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Section 1: 10-Q (10-Q)

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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, 2019

 

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 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

  

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 18, 2019

$1.00 par value 5,027,906

 

 


 

Table of Contents

INDEX

 

 

 

 

 

 

Page

 

    

No.

PART I—FINANCIAL INFORMATION 

 

 

 

 

 

Item 1.      Financial Statements 

 

 

 

 

 

Consolidated Balance Sheets – March 31, 2019 (Unaudited) and December 31, 2018

 

3

 

 

 

Consolidated Statements of Operations – Three months ended March 31, 2019 and 2018 (Unaudited) 

 

4

 

 

 

Consolidated Statements of Comprehensive Income – Three months ended March 31, 2019 and 2018 (Unaudited) 

 

5

 

 

 

Consolidated Statements of Shareholders’ Equity – Three months ended March 31, 2019 and 2018 (Unaudited) 

 

6

 

 

 

Consolidated Statements of Cash Flows – Three months ended March 31, 2019 and 2018 (Unaudited) 

 

7

 

 

 

Notes to Consolidated Financial Statements (Unaudited) 

 

9

 

 

 

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

 

39

 

 

 

Item 3.      Quantitative and Qualitative Disclosures About Market Risks 

 

52

 

 

 

Item 4.      Controls and Procedures 

 

52

 

 

 

PART II—OTHER INFORMATION 

 

53

 

 

 

Item 1.      Legal Proceedings 

 

53

 

 

 

Item 1A.   Risk Factors 

 

53

 

 

 

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

 

54

 

 

 

Item 3.      Defaults Upon Senior Securities 

 

54

 

 

 

Item 4.      Mine Safety Disclosures 

 

54

 

 

 

Item 5.      Other Information 

 

54

 

 

 

Item 6.      Exhibits 

 

55

 

 

 

SIGNATURES 

 

56

 

 

2


 

Table of Contents

PART I—FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

 

CONSOLIDATED-TOMOKA LAND CO.

CONSOLIDATED BALANCE SHEETS

 

 

 

 

 

 

 

 

 

 

 

(Unaudited)

 

 

 

 

    

March 31,
2019

    

December 31,
2018

ASSETS

 

 

 

 

 

 

Property, Plant, and Equipment:

 

 

 

 

 

 

Income Properties, Land, Buildings, and Improvements

 

$

392,552,156

 

$

392,520,783

Other Furnishings and Equipment

 

 

730,878

 

 

728,817

Construction in Progress

 

 

46,017

 

 

19,384

Total Property, Plant, and Equipment

 

 

393,329,051

 

 

393,268,984

Less, Accumulated Depreciation and Amortization

 

 

(26,737,672)

 

 

(24,518,215)

Property, Plant, and Equipment—Net

 

 

366,591,379

 

 

368,750,769

Land and Development Costs

 

 

25,745,482

 

 

25,764,633

Intangible Lease Assets—Net

 

 

42,315,994

 

 

43,555,445

Assets Held for Sale—See Note 20

 

 

59,078,667

 

 

75,866,510

Investment in Joint Venture

 

 

6,797,549

 

 

6,788,034

Impact Fee and Mitigation Credits

 

 

447,596

 

 

462,040

Cash and Cash Equivalents

 

 

2,682,205

 

 

2,310,489

Restricted Cash

 

 

1,336,361

 

 

19,721,475

Refundable Income Taxes

 

 

 —

 

 

225,024

Other Assets—See Note 9

 

 

13,512,025

 

 

12,885,453

Total Assets

 

$

518,507,258

 

$

556,329,872

LIABILITIES AND SHAREHOLDERS’ EQUITY

 

 

 

 

 

 

Liabilities:

 

 

 

 

 

 

Accounts Payable

 

$

990,363

 

$

1,036,547

Accrued and Other Liabilities—See Note 14

 

 

4,268,927

 

 

5,197,884

Deferred Revenue—See Note 15

 

 

6,622,253

 

 

