land (acres)(1)
244
17
49
19
349
312
990
333
1,323
1,437
2,760
(1) Land not yet subdivided into single-family and other lots or parcels
(2) Includes the undivided interest of Genesis and two limited partnerships in the “Omni” project.
21
Estimated Equivalent if/when Developed
Multi-family
(acres)
Single-family
(lots)
Commercial
(acres)
1,322
31
282
121
1,190
-
2,946
-
2,946
-
2,946
9
14
9
2
16
-
50
-
50
-
50
2
-
4
-
-
-
6
-
6
-
6
11
22
12
Amounts Receivable
Amounts receivable
December 31,
2018
14,960
2017
30,820
% change
(51.5%)
Genesis generally receives a minimum 15% non-refundable deposit at the time of entering into a sale agreement for residential
lots with a third-party builder. Title to a lot or home that is contracted for sale is not transferred by Genesis to the builder or purchaser
until full payment is received, thus mitigating credit risk.
The decrease of $15,860 in amounts receivable was mainly due to the timing of residential lot sales and closings. As at YE 2018,
Genesis had $10,569 in amounts receivable related to the sale of 64 lots to third-party builders and a non-core development land
parcel ($15), compared to $28,500 in amounts receivable as at YE 2017 related to the sale of 156 lots to third-party builders and
a non-core development land parcel ($1,315).
Individual balances due from third-party builders at YE 2018 that were 10% or more of total amounts receivable were $10,082 from
three third-party builders (2017 - $25,752 from five customers).
Vendor-take-back Mortgage Receivable
Vendor-take-back mortgage receivable(1)
(1) Includes accrued interest
December 31,
2018
20,558
2017
20,558
% change
0.0%
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, payable $20,500 in cash and $20,500 in a three year vendor take back first mortgage bearing interest at
6.5% per annum payable annually in arrears. The first interest instalment of $1,333 was received in December 2018 (2017 - nil).
Cash Flows from Operating Activities
Cash flow from the operating activities of Genesis varies from quarter to quarter due to the nature of land sales and the timing of
the receipt of sale proceeds. Genesis typically receives 15% of the purchase price in cash as a non-refundable deposit from a
third-party builder at the time it recognizes all of the sales revenue. 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 outflow on land servicing and home building activity can
vary from quarter to quarter. These expenditures are seasonal, can be impacted by weather and may be dependent on expected
demand and this is considered when planning and incurring expenditures for both home building and land development activities.
Cash flows from operating activities
Cash flows from operating activities per share -
basic and diluted
Three months ended
December 31,
2018
2017
Year ended
December 31,
2018
7,192
0.16
27,298
14,747
0.62
0.34
2017
46,908
1.08
23
13
The decrease in cash flows from operating activities between YE 2018 and YE 2017 is explained by the following:
Cash inflows from sale of residential lots
Cash inflows from sale of development land
Cash inflows from sale of residential homes by GBG
Other cash receipts
Cash outflows for home building activity
Cash paid to other suppliers and employees and other
Cash outflows for land servicing
Cash outflows on land acquisition
Income taxes paid
Total
Year ended
December 31,
2018
2017
Change
26,520
14,877
54,353
1,744
(35,385)
(14,252)
(19,387)
(5,124)
(8,599)
14,747
19,444
33,311
67,367
118
(36,384)
(14,900)
(17,993)
-
(4,055)
7,076
(18,434)
(13,014)
1,626
999
648
(1,394)
(5,124)
(4,544)
46,908
(32,161)
Cash inflows from the sale and closing of residential lots and development land varies quarter to quarter due to the nature of land
sales and the timing of the receipt of sale proceeds. Cash inflows from the sale and closing of residential lots to third-parties for
2018 was $26,520 (55 sold and 123 closed) compared to $19,444 in 2017 (132 sold and 86 closed). The increase is mainly due
to the collection of amounts receivable in 2018 ($24,340 vs $15,335 in 2017) for residential lot sales that occurred in 2017. Cash
inflows from development land sales in 2018 were $14,877 compared to $33,311 in 2017.
Lower cash inflows from the sale of residential homes was due to the fewer homes sold in 2018 (121 homes) compared to 2017
(148 homes), differences in product mix of lower priced single-family homes and townhouses, and the reduction of sales prices to
reflect weaker market conditions.
Other cash receipts mainly consisted of finance income and the receipts of cash from cash-secured letters of credit which was
slightly higher in 2018 compared to 2017. The interest received mainly relates to the $1,333 interest installment on the VTB
mortgage receivable from the sale of a 319 acre parcel of land in December 2017. The requirement to obtain letters of credit varies
as development activities are commenced and completed.
Cash outflows for home building activity vary due to the product mix and managing the pace of construction and work-in-progress
to meet anticipated demand. Despite the lower cash inflows from the sale of residential homes, cash outflows for home building
activity were only slightly lower than in 2017. This was mainly due to the construction of: townhomes, which are built in blocks;
additional show homes; and single-family inventory.
Cash outflows for other suppliers and employees decreased in 2018 mainly due to the reduction in office lease payments and
lower cash outflows on selling and marketing, partially offset by higher cash outflows on compensation and benefits and
professional services.
Cash outflows for land servicing can vary from quarter to quarter as these expenditures are seasonal, impacted by weather and
are generally incurred based on expected demand. Genesis began the servicing of four new phases in 2018 and continued
development activities in phases started in previous years.
Cash outflows on land acquisition for $5,124 mainly relates to the purchase of land (31 lots) and housing assets in a Genesis
community from the receiver of a third-party builder. Refer to note 5 in the consolidated financial statements for the years ended
December 31, 2018 and 2017 for additional information.
In 2018, higher cash outflows for income taxes were due to higher 2018 installments, triggered by higher 2017 taxes payable on
which the next year’s installments are based. At December 31, 2018, $2,283 was in income taxes receivable.
24
14
LIABILITIES AND SHAREHOLDERS’ EQUITY
The following table presents Genesis’ liabilities and equity at YE 2018 and YE 2017:
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,
2018
31,696
-
3,111
12,679
-
20,901
68,387
17,799
191,970
278,156
% of Total
11%
-
1%
5%
-
8%
25%
6%
69%
100%
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%
December 31,
2018
68,387
209,769
33%
2017
81,884
219,541
37%
The following is a summary of outstanding loan and credit facility balances as at YE 2018 and as at the end of the previous four
quarters:
Land development servicing loans
Demand operating line for single-family homes
Project specific townhouse construction loans
Vendor-take-back mortgage payable
Unamortized deferred financing fees
Balance, end of period
Q4 2018
Q3 2018
Q2 2018
7,914
1,509
7,177
15,387
31,987
(291)
31,696
2,312
2,129
7,402
15,092
26,935
(330)
26,605
-
-
6,519
14,797
21,316
(226)
21,090
Q1 2018
2,955
Q4 2017
6,164
-
4,482
14,503
21,940
(168)
21,772
-
1,896
22,208
30,268
(133)
30,135
25
15
The continuity of Genesis’ VTB payable and land development servicing loans, excluding deferred financing fees, is as follows:
Balance, beginning of period
Advances
Repayments
Interest expense
Balance, end of period
22,208
-
(8,000)
1,179
15,387
Year ended December 31, 2018
Vendor-take-
back mortgage
payable
Land
development
servicing loans
Year ended
December 31,
2017
34,072
30,574
Total
28,372
22,974
6,164
22,974
(21,224)
(29,224)
(37,976)
-
7,914
1,179
23,301
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 and consolidated entities were in compliance with all covenants at YE 2018 and at YE 2017. Loans
and credit facilities are used primarily to finance the costs of developing land, building homes 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 primarily funded by financings that are specific to each new phase or phases of land under
development and to also obtain construction financing for significant GBG townhouse projects.
Land development servicing loans
As at December 31, 2018, Genesis had four land project loan facilities with the ability to fund up to $53,270 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 YE 2018, $7,914 was drawn under these facilities (YE 2017 - four loans and $6,164).
Home building loans
GBG has a demand operating line of $6,500 bearing interest at prime +0.75% per annum. As at YE 2018, the amount drawn on
this facility was $1,509 (YE 2017 - Nil).
GBG has a townhouse project loan facility with the ability to fund up to $9,970 of construction costs. This facility bears interest at
prime +0.90% per annum and is due on August 31, 2020. As at YE 2018, $3,943 was drawn under this facility (YE 2017 - $1,896).
GBG has a second townhouse project loan facility with the ability to fund up to $4,715 of construction costs. This facility bears
interest at prime +0.90% per annum and is due on March 28, 2020. As at YE 2018, $3,234 was drawn under this facility (YE 2017
- nil).
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 2018, the outstanding balance of this facility was Nil (YE 2017 - Nil). This facility was used in 2018 and in
2017 for short term cash flow purposes.
26
16
Vendor-take-back mortgage payable
Genesis granted the VTB on the purchase of the Calgary southeast lands in January 2015. As at YE 2018, the VTB had an
outstanding balance of $16,000 with an unamortized discount of $613 (YE 2017 - $24,000 and $1,792 respectively). The
outstanding balance is payable in two equal installments of $8,000 each in January 2019 and 2020. The January 2019 instalment
was paid subsequent to December 31, 2018.
Provision for Future Development Costs
When Genesis sells lots, land parcels and homes, it often remains responsible for paying for future development costs known as
“costs-to-complete”.
In Genesis’ land development business, the provision for future development costs represents the estimated remaining
construction and other development costs related to each lot or parcel that has previously been sold by Genesis, if any. These
estimated costs include the direct and indirect construction and other development costs expected to be incurred by Genesis during
the remainder of the development process, net of expected future recoveries from third-parties that are allocable to the relevant
lot or parcel. The provision is reviewed periodically and, when a prior 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 held for development and/or cost of sales.
The cost-to-complete estimates for GBG are additional future costs relating to previously sold homes estimated to be incurred,
which are primarily for seasonal and other work (such as paving and landscaping) and estimated warranty expenses over the one
year warranty period.
