Business Context and Reporting Period
Company: Consolidated-Tomoka Land Co. (CTO Realty Growth, Inc.)
Filing Type: Form 10-Q (Quarterly Report)
Period Ended: September 30, 2010
Business Overview: The Company is engaged in real estate land sales and development, reinvestment of land sales proceeds into income properties (via like-kind exchanges), and golf course operations. It owns approximately 11,600 acres in Florida, primarily in Volusia County.
Key Financial Metrics
| Metric | Three Months Ended Sept 30, 2010 | Nine Months Ended Sept 30, 2010 | Nine Months Ended Sept 30, 2009 |
|---|---|---|---|
| Net Income (Loss) | $(176,993) | $(692,345) | $719,677 |
| EPS (Basic & Diluted) | $(0.03) | $(0.12) | $0.13 |
| Total Revenues | $3,416,000 | $9,804,000 | $13,454,000 |
| Operating Income | $805,687 | $2,212,827 | $6,180,527 |
| EBDDT (Non-GAAP) | $1,789,261 | $2,331,551 | $2,944,818 |
| Cash and Investments | $5,284,097 | $5,284,097 | N/A |
| Total Assets | $176,524,383 | $176,524,383 | $176,575,132 |
| Total Liabilities | $59,276,454 | $59,276,454 | $58,541,553 |
| Notes Payable | $12,591,639 | $12,591,639 | $13,210,389 |
Material Changes vs. Prior Period
- Net Loss vs. Profit: The Company reported a net loss of $692,345 for the nine months ended September 30, 2010, compared to a net income of $719,677 in the same period of 2009. This represents a significant decline in profitability.
- Real Estate Sales: No real estate land sales were closed during the first nine months of 2010. In contrast, the 2009 period included ancillary land sales to Volusia County totaling $2.59 million in revenue.
- Accounting Correction: A $1.125 million correction was recorded in Q2 2010 regarding the accounting of a 2009 land sale. This adjustment reduced revenues and profits by $1.125 million and decreased net income by $720,000 ($0.13 per share).
- Income Properties: Revenues increased slightly (1% for the quarter, 2% for the nine months) due to new leases on self-developed properties, partially offset by the expiration of a Barnes & Noble lease in Lakeland, FL.
- Golf Operations: Golf operations continued to incur losses ($1.39 million for the nine months), though the loss narrowed slightly in the third quarter compared to the prior year.
- General & Administrative Expenses: G&A expenses decreased by 34% year-over-year for the nine-month period, primarily due to lower stock option accruals driven by a lower stock price.
Guidance, Outlook, and Risks
- Outlook: Management does not expect significant improvement in economic conditions or the real estate market throughout 2010 and into 2011. The Company continues to focus on reinvesting land sales proceeds into income-producing properties and developing infrastructure.
- Capital Expenditures: Planned capital expenditures for the remainder of 2010 are projected at approximately $3.8 million, including land acquisition, hay conversion, tenant improvements, and road construction funding.
- Dividends: The Board declared a dividend of $0.01 per share on October 27, 2010, a reduction from previous levels, to allocate funds toward long-term value creation projects.
- Risks and Contingencies:
- Legal Proceedings: An appeal is pending regarding a shareholder's request for inspection of corporate records (Wintergreen Advisers, LLC). Additionally, an administrative complaint was filed by the St. Johns River Water Management District regarding agricultural operations; management does not believe this will have a material adverse effect.
- Market Risk: The Company is exposed to interest rate risk on variable-rate debt, though an interest rate swap agreement effectively fixes the rate. Real estate values are concentrated in Volusia County, Florida, making the Company susceptible to local economic downturns.
Investor Verification Checklist
- Accounting Correction Impact: Verify the specific impact of the $1.125 million revenue reduction on the Q2 2010 results and confirm the treatment of the related tax adjustments.
- Land Sales Pipeline: Assess the current backlog of real estate contracts and the likelihood of closings in 2011 given the stated lack of improvement in market conditions.
- Income Property Occupancy: Monitor the lease-up status of the self-developed Gateway Commerce Center and the status of the vacated Barnes & Noble property in Lakeland.
- Debt Covenants: Review the negative covenant limiting additional indebtedness to $1 million per fiscal year without lender approval and ensure compliance.
- Legal Outcomes: Track the resolution of the Wintergreen shareholder appeal and the St. Johns River Water Management District administrative hearing scheduled for March 2011.