CTO Realty Growth, Inc. (then Consolidated-Tomoka Land Co.) — FY2013 Form 10-K
Reporting period: Fiscal year ended December 31, 2013; filed March 10, 2014. This is an annual filing, not a standalone fourth-quarter report. The registrant named in the filing was Consolidated-Tomoka Land Co.
Business context
The company was a diversified real estate operator focused on acquiring income-producing commercial property and realizing value from its Florida land holdings. At year-end it owned 35 single-tenant properties across nine states, two self-developed flex-office properties, and more than 10,000 acres in Florida; a third flex-office project was under construction. Other activities included a commercial mortgage loan, golf operations, agriculture, billboards, and subsurface interests.
Financial performance
| Metric | FY2013 | FY2012 |
|---|---|---|
| Revenue | $25.84 million | $16.23 million |
| Operating income | $6.28 million | $0.86 million |
| Income from continuing operations | $2.56 million | Loss of approximately $0.0003 million |
| Net income | $3.68 million; $0.64 per share | $0.60 million; $0.10 per share |
| Cash from operating activities | $10.89 million | $3.50 million |
| Total assets | $226.18 million | $184.70 million |
| Long-term debt | $63.23 million | $29.13 million |
| Shareholders’ equity | $120.17 million | $114.22 million |
Revenue increased 59.2% year over year, and operating margin was approximately 24.3% versus 5.3% in 2012. Net margin was approximately 14.3% versus 3.7%. Cash and cash equivalents were $4.93 million, with another $0.37 million restricted. The company reported approximately $33.2 million of borrowing capacity under its $66 million revolving facility at year-end. Annual dividends paid were $0.06 per share, up from $0.04.
Material changes and notable items
- Income-property revenue rose to $12.83 million from $8.46 million, reflecting acquisitions and a full year of results from certain prior-year purchases. The company bought nine properties for approximately $39.5 million and sold five for total proceeds of approximately $18.6 million.
- Real estate operations revenue increased to $5.95 million from $3.10 million, including land sales and subsurface lease income. The company recognized a $1.0 million non-refundable drilling penalty payment and deferred recognition of part of a $3.29 million oil-lease payment into 2014.
- The company recorded a $0.62 million impairment on reacquired land; the related 6.23-acre parcel was later sold, with an additional approximately $0.42 million loss. Five income-property sales also generated approximately $1.22 million of gains reported in discontinued operations.
- Golf operations remained loss-making, with a $0.41 million operating loss, although improved from a $0.89 million loss in 2012. A revised golf-course lease reduced base rent and will allow approximately $3 million of previously accrued rent to be recognized into income over the remaining lease term.
- Interest expense increased to $1.83 million from $0.65 million as borrowings rose to fund acquisitions and the mortgage investment. The company obtained $7.3 million and $23.1 million fixed-rate, interest-only secured loans, and expanded and extended its BMO revolving facility.
- After year-end, the $19.5 million hotel mortgage loan was repaid in full; the company used $18 million of proceeds to reduce its credit-facility balance. It then acquired a $5 million hotel mezzanine loan at 12% fixed interest, maturing in February 2019. It also foreclosed on approximately 600 acres of land in satisfaction of an approximately $4.7 million claim.
Outlook, risks, and contingencies
Management targeted an additional $50–$60 million of income-producing property or commercial mortgage investments in 2014, to be funded through facility capacity, operating cash flow, dispositions, land transactions, and other financing. It expected land transactions to remain challenging and the real estate market, particularly homebuilding, to remain inconsistent. Management stated it expected to have sufficient liquidity for operations, capital needs, and debt service over the next 12 months and foreseeable future.
Key risks include volatile and unpredictable land-sale timing; concentration of land and other operations in Florida; property-market declines and impairment risk; tenant default or vacancies; competition for acquisitions; floating-rate exposure on the revolver; debt covenants and refinancing/capital access; mortgage-credit and collateral risk; golf operating losses; environmental, land-use, weather, and natural-disaster exposure; and reliance on third-party operators. A 100-basis-point rate increase was estimated to affect financial position, results, and cash flows by approximately $328,000. The Harris Teeter property access/condemnation matter remained pending, with trial and mediation expected to be postponed; the St. Johns River Water Management District matter was settled in 2013. The board approved termination of the frozen defined-benefit pension plan effective March 31, 2014, but completion and required funding were not certain.
Debt covenants were reported in compliance at year-end. Debt principal maturities were concentrated in 2016 ($32.83 million), 2018 ($7.3 million), and thereafter ($23.1 million); the secured loans require interest-only payments before maturity. The company also had approximately $1.1 million remaining on flex-office construction and up to $0.69 million remaining under its road-improvement reimbursement commitment.
Most important facts for investors to verify
- Whether targeted 2014 acquisitions were completed and how they were financed, particularly given the sharp increase in debt during 2013.
- Actual post-year-end debt balances and available revolver capacity following repayment of the hotel mortgage loan and the $18 million facility paydown.
- Recurring earnings and cash generation excluding land-sale gains, oil-lease penalty income, mortgage-discount accretion, and discontinued-operation gains.
- Progress, leasing, occupancy, and costs for the flex-office project under construction, along with the company’s land-sale pipeline and realized land values.
- Performance and credit protection of the new $5 million mezzanine loan, and the sustainability of golf operations and the dividend.
- Resolution and financial impact of the Harris Teeter access litigation, pension-plan termination and funding, and the remaining land-development commitments.