Condensed Interim Financial Statements
Gulf & Pacific Equities Corp.
For the Nine Months Ended September 30, 2023 and 2022
(Stated in Canadian Dollars)
INDEX | |
Condensed Interim Statements of Financial Position | 1 |
Condensed Interim Statements of Income and Comprehensive Income | 2 |
Condensed Interim Statements of Changes in Shareholders' Equity | 3 |
Condensed Interim Statements of Cash Flow | 4 |
Notes to the Condensed Interim Financial Statements | 5 - 18 |
NOTICE TO READER
The accompanying unaudited condensed interim financial statements have been prepared by the Company's management and the Company's independent auditors have not performed a review of these interim financial statements
Gulf & Pacific Equities Corp.
Condensed Interim Statements of Financial Position Unaudited - See Notice to Reader
(Stated in Canadian Dollars)
September 30, | December 31, |
2023 | 2022 |
(Audited) |
Assets
Cash and cash equivalents
Accounts receivable
Prepaid expenses
Right-of-use asset (note 6)
Investment properties (note 4)
Interest receivable
Investments (note 7)
Other assets
Liabilities
Accounts payable and accrued liabilities Mortgages (notes 5, 10)
Lease liability (note 6) Loan payable (notes 8, 10) Government loan payable (note 9) Deferred income taxes
Shareholders' Equity
Share Capital (note 11a)
Contributed Surplus
Retained Earnings
$ | 1,356,768 | $ | 185,227 |
444,937 | 499,785 | ||
148,275 | 5,674 | ||
33,230 | 1,645 | ||
49,883,649 | 47,830,000 | ||
22,234 | - | ||
16,272 | 40,680 | ||
53,452 | 53,452 | ||
$ | 51,958,817 | $ | 48,616,463 |
3,082,735 | 2,824,931 | ||
23,486,960 | 21,122,881 | ||
33,990 | 1,865 | ||
2,147,000 | 2,147,000 | ||
39,516 | 38,095 | ||
1,702,000 | 1,660,000 | ||
30,492,201 | 27,794,772 | ||
7,453,322 | 7,453,322 | ||
2,946,917 | 2,946,917 | ||
11,066,377 | 10,421,452 | ||
21,466,616 | 20,821,691 | ||
$ | 51,958,817 | $ | 48,616,463 |
The accompanying notes form an integral part of these condensed interim financial statements.
Approved on behalf of the Board
"Anthony J. Cohen" , Director | "Greg K. W. Wong" , Director | ||
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Gulf & Pacific Equities Corp.
Condensed Interim Statements of Income and Comprehensive Income For the Three and Nine Months Ended September 30
Unaudited - See Notice to Reader (Stated in Canadian dollars)
Nine months ended | Three months ended | ||||||||||||
September | September | September | September | ||||||||||
30, | 2023 | 30, | 2022 | 30, | 2023 | 30, 2022 | |||||||
Revenue | |||||||||||||
Rental | $ | 2,178,961 | $ | 2,069,842 | $ | 764,761 | $ | 690,698 | |||||
Step rent | 47,908 | (28,014) | 31,375 | (1,492) | |||||||||
Common area and realty tax recoveries | 955,686 | 898,807 | 338,783 | 303,734 | |||||||||
Expenses | 3,182,555 | 2,940,635 | 1,134,919 | 992,940 | |||||||||
Interest (note 5) | 1,192,967 | 967,466 | 435,544 | 305,826 | |||||||||
Operating costs and realty taxes | 1,436,792 | 1,403,319 | 438,388 | 424,620 | |||||||||
Administration | 621,384 | 603,748 | 187,991 | 190,983 | |||||||||
Amortization (note 6) | 14,303 | 14,802 | 4,747 | 4,934 | |||||||||
3,265,446 | 2,989,335 | 1,066,670 | 926,363 | ||||||||||
Net Income (Loss) before income taxes | (82,891) | (48,700) | 68,249 | 66,577 | |||||||||
and the undernoted | |||||||||||||
Unrealized gain (loss) from investments | (24,408) | 16,272 | (16,272) | 8,136 | |||||||||
Gain on revaluation of government loan | |||||||||||||
payable (note 9) | - | 1,814 | - | - | |||||||||
Other income | 28,349 | 19,676 | 15,364 | 10,809 | |||||||||
Fair value adjustment (note 4) | 765,875 | 105,158 | (53,770) | (4,328) | |||||||||
Net Income before income taxes | 686,925 | 94,220 | 13,571 | 81,194 | |||||||||
Deferred income tax recovery (expense) | (42,000) | (10,000) | 13,000 | (22,000) | |||||||||
Net Income and Comprehensive Income | $ | 644,925 | $ | 84,220 | $ | 26,571 | $ | 59,194 | |||||