The provision for future development costs as at December 31, 2018 was $20,033 for the land division (YE 2017 - $23,809) and
$868 (YE 2017 - $775) for GBG. For additional details, please see information provided under the heading Critical Accounting
Estimates in this MD&A.
LIQUIDITY AND CAPITAL RESOURCES
Genesis increased its debt from $30,135 at YE 2017 to $31,696 at YE 2018, primarily due to a net increase of $8,382 in land
servicing and home building project loans offset by the $8,000 installment paid in early January 2018 on the VTB relating to
Genesis’ southeast Calgary lands. For additional details, please see information provided under the heading Loans and Credit
Facilities.
VTB payable
Land development servicing and home building loans
Total loans and credit facilities
Loans and credit facilities as a percentage of total assets
VTB payable
Land development servicing and home building loans
Loans and credit facilities (debt) to total assets(1)
Total liabilities to equity(2)
(1) Calculated as each component of loans and credit facilities divided by total assets
(2) Calculated as total liabilities divided by total equity
December 31,
2017 % change
22,208
7,927
30,135
(30.7%)
105.7%
5.2%
December 31,
2017
7.4%
2.6%
10.0%
37%
% change
(24.9%)
123.0%
14.0%
2018
15,387
16,309
31,696
2018
5.5%
5.9%
11.4%
33%
27
17
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
Three months ended December 31,
Year ended December 31,
2018
177
295
39
(65)
446
2017
% change
166
426
65
(101)
556
6.6%
(30.8%)
(40.0%)
(35.6%)
(19.8%)
2018
437
1,179
171
(256)
1,531
2017
770
1,702
361
(383)
2,450
% change
(43.2%)
(30.7%)
(52.6%)
(33.2%)
(37.5%)
Interest incurred during 2018 was lower than in 2017 due to lower average loan balances in 2018. 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%. In addition, the
third-party loan owed by a limited partnership was fully repaid in Q4 2017, reducing interest expense in 2018.
The weighted average interest rate of loan agreements with various financial institutions was 4.76% (YE 2017 - 3.99%) based on
December 31, 2018 balances.
Income Tax (Recoverable) Payable
The continuity in income tax (recoverable) payable is as follows:
Balance, beginning of period
Provision for current income tax
Net payments
Balance, end of period
For the year ended December 31,
2018
2,785
3,531
(8,599)
(2,283)
2017
(42)
6,882
(4,055)
2,785
Net payments in a period are a combination of installments and final payments on the prior year’s taxable income, both of which
can vary significantly from period to period. Genesis is current with installments and the payment of final taxes.
Shareholders’ Equity
As at March 14, 2019, the Corporation had 42,183,621 common shares issued and outstanding. The common shares of the
Corporation are listed for trading on the Toronto Stock Exchange under the symbol “GDC”.
In addition, as of the date of this MD&A, stock options to acquire 2,805,000 common shares of Genesis were issued and
outstanding. Stock options were granted pursuant to the long-term incentive plan which was adopted by the Board on September
20, 2018. Under the terms of the long-term incentive plan, the Board sets the vesting provisions and exercise prices for the stock
options at the time of their issuance. The stock options vest over a number of years on various anniversary dates from the date of
original grant. The Corporation’s long-term incentive plan is conditional upon and subject to the approval by the Toronto Stock
Exchange and Genesis’ shareholders. Genesis plans to present the long-term incentive plan to its shareholders for their approval
at the Corporation’s next annual general meeting which is currently expected to be in May 2019.
Genesis commenced a normal course issuer bid (“NCIB”) in 2015 and has renewed it annually. Genesis’ current NCIB commenced
on October 10, 2018 and terminates on the earlier of (i) October 9, 2019; 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 2,147,636 common
shares under this NCIB.
28
18
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
Shares cancelled as a % of common shares
outstanding at beginning of period
Three months ended December 31,
Year ended December 31,
2018
769,100
2,400
3.12
1.79%
2017
-
-
-
-
2018
1,069,100
3,501
3.27
2.47%
2017
493,085
1,456
2.95
1.13%
The Corporation did not repurchase any common shares between January 1, 2019 and March 14, 2019 for cancellation. As of the
date of this MD&A, 1,378,536 common shares may be purchased for cancellation under the currently authorized NCIB.
During YE 2018, The Corporation purchased and cancelled 1,069,100 common shares for $3,501 at an average cost of $3.27
per share (representing 2.47% of issued and outstanding shares at the beginning of the year), compared to 493,085 common
shares for $1,456 at an average cost of $2.95 in 2017 (representing 1.13% of issued and outstanding shares at the beginning of
2017). During Q4 2018, the Corporation purchased and cancelled 769,100 common shares for $2,400 at an average cost of
$3.12 per share (representing 1.79% of issued and outstanding shares at the beginning of period), compared to no purchases
made in Q4 2017.
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 2018 were as follows:
Current
January 2020 to December 2020
January 2021 to December 2021
January 2022 and thereafter
Total
(1) Excludes deferred financing fees
Loans and
Credit
Facilities(1)
9,498
17,485
5,004
-
Naming
Rights
Lease
Obligations
500
500
500
-
481
422
14
10
927
Total
10,479
18,407
5,518
10
34,414
31,987
1,500
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, ending in 2021). The first seven installments totaling $3,500 were paid up to and through to the end of December
2018. Genesis paid the eighth installment of $500 in January 2019.
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.
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 16 of the consolidated financial
statements for the years ended December 31, 2018 and 2017.
29
19
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
2018
9,498
12,679
-
22,177
981
23,158
2017
12,007
8,938
10,813
31,758
1,074
32,832
At YE 2018, Genesis had obligations due within the next 12 months of $23,158, of which $9,498 related to loans and credit facilities.
Repayment is either linked directly to the collection of lot receivables and sales proceeds or 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.
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 was approximately $1,600 and the Corporation recorded this
amount as a provision as at December 31, 2017. In 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, which was heard in August 2018
and judgement was reserved. On February 25, 2019, the Court granted the Corporation’s appeal, directing that the claims of the
former employees go to trial.
As of March 14, 2019, the two former employees are in the process of amending their claim to add claims in the amount of $1,100
plus costs and interest in connection with a disputed purported exercise of stock options. The Corporation has not made any
provision for this claim as at December 31, 2018.
The Corporation’s view is that these claims are without merit and is actively contesting them.
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. These letters of credit indemnify the municipalities by enabling them to draw upon the letters of credit in the
event that Genesis does not perform its contractual obligations. At YE 2018, these letters of credit totalled approximately $6,358
(YE 2017 - $5,491).
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 2018 and YE 2017. 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. For additional details, please see information provided under the heading
Contractual Obligations and Debt Repayment.
30
20
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
2018
81,437
20,413
4,124
0.10
2017
2016
2015
2014
150,933
115,957
119,088
134,245
53,229
16,998
0.39
26,618
5,906
0.13
22,509
11,014
0.25
39,001
17,395
0.39
278,156
301,425
288,995
331,045
309,742
31,696
30,135
43,295
63,819
23,892
$0.12
Cash dividends per share, declared(1)
0.24
0.46
0.25
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)
2018
2.1%
2017
8.3%
2016
2.8%
2015
5.2%
2014
8.6%
Average shareholders’ equity(2)
196,684
203,574
208,938
210,113
201,792
(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
Please refer to information provided under the heading Factors Affecting Results of Operations which discusses the factors that
affect Genesis’ results and seasonality further.
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 176, 266 and 204 units in 2018, 2017 and 2016 respectively, reflecting the market conditions. In addition,
development land sales were $15,126, $55,234 and $21,237 for 2018, 2017 and 2016 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 121, 148 and 166 in 2018, 2017 and 2016 respectively. 2018 and 2017 included sales of townhouse
units (2018 - 18, 2017 - 21) while there were no townhouse sales in 2016.
Gross margins in 2017 significantly improved due to stronger development land margins while gross margins in 2018 and 2016
were impacted by a write-down of real estate held for development and sale which were $1,820, $1,095, $8,665 in 2018, 2017 and
2016 respectively. Net earnings and net earnings per share - basic and diluted were affected as a result of the above.
Total assets decreased by $23,269 in 2018 compared to 2017. This was mainly due to a decrease in accounts receivable by
$15,860 and a reduction of $13,667 in Other operating assets during 2018. In 2017, Other operating assets included $10,813 of
dividends that was declared in 2017 and paid in 2018. 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 loans and credit facilities are marginally higher in 2018 compared to 2017 mainly due to higher land servicing and home
building project loan draws used to develop new phases and significant townhouse projects. This was offset by the $8,000
installment paid in early January 2018 on the VTB relating to Genesis’ southeast Calgary lands. Total loans and credit facilities
decreased in 2017 compared to 2016 mainly due to the repayment of loans and credit facilities, including $8,000 annual payments
on the VTB in January 2017.
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 $10,309, $19,896 and $10,936 in 2018, 2017 and 2016 respectively. In addition, Genesis’ NCIB reduced shareholders’
equity by $3,501, $1,456 and $1,420 in 2018, 2017 and 2016 respectively.
