CTO Realty Growth, Inc. (identified in the filing as Consolidated-Tomoka Land Co.) — Q1 2012 Form 10-Q
Reporting period: Three months ended March 31, 2012; unaudited. The company operated commercial income properties in four states, a Florida land portfolio exceeding 11,000 acres, agricultural and subsurface leasing activities, and golf facilities.
Financial results and liquidity
| Metric | Q1 2012 | Q1 2011 / prior balance |
|---|---|---|
| Segment revenue, including interest and other income | $4.86 million | $3.83 million |
| Income from continuing operations | $392,733 | Loss of $334,807 |
| Net income (loss) | $494,401; $0.09 per share | Loss of $258,905; loss of $0.05 per share |
| Operating cash flow | $633,005 | Use of $321,055 |
| Cash, excluding restricted cash | $1.68 million | $6,174 at December 31, 2011 |
| Restricted cash | $2.78 million | $2.78 million at December 31, 2011 |
| Notes payable | $16.23 million | $15.27 million at December 31, 2011 |
| Total assets / total liabilities | $171.46 million / $57.47 million | $170.27 million / $57.10 million at December 31, 2011 |
Income properties generated $2.34 million of revenue and $1.68 million of segment income; golf operations reported a $175,410 loss on $1.33 million of revenue. The filing does not present consolidated operating or net margins.
Cash, including restricted cash, totaled $4.46 million at quarter-end. The company reported minimal capital expenditures and said it expected existing cash, operating cash flow, and available financing to cover operations, capital needs, and debt service over the next twelve months and beyond.
Material changes versus Q1 2011
- Revenue rose about 27%, and the company moved from a net loss to net income. Real estate operations improved from a $248,269 loss to $779,883 of income, substantially reflecting approximately $730,000 recognized upon final resolution of the Dunn Avenue Extension agreement.
- Income-property revenue and income increased 6% and 5%, respectively, reflecting higher rent at a CVS-leased property and additional flex-office leasing. Operating costs for the segment increased 7%.
- The golf loss narrowed 33% despite a 3% revenue decline; costs and expenses fell about 8%, partly following the January 2012 appointment of a new manager and lower depreciation after a 2011 impairment.
- General and administrative expense was $1.52 million, down 15% excluding the debt-cost write-off, primarily due to lower stock compensation, pension costs, and interest expense. A $245,726 charge for unamortized loan costs arose from refinancing.
- Operating cash flow improved to positive $633,005. Financing cash flow included $17.12 million of new borrowing and $16.16 million of debt repayment.
Debt, outlook, and management commentary
- In February 2012, the company replaced its secured SunTrust facilities with a new unsecured $46 million revolving facility from Bank of Montreal, maturing February 27, 2015, with a one-year extension option and an accordion feature up to $75 million. Borrowings bear variable interest at 30-day LIBOR plus 175–250 basis points. The company reported compliance with all debt covenants at quarter-end.
- Management said land transactions would likely remain challenging in the near term and did not expect significant improvement in real estate market conditions during 2012. The company planned to focus on income-producing investments and anticipated investing an additional $10 million in such assets during 2012.
- In April 2012, the company used the $2.78 million of restricted like-kind-exchange proceeds toward a two-step acquisition of a $7.4 million, 14,280-square-foot property leased to Walgreens in Boulder, Colorado. The lease has an initial term exceeding 20 years; completion was anticipated in Q2 2012.
- Six income properties were listed for sale; two were under contract and a third had an offer. Management anticipated reinvesting sale proceeds in income-producing assets, using like-kind-exchange treatment where possible. The portfolio generated approximately $9 million in annual lease revenue.
- Management engaged American Forest Management to oversee timber and hay operations, expecting lower costs and improved efficiency. ClubCorp began managing the golf facilities in January. The company cautioned that its golf land lease rate was scheduled to double on September 1, 2012.
- After quarter-end, the board declared a semiannual dividend of $0.02 per share. No dividend was paid in Q1 2012.
Risks, contingencies, and unusual items
- Management cited the prolonged weakness of Florida and national real estate markets as a risk to property values and results. Quarterly results may vary substantially with the timing of land transactions; other cited risks include tenant loss, capital availability, environmental and land-use rules, and economic conditions.
- A Florida water-management dispute remained unresolved. A May 1, 2012 state determination found the agricultural exemption applied to 117 acres; a portion of 101 additional acres might have required a permit. Final acreage and resolution remained pending. Management did not expect a material adverse financial effect.
- Harris Teeter asserted that proposed highway access changes at its Charlotte-area property could allow it to terminate its lease. The company disputed that interpretation and was pursuing the matter with the tenant and transportation authorities.
- The company pursued a roughly $3.8 million lien claim related to Tournament Drive construction costs; a court had ruled its lien priority superior, and a foreclosure motion was pending. The Wintergreen shareholder records-inspection dispute was resolved in March 2012.
- The $494,401 net income included approximately $730,000 associated with the Dunn Avenue agreement resolution; the debt refinancing generated a $245,726 early-extinguishment charge. Two properties totaling $7.69 million were classified as held for sale, with sales anticipated in the first half of 2012.
- Variable-rate debt exposes the company to interest-rate changes. Management estimated that a 100-basis-point rate change would not materially affect financial position, results, or cash flows. The filing also highlights uncertainty in estimates of income-property values and pension liabilities.
Important facts for investors to verify
- Whether the Walgreens acquisition and the two contracted property sales closed as anticipated, and the resulting effect on cash, debt, and rental income.
- Whether the Dunn Avenue-related approximately $730,000 benefit is nonrecurring and how much it contributed to the earnings turnaround.
- Progress on the agricultural-permit dispute and Harris Teeter lease/road-access issue, including any financial or occupancy consequences.
- Performance of golf operations under ClubCorp and the effect of the scheduled September 2012 increase in the golf land lease rate.
- Current borrowing levels, variable-rate exposure, covenant compliance, and the company’s ability to fund planned investments and debt service.