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Section 1: 10-K (10-K)

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549


FORM 10-K


 

☒           ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the fiscal year ended December 31, 2017

 

☐           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 001-11350


 

CONSOLIDATED-TOMOKA LAND CO.

(Exact name of registrant as specified in its charter)

 


 

Florida

59-0483700

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification No.)

 

 

1140 N. Williamson Blvd., Suite 140

Daytona Beach, Florida

32114

(Address of principal executive offices)

(Zip Code)

 

Registrant’s Telephone Number, including area code

(386) 274-2202


 

SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT

 

Title of each class

Name of each exchange on which registered

COMMON STOCK, $1 PAR VALUE

NYSE American

 

SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:

NONE

(Title of Class)


Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    YES  ☐    NO  ☒ 

 

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.    YES  ☐    NO  ☒ 

 

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 (S232.405 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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (S229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  ☐ 

 

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 

Accelerated filer ☒

Non-accelerated filer 

Smaller reporting company 

 

 

(Do not check if a
smaller reporting company)

Emerging growth company 

 

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 Act).    YES  ☐    NO  ☒ 

 

The aggregate market value of the shares of common stock held by non-affiliates of the registrant at June 30, 2017, was approximately $307,616,923.  

 

The number of shares of the registrant’s Common Stock outstanding on February 15, 2018 was 5,595,040. 

 

Portions of the registrant’s Proxy Statement for the 2018 Annual Meeting of Shareholders, which will be filed with the Securities and Exchange Commission within 120 days after the end of the registrant’s fiscal year ended December 31, 2017, are incorporated by reference in Part III of this report.

 

 

 

 


 

Table of Contents 

TABLE OF CONTENTS

 

 

 

 

 

 

    

 

    

Page #

 

 

PART I

 

 

Item 1. 

 

BUSINESS

 

1

Item 1A. 

 

RISK FACTORS

 

14

Item 1B. 

 

UNRESOLVED STAFF COMMENTS

 

27

Item 2. 

 

PROPERTIES

 

27

Item 3. 

 

LEGAL PROCEEDINGS

 

28

Item 4. 

 

MINE SAFETY DISCLOSURES

 

28

 

 

 

 

 

 

 

PART II

 

 

Item 5. 

 

MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER  MATTERS, AND ISSUER PURCHASES OF EQUITY SECURITIES

 

29

Item 6. 

 

SELECTED FINANCIAL DATA

 

31

Item 7. 

 

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND  RESULTS OF OPERATIONS OVERVIEW

 

32

Item 7A. 

 

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

53

Item 8. 

 

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

 

53

Item 9. 

 

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

 

53

Item 9A. 

 

CONTROLS AND PROCEDURES

 

53

Item 9B. 

 

OTHER INFORMATION

 

54

 

 

 

 

 

 

 

PART III

 

 

Item 10. 

 

DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCE

 

54

Item 11. 

 

EXECUTIVE COMPENSATION

 

55

Item 12. 

 

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

 

55

Item 13. 

 

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

 

55

Item 14. 

 

PRINCIPAL ACCOUNTANT FEES AND SERVICES

 

55

 

 

 

 

 

 

 

PART IV

 

 

Item 15. 

 

EXHIBITS, FINANCIAL STATEMENT SCHEDULES

 

56

Item 16. 

 

FORM 10-K SUMMARY

 

56

Signatures 

 

61

 

 

 

 


 

Table of Contents 

PART I

When we refer to “we,” “us,” “our,” or “the Company,” we mean Consolidated-Tomoka Land Co. and its consolidated subsidiaries. References to “Notes to Financial Statements” refer to the Notes to the Consolidated Financial Statements of Consolidated-Tomoka Land Co. included in Item 8 of this Annual Report on Form 10-K. 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 management believes that the expectations reflected in such forward-looking statements are based upon present expectations and reasonable assumptions, the Company’s actual results could differ materially from those set forth in the forward-looking statements. Certain factors that could cause actual results or events to differ materially from those the Company anticipates or projects are described in “Item 1A. Risk Factors” of this Annual Report on Form 10-K. Given these uncertainties, readers are cautioned not to place undue reliance on such statements, which speak only as of the date of this Annual Report on Form 10-K 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 after the date of this Annual Report on Form 10-K.

ITEM 1.              BUSINESS

We are a diversified real estate operating company. We own and manage thirty-seven commercial real estate properties in twelve states in the United States. As of December 31, 2017, we owned twenty-six single-tenant and eleven multi-tenant income-producing properties with over 2.1 million square feet of gross leasable space. We also own and manage a portfolio of undeveloped land totaling approximately 8,100 acres in the City of Daytona Beach, Florida (the “City”). As of December 31, 2017, we had two commercial loan investments including a variable-rate B-Note representing a secondary tranche in a commercial mortgage loan and a fixed-rate first mortgage loan. We have golf operations which consist of the LPGA International Golf Club, 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 operations are included in Agriculture and Other Income and Real Estate Operations, respectively, in our consolidated statements of operations.

