UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
☒QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2019
☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 01-11350
CONSOLIDATED-TOMOKA LAND CO.
(Exact name of registrant as specified in its charter)
Florida |
|
59-0483700 |
(State or other jurisdiction of |
|
(I.R.S. Employer |
incorporation or organization) |
|
Identification No.) |
|
|
|
1140 N. Williamson Blvd., Suite 140 |
|
|
Daytona Beach, Florida |
|
32114 |
(Address of principal executive offices) |
|
(Zip Code) |
(386) 274-2202
(Registrant’s telephone number, including area code)
N/A
(Former name, former address and former fiscal year, if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or such shorter period that the registrant was required to submit and post such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer |
☐ |
Accelerated filer |
☒ |
|
|
|
|
Non-accelerated filer |
☐ |
Smaller reporting company |
☐ |
|
|
|
|
Emerging growth company |
☐ |
|
|
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in rule 12b-2 of the Exchange Act). Yes ☐ No ☒
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
Class of Common Stock Outstanding
April 18, 2019
$1.00 par value 5,027,906
2
CONSOLIDATED-TOMOKA LAND CO.
|
|
(Unaudited) |
|
|
|
|
|
|
March 31, |
|
December 31, |
||
ASSETS |
|
|
|
|
|
|
Property, Plant, and Equipment: |
|
|
|
|
|
|
Income Properties, Land, Buildings, and Improvements |
|
$ |
392,552,156 |
|
$ |
392,520,783 |
Other Furnishings and Equipment |
|
|
730,878 |
|
|
728,817 |
Construction in Progress |
|
|
46,017 |
|
|
19,384 |
Total Property, Plant, and Equipment |
|
|
393,329,051 |
|
|
393,268,984 |
Less, Accumulated Depreciation and Amortization |
|
|
(26,737,672) |
|
|
(24,518,215) |
Property, Plant, and Equipment—Net |
|
|
366,591,379 |
|
|
368,750,769 |
Land and Development Costs |
|
|
25,745,482 |
|
|
25,764,633 |
Intangible Lease Assets—Net |
|
|
42,315,994 |
|
|
43,555,445 |
Assets Held for Sale—See Note 20 |
|
|
59,078,667 |
|
|
75,866,510 |
Investment in Joint Venture |
|
|
6,797,549 |
|
|
6,788,034 |
Impact Fee and Mitigation Credits |
|
|
447,596 |
|
|
462,040 |
Cash and Cash Equivalents |
|
|
2,682,205 |
|
|
2,310,489 |
Restricted Cash |
|
|
1,336,361 |
|
|
19,721,475 |
Refundable Income Taxes |
|
|
— |
|
|
225,024 |
Other Assets—See Note 9 |
|
|
13,512,025 |
|
|
12,885,453 |
Total Assets |
|
$ |
518,507,258 |
|
$ |
556,329,872 |
LIABILITIES AND SHAREHOLDERS’ EQUITY |
|
|
|
|
|
|
Liabilities: |
|
|
|
|
|
|
Accounts Payable |
|
$ |
990,363 |
|
$ |
1,036,547 |
Accrued and Other Liabilities—See Note 14 |
|
|
4,268,927 |
|
|
5,197,884 |
Deferred Revenue—See Note 15 |
|
|
6,622,253 |
|
|
7,201,604 |
Intangible Lease Liabilities—Net |
|
|
26,697,074 |
|
|
27,390,350 |
Liabilities Held for Sale—See Note 20 |
|
|
1,641,985 |
|
|
1,347,296 |
Income Taxes Payable |
|
|
1,465,653 |
|
|
— |
Deferred Income Taxes—Net |
|
|
55,880,337 |
|
|
54,769,907 |
Long-Term Debt |
|
|
206,991,712 |
|
|
247,624,811 |
Total Liabilities |
|
|
304,558,304 |
|
|
344,568,399 |
Commitments and Contingencies—See Note 18 |
|
|
|
|
|
|
Shareholders’ Equity: |
|
|
|
|
|
|
Shareholders' Equity: |
|
|
|
|
|
|
Common Stock – 25,000,000 shares authorized; $1 par value, 6,072,588 shares issued and 5,386,623 shares outstanding at March 31, 2019; 6,052,209 shares issued and 5,436,952 shares outstanding at December 31, 2018 |
|
|
6,012,993 |
|
|
5,995,257 |
Treasury Stock – 685,965 shares at March 31, 2019 and 615,257 shares at December 31, 2018 |
|
|
(36,470,196) |
|
|
(32,345,002) |
Additional Paid-In Capital |
|
|
24,817,328 |
|
|
24,326,778 |
Retained Earnings |
|
|
219,231,100 |
|
|
213,297,897 |
Accumulated Other Comprehensive Income |
|
|
357,729 |
|
|
486,543 |
Total Shareholders’ Equity |
|
|
213,948,954 |
|
|
211,761,473 |
Total Liabilities and Shareholders’ Equity |
|
$ |
518,507,258 |
|
$ |
556,329,872 |
See Accompanying Notes to Consolidated Financial Statements
3
CONSOLIDATED-TOMOKA LAND CO.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
|
|
Three Months Ended |
||||
|
|
March 31, |
|
March 31, |
||
|
|
2019 |
|
2018 |
||
Revenues |
|
|
|
|
|
|
Income Properties |
|
$ |
10,724,418 |
|
$ |
9,205,727 |
Interest Income from Commercial Loan Investments |
|
|
— |
|
|
300,999 |