31
21
SUMMARY OF QUARTERLY RESULTS
Q4
2018
Q3
2018
Q2
2018
Q1
2018
Q4
2017
Q3
2017
Q2
2017
Q1
2017
Revenues
Net earnings(1)
EPS(2)
20,935
27,178
18,955
14,369
65,644
31,128
38,497
15,664
2,358
0.06
539
0.01
540
0.01
687
0.02
8,713
0.20
3,372
0.08
4,209
0.09
704
0.02
(1) Net earnings attributable to equity shareholders
(2) Net earnings per share - basic and diluted
Q2
2018
Q1
2018
Q4
2017
Dividends declared
Dividends paid
Dividends declared - per
share
Dividends paid - per share
Residential lots sold to third-
parties (units)
Homes sold (units)
Development land revenues
Q4
2018
-
-
-
-
Q4
2018
1
32
Q3
2018
10,309
10,309
0.24
0.24
Q3
2018
10
32
Q4
2018
4,628
Q3
2018
10,498
-
-
-
-
Q2
2018
40
24
Q2
2018
-
Cash flows from (used in)
operating activities
Amount
Per share - basic and
diluted
Q4
2018
7,192
0.16
Q3
2018
7,694
Q2
2018
(1,336)
0.18
(0.03)
-
10,813
10,813
-
0.25
Q1
2018
4
33
Q1
2018
-
Q1
2018
1,197
0.03
-
0.25
-
Q4
2017
37
44
Q4
2017
41,000
Q4
2017
27,298
0.62
Q3
2017
9,083
9,083
0.21
0.21
Q3
2017
13
49
Q3
2017
5,234
Q3
2017
8,888
0.21
Q2
2017
Q1
2017
-
-
-
-
Q2
2017
45
36
Q2
2017
9,000
-
-
-
-
Q1
2017
37
19
Q1
2017
-
Q2
2017
12,251
Q1
2017
(1,529)
0.28
(0.03)
In general, revenues and 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. For additional details, please see information provided under the heading Factors Affecting
Results of Operations which discusses the factors that affect Genesis’ results and seasonality further.
During Q4 2018, Genesis sold one residential lot to third-parties, 32 homes and one development land parcel resulting in lower
revenues in Q4 2018 compared to Q3 2018. Gross margins in Q4 2018 were higher than in Q3 2018 mainly due to higher gross
margin being made on the development land parcel sale during the quarter. Higher general and administrative expenses and
income tax expenses in Q4 2018 were partially offset by lower selling and marketing expenses compared to Q3 2018. Genesis
had higher net finance expense in Q4 2018 compared to Q3 2018 mainly due to higher loan balances. On an overall basis, net
earnings in Q4 2018 was higher compared to Q3 2018 mainly due to the development land parcel sale.
During Q3 2018, Genesis sold 10 residential lots to third-parties, 32 homes and two development land parcels resulting in higher
revenues in Q3 2018 compared to Q2 2018. Gross margins in Q3 2018 were only marginally higher than in Q2 2018 mainly due
to no gross margin being made on the development land parcel sales during the quarter. Higher selling and marketing expenses
in Q3 2018 were partially offset by lower general and administrative expenses and lower income tax expense compared to Q2
2018. Genesis had higher net finance expense in Q3 2018 compared to Q2 2018 mainly due to higher loan balances. On an overall
basis, this resulted in net earnings in Q3 2018 being comparable to Q2 2018.
32
22
During Q2 2018, Genesis sold 40 residential lots to third-parties, 24 homes and no development land parcels resulting in higher
revenues in Q2 2018 compared to Q1 2018. Gross margins in Q2 2018 were higher than in Q1 2018 despite a write-down of
$920 in Q2 2018. Higher selling and marketing expenses in Q2 2018 were partially offset by lower general and administrative
expenses compared to Q1 2018. Genesis had lower net finance income and higher income tax expense in Q2 2018 compared to
Q1 2018. On an overall basis, this resulted in lower net earnings in Q2 2018 compared to Q1 2018.
During Q1 2018, Genesis sold four residential lots to third-parties, 33 homes and no development land parcels. This resulted in
lower revenues in Q1 2018 compared to Q4 2017. Higher general and administrative expenses in Q1 2018 were more than offset
by lower selling and marketing expenses, net finance expenses and income taxes compared to Q4 2017. On an overall basis, this
resulted in lower net earnings in Q1 2018 compared to Q4 2017.
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.
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.
RELATED PARTY TRANSACTIONS
Transactions occurred with the following related party:
Underwood Capital Partners Inc. (“Underwood”) - controlled by an officer and director, Stephen J. Griggs;
Paid to Underwood for the services of Stephen J. Griggs as CEO
Three months ended
December 31,
2018
-
2017
86
Year ended
December 31,
2018
251
2017
334
Underwood no longer provides CEO services to Genesis following the appointment of Iain Stewart as President and Chief
Executive Officer (“CEO”) in September 2018. From February 2016 to September 2018, the executive services of
Stephen J. Griggs as interim and permanent CEO were provided to the Corporation through Underwood, a private corporation
controlled by him, in accordance with an agreement dated as of February 16, 2016 and revised effective May 11, 2017. Under this
agreement, Underwood was paid a monthly retainer fee until June 15, 2016, at which time the fee was changed to a fee based on
days spent, plus travel and related expenses. No incentive or severance fees (share or cash based) were payable to Underwood
under this agreement.
SUBSEQUENT EVENTS
Subsequent to YE 2018, the following occurred:
Genesis paid the fourth installment of $8,000 on the VTB in January 2019. The balance on the VTB after this payment,
excluding the unamortized portion, is $8,000.
33
23
The Corporation granted 780,000 stock options and 70,941 DSUs. Refer to note 12a and 12b in the consolidated financial
statements for the years ended December 31, 2018 and 2017 for additional information.
The Court granted the Corporation’s appeal directing that the claims of the former employees go to trial. As of March 14,
2019, the two former employees are in the process of amending their claim to add claims in the amount of $1,100 plus
costs and interest in connection with a disputed purported exercise of stock options. For additional details, please see
information provided under the heading Provision for Litigation.
SUMMARY OF ACCOUNTING CHANGES
The Corporation adopted IFRS 15 Revenue from Contracts with Customers and IFRS 9 Financial Instruments effective January 1,
2018.
IFRS 15 requires that the Corporation recognize a development land sale when the land parcel has been delivered to the customer
and related services that have been contractually agreed to between the Corporation and the customer have been substantially
performed, without reference to receipt of a minimum 15% non-refundable deposit, which was an additional criterion under the
prior standard. 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 replaces IAS 39 “Financial Instruments: Recognition and Measurement”. IFRS 9 includes revised guidance on the
classification and measurement of financial assets, including impairment and a new general hedge accounting model. The
Corporation completed an assessment of the impact of IFRS 9 on its financial statements and determined that there was no
material effect on the carrying value of its financial instruments related to this new requirement and no reclassification was required
in the transition to IFRS 9.
For additional information, refer to note 3 of the consolidated financial statements for the year ended December 31, 2018 and
2017.
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 for lessees
onto the balance sheet 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 (“ROU”)
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 does not intend to early adopt IFRS 16. The Corporation has completed the assessment of the impact of IFRS 16
on its financial statements and there is no material impact. Refer to note 4 in the consolidated financial statements for the years
ended December 31, 2018 and 2017 for further details.
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 2018 and YE 2017. Refer to note 2o in the consolidated
financial statements for the years ended December 31, 2018 and 2017 for additional information on judgments and estimates.
Provision for Future Development Costs
Changes in estimated future development costs (net of recoveries, if any) 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, particularly in land development.
24
34
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, 2018. 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, 2018 that have materially
affected, or are reasonably likely to materially affect the Corporation’s ICFR.
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 labour, 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.
35
25
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 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, 2018 available on SEDAR at
www.sedar.com.
36
26
TRADING AND SHARE STATISTICS
The Corporation’s trading and share statistics for 2018 and 2017 are provided below.
Average daily trading volume
Share price ($/share)
High
Low
Close
Market capitalization at December 31,
Shares outstanding
OTHER
2018
7,592
4.01
3.10
3.16
2017
7,639
3.95
2.78
3.73
133,300
42,183,621
161,333
43,252,721
Additional information relating to the Corporation can be found on SEDAR at www.sedar.com.
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, the availability of excess cash on hand and its proposed use, the future
payment of dividends and/or common share buybacks, the timing and approval of the Sage Hill Crossing Outline Plan and Land Use applications,
the timing and approval of the Southeast Lands ASP, the timing and approval of the Conceptual Scheme for the OMNI ASP, the expected
completion dates of various projects that GBG is currently engaged in and anticipated lot yields for projects under development, plans and
strategies surrounding the acquisition of additional land, 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, construction starts and completions, anticipated expenditures on
land development activities, GBG’s sales process and construction margins, timing of the annual general meeting of the shareholders, the
approval by the shareholders of Genesis’ long-term incentive plan and its adoption by Genesis thereof, the ability to continue to renew or repay
financial obligations and to meet liabilities as they become due and the aggregate number of common shares that may be repurchased by
Genesis’ under the renewed NCIB.
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 in 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.
37
27
38
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.
IAIN STEWART
President and Chief Executive Officer
WAYNE KING
Chief Financial Officer
March 14, 2019
39
INDEPENDENT AUDITOR’S REPORT
To the Shareholders of Genesis Land Development Corp.
Opinion
We have audited the consolidated financial statements of Genesis
Land Development Corp. and its subsidiaries (the “Company”),
which comprise the consolidated balance sheets as at December
31, 2018 and December 31, 2017, and the consolidated statements
of comprehensive income, changes in equity and cash flows for
the years then ended, and notes to the consolidated financial
statements, including a summary of significant accounting policies.
In our opinion, the accompanying consolidated financial statements
present fairly, in all material respects, the consolidated financial
position of the Company as at December 31, 2018 and December 31,
2017, and its consolidated financial performance and its consolidated
cash flows for the years then ended in accordance with International
Financial Reporting Standards.
Basis for Opinion
We conducted our audits in accordance with Canadian generally
accepted auditing standards. Our responsibilities under those
standards are further described in the Auditor’s Responsibilities
for the Audit of the Consolidated Financial Statements section of
our report. We are independent of the Company in accordance
with the ethical requirements that are relevant to our audits of
the consolidated financial statements in Canada, and we have
fulfilled our other ethical responsibilities in accordance with these
requirements. We believe that the audit evidence we have obtained
is sufficient and appropriate to provide a basis for our opinion.
Other Information
Management is responsible for the other information. The other
information comprises:
• Management’s Discussion and Analysis
• The information, other than the consolidated financial
statements and our auditor’s report thereon, in the Annual
Report.
