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 September 30, 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)


 

Securities registered pursuant to Section 12(b) of the Act:

 

 

 

 

 

Title of each class:

    

Trading Symbol

    

Name of each exchange on which registered:

COMMON STOCK, $1.00 PAR VALUE

 

CTO

 

NYSE American

 

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 pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit 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

October 11, 2019

$1.00 par value 4,929,079

 

 

Table of Contents

INDEX

 

 

 

 

 

 

Page

 

    

No.

PART I—FINANCIAL INFORMATION 

 

 

 

 

 

Item 1.      Financial Statements 

 

 

 

 

 

Consolidated Balance Sheets – September 30, 2019 (Unaudited) and December 31, 2018 

 

3

 

 

 

Consolidated Statements of Operations – Three and nine months ended September 30, 2019 and 2018 (Unaudited) 

 

4

 

 

 

Consolidated Statements of Comprehensive Income – Three and nine months ended September 30, 2019 and 2018 (Unaudited) 

 

5

 

 

 

Consolidated Statements of Shareholders’ Equity – Nine months ended September 30, 2019 and 2018 (Unaudited) 

 

6

 

 

 

Consolidated Statements of Cash Flows – Nine months ended September 30, 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 

 

41

 

 

 

Item 3.      Quantitative and Qualitative Disclosures About Market Risks 

 

58

 

 

 

Item 4.      Controls and Procedures 

 

59

 

 

 

PART II—OTHER INFORMATION 

 

59

 

 

 

Item 1.      Legal Proceedings 

 

59

 

 

 

Item 1A.   Risk Factors 

 

59

 

 

 

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

 

60

 

 

 

Item 3.      Defaults Upon Senior Securities 

 

60

 

 

 

Item 4.      Mine Safety Disclosures 

 

60

 

 

 

Item 5.      Other Information 

 

60

 

 

 

Item 6.      Exhibits 

 

61

 

 

 

SIGNATURES 

 

62

 

 

2

Table of Contents

PART I—FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

 

CONSOLIDATED-TOMOKA LAND CO.

CONSOLIDATED BALANCE SHEETS

 

 

 

 

 

 

 

 

    

(Unaudited)
September 30,
2019

    

December 31,
2018

ASSETS

 

 

 

 

 

 

Property, Plant, and Equipment:

 

 

 

 

 

 

Income Properties, Land, Buildings, and Improvements

 

$

472,444,875

 

$

392,520,783

Other Furnishings and Equipment

 

 

730,878

 

 

728,817

Construction in Progress

 

 

412,543

 

 

19,384

Total Property, Plant, and Equipment

 

 

473,588,296

 

 

393,268,984

Less, Accumulated Depreciation and Amortization

 

 

(32,696,922)

 

 

(24,518,215)

Property, Plant, and Equipment—Net

 

 

440,891,374

 

 

368,750,769

Land and Development Costs

 

 

23,520,982

 

 

25,764,633

Intangible Lease Assets—Net

 

 

49,195,221

 

 

43,555,445

Assets Held for Sale—See Note 21

 

 

4,502,635

 

 

75,866,510

Investment in Joint Venture

 

 

6,850,594

 

 

6,788,034

Impact Fee and Mitigation Credits

 

 

447,596

 

 

462,040

Commercial Loan Investments

 

 

32,419,693

 

 

 —

Cash and Cash Equivalents

 

 

5,411,727

 

 

2,310,489

Restricted Cash

 

 

6,213,295

 

 

19,721,475

Refundable Income Taxes

 

 

 —

 

 

225,024

Other Assets—See Note 10

 

 

14,008,249

 

 

12,885,453

Total Assets

 

$

583,461,366

 

$

556,329,872

LIABILITIES AND SHAREHOLDERS’ EQUITY

 

 

 

 

 

 

Liabilities:

 

 

 

 

 

 

Accounts Payable

 

$

2,624,096

 

$

1,036,547

Accrued and Other Liabilities—See Note 15

 

 

5,627,474

 

 

5,197,884

Deferred Revenue—See Note 16

 

 

7,457,665

 

 

7,201,604

Intangible Lease Liabilities—Net

 

 

26,059,614

 

 

27,390,350

Liabilities Held for Sale—See Note 21

 

