PART I PART I
When we refer to “we,” “us,” “our,” or “the Company,” we mean Consolidated-Tomoka Land Co.CTO Realty Growth, Inc. and its consolidated subsidiaries. References to “Notes to Financial Statements” refer to the Notes to the Consolidated Financial Statements of Consolidated-Tomoka Land Co.CTO Realty Growth, Inc. included in Item 8 of this Annual Report on Form 10-K. Statements contained in this Annual Report on Form 10-K, including the documents that are incorporated by reference, that are not historical facts are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Also, when the Company uses any of the words “anticipate,” “assume,” “believe,” “estimate,” “expect,” “intend,” or similar expressions, the Company is making forward-looking statements. Although managementManagement believes that the expectations reflected in such forward-looking statements are based upon present expectations and reasonable assumptions,assumptions. However, the Company’s actual results could differ materially from those set forth in the forward-looking statements. Certain factorsFurther, forward-looking statements speak only as of the date they are made, and the Company undertakes no obligation to update or revise such forward-looking statements to reflect changed assumptions, the occurrence of unanticipated events or changes to future operating results over time, unless required by law. The risks and uncertainties that could cause our actual results to differ materially from those presented in our forward-looking statements, include, but are not limited to, the following: | ● | we are subject to risks related to the ownership of commercial real estate that could affect the performance and value of our properties; |
| ● | our business is dependent upon our tenants successfully operating their businesses, and their failure to do so could materially and adversely affect us; |
| ● | competition that traditional retail tenants face from e-commerce retail sales, or the integration of brick and mortar stores with e-commerce retail operators, could adversely affect our business; |
| ● | we operate in a highly competitive market for the acquisition of income properties and more established entities or other investors may be able to compete more effectively for acquisition opportunities than we can; |
| ● | we may be unable to successfully execute on asset acquisitions or dispositions; |
| ● | the loss of revenues from our income property portfolio or certain tenants would adversely impact our results of operations and cash flows; |
| ● | our revenues include receipt of management fees and potentially incentive fees derived from our provision of management services to PINE and the loss or failure, or decline in the business or assets, of Alpine Income Property Trust, Inc. (“PINE”) could substantially reduce our revenues; |
| ● | there are various potential conflicts of interest in our relationship with PINE, including our executive officers and/or directors who are also officers and/or directors of PINE, which could result in decisions that are not in the best interest of our stockholders; |
| ● | a prolonged downturn in economic conditions could adversely impact our business, particularly with regard to our ability to maintain revenues from our income-producing assets; |
| ● | a part of our investment strategy is focused on investing in commercial loans and investments which may involve credit risk; |
| ● | we may suffer losses when a borrower defaults on a loan and the value of the underlying collateral is less than the amount due; |
| ● | the Company’s real estate investments are generally illiquid; |
| ● | if we are not successful in utilizing the Section 1031 like-kind exchange structure in deploying the proceeds from dispositions of income properties, or our Section 1031 like-kind exchange transactions are disqualified, we could incur significant taxes and our results of operations and cash flows could be adversely impacted; |
| ● | the Company may be unable to obtain debt or equity capital on favorable terms, if at all, or additional borrowings may impact our liquidity or ability to monetize any assets securing such borrowings; |
| ● | servicing our debt requires a significant amount of cash, and we may not have sufficient cash flow from our business to service or pay our debt; |
| ● | our operations and properties could be adversely affected in the event of natural disasters, pandemics, or other significant disruptions; |
| ● | we may encounter environmental problems which require remediation or the incurrence of significant costs to resolve, which could adversely impact our financial condition, results of operations, and cash flows; |
| ● | failure to remain qualified as real estate investment trust (“REIT”) for U.S. federal income tax purposes would cause us to be taxed as a regular corporation, which would substantially reduce funds available for distribution to stockholders; |
| ● | the risk that the REIT requirements could limit our financial flexibility; |
| ● | our limited experience operating as a REIT; |
| ● | our ability to pay dividends consistent with the REIT requirements, and expectations as to timing and amounts of such dividends; |
| ● | the ability of our board of directors (the “Board”) to revoke our REIT status without stockholder approval; |
| ● | our exposure to changes in U.S. federal and state income tax laws, including changes to the REIT requirements; |
| ● | general business and economic conditions, including unstable macroeconomic conditions due to, among other things, the war in Ukraine, the COVID-19 pandemic, inflation and rising interest rates; and |
| ● | an epidemic or pandemic (such as the outbreak and worldwide spread of the novel coronavirus (the “COVID-19 Pandemic”)), and the measures that international, federal, state and local governments, agencies, law enforcement and/or health authorities implement to address it, may precipitate or materially exacerbate one or more of the above-mentioned and/or other risks and may significantly disrupt or prevent us from operating our business in the ordinary course for an extended period. |
The Company describes the risks and uncertainties that could cause actual results orand events to differ materially from those the Company anticipates or projects are described in “Item 1A. Risk“Risk Factors” (Part I, Item 1A of this Annual Report on Form 10-K. Given these uncertainties, readers are cautioned not to place undue reliance on such statements, which speak only as10-K), “Quantitative and Qualitative Disclosures about Market Risk” (Part II, Item 7A), and “Management’s Discussion and Analysis of the dateFinancial Conditions and Results of this Annual Report on Form 10-K or any document incorporated herein by reference. The Company undertakes no obligation to publicly release any revisions to these forward-looking statements that may be made to reflect events or circumstances after the date of this Annual Report on Form 10-K.Operations” (Part II, Item 7). ITEM 1. BUSINESS DESCRIPTION OF BUSINESS
We are a diversified real estate operating company. publicly traded, self-managed equity REIT that focuses on the ownership, management, and repositioning of high-quality retail and mixed-use properties located primarily in what we believe to be faster growing, business-friendly markets exhibiting accommodative business tax policies, outsized relative job and population growth, and where retail demand exceeds supply. We have pursued our investment strategy by investing primarily through fee simple ownership of our properties, commercial loans and preferred equity. We own and manage, thirty-sevensometimes utilizing third-party property management companies, 23 commercial real estate properties in twelve9 states in the United States. As of December 31, 2017,2022, we owned twenty-six8 single-tenant and eleven15 multi-tenant income-producing properties with over 2.1comprising 3.7 million square feet of gross leasable space. We also own In addition to our income property portfolio, as of December 31, 2022, our business included the following: Management Services: | ● | A fee-based management business that is engaged in managing PINE, see Note 5, “Related Party Management Services Business” in the notes to the consolidated financial statements in Item 8. |
Commercial Loans and manage aInvestments: | ● | A portfolio of three commercial loan investments and one preferred equity investment which is classified as a commercial loan investment. |
Real Estate Operations: | ● | A portfolio of subsurface mineral interests associated with approximately 355,000 surface acres in 19 counties in the State of Florida (“Subsurface Interests”); and |
| ● | An inventory of mitigation credits as well as mitigation credits to be produced by the Company’s formerly owned mitigation bank. |
On December 10, 2021, the entity that held approximately 1,600 acres of undeveloped land totaling approximately 8,100 acres in the City of Daytona Beach, Florida (the “City”“Land JV”), of which the Company previously held a 33.5% retained interest, completed the sale of all of its remaining land holdings for $66.3 million to Timberline Acquisition Partners, LLC an affiliate of Timberline Real Estate Partners (the “Land JV Sale”). Proceeds to the Company after distributions to the other member of the Land JV, and before taxes, were $24.5 million. Prior to the completion of the Land JV Sale, the Company was engaged in managing the Land JV, as further described in Note 5, “Related Party Management Services Business” in the notes to the consolidated financial statements in Item 8. As a result of the Land JV Sale and corresponding dissolution of the Land JV, the Company no longer holds a retained interest in the Land JV as of December 31, 2021. Our business also includes our investment in PINE. As of December 31, 2017,2022, the fair value of our investment totaled $42.0 million, or 14.6% of PINE’s outstanding equity, including the units of limited partnership interest (“OP Units”) we had two commercial loan investments including a variable-rate B-Note representing a secondary tranchehold in a commercial mortgage loan and a fixed-rate first mortgage loan. We have golf operationsAlpine Income Property OP, LP (the “PINE Operating Partnership”), which consistare redeemable for cash, based upon the value of an equivalent number of shares of PINE common stock at the time of the LPGA International Golf Club,redemption, or shares of PINE common stock on a one-for-one basis, at PINE’s election. Our investment in PINE generates investment income through the dividends distributed by PINE. In addition to the dividends we receive from PINE, our investment in PINE may benefit from any appreciation in PINE’s stock price, although no assurances can be provided that such appreciation will occur, the amount by which is managed by a third party. We also lease some of our land for nineteen billboards, have agricultural operations that are managed by a third party, which consist of leasing land for hay production, timber harvesting, and hunting leases, and own and manage Subsurface Interests (hereinafter defined). The results of our agricultural and subsurface leasing operationsinvestment will increase in value, or the timing thereof. Any dividends received from PINE are included in Agricultureinvestment and Other Income and Real Estate Operations, respectively, in ourother income (loss) on the accompanying consolidated statements of operations. The following is a summary of financial information regarding the Company’s business segments (amounts in thousands) for the years ended December 31:31, 2022, 2021 and 2020 (in thousands): | | | | | | | | | | | | 2022 | | 2021 | | 2020 | Revenues: | | | | | | | | | | Income Properties | | $ | 68,857 | | $ | 50,679 | | $ | 49,953 | Management Services | | | 3,829 | | | 3,305 | | | 2,744 | Interest Income from Commercial Loans and Investments | | | 4,172 | | | 2,861 | | | 3,034 | Real Estate Operations | | | 5,462 | | | 13,427 | | | 650 | Total Revenues | | $ | 82,320 | | $ | 70,272 | | $ | 56,381 | Operating Income: | | | | | | | | | | Income Properties | | $ | 48,493 | | $ | 36,864 | | $ | 37,964 | Management Fee Income | | | 3,829 | | | 3,305 | | | 2,744 | Commercial Loans and Investments | | | 4,172 | | | 2,861 | | | 3,034 | Real Estate Operations | | | 2,969 | | | 4,812 | | | (2,572) | General and Administrative Expenses | | | (12,899) | | | (11,202) | | | (11,567) | Impairment Charges | | | — | | | (17,599) | | | (9,147) | Depreciation and Amortization | | | (28,855) | | | (20,581) | | | (19,063) | Gain (Loss) on Disposition of Assets | | | (7,042) | | | 28,316 | | | 9,746 | Gain (Loss) on Extinguishment of Debt | | | — | | | (3,431) | | | 1,141 | Total Operating Income | | $ | 10,667 | | $ | 23,345 | | $ | 12,280 | Identifiable Assets: | | | | | | | | | | Income Properties | | $ | 902,427 | | $ | 630,747 | | $ | 531,325 | Management Services | | | 1,370 | | | 1,653 | | | 700 | Commercial Loans and Investments | | | 32,269 | | | 39,095 | | | 38,321 | Real Estate Operations | | | 4,041 | | | 26,512 | | | 59,717 | Discontinued Real Estate Operations | | | — | | | — | | | 833 | Corporate and Other (1) | | | 46,438 | | | 35,132 | | | 35,804 | Total Assets | | $ | 986,545 | | $ | 733,139 | | $ | 666,700 |
| | | | | | | | | | | | | 2017 | | 2016 | | 2015 | | Revenues of each segment are as follows: | | | | | | | | | | | Income Properties | | $ | 31,407 | | $ | 25,093 | | $ | 19,041 | | Interest Income from Commercial Loan Investments | | | 2,053 | | | 2,588 | | | 2,691 | | Real Estate Operations | | | 52,522 | | | 38,144 | | | 15,943 | | Golf Operations | | | 5,095 | | | 5,190 | | | 5,244 | | Agriculture and Other Income | | | 335 | | | 60 | | | 79 | | Total Revenues | | $ | 91,412 | | $ | 71,075 | | $ | 42,998 | | Operating income (loss) from Continuing Operations before income tax for each segment is as follows: | | | | | | | | | | | Income Properties | | $ | 24,489 | | $ | 19,888 | | $ | 15,385 | | Commercial Loan Investments | | | 2,053 | | | 2,588 | | | 2,691 | | Real Estate Operations | | | 35,042 | | | 23,263 | | | 11,650 | | Golf Operations | | | (863) | | | (397) | | | (349) | | Agriculture and Other Income | | | 239 | | | (107) | | | (148) | | General and Administrative Expenses | | | (10,253) | | | (10,298) | | | (8,754) | | Impairment Charges | | | — | | | (2,181) | | | (510) | | Depreciation and Amortization | | | (12,664) | | | (8,195) | | | (5,213) | | Gain on Disposition of Assets | | | — | | | 12,759 | | | 5,517 | | Land Lease Income | | | 2,226 | | | — | | | — | | Total Operating Income | | $ | 40,269 | | $ | 37,320 | | $ | 20,269 | | Identifiable assets of each segment are as follows: | | | | | | | | | | | Income Properties | | $ | 388,603 | | $ | 302,757 | | $ | 277,520 | | Commercial Loan Investments | | | 43,296 | | | 24,033 | | | 38,487 | | Real Estate Operations | | | 11,964 | | | 58,868 | | | 59,787 | | Golf Operations | | | 6,262 | | | 3,676 | | | 3,608 | | Agriculture and Other (1) | | | 16,005 | | | 19,289 | | | 24,952 | | Total Assets | | $ | 466,130 | | $ | 408,623 | | $ | 404,354 | |
| (1) | (1)
| | AgricultureCorporate and Otherother assets includes all other corporate assets, includingconsist primarily of cash and restricted cash, property, plant, and investment securities.