Income per Share - Basic (note 11b) | $ | 0.03 | $ | - | $ | - | $ | - | |||||
Income per Share - Diluted (note 11b) | $ | 0.03 | $ | - | $ | - | $ | - | |||||
Weighted Average Number of Common | |||||||||||||
Shares Outstanding - Basic (note 11b) | 21,290,685 | 21,290,685 | 21,290,685 | 21,290,685 | |||||||||
Weighted Average Number of Common | |||||||||||||
Shares Outstanding - Diluted (note 11b) | 22,011,093 | 21,717,302 | 22,036,001 | 21,771,093 | |||||||||
The accompanying notes form an integral part of these condensed interim financial statements.
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Gulf & Pacific Equities Corp.
Condensed Interim Statements of Changes in Shareholders' Equity For the Nine Months Ended September 30
Unaudited - See Notice to Reader (Stated in Canadian dollars)
Share Capital | Contributed | Retained | |||||||
Shares | Amount | Surplus | Earnings | Total | |||||
Balance - January 1, 2022 | 21,290,685 | $ | 7,453,322 | $ | 2,946,917 | $ | 8,848,387 | $ | 19,248,626 |
Net income and comprehensive income | - | - | - | 84,220 | 84,220 | ||||
Balance - September 30, 2022 | 21,290,685 | $ | 7,453,322 | $ | 2,946,917 | $ | 8,932,607 | $ | 19,332,846 |
Share Capital | Contributed | Retained | |||||||
Shares | Amount | Surplus | Earnings | Total | |||||
Balance - January 1, 2023 | 21,290,685 | $ | 7,453,322 | $ | 2,946,917 | $ | 10,421,452 | $ | 20,821,691 |
Net income and comprehensive income | - | - | - | 644,925 | 644,925 | ||||
Balance - September 30, 2023 | 21,290,685 | $ | 7,453,322 | $ | 2,946,917 | $ | 11,066,377 | $ | 21,466,616 |
The accompanying notes form an integral part of these condensed interim financial statements.
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Gulf & Pacific Equities Corp.
Condensed Interim Statements of Cash Flow For the Nine Months Ended September 30 Unaudited - See Notice to Reader
(Stated in Canadian Dollars)
2023 | 2022 | ||||
Cash Provided By: | |||||
Operating Activities | |||||
Comprehensive income | $ | 644,925 | $ | 84,220 | |
Add (deduct) items not affecting cash: | |||||
Amortization of deferred financing costs | 13,834 | 2,649 | |||
Amortization | 14,303 | 14,803 | |||
Deferred income tax expense (recovery) | 42,000 | 10,000 | |||
Amortization of deferred leasing costs | 163,257 | 150,928 | |||
Step rent | (47,908) | 28,014 | |||
Interest expense | 1,177,712 | 931,091 | |||
Interest accretion | 1,421 | 1,355 | |||
Gain on revaluation of government loan payable | - | (1,814) | |||
Fair value adjustments | (741,467) | (121,430) | |||
Changes in non-cash balances related to operations: | 1,268,077 | 1,099,816 | |||
Accounts receivable | 54,848 | (31,905) | |||
Interest receivable | (22,234) | (69,266) | |||
Prepaid expenses | (142,601) | (129,950) | |||
Other assets | - | (19,676) | |||
Accounts payable and accrued liabilities | 30,633 | 1,448,228 | |||
Financing Activities | 1,188,723 | 2,297,247 | |||
Repayment of mortgages payable | (928,437) | (849,782) | |||
Receipt of mortgage proceeds | 3,300,000 | 3,000,000 | |||
Receipt of loan proceeds | - | 450,000 | |||
Interest paid | (948,725) | (802,941) | |||
Payment of lease liability | (15,578) | (16,789) | |||
Financing costs paid | (21,319) | (13,350) | |||
Investing Activities | 1,385,941 | 1,767,138 | |||
Investment property leasing costs | (476,490) | (73,784) | |||
Investment property expenditures | (926,633) | (2,738,444) | |||
(1,403,123) | (2,812,228) | ||||
Increase in cash | 1,171,541 | 1,252,157 | |||
Cash - beginning of period | 185,227 | 178,058 | |||
Cash - end of period | $ | 1,356,768 | $ | 1,430,215 | |
Cash and cash equivalents is comprised of: | |||||
Cash | $ | 156,768 | $ | 180,215 | |
Cash equivalents | 1,200,000 | 1,250,000 | |||
$ | 1,356,768 | $ | 1,430,215 | ||
The accompanying notes form an integral part of these condensed interim financial statements.