Real Estate Operations |
|
|
3,534,901 |
|
|
13,990,517 |
Total Revenues |
|
|
14,259,319 |
|
|
23,497,243 |
Direct Cost of Revenues |
|
|
|
|
|
|
Income Properties |
|
|
(1,932,488) |
|
|
(1,869,029) |
Real Estate Operations |
|
|
(1,625,269) |
|
|
(1,540,834) |
Total Direct Cost of Revenues |
|
|
(3,557,757) |
|
|
(3,409,863) |
General and Administrative Expenses |
|
|
(2,501,620) |
|
|
(2,823,548) |
Depreciation and Amortization |
|
|
(3,346,287) |
|
|
(3,796,823) |
Total Operating Expenses |
|
|
(9,405,664) |
|
|
(10,030,234) |
Gain on Disposition of Assets |
|
|
6,869,957 |
|
|
3,650,858 |
Total Operating Income |
|
|
11,723,612 |
|
|
17,117,867 |
Investment Income (Loss) |
|
|
38,755 |
|
|
12,312 |
Interest Expense |
|
|
(2,923,229) |
|
|
(2,561,465) |
Income from Continuing Operations Before Income Tax Benefit (Expense) |
|
|
8,839,138 |
|
|
14,568,714 |
Income Tax Benefit (Expense) from Continuing Operations |
|
|
(2,210,802) |
|
|
(3,558,599) |
Net Income from Continuing Operations |
|
|
6,628,336 |
|
|
11,010,115 |
Loss from Discontinued Operations (Net of Income Tax)—See Note 20 |
|
|
(160,237) |
|
|
(97,816) |
Net Income |
|
$ |
6,468,099 |
|
$ |
10,912,299 |
|
|
|
|
|
|
|
Per Share Information—See Note 10: |
|
|
|
|
|
|
Basic |
|
|
|
|
|
|
Net Income from Continuing Operations |
|
$ |
1.24 |
|
$ |
1.99 |
Net Loss from Discontinued Operations (Net of Income Tax) |
|
|
(0.03) |
|
|
(0.02) |
Basic Net Income per Share |
|
$ |
1.21 |
|
$ |
1.97 |
Diluted |
|
|
|
|
|
|
Net Income from Continuing Operations |
|
$ |
1.24 |
|
$ |
1.98 |
Net Loss from Discontinued Operations (Net of Income Tax) |
|
|
(0.03) |
|
|
(0.02) |
Diluted Net Income per Share |
|
$ |
1.21 |
|
$ |
1.96 |
|
|
|
|
|
|
|
Dividends Declared and Paid |
|
$ |
0.10 |
|
$ |
0.06 |
|
|
|
|
|
|
|
See Accompanying Notes to Consolidated Financial Statements
4
CONSOLIDATED-TOMOKA LAND CO.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
|
|
Three Months Ended |
||||
|
|
March 31, |
|
March 31, |
||
|
|
|
|
|
|
|
Net Income |
|
$ |
6,468,099 |
|
$ |
10,912,299 |
Other Comprehensive Income (Loss) |
|
|
|
|
|
|
Cash Flow Hedging Derivative - Interest Rate Swap (Net of Income Tax of $(43,732) and $60,365, respectively) |
|
|
(128,814) |
|
|
258,066 |
Total Other Comprehensive Income (Loss), Net of Income Tax |
|
|
(128,814) |
|
|
258,066 |
Total Comprehensive Income |
|
$ |
6,339,285 |
|
$ |
11,170,365 |
|
|
|
|
|
|
|
See Accompanying Notes to Consolidated Financial Statements
5
CONSOLIDATED-TOMOKA LAND CO.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
(Unaudited)
For the three months ended March 31, 2019:
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated |
|
|
||||
|
|
|
|
|
|
Additional |
|
|
|
Other |
|
|
||||||
|
|
Common |
|
Treasury |
|
Paid-In |
|
Retained |
|
Comprehensive |
|
Shareholders’ |
||||||
|
|
Stock |
|
Stock |
|
Capital |
|
Earnings |
|
Income (Loss) |
|
Equity |
||||||
Balance January 1, 2019 |
|
$ |
5,995,257 |
|
$ |
(32,345,002) |
|
$ |
24,326,778 |
|
$ |
213,297,897 |
|
$ |
486,543 |
|
$ |
211,761,473 |
Net Income |
|
|
— |
|
|
— |
|
|
— |
|
|
6,468,099 |
|
|
— |
|
|
6,468,099 |
Stock Repurchase |
|
|
— |
|
|
(4,125,194) |
|
|
— |
|
|
— |
|
|
— |
|
|
(4,125,194) |
Vested Restricted Stock |
|
|
12,957 |
|
|
— |
|
|
(316,272) |
|
|
— |
|
|
— |
|
|
(303,315) |
Stock Issuance |
|
|
4,779 |
|
|
— |
|
|
267,352 |
|
|
— |
|
|
— |
|
|
272,131 |
Stock Compensation Expense from Restricted Stock Grants and Equity Classified Stock Options |
|
|
— |
|
|
— |
|
|
539,470 |
|
|
— |
|
|
— |
|
|
539,470 |
Cash Dividends ($0.10 per share) |
|
|
— |
|
|
— |
|
|
— |
|
|
(534,896) |
|
|
— |
|
|
(534,896) |
Other Comprehensive Loss, Net of Income Tax |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
(128,814) |
|
|
(128,814) |
Balance March 31, 2019 |
|
$ |
6,012,993 |
|
$ |
(36,470,196) |
|
$ |
24,817,328 |
|
$ |
219,231,100 |
|
$ |
357,729 |
|
$ |
213,948,954 |
For the three months ended March 31, 2018:
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated |
|
|
||||
|
|
|
|
|
|
Additional |
|
|
|
Other |
|
|
||||||
|
|
Common |
|
Treasury |
|
Paid-In |
|
Retained |
|
Comprehensive |
|
Shareholders’ |
||||||
|
|
Stock |
|
Stock |
|
Capital |
|
Earnings |
|
Income (Loss) |
|
Equity |
||||||
Balance January 1, 2018 |