equipment related to the other operations, as well as the general and corporate operations. |
BUSINESS PLAN Our business plan is primarily focused on investing in income-producing real estate, and when possible, monetizingwith a focus on multi-tenant, primarily retail-oriented, properties. We believe that focusing on multi-tenant properties will allow us to continue to broaden the valuecredit base of our land holdings through land salestenants. We also seek to redeploy the proceeds,diversify our income property portfolio geographically, with an emphasis on a tax-deferred basis, into our investments in income-producing real estate. Our investments in income-producing real estate are primarily through the acquisition of single-tenantwhat we believe to be faster growing, business-friendly markets exhibiting accommodative business tax policies, outsized relative job and population growth, and where retail demand exceeds supply. We may also self-develop multi-tenant income properties, as we have done in the self-development of multi-tenant income properties, or investingpast. We may also invest in commercial loans or similar financings secured by commercial real estate. Our investment in single-tenant,We may acquire multi-tenant and office income properties, when possible, utilizesand possibly single-tenant net lease assets that fall outside our ROFO Agreement (hereinafter defined) with PINE, with proceeds from other real estate transactions whichthe sale of an income property currently in our portfolio, and because our current properties generally have low tax bases, we may seek to have the sale of the current income property qualify for income tax deferral through the like-kind exchange provisions under Section 1031 of the Internal Revenue Code including land sales and the disposition of other income properties. We have held the significant majority1986, as amended (the “Code”). Our access to sources of our portfolio of land holdings, which are used in our agricultural operations, for most of our over 100-year history, and, as a result, our book basis in the majority of these assets is very low. Because of the low basis in our land holdings, dispositions of our land typically would generate large taxable gains. Utilizing the like-kind exchange structure allows us to defer the related income taxes on these gains and reinvest nearly all of the net sales proceeds of the qualifying transaction into income-producing properties. Generally, in order to utilize the like-kind exchange structure, we are prohibited from engaging in activities that are typically indicative of the developer of the property, therefore we seek to complete land transactions with counterparties who will serve as the developer of the property. In limited circumstances, we have reacquired land that we have previously sold, either pursuant to the terms of the original sales agreement or through foreclosure. Land we have reacquired typically has a higher book basis. Our approach in investing in income-producing real estate is to use leverage, when appropriate or necessary, to fund our acquisitions and to help achieve our business plan objectives. Our use of leverage in acquiring income-producing real estate is intended to provide positive returns relative todebt financing, particularly our borrowing costs. We believe this enhancescapacity under our Company’s income-generating real estate asset base while keeping us cash flow positive given thatrevolving credit facility (as amended and restated, the “Credit Facility”), also provide a significant portionsource of capital for our market capitalization is represented by land assets which largely yield no income. Our investment strategy seeks to acquire income properties which will continue to broaden the credit base of our lease tenants, diversify our income property portfolio geographically, with an emphasis on major markets and growth markets in the U.S., and diversify the type of income-producing property, which in the future may include hospitality, industrial, or other retail. We have self-developed four of our existing multi-tenant income-producing properties, all of which are located in Daytona Beach, Florida. As of January 2018, we completed the self-development of two single-tenant net lease restaurant properties in Daytona Beach, Florida. Our investments in commercial loans or similar structured finance investments have been, and will continue to be, secured by commercial real estate, residential real estate developments, land or a borrower’s pledge of its ownership interest in the entity that owns the real estate. We believe investment in each of these income-producing asset classes provide attractive opportunities for stable current cash flows and increased returns in the long run and the potential for capital appreciation.
Proceeds from closed land transactions, sales of income properties, and certain transactions involving our subsurface interests provide us with investible capital.strategy. Our strategy is to utilize leverage, when appropriate and necessary, and potentially proceeds from landsales of income properties, the disposition or payoffs of our commercial loans and investments, certain transactions involving our Subsurface Interests or mitigation credits, and issuances of equity and debt securities to acquire income properties,properties. We may also acquire or originate commercial loanloans and investments, and invest in securities of real estate companies, or make other shorter termshorter-term investments. Our primary targeted investment classes may include the following:
Primary asset classes | ·
● | Multi-tenant properties, with a focus on retail and mixed use, that are typically stabilized; and located in what we believe to be faster growing, business-friendly markets exhibiting accommodative business tax policies and outsized relative job and population growth; and |
| ● | Single-tenant retail and office double-or-triple-netor other commercial, double or triple net leased, properties that are typically stabilized and located in major metropolitan areas or areaswhat we believe to be faster growing, business-friendly markets exhibiting accommodative business tax policies and outsized relative job and population growth that are compliant with high growth;our commitments under the PINE ROFO Agreement. |
Other asset classes | ·
● | | Multi-tenant office and retail properties primarily in major metropolitan areasGround leases, whether purchased or areasoriginated by the Company, that are compliant with high growth and typically stabilized;
our commitments under the ROFO Agreement; |
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● | | PurchaseSelf-developed retail or origination of ground leases;
other commercial properties; |
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● | | Self-developed properties onCommercial loans and investments, whether purchased or originated by the Company, owned land, including select office, flex, industrial, and retail;
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| ·
| | Joint venture development using Company owned land;
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| | Origination or purchasewith loan terms of 1-10 year term loansyears with strong risk-adjusted yields secured by property types to include hotel, office, retail, residential, land and industrial;
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● | Select regional area investments using Company national market knowledge and expertise to earn strong risk-adjusted yields; and |
| ● | Real estate relatedestate-related investment securities, including commercial mortgage backedmortgage-backed securities, preferred or common stock, and corporate bonds; andbonds. |
| ·
| | Select regional area investments using Company market knowledge and expertise to earn good risk-adjusted yields.
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Our investments in income-producing properties have single or multiple tenantsare typically subject to long-term leases. For multi-tenant properties, each tenant typically pays its proportionate share of the aforementioned operating expenses of the property, although for such properties we typically incur additional costs for property management services. Single-tenant leases primarilyare typically in the form of triple or double net leases and ground leases. Triple-net leases generally require the tenant to pay property operating expenses such as real estate taxes, insurance, assessments and other governmental fees, utilities, repairs and maintenance, and capital expenditures. For multi-tenant properties, each tenant typically pays its proportionate share of the aforementioned operating expenses of the property, although for such properties we typically incur additional costs for property management services. INCOME PROPERTIES We have pursued a strategy of investing in income-producing properties, when possible, by utilizing the proceeds from real estate transactions, including land sales, transactions involving our subsurface interests, and the disposition of other income properties qualifying for income tax deferral through like-kind exchange treatment for tax purposes.and non-income producing assets, borrowing capacity under the Credit Facility and issuances of equity and debt securities. Our strategy for investing in income-producing properties is focused on factors including, but not limited to, long-term real estate fundamentals and target markets, including major markets or thosewe believe to be faster growing, business-friendly markets experiencing significant economicexhibiting accommodative business tax policies, outsized relative job and population growth. We employ a methodology for evaluating targeted investments in income-producing properties which includes an evaluation of: (i) the attributes of the real estate (e.g. location, market demographics, comparable properties in the market, etc.); (ii) an evaluation of the existing tenanttenant(s) (e.g. credit-worthiness,creditworthiness, property level sales, tenant rent levels compared to the market, etc.); (iii) other market-specific conditions (e.g. tenant industry, job and population growth in the market, local economy, etc.); and (iv) considerations relating to the Company’s business and strategy (e.g. strategic fit of the asset type, property management needs, alignment with the Company’sability to use a Section 1031 like-kind exchange structure, etc.). During the year ended December 31, 2017,2022, the Company acquired six income properties (four single-tenantfour multi-tenant income properties and two multi-tenant income properties)one portfolio of three single-tenant properties for an aggregate purchase price of approximately $79.8$314.0 million, as described below:or a total acquisition cost of | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Tenant Description | | Tenant Type | | Property Location | | Date of Acquisition | | Property Square-Feet | | Property Acres | | Purchase Price | | Percentage Leased | | Remaining Lease Term (in years) | Staples, Inc. (an affiliate of) | | Single-Tenant | | Sarasota, Florida | | 01/27/17 | | 18,120 | | 1.2 | | $ | 4,075,000 | | | 100% | | | 5.0 | Grocery-Anchored Shopping Center (Westcliff) | | Multi-Tenant | | Fort Worth, Texas | | 03/01/17 | | 136,185 | | 10.3 | | | 15,000,000 | | | 96% | | | 4.1 | JoAnn Stores, Inc. | | Single-Tenant | | Saugus, Massachusetts | | 04/06/17 | | 22,500 | | 2.6 | | | 6,315,000 | | | 100% | | | 11.8 | LA Fitness
Multi-Tenant Retail Building | | Single-Tenant
Multi-Tenant | | Brandon, Florida | | 04/28/17 | | 45,000
6,715 | | 5.3 | | | 14,650,000 | | | 100% | | | 13.9 | Wells Fargo Bank, N.A. | | Single-Tenant | | Hillsboro, Oregon | | 10/27/17 | | 211,863 | | 18.9 | | | 39,750,000 | | | 100% | | | 8.2 | | | | | | | | | 440,383 | | | | $ | 79,790,000 | | | | | | 8.9 |
$315.6 million. Of the aggregate $315.6 acquisition cost, $60.1 million was allocated to land, $208.3 million was allocated to buildings and improvements, $52.7 million was allocated to intangible assets pertaining to the in-place lease value, leasing costs, and above market lease value, and $5.5 million was allocated to intangible liabilities for the below market lease value. The weighted average amortization period for the intangible assets and liabilities was 6.0 years at acquisition. Additionally, on April 7, 2017, rent commenced on
During the 15-year lease with 24 Hour Fitness,year ended December 31, 2022, the anchor tenant at The Grove at Winter ParkCompany sold six income properties, including (i) Party City, a single-tenant income property located in Winter Park, Florida. TheOceanside, New York for $6.9 million, (ii) the Carpenter Hotel ground lease, isa single-tenant income property located in Austin, Texas, which was recorded as a commercial loan investment prior to its disposition, for approximately 40,000 square feet, or 36% of the 112,000 square foot multi-tenant retail center. As of December 31, 2017,$17.1 million, (iii) the multi-tenant retail centerWestland Gateway Plaza located in Hialeah, Florida, which was approximately 63% leased with eleven different tenants including 24 Hour Fitness.recorded as a commercial loan investment prior to its disposition, for $22.2 million, (iv) Chuy’s, a single-tenant property, located in Jacksonville, Florida for $5.8 million, (v) Firebirds, a single-tenant property, located in Jacksonville, Florida for $5.5 million, and (vi) 245 Riverside, a multi-tenant office income property located in Jacksonville, Florida for $23.6 million. The sale of these six properties reflect a total disposition volume of $81.1 million, resulting in aggregate gains of $4.7 million. Our current portfolio of twenty-six single-tenant income15 multi-tenant properties generates approximately $18.8$66.6 million of revenuesrevenue from annualized straight-line base lease payments on an annualized basis and hashad a weighted average remaining lease term of 9.24.8 years as of December 31, 2017.2022. Our current portfolio of eleven multi-tenant8 single-tenant income properties generates approximately $9.9$8.6 million of revenuerevenues from annualized straight-line base lease payments on an annualized basis and hashad a weighted average remaining lease term of 4.05.7 years as of December 31, 2017. We expect to continue to focus on acquiring income-producing properties during fiscal year 2018, and in the near term thereafter, maintaining our use of the aforementioned tax deferral structure whenever possible.
As part of our overall strategy for investing in income-producing investments, we have self-developed five of our multi-tenant properties, all of which are located in Daytona Beach, Florida, four of which we still own as of December 31, 2017. The first self-developed property, located at the northeast corner of LPGA and Williamson Boulevards in Daytona Beach, Florida, is an approximately 22,000 square foot, two-story, building, known as the Concierge Office Building, which was approximately 91% leased as of December 31, 2017. The second two properties, known as the Mason Commerce Center, consist of two buildings totaling approximately 31,000 square-feet (15,360 each), which were 100% leased as of December 31, 2017. During the year ended December 31, 2014, construction was completed on two additional properties, known as the Williamson Business Park, which are adjacent to the Mason Commerce Center. One of the two 15,360 square-foot Williamson Business Park buildings was sold in April 2016. The remaining Williamson Business Park building was approximately 50% leased and 100% occupied as of December 31, 2017 as the Company now occupies the remaining 50% of the property as its new corporate office.
We also self-developed two single-tenant net lease restaurant properties on a 6-acre beachfront parcel in Daytona Beach, Florida. The development was completed in January of 2018; therefore, during the first quarter of 2018, we will add these two properties to our income property portfolio. On a limited basis, we may continue to selectively acquire other real estate, either vacant land or land with existing structures that we would demolish and develop into additional income properties, possibly in the downtown and beachside areas of Daytona Beach, Florida. Specifically, our investments in the Daytona Beach area would target opportunistic acquisitions of select catalyst sites, which are typically distressed, with an objective of having short investment horizons. Should we pursue such acquisitions, we may seek to partner with developers to develop these sites rather than self-develop the properties.2022.
