Toggle SGML Header (+)


Section 1: 10-Q (10-Q)

cto_Current_Folio_10Q

Table of Contents

 

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

 

For the quarterly period ended March 31, 2018

 

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 01-11350

 


 

CONSOLIDATED-TOMOKA LAND CO.

(Exact name of registrant as specified in its charter)

 


 

 

 

 

Florida

    

59-0483700

(State or other jurisdiction of

 

(I.R.S. Employer

incorporation or organization)

 

Identification No.)

 

 

 

1140 N. Williamson Blvd., Suite 140

 

 

Daytona Beach, Florida

 

32114

(Address of principal executive offices)

 

(Zip Code)

 

(386) 274-2202

(Registrant’s telephone number, including area code)

 

N/A

(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 during the preceding 12 months (or 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

Accelerated filer

 

 

Non-accelerated filer

  (Do not check if a smaller reporting company)

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 Exchange Act).    Yes  ☐    No  ☒

 

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

 

Class of Common Stock Outstanding

April 20, 2018

$1.00 par value 5,596,311

 

 


 

Table of Contents

INDEX

 

 

 

 

 

 

Page

 

    

No.

PART I—FINANCIAL INFORMATION 

 

 

 

 

 

Item 1.      Financial Statements 

 

 

 

 

 

Consolidated Balance Sheets – March 31, 2018 (Unaudited) and December 31, 2017

 

3

 

 

 

Consolidated Statements of Operations – Three Months ended March 31, 2018 and 2017 (Unaudited) 

 

4

 

 

 

Consolidated Statements of Comprehensive Income – Three Months ended March 31, 2018 and 2017 (Unaudited) 

 

5

 

 

 

Consolidated Statements of Shareholders’ Equity – Three Months ended March 31, 2018 (Unaudited) 

 

6

 

 

 

Consolidated Statements of Cash Flows – Three Months ended March 31, 2018 and 2017 (Unaudited) 

 

7

 

 

 

Notes to Consolidated Financial Statements (Unaudited) 

 

9

 

 

 

Item 2.      Management’s Discussion and Analysis of Financial Condition and Results of Operations 

 

37

 

 

 

Item 3.      Quantitative and Qualitative Disclosures About Market Risks 

 

51

 

 

 

Item 4.      Controls and Procedures 

 

51

 

 

 

PART II—OTHER INFORMATION 

 

51

 

 

 

Item 1.      Legal Proceedings 

 

51

 

 

 

Item 1A.   Risk Factors 

 

52

 

 

 

Item 2.      Unregistered Sales of Equity Securities and Use of Proceeds 

 

53

 

 

 

Item 3.      Defaults Upon Senior Securities 

 

53

 

 

 

Item 4.      Mine Safety Disclosures 

 

53

 

 

 

Item 5.      Other Information 

 

53

 

 

 

Item 6.      Exhibits 

 

54

 

 

 

SIGNATURES 

 

55

 

 

2


 

Table of Contents

PART I—FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

 

CONSOLIDATED-TOMOKA LAND CO.

CONSOLIDATED BALANCE SHEETS

 

 

 

 

 

 

 

 

 

 

(Unaudited)

 

 

 

 

 

    

March 31,
2018

    

December 31,
2017

 

ASSETS

 

 

 

 

 

 

 

Property, Plant, and Equipment:

 

 

 

 

 

 

 

Income Properties, Land, Buildings, and Improvements

 

$

395,827,126

 

$

358,130,350

 

Golf Buildings, Improvements, and Equipment

 

 

6,618,364

 

 

6,617,396

 

Other Furnishings and Equipment

 

 

715,595

 

 

715,042

 

Construction in Progress

 

 

55,163

 

 

6,005,397

 

Total Property, Plant, and Equipment

 

 

403,216,248

 

 

371,468,185

 

Less, Accumulated Depreciation and Amortization

 

 

(23,354,026)

 

 

(23,779,780)

 

Property, Plant, and Equipment—Net

 

 

379,862,222

 

 

347,688,405

 

Land and Development Costs

 

 

30,145,845

 

 

39,477,697

 