|
$ |
5,963,850 |
|
$ |
(22,507,760) |
|
$ |
22,735,228 |
|
$ |
177,614,274 |
|
$ |
372,616 |
|
$ |
184,178,208 |
Net Income |
|
|
— |
|
|
— |
|
|
— |
|
|
10,912,299 |
|
|
— |
|
|
10,912,299 |
Vested Restricted Stock |
|
|
19,065 |
|
|
— |
|
|
(517,439) |
|
|
— |
|
|
— |
|
|
(498,374) |
Stock Issuance |
|
|
561 |
|
|
— |
|
|
35,063 |
|
|
— |
|
|
— |
|
|
35,624 |
Stock Compensation Expense from Restricted Stock Grants and Equity Classified Stock Options |
|
|
— |
|
|
— |
|
|
467,271 |
|
|
— |
|
|
— |
|
|
467,271 |
Cash Dividends ($0.06 per share) |
|
|
— |
|
|
— |
|
|
— |
|
|
(332,209) |
|
|
— |
|
|
(332,209) |
Other Comprehensive Income, Net of Income Tax |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
258,066 |
|
|
258,066 |
Balance March 31, 2018 |
|
$ |
5,983,476 |
|
$ |
(22,507,760) |
|
$ |
22,720,123 |
|
$ |
188,194,364 |
|
$ |
630,682 |
|
$ |
195,020,885 |
See Accompanying Notes to Consolidated Financial Statements
6
CONSOLIDATED-TOMOKA LAND CO.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
|
|
Three Months Ended |
||||
|
|
March 31, |
|
March 31, |
||
|
|
2019 |
|
2018 |
||
Cash Flow from Operating Activities: |
|
|
|
|
|
|
Net Income |
|
$ |
6,468,099 |
|
$ |
10,912,299 |
Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities: |
|
|
|
|
|
|
Depreciation and Amortization |
|
|
3,346,287 |
|
|
3,900,379 |
Amortization of Intangible Liabilities to Income Property Revenue |
|
|
(580,655) |
|
|
(579,659) |
Loan Cost Amortization |
|
|
105,841 |
|
|
149,895 |
Amortization of Discount on Convertible Debt |
|
|
331,260 |
|
|
310,782 |
Gain on Disposition of Property, Plant, and Equipment and Intangible Assets |
|
|
— |
|
|
(3,650,858) |
Gain on Disposition of Assets Held for Sale |
|
|
(6,869,957) |
|
|
— |
Accretion of Commercial Loan Origination Fees |
|
|
— |
|
|
(14,760) |
Deferred Income Taxes |
|
|
981,616 |
|
|
3,930,060 |
Non-Cash Compensation |
|
|
811,601 |
|
|
502,895 |
Decrease (Increase) in Assets: |
|
|
|
|
|
|
Refundable Income Taxes |
|
|
225,024 |
|
|
(166,324) |
Golf Assets Held for Sale |
|
|
(218,215) |
|
|
— |
Land and Development Costs |
|
|
19,151 |
|
|
(198,173) |
Impact Fees and Mitigation Credits |
|
|
14,444 |
|
|
311,236 |
Other Assets |
|
|
(626,572) |
|
|
(711,750) |
Increase (Decrease) in Liabilities: |
|
|
|
|
|
|
Accounts Payable |
|
|
(46,184) |
|
|
(450,864) |
Accrued and Other Liabilities |
|
|
(928,957) |
|
|
(4,093,144) |
Deferred Revenue |
|
|
(579,351) |
|
|
483,305 |
Golf Liabilities Held for Sale |
|
|
294,689 |
|
|
— |
Income Taxes Payable |
|
|
1,465,653 |
|
|
— |
Net Cash Provided By Operating Activities |
|
|
4,213,774 |
|
|
10,635,319 |
Cash Flow from Investing Activities: |
|
|
|
|
|
|
Acquisition of Property, Plant, and Equipment and Intangible Lease Assets and Liabilities |
|
|
(188,112) |
|
|
(27,916,784) |
Acquisition of Commercial Loan Investments |
|
|
— |
|
|
— |
Acquisition of Land |
|
|
— |
|
|
(2,141,853) |
Cash Contribution for Interest in Joint Venture |
|
|
(9,515) |
|
|
— |
Proceeds from Disposition of Property, Plant, and Equipment, Net, and Assets Held for Sale |
|
|
24,004,060 |
|
|
11,077,525 |
Net Cash Used In Investing Activities |
|
|
23,806,433 |
|
|
(18,981,112) |
Cash Flow from Financing Activities: |
|
|
|
|
|
|
Proceeds from Long-Term Debt |
|
|
3,000,000 |
|
|
33,000,000 |
Payments on Long-Term Debt |
|
|
(44,070,200) |
|
|
(29,899,770) |
Cash Paid for Loan Fees |
|
|
— |
|
|
(117,683) |
Cash Used to Purchase Common Stock |
|
|
(4,125,194) |
|
|
— |
Cash Paid for Vesting of Restricted Stock |
|
|
(303,315) |
|
|
(498,374) |
Dividends Paid |
|
|
(534,896) |
|
|
(332,209) |
Net Cash Provided By Financing Activities |
|
|
(46,033,605) |
|
|
2,151,964 |
Net Increase (Decrease) in Cash |
|
|
(18,013,398) |
|
|
(6,193,829) |
Cash, Beginning of Year |
|
|
22,031,964 |
|
|
13,067,540 |
Cash, End of Period |
|
$ |
4,018,566 |
|
$ |
6,873,711 |
Reconciliation of Cash to the Consolidated Balance Sheets: |
|
|
|
|
|
|
|
Cash and Cash Equivalents |
|
$ |
2,682,205 |
|
$ |
3,724,714 |
|
Restricted Cash |
|
|
1,336,361 |
|
|
3,148,997 |
|
Total Cash as of March 31, 2019 and 2018, respectively |
|
$ |
4,018,566 |
|
$ |
6,873,711 |
|
See Accompanying Notes to Consolidated Financial Statements
7
CONSOLIDATED-TOMOKA LAND CO.