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Table of Contents 

The following is a summary of financial information regarding the Company’s business segments (amounts in thousands) for the years ended December 31: 

 

 

 

 

 

 

 

 

 

 

 

 

    

2017

    

2016

    

2015

 

Revenues of each segment are as follows:

 

 

 

 

 

 

 

 

 

 

Income Properties

 

$

31,407

 

$

25,093

 

$

19,041

 

Interest Income from Commercial Loan Investments

    

 

2,053

    

 

2,588

    

 

2,691

 

Real Estate Operations

 

 

52,522

 

 

38,144

 

 

15,943

 

Golf Operations

 

 

5,095

 

 

5,190

 

 

5,244

 

Agriculture and Other Income

 

 

335

 

 

60

 

 

79

 

Total Revenues

 

$

91,412

 

$

71,075

 

$

42,998

 

Operating income (loss) from Continuing Operations before income tax for each segment is as follows:

 

 

 

 

 

 

 

 

 

 

Income Properties

 

$

24,489

 

$

19,888

 

$

15,385

 

Commercial Loan Investments

 

 

2,053

 

 

2,588

 

 

2,691

 

Real Estate Operations

 

 

35,042

 

 

23,263

 

 

11,650

 

Golf Operations

 

 

(863)

 

 

(397)

 

 

(349)

 

Agriculture and Other Income

 

 

239

 

 

(107)

 

 

(148)

 

General and Administrative Expenses

 

 

(10,253)

 

 

(10,298)

 

 

(8,754)

 

Impairment Charges

 

 

 —

 

 

(2,181)

 

 

(510)

 

Depreciation and Amortization

 

 

(12,664)

 

 

(8,195)

 

 

(5,213)

 

Gain on Disposition of Assets

 

 

 —

 

 

12,759

 

 

5,517

 

Land Lease Income

 

 

2,226

 

 

 —

 

 

 —

 

Total Operating Income

 

$

40,269

 

$

37,320

 

$

20,269

 

Identifiable assets of each segment are as follows:

 

 

 

 

 

 

 

 

 

 

Income Properties

 

$

388,603

 

$

302,757

 

$

277,520

 

Commercial Loan Investments

 

 

43,296

 

 

24,033

 

 

38,487

 

Real Estate Operations

 

 

11,964

 

 

58,868

 

 

59,787

 

Golf Operations

 

 

6,262

 

 

3,676

 

 

3,608

 

Agriculture and Other (1)

 

 

16,005

 

 

19,289

 

 

24,952

 

Total Assets

 

$

466,130

 

$

408,623

 

$

404,354

 


(1)

Agriculture and Other assets includes all other corporate assets, including cash, restricted cash, and investment securities.

BUSINESS PLAN

Our business plan is primarily focused on investing in income-producing real estate and when possible, monetizing the value of our land holdings through land sales to redeploy the proceeds, on a tax-deferred basis, into our investments in income-producing real estate. Our investments in income-producing real estate are primarily through the acquisition of single-tenant and multi-tenant income properties, the self-development of multi-tenant income properties, or investing in commercial loans or similar financings secured by commercial real estate. Our investment in single-tenant, multi-tenant, and office income properties, when possible, utilizes proceeds from other real estate transactions which qualify for income tax deferral through the like-kind exchange provisions under Section 1031 of the Internal Revenue Code including land sales and the disposition of other income properties. We have held the significant majority of our portfolio of land holdings, which are used in our agricultural operations, for most of our over 100-year history, and, as a result, our book basis in the majority of these assets is very low. Because of the low basis in our land holdings, dispositions of our land typically would generate large taxable gains. Utilizing the like-kind exchange structure allows us to defer the related income taxes on these gains and reinvest nearly all of the net sales proceeds of the qualifying transaction into income-producing properties. Generally, in order to utilize the like-kind exchange structure, we are prohibited from engaging in activities that are typically indicative of the developer of the property, therefore we seek to complete land transactions with counterparties who will serve as the developer of the property. In limited circumstances, we have reacquired land that we have previously sold, either pursuant to the terms of the original sales agreement or through foreclosure. Land we have reacquired typically has a higher book basis. Our approach in investing in income-producing real estate is to use leverage, when appropriate or necessary, to fund our acquisitions and to help achieve our business plan objectives. Our use of leverage in acquiring income-producing real estate is intended to provide positive returns relative to our borrowing costs. We believe this enhances our Company’s income-generating real estate asset base while keeping us cash flow positive given that a significant portion of our market capitalization is represented by land assets which largely yield no income.

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Table of Contents 

Our investment strategy seeks to acquire income properties which will continue to broaden the credit base of our lease tenants, diversify our income property portfolio geographically, with an emphasis on major markets and growth markets in the U.S., and diversify the type of income-producing property, which in the future may include hospitality, industrial, or other retail. We have self-developed four of our existing multi-tenant income-producing properties, all of which are located in Daytona Beach, Florida. As of January 2018, we completed the self-development of two single-tenant net lease restaurant properties in Daytona Beach, Florida.  Our investments in commercial loans or similar structured finance investments have been, and will continue to be, secured by commercial real estate, residential real estate developments, land or a borrower’s pledge of its ownership interest in the entity that owns the real estate. We believe investment in each of these income-producing asset classes provide attractive opportunities for stable current cash flows and increased returns in the long run and the potential for capital appreciation.

Proceeds from closed land transactions, sales of income properties, and certain transactions involving our subsurface interests provide us with investible capital. Our strategy is to utilize leverage, when appropriate and necessary, and proceeds from land transactions to acquire income properties, acquire or originate commercial loan investments, and invest in securities of real estate companies, or other shorter term investments. Our primary targeted investment classes include the following:

·

Single-tenant retail and office double-or-triple-net leased properties in major metropolitan areas or areas with high growth;

·

Multi-tenant office and retail properties primarily in major metropolitan areas or areas with high growth and typically stabilized;

·

Purchase or origination of ground leases;

·

Self-developed properties on Company owned land, including select office, flex, industrial, and retail;

·

Joint venture development using Company owned land;

·

Origination or purchase of 1-10 year term loans with strong risk-adjusted yields secured by property types to include hotel, office, retail, land and industrial;

·

Real estate related investment securities, including commercial mortgage backed securities, preferred or common stock, and corporate bonds; and

·

Select regional area investments using Company market knowledge and expertise to earn good risk-adjusted yields.