Intangible Lease Assets—Net

 

 

40,099,046

 

 

38,758,059

 

Impact Fee and Mitigation Credits

 

 

814,033

 

 

1,125,269

 

Commercial Loan Investments

 

 

11,940,459

 

 

11,925,699

 

Cash and Cash Equivalents

 

 

3,724,714

 

 

6,559,409

 

Restricted Cash

 

 

3,148,997

 

 

6,508,131

 

Refundable Income Taxes

 

 

1,282,904

 

 

1,116,580

 

Other Assets

 

 

13,425,384

 

 

12,971,129

 

Total Assets

 

$

484,443,604

 

$

466,130,378

 

LIABILITIES AND SHAREHOLDERS’ EQUITY

 

 

 

 

 

 

 

Liabilities:

 

 

 

 

 

 

 

Accounts Payable

 

$

1,429,652

 

$

1,880,516

 

Accrued and Other Liabilities

 

 

6,067,382

 

 

10,160,526

 

Deferred Revenue

 

 

6,836,487

 

 

2,030,459

 

Intangible Lease Liabilities - Net

 

 

29,863,752

 

 

29,770,441

 

Deferred Income Taxes—Net

 

 

45,965,858

 

 

42,293,864

 

Long-Term Debt

 

 

199,259,588

 

 

195,816,364

 

Total Liabilities

 

 

289,422,719

 

 

281,952,170

 

Commitments and Contingencies - See Note 18

 

 

 

 

 

 

 

Shareholders’ Equity:

 

 

 

 

 

 

 

Shareholders' Equity:

 

 

 

 

 

 

 

Common Stock – 25,000,000 shares authorized; $1 par value, 6,041,695 shares issued and 5,595,040 shares outstanding at March 31, 2018; 6,030,990 shares issued and 5,584,335 shares outstanding at December 31, 2017

 

 

5,983,476

 

 

5,963,850

 

Treasury Stock – 446,655 shares at March 31, 2018 and December 31, 2017

 

 

(22,507,760)

 

 

(22,507,760)

 

Additional Paid-In Capital

 

 

22,720,123

 

 

22,735,228

 

Retained Earnings

 

 

188,194,364

 

 

177,614,274

 

Accumulated Other Comprehensive Income

 

 

630,682

 

 

372,616

 

Total Shareholders’ Equity

 

 

195,020,885

 

 

184,178,208

 

Total Liabilities and Shareholders’ Equity

 

$

484,443,604

 

$

466,130,378

 

See Accompanying Notes to Consolidated Financial Statements

 

 

3


 

Table of Contents

CONSOLIDATED-TOMOKA LAND CO.

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

 

 

March 31,

 

March 31,

 

 

    

2018

    

2017

    

Revenues

 

 

 

 

 

 

 

Income Properties

 

$

9,205,727

 

$

7,073,240

 

Interest Income from Commercial Loan Investments

 

 

300,999

 

 

536,489

 

Real Estate Operations

 

 

13,979,330

 

 

29,474,460

 

Golf Operations

 

 

1,354,356

 

 

1,474,944

 

Agriculture and Other Income

 

 

11,187

 

 

154,151

 

Total Revenues

 

 

24,851,599

 

 

38,713,284

 

Direct Cost of Revenues

 

 

 

 

 

 

 

Income Properties

 

 

(1,869,029)

 

 

(1,411,713)

 

Real Estate Operations

 

 

(1,535,662)

 

 

(9,156,849)

 

Golf Operations

 

 

(1,381,825)

 

 

(1,498,678)

 

Agriculture and Other Income

 

 

(5,172)

 

 

(40,437)

 

Total Direct Cost of Revenues

 

 

(4,791,688)

 

 

(12,107,677)

 

General and Administrative Expenses

 

 

(2,823,548)

 

 

(3,220,147)

 

Depreciation and Amortization

 

 

(3,900,379)

 

 

(2,762,575)

 

Gain on Disposition of Assets

 

 

3,650,858

 

 

 —

 

Land Lease Income

 

 

 —

 

 

2,226,526

 

Total Operating Expenses

 

 