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
(Unaudited)
Supplemental Disclosure of Cash Flows:
Income taxes refunded totaled approximately $687,000 during the three months ended March 31, 2019. No income taxes were paid or refunded during the three months ended March 31, 2018.
Interest totaling approximately $3.4 million and $2.9 million was paid during the three months ended March 31, 2019 and 2018, respectively. No interest was capitalized during the three months ended March 31, 2019 or 2018.
In connection with the Company’s implementation of Financial Accounting Standards Board (“FASB”) Accounting Standards Update (“ASU”) Topic 842, Leases, effective January 1, 2019, the Company recorded an increase in right-of-use assets and lease liabilities for leases for which the Company is the lessee. The amount of the adjustment totaled approximately $681,000 and was reflected as an increase in Other Assets and Accrued and Other Liabilities for corporate leases totaling approximately $473,000 and an increase in Assets Held for Sale and Liabilities Held for Sale for golf operations segment leases totaling approximately $208,000.
In connection with the acquisition of the property in Aspen, Colorado, the tenant contributed $1.5 million of the $28.0 million purchase price at closing on February 21, 2018. The $1.5 million purchase price contribution was reflected as an increase in Income Property, Land, Buildings, and Improvements and Deferred Revenue on the accompanying consolidated balance sheets as of March 31, 2018.
In connection with the construction of the beachfront restaurant leased to Cocina 214 Restaurant & Bar in Daytona Beach, Florida, the tenant contributed approximately $1.9 million of the building and tenant improvements owned by the Company through direct payments to various third-party construction vendors. The approximately $1.9 million asset contribution was reflected as an increase in Income Property, Land, Buildings, and Improvements and Deferred Revenue on the accompanying consolidated balance sheets as of March 31, 2018.
See Accompanying Notes to Consolidated Financial Statements
8
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE 1. DESCRIPTION OF BUSINESS AND PRINCIPLES OF INTERIM STATEMENTS
Description of Business
The terms “us,” “we,” “our,” and “the Company” as used in this report refer to Consolidated-Tomoka Land Co. together with our consolidated subsidiaries.
We are a diversified real estate operating company. We own and manage, sometimes utilizing third-party property management companies, forty-six commercial real estate properties in fourteen states in the United States. As of March 31, 2019, we owned forty single-tenant and six multi-tenant income-producing properties with approximately 2.3 million square feet of gross leasable space. We also own and manage a portfolio of undeveloped land totaling approximately 5,400 acres in Daytona Beach, Florida. We own the LPGA International Golf Club, which is managed by a third party and classified as held for sale (the “Club”). We also lease some of our land for eighteen billboards, have agricultural operations that are managed by a third party, which consist of leasing land for hay production and timber harvesting, and own and manage Subsurface Interests (hereinafter defined).
Interim Financial Information
The accompanying unaudited consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). These unaudited consolidated financial statements do not include all of the information and notes required by accounting principles generally accepted in the United States of America (“GAAP”) for complete financial statements and should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended December 31, 2018, which provides a more complete understanding of the Company’s accounting policies, financial position, operating results, business properties, and other matters. The unaudited consolidated financial statements reflect all adjustments which are, in the opinion of management, necessary to present fairly the financial position of the Company and the results of operations for the interim periods.
The results of operations for the three months ended March 31, 2019 are not necessarily indicative of results to be expected for the year ending December 31, 2019.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company, its wholly owned subsidiaries, and other entities in which we have a controlling interest. Any real estate entities or properties included in the consolidated financial statements have been consolidated only for the periods that such entities or properties were owned or under control by us. All inter-company balances and transactions have been eliminated in the consolidated financial statements.
Use of Estimates in Preparation of Financial Statements
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Recently Issued Accounting Standards
In February 2016, the FASB issued ASU 2016-02, which requires entities to recognize assets and liabilities that arise from financing and operating leases and to classify those finance and operating lease payments in the financing or operating sections, respectively, of the statement of cash flows pursuant to FASB ASC Topic 842, Leases. The amendments in this update are effective for annual reporting periods beginning after December 15, 2018.
The Company’s implemented ASC 842 effective January 1, 2019 and has elected to follow the practical expedients and accounting policies below:
· |
The Company, as lessee and as lessor, will not reassess (i) whether any expired or existing contracts are or contain leases, (ii) lease classification for any expired or existing leases or (iii) initial direct costs for any expired or existing leases. |
9
· |
The Company, as lessee, will not apply the recognition requirements of ASC 842 to short-term (twelve months or less) leases. Instead, the Company, as lessee, will recognize the lease payments in profit or loss on a straight-line basis over the lease term and variable lease payments in the period in which the obligation for those payments is incurred. As of the date of this report, the Company has no such short-term leases. |
· |
The Company, as lessor, will not separate nonlease components from lease components and, instead, will account for each separate lease component and the nonlease components associated with that lease as a single component if the nonlease components otherwise would be accounted for under ASC Topic 606. The primary reason for this election is related to instances where common area maintenance is, or may be, a component of base rent within a lease agreement. |
At the beginning of the period of adoption, January 1, 2019, through a cumulative-effect adjustment, the Company increased right-of use assets and lease liabilities for operating leases for which the Company is the lessee. The amount of the adjustment totaled approximately $681,000 and was reflected as an increase in Other Assets and Accrued and Other Liabilities for corporate leases totaling approximately $473,000 and an increase in Assets Held for Sale and Liabilities Held for sale for golf operations segment leases totaling approximately $208,000. There were no adjustments related to the leases for which the Company is the lessor.
