CTO Realty Growth, Inc. (then Consolidated-Tomoka Land Co.) — Q3 2015 Form 10-Q
Reporting period: Three and nine months ended September 30, 2015. The filing is by Consolidated-Tomoka Land Co., the registrant name used at the time. The company operated 41 commercial properties across 10 states, held more than 10,500 acres of land, and had four commercial loan investments.
Financial performance and position
| Metric | Q3 2015 | Q3 2014 | Nine months 2015 | Nine months 2014 |
|---|---|---|---|---|
| Revenue | $8.30 million | $14.21 million | $23.21 million | $27.69 million |
| Operating income | $5.14 million | $6.02 million | $8.82 million | $10.60 million |
| Net income attributable to company | $2.08 million | $3.48 million | $2.66 million | $5.70 million |
| Diluted earnings per share | $0.36 | $0.60 | $0.45 | $0.99 |
| Interest expense | $1.89 million | $0.57 million | $4.85 million | $1.55 million |
- Revenue fell 42% in Q3 and 16% for the nine-month period. Net income attributable to the company declined 40% and 53%, respectively.
- Income-property revenue rose 30% in Q3 and 24% year to date, reflecting acquisitions. Real estate operations revenue declined materially against the prior year, which included a large land sale.
- Q3 results included $3.76 million of gains on asset dispositions. Year-to-date gain was $3.78 million; a $510,000 impairment charge was also recorded during the first quarter.
- Operating cash flow was $4.95 million for the first nine months, versus $9.95 million a year earlier. Investing activities used $47.45 million and financing activities provided $44.84 million. Cash and equivalents were $4.22 million at period end; restricted cash was $10.63 million.
- Total assets were $333.36 million, total liabilities $196.43 million, and shareholders’ equity $136.93 million at September 30, 2015.
- Debt was $154.90 million at face value ($149.39 million carrying value), up from $103.94 million at year-end 2014. The increase principally reflected the $75 million convertible notes issued in March. The company reported $48.8 million of available revolving-credit capacity, subject to borrowing-base limits, and compliance with debt covenants.
Material changes, outlook, and risks
- The company acquired three properties for approximately $34.2 million and originated a $14.5 million first-mortgage hotel loan in San Juan, Puerto Rico. It sold four CVS-leased properties for approximately $15.8 million; two September sales generated reported gains.
- Management targeted $21 million to $41 million of additional income-property and commercial-loan investments for the remainder of 2015, funded through cash, operating cash flow, credit-facility capacity, dispositions, land transactions, or loan repayments. Management stated that it expected liquidity to cover operations, capital requirements, and debt service.
- Eight land-sale agreements covered more than 1,900 acres and potential proceeds of approximately $79.3 million. Closings depended on due diligence, permits, and other conditions; management cautioned that timing and completion were uncertain. The Minto transaction was expected more likely to close in late 2016 following permitting delays.
- Potential Town Center infrastructure work was estimated at $10 million–$20 million, with the company’s share and final scope dependent on transaction outcomes and negotiations. A separate environmental matter resulted in an additional approximately $500,000 reserve; the ultimate cost was not estimable from the filing.
- Interest-rate exposure is a key market risk: $19.5 million of credit-facility borrowings were variable-rate, while approximately $135.4 million of face-value debt was fixed-rate. Management estimated a 100-basis-point rate change would affect financial position, results, and cash flows by approximately $195,000.
- Subsequent to quarter-end, the company entered into a due-diligence agreement to acquire a Raleigh office building for approximately $42.3 million; completion was not assured. It also received approximately $920,000 net for releasing surface-entry rights, with proceeds intended for a like-kind exchange.
- The golf segment remained loss-making: operating losses were approximately $406,000 in Q3 and $266,000 year to date. Other identified risks include land-market conditions, permitting and environmental regulation, tenant loss, transaction timing, and access to capital. No material changes to previously disclosed risk factors were reported.
Important facts for investors to verify
- Whether land-sale agreements close as contemplated, particularly permitting-dependent projects and the timing of the Minto transaction.
- Actual remaining infrastructure obligations and environmental remediation costs, including the resolution of the federal agency inquiry concerning prior agricultural activity.
- Debt-service capacity and covenant headroom as acquisitions and investments proceed, including the terms and potential dilution implications of the 2020 convertible notes.
- Whether income-property growth and lease occupancy offset higher interest, operating, depreciation, and corporate expenses; also monitor the continuing golf-segment losses.
- Completion, price, and financing of the proposed Raleigh acquisition and deployment of post-quarter-end surface-rights proceeds.