Our focus on acquiring income-producing investments includes a continual review of our existing income property portfolio to identify opportunities to recycle our capital through the sale of income properties based on, among other possible factors, the current or expected performance of the property and favorable market conditions. No income-producingWe sold 4 single-tenant income properties were disposed ofand two multi-tenant income properties during the year ended December 31, 2017. Should we sell2022. As a result of entering the Exclusivity and Right of First Offer Agreement with PINE (the “ROFO Agreement”) which generally prevents us from investing in single-tenant net lease income properties, it is likely thatour income property investment strategy will be focused on multi-tenant, primarily retail-oriented, properties. We may pursue this strategy by monetizing certain of our single-tenant properties, and should we do so, we would seek to do so utilizingutilize the 1031 like-kind exchange structure to preserve the tax-deferred gain on the original transaction(s) that pertains to the replacement asset. As of December 31, 2017,2022, the Company owned twenty-six8 single-tenant and eleven15 multi-tenant income properties in twelve9 states. Following is a summary of these properties: | | | | | | | Tenant / Property |
| City |
| State |
| Area
(Square Feet) | 125 Lincoln & 150 Washington | | Santa Fe | | NM | | 137,209 | 369 N. New York Ave. | | Winter Park | | FL | | 30,296 | Ashford Lane | | Atlanta | | GA | | 277,408 | Beaver Creek Crossings | | Apex | | NC | | 321,977 | Crossroads Towne Center | | Chandler | | AZ | | 244,072 | Eastern Commons | | Henderson | | NV | | 133,304 | Jordan Landing | | West Jordan | | UT | | 170,996 | Madison Yards | | Atlanta | | GA | | 162,521 | Price Plaza | | Katy | | TX | | 200,576 | The Collection at Forsyth | | Cummings | | GA | | 560,434 | The Exchange at Gwinnett | | Buford | | GA | | 69,266 | The Shops at Legacy | | Plano | | TX | | 237,366 | The Strand at St. Johns Town Center | | Jacksonville | | FL | | 210,973 | Westcliff Shopping Center | | Fort Worth | | TX | | 134,791 | West Broad Village | | Glen Allen | | VA | | 392,007 | 15 Multi-Tenant Properties | | | | | | 3,283,196 | Crabby's Oceanside | | Daytona Beach | | FL | | 5,780 | Fidelity | | Albuquerque | | NM | | 210,067 | General Dynamics | | Reston | | VA | | 64,319 | LandShark Bar & Grill | | Daytona Beach | | FL | | 6,264 | Sabal Pavilion | | Tampa | | FL | | 120,500 | MainStreet Portfolio (1) | | Daytona Beach | | FL | | 28,511 | 8 Single-Tenant Properties | | | | | | 435,441 | 23 Total Properties | | | | | | 3,718,637 |
| | | | | | | | | | Tenant | | City | | State | | Area
(Square Feet) | | Year Built | | At Home | | Raleigh | | NC | | 116,334 | | 1995 | | Bank of America | | Monterey | | CA | | 32,692 | | 1982 | | Barnes & Noble | | Daytona Beach | | FL | | 28,000 | | 1995 | | Best Buy | | McDonough | | GA | | 30,038 | | 2005 | | Big Lots | | Phoenix | | AZ | | 34,512 | | 2000 | | Big Lots | | Germantown | | MD | | 25,589 | | 2000 | | Carrabba's Italian Grill | | Austin | | TX | | 6,528 | | 1994 | | Century Theatres | | Reno | | NV | | 52,474 | | 2000 | | Container Store | | Glendale | | AZ | | 23,329 | | 2015 | | CVS | | Dallas | | TX | | 10,340 | | 2016 | | Dick’s Sporting Goods | | McDonough | | GA | | 46,315 | | 2006 | | Harris Teeter | | Charlotte | | NC | | 45,089 | | 1993 | | Hilton Grand Vacations | | Orlando | | FL | | 102,019 | | 1988 | | Hilton Grand Vacations | | Orlando | | FL | | 31,895 | | 2000 | | JoAnn Fabric | | Saugus | | MA | | 22,500 | | 2008 | | LA Fitness Center | | Brandon | �� | FL | | 45,000 | | 2006 | | Lowe’s Corporation | | Katy | | TX | | 131,644 | | 1997 | | Outback Steakhouse | | Austin | | TX | | 6,176 | | 1994 | | Outback Steakhouse | | Charlottesville | | VA | | 7,216 | | 1984 | | Outback Steakhouse | | Huntersville | | NC | | 6,297 | | 1997 | | Rite Aid Corp. | | Renton | | WA | | 16,280 | | 2006 | | Staples | | Sarasota | | FL | | 18,120 | | 2012 | | Walgreens | | Clermont | | FL | | 13,650 | | 2003 | | Walgreens | | Alpharetta | | GA | | 15,120 | | 2000 | | Wells Fargo | | Hillsboro | | OR | | 211,863 | | 1978/2009 | | Wells Fargo | | Raleigh | | NC | | 450,393 | | 1996/1997 | | 26 Single-Tenant Properties | | | | | | 1,529,413 | | | | 7-Eleven | | Dallas | | TX | | 4,685 | | 1973 | | 3600 Peterson | | Santa Clara | | CA | | 75,841 | | 1978/2015 | | Concierge Office Building | | Daytona Beach | | FL | | 22,012 | | 2009 | | World of Beer/Fuzzy's Taco Shop | | Brandon | | FL | | 6,715 | | 2006 | | Mason Commerce Center-Building 1 | | Daytona Beach | | FL | | 15,360 | | 2009 | | Mason Commerce Center-Building 2 | | Daytona Beach | | FL | | 15,360 | | 2009 | | The Grove | | Winter Park | | FL | | 112,292 | | 1985 | | Riverside Avenue | | Jacksonville | | FL | | 136,856 | | 2003 | | Westcliff Shopping Center | | Fort Worth | | TX | | 136,185 | | 1954 | | Whole Foods Market Centre | | Sarasota | | FL | | 59,341 | | 2004 | | Williamson Business Park-Building 1 | | Daytona Beach | | FL | | 15,360 | | 2014 | | 11 Multi-Tenant Properties | | | | | | 600,007 | | | | Total 37 Properties | | | | | | 2,129,420 | | | |
Subsequent to December 31, 2017, and prior to the date(1)The MainStreet Portfolio is comprised of this report, the Company completed two self-developed single-tenant net lease restaurant properties on a 6-acre beachfront parcel in Daytona Beach, Florida and acquired a newly constructed commercial building located in Aspen, Colorado under a twenty-year master lease to a3 single tenant bringing the numberproperties.
The weighted average economicaleconomic and physical occupancy rates of our income properties at December 31st for each of the last three years on a portfolio basis are as follows: | | | | | | Year |
| Single-Tenant Economic / Physical
Occupancy |
| Multi-Tenant Economic / Physical
Occupancy | | 20152020
| | 100% / 99%
| | 85% / 85%
| | 2016
| | 100% / 100% | | 85%83% / 85%
| 82% | 20172021
| | 100% / 100% | | 86% / 85% | 2022 | | 100% / 100% | | 89% / 86% |
The information on lease expirations of our total income property portfolio for each of the ten years starting with 20182023 is as follows: | | | | | | | | | | Year | | # of Tenant Leases
Expiring | | Total Square Feet of Leases Expiring | | Annual Rents
Expiring (1)
($000's) | | Percentage of
Gross
Annual Rents
Expiring (1) | 2023 | | 39 | | 278,924 | | $ | 6,091 | | 8.7% | 2024 | | 53 | | 203,875 | | $ | 4,943 | | 7.0% | 2025 | | 33 | | 207,985 | | $ | 5,871 | | 8.3% | 2026 | | 49 | | 566,043 | | $ | 11,391 | | 16.2% | 2027 | | 55 | | 510,068 | | $ | 7,871 | | 11.2% | 2028 | | 43 | | 613,987 | | $ | 12,698 | | 18.1% | 2029 | | 32 | | 279,368 | | $ | 6,050 | | 8.6% | 2030 | | 32 | | 147,988 | | $ | 3,669 | | 5.2% | 2031 | | 32 | | 126,375 | | $ | 3,590 | | 5.1% | 2032 | | 31 | | 168,142 | | $ | 3,655 | | 5.2% |
| | | | | | | | | | | Year | | # of Tenant Leases
Expiring | | Total Square Feet of Leases Expiring | | Annual Rents
Expiring (1 | | Percentage of
Gross
Annual Rents
Expiring ( | | 2018 | | 7 | | 13,975 | | $ | 251,920 | | 1.1 | % | 2019 | | 11 | | 164,526 | | $ | 2,217,220 | | 9.2 | % | 2020 | | 11 | | 121,062 | | $ | 2,509,035 | | 10.5 | % | 2021 | | 21 | | 149,981 | | $ | 2,309,941 | | 9.6 | % | 2022 | | 3 | | 44,688 | | $ | 705,137 | | 2.9 | % | 2023 | | 6 | | 95,033 | | $ | 1,959,139 | | 8.2 | % | 2024 | | 5 | | 532,677 | | $ | 3,714,580 | | 15.5 | % | 2025 | | 5 | | 265,746 | | $ | 1,680,972 | | 7.0 | % | 2026 | | 5 | | 155,072 | | $ | 2,779,472 | | 11.6 | % | 2027 | | 2 | | 148,544 | | $ | 1,001,923 | | 4.2 | % |
| (1) | Annual Rents consist of the in-place base rent to be received pursuant to each lease agreement (i.e. not on a straight-line basis). |
(1)Annual Rents consist of the base rent to be received pursuant to each lease agreement, i.e. not on a straight-line basis.
The majority of leases have additional option periods beyond the original term of the lease, which typically are exercisable at the tenant’s option. While no single tenant represents more than 10%MANAGEMENT SERVICES BUSINESS
Our business plan includes generating revenue from managing PINE. Pursuant to the management agreement with PINE, the Company generates a base management fee equal to 1.5% of our consolidated revenues as of December 31, 2017, we have tenants who represent a large amount of our net operating income and/or a large percentagePINE’s total equity. The structure of the square footage of our income property portfolio. These tenants include Wells Fargo, Lowe’s Corporation, Hilton Grand Vacations, and At Home. REAL ESTATE OPERATIONS
As of December 31, 2017,base fee provides the Company owned approximately 8,100 acres of undeveloped land in Daytona Beach, Florida, along six miles ofwith an opportunity for the west and east sides of Interstate 95. Currently, the majority of this land is used for agricultural purposes. As of February 28, 2018, approximately 75% of this acreage, or approximately 6,042 acres, is under contractbase fee to be sold. Approximately 1,100 acres of our land holdings are located on the east side of Interstate 95 and are generally well suited for commercial development. Approximately 7,000 acres of our land holdings are located on the west side of Interstate 95 and the majority of this land is generally well suited for residential development. Includedgrow should PINE’s independent board members determine to raise additional equity capital in the western land is approximately 1,100 acres, primarily an 850-acre parcel and three smaller parcels, which are located further west of Interstate 95 and a few miles north of Interstate 4 that is generally well suited for industrial purposes.
Real estate operations revenue consisted of the following for the years ended December 31, 2017, 2016, and 2015, respectively:
| | | | | | | | | | | | | 2017 | | 2016 | | 2015 | | Revenue Description | | ($000's) | | ($000's) | | ($000's) | | Land Sales Revenue | | $ | 45,472 | | $ | 11,871 | | $ | 4,276 | | Tomoka Town Center - Percentage of Completion Revenue | | | — | | | 17,490 | | | 8,128 | | Revenue from Reimbursement of Infrastructure Costs | | | 1,860 | | | 4,500 | | | — | | Impact Fee and Mitigation Credit Sales | | | 2,126 | | | 2,220 | | | 463 | | Subsurface Revenue | | | 3,048 | | | 1,802 | | | 3,003 | | Fill Dirt and Other Revenue | | | 17 | | | 261 | | | 73 | | Total Real Estate Operations Revenue | | $ | 52,523 | | $ | 38,144 | | $ | 15,943 | | | | | | | | | | | | |
Tomoka Town Center. The Tomoka Town Center consists of approximately 235 acres of which approximately 180 acres are developable. During 2015 and 2016, land sales with a gross sales price totaling approximately $21.4 million within the Tomoka Town Center consisted of sales of approximately 99 acres to Tanger Outlets, Sam’s Club, and North American Development Group (“NADG”) (the “Tomoka Town Center Sales Agreements”).future. The Company performed certain infrastructure work, beginning in the fourth quarteralso has an opportunity to achieve additional cash flows as manager of 2015 through completion in the fourth quarter of 2016, which required the sales price on the Tomoka Town Center Sales Agreements to be recognized on the percentage-of-completion basis. As the infrastructure work was completed in the fourth quarter of 2016, all revenue relatedPINE pursuant to the Tomoka Town
Center Sales Agreements had been recognizedan annual incentive fee, as of December 31, 2016. The timing of the remaining reimbursements for the cost of the infrastructure work which totals approximately $2.2 million is more fullyfurther described in Note 9, “Other Assets.”
Tanger Outlets completed its approximately 350,000 square foot outlet mall in November 2016. As of December 31, 2017, NADG has begun construction on its approximately 400,000 square foot retail power center.
During the second quarter of 2017, the Company completed the sale of approximately 19 acres to NADG (the “Third NADG Land Sale”). During the fourth quarter of 2017, the Company completed the sale of approximately 27 acres to NADG (the “Fourth NADG Land Sale”). The remaining developable acreage of approximately 35 acres is currently under contract with NADG as described5, “Related Party Management Services Business” in the land pipeline in Note 18, “Commitment and Contingencies.”
Land Sales. During the year ended December 31, 2017, a total of approximately 1,701 acres were sold for approximately $47.0 million as described below:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | Gross Sales | | | | Gain | | | | | | | Date of | | No. of | | Price (1) | | Price | | on Sale | | | Buyer (or Description) | | Location | | Sale | | Acres | | ($000's) | | per Acre | | ($000's) | 1 | | Minto Communities, LLC | | West of I-95 | | 02/10/17 | | 1,581.0 | | $ | 27,151 | | $ | 17,000 | | $ | 20,041 | 2 | | Commercial | | East of I-95 | | 03/22/17 | | 6.4 | | | 1,556 | | | 245,000 | | | 11 | 3 | | Commercial | | East of I-95 | | 04/05/17 | | 27.5 | | | 3,218 | | | 117,000 | | | 2,955 | 4 | | Commercial | | East of I-95 | | 04/13/17 | | 4.5 | | | 1,235 | | | 274,000 | | | 13 | 5 | | Commercial | | West of I-95 | | 04/25/17 | | 30.0 | | | 2,938 | | | 98,000 | | | 627 | 6 | | Third NADG Land Sale | | East of I-95 | | 06/27/17 | | 19.4 | | | 4,422 | | | 228,000 | | | 3,263 | 7 | | Commercial | | West of I-95 | | 10/13/17 | | 5.1 | | | 275 | | | 54,000 | | | 239 | 8 | | Fourth NADG Land Sale | | East of I-95 | | 12/29/17 | | 27.0 | | | 6,216 | | | 230,000 | | | 4,609 | | | | | | | | | 1,700.9 | | $ | 47,011 | | $ | 28,000 | | $ | 31,758 |
(1)The Gross Sales Price of land sales during 2017 of approximately $47.0 million above includes the infrastructure reimbursement payments received in the amount of approximately $955,000 for the Third NADG Land Sale and approximately $584,000 for the Fourth NADG Land Sale. Additionally, during 2017, approximately $321,000 was received from Minto Communities, LLC as an infrastructure reimbursement for improvementsnotes to the I-95 off ramp, which is not includedconsolidated financial statements in the gross sales price in the table above.Item 8.