Cash and Cash Equivalents
Cash and cash equivalents include cash on hand, bank demand accounts, and money market accounts having original maturities of 90 days or less. The Company’s bank balances as of March 31, 2019 include certain amounts over the Federal Deposit Insurance Corporation limits.
Restricted Cash
Restricted cash totaled approximately $1.3 million at March 31, 2019 of which approximately $1.1 million is being held in three separate escrow accounts related to three separate land transactions which closed in December 2013, February 2017, and March 2018; and approximately $223,000 is being held in a capital replacement reserve account in connection with our financing of six income properties with Wells Fargo Bank, NA (“Wells Fargo”).
Derivative Financial Instruments and Hedging Activity
Interest Rate Swap. In conjunction with the variable-rate mortgage loan secured by our property located in Raleigh, North Carolina leased to Wells Fargo, the Company entered into an interest rate swap to fix the interest rate (the “Interest Rate Swap”). The Company accounts for its cash flow hedging derivative in accordance with FASB ASC Topic 815-20, Derivatives and Hedging. Depending upon the hedge’s value at each balance sheet date, the derivative is included in either Other Assets or Accrued and Other Liabilities on the consolidated balance sheet at its fair value. On the date the Interest Rate Swap was entered into, the Company designated the derivative as a hedge of the variability of cash flows to be paid related to the recognized long-term debt liability.
The Company formally documented the relationship between the hedging instrument and the hedged item, as well as its risk-management objective and strategy for undertaking the hedge transaction. At the hedge’s inception, the Company formally assessed whether the derivative that is used in hedging the transaction is highly effective in offsetting changes in cash flows of the hedged item, and we will continue to do so on an ongoing basis. As the terms of the Interest Rate Swap and the associated debt are identical, the Interest Rate Swap qualifies for the shortcut method, therefore, it is assumed that there is no hedge ineffectiveness throughout the entire term of the Interest Rate Swap.
Changes in fair value of the Interest Rate Swap that are highly effective and designated and qualified as a cash-flow hedge are recorded in other comprehensive income and loss, until earnings are affected by the variability in cash flows of the designated hedged item.
Fair Value of Financial Instruments
The carrying amounts of the Company’s financial assets and liabilities including cash and cash equivalents, restricted cash, accounts receivable, accounts payable, and accrued and other liabilities at March 31, 2019 and December 31, 2018, approximate fair value because of the short maturity of these instruments. The carrying value of the Company’s credit facility approximates current market rates for revolving credit arrangements with similar risks and maturities. The face
10
value of the Company’s mortgage notes and convertible debt is measured at fair value based on current market rates for financial instruments with similar risks and maturities. See Note 6, “Fair Value of Financial Instruments.”
Fair Value Measurements
The Company’s estimates of fair value of financial and non-financial assets and liabilities is based on the framework established by GAAP. The framework specifies a hierarchy of valuation inputs which was established to increase consistency, clarity and comparability in fair value measurements and related disclosures. GAAP describes a fair value hierarchy based upon three levels of inputs that may be used to measure fair value, two of which are considered observable and one that is considered unobservable. The following describes the three levels:
· |
Level 1 – Valuation is based upon quoted prices in active markets for identical assets or liabilities. |
· |
Level 2 – Valuation is based upon inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities. |
· |
Level 3 – Valuation is generated from model-based techniques that use at least one significant assumption not observable in the market. These unobservable assumptions reflect estimates of assumptions that market participants would use in pricing the asset or liability. Valuation techniques include option pricing models, discounted cash flow models and similar techniques. |
Impact Fees and Mitigation Credits
Impact fees and mitigation credits are stated at historical cost. As these assets are sold, the related revenues and cost basis are reported as revenues from, and direct costs of, real estate operations, respectively, in the consolidated statements of operations.
Accounts Receivable
Accounts receivable related to income properties, which are classified in other assets on the consolidated balance sheets, primarily consist of tenant reimbursable expenses. Receivables related to tenant reimbursable expenses totaled approximately $1.0 million and $628,000 as of March 31, 2019 and December 31, 2018, respectively.
Accounts receivable related to real estate operations, which are classified in other assets on the consolidated balance sheets, totaled approximately $1.8 million as of both March 31, 2019 and December 31, 2018. As more fully described in Note 9, “Other Assets,” these accounts receivable are primarily related to the reimbursement of certain infrastructure costs completed by the Company in conjunction with two land sale transactions that closed during the fourth quarter of 2015.
Trade accounts receivable primarily consist of receivables related to the golf operations segment, which are classified in Assets Held for Sale on the consolidated balance sheets. Trade accounts receivable related to golf operations segment, which primarily consist of amounts due from members or from private events, totaled approximately $347,000 and $290,000 as of March 31, 2019 and December 31, 2018, respectively.
The collectability of the aforementioned receivables is determined based on the aging of the receivable and a review of the specifically identified accounts using judgments. As of March 31, 2019 and December 31, 2018, the Company recorded an allowance for doubtful accounts of approximately $217,000 and $185,000, respectively.
Purchase Accounting for Acquisitions of Real Estate Subject to a Lease
In accordance with the FASB guidance on business combinations, the fair value of the real estate acquired with in-place leases is allocated to the acquired tangible assets, consisting of land, building and tenant improvements, and identified intangible assets and liabilities, consisting of the value of above-market and below-market leases, the value of in-place leases, and the value of leasing costs, based in each case on their relative fair values.
11
The fair value of the tangible assets of an acquired leased property is determined by valuing the property as if it were vacant, and the “as-if-vacant” value is then allocated to land, building and tenant improvements based on the determination of the fair values of these assets.