 

1,729,049

 

 

1,347,296

Income Taxes Payable

 

 

112,896

 

 

 —

Deferred Income Taxes—Net

 

 

58,761,619

 

 

54,769,907

Long-Term Debt

 

 

282,087,031

 

 

247,624,811

Total Liabilities

 

 

384,459,444

 

 

344,568,399

Commitments and Contingencies—See Note 19

 

 

 

 

 

 

Shareholders’ Equity:

 

 

 

 

 

 

Shareholders' Equity:

 

 

 

 

 

 

Common Stock – 25,000,000 shares authorized; $1 par value, 6,075,462 shares issued and 4,927,728 shares outstanding at September 30, 2019; 6,052,209 shares issued and 5,436,952 shares outstanding at December 31, 2018

 

 

6,015,867

 

 

5,995,257

Treasury Stock – 1,147,734 shares at September 30, 2019 and 615,257 shares at December 31, 2018

 

 

(63,441,664)

 

 

(32,345,002)

Additional Paid-In Capital

 

 

26,062,021

 

 

24,326,778

Retained Earnings

 

 

230,284,293

 

 

213,297,897

Accumulated Other Comprehensive Income

 

 

81,405

 

 

486,543

Total Shareholders’ Equity

 

 

199,001,922

 

 

211,761,473

Total Liabilities and Shareholders’ Equity

 

$

583,461,366

 

$

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

 

Nine Months Ended

 

 

September 30,

 

September 30,

 

September 30,

 

September 30,

 

    

2019

    

2018

    

2019

    

2018

Revenues

 

 

 

 

 

 

 

 

 

 

 

 

Income Properties

 

$

10,260,831

 

$

9,360,155

 

$

31,360,544

 

$

28,347,181

Interest Income from Commercial Loan Investments

 

 

855,559

 

 

41,262

 

 

908,324

 

 

615,728

Real Estate Operations

 

 

631,741

 

 

8,012,509

 

 

11,677,413

 

 

24,498,527

Total Revenues

 

 

11,748,131

 

 

17,413,926

 

 

43,946,281

 

 

53,461,436

Direct Cost of Revenues

 

 

 

 

 

 

 

 

 

 

 

 

Income Properties

 

 

(1,476,288)

 

 

(1,773,840)

 

 

(5,043,496)

 

 

(5,677,758)

Real Estate Operations

 

 

(342,148)

 

 

(5,577,491)

 

 

(6,448,016)

 

 

(7,993,767)

Total Direct Cost of Revenues

 

 

(1,818,436)

 

 

(7,351,331)

 

 

(11,491,512)

 

 

(13,671,525)

General and Administrative Expenses

 

 

(2,260,728)

 

 

(1,928,008)

 

 

(6,881,524)

 

 

(7,180,737)

Depreciation and Amortization

 

 

(4,286,836)

 

 

(3,756,507)

 

 

(11,707,710)

 

 

(11,308,876)

Total Operating Expenses

 

 

(8,366,000)

 

 

(13,035,846)

 

 

(30,080,746)

 

 

(32,161,138)

Gain on Disposition of Assets

 

 

2,187,332

 

 

 —

 

 

20,869,196

 

 

22,035,666

Total Operating Income

 

 

5,569,463

 

 

4,378,080

 

 

34,734,731

 

 

43,335,964

Investment Income

 

 

33,048

 

 

14,179

 

 

86,363

 

 

38,383

Interest Expense

 

 

(3,253,908)

 

 

(2,345,156)

 

 

(9,219,195)

 

 

(7,443,922)

Income from Continuing Operations Before Income Tax Expense

 

 

2,348,603

 

 

2,047,103

 

 

25,601,899

 

 

35,930,425

Income Tax Expense from Continuing Operations

 

 

(595,144)

 

 

(561,223)

 

 

(6,459,234)

 

 

(9,016,556)

Net Income from Continuing Operations

 

 

1,753,459

 

 

1,485,880

 

 

19,142,665

 

 

26,913,869

Loss from Discontinued Operations (Net of Income Tax)—See Note 21

 

 

(267,437)

 

 

(1,189,708)

 

 

(591,746)

 

 

(1,542,490)

Net Income

 

$

1,486,022

 

$

296,172

 

$

18,550,919

 

$

25,371,379

 

 

 

 

 

 

 

 

 

 

 

 

 

Per Share Information—See Note 11:

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

 

 

 

 

 

 

 

 

 

 

Net Income from Continuing Operations Attributable to Consolidated-Tomoka Land Co.