Our investments in income-producing properties have single or multiple tenants typically subject to long-term leases, primarily 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. 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.

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Table of Contents 

INCOME PROPERTIES

We have pursued a strategy of investing in income-producing properties, when possible, by utilizing the proceeds from real estate transactions, including land sales, transactions involving our subsurface interests, and the disposition of other income properties, 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 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 tenant (e.g. credit-worthiness, property level sales, tenant rent levels compared to the market, etc.); (iii) other market-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 with the Company’s 1031 like-kind exchange structure, etc.).

During the year ended December 31, 2017, the Company acquired six income properties (four single-tenant income properties and two multi-tenant income properties) for an aggregate purchase price of approximately $79.8 million as described below:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Tenant Description

    

Tenant Type

    

Property Location

 

Date of Acquisition

    

Property Square-Feet

 

Property Acres

    

Purchase Price

    

Percentage Leased

    

Remaining Lease 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

 

Saugus, Massachusetts

 

04/06/17

 

22,500

 

2.6

 

 

6,315,000

 

 

100%

 

 

11.8

LA Fitness
Multi-Tenant Retail Building

 

Single-Tenant
Multi-Tenant

 

Brandon, Florida

 

04/28/17

 

45,000
6,715

 

5.3

 

 

14,650,000

 

 

100%

 

 

13.9

Wells Fargo Bank, N.A.

 

Single-Tenant

 

Hillsboro, Oregon

 

10/27/17

 

211,863

 

18.9

 

 

39,750,000

 

 

100%

 

 

8.2

 

 

 

 

 

 

 

 

440,383

 

 

 

$

79,790,000

 

 

 

 

 

8.9

 

Additionally, on April 7, 2017, rent commenced on the 15-year lease with 24 Hour Fitness, the anchor tenant at The Grove at 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 December 31, 2017, the multi-tenant retail center was approximately 63% leased with eleven different tenants including 24 Hour Fitness.

Our current portfolio of twenty-six single-tenant income properties generates approximately $18.8 million of revenues from lease payments on an annualized basis and has a weighted average remaining lease term of 9.2 years as of December 31, 2017. Our current portfolio of eleven multi-tenant properties generates approximately $9.9 million of revenue from lease payments on an annualized basis and has a weighted average remaining lease term of 4.0 years as of December 31, 2017.

We expect to continue to focus on acquiring income-producing properties during fiscal year 2018, and in the near term thereafter, maintaining our use of the aforementioned tax deferral structure whenever possible.

As part of our overall strategy for investing in income-producing investments, we have self-developed five of our multi-tenant properties, all of which are located in Daytona Beach, Florida, four of which we still own as of December 31, 2017. The first self-developed property, located at 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 December 31, 2017. The second two properties, known as the Mason Commerce Center, consist of two buildings totaling approximately 31,000 square-feet (15,360 each), which were 100% leased as of December 31, 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 December 31, 2017 as the Company now occupies the remaining 50% of the property as its new corporate office. 

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We also self-developed two single-tenant net lease restaurant properties on a 6-acre beachfront parcel in Daytona Beach, Florida. The development was completed in January of 2018; therefore, during the first quarter of 2018, we will add these two properties to our 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, possibly in the downtown and beachside 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 short investment horizons. Should we pursue such acquisitions, we may seek to partner with developers to develop these sites rather than self-develop the properties.

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-producing properties were disposed of during the year ended December 31, 2017. Should we sell income properties, it is likely that we would seek to do so utilizing the 1031 like-kind exchange structure to preserve the tax-deferred gain on the original transaction(s) that pertains to the replacement asset.

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As of December 31, 2017, the Company owned twenty-six single-tenant and eleven multi-tenant income properties in twelve states. Following is a summary of these properties:

 

 

 

 

 

 

 

 

 

 

Tenant

    

City

    

State

    

Area
(Square Feet)

    

Year Built

 

At Home

 

Raleigh

 

NC

 

 116,334

 

1995

 

Bank of America

 

Monterey

 

CA

 

 32,692

 

1982

 

Barnes & Noble

 

Daytona Beach

 

FL

 

 28,000

 

1995

 

Best Buy

 

McDonough

 

GA

 

 30,038

 

2005

 

Big Lots

 

Phoenix

 

AZ

 

 34,512

 

2000

 

Big Lots

 

Germantown

 

MD

 

 25,589

 

2000

 

Carrabba's Italian Grill

 

Austin

 

TX

 

 6,528

 

1994

 

Century Theatres

 

Reno

 

NV

 

 52,474

 

2000

 

Container Store

 

Glendale

 

AZ

 

 23,329

 

2015

 

CVS

 

Dallas

 

TX

 

 10,340

 

2016

 

Dick’s Sporting Goods

 

McDonough

 

GA

 

 46,315

 

2006

 

Harris Teeter

 

Charlotte

 

NC

 

 45,089

 

1993

 

Hilton Grand Vacations

 

Orlando

 

FL

 

 102,019

 

1988

 

Hilton Grand Vacations

 

Orlando

 

FL

 

 31,895

 

2000

 

JoAnn Fabric

 

Saugus

 

MA

 

 22,500

 

2008

 

LA Fitness Center

 

Brandon

 

FL

 

 45,000

 

2006

 

Lowe’s Corporation

 

Katy

 

TX

 

 131,644

 

1997

 

Outback Steakhouse

 

Austin

 

TX

 

 6,176

 

1994

 

Outback Steakhouse

 

Charlottesville

 

VA

 

 7,216

 

1984

 

Outback Steakhouse

 

Huntersville

 

NC

 

 6,297

 

1997

 

Rite Aid Corp.