During the year ended December 31, 2016, a total of approximately 707.7 acres were sold for approximately $13.8 million2021, the Company also generated management fees as described below: | | | | | | | | | | | | | | | | | | | | | | | | | | | | Gross Sales | | | | Gain | | | | | | | Date of | | No. of | | Price (1) | | Price | | on Sale | | | Buyer (or Description) | | Location | | Sale | | Acres | | ($000's) | | per Acre | | ($000's) | 1 | | Commercial / Retail | | East of I-95 | | 02/12/16 | | 3.1 | | $ | 190 | | $ | 61,000 | | $ | 145 | 2 | | NADG - OutParcel | | East of I-95 | | 03/30/16 | | 4.4 | | | 2,000 | | | 455,000 | | | 1,304 | 3 | | Minto Sales Center | | West of I-95 | | 09/27/16 | | 4.5 | | | 205 | | | 46,000 | | | 126 | 4 | | Commercial / Retail | | West of I-95 | | 10/13/16 | | 17.1 | | | 3,034 | | | 177,000 | | | 2,675 | 5 | | Commercial / Retail | | East of I-95 | | 12/22/16 | | 74.6 | | | 830 | | | 11,000 | | | 751 | 6 | | ICI Homes | | West of I-95 | | 12/29/16 | | 604.0 | | | 7,500 | | | 12,000 | | | 3,303 | | | | | | | | | 707.7 | | $ | 13,759 | | $ | 19,000 | | $ | 8,304 | | | | | | | | | | | | | | | | | | |
(1)the Land Sales Revenue for 2016 is equalJV manager. Pursuant to the Gross Sales Priceterms of the operating agreement for the Land JV, the initial amount of the management fee was $20,000 per month. The management fee was evaluated quarterly, and as land sales during 2016occurred in the Land JV, the basis for our management fee was reduced as the management fee was based on the value of approximately $13,.8 million above lessreal property that remained in the $2.0 million sales price forLand JV. The monthly management fee as of December 31, 2021, was $10,000 per month. As a result of the NADG – OutParcel, plus approximately $112,000 of incentives earned and received during 2016 relatedLand JV Sale, no management fees pertaining to the Distribution Center sale which closedLand JV were earned during 2014.the year end December 31, 2022.
COMMERCIAL LOANS AND INVESTMENTS
Our investments in commercial loans or similarly structured investments, such as preferred equity, mezzanine loans or other subordinated debt, have been and are expected to continue to be secured by real estate or the borrower’s pledge of its ownership interest in the entity that owns the real estate. The investments are associated with commercial real estate located in the United States and its territories, and are current or performing with either a fixed or floating rate. Some of these loans may be syndicated in either a pari-passu or senior/subordinated structure. Commercial first mortgage loans generally provide for a higher recovery rate due to their senior position in the underlying collateral. Commercial mezzanine loans are typically secured by a pledge of the borrower’s equity ownership in the underlying commercial real estate. Unlike a mortgage, a mezzanine loan is not secured by a lien on the property. An investor’s rights in a mezzanine loan are usually governed by an intercreditor agreement that provides holders with the rights to cure defaults and exercise control on certain decisions of any senior debt secured by the same commercial property. 2022 Commercial Loans and Investments Portfolio. During the year ended December 31, 2015,2022, the Company originated three loans and one preferred equity investment for a total investment of approximately 114.1 acres were sold for approximately $22.5$53.4 million as described below: | | | | | | | | | | | | | | | | | | | | | | | | | | | | Gross Sales | | | | Gain | | | | | | | Date of | | No. of | | Price (1) | | Price | | on Sale | | | Buyer (or Description) | | Location | | Sale | | Acres | | ($000's) | | per Acre | | ($000's) | 1 | | Commercial / Retail | | East of I-95 | | 06/01/15 | | 3.0 | | $ | 505 | | $ | 168,000 | | $ | 476 | 2 | | Commercial / Retail | | Highlands County | | 06/17/15 | | 0.9 | | | 250 | | | 278,000 | | | 223 | 3 | | Tanger | | East of I-95 | | 11/12/15 | | 38.9 | | | 9,700 | | | 249,000 | | | 2,793 | 4 | | Integra Land Company | | East of I-95 | | 12/18/15 | | 15.0 | | | 2,376 | | | 158,000 | | | 2,265 | 5 | | Sam's Club | | East of I-95 | | 12/23/15 | | 18.1 | | | 4,500 | | | 249,000 | | | 1,279 | 6 | | NADG - First Parcel | | East of I-95 | | 12/29/15 | | 37.3 | | | 5,168 | | | 139,000 | | | 1,421 | 7 | | Commercial / Retail | | East of I-95 | | 12/29/15 | | 0.9 | | | 30 | | | 33,000 | | | 20 | | | | | | | | | 114.1 | | $ | 22,529 | | $ | 197,000 | | $ | 8,477 |
(1)Land Sales Revenue for 2015 is equal to the Gross Sales Priceand received cash repayments of land sales during 2015 of approximately $22.5 million above, less the aggregate $19.4 million sales price for the Tomoka Town Center Sales (Tanger, Sam’s Club, and NADG – First Parcel), plus approximately $1.03 million of incentives received and earned during 2015 related to the Distribution Center sale which closed during 2014, plus approximately $87,000 of percentage-of-completion revenue earned during 2015 for the Distribution Center Sale which closed during 2014.
principal totaling $22.3 million. As of February 28, 2018, the Company’s pipeline of potential land sales transactions, including the terms of an executed non-binding term sheet to form a joint venture with an institutional investor to establish a mitigation bank on a parcel of our land (the “Mitigation Bank”), included the following eighteen potential transactions with sixteen different buyers, representing more than 6,000 acres or approximately 75% of our land holdings: | | | | | | | | | | | | | | | | | No. of | | Amount | | Price | | Estimated | | | Transaction (Buyer) | | Acres | | ($000's) | | per Acre | | Timing | 1 | | Commercial/Retail - O'Connor - East of I-95 (2) | | 123 | | $ | 29,250 | | $ | 238,000 | | '18 - '19 | 2 | | Residential (AR) - Minto Communities - West of I-95 | | 1,614 | | | 26,500 | | | 16,000 | | Q4 '18 | 3 | | Residential (SF) - ICI Homes - West of I-95 | | 1,016 | | | 21,000 | | | 21,000 | | '19 | 4 | | Mitigation Bank - Term Sheet - West of I-95 (1) | | 2,492 | | | 15,000 | | | 6,000 | | Q2 '18 | 5 | | Mixed-Use Retail - North American - East of I-95 (5) | | 35 | | | 14,362 | | | 409,000 | | Q4 '18 | 6 | | Commercial/Retail - Buc'ees - East of I-95 (2) | | 35 | | | 14,000 | | | 400,000 | | Q2 '18 | 7 | | Residential (Multi-Family) - East of I-95 (3) | | 45 | | | 5,200 | | | 116,000 | | Q3 '18 & '20 | 8 | | Distribution/Warehouse - VanTrust - East of I-95 | | 71 | | | 5,000 | | | 70,000 | | '19 | 9 | | Commercial/Retail - East of I-95 | | 20 | | | 4,250 | | | 213,000 | | Q4 '18 - '19 | 10 | | Residential (SF) - West of I-95 (4) | | 200 | | | 3,324 | | | 17,000 | | Q4 '18 & '20 | 11 | | Commercial/Distribution - VanTrust - East of I-95 | | 26 | | | 3,215 | | | 124,000 | | Q4 '18 - '19 | 12 | | Specialty Grocer - East of I-95 | | 9 | | | 2,790 | | | 310,000 | | Q4 '18 | 13 | | Auto Dealership - West of I-95 | | 13 | | | 2,000 | | | 154,000 | | Q3 '18 | 14 | | Commercial (RV) - West of I-95 | | 164 | | | 1,900 | | | 12,000 | | '19 | 15 | | Residential (SF) - ICI Homes - West of I-95 | | 146 | | | 1,400 | | | 10,000 | | Q4 '18 | 16 | | Commercial/Retail - East of I-95 | | 8 | | | 782 | | | 98,000 | | Q4 '18 | 17 | | Commercial/Retail - East of I-95 | | 6 | | | 625 | | | 104,000 | | Q4 '18 | 18 | | Commercial/Retail - West of I-95 | | 19 | | | 285 | | | 15,000 | | Q4 '18 | | | Total (Average) | | 6,042 | | $ | 150,883 | | $ | 25,000 | | |
(1)The amount for the Mitigation Bank represents the amount in the term sheet for buyer’s acquisition of approximately 70% of the joint venture that owns the Mitigation Bank, with the Company retaining 30%.
(2)Land sales transactions which require the Company to incur the cost to provide the requisite mitigation credits necessary for obtaining the applicable regulatory permits for the buyer, with such costs representing either our basis in the credits that we own, or potentially up to 5% - 10% of the contract amount noted.
(3)The acres and amount include the buyer’s option to acquire approximately 19 acres for approximately $2.0 million, in addition to the base contract of approximately 26 acres for approximately $3.2 million.
(4)The acres and amount include the buyer’s option to acquire approximately 71 acres for approximately $574,000, in addition to the base contract of approximately 129 acres for approximately $2.75 million.
(5)Pursuant to the contract, amount includes the reimbursement of infrastructure costs incurred by the Company for Tomoka Town Center plus interest accrued as of December 31, 2017.
As noted above, these agreements contemplate closing dates ranging from early 2018 through fiscal year 2020, and although some of the transactions may close in 2018, some of the buyers are not contractually obligated to close until after 2018. Each of the transactions are in varying stages of due diligence by the various buyers including, in some instances,
making submissions to the planning and development departments of the City, and other permitting activities with other applicable governmental authorities, including wetlands permits from the St. John’s River Water Management District and the U.S. Army Corps of Engineers, and conducting traffic analyses with local government and the Florida Department of Transportation and negotiating other matters with Volusia County. In addition to other customary closing conditions, the majority of these transactions are conditioned upon the receipt of approvals or permits from those various governmental authorities, as well as other matters that are beyond our control. If such approvals are not obtained, the prospective buyers may have the ability to terminate their respective agreements prior to closing. As a result, there can be no assurances regarding the likelihood or timing of any one of these potential land transactions being completed or the final terms thereof, including the sales price.
Historical revenues and income from our sales of land are not indicative of future results because of the unique nature of land transactions and other factors including, but not limited to, variations in the cost basis of the owned land. A significant portion of2022, the Company’s revenuecommercial loans and income in any given year may be generated through relatively few land transactions. The timing for these land transactions, from the timeinvestments portfolio included three commercial loan investments and one preferred equity investment with a carrying value of preliminary discussions through contract negotiations, due diligence periods,$31.9 million.
2021 Commercial Loans and the closing, can last from several months to several years. Although we believe there have been recent indications of improvement in the overall economy and credit markets, we expect the overall real estate market, particularly home building, to remain inconsistent in the near term, and as a result we believe our ability to enter into land transactions will remain challenging. Land Impairments. As more fully described in Note 8, "Impairment of Long-Lived Assets," during the years ended December 31, 2017 and 2015 the Company did not recognize any impairments on its undeveloped land holdings.Investments Portfolio. During the year ended December 31, 2016, impairment charges totaled approximately $1.02021, the Company originated a loan in connection with the sale of a land parcel with an existing structure located in Daytona Beach, Florida. The principal loan amount of $0.4 million onbears interest at a fixed rate of 10.00% and has an initial term of 1.5 years. As of December 31, 2021, the Company’s undeveloped land. commercial loans and investments portfolio included two commercial loan investments and two commercial properties with a carrying value of $39.1 million.
Beachfront Development. 2020 Commercial Loans and Investments Portfolio. During the year ended December 31, 2015,2020, the Company acquired, throughinvested in four commercial loans totaling $28.2 million including one $21.0 million master lease classified as a real estate venture with an unaffiliated third party institutional investor, an interest in approximately six acrescommercial loan due to future repurchase rights. In addition, the Company generated aggregate proceeds of vacant beachfront property located in Daytona Beach, Florida. The property was acquired$23.0 million resulting from (i) the sale of four of its commercial loans and investments for approximately $11.3$20.0 million, of which the Company contributed approximately $5.7recognized a loss of $0.4 million, (ii) the repayment of its $2.0 million loan provided to the buyer of the Company’s former golf operations, and (iii) a $1.0 million principal payment on a loan prior to its disposal. In connection with marketing the loan portfolio in advance of their upcoming maturities, the Company recognized an aggregate impairment charge on the loan portfolio of $1.9 million. As of December 31, 2015,2020, the Company’s commercial loans and investment portfolio included one commercial loan investment and two commercial properties with a carrying value of $38.3 million.
