UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
☒QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 20172022
OR
☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission file number 01-11350001-11350
CONSOLIDATED-TOMOKA LAND CO.CTO REALTY GROWTH, INC.
(Exact name of registrant as specified in its charter)
| | |
Maryland |
| 59-0483700 |
|
| |
(State or other jurisdiction of | | (I.R.S. Employer |
incorporation or organization) | | Identification No.) |
| | |
369 N. New York Avenue,Suite 201 | | |
Winter Park, Florida | | 32789 |
(Address of principal executive offices) | | (Zip Code) |
(407) 904-3324
(Registrant’s telephone number, including area code)
| ||
1140 N. Williamson Blvd., Suite 140 | Daytona Beach, FL 32114 | |
|
Securities registered pursuant to Section 12(b) of the Act:
Title of each class: |
| Name of each exchange on which registered: | ||
| |
| | NYSE |
6.375% Series A Cumulative Redeemable Preferred Stock, $0.01 par value per share | | CTO PrA | | NYSE |
(386) 274-2202
(Registrant’s telephone number, including area code)
1530 Cornerstone Blvd., Suite 100 Daytona Beach, Florida 32117
(Former name, former address and former fiscal year, if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| | | | |
Large | ☐ |
| Accelerated Filer | ☒ |
|
| |
| |
Non-accelerated | ☐ | | Smaller | ☐ |
|
| |
| |
|
| |
| ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in rule 12b-2 of the Exchange Act). Yes ☐ No ☒
Indicate the numberAs of October 21, 2022, there were 18,800,010 shares outstanding of each of the issuer’s classes ofregistrant’s common stock, as of the latest practicable date.
Class of Common Stock Outstanding
October 20, 2017
$1.00$0.01 par value 5,581,733per share, outstanding.
INDEX
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| | Page |
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No. | ||
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Consolidated Balance Sheets – September 30, | | 3 |
| | |
| 4 | |
| | |
| 5 | |
| | |
| 6 | |
| | |
| 8 | |
| | |
| 10 | |
| | |
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations | | 40 |
| | |
Item 3. Quantitative and Qualitative Disclosures About Market | | 51 |
| | |
| 52 | |
| | |
| 52 | |
| | |
| 52 | |
| | |
| 52 | |
| | |
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds | | 53 |
| | |
| 53 | |
| | |
| 53 | |
| | |
| 53 | |
| | |
| 54 | |
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| 56 |
2
PART I—FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CTO REALTY GROWTH, INC.
CONSOLIDATED-TOMOKA LAND CO.
|
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|
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| (Unaudited) |
|
|
|
| |
|
| September 30, |
| December 31, |
| ||
ASSETS |
|
|
|
|
|
|
|
Property, Plant, and Equipment: |
|
|
|
|
|
|
|
Income Properties, Land, Buildings, and Improvements |
| $ | 317,215,503 |
| $ | 274,334,139 |
|
Golf Buildings, Improvements, and Equipment |
|
| 6,355,561 |
|
| 3,528,194 |
|
Other Furnishings and Equipment |
|
| 652,479 |
|
| 1,032,911 |
|
Construction in Progress |
|
| 6,246,950 |
|
| 5,267,676 |
|
Total Property, Plant, and Equipment |
|
| 330,470,493 |
|
| 284,162,920 |
|
Less, Accumulated Depreciation and Amortization |
|
| (21,552,883) |
|
| (16,552,077) |
|
Property, Plant, and Equipment—Net |
|
| 308,917,610 |
|
| 267,610,843 |
|
Land and Development Costs |
|
| 40,750,335 |
|
| 51,955,278 |
|
Intangible Lease Assets—Net |
|
| 35,810,734 |
|
| 34,725,822 |
|
Impact Fee and Mitigation Credits |
|
| 1,265,437 |
|
| 2,322,906 |
|
Commercial Loan Investments |
|
| 11,910,611 |
|
| 23,960,467 |
|
Commercial Loan Investments - Held for Sale |
|
| 15,000,000 |
|
| — |
|
Cash and Cash Equivalents |
|
| 5,944,544 |
|
| 7,779,562 |
|
Restricted Cash |
|
| 7,027,196 |
|
| 9,855,469 |
|
Refundable Income Taxes |
|
| 1,510,712 |
|
| 943,991 |
|
Other Assets |
|
| 8,573,622 |
|
| 9,469,088 |
|
Total Assets |
| $ | 436,710,801 |
| $ | 408,623,426 |
|
LIABILITIES AND SHAREHOLDERS’ EQUITY |
|
|
|
|
|
|
|
Liabilities: |
|
|
|
|
|
|
|
Accounts Payable |
| $ | 1,307,813 |
| $ | 1,518,105 |
|
Accrued and Other Liabilities |
|
| 7,382,898 |
|
| 8,667,897 |
|
Deferred Revenue |
|
| 1,313,025 |
|
| 1,991,666 |
|
Intangible Lease Liabilities - Net |
|
| 30,026,994 |
|
| 30,518,051 |
|
Accrued Stock-Based Compensation |
|
| 69,877 |
|
| 42,092 |
|
Deferred Income Taxes—Net |
|
| 63,458,746 |
|
| 51,364,572 |
|
Long-Term Debt |
|
| 173,651,530 |
|
| 166,245,201 |
|
Total Liabilities |
|
| 277,210,883 |
|
| 260,347,584 |
|
Commitments and Contingencies - See Note 18 |
|
|
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|
|
|
|
Shareholders’ Equity: |
|
|
|
|
|
|
|
Common Stock – 25,000,000 shares authorized; $1 par value, 6,026,610 shares issued and 5,581,235 shares outstanding at September 30, 2017; 6,021,564 shares issued and 5,710,238 shares outstanding at December 31, 2016 |
|
| 5,951,720 |
|
| 5,914,560 |
|
Treasury Stock – 445,375 shares at September 30, 2017; 311,326 shares at December 31, 2016 |
|
| (22,434,800) |
|
| (15,298,306) |
|
Additional Paid-In Capital |
|
| 22,168,687 |
|
| 20,511,388 |
|
Retained Earnings |
|
| 153,562,478 |
|
| 136,892,311 |
|
Accumulated Other Comprehensive Income |
|
| 251,833 |
|
| 255,889 |
|
Total Shareholders’ Equity |
|
| 159,499,918 |
|
| 148,275,842 |
|
Total Liabilities and Shareholders’ Equity |
| $ | 436,710,801 |
| $ | 408,623,426 |
|
See Accompanying Notes to Consolidated Financial Statements
(In thousands, except share and per share data)
| | | | | | |
| | As of | ||||
|
| (Unaudited) |
| December 31, | ||
ASSETS | | | | | | |
Real Estate: | | | | | | |
Land, at Cost | | $ | 209,298 | | $ | 189,589 |
Building and Improvements, at Cost | | | 377,758 | | | 325,418 |
Other Furnishings and Equipment, at Cost | | | 746 | | | 707 |
Construction in Process, at Cost | | | 10,717 | | | 3,150 |
Total Real Estate, at Cost | | | 598,519 | | | 518,864 |
Less, Accumulated Depreciation | | | (31,278) | | | (24,169) |
Real Estate—Net | | | 567,241 | | | 494,695 |
Land and Development Costs | | | 685 | | | 692 |
Intangible Lease Assets—Net | | | 87,671 | | | 79,492 |
Assets Held for Sale—See Note 24 | | | — | | | 6,720 |
Investment in Alpine Income Property Trust, Inc. | �� | | 35,260 | | | 41,037 |
Mitigation Credits | | | 2,846 | | | 3,702 |
Mitigation Credit Rights | | | 19,999 | | | 21,018 |
Commercial Loans and Investments | | | 46,201 | | | 39,095 |
Cash and Cash Equivalents | | | 9,532 | | | 8,615 |
Restricted Cash | | | 37,292 | | | 22,734 |
Refundable Income Taxes | | | 448 | | | 442 |
Deferred Income Taxes—Net | | | 61 | | | — |
Other Assets—See Note 12 | | | 38,536 | | | 14,897 |
Total Assets | | $ | 845,772 | | $ | 733,139 |
LIABILITIES AND STOCKHOLDERS’ EQUITY | | | | | | |
Liabilities: | | | | | | |
Accounts Payable | | $ | 1,136 | | $ | 676 |
Accrued and Other Liabilities—See Note 18 | | | 18,149 | | | 13,121 |
Deferred Revenue—See Note 19 | | | 5,840 | | | 4,505 |
Intangible Lease Liabilities—Net | | | 5,995 | | | 5,601 |
Deferred Income Taxes—Net | | | — | | | 483 |
Long-Term Debt | | | 370,248 | | | 278,273 |
Total Liabilities | | | 401,368 | | | 302,659 |
Commitments and Contingencies—See Note 22 | | | | | | |
Stockholders’ Equity: | | | | | | |
Preferred Stock – 100,000,000 shares authorized; $0.01 par value, 6.375% Series A Cumulative Redeemable Preferred Stock, $25.00 Per Share Liquidation Preference, 3,000,000 shares issued and outstanding at September 30, 2022 and December 31, 2021 | | | 30 | | | 30 |
Common Stock – 500,000,000 shares authorized; $0.01 par value, 18,796,612 shares issued and outstanding at September 30, 2022 and 17,748,678 shares issued and outstanding at December 31, 2021 | | | 188 | | | 60 |
Additional Paid-In Capital | | | 97,419 | | | 85,414 |
Retained Earnings | | | 329,317 | | | 343,459 |
Accumulated Other Comprehensive Income | | | 17,450 | | | 1,517 |
Total Stockholders’ Equity | | | 444,404 | | | 430,480 |
Total Liabilities and Stockholders’ Equity | | $ | 845,772 | | $ | 733,139 |
The accompanying notes are an integral part of these consolidated financial statements.
3
CTO REALTY GROWTH, INC.
CONSOLIDATED-TOMOKA LAND CO.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited, in thousands, except share and per share data)
| | | | | | | | | | | | |
| | Three Months Ended | | Nine Months Ended | ||||||||
| | September 30, | | September 30, | | September 30, | | September 30, | ||||
|
| 2022 |
| 2021 |
| 2022 |
| 2021 | ||||
Revenues | | | | | | | | | | | | |
Income Properties | | $ | 17,694 | | $ | 13,734 | | $ | 49,229 | | $ | 36,757 |
Management Fee Income | | | 951 | | | 940 | | | 2,835 | | | 2,361 |
Interest Income From Commercial Loans and Investments | | | 1,323 | | | 726 | | | 3,331 | | | 2,136 |
Real Estate Operations | | | 3,149 | | | 1,177 | | | 4,395 | | | 4,318 |
Total Revenues | | | 23,117 | | | 16,577 | | | 59,790 | | | 45,572 |
Direct Cost of Revenues | | | | | | | | | | | | |
Income Properties | | | (5,115) | | | (3,984) | | | (13,943) | | | (9,688) |
Real Estate Operations | | | (1,661) | | | (252) | | | (1,940) | | | (867) |
Total Direct Cost of Revenues | | | (6,776) | | | (4,236) | | | (15,883) | | | (10,555) |
General and Administrative Expenses | | | (3,253) | | | (2,680) | | | (8,972) | | | (8,477) |
Impairment Charges | | | — | | | — | | | — | | | (16,527) |
Depreciation and Amortization | | | (7,305) | | | (5,567) | | | (20,401) | | | (15,428) |
Total Operating Expenses | | | (17,334) | | | (12,483) | | | (45,256) | | | (50,987) |
Gain on Disposition of Assets | | | 4,973 | | | 22,666 | | | 4,728 | | | 28,106 |
Loss on Extinguishment of Debt | | | — | | | — | | | — | | | (641) |
Other Gains and Income | | | 4,973 | | | 22,666 | | | 4,728 | | | 27,465 |
Total Operating Income | | | 10,756 | | | 26,760 | | | 19,262 | | | 22,050 |
Investment and Other Income (Loss) | | | (3,065) | | | (797) | | | (6,270) | | | 8,438 |
Interest Expense | | | (3,037) | | | (1,986) | | | (7,216) | | | (6,851) |
Income Before Income Tax Benefit (Expense) | | | 4,654 | | | 23,977 | | | 5,776 | | | 23,637 |
Income Tax Benefit (Expense) | | | 163 | | | (30) | | | 461 | | | 4,371 |
Net Income Attributable to the Company | | | 4,817 | | | 23,947 | | | 6,237 | | | 28,008 |
Distributions to Preferred Stockholders | | | (1,195) | | | (1,129) | | | (3,586) | | | (1,129) |
Net Income Attributable to Common Stockholders | | $ | 3,622 | | $ | 22,818 | | $ | 2,651 | | $ | 26,879 |
| | | | | | | | | | | | |
Per Share Information—See Note 14: | | | | | | | | | | | | |
Basic Net Income Attributable to Common Stockholders | | $ | 0.20 | | $ | 1.29 | | $ | 0.15 | | $ | 1.52 |
Diluted Net Income Attributable to Common Stockholders | | $ | 0.19 | | $ | 1.29 | | | 0.15 | | | 1.52 |
| | | | | | | | | | | | |
Weighted Average Number of Common Shares | | | | | | | | | | | | |
Basic | | | 18,386,435 | | | 17,703,284 | | | 18,044,299 | | | 17,678,701 |
Diluted | | | 21,505,460 | | | 17,703,284 | | | 18,044,299 | | | 17,678,701 |
(Unaudited)The accompanying notes are an integral part of these consolidated financial statements.
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| Three Months Ended |
| Nine Months Ended |
| ||||||||
|
| September 30, |
| September 30, |
| September 30, |
| September 30, |
| ||||
|
| 2017 |
| 2016 |
| 2017 |
| 2016 |
| ||||
Revenues |
|
|
|
|
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|
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|
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|
|
Income Properties |
| $ | 7,928,258 |
| $ | 6,021,331 |
| $ | 22,566,505 |
| $ | 18,483,654 |
|
Interest Income from Commercial Loan Investments |
|
| 637,801 |
|
| 534,212 |
|
| 1,727,449 |
|
| 2,050,507 |
|
Real Estate Operations |
|
| 2,926,406 |
|
| 4,643,646 |
|
| 45,658,221 |
|
| 18,979,164 |
|
Golf Operations |
|
| 797,420 |
|
| 1,001,368 |
|
| 3,655,877 |
|
| 3,877,923 |
|
Agriculture and Other Income |
|
| 90,717 |
|
| 10,388 |
|
| 323,617 |
|
| 48,070 |
|
Total Revenues |
|
| 12,380,602 |
|
| 12,210,945 |
|
| 73,931,669 |
|
| 43,439,318 |
|
Direct Cost of Revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
Income Properties |
|
| (1,715,516) |
|
| (1,430,642) |
|
| (4,756,744) |
|
| (3,811,389) |
|
Real Estate Operations |
|
| (459,169) |
|
| (1,257,183) |
|
| (15,408,547) |
|
| (4,638,865) |
|
Golf Operations |
|
| (1,272,647) |
|
| (1,302,920) |
|
| (4,173,244) |
|
| (4,154,684) |
|
Agriculture and Other Income |
|
| (18,874) |
|
| (52,894) |
|
| (89,847) |
|
| (153,599) |
|
Total Direct Cost of Revenues |
|
| (3,466,206) |
|
| (4,043,639) |
|
| (24,428,382) |
|
| (12,758,537) |
|
General and Administrative Expenses |
|
| (1,995,512) |
|
| (1,821,827) |
|
| (7,942,846) |
|
| (8,518,410) |
|
Impairment Charges |
|
| — |
|
| — |
|
| — |
|
| (2,180,730) |
|
Depreciation and Amortization |
|
| (3,161,169) |
|
| (1,945,460) |
|
| (9,139,434) |
|
| (5,818,386) |
|
Gain (Loss) on Disposition of Assets |
|
| (266) |
|
| 11,479,490 |
|
| (266) |
|
| 12,842,438 |
|
Land Lease Termination |
|
| — |
|
| — |
|
| 2,226,526 |
|
| — |
|
Total Operating Expenses |
|
| (8,623,153) |
|
| 3,668,564 |
|
| (39,284,402) |
|
| (16,433,625) |
|
Operating Income |
|
| 3,757,449 |
|
| 15,879,509 |
|
| 34,647,267 |
|
| 27,005,693 |
|
Investment Income (Loss) |
|
| 9,724 |
|
| 2,531 |
|
| 27,431 |
|
| (561,162) |
|
Interest Expense |
|
| (2,073,299) |
|
| (2,454,390) |
|
| (6,279,366) |
|
| (6,700,593) |
|
Income Before Income Tax Expense |
|
| 1,693,874 |
|
| 13,427,650 |
|
| 28,395,332 |
|
| 19,743,938 |
|
Income Tax Expense |
|
| (726,974) |
|
| (5,281,646) |
|
| (11,003,132) |
|
| (8,624,727) |
|
Net Income |
|
| 966,900 |
|
| 8,146,004 |
|
| 17,392,200 |
|
| 11,119,211 |
|
Less: Net Loss Attributable to Noncontrolling Interest in Consolidated VIE |
|
| — |
|
| 15,010 |
|
| — |
|
| 36,964 |
|
Net Income Attributable to Consolidated-Tomoka Land Co. |
| $ | 966,900 |
| $ | 8,161,014 |
| $ | 17,392,200 |
| $ | 11,156,175 |
|
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Per Share Information- See Note 10: |
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Basic |
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Net Income Attributable to Consolidated-Tomoka Land Co. |
| $ | 0.18 |
| $ | 1.44 |
| $ | 3.13 |
| $ | 1.96 |
|
Diluted |
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Net Income Attributable to Consolidated-Tomoka Land Co. |
| $ | 0.18 |
| $ | 1.44 |
| $ | 3.13 |
| $ | 1.95 |
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Dividends Declared and Paid |
| $ | 0.05 |
| $ | 0.04 |
| $ | 0.13 |
| $ | 0.08 |
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|
See Accompanying Notes to Consolidated Financial Statements
4
CTO REALTY GROWTH, INC.
CONSOLIDATED-TOMOKA LAND CO.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited, in thousands)
| | | | | | | | | | | | |
| | Three Months Ended | | Nine Months Ended | ||||||||
| | September 30, 2022 |
| September 30, 2021 |
| September 30, 2022 |
| September 30, 2021 | ||||
Net Income Attributable to the Company | | $ | 4,817 | | $ | 23,947 | | $ | 6,237 | | $ | 28,008 |
Other Comprehensive Income: | | | | | | | | | | | | |
Cash Flow Hedging Derivative - Interest Rate Swaps | | | 5,310 | | | 217 | | | 15,933 | | | 1,387 |
Total Other Comprehensive Income | | | 5,310 | | | 217 | | | 15,933 | | | 1,387 |
Total Comprehensive Income | | $ | 10,127 | | $ | 24,164 | | $ | 22,170 | | $ | 29,395 |
(Unaudited)The accompanying notes are an integral part of these consolidated financial statements.
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| Three Months Ended |
| Nine Months Ended |
| ||||||||
|
| September 30, 2017 |
| September 30, 2016 |
| September 30, 2017 |
| September 30, 2016 |
| ||||
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|
Net Income Attributable to Consolidated-Tomoka Land Co. |
| $ | 966,900 |
| $ | 8,161,014 |
| $ | 17,392,200 |
| $ | 11,156,175 |
|
Other Comprehensive Income |
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Realized Loss on Investment Securities Sold (Net of Income Tax of $-0- and $222,025 for the nine months ended September 30, 2017 and 2016, respectively) |
|
| — |
|
| — |
|
| — |
|
| 353,542 |
|
Unrealized Gain on Investment Securities (Net of Income Tax of $-0- and $210,652 for the nine months ended September 30, 2017 and 2016, respectively) |
|
| — |
|
| — |
|
| — |
|
| 335,429 |
|
Cash Flow Hedging Derivative - Interest Rate Swap (Net of Income Tax of $3,720 and $69,100 for the three months ended September 30, 2017 and 2016, respectively, and Net of Income Tax of $(2,548) and $(141,450) for the nine months ended September 30, 2017 and 2016, respectively) |
|
| 5,924 |
|
| 110,031 |
|
| (4,056) |
|
| (225,240) |
|
Total Other Comprehensive Income (Loss), Net of Income Tax |
|
| 5,924 |
|
| 110,031 |
|
| (4,056) |
|
| 463,731 |
|
Total Comprehensive Income |
| $ | 972,824 |
| $ | 8,271,045 |
| $ | 17,388,144 |
| $ | 11,619,906 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See Accompanying Notes to Consolidated Financial Statements
5
CTO REALTY GROWTH, INC.
CONSOLIDATED-TOMOKA LAND CO.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’STOCKHOLDERS’ EQUITY
(Unaudited, in thousands)
For the three months ended September 30, 2022:
| | | | | | | | | | | | | | | | | | | | | |
| | Preferred Stock | | Common Stock | | Treasury Stock | | Additional Paid-In Capital | | Retained Earnings | | Accumulated Other Comprehensive Income | | Stockholders' Equity | |||||||
Balance July 1, 2022 | | $ | 30 | | $ | 61 | | $ | — | | $ | 86,347 | | $ | 332,916 | | $ | 12,140 | | $ | 431,494 |
Net Income Attributable to the Company | | | — | | | — | | | — | | | — | | | 4,817 | | | — | | | 4,817 |
Three-for-One Stock Split | | | — | | | 122 | | | — | | | (122) | | | — | | | — | | | — |
Stock Repurchase | | | — | | | (1) | | | — | | | (1,644) | | | — | | | — | | | (1,645) |
Exercise of Stock Options and Stock Issuance to Directors | | | — | | | — | | | — | | | 11 | | | — | | | — | | | 11 |
Stock Issuance, Net of Equity Issuance Costs | | | — | | | 6 | | | — | | | 12,082 | | | — | | | — | | | 12,088 |
Stock-Based Compensation Expense | | | — | | | — | | | — | | | 745 | | | — | | | — | | | 745 |
Preferred Stock Dividends Declared for the Period | | | — | | | — | | | — | | | — | | | (1,195) | | | — | | | (1,195) |
Common Stock Dividends Declared for the Period | | | — | | | — | | | — | | | — | | | (7,221) | | | — | | | (7,221) |
Other Comprehensive Income | | | — | | | — | | | — | | | — | | | — | | | 5,310 | | | 5,310 |
Balance September 30, 2022 | | $ | 30 | | $ | 188 | | $ | — | | $ | 97,419 | | $ | 329,317 | | $ | 17,450 | | $ | 444,404 |
(Unaudited)For the three months ended September 30, 2021:
| | | | | | | | | | | | | | | | | | | | | |
| | Preferred Stock | | Common Stock | | Treasury Stock | | Additional Paid-In Capital | | Retained Earnings | | Accumulated Other Comprehensive Loss | | Stockholders' Equity | |||||||
Balance July 1, 2021 | | $ | — | | $ | 60 | | $ | — | | $ | 13,676 | | $ | 331,895 | | $ | (740) | | $ | 344,891 |
Net Income Attributable to the Company | | | — | | | — | | | — | | | — | | | 23,947 | | | — | | | 23,947 |
Issuance of Preferred Stock, Net of Underwriting Discount and Expenses | | | 30 | | | — | | | — | | | 72,640 | | | — | | | — | | | 72,670 |
Exercise of Stock Options and Common Stock Issuance | | | — | | | — | | | — | | | (83) | | | — | | | — | | | (83) |
Stock-Based Compensation Expense | | | — | | | — | | | — | | | 666 | | | — | | | — | | | 666 |
Preferred Stock Dividends Declared for the Period | | | — | | | — | | | — | | | — | | | (1,129) | | | — | | | (1,129) |
Common Stock Dividends Declared for the Period | | | — | | | — | | | — | | | — | | | (6,032) | | | — | | | (6,032) |
Other Comprehensive Income | | | — | | | — | | | — | | | — | | | — | | | 217 | | | 217 |
Balance September 30, 2021 | | $ | 30 | | $ | 60 | | $ | — | | $ | 86,899 | | $ | 348,681 | | $ | (523) | | $ | 435,147 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
| Accumulated |
|
|
| ||||
|
|
|
|
|
| Additional |
|
|
| Other |
| Total |
| ||||||
|
| Common |
| Treasury |
| Paid-In |
| Retained |
| Comprehensive |
| Shareholders’ |
| ||||||
|
| Stock |
| Stock |
| Capital |
| Earnings |
| Income (Loss) |
| Equity |
| ||||||
Balance January 1, 2017 |
| $ | 5,914,560 |
| $ | (15,298,306) |
| $ | 20,511,388 |
| $ | 136,892,311 |
| $ | 255,889 |
| $ | 148,275,842 |
|
Net Income |
|
| — |
|
| — |
|
| — |
|
| 17,392,200 |
|
| — |
|
| 17,392,200 |
|
Stock Repurchase |
|
| — |
|
| (7,136,494) |
|
| — |
|
| — |
|
| — |
|
| (7,136,494) |
|
Exercise of Stock Options |
|
| 22,527 |
|
| — |
|
| 746,026 |
|
| — |
|
| — |
|
| 768,553 |
|
Vested Restricted Stock |
|
| 13,298 |
|
| — |
|
| (274,919) |
|
| — |
|
| — |
|
| (261,621) |
|
Stock Issuance |
|
| 1,335 |
|
| — |
|
| 71,887 |
|
| — |
|
| — |
|
| 73,222 |
|
Stock Compensation Expense from Restricted Stock Grants and Equity Classified Stock Options |
|
| — |
|
| — |
|
| 1,114,305 |
|
| — |
|
| — |
|
| 1,114,305 |
|
Cash Dividends ($0.13 per share) |
|
| — |
|
| — |
|
| — |
|
| (722,033) |
|
| — |
|
| (722,033) |
|
Other Comprehensive Loss, Net of Income Tax |
|
| — |
|
| — |
|
| — |
|
| — |
|
| (4,056) |
|
| (4,056) |
|
Balance September 30, 2017 |
| $ | 5,951,720 |
| $ | (22,434,800) |
| $ | 22,168,687 |
| $ | 153,562,478 |
| $ | 251,833 |
| $ | 159,499,918 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See Accompanying Notes to Consolidated Financial Statements
6
CTO REALTY GROWTH, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (continued)
(Unaudited, in thousands)
For the nine months ended September 30, 2022:
| | | | | | | | | | | | | | | | | | | | | |
| | Preferred Stock | | Common Stock | | Treasury Stock | | Additional Paid-In Capital | | Retained Earnings | | Accumulated Other Comprehensive Income | | Stockholders' Equity | |||||||
Balance January 1, 2022 | | $ | 30 | | $ | 60 | | $ | — | | $ | 85,414 | | $ | 343,459 | | $ | 1,517 | | $ | 430,480 |
Net Income Attributable to the Company | | | — | | | — | | | — | | | — | | | 6,237 | | | — | | | 6,237 |
Three-for-One Stock Split | | | — | | | 122 | | | — | | | (122) | | | — | | | — | | | — |
Adjustment to Equity Component of Convertible Debt Upon Adoption of ASU 2020-06 | | | — | | | — | | | — | | | (7,034) | | | 4,022 | | | — | | | (3,012) |
Stock Repurchase | | | — | | | (1) | | | — | | | (2,791) | | | — | | | — | | | (2,792) |
Vested Restricted Stock and Performance Shares | | | — | | | — | | | — | | | (845) | | | — | | | — | | | (845) |
Exercise of Stock Options and Stock Issuance to Directors | | | — | | | — | | | — | | | 248 | | | — | | | — | | | 248 |
Stock Issuance, Net of Equity Issuance Costs | | | — | | | 7 | | | — | | | 20,560 | | | — | | | — | | | 20,567 |
Stock-Based Compensation Expense | | | — | | | — | | | — | | | 1,989 | | | — | | | — | | | 1,989 |
Preferred Stock Dividends Declared for the Period | | | — | | | — | | | — | | | — | | | (3,586) | | | — | | | (3,586) |
Common Stock Dividends Declared for the Period | | | — | | | — | | | — | | | — | | | (20,815) | | | — | | | (20,815) |
Other Comprehensive Income | | | — | | | — | | | — | | | — | | | — | | | 15,933 | | | 15,933 |
Balance September 30, 2022 | | $ | 30 | | $ | 188 | | $ | — | | $ | 97,419 | | $ | 329,317 | | $ | 17,450 | | $ | 444,404 |
For the nine months ended September 30, 2021:
| | | | | | | | | | | | | | | | | | | | | |
| | Preferred Stock | | Common Stock | | Treasury Stock | | Additional Paid-In Capital | | Retained Earnings | | Accumulated Other Comprehensive Income (Loss) | | Stockholders' Equity | |||||||
Balance January 1, 2021 | | $ | — | | $ | 7,250 | | $ | (77,541) | | $ | 83,183 | | $ | 339,917 | | $ | (1,910) | | $ | 350,899 |
Net Income Attributable to the Company | | | — | | | — | | | — | | | — | | | 28,008 | | | — | | | 28,008 |
Vested Restricted Stock and Performance Shares | | | — | | | — | | | — | | | (436) | | | — | | | — | | | (436) |
Issuance of Preferred Stock, Net of Underwriting Discount and Expenses | | | 30 | | | — | | | — | | | 72,409 | | | — | | | — | | | 72,439 |
Exercise of Stock Options and Common Stock Issuance | | | — | | | — | | | — | | | 289 | | | — | | | — | | | 289 |
Equity Issuance Costs | | | — | | | — | | | — | | | (197) | | | — | | | — | | | (197) |
Stock-Based Compensation Expense | | | — | | | — | | | — | | | 2,002 | | | — | | | — | | | 2,002 |
Par Value $0.01 per Share and Treasury Stock Derecognized at January 29, 2021 | | | — | | | (7,190) | | | 77,541 | | | (70,351) | | | — | | | — | | | — |
Preferred Stock Dividends Declared for the Period | | | — | | | — | | | — | | | — | | | (1,129) | | | — | | | (1,129) |
Common Stock Dividends Declared for the Period | | | — | | | — | | | — | | | — | | | (18,115) | | | — | | | (18,115) |
Other Comprehensive Income | | | — | | | — | | | — | | | — | | | — | | | 1,387 | | | 1,387 |
Balance September 30, 2021 | | $ | 30 | | $ | 60 | | $ | — | | $ | 86,899 | | $ | 348,681 | | $ | (523) | | $ | 435,147 |
The accompanying notes are an integral part of these consolidated financial statements.
7
CTO REALTY GROWTH, INC.
CONSOLIDATED-TOMOKA LAND CO.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited, in thousands)
| | | | | | |
| | Nine Months Ended | ||||
| | September 30, 2022 | | September 30, 2021 | ||
Cash Flow from Operating Activities: | | | | | | |
Net Income Attributable to the Company | | $ | 6,237 | | $ | 28,008 |
Adjustments to Reconcile Net Income Attributable to the Company to Net Cash Provided by Operating Activities: | | | | | | |
Depreciation and Amortization | | | 20,401 | | | 15,428 |
Amortization of Intangible Liabilities to Income Property Revenue | | | 1,485 | | | (820) |
Amortization of Deferred Financing Costs to Interest Expense | | | 515 | | | 444 |
Amortization of Discount on Convertible Debt | | | 149 | | | 951 |
Gain on Disposition of Assets | | | (3,921) | | | (28,106) |
Gain on Disposition of Commercial Loans and Investments | | | (807) | | | — |
Loss on Extinguishment of Debt | | | — | | | 641 |
Impairment Charges | | | — | | | 16,527 |
Accretion of Commercial Loans and Investments Origination Fees | | | (150) | | | (1) |
Non-Cash Imputed Interest | | | (119) | | | (330) |
Deferred Income Taxes | | | (544) | | | (3,736) |
Unrealized (Gain) Loss on Investment Securities | | | 8,102 | | | (6,894) |
Non-Cash Compensation | | | 2,423 | | | 2,434 |
Decrease (Increase) in Assets: | | | | | | |
Refundable Income Taxes | | | (5) | | | (830) |
Assets Held for Sale | | | — | | | (1) |
Land and Development Costs | | | 7 | | | 381 |
Mitigation Credits and Mitigation Credit Rights | | | 1,876 | | | (16,007) |
Other Assets | | | (7,895) | | | (945) |
Increase in Liabilities: | | | | | | |
Accounts Payable | | | 460 | | | 1,084 |
Accrued and Other Liabilities | | | 4,531 | | | 3,800 |
Deferred Revenue | | | 1,335 | | | 337 |
Net Cash Provided By Operating Activities | | | 34,080 | | | 12,365 |
Cash Flow from Investing Activities: | | | | | | |
Acquisition of Real Estate and Intangible Lease Assets and Liabilities | | | (112,843) | | | (115,780) |
Acquisition of Commercial Loans and Investments | | | (50,130) | | | (364) |
Restricted Cash Balance Received in Acquisition of Interest in Joint Venture | | | — | | | 595 |
Cash Contribution to Joint Ventures | | | — | | | (639) |
Proceeds from Disposition of Property, Plant, and Equipment, Net, and Assets Held for Sale | | | 40,777 | | | 108,449 |
Principal Payments Received on Commercial Loans and Investments | | | 44,079 | | | — |
Acquisition of Investment Securities | | | (2,253) | | | — |
Net Cash Used In Investing Activities | | | (80,370) | | | (7,739) |
Cash Flow From Financing Activities: | | | | | | |
Proceeds from Long-Term Debt | | | 218,500 | | | 156,500 |
Payments on Long-Term Debt | | | (147,000) | | | (171,308) |
Cash Paid for Loan Fees | | | (2,610) | | | (907) |
Cash Paid for Exercise of Stock Options and Common Stock Issuance | | | (177) | | | (146) |
Proceeds from Issuance of Preferred Stock, Net of Underwriting Discount and Expenses | | | — | | | 72,439 |
Cash Used to Purchase Common Stock | | | (2,792) | | | — |
Cash Paid for Vesting of Restricted Stock | | | (845) | | | (452) |
Proceeds from (Cash Paid for) Issuance of Common Stock, Net | | | 20,567 | | | (197) |
Dividends Paid - Preferred Stock | | | (3,586) | | | (1,129) |
Dividends Paid - Common Stock | | | (20,292) | | | (17,700) |
Net Cash Provided By Financing Activities | | | 61,765 | | | 37,100 |
Net Increase in Cash, Cash Equivalents and Restricted Cash | | | 15,475 | | | 41,726 |
Cash, Cash Equivalents and Restricted Cash, Beginning of Period | | | 31,349 | | | 33,825 |
Cash, Cash Equivalents and Restricted Cash, End of Period | | $ | 46,824 | | $ | 75,551 |
| | | | | | |
Reconciliation of Cash to the Consolidated Balance Sheets: | | | | | | |
Cash and Cash Equivalents | | $ | 9,532 | | $ | 7,005 |
Restricted Cash | | | 37,292 | | | 68,546 |
Total Cash | | $ | 46,824 | | $ | 75,551 |
(Unaudited)
|
|
|
|
|
|
|
|
|
| Nine Months Ended |
| ||||
|
| September 30, |
| September 30, |
| ||
|
| 2017 |
| 2016 |
| ||
Cash Flow from Operating Activities: |
|
|
|
|
|
|
|
Net Income |
| $ | 17,392,200 |
| $ | 11,119,211 |
|
Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities: |
|
|
|
|
|
|
|
Depreciation and Amortization |
|
| 9,139,434 |
|
| 5,818,386 |
|
Amortization of Intangible Liabilities to Income Property Revenue |
|
| (1,632,881) |
|
| (1,722,165) |
|
Loan Cost Amortization |
|
| 350,292 |
|
| 715,448 |
|
Amortization of Discount on Convertible Debt |
|
| 888,851 |
|
| 833,903 |
|
Gain on Disposition of Property, Plant, and Equipment and Intangible Assets |
|
| 266 |
|
| (12,842,438) |
|
Impairment Charges |
|
| — |
|
| 2,180,730 |
|
Accretion of Commercial Loan Origination Fees |
|
| (10,144) |
|
| (164,893) |
|
Amortization of Fees on Acquisition of Commercial Loan Investments |
|
| — |
|
| 36,382 |
|
Discount on Commercial Loan Investment Payoff |
|
| — |
|
| 217,500 |
|
Realized Loss (Gain) on Investment Securities |
|
| — |
|
| 575,567 |
|
Deferred Income Taxes |
|
| 12,090,118 |
|
| 8,648,705 |
|
Non-Cash Compensation |
|
| 1,142,090 |
|
| 2,893,589 |
|
Decrease (Increase) in Assets: |
|
|
|
|
|
|
|
Refundable Income Taxes |
|
| (566,721) |
|
| (1,072,888) |
|
Land and Development Costs |
|
| 11,204,943 |
|
| (6,083,694) |
|
Impact Fees and Mitigation Credits |
|
| 1,057,469 |
|
| 491,999 |
|
Other Assets |
|
| 895,466 |
|
| (3,243,619) |
|
Increase (Decrease) in Liabilities: |
|
|
|
|
|
|
|
Accounts Payable |
|
| (210,292) |
|
| (173,258) |
|
Accrued and Other Liabilities |
|
| (1,984,999) |
|
| (750,186) |
|
Deferred Revenue |
|
| (678,641) |
|
| (11,692,910) |
|
Net Cash Provided By (Used In) Operating Activities |
|
| 49,077,451 |
|
| (4,214,631) |
|
Cash Flow from Investing Activities: |
|
|
|
|
|
|
|
Acquisition of Property, Plant, and Equipment and Intangible Lease Assets and Liabilities |
|
| (49,689,555) |
|
| (2,714,273) |
|
Acquisition of Property, Plant, and Equipment and Intangible Lease Assets and Liabilities through Business Combinations |
|
| — |
|
| (49,926,670) |
|
Acquisition of Commercial Loan Investments |
|
| (2,940,000) |
|
| — |
|
Decrease (Increase) in Restricted Cash |
|
| 2,828,273 |
|
| 7,416,791 |
|
Proceeds from Sale of Investment Securities |
|
| — |
|
| 6,252,362 |
|
Proceeds from Disposition of Property, Plant, and Equipment |
|
| — |
|
| 49,253,982 |
|
Principal Payments Received on Commercial Loan Investments |
|
| — |
|
| 14,282,500 |
|
Net Cash Provided By (Used In) Investing Activities |
|
| (49,801,282) |
|
| 24,564,692 |
|
Cash Flow from Financing Activities: |
|
|
|
|
|
|
|
Proceeds from Long-Term Debt |
|
| 24,500,000 |
|
| 32,750,000 |
|
Payments on Long-Term Debt |
|
| (17,800,000) |
|
| (42,050,000) |
|
Cash Paid for Loan Fees |
|
| (532,814) |
|
| (392,448) |
|
Cash Proceeds from Exercise of Stock Options and Stock Issuance |
|
| 841,775 |
|
| 57,127 |
|
Contributions from Noncontrolling Interest in Consolidated VIE |
|
| — |
|
| 102,844 |
|
Cash Used to Purchase Common Stock |
|
| (7,136,494) |
|
| (5,484,295) |
|
Cash from Excess Tax Benefit (Expense) from Vesting of Restricted Stock |
|
| — |
|
| 302,352 |
|
Cash Paid for Vesting of Restricted Stock |
|
| (261,621) |
|
| (198,713) |
|
Dividends Paid |
|
| (722,033) |
|
| (456,119) |
|
Net Cash Used In Financing Activities |
|
| (1,111,187) |
|
| (15,369,252) |
|
Net Increase (Decrease) in Cash |
|
| (1,835,018) |
|
| 4,980,809 |
|
Cash, Beginning of Year |
|
| 7,779,562 |
|
| 4,060,677 |
|
Cash, End of Period |
| $ | 5,944,544 |
| $ | 9,041,486 |
|
See Accompanying Notes to Consolidated Financial Statements
7
8
CONSOLIDATED-TOMOKA LAND CO.CTO REALTY GROWTH, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
(Unaudited)(Unaudited, in thousands)
Supplemental Disclosure
| | | | | | |
| | Nine Months Ended | ||||
| | September 30, 2022 | | September 30, 2021 | ||
Supplemental Disclosure of Cash Flow Information: | | | | | | |
Cash Paid for Taxes, Net of Refunds Received | | $ | 111 | | $ | 245 |
Cash Paid for Interest (1) | | $ | 5,785 | | $ | 4,986 |
| | | | | | |
Supplemental Disclosure of Non-Cash Investing and Financing Activities: | | | | | | |
Unrealized Gain on Cash Flow Hedges | | $ | 15,933 | | $ | 1,387 |
Adjustment to Equity Component of Convertible Debt Upon Adoption of ASU 2020-06 | | $ | 3,012 | | $ | — |
Common Stock Dividends Declared and Unpaid | | $ | 523 | | $ | 415 |
Assumption of Mortgage Note Payable | | $ | 17,800 | | $ | 30,000 |
(1) | Includes capitalized interest of $0.1 million during the nine months ended September 30, 2022, with no interest capitalized during the nine months ended September 30, 2021. |
The accompanying notes are an integral part of Cash Flows:these consolidated financial statements.
Income taxes refunded, net of payments made, totaled approximately $531,000 during the nine months ended September 30, 2017. Income taxes paid, net of income taxes refunded, totaled approximately $377,000 during the nine months ended September 30, 2016.
Interest totaling approximately $6.0 million was paid during the nine months ended September 30, 2017 and 2016. Interest of approximately $124,000 was capitalized during the nine months ended September 30, 2017, while no interest was capitalized during the nine months ended September 30, 2016.
In connection with the Golf Course Land Purchase (hereinafter defined), each year the Company is obligated to pay the City an annual surcharge of $1 per golf round played (the “Per-Round Surcharge”) with an annual minimum Per-Round Surcharge of $70,000 and a maximum aggregate amount of the Per-Round Surcharge paid equal to $700,000. The maximum amount of $700,000 represents contingent consideration and was reflected as an increase in Golf Buildings, Improvements, and Equipment and also as an increase in Accrued and Other Liabilities on the accompany consolidated balance sheets as of September 30, 2017.
On September 16, 2016, the Company closed on the Portfolio Sale (hereinafter defined). The sales price on the Portfolio Sale was approximately $51.6 million, of which approximately $23.1 million was not received in cash at closing but rather the buyer assumed the Company’s $23.1 million mortgage loan secured by the Portfolio Sale properties. The non-cash transaction was reflected as a decrease in Long-Term Debt of approximately $23.1 million on the accompanying consolidated balance sheets as of September 30, 2016.
See Accompanying Notes to Consolidated Financial Statements
8
9
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE 1. DESCRIPTION OF BUSINESS AND PRINCIPLES OF INTERIM STATEMENTS
Description of Business
The terms “us,” “we,” “our,” and “the Company” as used in this report refer to Consolidated-Tomoka Land Co. together with our consolidated subsidiaries.
We are a diversifiedpublicly traded, primarily retail-focused, real estate operating company.investment trust (“REIT”) that was founded in 1910. We own and manage, thirty-sixsometimes utilizing third-party property management companies, 18 commercial real estate properties in elevennine states in the United States. As of September 30, 2017,2022, we owned twenty-fourfive single-tenant and twelve13 multi-tenant income-producing properties with over 1.9comprising 2.7 million square feet of gross leasable space. WeSubsequent to September 30, 2022, on October 14, 2022, the Company acquired a 0.4 million square feet property as further described in Note 25, “Subsequent Events”.
In addition to our income property portfolio, as of September 30, 2022, our business included the following:
Management Services:
● | A fee-based management business that is engaged in managing Alpine Income Property Trust, Inc. (“PINE”), see Note 5, “Related Party Management Services Business”. |
Commercial Loans and Investments:
● | A portfolio of five commercial loan investments and one preferred equity investment which is classified as a commercial loan investment. |
Real Estate Operations:
● | A portfolio of subsurface mineral interests associated with approximately 355,000 surface acres in 19 counties in the State of Florida (“Subsurface Interests”); and |
● | An inventory of historically owned mitigation credits as well as mitigation credits produced by the Company’s mitigation bank. The mitigation bank owns a 2,500 acre parcel of land in the western part of Daytona Beach, Florida and, pursuant to a mitigation plan approved by the applicable state and federal authorities, produces mitigation credits that are sold to developers of land in the Daytona Beach area for the purpose of enabling the developers to obtain certain regulatory permits for property development (the “Mitigation Bank”). Prior to the Interest Purchase (hereinafter defined in Note 7, “Investment in Joint Ventures”) completed on September 30, 2021, the Company held a 30% retained interest in the entity that owns the Mitigation Bank. |
Our business also own and manage a portfolio of undeveloped land totaling approximately 8,100 acresincludes our investment in the City of Daytona Beach, Florida (the “City”).PINE. As of September 30, 2017,2022, the fair value of our investment totaled $35.3 million, or 16.0% of PINE’s outstanding equity, including the units of limited partnership interest (“OP Units”) we have four commercial loan investments including one fixed-rate and one variable–rate mezzanine commercial mortgage loan, a variable-rate B-Note representing a secondary tranchehold in a commercial mortgage loan, and a fixed-rate first mortgage loan. We have golf operationsAlpine Income Property OP, LP (the “PINE Operating Partnership”), which consistare redeemable for cash, based upon the value of an equivalent number of shares of PINE common stock at the time of the LPGA International Golf Club,redemption, or shares of PINE common stock on a one-for-one basis, at PINE’s election. Our investment in PINE generates investment income through the dividends distributed by PINE. In addition to the dividends we receive from PINE, our investment in PINE may benefit from any appreciation in PINE’s stock price, although no assurances can be provided that such appreciation will occur, the amount by which is managed by a third party. We also lease some of our land for nineteen billboards, have agricultural operations that are managed by a third party, which consist of leasing land for hay production, timber harvesting, and hunting leases, and own and manage Subsurface Interests (hereinafter defined). The results of our agricultural and subsurface leasing operationsinvestment will increase in value, or the timing thereof. Any dividends received from PINE are included in Agricultureinvestment and Other Income and Real Estate Operations, respectively, in ourother income (loss) on the accompanying consolidated statements of operations.
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NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Interim Financial Information
As further described in Note 13, “Equity”, the Company completed a three-for-one stock split of the Company’s common stock effective July 1, 2022. Pursuant to FASB ASC Topic 505, Equity, the Company has adjusted the computations of basic and diluted earnings per share retroactively for all periods presented.