 

$

0.36

 

$

0.27

 

$

3.79

 

$

4.88

Net Income from Discontinued Operations Attributable to Consolidated-Tomoka Land Co. (Net of Income Tax)

 

 

(0.05)

 

 

(0.22)

 

 

(0.12)

 

 

(0.28)

Basic Net Income per Share

 

$

0.31

 

$

0.05

 

$

3.67

 

$

4.60

Diluted

 

 

 

 

 

 

 

 

 

 

 

 

Net Income from Continuing Operations Attributable to Consolidated-Tomoka Land Co.

 

$

0.36

 

$

0.27

 

$

3.79

 

$

4.85

Net Income from Discontinued Operations Attributable to Consolidated-Tomoka Land Co. (Net of Income Tax)

 

 

(0.05)

 

 

(0.22)

 

 

(0.12)

 

 

(0.28)

Diluted Net Income per Share

 

$

0.31

 

$

0.05

 

$

3.67

 

$

4.57

 

 

 

 

 

 

 

 

 

 

 

 

 

Dividends Declared and Paid

 

$

0.11

 

$

0.07

 

$

0.31

 

$

0.19

 

 

 

 

 

 

 

 

 

 

 

 

 

 

See Accompanying Notes to Consolidated Financial Statements

4

Table of Contents

CONSOLIDATED-TOMOKA LAND CO.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Nine Months Ended

 

    

September 30,

2019

    

September 30,

2018

    

September 30,

2019

    

September 30,

2018

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Income

 

$

1,486,022

 

$

296,172

 

$

18,550,919

 

$

25,371,379

Other Comprehensive Income (Loss)

 

 

 

 

 

 

 

 

 

 

 

 

Cash Flow Hedging Derivative - Interest Rate Swap (Net of Income Tax of $(21,153) and $7,576 for the three months ended September 30, 2019 and 2018, respectively, and Net of Income Tax of $(137,543) and $85,169 for the nine months ended September 30, 2019 and 2018, respectively)

 

 

(62,307)

 

 

22,316

 

 

(405,138)

 

 

331,126

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

 

 

(62,307)

 

 

22,316

 

 

(405,138)

 

 

331,126

Total Comprehensive Income

 

$

1,423,715

 

$

318,488

 

$

18,145,781

 

$

25,702,505

 

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 September 30, 2019:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

Additional

 

 

 

Other

 

 

 

 

Common

 

Treasury

 

Paid-In

 

Retained

 

Comprehensive

 

Shareholders’

 

    

Stock

    

Stock

    

Capital

    

Earnings

    

Income (Loss)

    

Equity

Balance July 1, 2019

 

$

6,014,536

 

$

(63,441,664)

 

$

25,450,060

 

$

229,333,766

 

$

143,712

 

$

197,500,410

Net Income

 

 

 —

 

 

 —

 

 

 —

 

 

1,486,022

 

 

 —

 

 

1,486,022

Stock Issuance

 

 

1,331

 

 

 —

 

 

77,944

 

 

 —

 

 

 —

 

 

79,275

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

 

 

 —

 

 

 —

 

 

534,017

 

 

 —

 

 

 —

 

 

534,017

Cash Dividends ($0.11 per share)

 

 

 —

 

 

 —

 

 

 —

 

 

(535,495)

 

 

 —

 

 

(535,495)

Other Comprehensive Loss, Net of Income Tax

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

(62,307)

 

 

(62,307)

Balance September 30, 2019

 

$

6,015,867

 

$

(63,441,664)

 

$

26,062,021

 

$

230,284,293

 

$

81,405

 

$

199,001,922

 

For the nine months ended September 30, 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

 

 

 —

 

 

 —

 

 

 —

 

 

18,550,919

 

 

 —

 

 

18,550,919

Stock Repurchase

 

 

 —

 

 

(31,096,662)

 

 

 —

 

