Business context and reporting period
Consolidated-Tomoka Land Co. (the registrant in this 2012 filing) reported for the quarter and nine months ended September 30, 2012. It operated income properties, Florida land and real estate activities, and golf operations, alongside agricultural and subsurface oil and mineral interests. Its land portfolio exceeded 11,000 acres, predominantly in Florida.
Financial results and position
| Metric | Q3 2012 | Q3 2011 | Nine months 2012 | Nine months 2011 |
|---|---|---|---|---|
| Total revenue | $3.84 million | $3.23 million | $13.25 million | $10.55 million |
| Operating income (loss) | ($0.77 million) | ($6.96 million) | $1.27 million | ($6.89 million) |
| Net income (loss) | ($0.56 million) | ($4.22 million) | $0.54 million | ($4.16 million) |
| Basic and diluted EPS | ($0.10) | ($0.74) | $0.09 | ($0.73) |
| Operating cash flow | Not provided for quarter | Not provided for quarter | $3.56 million | $1.71 million |
- Q3 revenue rose 19%; nine-month revenue rose 26%. Nine-month income included land-sale proceeds, subsurface revenues, and approximately $730,000 related to resolution of a road-improvement agreement.
- Nine-month income from income properties was $6.72 million on $7.24 million revenue. Real estate operations earned $1.77 million on $2.30 million revenue. Golf operations lost $0.77 million on $3.44 million revenue.
- Nine-month investing activities used $2.08 million; financing activities provided $0.89 million. Cash increased by $2.38 million to $2.38 million; restricted cash was $3.76 million, for total cash and restricted cash of $6.15 million.
- At September 30, total assets were $172.51 million, total liabilities $58.38 million, and shareholders’ equity $114.12 million. Notes payable were $16.73 million, all due in 2015 under the reported schedule.
- The $62 million unsecured revolving facility had $45.27 million of available capacity. The rate was LIBOR plus 1.75% at quarter-end; the company reported compliance with debt covenants. Management said a 100-basis-point rate change would not materially affect results or cash flows.
- Cash dividends were $0.02 per share for the first nine months; none were declared or paid in Q3.
Material changes versus the prior comparable period
- Results improved substantially year over year, chiefly because 2011 included $6.62 million of impairment charges ($4.01 million for golf assets and $2.61 million for land). The 2012 quarter nevertheless recorded a net loss.
- Income-property revenue increased with the Boulder, Colorado acquisition, expanded CVS leasing, and higher occupancy at self-developed office properties. Nine-month income-property costs also rose, by 38%.
- Golf losses narrowed year over year as operating costs fell, but nine-month revenue declined 3%, including a 15% decrease in rounds played, partly offset by a higher average rate.
- The company sold two income properties in May 2012 for approximately $8.0 million and acquired a Walgreens-leased Boulder property for $7.4 million. It also acquired a Phoenix property for approximately $1.8 million.
- In February 2012, a new BMO credit facility replaced SunTrust borrowing; the facility was expanded from $46 million to $62 million in September. Early debt repayment resulted in a $245,726 extinguishment loss.
Outlook, commentary, risks and unusual items
- Management targeted $5 million to $15 million of additional income-property acquisitions during the remainder of 2012 and said liquidity should be sufficient for operations, capital needs, and debt service over the next 12 months and foreseeable future.
- Management did not expect significant improvement in real estate conditions for the remainder of 2012 and cautioned that land-transaction timing and results are unpredictable. It noted that interim results are not necessarily indicative of full-year results.
- A July golf-lease amendment kept base rent at $250,000 rather than increasing it to $500,000, with 1.75% annual increases beginning September 2013 and revenue-based additional rent. The change is expected to release approximately $3.0 million of previously accrued rent into income over the remaining 10-year lease term. The company committed to at least $200,000 of golf-facility capital spending by September 2015.
- Q3 general and administrative expense included a $611,691 noncash reserve for a proposed settlement with the St. Johns River Water Management District and a $145,000 one-time executive separation payment. Settlement outcome remains uncertain; the agency determined the agricultural exemption applied to 117 acres but did not determine the status of some remaining acreage.
- A highway condemnation and access dispute at the Harris Teeter property in Charlotte creates tenant-retention risk. The tenant agreed to remain pending the North Carolina Department of Transportation’s review, expected to take 6–18 months.
- The company won a foreclosure judgment concerning its approximately $3.8 million Tournament Drive lien, but proceedings, including sale, were stayed pending the mortgage holder’s appeal.
- Management cited prolonged weakness in real estate markets, the company’s Florida concentration, tenant loss, weather, environmental and land-use regulation, acquisition execution, and capital availability as risks. It stated there were no material changes to previously disclosed risk factors.
Important facts for investors to verify
- Whether the reported $730,000 benefit from the Dunn Avenue Extension resolution is nonrecurring and how it affected nine-month operating results.
- Progress and financial outcome of the District settlement, Harris Teeter access/lease matter, and appeal involving the Tournament Drive lien.
- Acquisition yields and funding plans for targeted purchases, including use of like-kind exchange proceeds and the revolving facility.
- Golf operating performance, costs, and the timing and accounting impact of the amended lease and required capital spending.
- Debt covenant headroom and sensitivity to variable interest rates, notwithstanding management’s stated assessment of immaterial 100-basis-point sensitivity.