The accompanying unaudited consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission. These unaudited consolidated financial statements do not include all of the information and notes required by accounting principles generally accepted in the United States of America (“U.S. GAAP”) for complete financial statements, and should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended December 31, 2016,2021, which provides a more complete understanding of the Company’s accounting policies, financial position, operating results, business properties, and other matters. The unaudited consolidated financial statements reflect all adjustments which are, in the opinion of management, necessary to present fairly the financial position of the Company and the results of operations for the interim periods.
The results of operations for the three and nine months ended September 30, 20172022 are not necessarily indicative of results to be expected for the year ending December 31, 2017.2022.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company, its wholly owned subsidiaries, and other entities in which we have a controlling interest. Any real estate entities or properties included in the consolidated financial statements have been consolidated only for the periods that such entities or properties were owned or under control by us. All significant inter-company balances and transactions have been eliminated in the consolidated financial statements. Noncontrolling interestsAs of September 30, 2022, the Company has an equity investment in consolidated pass-through entities are recognized before income taxes.PINE.
Prior to the Interest Purchase (hereinafter defined in Note 7, “Investment in Joint Ventures”) completed on September 30, 2021, the Company held a 30% retained interest in the entity that owns the Mitigation Bank. Additionally, the Company held a 33.5% retained interest in the entity that held approximately 1,600 acres of undeveloped land in Daytona Beach, Florida (the “Land JV”) prior the sale of all of its remaining land holdings, which sale was completed on December 10, 2021, for $66.3 million to Timberline Acquisition Partners, LLC an affiliate of Timberline Real Estate Partners (the “Land JV Sale”).
Use of Estimates in the Preparation of Financial Statements
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Among other factors, fluctuating market conditions that can exist in the national real estate markets and the volatility and uncertainty in the financial and credit markets make it possible that the estimates and assumptions, most notably those related to the Company’s investments in income properties, could change materially due to continued volatility in the real estate and financial markets, or as a result of a significant dislocation in those markets.
Recently Issued Accounting Standards
Cessation of LIBOR. In January 2021, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2021-01 which is in response to concerns about structural risks of interbank offered rates (“IBORs”), and, particularly, the risk of cessation of the London Interbank Offered Rate (“LIBOR”), regulators in numerous jurisdictions around the world have undertaken reference rate reform initiatives to identify alternative reference rates that are more observable or transaction based and less susceptible to manipulation. The amendments in ASU 2021-01 are effective immediately and clarify that certain optional expedients and exceptions in Topic 848 for contract modifications and hedge accounting apply to derivatives that are affected by the discounting transition. The Company believes that its interest rate swaps, hereinafter described in Note 17, “Interest Rate Swaps”, meet the scope of Topic 848-
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10-15-3A and therefore, the Company will be able to continue to apply a perfectly effective assessment method for each interest rate swap by electing the corresponding optional expedient for subsequent assessments.
Debt with Conversion and Other Options. In August 2020, the FASB issued ASU 2020-06 related to simplifying the accounting for convertible instruments by removing certain separation models for convertible instruments. Among other things, the amendments in the update also provide for improvements in the consistency in EPS calculations by amending the guidance by requiring that an entity use the if-converted method for convertible instruments. The amendments in ASU 2020-06 are effective for reporting periods beginning after December 15, 2021. Effective January 1, 2022, the Company adopted ASU 2020-06 whereby diluted EPS includes the dilutive impact, if any, of the 2025 Notes (hereinafter defined) using the if-converted method. Further, the Company elected, upon adoption, to utilize the modified retrospective approach, negating the required restatement of EPS for periods prior to adoption.
Cash and Cash Equivalents
Cash and cash equivalents includeincludes cash on hand, bank demand accounts, and money market accounts having original maturities of 90 days or less. The Company’s bank balances as of September 30, 20172022 and December 31, 2021 include certain amounts over the Federal Deposit Insurance Corporation limits.
Restricted Cash
Restricted cash totaled approximately $7.0$37.3 million at September 30, 20172022, of which approximately $5.5$35.1 million of cash is being held in various escrow accounts to be reinvested through the like-kind exchange structure into one or moreother income properties. Approximately $415,000properties, $0.6 million is being held in a reservean escrow account primarily for property taxes and insurance escrows in
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connection with our financing of two properties acquired in January 2013; approximately $836,000the Mitigation Bank as required by the applicable state and federal permitting authorities, $1.3 million is being held in three separateinterest reserve accounts related to the Company’s commercial loans and investments, and the remaining $0.3 million is being held in various escrow accounts related to three separate land transactions of which one closed in each of December 2013, December 2015, and February 2017; approximately $127,000 is being held in a reserve for interest and property taxes for the $3.0 million first mortgage loan investment originated in July 2017; and approximately $147,000 is being held in a capital replacement reserve account in connection with our financing of six income properties with Wells Fargo.certain tenant improvements.
Investment Securities
In accordance with the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 320, Investments – Debt and Equity Securities, the Company’s investments in debt and equity securities (“Investment Securities”) have been determined to be classified as available-for-sale. Available-for-sale securities are carried at fair value in the consolidated balance sheets, with the unrealized gains and losses, net of tax, reported in other comprehensive income.
Realized gains and losses, and declines in value judged to be other-than-temporary related to equity securities, are included in investment income in the consolidated statements of operations. With respect to debt securities, when the fair value of a debt security classified as available-for-sale is less than its cost, management assesses whether or not: (i) it has the intent to sell the security or (ii) it is more likely than not that the Company will be required to sell the security before its anticipated recovery. If either of these conditions are met, the Company must recognize an other-than-temporary impairment through earnings for the differences between the debt security’s cost basis and its fair value, and such amount is included in investment income in the consolidated statements of operations. There were no other-than-temporary impairments during the three or nine months ended September 30, 2017 or 2016. The Company completed the disposition of its remaining position in Investment Securities during the three months ended March 31, 2016 resulting in a loss of approximately $576,000. There were no Investment Securities remaining as of September 30, 2017 or 2016.
The cost of Investment Securities sold is based on the specific identification method. Interest and dividends on Investment Securities classified as available-for-sale are included in investment income in the consolidated statements of operations.
The fair value of the Company’s available-for-sale equity securities were measured quarterly, on a recurring basis, using Level 1 inputs, or quoted prices for identical, actively traded assets. The fair value of the Company’s available-for-sale debt securities were measured quarterly, on a recurring basis, using Level 2 inputs.
Derivative Financial Instruments and Hedging Activity
Interest Rate Swap. During the year ended December 31, 2016, in conjunction with the variable-rate mortgage loan secured by our property located in Raleigh, North Carolina leased to Wells Fargo Bank, NA (“Wells Fargo”), the Company entered into an interest rate swap to fix the interest rate (the “Interest Rate Swap”).
The Company accounts for its cash flow hedging derivativederivatives in accordance with FASB ASC Topic 815-20, Derivatives and Hedging. Depending upon the hedge’s value at each balance sheet date, the derivative isderivatives are included in either Other Assetsother assets or Accruedaccrued and Other Liabilitiesother liabilities on the consolidated balance sheet at its fair value. On the date the Interest Rate Swapeach interest rate swap was entered into, the Company designated the derivativederivatives as a hedge of the variability of cash flows to be paid related to the recognized long-term debt liability.liabilities.
The Company formally documented the relationship between the hedging instrumentinstruments and the hedged item, as well as its risk-management objective and strategy for undertaking the hedge transaction.transactions. At the hedge’shedges’ inception, the Company formally assessed whether the derivativederivatives that isare used in hedging the transaction istransactions are highly effective in offsetting changes in cash flows of the hedged item,items, and we will continue to do so on an ongoinga quarterly basis. As the terms of the Interest Rate Swap and the associated debt are identical, the Interest Rate Swap qualifies for the shortcut method, therefore, it is assumed that there is no hedge ineffectiveness throughout the entire term of the Interest Rate Swap.
Changes in fair value of the Interest Rate Swaphedging instruments that are highly effective and designated and qualified as a cash-flow hedgehedges are recorded in other comprehensive income and loss, until earnings are affected by the variability in cash flows of the designated hedged item.items (see Note 17, “Interest Rate Swaps”).
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Fair Value of Financial Instruments
The carrying amounts of the Company’s financial assets and liabilities including cash and cash equivalents, restricted cash, accounts receivable, accounts payable, and accrued and other liabilities at September 30, 20172022 and December 31, 2016,2021, approximate fair value because of the short maturity of these instruments. The carrying amount of the Company’s investments in variable rate commercial loans approximates fair value at September 30, 2017 and December 31, 2016, since the floating rates of the loans reasonably approximate current market rates for notes with similar risks and maturities. The carrying value of the Company’s credit facilityCredit Facility (hereinafter defined) as of September 30, 2022 and December 31, 2021, approximates current market rates for revolving credit arrangements with similar risks and maturities. The face value of the Company’s fixed rate commercial loan investment,loans and investments, the 2026 Term Loan (hereinafter defined), the 2027 Term Loan (hereinafter defined), the 2028 Term Loan (hereinafter defined), mortgage notes,note, and convertible debt isheld as of September 30, 2022 and December 31, 2021 are measured at fair value based on current market rates for financial instruments with similar risks and maturities. Seematurities (see Note 6,9, “Fair Value of Financial Instruments.”Instruments”).
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Fair Value Measurements
The Company’s estimates of fair value of financial and non-financial assets and liabilities is based on the framework established by U.S. GAAP. The framework specifies a hierarchy of valuation inputs which was established to increase consistency, clarity and comparability in fair value measurements and related disclosures. U.S. GAAP describes a fair value hierarchy based upon three levels of inputs that may be used to measure fair value, two of which are considered observable and one that is considered unobservable. The following describes the three levels:
| Level 1 – Valuation is based upon quoted prices in active markets for identical assets or liabilities. |
| Level 2 – Valuation is based upon inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities. |
| Level 3 – Valuation is generated from model-based techniques that use at least one significant assumption not observable in the market. These unobservable assumptions reflect estimates of assumptions that market participants would use in pricing the asset or liability. Valuation techniques include option pricing models, discounted cash flow models and similar techniques. |
Classification of Commercial Loan Investments
Loans held for investment are stated at the principal amount outstanding and include the unamortized deferred loan fees offset by any applicable unaccreted purchase discounts and origination fees, if applicable. Loans held for sale are classified separately and stated at the lower of cost or fair value once a decision has been made to sell loans not previously for sale. See Note 3, “Commercial Loan Investments” for two loans classified as held for sale as of September 30, 2017.
Commercial Loan Investment Impairment
For each of the Company’s commercial loans held for investment, the Company evaluates the performance of the collateral property and the financial and operating capabilities of the borrower/guarantor, in part to assess whether any deterioration in the credit has occurred, and for possible impairment of the loan. Impairment would reflect the Company’s determination that it is probable that all amounts due according to the contractual terms of the loan would not be collected. Impairment is measured based on the present value of the expected future cash flows from the loan discounted at the effective rate of the loan or the fair value of the collateral. Upon measurement of impairment, the Company would record an allowance to reduce the carrying value of the loan with a corresponding recognition of loss in the results of operations. Significant exercise of judgment is required in determining impairment, including assumptions regarding the estimate of expected future cash flows, collectability of the loan, the value of the underlying collateral and other provisions including guarantees. The Company has determined that, as of September 30, 2017 and December 31, 2016, no allowance for impairment was required.
Recognition of Interest Income from Commercial LoanLoans and Investments
Interest income on commercial loanloans and investments includes interest payments made by the borrower and the accretion of purchase discounts and loan origination fees, offset by the amortization of loan costs. Interest payments are accrued
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based on the actual coupon rate and the outstanding principal balance and purchase discounts and loan origination fees are accreted into income using the effective yield method, adjusted for prepayments.
Impact Fees and
Mitigation Credits
Impact fees and mitigation
Mitigation credits are stated at historical cost. As these assets are sold, the related revenues and cost basisof sales are reported as revenues from, and direct costs of, real estate operations, respectively, in the consolidated statements of operations.
Accounts Receivable
Accounts receivable related to income properties, which are classified in other assets on the consolidated balance sheets, primarily consist of accrued tenant reimbursable expenses.expenses and other tenant receivables. Receivables related to tenant reimbursable expensesincome property tenants totaled approximately $303,000$1.6 million and $125,000$0.9 million as of September 30, 20172022 and December 31, 2016,2021, respectively. The $0.7 million increase is primarily attributable to an increase in estimated accrued receivables for variable lease payments including common area maintenance, insurance, real estate taxes and other operating expenses.
Accounts receivable related to real estate operations, which are classified in other assets on the consolidated balance sheets, totaled approximately $2.4$1.1 million and $3.8 million as of as of September 30, 20172022 and December 31, 2016, respectively. As more fully described in Note 9, “Other Assets,” these2021. The accounts receivable as of September 30, 2022 and December 31, 2021 are primarily related to the reimbursement of certain infrastructure costs completed by the Company in conjunction with two land sale transactions that closed during the fourth quarter of 2015.2015 as more fully described in Note 12, “Other Assets.”
Trade accounts receivable primarily consist
As of receivables related toSeptember 30, 2022 and December 31, 2021, $0.2 million and $0.3 million, respectively, was due from the buyer of the golf operations which are classified in other assets onfor the consolidated balance sheets. Trade accounts receivable relatedrounds surcharge the Company paid to golf operations, which primarily consistthe City of amounts due from members or from private events, totaled approximately $219,000 and $326,000 as of September 30, 2017 and December 31, 2016, respectively. Daytona Beach.
The collectability of the aforementioned receivables is determined based on the aging of the receivableshall be considered and a review of the specifically identified accounts using judgments.adjusted through an allowance for credit losses pursuant to ASC 326, Financial Instruments-Credit Losses. As of September 30, 20172022 and December 31, 2016, no2021, the Company recorded an allowance for doubtful accounts was required.of $1.3 million and $0.5 million, respectively.
Purchase Accounting for Acquisitions of Real Estate Subject to a Lease
Investments in real estate are carried at cost less accumulated depreciation and impairment losses, if any. The cost of investments in real estate reflects their purchase price or development cost. We evaluate each acquisition transaction to determine whether the acquired asset meets the definition of a business. Under ASU 2017-01, Business Combinations
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(Topic 805): Clarifying the Definition of a Business, an acquisition does not qualify as a business when there is no substantive process acquired or substantially all of the fair value is concentrated in a single identifiable asset or group of similar identifiable assets or the acquisition does not include a substantive process in the form of an acquired workforce or an acquired contract that cannot be replaced without significant cost, effort or delay. Transaction costs related to acquisitions that are asset acquisitions are capitalized as part of the cost basis of the acquired assets, while transaction costs for acquisitions that are deemed to be acquisitions of a business are expensed as incurred. Improvements and replacements are capitalized when they extend the useful life or improve the productive capacity of the asset. Costs of repairs and maintenance are expensed as incurred.
In accordance with the FASB guidance, on business combinations, the fair value of the real estate acquired with in-place leases is allocated to the acquired tangible assets, consisting of land, building and tenant improvements, and identified intangible assets and liabilities, consisting of the value of above-market and below-market leases, the value of in-place leases, and the value of leasing costs, based in each case on their relative fair values.
The fair value of the tangible assets of an acquired leased property is determined by valuing the property as if it were vacant, and the “as-if-vacant” value is then allocated to land, building and tenant improvements based on the determination of the fair values of these assets.
In allocating the fair value of the identified intangible assets and liabilities of an acquired property, above-market and below-market in-place lease values are recorded as other assets or liabilities based on the present value (using an interest rate which reflects the risks associated with the leases acquired) of the difference between (i) the contractual amounts to be paid pursuant to the in-place leases, and (ii) management’s estimate of fair market lease rates for the corresponding in-place leases, measured over a period equal to the remaining term of the lease, including the probability of renewal periods.value. The capitalized above-market lease values are amortized as a reduction of rental income over the remaining terms of the respective leases. The capitalized below-market lease values are amortized as an increase to rental income over the initial term unless the Companymanagement believes that it is likely that the tenant will renew the option wherebylease upon expiration, in which case the Company amortizes the value attributable to the renewal over the renewal period.
The aggregate value of other acquired intangible assets, consisting of in-place leases, is measured by the excess of (i) the purchase price paid for a property after adjusting existing in-place leases to market rental rates over (ii) the estimated fair value of the property as-if-vacant, determined as set forth above. The value of in-place leases exclusive of the value of above-market and below-market in-place leases isleasing costs are amortized to expense over the remaining non-cancelable periods of the respective leases. If a lease were to be terminated prior to its stated expiration, all unamortized amounts relating to that lease would be written off.
The valueCompany incurs costs related to the development and leasing of its properties. Such costs include, but are not limited to, tenant relationshipsimprovements, leasing commissions, rebranding, facility expansion and other capital improvements, and are included in construction in progress during the development period. When a construction project is reviewed on individual transactionsconsidered to be substantially complete, the capitalized costs are reclassified to the appropriate real estate asset and depreciation begins. The Company assesses the level of construction activity to determine the amount, if future value was derived fromany, of interest expense to be capitalized to the acquisition.underlying construction projects.
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Prior to October 1, 2016, the Company determined that income property purchases subject to a lease, whether that lease is in-place or originated at the time of acquisition, qualify as a business combination, and acquisition costs were expensed in the period the transaction closes. In January 2017, the FASB issued Accounting Standards Update (“ASU”) 2017-01, Business Combinations which clarified the definition of a business. Pursuant to ASU 2017-01, the acquisition of an income property subject to a lease no longer qualifies as a business combination, but rather an asset acquisition. The Company early adopted ASU 2017-01 effective October 1, 2016 on a prospective basis. Accordingly, for income property acquisitions during the fourth quarter of 2016 and during 2017, acquisition costs have been capitalized.
Sales of Real Estate
Gains
When income properties are disposed of, the related cost basis of the real estate, intangible lease assets, and intangible lease liabilities, net of accumulated depreciation and/or amortization, and any accrued straight-line rental income balance for the underlying operating leases are removed, and gains or losses from the dispositions are reflected in net income within gain (loss) on disposition of assets. In accordance with the FASB guidance, gains or losses on sales of real estate are generally recognized using the full accrual method.
Gains and losses on land sales, in addition to the sale of Subsurface Interests and mitigation credits, are accounted for as required by FASB ASC Topic 976-605-25, Accounting for Real Estate606, Revenue from Contracts with Customers. The Company recognizes revenue from the sale of real estate at the time the sale is consummated, unless the property is sold on a deferred payment plan and the initial payment does not meet established criteria, orsuch sales when the Company retains some form of continuing involvementtransfers the promised goods in the property.contract based on the transaction price allocated to the performance obligations within the contract. As market information becomes available, real estatethe underlying cost basis is analyzed and recorded at the lower of cost or market.
Income Taxes
The Company elected to be taxed as a REIT for U.S. federal income tax purposes under the Internal Revenue Code of 1986, as amended (the “Code”) commencing with its taxable year ended December 31, 2020. The Company believes that, commencing with such taxable year, it has been organized and has operated in such a manner as to qualify for taxation as a REIT under the U.S. federal income tax laws. The Company intends to continue to operate in such a manner. As a REIT, the Company will be subject to U.S. federal and state income taxation at corporate rates on its net taxable income; the Company, however, may claim a deduction for the amount of dividends paid to its stockholders. Amounts distributed as dividends by the Company will be subject to taxation at the stockholder level only. While the Company must distribute at least 90% of its REIT taxable income, determined without regard to the dividends paid deduction and excluding any net capital gain, to qualify as a REIT, the Company intends to distribute all of its net taxable income. The Company is allowed certain other non-cash deductions or adjustments, such as depreciation expense, when computing its REIT taxable income and distribution requirement. These deductions permit the Company to reduce its dividend payout requirement under U.S. federal income tax laws. Certain states may impose minimum franchise taxes. To comply with certain REIT requirements,
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the Company holds certain of its non-REIT assets and operations through taxable REIT subsidiaries (“TRSs”) and subsidiaries of TRSs, which will be subject to applicable U.S. federal, state and local corporate income tax on their taxable income. For the periods presented, the Company held a total of two TRSs subject to taxation. The Company’s TRSs will file tax returns separately as C-Corporations.
The Company uses the asset and liability method to account for income taxes.taxes for the Company’s TRSs. Deferred income taxes result primarily from the net tax effect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes see(see Note 17,21, “Income Taxes.”Taxes”). In June 2006, the FASB issued additional guidance, which clarifies the accounting for uncertainty in income taxes recognized in a company’s financial statements included in income taxes. The interpretation prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. The interpretation also provides guidance on de-recognition, classification, interest and penalties, accounting in interim periods, and disclosure and transition. In accordance with FASB guidance included in income taxes, the Company has analyzed its various federal and state filing positions and believes that its income tax filing positions and deductions are well documented and supported. Additionally, the Company believes that its accruals for tax liabilities are adequate. Therefore, no reserves for uncertain income tax positions have been recorded pursuant to the FASB guidance.
NOTE 2.3. INCOME PROPERTIES
Leasing revenue consists of long-term rental revenue from retail, office, and commercial income properties, which is recognized as earned, using the straight-line method over the life of each lease. Lease payments below include straight-line base rental revenue as well as the non-cash accretion of above and below market lease amortization. The variable lease payments are comprised of percentage rent and reimbursements from tenants for common area maintenance, insurance, real estate taxes, and other operating expenses.
The components of leasing revenue are as follows (in thousands):
| | | | | | | | | | | |
| Three Months Ended | | Nine Months Ended | ||||||||
| September 30, 2022 | | September 30, 2021 | | September 30, 2022 | | September 30, 2021 | ||||
Leasing Revenue | | | | | | | | | | | |
Lease Payments | $ | 13,556 | | $ | 10,829 | | $ | 38,760 | | $ | 30,743 |
Variable Lease Payments | | 4,138 | | | 2,905 | | | 10,469 | | | 6,014 |
Total Leasing Revenue | $ | 17,694 | | $ | 13,734 | | $ | 49,229 | | $ | 36,757 |
Minimum future base rental receipts under non-cancelable operating leases, excluding percentage rent and other lease payments that are not fixed and determinable, having remaining terms in excess of one year subsequent to September 30, 2022, are summarized as follows (in thousands):
| | | |
Year Ending December 31, |
| Amounts | |
Remainder of 2022 | | $ | 14,245 |
2023 | | | 53,054 |
2024 | | | 51,358 |
2025 | | | 49,860 |
2026 | | | 44,278 |
2027 | | | 37,054 |
2028 and Thereafter (Cumulative) | | | 117,490 |
Total | | $ | 367,339 |
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2022 Acquisitions. During the nine months ended September 30, 2017,2022, the Company acquired three single-tenant income properties and two multi-tenant income properties for an aggregate purchase price of approximately $40.0$119.3 million, or an aggregatea total acquisition cost of approximately $40.7$119.7 million, as follows:
● | Price Plaza Shopping Center, a multi-tenant income property located in Katy, Texas for a purchase price of $39.1 million, or a total acquisition cost of $39.2 million including capitalized acquisition costs. Price Plaza Shopping Center comprises 205,813 square feet, was 95% leased at acquisition, and had a weighted average remaining lease term of 5.7 years at acquisition. In connection with the acquisition of Price Plaza Shopping Center, the company assumed a $17.8 million fixed-rate mortgage note, as further discussed in Note 16, “Long-Term Debt.” |
● | Madison Yards, a multi-tenant grocery-anchored income property located in Atlanta, Georgia for a purchase price of $80.2 million, or a total acquisition cost of $80.5 million including capitalized acquisition costs. Madison Yards comprises 162,500 square feet, was 98% leased at acquisition, and had a weighted average remaining lease term of 10.4 years at acquisition. |
Of the aggregate $119.7 million total acquisition cost, approximately $18.0$35.4 million was allocated to land, approximately $19.3$65.9 million was allocated to buildings and improvements, approximately $4.9and $19.7 million was allocated to intangible assets pertaining to the in-place lease value, leasing feescosts, and above market lease value and approximately $1.5$1.3 million was allocated to intangible liabilities for the below market lease value. The amortization period for the intangible assets and liabilities was 9.0 years at acquisition.
2022 Dispositions. During the nine months ended September 30, 2022, the Company sold six income properties, including (i) Party City, a single-tenant income property located in Oceanside, New York for $6.9 million, (ii) the Carpenter Hotel ground lease, a single-tenant income property located in Austin, Texas, which was recorded as a commercial loan investment prior to its disposition, for $17.1 million, (iii) the multi-tenant Westland Gateway Plaza located in Hialeah, Florida, which was recorded as a commercial loan investment prior to its disposition, for $22.2 million, (iv) Chuy’s, a single-tenant property, located in Jacksonville, Florida for $5.8 million, (v) Firebirds, a single-tenant property, located in Jacksonville, Florida for $5.5 million, and (vi) 245 Riverside, a multi-tenant office income property located in Jacksonville, Florida for $23.6 million. The sale of these six properties reflect a total disposition volume of $81.1 million, resulting in aggregate gains of $4.7 million.
2021 Acquisitions. During the nine months ended September 30, 2021, the Company acquired three multi-tenant income properties for an aggregate purchase price of $111.0 million, or a total acquisition cost of $111.3 million including capitalized acquisition costs. Of the total acquisition cost, $40.4 million was allocated to land, $41.4 million was allocated to buildings and improvements, and $29.5 million was allocated to intangible assets pertaining to the in-place lease value, leasing costs, and above market lease value and $0.05 million was allocated to intangible liabilities for the below market lease value. The weighted average amortization period for the intangible assets and liabilities was approximately 9.87.1 years at acquisition. The properties acquired during the nine months ended September 30, 2017 are described below:
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|
|
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|
| Property |
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|
|
| Remaining Lease | ||
Tenant Description |
| Tenant Type |
| Property |
| Date of |
| Square-Feet |
| Property |
| Purchase Price |
| Percentage |
| Term (in years) | |||
Staples, Inc. (an affiliate of) |
| Single-Tenant |
| Sarasota, Florida |
| 01/27/17 |
| 18,120 |
| 1.2 |
| $ | 4,075,000 |
|
| 100% |
|
| 5.0 |
Grocery-Anchored Shopping Center (Westcliff) |
| Multi-Tenant |
| Fort Worth, Texas |
| 03/01/17 |
| 136,185 |
| 10.3 |
|
| 15,000,000 |
|
| 96% |
|
| 4.1 |
JoAnn Stores, Inc. |
| Single-Tenant |
| Boston, Massachusetts |
| 04/06/17 |
| 22,500 |
| 2.6 |
|
| 6,315,000 |
|
| 100% |
|
| 11.8 |
LA Fitness |
| Single-Tenant |
| Tampa, Florida |
| 04/28/17 |
| 45,000 |
| 5.3 |
|
| 14,650,000 |
|
| 100% |
|
| 13.9 |
|
|
|
|
|
|
|
| 228,520 |
|
|
| $ | 40,040,000 |
|
|
|
|
|
|
No income properties were disposed of during the nine months ended September 30, 2017.
13
On April 7, 2017, rent commenced on the 15-year lease with 24 Hour Fitness, the anchor tenant at The Grove of Winter Park located in Winter Park, Florida. The lease is for approximately 40,000 square feet, or 36% of the 112,000 square foot multi-tenant retail center. As of October 27, 2017, the multi-tenant retail center was approximately 60% leased with nine different tenants including 24 Hour Fitness.
2021 Dispositions.During the nine months ended September 30, 2016,2021, the Company acquired seven single-tenant income properties anddisposed of one multi-tenant income property for an aggregate purchase price of approximately $49.8 million.
Nineteenand 13 single-tenant income properties, were disposedincluding (i) World of during the nine months ended September 30, 2016Beer/Fuzzy’s Taco Shop, a multi-tenant income property located in Brandon, Florida for an aggregate sales price of approximately $74.3 million. An impairment of approximately $210,000 was charged to earnings during the nine months ended September 30, 2016 related to one of the sales completed during the second quarter of 2016 sales as more fully described in Note 8, “Impairment of Long-Lived Assets.” Additionally, an impairment of approximately $942,000 was charged to earnings during the nine months ended September 30, 2016 on the$2.3 million, (ii) Moe’s Southwest Grill, a single-tenant income property located in Altamonte Springs,Jacksonville, Florida leasedfor $2.5 million, (iii) Burlington, a single-tenant income property located in North Richland Hills, Texas for $11.5 million, (iv) Staples, a single-tenant income property located in Sarasota, Florida for $4.7 million, (v) the CMBS Portfolio, sold to PNC Bank for which the sale closed in September 2016 as more fully described in Note 8, “ImpairmentPINE, consisting of Long-Lived Assets.” Included in the nineteen income properties disposed of during the nine months ended September 30, 2016 were the Company’s portfolio of fourteensix single-tenant income properties (the “Portfolio Sale”) for $44.5 million, (vi) Chick-fil-A, a sales price of approximately $51.6single-tenant property, located in Chandler, Arizona for $2.9 million, which included the buyer’s assumption(vii) JPMorgan Chase Bank, a single-tenant property, located in Chandler, Arizona for $4.7 million, (viii) Fogo De Chao, a single-tenant property, located in Jacksonville, Florida for $4.7 million, and (ix) Wells Fargo, a single-tenant office income property located in Raleigh, North Carolina for $63.0 million. The sale of the Company’s existing $23.1properties reflect a total disposition volume of $140.8 million, mortgage loan secured by the Portfolio Sale properties.resulting in aggregate gains of $28.0 million.
NOTE 3.4. COMMERCIAL LOANLOANS AND INVESTMENTS
Our investments in commercial loans or similarsimilarly structured finance investments, such as preferred equity, mezzanine loans or other subordinated debt, have been and are expected to continue to be secured by commercial or residential real estate or the borrower’s pledge of its ownership interest in the entity that owns the real estate. The first mortgage loans we invest in or originateinvestments are forassociated with commercial real estate located in the United States and its territories, and are current or performing with either a fixed or floating rate. Some of these loans may be syndicated in either a pari-passu or senior/subordinated structure. Commercial first mortgage loans generally provide for a higher recovery rate due to their senior position in the underlying collateral. Commercial mezzanine
16
loans are typically secured by a pledge of the borrower’s equity ownership in the underlying commercial real estate. Unlike a mortgage, a mezzanine loan is not secured by a lien on the property. An investor’s rights in a mezzanine loan are usually governed by an intercreditor agreement that provides holders with the rights to cure defaults and exercise control on certain decisions of any senior debt secured by the same commercial property.
2022 Activity. On July 31, 2017,January 26, 2022, the Company originated a $3.0 million first mortgageconstruction loan secured by a parcelthe property and improvements to be constructed thereon for the second phase of beachfront landThe Exchange at Gwinnett project located in the City of Daytona Beach Shores, Florida which the borrower intends to develop as a residential condominium (the “Beach Loan”).Buford, Georgia for $8.7 million. The Beach Loanconstruction loan matures on August 1, 2018, includesJanuary 26, 2024, has a one-year extension option, bears a fixed interest rate of 11.00%7.25%, and requires payments of interest only prior to maturity. At closing, a loanan origination fee of $60,000$0.1 million was received by the Company. ShouldFunding of the loan occurs as the borrower seek to obtain financing forcompletes the development of the project the Beach Loan would likely be paid off in connection with that financing.
underlying construction. As of September 30, 2017,2022, the Company owned four performing commercial loan investments which have an aggregate outstanding principal balancehad funded $0.3 million to the borrower, leaving a remaining commitment of approximately $27.0 million. These loans are secured by real estate, or$8.4 million to the borrower’s equity interest in real estate,borrower.
On March 11, 2022, the Company sold the Carpenter Hotel ground lease located in Daytona Beach Shores, Florida, Sarasota, Florida, Dallas,Austin, Texas and Atlanta, Georgia, and have an average remaining maturity of approximately 0.9 years and a weighted average interest rate of 9.6%.
for $17.1 million. The Company sold itslease with Carpenter Hotel included two commercial loan investments secured by hotel propertiestenant repurchase options. Pursuant to FASB ASC Topic 842, Leases, the initial $16.25 million investment was recorded in Atlanta, Georgia and Dallas, Texas which have an aggregate principal value of $15.0 million at a slight premium to par. See Note 21, “Subsequent Events.” These two loans have been classified as held for sale on the accompanying consolidated balance sheets as a commercial loan investment at the time of acquisition. The carrying value at the time of sale totaled $17.3 million.
On April 7, 2022, the Company entered into a preferred equity agreement to provide $30.0 million of funding towards the total investment in Watters Creek at Montgomery Farm, a grocery-anchored, mixed-use property located in Allen, Texas (the “Watters Creek Investment”). Pursuant to FASB ASC Topic 810, Consolidation, and as further described in Note 7. “Investment in Joint Ventures,” the Company determined we are not the primary beneficiary of the entity underlying the Watters Creek Investment; accordingly, the $30.0 million was recorded in the consolidated balance sheets as a commercial loan investment at the time of acquisition. The Watters Creek Investment matures on April 6, 2025, has two one-year extension options, bears a fixed interest rate of 8.50% at the time of acquisition with increases during the initial term as well as the option terms, and requires payments of interest only prior to maturity. At closing, an origination fee of $0.15 million was received by the Company.
On April 29, 2022, the Company originated a construction loan secured by the property and improvements to be constructed thereon for the WaterStar Residential and Retail project located in Kissimmee, Florida for $19.0 million. The construction loan matures on August 31, 2022, bears a fixed interest rate of 8.00%, and requires payments of interest only prior to maturity. At closing, an origination fee of $0.1 million was received by the Company. Funding of the loan will occur as the borrower completes the underlying construction. As of September 30, 2017 as summarized below:
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|
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|
|
| Date of |
| Maturity |
| Original Face |
| Current Face |
| Lower of Cost |
|
| |||
Description |
| Investment |
| Date |
| Amount |
| Amount |
| or Market |
| Coupon Rate | |||
Mezz – Hotel – Atlanta, GA |
| January 2014 |
| February 2019 |
| $ | 5,000,000 |
| $ | 5,000,000 |
| $ | 5,000,000 |
| 12.00% |
Mezz – Hotel, Dallas, TX |
| September 2014 |
| September 2018 |
|
| 10,000,000 |
|
| 10,000,000 |
|
| 10,000,000 |
| 30 day LIBOR |
Total |
|
|
|
|
| $ | 15,000,000 |
| $ | 15,000,000 |
| $ | 15,000,000 |
|
|
14
2022, the Company had funded $19.0 million to the borrower, leaving no remaining commitment. The portionBorrower repaid $4.8 million of the Company’sconstruction loan principal balance as of September 30, 2022, leaving an outstanding balance of $14.2 million. Effective August 29, 2022, the Company entered into an agreement to extend the maturity date to November 1, 2022 at a fixed interest rate of 12.00%.
On May 9, 2022, the Company originated an improvement loan for a tenant at the Ashford Lane property located in Atlanta, Georgia for $1.5 million. The improvement loan matures on April 30, 2025, bears a fixed interest rate of 12.00%, until the location is open at which time the fixed interest rate will be 10.00%, and requires payments of interest only prior to maturity. Funding of the loan will occur as the borrower completes the underlying improvements. As of September 30, 2022, the Company had funded $1.1 million to the borrower, leaving a remaining commitment of $0.4 million.
On July 28, 2022, the Company sold the Westland Gateway Plaza located in Hialeah, Florida for $22.2 million. The lease with Westland Gateway Plaza included a tenant purchase option. Pursuant to FASB ASC Topic 842, Leases, the initial $21.1 million investment was recorded in the consolidated balance sheets as a commercial loan investment portfolio held for investment wasat the time of acquisition. The carrying value at the time of sale totaled $21.2 million.
17
The Company’s commercial loans and investments were comprised of the following at September 30, 2017:2022 (in thousands):
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|
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|
|
|
|
|
|
|
|
|
|
|
|
|
| Date of |
| Maturity |
| Original Face |
| Current Face |
| Carrying |
|
|
| |||
Description |
| Investment |
| Date |
| Amount |
| Amount |
| Value |
| Coupon Rate |
| |||
B-Note – Retail Shopping Center, Sarasota, FL |
| May 2014 |
| June 2018 |
| $ | 8,960,467 |
| $ | 8,960,467 |
| $ | 8,960,467 |
| 30 ‑day LIBOR |
|
First Mortgage - Land Parcel, Daytona Beach, FL |
| July 2017 |
| August 2018 |
|
| 3,000,000 |
|
| 3,000,000 |
|
| 2,950,144 |
| 11.00% |
|
Total |
|
|
|
|
| $ | 11,960,467 |
| $ | 11,960,467 |
| $ | 11,910,611 |
|
|
|
The carrying value of the commercial loan investment portfolio at September 30, 2017 consisted of the following:
Description Date of Investment Maturity Date Original Face Amount Current Face Amount Carrying Value Coupon Rate Mortgage Note – 4311 Maple Avenue – Dallas, TX October 2020 April 2023 400 400 395 7.50% Mortgage Note – 110 N Beach Street – Daytona Beach, FL June 2021 December 2022 364 364 364 10.00% Construction Loan – The Exchange At Gwinnett – Buford, GA January 2022 January 2024 8,700 324 266 7.25% Preferred Investment - Watters Creek – Allen, TX April 2022 April 2025 30,000 30,000 29,874 8.50% Construction Loan - WaterStar – Kissimmee, FL April 2022 November 2022 19,000 14,249 14,249 12.00% Improvement Loan - Ashford Lane – Atlanta, GA May 2022 April 2025 1,500 1,053 1,053 12.00% $ 59,964 $ 46,390 $ 46,201 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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| ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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| |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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| |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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|
|
The Company’s commercial loan investment portfolio wasloans and investments were comprised of the following at December 31, 2016:2021 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Date of |
| Maturity |
| Original Face |
| Current Face |
| Carrying |
|
|
| |||
Description |
| Investment |
| Date |
| Amount |
| Amount |
| Value |
| Coupon Rate |
| |||
Mezz – Hotel – Atlanta, GA |
| January 2014 |
| February 2019 |
| $ | 5,000,000 |
| $ | 5,000,000 |
| $ | 5,000,000 |
| 12.00% |
|
B-Note – Retail Shopping Center, Sarasota, FL |
| May 2014 |
| June 2017 |
|
| 8,960,467 |
|
| 8,960,467 |
|
| 8,960,467 |
| 30 day LIBOR |
|
Mezz – Hotel, Dallas, TX |
| September 2014 |
| September 2017 |
|
| 10,000,000 |
|
| 10,000,000 |
|
| 10,000,000 |
| 30 day LIBOR |
|
Total |
|
|
|
|
| $ | 23,960,467 |
| $ | 23,960,467 |
| $ | 23,960,467 |
|
|
|
| | | | | | | | | | | | | | | |
Description |
| Date of Investment |
| Maturity Date |
| Original Face Amount |
| Current Face Amount |
| Carrying Value |
| Coupon Rate | |||
Carpenter Hotel – 400 Josephine Street, Austin, TX | | July 2019 | | N/A | | $ | 16,250 | | $ | 16,250 | | $ | 17,189 | | N/A |
Westland Gateway Plaza – Hialeah, FL | | September 2020 | | N/A | | | 21,085 | | | 21,085 | | | 21,148 | | N/A |
Mortgage Note – 4311 Maple Avenue – Dallas, TX | | October 2020 | | April 2023 | | | 400 | | | 400 | | | 394 | | 7.50% |
Mortgage Note – 110 N Beach Street – Daytona Beach, FL | | June 2021 | | December 2022 | | | 364 | | | 364 | | | 364 | | 10.00% |
| | | | | | $ | 38,099 | | $ | 38,099 | | $ | 39,095 | | |
The carrying value of the commercial loan investmentloans and investments portfolio as ofat September 30, 2022 and December 31, 2016 was2021 consisted of the following (in thousands):
| | | | | | |
| | As of | ||||
|
| September 30, 2022 |
| December 31, 2021 | ||
Current Face Amount | | $ | 46,390 | | $ | 38,099 |
Imputed Interest over Rent Payments Received | | | — | | | 1,002 |
Unaccreted Origination Fees | | | (185) | | | (2) |
CECL Reserve | | | (4) | | | (4) |
Total Commercial Loans and Investments | | $ | 46,201 | | $ | 39,095 |
NOTE 5. RELATED PARTY MANAGEMENT SERVICES BUSINESS
Alpine Income Property Trust. Pursuant to the Company’s management agreement with PINE, the Company generates a base management fee equal to 0.375% per quarter of PINE’s total equity (as defined in the management agreement and based on a 1.5% annual rate), calculated and payable in cash, quarterly in arrears. The structure of the base fee provides the Company with an opportunity for the base fee to grow should PINE’s independent board members determine to raise additional equity capital in the future. The Company also has an opportunity to achieve additional cash flows as manager of PINE pursuant an annual incentive fee based on PINE’s total stockholder return exceeding an 8% cumulative annual hurdle rate (the “Outperformance Amount”) subject to a high-water mark price. PINE would pay the Company an incentive fee with respect to each annual measurement period in an amount equal to the face amount.greater of (i) $0.00 and (ii) the product of (a) 15% multiplied by (b) the Outperformance Amount multiplied by (c) the weighted average shares. No commercial loan investments were classified as heldincentive fee was earned for sale as ofthe year ended December 31, 2016.2021.
NOTE 4. LAND AND SUBSURFACE INTERESTS
As ofDuring the three and nine months ended September 30, 2017,2022, the Company owned approximately 8,100 acres of undeveloped land in Daytona Beach, Florida, along six miles of the westearned management fee revenue from PINE totaling $0.9 million and east sides of Interstate 95. Currently, the majority of this land is used for agricultural purposes. Approximately 1,100 acres of our land holdings are located on the east side of Interstate 95 and are generally well suited for commercial development. Approximately 7,000 acres of our land holdings are located on the west side of Interstate 95 and the majority of this land is generally well suited for residential development. Included in the western land is approximately 1,100 acres, primarily an 850-acre parcel and three smaller parcels, which are located further west of Interstate 95 and a few miles north of Interstate 4 that is generally well suited for industrial purposes.
Real estate operations revenue consisted of the following$2.8 million, respectively. Dividend income for the three and nine months ended September 30, 20172022 totaled $0.6 million and 2016, respectively:
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|
|
|
| Three Months Ended |
| Three Months Ended |
| Nine Months Ended |
| Nine Months Ended | ||||
Revenue Description |
| ($000's) |
| ($000's) |
| ($000's) |
| ($000's) | ||||
Land Sales Revenue |
| $ | — |
| $ | 318 |
| $ | 39,564 |
| $ | 508 |
Tomoka Town Center - Percentage of Completion Revenue |
|
| — |
|
| 3,654 |
|
| — |
|
| 16,456 |
Revenue from Reimbursement of Infrastructure Costs |
|
| — |
|
| — |
|
| 1,276 |
|
| — |
Impact Fee and Mitigation Credit Sales |
|
| 548 |
|
| 209 |
|
| 1,987 |
|
| 481 |
Subsurface Revenue |
|
| 2,374 |
|
| 463 |
|
| 2,827 |
|
| 1,535 |
Fill Dirt and Other Revenue |
|
| 4 |
|
| — |
|
| 4 |
|
| — |
Total Real Estate Operations Revenue |
| $ | 2,926 |
| $ | 4,644 |
| $ | 45,658 |
| $ | 18,980 |
The Tomoka Town Center consists$1.7 million, respectively. During the three and nine months ended September 30, 2021, the Company earned management fee revenue from PINE totaling $0.9 million and $2.3 million, respectively. Dividend income for the three and nine months ended September 30, 2021 totaled $0.5 million and $1.5 million, respectively. Management fee revenue from PINE, included in management services, and dividend income, included in investment and other income (loss), are reflected in the accompanying consolidated statements of approximately 235 acres of which approximately 180 acres are developable. During 2015 and 2016, land sales with a gross sales price totaling approximately $21.4 million within the Tomoka Town Center consisted of sales of approximately 99 acres to Tanger Outlets, Sam’s Club, and North American Development Group (“NADG”) (the “Tomoka Town Center Sales Agreements”). The Company performed certain infrastructureoperations.
15
18
work, beginningThe following table represents amounts due (to) from PINE as of September 30, 2022 and December 31, 2021 which are included in other assets on the consolidated balance sheets (in thousands):
| | | | | | |
| | As of | ||||
Description |
| September 30, 2022 | | December 31, 2021 | ||
Management Services Fee due From PINE | | $ | 951 | | $ | 913 |
Dividend Receivable | | | 369 | | | 330 |
Other | | | (139) | | | 410 |
Total | | $ | 1,181 | | $ | 1,653 |
On November 26, 2019, as part of the initial public offering (the “IPO”) of PINE on the NYSE, the Company sold PINE 15 properties for aggregate cash consideration of $125.9 million. In connection with the IPO, the Company contributed to the PINE Operating Partnership five properties in exchange for an aggregate of 1,223,854 OP Units, which had an initial value of $23.3 million. Additionally, on November 26, 2019, the Company purchased 394,737 shares of PINE common stock for a total purchase price of $7.5 million in a private placement and 421,053 shares of PINE common stock in the fourth quarterIPO for a total purchase price of 2015 through completion$8.0 million.
On October 26, 2021, the Board authorized the purchase by the Company of up to $5.0 million in shares of common stock of PINE, at a weighted average price not to exceed $17.75 per share. On February 17, 2022, the Board authorized an increase in the fourth quarterweighted average purchase price of 2016, which requiredcommon stock of PINE to an amount not to exceed $18.50 per share. During the sales pricethree months ended September 30, 2022, the Company purchased 26,355 shares of PINE common stock on the Tomoka Town Center Sales Agreements to be recognizedopen market for a total of $0.5 million, or an average price of $17.28 per share. During the nine months ended September 30, 2022, the Company purchased 126,133 shares of PINE common stock on the percentage-of-completion basis.open market for a total of $2.3 million, or an average price of $17.83 per share. During the year ended December 31, 2021, the Company purchased 8,088 shares of PINE common stock on the open market for a total of $0.1 million, or an average price of $17.65 per share. As the infrastructure work was completedof September 30, 2022, CTO owns, in the fourth quarteraggregate, 1,223,854 OP Units and 950,011 shares of 2016, all revenue related to the Tomoka Town Center Sales Agreements had been recognized asPINE common stock, representing an investment totaling $35.3 million, or 16.0% of December 31, 2016. The timing of the remaining reimbursements for the cost of the infrastructure work which totals approximately $2.4 million is more fully described in Note 9, “Other Assets.”
