CTO Realty Growth, Inc. — 2015 Q2 Form 10-Q
Filing identity: The supplied filing is for Consolidated-Tomoka Land Co. (Florida), not an issuer identified in the filing as CTO Realty Growth, Inc. The results below summarize the filing as provided. The report covers the quarter and six months ended June 30, 2015; financial statements are unaudited.
Business context and reporting period
The company describes itself as a diversified real estate operator. At quarter-end it owned 42 commercial properties in 10 states, with more than 1.16 million square feet of leasable space; a land portfolio exceeding 10,500 acres; three commercial loan investments; and LPGA International golf operations. Its strategy emphasized growing income-producing property investments while monetizing land and other assets.
Financial performance and position
| Metric | Q2 2015 | Q2 2014 | Six months 2015 | Six months 2014 |
|---|---|---|---|---|
| Revenue | $7.61 million | $6.31 million | $14.92 million | $13.48 million |
| Operating income | $2.19 million | $1.68 million | $3.68 million | $4.58 million |
| Net income | $225,000 | $723,000 | $578,000 | $2.22 million |
| Diluted EPS | $0.04 | $0.13 | $0.10 | $0.39 |
| Interest expense | $1.89 million | $518,000 | $2.95 million | $985,000 |
| Cash from operations | Not separately stated | Not separately stated | $2.36 million | $842,000 |
- Q2 revenue increased 21%; six-month revenue increased 11%. Income-property revenue was the principal growth contributor, up 16% in Q2 and 21% for the half year.
- Despite higher revenue, net income fell 69% in Q2 and 74% for the first half. Management cited higher operating expenses, depreciation and amortization, and substantially higher interest expense; first-half results also included a $510,000 impairment charge.
- At June 30, total assets were $305.8 million, compared with $276.6 million at year-end 2014. Shareholders’ equity was $131.2 million.
- Cash and cash equivalents were $31.7 million, up from $1.9 million at year-end; restricted cash was $1.5 million. Six-month investing cash use was $708,000 and financing cash provided was $28.1 million.
- Debt was $135.4 million at face value, or $129.6 million net of the convertible-note discount. The company had no borrowing outstanding on its $75 million revolving facility and reported approximately $57.2 million of remaining availability, subject to borrowing-base limits. It said it was in compliance with debt covenants.
- The declared and paid dividend was $0.04 per share for the first half of 2015, versus $0.03 in the comparable 2014 period.
Material changes versus the prior comparable period
- On March 11, 2015, the company issued $75 million of 4.50% convertible senior notes due 2020. Net proceeds were approximately $72.4 million; approximately $47.5 million repaid the credit facility. The company intended to invest the remainder in income properties or commercial real-estate loans.
- Debt issuance and a prior $30 million fixed-rate mortgage materially increased interest costs. The convertible-note discount also generated non-cash interest expense: approximately $293,000 in Q2 and $318,000 for the first half.
- Two income properties previously leased to CVS were sold in April for $6.4 million, resulting in a reported loss of approximately $497,000 after the related impairment adjustment. Two properties were acquired in the first half for approximately $9.1 million, including a leased Container Store property in Arizona.
- Two commercial loans were repaid at par during Q2, totaling approximately $7.2 million. The remaining portfolio of three performing loans had approximately $24.0 million outstanding, an average remaining maturity of 1.6 years, and a weighted-average rate of 8.5%. A Sarasota B-note was extended to June 2016 with a 25-basis-point rate increase and additional collateral.
- The company repurchased 15,764 shares in Q2 for approximately $859,000. It also completed termination of its pension plan, receiving an IRS determination letter during the first half.
Outlook, commentary, risks and contingencies
- Management reduced its 2015 land-sales expectations after permitting delays made the Minto transaction—covering approximately 1,600 acres—more likely to close in late 2016. Seven land-sale agreements covered nearly 1,900 acres and potential proceeds of about $82 million, but closings depended on due diligence, permits, approvals and other conditions outside the company’s control.
- Three agreements involving approximately 230 acres represented potential proceeds of $43.2 million. Infrastructure work associated with the Tanger and Sam’s Club proposals was estimated at $10 million to $20 million; if the NADG transaction closes, NADG would assume some or all of the company’s related responsibility, subject to a cap of approximately $16 million.
- For the remainder of 2015, the company targeted $35 million to $55 million of investments in income-producing properties or commercial loans. It cited cash, note proceeds, operating cash flow, credit-facility availability and asset-sale proceeds as funding sources, and said it expected sufficient liquidity for the next 12 months and foreseeable future.
- A July 16, 2015 subsequent event was the acquisition of a Jacksonville office property for $25.1 million. The 136,856-square-foot property was approximately 99% occupied, with a 5.4-year average remaining lease term.
- Management identified land-sale timing, real-estate market conditions, permitting and environmental regulation, tenant loss, acquisition execution, weather and capital availability among relevant risks. The oil exploration lease’s current term expired in September 2015; the filing stated renewal and future terms were uncertain.
- A federal regulatory inquiry sought information about prior agricultural activities on land connected with a sale contract. The company had responded, had not accrued a liability, and said it could not reasonably estimate any potential liability. It also disclosed an environmental monitoring reserve of approximately $96,000 at quarter-end.
- The filing discusses the convertible notes’ cash-settlement and refinancing risks, possible dilution if shares are issued, and potential effects of conversion or a fundamental-change purchase obligation. Management reported that a hypothetical 100-basis-point rate change would not significantly affect results because debt outstanding at quarter-end was fixed-rate.
Important facts for investors to verify
- Confirm the issuer identity: this filing names Consolidated-Tomoka Land Co.; the request metadata names CTO Realty Growth, Inc.
- Track land-sale closings, especially the delayed Minto deal, required governmental approvals, and the company’s potential infrastructure costs and reimbursements.
- Monitor renewal or expiration of the oil exploration lease and the resulting effect on recurring real-estate revenue.
- Review the company’s ability to fund planned investments and service the $135.4 million face-value debt balance, including the 2020 convertible notes and credit-facility borrowing-base availability.
- Assess whether income-property growth and leasing can offset higher interest, depreciation, and operating costs; verify occupancy and lease commencement for recently completed tenant improvements.
- Follow developments in the federal inquiry and other land-related permitting or environmental matters, for which the filing does not provide a clear estimate of potential liability.