CTO Realty Growth, Inc. — 2017 Q2 Form 10-Q Summary
Filing identity: The filing is for Consolidated-Tomoka Land Co., the registrant name shown in the 10-Q. It covers the quarter and six months ended June 30, 2017; financial statements are unaudited.
Business context
The company was a diversified real estate operator with 36 income-producing properties in 11 states, about 1.9 million square feet of leasable space, approximately 8,100 acres of undeveloped Daytona Beach land, three commercial loan investments, and golf and other land-related operations.
Financial performance and position
| Metric | Three months ended June 30, 2017 | Six months ended June 30, 2017 |
|---|---|---|
| Total revenue | $22.84 million, up 77% year over year | $61.55 million, up 97% |
| Operating income | $8.04 million | $30.89 million |
| Net income attributable to company | $3.68 million; $0.67 basic EPS | $16.43 million; $2.95 basic EPS |
| Operating margin | 35.2% | 50.2% |
| Net margin | 16.1% | 26.7% |
| Interest expense | $2.14 million | $4.21 million |
Margins above are calculated from reported revenue and operating or net income. Results include significant land-sale activity and, for the first half, a $2.23 million noncash gain from termination of the golf-course land lease. The filing states this item contributed approximately $0.24 per share after tax and was not included in original 2017 EPS guidance.
- Cash flows, six months: Operating activities provided $45.30 million; investing activities used $41.49 million; financing activities used $4.43 million. Cash declined $0.63 million to $7.15 million.
- Liquidity: Restricted cash was $4.73 million, including approximately $3.4 million designated for reinvestment through a like-kind exchange. The revolving facility had $36 million drawn and approximately $39 million of available borrowing capacity, subject to borrowing-base assets.
- Debt: Face-value debt was $173.3 million; balance-sheet carrying value was $168.7 million. Debt included $75 million of 4.5% convertible notes due 2020. The company reported covenant compliance.
- Assets and equity: Total assets were $432.0 million and shareholders’ equity was $159.4 million at June 30, 2017.
- Shareholder returns: Dividends were $0.04 per share for the quarter and $0.08 for the first half. The company repurchased 104,098 shares for $5.51 million during the first half.
Material changes versus the prior comparable period
- First-half revenue rose $30.32 million, driven primarily by $39.56 million of land-sale revenue, versus minimal land-sale revenue in the prior-year period. Land sales covered approximately 1,669 acres and generated reported gains of about $26.92 million.
- Income-property revenue increased 17% for the first half to $14.64 million, reflecting acquisitions, including five properties acquired for approximately $40.7 million in total cost.
- First-half net income increased to $16.43 million from $3.00 million. Besides land-sale gains and the lease-termination gain, comparisons were affected by prior-year property-disposition gains and impairment charges; there were no impairment charges in the first half of 2017.
- Cash from operations improved from a $2.23 million use in the first half of 2016 to $45.30 million provided in 2017. Investing cash flow swung from $39.97 million provided to $41.49 million used, chiefly reflecting property acquisitions and prior-year sale, loan-payoff, and securities proceeds.
Outlook, risks, contingencies and unusual items
- Management targeted $10 million to $30 million of additional income-property investments during the remainder of 2017, funded through cash, operating cash flow, borrowing capacity, land or property sales, and potentially other sources. Management said it expected sufficient liquidity for operations, capital needs and debt service.
- Seven land-sale agreements totaling approximately $69.47 million and 2,072 acres were in the pipeline as of August 9, 2017. Closings depended on due diligence, permits and other conditions; the filing cautions that timing and completion are uncertain.
- After wetlands-related changes to the Minto II 1,686-acre project, the company said a price reduction was likely; management estimated a possible revised price of $26 million to $27 million versus the pipeline amount of $31.36 million. No revised agreement had been reached.
- A federal-agency review concerning alleged pre-2011 agricultural activity on about 200 acres could delay a 35-acre sale and may require mitigation credits or other costs; the financial impact was not estimable and no amount was accrued.
- Approximately $950,000 remained for wetlands restoration and monitoring from a prior regulatory matter. The company said the liability could change within a year and could materially affect its balance sheet and future cash flows.
- Shareholder-related investigation, strategic-alternatives and proxy-contest costs totaled approximately $3.0 million through June 30, 2017; about $1.6 million was incurred in the first half. The company warned further costs could adversely affect results and cash flows.
- Other commitments included approximately $6.0 million estimated for two beachfront restaurant developments, targeted to open in first-quarter 2018, and remaining expenditures for property improvements and golf-course greens renovation.
- Interest-rate exposure included the $36 million variable-rate credit-facility balance; management estimated a 100-basis-point rate change would affect results and cash flows by about $360,000. A swap fixed the rate on a separate $25 million mortgage at 3.17%.
Important facts for investors to verify
- How much of first-half earnings reflects repeatable rental income versus land sales and the noncash $2.23 million lease-termination gain.
- Whether the Minto II price and closing terms are finalized, and whether other pipeline transactions close on schedule and at stated prices.
- Whether the 35-acre federal-agency review or wetlands restoration requirements lead to delays, mitigation expenses, or changes in accrued liabilities.
- Funding and execution of planned acquisitions and restaurant development, including the effect on debt, liquidity and future cash flows.
- Upcoming debt maturities, particularly the $7.3 million mortgage due in February 2018 and the revolving facility maturing in August 2018, including any extension or refinancing plans.
- Future costs from shareholder matters and the potential effect of executive compensation-agreement amendments disclosed as subsequent events.