7,201,604

Intangible Lease Liabilities—Net

 

 

26,697,074

 

 

27,390,350

Liabilities Held for Sale—See Note 20

 

 

1,641,985

 

 

1,347,296

Income Taxes Payable

 

 

1,465,653

 

 

 —

Deferred Income Taxes—Net

 

 

55,880,337

 

 

54,769,907

Long-Term Debt

 

 

206,991,712

 

 

247,624,811

Total Liabilities

 

 

304,558,304

 

 

344,568,399

Commitments and Contingencies—See Note 18

 

 

 

 

 

 

Shareholders’ Equity:

 

 

 

 

 

 

Shareholders' Equity:

 

 

 

 

 

 

Common Stock – 25,000,000 shares authorized; $1 par value, 6,072,588 shares issued and 5,386,623 shares outstanding at March 31, 2019; 6,052,209 shares issued and 5,436,952 shares outstanding at December 31, 2018

 

 

6,012,993

 

 

5,995,257

Treasury Stock – 685,965 shares at March 31, 2019 and 615,257 shares at December 31, 2018

 

 

(36,470,196)

 

 

(32,345,002)

Additional Paid-In Capital

 

 

24,817,328

 

 

24,326,778

Retained Earnings

 

 

219,231,100

 

 

213,297,897

Accumulated Other Comprehensive Income

 

 

357,729

 

 

486,543

Total Shareholders’ Equity

 

 

213,948,954

 

 

211,761,473

Total Liabilities and Shareholders’ Equity

 

$

518,507,258

 

$

556,329,872

 

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,

 

    

2019

    

2018

Revenues

 

 

 

 

 

 

Income Properties

 

$

10,724,418

 

$

9,205,727

Interest Income from Commercial Loan Investments

 

 

 —

 

 

300,999

Real Estate Operations

 

 

3,534,901

 

 

13,990,517

Total Revenues

 

 

14,259,319

 

 

23,497,243

Direct Cost of Revenues

 

 

 

 

 

 

Income Properties

 

 

(1,932,488)

 

 

(1,869,029)

Real Estate Operations

 

 

(1,625,269)

 

 

(1,540,834)

Total Direct Cost of Revenues

 

 

(3,557,757)

 

 

(3,409,863)

General and Administrative Expenses

 

 

(2,501,620)

 

 

(2,823,548)

Depreciation and Amortization

 

 

(3,346,287)

 

 

(3,796,823)

Total Operating Expenses

 

 

(9,405,664)

 

 

(10,030,234)

Gain on Disposition of Assets

 

 

6,869,957

 

 

3,650,858

Total Operating Income

 

 

11,723,612

 

 

17,117,867

Investment Income (Loss)

 

 

38,755

 

 

12,312

Interest Expense

 

 

(2,923,229)

 

 

(2,561,465)

Income from Continuing Operations Before Income Tax Benefit (Expense)

 

 

8,839,138

 

 

14,568,714

Income Tax Benefit (Expense) from Continuing Operations

 

 

(2,210,802)

 

 

(3,558,599)

Net Income from Continuing Operations

 

 

6,628,336

 

 

11,010,115

Loss from Discontinued Operations (Net of Income Tax)—See Note 20

 

 

(160,237)

 

 

(97,816)

Net Income

 

$

6,468,099

 

$

10,912,299

 

 

 

 

 

 

 

Per Share Information—See Note 10:

 

 

 

 

 

 

Basic

 

 

 

 

 

 

Net Income from Continuing Operations

 

$

1.24

 

$

1.99

Net Loss from Discontinued Operations (Net of Income Tax)

 

 

(0.03)

 

 

(0.02)

Basic Net Income per Share

 

$

1.21

 

$

1.97

Diluted

 

 

 

 

 

 

Net Income from Continuing Operations

 

$

1.24

 

$

1.98

Net Loss from Discontinued Operations (Net of Income Tax)

 

 

(0.03)

 

 

(0.02)

Diluted Net Income per Share

 

$

1.21

 