 

Renton

 

WA

 

 16,280

 

2006

 

Staples

 

Sarasota

 

FL

 

 18,120

 

2012

 

Walgreens

 

Clermont

 

FL

 

 13,650

 

2003

 

Walgreens

 

Alpharetta

 

GA

 

 15,120

 

2000

 

Wells Fargo

 

Hillsboro

 

OR

 

 211,863

 

1978/2009

 

Wells Fargo

 

Raleigh

 

NC

 

 450,393

 

1996/1997

 

26 Single-Tenant Properties

 

 

 

 

 

 1,529,413

 

 

 

7-Eleven

 

Dallas

 

TX

 

 4,685

 

1973

 

3600 Peterson

 

Santa Clara

 

CA

 

 75,841

 

1978/2015

 

Concierge Office Building

 

Daytona Beach

 

FL

 

 22,012

 

2009

 

World of Beer/Fuzzy's Taco Shop

 

Brandon

 

FL

 

 6,715

 

2006

 

Mason Commerce Center-Building 1

 

Daytona Beach

 

FL

 

 15,360

 

2009

 

Mason Commerce Center-Building 2

 

Daytona Beach

 

FL

 

 15,360

 

2009

 

The Grove

 

Winter Park

 

FL

 

 112,292

 

1985

 

Riverside Avenue

 

Jacksonville

 

FL

 

 136,856

 

2003

 

Westcliff Shopping Center

 

Fort Worth

 

TX

 

 136,185

 

1954

 

Whole Foods Market Centre

 

Sarasota

 

FL

 

 59,341

 

2004

 

Williamson Business Park-Building 1

 

Daytona Beach

 

FL

 

 15,360

 

2014

 

11 Multi-Tenant Properties

 

 

 

 

 

 600,007

 

 

 

Total 37 Properties

 

 

 

 

 

 2,129,420

 

 

 

Subsequent to December 31, 2017, and prior to the date of this report, the Company completed two self-developed single-tenant net lease restaurant properties on a 6-acre beachfront parcel in Daytona Beach, Florida and acquired a newly constructed commercial building located in Aspen, Colorado under a twenty-year master lease to a single tenant, bringing the number of single-tenant and total income properties to 29 and 40, respectively.  

The weighted average economical and physical occupancy rates of our income properties for each of the last three years on a portfolio basis are as follows:

 

 

 

 

 

 

Year

    

Single-Tenant Economic / Physical
Occupancy

    

Multi-Tenant Economic / Physical
Occupancy

 

2015

 

100% / 99%

 

85% / 85%

 

2016

 

100% / 100%

 

85% / 85%

 

2017

 

100% / 100%

 

86% / 85%

 

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Table of Contents 

The information on lease expirations of our total income property portfolio for each of the ten years starting with 2018 is as follows:

 

 

 

 

 

 

 

 

 

 

 

Year

    

# of Tenant Leases
Expiring

    

Total Square Feet of Leases Expiring

    

Annual Rents
Expiring
(1

    

Percentage of
Gross
Annual Rents
Expiri
ng (

 

2018

 

 7

 

 13,975

 

$

251,920

 

1.1

%

2019

 

 11

 

 164,526

 

$

2,217,220

 

9.2

%

2020

 

 11

 

 121,062

 

$

2,509,035

 

10.5

%

2021

 

 21

 

 149,981

 

$

2,309,941

 

9.6

%

2022

 

 3

 

 44,688

 

$

705,137

 

2.9

%

2023

 

 6

 

 95,033

 

$

1,959,139

 

8.2

%

2024

 

 5

 

 532,677

 

$

3,714,580

 

15.5

%

2025

 

 5

 

 265,746

 

$

1,680,972

 

7.0

%

2026

 

 5

 

 155,072

 

$

2,779,472

 

11.6

%

2027

 

 2

 

 148,544

 

$

1,001,923

 

4.2

%


(1)Annual Rents consist of the base rent to be received pursuant to each lease agreement, i.e. not on a straight-line basis.

The majority of leases have additional option periods beyond the original term of the lease, which typically are exercisable at the tenant’s option.

While no single tenant represents more than 10% of our consolidated revenues as of December 31, 2017, we have tenants who represent a large amount of our net operating income and/or a large percentage of the square footage of our income property portfolio. These tenants include Wells Fargo, Lowe’s Corporation, Hilton Grand Vacations, and At Home.

REAL ESTATE OPERATIONS

As of December 31, 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. As of February 28, 2018, approximately 75% of this acreage, or approximately 6,042 acres, is under contract to be sold. 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 years ended December 31, 2017, 2016, and 2015, respectively:

 

 

 

 

 

 

 

 

 

 

 

 

 

2017

 

2016

 

2015

 

Revenue Description

    

($000's)

    

($000's)

    

($000's)

 

Land Sales Revenue

 

$

 45,472

 

$

 11,871

 

$

 4,276

 

Tomoka Town Center - Percentage of Completion Revenue

 

 

 —

 

 

 17,490

 

 

 8,128

 

Revenue from Reimbursement of Infrastructure Costs

 

 

 1,860

 

 

 4,500

 

 

 —

 

Impact Fee and Mitigation Credit Sales

 

 

 2,126

 

 

 2,220

 

 

 463

 

Subsurface Revenue

 

 

 3,048

 

 

 1,802

 

 

 3,003

 

Fill Dirt and Other Revenue

 

 

 17

 

 

 261

 

 

 73

 

Total Real Estate Operations Revenue

 

$

 52,523

 

$

 38,144

 

$

 15,943

 

 

 

 

 

 

 

 

 

 

 

 

Tomoka Town Center. 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

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Center Sales 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 $2.2 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 December 31, 2017, NADG has begun construction on its approximately 400,000 square foot retail power center. 