(7,864,757)

 

 

(15,863,873)

 

Operating Income

 

 

16,986,842

 

 

22,849,411

 

Investment Income

 

 

12,312

 

 

9,183

 

Interest Expense

 

 

(2,561,465)

 

 

(2,061,891)

 

Income Before Income Tax Expense

 

 

14,437,689

 

 

20,796,703

 

Income Tax Expense

 

 

(3,525,390)

 

 

(8,050,311)

 

Net Income

 

$

10,912,299

 

$

12,746,392

 

 

 

 

 

 

 

 

 

Per Share Information- See Note 10:

 

 

 

 

 

 

 

Basic Net Income per Share

 

$

1.97

 

$

2.28

 

Diluted Net Income per Share

 

$

1.96

 

$

2.27

 

 

 

 

 

 

 

 

 

Dividends Declared and Paid

 

$

0.06

 

$

0.04

 

 

 

 

 

 

 

 

 

 

See Accompanying Notes to Consolidated Financial Statements

4


 

Table of Contents

CONSOLIDATED-TOMOKA LAND CO.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

 

    

March 31,
2018

    

March 31,
2017

    

 

 

 

 

 

 

 

 

Net Income

 

$

10,912,299

 

$

12,746,392

 

Other Comprehensive Income

 

 

 

 

 

 

 

Cash Flow Hedging Derivative - Interest Rate Swap (Net of Income Tax of $60,365, and $18,152, respectively)

 

 

258,066

 

 

47,056

 

Total Other Comprehensive Income, Net of Income Tax

 

 

258,066

 

 

47,056

 

Total Comprehensive Income

 

$

11,170,365

 

$

12,793,448

 

 

 

 

 

 

 

 

 

 

See Accompanying Notes to Consolidated Financial Statements

5


 

Table of Contents

CONSOLIDATED-TOMOKA LAND CO.

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

Additional

 

 

 

Other

 

 

 

 

Common

 

Treasury

 

Paid-In

 

Retained

 

Comprehensive

 

Shareholders’

 

    

Stock

    

Stock

    

Capital

    

Earnings

    

Income (Loss)

    

Equity

Balance January 1, 2018

 

$

5,963,850

 

$

(22,507,760)

 

$

22,735,228

 

$

177,614,274

 

$

372,616

 

$

184,178,208

Net Income

 

 

 —

 

 

 —

 

 

 —

 

 

10,912,299

 

 

 —

 

 

10,912,299

Vested Restricted Stock

 

 

19,065

 

 

 —

 

 

(517,439)

 

 

 —

 

 

 —

 

 

(498,374)

Stock Issuance

 

 

561

 

 

 —

 

 

35,063

 

 

 —

 

 

 —

 

 

35,624

Stock Compensation Expense from Restricted Stock
Grants and Equity Classified Stock Options

 

 

 —

 

 

 —

 

 

467,271

 

 

 —

 

 

 —

 

 

467,271

Cash Dividends ($0.06 per share)

 

 

 —

 

 

 —

 

 

 —

 

 

(332,209)

 

 

 —

 

 

(332,209)

Other Comprehensive Income, Net of Income Tax

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

258,066

 

 

258,066

Balance March 31, 2018

 

$

5,983,476

 

$

(22,507,760)

 

$

22,720,123

 

$

188,194,364

 

$

630,682

 

$

195,020,885

 

See Accompanying Notes to Consolidated Financial Statements

6


 

Table of Contents

CONSOLIDATED-TOMOKA LAND CO.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

 

 

March 31,

 

March 31,

 

 

    

2018

    

2017

 

Cash Flow from Operating Activities:

 

 

 

 

 

 

 

Net Income

 

$

10,912,299

 

$

12,746,392

 

Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities:

 

 

 

 

 

 

 

Depreciation and Amortization

 

 

3,900,379

 

 

2,762,575

 

Amortization of Intangible Liabilities to Income Property Revenue

 

 

(579,659)

 

 

(531,546)

 

Loan Cost Amortization

 

 

149,895

 

 

113,288

 

Amortization of Discount on Convertible Debt

 

 