$

1.96

 

 

 

 

 

 

 

Dividends Declared and Paid

 

$

0.10

 

$

0.06

 

 

 

 

 

 

 

 

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,
2019

    

March 31,
2018

 

 

 

 

 

 

 

Net Income

 

$

6,468,099

 

$

10,912,299

Other Comprehensive Income (Loss)

 

 

 

 

 

 

Cash Flow Hedging Derivative - Interest Rate Swap (Net of Income Tax of $(43,732) and $60,365, respectively)

 

 

(128,814)

 

 

258,066

Total Other Comprehensive Income (Loss), Net of Income Tax

 

 

(128,814)

 

 

258,066

Total Comprehensive Income

 

$

6,339,285

 

$

11,170,365

 

 

 

 

 

 

 

 

See Accompanying Notes to Consolidated Financial Statements

5


 

Table of Contents

CONSOLIDATED-TOMOKA LAND CO.

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

(Unaudited)

For the three months ended March 31, 2019:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

Additional

 

 

 

Other

 

 

 

 

Common

 

Treasury

 

Paid-In

 

Retained

 

Comprehensive

 

Shareholders’

 

    

Stock

    

Stock

    

Capital

    

Earnings

    

Income (Loss)

    

Equity

Balance January 1, 2019

 

$

5,995,257

 

$

(32,345,002)

 

$

24,326,778

 

$

213,297,897

 

$

486,543

 

$

211,761,473

Net Income

 

 

 —

 

 

 —

 

 

 —

 

 

6,468,099

 

 

 —

 

 

6,468,099

Stock Repurchase

 

 

 —

 

 

(4,125,194)

 

 

 —

 

 

 —

 

 

 —

 

 

(4,125,194)

Vested Restricted Stock

 

 

12,957

 

 

 —

 

 

(316,272)

 

 

 —

 

 

 —

 

 

(303,315)

Stock Issuance

 

 

4,779

 

 

 —

 

 

267,352

 

 

 —

 

 

 —

 

 

272,131

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

 

 

 —

 

 

 —

 

 

539,470

 

 

 —

 

 

 —

 

 

539,470

Cash Dividends ($0.10 per share)

 

 

 —

 

 

 —

 

 

 —

 

 

(534,896)

 

 

 —

 

 

(534,896)

Other Comprehensive Loss, Net of Income Tax

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

(128,814)

 

 

(128,814)

Balance March 31, 2019

 

$

6,012,993

 

$

(36,470,196)

 

$

24,817,328

 

$

219,231,100

 

$

357,729

 

$

213,948,954

 

For the three months ended March 31, 2018:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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,

 

    

2019

    

2018

Cash Flow from Operating Activities:

 

 

 

 

 

 

Net Income

 

$

6,468,099

 

$

10,912,299

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

 

 

 

 

 

 

Depreciation and Amortization

 

 

3,346,287

 

 

3,900,379

Amortization of Intangible Liabilities to Income Property Revenue

 

 

(580,655)

 

 

(579,659)

Loan Cost Amortization

 

 

105,841

 

 

149,895

Amortization of Discount on Convertible Debt

 

 

331,260

 

 

310,782

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

 

 

 —

 

 

(3,650,858)

Gain on Disposition of Assets Held for Sale

 

 

(6,869,957)

 

 

 —

Accretion of Commercial Loan Origination Fees

 

 

 —

 

 

(14,760)

Deferred Income Taxes

 

 

981,616

 

 

3,930,060

Non-Cash Compensation

 

 

811,601

 

 

502,895

Decrease (Increase) in Assets:

 

 

 

 

 

 

Refundable Income Taxes

 

 

225,024

 

 

(166,324)

Golf Assets Held for Sale

 

 

(218,215)

 

 

 —

Land and Development Costs

 

 

19,151

 

 

(198,173)

Impact Fees and Mitigation Credits

 

 

14,444

 

 

311,236

Other Assets

 

 

(626,572)

 

 

(711,750)

