CTO Realty Growth, Inc. — Q1 2018 Form 10-Q
Reporting period: Three months ended March 31, 2018. The filing identifies the registrant as Consolidated-Tomoka Land Co.
Business context
The company operated 36 commercial properties across 13 states, with approximately 2.1 million square feet of leasable space, and owned approximately 8,100 acres of undeveloped land in Daytona Beach, Florida. Other operations included commercial real estate loans, golf, agriculture, and subsurface interests.
Financial results and position
| Metric | Q1 2018 | Q1 2017 / comparison |
|---|---|---|
| Total revenue | $24.9 million | $38.7 million; down 36% |
| Operating income | $17.0 million | $22.8 million |
| Net income | $10.9 million | $12.7 million; down 14% |
| Basic / diluted EPS | $1.97 / $1.96 | $2.28 / $2.27 |
| Dividend declared and paid | $0.06 per share | $0.04 per share |
| Operating cash flow | $10.6 million | $29.5 million |
| Investing cash flow | $(19.0) million | $(23.6) million |
| Financing cash flow | $2.2 million | $(13.2) million |
- At March 31, total assets were $484.4 million, total liabilities $289.4 million, and shareholders’ equity $195.0 million.
- Cash and cash equivalents were $3.7 million; restricted cash was $3.1 million. The company reported approximately $6.9 million of combined cash and restricted cash.
- Long-term debt was $203.1 million at face value ($199.3 million carrying value), up about $3.1 million from year-end, primarily due to net revolver draws. The credit facility had $73.1 million outstanding and approximately $54.9 million of available borrowing capacity. The company reported compliance with debt covenants.
- The effective income tax rate fell to 24.4% from 38.7%, primarily reflecting the federal corporate tax rate reduction under the Tax Cuts and Jobs Act.
Material changes and notable items
- Revenue fell mainly because Q1 2017 included sales of approximately 1,587 acres for $28.7 million, compared with a 34.9-acre Buc-ee’s sale for $13.9 million in Q1 2018. The company recognized $11.9 million of gain on the Buc-ee’s transaction; a further approximately $831,000 was deferred pending wetlands mitigation.
- Income-property revenue rose 30% to $9.2 million, reflecting acquisitions and the commencement of leases at two beachfront restaurants. The company acquired a fully leased Aspen, Colorado property for $28.0 million, with a 20-year remaining lease term.
- The company sold four self-developed Daytona Beach office properties for approximately $11.4 million, recognizing a $3.7 million gain, or about $0.49 per share after tax. Proceeds helped fund a previously acquired Wells Fargo-leased property through a reverse like-kind exchange structure.
- Higher depreciation and interest expense partially offset operating gains: depreciation and amortization rose to $3.9 million from $2.8 million, while interest expense increased to $2.6 million from $2.1 million.
- Operating cash flow declined largely because land-sale cash receipts were lower. Capital expenditures and property acquisitions were substantial; investing cash outflow was partly offset by proceeds from the office-property sale.
Outlook, risks, and contingencies
- No specific full-year earnings or revenue guidance was provided. Management expected to continue acquiring income-producing properties, monetizing land, and redeploying proceeds—using like-kind exchanges where possible—and described liquidity as sufficient for operations, capital needs, and debt service for the next 12 months and foreseeable future.
- As of May 1, 2018, approximately 6,000 acres, or 74% of the company’s land holdings, were represented in a pipeline of potential transactions totaling approximately $137.7 million. These are not assured closings: many depend on permits, regulatory approvals, due diligence, and other conditions, and buyers may have termination rights. A proposed $15.3 million sale of a 70% interest in a mitigation-bank joint venture was contingent on permitting.
- A wetlands restoration obligation had approximately $700,000 remaining; the company said the estimate could change within a year, potentially affecting its balance sheet and future cash flows. The Buc-ee’s sale also carried an outstanding mitigation obligation.
- Interest-rate exposure remained, particularly on the variable-rate credit facility. Management estimated that a 100-basis-point rate increase would affect financial position, results, and cash flows by approximately $731,000. A $25 million variable-rate mortgage was hedged at 3.17% through an interest-rate swap.
- Risks identified include land-market and transaction-timing uncertainty, permitting and environmental requirements, economic conditions, tenant loss, access issues, and capital availability. A proxy-related lawsuit filed in April 2018 sought injunctive relief and fees; the company considered it without merit and said it did not expect legal proceedings to materially affect results.
- Other notable obligations included a golf-course surcharge with approximately $630,000 remaining and approximately $626,000 of tenant improvements contracted after quarter-end. The company reported no impairment charges.
Investor verification points
- Confirm the status, expected timing, and net proceeds of the land pipeline, especially transactions subject to wetlands and other permitting.
- Assess the remaining wetlands restoration and mitigation obligations, including possible cost changes and the timing of the deferred Buc-ee’s gain.
- Review the $75 million convertible notes due in 2020 and credit-facility maturity in 2021, alongside borrowing availability, interest-rate exposure, and covenant headroom.
- Separate recurring rental and operating performance from land-sale gains and other transaction-driven results when evaluating earnings and cash generation.
- Verify the legal registrant and corporate-name context: this 2018 filing is filed under Consolidated-Tomoka Land Co., notwithstanding the company name supplied in the request.