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Gulf & Pacific Equities Corp.
Notes to the Condensed Interim Financial Statements
For the Nine Months Ended September 30, 2023 and 2022 Unaudited - See Notice to Reader
(Stated in Canadian Dollars)
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Nature of Operations
Gulf & Pacific Equities Corp. (the "Company") was incorporated under the Business Corporations Act (Alberta) on April 8, 1998 and on June 17, 1998 filed Articles of Amendment to remove certain private corporation restrictions. The registered address and records office of the Company is located at 18104 102 Avenue N.W., Edmonton, AB. The Company is listed on the TSX Venture Exchange as "TSX-V: GUF". The Company commenced active operations during the 1999 fiscal year. The Company owns and operates commercial rental properties in Western Canada. The Company does not have any affiliates nor is it the subsidiary of any entity. - Basis of Presentation
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Statement of Compliance
The Company's condensed interim financial statements have been prepared in accordance with IAS 34, Interim Financial Reporting ("IAS 34"). The condensed interim financial statements do not include all of the information required for annual financial statements.
These condensed interim financial statements should be read in conjunction with the Company's audited financial statements for the year ended December 31, 2022.
The polices applied in the Company's condensed interim financial statements are in accordance with International Financial Reporting Standards ("IFRS") effective as of September 30, 2023 as issued by the International Accounting Standards Board.
These financial statements were authorized for issuance by the Board of Directors on November 16, 2023. - Basis of Measurement
The Company's financial statements have been prepared on a going concern basis using the historical cost basis except for investment properties and investments which have been measured at fair value. - Functional and Presentation Currency
The Company's functional currency is Canadian Dollars and the financial statements are presented in Canadian Dollars.
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Statement of Compliance
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Gulf & Pacific Equities Corp.
Notes to the Condensed Interim Financial Statements
For the Nine Months Ended September 30, 2023 and 2022 Unaudited - See Notice to Reader
(Stated in Canadian Dollars)
2. Basis of Presentation (continued)
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Critical judgments, accounting estimates and assumptions
The Company makes estimates and assumptions that affect the carrying amounts of assets and liabilities, disclosure of contingent assets and liabilities and the reported amount of earnings for the period. Actual results could differ. The estimates and assumptions that the Company considered critical are described below:
i) Investment properties
The fair value of the investment properties is determined based on either internal valuation models incorporating market evidence or valuations performed by independent third party appraisers. The determination of the fair value of investment properties requires the use of estimates such as future cash flows from assets (such as tenant profiles, future revenue streams and overall repair and condition of the property) and discount rates applicable to those cash flows. These estimates are based on market conditions existing at the reporting date. The following approaches, either individually or in combination, are used in the determination of the fair value of the investment properties:
The Direct Capitalization Income Approach derives market value by estimating the future cash flows that will be generated by the property and then applying an appropriate capitalization rate or discount rate to those cash flows. This approach can utilize the direct capitalization method and/or the discounted cash flow analysis.
The Direct Comparison Approach involves comparing or contrasting the recent sale, listing or optioned prices of properties comparable to the subject and adjusting for any significant differences between them.
