Genesis Land Development : Reports 2017 Second Quarter Results and Special $0.21 per Share Dividend

For Immediate Release

The second quarter of 2017 ("Q2 2017") was strong with net earnings of $4,209,000 ($0.09 per share), an increase of 49% from

$2,828,000 from the second quarter of 2016 ("Q2 2016") ($0.06 per share). Net earnings for the first half of 2017 ("H1 2017") were

$4,913,000 ($0.11 per share), a 1% decrease compared to $4,938,000 ($0.11 per share) in the first half of 2016 ("H1 2016").

Cash flows from operating activities were $12,251,000 ($0.28 per share) in Q2 2017 compared to $14,394,000 ($0.33 per share) in Q2 2016, down $2,143,000 ($0.05 per share). Cash flows from operating activities for H1 2017 were $10,722,000 ($0.25 per share), down significantly compared to $26,663,000 ($0.60 per share) in H1 2016. Cash flows from operating activities were lower in H1 2017 primarily due to (1) lower home closings by Genesis Builders Group Inc. ("GBG") in Q1 2017, resulting in revenues from residential homes sales of $9,020,000 in Q1 2017 compared to $22,209,000 in Q1 2016, and (2) in H1 2017 Genesis completed the sale of non-core lands realizing $9,000,000, which was $2,800,000 less than the $11,800,000 of non-core land sales in H1 2016.

The Board of Directors has declared a special cash dividend of $0.21 per common share for a total of approximately $9,085,000 payable to shareholders of record on August 31, 2017, and will be paid on September 15, 2017.

Key financial results and operating data for the Corporation are as follows:

Homes (with lots) subject to firm sale contracts (units) 50 55

Revenues for Q2 2017 were $38,497,000, a 47% increase compared to $26,148,000 in Q2 2016, primarily due to an increase in sales of residential lots to third party builders (many of them being premium lots), the $9,000,000 sale of a non-core property and partially offset by lower sales by GBG in Q2 2017 than Q2 2016. Revenues for H1 2017 were $54,161,000 an 8% decrease over

$58,572,000 in H1 2016, primarily due to lower revenues in GBG and from lower non-core sales. Revenues in the periods included:

• In Q2 2017, Genesis had total lot sales revenue of $17,930,000 (78 lots) compared to $10,017,000 (57 lots) in Q2 2016. In H1 2017, Genesis had $26,742,000 of total lot sales revenue (129 lots), compared to $16,986,000 (93 lots) in H1 2016.

  • Genesis sold 45 residential lots to third-parties in Q2 2017 for revenues of $11,970,000 (22 in Q2 2016 with revenues of $2,943,000). 82 lots were sold to third parties in H1 2017 with revenues of $18,535,000 (22 for H1 2016 with revenues of $2,943,000)

  • GBG sold 33 homes in Q2 2017 (35 in Q2 2016) on residential lots owned by Genesis generating associated residential lot revenues of $5,907,000 ($6,952,000 in Q2 2016). In H1 2017, GBG sold 47 homes on lots owned by Genesis (71 in H1 2016) generating lot revenues of $8,075,000 ($13,956,000 for H1 2016).

• GBG had revenues of $17,474,000 (36 homes) in Q2 2017 compared to revenues of $21,533,000 (40 homes) in Q2 2016, a decrease of $4,059,000 or 19%. Of the 36 homes, 20 homes were sold on a quick possession basis (i.e. contracted and delivered within 90 days) compared to 19 in Q2 2016. 3 homes were built on lots purchased previously from a third party developer. In H1 2017, GBG had revenues of $26,494,000 (55 homes), a decrease of 39% from the revenues of $43,742,000 (82 homes) in H1 2016.

• In Q2, 2017 Genesis completed the sale of a non-core land parcel located in Delacour, Alberta for $9,000,000, the only sale for the year to date. This compares to $1,550,000 of non-core land sales in Q2 2016 and $11,800,000 in H1 2016. Overall this is a $2,800,000 reduction for the first half of 2017 as compared to 2016.

  Expenses

  Expenses for Q2 2017, comprised primarily of general and administrative, selling and marketing and net finance expenses, were

  $4,518,000, compared to $4,488,000 for Q2 2016. Expenses for H1 2017 were $9,262,000, down $535,000 from $9,797,000 in H1 2016. The reduction in expenses was primarily due to reduced selling and marketing expenses at GBG as a result of lower home sales and lower net finance expenses due to the $8,000,000 payment made on a vendor-take-back mortgage in January 2017.

  Gross Margins

  Gross margins for Q2 2017 were 26% compared to 29% for Q2 2016. Overall gross margins were slightly higher for H1 2017 at 29% vs 27% in H1 2016. This is a result of residential lot sales that realized lower gross margins of 43% compared to 47% in 2016, while home building margins for H1 2017 improved to 18% vs 15% in the same period last year.