310,782

 

 

291,570

 

Gain on Disposition of Property, Plant, and Equipment and Intangible Assets

 

 

(3,650,858)

 

 

 —

 

Accretion of Commercial Loan Origination Fees

 

 

(14,760)

 

 

 —

 

Deferred Income Taxes

 

 

3,930,060

 

 

9,034,033

 

Non-Cash Compensation

 

 

467,271

 

 

353,579

 

Decrease (Increase) in Assets:

 

 

 

 

 

 

 

Refundable Income Taxes

 

 

(166,324)

 

 

(97,947)

 

Land and Development Costs

 

 

(198,173)

 

 

7,511,335

 

Impact Fees and Mitigation Credits

 

 

311,236

 

 

216,592

 

Other Assets

 

 

(711,750)

 

 

872,220

 

Increase (Decrease) in Liabilities:

 

 

 

 

 

 

 

Accounts Payable

 

 

(450,864)

 

 

471,575

 

Accrued and Other Liabilities

 

 

(4,093,144)

 

 

(3,887,645)

 

Deferred Revenue

 

 

483,305

 

 

(392,524)

 

Net Cash Provided By Operating Activities

 

 

10,599,695

 

 

29,463,497

 

Cash Flow from Investing Activities:

 

 

 

 

 

 

 

Acquisition of Property, Plant, and Equipment and Intangible Lease Assets and Liabilities

 

 

(27,916,784)

 

 

(23,557,356)

 

Acquisition of Land

 

 

(2,141,853)

 

 

 —

 

Proceeds from Disposition of Property, Plant, and Equipment

 

 

11,077,525

 

 

 —

 

Net Cash Used In Investing Activities

 

 

(18,981,112)

 

 

(23,557,356)

 

Cash Flow from Financing Activities:

 

 

 

 

 

 

 

Proceeds from Long-Term Debt

 

 

33,000,000

 

 

6,000,000

 

Payments on Long-Term Debt

 

 

(29,899,770)

 

 

(15,800,000)

 

Cash Paid for Loan Fees

 

 

(117,683)

 

 

(36,749)

 

Cash Proceeds from Exercise of Stock Options and Stock Issuance

 

 

35,624

 

 

19,979

 

Cash Used to Purchase Common Stock

 

 

 —

 

 

(2,927,556)

 

Cash Paid for Vesting of Restricted Stock

 

 

(498,374)

 

 

(261,621)

 

Dividends Paid

 

 

(332,209)

 

 

(224,594)

 

Net Cash Provided By (Used In) Financing Activities

 

 

2,187,588

 

 

(13,230,541)

 

Net Decrease in Cash

 

 

(6,193,829)

 

 

(7,324,400)

 

Cash, Beginning of Year

 

 

13,067,540

 

 

17,635,031

 

Cash, End of Period

 

$

6,873,711

 

$

10,310,631

 

 

 

 

 

 

 

 

 

 

Reconciliation of Cash to the Consolidated Balance Sheets:

 

 

 

 

 

 

 

Cash and Cash Equivalents

 

$

3,724,714

 

$

4,427,864

 

Restricted Cash

 

 

3,148,997

 

 

5,882,767

 

Total Cash as of March 31, 2018 and 2017, respectively

 

$

6,873,711

 

$

10,310,631

 

 

 

See Accompanying Notes to Consolidated Financial Statements

7


 

Table of Contents

CONSOLIDATED-TOMOKA LAND CO.

CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)

(Unaudited)

Supplemental Disclosure of Cash Flows:

No income taxes were paid or refunded during the three months ended March 31, 2018. Income taxes refunded totaled approximately $808,000 during the three months ended March 31, 2017.

Interest totaling approximately $2.9 million and $2.6 million was paid during the three months ended March 31, 2018 and 2017, respectively. No interest was capitalized during the three months ended March 31, 2018 or 2017.

In connection with the acquisition of the property in Aspen, Colorado, the tenant contributed $1.5 million of the $28.0 million purchase price at closing on February 21, 2018. The $1.5 million purchase contribution was reflected as an increase in Income Property, Land, Buildings, and Improvements and Deferred Revenue on the accompanying consolidated balance sheets as of March 31, 2018.