Our opinion on the consolidated financial statements does not cover
the other information and we do not and will not express any form of
assurance conclusion thereon.
In connection with our audits of the consolidated financial statements,
our responsibility is to read the other information identified
above and, in doing so, consider whether the other information is
materially inconsistent with the consolidated financial statements or
our knowledge obtained in the audits or otherwise appears to be
materially misstated.
We obtained Management’s Discussion and Analysis prior to
the date of this auditor’s report. If, based on the work we have
performed on this other information, we conclude that there is a
material misstatement of this other information, we are required to
report that fact. We have nothing to report in this regard.
The Annual Report is expected to be made available to us after the
date of the auditor’s report. If, based on the work we will perform
on this other information, we conclude that there is a material
misstatement therein, we are required to communicate the matter to
those charged with governance.
Responsibilities of Management and Those Charged with
Governance for the Consolidated Financial Statements
Management is responsible for the preparation and fair presentation
of the consolidated financial statements in accordance with
International Financial Reporting Standards, and for such internal
control as management determines is necessary to enable the
preparation of consolidated financial statements that are free from
material misstatement, whether due to fraud or error.
In preparing the consolidated financial statements, management
is responsible for assessing the Company’s ability to continue as a
going concern, disclosing, as applicable, matters related to going
concern and using the going concern basis of accounting unless
management either intends to liquidate the Company or to cease
operations, or has no realistic alternative but to do so.
Those charged with governance are responsible for overseeing the
Company’s financial reporting process.
40
Auditor’s Responsibilities for the Audit of the Consolidated
Financial Statements
cause the Company to cease to continue as a going
concern.
Our objectives are to obtain reasonable assurance about whether
the consolidated financial statements as a whole are free from
material misstatement, whether due to fraud or error, and to issue
an auditor’s report that includes our opinion. Reasonable assurance
is a high level of assurance, but is not a guarantee that an audit
conducted in accordance with Canadian generally accepted auditing
standards will always detect a material misstatement when it exists.
Misstatements can arise from fraud or error and are considered
material if, individually or in the aggregate, they could reasonably be
expected to influence the economic decisions of users taken on the
basis of these consolidated financial statements.
As part of an audit in accordance with Canadian generally accepted
auditing standards, we exercise professional judgment and maintain
professional skepticism throughout the audit. We also:
• Identify and assess the risks of material misstatement of
the consolidated financial statements, whether due to fraud
or error, design and perform audit procedures responsive to
those risks, and obtain audit evidence that is sufficient and
appropriate to provide a basis for our opinion. The risk of not
detecting a material misstatement resulting from fraud is
higher than for one resulting from error, as fraud may involve
collusion, forgery, intentional omissions, misrepresentations,
or the override of internal control.
• Obtain an understanding of internal control relevant to the
audit 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 Company’s internal
control.
• Evaluate the appropriateness of accounting policies used
and the reasonableness of accounting estimates and related
disclosures made by management.
• Conclude on the appropriateness of management’s use
of the going concern basis of accounting and, based on the
audit evidence obtained, whether a material uncertainty exists
related to events or conditions that may cast significant doubt
on the Company’s ability to continue as a going concern. If we
conclude that a material uncertainty exists, we are required to
draw attention in our auditor’s report to the related disclosures
in the consolidated financial statements or, if such disclosures
are inadequate, to modify our opinion. Our conclusions are
based on the audit evidence obtained up to the date of our
auditor’s report. However, future events or conditions may
the consolidated financial statements,
• Evaluate the overall presentation, structure and content of
the
disclosures, and whether the consolidated financial statements
represent the underlying transactions and events in a manner
that achieves fair presentation.
including
• Obtain sufficient appropriate audit evidence regarding the
financial information of the entities or business activities within
the Company to express an opinion on the consolidated
financial statements. We are responsible for the direction,
supervision and performance of the group audit.
We remain solely responsible for our audit opinion We communicate
with those charged with governance regarding, among other
matters, the planned scope and timing of the audits and significant
audit findings, including any significant deficiencies in internal
control that we identify during our audits.
We also provide those charged with governance with a statement
that we have complied with relevant ethical requirements regarding
independence, and to communicate with them all relationships
and other matters that may reasonably be thought to bear on our
independence, and where applicable, related safeguards.
The engagement partner on the audit resulting in this independent
auditor’s report is Stephen Bonnell.
Chartered Professional Accountants
Calgary, Alberta
March 14, 2019
41
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 receivable
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
Contributed surplus
Retained earnings
Shareholders’ equity
Non-controlling interest
Total equity
Notes
December 31, 2018 December 31, 2017
5
6
7
8
9
10
11d
16
10b, 10c,
12a, 12b,
16a, 22
11
12a
21
202,499
14,960
20,558
4,416
9,398
2,283
24,042
278,156
31,696
-
3,111
12,679
-
20,901
68,387
52,898
259
138,813
191,970
17,799
209,769
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
Total liabilities and equity
278,156
301,425
See accompanying notes to the consolidated financial statements
ON BEHALF OF THE BOARD:
/s/ Stephen J. Griggs
Director and Executive Chair
/s/ Steven Glover
Director and Chair of the Audit Committee
42
6
GENESIS LAND DEVELOPMENT CORP.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
For the years ended December 31, 2018 and 2017
(In thousands of Canadian dollars except per share amounts)
Year ended December 31,
Notes
2018
2017
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
5
13
14
15
9
21
11
81,367
70
81,437
(59,204)
(1,820)
(61,024)
20,413
(10,406)
(4,452)
(14,858)
5,555
1,512
(1,531)
5,536
(1,757)
3,779
(345)
4,124
0.10
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
43
7
GENESIS LAND DEVELOPMENT CORP.
GENESIS LAND DEVELOPMENT CORP.
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
For the years ended December 31, 2018 and 2017
For the years ended December 31, 2018 and 2017
(In thousands of Canadian dollars except number of shares)
(In thousands of Canadian dollars except number of shares)
Equity attributable to Corporation’s shareholders
Equity attributable to Corporation’s shareholders
Common shares - Issued
Common shares - Issued
Number of
Number of
Shares
Shares
43,745,806
43,745,806
Amount
Amount
54,888
54,888
Contributed
Contributed
Surplus
Surplus
-
-
At December 31, 2016
At December 31, 2016
Normal course issuer bid (“NCIB”)
Normal course issuer bid (“NCIB”)
(Note 11c) and misc.
(Note 11c) and misc.
Dividends declared (Note 11d)
Dividends declared (Note 11d)
Net earnings being comprehensive
Net earnings being comprehensive
earnings
earnings
At December 31, 2017
At December 31, 2017
(493,085)
(493,085)
(628)
(628)
-
-
-
-
-
-
-
-
43,252,721
43,252,721
54,260
54,260
At December 31, 2017
At December 31, 2017
Share-based payments (Note 12a)
Share-based payments (Note 12a)
43,252,721
43,252,721
-
-
54,260
54,260
-
-
NCIB (Note 11c)
NCIB (Note 11c)
(1,069,100)
(1,069,100)
(1,362)
(1,362)
Dividends declared (Note 11d)
Dividends declared (Note 11d)
Net earnings being comprehensive
Net earnings being comprehensive
earnings
earnings
At December 31, 2018
At December 31, 2018
-
-
-
-
-
-
-
-
Retained
Earnings
Retained
Earnings
Total
Total
Shareholders’
Shareholders’
Equity
Equity
Non-
Non-
Controlling
Controlling
Interest
Interest
Total Equity
Total Equity
150,863
150,863
205,751
205,751
5,914
5,914
211,665
211,665
(828)
(828)
(1,456)
(1,456)
30
30
(1,426)
(1,426)
(19,896)
(19,896)
(19,896)
(19,896)
-
-
(19,896)
(19,896)
16,998
16,998
16,998
16,998
12,200
12,200
29,198
29,198
147,137
147,137
201,397
201,397
18,144
18,144
219,541
219,541
147,137
147,137
-
-
201,397
201,397
259
259
18,144
18,144
-
-
219,541
219,541
259
259
(2,139)
(2,139)
(3,501)
(3,501)
(10,309)
(10,309)
(10,309)
(10,309)
-
-
(3,501)
(3,501)
(10,309)
(10,309)
-
-
4,124
4,124
4,124
4,124
(345)
(345)
3,779
3,779
-
-
-
-
-
-
-
-
-
-
259
259
-
-
-
-
-
-
42,183,621
42,183,621
52,898
52,898
259
259
138,813
138,813
191,970
191,970
17,799
209,769
17,799
209,769
See accompanying notes to the consolidated financial statements
See accompanying notes to the consolidated financial statements
44
8
8
GENESIS LAND DEVELOPMENT CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the years ended December 31, 2018 and 2017
(In thousands of Canadian dollars)
Operating activities
Receipts from residential lot and development land sales
Receipts from residential home sales
Other receipts (payments)
Paid for land development
Paid for land acquisition
Paid for residential home construction
Paid to suppliers and employees
Interest received
Income taxes paid
Cash flows from operating activities
Investing activities
Acquisition of equipment
Proceeds on disposal of property and equipment
Cash flows (used in) investing activities
Financing activities
Advances from loans and credit facilities
Repayments of loans and credit facilities
Payment on vendor-take-back mortgage payable
Interest and fees paid on loans and credit facilities
Repurchase and cancellation of shares under NCIB
Dividends paid
Cash flows (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,
2018
2017
41,397
54,353
232
(19,387)
(5,124)
(35,385)
(14,252)
1,512
(8,599)
14,747
(274)
5
(269)
33,975
(25,436)
(8,000)
(750)
(3,501)
(10,309)
(14,021)
457
23,585
24,042
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
10b
11c
11d
45
9
GENESIS LAND DEVELOPMENT CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2018 and 2017
(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, 2019.
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.
Controlled entities 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. 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 owned 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 controlled entity are attributed to the non-controlling interest even if that results
in a deficit balance.