Tanger Outlets completed its approximately 350,000 square foot outlet mall in November 2016. As of October 30, 2017, NADG has begun pre-construction on its approximately 500,000 square foot retail power center. PINE’s outstanding equity.
During the nine months ended September 30, 2017,2022, PINE exercised its right, pursuant to an Exclusivity and Right of First Offer Agreement between the Company and PINE (the “ROFO Agreement”), to purchase one single-tenant income property from the Company for a purchase price of $6.9 million, which sale was completed the sale of approximately 19 acres to NADG (the “Third NADG Land Sale”). The remaining developable acreage of approximately 62 acres is currently under contract with NADG as described in the land pipeline in Note 18, “Commitment and Contingencies.”
Land Sales. No land sales were completed during the three months ended September 30, 2017. During the nine months ended September 30, 2017, a total of approximately 1,669 acres were sold for approximately $39.6 million, as described below:
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|
|
| Gross Sales |
| Price per Acre |
| Gain |
| |||
|
|
|
|
|
| Date of |
| No. of |
| Price |
| ($ Rounded |
| on Sale |
| |||
|
| Buyer (or Description) |
| Location |
| Sale |
| Acres |
| ($000's) |
| 000's) |
| ($000's) |
| |||
1 |
| Minto Communities, LLC |
| West of I-95 |
| 02/10/17 |
| 1,581.00 |
| $ | 27,151 |
| $ | 17,000 |
| $ | 20,041 |
|
2 |
| Commercial |
| East of I-95 |
| 03/22/17 |
| 6.35 |
|
| 1,556 |
|
| 245,000 |
|
| 11 |
|
|
|
|
| Subtotal - Q1 2017 |
|
|
| 1,587.35 |
|
| 28,707 |
|
| 18,000 |
|
| 20,052 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
|
|
3 |
| Commercial |
| East of I-95 |
| 04/05/17 |
| 27.50 |
|
| 3,218 |
|
| 117,000 |
|
| 2,955 |
|
4 |
| Commercial |
| East of I-95 |
| 04/13/17 |
| 4.50 |
|
| 1,235 |
|
| 274,000 |
|
| 13 |
|
5 |
| Commercial |
| West of I-95 |
| 04/25/17 |
| 30.00 |
|
| 2,938 |
|
| 98,000 |
|
| 627 |
|
6 |
| NADG - Parcel B-I (FPII) |
| East of I-95 |
| 06/27/17 |
| 19.43 |
|
| 3,467 |
|
| 178,000 |
|
| 3,263 | (1) |
|
|
|
| Subtotal - Q2 2017 |
|
|
| 81.43 |
|
| 10,858 |
|
| 133,000 |
|
| 6,858 |
|
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|
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|
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|
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|
|
|
|
|
| YTD Q3 2017 |
|
|
| 1,668.78 |
| $ | 39,565 |
| $ | 24,000 |
| $ | 26,910 |
|
(1)The gain of approximately $3.3 million on the Third NADG Land Sale includes an infrastructure reimbursement payment of approximately $955,000 received in conjunction with the closing on June 27, 2017.
A total of 4.5 acres were sold during the three months ended September 30, 2016 for approximately $205,000. A total of approximately 12.0 acres were sold during the nine months ended September 30, 2016 for approximately $2.4 million as described below:
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| Gross Sales |
|
|
| Gain | |||
|
|
|
|
|
| Date of |
| No. of |
| Price (1) |
| Price |
| on Sale | |||
|
| Buyer (or Description) |
| Location |
| Sale |
| Acres |
| ($000's) |
| per Acre |
| ($000's) | |||
1 |
| Commercial / Retail |
| East of I-95 |
| 02/12/16 |
| 3.1 |
| $ | 190 |
| $ | 61,000 |
| $ | 145 |
2 |
| NADG - OutParcel |
| East of I-95 |
| 03/30/16 |
| 4.4 |
|
| 2,000 |
|
| 455,000 |
|
| 1,304 |
|
|
|
| Subtotal - Q1 2016 |
|
|
| 7.50 |
|
| 2,190 |
|
| 292,000 |
|
| 1,449 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3 |
| Minto Sales Center |
| West of I-95 |
| 09/27/16 |
| 4.50 |
|
| 205 |
|
| 46,000 |
|
| 126 |
|
|
|
| Subtotal - Q3 2016 |
|
|
| 4.50 |
|
| 205 |
|
| 46,000 |
|
| 126 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| YTD Q3 2016 |
|
|
| 12.0 |
| $ | 2,395 |
| $ | 200,000 |
| $ | 1,575 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)Land Sales Revenue for the nine months ended September 30, 2016 is equal to the Gross Sales Price of land sales of $2.40 million, less the $2.0 million sales price for the NADG – OutParcel, as the NADG – OutParcel revenue is included in Tomoka Town Center – Percentage of Completion Revenue, plus approximately $113,000 of incentives received and earned during the three months ended September 30, 2016 related to the Distribution Center sale which closed during 2014.
Pipeline. For a description of our land which is currently under contract, see the land pipeline in Note 18, “Commitment and Contingencies.”
Land Impairments. There were no impairment charges related to the Company’s undeveloped land during the nine months ended September 30, 2017. For a description of impairment charges totaling approximately $1.0 million on the
16
Company’s undeveloped land during the nine months ended September 30, 2016, see Note 8, “Impairment of Long-Lived Assets.”
Beachfront Development. January 7, 2022. During the year ended December 31, 2015,2021, PINE exercised its right to purchase the following properties from the Company acquired, throughpursuant to the ROFO Agreement: (i) a portfolio of six net leased properties (the “CMBS Portfolio”) for an aggregate purchase price of $44.5 million, and (ii) one single-tenant income property for a purchase price of $11.5 million. In connection with the sale of the CMBS Portfolio, PINE assumed the related $30.0 million mortgage note payable which resulted in a loss on the extinguishment of debt of $0.5 million due to the write off of unamortized debt issuance costs.
Land JV. Prior to the Land JV Sale on December 10, 2021, pursuant to the terms of the operating agreement for the Land JV, the initial amount of the management fee was $20,000 per month. The management fee was evaluated quarterly and as land sales occurred in the Land JV, the basis for the Company’s management fee was reduced as the management fee was based on the value of real estate venture with an unaffiliated third party institutional investor, an interestproperty that remained in approximately six acresthe Land JV. The monthly management fee as of vacant beachfront property located in Daytona Beach, Florida. The propertySeptember 30, 2021 was acquired for approximately $11.3 million of which$10,000 per month. During the three and nine months ended September 30, 2021, the Company contributed approximately $5.7 million. earned management fee revenue from the Land JV totaling $0.03 million and $0.09 million which is included in management fee income in the accompanying consolidated statements of operations and was collected in full during the period earned. As of December 31, 2015, the real estate venture was fully consolidated as the Company determined that it was the primary beneficiarya result of the variable interest entity. On November 17, 2016, the Company acquired the unaffiliated third party’s 50% interest for approximately $4.8 million, a discount of approximately $879,000. The discount was recorded through equity on the consolidated balance sheet during the year ended December 31, 2016. The Company evaluated its interest in the six-acre vacant beachfront property for impairment and determined thatLand JV Sale, no impairment was necessary as of December 31, 2016. As the Company owns the entire real estate venture as of September 30, 2017, there is no longer a consolidated VIE.
The cost basis of the six-acre vacant beachfront property asset totaled approximately $11.7 million as of September 30, 2017 which includes costs for entitlement. The beachfront property received approval of the rezoning and entitlement of the site to allow for the development of two restaurants and also for the future potential development of up to approximately 1.2 million square feet of vertical density. In the first quarter of 2017, the Company executed a 15-year lease agreement with the operator of LandShark Bar & Grill, for an approximately 6,264 square foot restaurant property the Company will develop on the parcel. The annual rent under the lease is based on a percentage of the tenant’s net operating income (“NOI”) until the Company has received its investment basis in the property and thereafter, the Company will receive a lower percentage of the tenant’s NOI during the remaining lease term. In the second quarter of 2017, the Company executed a 15-year lease agreement with the tenant, Cocina 214 Restaurant & Bar, for the second restaurant property to be developed on the parcel. The annual rent is equal to the greater of $360,000 per year or a certain percentage of gross sales. The lease also provides for additional percentage rent upon the achievement of certain gross sales thresholds. The Company completed the design phase and commenced construction on the two restaurantsmanagement fee revenues were earned during the three months ended September 30, 2017. As of September 30, 2017, the Company has incurred approximately $2.2 million of design and construction costs. See Note 18, “Commitment and Contingencies” for the total expected cost to be incurred for the development of the site and both restaurants. The Company expects the development of the two restaurant properties to be completed in time for the tenants to commence operations during January of 2018. Upon completion of the construction of the two income properties and commencement of the tenant leases, the total investment in the beach parcel will be classified as Income Properties, Land, Building, and Improvements, within the Property, Plant, and Equipment classification on the Company’s consolidated balance sheets.
Other Real Estate Assets. The Company owns impact fees with a cost basis of approximately $416,000 and mitigation credits with a cost basis of approximately $849,000 for a combined total of approximately $1.3 million as of September 30, 2017. During the nine months ended September 30, 2017, the Company sold mitigation credits for approximately $1.5 million, for a gain2022.
19
NOTE 6. REAL ESTATE OPERATIONS
Real Estate Operations
Land and development costs at September 30, 2017, as more fully described in Note 18, “Commitments2022 and Contingencies.” During the nine months ended September 30, 2017 and 2016, the Company received cash payments of approximately $506,000 and $481,000, respectively, for impact fees with a cost basis that was generally of equal value.
As of December 31, 2016, the Company owned impact fees with a cost basis of approximately $925,000 and mitigation credits with a cost basis of approximately $1.4 million for a combined total of approximately $2.3 million.2021 were as follows (in thousands):
| | | | | | |
| | As of | ||||
|
| September 30, 2022 |
| December 31, 2021 | ||
Land and Development Costs | | $ | 358 | | $ | 358 |
Subsurface Interests | | | 327 | | | 334 |
Total Land and Development Costs | | $ | 685 | | $ | 692 |
Subsurface Interests. As of September 30, 2017,2022, the Company owns full or fractional subsurface oil, gas, and mineral interests underlying approximately 462,000 “surface”355,000 acres of land owned by others in 20 counties in Florida (the “Subsurface Interests”).Subsurface Interests. The Company leases certain of the Subsurface Interests to mineral exploration firms for exploration. OurThe Company’s subsurface operations consist of revenue from the leasing of exploration rights and in some instances, additional revenues from royalties applicable to production from the leased acreage.
acreage, which revenues are included within real estate operations in the consolidated statements of operations. During the three months ended September 30, 2017, the Company sold approximately 38,750 acres of subsurface interests in Osceola County, Florida for approximately $2.1 million (the “Osceola Subsurface Sale”). The gain from the Osceola Subsurface Sale totaled approximately $2.08 million, or $0.23 per share, after tax. The Company expects to utilize the proceeds from this sale to acquire an income property through the 1031 like-kind exchange structure.
17
During 2011, an eight-year oil exploration lease was executed. On September 20, 2017, the Company amended the oil exploration lease to, among other things, extend the expiration of the original term for five additional years to the new expiration date of September 22, 2024. The lease calls for annual lease payments which are recognized as revenue ratably over the respective twelve-month lease periods. In addition, non-refundable drilling penalty payments are made as required by the drilling requirements in the lease which are recognized as revenue when received.
Lease payments on the respective acreages and drilling penalties received through lease year seven are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
| Acreage |
|
|
|
|
|
|
|
|
|
Lease Year |
| (Approximate) |
| Florida County |
| Lease Payment (1) |
| Drilling Penalty (1) |
| ||
Lease Year 1 - 9/23/2011 - 9/22/2012 |
| 136,000 |
| Lee and Hendry |
| $ | 913,657 |
| $ | — |
|
Lease Year 2 - 9/23/2012 - 9/22/2013 |
| 136,000 |
| Lee and Hendry |
|
| 922,114 |
|
| — |
|
Lease Year 3 - 9/23/2013 - 9/22/2014 |
| 82,000 |
| Hendry |
|
| 3,293,000 |
|
| 1,000,000 |
|
Lease Year 4 - 9/23/2014 - 9/22/2015 |
| 42,000 |
| Hendry |
|
| 1,866,146 |
|
| 600,000 |
|
Lease Year 5 - 9/23/2015 - 9/22/2016 |
| 25,000 |
| Hendry |
|
| 1,218,838 |
|
| 175,000 |
|
Lease Year 6 - 9/23/2016 - 9/22/2017 |
| 15,000 |
| Hendry |
|
| 806,683 |
|
| 150,000 |
|
Lease Year 7 - 9/23/2017 - 9/22/2018 |
| 15,000 |
| Hendry |
|
| 806,683 |
|
| 50,000 |
|
Total Payments Received to Date |
|
|
|
|
| $ | 9,827,121 |
| $ | 1,975,000 |
|
(1)Generally, cash payment for the Lease Payment and Drilling Penalty is received on or before the first day of the lease year. The Drilling Penalty, which is due within thirty days from the end of the prior lease year, is recorded as revenue when received, while the Lease Payment is recognized on a straight-line basis over the respective lease term. Pursuant to the amendment for the Year 7 renewal, the Lease Payment and Drilling Penalty were both received on October 11, 2017. See separate disclosure of revenue recognized per period below.
The terms of the lease state the Company will receive royalty payments if production occurs, and may receive additional annual rental payments if the lease is continued in years eight through thirteen. The lease is effectively thirteen one-year terms as the lessee has the option to terminate the lease at the end of each lease year.
Lease income generated by the annual lease payments is recognized on a straight-line basis over the guaranteed lease term. For the three months ended September 30, 2017 and 2016, lease income of approximately $203,000 and $297,000, respectively, was recognized. For the nine months ended September 30, 20172022, the Company sold subsurface oil, gas, and 2016, lease incomemineral rights of approximately $603,0001,500 acres for a sales price of $0.7 million and $904,000, respectively, was recognized. There can be no assurance that14,582 acres for a sales price of $1.6 million, respectively. During the oil exploration lease will be extended beyond the expiration of the current term of September 22, 2018 or, if extended, the terms or conditions of such extension.
During thethree and nine months ended September 30, 2017 and 2016,2021, the Company also receivedsold subsurface oil, royalties from operating oil wells on 800gas, and mineral rights of 4,700 acres underfor a separate lease withsales price of $0.9 million and 39,200 acres for a separate operator. Revenues received from oil royalties totaled approximately $19,000 and $16,000, during the three months ended September 30, 2017 and 2016,sales price of $3.5 million, respectively. Revenues received from oil royalties totaled approximately $69,000 and $32,000,$0.03 million during the nine months ended September 30, 20172022 and 2016, respectively.2021.
The Company is not prohibited from the disposition ofselling any or all of its Subsurface Interests. Should the Company complete a transaction to sell all or a portion of its Subsurface Interests, the Company may utilize the like-kind exchange structure in acquiring one or more replacement investments including income-producing properties. The Company may release surface entry rights or other rights upon request of a surface owner for a negotiated release fee typically based on a percentage of the surface value. There were no releasesShould the Company complete a transaction to sell all or a portion of surface entry rights duringits Subsurface Interests or complete a release transaction, the nine months ended September 30, 2017.Company may utilize the like-kind exchange structure in acquiring one or more replacement investments including income-producing properties. Cash payments for the release of surface entry rights totaled approximately $450,000$0.2 million and $0.1 million during the nine months ended September 30, 2016,2022 and 2021, respectively.
Mitigation Credits. The Company owns mitigation credits and mitigation credit rights with an aggregate cost basis of $22.8 million and $24.7 million as of September 30, 2022 and December 31, 2021, respectively. During the three months ended September 30, 2021, the Company completed the Interest Purchase, hereinafter defined in Note 7, “Investment in Joint Ventures”. As a result of the Interest Purchase, as of September 30, 2021, the Company owns 100% of the Mitigation Bank, and therefore its underlying assets, which includes an inventory of mitigation credits. Certain of the mitigation credits are currently available for sale with the remainder to become available as they are released to the Mitigation Bank by the applicable state and federal authorities pursuant to the completion of phases of the approved mitigation plans (“Mitigation Credit Rights”). At the time of the Interest Purchase on September 30, 2021, the Company’s cost basis in the newly acquired mitigation credits and Mitigation Credit Rights totaled $0.9 million and $21.6 million, respectively, which is includedcomprised of (i) $15.6 million of the $18.0 million Interest Purchase allocated to the mitigation credit assets and (ii) the $6.9 million previously recorded value of the retained interest in revenuethe entity that owns the Mitigation Bank. During the nine months ended September 30, 2022, 15.62 credits were released to the Mitigation Bank.
Revenues and the cost of sales of mitigation credit sales are reported as revenues from, and direct costs of, real estate operations, respectively, in the consolidated statements of operations. During the nine months ended September 30, 2022, 26.62 credits were sold for an aggregate $2.6 million and related cost of sales of $1.7 million. During the nine months ended September 30, 2021, the Company sold mitigation credits for proceeds of $0.2 million with a cost basis of $0.1 million.
NOTE 7. INVESTMENT IN JOINT VENTURES
The Company had no investments in joint ventures as of September 30, 2022 or December 31, 2021.
Watters Creek Investment. As described in Note 4. “Commercial Loans and Investments,” on April 7, 2022, the Company entered into the Watters Creek Investment. The Watters Creek Investment represents $30.0 million, or approximately 23%, of funding towards the total investment in Watters Creek at Montgomery Farm, a grocery-anchored,
20
mixed-use property located in Allen, Texas (the “Watters Creek Property”). The remaining funding is comprised of a combination of third-party sponsorship equity and a secured first mortgage. The Company’s variable interest in the entity underlying the Watters Creek Investment is primarily due to the inherent credit risk associated with the $30.0 million fixed-return preferred investment. The day-to-day operations, including asset management and leasing, of the Watters Creek Property are managed by an unrelated third-party. Pursuant to FASB ASC Topic 810, Consolidation, the Company determined we are not the primary beneficiary of the entity underlying the Watters Creek Investment; accordingly, the entity was not consolidated. The investment was recorded in the consolidated balance sheets as a commercial loan investment at the time of acquisition. The significant factors related to this determination included, but were not limited to, the Company not having the power to direct the activities of the entity underlying the Watters Creek Investment due to (i) the day-to-day operations being managed by an unrelated third-party and (ii) the Company’s position as minority lender with fixed returns and maturity dates for the repayment of the $30.0 million preferred investment.
Land JV. The Company’s previously held retained interest in the Land JV represented a notional 33.5% stake in the venture, the value of which was realized in the form of distributions based on the timing and the amount of proceeds achieved when the land was ultimately sold by the Land JV. On December 10, 2021, the Land JV completed the sale of all of its remaining land holdings.
The Company served as the manager of the Land JV and was responsible for day-to-day operations at the direction of the partners of the Land JV prior to the Land JV Sale. All major decisions and certain other actions that could be taken by the Company, as manager, were approved by the unanimous consent of the JV Partners. Pursuant to the Land JV’s operating agreement, the Land JV paid the Company, as manager, a management fee in the initial amount of $20,000 per month. The management fee was evaluated quarterly, and as land sales occurred in the Land JV, the basis for the Company’s management fee was reduced as the management fee was based on the value of real property that remained in the Land JV. The final monthly management fee was received in December 2021 and totaled $10,000.
Prior to the Land JV Sale, the investment in joint ventures on the Company’s consolidated balance sheets included the Company’s previously held ownership interest in the Land JV. We concluded the Land JV to be a variable interest entity and therefore, it was accounted for under the equity method of accounting as the Company was not the primary beneficiary as defined in FASB ASC Topic 810, Consolidation. The significant factors related to this determination included, but were not limited to, the Land JV being jointly controlled by the members through the use of unanimous approval for all material actions. Under the guidance of FASB ASC 323, Investments-Equity Method and Joint Ventures, the Company used the equity method to account for the Land JV investment.
During the year ended December 31, 2021, the Company recognized impairment charges on its previously held retained interest in the Land JV totaling $17.6 million. The aggregate $17.6 million impairment on the previously held retained interest in the Land JV is comprised of a $16.5 million charge during the three months ended June 30, 2021 and a $1.1 million charge during the three months ended December 31, 2021, which is a result of eliminating the investment in joint ventures based on the final proceeds received through distributions of the Land JV in connection with the Land JV Sale.
The following table provides summarized financial information of the Land JV for the three and nine months ended September 30, 2021 (in thousands):
| | | | | | |
| | Three Months Ended September 30, 2021 | | Nine Months Ended September 30, 2021 | ||
Revenues | | $ | 1,012 | | $ | 1,033 |
Direct Cost of Revenues | | | (62) | | | (187) |
Operating Income | | $ | 950 | | $ | 846 |
Other Operating Expenses | | | (87) | | | (235) |
Net Income | | $ | 863 | | $ | 611 |
The Company’s share of the Land JV’s net loss was zero for the three and nine months ended September 30, 2021. Pursuant to ASC 323, certain adjustments are made when calculating the Company’s share of net income of the Land JV, including adjustments required to reflect the investor’s share of changes in investee’s capital to reflect distributions from the Land JV. Additionally, basis differences are also considered. The Company recorded the initial retained interest in the Land JV of $48.9 million at the estimated fair market value based on the relationship of the $97.0 million sales price of the 66.5% equity interest to the 33.5% retained interest. The Land JV recorded the assets contributed by the Company at
21
carry-over basis pursuant to ASC 845 which states that transfers of nonmonetary assets should typically be recorded at the transferor’s historical cost basis. Accordingly, the Company’s basis difference in the 33.5% retained equity interest was evaluated each quarter upon determining the Company’s share of the Land JV’s net income (loss). As a result of the Land JV Sale, the liquidation of the Land JV’s assets, and the dissolution of the underlying entities, such evaluation was no longer required subsequent to December 31, 2021.
Mitigation Bank. The mitigation bank transaction completed in June 2018 consisted of the sale of a 70% interest in the entity that owns the Mitigation Bank (the “Mitigation Bank JV”). The purchaser of the 70% interest in the Mitigation Bank JV was comprised of certain funds and accounts managed by an investment advisor subsidiary of BlackRock, Inc. (“BlackRock”). The Company retained a 30% non-controlling interest in the Mitigation Bank JV. A third-party was retained by the Mitigation Bank JV as the day-to-day manager of the Mitigation Bank JV property, responsible for the maintenance, generation, tracking, and other aspects of wetland mitigation credits. Prior to September 30, 2021, the investment in joint ventures included on the Company’s consolidated balance sheets included $6.9 million related to the fair market value of the 30% retained interest in the Mitigation Bank JV.
On September 30, 2021, the Company, through a wholly owned and fully consolidated TRS, purchased the remaining 70% interest in the Mitigation Bank JV from BlackRock for $18.0 million (the “Interest Purchase”) resulting in a net cash payment by the Company of $16.1 million after utilizing the available cash in the Mitigation Bank JV of $1.9 million. As a result of the Interest Purchase, the Mitigation Bank JV is now wholly owned by the Company and is referred to as the Mitigation Bank. Pursuant to ASU 2017-01, Business Combinations: Clarifying the Definition of a Business, the Interest Purchase represents an asset acquisition as substantially all of the fair value of the gross assets acquired are concentrated in a group of similar identifiable assets, i.e. the mitigation credits and mitigation credit rights. Accordingly, the Company recorded the Interest Purchase by allocating the total cost of the asset group to the individual assets acquired. The Company’s total cost of the Interest Purchase totaled $24.9 million which is comprised of (i) the $18.0 million Interest Purchase and (ii) the $6.9 million previously recorded value of the retained interest in the entity that owns the Mitigation Bank. In connection with the Interest Purchase, the previously recorded value of $6.9 million of the retained interest was eliminated and the $24.9 million total cost was allocated as follows: (i) $1.8 million to cash and cash equivalents, (ii) $0.6 million to restricted cash, (iii) $0.9 million to the mitigation credits, and (iv) $21.6 million to the mitigation credit rights.
During the period from June 2018 through the date of the Interest Purchase on September 30, 2021, the operations of the Mitigation Bank JV are summarized as follows. The operating agreement of the Mitigation Bank JV (the “Operating Agreement”) was executed in conjunction with the mitigation bank transaction and stipulated that the Company should have arranged for sales of the Mitigation Bank JV’s mitigation credits to unrelated third parties totaling no less than $6.0 million of revenue to the Mitigation Bank JV, net of commissions, by the end of 2020, utilizing a maximum of 60 mitigation credits (the “Minimum Sales Requirement”). The Operating Agreement stipulated that if the Minimum Sales Requirement was not achieved, then BlackRock had the right, but was not required, to cause the Company to purchase the number of mitigation credits necessary to reach the Minimum Sales Requirement (the “Minimum Sales Guarantee”). As a result of not having achieved the Minimum Sales Requirement prior to December 31, 2020, during the nine months ended September 30, 2021, the Company had active discussions with BlackRock whereby BlackRock did not cause the Company to effectuate the Minimum Sales Guarantee; rather, the Company purchased the remaining 70% interest in the Mitigation Bank JV from BlackRock.
The following table provides summarized financial information of the Mitigation Bank JV for the three and nine months ended September 30, 2021 (in thousands):
| | | | | | |
| | Three Months Ended September 30, 2021 | | Nine Months Ended September 30, 2021 | ||
Revenues | | $ | 408 | | $ | 512 |
Direct Cost of Revenues | | | (9) | | | (16) |
Operating Income | | $ | 399 | | $ | 496 |
Other Operating Expenses | | | (49) | | | (162) |
Net Income | | $ | 350 | | $ | 334 |
The Company’s share of the Mitigation Bank JV’s net loss was zero for the three and nine months ended September 30, 2021. Pursuant to ASC 323, certain adjustments are made when calculating the Company’s share of net income, including adjustments required to reflect the investor’s share of changes in investee’s capital to reflect distributions from the Mitigation Bank JV. Additionally, basis differences are also considered. The Company recorded the initial retained
22
interest in the Mitigation Bank JV of $6.8 million in June 2018 at the estimated fair market value based on the relationship of the $15.3 million sales price of the 70% equity interest to the 30% retained interest. The Mitigation Bank JV recorded the assets contributed by the Company at carry-over basis pursuant to ASC 845 which states that transfers of nonmonetary assets should typically be recorded at the transferor’s historical cost basis. Accordingly, the Company’s basis difference in the 30% retained equity interest was evaluated each quarter upon determining the Company’s share of the Mitigation Bank JV’s net income (loss). As a result of the Interest Purchase, such evaluation was no longer required subsequent to December 31, 2021.
NOTE 5.8. INVESTMENT SECURITIES
During the first quarter
As of 2016,September 30, 2022, the Company completedowns, in the dispositionaggregate and on a fully diluted basis, 2.17 million shares of its remaining positionPINE, or 16.0% of PINE’s total shares outstanding for an investment value of $35.3 million, which total includes 1.2 million OP Units, or 9.0%, which the Company received in investment securities, includingexchange for the contribution of certain income properties to the PINE Operating Partnership, in addition to 950,011 shares of common stock and debtowned by the Company, or 8.0%. The Company has elected the fair value option related to the aggregate investment in securities of a publicly traded real estate company, with a total basis of approximately $6.8 million, resulting in net proceeds of approximately $6.3 million, or a loss of approximately $576,000.PINE pursuant to ASC 825, otherwise such investments would have been accounted for under the equity method.
The Company had no remainingcalculates the unrealized gain or loss based on the closing stock price of PINE at each respective balance sheet date. The unrealized, non-cash gains and losses resulting from the changes in the closing stock price of PINE are included in investment and other income (loss) in the consolidated statements of operations for the three and nine months ended September 30, 2022 and 2021.
The Company’s available-for-sale securities as of September 30, 2017 or2022 and December 31, 2016.2021 are summarized below (in thousands):
| | | | | | | | | | | | |
|
| Cost |
| Unrealized Gains in |
| Unrealized |
| Estimated | ||||
September 30, 2022 | | | | | | | | | | | | |
Common Stock | | $ | 17,896 | | $ | — | | $ | (2,487) | | $ | 15,409 |
Operating Units | | | 23,253 | | | — | | | (3,402) | | | 19,851 |
Total Equity Securities | | | 41,149 | | | — | | | (5,889) | | | 35,260 |
Total Available-for-Sale Securities | | $ | 41,149 | | $ | — | | $ | (5,889) | | $ | 35,260 |
| | | | | | | | | | | | |
December 31, 2021 | | | | | | | | | | | | |
Common Stock | | $ | 15,643 | | $ | 868 | | $ | — | | $ | 16,511 |
Operating Units | | | 23,253 | | | 1,273 | | | — | | | 24,526 |
Total Equity Securities | | | 38,896 | | | 2,141 | | | — | | | 41,037 |
Total Available-for-Sale Securities | | $ | 38,896 | | $ | 2,141 | | $ | — | | $ | 41,037 |
18
The following is a table reflecting the gains and losses recognized on the sale of investment securities during the nine months ended September 30, 2017 and 2016:
|
|
|
|
|
|
|
|
|
| For the nine months ended September 30, |
| ||||
|
| 2017 |
| 2016 |
| ||
Proceeds from the Disposition of Debt Securities |
| $ | — |
| $ | 827,738 |
|
Cost Basis of Debt Securities Sold |
|
| — |
|
| (843,951) |
|
Loss recognized in Statement of Operations on the Disposition of Debt Securities |
| $ | — |
| $ | (16,213) |
|
Proceeds from the Disposition of Equity Securities |
|
| — |
|
| 5,424,624 |
|
Cost Basis of Equity Securities Sold |
|
| — |
|
| (5,983,978) |
|
Gain (Loss) recognized in Statement of Operations on the Disposition of Equity Securities |
| $ | — |
| $ | (559,354) |
|
Total Gain (Loss) recognized in Statement of Operations on the Disposition of Debt and Equity Securities |
| $ | — |
| $ | (575,567) |
|
NOTE 6.9. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following table presents the carrying value and estimated fair value of the Company’s financial instruments not carried at fair value on the consolidated balance sheets at September 30, 20172022 and December 31, 2016:2021 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||
|
| September 30, 2017 |
| December 31, 2016 |
| ||||||||||||||||||||
|
| Carrying |
| Estimated |
| Carrying |
| Estimated |
| ||||||||||||||||
|
| Value |
| Fair Value |
| Value |
| Fair Value |
| ||||||||||||||||
| | | | | | | | | | | | | |||||||||||||
| | September 30, 2022 | | December 31, 2021 | |||||||||||||||||||||
|
| Carrying Value |
| Estimated Fair Value |
| Carrying Value |
| Estimated Fair Value | |||||||||||||||||
Cash and Cash Equivalents - Level 1 |
| $ | 5,944,544 |
| $ | 5,944,544 |
| $ | 7,779,562 |
| $ | 7,779,562 |
| | $ | 9,532 | | $ | 9,532 | | $ | 8,615 | | $ | 8,615 |
Restricted Cash - Level 1 |
|
| 7,027,196 |
|
| 7,027,196 |
|
| 9,855,469 |
|
| 9,855,469 |
| | $ | 37,292 | | $ | 37,292 | | $ | 22,734 | | $ | 22,734 |
Commercial Loan Investments - Level 2 |
|
| 11,910,611 |
|
| 12,025,860 |
|
| 23,960,467 |
|
| 24,228,242 |
| ||||||||||||
Commercial Loan Investments - Held for Sale - Level 2 |
|
| 15,000,000 |
|
| 15,181,779 |
|
| — |
|
| — |
| ||||||||||||
Commercial Loans and Investments - Level 2 | | $ | 46,201 | | $ | 47,627 | | $ | 39,095 | | $ | 39,109 | |||||||||||||
Long-Term Debt - Level 2 |
|
| 173,651,530 |
|
| 178,222,572 |
|
| 166,245,201 |
|
| 171,111,337 |
| | $ | 370,248 | | $ | 363,740 | | $ | 278,273 | | $ | 288,000 |
To determine estimated fair values of the financial instruments listed above, market rates of interest, which include credit assumptions, were used to discount contractual cash flows. The estimated fair values are not necessarily indicative of the amount the Company could realize on disposition of the financial instruments. The use of different market assumptions or estimation methodologies could have a material effect on the estimated fair value amounts.
23
The following table presents the fair value of assets measured on a recurring basis by Levellevel as of September 30, 2017:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Fair Value at Reporting Date Using | |||||||
|
|
|
|
| Quoted Prices in |
|
|
|
| Significant | ||
|
|
|
|
| Active Markets |
| Significant Other |
| Unobservable | |||
|
| September 30, |
| for Identical |
| Observable Inputs |
| Inputs | ||||
|
| 2017 |
| Assets (Level 1) |
| (Level 2) |
| (Level 3) | ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flow Hedge - Interest Rate Swap |
| $ | 409,985 |
| $ | — |
| $ | 409,985 |
| $ | — |
Total |
| $ | 409,985 |
| $ | — |
| $ | 409,985 |
| $ | — |
The following table presents the fair value of assets measured on a recurring basis by Level as of2022 and December 31, 2016:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Fair Value at Reporting Date Using | |||||||
|
|
|
|
| Quoted Prices in |
|
|
|
| Significant | ||
|
|
|
|
| Active Markets |
| Significant Other |
| Unobservable | |||
|
| December 31, |
| for Identical |
| Observable Inputs |
| Inputs | ||||
|
| 2016 |
| Assets (Level 1) |
| (Level 2) |
| (Level 3) | ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flow Hedge - Interest Rate Swap |
| $ | 416,590 |
| $ | — |
| $ | 416,590 |
| $ | — |
Total |
| $ | 416,590 |
| $ | — |
| $ | 416,590 |
| $ | — |
At December 31, 2016, approximately eight acres of undeveloped land under contract2021 (in thousands). See Note 17, “Interest Rate Swaps” for sale as of December 31, 2016further disclosure related to the Company’s interest rate swaps.
| | | | | | | | | | | | |
| | | | | Fair Value at Reporting Date Using | |||||||
| | Fair Value |
| Quoted Prices in Active Markets for Identical Assets (Level 1) |
| Significant Other Observable Inputs (Level 2) |
| Significant Unobservable Inputs (Level 3) | ||||
September 30, 2022 | | | | | | | | | | | | |
Cash Flow Hedge - 2026 Term Loan Interest Rate Swap | | $ | 5,017 |
| $ | — |
| $ | 5,017 |
| $ | — |
Cash Flow Hedge - 2026 Term Loan Interest Rate Swap | | $ | 1,570 |
| $ | — |
| $ | 1,570 |
| $ | — |
Cash Flow Hedge - 2027 Term Loan Interest Rate Swap | | $ | 11,055 |
| $ | — |
| $ | 11,055 |
| $ | — |
Cash Flow Hedge - 2028 Term Loan Interest Rate Swap | | $ | (192) |
| $ | — |
| $ | (192) |
| $ | — |
Investment Securities | | $ | 35,260 |
| $ | 35,260 |
| $ | — |
| $ | — |
December 31, 2021 | | | | | | | | | | | | |
Cash Flow Hedge - 2026 Term Loan Interest Rate Swap | | $ | 727 |
| $ | — |
| $ | 727 |
| $ | — |
Cash Flow Hedge - 2026 Term Loan Interest Rate Swap | | $ | 240 |
| $ | — |
| $ | 240 |
| $ | — |
Cash Flow Hedge - 2027 Term Loan Interest Rate Swap | | $ | 550 |
| $ | — |
| $ | 550 |
| $ | — |
Investment Securities | | $ | 41,037 |
| $ | 41,037 |
| $ | — |
| $ | — |
No assets were measured on a non-recurring basis using Level 3 inputs in the fair value hierarchy, which resulted in an aggregate impairment charge of approximately $1.0 million. These land contracts closed during the nine months ended September
19
30, 2017, therefore, the fair value measurement is no longer applicable. Accordingly, there were no assets as of September 30, 2017 whose fair value was measured on a non-recurring basis.2022 or December 31, 2021.
NOTE 7.10. INTANGIBLE LEASE ASSETS AND LIABILITIES
Intangible lease assets and liabilities consist of the value of above-market and below-market leases, the value of in-place leases, and the value of leasing costs, based in each case on their fair values.
Intangible lease assets and liabilities consisted of the following as of September 30, 20172022 and December 31, 2016:2021 (in thousands):
|
|
|
|
|
|
|
|
|
| As of |
| ||||
|
| September 30, 2017 |
| December 31, 2016 |
| ||
Intangible Lease Assets: |
|
|
|
|
|
|
|
Value of In-Place Leases |
| $ | 34,382,237 |
| $ | 30,978,776 |
|
Value of Above Market In-Place Leases |
|
| 2,966,322 |
|
| 2,905,624 |
|
Value of Intangible Leasing Costs |
|
| 8,480,647 |
|
| 7,010,192 |
|
Sub-total Intangible Lease Assets |
|
| 45,829,206 |
|
| 40,894,592 |
|
Accumulated Amortization |
|
| (10,018,472) |
|
| (6,168,770) |
|
Sub-total Intangible Lease Assets—Net |
|
| 35,810,734 |
|
| 34,725,822 |
|
Intangible Lease Liabilities (included in accrued and other liabilities): |
|
|
|
|
|
|
|
Value of Below Market In-Place Leases |
|
| (34,882,965) |
|
| (33,370,217) |
|
Sub-total Intangible Lease Liabilities |
|
| (34,882,965) |
|
| (33,370,217) |
|
Accumulated Amortization |
|
| 4,855,971 |
|
| 2,852,166 |
|
Sub-total Intangible Lease Liabilities—Net |
|
| (30,026,994) |
|
| (30,518,051) |
|
Total Intangible Assets and Liabilities—Net |
| $ | 5,783,740 |
| $ | 4,207,771 |
|
| | | | | | |
| | As of | ||||
|
| September 30, |
| December 31, | ||
Intangible Lease Assets: | | | | | | |
Value of In-Place Leases | | $ | 69,642 | | $ | 59,293 |
Value of Above Market In-Place Leases | | | 24,640 | | | 23,216 |
Value of Intangible Leasing Costs | | | 20,550 | | | 18,456 |
Sub-total Intangible Lease Assets | | | 114,832 | | | 100,965 |
Accumulated Amortization | | | (27,161) | | | (21,473) |
Sub-total Intangible Lease Assets—Net | | | 87,671 | | | 79,492 |
Intangible Lease Liabilities (Included in Accrued and Other Liabilities): | | | | | | |
Value of Below Market In-Place Leases | | | (8,057) | | | (6,942) |
Sub-total Intangible Lease Liabilities | | | (8,057) | | | (6,942) |
Accumulated Amortization | | | 2,062 | | | 1,341 |
Sub-total Intangible Lease Liabilities—Net | | | (5,995) | | | (5,601) |
Total Intangible Assets and Liabilities—Net | | $ | 81,676 | | $ | 73,891 |
The following table reflects the net amortization of intangible assets and liabilities during the three and nine months ended September 30, 20172022 and 2016:2021 (in thousands):
| | | | | | | | | | | | |
| | Three Months Ended | | Nine Months Ended | ||||||||
| | September 30, | | September 30, | | September 30, | | September 30, | ||||
Amortization Expense | | $ | 3,076 | | $ | 2,275 | | $ | 8,605 | | $ | 6,037 |
Accretion to Income Properties Revenue | | | 507 | | | (86) | | | 1,485 | �� | | (820) |
Net Amortization of Intangible Assets and Liabilities | | $ | 3,583 | | $ | 2,189 | | $ | 10,090 | | $ | 5,217 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Three Months |
| Three Months |
| Nine Months |
| Nine Months | ||||
|
| Ended |
| Ended |
| Ended |
| Ended | ||||
|
| 9/30/2017 |
| 9/30/2016 |
| 9/30/2017 |
| 9/30/2016 | ||||
|
| ($000's) |
| ($000's) |
| ($000's) |
| ($000's) | ||||
Depreciation and Amortization Expense |
| $ | 1,201 |
| $ | 626 |
| $ | 3,479 |
| $ | 1,715 |
Increase to Income Properties Revenue |
|
| (552) |
|
| (559) |
|
| (1,633) |
|
| (1,722) |
Net Amortization of Intangible Assets and Liabilities |
| $ | 649 |
| $ | 67 |
| $ | 1,846 |
| $ | (7) |
24
The estimated future amortization and accretion ofexpense (income) related to net intangible lease assets and liabilities is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Future Accretion |
| Net Future |
| ||
|
| Future |
| to Income |
| Amortization of |
| |||
|
| Amortization |
| Property |
| Intangible Assets |
| |||
Year Ending December 31, |
| Amount |
| Revenue |
| and Liabilities |
| |||
Remainder of 2017 |
| $ | 1,201,316 |
| $ | (551,619) |
| $ | 649,697 |
|
2018 |
|
| 4,805,264 |
|
| (2,217,330) |
|
| 2,587,934 |
|
2019 |
|
| 4,776,705 |
|
| (2,212,206) |
|
| 2,564,499 |
|
2020 |
|
| 4,335,284 |
|
| (2,145,477) |
|
| 2,189,807 |
|
2021 |
|
| 2,644,848 |
|
| (2,296,332) |
|
| 348,516 |
|
2022 |
|
| 2,026,921 |
|
| (2,367,492) |
|
| (340,571) |
|
Thereafter |
|
| 13,789,831 |
|
| (16,005,973) |
|
| (2,216,142) |
|
Total |
| $ | 33,580,169 |
| $ | (27,796,429) |
| $ | 5,783,740 |
|
follows (in thousands):
| | | | | | | | | |
Year Ending December 31, |
| Future Amortization Amount |
| Future Accretion to Income Property Revenue |
| Net Future Amortization of Intangible Assets and Liabilities | |||
Remainder of 2022 | | $ | 3,063 | | $ | 513 | | $ | 3,576 |
2023 | | | 12,218 | | | 2,080 | | | 14,298 |
2024 | | | 12,005 | | | 2,126 | | | 14,131 |
2025 | | | 10,161 | | | 2,204 | | | 12,365 |
2026 | | | 8,498 | | | 1,920 | | | 10,418 |
2027 | | | 8,223 | | | 1,597 | | | 9,820 |
2028 and Thereafter | | | 14,257 | | | 2,811 | | | 17,068 |
Total | | $ | 68,425 | | $ | 13,251 | | $ | 81,676 |
20
TableAs of ContentsSeptember 30, 2022, the weighted average amortization period of total intangible assets and liabilities was 6.5 years and 9.8 years, respectively.
NOTE 8.11. IMPAIRMENT OF LONG-LIVED ASSETS
The Company assesses the impairment of long-lived assets whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. The fair value of long-lived assets required to be assessed for impairment is determined on a non-recurring basis using Level 3 inputs in the fair value hierarchy. These Level 3 inputs may include, but are not limited to, executed purchase and sale agreements on specific properties, third party valuations, discounted cash flow models, and other model-based techniques.
There were no impairment charges on the Company’s income property portfolio during the three or nine months ended September 30, 2022. The $16.5 million impairment charge recognized during the nine months ended September 30, 2017.
During2021 was related to the nine months ended September 30, 2016, an impairment charge of approximately $942,000 was recognized on an income propertyCompany’s previously held retained interest in Altamonte Springs, Florida leased to PNC Bank under contract for salethe Land JV as of June 30, 2016. The total impairment charge represents the anticipated loss on the sale of approximately $783,000 plus estimated closing costs of approximately $159,000. This sale closed in September 2016.
During the nine months ended September 30, 2016, an impairment charge of approximately $717,000 was recognized on approximately 4a result of the approximately 6 acresestimated proceeds to be received in connection with the contract entered into with Timberline Acquisition Partners, an affiliate of undeveloped land in Daytona Beach, Florida for which a contract forTimberline Real Estate Partners (“Timberline”). The sale was executed during the three months ended June 30, 2016. Such acreage was repurchased in prior years by the Company and carried a higher cost basis than the remainder of the Company’s historical land holdings. The total impairment charge represents the anticipated lossto Timberline closed on the sale of approximately $646,000 plus estimated closing costs of approximately $71,000. This sale closed in March 2017.December 10, 2021.
During the nine months ended September 30, 2016, an impairment charge of approximately $311,000 was recognized on approximately 4 acres of undeveloped land in Daytona Beach, Florida for which a contract for sale was executed subsequent to June 30, 2016. Such acreage was repurchased in a prior year by the Company and carried a higher cost basis than the remainder of the Company’s historical land holdings. The total impairment charge represents the anticipated loss on the sale of approximately $256,000 plus estimated closing costs of approximately $55,000. This sale closed in April 2017.
During the nine months ended September 30, 2016, an impairment charge of approximately $210,000 was recognized on an income property held for sale as of March 31, 2016. The total impairment charge represented the loss on the sale of approximately $134,000 plus closing costs of approximately $76,000. This sale closed in April 2016.
