Business context and reporting period
Consolidated-Tomoka Land Co. (the registrant named in this 10-Q) reported the quarter and six months ended June 30, 2013. It operated a diversified real estate business, including income properties, Florida land holdings, golf operations, agriculture, and subsurface interests. At quarter-end it owned 35 single-tenant income properties across seven states, with more than 770,000 square feet, and more than 10,000 acres of Florida land.
Financial results and liquidity
| Metric | Q2 2013 | Q2 2012 | Six months 2013 | Six months 2012 |
|---|---|---|---|---|
| Revenue | $4.97m | $4.43m | $9.96m | $8.99m |
| Operating income | $0.33m | $0.86m | $1.06m | $1.74m |
| Continuing operations income (loss), after tax | ($0.08m) | $0.44m | $0.17m | $0.73m |
| Net income | $0.25m | $0.60m | $0.59m | $1.09m |
| Diluted EPS | $0.04 | $0.10 | $0.10 | $0.19 |
- Revenue and segment trends: Income-property revenue grew 49% in Q2 and 47% in the first half, primarily from acquisitions. Golf revenue increased, and golf operating losses narrowed. Real-estate revenue fell as the 2012 comparison included land-sale income and other transaction-related revenue.
- Cash flow: First-half operating cash flow was $1.87m, versus $1.92m in 2012. Investing activities used $17.57m, including property acquisitions, partly offset by sale proceeds; financing activities provided $15.65m. Cash ended at $1.25m, with another $0.23m restricted.
- Debt and liquidity: Notes payable and the credit line totaled $44.43m at June 30, up from $29.13m at year-end 2012. The balance included $14.03m on a floating-rate revolving facility and $30.4m of fixed-rate mortgages (3.655% and 3.67%). The company reported about $52m of remaining availability on its $66m facility, subject to borrowing-base requirements, and compliance with debt covenants. The revolver matures March 31, 2016; mortgage maturities are 2018 and 2023. Interest expense for the first half rose to $0.81m from $0.32m.
- Balance sheet and dividend: Total assets were $201.02m, liabilities $85.15m, and shareholders’ equity $115.86m. The company declared and paid a first semiannual dividend of $0.03 per share, 50% higher than the dividend declared in Q4 2012.
Material changes, outlook, risks, and unusual items
- First-half net income declined to $0.59m from $1.09m. The prior-year period included land-sale and Dunn Avenue Extension-related income; 2013 results also included a $0.62m land impairment, higher depreciation and amortization, and higher interest expense. Q2 net income included $0.33m from discontinued operations, including property-sale gains, while continuing operations recorded a loss.
- The company acquired seven income properties for approximately $27.8m in the first half and sold three properties for approximately $11.0m in gross sale proceeds. After quarter-end, it acquired a Rite Aid-leased property for approximately $6.6m.
- Management targeted an additional $18m–$28m of investments in income-producing properties, ground leases, or mortgage loans during the remainder of 2013. It expected to fund investments through facility capacity, operating cash flow, dispositions, and other financing, and stated it expected liquidity to cover operations, capital needs, and debt service over the next 12 months. The filing provides no earnings guidance.
- Management cautioned that land transactions are unpredictable and did not expect significant near-term improvement in real estate conditions. Risks cited include local and broader economic conditions, acquisition and development execution, tenant loss, regulation, severe weather, competition, and capital availability. A 100-basis-point interest-rate change was estimated to affect results and cash flows by approximately $0.14m.
- A $0.62m impairment was recorded on 6.23 acres after a contract to sell part of the parcel prompted a recoverability assessment; the sale was not assured. A Florida water-management dispute was settled in March 2013 through conveyance of acreage. A separate North Carolina road-access matter involving a Harris Teeter property was pending, with trial continued to April 2014. The company also pursued a lien/foreclosure claim exceeding $4.4m, subject to a mortgage-holder appeal.
Important facts for investors to verify
- Whether the land sale underlying the impairment closes, and the ultimate proceeds and recovery on the remaining affected acreage.
- Leasing, tenant credit, occupancy, and operating-cost performance of the expanded income-property portfolio, including acquired properties.
- Actual investment spending versus the $18m–$28m target, and the resulting debt, interest costs, and available credit capacity.
- Resolution and potential financial impact of the pending Harris Teeter access matter and the appealed lien/foreclosure judgment.
- Whether income from property dispositions and land transactions, which can vary materially by period, supports recurring earnings and cash flow.