REAL ESTATE OPERATIONS Mitigation Credits and Mitigation Credit Rights. The Company owns mitigation credits and mitigation credit rights with an aggregate cost basis of $2.6 million as of December 31, 2022, representing a $22.1 million decrease from the balance as of December 31, 2021. On December 29, 2022 the Company completed the sale of the entity that owned the Mitigation Bank for a sales price of $8.1 million resulting in a loss on disposition of assets of $11.9 million. A balance of mitigation credits and mitigation credit rights were retained by the Company as part of the sale agreement. Revenues and the cost of sales of mitigation credit sales are reported as revenues from, and direct costs of, real estate venture was fully consolidated as the Company determined that it was the primary beneficiary of the variable interest entity (“VIE”). On November 17, 2016, the Company acquired the unaffiliated third party’s 50% interest for approximately $4.8 million, a discount of approximately $879,000. The discount was recorded through equity onoperations, respectively, in the consolidated balance sheet duringstatements of operations. During the year ended December 31, 2016. The Company evaluated its interest in the six-acre vacant beachfront property for impairment and determined that no impairment was necessary as of December 31, 2016. As2022, the Company owns the entire real estate venture assold 34 mitigation credits for proceeds of December 31, 2017, there is no longer a consolidated VIE. The cost basis of the six-acre vacant beachfront property asset totaled approximately $11.7$3.5 million as of December 31, 2017, which includes costs for entitlement. The beachfront property received approval of the rezoning and entitlement of the site to allow for the development of two single-tenant restaurants and also for the future potential development of up to approximately 1.2 million square feet of vertical density. In the first quarter of 2017, the Company executed a 15-year lease agreement with the operator of LandShark Bar & Grill (“LandShark”), which provided for the development by the Company of an approximately 6,264 square foot restaurant property on the parcel. The annual rent under the LandShark lease is based on a percentage of the tenant’s net operating income (“NOI”) until the Company has received its investment basis in the property and thereafter, the Company will receive a lower percentage of the tenant’s NOI during the remaining lease term. In the second quarter of 2017, the Company executed a 15-year lease agreement with Cocina 214 Restaurant & Bar (“Cocina 214”) for the second restaurant property to be developed on the parcel. The annual rent under the Cocina 214 lease is equal to the greater of $360,000 per year or a certain percentage of gross sales. The lease also provides for additional percentage rent upon the achievement of certain gross sales thresholds. The Company completed the design phase and commenced construction on the two single-tenant restaurants during the third quarter of 2017. As of December 31, 2017, the Company has incurred approximately $5.9 million of design and construction costs. See Note 18, “Commitment and Contingencies” for the total expected cost to be incurred for the development of the site and both restaurant properties. The development of the two restaurant properties was completed in time for the tenants to commence operations during January of 2018. Accordingly, during the first quarter of 2018, the total investment in the beach parcel and the construction costs of the two single-tenant properties will be classified as Income Properties, Land, Building, and Improvements, within the Property, Plant, and Equipment classification on the Company’s consolidated balance sheets.
Other Real Estate Assets. The Company owns impact fees with a cost basis of approximately $402,000 and$2.3 million. During the year ended December 31, 2021, the Company sold six mitigation credits for proceeds of $0.7 million with a cost basis of $0.5 million. Additionally, two mitigation credits with a cost basis of approximately $723,000,$0.1 million were accrued for a combined total of approximately $1.1 million as of December 31, 2017. Duringan expense during the year ended December 31, 2017,2021, as such credits are to be provided to buyers of land at no cost. Mitigation credit sales totaled less than $0.1 million during the Company sold mitigation credits for approximately $1.6year ended December 31, 2020, which sales were offset by an aggregate charge to cost of sales totaling $3.1 million, for a gaincomprised of approximately $1.3 million, or $0.15 per share, after tax. Additionally, the Company recorded the transfer of(i) 42 mitigation credits with a cost basis of approximately $298,000 as$2.9 million that were provided at no cost to buyers, (ii) the Company’s purchase of two mitigation credits for $0.2 million, and (iii) 31 mitigation credits with a chargecost basis of less than $0.1 million transferred to direct costbuyers of revenuesland previously sold and of real estate operationswhich costs were accrued for in prior years at the time of the original land sale. Additionally, during the year ended December 31, 2017,2020, the Company transferred 13.31 federal mitigation credits to the permit related to the land that gave rise to an environmental restoration matter that has been fully resolved as more fully describedof December 31, 2021. These credits had an aggregate cost basis of $0.1 million and are included in Note 18, “Commitmentsgeneral and Contingencies.” Duringadministrative expenses in the yearsconsolidated statements of operations for the year ended December 31, 2017 and 2016, the Company received cash payments of approximately $519,000 and $2.2 million, respectively, for impact fees with a cost basis that was generally of equal value.2020.
Subsurface Interests.As of December 31, 2017,2022, the Company owns full or fractional subsurface oil, gas, and mineral interests underlying approximately 462,000 “surface”355,000 acres of land owned by others in 20 counties in Florida (the “Subsurface Interests”).Subsurface Interests. The Company leases certain of the Subsurface Interests to mineral exploration firms for exploration. OurThe Company’s subsurface operations consist of revenue from the leasing of exploration rights and in some instances, additional revenues from royalties applicable to production from the leased acreage. acreage, which revenues are included within real estate operations in the consolidated statements of operations. During the year ended December 31, 2017,2022, the Company sold approximately 38,75014,600 acres of subsurface oil, gas, and mineral rights for a sales price of $1.7 million. During the year ended December 31, 2021, the Company sold approximately 84,900 acres of subsurface oil, gas, and mineral rights for a sales price of $4.6 million. During the year ended December 31, 2020, the Company sold 345 acres of subsurface interests in Osceola County, Florida for approximately $2.1 million (the "Osceola Subsurface Sale"). The gain from the Osceola Subsurface Sale totaled approximately $2.08 million, or $0.23 per share, after tax. The Company expects to utilize the proceeds from this sale to acquire an income property through the 1031 like-kind exchange structure. During 2011, an eight-year oil exploration lease was executed covering a portion of our Subsurface Interests. On September 20, 2017, the Company amended the oil exploration lease to, among other things, extend the expiration of the original term for five additional years to the new expiration date of September 22, 2024. The lease is effectively thirteen one-year terms as the lessee has the option to terminate the lease at the end of each lease year. The lessee has exercised renewal options through lease year seven ending September 22, 2018. The terms of the lease state that the Company will receive royalty payments if production occurs, and may receive additional annual rental payments if the lease is continued in years eight through thirteen. The lease calls for annual lease payments which are recognized as revenue ratably over the respective twelve-month lease periods. In addition, non-refundable drilling penalty payments are made as required by the drilling requirements in the lease which are recognized as revenue when received.
Lease payments on the respective acreages and drilling penalties received through lease year seven are as follows:
| | | | | | | | | | | | | | Acreage | | | | | | | | | | Lease Year | | (Approximate) | | Florida County | | Lease Payment (1) | | Drilling Penalty (1) | | Lease Year 1 - 9/23/2011 - 9/22/2012 | | 136,000 | | Lee and Hendry | | $ | 913,657 | | $ | — | | Lease Year 2 - 9/23/2012 - 9/22/2013 | | 136,000 | | Lee and Hendry | | | 922,114 | | | — | | Lease Year 3 - 9/23/2013 - 9/22/2014 | | 82,000 | | Hendry | | | 3,293,000 | | | 1,000,000 | | Lease Year 4 - 9/23/2014 - 9/22/2015 | | 42,000 | | Hendry | | | 1,866,146 | | | 600,000 | | Lease Year 5 - 9/23/2015 - 9/22/2016 | | 25,000 | | Hendry | | | 1,218,838 | | | 175,000 | | Lease Year 6 - 9/23/2016 - 9/22/2017 | | 15,000 | | Hendry | | | 806,683 | | | 150,000 | | Lease Year 7 - 9/23/2017 - 9/22/2018 | | 15,000 | | Hendry | | | 806,683 | | | 50,000 | | Total Payments Received to Date | | | | | | $ | 9,827,121 | | $ | 1,975,000 | |
(1)Generally, cash payment for the Lease Payment and Drilling Penalty is received on or before the first day of the lease year. The Drilling Penalty, which is due within thirty days from the end of the prior lease year, is recorded as revenue when received, while the Lease Payment is recognized on a straight-line basis over the respective lease term. Pursuant to the amendment for the Year 7 renewal, the Lease Payment and Drilling Penalty were both received on October 11, 2017. See separate disclosure of revenue recognized per period below.
Lease income generated by the annual lease payments is recognized on a straight-line basis over the guaranteed lease term. For the years December 31, 2017, 2016, and 2015, lease income of approximately $807,000, $1.1 million, and $1.7 million was recognized, respectively. There can be no assurance that the oil exploration lease will be extended beyond the expiration of the current term of September 22, 2018 or, if extended, the terms or conditions of such extension.totaling $0.4 million.
During the years ended December 31, 2017, 2016,2022, 2021, and 2015,2020, the Company also received oil royalties from operating oil wells on 800 acres under a separate lease with a separate operator. Production volume from these oil wells was 60,287 in 2017, 50,441 barrels in 2016, and 62,745 barrels in 2015, resulting in revenuesRevenues received from oil royalties of approximately $86,000, $50,000 and $68,000, respectively. totaled less than $0.1 million during each respective year. The Company is not prohibited from selling any or all of its Subsurface Interests. The Company may release surface entry rights or other rights upon request of a surface owner for a negotiated release fee typically based on a percentage of the surface value. Should the Company complete a transaction to sell all or a portion of its Subsurface Interests or complete a release transaction, the Company may utilize the Section 1031 like-kind exchange structure in acquiring one or more replacement investments including income-producing properties. There were no releases of surface entry rights during the year ended December 31, 2017. Cash payments for the release of surface entry rights totaled approximately $493,000$0.2 million, $0.1 million, and $995,000$0.2 million during the years ended December 31, 20162022, 2021 and 2015, respectively, which is included in revenue from real estate operations. During 2015, in conjunction with the release of2020, respectively. Land Impairments. There were no impairment charges on the Company’s surface entry rights related to approximately 1,400 acres in Lee County, Florida, for a cash payment of approximately $920,000, the Company also received the 50% interest in the subsurface rights of those acres, which the Company did not previously own, for a fair value of approximately $68,000, which is also included in revenue from real estate operations. In addition, the Company generated revenue of approximately $250,000 and $73,000undeveloped land holdings, or its income property portfolio, during the years ended December 31, 2016 and 2015, respectively, from fill dirt excavation agreements, with no such revenue generated2022, 2021, or 2020. The $17.6 million impairment charge recognized during the year ended December 31, 2017.
GOLF OPERATIONS
Golf operations, which are managed by a third party, consist of2021, is related to the LPGA International Golf Club, a semi-private golf club consisting of two 18-hole championship golf courses, one designed by Rees Jones and the other designed by Arthur Hills, with a three-hole practice facility also designed by Rees Jones, a clubhouse facility, food and beverage operations, and a fitness facility located within the LPGA International mixed-use residential community on the west side of Interstate 95Company’s previously held retained interest in the City.
In July 2012, the Company entered into an agreement with the City to, among other things, amend the lease payments under its golf course lease (the “Lease Amendment”). Under the Lease Amendment, the base rent payment, which was scheduled to increase from $250,000 to $500,000 asLand JV. The aggregate impairment charge of September 1, 2012, remained at $250,000 for the remainder of the lease term and any extensions would have been subject to an annual rate increase of 1.75% beginning September 1, 2013. On January 24, 2017, the Company acquired the approximately 690 acres of land and improvements comprising the golf courses, previously leased from the City, for approximately $1.5$17.6 million (the “Golf Course Land Purchase”). In conjunction with the Golf Course Land Purchase, the lease between the Company and the City was terminated. Therefore, during the first quarter of 2017, the Company eliminated the remaining accrued liability of approximately $2.2 million, resulting in the recognition of approximately $0.40 per share in non-cash earnings, or $0.24 per share after tax, which comprises the land lease termination in the consolidated statements of operations. The $2.2 million consisted of approximately $1.7 million which reflects the acceleration of the remaining amount of accrued rent that was no longer owed to the City asis a result of eliminating the Lease Amendment, which prior toinvestment in joint ventures based on the Golf Course Land Purchase was being recognized into income over the remaining lease term which was originally to expire in 2022. The remaining approximately $500,000 reflects the amount of rent accrued pursuant to the lease, as amended, which will no longer be owed to the City due to the lease termination on January 24, 2017.
As a partfinal proceeds received through distributions of the Golf Course Land Purchase,JV in connection with closing the sale of substantially all of the Land JV’s remaining land to Timberline Acquisition Partners, an affiliate of Timberline Real Estate Partners (“Timberline”), for a final sales price of $66.3 million.
Additionally, during the year ended December 31, 2020, the Company donated torecognized an aggregate $7.2 million impairment charge comprised of a $0.1 million impairment charge on one of the City three land parcels totaling approximately 14.3 acres locatedincluded in the Daytona Beach Development and a $7.1 million impairment charge on the west side of Interstate 95 that are adjacent to the City’s Municipal Stadium. The Company had a cost basis of effectively $0 in the donated land and paid approximately $100,000 to satisfy the community development district bonds associated with the acreage. Other terms of the Golf Course Land Purchase include the following: | ·
| | The Company is obligated to pay the City additional consideration in the form of an annual surcharge of $1 per golf round played each year (the “Per-Round Surcharge”) with an annual minimum Per-Round Surcharge of $70,000 and a maximum aggregate amount of the Per-Round Surcharges paid equal to $700,000. The maximum amount of $700,000 represents contingent consideration and was reflected as an increase in Golf Buildings, Improvements, and Equipment and also as an increase in Accrued and Other Liabilities on the accompany consolidated balance sheets as of December 31, 2017. The first annual payment of $70,000 was made in January 2018 leaving a remaining commitment of $630,000 as of the date of this report;
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| | Within one year following the date of the closing of the Golf Course Land Purchase, unless extended due to weather related delays outside the Company’s control, the Company was obligated to renovate the greens on the Jones Course which renovations were completed in the third quarter of 2017; and
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| | If the Company sells the LPGA International Golf Club within six years of the closing of the Golf Course Land Purchase, the Company will be obligated to pay the City an amount equal to 10% of the difference between the
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sales price, less closing costs and any other costs required to be incurred in connection with the sale, and $4.0 million.