NOTE 9.12. OTHER ASSETS
Other assets consisted of the following:
|
|
|
|
|
|
|
|
|
| As of |
| ||||
|
| September 30, 2017 |
| December 31, |
| ||
Income Property Tenant Receivables |
| $ | 303,326 |
| $ | 125,383 |
|
Income Property Straight-line Rent Adjustment |
|
| 2,269,988 |
|
| 1,773,946 |
|
Interest Receivable from Commercial Loan Investments |
|
| 73,739 |
|
| 72,418 |
|
Cash Flow Hedge - Interest Rate Swap |
|
| 409,985 |
|
| 416,590 |
|
Infrastructure Reimbursement Receivables |
|
| 2,381,038 |
|
| 3,844,236 |
|
Golf Operations Receivables |
|
| 219,015 |
|
| 325,510 |
|
Deferred Deal Costs |
|
| 357,108 |
|
| 745,878 |
|
Prepaid Expenses, Deposits, and Other |
|
| 2,559,423 |
|
| 2,165,127 |
|
Total Other Assets |
| $ | 8,573,622 |
| $ | 9,469,088 |
|
following as of September 30, 2022 and December 31, 2021 (in thousands):
| | | | | | |
| | As of | ||||
|
| September 30, 2022 |
| December 31, 2021 | ||
Income Property Tenant Receivables, Net of Allowance for Doubtful Accounts (1) | | $ | 1,634 | | $ | 885 |
Income Property Straight-line Rent Adjustment and COVID-19 Deferral Balance | | | 5,718 | | | 5,180 |
Operating Leases - Right-of-Use Asset | | | 95 | | | 168 |
Golf Rounds Surcharge | | | 240 | | | 338 |
Cash Flow Hedge - Interest Rate Swap | | | 17,642 | | | 1,543 |
Infrastructure Reimbursement Receivables | | | 1,101 | | | 1,080 |
Prepaid Expenses, Deposits, and Other | | | 8,792 | | | 3,526 |
Due from Alpine Income Property Trust, Inc. | | | 1,181 | | | 1,653 |
Financing Costs, Net of Accumulated Amortization | | | 2,133 | | | 524 |
Total Other Assets | | $ | 38,536 | | $ | 14,897 |
(1) | Includes a $1.3 million and $0.5 million allowance for doubtful accounts as of September 30, 2022 and December 31, 2021, respectively. |
Income Property Straight-Line Rent Adjustment.As of September 30, 2022 and December 31, 2016,2021, the straight-line rent adjustment includes a balance of $0.1 million of deferred rent related to the COVID-19 Pandemic. Pursuant to the interpretive guidance issued by the FASB in April 2020 on lease modifications, for leases in which deferred rent
25
agreements were reached, the Company has continued to account for the lease concessions by recognizing the normal straight-line rental income and as the deferred rents are repaid by the tenant, the straight-line receivable will be reduced.
Infrastructure Reimbursement ReceivablesReceivables. As of September 30, 2022 and December 31, 2021, the infrastructure reimbursement receivables were all related to the land sales within the Tomoka Town Center andCenter. The balance as of September 30, 2022 consisted of approximately $1.1$0.8 million in incentives due from the community development district, approximately $250,000 due from NADG for a fill dirt agreement, approximately $1,750,000 due from Tanger for infrastructure reimbursement to be repaid over 10 years in $175,000five remaining annual installments of approximately $0.2 million each, net of a discount of approximately $191,000,$0.08 million, and approximately $990,000$0.3 million due from Sam’s Club for infrastructure reimbursement to be repaid over 9in three remaining years in $110,000annual installments of $0.1 million each, net of a discount of approximately $80,000. The $1.1 million$0.02 million.
Prepaid Expenses, Deposits, and $250,000 receivables, as well as the second installment of $110,000 from Sam’s Club, were all received subsequent to December
21
31, 2016, leaving approximately $2.4 million in Infrastructure Reimbursements Receivable asOther. As of September 30, 2017. The first installment2022, the $8.8 million of prepaid expenses, deposits, and other included $4.7 million of earnest money deposits related to the acquisition of West Broad Village which closed on October 14, 2022 as further described in Note 25. “Subsequent Events”.
NOTE 13. EQUITY
STOCK SPLIT
On April 27, 2022, the Company announced that its Board of Directors approved a three-for-one stock split of the Tanger infrastructure reimbursementCompany’s common stock to be effected in the form of $175,000a stock dividend. Each stockholder of record at the close of business on June 27, 2022 (the “Record Date”), received two additional shares of the Company’s common stock for each share held as of the Record Date. The new shares were distributed after the market closed on June 30, 2022. The Company’s stock began trading at the post-split price on July 1, 2022. Pursuant to FASB ASC Topic 505, Equity, the Company has adjusted the computations of basic and diluted earnings per share retroactively for all periods presented. Similarly, the Company has retroactively updated the disclosures in each prior period presented to conform to the split-adjusted dividend amount, for per share amounts including but not limited to dividends declared, stock-based compensation shares outstanding, ATM program activity, and share repurchases.
SHELF REGISTRATION
On April 1, 2021, the Company filed a shelf registration statement on Form S-3, relating to the registration and potential issuance of its common stock, preferred stock, debt securities, warrants, rights, and units with a maximum aggregate offering price of up to $350.0 million. The Securities and Exchange Commission declared the Form S-3 effective on April 19, 2021. On October 11, 2022, the Company filed a new shelf registration statement on Form S-3 (File No. 333-267819). See Note 25, “Subsequent Events”.
ATM PROGRAM
On April 30, 2021, the Company implemented a $150.0 million “at-the-market” equity offering program (the “ATM Program”) pursuant to which the Company may sell, from time to time, shares of the Company’s common stock. During the three months ended September 30, 2022, the Company sold 565,687 shares under the ATM Program for gross proceeds of $12.5 million at a weighted average price of $22.02 per share, generating net proceeds of $12.3 million after deducting transaction fees totaling less than $0.2 million. During the nine months ended September 30, 2022, the Company sold 961,261 shares under the ATM Program for gross proceeds of $21.1 million at a weighted average price of $21.99 per share, generating net proceeds of $20.8 million after deducting transaction fees totaling $0.3 million.
DIVIDENDS
The Company elected to be taxed as a REIT for U.S. federal income tax purposes under the Code commencing with its taxable year ended December 31, 2020. In order to maintain its qualification as a REIT, the Company must annually distribute, at a minimum, an amount equal to 90% of its taxable income, determined without regard to the deduction for dividends paid and excluding net capital gains, and must distribute 100% of its taxable income (including net capital gains) to eliminate U.S. federal income taxes payable by the Company. Because taxable income differs from cash flow from operations due to non-cash revenues and expenses (such as depreciation and other items), in certain circumstances, the Company may generate operating cash flow in excess of its dividends, or alternatively, may need to make dividend payments in excess of operating cash flows.
26
The following table outlines dividends declared and paid for each issuance of CTO’s stock during the three and nine months ended September 30, 2022 and 2021 (in thousands, except per share data):
| | | | | | | | | | | | |
| | Three Months Ended | | Nine Months Ended | ||||||||
|
| September 30, |
| September 30, |
| September 30, |
| September 30, | ||||
Series A Preferred Stock | | | | | | | | | | | | |
Dividends | | $ | 1,195 | | $ | 1,129 | | $ | 3,586 | | $ | 1,129 |
Per Share | | $ | 0.40 | | $ | 0.3763 | | $ | 1.20 | | $ | 0.3763 |
| | | | | | | | | | | | |
Common Stock | | | | | | | | | | | | |
Dividends | | $ | 7,095 | | $ | 5,904 | | $ | 20,292 | | $ | 17,700 |
Per Share | | $ | 0.38 | | $ | 0.33 | | $ | 1.11 | | $ | 1.00 |
2025 NOTES
Effective January 1, 2022, the Company adopted ASU 2020-06 whereby diluted EPS includes the dilutive impact of the 2025 Notes (hereinafter defined) using the if-converted method. Upon adoption, the Company recorded a $7.0 million adjustment to reduce additional paid-in capital to eliminate the non-cash equity component of the 2025 Notes with corresponding offsets including (i) a $4.0 million cumulative effect adjustment to the opening balance of retained earnings and (ii) a $3.0 million adjustment to eliminate the non-cash portion of the convertible notes discount, net of accumulated amortization (the “2025 Notes Adjustment”). The 2025 Notes Adjustment was receivedmade on October 16, 2017.January 1, 2022 and is reflected in the accompanying consolidated statements of stockholders’ equity.
NOTE 10.14. COMMON STOCK AND EARNINGS PER SHARE
Basic earnings per common share is computed by dividing net income attributable to common stockholders during the period by the weighted average number of shares of common stock outstanding during the period. Diluted earnings per common share is based on the assumption of the conversion of stock options and vesting of restricted stock at the beginning of each period using the treasury stock method at average cost for the periods. Effective as of January 1, 2022, diluted earnings per common share also reflects the 2025 Notes on an if-converted basis.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Three Months Ended |
|
| Nine Months Ended |
| ||||||
|
| September 30, 2017 |
| September 30, 2016 |
| September 30, 2017 |
| September 30, 2016 |
| ||||
Income Available to Common Shareholders: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income Attributable to Consolidated-Tomoka Land Co. |
| $ | 966,900 |
| $ | 8,161,014 |
| $ | 17,392,200 |
| $ | 11,156,175 |
|
Weighted Average Shares Outstanding |
|
| 5,513,327 |
|
| 5,662,933 |
|
| 5,548,644 |
|
| 5,700,316 |
|
Common Shares Applicable to Stock |
|
|
|
|
|
|
|
|
|
|
|
|
|
Options Using the Treasury Stock Method |
|
| 9,266 |
|
| 4,009 |
|
| 16,630 |
|
| 9,920 |
|
Total Shares Applicable to Diluted Earnings Per Share |
|
| 5,522,593 |
|
| 5,666,942 |
|
| 5,565,274 |
|
| 5,710,236 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Per Share Information: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income Attributable to Consolidated-Tomoka Land Co. |
| $ | 0.18 |
| $ | 1.44 |
| $ | 3.13 |
| $ | 1.96 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income Attributable to Consolidated-Tomoka Land Co. |
| $ | 0.18 |
| $ | 1.44 |
| $ | 3.13 |
| $ | 1.95 |
|
The effectfollowing is a reconciliation of 70,000basic and 93,000diluted earnings per common share for each of the periods presented (in thousands, except share and per share data):
| | | | | | | | | | | | |
| | Three Months Ended | | Nine Months Ended | ||||||||
|
| September 30, |
| September 30, |
| September 30, |
| September 30, | ||||
Basic and Diluted Earnings: | | | | | | | | | | | | |
Net Income Attributable to Common Stockholders, Used in Basic EPS | | $ | 3,622 | | $ | 22,818 | | $ | 2,651 | | $ | 26,879 |
Add Back: Effect of Dilutive Interest Related to 2025 Notes (1) | | | 539 | | | — | | | — | | | — |
Net Income Attributable to Common Stockholders, Used in Diluted EPS | | | 4,161 | | | 22,818 | | | 2,651 | | | 26,879 |
| | | | | | | | | | | | |
Basic and Diluted Shares: | | | | | | | | | | | | |
Weighted Average Shares Outstanding, Basic | | | 18,386,435 | | | 17,703,284 | | | 18,044,299 | | | 17,678,701 |
Common Shares Applicable to Dilutive Effect of 2025 Notes (2) | | | 3,119,025 | | | — | | | — | | | — |
Weighted Average Shares Outstanding, Diluted | | | 21,505,460 | | | 17,703,284 | | | 18,044,299 | | | 17,678,701 |
| | | | | | | | | | | | |
Per Share Information: | | | | | | | | | | | | |
Net Income Attributable to Common Stockholders | | | | | | | | | | | | |
Basic | | $ | 0.20 | | $ | 1.29 | | $ | 0.15 | | $ | 1.52 |
Diluted | | $ | 0.19 | | $ | 1.29 | | $ | 0.15 | | $ | 1.52 |
27
(1) | As applicable, includes interest expense, amortization of discount, amortization of fees, and other changes in net income or loss that would result from the assumed conversion of the 2025 Notes (hereinafter defined). For the three months ended September 30 2022, a total of $0.5 million was included as the impact to earnings per share, if-converted, is dilutive. For the nine months ended September 30, 2022, the impact of $1.6 million was not included as the impact to earnings per share, if-converted, would be antidilutive to the net income of $2.6 million. |
(2) | A total of 3.1 million shares representing the dilutive impact of the 2025 Notes, upon adoption of ASU 2020-06 effective January 1, 2022, were included in the computation of diluted net income per share attributable to common stockholders for the three months ended September 30, 2022. A total of 3.1 million shares representing the dilutive impact of the 2025 Notes, were not included in the computation of diluted net income per share attributable to common stockholders for the nine months ended September 30, 2022 because they were antidilutive to the net income of $2.6 million. |
There were no potentially dilutive securities was not included for the three and nine months ended September 30, 20172022 or 2021 related to the Company’s stock options and 2016, respectively, as the effect would be anti-dilutive.restricted stock. The effect of 77,750 and 32,50068,269 potentially dilutive securities wasstock options and restricted stock units were not included for the nine months ended September 30, 2017 and 2016, respectively,2022, as the effect would be anti-dilutive.
Effective January 1, 2022, the Company adopted ASU 2020-06 whereby diluted EPS includes the dilutive impact, if any, of the 2025 Notes (hereinafter defined) using the if-converted method, irrespective of intended cash settlement. The Company intends to settle its 4.50%3.875% Convertible Senior Notes due 20202025 (the “Convertible“2025 Notes”) in cash upon conversion with any excess conversion value to be settled in shares of our common stock. Therefore, onlyThe Company elected, upon adoption, to utilize the amount in excessmodified retrospective approach, negating the required restatement of EPS for periods prior to adoption. The Company overcame the par valuepresumption of share settlement prior to the Convertibleadoption of ASU 2020-06, and therefore, there was no dilutive impact for the year ended December 31, 2021. The effect of 3.1 million potentially dilutive 2025 Notes, will beif-converted, were not included in our calculation of diluted net income per share using the treasury stock method. As such, the Convertible Notes have no impact on diluted net income per share until the price of our common stock exceeds the current conversion price of $68.76. The average price of our common stock during the three and nine months ended September 30, 2017 and 2016 did not exceed the conversion price which resulted in no additional diluted outstanding shares.
NOTE 11. TREASURY STOCK
In the fourth quarter of 2015, the Company announced a $10 million stock repurchase program (the “$10 Million Repurchase Program”). As of March 29, 2017, the $10 Million Repurchase Program had been completed. In the first quarter of 2017, the Company announced a new $10 million stock repurchase program (the “New $10 Million Repurchase Program”) under which approximately $4.5 million of the Company’s common stock had been repurchased as of September 30, 2017. In the aggregate, duringfor the nine months ended September 30, 2017, under both programs,2022, as the effect would be anti-dilutive.
NOTE 15. SHARE REPURCHASES
In February 2020, the Company’s Board approved a $10.0 million stock repurchase program (the “$10.0 Million Repurchase Program”). During the year ended December 31, 2020, the Company repurchased 134,04988,565 shares of its common stock on the open market for a total cost of approximately $7.1$4.1 million, or an average price per share of $53.24,$46.29. During the year ended December 31, 2021, the Company repurchased 40,553 shares of its common stock on the open market for a total cost of $2.2 million, or an average price per share of $54.48. During the nine months ended September 30, 2022, the Company repurchased 145,724 shares of its common stock on the open market for a total cost of $2.8 million, or an average price per share of $19.15. There were no repurchases of the Company’s common stock during the nine months ended September 30, 2021. The $10.0 Million Repurchase Program has $0.9 million remaining and placed those shares in treasury.does not have an expiration date.
22
NOTE 12.16. LONG-TERM DEBT
As of September 30, 2017,2022, the Company’s outstanding indebtedness, at face value, was as follows:follows (in thousands):
| | | | | | | | | |
|
| Face Value Debt |
| Maturity Date |
| Interest Rate | |||
Credit Facility | | $ | 38,500 | | January 2027 | | | 30-day SOFR + 0.10% + | |
2026 Term Loan (1) | | | 65,000 | | March 2026 | | | 30-day SOFR + 0.10% + | |
2027 Term Loan (2) | | | 100,000 | | January 2027 | | | 30-day SOFR + 0.10% + | |
2028 Term Loan (3) | | | 100,000 | | January 2028 | | | 30-day SOFR + 0.10% + | |
3.875% Convertible Senior Notes due 2025 | | | 51,034 | | April 2025 | | | 3.875% | |
Mortgage Note Payable | | | 17,800 | | August 2026 | | | 4.060% | |
Total Long-Term Face Value Debt | | $ | 372,334 | | | | | | |
|
|
|
|
|
|
|
|
|
| |
|
| Face |
| Maturity |
| Interest | ||||
|
| Value Debt |
| Date |
| Rate | ||||
Credit Facility |
| $ | 41,000,000 |
| September 2021 |
|
| 30 ‑day LIBOR | ||
Mortgage Note Payable (originated with UBS) (1) |
|
| 7,300,000 |
| February 2018 |
|
| 3.655% | ||
Mortgage Note Payable (originated with Wells Fargo) (2) |
|
| 30,000,000 |
| October 2034 |
|
| 4.330% | ||
Mortgage Note Payable (originated with Wells Fargo) (3) |
|
| 25,000,000 |
| April 2021 |
|
| 30 ‑day LIBOR | ||
4.50% Convertible Senior Notes due 2020, net of discount |
|
| 75,000,000 |
| March 2020 |
|
| 4.500% | ||
Total Long-Term Face Value Debt |
| $ | 178,300,000 |
|
|
|
|
|
|
(1)Secured by The Company utilized interest rate swaps on the Company’s interest in the two-building office complex leased$65.0 million 2026 Term Loan balance to Hilton Resorts Corporation.
(2)Secured by the Company’s interest in six income properties. The mortgage loan carriesfix SOFR and achieve a weighted average fixed swap rate of 4.33% per annum during0.26% plus the first ten years10 bps SOFR adjustment plus the applicable spread.
(2) | The Company utilized interest rate swaps on the $100.0 million 2027 Term Loan balance to fix SOFR and achieve a fixed swap rate of 0.64% plus the 10 bps SOFR adjustment plus the applicable spread. |
(3) | The Company entered into interest rate swaps on the $100.0 million 2028 Term Loan balance to fix SOFR and achieve a weighted average fixed swap rate of 3.78% plus the 10 bps SOFR adjustment plus the applicable spread. |
28
Credit Facility. The loan is fully pre-payable after the tenth anniversary of the effective date of the loan.
(3)Secured by the Company’s income property leased to Wells Fargo located in Raleigh, North Carolina. The mortgage loan has a 5-year termCredit Facility, with two years interest only, and interest and a 25-year amortization for the balance of the term. The mortgage loan bears a variable rate of interest based on the 30-day LIBOR plus a rate of 190 basis points. The interest rate for this mortgage loan has been fixed through the use of an interest rate swap that fixed the rate at 3.17%. The mortgage loan can be prepaid at any time subject to the termination of the interest rate swap.
The Company’s revolving credit facility (the “Credit Facility”), with Bank of Montreal (“BMO”) serving as the administrative agent for the lenders thereunder, is unsecured with regard to our income property portfolio but is guaranteed by certain wholly-ownedwholly owned subsidiaries of the Company. The Credit Facility bank group is led by BMO and also includes Truist Bank and Wells Fargo and Branch Banking & Trust Company.Fargo. On September 7, 2017, the Company executed the second amendment and restatement of the Credit Facility (the “Revolver“2017 Amended Credit Facility”). As a result of the March 2021 Revolver Amendment and the Eighth Amendment, both as defined below, The Huntington National Bank, PNC Bank, National Association, and Regions Bank, were added as lenders to the Company’s Credit Facility.
On May 24, 2019, the Company executed the second amendment to the 2017 Amended Credit Facility (the “May 2019 Revolver Amendment”). Pursuant toAs a result of the May 2019 Revolver Amendment, the Credit Facility matures on September 7, 2021, with the ability to extend the term for 1 year.
As a result of the Revolver Amendment, the Credit Facility hashad a total borrowing capacity of $100.0$200.0 million with the ability to increase that capacity up to $150.0$300.0 million during the term.term, subject to lender approval. The Credit Facility provides the lenders with a securedsecurity interest in the equity of the Company subsidiaries that own the properties included in the borrowing base. The indebtedness outstanding under the Credit Facility accrues interest at a rate ranging from the 30-day LIBORSOFR plus 1500.10% plus 125 basis points to the 30-day LIBORSOFR plus 0.10% plus 220 basis points based on the total balance outstanding under the Credit Facility as a percentage of the total asset value of the Company, as defined in the 2017 Amended Credit Facility.Facility, as amended by the Eighth Amendment. The Credit Facility also accrues a fee of 15 to 25 basis points for any unused portion of the borrowing capacity based on whether the unused portion is greater or less than 50% of the total borrowing capacity. Pursuant to the Eighth Amendment, the Credit Facility matures on January 31, 2027, with the ability to extend the term for 1 year.
On November 26, 2019, the Company entered into the third amendment to the 2017 Amended Credit Facility (the “November 2019 Revolver Amendment”), which further amends the 2017 Amended Credit Facility. The November 2019 Revolver Amendment included, among other things, an adjustment of certain financial maintenance covenants, including a temporary reduction of the minimum fixed charge coverage ratio to allow the Company to redeploy the proceeds received from the sale of certain income properties to PINE, and an increase in the maximum amount the Company may invest in stock and stock equivalents of real estate investment trusts to allow the Company to invest in PINE’s common stock and OP Units.
On July 1, 2020, the Company entered into the fourth amendment to the 2017 Amended Credit Facility (the “July 2020 Revolver Amendment”) whereby the tangible net worth covenant was adjusted to be more reflective of market terms. The July 2020 Revolver Amendment was effective as of March 31, 2020.
On November 12, 2020, the Company entered into the fifth amendment to the 2017 Amended Credit Facility (the “November 2020 Revolver Amendment”). The November 2020 Revolver Amendment provided that, among other things, (i) the Company must comply with certain adjusted additional financial maintenance requirements, including (x) a new restricted payments covenant which limits the type and amount of cash distributions that may be made by the Company and (y) an adjusted fix charges ratio, which now excludes certain onetime expenses for purposes of calculation and (ii) the Company must, from and after the date that the Company elects to qualify as a REIT, maintain its status as a REIT.
On March 10, 2021, the Company entered into the sixth amendment to the 2017 Amended Credit Facility (the “March 2021 Revolver Amendment”). The March 2021 Revolver Amendment included, among other things, (i) increase of the revolving credit commitment from $200.0 million to $210.0 million, (ii) addition of the 2026 Term Loan in the aggregate amount of $50.0 million, (iii) updates to certain financing rate provisions provided therein, and (iv) joinder of The Huntington National Bank as a 2026 Term Loan lender and Credit Facility lender. The March 2021 Revolver Amendment also includes accordion options that allow the Company to request additional 2026 Term Loan lender commitments up to a total of $150.0 million and additional Credit Facility lender commitments up to a total of $300.0 million. During the six months ended June 30, 2021, the Company exercised the 2026 Term Loan accordion option for $15.0 million, increasing total lender commitments to $65.0 million.
On November 5, 2021, the Company entered into the seventh amendment to the 2017 Amended Credit Facility (the “November 2021 Revolver Amendment”). The November 2021 Revolver Amendment included, among other things, (i) addition of the 2027 Term Loan in the aggregate amount of $100.0 million and (ii) joinder of KeyBank National Association, Raymond James Bank, and Synovus Bank as 2027 Term Loan lenders. The November 2021 Revolver Amendment also includes an accordion option that allows the Company to request additional term loan lender commitments up to a total of $400.0 million in the aggregate.
29
On September 20, 2022, the Company entered into an Eighth Amendment to the 2017 Amended Credit Facility (the “Eighth Amendment”), which includes among other things: (i) the origination of a new Term Loan, as defined in the Credit Agreement, in the amount of $100.0 million, (ii) the increase of Revolving Credit Commitments, as defined in the Credit Agreement, up to $300.0 million, (iii) an accordion option that allows the Company to request additional revolving loan commitments and additional term loan commitments, provided, (i) the aggregate amount of revolving loan commitments shall not exceed $750,000,000 and (ii) the aggregate amount of term loan commitments shall not exceed $500,000,000, (iv) an extension of the Revolving Credit Termination Date, as defined in the Credit Agreement, from May 24, 2023 to January 31, 2027, (v) a sustainability-linked pricing component pursuant to which the Company will receive interest rate reductions based on its performance against certain sustainability performance targets, (vi) the release of the Pledge Collateral, as defined in the Eighth Amendment, and (vii) the joinder of PNC Bank, National Association (“PNC”) as a Term Loan Lender, as defined in the Credit Agreement, and PNC and Regions Bank as Revolving Lenders, as defined in the Credit Agreement.
At September 30, 2017,2022, the current commitment level under the Credit Facility was $100.0$300.0 million. The available borrowing capacityundrawn commitment under the Credit Facility was approximately $59.0 million, based on the level of borrowing base assets.totaled $261.5 million. As of September 30, 2017,2022, the Credit Facility had a $41.0$38.5 million balance. As a result of the income property acquisition completed on October 27, 2017 (as described in Note 21, “Subsequent Events”), the amount outstanding on the Credit Facility was approximately $60.5 million and the available borrowing capacity was approximately $39.5 million.balance outstanding.
The Credit Facility is subject to customary restrictive covenants including, but not limited to, limitations on the Company’s ability to: (a) incur indebtedness; (b) make certain investments; (c) incur certain liens; (d) engage in certain affiliate transactions; and (e) engage in certain major transactions such as mergers. In addition, the Company is subject to various financial maintenance covenants including, but not limited to, a maximum indebtedness ratio, a maximum secured indebtedness ratio, and a minimum fixed charge coverage ratio. The Credit Facility also contains affirmative covenants and events of default including, but not limited to, a cross default to the Company’s other indebtedness and upon the occurrence of a change ofin control. The Company’s failure to comply with these covenants or the occurrence of
23
an event of default could result in acceleration of the Company’s debt and other financial obligations under the Credit Facility.
Mortgage Notes Payable. On March 3, 2022, in connection with the Credit Facility,acquisition of Price Plaza Shopping Center, the Company has certain other borrowings, as notedassumed an existing $17.8 million secured fixed-rate mortgage note payable, which bears interest at a fixed rate of 4.06% and matures in the table above, all of which are non-recourse.August 2026.
Convertible Debt. The Company’s $75.0 million aggregate principal amount of 4.50% Convertible Notes will(the “2020 Notes”) were scheduled to mature on March 15, 2020, unless earlier purchased or converted.2020; however, the Company completed the Note Exchanges, hereinafter defined, on February 4, 2020. The initial conversion rate was 14.5136 shares of common stock for each $1,000 principal amount of Convertiblethe 2020 Notes, which represented an initial conversion price of approximately $68.90 per share of common stock. Since July
On February 4, 2020, the Company closed privately negotiated exchange agreements with certain holders of 2016, whenits outstanding 2020 Notes pursuant to which the Company issued $57.4 million principal amount of the 2025 Notes in exchange for $57.4 million principal amount of the 2020 Notes (the “Note Exchanges”). In addition, the Company closed a privately negotiated purchase agreement with an investor, who had not invested in the 2020 Notes, and issued $17.6 million principal amount of the 2025 Notes (the “New Notes Placement,” and together with the Note Exchanges, the “Convert Transactions”). The Company used $5.9 million of the proceeds from the New Notes Placement to repurchase $5.9 million of the 2020 Notes. As a result of the Convert Transactions there was a total of $75.0 million aggregate principal amount of 2025 Notes outstanding.
In exchange for issuing the 2025 Notes pursuant to the Note Exchanges, the Company received and cancelled the exchanged 2020 Notes. The $11.7 million of net proceeds from the New Notes Placement were used to redeem at maturity on March 15, 2020 $11.7 million of the aggregate principal amount of the 2020 Notes that remained outstanding.
During the year ended December 31, 2020, the Company repurchased $12.5 million aggregate principal amount of 2025 Notes at a $2.6 million discount, resulting in a gain on extinguishment of debt of $1.1 million. During the year ended December 31, 2021, the Company repurchased $11.4 million aggregate principal amount of 2025 Notes at a $1.6 million premium, resulting in a loss on extinguishment of debt of $2.9 million. Following these repurchases, $51.0 million aggregate principal amount of the 2025 Notes remains outstanding at September 30, 2022.
The 2025 Notes represent senior unsecured obligations of the Company and pay interest semi-annually in arrears on each April 15th and October 15th, commencing on April 15, 2020, at a rate of 3.875% per annum. The 2025 Notes mature on April 15, 2025 and may not be redeemed by the Company prior to the maturity date. The conversion rate for the 2025
30
Notes was initially 12.7910 shares of the Company’s common stock per $1,000 of principal of the 2025 Notes (equivalent to an initial conversion price of $78.18 per share of the Company’s common stock). The initial conversion price of the 2025 Notes represented a premium of 20% to the $65.15 closing sale price of the Company’s common stock on the NYSE American on January 29, 2020. If the Company’s Board of Directors implemented aincreases the quarterly dividend above the $0.13 per share in place ofat issuance, the previous semi-annualconversion rate is adjusted with each such increase in the quarterly dividend amount. After effectuating the conversion rate for the three-for-one stock split effective July 1, 2022, and after the third quarter 2022 dividend, the conversion rate has been adjusted with each successive quarterly dividend and is currently, after the third quarter 2017 dividend, equal to 14.543961.1166 shares of common stock for each $1,000 principal amount of Convertible2025 Notes, which represents an adjusted conversion price of approximately $68.76$16.36 per share of common stock. At the maturity date, the 2025 Notes are convertible into cash, common stock or a combination thereof, subject to various conditions, at the Company’s option. Should certain corporate transactions or events occur prior to the stated maturity date, the Company will increase the conversion rate for a holder that elects to convert its 2025 Notes in connection with such corporate transaction or event.
The conversion rate is subject to adjustment in certain circumstances. Holders may not surrender their Convertible2025 Notes for conversion prior to DecemberJanuary 15, 20192025 except upon the occurrence of certain conditions relating to the closing sale price of the Company’s common stock, the trading price per $1,000 principal amount of Convertible2025 Notes, or specified corporate events including a change in control of the Company. The Company may not redeem the Convertible2025 Notes prior to the stated maturity date and no sinking fund is provided for the Convertible2025 Notes. The Convertible2025 Notes are convertible, at the election of the Company, into solely cash, solely shares of the Company’s common stock, or a combination of cash and shares of the Company’s common stock. The Company intends to settle the Convertible2025 Notes in cash upon conversion, with any excess conversion value to be settled in shares of our common stock. InAt time of issuance, in accordance with U.S. GAAP, the Convertible2025 Notes arewere accounted for as a liability with a separate equity component recorded for the conversion option. A liabilityThe equity component was recorded foreliminated on January 1, 2022 with the Convertible2025 Notes on the issuance date at fair value based on a discounted cash flow analysis using current market rates for debt instruments with similar terms. The difference between the initial proceeds from the Convertible Notes and the estimated fair value of the debt instruments resulted in a debt discount, with an offset recorded to additional paid-in capital representing the equity component. The discount on the Convertible Notes was approximately $6.1 million at issuance, which represents the cash discount paid of approximately $2.6 million and the approximate $3.5 million attributable to the value of the conversion option recorded in equity, which is being amortized into interest expense through the maturity date of the Convertible Notes. Adjustment.
As of September 30 2017,, 2022, the unamortized debt discount of our Convertible2025 Notes was approximately $3.2 million.$0.4 million, which represents the cash component of the discount.
Long-term debt as of September 30, 2017 and December 31, 2016 consisted of the following: following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| September 30, 2017 |
| December 31, 2016 | ||||||||
|
|
|
|
| Due Within |
|
|
|
| Due Within | ||
|
| Total |
| One Year |
| Total |
| One Year | ||||
Credit Facility |
| $ | 41,000,000 |
| $ | — |
| $ | 34,300,000 |
| $ | — |
Mortgage Note Payable (originated with UBS) |
|
| 7,300,000 |
|
| 7,300,000 |
|
| 7,300,000 |
|
| — |
Mortgage Note Payable (originated with Wells Fargo) |
|
| 30,000,000 |
|
| — |
|
| 30,000,000 |
|
| — |
Mortgage Note Payable (originated with Wells Fargo) |
|
| 25,000,000 |
|
| — |
|
| 25,000,000 |
|
| — |
4.50% Convertible Senior Notes due 2020, net of discount |
|
| 71,769,432 |
|
| — |
|
| 70,880,581 |
|
| — |
Loan Costs, net of accumulated amortization |
|
| (1,417,902) |
|
| — |
|
| (1,235,380) |
|
| — |
Total Long-Term Debt |
| $ | 173,651,530 |
| $ | 7,300,000 |
| $ | 166,245,201 |
| $ | — |
| | | | | | | | | | | | |
| | September 30, 2022 | | December 31, 2021 | ||||||||
|
| Total |
| Due Within One Year |
| Total |
| Due Within One Year | ||||
Credit Facility | | $ | 38,500 | | $ | — | | $ | 67,000 | | $ | — |
2026 Term Loan | | | 65,000 | | | — | | | 65,000 | | | — |
2027 Term Loan | | | 100,000 | | | — | | | 100,000 | | | — |
2028 Term Loan | | | 100,000 | | | — | | | — | | | — |
3.875% Convertible Senior Notes, net of Discount | | | 50,630 | | | — | | | 47,469 | | | — |
Mortgage Note Payable | | | 17,800 | | | — | | | — | | | |
Financing Costs, net of Accumulated Amortization | | | (1,682) | | | — | | | (1,196) | | | — |
Total Long-Term Debt | | $ | 370,248 | | $ | — | | $ | 278,273 | | $ | — |
Payments applicable to reduction of principal amounts as of September 30, 20172022 will be required as follows:
|
|
|
|
|
Year Ending December 31, |
| Amount |
| |
2018 |
|
| 7,300,000 |
|
2019 |
|
| — |
|
2020 |
|
| 75,000,000 |
|
2021 |
|
| 66,000,000 |
|
2022 |
|
| — |
|
Thereafter |
|
| 30,000,000 |
|
Total Long-Term Debt - Face Value |
| $ | 178,300,000 |
|
follows (in thousands):
| | | |
As of September 30, 2022 |
| Amount | |
Remainder of 2022 | | $ | — |
2023 | | | — |
2024 | | | — |
2025 | | | 51,034 |
2026 | | | 121,300 |
2027 | | | 100,000 |
2028 and Thereafter | | | 100,000 |
Total Long-Term Debt - Face Value | | $ | 372,334 |
24
31
The Company intends to repay the $7.3 million Mortgage Note Payable originated with UBS at or prior to its maturity in February 2018 and expects to add the related Hilton income property assets to the borrowing base of the Credit Facility.
The carrying value of long-term debt as of September 30, 20172022 consisted of the following:following (in thousands):
|
|
|
|
|
|
| Total |
| |
Current Face Amount |
| $ | 178,300,000 |
|
Unamortized Discount on Convertible Debt |
|
| (3,230,568) |
|
Loan Costs, net of accumulated amortization |
|
| (1,417,902) |
|
Total Long-Term Debt |
| $ | 173,651,530 |
|
| | | |
|
| Total | |
Current Face Amount | | $ | 372,334 |
Unamortized Discount on Convertible Debt | | | (404) |
Financing Costs, net of Accumulated Amortization | | | (1,682) |
Total Long-Term Debt | | $ | 370,248 |
In addition to the $1.7 million of financing costs, net of accumulated amortization included in the table above, as of September 30, 2022, the Company also had financing costs, net of accumulated amortization related to the Credit Facility of $2.1 million which is included in other assets on the consolidated balance sheets. These costs are amortized on a straight-line basis over the term of the Credit Facility and are included in interest expense in the Company’s accompanying consolidated statements of operations.
The following table reflects a summary of interest expense incurred and paid during the three and nine months ended September 30, 20172022 and 2016:2021 (in thousands):
| | | | | | | | | | | | |
| | Three Months Ended | | Nine Months Ended | ||||||||
| | September 30, 2022 | | September 30, 2021 | | September 30, 2022 | | September 30, 2021 | ||||
Interest Expense | | $ | 2,819 | | $ | 1,544 | | $ | 6,552 | | $ | 5,456 |
Amortization of Deferred Financing Costs | | | 178 | | | 120 | | | 515 | | | 444 |
Amortization of Discount on Convertible Notes | | | 40 | | | 322 | | | 149 | | | 951 |
Total Interest Expense | | $ | 3,037 | | $ | 1,986 | | $ | 7,216 | | $ | 6,851 |
| | | | | | | | | | | | |
Total Interest Paid (1) | | $ | 2,107 | | $ | 964 | | $ | 5,785 | | $ | 4,986 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Three Months |
| Three Months |
| Nine Months |
| Nine Months |
| ||||
|
| Ended |
| Ended |
| Ended |
| Ended |
| ||||
|
| 9/30/2017 |
| 9/30/2016 |
| 9/30/2017 |
| 9/30/2016 |
| ||||
|
| ($000's) |
| ($000's) |
| ($000's) |
| ($000's) |
| ||||
Interest Expense |
| $ | 1,771 |
| $ | 1,684 |
| $ | 5,164 |
| $ | 5,151 |
|
Amortization of Loan Costs |
|
| 125 |
|
| 488 | (1) |
| 350 |
|
| 716 | (1) |
Amortization of Discount on Convertible Notes |
|
| 301 |
|
| 282 |
|
| 889 |
|
| 834 |
|
Capitalized Interest |
|
| (124) |
|
| — |
|
| (124) |
|
| — |
|
Total Interest Expense |
| $ | 2,073 |
| $ | 2,454 |
| $ | 6,279 |
| $ | 6,701 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Interest Paid |
| $ | 2,588 |
| $ | 2,589 |
| $ | 6,026 |
| $ | 6,048 |
|
(1) | Includes capitalized interest of $0.1 million during the three and nine months ended September 30, 2022, with no interest capitalized during the three and nine months ended September 30, 2021. |
(1)Includes approximately $367,000 of unamortized loan costs which were written off and included in interest expense related to the $23.1 million mortgage loan assumed by the buyer upon closing the Portfolio Sale on September 16, 2016.
The Company was in compliance with all of its debt covenants as of September 30, 20172022 and December 31, 2016.2021.
NOTE 13.17. INTEREST RATE SWAPSWAPS
During April 2016, theThe Company has entered into an interest rate swap agreementagreements to hedge against changes in future cash flows tiedresulting from fluctuating interest rates related to changes in the underlying floatingbelow noted borrowings. The interest rate tied to LIBOR for the $25.0 million mortgage note payable as discussed in Note 12, “Long-Term Debt.” Duringagreements were 100% effective during the three and nine months ended September 30, 2017, the interest rate swap agreement was 100% effective.2022. Accordingly, the changechanges in fair value on the interest rate swap hasswaps have been classified in accumulated other comprehensive income. As of September 30, 2017, theThe fair value of ourthe interest rate swap agreement, which was a gain of approximately $410,000, wasagreements are included in other assets and accrued and other liabilities, respectively, on the consolidated balance sheets. TheInformation related to the Company’s interest rate swap was effective on April 7, 2016 and matures on April 7, 2021. The interest rate swap fixed the variable rate debt on the notional amountagreements are noted below (in thousands):
| | | | | | | | | | | | |
Hedged Item (1) | | Effective Date | | Maturity Date | | Rate | | Amount | | Fair Value as of September 30, 2022 | ||
2026 Term Loan | | 3/10/2021 | | 3/29/2024 | | 0.12% + 0.10% + applicable spread | | $ | 50,000 | | $ | 3,024 |
2026 Term Loan | | 3/29/2024 | | 3/10/2026 | | 1.44% + 0.10% + applicable spread | | $ | 50,000 | | $ | 1,993 |
2026 Term Loan | | 8/31/2021 | | 3/10/2026 | | 0.70% + 0.10% + applicable spread | | $ | 15,000 | | $ | 1,570 |
2027 Term Loan | | 11/5/2021 | | 3/29/2024 | | 0.64% + 0.10% + applicable spread | | $ | 100,000 | | $ | 5,299 |
2027 Term Loan | | 3/29/2024 | | 1/31/2027 | | 1.35% + 0.10% + applicable spread | | $ | 100,000 | | $ | 5,756 |
2028 Term Loan | | 9/30/2022 | | 1/31/2028 | | 3.78% + 0.10% + applicable spread | | $ | 50,000 | | $ | (90) |
2028 Term Loan | | 9/30/2022 | | 1/31/2028 | | 3.78% + 0.10% + applicable spread | | $ | 50,000 | | $ | (102) |
(1) | As of September 30, 2022, the Company converted its existing interest rate swaps from 1-month LIBOR to SOFR. |
32
NOTE 14.18. ACCRUED AND OTHER LIABILITIES
Accrued and other liabilities consisted of the following: following (in thousands):
|
|
|
|
|
|
|
| ||||||
|
| As of |
| ||||||||||
|
| September 30, 2017 |
| December 31, |
| ||||||||
Golf Course Lease |
| $ | — |
| $ | 2,226,527 |
| ||||||
| | | | | | | |||||||
| | As of | |||||||||||
|
| September 30, |
| December 31, | |||||||||
Accrued Property Taxes |
|
| 1,570,995 |
|
| 28,973 |
| | $ | 4,194 | | $ | 813 |
Golf $1 Round Surcharge |
|
| 700,000 |
|
| — |
| ||||||
Reserve for Tenant Improvements |
|
| 419,302 |
|
| 398,621 |
| | | 4,501 | | | 5,457 |
Tenant Security Deposits | | | 2,192 | | | 1,942 | |||||||
Accrued Construction Costs |
|
| 967,153 |
|
| 856,947 |
| | | 2,085 | | | 190 |
Accrued Interest |
|
| 358,837 |
|
| 1,220,990 |
| | | 1,314 | | | 431 |
Environmental Reserve and Restoration Cost Accrual |
|
| 969,005 |
|
| 1,505,757 |
| ||||||
Environmental Reserve | | | 67 | | | 81 | |||||||
Cash Flow Hedge - Interest Rate Swaps | | | 192 | | | 26 | |||||||
Operating Leases - Liability | | | 83 | | | 198 | |||||||
Other |
|
| 2,397,606 |
|
| 2,430,082 |
| | | 3,521 | | | 3,983 |
Total Accrued and Other Liabilities |
| $ | 7,382,898 |
| $ | 8,667,897 |
| | $ | 18,149 | | $ | 13,121 |
25
Golf Course Lease. In July 2012, the Company entered into an agreement with the City to, among other things, amend the lease payments under its golf course lease (the “Lease Amendment”). Under the Lease Amendment, the base rent payment, which was scheduled to increase from $250,000 to $500,000 as of September 1, 2012, remained at $250,000 for the remainder of the lease term and any extensions would have been subject to an annual rate increase of 1.75% beginning September 1, 2013. On January 24, 2017, the Company acquired the land and improvements comprising the golf courses, previously leased from the City, for approximately $1.5 million (the “Golf Course Land Purchase”). In conjunction with the Golf Course Land Purchase, the lease between the Company and the City was terminated. Therefore, during the first quarter of 2017, the Company eliminated the remaining accrued liability of approximately $2.2 million, resulting in the recognition of approximately $0.40 per share in non-cash earnings, or $0.24 per share after tax, which comprises the land lease termination in the consolidated statements of operations. The $2.2 million consisted of approximately $1.7 million which reflects the acceleration of the remaining amount of accrued rent that was no longer owed to the City as a result of the Lease Amendment, which prior to the Golf Course Land Purchase was being recognized into income over the remaining lease term which was originally to expire in 2022. The remaining approximately $500,000 reflects the amount of rent accrued pursuant to the lease, as amended, which will no longer be owed to the City due to the lease termination on January 24, 2017.
Golf $1 Round Surcharge. In connection with the Golf Course Land Purchase, each year the Company is obligated to pay the City additional consideration in the amount of an annual surcharge of $1 per golf round played (the “Per-Round Surcharge”) with an annual minimum Per-Round Surcharge of $70,000 and a maximum aggregate amount of the Per-Round Surcharges paid equal to $700,000. The maximum amount of $700,000 represents contingent consideration and has been recorded as an increase in Golf Buildings, Improvements, and Equipment and Accrued and Other Liabilities in the accompany consolidated balance sheets as of September 30, 2017.
Reserve for Tenant Improvements. In connection with the acquisition on April 22, 2014 of the property in Katy, Texas leased to Lowe’s, the Company was credited approximately $651,000 at closing for certain required tenant improvements, some of which were not required to be completed until December 2016. Through December 31, 2016, approximately $100,000 of these tenant improvements had been completed and funded, leaving approximately $551,000 remaining to be funded. The remaining commitment as of December 31, 2016, totaled approximately $381,000, which was equal to the amount of the final reimbursement requestrecent acquisitions, the Company received an aggregate of $7.0 million from Lowe’sthe sellers of certain properties for tenant improvement allowances, leasing commissions and was paid duringother capital improvements. These amounts are included in accrued and other liabilities on the nine months endedconsolidated balance sheets. Through September 30, 2017,2022, payments totaling $2.5 million were made, leaving noa remaining commitment related to the Lowe’s property. In connection with the acquisition on April 28, 2017 of the property in Tampa, Florida leased to LA Fitness, the Company was credited approximately $400,000 at closing for certain tenant improvements. As of September 30, 2017, no amounts have been completed and funded related to the LA Fitness property, which comprises the majority of the approximately $419,000 reserve for tenant improvements.improvements of $4.5 million.
Environmental Reserve. During the year ended December 31, 2014, the Company accrued an environmental reserve of approximately $110,000$0.1 million in connection with an estimate of additional costs required to monitor a parcel of less than one acre of land owned by the Company in Highlands County, Florida, on which environmental remediation work had previously been performed. The Company engaged legal counsel who, in turn, engaged environmental engineers to review the site and the prior monitoring test results. During the year ended December 31, 2015, their review was completed, and the Company made an additional accrual of approximately $500,000,$0.5 million, representing the low end of the range of possible costs estimated by the engineers to be between approximately $500,000$0.5 million and $1.0 million to resolve this matter subject to the approval of the state department of environmental protection (the “FDEP”). The FDEP issued a Remedial Action Plan Modification Approval Order (the “FDEP Approval”) in August 2016 which supports the approximate $500,000$0.5 million accrual made in 2015. The Company is implementing the remediation plan pursuant to the FDEP Approval. During the fourth quarter of 2017, the Company made an additional accrual of less than $0.1 million for the second year of monitoring as the low end of the original range of estimated costs was increased for the amount of monitoring now anticipated. Since the total accrual of approximately $610,000$0.7 million was made, approximately $482,000$0.6 million in costs have been incurred through September 30, 2017,2022, leaving a remaining accrual of approximately $129,000.less than $0.1 million.