Increase (Decrease) in Liabilities:

 

 

 

 

 

 

Accounts Payable

 

 

(46,184)

 

 

(450,864)

Accrued and Other Liabilities

 

 

(928,957)

 

 

(4,093,144)

Deferred Revenue

 

 

(579,351)

 

 

483,305

Golf Liabilities Held for Sale

 

 

294,689

 

 

 —

Income Taxes Payable

 

 

1,465,653

 

 

 —

Net Cash Provided By Operating Activities

 

 

4,213,774

 

 

10,635,319

Cash Flow from Investing Activities:

 

 

 

 

 

 

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

 

 

(188,112)

 

 

(27,916,784)

Acquisition of Commercial Loan Investments

 

 

 —

 

 

 —

Acquisition of Land

 

 

 —

 

 

(2,141,853)

Cash Contribution for Interest in Joint Venture

 

 

(9,515)

 

 

 —

Proceeds from Disposition of Property, Plant, and Equipment, Net, and Assets Held for Sale

 

 

24,004,060

 

 

11,077,525

Net Cash Used In Investing Activities

 

 

23,806,433

 

 

(18,981,112)

Cash Flow from Financing Activities:

 

 

 

 

 

 

Proceeds from Long-Term Debt

 

 

3,000,000

 

 

33,000,000

Payments on Long-Term Debt

 

 

(44,070,200)

 

 

(29,899,770)

Cash Paid for Loan Fees

 

 

 —

 

 

(117,683)

Cash Used to Purchase Common Stock

 

 

(4,125,194)

 

 

 —

Cash Paid for Vesting of Restricted Stock

 

 

(303,315)

 

 

(498,374)

Dividends Paid

 

 

(534,896)

 

 

(332,209)

Net Cash Provided By Financing Activities

 

 

(46,033,605)

 

 

2,151,964

Net Increase (Decrease) in Cash

 

 

(18,013,398)

 

 

(6,193,829)

Cash, Beginning of Year

 

 

22,031,964

 

 

13,067,540

Cash, End of Period

 

$

4,018,566

 

$

6,873,711

 

 

 

 

 

 

 

 

 

Reconciliation of Cash to the Consolidated Balance Sheets:

 

 

 

 

 

 

 

Cash and Cash Equivalents

 

$

2,682,205

 

$

3,724,714

 

Restricted Cash

 

 

1,336,361

 

 

3,148,997

 

Total Cash as of March 31, 2019 and 2018, respectively

 

$

4,018,566

 

$

6,873,711

 

 

 

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:

Income taxes refunded totaled approximately $687,000 during the three months ended March 31, 2019. No income taxes were paid or refunded during the three months ended March 31, 2018.

Interest totaling approximately $3.4 million and $2.9 million was paid during the three months ended March 31, 2019 and 2018, respectively. No interest was capitalized during the three months ended March 31, 2019 or 2018.

In connection with the Company’s implementation of Financial Accounting Standards Board (“FASB”) Accounting Standards Update (“ASU”) Topic 842, Leases, effective January 1, 2019, the Company recorded an increase in right-of-use assets and lease liabilities for leases for which the Company is the lessee. The amount of the adjustment totaled approximately $681,000 and was reflected as an increase in Other Assets and Accrued and Other Liabilities for corporate leases totaling approximately $473,000 and an increase in Assets Held for Sale and Liabilities Held for Sale for golf operations segment leases totaling approximately $208,000.

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 price 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.

See Accompanying Notes to Consolidated Financial Statements

 

 

8


 

Table of Contents

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

NOTE 1. DESCRIPTION OF BUSINESS AND PRINCIPLES OF INTERIM STATEMENTS

Description of Business

The terms “us,” “we,” “our,” and “the Company” as used in this report refer to Consolidated-Tomoka Land Co. together with our consolidated subsidiaries.