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COMMERCIAL LOAN INVESTMENTS
Our investments in commercial loans or similar structured finance investments, such as mezzanine loans or other subordinated debt, have been and are expected to continue to be secured by commercial or residential real estate or the borrower’s pledge of its ownershipCompany’s previously held retained interest in the entity that ownsLand LV. The $7.1 million impairment on the real estate. The first mortgage loans we invest in or originate are generally for commercial real estate locatedCompany’s previously held retained interest in the United States and its territories, and are current or performing with eitherLand JV was the result of a fixed or floating rate. Some of these loans may be syndicated in either a pari-passu or senior/subordinated structure. Commercial first mortgage loans generally provide for a higher recovery rate due to their senior position in the underlying collateral. Commercial mezzanine loans are typically secured by a pledgere-forecast of the borrower’s equity ownership in the underlying commercial real estate. Unlike a mortgage, a mezzanine loan is not secured by a lien on the property. An investor’s rights in a mezzanine loan are usually governed by an intercreditor agreement that provides holders with the rightsanticipated undiscounted future cash flows to cure defaults and exercise control on certain decisions of any senior debt secured by the same commercial property.
On July 31, 2017, the Company originated a $3.0 million first mortgage loan secured by a parcel of beachfront land in the City of Daytona Beach Shores, Florida which the borrower intends to develop as a residential condominium (the “Beach Loan”). The Beach Loan matures on August 1, 2018, includes a one-year extension option, bears a fixed interest rate of 11.00%, and requires payments of interest only prior to maturity. At closing, a loan origination fee of $60,000 wasbe received by the Company. ShouldCompany based on the borrower seek to obtain financingestimated timing of future land sales from the Land JV.
REIT CONVERSION On September 3, 2020, the Board unanimously approved a plan for the developmentCompany to elect to be subject to tax as a REIT for U.S. federal income tax purposes commencing with its taxable year ended December 31, 2020. Subsequently, during a special meeting of stockholders held on November 9, 2020, the project,Company’s stockholders approved the Beach Loan would likely be paid offmerger of CTO Realty Growth, Inc., a Florida corporation (“CTO FL”), with and into CTO NEWCO REIT, Inc. (“CTO MD”), a wholly owned Maryland subsidiary of CTO FL (the “Merger”) in connectionorder to reincorporate in Maryland and facilitate its ongoing compliance with the REIT requirements by ensuring that financing. On October 23, 2017, the Company sold its two commercial loan investments secured by hotel properties in Atlanta, Georgiacertain standard REIT ownership limitations and Dallas, Texas. The Company sold these investments at a premiumtransfer restrictions apply to par for proceeds of approximately $15.1 million on an aggregate principal value of $15.0 million. The Company utilized these proceeds to pay down the Credit Facility (hereinafter defined).CTO’s capital stock.
As of December 31, 2017,2020, the Company owned two performing commercial loan investmentshad completed certain internal reorganization transactions necessary to begin operating in compliance with the requirements for qualification and taxation as a REIT for U.S. federal income tax purposes for the taxable year ended December 31, 2020. In order to comply with certain REIT requirements set forth in the Code, we hold certain of our non-REIT assets and operations through taxable REIT subsidiaries (“TRSs”) and subsidiaries of TRSs. A TRS is a subsidiary of a REIT that is generally subject to U.S. federal corporate income tax on its earnings. Net income from our TRSs either will be retained by our TRSs and used to fund their operations, or will be distributed to us, where it will either be reinvested by us into our business or available for distribution to our stockholders. However, distributions from our TRSs to us will not produce qualifying income for purposes of the 75% gross income test applicable to REITs and thus may be limited. To maintain its qualification as a REIT, the Company must meet certain organizational and operational requirements, including a requirement to distribute at least 90% of the Company’s annual REIT taxable income, determined without regard to the dividends paid deduction and excluding net capital gain, to its stockholders (which is computed and which havedoes not necessarily equal net income as calculated in accordance with generally accepted accounting principles). As a REIT, the Company is generally not subject to U.S. federal corporate income tax to the extent of its distributions to stockholders. If the Company fails to qualify as a REIT in any taxable year, the Company will be subject to U.S. federal income tax on its taxable income at regular corporate rates and generally will not be permitted to qualify for treatment as a REIT for the four taxable years following the year during which qualification is lost unless the Internal Revenue Service (“IRS”) grants the Company relief under certain statutory provisions. Such an event could materially adversely affect the Company’s net income and net cash available for distribution to stockholders. Even if the Company qualifies for taxation as a REIT, the Company may be subject to state and local taxes on its income and property and federal income and excise taxes on its undistributed income. In connection with the REIT conversion, on November 9, 2020, the Board declared a special distribution on its shares of common stock in an aggregate outstanding principal balanceamount of approximately $12.0 million. These loans are secured by real estate,$55.8 million (the “Special Distribution”), payable in cash and shares of the Company’s common stock, in order to distribute the Company’s previously undistributed earnings and profits attributable to taxable periods ended on or prior to December 31, 2019, as required in connection with the borrower’sCompany’s election to be taxable as a REIT. The Special Distribution was paid on December 21, 2020 to stockholders of record as of the close of business on November 19, 2020 through an aggregate of $5.6 million in cash and the issuance of 1,198,963 shares of the Company’s common stock. REIT CONVERSION MERGER On January 29, 2021, in connection with the REIT conversion, the Company completed the Merger. As a result of the Merger, existing shares of CTO FL common stock were automatically converted, on a one-for-one basis, into shares of common stock of CTO MD. CTO MD is a corporation organized in the state of Maryland and has been renamed “CTO Realty Growth, Inc.” CTO MD’s charter includes certain standard REIT provisions, including ownership limitations and transfer restrictions applicable to the Company’s capital stock. See Note 13, “Equity” for the Company’s disclosure related to the equity interestadjustments recorded during the three months ended March 31, 2021 in real estate, located in Daytona Beach Shores, Floridaconnection with the Merger. In connection with the REIT conversion and Sarasota, Florida and have an average remaining maturity of approximately 0.5 years and a weighted average interest rate of 9.5%. AGRICULTURE AND OTHER INCOME
Effectively all of our agriculture and other income consists of revenues generated by our agricultural operations. The Company’s agricultural lands encompass approximately 7,000 acresthe Merger, CTO FL applied to list CTO MD’s common stock on the west side of Daytona Beach, Florida. Our agricultural operations are managed by a third-partyNew York Stock Exchange (the “NYSE”) under CTO FL’s ticker symbol, “CTO.” This application was approved, and consist of leasing land for hay production and timber harvesting, as well as hunting leases.CTO MD’s common stock began trading on the NYSE on February 1, 2021 under the ticker symbol “CTO.”
COMPETITION The real estate business generallyindustry is, in general, a highly competitive.competitive industry. Our business plan is focused on investing in commercial real estate that produces income primarily through the leasing of assets to tenants. To identify investment opportunities in income-producing real estate assets and to achieve our investment objectives, we compete with numerous companies and organizations, both public as well as private, of varying sizes, ranging from organizations with local operations to organizations with national scale and reach, and in some cases, we compete with individual real estate investors. In all the markets in which we compete to acquire income properties, price is the principal method of competition, with transaction structure and certainty of execution also being significant considerations for potential sellers. As of December 31, 2017, our total income property portfolio, including our single-tenant and multi-tenant properties, consists of thirty-seven income properties located in the following states: (i) Arizona, (ii) California, (iii) Florida, (iv) Georgia, (v) Maryland, (vi) Massachusetts, (vii) Nevada, (viii) North Carolina, (ix) Oregon, (x) Texas, (xi) Virginia and (xii) Washington. Should we need to re-lease our single-tenant income properties or space(s) in our multi-tenant properties, we would compete with many other property owners in the local market based on, amongstamong other elements, price, location of our property, potential tenant improvements, and lease term. Our real estate operations are comprised primarily of our land holdings, which are largely used for agricultural purposes today and are substantially located in the City of Daytona Beach, Florida, and the Subsurface Interests. The parties typically interested in acquiring our land holdings are both residential and commercial developers as well as commercial businesses. These interested parties typically base their decision to acquire land on, among other things, price, location, land use or optionality of land use, ability to obtain zoning, entitlements, and permitting, and may also consider other development activities in the surrounding area.
Our business plan may also focus on investing in commercial real estate through the acquisition or origination of mortgage financings secured by commercial real estate. Competition for investing in commercial mortgage loans and similar financial instruments can include financial institutions such as banks, life insurance companies, institutional investors such as pension funds, and other lenders including mortgage REITs, REITs, and high wealthnet worth investors. The organizations that we compete with are of varying sizes, ranging from organizations with local operations to organizations with national scale and reach. Competition from these interested parties is based on, amongst other things, pricing or rate, financing structure, and other elements of the typical terms and conditions of a real estate financing. REGULATION General.Our golf operations consistproperties are subject to various laws, ordinances and regulations, including those relating to fire and safety requirements, and affirmative and negative covenants and, in some instances, common area obligations. Our tenants have primary responsibility for compliance with these requirements pursuant to our leases. We believe that each of our properties has the necessary permits and approvals. Americans With Disabilities Act. Under Title III of the LPGA International Golf Club.Americans with Disabilities Act (“ADA”), and rules promulgated thereunder, in order to protect individuals with disabilities, public accommodations must remove architectural and communication barriers that are structural in nature from existing places of public accommodation to the extent “readily achievable.” In addition, under the ADA, alterations to a place of public accommodation or a commercial facility are to be made so that, to the maximum extent feasible, such altered portions are readily accessible to and usable by disabled individuals. The “readily achievable” standard considers, among other factors, the financial resources of the affected site and the owner, lessor or other applicable person. Compliance with the ADA, as well as other federal, state and local laws, may require modifications to properties we currently own or may purchase or may restrict renovations of those properties. Failure to comply with these laws or regulations could result in the imposition of fines or an award of damages to private litigants, as well as the incurrence of the costs of making modifications to attain compliance, and future legislation could impose additional obligations or restrictions on our properties. Although our tenants are generally responsible for all maintenance and repairs of the property pursuant to our lease, including compliance with the ADA and other similar laws or regulations, we could be held liable as the owner of the property for a failure of one of our tenants to comply with these laws or regulations. ENVIRONMENTAL MATTERS Federal, state and local environmental laws and regulations regulate, and impose liability for, releases of hazardous or toxic substances into the environment. Under various of these laws and regulations, a current or previous owner, operator or tenant of real estate may be required to investigate and clean up hazardous or toxic substances, hazardous wastes or petroleum product releases or threats of releases at the property, and may be held liable to a government entity or to third parties for property damage and for investigation, clean-up and monitoring costs incurred by those parties in connection with the actual or threatened contamination. These laws may impose clean-up responsibility and liability without regard to fault, or whether the owner, operator or tenant knew of or caused the presence of the contamination. The liability under these laws may be joint and several for the full amount of the investigation, clean-up and monitoring costs incurred or to be incurred or actions to be undertaken, although a party held jointly and severally liable may seek to obtain contributions from other identified, solvent, responsible parties of their fair share toward these costs. These costs may be substantial and can exceed the value of the property. In addition, some environmental laws may create a lien on the contaminated site in favor of the government for damages and costs it incurs in connection with the contamination. As the owner or operator of real estate, we also may be liable under common law to third parties for damages and injuries resulting from environmental contamination emanating from the real estate. The presence of contamination, or the failure to properly remediate contamination, on a property may adversely affect the ability of the owner, operator or tenant to sell or rent that property or to borrow using the property as collateral and may adversely impact our investment in that property. Some of our properties contain, have contained or are adjacent to or near other properties that have contained or currently contain storage tanks for the storage of petroleum products or other hazardous or toxic substances. Similarly, some of our properties were used in the past for commercial or industrial purposes, or are currently used for commercial purposes, that involve or involved the use of petroleum products or other hazardous or toxic substances or are adjacent to or near properties that have been or are used for similar commercial or industrial purposes. These operations create a potential for the release of petroleum products or other hazardous or toxic substances, and we could potentially be required to pay to clean up any contamination. In addition, environmental laws regulate a variety of activities that can occur on a property, including the storage of petroleum products or other hazardous or toxic substances, air emissions, water discharges and exposure to lead-based paint. Such laws may impose fines or penalties for violations and may require permits or other governmental approvals to be obtained for the operation of LPGA International Golf Cluba business involving such activities. As a result of the foregoing, we could be materially and adversely affected. Environmental laws also includes private event salesgovern the presence, maintenance and removal of asbestos-containing materials (“ACM”). Federal regulations require building owners and those exercising control over a building’s management to identify and warn, through signs and labels, of potential hazards posed by workplace exposure to installed ACM in their building. The regulations also have employee training, record keeping and due diligence requirements pertaining to ACM. Significant fines can be assessed for golf eventsviolation of these regulations. As a result of these regulations, building owners and clubhouse events.those exercising control over a building’s management may be subject to an increased risk of personal injury lawsuits by workers and others exposed to ACM. The primary competition for our golf operations comes from other privateregulations may affect the value of a building containing ACM in which we have invested. Federal, state and public golf operationslocal laws and regulations also govern the removal, encapsulation, disturbance, handling and/or disposal of ACM when those materials are in poor condition or in the local market. Competitionevent of construction, remodeling, renovation or demolition of a building. These laws may impose liability for improper handling or a release into the environment of ACM and may provide for fines to, and for third parties to seek recovery from, owners or operators of real properties for personal injury or improper work exposure associated with ACM. When excessive moisture accumulates in buildings or on building materials, mold growth may occur, particularly if the moisture problem remains undiscovered or is not addressed over a period of time. Some molds may produce airborne toxins or irritants. Indoor air quality issues can also stem from inadequate ventilation, chemical contamination from indoor or outdoor sources and other biological contaminants such as pollen, viruses and bacteria. Indoor exposure to airborne toxins or irritants above certain levels can be alleged to cause a variety of adverse health effects and symptoms, including allergic or other reactions. As a result, the presence of significant mold or other airborne contaminants at any of our golf operationproperties could require us to undertake a costly remediation program to contain or remove the mold or other airborne contaminants from the affected property or increase indoor ventilation. In addition, the presence of significant mold or other airborne contaminants could expose us to liability from our tenants, employees of our tenants or others if property damage or personal injury occurs. We obtain Phase I environmental assessments on properties acquired. Phase I environmental site assessments are limited in scope and therefore may not reveal all environmental conditions affecting a property. However, if recommended in the initial assessments, we may undertake additional assessments such as soil and/or groundwater samplings or other limited subsurface investigations and ACM or mold surveys to test for substances of concern. A prior owner or operator of a property or historic operations at our properties may have created a material environmental condition that is largely based on price, service level,not known to us or the independent consultants preparing the site assessments. Material environmental conditions may have arisen after the review was completed or may arise in the future, and product quality. We attemptfuture laws, ordinances or regulations may impose material additional environmental liability. If environmental concerns are not satisfactorily resolved in any initial or additional assessments, we may obtain environmental insurance policies to differentiate our golf operations productinsure against potential environmental risk or loss depending on the basistype of property, the availability and cost of the conditioninsurance and qualityvarious other factors we deem relevant. Our ultimate liability for environmental conditions may exceed the policy limits on any environmental insurance policies we obtain, if any. Generally, our leases require the lessee to comply with environmental law and provide that the lessee will indemnify us for any loss or expense we incur as a result of the courseslessee’s violation of environmental law or the presence, use or release of hazardous materials on our property attributable to the lessee. If our lessees do not comply with environmental law, or we are unable to enforce the indemnification obligations of our lessees, our results of operations would be adversely affected. We cannot predict what other environmental legislation or regulations will be enacted in the future, how existing or future laws or regulations will be administered or interpreted or what environmental conditions may be found to exist on our properties in the future. Compliance with existing and practice facilities,new laws and regulations may require us or our private event capacitytenants to spend funds to remedy environmental problems. If we or our tenants were to become subject to significant environmental liabilities, we could be materially and capabilities, service level,adversely affected. HUMAN CAPITAL We believe that our employees are one of our greatest resources. In order to attract and retain high performing individuals, we are committed to partnering with our employees to provide opportunities for their professional development and promote their well-being. To that end, we have undertaken various initiatives, including the quality and experience of the food and beverage amenities and other amenities.following: | ● | providing opportunities to participate in industry conferences; |