 

 —

 

 

 —

 

 

(31,096,662)

Vested Restricted Stock

 

 

12,957

 

 

 —

 

 

(316,272)

 

 

 —

 

 

 —

 

 

(303,315)

Stock Issuance

 

 

7,653

 

 

 —

 

 

434,867

 

 

 —

 

 

 —

 

 

442,520

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

 

 

 —

 

 

 —

 

 

1,616,648

 

 

 —

 

 

 —

 

 

1,616,648

Cash Dividends ($0.31 per share)

 

 

 —

 

 

 —

 

 

 —

 

 

(1,564,523)

 

 

 —

 

 

(1,564,523)

Other Comprehensive Loss, Net of Income Tax

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

(405,138)

 

 

(405,138)

Balance September 30, 2019

 

$

6,015,867

 

$

(63,441,664)

 

$

26,062,021

 

$

230,284,293

 

$

81,405

 

$

199,001,922

 

For the three months ended September 30, 2018:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

Additional

 

 

 

Other

 

 

 

 

Common

 

Treasury

 

Paid-In

 

Retained

 

Comprehensive

 

Shareholders’

 

    

Stock

    

Stock

    

Capital

    

Earnings

    

Income (Loss)

    

Equity

Balance July 1, 2018

 

$

5,984,747

 

$

(24,700,205)

 

$

23,228,788

 

$

202,024,986

 

$

681,426

 

$

207,219,742

Net Income

 

 

 —

 

 

 —

 

 

 —

 

 

296,172

 

 

 —

 

 

296,172

Stock Repurchase

 

 

 —

 

 

(1,784,560)

 

 

 —

 

 

 —

 

 

 —

 

 

(1,784,560)

Exercise of Stock Options

 

 

8,520

 

 

 —

 

 

189,849

 

 

 —

 

 

 —

 

 

198,369

Stock Issuance

 

 

949

 

 

 —

 

 

57,424

 

 

 —

 

 

 —

 

 

58,373

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

 

 

 —

 

 

 —

 

 

386,109

 

 

 —

 

 

 —

 

 

386,109

Cash Dividends ($0.07  per share)

 

 

 —

 

 

 —

 

 

 —

 

 

(384,507)

 

 

 —

 

 

(384,507)

Other Comprehensive Income, Net of Income Tax

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

22,316

 

 

22,316

Balance September 30, 2018

 

$

5,994,216

 

$

(26,484,765)

 

$

23,862,170

 

$

201,936,651

 

$

703,742

 

$

206,012,014

 

For the nine months ended September 30, 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

 

 

 —

 

 

 —

 

 

 —

 

 

25,371,379

 

 

 —

 

 

25,371,379

Stock Repurchase

 

 

 —

 

 

(3,977,005)

 

 

 —

 

 

 —

 

 

 —

 

 

(3,977,005)

Exercise of Stock Options

 

 

8,520

 

 

 —

 

 

189,849

 

 

 —

 

 

 —

 

 

198,369

Vested Restricted Stock

 

 

19,065

 

 

 —

 

 

(517,439)

 

 

 —

 

 

 —

 

 

(498,374)

Stock Issuance

 

 

2,781

 

 

 —

 

 

171,098

 

 

 —

 

 

 —

 

 

173,879

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

 

 

 —

 

 

 —

 

 

1,283,434

 

 

 —

 

 

 —

 

 

1,283,434

Cash Dividends ($0.19 per share)

 

 

 —

 

 

 —

 

 

 —

 

 

(1,049,002)

 

 

 —

 

 

(1,049,002)

Other Comprehensive Income, Net of Income Tax

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

331,126

 

 

331,126

Balance September 30, 2018

 

$

5,994,216

 

$

(26,484,765)

 

$

23,862,170

 

$

201,936,651

 

$

703,742

 

$

206,012,014

See Accompanying Notes to Consolidated Financial Statements

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CONSOLIDATED-TOMOKA LAND CO.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

Nine Months Ended

 

 

 

September 30,

 

September 30,

 

 

    

2019

    

2018

 

Cash Flow from Operating Activities:

 

 

 

 

 

 

 

Net Income

 

$

18,550,919

 

$

25,371,379

 

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

 

 