We are a diversified real estate operating company. We own and manage, sometimes utilizing third-party property management companies, forty-six commercial real estate properties in fourteen states in the United States. As of March 31, 2019, we owned forty single-tenant and six multi-tenant income-producing properties with approximately 2.3 million square feet of gross leasable space. We also own and manage a portfolio of undeveloped land totaling approximately 5,400 acres in Daytona Beach, Florida. We own the LPGA International Golf Club, which is managed by a third party and classified as held for sale (the “Club”). 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 and timber harvesting, and own and manage Subsurface Interests (hereinafter defined).

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, 2018, 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, 2019 are not necessarily indicative of results to be expected for the year ending December 31, 2019.

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 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 pursuant to FASB ASC Topic 842, Leases. The amendments in this update are effective for annual reporting periods beginning after December 15, 2018.

The Company’s implemented ASC 842 effective January 1, 2019 and has elected to follow the practical expedients and accounting policies below:

·

The Company, as lessee and as lessor, will not reassess (i) whether any expired or existing contracts are or contain leases, (ii) lease classification for any expired or existing leases or (iii) initial direct costs for any expired or existing leases.

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·

The Company, as lessee, will not apply the recognition requirements of ASC 842 to short-term (twelve months or less) leases. Instead, the Company, as lessee, will recognize the lease payments in profit or loss on a straight-line basis over the lease term and variable lease payments in the period in which the obligation for those payments is incurred. As of the date of this report, the Company has no such short-term leases.

·

The Company, as lessor, will not separate nonlease components from lease components and, instead, will account for each separate lease component and the nonlease components associated with that lease as a single component if the nonlease components otherwise would be accounted for under ASC Topic 606. The primary reason for this election is related to instances where common area maintenance is, or may be, a component of base rent within a lease agreement.

At the beginning of the period of adoption, January 1, 2019, through a cumulative-effect adjustment, the Company increased right-of use assets and lease liabilities for operating leases for which the Company is the lessee. The amount of the adjustment totaled approximately $681,000 and was reflected as an increase in Other Assets and Accrued and Other Liabilities for corporate leases totaling approximately $473,000 and an increase in Assets Held for Sale and Liabilities Held for sale for golf operations segment leases totaling approximately $208,000. There were no adjustments related to the leases for which the Company is the lessor.

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, 2019 include certain amounts over the Federal Deposit Insurance Corporation limits.

Restricted Cash

Restricted cash totaled approximately $1.3 million at March 31, 2019 of which approximately $1.1 million is being held in three separate escrow accounts related to three separate land transactions which closed in December 2013, February 2017, and March 2018; and approximately $223,000 is being held in a capital replacement reserve account in connection with our financing of six income properties with Wells Fargo Bank, NA (“Wells Fargo”).

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, 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.

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, 2019 and December 31, 2018, approximate fair value because of the short maturity of these instruments. The carrying value of the Company’s credit facility approximates current market rates for revolving credit arrangements with similar risks and maturities. The face

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value of the Company’s 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.

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 $1.0 million and $628,000 as of March 31, 2019 and December 31, 2018, respectively.

Accounts receivable related to real estate operations, which are classified in other assets on the consolidated balance sheets, totaled approximately $1.8 million as of both March 31, 2019 and December 31, 2018. 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 segment, which are classified in Assets Held for Sale on the consolidated balance sheets. Trade accounts receivable related to golf operations segment, which primarily consist of amounts due from members or from private events, totaled approximately $347,000 and $290,000 as of March 31, 2019 and December 31, 2018, 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, 2019 and December 31, 2018, the Company recorded an allowance for doubtful accounts of approximately $217,000 and $185,000, respectively.

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.

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The fair value of the tangible assets of an acquired leased property is determined by valuing the property as if it were vacant, and the “as-if-vacant” value is then allocated to land, building and tenant improvements based on the determination of the fair values of these assets.

In allocating the fair value of the identified intangible assets and liabilities of an acquired property, above-market and below-market in-place lease values are recorded as other assets or liabilities based on the present value (using an interest rate which reflects the risks associated with the leases acquired) of the difference between (i) the contractual amounts to be paid pursuant to the in-place leases, and (ii) management’s estimate of fair market lease rates for the corresponding in-place leases, measured over a period equal to the remaining term of the lease, including the probability of renewal periods. 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 FASB ASC Topic 606, 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.