Restoration Accrual. As part of the resolution of a regulatory matter pertaining to the Company’s prior agricultural activities on certain of the Company’s land located in Daytona Beach, Florida, as of December 31, 2015, the Company accrued an obligation of approximately $1.7 million, representing the low end of the estimated range of possible wetlands restoration costs for approximately 148.4 acres within such land, and such estimated costs were included on the consolidated balance sheets as an increase in the basis of our land and development costs associated with those and benefitting surrounding acres. The final proposal for restoration work was received during the second quarter of 2016 which totaled approximately $2.0 million. Accordingly, an increase in the accrual of approximately $300,000 was recorded during the second quarter of 2016. The Company funded approximately $1.2 million of the total $2.0 million of
26
estimated costs through the period ended September 30, 2017, leaving a remaining accrual of approximately $840,000. This matter is more fully described in Note 18 “Commitments and Contingencies.”
NOTE 15.19. DEFERRED REVENUE
Deferred revenue consisted of the following:following (in thousands):
|
|
|
|
|
|
|
| ||||||
|
| As of |
| ||||||||||
|
| September 30, 2017 |
| December 31, |
| ||||||||
Deferred Oil Exploration Lease Revenue |
| $ | — |
| $ | 585,674 |
| ||||||
| | | | | | | |||||||
| | As of | |||||||||||
|
| September 30, |
| December 31, | |||||||||
Prepaid Rent |
|
| 978,160 |
|
| 1,068,972 |
| | $ | 3,472 | | $ | 3,921 |
Interest Reserve from Commercial Loans and Investments | | | 1,327 | | | — | |||||||
Tenant Contributions | | | 535 | | | 574 | |||||||
Other Deferred Revenue |
|
| 334,865 |
|
| 337,020 |
| | | 506 | | | 10 |
Total Deferred Revenue |
| $ | 1,313,025 |
| $ | 1,991,666 |
| | $ | 5,840 | | $ | 4,505 |
On September 20, 2016, the Company received an approximate $807,000 rent payment for the sixth year
Interest Reserve fromCommercial Loans and Investments. In connection with three of the Company’s thirteen-year oil exploration lease, which was being recognized ratably overcommercial loan investments, the twelve-month lease period endingborrower has deposited interest reserves in September 2017. Duringaccounts held by the three months ended September 30, 2017,Company. Those accounts balances are included in restricted cash on the oil exploration lease was extended to September 22, 2018, however,Company’s consolidated balance sheets with the related lease paymentcorresponding liability recorded in
33
deferred revenue as seen above. Pursuant to each respective agreement, interest reserves are either (i) utilized to fund the monthly interest due on the loan or (ii) maintained throughout the term of September 30, 2017. The oil exploration lease is more fully described in Note 4 “Land and Subsurface Interests.”the loan.
NOTE 16.20. STOCK-BASED COMPENSATION
SUMMARY OF STOCK-BASED COMPENSATION
A summary of share activity for all equity and liability classified stock compensation during the nine months ended September 30, 2017,2022, is presented below:below. As described in Note 13, “Equity” all share counts herein have been retroactively adjusted for the three-for-one stock split effective July 1, 2022.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Shares |
|
|
| Vested / |
|
|
|
|
| Shares |
|
| Outstanding |
| Granted |
| Exercised |
| Expired |
| Forfeited |
| Outstanding |
Type of Award |
| at 1/1/2017 |
| Shares |
| Shares |
| Shares |
| Shares |
| at 9/30/2017 |
Equity Classified - Performance Share Awards - Peer Group Market Condition Vesting |
| — |
| 12,635 |
| — |
| — |
| — |
| 12,635 |
Equity Classified - Market Condition Restricted Shares - Stock Price Vesting |
| 69,500 |
| — |
| — |
| (32,000) |
| — |
| 37,500 |
Equity Classified - Three Year Vest Restricted Shares |
| 37,504 |
| 17,451 |
| (17,298) |
| — |
| (267) |
| 37,390 |
Equity Classified - Non-Qualified Stock Option Awards |
| 113,500 |
| — |
| (23,500) |
| — |
| — |
| 90,000 |
Liability Classified - Stock Options and Stock Appreciation Rights |
| 11,000 |
| — |
| — |
| (5,000) |
| — |
| 6,000 |
Total Shares |
| 231,504 |
| 30,086 |
| (40,798) |
| (37,000) |
| (267) |
| 183,525 |
| | | | | | | | | | | | | | | | | | |
Type of Award |
| Shares Outstanding at 1/1/2022 |
| Granted Shares | | Vested / Exercised Shares | | Expired Shares | | Forfeited Shares |
| Shares Outstanding at 9/30/22 | ||||||
Equity Classified - Performance Share Awards - Peer Group Market Condition Vesting | | | 234,354 | | | 69,168 | | | (73,275) | | | — | | | — | | | 230,247 |
Equity Classified - Three Year Vest Restricted Shares | | | 154,509 | | | 137,448 | | | (72,465) | | | — | | | (7,413) | | | 212,079 |
Equity Classified - Non-Qualified Stock Option Awards | | | 64,623 | | | — | | | (64,623) | | | — | | | — | | | — |
Total Shares | | | 453,486 | | | 206,616 | | | (210,363) | | | — | | | (7,413) | | | 442,326 |
Amounts recognized in the financial statements for stock-based compensation are as follows (in thousands):
| | | | | | | | | | | | |
| | Three Months Ended | | Nine Months Ended | ||||||||
|
| September 30, 2022 |
| September 30, 2021 |
| September 30, 2022 |
| September 30, 2021 | ||||
Total Cost of Share-Based Plans Charged Against Income Before Tax Effect | | $ | 812 | | $ | 734 | | $ | 2,423 | | $ | 2,434 |
EQUITY-CLASSIFIED STOCK COMPENSATION
Performance Share Awards – Peer Group Market Condition Vesting
On February 3, 2017, the Company awardedPerformance shares have been granted to certain employees 12,635 Performance Shares under the Amended and Restated 2010 Equity Incentive Plan (the “2010 Plan”).Plan. The Performance Sharesperformance share awards entitle the recipient to receive, upon the vesting thereof, shares of common stock of the Company equal to between 0% and 150% of the number of Performance Sharesperformance shares awarded. The number of shares of common stock so vesting will beultimately received by the award recipient is determined based on the Company’s total shareholderstockholder return as compared to the total shareholderstockholder return of a certain peer group during a three-year performance period commencing on January 1, 2017 and ending on December 31, 2019.period. The Company granted a total of 69,168 performance shares during the nine months ended September 30, 2022.
The Company used a Monte Carlo simulation pricing model to determine the fair value of its awards that are based on market conditions. The determination of the fair value of market condition-based awards is affected by the Company’s stock price as well as assumptions regarding a number of other variables. These variables include expected stock price volatility over the requisite performance term of the awards, the relative performance of the Company’s stock price and shareholderstockholder returns to companies in its peer group, annual dividends, and a risk-free interest rate assumption. Compensation cost is recognized regardless of the achievement of the market conditions, provided the requisite service period is met.
27
A summary of activity during the nine months ended September 30, 2017, is presented below:
|
|
|
|
|
|
|
|
|
| Wtd. Avg. | |
Performance Shares with Market Conditions |
| Shares |
| Fair Value | |
Outstanding at January 1, 2017 |
| — |
| $ | — |
Granted |
| 12,635 |
|
| 55.66 |
Vested |
| — |
|
| — |
Expired |
| — |
|
| — |
Forfeited |
| — |
|
| — |
Outstanding at September 30, 2017 |
| 12,635 |
| $ | 55.66 |
|
|
|
|
|
|
As of September 30, 2017,2022, there was approximately $527,000$1.8 million of unrecognized compensation cost, adjusted for estimated forfeitures, related to Performance Sharethe non-vested performance share awards, which will be recognized over a remaining weighted average period of 2.31.8 years.
Effective as of August 4, 2017, the Company entered into amendments to the employment agreements and certain stock option award agreements and restricted share award agreements whereby such awards will fully vest following a change in control (as defined in the executive’s employment agreement) only if the executive’s employment is terminated without cause or if the executive resigns for good reason (as such terms are defined in the executive’s employment agreement), in each case, at any time during the 24-month period following the change in control.
Market Condition Restricted Shares – Stock Price Vesting
“Inducement” grants of 96,000 and 17,000 shares of restricted Company common stock were awarded to Mr. Albright and Mr. Patten in 2011 and 2012, respectively. Mr. Albright’s restricted shares were granted outside of the 2010 Plan while Mr. Patten’s restricted shares were awarded under the 2010 Plan. The Company filed a registration statement with the Securities and Exchange Commission on Form S-8 to register the resale of Mr. Albright’s restricted stock under this award. The restricted shares vest in six increments based upon the price per share of the Company’s common stock during the term of their employment (or within sixty days after termination of employment by the Company without cause) meeting or exceeding the target trailing sixty-day average closing prices ranging from $36 per share for the first increment to $65 per share for the final increment. If any increment of the restricted shares fails to satisfy the applicable stock price condition prior to six years from the grant date, that increment of the restricted shares will be forfeited. As of September 30, 2017, four increments of Mr. Albright’s and Mr. Patten’s awards had vested. On August 1, 2017, the remaining 32,000 unvested “inducement” grant restricted shares, for the $60 and $65 price increments, awarded to Mr. Albright in 2011 expired without vesting.
Additional grants of 2,500 and 3,000 shares of restricted Company common stock were awarded to Mr. Smith and another officer under the 2010 Plan, during the fourth quarter of 2014 and the first quarter of 2015, respectively. The restricted stock will vest in two increments based upon the price per share of Company common stock during the term of their employment (or within sixty days after termination of employment by the Company without cause), meeting or exceeding the target trailing sixty-day average closing prices of $60 per share and $65 per share for the two increments. If any increment of the restricted shares fails to satisfy the applicable stock price condition prior to six years from the grant date, that increment of the restricted shares will be forfeited. As of September 30, 2017, no increments of Mr. Smith’s or the other officer’s awards had vested.
A grant of 94,000 shares of restricted Company common stock was awarded to Mr. Albright under the 2010 Plan during the second quarter of 2015 under a new five-year employment agreement. On February 26, 2016, 72,000 of these shares were surrendered due to an over-grant by the Company, of which 4,000 were re-granted on February 26, 2016 with identical terms of the surrendered restricted stock and 68,000 were permanently surrendered. The 26,000 shares of restricted Company common stock outstanding from these grants will vest in four increments based upon the price per share of Company common stock during the term of his employment (or within sixty days after termination of employment by the Company without cause), meeting or exceeding the target trailing thirty-day average closing prices ranging from $60 and $65 per share for the first two increments of 2,000 shares each, $70 per share for the third increment of 18,000 shares, and $75 per share for the fourth increment of 4,000 shares. If any increment of the restricted shares fails to satisfy the applicable stock price condition prior to January 28, 2021, that increment of the restricted shares will be forfeited. As of September 30, 2017, no increments of this award had vested.
28
34
Pursuant to amendments to the employment agreements and certain restricted share award agreements entered into by the Company on February 26, 2016 and August 4, 2017, the restricted shares granted thereunder, if they are subject to performance-based vesting conditions, will fully vest following a change in control only if the executive’s employment is terminated without cause or if the executive resigns for good reason (as such terms are defined in the executive’s employment agreement), in each case, at any time during the 24-month period following the change in control (as defined in the executive’s employment agreement).
The Company used a Monte Carlo simulation pricing model to determine the fair value of its awards that are based on market conditions. The determination of the fair value of market condition-based awards is affected by the Company’s stock price as well as assumptions regarding a number of other variables. These variables include expected stock price volatility over the requisite performance term of the awards, the relative performance of the Company’s stock price and shareholder returns to companies in its peer group, annual dividends, and a risk-free interest rate assumption. Compensation cost is recognized regardless of the achievement of the market conditions, provided the requisite service period is met.
A summary of the activity for these awards during the nine months ended September 30, 2017,2022 is presented below:
|
|
|
|
|
|
|
|
|
|
| Wtd. Avg. |
| |
Market Condition Non-Vested Restricted Shares |
| Shares |
| Fair Value |
| |
Outstanding at January 1, 2017 |
| 69,500 |
| $ | 27.03 |
|
Granted |
| — |
|
| — |
|
Vested |
| — |
|
| — |
|
Expired |
| (32,000) |
|
| 14.08 |
|
Forfeited |
| — |
|
| — |
|
Outstanding at September 30, 2017 |
| 37,500 |
| $ | 38.09 |
|
As of September 30, 2017, there is no unrecognized compensation cost related to market condition restricted stock.
Three Year Vest
| | | | | | |
Performance Shares With Market Conditions |
| Shares | | Wtd. Avg. Fair Value Per Share | ||
Non-Vested at January 1, 2022 | | | 234,354 | | $ | 15.67 |
Granted | | | 69,168 | | $ | 20.76 |
Vested | | | (73,275) | | $ | 16.76 |
Expired | | | — | | | — |
Forfeited | | | — | | | — |
Non-Vested at September 30, 2022 | | | 230,247 | | $ | 16.85 |
Restricted Shares
On January 22, 2014, the CompanyRestricted shares have been granted to certain employees 14,500 shares of restricted Company common stock under the 2010 Plan. One-thirdCertain of the restricted shares vest on each of the first, second, and third anniversaries of January 28 of the grant date,applicable year provided the grantee is an employee of the Company on those dates. Certain other restricted share awards, granted on July 1, 2022, vest entirely on the third anniversary of the grant date, or July 1, 2025, provided the grantee is an employee of the Company on that date. In addition, any unvested portion of the restricted shares will vest upon a change in control.
On January 28, 2015, the The Company granted to certain employees, which did not include Mr. Albright, 11,700a total of 137,448 shares of restricted Company common stock under the 2010 Plan. Additionally, on February 9, 2015, the Company granted 8,000 shares of restricted Company common stock to Mr. Albright under the 2010 Plan. One-third of both awards of restricted shares will vest on each of the first, second, and third anniversaries of the January 28, 2015 grant date, provided the grantee is an employee of the Company on those dates. In addition, any unvested portion of the restricted shares will vest upon a change in control.
On January 27, 2016, the Company granted to certain employees 21,100 shares of restricted Company common stock under the 2010 Plan. One-third of the restricted shares will vest on each of the first, second, and third anniversaries of January 28, 2016, provided the grantee is an employee of the Company on those dates. In addition, any unvested portion of the restricted shares will vest upon a change in control.
On January 25, 2017, the Company granted to certain employees 17,451 shares of restricted Company common stock under the 2010 Plan. One-third of the restricted shares will vest on each of the first, second, and third anniversaries of January 28, 2017 provided the grantee is an employee of the Company on those dates. In addition, any unvested portion of the restricted shares will vest upon a change in control.
Effective as of August 4, 2017, the Company entered into amendments to the employment agreements and certain stock option award agreements and restricted share award agreements whereby such awards will fully vest following a change in control (as defined in the executive’s employment agreement) only if the executive’s employment is terminated without cause or if the executive resigns for good reason (as such terms are defined in the executive’s employment agreement), in each case, at any time during the 24-month period following the change in control.
29
nine months ended September 30, 2022.
The Company’s determination of the fair value of the three year vest restricted stock awards was calculated by multiplying the number of shares issued by the Company’s stock price at the grant date, less the present value of expected dividends during the vesting period.date. Compensation cost is recognized on a straight-line basis over the applicable vesting period.
A summary of activity during the nine months ended September 30, 2017, is presented below:
|
|
|
|
|
|
|
|
|
|
| Wtd. Avg. |
| |
|
|
|
| Fair Value |
| |
Three Year Vest Non-Vested Restricted Shares |
| Shares |
| Per Share |
| |
Outstanding at January 1, 2017 |
| 37,504 |
| $ | 47.53 |
|
Granted |
| 17,451 |
|
| 55.06 |
|
Vested |
| (17,298) |
|
| 46.70 |
|
Expired |
| — |
|
| — |
|
Forfeited |
| (267) |
|
| 52.51 |
|
Outstanding at September 30, 2017 |
| 37,390 |
| $ | 51.39 |
|
As of September 30, 2017,2022, there was approximately $1.3$3.0 million of unrecognized compensation cost, adjusted for estimated forfeitures, related to the three year vest non-vested restricted shares,share awards, which will be recognized over a remaining weighted average period of 1.82.2 years.
A summary of the activity for these awards during the nine months ended September 30, 2022 is presented below:
| | | | | | |
Non-Vested Restricted Shares |
| Shares |
| Wtd. Avg. Fair Value Per Share | ||
Non-Vested at January 1, 2022 | | | 154,509 | | $ | 14.96 |
Granted | | | 137,448 | | $ | 19.72 |
Vested | | | (72,465) | | $ | 14.96 |
Expired | | | — | | | — |
Forfeited | | | (7,413) | | $ | 17.01 |
Non-Vested at September 30, 2022 | | | 212,079 | | $ | 17.97 |
Non-Qualified Stock Option Awards
Pursuant
Stock option awards have been granted to the Non-Qualified Stock Option Award Agreements between the Company and Messrs. Albright, Patten, and Smith, each of these Companycertain employees was granted an option to purchase 50,000, 10,000, and 10,000 shares of Company common stock, in 2011, 2012, and 2014, respectively, under the 2010 Plan, with an exercise price per share equal to the fair market value on their respective grant dates. One-thirdPlan. The vesting period of the options will vest on eachawards granted ranged from a period of the first, second, and third anniversariesone to three years. All options had vested as of their respective grant dates, provided the recipient is an employee of the Company on those dates. In addition, any unvested portion of the options will vest upon a change in control.December 31, 2018. The options expireoption expires on the earliest of: (a) the tenth anniversary of the grant date; (b) twelve months after the employee’s death or termination for disability; or (c) thirty days after the termination of employment for any reason other than death or disability.
On January 23, 2013, the Company granted options to purchase 51,000 shares of the Company’s common stock under the 2010 Plan to certain employees of the Company, including 10,000 shares to Mr. Patten, with an exercise price per share equal to the fair market value at the date of grant. One-third of these options vested on each of the first, second, and third anniversaries of the grant date, provided the recipient was an employee of the Company on those dates. The options expire on the earliest of: (a) the fifth anniversary of the grant date; (b) twelve months after the employee’s death or termination for disability; or (c) thirty days after the termination of employment for any reason other than death or disability.
On February 9, 2015, the Company granted to Mr. Albright an option to purchase 20,000 shares of the Company’s common stock under the 2010 Plan with an exercise price of $57.50. The option vested on January 28, 2016. The option expires on the earliest of: (a) January 28, 2025; (b) twelve months after the employee’s death or termination for disability; or (c) thirty days after the termination of employment for any reason other than death or disability.
On May 20, 2015, the Company granted to Mr. Albright an option to purchase 40,000 shares of the Company’s common stock under the 2010 Plan, with an exercise price of $55.62. On February 26, 2016, this option was surrendered and an option to purchase 40,000 shares was granted on February 26, 2016 with identical terms. One-third of the option vested immediately and the remaining two-thirds will vest on January 28, 2017 and January 28, 2018, provided he is an employee of the Company on such dates. In addition, any unvested portion of the option will vest upon a change in control. The option expires on the earliest of: (a) January 28, 2025; (b) twelve months after the employee’s death or termination for disability; or (c) thirty days after the termination of employment for any reason other than death or disability.
On June 29, 2015, the Company granted to an officer of the Company an option to purchase 10,000 shares of the Company’s common stock under the 2010 Plan, with an exercise price of $57.54. One-third of the option will vest on each of the first, second, and third anniversaries of the grant date, provided the recipient is an employee of the Company on such dates. In addition, any unvested portion of the option will vest upon a change in control. The option expires on
30
the earliest of: (a) June 29, 2025; (b) twelve months after the employee’s death or termination for disability; or (c) thirty days after the termination of employment for any reason other than death or disability.
Effective as of August 4, 2017, the Company entered into amendments to the employment agreements and certain stock option award agreements and restricted share award agreements whereby such awards will fully vest following a change in control (as defined in the executive’s employment agreement) only if the executive’s employment is terminated without cause or if the executive resigns for good reason (as such terms are defined in the executive’s employment agreement), in each case, at any time during the 24-month period following the change in control.
The Company used the Black-Scholes valuation pricing model to determine the fair value of its non-qualified stock option awards. The determination of the fair value of the awards is affected by the stock price as well as assumptions regarding a number of other variables. These variables include expected stock price volatility over the term of the awards, annual dividends, and a risk-free interest rate assumption.
35
A summary of the activity for the awards during the nine months ended September 30, 2017, is presented below:
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|
|
| Wtd. Avg. |
|
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|
|
|
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|
|
| Remaining |
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|
|
|
|
|
|
|
|
|
| Contractual |
|
| Aggregate |
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|
|
|
| Wtd. Avg. |
| Term |
|
| Intrinsic |
| |
Non-Qualified Stock Option Awards |
| Shares |
| Ex. Price |
| (Years) |
|
| Value |
| |
Outstanding at January 1, 2017 |
| 113,500 |
| $ | 49.03 |
|
|
|
|
|
|
Granted |
| — |
|
| — |
|
|
|
|
|
|
Exercised |
| (23,500) |
|
| 34.95 |
|
|
|
|
|
|
Expired |
| — |
|
| — |
|
|
|
|
|
|
Forfeited |
| — |
|
| — |
|
|
|
|
|
|
Outstanding at September 30, 2017 |
| 90,000 |
| $ | 52.71 |
| 7.23 |
| $ | 662,700 |
|
Exercisable at January 1, 2017 |
| 76,600 |
| $ | 45.94 |
| 5.75 |
| $ | 573,181 |
|
Exercisable at September 30, 2017 |
| 69,600 |
| $ | 52.03 |
| 7.13 |
| $ | 559,340 |
|
A summary of the non-vested options for these awards during the nine months ended September 30, 2017,2022 is presented below:
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| Fair Value |
| |
|
|
|
| of Shares |
| |
Non-Qualified Stock Option Awards |
| Shares |
| Vested |
| |
Non-Vested at January 1, 2017 |
| 36,900 |
|
|
|
|
Granted |
| — |
|
|
|
|
Vested |
| (16,500) |
| $ | 924,066 |
|
Expired |
| — |
|
|
|
|
Forfeited |
| — |
|
|
|
|
Non-Vested at September 30, 2017 |
| 20,400 |
|
|
|
|
No options were granted during the nine months ended September 30, 2017.
| | | | | | | | | | | | |
Non-Qualified Stock Option Awards |
| | Shares |
| Wtd. Avg. Ex. Price |
| Wtd. Avg. Remaining Contractual Term (Years) | | Aggregate Intrinsic Value | |||
Outstanding at January 1, 2022 | | | 64,623 | | $ | 14.46 | | | | | | |
Granted | | | — | | | — | | | | | | |
Exercised | | | (64,623) | | $ | 14.46 | | | | | | |
Expired | | | — | | | — | | | | | | |
Forfeited | | | — | | | — | | | | | | |
Outstanding at September 30, 2022 | | | — | | $ | — | | | — | | $ | — |
Exercisable at January 1, 2022 | | | 64,623 | | $ | 14.46 | | | 3.21 | | $ | 388,837 |
Exercisable at September 30, 2022 | | | — | | $ | — | | | — | | $ | — |
The total intrinsic value of options exercised during the nine months ended September 30, 2017 was approximately $451,000. As2022 totaled $0.4 million. No unexercised options remained as of September 30, 2017, there was approximately $141,0002022.
NON-EMPLOYEE DIRECTOR STOCK COMPENSATION
Each member of unrecognized compensation relatedthe Company’s Board of Directors has the option to non-qualified, non-vestedreceive his or her annual retainer and meeting fees in shares of Company common stock option awards, which will be recognized over a remaining weightedrather than cash. The number of shares awarded to the directors making such election is calculated quarterly by dividing (i) the sum of (A) the amount of the quarterly retainer payment due to such director plus (B) meeting fees earned by such director during the quarter, by (ii) the trailing 20-day average period of 0.6 years.
LIABILITY-CLASSIFIED STOCK COMPENSATION
The Company previously had a stock option plan (the “2001 Plan”) pursuant to which 500,000 sharesprice of the Company’s common stock were eligible for issuance. The 2001 Plan expired in 2010, and no new stock options may be issued underas of the 2001 Plan. Underdate two business days prior to the 2001 Plan, both stock options and stock appreciation rights were issued in prior years and such issuances were deemed to be liability-classified awards under the Share-Based Payment Topicdate of FASB ASC, which are required to be remeasured at fair value at each balance sheet date until the award, rounded down to the nearest whole number of shares.
Each non-employee director serving as of the beginning of each calendar year shall receive an annual award of the Company’s common stock. The value of such award totaled $35,000 for the years ended December 31, 2022 and 2021 (the “Annual Award”). The number of shares awarded is settled. calculated based on the trailing 20-day average price of the Company’s common stock as of the date two business days prior to the date of the award, rounded down to the nearest whole number of shares. Commencing in 2021, non-employee directors will no longer receive meeting fees, but will receive additional retainers for service on Board committees, as set forth in the Company’s Non-Employee Director Compensation Policy available on the Company’s website (www.ctoreit.com).
31
A summary of share option activity under the 2001 Plan forDuring the nine months ended September 30, 2017 is presented below:
Stock Options
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| Wtd. Avg. |
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| Remaining |
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|
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|
|
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| Contractual |
| Aggregate |
| |
|
|
|
| Wtd. Avg. |
| Term |
| Intrinsic |
| ||
Liability-Classified Stock Options |
| Shares |
| Ex. Price |
| (Years) |
| Value |
| ||
Outstanding at January 1, 2017 |
| 11,000 |
|
| 63.87 |
|
|
|
|
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|
Granted |
| — |
|
| — |
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|
|
|
|
Exercised |
| — |
|
| — |
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|
|
|
|
|
Expired |
| (5,000) |
|
| 77.25 |
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|
|
|
Forfeited |
| — |
|
| — |
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|
|
|
|
|
Outstanding at September 30, 2017 |
| 6,000 |
| $ | 52.73 |
| 0.32 |
| $ | 44,040 |
|
Exercisable at September 30, 2017 |
| 6,000 |
| $ | 52.73 |
| 0.32 |
| $ | 44,040 |
|
In connection with2022 and 2021, the grant of non-qualified stock options, a stock appreciation rightexpense recognized for each share covered by the option was also granted. The stock appreciation right entitles the optionee to receive a supplemental payment, which may be paid in whole or in part in cash or in shares of common stock, equal to a portion of the spread between the exercise price and the fair market value of the underlyingCompany’s common stock received by non-employee directors totaled $0.4 million, or 21,400 shares atand $0.4 million, or 26,586 shares, respectively. The expense recognized includes the timeAnnual Award received during the first quarter of exercise. No options were exercisedeach respective year, which totaled $0.2 million during each of the nine months ended September 30, 2017.2022 and 2021.
Stock Appreciation Rights
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| Wtd. Avg. |
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| Remaining |
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| Contractual |
| Aggregate |
| |
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|
|
| Wtd. Avg. |
| Term |
| Intrinsic |
| ||
Liability-Classified Stock Appreciation Rights |
| Shares |
| Fair Value |
| (Years) |
| Value |
| ||
Outstanding at January 1, 2017 |
| 11,000 |
|
| 1.33 |
|
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|
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|
|
Granted |
| — |
|
| — |
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|
|
|
|
|
Exercised |
| — |
|
| — |
|
|
|
|
|
|
Expired |
| (5,000) |
|
| — |
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|
|
|
|
|
Forfeited |
| — |
|
| — |
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|
|
|
|
|
Outstanding at September 30, 2017 |
| 6,000 |
| $ | 4.08 |
| 0.32 |
| $ | 23,714 |
|
Exercisable at September 30, 2017 |
| 6,000 |
| $ | 4.08 |
| 0.32 |
| $ | 23,714 |
|
No stock appreciation rights were exercised during the nine months ended September 30, 2017.NOTE 21. INCOME TAXES
The fair valueCompany elected to be taxed as a REIT for U.S. federal income tax purposes under the Code commencing with its taxable year ended December 31, 2020. The Company believes that, commencing with such taxable year, it has been organized and has operated in such a manner as to qualify for taxation as a REIT under the U.S. federal income tax laws. The Company intends to continue to operate in such a manner. As a REIT, the Company will be subject to U.S. federal and state income taxation at corporate rates on its net taxable income; the Company, however, may claim a deduction for the amount of each share optiondividends paid to its stockholders. Amounts distributed as dividends by the Company will be subject to taxation at the stockholder level only. While the Company must distribute at least 90% of its REIT taxable income, determined without regard to the dividends paid deduction and stock appreciation rightexcluding any net capital gain, to qualify as a REIT, the Company intends to distribute all of its net taxable income. The Company is estimatedallowed certain other non-cash deductions or adjustments, such as depreciation expense, when computing its REIT taxable income and distribution requirement. These deductions permit the Company to reduce its dividend payout requirement under U.S. federal income tax laws. Certain states may impose minimum franchise taxes. To comply with certain REIT requirements, the Company holds certain of its non-REIT assets and operations through TRSs and subsidiaries of TRSs, which will be subject to applicable U.S. federal,
36
state and local corporate income tax on their taxable income. For the measurement date usingperiods presented, the Black-Scholes option pricing model based on assumptions noted in the following table. Expected volatility is based on the historical volatilityCompany held a total of two TRSs subject to taxation. The Company’s TRSs will file tax returns separately as C-Corporations.
As a result of the Company’s share price and other factors. The Company has elected to use the simplified method of estimating the expected term of the options and stock appreciation rights.
Due to the small number of employees included in the 2001 Plan, the Company uses the specific identification method to estimate forfeitures and includes all participants in one group. The risk-free rate for periods within the contractual term of the share option is based on the United States Treasury rates in effect at the time of measurement. The Company issues new, previously unissued, shares as options are exercised.
Following are assumptions used in determining the fair value of stock options and stock appreciation rights:
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|
|
|
|
|
Assumptions at: |
| September 30, 2017 |
|
| December 31, |
|
|
Expected Volatility |
| 14.70 | % |
| 14.13 | % |
|
Expected Dividends |
| 0.27 | % |
| 0.22 | % |
|
Expected Term |
| 0.32 | years |
| 0.61 | years |
|
Risk-Free Rate |
| 1.06 | % |
| 0.66 | % |
|
32
There were no stock options or stock appreciation rights granted under the 2001 Plan during the nine months ended September 30, 2017 or 2016. The liability for stock options and stock appreciation rights, valued at fair value, reflected on the consolidated balance sheets at September 30, 2017 and December 31, 2016, was approximately $70,000 and $42,000, respectively. These fair value measurements are based on Level 2 inputs based on Black-Scholes and market implied volatility. The Black-Scholes determination of fair value is affected by variables including stock price, expected stock price volatility over the term of the awards, annual dividends, and a risk-free interest rate assumption.
Amounts recognized in the consolidated financial statements for stock options, stock appreciation rights, and restricted stock are as follows:
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|
| Three Months Ended |
| Nine Months Ended | ||||||||
|
| September 30, |
| September 30, |
| September 30, |
| September 30, | ||||
Accelerated Charge for Stock-Based Compensation |
| $ | — |
| $ | — |
| $ | — |
| $ | 1,649,513 |
Recurring Charge for Stock-Based Compensation |
|
| 398,925 |
|
| 401,967 |
|
| 1,142,090 |
|
| 1,244,076 |
Total Cost of Share-Based Plans Charged Against Income Before Tax Effect |
| $ | 398,925 |
| $ | 401,967 |
| $ | 1,142,090 |
| $ | 2,893,589 |
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|
Income Tax Expense Recognized in Income |
| $ | (150,283) |
| $ | (155,059) |
| $ | (286,676) |
| $ | (1,116,202) |
NOTE 17. INCOME TAXES
The Company’s effective income tax rate was 38.7% and 43.7% for the nine months ended September 30, 2017 and 2016, respectively. The provision for income taxes reflects the Company’s estimate of the effective rate expectedelection to be applicable for the full fiscal year, adjusted for any discrete events, which are reported in the period that they occur.
During the third quarter of 2017, 32,000 shares of restricted Company common stock expired, which constitutedtaxed as a discrete event in which the total related stock compensation expense charged to earnings under GAAP of approximately $451,000, became permanently non-deductible for tax purposes as the expired shares will not vest. Accordingly, no income tax benefit was recorded related to the $451,000 of stock compensation expense.
During the first quarter of 2016, 68,000 shares of restricted Company common stock were permanently surrendered, which constituted a discrete event in which the total related stock compensation expense charged to earnings under GAAP of approximately $2.3 million, of which approximately $1.6 million was recognized during the first quarter of 2016 and approximately $676,000 was recognizedREIT, during the year ended December 31, 2015, became permanently non-deductible for tax purposes as the surrendered shares will not vest. Accordingly, no income2020, an $82.5 million deferred tax benefit was recorded to de-recognize the deferred tax assets and liabilities associated with the entities included in the REIT. A significant portion of the deferred tax benefit recognized related to the approximately $2.3 millionde-recognition of stock compensation expense.
deferred tax liabilities resulting from Internal Revenue Code Section 1031 like-kind exchanges (“1031 Exchanges”). The Company fileswill be subject to corporate income taxes related to assets held by it that are sold during the 5-year period following the date of conversion to the extent such sold assets had a consolidated income tax return in the United States Federal jurisdiction and the statesbuilt-in gain as of Arizona, Colorado, California, Florida, Illinois, Georgia, Maryland, Massachusetts, North Carolina, Texas, and Washington. The Internal Revenue Service has audited the federal tax returns through the year 2012, with all proposed adjustments settled. The Florida Department of Revenue has audited the Florida tax returns through the year 2014, with all proposed adjustments settled.January 1, 2020. The Company recognizes all potential accrued interest and penaltieshas disposed of certain, primarily single-tenant, REIT assets after the REIT conversion within the 5-year period. All such sales were completed using 1031 Exchanges or other deferred tax structures to unrecognizedmitigate the built-in gain tax benefits in income tax expense.liability of conversion.
NOTE 18.22. COMMITMENTS AND CONTINGENCIES
Legal Proceedings
From time to time, the Company may be a party to certain legal proceedings, incidental to the normal course of its business. While the outcome of the legal proceedings cannot be predicted with certainty, the Company does not expect that these proceedings will have a material effect upon our financial condition or results of operations.
On November 21, 2011, the Company, Indigo Mallard Creek LLC and Indigo Development LLC, as owners of the property leased to Harris Teeter, Inc. (“Harris Teeter”) in Charlotte, North Carolina, were served with pleadings filed in the General Court of Justice, Superior Court Division for Mecklenburg County, North Carolina, for a highway condemnation action involving this property. The proposed road modifications would impact access to the property. The Company does not believe the road modifications provided a basis for Harris Teeter to terminate the Lease. Regardless, in January 2013, the North Carolina Department of Transportation (“NCDOT”) proposed to redesign the road
33
modifications to keep the all access intersection open for ingress with no change to the planned limitation on egress to the right-in/right-out only. Additionally, NCDOT and the City of Charlotte proposed to build and maintain a new access road/point into the property. Construction has begun and is not expected to be completed before mid-2018. Harris Teeter has expressed satisfaction with the redesigned project and indicated that it will not attempt to terminate its lease if this project is built as currently redesigned. Because the redesigned project will not be completed until late 2017 to mid-2018, the condemnation case has been placed in administrative closure. As a result, the trial and mediation will not likely be scheduled until requested by the parties, most likely in late 2018.
Contractual Commitments – Expenditures
In conjunction with the Company’s sale of approximately 3.4 acres of land to RaceTrac in December 2013, the
The Company agreed to reimburse RaceTrac for a portion of the costs for road improvements and the other costs associated with bringing multiple ingress/egress points to the entire 23-acre Williamson Crossing site, including the Company’s remaining 19.6 acres. The estimated cost for the improvements equals approximately $1.26 million and the Company’s commitment is to reimburse RaceTrac in an amount equal to the lesser of 77.5% of the actual costs or $976,500. The Company’s commitmenthas committed to fund the improvement costs benefiting the remaining acres of Company land can be paid over five years from sales of the remaining land or at the end of the fifth year. In 2013 the Company deposited $283,500 of cash in escrowfollowing capital improvements. The improvements, which are related to the improvements, which is classified as restricted cash in the consolidated balance sheets. The total amount in escrowseveral properties, are estimated to be generally completed within twelve months. These commitments, as of September 30, 2017 was approximately $287,000, including accrued interest. Accordingly,2022, are as of September 30, 2017, the remaining maximum commitment is approximately $689,000.follows (in thousands):
| | | |
| | As of September 30, 2022 | |
Total Commitment (1) | | $ | 28,511 |
Less Amount Funded | | | (6,261) |
Remaining Commitment | | $ | 22,250 |
(1) Commitment includes tenant improvements, leasing commissions, rebranding, facility expansion and other capital improvements.
In conjunction with the Company’s sale of approximately 18.1 acres of land to an affiliate of Sam’s Club (“Sam’s”) in December 2015,addition, the Company agreedis committed to reimburse Sam’s for afund the three construction loans as described in Note 4. Commercial Loans and Investments. The unfunded portion of their construction costs applicable to adjacent outparcels retained by the Company. As a result, in December 2015, the Company deposited $125,000 of cash in escrow related to construction work which is classified as restricted cash in the consolidated balance sheets. The total amount in escrow as of September 30, 2017 was approximately $125,000, including accrued interest. Accordingly, the Company’s maximum commitment related to the construction work benefitting the outparcels adjacent to Sam’s land parcel is approximately $125,000, to be paid from escrow upon completion.
The Company’s total construction estimate related to the capital expenditures to renovate The Grove at Winter Park property in Winter Park, Florida, which includes increases for tenant improvements pursuant to leases as they are executed,loans totaled approximately $4.2$8.8 million as of September 30, 2017. The Company has incurred approximately $3.9 million of the total construction estimate as of September 30, 2017, leaving a remaining commitment of approximately $315,000.2022.
The Company executed an agreement for improvements at the grocery-anchored shopping center situated on approximately 10.3 acres in Fort Worth, Texas, known as the Westcliff property, during the three months ended June 30, 2017. Pursuant to the agreement, the total expected cost of the improvements is approximately $654,000, of which approximately $281,000 has been incurred as of September 30, 2017, leaving a remaining commitment of approximately $373,000.
The Company leased space for its corporate offices at 1530 Cornerstone Blvd., Suite 100, Daytona Beach, Florida subject to a lease that expired on September 30, 2017. The Company elected to allow the lease to expire and relocate its corporate offices to the vacant approximately 7,700 square feet at 1140 N. Williamson Blvd., Suite 140, Daytona Beach, Florida, known as the Williamson Business Park, an income property owned by the Company. The Company completed the build-out of the new office space and has relocated its corporate offices as of September 30, 2017. The Company incurred a total of approximately $761,000 to complete the build-out which was comprised of approximately $233,000 to build-out the shell and approximately $528,000 in tenant improvements. The Company’s savings in base rent that will no longer be paid totals approximately $128,000 per year.
In conjunction with the Company’s development of two income properties, both restaurants, on the beach parcel as described in Note 4, “Land and Subsurface Interests,” the Company has executed multiple contracts with third-parties to perform the work necessary to prepare the site, construct the restaurants, and acquire the related furniture and equipment. Pursuant to the leases with the tenants of the two restaurant properties, LandShark Bar & Grill and Cocina 214 Restaurant & Bar, and based on the Company’s current cost estimates, the total estimated cost to improve the land and develop the income properties is approximately $6.9 million. Through September 30, 2017, the Company has incurred approximately $2.2 million of the total estimated cost which is included in Construction in Progress on the Company’s consolidated balance sheet, leaving a remaining commitment of approximately $4.8 million. The Company expects the
34
development of the two restaurant properties to be completed in time for the tenants to commence operations during January of 2018. Upon completion of the construction of the two income properties and commencement of the tenant leases, the total investment in the beach parcel will be classified as Income Properties, Land, Building, and Improvements, within the Property, Plant, and Equipment classification on the Company’s consolidated balance sheet.
Contractual Commitments – Land Pipeline
As of October 30, 2017, the Company’s pipeline of potential land sales transactions, including the terms of an executed non-binding term sheet to form a joint venture with an institutional investor to establish a mitigation bank on a parcel of our land (the “Mitigation Bank”), included the following twelve potential transactions with eleven different buyers, representing more than 5,800 acres or approximately 72% of our land holdings:
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| No. of |
| Amount |
| Price |
| Estimated | ||
|
| Transaction (Buyer) |
| Acres |
| ($000's) |
| per Acre |
| Timing | ||
1 |
| Commercial/Retail - East of I-95 (2) |
| 123 |
| $ | 29,250 |
| $ | 238,000 |
| '18 - '19 |
2 |
| Residential (AR) - Minto II - West of I-95 |
| 1,614 |
|
| 26,500 |
|
| 16,000 |
| '18 |
3 |
| Residential (SF) - ICI Homes II - West of I-95 |
| 1,016 |
|
| 21,000 |
|
| 21,000 |
| '19 |
4 |
| Mixed-Use Retail - North American - East of I-95 |
| 62 |
|
| 16,963 |
|
| 273,000 |
| '17 - '18 |
5 |
| Mitigation Bank - Term Sheet - West of I-95 (1) |
| 2,492 |
|
| 15,000 |
|
| 6,000 |
| '18 |
6 |
| Commercial/Retail - Buc'ees - East of I-95(2) |
| 35 |
|
| 14,000 |
|
| 400,000 |
| '18 |
7 |
| Commercial/Retail - East of I-95 |
| 21 |
|
| 5,777 |
|
| 275,000 |
| '17 - '18 |
8 |
| Distribution/Warehouse - East of I-95 |
| 71 |
|
| 5,000 |
|
| 70,000 |
| '18 - '19 |
9 |
| Residential (Multi-Family) - East of I-95 (3) |
| 45 |
|
| 5,200 |
|
| 116,000 |
| '18 - '19 |
10 |
| Residential (SF) - West of I-95 (4) |
| 200 |
|
| 3,324 |
|
| 17,000 |
| '18 |
11 |
| Commercial/Retail - Specialty Grocer - East of I-95 |
| 9 |
|
| 2,700 |
|
| 300,000 |
| '18 |
12 |
| Residential (SF) - ICI Homes - West of I-95 |
| 146 |
|
| 1,400 |
|
| 10,000 |
| '19 |
|
| Total (Average) |
| 5,834 |
| $ | 146,114 |
| $ | 25,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)The amount for the Mitigation Bank represents the amount in the term sheet for buyer’s acquisition of approximately 70% of the joint venture that owns the Mitigation Bank, with the Company retaining 30%.
(2)Land sales transactions which require the Company to incur the cost to provide the requisite mitigation credits necessary for obtaining the applicable regulatory permits for the buyer, with such costs representing either our basis in the credits that we own, or potentially up to 5% - 10% of the contract amount noted.
(3)The acres and amount include the buyer’s option to acquire approximately 19 acres for approximately $2.0 million, in addition to the base contract of approximately 26 acres for approximately $3.2 million.
(4)The acres and amount include the buyer’s option to acquire approximately 71 acres for approximately $574,000, in addition to the base contract of approximately 129 acres for approximately $2.75 million.
As noted above, these agreements contemplate closing dates ranging from the fourth quarter of 2017 through fiscal year 2019, and although some of the transactions may close in 2017, the buyers are not contractually obligated to close until after 2017. Each of the transactions are in varying stages of due diligence by the various buyers including, in some instances, having made submissions to the planning and development departments of the City of Daytona Beach, and other permitting activities with other applicable governmental authorities including wetlands permits from the St. John’s River Water Management District and the U.S. Army Corps of Engineers and traffic analysis with the Florida Department of Transportation and Volusia County. In addition to other customary closing conditions, the majority of these transactions are conditioned upon the receipt of approvals or permits from those various governmental authorities, as well as other matters that are beyond our control. If such approvals are not obtained, the prospective buyers may have the ability to terminate their respective agreements prior to closing. As a result, there can be no assurances regarding the likelihood or timing of any one of these potential land transactions being completed or the final terms thereof, including the sales price.
Other Matters
In connection with a certain land sale contract to which the Company is a party, the purchaser’s pursuit of customary development entitlements gave rise to an inquiry by federal regulatory agencies regarding prior agricultural activities by the Company on such land. During the second quarter of 2015, we received a written information request regarding such activities. We submitted a written response to the information request along with supporting documentation. During the fourth quarter of 2015, based on discussions with the agency, a penalty related to this matter was deemed probable, and accordingly the estimated penalty of $187,500 was accrued as of December 31, 2015, for which payment was made
35
during the quarter ended September 30, 2016. Also during the fourth quarter of 2015, the agency advised the Company that the resolution to the inquiry would likely require the Company to incur costs associated with wetlands restoration relating to approximately 148.4 acres of the Company’s land. At December 31, 2015, the Company’s third-party environmental engineers estimated the cost for such restoration activities to range from approximately $1.7 million to approximately $1.9 million. Accordingly, as of December 31, 2015, the Company accrued an obligation of approximately $1.7 million, representing the low end of the estimated range of possible restoration costs, and included such estimated costs on the consolidated balance sheets as an increase in the basis of our land and development costs associated with those and benefitting surrounding acres. As of June 30, 2016, the final proposal from the Company’s third-party environmental engineer was received reflecting a total cost of approximately $2.0 million. Accordingly, an increase in the accrual of approximately $300,000 was made during the second quarter of 2016. The Company has funded approximately $1.2 million of the total $2.0 million of estimated costs through September 30, 2017. The Company believes there is at least a reasonable possibility that the estimated remaining liability of approximately $840,000 could change within one year of the date of the consolidated financial statements, which in turn could have a material impact on the Company’s consolidated balance sheets and future cash flows. The Company evaluates its estimates on an ongoing basis; however, actual results may differ from those estimates. During the first quarter of 2017, the Company completed the sale of approximately 1,581 acres of land to Minto Communities LLC which acreage represents a portion of the Company’s remaining $840,000 obligation. Accordingly, the Company deposited $423,000 of cash in escrow to secure performance on the obligation. The funds in escrow can be drawn upon completion of certain milestones including completion of restoration and annual required monitoring. Additionally, resolution of the regulatory matter required the Company to apply for an additional permit pertaining to an additional approximately 54.66 acres, which permit may require mitigation activities which the Company anticipates could be satisfied through the utilization of existing mitigation credits owned by the Company or the acquisition of mitigation credits. Resolution of this matter allowed the Company to obtain certain permits from the applicable federal or state regulatory agencies needed in connection with the closing of the land sale contract that gave rise to this matter. As of June 30, 2017, the Company determined approximately 36 mitigation credits were required to be utilized, which represents approximately $298,000 in cost basis of the Company’s mitigation credits. Accordingly, the Company transferred the mitigation credits through a charge to direct cost of revenues of real estate operations during the three months ended June 30, 2017, thereby resolving the required mitigation activities related to the approximately 54.66 acres. In addition, in connection with other land sale contracts to which the Company is or may become a party, the pursuit of customary development entitlements by the potential purchasers may require the Company to utilize or acquire mitigation credits for the purpose of obtaining certain permits from the applicable federal or state regulatory agencies. Any costs incurred in connection with utilizing or acquiring such credits would be incorporated into the basis of the land under contract and, accordingly, no amounts related to such potential future costs have been accrued as of September 30, 2017.