In allocating the fair value of the identified intangible assets and liabilities of an acquired property, above-market and below-market in-place lease values are recorded as other assets or liabilities based on the present value (using an interest rate which reflects the risks associated with the leases acquired) of the difference between (i) the contractual amounts to be paid pursuant to the in-place leases, and (ii) management’s estimate of fair market lease rates for the corresponding in-place leases, measured over a period equal to the remaining term of the lease, including the probability of renewal periods. The capitalized above-market lease values are amortized as a reduction of rental income over the remaining terms of the respective leases. The capitalized below-market lease values are amortized as an increase to rental income over the initial term unless the Company believes that it is likely that the tenant will renew the option whereby the Company amortizes the value attributable to the renewal over the renewal period.
The aggregate value of other acquired intangible assets, consisting of in-place leases, is measured by the excess of (i) the purchase price paid for a property after adjusting existing in-place leases to market rental rates over (ii) the estimated fair value of the property as-if-vacant, determined as set forth above. The value of in-place leases exclusive of the value of above-market and below-market in-place leases is amortized to expense over the remaining non-cancelable periods of the respective leases. If a lease were to be terminated prior to its stated expiration, all unamortized amounts relating to that lease would be written off. The value of tenant relationships is reviewed on individual transactions to determine if future value was derived from the acquisition.
In January 2017, the FASB issued ASU 2017-01, Business Combinations which clarified the definition of a business. Pursuant to ASU 2017-01, the acquisition of an income property subject to a lease no longer qualifies as a business combination, but rather an asset acquisition, accordingly acquisition costs have been capitalized.
Sales of Real Estate
Gains and losses on sales of real estate are accounted for as required by FASB ASC Topic 606, Revenue from Contracts with Customers. The Company recognizes revenue from the sales of real estate when the Company transfers the promised goods and/or services in the contract based on the transaction price allocated to the performance obligations within the contract. As market information becomes available, real estate cost basis is analyzed and recorded at the lower of cost or market.
Income Taxes
The Company uses the asset and liability method to account for income taxes. Deferred income taxes result primarily from the net tax effect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. See Note 17, “Income Taxes.” In June 2006, the FASB issued additional guidance, which clarifies the accounting for uncertainty in income taxes recognized in a company’s financial statements included in income taxes. The interpretation prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. The interpretation also provides guidance on de-recognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. In accordance with FASB guidance included in income taxes, the Company has analyzed its various federal and state filing positions and believes that its income tax filing positions and deductions are well documented and supported. Additionally, the Company believes that its accruals for tax liabilities are adequate. Therefore, no reserves for uncertain income tax positions have been recorded pursuant to the FASB guidance.
12
NOTE 2. REVENUE RECOGNITION
The Company implemented FASB ASC Topic 606, Revenue from Contracts with Customers effective January 1, 2018 utilizing the modified retrospective method.
The following table summarizes the Company’s revenue by segment, major good and/or service, and the related timing of revenue recognition for the three months ended March 31, 2019:
|
|
|
|
|
|
|
|
|||
|
|
|
Income |
|
Real Estate |
|
Total |
|||
|
|
|
Properties |
|
Operations |
|
Revenues |
|||
|
|
|
($000's) |
|
($000's) |
|
($000's) |
|||
|
|
|
|
|
|
|
|
|
|
|
Major Good / Service: |
|
|
|
|
|
|
|
|
|
|
|
Lease Revenue - Base Rent |
|
$ |
8,875 |
|
$ |
27 |
|
$ |
8,902 |
|
Lease Revenue - CAM |
|
|
670 |
|
|
— |
|
|
670 |
|
Lease Revenue - Reimbursements |
|
|
546 |
|
|
— |
|
|
546 |
|
Lease Revenue - Billboards |
|
|
36 |
|
|
— |
|
|
36 |
|
Above / Below Market Lease Accretion |
|
|
581 |
|
|
— |
|
|
581 |
|
Contributed Leased Assets Accretion |
|
|
62 |
|
|
— |
|
|
62 |
|
Lease Incentive Amortization |
|
|
(76) |
|
|
— |
|
|
(76) |
|
Land Sale Revenue |
|
|
— |
|
|
3,300 |
|
|
3,300 |
|
Subsurface Lease Revenue |
|
|
— |
|
|
199 |
|
|
199 |
|
Subsurface Revenue - Other |
|
|
— |
|
|
9 |
|
|
9 |
|
Interest and Other Revenue |
|
|
30 |
|
|
— |
|
|
30 |
|
Total Revenues |
|
$ |
10,724 |
|
$ |
3,535 |
|
$ |
14,259 |
|
|
|
|
|
|
|
|
|
|
|
Timing of Revenue Recognition: |
|
|
|
|
|
|
|
|
|
|
|
Asset/Good Transferred at a Point in Time |
|
$ |
— |
|
$ |
3,309 |
|
$ |
3,309 |
|
Services Transferred Over Time |
|
|
30 |
|
|
— |
|
|
30 |
|
Over Lease Term |
|
|
10,694 |
|
|
226 |
|
|
10,920 |
|
Commercial Loan Investment Related Revenue |
|
|
— |
|
|
— |
|
|
— |
|
Total Revenues |
|
$ |
10,724 |
|
$ |
3,535 |
|
$ |
14,259 |
13
The following table summarizes the Company’s revenue by segment, major good and/or service, and the related timing of revenue recognition for the three months ended March 31, 2018:
|
|
|
|
|