46
10
GENESIS LAND DEVELOPMENT CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2018 and 2017
(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) Revenue recognition
(i) Residential lot sales
Lot sales to third parties are recognized when the Corporation’s performance obligations are satisfied and transfer of
control has passed to the purchaser.
Performance obligations are considered satisfied when the Corporation has the ability to release a grade slip to the
purchaser after agreed to services pertaining to the property have been substantially performed.
Indicators of transfer of control to a purchaser include a present right to payment at the closing date of the contract, the
purchaser having full access to the lot and the purchaser’s ability to obtain a building permit from the relevant authority,
all indicating that significant risk and rewards of ownership have been transferred to the purchaser who has signed a
contract and has made a minimum 15% non-refundable deposit.
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) Development land sales
Development land sales to third parties are recognized when the Corporation’s performance obligations are satisfied
and transfer of control has passed to the purchaser.
Performance obligations are satisfied after agreed to services pertaining to the property have been substantially
performed.
Indications of transfer of control to a purchaser include registering the subdivision plan with the land titles office and
transferring title of the land to the purchaser on receipt of full payment, all indicating significant risk and rewards of
ownership are transferred to the purchaser. In situations where extended payment terms are provided to a purchaser,
an appropriate rate of interest is included and the Corporation secures appropriate security for the remaining unpaid
portion before title to the land is transferred to the purchaser.
Deposits received upon signing of contracts for purchases of land on which revenue recognition criteria have not been
met are recorded as customer deposits.
(iii) Residential home sales
Home sales to third parties are recognized when the Corporation’s performance obligations are satisfied and transfer
of control has passed to the purchaser.
Performance obligations are considered satisfied 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.
(iv) Finance income
Finance income is recognized as it accrues using the effective interest rate method.
(v) 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.
47
11
GENESIS LAND DEVELOPMENT CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2018 and 2017
(All tabular amounts and amounts in footnotes to tables are in thousands of Canadian dollars except number of shares)
2.
SIGNIFICANT ACCOUNTING POLICIES (continued)
e) 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.
f)
Borrowing costs
Borrowing costs consist of interest and other costs incurred in connection with the borrowing of the funds. The acquisition or
construction of real estate assets takes a substantial period of time to prepare it 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 from the
date of commencement of development work until the date of completion. All other borrowing costs are expensed in the period
in which they are incurred. The recording of interest to inventory is suspended if the project’s development is suspended for a
prolonged period.
g)
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
h)
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 21) and
are not subject to income taxes. The income or loss for Canadian tax purposes is attributable to the taxable income of
the limited 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 limited partners that form part of the non-controlling
interest.
48
12
GENESIS LAND DEVELOPMENT CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2018 and 2017
(All tabular amounts and amounts in footnotes to tables are in thousands of Canadian dollars except number of shares)
2.
SIGNIFICANT ACCOUNTING POLICIES (continued)
i)
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.
j)
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.
k)
Financial assets
Financial assets are classified and measured based on the business model in which they are held and the characteristics of
their contractual cash flows. The three primary measurement categories for financial assets are: amortized cost, fair value
through profit and loss (“FVTPL”), and fair value through other comprehensive income (“FVOCI”).
Financial assets measured at amortized cost are assets that are held within a business model whose objective is to hold assets
to collect contractual cash flows and its contractual terms give rise on specified dates to cash flows that are solely payments
of principal and interest on the principal amount outstanding. Financial instruments classified as amortized cost 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 at FVOCI are assets that are held within a business model whose objective is achieved by both collecting
contractual cash flows and selling financial assets and its contractual terms give rise on specified dates to cash flows that are
solely payments of principal and interest on the principal amount outstanding.
Financial assets at FVTPL are assets that do not meet the criteria for amortized cost or FVOCI. Financial assets classified as
FVTPL are carried on the balance sheet at fair value with changes in fair value recognized in the consolidated statements of
comprehensive income.
Financial assets are derecognized 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.
Loss allowance for trade receivables is calculated using the expected lifetime credit loss model and recorded at the time of
initial recognition. Title to land sold is typically transferred on receipt of full payment from the purchaser. In situations where
extended payment terms are provided to a purchaser, the Corporation secures adequate security for the remaining unpaid
portion before title to the land is transferred to the purchaser. The Corporation experiences no material impact of the loss
allowance for trade receivables due to the above. The expected loss allowance using the lifetime credit loss approach, which
has no material impact.
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. Bad
debt expense or recovery is included in the Corporation’s general and administrative expenses.
l)
Financial liabilities
The classification of financial liabilities is determined by the Corporation at initial recognition. The classification categories are:
amortized cost and FVTPL.
Financial liabilities classified as amortized cost are financial liabilities initially measured at fair value less directly attributable
transaction costs and are subsequently measured at amortized cost using the effective interest method. Interest expense is
recognized in the consolidated statements of comprehensive income.
Financial liabilities measured at FVTPL are financial liabilities measured at fair value with changes in fair value and interest
expense recognized in the consolidated statements of comprehensive income.
Financial liabilities are derecognized when the contractual obligation are discharged, cancelled or expire.
49
13
GENESIS LAND DEVELOPMENT CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2018 and 2017
(All tabular amounts and amounts in footnotes to tables are in thousands of Canadian dollars except number of shares)
2.
SIGNIFICANT ACCOUNTING POLICIES (continued)
Financial assets and financial liabilities are offset and the net amount presented on the balance sheet when, and only when,
the Corporation has a legal right to offset the amounts and intends either to settle on a net basis or to realize the asset and
settle the liability simultaneously.
The Corporation’s financial instruments (assets and liabilities) are classified as follows:
Cash
Cash equivalents
Deposits
Restricted Cash
Amounts receivable
Vendor-take-back mortgage receivable
Accounts payable and accrued liabilities
Loans and credit facilities
FVTPL
Amortized cost
Amortized cost
FVTPL
Amortized cost
Amortized cost
Amortized cost
Amortized cost
m) Earnings per share
The amount of basic earnings per share is calculated by dividing the comprehensive earnings attributable to equity holders by
the weighted average number of shares outstanding during the period. The diluted earnings per share amount is calculated
giving effect to the potential dilution that would occur if stock options were exercised. The treasury stock method is used to
determine the dilutive effect of stock options.
n)
Provision for future development costs
The Corporation sells land, lots and homes for which it is responsible to pay for future development costs. 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. 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.
o)
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 performance obligations are satisfied
and transfer of control has passed to the purchaser. The Corporation reviews each contract and evaluates all the factors
to determine the appropriate date to recognize revenue.
(ii) Consolidation
The Corporation applies judgment in determining control over certain limited partnerships 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.
50
14
GENESIS LAND DEVELOPMENT CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2018 and 2017
(All tabular amounts and amounts in footnotes to tables are in thousands of Canadian dollars except number of shares)
2.
SIGNIFICANT ACCOUNTING POLICIES (continued)
(iii)
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.
(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 and vendor-take-back mortgage 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.
(iv) Share-based compensation
The fair values of equity-settled share-based payments are estimated using the Black-Scholes options pricing model.
These estimates are based on the Corporation’s share price and on several assumptions, including the risk-free interest
rate, the future forfeiture rate, time to expiry, and the expected volatility of the Corporation's share price. Accordingly,
these estimates are subject to measurement uncertainty.
p)
Share-based compensation
On September 20, 2018, the Corporation’s Board of Directors adopted a new long-term incentive plan comprised of a stock
option plan and a deferred share unit (“DSU”) plan. The adoption of the long-term incentive plan and the vesting and exercise
of any initial stock option grants made under this plan are conditional upon and subject to the approval by the Toronto Stock
Exchange and Genesis’ shareholders, which is intended to be sought at the Corporation’s next annual general meeting in May
2019.
51
15
GENESIS LAND DEVELOPMENT CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2018 and 2017
(All tabular amounts and amounts in footnotes to tables are in thousands of Canadian dollars except number of shares)
2.
SIGNIFICANT ACCOUNTING POLICIES (continued)
(i) Stock options
The Corporation’s stock option plan allows for the recipients to purchase common shares. Vesting provisions and
exercise prices are set at the time of issuance by the Board of Directors. Options vest over a number of years on
various anniversary dates from the date of the original grant. Options are issued with exercise prices not less than
the fair market value of the common shares at the date of grant and with terms not exceeding ten years from the date
of grant.
The fair value of share-based payments related to the stock options granted is calculated at the grant date using the
Black-Scholes Option-Pricing Model. The costs of the share-based payments are recognized on a proportionate basis
over the related vesting period of each tranche of the grant as an expense with recognition of the corresponding
increase in contributed surplus. Any consideration paid on the exercise of stock options, together with any related
contributed surplus, is credited to the share capital account.
Share-based payments may be settled in cash or equity at the sole discretion of the Corporation and are accounted
for as equity-settled plans.
The dilutive effect of outstanding options will be reflected in the computation of earnings per share.
(ii) Deferred share unit plan
DSUs are notional common shares of the Corporation that do not settle until the recipient leaves the Corporation. The
Corporation’s DSU plan allows for the participants to receive cash-settled DSUs. The fair value of DSUs and the cash
payment, when made, is based on the common share price of the Corporation at the relevant time. Vesting provisions
for DSUs, if any, are determined at the time of issuance.
The fair value of the DSUs is recognized as share-based compensation expense, with a corresponding increase in
accrued liabilities over the vesting period. The amount recognized as an expense is based on the estimate of the
number of DSUs expected to vest. DSUs are measured at their fair value at each reporting period on a mark-to-market
basis. The accrued liability is reduced on the cash payout of any DSU.
3.
STANDARDS AND AMENDMENTS TO EXISTING STANDARDS EFFECTIVE JANUARY 1, 2018
The Corporation adopted new IFRSs and interpretations as of January 1, 2018, as noted below:
i) IFRS 15, “Revenue from contracts with customers”
As required, the Corporation adopted IFRS 15 as of January 1, 2018. IFRS 15 replaces existing standards and interpretations on
revenue recognition. The standard outlines a single comprehensive model for revenue recognition arising from contracts with
customers.
