CTO Realty Growth, Inc. quarterly report, Q1 FY2013

CTO Realty Growth, Inc. (then Consolidated-Tomoka Land Co.) — Q1 2013 Form 10-Q

Reporting period: Three months ended March 31, 2013; unaudited. The filing was submitted under the name Consolidated-Tomoka Land Co. The company operated as a diversified real estate business, including income properties, Florida land and development, golf, agriculture, and subsurface interests. At quarter-end it reported 36 income-producing properties in seven states, with more than 790,000 square feet, and a Florida land portfolio exceeding 10,000 acres.

Financial results and liquidity

Metric	Q1 2013	Q1 2012
Total revenue	$5.06 million	$4.63 million
Operating income	$739,313	$910,362
Continuing-operations income	$277,058	$318,150
Net income	$337,045	$494,401
Diluted EPS	$0.06	$0.09
Cash provided by operating activities	$1.39 million	$633,005

Revenue increased 9.2% year over year, primarily reflecting higher income-property rent and golf revenue; reported net income declined about 31.8%.
Cash and cash equivalents were $1.43 million at March 31, plus $888,150 of restricted cash. Total assets were $205.8 million and shareholders’ equity was $115.1 million.
Cash used in investing activities was $21.44 million, principally for acquisitions; financing activities provided $20.18 million. Cash increased by $127,891 during the quarter.
Notes payable and credit-facility borrowings totaled $49.15 million, up from $29.13 million at year-end. Debt comprised $18.75 million on a variable-rate revolver and $30.4 million of fixed-rate mortgages. The company reported $47.3 million of available capacity on the $66 million revolver, subject to borrowing-base requirements, and compliance with debt covenants.
The company paid no dividends in either comparable quarter. Interest expense rose to $296,668 from $150,229. A 100-basis-point rate change was estimated to affect financial position, results, and cash flows by approximately $187,000.

Material changes and operating developments

Seven income properties were acquired for approximately $27.8 million, including four Bank of America branches in California, a Big Lots property in Arizona, and an Orlando office complex leased to Hilton Resorts Corporation. Income-property revenue rose 44% to $3.15 million.
Two income properties were sold in February for a combined $7.6 million: a PNC Bank property for $3.55 million and a CVS property for $4.05 million. Their results were reported in discontinued operations.
Golf revenue increased to $1.46 million, and golf operations moved from a $131,648 operating loss to $57,056 of operating income. Management cited higher membership, improved food-and-beverage revenue after renovations, and lower operating costs.
Real estate operations revenue fell to $338,348 from $1.07 million. The prior-year quarter included approximately $730,000 related to resolution of the Dunn Avenue Extension matter.
General and administrative expense rose to $1.75 million from $1.42 million, driven in part by stock-based compensation, which increased to $444,416 from $250,025. Depreciation and amortization also increased, reflecting the expanded property portfolio.

Outlook, risks, and unusual items

Management targeted another approximately $18–$28 million of income-producing properties or mortgage loans during the remainder of 2013. Planned funding sources included revolver capacity, operating cash flow, dispositions, land transactions, and other financing. This is an investment target, not earnings guidance.
Management expected liquidity to be sufficient for operations, capital needs, and debt service over the next 12 months and foreseeable future. It also stated that near-term land transactions would remain challenging and did not expect significant near-term improvement in economic conditions, particularly in real estate.
The credit agreement was amended in March 2013: the revolver’s accordion capacity could be increased to $125 million, pricing was reduced by 25 basis points to LIBOR plus 150–225 basis points, and maturity was extended to March 31, 2016.
The St. Johns River Water Management District matter was settled in March 2013 through conveyance of acreage and issuance of an after-the-fact permit. The conveyance, valued at $702,827, was a non-cash transaction.
Other disclosed legal matters included a highway condemnation action affecting access to the company’s Harris Teeter-leased property in North Carolina, and an appeal by BB&T concerning priority of the company’s lien in a Florida road-cost dispute. The company reported a judgment exceeding $4.4 million in the latter matter; collection remained subject to appeal and further proceedings.
Management identified risks including real estate and economic conditions, execution of acquisitions and development, tenant loss, capital availability, land-use and environmental regulation, severe weather, and volatile timing of land transactions. It noted that estimates for income-property values and pension liabilities could change materially in weakened markets.
Disclosure controls were reported effective as of March 31, 2013, with no material change in internal control over financial reporting during the quarter.

Important facts for investors to verify

Whether acquisitions and the growing income-property portfolio deliver the expected rental income and returns, and how tenant concentration, lease terms, and property-level costs evolve.
Revolver borrowing-base availability, covenant headroom, variable-rate exposure, and the company’s ability to fund its stated investment target while managing higher debt and interest expense.
Whether the golf operation’s improvement is sustainable and whether management’s planned capital spending and lease obligations remain within cash-flow expectations.
Progress and potential financial effects of the Harris Teeter access dispute and BB&T appeal, including the status and collectability of the company’s lien judgment.
Future land-sale activity, valuation assumptions, and the effect of Florida market conditions and the company’s geographic concentration on results and liquidity.