During the second quarter of 2017, the Company completed the sale of approximately 19 acres to NADG (the “Third NADG Land Sale”). During the fourth quarter of 2017, the Company completed the sale of approximately 27 acres to NADG (the “Fourth NADG Land Sale”). The remaining developable acreage of approximately 35 acres is currently under contract with NADG as described in the land pipeline in Note 18, “Commitment and Contingencies.”

Land Sales. During the year ended December 31, 2017, a total of approximately 1,701 acres were sold for approximately $47.0 million as described below:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

Minto Communities, LLC

 

West of I-95

 

02/10/17

 

 1,581.0

 

$

 27,151

 

$

17,000

 

$

20,041

2

 

Commercial

 

East of I-95

 

03/22/17

 

 6.4

 

 

 1,556

 

 

245,000

 

 

11

3

 

Commercial

 

East of I-95

 

04/05/17

 

 27.5

 

 

 3,218

 

 

117,000

 

 

2,955

4

 

Commercial

 

East of I-95

 

04/13/17

 

 4.5

 

 

 1,235

 

 

274,000

 

 

13

5

 

Commercial

 

West of I-95

 

04/25/17

 

 30.0

 

 

 2,938

 

 

98,000

 

 

627

6

 

Third NADG Land Sale

 

East of I-95

 

06/27/17

 

 19.4

 

 

 4,422

 

 

228,000

 

 

3,263

7

 

Commercial

 

West of I-95

 

10/13/17

 

 5.1

 

 

 275

 

 

54,000

 

 

239

8

 

Fourth NADG Land Sale

 

East of I-95

 

12/29/17

 

 27.0

 

 

 6,216

 

 

230,000

 

 

4,609

 

 

 

 

 

 

 

 

 1,700.9

 

$

 47,011

 

$

28,000

 

$

 31,758


(1)The Gross Sales Price of land sales during 2017 of approximately $47.0 million above includes the infrastructure reimbursement payments received in the amount of approximately $955,000 for the Third NADG Land Sale and approximately $584,000 for the Fourth NADG Land Sale. Additionally, during 2017, approximately $321,000 was received from Minto Communities, LLC as an infrastructure reimbursement for improvements to the I-95 off ramp, which is not included in the gross sales price in the table above.

During the year ended December 31, 2016, a total of approximately 707.7 acres were sold for approximately $13.8 million as described below:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

3

 

Minto Sales Center

 

West of I-95

 

09/27/16

 

 4.5

 

 

 205

 

 

46,000

 

 

126

4

 

Commercial / Retail

 

West of I-95

 

10/13/16

 

 17.1

 

 

 3,034

 

 

177,000

 

 

2,675

5

 

Commercial / Retail

 

East of I-95

 

12/22/16

 

 74.6

 

 

 830

 

 

11,000

 

 

751

6

 

ICI Homes

 

West of I-95

 

12/29/16

 

 604.0

 

 

 7,500

 

 

12,000

 

 

3,303

 

 

 

 

 

 

 

 

 707.7

 

$

 13,759

 

$

19,000

 

$

 8,304

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 


(1)Land Sales Revenue for 2016 is equal to the Gross Sales Price of land sales during 2016 of approximately $13,.8 million above less the $2.0 million sales price for the NADG – OutParcel, plus approximately $112,000 of incentives earned and received during 2016 related to the Distribution Center sale which closed during 2014.

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During the year ended December 31, 2015, a total of approximately 114.1 acres were sold for approximately $22.5 million as described below:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

06/01/15

 

 3.0

 

$

 505

 

$

168,000

 

$

 476

2

 

Commercial / Retail

 

Highlands County

 

06/17/15

 

 0.9

 

 

 250

 

 

278,000

 

 

 223

3

 

Tanger

 

East of I-95

 

11/12/15

 

 38.9

 

 

 9,700

 

 

249,000

 

 

 2,793

4

 

Integra Land Company

 

East of I-95

 

12/18/15

 

 15.0

 

 

 2,376

 

 

158,000

 

 

 2,265

5

 

Sam's Club

 

East of I-95

 

12/23/15

 

 18.1

 

 

 4,500

 

 

249,000

 

 

 1,279

6

 

NADG - First Parcel

 

East of I-95

 

12/29/15

 

 37.3

 

 

 5,168

 

 

139,000

 

 

 1,421

7

 

Commercial / Retail

 

East of I-95

 

12/29/15

 

 0.9

 

 

 30

 

 

33,000

 

 

 20

 

 

 

 

 

 

 

 

 114.1

 

$

 22,529

 

$

197,000

 

$

 8,477


(1)Land Sales Revenue for 2015 is equal to the Gross Sales Price of land sales during 2015 of approximately $22.5 million above, less the aggregate $19.4 million sales price for the Tomoka Town Center Sales (Tanger, Sam’s Club, and NADG – First Parcel), plus approximately $1.03 million of incentives received and earned during 2015 related to the Distribution Center sale which closed during 2014, plus approximately $87,000 of percentage-of-completion revenue earned during 2015 for the Distribution Center Sale which closed during 2014.