  Key Balance Sheet Data ($000s, except for per share items or unless otherwise noted)	As at June 30, 2017	As at December 31, 2016(1)
  Cash and cash equivalents	10,900	14,318
  Loans and credit facilities (including a loan to a limited partnership guaranteed by Genesis)	32,266	43,295
  Total assets	288,598	288,995
  Total liabilities	73,407	77,330
  Shareholders' equity	209,148	205,628
  Total equity	215,191	211,665

  (1) Year ended December 31, 2016 ("YE 2016")

  Liquidity, Loans and Credit Facilities

  Genesis had a strong cash position as at June 30, 2017 of $10,900,000, and an additional $10,000,000 available in its operating line from a major Canadian bank and $1,993,000 outstanding on several land servicing loans. Loans and credit facilities were reduced by $11,029,000 to $32,266,000 at the end of Q2 2017 (including $8,963,000 owed by a limited partnership), compared to

  $43,295,000 at YE 2016 (including $8,531,000 owed by a limited partnership), primarily due to:

• the $8,000,000 annual payment in January 2017 of a vendor-take-back mortgage for its southeast Calgary lands, with the balance outstanding being $24,000,000 as at June 30, 2017(excluding $2,643,000 unamortized discount); and

• $3,573,000 used to pay down land servicing loans from the proceeds of the sales of lots.

  During Q2 2017, Genesis put in place a townhouse project loan facility of $14,801,000, bearing interest at prime +0.90%, due 3 years from the date of the first draw made. No draw was made as of June 30, 2017.

  Subsequent to June 30, 2017, the Corporation put in place two land project loans from two major Canadian banks aggregating

  $18,354,000 at prime +0.75% to finance the servicing of two new phases in 2017. The approximate due dates of these loans are expected to be between August and December 2019.

  Genesis had previously guaranteed a loan made by a third party lender to a limited partnership managed by Genesis. As at June 30, 2017 a balance of $8,963,000 was outstanding on the loan. During Q2 2017, the limited partnership entered into a firm agreement to sell a parcel of land located in Delacour, Alberta for $5,234,000. Subsequent to June 30, 2017, the loan was renewed until September 1, 2017. The sale transaction (the "sale transaction") is expected to close in late August 2017 and the net proceeds of the sale transaction will be used to repay in part this loan, reducing the outstanding loan balance to approximately $3,800,000. Upon payment of the net sale proceeds, the due date of the loan will be extended from September 1, 2017 to December 31, 2017 and the outstanding loan balance will be due on December 31, 2017. The interest rate on the renewed loan will be the greater of 7.85% or prime + 4% per annum.

  UPDATE - EXECUTION OF THE 2017 BUSINESS PLAN

  Genesis continued to implement its 2017 business plan in Q2 2017, as follows:

  Dividends and/or Share Buybacks

  The Board of Directors has declared a special cash dividend of $0.21 per common share for a total of approximately $9,085,000 payable to shareholders of record on August 31, 2017, and will be paid on September 15, 2017.

  The Corporation has paid several special dividends in prior years:

  Date ($000s, except for per share items or unless otherwise noted)	Dividend per share	Total dividends
  September 2017	0.21	9,085
  December 2016	0.25	10,936
  December 2015	0.12	5,331
  June 2014	0.12	5,386
  Total to date	0.70	30,738

  The Corporation has re-purchased common shares, when possible, under its normal course issuer bid ("NCIB"). In H1 2017, 475,625 common shares (representing 1.09% of outstanding shares at January 1, 2017) were purchased and cancelled under the NCIB at a total cost of $1,393,000, compared to 363,100 common shares at a total cost of $893,000 in H1 2016 (0.82% of the issued and outstanding shares at the beginning of 2016).

  Obtain Additional Land Servicing and Zoning Entitlements

  Genesis has advanced land entitlements for its long-term lands in H1 2017, including in its Calgary southeast and Sage Hill Crossing lands, its Airdrie lands and the large OMNI project in Rocky View County:

  • The Council of the City of Calgary requested city staff to proceed with an area structure plan for lands including the southeast lands to commence in 2018.

  • In Q2, the Council of the City of Airdrie passed Land Use and Outline Plan amendments on the remaining Bayview lands and a portion of the remaining Bayside lands. These amendments allow Genesis to meet today's community requirements including a full range of residential product mix along with amenities such as comprehensive open spaces, a school site and a neighborhood retail center.

  • A Land Use amendment for Sage Hill Crossing was unanimously approved by Calgary Planning Commission in July 2017. This will allow the development to proceed as a medium to low density residential development from the previous big box retail commercial and large high rise residential concept. This amendment is tentatively scheduled for the public hearing of City Council for approval in September 2017.