During the period from the fourth quarter of 2015 through the first quarter of 2017, the Company received communications from Wintergreen Advisers, LLC (“Wintergreen”), some of which have been filed publicly. In investigating Wintergreen’s allegations contained in certain communications, pursuing the strategic alternatives process suggested by Wintergreen, and engaging in a proxy contest, the Company has incurred costs of approximately $3.0 million, to date, through September 30, 2017. Approximately $1.6 million of the approximately $3.0 million was incurred during the nine months ended September 30, 2017, of which approximately $1.2 million is specifically for legal representation and third party costs related to the proxy contest. None of Wintergreen’s allegations regarding inadequate disclosure or other wrong-doings by the Company or its directors or officers were found to have any basis or merit.
NOTE 19.23. BUSINESS SEGMENT DATA
The Company operates in four primary business segments: income properties, management services, commercial loanloans and investments, and real estate operations,operations. The management services segment consists of the revenue generated from managing PINE and golf operations.the Land JV, prior to the Land JV Sale. Our income property operations consist primarily of income-producing properties, and our business plan is focused on investing in additional income-producing properties. Our income property operations accounted for 78.7%78.6% and 70.3%86.0% of our identifiable assets as of September 30, 20172022 and December 31, 2016,2021, respectively, and 30.5%82.3% and 42.6%80.7% of our consolidated revenues for the nine months ended September 30, 20172022 and 2016,2021, respectively. As of September 30, 2017, we have four2022, our commercial loans and investments portfolio consisted of five commercial loan investments including one fixed-rate and one variable–rate mezzanine commercial mortgage loan, a variable-rate B-Note representing a secondary tranche inpreferred equity investment which is classified as a commercial mortgage loan and a fixed-rate first mortgage loan.investment. Our real estate operations primarily consist of revenues generated from land transactionsthe sale of and leasing, royalty income related to our interests in subsurface oil, gas, and revenue frommineral rights, and the releasegeneration and sale of surface entry rights from our Subsurface Interests. Our golf operations consist of a single property located in the City, with two 18-hole championship golf courses, a practice facility, and clubhouse facilities, including a restaurant and bar operation, fitness facility, and pro-shop with retail merchandise. The majority of the revenues generated by our golf operations are derived from members and public customers playing golf, club memberships, and food and beverage operations.
36
mitigation credits.
The Company reportsevaluates segment performance based on profit or loss from operations before income taxes.operating income. The Company’s reportable segments are strategic business units that offer different products. They are managed separately because each segment requires different management techniques, knowledge, and skills.
37
Information about the Company’s operations in the different segments for the three and nine months ended September 30, 20172022 and 2016 is2021 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Three Months Ended |
| Nine Months Ended | ||||||||
|
| September 30, |
| September 30, |
| September 30, |
| September 30, | ||||
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
Income Properties |
| $ | 7,928,258 |
| $ | 6,021,331 |
| $ | 22,566,505 |
| $ | 18,483,654 |
Commercial Loan Investments |
|
| 637,801 |
|
| 534,212 |
|
| 1,727,449 |
|
| 2,050,507 |
Real Estate Operations |
|
| 2,926,406 |
|
| 4,643,646 |
|
| 45,658,221 |
|
| 18,979,164 |
Golf Operations |
|
| 797,420 |
|
| 1,001,368 |
|
| 3,655,877 |
|
| 3,877,923 |
Agriculture and Other Income |
|
| 90,717 |
|
| 10,388 |
|
| 323,617 |
|
| 48,070 |
Total Revenues |
| $ | 12,380,602 |
| $ | 12,210,945 |
| $ | 73,931,669 |
| $ | 43,439,318 |
Operating Income: |
|
|
|
|
|
|
|
|
|
|
|
|
Income Properties |
| $ | 6,212,742 |
| $ | 4,590,689 |
| $ | 17,809,761 |
| $ | 14,672,265 |
Commercial Loan Investments |
|
| 637,801 |
|
| 534,212 |
|
| 1,727,449 |
|
| 2,050,507 |
Real Estate Operations |
|
| 2,467,237 |
|
| 3,386,463 |
|
| 30,249,674 |
|
| 14,340,299 |
Golf Operations |
|
| (475,227) |
|
| (301,552) |
|
| (517,367) |
|
| (276,761) |
Agriculture and Other Income |
|
| 71,843 |
|
| (42,506) |
|
| 233,770 |
|
| (105,529) |
General and Corporate Expense |
|
| (5,156,947) |
|
| 7,712,203 |
|
| (14,856,020) |
|
| (3,675,088) |
Total Operating Income |
| $ | 3,757,449 |
| $ | 15,879,509 |
| $ | 34,647,267 |
| $ | 27,005,693 |
Depreciation and Amortization: |
|
|
|
|
|
|
|
|
|
|
|
|
Income Properties |
| $ | 3,053,295 |
| $ | 1,866,162 |
| $ | 8,848,101 |
| $ | 5,571,785 |
Golf Operations |
|
| 97,959 |
|
| 64,676 |
|
| 258,649 |
|
| 201,944 |
Agriculture and Other |
|
| 9,915 |
|
| 14,622 |
|
| 32,684 |
|
| 44,657 |
Total Depreciation and Amortization |
| $ | 3,161,169 |
| $ | 1,945,460 |
| $ | 9,139,434 |
| $ | 5,818,386 |
Capital Expenditures: |
|
|
|
|
|
|
|
|
|
|
|
|
Income Properties |
| $ | 2,829,567 |
| $ | 49,751,977 |
| $ | 47,515,911 |
| $ | 52,604,951 |
Golf Operations |
|
| 237,560 |
|
| 4,500 |
|
| 2,112,060 |
|
| 17,661 |
Agriculture and Other |
|
| 10,558 |
|
| 2,465 |
|
| 61,586 |
|
| 18,332 |
Total Capital Expenditures |
| $ | 3,077,685 |
| $ | 49,758,942 |
| $ | 49,689,557 |
| $ | 52,640,944 |
follows (in thousands):
|
|
|
|
|
|
|
|
|
| As of |
| ||||
|
| September 30, 2017 |
| December 31, 2016 |
| ||
Identifiable Assets: |
|
|
|
|
|
|
|
Income Properties |
| $ | 343,740,067 |
| $ | 302,757,565 |
|
Commercial Loan Investments |
|
| 26,984,350 |
|
| 24,032,885 |
|
Real Estate Operations |
|
| 44,753,918 |
|
| 58,868,298 |
|
Golf Operations |
|
| 5,877,837 |
|
| 3,675,842 |
|
Agriculture and Other |
|
| 15,354,629 |
|
| 19,288,836 |
|
Total Assets |
| $ | 436,710,801 |
| $ | 408,623,426 |
|
| | | | | | | | | | | | |
| | Three Months Ended | | Nine Months Ended | ||||||||
|
| September 30, 2022 |
| September 30, 2021 |
| September 30, 2022 |
| September 30, 2021 | ||||
Revenues: | | | | | | | | | | | | |
Income Properties | | $ | 17,694 | | $ | 13,734 | | $ | 49,229 | | $ | 36,757 |
Management Fee Income | | | 951 | | | 940 | | | 2,835 | | | 2,361 |
Interest Income From Commercial Loans and Investments | | | 1,323 | | | 726 | | | 3,331 | | | 2,136 |
Real Estate Operations | | | 3,149 | | | 1,177 | | | 4,395 | | | 4,318 |
Total Revenues | | $ | 23,117 | | $ | 16,577 | | $ | 59,790 | | $ | 45,572 |
Operating Income: | | | | | | | | | | | | |
Income Properties | | $ | 12,579 | | $ | 9,750 | | $ | 35,286 | | $ | 27,069 |
Management Fee Income | | | 951 | | | 940 | | | 2,835 | | | 2,361 |
Interest Income From Commercial Loans and Investments | | | 1,323 | | | 726 | | | 3,331 | | | 2,136 |
Real Estate Operations | | | 1,488 | | | 925 | | | 2,455 | | | 3,451 |
General and Corporate Expense | | | (10,558) | | | (8,247) | | | (29,373) | | | (23,905) |
Impairment Charges | | | — | | | — | | | — | | | (16,527) |
Gain on Disposition of Assets | | | 4,973 | | | 22,666 | | | 4,728 | | | 28,106 |
Loss on Extinguishment of Debt | | | — | | | — | | | — | | | (641) |
Total Operating Income | | $ | 10,756 | | $ | 26,760 | | $ | 19,262 | | $ | 22,050 |
Depreciation and Amortization: | | | | | | | | | | | | |
Income Properties | | $ | 7,283 | | $ | 5,562 | | $ | 20,359 | | $ | 15,413 |
Corporate and Other | | | 22 | | | 5 | | | 42 | | | 15 |
Total Depreciation and Amortization | | $ | 7,305 | | $ | 5,567 | | $ | 20,401 | | $ | 15,428 |
Capital Expenditures: | | | | | | | | | | | | |
Income Properties | | $ | 83,240 | | $ | 1,754 | | $ | 130,674 | | $ | 115,861 |
Commercial Loans and Investments | | | 3,254 | | | — | | | 50,130 | | | — |
Corporate and Other | | | 160 | | | 19 | | | 195 | | | 29 |
Total Capital Expenditures | | $ | 86,654 | | $ | 1,773 | | $ | 180,999 | | $ | 115,890 |
Identifiable assets of each segment as of September 30, 2022 and December 31, 2021 are as follows (in thousands):
| | | | | | |
| | As of | ||||
|
| September 30, 2022 |
| December 31, 2021 | ||
Identifiable Assets: | | | | | | |
Income Properties | | $ | 664,482 | | $ | 630,747 |
Management Services | | | 1,181 | | | 1,653 |
Commercial Loans and Investments | | | 46,524 | | | 39,095 |
Real Estate Operations | | | 24,631 | | | 26,512 |
Corporate and Other | | | 108,954 | | | 35,132 |
Total Assets | | $ | 845,772 | | $ | 733,139 |
Operating income represents income from continuing operations before loss on early extinguishment of debt, interest expense, investment income, and income taxes. General and corporate expenses are an aggregate of general and administrative expenses impairment charges,and depreciation and amortization expense, land lease termination, and gains (losses) on the disposition of assets.expense. Identifiable assets by segment are those assets that are used in the Company’s operations in each segment. OtherReal Estate Operations includes the identifiable assets of the Mitigation Bank and Subsurface Interests. Corporate and other assets consist primarily of cash and restricted cash, property, plant, and equipment related to the other operations, as well as the general and corporate operations.
37
NOTE 20. RECENTLY ISSUED ACCOUNTING POLICIES
In May 2014, the FASB issued ASU 2014-09, which amends its guidance on the recognitionThe management services and reporting of revenue from contracts with customers. The amendments in this update are effective for annual reporting periods beginning after December 15, 2017. The Company completed its evaluation of the provisionsreal estate operations segments had no capital expenditures during the three and nine months ended September 30, 2017 and has determined there will be2022 or 2021.
38
NOTE 24. ASSETS HELD FOR SALE
Assets held for sale as of December 31, 2021 are summarized below (in thousands). There were no material impact on the Company’s revenue recognition within the consolidated financial statements. All required disclosures relating to ASU 2014-09 will be implementedassets held for sale as required by the standard. The Company will be adopting ASU 2014-09 effective January 1, 2018 utilizing the modified retrospective method.of September 30, 2022.
In January 2016, the FASB issued ASU 2016-01, relating to the recognition and measurement of financial assets and financial liabilities. The amendments in this update are effective for annual reporting periods beginning after December 15, 2017. The Company is currently evaluating the provisions to determine the potential impact, if any, the adoption will have on its consolidated financial statements. The Company plans to implement ASU 2016-01 effective January 1, 2018.
| | | |
| | As of December 31, 2021 | |
Plant, Property, and Equipment—Net | | $ | 6,016 |
Intangible Lease Assets—Net | | | 704 |
Total Assets Held for Sale | | $ | 6,720 |
In February 2016, the FASB issued ASU 2016-02, which requires entities to recognize assets and liabilities that arise from financing and operating leases and to classify those finance and operating lease payments in the financing or operating sections, respectively, of the statement of cash flows. The amendments in this update are effective for annual reporting periods beginning after December 15, 2018. The Company is currently evaluating the provisions to determine the potential impact, if any, the adoption will have on its consolidated financial statements.
In March 2016, the FASB issued ASU 2016-09, which amends certain aspects of the stock-based compensation guidance. The amendments in this update are effective for annual reporting periods beginning after December 15, 2016. The Company adopted ASU 2016-09 effective January 1, 2017.
In August 2016, the FASB issued ASU 2016-15, which clarifies the appropriate classification of certain cash receipts and payments in the statement of cash flows. The amendments in this update are effective for annual reporting periods beginning after December 15, 2017. The Company is currently evaluating the provisions to determine the potential impact, if any, the adoption will have on its consolidated statements of cash flows. The Company plans to implement ASU 2016-15 effective January 1, 2018.
In November 2016, the FASB issued ASU 2016-18, which addresses diversity in the classification and presentation of changes in restricted cash in the statement of cash flows as operating, investing, or financing activities. The Company is currently evaluating the provisions to determine the potential impact, if any, the adoption will have on its consolidated statements of cash flows. The amendments in this update are effective for annual reporting periods beginning after December 15, 2017. The Company plans to implement ASU 2016-18 effective January 1, 2018 and will classify the changes in restricted cash between operating, investing, and financing in the consolidated statements of cash flows as applicable per the new guidance.
NOTE 21.25. SUBSEQUENT EVENTS
The Company reviewed all subsequent events and transactions through October 27, 2022, the date the consolidated financial statements were issued.
Property Acquisition
On October 13, 2017,14, 2022, the Company completed the saleacquisition of approximately 5.1 acresWest Broad Village, a 392,000 square foot property located westin the Short Pump submarket of Interstate 95Richmond, Virginia for approximately $275,000, or approximately $54,000 per acre, resultinga purchase price of $93.9 million. The purchase price represents a going-in cap rate above the range of the Company’s guidance for initial cash yields. The acquisition was funded using $35.0 million of restricted cash generated from the Company’s previously completed property dispositions, available unrestricted cash, and draws from the Company’s unsecured revolving credit facility. The acquisition was structured as a reverse like-kind exchange in an estimated gainorder to account for possible future dispositions of approximately $239,000, or $0.03 per share, after tax.income properties by the Company.
Shelf Registration
On October 23, 2017,11, 2022, the Company sold twofiled a shelf registration statement on Form S-3 (File No. 333-267819), relating to the registration and potential issuance of its commercial loan investments secured by hotel properties in Atlanta, Georgiacommon stock, preferred stock, debt securities, warrants, rights, and Dallas, Texas.units with a maximum aggregate offering price of up to $500.0 million. The Company sold these investmentsSecurities and Exchange Commission declared the Form S-3 effective on October 26, 2022, at a premium to par for proceedswhich time the offering of approximately $15.1 million on an aggregate principal value of $15.0 million. These loans were classified as held for sale onunsold securities under the Company’s consolidated balance sheetprevious shelf registration statement on Form S-3 (File No. 333-254970), declared effective by the Securities and Exchange Commission on April 19, 2021, was deemed terminated pursuant to Rule 415(a)(6) under the Securities Act of 1933, as of September 30, 2017. The Company utilized these proceeds to pay down the Credit Facility.amended.
On October 27, 2017, the Company acquired an approximately 212,000 square-foot building situated on approximately 18.9 acres in Hillsboro, Oregon which is approximately 100% leased to Wells Fargo Bank, N.A. under a triple-net lease. The purchase price was approximately $39.8 million, which was funded with the proceeds from certain 1031 transactions as well as cash from the Credit Facility. As of the acquisition date, the remaining term of the lease was approximately 8.2 years. As a result of this acquisition, the amount outstanding on the Credit Facility was approximately $60.5 million and the available borrowing capacity was approximately $39.5 million as of October 30, 2017.
38
There were no other reportable subsequent events or transactions.
39
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
When we refer to “we,” “us,” “our,” or “the Company,” we mean CTO Realty Growth, Inc. and its consolidated subsidiaries. References to “Notes to Financial Statements” refer to the Notes to the Consolidated Financial Statements of CTO Realty Growth, Inc. included in this Quarterly Report on Form 10-Q.
Forward-Looking Statements
When
Statements contained in this Quarterly Report on Form 10-Q that are not historical facts are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Also, when the Company uses any of the words “anticipate,” “assume,” “believe,” “estimate,” “expect,” “intend,” or similar expressions, the Company is making forward-looking statements. Although managementManagement believes that the expectations reflected in such forward-looking statements are based upon present expectations and reasonable assumptions,assumptions. However, the Company’s actual results could differ materially from those set forth in the forward-looking statements. Certain factorsFurther, forward-looking statements speak only as of the date they are made, and the Company undertakes no obligation to update or revise such forward-looking statements to reflect changed assumptions, the occurrence of unanticipated events or changes to future operating results over time, unless required by law. The risks and uncertainties that could cause our actual results to differ materially from those presented in our forward-looking statements, include, but are not limited to, the following:
● | we are subject to risks related to the ownership of commercial real estate that could affect the performance and value of our properties; |
● | our business is dependent upon our tenants successfully operating their businesses, and their failure to do so could materially and adversely affect us; |
● | competition that traditional retail tenants face from e-commerce retail sales, or the integration of brick and mortar stores with e-commerce retail operators, could adversely affect our business; |
● | we operate in a highly competitive market for the acquisition of income properties and more established entities or other investors may be able to compete more effectively for acquisition opportunities than we can; |
● | the loss of revenues from our income property portfolio or certain tenants would adversely impact our results of operations and cash flows; |
● | our revenues include receipt of management fees and potentially incentive fees derived from our provision of management services to Alpine Income Property Trust, Inc. (“PINE”) and the loss or failure, or decline in the business or assets, of PINE could substantially reduce our revenues; |
● | there are various potential conflicts of interest in our relationship with PINE, including our executive officers and/or directors who are also officers and/or directors of PINE, which could result in decisions that are not in the best interest of our stockholders; |
● | a prolonged downturn in economic conditions could adversely impact our business, particularly with regard to our ability to maintain revenues from our income-producing assets; |
● | a part of our investment strategy is focused on investing in commercial loans and investments which may involve credit risk; |
● | we may suffer losses when a borrower defaults on a loan and the value of the underlying collateral is less than the amount due; |
● | the Company’s real estate investments are generally illiquid; |
● | if we are not successful in utilizing the like-kind exchange structure in deploying the proceeds from dispositions of income properties, or our like-kind exchange transactions are disqualified, we could incur significant taxes and our results of operations and cash flows could be adversely impacted; |
● | the Company may be unable to obtain debt or equity capital on favorable terms, if at all, or additional borrowings may impact our liquidity or ability to monetize any assets securing such borrowings; |
● | servicing our debt requires a significant amount of cash, and we may not have sufficient cash flow from our business to service or pay our debt; |
● | our operations and properties could be adversely affected in the event of natural disasters, pandemics, or other significant disruptions; |
● | we may encounter environmental problems which require remediation or the incurrence of significant costs to resolve, which could adversely impact our financial condition, results of operations, and cash flows; |
40
● | failure to remain qualified as real estate investment trust (“REIT”) for U.S. federal income tax purposes would cause us to be taxed a regular corporation, which would substantially reduce funds available for distribution to stockholders; |
● | the risk that the REIT requirements could limit our financial flexibility; |
● | our limited experience operating as a REIT; |
● | our ability to pay dividends consistent with the REIT requirements, and expectations as to timing and amounts of such dividends; |
● | the ability of our board of directors (the “Board”) to revoke our REIT status without stockholder approval; |
● | our exposure to changes in U.S. federal and state income tax laws, including changes to the REIT requirements; and |
● | an epidemic or pandemic (such as the outbreak and worldwide spread of the novel coronavirus (the “COVID-19 Pandemic”)), and the measures that international, federal, state and local governments, agencies, law enforcement and/or health authorities implement to address it, may precipitate or materially exacerbate one or more of the above-mentioned and/or other risks and may significantly disrupt or prevent us from operating our business in the ordinary course for an extended period. |
The Company describes the risks and uncertainties that could cause actual results orand events to differ materially from those the Company anticipates or projects are described in “Item 1A. Risk“Risk Factors” of the Company’s Annual Report on Form 10-K, for year ended December 31, 2016. Given these uncertainties, readers are cautioned not to place undue reliance on such statements, which speak only as of the date(Part II, Item 1A of this Quarterly Report on Form 10-Q or any document incorporated herein by reference. The Company undertakes no obligation to publicly release any revisions to these forward-looking statements that may be made to reflect events or circumstances afterand Part I, Item 1A of our Annual Report on Form 10-K for the dateyear ended December 31, 2021), “Quantitative and Qualitative Disclosures about Market Risk” (Part I, Item 3 of this Quarterly Report on Form 10-Q, or the aforementioned risk factors. The terms “us,” “we,” “our,”10-Q), and “the Company” as used in“Management’s Discussion and Analysis of Financial Conditions and Results of Operations” (Part I, Item 2 of this report refer to Consolidated-Tomoka Land Co. together with our consolidated subsidiaries.Quarterly Report on Form 10-Q).
OVERVIEW
OVERVIEW
We are a diversified real estate operating company.publicly traded, primarily retail-focused, REIT that was founded in 1910. We own and manage, thirty-sixsometimes utilizing third-party property management companies, 18 commercial real estate properties in elevennine states in the United States. As of September 30, 2017,2022, we owned twenty-fourfive single-tenant and twelve13 multi-tenant income-producing properties with over 1.9comprising 2.7 million square feet of gross leasable space. WeSubsequent to September 30, 2022, on October 14, 2022, the Company acquired a 0.4 million square feet property as further described in Note 25, “Subsequent Events”.
In addition to our income property portfolio, as of September 30, 2022, our business included the following:
Management Services:
● | A fee-based management business that is engaged in managing PINE, see Note 5, “Related Party Management Services Business”. |
Commercial Loan and Master Lease Investments:
● | A portfolio of five commercial loan investments and one preferred equity investment which is classified as a commercial loan investment. |
Real Estate Operations:
● | A portfolio of subsurface mineral interests associated with approximately 355,000 surface acres in 19 counties in the State of Florida (“Subsurface Interests”); and |
● | An inventory of historically owned mitigation credits as well as mitigation credits produced by the Company’s mitigation bank. The mitigation bank owns a 2,500 acre parcel of land in the western part of Daytona Beach, Florida and, pursuant to a mitigation plan approved by the applicable state and federal authorities, produces mitigation credits that are sold to developers of land in the Daytona Beach area for the purpose of enabling the developers to obtain certain regulatory permits for property development (the “Mitigation Bank”). Prior to the Interest Purchase (defined in Note 7, “Investment in Joint Ventures”) completed on September 30, 2021, the Company held a 30% retained interest in the entity that owns the Mitigation Bank. |
Our business also own and manage a portfolio of undeveloped land totaling approximately 8,100 acresincludes our investment in the City of Daytona Beach, Florida (the “City”).PINE. As of September 30, 2017,2022, the fair value of our investment totaled $35.3 million, or 16.0% of PINE’s outstanding equity, including the units of limited partnership interest (“OP Units”) we have four commercial loan investments including one fixed-rate and one variable–rate mezzanine commercial mortgage loan, a variable-rate B-Note representing a secondary tranchehold in a commercial mortgage loan, and a fixed-rate first mortgage loan. We have golf operationsAlpine Income Property OP, LP (the “PINE Operating Partnership”), which consistare redeemable for cash, based upon the value of an equivalent number of shares of PINE common stock at the time of the LPGA International Golf Club,redemption, or shares of
41
PINE common stock on a one-for-one basis, at PINE’s election. Our investment in PINE generates investment income through the dividends distributed by PINE. In addition to the dividends we receive from PINE, our investment in PINE may benefit from any appreciation in PINE’s stock price, although no assurances can be provided that such appreciation will occur, the amount by which is managed by a third party. We also lease some of our land for nineteen billboards, have agricultural operations that are managed by a third party, which consist of leasing land for hay production, timber harvesting, and hunting leases, and own and manage Subsurface Interests (hereinafter defined). The results of our agricultural and subsurface leasing operationsinvestment will increase in value, or the timing thereof. Any dividends received from PINE are included in Agricultureinvestment and Other Income and Real Estate Operations, respectively, in ourother income (loss) on the accompanying consolidated statements of operations.
Income Property Operations. We have pursued a strategy of investing in income-producing properties, when possible by utilizing the proceeds from real estate transactions qualifying for income tax deferral through like-kind exchange treatment for tax purposes.
Our strategy for investing in income-producing properties is focused on factors including, but not limited to, long-term real estate fundamentals and target markets, including major markets or those markets we believe are experiencing significant economic growth. We employ a methodology for evaluating targeted investments in income-producing properties which includes an evaluation of: (i) the attributes of the real estate (e.g. location, market demographics, comparable properties in the market, etc.); (ii) an evaluation of the existing tenanttenant(s) (e.g. credit-worthiness, property level sales, tenant rent levels compared to the market, etc.); (iii) other marketmarket-specific conditions (e.g. tenant industry, job and population growth in the market, local economy, etc.); and (iv) considerations relating to the Company’s business and strategy (e.g., strategic fit of the asset type, property management needs, alignment withability to transact in a tax-efficient manner for the Company’s 1031 like-kind exchange structure,benefit of our shareholders, etc.).
During the nine months ended September 30, 2017, the Company acquired three single-tenant income properties and two multi-tenant income properties, for an aggregate purchase price of approximately $40.0 million, or an aggregate acquisition cost of approximately $40.7 million including capitalized acquisition costs.
Our current portfolio of twenty-four single-tenant income properties generates approximately $14.8 million of revenues from lease payments on an annualized basis and had an average remaining lease term of 9.1 years as of September 30, 2017. Our current portfolio of twelve multi-tenant properties generates approximately $10.5 million of revenue from lease payments on an annualized basis and has a weighted average remaining lease term of 4.2 years as of September 30, 2017. We expect to continue to focus on acquiring additional income-producing properties during fiscal year 2017, and in the near term thereafter, maintaining our use of the aforementioned tax deferral structure whenever possible.
39
As part of our overall strategy for investingbelieve investment in income-producing investments, we have self-developed five of our multi-tenant properties which are located in Daytona Beach, Florida, four of which we still own as of September 30, 2017. The first self-developed property, located atassets provides attractive opportunities for generally stable cash flows and increased returns over the northeast corner of LPGA and Williamson Boulevards in Daytona Beach, Florida, is an approximately 22,000 square foot, two-story, building, known as the Concierge Office Building, which was approximately 91% leased as of September 30, 2017. The second two properties, known as the Mason Commerce Center, consists of two buildings totaling approximately 31,000 square-feet (15,360 each), which were 100% leased as of September 30, 2017. During the year ended December 31, 2014, construction was completed on two additional properties, known as the Williamson Business Park, which are adjacent to the Mason Commerce Center. One of the two 15,360 square-foot Williamson Business Park buildings was sold in April 2016. The remaining Williamson Business Park building was approximately 50% leased and 100% occupied as of September 30, 2017 as the Company now occupies the remaining 50% of the property as its new corporate office.
As part of our strategy for investing in income-producing investments, we are also self-developing two restaurant properties on a 6-acre beachfront parcel in Daytona Beach, Florida. At the completion of this development, which we expect will occur in January of 2018, we will add these two properties to our single-tenant income property portfolio. On a limited basis, we may continue to selectively acquire other real estate, either vacant land or land with existing structures that we would demolish and develop into additional income properties, particularly in the downtown and beach side areas of Daytona Beach, Florida. Specifically our investments in the Daytona Beach area would target opportunistic acquisitions of select catalyst sites, which are typically distressed, with an objective of having shorter term investment horizons. Should we pursue such acquisitions we may seek to partner with developers to develop these sites rather than self-develop the properties.
long run through potential capital appreciation. Our focus on acquiring income-producing investments includes a continual review of our existing income property portfolio to identify opportunities to recycle our capital through the sale of income properties based on, among other possible factors, the current or expected performance of the property and favorable market conditions. No income-producingWe sold four single-tenant income properties were disposed ofand two multi-tenant properties during the nine months ended September 30, 2017.
Real Estate Operations. As of September 30, 2017, the Company owned approximately 8,100 acres of undeveloped land in Daytona Beach, Florida, along six miles of the west and east sides of Interstate 95. Currently, the majority of this land is used for agricultural purposes. Approximately 1,100 acres of our land holdings are located on the east side of Interstate 95 and are generally well suited for commercial development. Approximately 7,000 acres of our land holdings are located on the west side of Interstate 95 and the majority of this land is generally well suited for residential development. Included in the western land is approximately 1,100 acres, primarily an 850-acre parcel and three smaller parcels, which are located further west of Interstate 95 and a few miles north of Interstate 4 that is generally well suited for industrial purposes.
Real estate operations revenue consisted of the following for the three and nine months ended September 30, 2017 and 2016, respectively:
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| Three Months Ended |
| Three Months Ended |
| Nine Months Ended |
| Nine Months Ended | ||||
Revenue Description |
| ($000's) |
| ($000's) |
| ($000's) |
| ($000's) | ||||
Land Sales Revenue |
| $ | — |
| $ | 318 |
| $ | 39,564 |
| $ | 508 |
Tomoka Town Center - Percentage of Completion Revenue |
|
| — |
|
| 3,654 |
|
| — |
|
| 16,456 |
Revenue from Reimbursement of Infrastructure Costs |
|
| — |
|
| — |
|
| 1,276 |
|
| — |
Impact Fee and Mitigation Credit Sales |
|
| 548 |
|
| 209 |
|
| 1,987 |
|
| 481 |
Subsurface Revenue |
|
| 2,374 |
|
| 463 |
|
| 2,827 |
|
| 1,535 |
Fill Dirt and Other Revenue |
|
| 4 |
|
| — |
|
| 4 |
|
| — |
Total Real Estate Operations Revenue |
| $ | 2,926 |
| $ | 4,644 |
| $ | 45,658 |
| $ | 18,980 |
The Tomoka Town Center consists of approximately 235 acres of which approximately 180 acres are developable. During 2015 and 2016, land sales with a gross sales price totaling approximately $21.4 million within the Tomoka Town Center consisted of sales of approximately 99 acres to Tanger Outlets, Sam’s Club, and North American Development Group (“NADG”) (the “Tomoka Town Center Sales Agreements”). The Company performed certain infrastructure work, beginning in the fourth quarter of 2015 through completion in the fourth quarter of 2016, which required the sales price on the Tomoka Town Center Sales Agreements to be recognized on the percentage-of-completion basis. As the infrastructure work was completed in the fourth quarter of 2016, all revenue related to the Tomoka Town Center Sales
40
Agreements had been recognized as of December 31, 2016. The timing of the remaining reimbursements for the cost of the infrastructure work which totals approximately $2.4 million is more fully described in Note 9, “Other Assets.”
Tanger Outlets completed its approximately 350,000 square foot outlet mall in November 2016. As of October 30, 2017, NADG has begun pre-construction on its approximately 500,000 square foot retail power center.
During the nine months ended September 30, 2017, the Company completed the sale of approximately 19 acres to NADG (the “Third NADG Land Sale”). The remaining developable acreage of approximately 62 acres is currently under contract with NADG as described in the land pipeline in Note 18, “Commitment and Contingencies.”
Land Sales. No land sales were completed during the three months ended September 30, 2017. During the nine months ended September 30, 2017, a total of approximately 1,669 acres were sold for approximately $39.6 million, as described below:
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| Gross Sales |
| Price per Acre |
| Gain |
| |||
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|
| Date of |
| No. of |
| Price |
| ($ Rounded |
| on Sale |
| |||
|
| Buyer (or Description) |
| Location |
| Sale |
| Acres |
| ($000's) |
| 000's) |
| ($000's) |
| |||
1 |
| Minto Communities, LLC |
| West of I-95 |
| 02/10/17 |
| 1,581.00 |
| $ | 27,151 |
| $ | 17,000 |
| $ | 20,041 |
|
2 |
| Commercial |
| East of I-95 |
| 03/22/17 |
| 6.35 |
|
| 1,556 |
|
| 245,000 |
|
| 11 |
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|
|
|
| Subtotal - Q1 2017 |
|
|
| 1,587.35 |
|
| 28,707 |
|
| 18,000 |
|
| 20,052 |
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3 |
| Commercial |
| East of I-95 |
| 04/05/17 |
| 27.50 |
|
| 3,218 |
|
| 117,000 |
|
| 2,955 |
|
4 |
| Commercial |
| East of I-95 |
| 04/13/17 |
| 4.50 |
|
| 1,235 |
|
| 274,000 |
|
| 13 |
|
5 |
| Commercial |
| West of I-95 |
| 04/25/17 |
| 30.00 |
|
| 2,938 |
|
| 98,000 |
|
| 627 |
|
6 |
| NADG - Parcel B-I (FPII) |
| East of I-95 |
| 06/27/17 |
| 19.43 |
|
| 3,467 |
|
| 178,000 |
|
| 3,263 | (1) |
|
|
|
| Subtotal - Q2 2017 |
|
|
| 81.43 |
|
| 10,858 |
|
| 133,000 |
|
| 6,858 |
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|
|
|
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|
|
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|
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|
|
|
|
|
| YTD Q3 2017 |
|
|
| 1,668.78 |
| $ | 39,565 |
| $ | 24,000 |
| $ | 26,910 |
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(1)The gain of approximately $3.3 million on the Third NADG Land Sale includes an infrastructure reimbursement payment of approximately $955,000 received in conjunction with the closing on June 27, 2017.
A total of 4.5 acres were sold during the three months ended September 30, 2016 for approximately $205,000. A total of approximately 12.0 acres were sold during the nine months ended September 30, 2016 for approximately $2.4 million as described below:
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| Gross Sales |
|
|
| Gain | |||
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|
| Date of |
| No. of |
| Price (1) |
| Price |
| on Sale | |||
|
| Buyer (or Description) |
| Location |
| Sale |
| Acres |
| ($000's) |
| per Acre |
| ($000's) | |||
1 |
| Commercial / Retail |
| East of I-95 |
| 02/12/16 |
| 3.1 |
| $ | 190 |
| $ | 61,000 |
| $ | 145 |
2 |
| NADG - OutParcel |
| East of I-95 |
| 03/30/16 |
| 4.4 |
|
| 2,000 |
|
| 455,000 |
|
| 1,304 |
|
|
|
| Subtotal - Q1 2016 |
|
|
| 7.50 |
|
| 2,190 |
|
| 292,000 |
|
| 1,449 |
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|
|
3 |
| Minto Sales Center |
| West of I-95 |
| 09/27/16 |
| 4.50 |
|
| 205 |
|
| 46,000 |
|
| 126 |
|
|
|
| Subtotal - Q3 2016 |
|
|
| 4.50 |
|
| 205 |
|
| 46,000 |
|
| 126 |
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|
|
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|
|
| YTD Q3 2016 |
|
|
| 12.0 |
| $ | 2,395 |
| $ | 200,000 |
| $ | 1,575 |
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(1)Land Sales Revenue for the nine months ended September 30, 2016 is equal to the Gross Sales Price of land sales of $2.40 million, less the $2.0 million sales price for the NADG – OutParcel, as the NADG – OutParcel revenue is included in Tomoka Town Center – Percentage of Completion Revenue, plus approximately $113,000 of incentives received and earned during the three months ended September 30, 2016 related to the Distribution Center sale which closed during 2014.
41
As of October 30, 2017, the Company’s pipeline of potential land sales transactions, including the terms of an executed non-binding term sheet to form a joint venture with an institutional investor to establish a mitigation bank on a parcel of our land (the “Mitigation Bank”), included the following twelve potential transactions with eleven different buyers, representing more than 5,800 acres or approximately 72% of our land holdings:
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| ||
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| No. of |
| Amount |
| Price |
| Estimated | ||
|
| Transaction (Buyer) |
| Acres |
| ($000's) |
| per Acre |
| Timing | ||
1 |
| Commercial/Retail - East of I-95 (2) |
| 123 |
| $ | 29,250 |
| $ | 238,000 |
| '18 - '19 |
2 |
| Residential (AR) - Minto II - West of I-95 |
| 1,614 |
|
| 26,500 |
|
| 16,000 |
| '18 |
3 |
| Residential (SF) - ICI Homes II - West of I-95 |
| 1,016 |
|
| 21,000 |
|
| 21,000 |
| '19 |
4 |
| Mixed-Use Retail - North American - East of I-95 |
| 62 |
|
| 16,963 |
|
| 273,000 |
| '17 - '18 |
5 |
| Mitigation Bank - Term Sheet - West of I-95 (1) |
| 2,492 |
|
| 15,000 |
|
| 6,000 |
| '18 |
6 |
| Commercial/Retail - Buc'ees - East of I-95(2) |
| 35 |
|
| 14,000 |
|
| 400,000 |
| '18 |
7 |
| Commercial/Retail - East of I-95 |
| 21 |
|
| 5,777 |
|
| 275,000 |
| '17 - '18 |
8 |
| Distribution/Warehouse - East of I-95 |
| 71 |
|
| 5,000 |
|
| 70,000 |
| '18 - '19 |
9 |
| Residential (Multi-Family) - East of I-95 (3) |
| 45 |
|
| 5,200 |
|
| 116,000 |
| '18 - '19 |
10 |
| Residential (SF) - West of I-95 (4) |
| 200 |
|
| 3,324 |
|
| 17,000 |
| '18 |
11 |
| Commercial/Retail - Specialty Grocer - East of I-95 |
| 9 |
|
| 2,700 |
|
| 300,000 |
| '18 |
12 |
| Residential (SF) - ICI Homes - West of I-95 |
| 146 |
|
| 1,400 |
|
| 10,000 |
| '19 |
|
| Total (Average) |
| 5,834 |
| $ | 146,114 |
| $ | 25,000 |
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(1)The amount for the Mitigation Bank represents the amount in the term sheet for buyer’s acquisition of approximately 70% of the joint venture that owns the Mitigation Bank, with the Company retaining 30%.
(2)Land sales transactions which require the Company to incur the cost to provide the requisite mitigation credits necessary for obtaining the applicable regulatory permits for the buyer, with such costs representing either our basis in the credits that we own, or potentially up to 5% - 10% of the contract amount noted.
(3)The acres and amount include the buyer’s option to acquire approximately 19 acres for approximately $2.0 million, in addition to the base contract of approximately 26 acres for approximately $3.2 million.
(4)The acres and amount include the buyer’s option to acquire approximately 71 acres for approximately $574,000, in addition to the base contract of approximately 129 acres for approximately $2.75 million.
As noted above, these agreements contemplate closing dates ranging from the fourth quarter of 2017 through fiscal year 2019, and although some of the transactions may close in 2017, the buyers are not contractually obligated to close until after 2017. Each of the transactions are in varying stages of due diligence by the various buyers including, in some instances, having made submissions to the planning and development departments of the City of Daytona Beach, and other permitting activities with other applicable governmental authorities including wetlands permits from the St. John’s River Water Management District and the U.S. Army Corps of Engineers and traffic analysis with the Florida Department of Transportation and Volusia County. In addition to other customary closing conditions, the majority of these transactions are conditioned upon the receipt of approvals or permits from those various governmental authorities, as well as other matters that are beyond our control. If such approvals are not obtained, the prospective buyers may have the ability to terminate their respective agreements prior to closing.2022. As a result there can be no assurances regardingof entering into the likelihood or timingExclusivity and Right of any oneFirst Offer Agreement with PINE (the “ROFO Agreement”) which generally prevents us from investing in single-tenant net lease income properties, our income property investment strategy is focused on multi-tenant, primarily retail-oriented, properties. We may pursue this strategy by monetizing certain of these potential land transactions being completed orour single-tenant properties, and should we do so, we would seek to utilize the final terms thereof, including1031 like-kind exchange structure to preserve the sales price.
Land Impairments. There were no impairment charges relatedtax-deferred gain on the original transaction(s) that pertains to the Company’s undeveloped land during the nine months ended September 30, 2017.replacement asset.
Beachfront Development. During the year ended December 31, 2015, the Company acquired, through a real estate venture with an unaffiliated third party institutional investor, an interest in approximately six acresOur current portfolio of vacant beachfront property located in Daytona Beach, Florida. The property was acquired for approximately $11.3five single-tenant income properties generates $8.5 million of which the Company contributed approximately $5.7 million. Asrevenues from annualized straight-line base lease payments and had a weighted average remaining lease term of December 31, 2015, the real estate venture was fully consolidated as the Company determined that it was the primary beneficiary of the variable interest entity. On November 17, 2016, the Company acquired the unaffiliated third party’s 50% interest for approximately $4.8 million, a discount of approximately $879,000. The discount was recorded through equity on the consolidated balance sheet during the year ended December 31, 2016. The Company evaluated its interest in the six-acre vacant beachfront property for impairment and determined that no impairment was necessary as of December 31, 2016. As the Company owns the entire real estate venture5.9 years as of September 30, 2017, there is no longer2022. Our current portfolio of 13 multi-tenant properties generates $47.6 million of revenue from annualized straight-line base lease payments and had a consolidated VIE.
42
The cost basis of the six-acre vacant beachfront property asset totaled approximately $11.7 million6.6 years as of September 30, 2017 which includes costs for entitlement. The beachfront property received approval of the rezoning and entitlement of the site to allow for the development of two restaurants and also for the future potential development of up to approximately 1.2 million square feet of vertical density. In the first quarter of 2017, the Company executed a 15-year lease agreement with the operator of LandShark Bar & Grill, for an approximately 6,264 square foot restaurant property the Company will develop on the parcel. The annual rent under the lease is based on a percentage of the tenant’s net operating income (“NOI”) until the Company has received its investment basis in the property and thereafter, the Company will receive a lower percentage of the tenant’s NOI during the remaining lease term. In the second quarter of 2017, the Company executed a 15-year lease agreement with the tenant, Cocina 214 Restaurant & Bar, for the second restaurant property to be developed on the parcel. The annual rent is equal to the greater of $360,000 per year or a certain percentage of gross sales. The lease also provides for additional percentage rent upon the achievement of certain gross sales thresholds. The Company completed the design phase and commenced construction on the two restaurants during the three months ended September 30, 2017. As of September 30, 2017, the Company has incurred approximately $2.2 million of design and construction costs. See Note 18, “Commitment and Contingencies” for the total expected cost to be incurred for the development of the site and both restaurants. The Company expects the development of the two restaurant properties to be completed in time for the tenants to commence operations during January of 2018.2022.
Other Real Estate Assets. The Company owns impact fees with a cost basis of approximately $416,000 and mitigation credits with a cost basis of approximately $849,000 for a combined total of approximately $1.3 million as of September 30, 2017. During the nine months ended September 30, 2017, the Company sold mitigation credits for approximately $1.5 million, for a gain of approximately $1.2 million, or $0.14 per share, after tax. Additionally, the Company recorded the transfer of mitigation credits with a cost basis of approximately $298,000 as a charge to direct cost of revenues of real estate operations during the nine months ended September 30, 2017, as more fully described in Note 18, “Commitments and Contingencies.” During the nine months ended September 30, 2017 and 2016, the Company received cash payments of approximately $506,000 and $481,000, respectively, for impact fees with a cost basis that was generally of equal value.
As of December 31, 2016, the Company owned impact fees with a cost basis of approximately $925,000 and mitigation credits with a cost basis of approximately $1.4 million for a combined total of approximately $2.3 million.
Subsurface Interests. As of September 30, 2017, the Company owns full or fractional subsurface oil, gas, and mineral interests underlying approximately 462,000 “surface” acres of land owned by others in 20 counties in Florida (the “Subsurface Interests”). The Company leases certain of the Subsurface Interests to mineral exploration firms for exploration. Our subsurface operations consist of revenue from the leasing of exploration rights and in some instances, additional revenues from royalties applicable to production from the leased acreage.
During the three months ended September 30, 2017, the Company sold approximately 38,750 acres of subsurface interests in Osceola County, Florida for approximately $2.1 million (the “Osceola Subsurface Sale”). The gain from the Osceola Subsurface Sale totaled approximately $2.08 million, or $0.23 per share, after tax. The Company expects to utilize the proceeds from this sale to acquire an income property through the 1031 like-kind exchange structure.
During 2011, an eight-year oil exploration lease was executed. On September 20, 2017, the Company amended the oil exploration lease to, among other things, extend the expiration of the original term for five additional years to the new expiration date of September 22, 2024. The lease calls for annual lease payments which are recognized as revenue ratably over the respective twelve-month lease periods. In addition, non-refundable drilling penalty payments are made as required by the drilling requirements in the lease which are recognized as revenue when received.