Interest Income |
|
|
|
|
||||
|
|
|
Income |
|
from Commercial |
|
Real Estate |
|
Total |
||||
|
|
|
Properties |
|
Loan Investments |
|
Operations |
|
Revenues |
||||
|
|
|
($000's) |
|
($000's) |
|
($000's) |
|
($000's) |
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Major Good / Service: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lease Revenue - Base Rent |
|
$ |
7,422 |
|
$ |
— |
|
$ |
11 |
|
$ |
7,433 |
|
Lease Revenue - CAM |
|
|
614 |
|
|
— |
|
|
— |
|
|
614 |
|
Lease Revenue - Reimbursements |
|
|
565 |
|
|
— |
|
|
— |
|
|
565 |
|
Lease Revenue - Billboards |
|
|
64 |
|
|
— |
|
|
— |
|
|
64 |
|
Above / Below Market Lease Accretion |
|
|
580 |
|
|
— |
|
|
— |
|
|
580 |
|
Contributed Leased Assets Accretion |
|
|
10 |
|
|
— |
|
|
— |
|
|
10 |
|
Lease Incentive Amortization |
|
|
(76) |
|
|
— |
|
|
— |
|
|
(76) |
|
Interest from Commercial Loan Investments |
|
|
— |
|
|
301 |
|
|
— |
|
|
301 |
|
Land Sale Revenue |
|
|
— |
|
|
— |
|
|
13,117 |
|
|
13,117 |
|
Impact Fee and Mitigation Credit Sales |
|
|
— |
|
|
— |
|
|
116 |
|
|
116 |
|
Subsurface Lease Revenue |
|
|
— |
|
|
— |
|
|
199 |
|
|
199 |
|
Subsurface Revenue - Other |
|
|
— |
|
|
— |
|
|
547 |
|
|
547 |
|
Interest and Other Revenue |
|
|
27 |
|
|
— |
|
|
— |
|
|
27 |
|
Total Revenues |
|
$ |
9,206 |
|
$ |
301 |
|
$ |
13,990 |
|
$ |
23,497 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Timing of Revenue Recognition: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset/Good Transferred at a Point in Time |
|
$ |
— |
|
$ |
— |
|
$ |
13,780 |
|
$ |
13,780 |
|
Services Transferred Over Time |
|
|
27 |
|
|
— |
|
|
— |
|
|
27 |
|
Over Lease Term |
|
|
9,179 |
|
|
— |
|
|
210 |
|
|
9,389 |
|
Commercial Loan Investment Related Revenue |
|
|
— |
|
|
301 |
|
|
— |
|
|
301 |
|
Total Revenues |
|
$ |
9,206 |
|
$ |
301 |
|
$ |
13,990 |
|
$ |
23,497 |
NOTE 3. INCOME PROPERTIES
No income properties were acquired during the three months ended March 31, 2019.
One multi-tenant income property, which was classified in Assets Held for Sale as of December 31, 2018, was disposed of during the three months ended March 31, 2019. On February 21, 2019, the Company sold its approximately 59,000 square foot multi-tenant retail property anchored by a Whole Foods Market retail store located in Sarasota, Florida for approximately $24.62 million (the “Whole Foods Sale”). The gain on the Whole Foods Sale totaled approximately $6.9 million, or approximately $0.96 per share, after tax. The Company applied the proceeds from the Whole Foods Sale towards the purchase of the previously-acquired portfolio of eight single-tenant ground leased income properties in Jacksonville, Florida, through a reverse 1031 like-kind exchange structure. The Whole Foods Sale continues the Company’s objective of transitioning the income property portfolio to primarily single-tenant net lease properties.
During the three months ended March 31, 2018, the Company acquired one single-tenant income property for a purchase price of $28.0 million, or an acquisition cost of approximately $29.0 million including capitalized acquisition costs. Of the total acquisition cost, approximately $12.0 million was allocated to land, approximately $15.0 million was allocated to buildings and improvements, approximately $2.8 million was allocated to intangible assets pertaining to the in-place lease value, leasing fees and above market lease value, and approximately $0.8 million was allocated to intangible liabilities for the below market lease value. The weighted average amortization period for the intangible assets and liabilities was approximately 20.0 years at acquisition.
Four income properties were disposed of during the three months ended March 31, 2018. On March 26, 2018, the Company sold its four self-developed, multi-tenant office properties located in Daytona Beach, Florida, for approximately $11.4 million (the “Self-Developed Properties Sale”). The sale included the 22,012 square-foot Concierge office building, the 30,720 square-foot Mason Commerce Center comprised of two office buildings, and the 15,360 square-foot Williamson Business Park office building. The gain on the sale totaled approximately $3.7 million, or
14
approximately $0.49 per share, after tax. The Company utilized the proceeds to fund a portion of the previously-acquired income property located near Portland, Oregon, leased to Wells Fargo, through a reverse 1031 like-kind exchange structure. As part of the transaction, the Company entered into a lease of its approximately 7,600 square-foot office space in Williamson Business Park for approximately 5 years at a market rental rate.
NOTE 4. LAND AND SUBSURFACE INTERESTS
As of March 31, 2019, the Company owned approximately 5,400 acres of undeveloped land in Daytona Beach, Florida, along six miles of the west and east sides of Interstate 95. Currently, a significant amount of this land is used for agricultural purposes. As of April 30, 2019, approximately 60% of this acreage, over 3,200 acres, is under contract to be sold. Approximately 900 acres of our land holdings are located on the east side of Interstate 95 and are generally well-suited for commercial development. Approximately 4,500 acres of our land holdings are located on the west side of Interstate 95 and the majority of this land is generally well-suited for residential development. Included in the western land is approximately 1,000 acres, primarily an 850-acre parcel and three smaller parcels, which are located further west of Interstate 95 and a few miles north of Interstate 4 that are generally well-suited for industrial purposes.