In connection with the construction of the beachfront restaurant leased to Cocina 214 Restaurant & Bar in Daytona Beach, Florida, the tenant contributed approximately $1.9 million of the building and tenant improvements owned by the Company through direct payments to various third-party construction vendors. The approximately $1.9 million asset contribution was reflected as an increase in Income Property, Land, Buildings, and Improvements and Deferred Revenue on the accompanying consolidated balance sheets as of March 31, 2018.

In connection with the Golf Course Land Purchase (hereinafter defined in Note 14, “Accrued and Other Liabilities”), 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 accompanying consolidated balance sheets as of March 31, 2017. 

See Accompanying Notes to Consolidated Financial Statements

 

 

8


 

Table of Contents

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 diversified real estate operating company. We own and manage thirty-six commercial real estate properties in thirteen states in the United States. As of March 31, 2018, we owned twenty-nine single-tenant and seven multi-tenant income-producing properties with approximately 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 March 31, 2018, we have 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 eighteen 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.

Interim Financial Information

The accompanying unaudited consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). 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 (“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, 2017, 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 months ended March 31, 2018 are not necessarily indicative of results to be expected for the year ending December 31, 2018.

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 inter-company balances and transactions have been eliminated in the consolidated financial statements.

Use of Estimates in Preparation of Financial Statements

The preparation of financial statements in conformity with 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.

Recently Issued Accounting Standards

In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2014-09, which amends its guidance on the recognition 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 provisions during the year ended December 31, 2017 and determined there was no impact on the Company’s revenue recognition within the consolidated financial statements. All required disclosures relating to ASU 2014-09 have been implemented herein as required by the standard. The Company adopted ASU 2014-09 effective January 1, 2018 utilizing the modified retrospective method.

9


 

Table of Contents

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 adopted ASU 2016-01 effective January 1, 2018 and determined there was no material impact on its consolidated financial statements.

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 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 adopted ASU 2016-15 effective January 1, 2018 and determined there was no material impact on its consolidated financial statements.

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 adopted ASU 2016-18 effective January 1, 2018 and has classified the changes in restricted cash between operating, investing, and financing in the consolidated statements of cash flows as applicable per the new guidance. 

In February 2018, the FASB issued ASU 2018-02, which amends the guidance allowing for a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the Tax Cuts and Jobs Act. 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.

 

Cash and Cash Equivalents

Cash and cash equivalents include 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 March 31, 2018 include certain amounts over the Federal Deposit Insurance Corporation limits.

Restricted Cash

Restricted cash totaled approximately $3.2 million at March 31, 2018 of which approximately $184,000 is being held in escrow, to be reinvested through the like-kind exchange structure; approximately $1.5 million is being held in four separate escrow accounts related to four separate land transactions which closed in December 2013, December 2015, February 2017, and March 2018; 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; approximately $172,000 is being held in a capital replacement reserve account in connection with our financing of six income properties with Wells Fargo; and approximately $1.2 million is being held in a leasing reserve in connection with our acquisition of the property in Aspen, Colorado in February 2018.

Derivative Financial Instruments and Hedging Activity

Interest Rate Swap. 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 derivative in accordance with FASB ASC Topic 815-20, Derivatives and Hedging. Depending upon the hedge’s value at each balance sheet date, the derivative is included in either Other Assets or Accrued and Other Liabilities on the consolidated balance sheet at its fair value. On the date the Interest Rate Swap was entered into, the Company designated the derivative as a hedge of the variability of cash flows to be paid related to the recognized long-term debt liability.

10


 

Table of Contents

The Company formally documented the relationship between the hedging instrument and the hedged item, as well as its risk-management objective and strategy for undertaking the hedge transaction. At the hedge’s inception, the Company formally assessed whether the derivative that is used in hedging the transaction is highly effective in offsetting changes in cash flows of the hedged item, and we will continue to do so on an ongoing 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 Swap that are highly effective and designated and qualified as a cash-flow hedge are recorded in other comprehensive income and loss, until earnings are affected by the variability in cash flows of the designated hedged item.