43
Lease payments on the respective acreages and drilling penalties received through lease year seven are as follows:
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| Acreage |
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Lease Year |
| (Approximate) |
| Florida County |
| Lease Payment (1) |
| Drilling Penalty (1) |
| ||
Lease Year 1 - 9/23/2011 - 9/22/2012 |
| 136,000 |
| Lee and Hendry |
| $ | 913,657 |
| $ | — |
|
Lease Year 2 - 9/23/2012 - 9/22/2013 |
| 136,000 |
| Lee and Hendry |
|
| 922,114 |
|
| — |
|
Lease Year 3 - 9/23/2013 - 9/22/2014 |
| 82,000 |
| Hendry |
|
| 3,293,000 |
|
| 1,000,000 |
|
Lease Year 4 - 9/23/2014 - 9/22/2015 |
| 42,000 |
| Hendry |
|
| 1,866,146 |
|
| 600,000 |
|
Lease Year 5 - 9/23/2015 - 9/22/2016 |
| 25,000 |
| Hendry |
|
| 1,218,838 |
|
| 175,000 |
|
Lease Year 6 - 9/23/2016 - 9/22/2017 |
| 15,000 |
| Hendry |
|
| 806,683 |
|
| 150,000 |
|
Lease Year 7 - 9/23/2017 - 9/22/2018 |
| 15,000 |
| Hendry |
|
| 806,683 |
|
| 50,000 |
|
Total Payments Received to Date |
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|
|
| $ | 9,827,121 |
| $ | 1,975,000 |
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(1)Generally, cash payment for the Lease Payment and Drilling Penalty is received on or before the first day of the lease year. The Drilling Penalty, which is due within thirty days from the end of the prior lease year, is recorded as revenue when received, while the Lease Payment is recognized on a straight-line basis over the respective lease term. Pursuant to the amendment for the Year 7 renewal, the Lease Payment and Drilling Penalty were both received on October 11, 2017. See separate disclosure of revenue recognized per period below.
The terms of the lease state the Company will receive royalty payments if production occurs, and may receive additional annual rental payments if the lease is continued in years eight through thirteen. The lease is effectively thirteen one-year terms as the lessee has the option to terminate the lease at the end of each lease year.
Lease income generated by the annual lease payments is recognized on a straight-line basis over the guaranteed lease term. For the three months ended September 30, 2017 and 2016, lease income of approximately $203,000 and $297,000, respectively, was recognized. For the nine months ended September 30, 2017 and 2016, lease income of approximately $603,000 and $904,000, respectively, was recognized. There can be no assurance that the oil exploration lease will be extended beyond the expiration of the current term of September 22, 2018 or, if extended, the terms or conditions of such extension.
During the nine months ended September 30, 2017 and 2016, the Company also received oil royalties from operating oil wells on 800 acres under a separate lease with a separate operator. Revenues received from oil royalties totaled approximately $19,000 and $16,000, during the three months ended September 30, 2017 and 2016, respectively. Revenues received from oil royalties totaled approximately $69,000 and $32,000, during the nine months ended September 30, 2017 and 2016, respectively.
The Company is not prohibited from the disposition of any or all of its Subsurface Interests. Should the Company complete a transaction to sell all or a portion of its Subsurface Interests, the Company may utilize the like-kind exchange structure in acquiring one or more replacement investments including income-producing properties. The Company may release surface entry rights or other rights upon request of a surface owner for a negotiated release fee typically based on a percentage of the surface value. There were no releases of surface entry rights during the nine months ended September 30, 2017. Cash payments for the release of surface entry rights totaled approximately $450,000 during the nine months ended September 30, 2016, which is included in revenue from real estate operations.
Golf Operations. Golf operations, which are managed by a third party, consist of the LPGA International Golf Club, a semi-private golf club consisting of two 18-hole championship golf courses, one designed by Rees Jones and the other designed by Arthur Hills, with a three-hole practice facility also designed by Rees Jones, a clubhouse facility, food and beverage operations, and a fitness facility located within the LPGA International mixed-use residential community on the west side of Interstate 95 in the City.
In July 2012, the Company entered into an agreement with the City to, among other things, amend the lease payments under its golf course lease (the “Lease Amendment”). Under the Lease Amendment, the base rent payment, which was scheduled to increase from $250,000 to $500,000 as of September 1, 2012, remained at $250,000 for the remainder of the lease term and any extensions would have been subject to an annual rate increase of 1.75% beginning September 1, 2013. On January 24, 2017, the Company acquired the land and improvements comprising the golf courses, previously leased from the City, for approximately $1.5 million (the “Golf Course Land Purchase”). In conjunction with the Golf Course Land Purchase, the lease between the Company and the City was terminated. Therefore, during the first quarter of 2017, the Company eliminated the remaining accrued liability of approximately $2.2 million, resulting in the
44
recognition of approximately $0.40 per share in non-cash earnings, or $0.24 per share after tax, which comprises the land lease termination in the consolidated statements of operations. The $2.2 million consisted of approximately $1.7 million which reflects the acceleration of the remaining amount of accrued rent that was no longer owed to the City as a result of the Lease Amendment, which prior to the Golf Course Land Purchase was being recognized into income over the remaining lease term which was originally to expire in 2022. The remaining approximately $500,000 reflects the amount of rent accrued pursuant to the lease, as amended, which will no longer be owed to the City due to the lease termination on January 24, 2017.
On January 24, 2017, the Company acquired the land and improvements comprising the golf courses, previously leased from the City for approximately $1.5 million (the “Golf Course Land Purchase”). As a part of the Golf Course Land Purchase, the Company donated to the City three land parcels totaling approximately 14.3 acres located on the west side of Interstate 95 that are adjacent to the City’s Municipal Stadium. The Company had a cost basis of $0 in the donated land and paid approximately $100,000 to satisfy the community development district bonds associated with the acreage. Other terms of the Golf Course Land Purchase include the following:
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Commercial Loan Investments. Our investments in commercial loans or similar structured finance investments, such as mezzanine loans or other subordinated debt, have been and are expected to continue to be secured by commercial or residential real estate or the borrower’s pledge of its ownership interest in the entity that owns the real estate. The first mortgage loans we invest in or originate are for commercial real estate located in the United States and its territories, and are current or performing with either a fixed or floating rate. Some of these loans may be syndicated in either a pari-passu or senior/subordinated structure. Commercial first mortgage loans generally provide for a higher recovery rate due to their senior position in the underlying collateral. Commercial mezzanine loans are typically secured by a pledge of the borrower’s equity ownership in the underlying commercial real estate. Unlike a mortgage, a mezzanine loan is not secured by a lien on the property. An investor’s rights in a mezzanine loan are usually governed by an intercreditor agreement that provides holders with the rights to cure defaults and exercise control on certain decisions of any senior debt secured by the same commercial property.
On July 31, 2017, the Company originated a $3.0 million first mortgage loan secured by a parcel of beachfront land in the City of Daytona Beach Shores, Florida which the borrower intends to develop as a residential condominium (the “Beach Loan”). The Beach Loan matures on August 1, 2018, includes a one-year extension option, bears a fixed interest rate of 11.00%, and requires payments of interest only prior to maturity. At closing, a loan origination fee of $60,000 was received by the Company. Should the borrower seek to obtain financing for the development of the project the Beach Loan would likely be paid off in connection with that financing.
As of September 30, 2017, the Company owned four performing commercial loan investments which have an aggregate outstanding principal balance of approximately $27.0 million. These loans are secured by real estate, or the borrower’s equity interest in real estate, located in Daytona Beach Shores, Florida, Sarasota, Florida, Dallas, Texas, and Atlanta, Georgia, and have an average remaining maturity of approximately 0.9 years and a weighted average interest rate of 9.6%.
The Company sold its two commercial loan investments secured by hotel properties in Atlanta, Georgia and Dallas, Texas which have an aggregate principal value of $15.0 million at a slight premium to par. See Note 21, “Subsequent Events.” These two loans have been classified as held for sale on the accompanying consolidated balance sheets as of September 30, 2017.
45
Agriculture and Other Income. Effectively all of our agriculture and other income consists of revenues generated by our agricultural operations. The Company’s agricultural lands encompass approximately 7,100 acres on the west side of Daytona Beach, Florida. Our agricultural operations are managed by a third-party and consist of leasing land for hay production and timber harvesting, as well as hunting leases.
SUMMARYCOMPARISON OF OPERATING RESULTS FOR THE QUARTERTHREE MONTHS ENDED SEPTEMBER 30, 2017 COMPARED TO SEPTEMBER 30, 20162022 AND 2021
REVENUERevenue
Total revenue for the three months ended September 30, 2017 and 20162022 is presented in the following summary and indicates the changes as compared to the three months September 30, 2021 (in thousands):
| | | | | | | | | | | |
| | Three Months Ended | | | | | |||||
Operating Segment |
| September 30, 2022 | | September 30, 2021 | | $ Variance | | % Variance | |||
Income Properties | | $ | 17,694 | | $ | 13,734 | | $ | 3,960 | | 28.8% |
Management Services | | | 951 | | | 940 | | | 11 | | 1.2% |
Commercial Loans and Investments | | | 1,323 | | | 726 | | | 597 | | 82.2% |
Real Estate Operations | | | 3,149 | | | 1,177 | | | 1,972 | | 167.5% |
Total Revenue | | $ | 23,117 | | $ | 16,577 | | $ | 6,540 | | 39.5% |
Total revenue for the three months ended September 30, 2016:
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| Revenue for |
| Revenue for |
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| Three Months |
| Three Months |
| Increase (Decrease) | ||||||
|
| Ended |
| Ended |
| Vs. Same Period |
| Vs. Same Period | ||||
Operating Segment |
| 9/30/2017 |
| 9/30/2016 |
| in 2016 |
| in 2016 (%) | ||||
Income Properties |
| $ | 7,928,258 |
| $ | 6,021,331 |
| $ | 1,906,927 |
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| 32% |
Interest Income from Commercial Loan Investments |
|
| 637,801 |
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| 534,212 |
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| 103,589 |
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| 19% |
Real Estate Operations |
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| 2,926,406 |
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| 4,643,646 |
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| (1,717,240) |
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| -37% |
Golf Operations |
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| 797,420 |
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| 1,001,368 |
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| (203,948) |
|
| -20% |
Agriculture & Other Income |
|
| 90,717 |
|
| 10,388 |
|
| 80,329 |
|
| 773% |
Total Revenue |
| $ | 12,380,602 |
| $ | 12,210,945 |
| $ | 169,657 |
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| 1% |
Total revenue for2022 increased to $23.1 million, compared to $16.6 million during the quarterthree months ended September 30, 20172021. The increase in total revenue is primarily attributable to increased slightly to approximately $12.4 million compared to approximately $12.2 millionincome produced by the Company’s recent income property acquisitions versus that of properties disposed of by the
42
Company during the samecomparative period, in 2016, an increase of approximately $170,000, or 1%. This increase was primarily the result of the following elements of the decrease in Real Estate Operations Revenue offset by the increase in the Income Property Operations Revenue, respectively:
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| Revenue for |
| Revenue for |
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| Three Months |
| Three Months |
| Increase (Decrease) | ||||||
|
| Ended |
| Ended |
| Vs. Same Period |
| Vs. Same Period | ||||
|
| 9/30/2017 |
| 9/30/2016 |
| in 2016 |
| in 2016 | ||||
Real Estate Operations Revenue |
| ($000's) |
| ($000's) |
| ($000's) |
| (%) | ||||
Land Sales Revenue |
| $ | — |
| $ | 318 |
| $ | (318) |
|
| -100% |
Tomoka Town Center - Percentage of Completion Revenue |
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| — |
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| 3,654 |
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| (3,654) |
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| -100% |
Impact Fee and Mitigation Credit Sales |
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| 548 |
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| 209 |
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| 339 |
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| 162% |
Subsurface Revenue |
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| 2,374 |
|
| 463 |
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| 1,911 |
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| 413% |
Fill Dirt and Other Revenue |
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| 4 |
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| — |
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| 4 |
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| 100% |
Total Real Estate Operations Revenue |
| $ | 2,926 |
| $ | 4,644 |
| $ | (1,718) |
|
| -37% |
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| Revenue for |
| Revenue for |
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| Three Months |
| Three Months |
| Increase (Decrease) | ||||||
|
| Ended |
| Ended |
| Vs. Same Period |
| Vs. Same Period | ||||
|
| 9/30/2017 |
| 9/30/2016 |
| in 2016 |
| in 2016 | ||||
Income Property Operations Revenue |
| ($000's) |
| ($000's) |
| ($000's) |
| (%) | ||||
Revenue from Q4 2016 and YTD 2017 Acquisitions |
| $ | 1,659 |
| $ | — |
| $ | 1,659 |
|
| 100% |
Revenue from The Grove at Winter Park |
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| 147 |
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| 24 |
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| 123 |
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| 513% |
Revenue from Remaining Portfolio |
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| 5,570 |
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| 5,438 |
|
| 132 |
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| 2% |
Accretion of Above Market/Below Market Intangibles |
|
| 552 |
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| 559 |
|
| (7) |
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| -1% |
Total Income Property Operations Revenue |
| $ | 7,928 |
| $ | 6,021 |
| $ | 1,907 |
|
| 32% |
NET INCOME
Net income and basic net income per share for the quarter ended September 30, 2017, compared to the same period in 2016, was as follows:
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| Three Months |
| Three Months |
| Increase (Decrease) | ||||||
|
| Ended |
| Ended |
| Vs. Same Period |
| Vs. Same Period | ||||
|
| 9/30/2017 |
| 9/30/2016 |
| in 2016 |
| in 2016 | ||||
Net Income |
| $ | 966,900 |
| $ | 8,161,014 |
| $ | (7,194,114) |
|
| -88% |
Basic Earnings Per Share |
| $ | 0.18 |
| $ | 1.44 |
| $ | (1.26) |
|
| -88% |
46
The above results for the third quarter of 2017, compared to the same period in 2016, reflected the following significant operating elements in addition to the impacts on revenues as described above:
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INCOME PROPERTIESincreased income from commercial loans and investments and mitigation credit sales.
Revenues
Income Properties
Revenue and operating income from our income property operations totaled approximately $7.9$17.7 million and $6.2$12.6 million, respectively, during the quarterthree months ended September 30, 2017,2022, compared to total revenue and operating income of approximately $6.0$13.7 million and $4.6$9.8 million, respectively, for the quarterthree months ended September 30, 2016.2021. The direct costs of revenues for our income property operations totaled approximately $1.7$5.1 million and $1.4$4.0 million for the quarterthree months ended September 30, 20172022 and 2016,2021, respectively. The increase in revenues of approximately $1.9$4.0 million, or 32%28.8%, during the quarterthree months ended September 30, 2017 reflects our expanded portfolio of income properties including increases of approximately $1.7 million due2022 is primarily related to our recent acquisitions in the fourth quarter of 2016 and the first nine months of 2017, and an increase of approximately $123,000 in revenue generated by our multi-tenant property, the Grove at Winter Park in Winter Park, Florida, and a slight increase of approximately $132,000 from our in-place portfolio. Revenue from our income properties during the quarters ended September 30, 2017 and 2016 also includes approximately $552,000 and $559,000, respectively, in revenue from the accretionoverall growth of the below-market lease intangible, which is primarily attributable toCompany’s income property portfolio, as well as the Wells Fargo property. Our increasedtiming of acquisitions versus dispositions. The increase in operating income of $2.8 million from our income property operations reflects increased rent revenues, offset by an increase of approximately $285,000$1.1 million in our direct costs of revenues which was primarily comprised of approximately $321,000 in increased operating expensesis also related to the overall growth of the Company’s income property portfolio.
Management Services
Revenue from our recent acquisitions mentioned previouslymanagement services from PINE totaled $0.9 million during the three months ended September 30, 2022. Revenue from our management services totaled $0.9 million during the three months ended September 30, 2021, including $0.9 million and $0.03 million earned from PINE and the Land JV, respectively.
Commercial Loans and Investments
Interest income from our commercial loans and investments totaled $1.3 million and $0.7 million during the three months ended September 30, 2022 and 2021, respectively. The increase is primarily due to increased income from the investments made during the nine months ended September 30, 2022, including two construction loans and the Watters Creek Investment, as defined in late 2016Note 4. “Commercial Loans and year-to-date in 2017.Investments”, which were partially offset by decreased income from two commercial properties which were sold during the nine months ended September 30, 2022 which were accounted for as commercial loan investments due to future repurchase rights.
REAL ESTATE OPERATIONS
Real Estate Operations
During the quarterthree months ended September 30, 2017,2022, operating income from real estate operations was approximately $2.5$1.5 million on revenues totaling approximately $2.9$3.1 million. During the quarterthree months ended September 30, 2016,2021, operating income from real estate operations was approximately $3.4$0.9 million on revenues totaling approximately $4.6$1.2 million. The decreasetotal increase in revenue of approximately $1.7 million and operating income of approximately $919,000 iswas $0.6 million which was primarily attributabledue to the revenue recognized utilizing percentage of completionmore mitigation credit sales during the quarterthree months ended September 30, 2016 of approximately $3.7 million on the sales within the Town Center which closed during the fourth quarter of 2015 and the first quarter of 2016 with no land sales revenue during the quarter ended September 30, 2017. The decrease in land sales revenue was partially offset by approximately $2.1 million in revenue from a sale of subsurface interests which closed during the quarter ended September 30, 2017. The decrease of approximately $798,000 in direct costs of real estate operations is primarily the result of the decrease of approximately $777,000 in the cost basis recognized during the third quarter of 2016 related2022 as compared to the percentage of completion land sales.same period in 2021.
GOLF OPERATIONSGeneral and Administrative Expenses
Revenues from golf operations totaled approximately $797,000Total general and $1.0 millionadministrative expenses for the three months ended September 30, 2017 and 2016, respectively. The total direct cost of golf operations revenues totaled approximately $1.3 million for the three months ended September 30, 2017 and 2016. The Company’s golf operations had a net operating loss of approximately $475,000 and approximately $302,000 during the three months ended September 30, 2017 and 2016, respectively, reflecting a decline in operating results of approximately $174,000. The primary reason for the decline in revenues and related operating results was that one of the two 18-hole golf courses was closed during the entire third quarter of 2017 for the renovation of the greens.
INTEREST INCOME FROM COMMERCIAL LOAN INVESTMENTS
Interest income from our commercial loan investments totaled approximately $638,000 and $534,000 during the three months ended September 30, 2017 and 2016, respectively. The increase is primarily attributable to approximately
47
$67,000 in revenue generated by the $3.0 million first mortgage loan originated in July 2017 as well as an increase in interest from our variable rate loans due to the increase in LIBOR during the third quarter of 2017.
AGRICULTURE AND OTHER INCOME
For the three months ended September 30, 2017 and 2016, revenues from agriculture and other income totaled approximately $90,000 and $10,000, respectively, with the increase due to a timber harvesting contract that generated approximately $80,000 of revenue in the third quarter of 2017. For the three months ended September 30, 2017 and 2016, the direct cost of revenues totaled approximately $19,000 and $53,000, respectively, an improvement of approximately $34,000 which reflects reduced payroll for this segment.
GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses totaled approximately $2.0 million and $1.8 million for the three months ended September 30, 2017 and 2016, respectively, an increase of approximately $174,000. The increase is primarily related to the costs incurred for the Company’s evaluation of a possible conversion to a real estate investment trust (“REIT”) as well as other professional fees.
GAINS ON DISPOSITION OF ASSETS AND IMPAIRMENT CHARGES
No income properties were disposed of during the three months ended September 30, 2017. There were no impairment charges during the three months ended September 30, 2017 or 2016.
Fifteen income properties were disposed of during the three months ended September 30, 2016, of which fourteen were part of the Portfolio Sale which generated a gain totaling approximately $11.4 million. The other sale during the quarter ended September 30, 2016 was for a loss of approximately $922,000 of which approximately $942,000 was recognized as an impairment charge during the second quarter of 2016.
INTEREST EXPENSE
Interest expense totaled approximately $2.1 million and $2.5 million for the three months ended September 30, 2017 and 2016, respectively. The decrease of approximately $381,000 is primarily the result of the write-off of approximately $367,000 of loan costs in 2016 for the $23.1 million secured loan that was assumed by the buyer of the Portfolio Sale offset by the capitalization of approximately $124,000 of interest in the third quarter of 2017 relating to our development activities at the Grove, the beach parcel, and our new corporate office space.
SUMMARY OF OPERATING RESULTS FOR THE NINE MONTHS ENDED SEPTMEBER 30, 2017 COMPARED TO SEPTEMBER 30, 2016
REVENUE
Total revenue for the nine months ended September 30, 2017 and 20162022 is presented in the following summary and indicates the changes as compared to ninethe three months ended September 30, 2016:2021 (in thousands):
| | | | | | | | | | | |
| | Three Months Ended | | | | | |||||
General and Administrative Expenses |
| September 30, 2022 | | September 30, 2021 | | $ Variance | | % Variance | |||
Recurring General and Administrative Expenses | | $ | 2,441 | | $ | 1,946 | | $ | 495 | | 25.4% |
Non-Cash Stock Compensation | | | 812 | | | 734 | | | 78 | | 10.6% |
Total General and Administrative Expenses | | $ | 3,253 | | $ | 2,680 | | $ | 573 | | 21.4% |
Depreciation and Amortization
Depreciation and amortization totaled $7.3 million and $5.6 million during the three months ended September 30, 2022 and 2021, respectively. The increase of $1.7 million is primarily due to the overall growth in the Company’s income property portfolio.
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| Revenue for |
| Revenue for |
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| Nine Months |
| Nine Months |
| Increase (Decrease) | ||||||
|
| Ended |
| Ended |
| Vs. Same Period |
| Vs. Same Period | ||||
Operating Segment |
| 9/30/2017 |
| 9/30/2016 |
| in 2016 |
| in 2016 (%) | ||||
Income Properties |
| $ | 22,566,505 |
| $ | 18,483,654 |
| $ | 4,082,851 |
|
| 22% |
Interest Income from Commercial Loan Investments |
|
| 1,727,449 |
|
| 2,050,507 |
|
| (323,058) |
|
| -16% |
Real Estate Operations |
|
| 45,658,221 |
|
| 18,979,164 |
|
| 26,679,057 |
|
| 141% |
Golf Operations |
|
| 3,655,877 |
|
| 3,877,923 |
|
| (222,046) |
|
| -6% |
Agriculture & Other Income |
|
| 323,617 |
|
| 48,070 |
|
| 275,547 |
|
| 573% |
Total Revenue |
| $ | 73,931,669 |
| $ | 43,439,318 |
| $ | 30,492,351 |
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| 70% |
43
Gains and Impairment Charges
2022 Dispositions. During the three months ended September 30, 2022, the Company sold four income properties, including (i) the multi-tenant Westland Gateway Plaza located in Hialeah, Florida, which was recorded as a commercial loan investment prior to its disposition, for $22.2 million, (ii) Chuy’s, a single-tenant property, located in Jacksonville, Florida for $5.8 million, (iii) Firebirds, a single-tenant property, located in Jacksonville, Florida for $5.5 million, and (iv) 245 Riverside, a multi-tenant office income property located in Jacksonville, Florida for $23.6 million. The sale of these four properties reflect a total disposition volume of $57.0 million, resulting in aggregate gains of $5.0 million.
2021 Dispositions. During the three months ended September 30, 2021, the Company sold four income properties, including (i) Chick-fil-A, a single-tenant property, located in Chandler, Arizona for $2.9 million, (ii) JPMorgan Chase Bank, a single-tenant property, located in Chandler, Arizona for $4.7 million, (iii) Fogo De Chao, a single-tenant property, located in Jacksonville, Florida for $4.7 million, and (iv) Wells Fargo, a single-tenant office income property located in Raleigh, North Carolina for $63.0 million. The sale of the properties reflect a total disposition volume of $75.3 million, resulting in aggregate gains of $22.7 million.
Impairment Charges. There were no impairment charges on the Company’s undeveloped land holdings, or its income property portfolio during the three months ended September 30, 2022 and 2021.
���
Investment and Other Income (Loss)
During the three months ended September 30, 2022, the closing stock price of PINE decreased by $1.70 per share, with a closing price of $16.22 on September 30, 2022. During the three months ended September 30, 2021, the closing stock price of PINE decreased by $0.65 per share, with a closing price of $18.37 on September 30, 2021. The change in stock price resulted in an unrealized, non-cash losses on the Company’s investment in PINE of $3.7 million and $1.3 million which is included in investment and other income (loss) in the consolidated statements of operations for the three months ended September 30, 2022 and 2021, respectively.
The Company earned dividend income from the investment in PINE of $0.6 million and $0.5 million during the three months ended September 30, 2022 and 2021, respectively.
Interest Expense
Interest expense totaled $3.0 million and $2.0 million for the three months ended September 30, 2022 and 2021, respectively. The increase of $1.0 million resulted primarily from (i) the increase in the variable interest rate under the Company’s Credit Facility during the three months ended September 30, 2022 prior to the repayment with proceeds from the 2028 Term Loan, (ii) the increase in debt related to the $17.8 million mortgage loan assumed in connection with the acquisition of Price Plaza, the $100.0 million 2027 Term Loan, and the $100.0 million 2028 Term Loan.
Net Income Attributable to the Company
Net income attributable to the Company totaled $4.8 million during the three months ended September 30, 2022 as compared to $23.9 million of net income during the three months ended September 30, 2021. The decrease in net income is attributable to the factors described above, and notably the decrease of $17.7 million of gains on the disposition of assets.
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COMPARISON OF THE NINE MONTHS ENDED SEPTEMBER 30, 2022 AND 2021
Revenue
Total revenue for the nine months ended September 30, 2017 increased to approximately $73.9 million from approximately $43.4 million during the same period2022 is presented in 2016, an increase of approximately $30.5 million, or 70%. This increase was primarily the result of the following elements ofsummary and indicates the increases in Real Estate Operations Revenue and Income Property Operations Revenue, respectively:changes as compared to the nine months ended September 30, 2021 (in thousands):
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| | Nine Months Ended | | | | | |||||
Operating Segment |
| September 30, 2022 | | September 30, 2021 | | $ Variance | | % Variance | |||
Income Properties | | $ | 49,229 | | $ | 36,757 | | $ | 12,472 | | 33.9% |
Management Services | | | 2,835 | | | 2,361 | | | 474 | | 20.1% |
Commercial Loans and Investments | | | 3,331 | | | 2,136 | | | 1,195 | | 55.9% |
Real Estate Operations | | | 4,395 | | | 4,318 | | | 77 | | 1.8% |
Total Revenue | | $ | 59,790 | | $ | 45,572 | | $ | 14,218 | | 31.2% |
48
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| Revenue for |
| Revenue for |
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| Nine Months |
| Increase (Decrease) | ||||||
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| Ended |
| Ended |
| Vs. Same Period |
| Vs. Same Period | ||||
|
| 9/30/2017 |
| 9/30/2016 |
| in 2016 |
| in 2016 | ||||
Real Estate Operations Revenue |
| ($000's) |
| ($000's) |
| ($000's) |
| (%) | ||||
Land Sales Revenue |
| $ | 39,564 |
| $ | 508 |
| $ | 39,056 |
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| 7688% |
Tomoka Town Center - Percentage of Completion Revenue |
|
| — |
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| 16,455 |
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| (16,455) |
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| -100% |
Revenue from Reimbursement of Infrastructure Costs |
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| 1,276 |
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| — |
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| 1,276 |
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| 100% |
Impact Fee and Mitigation Credit Sales |
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| 1,987 |
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| 481 |
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| 1,506 |
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| 313% |
Subsurface Revenue |
|
| 2,827 |
|
| 1,535 |
|
| 1,292 |
|
| 84% |
Fill Dirt and Other Revenue |
|
| 4 |
|
| — |
|
| 4 |
|
| 100% |
Total Real Estate Operations Revenue |
| $ | 45,658 | �� | $ | 18,979 |
| $ | 26,679 |
|
| 141% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Revenue for |
| Revenue for |
|
|
|
|
|
| ||
|
| Nine Months |
| Nine Months |
| Increase (Decrease) | ||||||
|
| Ended |
| Ended |
| Vs. Same Period |
| Vs. Same Period | ||||
|
| 9/30/2017 |
| 9/30/2016 |
| in 2016 |
| in 2016 | ||||
Income Property Operations Revenue |
| ($000's) |
| ($000's) |
| ($000's) |
| (%) | ||||
Revenue from Q4 2016 and YTD 2017 Acquisitions |
| $ | 3,989 |
| $ | — |
| $ | 3,989 |
|
| 100% |
Revenue from The Grove at Winter Park |
|
| 284 |
|
| 78 |
|
| 206 |
|
| 264% |
Revenue from Remaining Portfolio |
|
| 16,660 |
|
| 16,683 |
|
| (23) |
|
| 0% |
Accretion of Above Market/Below Market Intangibles |
|
| 1,633 |
|
| 1,722 |
|
| (89) |
|
| -5% |
Total Income Property Operations Revenue |
| $ | 22,566 |
| $ | 18,483 |
| $ | 4,083 |
|
| 22% |
NET INCOME
Net income and basic net income per shareTotal revenue for the nine months ended September 30, 2017,2022 increased to $59.8 million, compared to the same period in 2016, was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Nine Months |
| Nine Months |
| Increase (Decrease) | ||||||
|
| Ended |
| Ended |
| Vs. Same Period |
| Vs. Same Period | ||||
|
| 9/30/2017 |
| 9/30/2016 |
| in 2016 |
| in 2016 | ||||
Net Income |
| $ | 17,392,200 |
| $ | 11,156,175 |
| $ | 6,236,025 |
|
| 56% |
Basic Earnings Per Share |
| $ | 3.13 | (1) | $ | 1.96 |
| $ | 1.17 |
|
| 60% |
(1)Includes $0.24 in non-cash earnings for the elimination of the accrued liability associated with the straight-line accounting for the land lease which was terminated as part of the acquisition of the LPGA International golf course land.
The above results for$45.6 million during the nine months ended September 30, 2017, compared2021. The increase in total revenue is primarily attributable to increased income produced by the sameCompany’s recent income property acquisitions versus that of properties disposed of by the Company during the comparative period, in 2016, reflected the following significant operating elements in addition to the impacts on revenues described above:
|
|
|
|
|
|
|
|
INCOME PROPERTIESincreased management fee income from PINE and increased income from commercial loans and investments.
Revenues
Income Properties
Revenue and operating income from our income property operations totaled approximately $22.6$49.2 million and $17.8$35.3 million, respectively, during the nine months ended September 30, 2017,2022, compared to total revenue and operating income of approximately $18.5$36.8 million and $14.7$27.1 million, respectively, for the nine months ended September 30, 2016.2021. The direct costs of revenues for our income property operations totaled approximately $4.8$13.9 million and $3.8$9.7 million for
49
the nine months ended September 30, 20172022 and 2016,2021, respectively. The increase in revenues of approximately $4.1$12.5 million, or 22%33.9%, during the nine months ended September 30, 20172022 is primarily related to the overall growth of the Company’s income property portfolio, as well as the timing of acquisitions versus dispositions. The increase in operating income of $8.2 million from our income property operations reflects increased rent revenues, offset by an increase of $4.3 million in our expanded portfoliodirect costs of revenues which is also related to the overall growth of the Company’s income property portfolio.
Management Services
Revenue from our management services from PINE totaled $2.8 million during the nine months ended September 30, 2022. Revenue from our management services totaled $2.4 million during the nine months ended September 30, 2021, including $2.3 million and $0.09 million earned from PINE and the Land JV, respectively.
Commercial Loans and Investments
Interest income from our commercial loans and investments totaled $3.3 million and $2.1 million during the nine months ended September 30, 2022 and 2021, respectively. The increase is due to increased income from the investments made during the nine months ended September 30, 2022, including three construction loans and the Watters Creek Investment, as defined in Note 4. “Commercial Loans and Investments”, which were partially offset by decreased income from two commercial properties which was sold during the nine months ended September 30, 2022, which were accounted for as commercial loan investments due to future repurchase rights.
Real Estate Operations
During the nine months ended September 30, 2022, operating income from real estate operations was $2.5 million on revenues totaling $4.4 million. During the nine months ended September 30, 2021, operating income from real estate operations was $3.5 million on revenues totaling $4.3 million. The total decrease in operating income was $1.0 million, of which $1.4 million of the decrease was due to fewer Subsurface Interest sales. This $1.4 million decrease was partially offset by the Company’s sale of 26.62 mitigation credits for an aggregate sales price of $2.6 million and related cost of
45
sales of $1.7 million during the nine months ended September 30, 2022, with no such mitigation credit sales during the nine months ended September 30, 2021.
General and Administrative Expenses
Total general and administrative expenses for the nine months ended September 30, 2022 is presented in the following summary and indicates the changes as compared to the nine months ended September 30, 2021 (in thousands):
| | | | | | | | | | | |
| | Nine Months Ended | | | | ��� | |||||
General and Administrative Expenses |
| September 30, 2022 | | September 30, 2021 | | $ Variance | | % Variance | |||
Recurring General and Administrative Expenses | | $ | 6,549 | | $ | 5,888 | | $ | 661 | | 11.2% |
Non-Cash Stock Compensation | | | 2,423 | | | 2,434 | | | (11) | | (0.5)% |
REIT Conversion and Other Non-Recurring Items | | | — | | | 155 | | | (155) | | (100.0)% |
Total General and Administrative Expenses | | $ | 8,972 | | $ | 8,477 | | $ | 495 | | 5.8% |
Depreciation and Amortization
Depreciation and amortization totaled $20.4 million and $15.4 million during the nine months ended September 30, 2022 and 2021, respectively. The increase of $5.0 million is primarily due to the overall growth in the Company’s income property portfolio.
Gains (Losses) and Impairment Charges
2022 Dispositions. During the nine months ended September 30, 2022, the Company sold six income properties, including increases(i) Party City, a single-tenant income property located in Oceanside, New York for $6.9 million, (ii) the Carpenter Hotel ground lease, a single-tenant income property located in Austin, Texas, which was recorded as a commercial loan investment prior to its disposition, for $17.1 million, (iii) the multi-tenant Westland Gateway Plaza located in Hialeah, Florida, which was recorded as a commercial loan investment prior to its disposition, for $22.2 million, (iv) Chuy’s, a single-tenant property, located in Jacksonville, Florida for $5.8 million, (v) Firebirds, a single-tenant property, located in Jacksonville, Florida for $5.5 million, and (vi) 245 Riverside, a multi-tenant office income property located in Jacksonville, Florida for $23.6 million. The sale of approximately $4.0these six properties reflect a total disposition volume of $81.1 million, dueresulting in aggregate gains of $4.7 million.
2021 Dispositions. During the nine months ended September 30, 2021, the Company disposed of one multi-tenant income property and 13 single-tenant income properties, including (i) World of Beer/Fuzzy’s Taco Shop, a multi-tenant income property located in Brandon, Florida for $2.3 million, (ii) Moe’s Southwest Grill, a single-tenant income property located in Jacksonville, Florida for $2.5 million, (iii) Burlington, a single-tenant income property located in North Richland Hills, Texas for $11.5 million, (iv) Staples, a single-tenant income property located in Sarasota, Florida for $4.7 million, (v) the CMBS Portfolio, sold to our recent acquisitionsPINE, consisting of six single-tenant income properties for $44.5 million, (vi) Chick-fil-A, a single-tenant property, located in Chandler, Arizona for $2.9 million, (vii) JPMorgan Chase Bank, a single-tenant property, located in Chandler, Arizona for $4.7 million, (viii) Fogo De Chao, a single-tenant property, located in Jacksonville, Florida for $4.7 million, and (ix) Wells Fargo, a single-tenant office income property located in Raleigh, North Carolina for $63.0 million. The sale of the properties reflect a total disposition volume of $140.8 million, resulting in aggregate gains of $28.0 million.
Impairment Charges. There were no impairment charges on the Company’s undeveloped land holdings, or its income property portfolio during the nine months ended September 30, 2022 and 2021. The $16.5 million impairment charge, net of the $4.1 million related income tax benefit, recognized during the nine months ended September 30, 2021 was related to the Company’s previously held retained interest in the last quarterLand JV as a result of 2016the estimated proceeds to be received in connection with the contract entered into with Timberline Acquisition Partners, an affiliate of Timberline Real Estate Partners (“Timberline”). The sale to Timberline closed on December 10, 2021.
46
Investment and Other Income (Loss)
During the nine months ended September 30, 2022, the closing stock price of PINE decreased by $3.82 per share, with a closing price of $16.22 on September 30, 2022. During the nine months ended September 30, 2021, the closing stock price of PINE increased by $3.38 per share, with a closing price of $18.37 on September 30, 2021. The change in stock price resulted in an unrealized, non-cash gain (loss) on the Company’s investment in PINE of ($8.1) million and $6.9 million which is included in investment and other income (loss) in the consolidated statements of operations for the nine months ended September 30, 2022 and 2021, respectively.
The Company earned dividend income from the investment in PINE of $1.7 million and $1.5 million during the nine months ended September 30, 2022 and 2021, respectively.
Interest Expense
Interest expense totaled $7.2 million and $6.8 million for the nine months ended September 30, 2022 and 2021, respectively. The increase of $0.4 resulted primarily from (i) the net decrease in long-term debt outstanding under the Company’s Credit Facility during the nine months ended September 30, 2022 as compared to the same period in 2021, which is primarily driven by the use of proceeds received from the Series A Preferred Stock offering and the first2028 Term Loan, (ii) the payoff of the Company’s $23.2 million variable-rate mortgage note, (iii) the disposition of the CMBS Portfolio under which the buyer assumed a $30.0 million fixed-rate mortgage note, and (iv) the repurchase of $11.4 million aggregate principal amount of 2025 Notes. These decreases in debt were offset by increases in debt related to (i) the $17.8 million mortgage loan assumed in connection with the acquisition of Price Plaza and (ii) the $200.0 million in debt from the 2027 Term Loan and 2028 Term Loan, as well as increased rates related to the unhedged credit facility balance.
Net Income Attributable to the Company
Net income attributable to the Company totaled $6.2 million during the nine months ended September 30, 2022 as compared to net income of 2017$28.0 million during the nine months ended September 30, 2021. The decrease in net income is attributable to the factors described above, and notably the decrease of $23.4 million of gains on the disposition of assets.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents totaled $9.5 million at September 30, 2022, while restricted cash totaled $37.3 million, see Note 2, “Summary of Significant Accounting Policies” under the heading Restricted Cash for the Company’s disclosure related to its restricted cash balance at September 30, 2022.
Our cash flows provided by operating activities totaled $34.1 million during the nine months ended September 30, 2022, compared to cash flows provided by operating activities totaling $12.4 million for the nine months ended September 30, 2021, an increase of approximately $206,000$21.7 million. The increase is primarily related to the increase in the cash flows provided by income properties, which is the result of the overall growth of the Company’s income property portfolio. The cash flows provided by operating activities was also impacted by more cash flows from ourthe Company’s management fee income and interest income from commercial loans and investments.
Our cash flows used in investing activities totaled $80.4 million for the nine months ended September 30, 2022, compared to cash flows used in investing activities of $7.7 million for the nine months ended September 30, 2021, an increase in cash outflows of $72.7 million. The increase in cash used in investing activities is primarily related to $67.7 million less in proceeds from income property dispositions, during the nine months ended September 30, 2022 as compared to the same period in 2021.
Our cash flows provided by financing activities totaled $61.8 million for the nine months ended September 30, 2022, compared to cash flows provided by financing activities of $37.1 million for the nine months ended September 30, 2021, an increase in cash inflows of $24.7 million. The increase is primarily related to a $86.3 million increase in cash flows provided by debt activity offset by an increase in cash outflows of $5.0 million related to dividends paid during the nine months ended September 30, 2022 as compared to the same period in the prior year and an increase in cash outflows of $2.8 million of repurchases of the Company’s common stock. Cash flows from financing activities also benefitted from cash inflows of $20.8 million of net proceeds received from the sale of 961,261 shares of the Company’s common stock
47
under the ATM Program during the nine months ended September 30, 2022, with no such activity during the same period in 2021.
Long-Term Debt. As of September 30, 2022, the Company had $261.5 million undrawn commitment under the Credit Facility.See Note 16, “Long-Term Debt” for the Company’s disclosure related to its long-term debt balance at September 30, 2022.
Acquisitions and Investments. As noted previously, the Company acquired two multi-tenant property, the Grove at Winter Park in Winter Park, Florida. Revenue from our income properties during the nine months ended September 30, 20172022 for a purchase price of $119.3 million, as further described in Note 3, “Income Properties”. The Company also originated three structured investments to provide $57.7 million of funding towards three retail and 2016 also includes approximately $1.6 million and $1.7 million, respectively,mixed-use properties.
The Company’s guidance for 2022 investments in revenueincome-producing properties totals $271.0 million. We expect to fund future acquisitions utilizing cash on hand, cash from operations, proceeds from the accretiondispositions of income properties through 1031 like-kind exchanges, and potentially the below-market lease intangible, which is primarily attributable tosale of all or a portion of our Subsurface Interests, and borrowings on our Credit Facility, if available. We expect dispositions of income properties and subsurface interests will qualify under the Wells Fargo property. Our increased operating income from our income property operations reflects the aforementioned increased rent revenues offset by an increase of approximately $945,000 in our direct costs of revenues largely related to our recent acquisitions mentioned previously in late 2016like-kind exchange deferred-tax structure, and year-to-date in 2017.additional financing sources.
REAL ESTATE OPERATIONS
Dispositions.During the nine months ended September 30, 2017, operating2022, the Company sold six income from real estate operations was approximately $30.2properties for a total disposition volume of $81.1 million, on revenues totaling approximately $45.7 million.two of which were classified as commercial loan investments due to tenant repurchase options, as further described in Note 3, “Income Properties”.
ATM Program. During the nine months ended September 30, 2016, operating income was approximately $14.32022, the Company sold 961,261 shares under the ATM Program for gross proceeds of $21.1 million on revenuesat a weighted average price of $21.99 per share, generating net proceeds of $20.8 million after deducting transaction fees totaling approximately $19.0$0.3 million.
Contractual Commitments – Expenditures. The increase in revenue of approximately $26.7 million and operating income of approximately $15.9 million is primarily attributableCompany has committed to fund the revenue totaling approximately $39.6 million recognized for the land sales completed in the first nine months of 2017 including the sale of approximately 1,581 acres to Minto Communities for approximately $27.2 millionfollowing capital improvements. The improvements, which closed in the first quarter of 2017, the third land sale transaction completed with NADG for approximately $3.5 million which closed in the second quarter of 2017, the land sale to VanTrust of approximately 28 acres for approximately $3.2 million which also closed in the second quarter of 2017, as well as the $2.1 million sale of subsurface interests that closed during the third quarter of 2017. The increased revenues in 2017 reflect the impact of the 2017 land sales offset by the revenue recognized utilizing percentage of completion during the nine months ended September 30, 2016 on the sales within the Town Center which closed during the fourth quarter of 2015 and the first quarter of 2016, of approximately $16.5 million. The increase of approximately $10.8 million in direct costs of real estate operations is primarily the result of the increase of approximately $8.7 million in the cost basis and approximately $1.3 million in closing and other costs recognized during the first nine months of 2017are related to the land sales closed during that period.
GOLF OPERATIONS
Revenues from golf operations totaled approximately $3.7 million and $3.9 million for the nine months ended September 30, 2017 and 2016, respectively. The total direct cost of golf operations revenues totaled approximately $4.2 million for the nine months ended September 30, 2017 and 2016. The Company’s golf operations had a net operating loss of approximately $517,000 and approximately $277,000 during the nine months ended September 30, 2017 and 2016, respectively, a decrease in operating results of approximately $241,000. The primary reason for the decline in revenues and related operating results was that one of the two 18-hole golf courses was closed during the entire third quarter of 2017 for the renovation of the greens.
INTEREST INCOME FROM COMMERCIAL LOAN INVESTMENTS
Interest income from our commercial loan investments totaled approximately $1.7 million and $2.0 million during the nine months ended September 30, 2017 and 2016, respectively. The decrease is attributable to approximately $466,000 of revenue generated in the first six months of 2016 from the San Juan loan that was repaid during the latter part of the second quarter of 2016, which is partially offset by the increase of approximately $67,000 in revenue generated by the $3.0 million first mortgage loan originated in July 2017 as well as an increase in interest from our variable rate loans due to the increase in LIBOR during the third quarter of 2017.
AGRICULTURE AND OTHER INCOME
For the nine months ended September 30, 2017 and 2016, revenues from agriculture and other income totaled approximately $324,000 and $48,000, respectively, with the increase due to a timber harvesting contract during the first nine months of 2017 that generated approximately $290,000 in revenue. For the nine months ended September 30, 2017 and 2016, the direct cost of revenues totaled approximately $90,000 and $154,000, respectively an improvement of approximately $64,000 which reflects reduced payroll for this segment.
50
GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses totaled approximately $7.9 million and $8.5 million for the nine months ended September 30, 2017 and 2016, respectively, a decrease of approximately $576,000. Non-cash stock compensation expense decreased by approximately $1.8 million, which in part, is due to the accelerated stock compensation expense of approximately $1.6 million recognized in the first quarter of 2016 relating to certain stock awards that were forfeited. The decreased stock compensation expenses were offset by an increase in legal and other costs of approximately $1.2 million which were specifically related to the Company’s proxy contest in connection with the 2017 Annual Meeting of Shareholders offset by the decrease in legal costs of approximately $750,000 related to the investigations conducted in connection with certain claims made by Wintergreen that were determinedseveral properties, are estimated to be without merit.
GAINS ON DISPOSITION OF ASSETS AND IMPAIRMENT CHARGES
No income properties were disposed of during the nine months ended September 30, 2017. There were no impairment charges during the nine months ended September 30, 2017.
Nineteen income properties were disposed of during the nine months ended September 30, 2016, of which seventeen of the sales generated gains totaling approximately $12.8 million, which includes the $11.4 million gain related to the fourteen property Portfolio Sale. The two other sales during the nine months ended September 30, 2016 was for an aggregate loss of approximately $1.2 million which was recognizedgenerally completed within twelve months. These commitments, as an impairment charge during the nine months ended September 30, 2016. The impairment charges totaling approximately $2.2 million during the nine months ended September 30, 2016 included a charge of approximately $210,000 which was recognized on an income property in Sebring, Florida leased to a subsidiary of CVS which was sold in April 2016 and the impairment charges related to the sale of a vacant income property of approximately $942,000 and the Repurchased Land totaling approximately $2.0 million.
INTEREST EXPENSE
Interest expense totaled approximately $6.3 million and $6.7 million for the nine months ended September 30, 2017 and 2016, respectively. The decrease of approximately $421,000 is primarily the result of the write-off of approximately $367,000 of loan costs in 2016 for the $23.1 million secured loan that was assumed by the buyer of the Portfolio Sale offset by the capitalization of approximately $124,000 of interest in the third quarter of 2017 relating to our development activities at the Grove, the beach parcel, and our new corporate office space.