Real estate operations revenue consisted of the following for the three months ended March 31, 2019 and 2018, respectively:
|
|
|
Three Months Ended |
|||
|
|
March 31, 2019 |
|
March 31, 2018 |
||
Revenue Description |
|
($000's) |
|
($000's) |
||
Land Sales Revenue |
|
$ |
3,300 |
|
$ |
13,117 |
Impact Fee and Mitigation Credit Sales |
|
|
— |
|
|
116 |
Subsurface Revenue |
|
|
208 |
|
|
746 |
Fill Dirt and Other Revenue |
|
|
27 |
|
|
— |
Agriculture |
|
|
— |
|
|
11 |
Total Real Estate Operations Revenue |
|
$ |
3,535 |
|
$ |
13,990 |
2019 Land Sales. During the three months ended March 31, 2019, a total of approximately 9.9 acres were sold for approximately $3.3 million, as described below:
|
|
|
|
|
|
|
|
|
|
Gross Sales |
|
|
|
Gain |
|||
|
|
|
|
|
|
Date of |
|
No. of |
|
Price |
|
Price |
|
on Sale |
|||
|
|
Buyer (or Description) |
|
Location |
|
Sale |
|
Acres |
|
($000's) |
|
per Acre |
|
($000's) |
|||
1 |
|
Unicorp-Grocery Anchored Project |
|
East of I-95 |
|
02/27/19 |
|
9.9 |
|
$ |
3,300 |
|
$ |
333,000 |
|
$ |
2,274 |
2018 Land Sales. During the three months ended March 31, 2018, a total of approximately 34.9 acres were sold for approximately $13.9 million, as described below:’
|
|
|
|
|
|
|
|
|
|
Gross Sales |
|
|
|
Gain |
|||
|
|
|
|
|
|
Date of |
|
No. of |
|
Price (1) |
|
Price |
|
on Sale |
|||
|
|
Buyer (or Description) |
|
Location |
|
Sale |
|
Acres |
|
($000's) |
|
per Acre |
|
($000's) |
|||
1 |
|
Buc-ee's |
|
East of I-95 |
|
03/16/18 |
|
34.9 |
|
$ |
13,948 |
|
$ |
400,000 |
|
$ |
11,926 |
(1)The gain recognized during the three months ended March 31, 2018 on the Buc-ee’s sale totaling approximately $11.9 million excludes approximately $831,000 held in an escrow reserve related to the portion of the acreage sold for which the Company remains obligated to perform wetlands mitigation. The Company expects to recognize the remaining gain of approximately $831,000 upon completion of the mitigation work. See Note 15, “Deferred Revenue”.
Pipeline. For a description of our land which is currently under contract, see the land pipeline in Note 18, “Commitment and Contingencies.”
15
Land Impairments. There were no impairment charges related to the Company’s undeveloped land during the three months ended March 31, 2019 or 2018.
Daytona Beach Development. We may selectively acquire other real estate in Daytona Beach, Florida. We may target either vacant land or land with existing structures that we would demolish and develop into additional income properties. During 2018, the Company acquired a 5-acre parcel of land with existing structures in downtown Daytona Beach, for a purchase price of approximately $2.0 million. As of December 31, 2018, the Company had also acquired other contiguous parcels totaling approximately 1-acre for approximately $1.8 million. Combined, these parcels represent the substantial portion of an entire city block in downtown Daytona Beach adjacent to International Speedway Boulevard, a major thoroughfare in Daytona Beach. The combined 6 acres is located in an opportunity zone and a community redevelopment area. In addition, this property is proximate to the future headquarters of Brown & Brown Inc., the sixth largest insurance broker in the U.S. and a publicly listed company, that is expected to be occupied by at least 600 of their employees. We have engaged a national real estate brokerage firm to assist us in identifying a developer or investor to acquire a portion or all of the property or to contribute into a potential joint venture to redevelop the property. We are pursuing entitlements for the potential redevelopment of these parcels, along with certain other adjacent land parcels, some of which we have under contract for purchase. Our intent for investments in the Daytona Beach area is to target opportunistic acquisitions of select catalyst sites, which are typically distressed, with the objective of short-to-medium investment horizons. We may enter into joint ventures or other partnerships to develop land we have acquired or may acquire in the future in lieu of self-developing.
Other Real Estate Assets. The Company owns impact fees with a cost basis of approximately $2,000 and mitigation credits with a cost basis of approximately $445,000 for a combined total of approximately $447,000 as of March 31, 2019. During the three months ended March 31, 2018, the Company transferred mitigation credits with a basis of approximately $124,000 to the land acquired by Buc-ee’s. During the three months ended March 31, 2018, the Company received cash payments of approximately $116,000, for impact fees with a cost basis that was generally of equal value. Additionally, during the three months ended March 31, 2018, impact fees with a cost basis of approximately $72,000 were transferred to the beachfront restaurant leased to LandShark Bar & Grill. There were no impact fee sales during the three months ended March 31, 2019.
As of December 31, 2018, the Company owned impact fees with a cost basis of approximately $2,000 and mitigation credits with a cost basis of approximately $460,000 for a combined total of approximately $462,000.
Subsurface Interests. As of March 31, 2019, the Company owns full or fractional subsurface oil, gas, and mineral interests underlying approximately 455,000 “surface” acres of land owned by others in 20 counties in Florida (the “Subsurface Interests”). The Company leases certain of the Subsurface Interests to mineral exploration firms for exploration. Our subsurface operations consist of revenue from the leasing of exploration rights and in some instances, additional revenues from royalties applicable to production from the leased acreage.
There were no subsurface sales during the three months ended March 31, 2019 or 2018.
During 2011, an eight-year oil exploration lease was executed covering a portion of our Subsurface Interests. On September 20, 2017, the Company amended the oil exploration lease to, among other things, extend the expiration of the original term for five additional years to the new expiration date of September 22, 2024. The lease is effectively thirteen one-year terms as the lessee has the option to terminate the lease at the end of each lease year. The lessee has exercised renewal options through lease year eight ending September 22, 2019. The terms of the lease state the Company will receive royalty payments if production occurs, and may receive additional annual rental payments if the lease is continued in years nine through thirteen. The lease calls for annual lease payments which are recognized as revenue ratably over the respective twelve-mon