As of February 28, 2018,  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 eighteen potential transactions with sixteen different buyers, representing more than 6,000 acres or approximately 75% of our land holdings:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

No. of

 

Amount

 

Price

 

Estimated

 

    

Transaction (Buyer)

    

Acres

    

($000's)

    

per Acre

 

Timing

1

 

Commercial/Retail - O'Connor - East of I-95 (2)

 

 123

 

$

 29,250

 

$

238,000

 

'18 - '19

2

 

Residential (AR) - Minto Communities - West of I-95

 

 1,614

 

 

 26,500

 

 

16,000

 

Q4 '18

3

 

Residential (SF) - ICI Homes - West of I-95

 

 1,016

 

 

 21,000

 

 

21,000

 

'19

4

 

Mitigation Bank - Term Sheet - West of I-95 (1)

 

 2,492

 

 

 15,000

 

 

6,000

 

Q2 '18

5

 

Mixed-Use Retail - North American - East of I-95 (5)

 

 35

 

 

 14,362

 

 

 409,000

 

Q4 '18

6

 

Commercial/Retail - Buc'ees - East of I-95 (2)

 

 35

 

 

 14,000

 

 

400,000

 

Q2 '18

7

 

Residential (Multi-Family) - East of I-95 (3)

 

 45

 

 

 5,200

 

 

116,000

 

Q3 '18 & '20

8

 

Distribution/Warehouse - VanTrust - East of I-95

 

 71

 

 

 5,000

 

 

70,000

 

'19

9

 

Commercial/Retail - East of I-95

 

 20

 

 

 4,250

 

 

213,000

 

Q4 '18 - '19

10

 

Residential (SF) - West of I-95 (4)

 

 200

 

 

 3,324

 

 

17,000

 

Q4 '18 & '20

11

 

Commercial/Distribution - VanTrust - East of I-95

 

 26

 

 

 3,215

 

 

124,000

 

Q4 '18 - '19

12

 

Specialty Grocer - East of I-95

 

 9

 

 

 2,790

 

 

310,000

 

Q4 '18

13

 

Auto Dealership - West of I-95

 

 13

 

 

 2,000

 

 

154,000

 

Q3 '18

14

 

Commercial (RV) - West of I-95

 

 164

 

 

 1,900

 

 

12,000

 

'19

15

 

Residential (SF) - ICI Homes - West of I-95

 

 146

 

 

 1,400

 

 

10,000

 

Q4 '18

16

 

Commercial/Retail - East of I-95

 

 8

 

 

 782

 

 

98,000

 

Q4 '18

17

 

Commercial/Retail - East of I-95

 

 6

 

 

 625

 

 

104,000

 

Q4 '18

18

 

Commercial/Retail - West of I-95

 

 19

 

 

 285

 

 

15,000

 

Q4 '18

 

 

Total (Average)

 

 6,042

 

$

 150,883

 

$

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.

(5)Pursuant to the contract, amount includes the reimbursement of infrastructure costs incurred by the Company for Tomoka Town Center plus interest accrued as of December 31, 2017.

 

As noted above, these agreements contemplate closing dates ranging from early 2018 through fiscal year 2020, and although some of the transactions may close in 2018, some of the buyers are not contractually obligated to close until after 2018. Each of the transactions are in varying stages of due diligence by the various buyers including, in some instances,

9


 

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making submissions to the planning and development departments of the City, 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 conducting traffic analyses with local government and the Florida Department of Transportation and negotiating other matters with 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.

Historical revenues and income from our sales of land are not indicative of future results because of the unique nature of land transactions and other factors including, but not limited to, variations in the cost basis of the owned land. A significant portion of the Company’s revenue and income in any given year may be generated through relatively few land transactions. The timing for these land transactions, from the time of preliminary discussions through contract negotiations, due diligence periods, and the closing, can last from several months to several years. Although we believe there have been recent indications of improvement in the overall economy and credit markets, we expect the overall real estate market, particularly home building, to remain inconsistent in the near term, and as a result we believe our ability to enter into land transactions will remain challenging.

Land Impairments. As more fully described in Note 8, "Impairment of Long-Lived Assets," during the years ended December 31, 2017 and 2015  the Company did not recognize any impairments on its undeveloped land holdings. During the year ended December 31, 2016, impairment charges totaled approximately $1.0 million on the Company’s undeveloped land. 

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 acres of vacant beachfront property located in Daytona Beach, Florida. The property was acquired for approximately $11.3 million, of which the Company contributed approximately $5.7 million. As 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 (“VIE”). 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 venture as of December 31, 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 December 31, 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 single-tenant 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 (“LandShark”),  which provided for the development by the Company of an approximately 6,264 square foot restaurant property on the parcel. The annual rent under the LandShark 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 Cocina 214 Restaurant & Bar (“Cocina 214”) for the second restaurant property to be developed on the parcel. The annual rent under the Cocina 214 lease 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 single-tenant restaurants during the third quarter of 2017. As of December 31, 2017, the Company has incurred approximately $5.9 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 restaurant properties. The development of the two restaurant properties was completed in time for the tenants to commence operations during January of 2018. Accordingly, during the first quarter of 2018, the total investment in the beach parcel and the construction costs of the two single-tenant properties will be classified as Income Properties, Land, Building, and Improvements, within the Property, Plant, and Equipment classification on the Company’s consolidated balance sheets.

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Other Real Estate Assets. The Company owns impact fees with a cost basis of approximately $402,000 and mitigation credits with a cost basis of approximately $723,000, for a combined total of approximately $1.1 million as of December 31, 2017. During the year ended December 31, 2017, the Company sold mitigation credits for approximately $1.6 million, for a gain of approximately $1.3 million, or $0.15 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 year ended December 31, 2017, as more fully described in Note 18, “Commitments and Contingencies.” During the years ended December 31, 2017 and 2016, the Company received cash payments of approximately $519,000 and $2.2 million, respectively, for impact fees with a cost basis that was generally of equal value.

Subsurface Interests. As of December 31, 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 year ended December 31, 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 covering a portion of our Subsurface Interests. 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 is effectively thirteen one-year terms as the lessee has the option to terminate the lease at the end of each lease year. The lessee has exercised renewal options through lease year seven ending September 22, 2018. The terms of the lease state that 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 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.