Management reviews each appraisal (when obtained) and ensures the assumptions used by the appraisers are reasonable and the final fair value amount reflects those assumptions used in the various approaches above. Where an external appraisal is not obtained at the reporting date, management prepares internal valuations, for each investment property, to estimate the fair value.
Judgment is also applied in determining the extent and frequency of independent appraisals in order to determine fair values. The significant assumptions used by management in estimating the fair value of investment properties are set out in note 4.
In addition, the Company makes judgments with respect to whether tenant improvement expenditures represent an asset with a future economic benefit to the Company which impacts whether or not such amounts are treated as additions to the investment properties.
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Gulf & Pacific Equities Corp.
Notes to the Condensed Interim Financial Statements
For the Nine Months Ended September 30, 2023 and 2022 Unaudited - See Notice to Reader
(Stated in Canadian Dollars)
2. Basis of Presentation (continued)
- Critical judgments, accounting estimates and assumptions (continued) ii) Leases
The Company makes judgments in determining whether certain leases, in particular those tenant leases with long contractual terms where the lessee is the sole tenant in a property, are operating or finance leases. The Company has determined that all of its leases are operating leases.
Additional critical accounting estimates and assumptions include those used for estimating current and deferred taxes, certain accrued liabilities, assessing the allowance for doubtful accounts on trade receivables and determining the values of financial instruments for disclosure purposes.
3. Material Accounting Policies
The Company's complete accounting policies have been included in the audited financial statements for the year ended December 31, 2022. Except for the items described below, the accounting policies the Company followed in the preparation of these condensed interim financial statements were the same as those applied by the Company in the annual financial statements as at and for the year ended December 31, 2022.
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Changes in accounting standards effective January 1, 2023 IAS 12 Income Taxes (Amendment)
In May 2021, the International Accounting Standards Board (IASB) issued amendments to the recognition exemptions under IAS 12 Income Taxes which were incorporated into Part I of the CPA Canada Handbook - Accounting in September 2021. The amendments narrowed the scope of the recognition exemption to require an entity to recognize deferred tax on initial recognition of particular transactions, to the extent that transaction gives rise to equal taxable and deductible temporary differences. These amendments apply to transactions for which an entity recognizes both an asset and liability, for example leases and decommissioning liabilities. The amendments are effective for annual periods beginning on or after January 1, 2023, with early option permitted. The Company adopted the amendments effective January 1, 2023, with no material impact to the financial statements.
IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors (Amendment)
In February 2021, the International Accounting Standards Board (IASB) issued amendments to IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors which were incorporated into Part I of the CPA Canada Handbook - Accounting in June 2021. The amendments introduce a new definition of 'accounting estimates' to replace the definition of 'change in accounting estimates' and also include clarifications intended to help entities distinguish changes in accounting policies from changes in accounting estimates. The amendments are effective for annual periods beginning on or after January 1, 2023, with early option permitted. The Company adopted the amendments effective January 1, 2023, with no material impact to the financial statements.
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Gulf & Pacific Equities Corp.
Notes to the Condensed Interim Financial Statements
For the Nine Months Ended September 30, 2023 and 2022 Unaudited - See Notice to Reader
(Stated in Canadian Dollars)
4. Investment Properties
September 30, 2023 | December 31, 2022 | |||
Balance - Opening | $ | 47,830,000 | $ | 43,500,000 |
Additions | 152,984 | 2,820,544 | ||
Construction in progress | 773,649 | - | ||
Leasing costs | 476,490 | 97,913 | ||
Leasing costs amortization | (163,257) | (202,952) | ||
Accrued rent receivable | 47,908 | (5,175) | ||
Fair value adjustment | 765,875 | 1,619,670 | ||
Balance - Ending | $ | 49,883,649 | $ | 47,830,000 |
The Company holds three investment properties and determines the fair value of each investment property based on external appraisals and internal review.
During the period ended September 30, 2023, the Company began construction of a pad site on one of the investment properties. The cost associated with the construction are added to the investment properties balance and are carried on a cost basis until the construction is completed and an estimated market value can be determined. As at September 30, 2023, the Company has incurred costs of $773,649 for construction in progress which is included in investment properties.
