CTO Realty Growth, Inc. — 2012 Second-Quarter 10-Q Summary
Registrant and period: The filing is for Consolidated-Tomoka Land Co. (the company identified in the request as CTO Realty Growth), for the quarter and six months ended June 30, 2012. The company operated commercial income properties, a Florida land portfolio exceeding 11,000 acres, golf courses, agricultural activities, and subsurface leasing interests. Figures below are unaudited.
Financial results
| Metric | Three months ended June 30 | Six months ended June 30 |
|---|---|---|
| Total revenue | 2012: $4.83 million; 2011: $3.73 million | 2012: $9.68 million; 2011: $7.55 million |
| Income from continuing operations | 2012: $550,000; 2011: $243,000 | 2012: $943,000; 2011: loss of $92,000 |
| Net income | 2012: $600,000; 2011: $319,000 | 2012: $1.09 million; 2011: $60,000 |
| Net income per share | 2012: $0.10; 2011: $0.06 | 2012: $0.19; 2011: $0.01 |
| Operating cash flow | Six months 2012: $1.92 million; 2011: $396,000 |
- Second-quarter revenue rose 30% year over year; six-month revenue rose 28%. Results benefited from land sales, subsurface income, and higher income-property rents. Six-month continuing earnings included a $245,726 loss on early debt extinguishment.
- Income-property revenue increased about 8% in the first half, supported by the Boulder, Colorado acquisition, CVS rent and improved occupancy at the Daytona Beach flex-office buildings. Golf remained loss-making, but its first-half loss improved to $401,000 from $672,000, mainly on lower expenses; revenue declined 5% and rounds played fell 7%.
- At June 30, total assets were $176.56 million and shareholders’ equity was $114.36 million. Cash was $6.61 million and restricted cash was $4.37 million; restricted funds were held for like-kind exchange reinvestment. Notes payable were $20.88 million, up from $15.27 million at year-end 2011.
- Six-month investing cash flow was an outflow of $816,000, including property acquisitions and proceeds from asset sales; financing provided $5.50 million. Capital expenditures were $6.93 million, substantially related to the Boulder acquisition. Dividends were $0.02 per share for the six-month period.
Material developments, outlook and risks
- The company acquired a Walgreens-leased Boulder property for $7.4 million, with an initial lease term exceeding 20 years, and sold two income properties in Georgia and North Carolina for approximately $8.0 million combined. It expected to reinvest qualifying sale proceeds through like-kind exchanges.
- A new unsecured $46 million BMO revolving facility matures February 27, 2015, with a one-year extension option and an accordion feature up to $75 million. The June 30 balance was $20.88 million, with $25.12 million available; the company reported covenant compliance. It paid down approximately $4.15 million in July.
- Management targeted another $10 million to $15 million of income-property acquisitions during the remainder of 2012 and said liquidity should support operations, capital needs and debt service. It did not expect significant improvement in real estate conditions during the rest of 2012 and considered near-term land transactions challenging.
- A July 2012 amendment to the golf-course lease set base rent at $250,000 annually from September 2012, with 1.75% annual increases beginning September 2013, plus revenue-based additional rent. The company also committed to at least $200,000 of facility improvements by September 2015. The amendment followed a period in which straight-line rent accounting had produced a $3.86 million deferred-rent accrual.
- Key uncertainties include Florida real estate market weakness and property valuation estimates; a water-management permitting dispute involving up to 101 acres with no determinable loss range; and a highway-access dispute affecting the Harris Teeter property. The tenant agreed to remain while the North Carolina Department of Transportation considers the access issue. The company’s approximately $3.8 million Tournament Drive lien claim had received a favorable priority ruling, but BB&T stated it intended to appeal.
- Variable-rate debt exposes the company to interest-rate risk; management said a 100-basis-point rate change would not materially affect financial position, results or cash flows. The company noted that actual results may differ from estimates and forward-looking expectations.
Important facts for investors to verify
- Whether the BMO facility’s capacity, covenants and post-quarter $4.15 million paydown leave sufficient liquidity for planned acquisitions and debt service.
- Execution and economics of the $10 million to $15 million acquisition target, including reinvestment timing for restricted like-kind exchange proceeds.
- Golf operations’ ability to improve results under the new manager, alongside the amended lease terms and required capital improvements.
- Resolution and potential financial effects of the agricultural permitting, Harris Teeter access and Tournament Drive lien matters.
- How much reported earnings growth reflects recurring rents versus land transactions, subsurface income, asset dispositions and stock-based compensation.