CTO

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, 2009
Business Overview: The Company is engaged in real estate land sales and development, investment in income-producing properties (often via like-kind exchanges), and golf course operations. It owns approximately 11,200 acres in Florida, primarily in the Daytona Beach area.

Key Financial Metrics

Note: Total Revenues calculated as sum of Real Estate Sales, Income Properties, and Golf Operations.

Material Changes vs. Prior Period

• Net Income Decline: Net income for the nine months ended September 30, 2009, dropped significantly to $719,677 compared to $2,432,562 in the same period in 2008. This represents a decrease of approximately 70%.
• Increased G&A Expenses: General and Administrative expenses rose 96% year-over-year for the nine-month period (from $2.56M to $5.01M). This increase was primarily driven by higher stock option compensation expenses (due to stock price recovery in 2009 vs. decline in 2008) and legal costs related to a shareholder lawsuit and proxy contest (~$735,000).
• Segment Performance:
  • Real Estate Sales: Profitability improved in Q3 2009 ($702k profit) compared to a loss in Q3 2008, driven by the sale of 9 acres. However, nine-month profits were lower than 2008 due to fewer acres sold (16 vs. 21).
  • Income Properties: Revenues increased 3% and profits increased 1% year-over-year, driven by new self-developed office buildings and a Harris Teeter acquisition.
  • Golf Operations: Losses narrowed by 11% year-over-year due to a 28% increase in rounds played, though average revenue per round declined 19%.
• Debt Levels: Notes payable increased by approximately $1.75 million, with $3.98 million outstanding on a $20 million revolving line of credit.

Outlook, Risks, and Management Commentary

• Capital Allocation: Management continues to reinvest land sale proceeds into income properties to reduce earnings volatility. The Board declared a quarterly dividend of $0.05 per share on October 28, 2009.
• Development Projects: Significant capital expenditures were made for a "Class A" office building and road infrastructure (Tournament Drive). Future capital needs include tenant improvements and timber-to-hay conversion.
• Liquidity: The Company maintains a $20 million revolving line of credit maturing March 29, 2010. Management believes it can borrow non-recourse against income properties if needed.
• Risks:
  • Market Concentration: Real estate investments are concentrated in Florida, exposing the company to local economic downturns.
  • Tenant Risk: Barnes & Noble in Lakeland, FL, notified the company it will vacate its 18,150 sq. ft. store in January 2010. The Daytona Beach Barnes & Noble lease expires in January 2011.
  • Foreclosures: The Company foreclosed on two mortgage notes receivable in late 2009 (August and November), writing off the receivables and reacquiring the land with no gain or loss recognized.

Investor Verification Checklist

• Stock Option Expense Volatility: Verify the impact of stock price fluctuations on future G&A expenses, as this significantly impacted 2009 profitability.
• Tenant Vacancy: Monitor the re-leasing status of the Lakeland Barnes & Noble property and the renewal of the Daytona Beach lease.
• Debt Maturity: Confirm the status of the $20 million line of credit maturing in March 2010 and any refinancing plans.
• Land Sales Pipeline: Assess the backlog of land sales contracts, which management noted was smaller than normal due to weak economic conditions.
• Foreclosure Activity: Review the valuation and future development potential of the land reacquired through foreclosure in late 2009.