 

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NOTE 2. REVENUE RECOGNITION

The Company implemented FASB ASC Topic 606, Revenue from Contracts with Customers 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, 2019:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income

 

Real Estate

 

Total

 

 

    

Properties

    

Operations

    

Revenues

 

 

    

($000's)

    

($000's)

    

($000's)

 

 

 

 

 

 

 

 

 

 

 

Major Good / Service:

 

 

 

 

 

 

 

 

 

 

Lease Revenue - Base Rent

 

$

 8,875

 

$

 27

 

$

 8,902

 

Lease Revenue - CAM

 

 

 670

 

 

 —

 

 

 670

 

Lease Revenue - Reimbursements

 

 

 546

 

 

 —

 

 

 546

 

Lease Revenue - Billboards

 

 

 36

 

 

 —

 

 

 36

 

Above / Below Market Lease Accretion

 

 

 581

 

 

 —

 

 

 581

 

Contributed Leased Assets Accretion

 

 

 62

 

 

 —

 

 

 62

 

Lease Incentive Amortization

 

 

 (76)

 

 

 —

 

 

 (76)

 

Land Sale Revenue

 

 

 —

 

 

 3,300

 

 

 3,300

 

Subsurface Lease Revenue

 

 

 —

 

 

 199

 

 

 199

 

Subsurface Revenue - Other

 

 

 —

 

 

 9

 

 

 9

 

Interest and Other Revenue

 

 

 30

 

 

 —

 

 

 30

 

Total Revenues

 

$

 10,724

 

$

 3,535

 

$

 14,259

 

 

 

 

 

 

 

 

 

 

 

Timing of Revenue Recognition:

 

 

 

 

 

 

 

 

 

 

Asset/Good Transferred at a Point in Time

 

$

 —

 

$

 3,309

 

$

 3,309

 

Services Transferred Over Time

 

 

 30

 

 

 —

 

 

 30

 

Over Lease Term

 

 

 10,694

 

 

 226

 

 

 10,920

 

Commercial Loan Investment Related Revenue

 

 

 —

 

 

 —

 

 

 —

 

Total Revenues

 

$

 10,724

 

$

 3,535

 

$

 14,259

 

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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

 

Total

 

 

    

Properties

    

Loan Investments

    

Operations

    

Revenues

 

 

    

($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

 

Interest and Other Revenue

 

 

 27

 

 

 —

 

 

 —

 

 

 27

 

Total Revenues

 

$

 9,206

 

$

 301

 

$

 13,990

 

$

 23,497

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Timing of Revenue Recognition:

 

 

 

 

 

 

 

 

 

 

 

 

 

Asset/Good Transferred at a Point in Time

 

$

 —

 

$

 —

 

$

 13,780

 

$

 13,780

 

Services Transferred Over Time

 

 

 27

 

 

 —

 

 

 —

 

 

 27

 

Over Lease Term

 

 

 9,179

 

 

 —

 

 

 210

 

 

 9,389

 

Commercial Loan Investment Related Revenue

 

 

 —

 

 

 301

 

 

 —

 

 

 301

 

Total Revenues

 

$

 9,206

 

$

 301

 

$

 13,990

 

$

 23,497

 

 

 

 

 

 

 

 

 

NOTE 3. INCOME PROPERTIES

No income properties were acquired during the three months ended March 31, 2019.

One multi-tenant income property, which was classified in Assets Held for Sale as of December 31, 2018, was disposed of during the three months ended March 31, 2019. On February 21, 2019, the Company sold its approximately 59,000 square foot multi-tenant retail property anchored by a Whole Foods Market retail store located in Sarasota, Florida for approximately $24.62 million (the “Whole Foods Sale”). The gain on the Whole Foods Sale totaled approximately $6.9 million, or approximately $0.96 per share, after tax. The Company applied the proceeds from the Whole Foods Sale towards the purchase of the previously-acquired portfolio of eight single-tenant ground leased income properties in Jacksonville, Florida, through a reverse 1031 like-kind exchange structure. The Whole Foods Sale continues the Company’s objective of transitioning the income property portfolio to primarily single-tenant net lease properties.