Lease income generated by the annual lease payments is recognized on a straight-line basis over the guaranteed lease term. For the years December 31, 2017, 2016, and 2015, lease income of approximately $807,000, $1.1 million, and $1.7 million was recognized, respectively. 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 years ended December 31, 2017, 2016, and 2015, the Company also received oil royalties from operating oil wells on 800 acres under a separate lease with a separate operator. Production volume from these oil wells was 60,287 in 2017, 50,441 barrels in 2016, and 62,745 barrels in 2015, resulting in revenues received from oil royalties of approximately $86,000, $50,000 and $68,000, respectively.

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The Company is not prohibited from selling any or all of its Subsurface Interests. 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. Should the Company complete a transaction to sell all or a portion of its Subsurface Interests or complete a release transaction, the Company may utilize the like-kind exchange structure in acquiring one or more replacement investments including income-producing properties. There were no releases of surface entry rights during the year ended December 31, 2017. Cash payments for the release of surface entry rights totaled approximately $493,000 and $995,000 during the years ended December 31, 2016 and 2015, respectively, which is included in revenue from real estate operations. During 2015, in conjunction with the release of the Company’s surface entry rights related to approximately 1,400 acres in Lee County, Florida, for a cash payment of approximately $920,000, the Company also received the 50% interest in the subsurface rights of those acres, which the Company did not previously own, for a fair value of approximately $68,000, which is also included in revenue from real estate operations.

In addition, the Company generated revenue of approximately $250,000 and $73,000 during the years ended December 31, 2016 and 2015, respectively, from fill dirt excavation agreements, with no such revenue generated during the year ended December 31, 2017.

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 approximately 690 acres of 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.  

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 effectively $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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The Company is obligated to pay the City additional consideration in the form of an annual surcharge of $1 per golf round played each year (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 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 December 31, 2017. The first annual payment of $70,000 was made in January 2018 leaving a remaining commitment of $630,000 as of the date of this report;  

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Within one year following the date of the closing of the Golf Course Land Purchase, unless extended due to weather related delays outside the Company’s control, the Company was obligated to renovate the greens on the Jones Course which renovations were completed in the third quarter of 2017; and

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If the Company sells the LPGA International Golf Club within six years of the closing of the Golf Course Land Purchase, the Company will be obligated to pay the City an amount equal to 10% of the difference between the

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sales price, less closing costs and any other costs required to be incurred in connection with the sale, and $4.0 million.

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 generally 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.

On October 23, 2017, the Company sold its two commercial loan investments secured by hotel properties in Atlanta, Georgia and Dallas, Texas. The Company sold these investments at a premium to par for proceeds of approximately $15.1 million on an aggregate principal value of $15.0 million. The Company utilized these proceeds to pay down the Credit Facility (hereinafter defined).

As of December 31, 2017, the Company owned two performing commercial loan investments which have an aggregate outstanding principal balance of approximately $12.0 million. These loans are secured by real estate, or the borrower’s equity interest in real estate, located in Daytona Beach Shores, Florida and Sarasota, Florida and have an average remaining maturity of approximately 0.5 years and a weighted average interest rate of 9.5%.

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 7,000 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.

COMPETITION

The real estate business generally is highly competitive. Our business plan is focused on investing in commercial real estate that produces income primarily through the leasing of assets to tenants. To identify investment opportunities in income-producing real estate assets and to achieve our investment objectives, we compete with numerous companies and organizations, both public as well as private, of varying sizes, ranging from organizations with local operations to organizations with national scale and reach, and in some cases, we compete with individual real estate investors. In all the markets in which we compete to acquire income properties, price is the principal method of competition, with transaction structure and certainty of execution also being significant considerations for potential sellers. As of December 31, 2017, our total income property portfolio, including our single-tenant and multi-tenant properties, consists of thirty-seven income properties located in the following states: (i) Arizona, (ii) California, (iii) Florida, (iv) Georgia, (v) Maryland, (vi) Massachusetts, (vii) Nevada, (viii) North Carolina, (ix) Oregon, (x) Texas, (xi) Virginia and (xii) Washington. Should we need to re-lease our single-tenant income properties or space(s) in our multi-tenant properties, we would compete with many other property owners in the local market based on, amongst other elements, price, location of our property, potential tenant improvements, and lease term.

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Our real estate operations are comprised primarily of our land holdings, which are largely used for agricultural purposes today and are substantially located in the City of Daytona Beach, Florida, and the Subsurface Interests. The parties typically interested in acquiring our land holdings are both residential and commercial developers as well as commercial businesses. These interested parties typically base their decision to acquire land on, among other things, price, location, land use or optionality of land use, ability to obtain zoning, entitlements, and permitting, and may also consider other development activities in the surrounding area.

Our business plan may also focus on investing in commercial real estate through the acquisition or origination of mortgage financings secured by commercial real estate. Competition for investing in commercial mortgage loans and similar financial instruments can include financial institutions such as banks, life insurance companies, institutional investors such as pension funds and other lenders including mortgage REITs, REITs, and high wealth investors. The organizations that we compete with are of varying sizes, ranging from organizations with local operations to organizations with national scale and reach. Competition from these interested parties is based on, amongst other things, pricing or rate, financing structure, and other elements of the typical terms and conditions of a real estate financing.

Our golf operations consist of the LPGA International Golf Club. The operation of LPGA International Golf Club also includes private event sales for golf events and clubhouse events. The primary competition for our golf operations comes from other private and public golf operations in the local market. Competition for our golf operation is largely based on price, service level, and product quality. We attempt to differentiate our golf operations product on the basis of the condition and quality of the courses and practice facilities, our private event capacity and capabilities, service level, the quality and experience of the food and beverage amenities and other amenities.

EMPLOYEES

At December 31, 2017, the Company had fourteen full-time employees and considers its employee relations to be satisfactory.