| ● | providing regular feedback to assist in employee development and providing opportunities for employees to provide suggestions to management and safely register complaints; |
| ● | focusing on creating a workplace that values employee health and safety; |
| ● | committing to the full inclusion of all qualified employees and applicants and providing equal employment opportunities to all persons, in accordance with the principles of the Equal Employment Opportunities Commission and the principles of the ADA; and |
| ● | appreciating the many contributions of a diverse workforce, understanding that diverse backgrounds bring diverse perspectives, and result in unique insights. |
EMPLOYEES
At December 31, 2017,2022, the Company had fourteen26 full-time employees and considers its employee relations to be satisfactory. AVAILABLE INFORMATION The Company’s executive offices are located at 369 N. New York Avenue, Suite 201 Winter Park, Florida, and its telephone number is (407) 904-3324. The Company’s website is www.ctlc.com.www.ctoreit.com. The Company makes availableintends to comply with the requirements of Item 5.05 of Form 8-K regarding amendments to and waivers under the code of business conduct and ethics applicable to its Chief Executive Officer, Principal Financial Officer and Principal Accounting Officer by providing such information on its website within four days after effecting any amendment to, or granting any waiver under, that code, and we will maintain such information on our website for at least twelve months. The information contained on the Company’s website does not constitute part of this Annual Report on Form 10-K. On the Company’s website you can also obtain, free of charge, its annual reportsa copy of this Annual Report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act, of 1934, as soon as reasonably practicable, after the Company files such material electronically fileswith, or furnishes such materialsfurnish it to, the SEC. The Company will also provide paper copies of these filings free of charge upon a specific request in writing for such filing to the Company’s Corporate Secretary, P.O. Box 10809, Daytona Beach, Florida 32120-0809. All reports the Company files withSecurities and Exchange Commission (“Commission” or furnishes to the SEC are also available free of charge via the SEC’s electronic data gathering and retrieval (“EDGAR”“SEC”) system available through the SEC’s website at http://www.sec.gov.. The public may read and obtain a copy of any materials filed by usthe Company files electronically with the SECCommission at the SEC’s Public Reference Room, 100 F Street, N.E., Washington, D.C. 20549. The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330.www.sec.gov. ITEM 1A. RISK FACTORS SUMMARY OF RISK FACTORS Below is a summary of the principal factors that make an investment in our securities speculative or risky. This summary does not address all of the risks that we face. Additional discussion of the risks summarized in this risk factor summary, and other risks that we face, can be found below under the heading “Risk Factors” and should be carefully considered, together with other information in this Annual Report on Form 10-K and our other filings with the SEC, before making an investment decision regarding our securities. | ● | We are subject to risks related to the ownership of commercial real estate that could affect the performance and value of our properties. |
| ● | Adverse changes in U.S., global and local regions or markets that impact our tenants’ businesses may materially and adversely affect us generally and the ability of our tenants to make rental payments to us pursuant to our leases. |
| ● | Our business is dependent upon our tenants successfully operating their businesses, and their failure to do so could materially and adversely affect us. |
| ● | The loss of revenues from our income property portfolio or certain tenants would adversely impact our results of operations and cash flows. |
| ● | Retail properties, particularly those with multiple tenants, depend on the presence of and successful operation of an anchor tenant or tenants and the failure of such tenant’s business or the loss of the anchor tenant(s) could adversely affect the overall success of our property and thereby could adversely impact our financial condition, results of operations and cash flows. |
| ● | We are subject to risks that affect the general retail environment in the United States, such as weakness in the economy, the level of consumer spending, the adverse financial condition of large consumer retail companies and competition from discount and internet retailers, any of which could adversely affect market rents for retail space and the willingness or ability of retail tenants to lease space in our multi-tenant properties. |
| ● | A significant portion of the revenue we generate from our income property portfolio is concentrated in specific industry classifications and/or geographic locations and any prolonged dislocation in those industries or downturn in those geographic areas would adversely impact our results of operations and cash flows. |
| ● | Our revenues include receipt of management fees and potentially incentive fees derived from our provision of management services to PINE and the loss or failure, or decline in the business or assets, of PINE could substantially reduce our revenues. |
| ● | There are various potential conflicts of interest in our relationship with PINE, including our executive officers and/or directors who are also officers and/or directors of PINE, which could result in decisions that are not in the best interest of our stockholders. |
| ● | A part of our investment strategy is focused on investing in commercial loans and investments which may involve credit risk. |
| ● | We may invest in fixed-rate loan investments, and an increase in interest rates may adversely affect the value of these investments, which could adversely impact our financial condition, results of operations and cash flows. |
| ● | The commercial loans or similar financings we may acquire that are secured by commercial real estate typically depend on the ability of the property owner to generate income from operating the property. Failure to do so may result in delinquency and/or foreclosure. |
| ● | We may suffer losses when a borrower defaults on a loan and the value of the underlying collateral is less than the amount due. |
| ● | The Company’s real estate investments are generally illiquid. |
| ● | We may experience a decline in the fair value of our real estate assets or investments which could result in impairments and would impact our financial condition and results of operations. |
| ● | The Company has several stockholders that beneficially own more than 5% of the Company’s outstanding common stock and exercise the related voting rights of those shares. Actions by these stockholders, including trading activity, could have a material adverse impact on the trading price of our stock. |
| ● | The Company may be unable to obtain debt or equity capital on favorable terms, if at all, or additional borrowings may impact our liquidity or ability to monetize any assets securing such borrowings. |
| ● | Servicing our debt requires a significant amount of cash, and we may not have sufficient cash flow from our business to service or pay our debt. |
| ● | Our operations and properties could be adversely affected in the event of natural disasters, pandemics, or other significant disruptions. |
| ● | We may encounter environmental problems which require remediation or the incurrence of significant costs to resolve, which could adversely impact our financial condition, results of operations, and cash flows. |
| ● | Failure to remain qualified as a REIT, would cause us to be taxed as a regular corporation, which would substantially reduce funds available for distributions to our stockholders. |
| ● | Even if we qualify as a REIT, we may face other tax liabilities that could reduce our cash flows and negatively impact our results of operations and financial condition. |
| ● | If we failed to distribute our Pre-REIT Conversion Earnings and Profits, we could fail to qualify as a REIT. |
| ● | Failure to make required distributions would subject us to U.S. federal corporate income tax. |
| ● | Complying with REIT requirements may limit our ability to hedge our liabilities effectively and may cause us to incur tax liabilities. |
| ● | The prohibited transactions tax may limit our ability to dispose of our properties. |
| ● | The ability of the Board to revoke our REIT qualification without stockholder approval may cause adverse consequences to our stockholders. |
| ● | If we are not successful in utilizing the Section 1031 like-kind exchange structure in deploying the proceeds from dispositions of income properties, or our Section 1031 like-kind exchange transactions are disqualified, we could incur significant taxes and our results of operations and cash flows could be adversely impacted. |
| ● | Dividends payable by REITs do not qualify for the reduced tax rates available for some dividends. |
RISK FACTORS Our business is subject to a number of significant risks. The risks described below may not be the only risks which potentially could impact our business. These additional risks include those which are unknown now or that are currently considered immaterial. If any of the circumstances, events, or developments described below actually occur to a significant degree, our business, financial condition, results of operations, and/or cash flows could be materially adversely affected, and the trading price of our common stock and preferred stock could decline. You should carefully consider the following risks and all the other information set forth in this Annual Report on Form 10-K, including the consolidated financial statements and the notes thereto. A prolonged downturn
Risks Related to Our Business Income Property Operations We are subject to risks related to the ownership of commercial real estate that could affect the performance and value of our properties. Factors beyond our control can affect the performance and value of our properties. Our core business is the ownership of commercial properties that generate lease revenue from either a single tenant in a stand-alone property or multiple tenants occupying a single structure or multiple structures. Accordingly, our performance is subject to risks incident to the ownership of commercial real estate, including: | ● | inability to collect rents from tenants due to financial hardship, including bankruptcy; |
| ● | changes in local real estate conditions in the markets where our properties are located, including the availability and demand for the properties we own; |
| ● | changes in consumer trends and preferences that affect the demand for products and services offered by our tenants; |
| ● | adverse changes in national, regional and local economic conditions; |
| ● | inability to lease or sell properties upon expiration or termination of existing leases; |
| ● | environmental risks, including the presence of hazardous or toxic substances on our properties; |
| ● | the subjectivity of real estate valuations and changes in such valuations over time; |
| ● | illiquidity of real estate investments, which may limit our ability to modify our portfolio promptly in |
response to changes in economic or other conditions; | ● | zoning or other local regulatory restrictions, or other factors pertaining to the local government institutions |
which inhibit interest in the markets in which our properties are located; | ● | changes in interest rates and the availability of financing; |
| ● | competition from other real estate companies similar to ours and competition for tenants, including |
competition based on rental rates, age and location of properties and the quality of maintenance, insurance and management services; | ● | acts of God, including natural disasters and global pandemics, such as the COVID-19 Pandemic and its variants, which impact the United States, which may result in uninsured losses; |
| ● | acts of war or terrorism, including consequences of terrorist attacks; |
| ● | changes in tenant preferences that reduce the attractiveness and marketability of our properties to |
tenants or cause decreases in market rental rates; | ● | costs associated with the need to periodically repair, renovate or re-lease our properties; |
| ● | increases in the cost of our operations, particularly maintenance, insurance or real estate taxes |
which may occur even when circumstances such as market factors and competition cause a reduction in our revenues; | ● | changes in governmental laws and regulations, fiscal policies and zoning ordinances and the related |
costs of compliance with laws and regulations, fiscal policies and ordinances including in response to global pandemics whereby our tenants’ businesses are forced to close or remain open on a limited basis only; and The occurrence of any of the risks described above may cause the performance and value of our properties to decline, which could materially and adversely affect us. Adverse changes in U.S., global and local regions or markets that impact our tenants’ businesses may materially and adversely affect us generally and the ability of our tenants to make rental payments to us pursuant to our leases. Our results of operations, as well as the results of operations of our tenants, are sensitive to changes in U.S., global and local regions or markets that impact our tenants’ businesses. Adverse changes or developments in U.S., global or regional economic conditions especiallymay impact our tenants’ financial condition, which may adversely impact their ability to make rental payments to us pursuant to the leases they have with us and may also impact their current or future leasing practices. Adverse economic conditions such as high unemployment levels, rising interest rates, increased tax rates and increasing fuel and energy costs may have an impact on the results of operations and financial conditions of our tenants, which would likely adversely impact us. During periods of economic slowdown and declining demand for real estate, we may experience a general decline in Daytona Beach, Florida,rents or increased rates of default under our leases. A lack of demand for rental space could adversely affect our ability to maintain our current tenants and gain new tenants, which may affect our growth, profitability and ability to pay dividends. Our business is dependent upon our tenants successfully operating their businesses, and their failure to do so could materially and adversely affect us. Each of our properties is occupied by a single tenant or multiple tenants. Therefore, the success of our investments in these properties is materially dependent upon the performance of our tenants. The financial performance of any one of our tenants is dependent on the tenant’s individual business, its industry and, in many instances, the performance of a larger business network that the tenant may be affiliated with or operate under. The financial performance of any one of our tenants could be adversely affected by poor management, unfavorable economic conditions in general, changes in consumer trends and preferences that decrease demand for a tenant’s products or services or other factors, including the impact of a global pandemic which affects the United States, over which neither they nor we have control. To the extent we own multiple properties operated by one tenant, the general failure of that single tenant or a loss or significant decline in its business could materially and adversely affect us. At any given time, any tenant may experience a decline in its business that may weaken its operating results or the overall financial condition of individual properties or its business as a whole. Any such decline may result in our tenant failing to make rental payments when due, declining to extend a lease upon its expiration, delaying occupancy of our property or the commencement of the lease or becoming insolvent or declaring bankruptcy. We depend on our tenants to operate their businesses at the properties we own in a manner which generates revenues sufficient to allow them to meet their obligations to us, including their obligations to pay rent, maintain certain insurance coverage, pay real estate taxes, make repairs and otherwise maintain our properties. The ability of our tenants to fulfill their obligations under our leases may depend, in part, upon the overall profitability of their operations. Cash flow generated by certain tenant businesses may not be sufficient for a tenant to meet its obligations to us pursuant to the applicable lease. We could be materially and adversely affected if a tenant representing a significant portion of our operating results or a number of our tenants were unable to meet their obligations to us. Retail properties, particularly those with multiple tenants, depend on the presence of and successful operation of an anchor tenant or tenants and the failure of such tenant’s business or the loss of the anchor tenant(s) could adversely affect the overall success of our property and thereby could adversely impact our business. In recent years, the collapse of the housing market, together with the crisis in the credit markets, resulted in a recession in the local and national economy with significant levels of unemployment, shrinking gross domestic product, and drastically reduced consumer spending. During this period, potential consumers of residential real estate often deferred or avoided real estate purchases due to, among other factors, a lack of liquidity, the substantial costs involved, and overall uncertainty with the economy. The real estate industry is particularly vulnerable to shifts in local, regional, and national economic conditions which are outside of our control, such as short and long-term interest rates, housing demand, population growth, and unemployment levels and job growth. Our real estate operations segment is especially sensitive to economic conditions in Florida, particularly in Daytona Beach, where substantially all our land portfolio is located. While Florida has experienced improving economic conditions, the recovery for Florida started later and has taken longer than the rest of the nation. A prolonged period of economic weakness or another downturn could have a material adverse effect on our business, financial condition, results of operations and/orand cash flows.