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 March 31, 2018 and December 31, 2017, 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 March 31, 2018 and December 31, 2017, 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 facility 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, mortgage notes, and convertible debt is measured at fair value based on current market rates for financial instruments with similar risks and maturities. See Note 6, “Fair Value of Financial Instruments.”

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 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. 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.

11


 

Table of Contents

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 March 31, 2018 and December 31, 2017, no allowance for impairment was required.

Recognition of Interest Income from Commercial Loan Investments

Interest income on commercial loan 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 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 credits are stated at historical cost. As these assets are sold, the related revenues and cost basis 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 tenant reimbursable expenses. Receivables related to tenant reimbursable expenses totaled approximately $813,000 and $895,000 as of March 31, 2018 and December 31, 2017, respectively.

Accounts receivable related to real estate operations, which are classified in other assets on the consolidated balance sheets, totaled approximately $2.1 million and $2.2 million as of as of March 31, 2018 and December 31, 2017, respectively. As more fully described in Note 9, “Other Assets,” these accounts receivable 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.

Trade accounts receivable primarily consist of receivables related to the golf operations, which are classified in other assets on the consolidated balance sheets. Trade accounts receivable related to golf operations, which primarily consist of amounts due from members or from private events, totaled approximately $353,000 and $349,000 as of March 31, 2018 and December 31, 2017, respectively.  

The collectability of the aforementioned receivables is determined based on the aging of the receivable and a review of the specifically identified accounts using judgments. As of March 31, 2018 and December 31, 2017, no allowance for doubtful accounts was required.

Purchase Accounting for Acquisitions of Real Estate Subject to a Lease

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.

12


 

Table of Contents

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. 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 Company believes that it is likely that the tenant will renew the option whereby 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 is 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 value of tenant relationships is reviewed on individual transactions to determine if future value was derived from the acquisition.

In January 2017, the FASB issued 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, accordingly acquisition costs have been capitalized.

Sales of Real Estate

Gains and losses on sales of real estate are accounted for as required by ASU 2014-09, Revenue from Contracts with Customers. The Company recognizes revenue from the sales of real estate when the Company transfers the promised goods and/or services in the contract based on the transaction price allocated to the performance obligations within the contract. As market information becomes available, real estate cost basis is analyzed and recorded at the lower of cost or market.

Income Taxes

The Company uses the asset and liability method to account for income taxes. 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 Note 17, “Income 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, 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.

 

13


 

Table of Contents

NOTE 2. REVENUE RECOGNITION

The Company adopted ASU 2014-09 effective January 1, 2018 utilizing the modified retrospective method.

The following table summarizes the Company’s revenue by segment, major good and/or service, and the related timing of revenue recognition for the three months ended March 31, 2018:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest Income

 

 

 

 

 

 

 

 

 

 

 

Income

 

from Commercial

 

Real Estate

 

Golf

 

Agriculture and

 

Total

 

 

    

Properties

    

Loan Investments

    

Operations

    

Operations

    

Other Income

    

Revenues

 

 

    

($000's)

    

($000's)

    

($000's)

    

($000's)

    

($000's)

    

($000's)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Major Good / Service:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Lease Revenue - Base Rent

 

$

 7,422

 

$

 —

 

$

 —

 

$

 —

 

$

 11

 

$

 7,433

 

Lease Revenue - CAM

 

 

 614

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 614

 

Lease Revenue - Reimbursements

 

 

 565

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 565

 

Lease Revenue - Billboards

 

 

 64

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 64

 

Above / Below Market Lease Accretion

 

 

 580

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 580

 

Contributed Leased Assets Accretion

 

 

 10

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 10

 

Lease Incentive Amortization

 

 

 (76)

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 (76)

 

Interest from Commercial Loan Investments

 

 

 —

 

 

 301

 

 

 —

 

 

 —

 

 

 —

 

 

 301

 

Land Sale Revenue

 

 

 —

 

 

 —

 

 

 13,117

 

 

 —

 

 

 —

 

 

 13,117

 

Impact Fee and Mitigation Credit Sales

 

