Business Context and Reporting Period
Company: Consolidated-Tomoka Land Co. (CTO Realty Growth, Inc.)
Filing Type: Form 10-K (Annual Report)
Period Ended: December 31, 2008
Business Overview: The Company operates primarily in Volusia County, Florida, with segments in Real Estate (land sales, development, agriculture, mineral interests), Income Properties (net-lease commercial properties), and Golf Operations (LPGA International). The Company utilizes a Section 1031 tax-deferred exchange strategy to convert agricultural land into a diversified portfolio of income properties.
Key Financial Metrics
| Metric | 2008 | 2007 |
|---|---|---|
| Total Revenues | $20,555,000 | $43,076,000 |
| Net Income | $4,835,000 | $13,533,000 |
| Earnings Per Share (Basic) | $0.84 | $2.37 |
| EBDDT (Non-GAAP) | $7,924,000 | $19,391,000 |
| Total Assets | $173,146,000 | $171,833,000 |
| Shareholders' Equity | $117,814,000 | $116,671,000 |
| Long-Term Debt | $8,550,000 | $6,807,000 |
| Cash & Investments | $6,112,000 | $21,444,000 |
| Dividends Per Share | $0.40 | $0.38 |
Material Changes vs. Prior Period
- Revenue Decline: Total revenues decreased 52% to $20.6 million, driven primarily by a sharp drop in Real Estate sales revenue ($4.6M in 2008 vs. $25.9M in 2007) due to the economic downturn and reduced land sales volume (24 acres sold in 2008 vs. 486 acres in 2007).
- Profitability Drop: Net income fell 64% to $4.8 million. Real Estate operating income dropped from $19.0M to $3.0M.
- Segment Performance:
- Income Properties: Revenues increased 6% to $9.2M and operating income rose 5% to $7.3M, aided by the April 2008 acquisition of a Harris Teeter supermarket.
- Golf Operations: Losses widened 5% to $1.8M due to a 9% revenue decline and a 12% drop in rounds played.
- Liquidity: Cash, restricted cash, and investment securities decreased by $15.3 million to $6.1 million, utilized for development activities, the Harris Teeter acquisition, dividends, and taxes.
- Debt: Long-term debt increased to $8.55 million, including a $2.02 million draw on a $20 million revolving line of credit.
Outlook, Risks, and Management Commentary
- Outlook: Management anticipates continued weak economic conditions in Florida. Capital expenditures for 2009 are projected at $9.5 million, funded by cash, operating activities, and existing credit facilities. The Company plans to reinvest $8.5 million via Section 1033 involuntary conversion tax deferral provisions.
- Stock Repurchase: The Board authorized an $8 million stock repurchase program in November 2008. As of March 10, 2009, 4,660 shares had been repurchased.
- Key Risks:
- Economic Sensitivity: Significant exposure to the Florida real estate market and national recession.
- Tenant Concentration: CVS and Walgreens accounted for approximately 23% of consolidated revenues in 2008.
- Delinquencies: A $2.16 million mortgage note receivable from MSKP Volusia Partners LLC is delinquent on a payment due December 2008. Additionally, a $1.85 million note is in default with foreclosure proceedings initiated.
- Litigation: Ongoing litigation with largest shareholder Wintergreen Advisers, LLC regarding inspection of corporate records.
Investor Verification Checklist
- Verify the status and collectability of the delinquent $2.16 million MSKP mortgage note and the $1.85 million defaulted note.
- Monitor the leasing progress of the two vacant, self-developed income properties (approx. 31,000 sq. ft.) and the new Class A office building.
- Assess the impact of the ongoing litigation with Wintergreen Advisers, LLC on management focus and potential costs.
- Review the Company's ability to execute its Section 1031/1033 tax-deferred exchange strategy given current market liquidity.
- Track the performance of the Golf Operations segment, which remains unprofitable and sensitive to tourism and economic conditions.