IFRS 15 requires that revenue to be recognized in a manner that depicts the transfer of promised goods or services to a customer
and at an amount that reflects the consideration expected to be received in exchange for transferring those goods or services.
This is achieved by applying the following five steps: (i) identify the contract with a customer; (ii) identify the performance obligations
in the contract (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract;
and (v) recognize revenue when (or as) the entity satisfies a performance obligation.
Impact of the application of IFRS 15
The Corporation completed an assessment of the impact of IFRS 15. The assessment indicates that the revenue recognition for the
Corporation remains unchanged, with the exception of revenues from development land sales.
IFRS 15 requires that the Corporation recognize a development land sale when the land parcel has been delivered to the customer
and related services that have been contractually agreed to between the Corporation and the customer have been substantially
performed, without reference to receipt of a minimum 15% non-refundable deposit, which was an additional criterion under the prior
standard.
There were no development land transactions made during the year ended December 31, 2017 that would be impacted by the
transition to IFRS 15.
52
16
GENESIS LAND DEVELOPMENT CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2018 and 2017
(All tabular amounts and amounts in footnotes to tables are in thousands of Canadian dollars except number of shares)
STANDARDS AND AMENDMENTS TO EXISTING STANDARDS EFFECTIVE JANUARY 1, 2018
3.
(continued)
ii) IFRS 9, “Financial instruments”
As required, the Corporation adopted IFRS 9 as of January 1, 2018. IFRS 9 replaces IAS 39 “Financial Instruments: Recognition and
Measurement”. IFRS 9 includes revised guidance on the classification and measurement of financial assets, including impairment
and a new general hedge accounting model.
Under IFRS 9, financial assets are classified and measured based on the business model in which they are held and the
characteristics of their contractual cash flows. IFRS 9 contains three primary measurement categories for financial assets: measured
at amortized cost, fair value through profit and loss (“FVTPL”), and fair value through other comprehensive income (“FVTOCI”), the
Corporation’s current financial assets are measured at amortized cost or FVTPL.
Under IFRS 9, the loss allowance for trade receivables must be calculated using the expected lifetime credit loss model and recorded
at the time of initial recognition. Title to lots, land and homes sold is typically transferred on receipt of full payment from the purchaser.
In situations where extended payment terms are provided to a purchaser, the Corporation secures adequate security for the remaining
unpaid portion before title to the lot, land or home is transferred to the purchaser. As such, there is no material impact of the loss
allowance for trade receivables due to the above.
Impact of the application of IFRS 9
The Corporation completed an assessment of the impact of IFRS 9 on its financial statements and determined that there was no
material effect on the carrying value of its financial instruments related to this new requirement and no reclassification was required
in the transition to IFRS 9.
The following tables show the pre-transition IAS 39 and the post-transition IFRS 9 classification and measurement categories, and
reconciles the IAS 39 and IFRS 9 carrying amounts as at January 1, 2018, as a result of adopting IFRS 9.
Financial Assets
IAS 39
Measurement
As at
Basis
Jan. 1, 2018
Cash
FVTPL
Cash equivalents FVTPL
IFRS 9
Measurement
Basis
FVTPL
Amortized cost
IAS 39
Carrying
Amount
IFRS 9
Carrying
Amount
23,585
-
23,585
-
Reclassification /
Remeasurement
-
-
Deposits
FVTPL
Amortized cost
2,674
2,674
Restricted cash
Amounts
receivable
Vendor-take-
back mortgage
receivable
FVTPL
Amortized cost
FVTPL
Amortized cost
Amortized cost
Amortized cost
3,773
30,820
20,558
3,773
30,820
20,558
-
-
-
-
Impact on
measurement
No change
No change as
amortized cost
approximates fair
value for this
instrument
No change as
amortized cost
approximates fair
value for this
instrument
No change
No change
No change
53
17
GENESIS LAND DEVELOPMENT CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2018 and 2017
(All tabular amounts and amounts in footnotes to tables are in thousands of Canadian dollars except number of shares)
STANDARDS AND AMENDMENTS TO EXISTING STANDARDS EFFECTIVE JANUARY 1, 2018
3.
(continued)
Financial Liabilities
IAS 39
Measurement
Basis
Amortized cost
IFRS 9
Measurement
Basis
Amortized cost
IAS 39
Carrying
Amount
IFRS 9
Carrying
Amount
8,938
8,938
Reclassification /
Remeasurement
-
Impact on
measurement
No change
Amortized cost
Amortized cost
30,268
30,268
-
No change
As at
Jan. 1, 2018
Accounts
payable and
accrued liabilities
Loans and credit
facilities,
excluding
deferred loans
and credit
facilities fees
4.
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 for lessees onto
the balance sheet 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 (“ROU”) 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 completed the assessment of the impact of IFRS 16 on its financial statements and has opted to use the modified
retrospective approach in its adoption of IFRS 16. The modified retrospective method does not require restatement of prior period
financial information as it may recognize the cumulative effect as an adjustment to opening retained earnings and applies the standard
prospectively.
On adoption of IFRS 16, the Corporation will recognize lease liabilities at the present value of the remaining lease payments,
discounted using the Corporation’s incremental borrowing rate as of January 1, 2019. The associated ROU assets will also be
measured at an amount equal to the lease liability on January 1, 2019 therefore having no impact on retained earnings. Adoption of
the standard will result in the recognition of ROU assets and lease liabilities of approximately $232 as at January 1, 2019.
54
18
GENESIS LAND DEVELOPMENT CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2018 and 2017
(All tabular amounts and amounts in footnotes to tables are in thousands of Canadian dollars except number of shares)
5.
REAL ESTATE HELD FOR DEVELOPMENT AND SALE
Lots, Multi-
family &
Commercial
Parcels
Land Held
for
Development
Home
Building
Total
Limited
Partnerships
Intra-
segment
Elimination
Consolidated
Total
Gross book value
As at December 31, 2017
38,530
143,884
20,156
202,570
15,253
(4,194)
213,629
Development activities
2,104
13,559
33,833
49,496
178
Transfer
17,479
(17,479)
Reclass from amounts receivable
Acquisition
Sold
3,710
5,200
-
-
-
-
-
-
3,710
5,200
(24,628)
(1,657)
(28,737)
(55,022)
-
-
-
-
-
-
-
-
-
49,674
-
3,710
5,200
(55,022)
As at December 31, 2018
42,395
138,307
25,252
205,954
15,431
(4,194)
217,191
Provision for write-downs
As at December 31, 2017
Transfer
Write-down of real estate held for
development and sale
As at December 31, 2018
Net book value
As at December 31, 2017
As at December 31, 2018
-
8,744
1,446
(1,446)
920
8,218
-
1,446
38,530
40,949
-
-
-
-
8,744
4,128
-
920
-
900
9,664
5,028
-
-
-
-
135,140
20,156
193,826
11,125
(4,194)
130,089
25,252
196,290
10,403
(4,194)
12,872
-
1,820
14,692
200,757
202,499
During the year ended December 31, 2018, interest of $256 (2017 - $383) was capitalized as a component of development activities.
During the year ended December 31, 2018, the Corporation recorded a write-down of $1,820 (2017 - $1,095) due to: (1) $920 of
costs capitalized during the period (mainly property taxes and interest) relating to a parcel of land held for development that is carried
at net realizable value; and (2) $900 due to a reduction in the estimated development potential of a parcel of land belonging to a
limited partnership.
During the year ended December 31, 2018 Genesis entered into an agreement with the receiver of a third-party builder in a Genesis
community, which was approved by the Alberta Court of Queen’s Bench. In accordance with this agreement, (1) the agreements to
sell 23 lots to the builder, with amounts receivable of $3,710, were cancelled and the lots were returned to Genesis, (2) Genesis re-
purchased from the builder 31 lots for $5,200 for which it had received full payment, and (3) Genesis acquired that builder’s work in
progress on these lots. Genesis acquired all such assets free and clear of any liabilities, including any builders’ liens obligations. The
transaction closed in May 2018.
55
19
GENESIS LAND DEVELOPMENT CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2018 and 2017
(All tabular amounts and amounts in footnotes to tables are in thousands of Canadian dollars except number of shares)
6.
AMOUNTS RECEIVABLE
Agreements receivable
Other receivables
2018
10,584
4,376
14,960
2017
28,500
2,320
30,820
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.
7.
VENDOR-TAKE-BACK MORTGAGE RECEIVABLE TO A LIMITED PARTNERSHIP
Vendor-take-back mortgage to limited partnership(1)
(1) Includes accrued interest
2018
20,558
2017
20,558
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 receivable is payable annually, in arrears. The first
interest instalment of $1,333 was received in December 2018 (2017 - nil).
8.
OTHER OPERATING ASSETS
Deposits – construction projects
Deposit – dividend payable (note 11d)
Prepayments
Restricted cash
Property and equipment
2018
2,648
-
309
1,029
430
4,416
2017
2,674
10,813
286
3,773
537
18,083
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 16 for additional information). Restricted cash is held in trust accounts.
56
20
GENESIS LAND DEVELOPMENT CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2018 and 2017
(All tabular amounts and amounts in footnotes to tables are in thousands of Canadian dollars except number of shares)
9.
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
2018
3,531
(1,774)
1,757
2017
6,882
(1,067)
5,815
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% (2017 - 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
Share-based compensation transaction
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
Net deferred tax assets
d)
The components of the net deferred tax asset were as follows:
Real estate held for development and sale
Reserves from land sales
Unamortized financing costs
Other temporary differences
Net deferred tax assets
2018
5,536
27.00%
1,495
-
70
99
93
1,757
2018
10,774
(1,376)
9,398
2018
7,076
(1,376)
3,111
587
9,398
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
57
21
GENESIS LAND DEVELOPMENT CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2018 and 2017
(All tabular amounts and amounts in footnotes to tables are in thousands of Canadian dollars except number of shares)
10.