AVAILABLE INFORMATION

The Company’s website is www.ctlc.com. The Company makes available on this website, free of charge, its annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as soon as reasonably practicable after the Company electronically files or furnishes such materials to the SEC. The Company will also provide paper copies of these filings free of charge upon a specific request in writing for such filing to the Company’s Corporate Secretary, P.O. Box 10809, Daytona Beach, Florida 32120-0809. All reports the Company files with or furnishes to the SEC are also available free of charge via the SEC’s electronic data gathering and retrieval (“EDGAR”) system available through the SEC’s website at http://www.sec.gov. The public may read and copy any materials filed by us with the SEC at the SEC’s Public Reference Room, 100 F Street, N.E., Washington, D.C. 20549. The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330.

ITEM 1A.              RISK FACTORS

Our business is subject to a number of significant risks. The risks described below may not be the only risks which potentially could impact our business. These additional risks include those which are unknown now or that are currently considered immaterial. If any of the circumstances, events, or developments described below actually occur to a significant degree, our business, financial condition, results of operations, and/or cash flows could be materially adversely affected, and the trading price of our common stock could decline. You should carefully consider the following risks and all the other information set forth in this Annual Report on Form 10-K, including the consolidated financial statements and the notes thereto.

A prolonged downturn in economic conditions, especially in Daytona Beach, Florida, could adversely impact our business. In recent years, the collapse of the housing market, together with the crisis in the credit markets, resulted in a recession in the local and national economy with significant levels of unemployment, shrinking gross domestic product, and drastically reduced consumer spending. During this period, potential consumers of residential real estate often deferred or avoided real estate purchases due to, among other factors, a lack of liquidity, the substantial costs involved, and overall uncertainty with the economy. The real estate industry is particularly vulnerable to shifts in local, regional, and national economic conditions which are outside of our control, such as short and long-term interest rates, housing demand,

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population growth, and unemployment levels and job growth. Our real estate operations segment is especially sensitive to economic conditions in Florida, particularly in Daytona Beach, where substantially all our land portfolio is located. While Florida has experienced improving economic conditions, the recovery for Florida started later and has taken longer than the rest of the nation. A prolonged period of economic weakness or another downturn could have a material adverse effect on our business, financial condition, results of operations, and/or cash flows.

We may experience a decline in the fair value of our real estate assets or investments which could result in impairments and would impact our financial condition and results of operations. A decline in the fair market value of our long-lived assets may require us to recognize an “other-than-temporary” impairment against such assets (as defined by the Financial Accounting Standards Board (“FASB”) authoritative accounting guidance) if certain conditions or circumstances related to an asset were to change and we were to determine that, with respect to any such asset, there was an unrealized loss to the fair value of the asset. The fair value of our long-lived assets depends on market conditions, including estimates of future demand for these assets, and the revenues that can be generated from such applicable assets including land or an income property. If such a determination were to be made, we would recognize the estimated unrealized losses through earnings and write down the depreciated or amortized cost of such assets to a new cost basis, based on the fair value of such assets on the date they are considered to be other-than-temporarily impaired. Such impairment charges reflect non-cash losses at the time of recognition; subsequent disposition or sale of such assets could further affect our future losses or gains, as they are based on the difference between the sales price received and the adjusted depreciated or amortized cost of such assets at the time of sale.

The most recent downturn in the U.S. economy and real estate markets caused the fair value of certain of our properties to decrease. In 2011, we wrote down the carrying value of our golf operations assets and certain of our land assets with corresponding non-cash charges against our earnings to reflect the impaired value. In the last few years we have written down the carrying value of several small parcels of land reacquired through foreclosure in 2009 when portions of this reacquired land was under a contract to be sold for a price that was less than the carrying value of the land. If the real estate market were to experience another decline, we may be required to take other impairment charges against our earnings for other than temporary impairments in the value of our real estate assets including our land, income properties, commercial loan investments and similar financings or other capitalized costs. Any such non-cash charges could have an adverse effect on our financial condition and results of operations.

Our quarterly results are subject to variability. We have historically derived a substantial portion of our income from transactions in our land holdings. The timing of such real estate transactions is not predictable and is generally subject to the purchaser’s ability to, among other things, obtain on a timely basis acceptable financing and approvals from local municipalities and regulatory agencies for the intended use of the land or the issuance of permits related to wetlands mitigation. As these approvals are subject to third party responses, it is not uncommon for delays to occur, which affect the timing of transaction closings and may also impact the terms and conditions of the transaction. These timing issues have caused, and may continue to cause, our operating results to vary significantly from quarter to quarter and year to year.

Our future success will depend upon, among other things, our ability to successfully execute our strategy to invest in income-producing assets.  There is no assurance that we will be able to continue to execute our strategy of investing in income-producing assets, including income properties and possibly commercial loans or similar financings secured by real estate. There is no assurance that the income property portfolio will expand at all, or if it expands, at any specified rate or to any specified size. If we continue to invest in diverse geographic markets other than the markets in which we currently own properties, we will be subject to risks associated with investing in new markets as those markets will be relatively unfamiliar to us. In addition, investments in new markets may introduce increased costs to us relating to factors including the regulatory environment and the local and state tax structure. Additionally, there is no assurance we will or can expand our investments in commercial loans or similar financings secured by real estate. Consequently, if we are unable to acquire additional income-producing assets or our investments in new markets introduce increased costs our financial condition, results of operations, and cash flows may be adversely affected.

We operate in a highly competitive market for the acquisition of income properties and more established competitors may be able to compete more effectively for acquisition opportunities than we can. A number of entities and other investors compete with us to purchase income properties. We compete with REITs, public and private real estate focused companies, high wealth individual investors, and others. Many of our competitors are substantially larger and have considerably grea