Business Context and Reporting Period
Company: Consolidated-Tomoka Land Co. (CTO Realty Growth, Inc.)
Filing Type: Form 10-Q (Quarterly Report)
Period Ended: June 30, 2010
Business Overview: The Company is engaged in real estate land sales and development, reinvestment of land sales proceeds into income properties, and golf course operations. It owns approximately 11,600 acres in Florida, primarily in the Daytona Beach area.
Key Financial Metrics
| Metric | Three Months Ended June 30, 2010 | Six Months Ended June 30, 2010 |
|---|---|---|
| Net Income (Loss) | $(593,171) | $(515,352) |
| EPS (Basic & Diluted) | $(0.10) | $(0.09) |
| Total Assets | $175,825,726 | $175,825,726 |
| Cash and Cash Equivalents | $116,175 | $116,175 |
| Investment Securities | $5,030,410 | $5,030,410 |
| Total Liabilities | $58,371,350 | $58,371,350 |
| Notes Payable | $13,087,562 | $13,087,562 |
| Shareholders' Equity | $117,454,376 | $117,454,376 |
| Operating Cash Flow (6 Months) | $812,806 |
Material Changes vs. Prior Period
- Net Loss vs. Net Income: The Company reported a net loss of $593,171 for the quarter ended June 30, 2010, compared to net income of $187,809 in the same period of 2009. For the six-month period, the loss was $515,352 versus income of $510,015 in 2009.
- Accounting Correction: A significant factor in the decline was a $1,125,000 correction of an accounting error related to land sales recorded in Q2 2009. This adjustment reduced revenues and profits, decreasing net income by $720,000 for the quarter.
- Real Estate Sales: No real estate land sales were closed during the first six months of 2010, whereas 2009 included profits from the sale of seven acres to Volusia County.
- Income Properties: Revenues increased 3% year-over-year for the quarter due to new leases on self-developed properties, partially offset by the expiration of a Barnes & Noble lease in Lakeland, FL. However, income declined 3% due to a 23% increase in costs and expenses (including depreciation).
- Golf Operations: Quarterly losses improved by 17% to $395,091 due to increased banquet activity and lower payroll costs. However, six-month losses widened to $756,630 due to harsh weather conditions in Q1 reducing rounds played.
- General & Administrative Expenses: Decreased 58% for the quarter and 35% for the six months, primarily driven by lower stock option accruals due to a reduction in the Company's stock price.
Guidance, Outlook, and Risks
- Outlook: Management does not expect a significant improvement in economic conditions or the real estate market throughout 2010. The Company continues to focus on reinvesting proceeds into income properties and infrastructure development.
- Capital Expenditures: Planned capital expenditures for the remainder of 2010 are projected at approximately $4.4 million. This includes $2.7 million for land acquisition (tax-deferred), $700,000 for hay conversion, and $880,000 for road construction (Dunn Avenue extension).
- Liquidity: The Company maintains a $15 million revolving line of credit with $7.0 million outstanding. Management believes it has the ability to borrow on a non-recourse basis against existing income properties if needed.
- Dividends: A dividend of $0.01 per share was declared on July 28, 2010. The Board noted that funds might be better allocated to long-term value creation rather than higher dividends at this time.
- Risks: Key risks include the prolonged real estate and economic slump in Florida, the timing of land sales, loss of major tenants, and weather impacts on golf operations. There is also an ongoing appeal by a major shareholder (Wintergreen Advisers, LLC) regarding corporate record inspection.
Investor Verification Checklist
- Accounting Correction Impact: Verify the full impact of the $1.125 million revenue reduction related to the 2009 land sale correction on future tax liabilities and deferred tax assets.
- Income Property Occupancy: Monitor the lease-up status of the two self-developed properties and the re-leasing of the vacated Barnes & Noble property in Lakeland.
- Debt Covenants: Review the terms of the $15 million line of credit and the $6 million long-term mortgage to ensure compliance with covenants given the current net loss position.
- Legal Proceedings: Track the status of the appeal filed by Wintergreen Advisers, LLC regarding the inspection of corporate records.
- Capital Allocation: Assess the execution of the $4.4 million planned capital expenditure budget, specifically the $880,000 commitment to the Dunn Avenue road project.