LOANS AND CREDIT FACILITIES
Secured by agreements receivable and real estate held for development and sale
(a) Demand land project servicing loans from major Canadian chartered banks, payable on
collection of agreements receivable, bearing interest at prime +0.75% per annum, secured by real
estate held for development and sale with a carrying value of $53,980, due between December
30, 2020 and July 4, 2021.
Secured by real estate held for development and sale
(b) Vendor-take-back mortgage payable (“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 $44,806. The VTB is
to be paid in five annual installments of $8,000 each, commencing January 6, 2016 and ending
January 6, 2020. The fourth installment of $8,000 was paid in January 2019.
Unamortized portion of the discount on the VTB.
(c) Demand operating line of credit up to $10,000 from a major Canadian chartered bank, bearing
interest at prime +1.00% per annum, secured by real estate held for development and sale with a
carrying value of $14,150 due on March 31, 2019. Subsequent to December 31, 2018, the facility
was renewed till March 31, 2020.
Secured by housing projects under development
(d) Demand operating line of credit from a major Canadian chartered bank 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 project specific townhouse construction loans from a major Canadian chartered bank,
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 $8,797, due between March 28, 2020 and August
31, 2020.
Deferred fees on loans and credit facilities
2018
2017
7,914
6,164
16,000
24,000
(613)
(1,792)
-
1,509
-
-
7,177
1,896
31,987
(291)
31,696
30,268
(133)
30,135
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 4.76% (December 31, 2017 - 3.99%) based on
December 31, 2018 balances.
During the year ended December 31, 2018, the Corporation received advances of $33,975 (2017 - $32,471) relating to various
existing loan facilities secured by agreements receivable, real estate held for development and sale and housing projects under
development, bearing interest ranging from prime +0.75% to prime +1.00% per annum, with due dates ranging from March 31, 2019
to July 4, 2021.
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 $1,179 (2017 - $1,702) for the year ended December 31, 2018.
58
22
GENESIS LAND DEVELOPMENT CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2018 and 2017
(All tabular amounts and amounts in footnotes to tables are in thousands of Canadian dollars except number of shares)
10.
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, 2019 to December 31, 2019
January 1, 2020 to December 31, 2020
January 1, 2021 to December 31, 2021
9,498
17,485
5,004
31,987
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, 2018 and 2017, the Corporation and its subsidiaries were in compliance with all loan covenants.
11.
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, 2018
and 2017:
Basic
Effect of dilutive securities - stock options
Diluted
Year ended December 31,
2018
2017
43,076,831
43,384,450
135,000
-
43,211,831
43,384,450
All 2,025,000 options outstanding at the year ended December 31, 2018 (2017 - nil) were included in calculating diluted earnings per
share as their weighted average exercise price was lower than the average market price of the Corporation’s shares during the
period.
59
23
GENESIS LAND DEVELOPMENT CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2018 and 2017
(All tabular amounts and amounts in footnotes to tables are in thousands of Canadian dollars except number of shares)
11.
SHARE CAPITAL (continued)
c)
Normal course issuer bid (“NCIB”)
On October 5, 2018, the Corporation announced the renewal of its NCIB. The renewed NCIB commenced on October 10, 2018 and
will terminate on the earlier of: (i) October 9, 2019; 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 2,147,636 common shares under the renewed NCIB. As at
December 31, 2018, the Corporation purchased a total of 769,100 common shares at an average price of $3.12 per share under this
renewed NCIB.
The prior NCIB, which expired on September 11, 2018, allowed the Corporation to purchase for cancellation up to 2,163,022 common
shares. The Corporation purchased a total of 300,000 common shares at an average price of $3.67 per share under this NCIB.
The following table sets forth the number of common shares repurchased and cancelled during the year ended December 31, 2018
and 2017 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
Year ended December 31,
2018
1,069,100
1,362
2,139
3,501
3.27
2017
493,085
628
828
1,456
2.95
Cash dividends of $10,309 ($0.24 per share) were declared and paid in 2018 (2017- $9,083 and $0.21 per share). During December
2017, an additional cash dividend of $10,813 ($0.25 per share) was declared and deposit paid to the transfer agent for distribution
to shareholders on January 5, 2018.
60
24
GENESIS LAND DEVELOPMENT CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2018 and 2017
(All tabular amounts and amounts in footnotes to tables are in thousands of Canadian dollars except number of shares)
12.
SHARE-BASED COMPENSATION
On September 20, 2018, the Corporation’s Board of Directors adopted a new long-term incentive plan comprised of a stock option
plan and a DSU plan. The adoption of the long-term incentive plan and the vesting and exercise of any initial stock option grants
made under this plan are conditional upon and subject to the approval by the Toronto Stock Exchange and Genesis’ shareholders,
which is intended to be sought at the Corporation’s next annual general meeting in May 2019.
a)
Stock Option Plan
Share-based payments may be settled in cash or equity at the sole discretion of the Corporation and are accounted for as
equity-settled plans. Stock options have a 7-year term and vest 25% on each anniversary date of the grant. In the year ended
December 31, 2018 share-based compensation of $259 (2017 - nil) was recorded and included as a part of general and administrative
expense.
Details of stock options are as follows:
Year ended December 31,
2018
2017
Outstanding - beginning of period
Options issued
Outstanding - end of period
Exercisable - end of period
Number of
Options
-
2,025,000
2,025,000
-
-
$3.36
$3.36
-
Weighted
Average
Exercise Price
Number of
Options
Weighted
Average
Exercise Price
Outstanding
Exercisable
Range of Exercise
Prices ($)
Number at
December 31, 2018
Weighted Average
Exercise Price
Number at
December 31, 2018
Weighted Average
Exercise Price
3.12 - 3.48
2,025,000
$3.36
-
-
6.80
The following assumptions were used in estimating the fair value of options granted using the Black-Scholes Option-Pricing Model:
2018
2017
Risk-free interest rate
Estimated term/period prior to exercise (years)
Volatility in the price of the Corporation’s common shares
Forfeiture rate
Dividend yield rate
2.25 - 2.30%
5.50
25.6 – 28.1%
0.00%
0.00%
Subsequent to December 31, 2018, the Corporation granted 780,000 stock options at an exercise price of $3.11.
b)
Deferred Share Unit Plan for Directors and Designated Employees
No DSUs were granted during the year ended December 31, 2018 (2017 - nil).
Subsequent to December 31, 2018, the Corporation granted 70,941 DSUs at $3.11 each.
61
-
-
-
-
-
25
-
-
-
-
-
-
-
-
Weighted Average
Remaining
Contractual Life in
Years
GENESIS LAND DEVELOPMENT CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2018 and 2017
(All tabular amounts and amounts in footnotes to tables are in thousands of Canadian dollars except number of shares)
13.
GENERAL AND ADMINISTRATIVE
The general and administrative expense of the Corporation consisted of the following:
Compensation and benefits
Share-based compensation
Corporate administration
Professional services
2018
7,463
259
1,628
1,056
2017
7,671
-
2,380
919
10,406
10,970
Compensation and benefits of the directors and key management personnel, included in the general and administrative expenses
above, were as follows:
Salaries, wages and benefits
Share-based compensation
14.
SELLING AND MARKETING
Selling and marketing expenses of the Corporation consisted of the following:
Advertising and marketing
Sales commissions
15.
FINANCE EXPENSE
The finance expense of the Corporation consisted of the following:
Interest incurred
Finance expense relating to VTB (note 10)
Financing fees amortized
Interest and financing fees capitalized (note 5)
2018
1,801
259
2,060
2018
3,068
1,384
4,452
2018
437
1,179
171
(256)
1,531
2017
1,788
-
1,788
2017
2,279
2,642
4,921
2017
770
1,702
361
(383)
2,450
62
26
GENESIS LAND DEVELOPMENT CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2018 and 2017
(All tabular amounts and amounts in footnotes to tables are in thousands of Canadian dollars except number of shares)
16.
a)
b)
c)
COMMITMENTS AND CONTINGENCIES
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 seven installments totaling $3,500 were paid as at December 31, 2018.
The eighth payment of $500 was paid in January 2019.
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, 2018, the letters of credit amounted to
$6,358 (2017 - $5,491).
The Corporation has office and other operating leases with the following annual payments: not later than one year - $481; later
than one year but not later than five years - $446; and later than five years - nil.
d) 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 without merit and is actively contesting both the certification proceeding and the claim itself. Any potential
liability to the Corporation and/or the Partnership is currently indeterminate.
17.
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 recorded this amount as a
provision as at December 31, 2017. In 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, which was heard in August 2018 and judgement was
reserved. On February 25, 2019, the Court granted the Corporation’s appeal, directing that the claims of the former employees go to
trial.
As of March 14, 2019, the two former employees are in the process of amending their claim to add claims in the amount of $1,100
plus costs and interest in connection with a disputed purported exercise of stock options. The Corporation has not made any provision
for this claim as at December 31, 2018.
The Corporation’s view is that these claims are without merit and is actively contesting them.
18.
FINANCIAL INSTRUMENTS
a) Risks associated with financial instruments
(i) Credit risk
As at December 31, 2018, the Corporation carried nil (2017 - nil) as credit losses.
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, 2018, which comprise greater than 10% of total amounts receivable, totaled $10,082 from three customers (2017
- $25,752 from five customers).
63
27
GENESIS LAND DEVELOPMENT CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2018 and 2017
(All tabular amounts and amounts in footnotes to tables are in thousands of Canadian dollars except number of shares)
18.
FINANCIAL INSTRUMENTS (continued)
Aging of amounts receivable was as follows:
Not past due
Past due
2018
14,960
-
14,960
2017
29,056
1,764
30,820
The past due amount of $1,764 in 2017 was from a single third-party builder in receivership. This was resolved in May 2018. Refer
to note 5 for additional information.