 

 

 

 

 

Depreciation and Amortization

 

 

11,707,710

 

 

11,612,557

 

Amortization of Intangible Liabilities to Income Property Revenue

 

 

(1,810,459)

 

 

(1,779,031)

 

Loan Cost Amortization

 

 

323,672

 

 

389,656

 

Amortization of Discount on Convertible Debt

 

 

1,009,847

 

 

947,419

 

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

 

 

(2,187,332)

 

 

(22,035,666)

 

Loss (Gain) on Disposition of Assets Held for Sale

 

 

(18,681,864)

 

 

1,119,362

 

Accretion of Commercial Loan Origination Fees

 

 

(67,432)

 

 

(34,768)

 

Non-Cash Imputed Interest on Commercial Loan Investment

 

 

(94,761)

 

 

 —

 

Deferred Income Taxes

 

 

3,586,574

 

 

8,345,475

 

Non-Cash Compensation

 

 

2,059,167

 

 

1,283,434

 

Decrease (Increase) in Assets:

 

 

 

 

 

 

 

Refundable Income Taxes

 

 

225,024

 

 

491,821

 

Golf Assets Held for Sale

 

 

(40,159)

 

 

 —

 

Land and Development Costs

 

 

2,243,651

 

 

3,090,301

 

Impact Fees and Mitigation Credits

 

 

14,444

 

 

586,343

 

Other Assets

 

 

(2,865,683)

 

 

(2,139,265)

 

Increase (Decrease) in Liabilities:

 

 

 

 

 

 

 

Accounts Payable

 

 

1,587,549

 

 

(1,035,771)

 

Accrued and Other Liabilities

 

 

429,590

 

 

(4,194,651)

 

Deferred Revenue

 

 

256,061

 

 

600,929

 

Golf Liabilities Held for Sale

 

 

381,753

 

 

 —

 

Income Taxes Payable

 

 

112,896

 

 

 —

 

Net Cash Provided By Operating Activities

 

 

16,741,167

 

 

22,619,524

 

Cash Flow from Investing Activities:

 

 

 

 

 

 

 

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

 

 

(75,313,805)

 

 

(29,399,109)

 

Acquisition of Commercial Loan Investments

 

 

(32,257,500)

 

 

 —

 

Acquisition of Land

 

 

 —

 

 

(3,794,058)

 

Cash Contribution for Interest in Joint Venture

 

 

(62,560)

 

 

(2,087,521)

 

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

 

 

80,321,554

 

 

26,377,525

 

Principal Payments Received on Commercial Loan Investments

 

 

 —

 

 

11,960,467

 

Net Cash Provided By (Used In) Investing Activities

 

 

(27,312,311)

 

 

3,057,304

 

Cash Flow from Financing Activities:

 

 

 

 

 

 

 

Proceeds from Long-Term Debt

 

 

122,500,000

 

 

36,300,000

 

Payments on Long-Term Debt

 

 

(88,901,414)

 

 

(55,830,473)

 

Cash Paid for Loan Fees

 

 

(469,885)

 

 

(263,473)

 

Cash Proceeds from Exercise of Stock Options and Stock Issuance

 

 

 —

 

 

372,248

 

Cash Used to Purchase Common Stock

 

 

(31,096,662)

 

 

(3,977,005)

 

Cash Paid for Vesting of Restricted Stock

 

 

(303,314)

 

 

(498,374)

 

Dividends Paid

 

 

(1,564,523)

 

 

(1,049,002)

 

Net Cash Provided By (Used In) Financing Activities

 

 

164,202

 

 

(24,946,079)

 

Net Increase (Decrease) in Cash

 

 

(10,406,942)

 

 

730,749

 

Cash, Beginning of Year

 

 

22,031,964

 

 

13,067,540

 

Cash, End of Period

 

$

11,625,022

 

$

13,798,289

 

 

 

 

 

 

 

 

 

 

Reconciliation of Cash to the Consolidated Balance Sheets:

 

 

 

 

 

 

 

Cash and Cash Equivalents

 

$

5,411,727

 

$

5,320,493

 

Restricted Cash

 

 

6,213,295

 

 

8,477,796

 

Total Cash as of September 30, 2019 and 2018, respectively

 

$

11,625,022

 

$

13,798,289

 

 

 

See Accompanying Notes to Consolidated Financial Statements

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CONSOLIDATED-TOMOKA LAND CO.

CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)

(Unaudited)

Supplemental Disclosure of Cash Flows:

Income taxes paid, net of refunds received, totaled approximately $1.8 million during the nine months ended September 30, 2019. Income taxes refunded, net of payments made, totaled approximately $8,000 during the nine months ended September 30, 2018.

Interest totaling approximately $8.1 million and $7.0 million was paid during the nine months ended September 30, 2019 and 2018, respectively. No interest was capitalized during the nine months ended September 30, 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 Mitigation Bank transaction (hereinafter defined in Note 5, “Investment in Joint Venture”), the Company recognized a gain totaling approximately $18.4 million. The non-cash components of the gain totaled approximately $5.1 million and were reflected as an increase in the Investment in Joint Venture of approximately $6.7 million, an increase in Accrued and Other Liabilities of approximately $300,000, and a decrease in Land and Development Costs of approximately $1.3 million on the accompanying consolidated balance sheets as of September 30, 2018. 

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 September 30, 2018.

In connection with the construction of the beachfront restaurant formerly 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 September 30, 2018.

See Accompanying Notes to Consolidated Financial Statements

 

 

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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, fifty-two commercial real estate properties in seventeen states in the United States. As of September 30, 2019, we (i) owned forty-eight single-tenant and four multi-tenant income-producing properties with approximately 2.3 million square feet of gross leasable space; (ii) owned the LPGA International Golf Club, which is managed by a third party and classified as held for sale (the “Golf Club”); (iii) held two commercial loan investments; (iv) owned and managed a portfolio of undeveloped land totaling approximately 5,300 acres in Daytona Beach, Florida; and (v) leased some of our land for seventeen 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).

In October 2019, the Company completed the sale of a controlling interest in a wholly-owned entity that holds the Company’s Daytona Beach land portfolio of approximately 5,300 acres. Additionally, in October 2019, the Company completed the sale of the Golf Club. See Note 22,  “Subsequent Events” for a description of these transactions.

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 nine months ended September 30, 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.

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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.

·

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 September 30, 2019 include certain amounts over the Federal Deposit Insurance Corporation limits.

Restricted Cash

Restricted cash totaled approximately $6.2 million at September 30, 2019 of which approximately $2.7 million is being held in a separate escrow account to be reinvested through the like-kind exchange structure into other income properties; approximately $1.1 million is being held in an entitlement and interest reserve for the $8.0 million first mortgage loan investment originated in June 2019; approximately $160,000 is being held in an interest reserve for the $8.3 million first mortgage loan originated in July 2019; approximately $989,000 is being held in two separate escrow accounts related to two separate land transactions which closed in February 2017 and March 2018; approximately $248,000 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”); and approximately $1.1 million is being held in a general tenant improvement reserve account with Wells Fargo in connection with our financing of the property located in Raleigh, NC leased to 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.

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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 September 30, 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 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 7, “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 $1.1 million and $628,000 as of September 30, 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 September 30, 2019 and December 31, 2018. As more fully described in Note 10, “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 the golf operations segment, which primarily consist of amounts due from members or from private events, totaled approximately $277,000 and $290,000 as of September 30, 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 September 30, 2019 and December 31, 2018, the Company recorded an allowance for doubtful accounts of approximately $14,000 and $185,000, respectively. During the quarter ended September 30, 2019 approximately $250,000 of previously recorded allowance for doubtful accounts related to a single income property; Cocina 214 Restaurant & Bar (“Cocina 214”), located in Daytona Beach, Florida, was reversed

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as the previously uncollected rent totaling approximately $0.3 million was paid in accordance with the termination agreement executed in July 2019. The termination payment is more fully described in Note 3, “Income Properties.”  

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.

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 18, “Income Taxes.” In September 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 September 30, 2019:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest Income

 

 

 

 

 

 

 

Income

 

from Commercial

 

Real Estate

 

Total

 

 

    

Properties

    

Loan Investments

    

Operations

    

Revenues

 

 

    

($000's)

    

($000's)

    

($000's)

    

($000's)