During the period ended September 30, 2023, the Company performed improvements on one of the investment properties and incurred costs of $152,984.
During the year ended December 31, 2022, the Company began and completed construction of a pad site on one of the investment properties and incurred costs of $2,820,544.
As at September 30, 2023, management used a discounted cashflow approach performed by an external appraisal for two (2) of the properties that were appraised as at March 31, 2023 and June 30, 2022 at a total value of $47,400,000. Management performed an assessment of the underlying inputs and principals of the June 30, 2022 appraisal and determined there was a $300,000 reduction in fair value of the property as a result of an increase in the internal rate as at September 30, 2023. As at September 30, 2023, the fair value of $47,100,000 was determined for two properties based on a discounted cash flow approach. Internal rate of return of 8.20% to 8.50% and terminal capitalization rates of 7.20% to 7.50% as at September 30, 2023 were used to determine the fair value of the properties. The weighted average internal rate of return was 8.43% and weighted average terminal capitalization rate was 7.43% for September 30, 2023.
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Gulf & Pacific Equities Corp.
Notes to the Condensed Interim Financial Statements
For the Nine Months Ended September 30, 2023 and 2022 Unaudited - See Notice to Reader
(Stated in Canadian Dollars)
4. Investment Properties (continued)
As at December 31, 2022, management used a discounted cashflow approach performed by an external appraisal for two (2) of the properties that were appraised as at December 31, 2022 and June 30, 2022 at a total value of $47,200,000. Management performed an assessment of the underlying inputs and principals of the June 30, 2022 appraisal and determined there was a $300,000 reduction in fair value of the property as a result of an increase in the internal rate as at December 31, 2022. As at December 31, 2022, the fair value of $46,900,000 was determined for two properties based on a discounted cash flow approach. Internal rate of return of 8.20% to 8.50% and terminal capitalization rates of 7.20% to 7.50% as at December 31, 2022 were used to determine the fair value of the properties. The weighted average internal rate of return was 8.43% and weighted average terminal capitalization rate was 7.43% for December 31, 2022.
An external appraisal for the third property of $930,000 was obtained as of December 31, 2022 based on the direct capitalization income approach using a capitalization rate of 7%. As at December 31, 2022, the Company also obtained another appraisal of $2,010,000 which was conditional on signing a new lease agreement with a new tenant, at substantially greater rents than the existing tenant, and performing certain improvements to the property. During the period ended September 30, 2023, the Company signed the lease agreement with the new tenant and completed the improvements to the property. Management performed an assessment of the underlying inputs and principals of the December 31, 2022 appraisal and determined that there was a $1,080,000 increase in the fair value of the property as at September 30, 2023 as a result of increased cashflows.
Capitalized income approach: The fair value is determined by applying a capitalization rate to stabilized net operating income which incorporates allowances for vacancy, management fees and structural reserves for capital expenditures for the investment property. The resulting capitalized value is further adjusted, where appropriate, for costs to stabilize the income and non-recoverable capital expenditures. Management obtains new external appraisals if the conditions disclosed change materially. As at September 30, 2023 and December 31, 2022, the Company valued one (1) investment property using this method which is classified as level 3 based on the fair value hierarchy.
Discounted cash flow method: Discount rates are applied to the forecasted cash flows reflecting the initial terms of the leases for the specific property and assumptions as to renewal and new leasing activity. The key assumptions are the normalized first year cash flows, the growth rate applied to the first year cash flows over the analysis period of the investment property, and the discount rate applied over the useful life of the investment property. As at September 30, 2023 and December 31, 2022, the Company valued two (2) investment properties using this method which is classified as level 3 based on the fair value hierarchy.
The discounted cash flow method includes a variety of inputs, variables, and assumptions as part of its valuation model. The most significant input included is the discount rate. As at September 30, 2023, a 25-basis point increase in the discount rate would result in a $891,000 (December 31, 2022 - $932,000) decrease in the estimated fair value of investment properties and a 25-basis point decrease in the discount rate would result in a $771,000 (December 31, 2022 - $722,000) increase in the estimated fair value of the investment properties.
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Gulf & Pacific Equities Corp. published this content on 17 November 2023 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 17 November 2023 06:29:00 UTC.