During the three months ended March 31, 2018, the Company acquired one single-tenant income property for a purchase price of $28.0 million, or an acquisition cost of approximately $29.0 million including capitalized acquisition costs. Of the total acquisition cost, approximately $12.0 million was allocated to land, approximately $15.0 million was allocated to buildings and improvements, approximately $2.8 million was allocated to intangible assets pertaining to the in-place lease value, leasing fees and above market lease value, and approximately $0.8 million was allocated to intangible liabilities for the below market lease value. The weighted average amortization period for the intangible assets and liabilities was approximately 20.0 years at acquisition.

Four income properties were disposed of during the three months ended March 31, 2018. On March 26, 2018, the Company sold its four self-developed, multi-tenant office properties located in Daytona Beach, Florida, for approximately $11.4 million (the “Self-Developed Properties Sale”). The sale included the 22,012 square-foot Concierge office building, the 30,720 square-foot Mason Commerce Center comprised of two office buildings, and the 15,360 square-foot Williamson Business Park office building. The gain on the sale totaled approximately $3.7 million, or

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approximately $0.49 per share, after tax. The Company utilized the proceeds to fund a portion of the previously-acquired income property located near Portland, Oregon, leased to Wells Fargo, through a reverse 1031 like-kind exchange structure. As part of the transaction, the Company entered into a lease of its approximately 7,600 square-foot office space in Williamson Business Park for approximately 5 years at a market rental rate.

 

 

NOTE 4. LAND AND SUBSURFACE INTERESTS

As of March 31, 2019, the Company owned approximately 5,400 acres of undeveloped land in Daytona Beach, Florida, along six miles of the west and east sides of Interstate 95. Currently, a significant amount of this land is used for agricultural purposes. As of April 30, 2019, approximately 60% of this acreage, over 3,200 acres, is under contract to be sold. Approximately 900 acres of our land holdings are located on the east side of Interstate 95 and are generally well-suited for commercial development. Approximately 4,500 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 1,000 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 are generally well-suited for industrial purposes.

Real estate operations revenue consisted of the following for the three months ended March 31, 2019 and 2018, respectively:

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

 

March 31, 2019

    

March 31, 2018

Revenue Description

    

($000's)

    

($000's)

Land Sales Revenue

 

$

 3,300

 

$

 13,117

Impact Fee and Mitigation Credit Sales

 

 

 —

 

 

 116

Subsurface Revenue

 

 

 208

 

 

 746

Fill Dirt and Other Revenue

 

 

 27

 

 

 —

Agriculture

 

 

 —

 

 

 11

Total Real Estate Operations Revenue

 

$

 3,535

 

$

 13,990

2019 Land Sales. During the three months ended March 31, 2019, a total of approximately 9.9 acres were sold for approximately $3.3 million, as described below:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gross Sales

 

 

 

Gain

 

 

 

 

 

 

Date of

 

No. of

 

Price

 

Price

 

on Sale

 

    

Buyer (or Description)

    

Location

    

Sale

    

Acres

    

($000's)

    

per Acre

    

($000's)

1

 

Unicorp-Grocery Anchored Project

 

East of I-95

 

02/27/19

 

 9.9

 

$

 3,300

 

$

333,000

 

$

2,274

2018 Land Sales. During the three months ended March 31, 2018, a total of approximately 34.9 acres were sold for approximately $13.9 million, as described below:’

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gross Sales

 

 

 

Gain

 

 

 

 

 

 

Date of

 

No. of

 

Price (1)

 

Price

 

on Sale

 

    

Buyer (or Description)

    

Location

    

Sale

    

Acres