 

 —

 

 

 —

 

 

 116

 

 

 —

 

 

 —

 

 

 116

 

Subsurface Lease Revenue

 

 

 —

 

 

 —

 

 

 199

 

 

 —

 

 

 —

 

 

 199

 

Subsurface Revenue - Other

 

 

 —

 

 

 —

 

 

 547

 

 

 —

 

 

 —

 

 

 547

 

Golf Operations

 

 

 —

 

 

 —

 

 

 —

 

 

 1,355

 

 

 —

 

 

 1,355

 

Interest and Other Revenue

 

 

 27

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 27

 

Total Revenues

 

$

 9,206

 

$

 301

 

$

 13,979

 

$

 1,355

 

$

 11

 

$

 24,852

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Timing of Revenue Recognition:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Asset/Good Transferred at a Point in Time

 

$

 —

 

$

 —

 

$

 13,780

 

$

 1,095

 

$

 —

 

$

 14,875

 

Services Transferred Over Time

 

 

 27

 

 

 —

 

 

 —

 

 

 260

 

 

 —

 

 

 287

 

Over Lease Term

 

 

 9,179

 

 

 —

 

 

 199

 

 

 —

 

 

 11

 

 

 9,389

 

Commercial Loan Investment Related Revenue

 

 

 —

 

 

 301

 

 

 —

 

 

 —

 

 

 —

 

 

 301

 

Total Revenues

 

$

 9,206

 

$

 301

 

$

 13,979

 

$

 1,355

 

$

 11

 

$

 24,852

 

The following table summarizes the Company’s revenue by segment, major good and/or service, and the related timing of revenue recognition for the three months ended March 31, 2017:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest Income

 

 

 

 

 

 

 

 

 

 

 

Income

 

from Commercial

 

Real Estate

 

Golf

 

Agriculture and

 

Total

 

 

    

Properties

    

Loan Investments

    

Operations

    

Operations

    

Other Income

    

Revenues

 

 

    

($000's)

    

($000's)

    

($000's)

    

($000's)

    

($000's)

    

($000's)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Major Good / Service:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Lease Revenue - Base Rent

 

$

 5,554

 

$

 —

 

$

 —

 

$

 —

 

$

 11

 

$

 5,565

 

Lease Revenue - CAM

 

 

 499

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 499

 

Lease Revenue - Reimbursements

 

 

 420

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 420

 

Lease Revenue - Billboards

 

 

 61

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 61

 

Above / Below Market Lease Accretion

 

 

 531

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 531

 

Interest from Commercial Loan Investments

 

 

 —

 

 

 537

 

 

 —

 

 

 —

 

 

 —

 

 

 537

 

Land Sale Revenue

 

 

 —

 

 

 —

 

 

 28,707

 

 

 —

 

 

 —

 

 

 28,707

 

Revenue from Reimbursement of Infrastructure Costs

 

 

 —

 

 

 —

 

 

 320

 

 

 —

 

 

 —

 

 

 320

 

Impact Fee and Mitigation Credit Sales

 

 

 —

 

 

 —

 

 

 216

 

 

 —

 

 

 —

 

 

 216

 

Subsurface Lease Revenue

 

 

 —

 

 

 —

 

 

 199

 

 

 —

 

 

 —

 

 

 199

 

Subsurface Revenue - Other

 

 

 —

 

 

 —

 

 

 32

 

 

 —

 

 

 —

 

 

 32

 

Golf Operations

 

 

 —

 

 

 —

 

 

 —

 

 

 1,475

 

 

 —

 

 

 1,475

 

Timber Sales Revenue

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 143

 

 

 143

 

Interest and Other Revenue

 

 

 8

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 8

 

Total Revenues

 

$

 7,073

 

$

 537

 

$

 29,474

 

$

 1,475

 

$

 154

 

$

 38,713

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Timing of Revenue Recognition:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Asset/Good Transferred at a Point in Time

 

$

 —

 

$

 —

 

$

 28,955

 

$

 1,232

 

$

 143

 

$

 30,330

 

Services Transferred Over Time

 

 

 8

 

 

&nb