(ii)
Liquidity risk
The following were the contractual maturities of financial liabilities and other commitments as at December 31, 2018:
Financial liabilities
Accounts payable and accrued liabilities
Loans and credit facilities excl. deferred fees (note 10)
Commitments
Lease obligations (note 16)
Naming rights (note 16)
<1 Year
>1 Year
Total
12,679
9,498
22,177
481
500
981
-
22,489
22,489
446
1,000
1,446
23,158
23,935
12,679
31,987
44,666
927
1,500
2,427
47,093
At December 31, 2018, the Corporation had obligations due within the next 12 months of $23,158 (2017 - $32,832). 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 $166
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.
64
28
GENESIS LAND DEVELOPMENT CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2018 and 2017
(All tabular amounts and amounts in footnotes to tables are in thousands of Canadian dollars except number of shares)
18.
FINANCIAL INSTRUMENTS (continued)
The fair values of the Corporation’s loans and credit facilities, amounts receivable and vendor-take-back mortgage 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).
The Corporation’s current financial assets are measured at amortized cost or fair value through profit and loss (“FVTPL”). The
estimated fair value of financial assets and liabilities as at December 31, 2018 and December 31, 2017 are presented in the
following table:
Measurement Basis
Carrying Value
As at
Dec. 31, 2017
As at
Dec. 31, 2018
Fair Value
As at
Dec. 31, 2018
As at
Dec. 31, 2017
Financial Assets
Cash
Cash equivalents
Deposits
Restricted cash
Amounts receivable
Vendor-take-back mortgage
receivable
Financial Liabilities
Accounts payable and accrued
liabilities
Loans and credit facilities,
excluding deferred loans and
credit facilities fees
FVTPL
Amortized cost
Amortized cost
FVTPL
Amortized cost
Amortized cost
Amortized cost
Amortized cost
24,042
-
2,648
1,029
14,960
20,558
12,679
31,987
23,585
-
2,674
3,773
30,820
20,558
8,938
30,268
24,042
-
2,648
1,029
14,733
20,254
12,679
31,987
23,585
-
2,674
3,773
30,192
20,558
8,938
30,268
During the year ended December 31, 2018 and 2017, 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 receivable, 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 10)
Shareholders’ equity
2018
31,696
191,970
223,666
2017
30,135
201,397
231,532
29
65
GENESIS LAND DEVELOPMENT CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2018 and 2017
(All tabular amounts and amounts in footnotes to tables are in thousands of Canadian dollars except number of shares)
19.
SEGMENTED INFORMATION
The income producing business units of the Corporation reported the following activities for the year ended December 31, 2018 and
2017:
Land Development Segment
Intrasegment
Elimination
LP
Genesis
31,750
15,126
(32,701)
(920)
13,255
(5,958)
19
-
(18)
(900)
(899)
412
7,297
(487)
Home
Building
Segment
Intersegment
Elimination
54,113
(19,571)
-
-
Total
31,769
15,126
Total
66,311
15,126
(32,719)
(46,056)
19,571
(59,204)
(1,820)
12,356
-
8,057
(5,546)
(9,331)
6,810
(1,274)
-
-
-
-
(1,820)
20,413
(14,877)
5,536
237,274
30,972
(17,384)
250,862
31,199
(3,905)
278,156
58,216
13,342
(13,332)
58,226
14,066
(3,905)
68,387
179,058
17,630
(4,052)
192,636
17,133
-
209,769
Year ended December 31, 2017
Revenues(1)
Genesis
49,152
54
Revenues – development lands
9,000
46,234
Land Development Segment
Intrasegment
Elimination
LP
Home
Building
Segment
Intersegment
Elimination
67,707
(21,214)
-
-
Total
49,206
55,234
Total
95,699
55,234
(61,373)
(56,450)
21,214
(96,609)
(1,095)
-
41,972
11,257
(9,374)
(8,842)
32,598
2,415
-
-
-
-
(1,095)
53,229
(18,216)
35,013
(35,089)
(26,284)
(1,075)
(20)
21,988
19,984
(6,650)
(2,724)
15,338
17,260
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
(1) Segmented liabilities under the Genesis home building segment include $2,112 due to the land development segment (December 31, 2017 -
$878).
(2) Segmented liabilities under the LP segment is comprised of accounts payable and accrued liabilities and includes $13,332 (December 31, 2017
- $13,610) due to Genesis.
66
30
Year ended December 31, 2018
Revenues – residential lots(1)
Revenues – development lands
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, 2018
Segmented liabilities as at
December 31, 2018(1), (2)
Segmented net assets as at
December 31, 2018(1), (2)
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 before income taxes
and non-controlling interest
interest 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)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
GENESIS LAND DEVELOPMENT CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2018 and 2017
(All tabular amounts and amounts in footnotes to tables are in thousands of Canadian dollars except number of shares)
20.
RELATED PARTY TRANSACTIONS
Fees for services provided by a corporation controlled by an officer
and director
Amounts in accounts payable and/or accrued liabilities
21.
CONSOLIDATED ENTITIES
Year ended December 31,
2018
251
251
2017
334
334
Dec. 31, 2018
Dec. 31, 2017
-
22
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) has a loan amounting to $11,754 (2017 - $12,272) due to the Corporation, which is secured
by a charge on a $20,500 vendor-take-back mortgage receivable (note 7).
67
31
GENESIS LAND DEVELOPMENT CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2018 and 2017
(All tabular amounts and amounts in footnotes to tables are in thousands of Canadian dollars except number of shares)
21.
CONSOLIDATED ENTITIES (continued)
All entities are incorporated in Canada and are listed in the following table:
Name
Land Development
Genpol Inc.
Genpol LP
1504431 Alberta Ltd.
Genesis Sage Meadows Partnership
Genesis Land Development (Southeast) Corp.
Polar Hedge Enhanced Income Trust
Home Building
Genesis Builders Group Inc.
The Breeze Inc.
Joint Venture
Kinwood Communities Inc.
Limited Partnerships
LP 4/5 Group
Genesis Limited Partnership #4
Genesis Limited Partnership #5, GLP5 GP Inc., GLP5 NE Calgary Development Inc.
Genesis Northeast Calgary Ltd.
LP 8/9 Group
Genesis Limited Partnership #8
Genesis Limited Partnership #9, GP GLP9 Inc., GLP9 Subco Inc.
GP GLP8 Inc.
LPLP 2007 Group
Limited Partnership Land Pool (2007)
GP LPLP 2007 Inc.
GP RRSP 2007 Inc., LPLP 2007 Subco Inc.
LPLP 2007 Subco #2 Inc., LP RRSP Limited Partnership #1
LP RRSP Limited Partnership #2
% equity interest as at
December 31, 2018
December 31, 2017
100%
100%
0.0002%
99.9998%
100%
100%
100%
100%
50%
0.001%
0%
100%
53.63%
0%
100%
0.023%
100%
0%
0%
0%
100%
100%
0.0002%
99.9998%
100%
100%
100%
100%
50%
0.001%
0%
100%
53.63%
0%
100%
0.023%
100%
0%
0%
0%
68
32
GENESIS LAND DEVELOPMENT CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2018 and 2017
(All tabular amounts and amounts in footnotes to tables are in thousands of Canadian dollars except number of shares)
21.
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
December 31, 2018
LP 4/5
LP 8/9
LPLP 2007
Total
Real estate held for development and sale
8,721
1,683
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 (%)
-
-
-
1
8,721
1,684
-
1,049
1,049
7,672
100%
-
529
529
1,155
100%
December 31, 2017
-
20,558
9
20,567
10
11,754
11,764
8,803
100%
10,404
20,558
10
30,972
10
13,332
13,342
17,630
LP 4/5
LP 8/9
LPLP 2007
Total
Assets
Real estate held for development and sale
8,546
2,579
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 (%)
1
-
-
1
8,547
2,580
-
827
827
7,720
100%
-
511
511
2,069
100%
-
20,616
-
20,616
15
12,272
12,287
8,329
100%
11,125
20,617
1
31,743
15
13,610
13,625
18,118
69
33
GENESIS LAND DEVELOPMENT CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2018 and 2017
(All tabular amounts and amounts in footnotes to tables are in thousands of Canadian dollars except number of shares)
21.
CONSOLIDATED ENTITIES (continued)
SUMMARIZED STATEMENTS OF COMPREHENSIVE INCOME
Revenues
Net (loss) earnings
Non-controlling interest (%)
Revenues
Net (loss) earnings
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, 2018
LP 8/9
-
(913)
100%
LPLP 2007
-
474
100%
Year ended December 31, 2017
LP 8/9
-
(11)
100%
LPLP 2007
46,262
17,310
100%
LP 4/5
19
(48)
100%
LP 4/5
26
(39)
100%
Year ended December 31, 2018
LP 4/5
LP 8/9
LPLP 2007
-
-
-
-
-
-
1,349
(1,340)
9
Year ended December 31, 2017
LP 4/5
LP 8/9
-
-
-
-
-
-
LPLP 2007
24,356
(24,395)
(39)
Total
19
(487)
Total
46,288
17,260
Total
1,349
(1,340)
9
Total
24,356
(24,395)
(39)
22. SUBSEQUENT EVENTS
Subsequent to December 31, 2018, the following occurred:
The Corporation granted 780,000 stock options and 70,941 DSUs. Refer to note 12a and 12b for additional information.
The Court granted the Corporation’s appeal directing that the claims of the former employees go to trial. As of March 14, 2019, the
two former employees are in the process of amending their claim to add claims in the amount of $1,100 plus costs and interest in
connection with a disputed purported exercise of stock options. Refer to note 17 for additional information.
70
34
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
IAIN STEWART
President 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
Executive Chair
STEVEN GLOVER
Lead Director
YAZDI BHARUCHA
Director
MICHAEL BRODSKY
Director
MARK W. MITCHELL
Director
LOUDON OWEN
Director
IAIN STEWART
Director
71