LIQUIDITY AND CAPITAL RESOURCES
Cash and equivalents totaled approximately $5.9 million at September 30, 2017, excluding restricted cash. Restricted cash totaled approximately $7.0 million at September 30, 2017 of which approximately $5.5 million of cash is being held in escrow, to be reinvested through the like-kind exchange structure into one or more income properties. Approximately $415,000 is being held in a reserve account primarily for property taxes and insurance escrows in connection with our financing of two properties acquired in January 2013; approximately $836,000 is being held in three separate escrow accounts related to three separate land transactions of which one closed in each of December 2013, December 2015, and February 2017; approximately $127,000 is being held in a reserve for interest and property taxes for the $3.0 million first mortgage loan investment originated in July 2017; and approximately $147,000 is being held in a capital replacement reserve account in connection with our financing of six income properties with Wells Fargo.
Our total cash balance at September 30, 2017 benefited from cash flows provided by our operating activities totaling approximately $49.1 million during the nine months then ended, compared to the prior year’s cash flows used in operating activities totaling approximately $4.2 million in the same period in 2016. The increase is primarily the result of our increased net income of approximately $6.3 million and the portion of our income tax expense that is deferred pursuant to the 1031 like-kind exchange structure was an increase totaling approximately $3.4 million. In addition, the increase reflects changes in our assets and liabilities during the period including the reduction of our land basis attributable to the land sales in 2017 representing an increase of approximately $17.3 million and a smaller decrease in our deferred revenues representing a difference of approximately $11.0 million which pertains to the percentage of completion of revenue that was recognized largely in 2016 relating to land sales in late 2015 and early 2016.
Our cash flows used in investing activities totaled approximately $49.8 million for the nine months ended September 30, 2017, compared to the prior year’s cash flows provided by investing activities totaling approximately $24.6 million in the same period, a decrease of approximately $74.4 million. During the nine months ended September 30, 2016, the
51
Company received cash proceeds of approximately $49.3 million related to income property dispositions, approximately $14.3 million for the pay-off of one of our loan investments, and approximately $6.3 million from the liquidation of our investment securities, for which there were no similar proceeds during the nine months ended September 30, 2017.
Our cash flows used in financing activities totaled approximately $1.1 million for the nine months ended September 30, 2017, compared to the same period in the prior year totaling approximately $15.4 million, a decrease of approximately $14.3 million. The decrease in cash used in financing activities is primarily related to borrowing activities whereby in the first nine months of 2017 net proceeds related to long-term debt totaled approximately $6.7 million while in the same period in 2016 there were net payments on long-term debt which totaled approximately $9.3 million, a difference year-over-year of approximately $16.0 million. In addition, the decrease during the nine months ended September 30, 2017 resulted from our increased level of stock buybacks which increased by approximately $1.7 million versus the same period in 2016.
Our long-term debt balance, at face value, totaled approximately $178.3 million at September 30, 2017, representing an increase of approximately $6.7 million from the face value balance of approximately $171.6 million at December 31, 2016. The increase was due to the approximately $6.7 million in net draws on our revolving credit facility.
As of September 30, 2017, the Company’s outstanding indebtedness, at face value, was2022, are as follows:follows (in thousands):
| | | |
| | As of September 30, 2022 | |
Total Commitment (1) | | $ | 28,511 |
Less Amount Funded | | | (6,261) |
Remaining Commitment | | $ | 22,250 |
|
|
|
|
|
|
|
|
|
| |||||||||||||||
|
| Face |
| Maturity |
| Interest | ||||||||||||||||||
|
| Value Debt |
| Date |
| Rate | ||||||||||||||||||
Credit Facility |
| $ | 41,000,000 |
| September 2021 |
|
| 30 ‑day LIBOR | ||||||||||||||||
Mortgage Note Payable (originated with UBS) (1) |
|
| 7,300,000 |
| February 2018 |
|
| 3.655% | ||||||||||||||||
Mortgage Note Payable (originated with Wells Fargo) (2) |
|
| 30,000,000 |
| October 2034 |
|
| 4.330% | ||||||||||||||||
Mortgage Note Payable (originated with Wells Fargo) (3) |
|
| 25,000,000 |
| April 2021 |
|
| 30 ‑day LIBOR | ||||||||||||||||
4.50% Convertible Senior Notes due 2020, net of discount |
|
| 75,000,000 |
| March 2020 |
|
| 4.500% | ||||||||||||||||
Total Long-Term Face Value Debt |
| $ | 178,300,000 |
|
|
|
|
|
|
(1)Secured by the Company’s interest in the two-building office complex leased to Hilton Resorts Corporation. Commitment includes tenant improvements, leasing commissions, rebranding, facility expansion and other capital improvements.
(2)Secured by the Company’s interest in six income properties. The mortgage loan carries a fixed rate of 4.33% per annum during the first ten years of the term, and requires payments of interest only during the first ten years of the loan. After the tenth anniversary of the effective date of the loan, the cash flows, as defined in the related loan agreement, generated by the underlying six income properties must be used to pay down the principal balance of the loan until paid off or until the loan matures. The loan is fully pre-payable after the tenth anniversary of the effective date of the loan.
(3)Secured by the Company’s income property leased to Wells Fargo located in Raleigh, North Carolina. The mortgage loan has a 5-year term with two years interest only, and interest and a 25-year amortization for the balance of the term. The mortgage loan bears a variable rate of interest based on the 30-day LIBOR plus a rate of 190 basis points. The interest rate for this mortgage loan has been fixed through the use of an interest rate swap that fixed the rate at 3.17%. The mortgage loan can be prepaid at any time subject to the termination of the interest rate swap.
The Company’s revolving credit facility (the “Credit Facility”), with Bank of Montreal (“BMO”) serving as the administrative agent for the lenders thereunder, is unsecured with regard to our income property portfolio but is guaranteed by certain wholly-owned subsidiaries of the Company. The Credit Facility bank group is led by BMO and also includes Wells Fargo and Branch Banking & Trust Company. On September 7, 2017, the Company executed the second amendment and restatement of the Credit Facility (the “Revolver Amendment”). Pursuant to the Revolver Amendment, the Credit Facility matures on September 7, 2021, with the ability to extend the term for 1 year.
As a result of the Revolver Amendment, the Credit Facility has a total borrowing capacity of $100.0 million with the ability to increase that capacity up to $150.0 million during the term. The Credit Facility provides the lenders with a secured interest in the equity of the Company subsidiaries that own the properties included in the borrowing base. The indebtedness outstanding under the Credit Facility accrues interest at a rate ranging from the 30-day LIBOR plus 150 basis points to the 30-day LIBOR plus 220 basis points based on the total balance outstanding under the Credit Facility as a percentage of the total asset value of the Company, as defined in the Credit Facility. The Credit Facility also accrues
52
a fee of 15 to 25 basis points for any unused portion of the borrowing capacity based on whether the unused portion is greater or less than 50% of the total borrowing capacity.
At September 30, 2017, the current commitment level under the Credit Facility was $100.0 million. The available borrowing capacity under the Credit Facility was approximately $59.0 million, based on the level of borrowing base assets. As of September 30, 2017, the Credit Facility had a $41.0 million balance. As a result of the income property acquisition completed on October 27, 2017 (as described in Note 21, “Subsequent Events”), the amount outstanding on the Credit Facility was approximately $60.5 million and the available borrowing capacity was approximately $39.5 million.
The Credit Facility is subject to customary restrictive covenants including, but not limited to, limitations on the Company’s ability to: (a) incur indebtedness; (b) make certain investments; (c) incur certain liens; (d) engage in certain affiliate transactions; and (e) engage in certain major transactions such as mergers. In addition, the Company is subject to various financial maintenance covenants including, but not limited to, a maximum indebtedness ratio, a maximum secured indebtedness ratio, and a minimum fixed charge coverage ratio. The Credit Facility also contains affirmative covenants and events of default including, but not limited to, a cross default to the Company’s other indebtedness and upon the occurrence of a change of control. The Company’s failure to comply with these covenants or the occurrence of an event of default could result in acceleration of the Company’s debt and other financial obligations under the Credit Facility.
In addition to the Credit Facility, the Company has certain other borrowings, as noted in the table above, all of which are non-recourse.
The Company’s $75.0 million aggregate principal amount of 4.50% Convertible Notes will mature on March 15, 2020, unless earlier purchased or converted. The initial conversion rate was 14.5136 shares of common stock for each $1,000 principal amount of Convertible Notes, which represented an initial conversion price of approximately $68.90 per share of common stock. Since July of 2016, when the Company’s Board of Directors implemented a quarterly dividend in place of the previous semi-annual dividend, the conversion rate has been adjusted with each successive quarterly dividend and is currently, after the third quarter 2017 dividend, equal to 14.5439 shares of common stock for each $1,000 principal amount of Convertible Notes, which represents an adjusted conversion price of approximately $68.76 per share of common stock.
The conversion rate is subject to adjustment in certain circumstances. Holders may not surrender their Convertible Notes for conversion prior to December 15, 2019 except upon the occurrence of certain conditions relating to the closing sale price of the Company’s common stock, the trading price per $1,000 principal amount of Convertible Notes, or specified corporate events including a change in control of the Company. The Company may not redeem the Convertible Notes prior to the stated maturity date and no sinking fund is provided for the Convertible Notes. The Convertible Notes are convertible, at the election of the Company, into solely cash, solely shares of the Company’s common stock, or a combination of cash and shares of the Company’s common stock. The Company intends to settle the Convertible Notes in cash upon conversion, with any excess conversion value to be settled in shares of our common stock. In accordance with GAAP, the Convertible Notes are accounted for as a liability with a separate equity component recorded for the conversion option. A liability was recorded for the Convertible Notes on the issuance date at fair value based on a discounted cash flow analysis using current market rates for debt instruments with similar terms. The difference between the initial proceeds from the Convertible Notes and the estimated fair value of the debt instruments resulted in a debt discount, with an offset recorded to additional paid-in capital representing the equity component. The discount on the Convertible Notes was approximately $6.1 million at issuance, which represents the cash discount paid of approximately $2.6 million and the approximate $3.5 million attributable to the value of the conversion option recorded in equity, which is being amortized into interest expense through the maturity date of the Convertible Notes. As of September 30, 2017, the unamortized debt discount of our Convertible Notes was approximately $3.2 million.
The Company was in compliance with all of its debt covenants as of September 30, 2017 and December 31, 2016.
Section 1031 Like-Kind Exchange. Our sources of liquidity include the release of restricted cash for Section 1031 like-kind exchange transactions upon completion of the exchange. As of September 30, 2017, approximately $5.5 million of cash was being held in escrow, of which approximately $3.4 million was reinvested through the like-kind exchange structure into an income property in April 2017 and approximately $2.2 million remains to be re-invested into one or more income properties.
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Acquisitions and Investments. During the nine months ended September 30, 2017, the Company acquired three single-tenant income properties and two multi-tenant income properties, for an aggregate purchase price of approximately $40.0 million, or an aggregate acquisition cost of approximately $40.7 million including capitalized acquisition costs. On October 27, 2017, we acquired an approximately 212,000 square-foot building leased to Wells Fargo Bank, N.A. for approximately $39.8 million and, as a result, we don’t anticipate any additional investments in income properties through December 31, 2017. We generally expectcommitted to fund acquisitions utilizing our cash on hand; the available capacity under the credit facility; cash from operations; proceeds from land sales transactions, the dispositions of income properties and potentially the sale of our subsurface interests, each of which we expect will qualify under the like-kind exchange deferred-tax structure; and may include additional funding sources such as the sale of impact fees and mitigation credits.
Dispositions. There were no income property dispositions during the three or nine months ended September 30, 2017.
Capital Expenditures. In conjunction with the Company’s sale of approximately 3.4 acres of land to RaceTracconstruction loans as described in December 2013, the Company agreed to reimburse RaceTrac for aNote 4. Commercial Loans and Investments. The unfunded portion of the costs for road improvements and the other costs associated with bringing multiple ingress/egress points to the entire 23-acre Williamson Crossing site, including the Company’s remaining 19.6 acres. The estimated cost for the improvements equals approximately $1.26 million and the Company’s commitment is to reimburse RaceTrac in an amount equal to the lesser of 77.5% of the actual costs or $976,500. The Company’s commitment to fund the improvement costs benefiting the remaining acres of Company land can be paid over five years from sales of the remaining land or at the end of the fifth year. In 2013 the Company deposited $283,500 of cash in escrow related to the improvements, which is classified as restricted cash in the consolidated balance sheets. The total amount in escrow as of September 30, 2017 was approximately $287,000, including accrued interest. Accordingly, as of September 30, 2017, the remaining maximum commitment is approximately $689,000.
In conjunction with the Company’s sale of approximately 18.1 acres of land to an affiliate of Sam’s Club (“Sam’s”) in December 2015, the Company agreed to reimburse Sam’s for a portion of their construction costs applicable to adjacent outparcels retained by the Company. As a result, in December 2015, the Company deposited $125,000 of cash in escrow related to construction work which is classified as restricted cash in the consolidated balance sheets. The total amount in escrow as of September 30, 2017 was approximately $125,000, including accrued interest. Accordingly, the Company’s maximum commitment related to the construction work benefitting the outparcels adjacent to Sam’s land parcel is approximately $125,000, to be paid from escrow upon completion.
The Company’s total construction estimate related to the capital expenditures to renovate The Grove at Winter Park property in Winter Park, Florida, which includes increases for tenant improvements pursuant to leases as they are executed,loans totaled approximately $4.2$8.8 million as of September 30, 2017. The Company has incurred approximately $3.9 million of the total construction estimate as of September 30, 2017, leaving a remaining commitment of approximately $315,000.2022.
The Company executed an agreement for improvements at the grocery-anchored shopping center situated on approximately 10.3 acres in Fort Worth, Texas, known as the Westcliff property, during the three months ended June 30, 2017. Pursuant to the agreement, the total expected cost of the improvements is approximately $654,000, of which approximately $281,000 has been incurred as of September 30, 2017, leaving a remaining commitment of approximately $373,000.
The Company leased space for its corporate offices at 1530 Cornerstone Blvd., Suite 100, Daytona Beach, Florida subject to a lease that expired on September 30, 2017. The Company elected to allow the lease to expire and relocate its corporate offices to the vacant approximately 7,700 square feet at 1140 N. Williamson Blvd., Suite 140, Daytona Beach, Florida, known as the Williamson Business Park, an income property owned by the Company. The Company completed the build-out of the new office space and has relocated its corporate offices as of September 30, 2017. The Company incurred a total of approximately $761,000 to complete the build-out which was comprised of approximately $233,000 to build-out the shell and approximately $528,000 in tenant improvements. The Company’s savings in base rent that will no longer be paid totals approximately $128,000 per year.Off-Balance Sheet Arrangements. None.
In conjunction with the Company’s development of two income properties, both restaurants, on the beach parcel as described in Note 4, “Land and Subsurface Interests,” the Company has executed multiple contracts with third-parties to perform the work necessary to prepare the site, construct the restaurants, and acquire the related furniture and equipment.
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Pursuant to the leases with the tenants of the two restaurant properties, LandShark Bar & Grill and Cocina 214 Restaurant & Bar, and based on the Company’s current cost estimates, the total estimated cost to improve the land and develop the income properties is approximately $6.9 million. Through September 30, 2017, the Company has incurred approximately $2.2 million of the total estimated cost which is included in Construction in Progress on the Company’s consolidated balance sheet, leaving a remaining commitment of approximately $4.8 million. The Company expects the development of the two restaurant properties to be completed in time for the tenants to commence operations during January of 2018. Upon completion of the construction of the two income properties and commencement of the tenant leases, the total investment in the beach parcel will be classified as Income Properties, Land, Building, and Improvements, within the Property, Plant, and Equipment classification on the Company’s consolidated balance sheet.
As of September 30, 2017, we have no other contractual requirements to make capital expenditures.
In connection with a certain land sale contract to which the Company is a party, the purchaser’s pursuit of customary development entitlements gave rise to an inquiry by federal regulatory agencies regarding prior agricultural activities by the Company on such land. During the second quarter of 2015, we received a written information request regarding such activities. We submitted a written response to the information request along with supporting documentation. During the fourth quarter of 2015, based on discussions with the agency, a penalty related to this matter was deemed probable, and accordingly the estimated penalty of $187,500 was accrued as of December 31, 2015, for which payment was made during the quarter ended September 30, 2016. Also during the fourth quarter of 2015, the agency advised the Company that the resolution to the inquiry would likely require the Company to incur costs associated with wetlands restoration relating to approximately 148.4 acres of the Company’s land. At December 31, 2015, the Company’s third-party environmental engineers estimated the cost for such restoration activities to range from approximately $1.7 million to approximately $1.9 million. Accordingly, as of December 31, 2015, the Company accrued an obligation of approximately $1.7 million, representing the low end of the estimated range of possible restoration costs, and included such estimated costs on the consolidated balance sheets as an increase in the basis of our land and development costs associated with those and benefitting surrounding acres. As of June 30, 2016, the final proposal from the Company’s third-party environmental engineer was received reflecting a total cost of approximately $2.0 million. Accordingly, an increase in the accrual of approximately $300,000 was made during the second quarter of 2016. The Company has funded approximately $1.2 million of the total $2.0 million of estimated costs through September 30, 2017. The Company believes there is at least a reasonable possibility that the estimated remaining liability of approximately $840,000 could change within one year of the date of the consolidated financial statements, which in turn could have a material impact on the Company’s consolidated balance sheets and future cash flows. The Company evaluates its estimates on an ongoing basis; however, actual results may differ from those estimates. During the first quarter of 2017, the Company completed the sale of approximately 1,581 acres of land to Minto Communities LLC which acreage represents a portion of the Company’s remaining $840,000 obligation. Accordingly, the Company deposited $423,000 of cash in escrow to secure performance on the obligation. The funds in escrow can be drawn upon completion of certain milestones including completion of restoration and annual required monitoring. Additionally, resolution of the regulatory matter required the Company to apply for an additional permit pertaining to an additional approximately 54.66 acres, which permit may require mitigation activities which the Company anticipates could be satisfied through the utilization of existing mitigation credits owned by the Company or the acquisition of mitigation credits. Resolution of this matter allowed the Company to obtain certain permits from the applicable federal or state regulatory agencies needed in connection with the closing of the land sale contract that gave rise to this matter. As of June 30, 2017, the Company determined approximately 36 mitigation credits were required to be utilized, which represents approximately $298,000 in cost basis of the Company’s mitigation credits. Accordingly, the Company transferred the mitigation credits through a charge to direct cost of revenues of real estate operations during the three months ended June 30, 2017, thereby resolving the required mitigation activities related to the approximately 54.66 acres. In addition, in connection with other land sale contracts to which the Company is or may become a party, the pursuit of customary development entitlements by the potential purchasers may require the Company to utilize or acquire mitigation credits for the purpose of obtaining certain permits from the applicable federal or state regulatory agencies. Any costs incurred in connection with utilizing or acquiring such credits would be incorporated into the basis of the land under contract and, accordingly, no amounts related to such potential future costs have been accrued as of September 30, 2017.
During the period from the fourth quarter of 2015 through the first quarter of 2017, the Company received communications from Wintergreen Advisers, LLC (“Wintergreen”), some of which have been filed publicly. In investigating Wintergreen’s allegations contained in certain communications, pursuing the strategic alternatives process suggested by Wintergreen, and engaging in a proxy contest, the Company has incurred costs of approximately $3.0 million, to date, through September 30, 2017. Approximately $1.6 million of the approximately $3.0 million was
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incurred during the nine months ended September 30, 2017, of which approximately $1.2 million is specifically for legal representation and third party costs related to the proxy contest. None of Wintergreen’s allegations regarding inadequate disclosure or other wrong-doings by the Company or its directors or officers were found to have any basis or merit.
Other Matters. We believe we will have sufficient liquidity to fund our operations, capital requirements, maintenance, and debt service requirements over the next twelve months and into the foreseeable future, with our cash on hand, cash flow from our operations, cash from the completion$128.9 million of 1031 like-kind exchanges, and the available borrowing capacity of approximately $59.0 millionavailability remaining under the ATM Program, and $261.5 million undrawn commitment under the existing $300.0 million Credit Facility based on the level of borrowing base assets, as of September 30, 2017.2022.
Our Board of Directors and management consistently review the allocation of capital with the goal of maximizingproviding the best long-term return for our shareholders.stockholders. These reviews consider various alternatives, including increasing or decreasing regular dividends, repurchasing stock,the Company’s securities, and retaining funds for reinvestment.
Otherwise, at least annually, Annually, the Board of Directors reviews our business plan and corporate strategies, and makes adjustments as circumstances warrant.
Management’s focus is to continue to execute on our strategy which is to monetizediversify our land holdings and redeploy theportfolio by redeploying proceeds when possible from like-kind exchange transactions and utilizing leverage including the borrowing capacity available under our Credit Facility and possibly the disposition or payoffs on our commercial loan investments and subsurface transactions to increase and diversify our portfolio of income-producing properties, to provideproviding stabilized cash flows with good risk adjustedstrong risk-adjusted returns primarily in majorlarger metropolitan areas and growth markets.
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We believe that we currently have a reasonable level of leverage. Proceeds from closed land transactions provide us with investible capital. Our strategy is to utilize leverage, when appropriate and necessary, and proceeds from land transactions, sales of income properties, the disposition or payoffs on our commercial loan and master lease investments, and certain transactions in our subsurface interests, to acquire income properties. We may also acquire or originate commercial loan and master lease investments, invest in securities of real estate companies, or make other shorter termshorter-term investments. Our targeted investment classes may include the following:
| Multi-tenant, primarily retail-oriented, properties in major metropolitan areas and growth markets, typically stabilized; |
● | Single-tenant retail |
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| Select regional area investments using Company market knowledge and expertise to earn |
| Real |
Our investments in income-producing properties are typically subject to long-term leases. For multi-tenant properties, each tenant typically pays its proportionate share of the aforementioned operating expenses of the property, although for such properties we typically incur additional costs for property management services. Single-tenant leases are typically in the form of triple or double net leases and ground leases. Triple-net leases generally require the tenant to pay property operating expenses such as real estate taxes, insurance, assessments and other governmental fees, utilities, repairs and maintenance, and capital expenditures.
Non-U.S. GAAP Financial Measures
Our reported results are presented in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”). We also disclose Funds From Operations (“FFO”), Core Funds From Operations (“Core FFO”), and Adjusted Funds From Operations (“AFFO”), each of which are non-U.S. GAAP financial measures. We believe these non-U.S. GAAP financial measures are useful to investors because they are widely accepted industry measures used by analysts and investors to compare the operating performance of REITs.
FFO, Core FFO, and AFFO do not represent cash generated from operating activities and are not necessarily indicative of cash available to fund cash requirements; accordingly, they should not be considered alternatives to net income as a performance measure or cash flows from operating activities as reported on our statement of cash flows as a liquidity measure and should be considered in addition to, and not in lieu of, U.S. GAAP financial measures.
We compute FFO in accordance with the definition adopted by the Board of Governors of the National Association of Real Estate Investment Trusts, or NAREIT. NAREIT defines FFO as U.S. GAAP net income or loss adjusted to exclude extraordinary items (as defined by U.S. GAAP), net gain or loss from sales of depreciable real estate assets, impairment write-downs associated with depreciable real estate assets and real estate related depreciation and amortization, including the pro rata share of such adjustments of unconsolidated subsidiaries. The Company also excludes the gains or losses from sales of assets incidental to the primary business of the REIT which specifically include the sales of mitigation credits, impact fee credits, subsurface sales, and land sales, in addition to the mark-to-market of the Company’s investment securities and interest related to the 2025 Notes, if the effect is dilutive. To derive Core FFO, we modify the NAREIT computation of FFO to include other adjustments to U.S. GAAP net income related to gains and losses recognized on the extinguishment of debt, amortization of above- and below-market lease related intangibles, and other unforecastable market- or transaction-driven non-cash items. To derive AFFO, we further modify the NAREIT computation of FFO and Core FFO to include other adjustments to U.S. GAAP net income related to non-cash revenues and expenses such as straight-line rental revenue, non-cash compensation, and other non-cash amortization, as well as adding back the interest related to the 2025 Notes, if the effect is dilutive. Such items may cause short-term fluctuations in net income but have no impact on operating cash flows or long-term operating performance. We use AFFO as one measure of our performance when we formulate corporate goals.
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FFO is used by management, investors and analysts to facilitate meaningful comparisons of operating performance between periods and among our peers primarily because it excludes the effect of real estate depreciation and amortization and net gains or losses on sales, which are based on historical costs and implicitly assume that the value of real estate diminishes predictably over time, rather than fluctuating based on existing market conditions. We believe that Core FFO and AFFO are additional useful supplemental measures for investors to consider because they will help them to better assess our operating performance without the distortions created by other non-cash revenues or expenses. FFO, Core FFO, and AFFO may not be comparable to similarly titled measures employed by other companies.
Reconciliation of Non-U.S. GAAP Measures (in thousands, except share and dividend data):
| | | | | | | | | | | | |
| | Three Months Ended | | Nine Months Ended | ||||||||
| | September 30, 2022 | | September 30, 2021 | | September 30, 2022 | | September 30, 2021 | ||||
Net Income Attributable to the Company | | $ | 4,817 | | $ | 23,947 | | $ | 6,237 | | $ | 28,008 |
Add Back: Effect of Dilutive Interest Related to 2025 Notes (1) | | | 539 | | | — | | | — | | | — |
Net Income Attributable to the Company, If-Converted | | $ | 5,356 | | $ | 23,947 | | | 6,237 | | | 28,008 |
Depreciation and Amortization of Real Estate | | | 7,283 | | | 5,567 | | | 20,359 | | | 15,428 |
Gains on Disposition of Assets | | | (4,973) | | | (22,666) | | | (4,728) | | | (28,106) |
Gains on Disposition of Other Assets | | | (1,509) | | | (974) | | | (2,473) | | | (3,549) |
Impairment Charges, Net | | | — | | | — | | | — | | | 12,474 |
Unrealized Loss (Gain) on Investment Securities | | | 3,754 | | | 1,326 | | | 8,102 | | | (6,894) |
Funds from Operations | | $ | 9,911 | | $ | 7,200 | | $ | 27,497 | | $ | 17,361 |
Distributions to Preferred Stockholders | | | (1,195) | | | (1,129) | | | (3,586) | | | (1,129) |
Funds From Operations Attributable to Common Stockholders | | $ | 8,716 | | $ | 6,071 | | $ | 23,911 | | $ | 16,232 |
Loss on Extinguishment of Debt | | | — | | | — | | | — | | | 641 |
Amortization of Intangibles to Lease Income | | | 507 | | | (86) | | | 1,485 | | | (820) |
Less: Effect of Dilutive Interest Related to 2025 Notes (1) | | | (539) | | | — | | | — | | | — |
Core Funds From Operations Attributable to Common Stockholders | | $ | 8,684 | | $ | 5,985 | | $ | 25,396 | | $ | 16,053 |
Adjustments: | | | | | | | | | | | | |
Straight-Line Rent Adjustment | | | (600) | | | (669) | | | (1,645) | | | (1,844) |
COVID-19 Rent Repayments | | | 26 | | | 84 | | | 79 | | | 738 |
Other Depreciation and Amortization | | | (29) | | ��� | (154) | | | (199) | | | (528) |
Amortization of Loan Costs and Discount on Convertible Debt | | | 64 | | | 442 | | | 510 | | | 1,395 |
Non-Cash Compensation | | | 812 | | | 734 | | | 2,423 | | | 2,434 |
Non-Recurring G&A | | | — | | | — | | | — | | | 155 |
Adjusted Funds From Operations Attributable to Common Stockholders | | $ | 8,957 | | $ | 6,422 | | $ | 26,564 | | $ | 18,403 |
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Weighted Average Number of Common Shares: | | | | | | | | | | | | |
Basic | | | 18,386,435 | | | 17,703,284 | | | 18,044,299 | | | 17,678,701 |
Diluted (2) | | | 21,505,460 | | | 17,703,284 | | | 18,044,299 | | | 17,678,701 |
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Dividends Declared and Paid - Preferred Stock | | $ | 0.40 | | $ | 0.38 | | $ | 1.20 | | $ | 0.38 |
Dividends Declared and Paid - Common Stock | | $ | 0.38 | | $ | 0.33 | | $ | 1.11 | | $ | 1.00 |
(1) | As applicable, includes interest expense, amortization of discount, amortization of fees, and other changes in net income or loss that would result from the assumed conversion of the 2025 Notes (hereinafter defined). For the three months ended September 30 2022, a total of $0.5 million was included as the impact to earnings per share, if-converted, is dilutive. For the nine months ended September 30, 2022, the impact of $1.6 million was not included as the impact to earnings per share, if-converted, would be antidilutive to the net income of $2.6 million. |
(2) | A total of 3.1 million shares representing the dilutive impact of the 2025 Notes, upon adoption of ASU 2020-06 effective January 1, 2022, were included in the computation of diluted net income per share attributable to common stockholders for the three months ended September 30, 2022. A total of 3.1 million shares representing the dilutive impact of the 2025 Notes, were not included in the computation of diluted net income per |
CRITICAL ACCOUNTING POLICIES50
The consolidated financial statements are prepared in conformity with United States generally accepted accounting principles (“GAAP”). The preparationTable of financial statements in conformity with GAAP requires managementContents
share attributable to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses. Actual results could differ from those estimates.
Our significant accounting policies are described in the notes to the consolidated financial statements included in our Annual Report on Form 10-Kcommon stockholders for the year-ended December 31, 2016. Judgments and estimates of uncertainties are required in applying our accounting policies in many areas. During the nine months ended September 30, 2017, there2022 because they were antidilutive to the net income of $2.6 million.
Other Data (in thousands, except per share data):
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| | Three Months Ended | | Nine Months Ended | ||||||||
| | September 30, 2022 | | September 30, 2021 | | September 30, 2022 | | September 30, 2021 | ||||
FFO Attributable to Common Stockholders | | $ | 8,716 | | $ | 6,071 | | $ | 23,911 | | $ | 16,232 |
FFO Attributable to Common Stockholders per Common Share - Diluted | | $ | 0.41 | | $ | 0.34 | | $ | 1.33 | | $ | 0.92 |
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Core FFO Attributable to Common Stockholders | | $ | 8,684 | | $ | 5,985 | | $ | 25,396 | | $ | 16,053 |
Core FFO Attributable to Common Stockholders per Common Share - Diluted (1) | | $ | 0.47 | | $ | 0.34 | | $ | 1.41 | | $ | 0.91 |
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AFFO Attributable to Common Stockholders | | $ | 8,957 | | $ | 6,422 | | $ | 26,564 | | $ | 18,403 |
AFFO Attributable to Common Stockholders per Common Share - Diluted (1) | | $ | 0.49 | | $ | 0.36 | | $ | 1.47 | | $ | 1.04 |
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Table(1) A total of Contents3.1 million shares representing the dilutive impact of the 2025 Notes, upon adoption of ASU 2020-06 effective January 1, 2022, were included in the computation of diluted net income per share attributable to common stockholders for the three months ended September 30, 2022. A total of 3.1 million shares representing the dilutive impact of the 2025 Notes, were not included in the computation of diluted net income per share attributable to common stockholders for the nine months ended September 30, 2022 because they were antidilutive to the net income of $2.6 million
CRITICAL ACCOUNTING ESTIMATES
Critical accounting estimates include those estimates made in accordance with U.S. GAAP that involve a significant level of estimation uncertainty and have been nohad or are reasonably likely to have a material impact on the Company’s financial condition or results of operations. Our most significant estimate is as follows:
Purchase Accounting for Acquisitions of Real Estate Subject to a Lease. As required by U.S. GAAP, the fair value of the real estate acquired with in-place leases is allocated to the acquired tangible assets, consisting of land, building and tenant improvements, and identified intangible assets and liabilities, consisting of the value of above-market and below-market leases, the value of in-place leases, and the value of leasing costs, based in each case on their relative fair values. In allocating the fair value of the identified intangible assets and liabilities of an acquired property, above-market and below-market in-place lease values are recorded as other assets or liabilities based on the present value. The assumptions underlying the allocation of relative fair values are based on market information including, but not limited to: (i) the estimate of replacement cost of improvements under the cost approach, (ii) the estimate of land values based on comparable sales under the sales comparison approach, and (iii) the estimate of future benefits determined by either a reasonable rate of return over a single year’s net cash flow, or a forecast of net cash flows projected over a reasonable investment horizon under the income capitalization approach. The underlying assumptions are subject to uncertainty and thus any changes to the critical accounting policies affectingallocation of fair value to each of the applicationvarious line items within the Company’s consolidated balance sheets could have an impact on the Company’s financial condition as well as results of those accounting policiesoperations due to resulting changes in depreciation and amortization as noted in our Annual Report on Form 10-Ka result of the fair value allocation. The acquisitions of real estate subject to this estimate totaled two multi-tenant income properties for a purchase price of $119.3 million for the yearnine months ended December 31, 2016.September 30, 2022 and three multi-tenant income properties for a combined purchase price of $111.0 million for the nine months ended September 30, 2021.
See Note 2, “Summary of Significant Accounting Policies”, for further discussion of the Company’s accounting estimates and policies.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKSRISK
The principal market risk (i.e. the risk of loss arising from adverse changes in market rates and prices), to which we are exposed is interest rate risk relating to our debt. We may utilize overnight sweep accounts and short-term investments
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as a means to minimize the interest rate risk. We do not believe that interest rate risk related to cash equivalents and short-term investments, if any, is material due to the nature of the investments.
We are primarily exposed to interest rate risk relating to our own debt in connection with our credit facility,Credit Facility, as this facility carries a variable rate of interest. Our borrowings on our $100.0$300.0 million revolving credit facilityCredit Facility bear a variable rate of interest based on the 30-day LIBORSOFR plus a rate of between 150125 basis points and 220 basis points based on our level of borrowing as a percentage of our total asset value. As of September 30, 2017,2022 and 2021, the outstanding balance on our credit facility was $41.0 million.Credit Facility totaled $38.5 million and $109.0 million, of which $38.5 million and $109.0 million, respectively, were not fixed by virtue of an interest rate swap agreement. A hypothetical change in the interest rate of 100 basis points (i.e., 1%) would affect our financial position, results of operations, and cash flows by approximately $410,000.$0.4 million and $1.1 million as of September 30, 2022 and 2021, respectively. The $25.0 million mortgage loan which closed on April 15, 2016, bears a variable rate of interest based on the 30-day LIBOR plus a rate of 190 basis points. The interest rate for this mortgage loanCompany has been fixed through the use of anentered into interest rate swap that fixed the rate at 3.17%.agreements to hedge against changes in future cash flows resulting from fluctuating interest rates related to certain of its debt borrowings, see Note 17, “Interest Rate Swaps.” By virtue of fixing the variable rate on certain debt borrowings, our exposure to changes in interest rates is minimal but for the impact on Other Comprehensive Income.other comprehensive income and loss. Management’s objective is to limit the impact of interest rate changes on earnings and cash flows and to manage our overall borrowing costs.
ITEM 4. CONTROLS AND PROCEDURES
As of the end of the period covered by this report, an evaluation, as required by Rules 13a-15 and 15d-15 underof the Securities Exchange Act of 1934 (the “Exchange Act”), was carried out under the supervision and with the participation of the Company’s management, including ourthe Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), of the effectiveness of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) or 15d-15(e) underof the Exchange Act). Based on that evaluation, ourthe CEO and CFO have concluded that the design and operation of the Company’s disclosure controls and procedures wereare effective as of September 30, 2017, to ensure that information required to be disclosed by the Company in reports that it files or submits under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the Securities and Exchange Commission’sCommission rules and forms, and to provide reasonable assurance that information required to be disclosed by the Company in such reports is accumulated and communicated to the Company’s management, including ourits CEO and CFO, as appropriate to allow timely decisions regarding required disclosure. There were no changes in the Company’s internal control over financial reporting (as defined in Rules 13a-15(f) or 15d-15(f) under the Exchange Act) during the ninethree months ended September 30, 2017,2022, that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
PART II—OTHER INFORMATION
From time to time, the Company may be a party to certain legal proceedings, incidental to the normal course of its business. While the outcome of the legal proceedings cannot be predicted with certainty, the Company does not expect that these proceedings will have a material effect upon our financial condition or results of operations.
On November 21, 2011, the Company, Indigo Mallard Creek LLC and Indigo Development LLC, as owners of the property leased to Harris Teeter, Inc. (“Harris Teeter”) in Charlotte, North Carolina, were served with pleadings filed in the General Court of Justice, Superior Court Division for Mecklenburg County, North Carolina, for a highway condemnation action involving this property. The proposed road modifications would impact access to the property. The Company does not believe the road modifications provided a basis for Harris Teeter to terminate the Lease. Regardless, in January 2013, the North Carolina Department of Transportation (“NCDOT”) proposed to redesign the road modifications to keep the all access intersection open for ingress with no change to the planned limitation on egress to the right-in/right-out only. Additionally, NCDOT and the City of Charlotte proposed to build and maintain a new access road/point into the property. Construction has begun and is not expected to be completed before mid-2018. Harris Teeter has expressed satisfaction with the redesigned project and indicated that it will not attempt to terminate its lease if this project is built as currently redesigned. Because the redesigned project will not be completed until late 2017 to mid-
57
2018, the condemnation case has been placed in administrative closure. As a result, the trial and mediation will not likely be scheduled until requested by the parties, most likely in late 2018.
On February 15, 2017, Wintergreen Advisers, LLC (“Wintergreen”) filed a complaint in the Circuit Court of the Seventh Judicial Circuit in Volusia County, Florida (the “Wintergreen Complaint”) against the Company and each of its directors. The Wintergreen Complaint sought an order compelling the Company to either include Wintergreen’s four director nominees, all of whom are employees or hired consultants of Wintergreen, in the Company’s proxy statement as nominees to be voted on at the Company’s 2017 Annual Meeting of Shareholders (the “2017 Annual Meeting”) or permit Wintergreen to bring their proposed nominees before the Company’s shareholders at the 2017 Annual Meeting. Although the Company’s Board of Directors believed that the Wintergreen Complaint had no legal merit, on March 6, 2017, the Company’s Board of Directors approved the Company’s entering into a Settlement Agreement. Pursuant to the terms of the Settlement Agreement, Wintergreen’s nominees were permitted to stand for election at the 2017 Annual Meeting and the Company agreed not to amend its Bylaws prior to the 2017 Annual Meeting. The Wintergreen Complaint was voluntarily dismissed on April 4, 2017. At the 2017 Annual Meeting, the Company’s shareholders re-elected all seven of the Company’s nominees.
Certain statements contained in this report (other than statements of historical fact) are forward-looking statements. The words “believe,” “estimate,” “expect,” “intend,” “anticipate,” “will,” “could,” “may,” “should,” “plan,” “potential,” “predict,” “forecast,” “project,” and similar expressions and variations thereof identify certain of such forward-looking statements, which speak only as
For a discussion of the dates on which they were made. Forward-looking statements are made based upon management’s expectations and beliefs concerning future developments and theirCompany’s potential effect upon the Company.
There can be no assurance that future developments will be in accordance with management’s expectations or that the effect of future developments on the Company will be those anticipated by management.
We wish to caution readers that the assumptions, which form the basis for forward-looking statements with respect to or that may impact earnings for the year-ended December 31, 2017, and thereafter, include many factors that are beyond the Company’s ability to control or estimate precisely. These risks and uncertainties, include, but are not limited to,see the strength ofinformation under the real estate market in the City and Volusia County, Florida; the impact of a prolonged recession or downturn in economic conditions; our ability to successfully execute acquisition or development strategies; any loss of key management personnel; changes in local, regional, and national economic conditions affecting the real estate development business and income properties; the impact of environmental and land use regulations generally and on certain land sale transactions specifically; extreme or severe weather conditions; the impact of competitive real estate activity; variability in quarterly results due to the unpredictable timing of land transactions; the loss of any major income property tenants; the timing of land sale transactions; and the availability of capital. These risks and uncertainties may cause our actual future results to be materially different than those expressed in our forward-looking statements.
In addition to the other information set forth in this report, you should carefully consider the factors discussed inheading Part I, “Item 1A. Risk Factors” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2016. There have been no material changes to those risk factors.2021. The risks described in the Annual Report on Form 10-K are not the only risks facing the Company. Additional risks and uncertainties not currently known to the Company or that the Company currently deems to be immaterial also may materially adversely affect the Company. As of September 30, 2022, there have been no material changes in our risk factors from those set forth within the Company’s Annual Report on Form 10-K for the year ended December 31, 2021.
While we periodically reassess material trends and uncertainties affecting our results of operations and financial condition, we do not intend to review or revise any particular forward-looking statement referenced herein in light of future events.
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52
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
There
The following repurchases of shares of the Company’s common stock were no unregistered sales of equity securitiesmade during the ninethree months ended September 30, 2017, which were not previously reported.2022:
| | | | | | | | | | |
|
| Total Number |
| Average Price |
| Total Number of |
| Maximum Number (or | ||
7/01/2022 - 7/31/2022 | | — | | $ | — | | — | | $ | 2,550 |
8/01/2022 - 8/30/2022 | | — | | | — | | — | | | 2,550 |
9/01/2022 - 9/30/2022 | | 85,694 | | | 19.17 | | 85,694 | | | 908 |
Total | | 85,694 | | $ | 19.17 | | 85,694 | | | |
(1) | In February 2020, the Board approved a $10.0 million common stock repurchase program, which was announced on February 12, 2020. The repurchase program does not have an expiration date. |
The following share repurchases were made during the nine months ended September 30, 2017:
|
|
|
|
|
|
|
|
|
|
|
|
|
| Total Number |
| Average Price |
| Total Number of |
| Maximum Number (or |
| ||
1/1/2017 - 1/31/2017 |
| 2,062 |
| $ | 53.00 |
| 2,062 |
| $ | 2,487,759 |
|
2/1/2017 - 2/28/2017 |
| 4,847 |
|
| 53.71 |
| 4,847 |
|
| 2,227,447 |
|
3/1/2017 - 3/31/2017 |
| 49,334 |
|
| 51.85 |
| 49,334 |
|
| 9,669,489 | (1) |
4/1/2017 - 4/30/2017 |
| 18,305 |
|
| 53.90 |
| 18,305 |
|
| 8,682,860 |
|
5/1/2017 - 5/31/2017 |
| 25,262 |
|
| 54.13 |
| 25,262 |
|
| 7,315,342 |
|
6/1/2017 - 6/30/2017 |
| 4,288 |
|
| 53.93 |
| 4,288 |
|
| 7,084,085 |
|
7/1/2017 - 7/31/2017 |
| 2,500 |
|
| 54.50 |
| 2,500 |
|
| 6,947,835 |
|
8/1/2017 - 8/31/2017 |
| 22,050 |
|
| 54.07 |
| 22,050 |
|
| 5,755,646 |
|
9/1/2017 - 9/30/2017 |
| 5,401 |
|
| 54.64 |
| 5,401 |
|
| 5,460,550 |
|
Total |
| 134,049 |
| $ | 53.24 |
| 134,049 |
| $ | 5,460,550 |
|
(1)In March 2017, the Board approved the New $10 Million Repurchase Program.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable
Not Applicable
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applicable
53
(a) Exhibits:
| | | |||
(2.1)* | | ||||
| | | |||
(3.1) | |||||
| | | |||
(3.2) | | ||||
| | | |||
(3.3) | | ||||
| | | |||
(4.1) | | ||||
| | | |||
(10.1) | | ||||
| | | |||
| | ||||
| | | |||
(10.3)† | | ||||
| | | |||
(10.4)† | | ||||
| | | |||
Exhibit 31.1 | | Certification filed pursuant to Section 302 of the Sarbanes-Oxley Act of | |||
| | | |||
Exhibit 31.2 | | Certification filed pursuant to Section 302 of the Sarbanes-Oxley Act of | |||
| | | |||
**Exhibit 32.1 | | ||||
| | | |||
**Exhibit 32.2 | | ||||
| | | |||
Exhibit 101.INS | | Inline XBRL Instance Document | |||
| | | |||
Exhibit 101.SCH | | Inline XBRL Taxonomy Extension Schema Document | |||
| | | |||
Exhibit 101.CAL | | Inline XBRL Taxonomy Extension Calculation Linkbase Document | |||
| | | |||
Exhibit 101.DEF | | Inline XBRL Taxonomy Definition Linkbase Document | |||
| | | |||
Exhibit 101.LAB | | Inline XBRL Taxonomy Extension Label Linkbase Document | |||
| | | |||
Exhibit 101.PRE | | Inline XBRL Taxonomy Extension Presentation Linkbase Document | |||
| | | |||
Exhibit 104 | | Cover Page Interactive Data File (embedded within the Inline XBRL document) |
* | Portions of this exhibit have been redacted in compliance with Regulation S-K Item 601(b)(2). The omitted information is not material and is the type of information that the Company customarily and actually treats as private and confidential. |
54
| | |
** | In accordance with Item 601(b)(32) of Regulation S-K, this Exhibit is not deemed “filed” for purposes of Section 18 of the Exchange Act or otherwise subject to the liabilities of that section. Such certifications will not be deemed incorporated by reference into any filing under the Securities Act or the Exchange Act, except to the extent that the registrant specifically incorporates it by reference. |
| | |
† | Management contract or compensatory plan or arrangement. |
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| | | | | ||
|
| CTO REALTY GROWTH, INC. | ||||
| ||||||
|
| (Registrant) | ||||
| | | | |||
October |
| By: | | /s/ John P. Albright | ||
|
| | | John P. Albright President and Chief Executive Officer (Principal Executive Officer) | ||
| | | | |||
October |
| By: | | /s/ | ||
|
| | | Matthew M. Partridge, Senior Vice President, Chief Financial Officer and Treasurer (Principal Financial Officer) | ||
October 27, 2022 |
|
| | /s/ Lisa M. Vorakoun | ||
| | | Lisa M. Vorakoun, Vice President and Chief (Principal |
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