We
Retail properties, like other properties, are subject to the risk that tenants may be unable to make their lease payments or may decline to extend a lease upon its expiration. A multi-tenant property is particularly sensitive to the risk that a tenant that occupies a large area of a commercial retail property (commonly referred to as an anchor tenant) is unable to make their lease payments, does not extend their lease upon its expiration, or otherwise vacates their rented space. A lease termination by an anchor tenant or tenants could impact leases of other tenants. Other tenants may be entitled to modify the terms of their existing leases in the event of a lease termination by an anchor tenant, or the closure of the business of an anchor tenant that leaves its space vacant even if the anchor tenant continues to pay rent. Any such modifications or conditions could be unfavorable to us as the property owner and could decrease rents or expense recoveries. Additionally, should an anchor tenant vacate their leased space customer traffic to the property may be decreased, which could lead to decreased sales at other stores thus adversely impacting the tenant’s operations and impacting their ability to pay rent. In the event of default by a tenant or anchor store, we may experience a declinedelays and costs in enforcing our rights as landlord to recover amounts due to us under the terms of our agreements with those parties. We are subject to risks that affect the general retail environment in the fair valueUnited States, such as weakness in the economy, the level of consumer spending, the adverse financial condition of large consumer retail companies and competition from discount and internet retailers, any of which could adversely affect market rents for retail space and the willingness or ability of retail tenants to lease space in our multi-tenant properties.
A significant portion of the properties in our income property portfolio are commercial properties that were developed to be occupied by retail tenants and thus we are subject to the risks that affect the retail sector generally, as well as the market for retail space. The business environment for retail operators and the market for retail space have previously been, and could again be, adversely affected by weakness in the national, regional and local economies, the level of consumer spending and consumer confidence, the adverse financial condition of some large retail companies, the consolidation of operators that occurs from time to time in the retail sector, any excess amount of retail space in a number of markets and increasing competition from discount retail operators, outlet malls, internet or e-commerce retail businesses and other online businesses. Increases in consumer spending through e-commerce channels may significantly affect our retail tenants’ ability to generate sales in their stores and could affect the way future tenants lease space. In addition, some of our real estate assets or investments whichretail tenants face competition from the expanding market for digital content and hardware. New and enhanced technologies, including new digital technologies and new web services technologies, may increase competition for certain of our retail tenants. While we devote considerable effort and resources to analyze and respond to tenant trends, preferences and consumer spending patterns, we cannot predict with certainty what future tenants will require to operate their business, what demands will be made for the build out of future retail spaces and how much revenue will be generated at traditional “brick and mortar” locations. If we are unable to anticipate and respond promptly to trends in the market, our occupancy levels and rental amounts may decline. Any of the foregoing factors could result in impairmentsadversely affect the financial condition of our retail tenants and would impactthe willingness of retail operators to lease space at our income properties. In turn, these conditions could negatively affect market rents for retail space and could materially and adversely affect our financial condition, and results of operations. A decline in the fair market value ofoperations, cash flow and our long-lived assets may require usability to recognize an “other-than-temporary” impairment against such assets (as defined by the Financial Accounting Standards Board (“FASB”) authoritative accounting guidance) if certain conditions or circumstances relatedsatisfy our debt service obligations and to an asset were to change and we were to determine that, with respect to any such asset, there was an unrealized losspay distributions to the fair valueCompany’s stockholders. Competition that traditional retail tenants face from e-commerce retail sales, or the integration of the asset. The fair value of our long-lived assets depends on market conditions, including estimates of future demand for these assets,brick and the revenues that can be generated from such applicable assets including land or an income property. If such a determination were to be made, we would recognize the estimated unrealized losses through earnings and write down the depreciated or amortized cost of such assets to a new cost basis, based on the fair value of such assets on the date they are considered to be other-than-temporarily impaired. Such impairment charges reflect non-cash losses at the time of recognition; subsequent disposition or sale of such assetsmortar stores with e-commerce retail operators, could furtheradversely affect our future losses or gains, as they are based on the difference between thebusiness. Our retail tenants face increasing competition from e-commerce businesses. E-commerce sales price received and the adjusted depreciated or amortized costcontinue to account for an increasing percentage of such assets at the time of sale. The most recent downturnretail sales in the U.S. economy and real estate markets caused the fair valuethis trend is likely to continue. These trends may have an impact on decisions that retail businesses make regarding their utilization of certain of our properties to decrease. In 2011, we wrote down the carrying value of our golf operations assets“brick and certain of our land assets with corresponding non-cash charges against our earnings to reflect the impaired value. In the last few years we have written down the carrying value of several small parcels of land reacquired through foreclosuremortar” stores. Changes in 2009 when portions of this reacquired land was undershopping trends as a contract to be sold for a price that was less than the carrying valueresult of the land. If the real estate market were to experience another decline, we may be required to take other impairment charges against our earnings for other than temporary impairmentsgrowth in the value of our real estate assets including our land, income properties, commercial loan investments and similar financings or other capitalized costs. Any such non-cash charges could have an adverse effect on our financial condition and results of operations.
Our quarterly results are subject to variability. We have historically derived a substantial portion of our income from transactions in our land holdings. The timing of such real estate transactions is not predictable and is generally subject to the purchaser’s ability to, among other things, obtain on a timely basis acceptable financing and approvals from local municipalities and regulatory agencies for the intended use of the land or the issuance of permits related to wetlands mitigation. As these approvals are subject to third party responses, it is not uncommon for delays to occur, which affect the timing of transaction closings ande-commerce may also impact the termsprofitability of retail operators that do not adapt to changes in market conditions. The continued growth of e-commerce sales could decrease the need for traditional retail outlets and reduce the demand for retail space and property requirements. These conditions could adversely impact our results of operations and cash flows if we are unable to meet the transaction. These timing issues have caused, and may continue to cause,needs of our operating results to vary significantly from quarter to quarter and year to year.tenants or if our tenants encounter financial difficulties as a result of changing market conditions.
OurA key element of our future success will depend upon, among other things, our ability to successfully execute our strategy to invest in income-producing assets. which if unsuccessful could adversely impact our financial condition, results of operations and cash flows.
There is no assurance that we will be able to continue to execute our strategy of investing in income-producing assets, including income properties and possibly commercial loans or similar financings secured by real estate. There is no assurance that the number of properties in our income property portfolio or the number of loans in our loan investment portfolio will expand at all or, if it expands,they expand, at any specified rate or to any specified size. The growth in our portfolios of income-producing assets provide earnings and cash flow through the added rents or interest payments. If we continue to invest in diverse geographic markets other than the markets in which we currently own income properties or loan investments, we will be subject to risks associated with investing in new markets as those markets willmay be relatively unfamiliar to us. In addition, investments in new markets may introduce increased costs to us relating to factors including the regulatory environment and the local and state tax structure. Additionally, there is no assurance we will or can expand ourbe able to continue to make investments in commercial loans or similar financings secured by real estate. Consequently, if we are unable to acquire additionalsuccessfully execute our strategy of investing in income-producing assets or some or all of our investments, including in new markets, introduce increased operating costs our financial condition, results of operations, and cash flows may be adversely affected. We operate in a highly competitive market for the acquisition of income properties and more established competitorsentities or other investors may be able to compete more effectively for acquisition opportunities than we can. A number of entities and other investors compete with us to purchase income properties. We compete with REITs, public and private real estate focused companies, high wealth individual investors, and others. Many of our competitors are substantially larger and have considerably greater financial, technical and marketing resources than we do. Several of our public company competitors have greater access to capital, typically by raising equity or debt financing, have significant amounts of capital available and investment objectives that overlap with ours, which may createoften creates competition for acquisition opportunities. Some competitors may have a lower cost of fundscapital and access to funding sources that are not available to us. In addition, some of our competitors may have higher risk tolerances or different assessments of investment risk, assessments, which could allow them to consider a wider variety of income property acquisitions and establish more relationships than us. We cannot be assured that the competitive pressures we face will not have a material adverse effect on our business, financial condition, results of operations and therefore our cash flows. Also, because of this competition, we may not be able to take advantage of attractive acquisition opportunities from time to time, and we can offer no assurance that we will be able to identify and purchase assets that are consistent with our objectives. If we are not successful in utilizing the like-kind exchange structure in deploying the proceeds from our land transactions or dispositions of income properties, or our like-kind exchange transactions are disqualified, our results of operations and cash flows could be adversely impacted. Our strategy of investing in income-producing properties includes the utilization, when possible, of proceeds obtained from the disposition of income properties or from land transactions, which qualify for deferral of the applicable income tax through the like-kind exchange provisions of the Internal Revenue Code. If we fail to complete a qualifying acquisition utilizing the aforementioned proceeds, or a transaction we deemed qualifying for like-kind exchange treatment is subsequently disqualified by the Internal Revenue Service, we may be subject to increased income taxes, which may adversely impact our results of operations and our cash flows.
If the provisions of section 1031 of the Internal Revenue Code regarding the like-kind exchange structure were altered substantially or eliminated, our financial position, results of operations and cash flows could be adversely impacted. A fundamental element of our strategy is investing in income-producing properties utilizing, when possible, the proceeds obtained from the disposition of our land holdings, Subsurface Interests and in some instances our income properties, which qualify for deferral of the applicable income tax through the like-kind exchange provisions of the Internal Revenue Code. If the provisions of section 1031 of the Internal Revenue Code regarding the like-kind exchange structure, including the deferral of taxes on gains related to the sale of real property such as our land holdings, Subsurface Interests and income properties, were to be altered substantially or eliminated,we may be subject to increased income taxes, which may have a material adverse effect on our results of operations and our cash flows.
We are subject to a number of risks inherent with the real estate industry and in the ownership of real estate assets or investment in financings secured by real estate, which may adversely affect our returns from our investments, our financial condition, results of operations and cash flows. Factors beyond our control can affect the performance and value of our real estate assets including our land and Subsurface Interests, income properties, investments in commercial loans or similar financings secured by real estate or other investments. Real estate assets are subject to various risks, including but not limited to the following:
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| | Adverse changes in national, regional, and local economic and market conditions where our properties are located;
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| | Competition from other real estate companies similar to ours and competition for tenants, including competition based on rental rates, age and location of the property and the quality of maintenance, insurance, and management services;
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| | Changes in tenant preferences that reduce the attractiveness of our properties to tenants or decreases in market rental rates;
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| | Zoning or other local regulatory restrictions, or other factors pertaining to the local government institutions which inhibit interest in the markets in which our land holdings or income producing assets are located;
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| | Costs associated with the need to periodically repair, renovate or re-lease our properties;
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| | Increases in the cost of our operations, particularly maintenance, insurance, or real estate taxes which may occur even when circumstances such as market factors and competition cause a reduction in our revenues;
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| | Changes in governmental laws and regulations, fiscal policies and zoning ordinances and the related costs of compliance with laws and regulations, fiscal policies, and ordinances;
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| | Illiquidity of real estate investments which may limit our ability to modify our income producing asset portfolio promptly in response to changes in economic or other conditions;
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| | Acts of God, including natural disasters, which may result in uninsured losses; and
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| | Acts of war or terrorism, including consequences of terrorist attacks.
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If any of these or similar events occurs, it may reduce our return from an affected real estate asset or investment which could adversely impact our financial condition, results of operations and cash flows.
The loss of revenues from our income property portfolio or certain tenants would adversely impact our results of operations and cash flows. While no single tenant represents more than 10% Certain of our consolidated revenues as of December 31, 2017, we have tenants who representmay account for a large amountsignificant portion of our net operating income and/total revenues and or a large percentage of the square footage ofin our income property portfolio. These tenants include Wells Fargo, Lowe’s Corporation, Hilton Grand Vacations, and At Home.portfolio (see Note 2, “Summary of Significant Accounting Policies” under the heading Concentration of Credit Risk in the notes to the consolidated financial statements in Item 8). The default, financial distress, or bankruptcy of one or all of theseour major tenants could cause substantial vacancies in some of the largest properties in our income property portfolio and reduce our revenues from our income property operations significantly, thereby adversely impacting our results of operations and cash flows. Vacancies reduce our revenue until the affected properties can be re-leased and could decrease the value of each such vacant property. Upon the expiration of the leases that are currently in place, we may not be able to re-lease a vacant property at a comparable lease rate or without incurring additional expenditures in connection with such re-leasing. If, following the loss of an income property tenant, we are unable to re-lease the income property at comparable rental rates and in a timely manner, our financial condition, results of operations and cash flows could be adversely affected. A significant portion of the revenue we generate from our income property portfolio is concentrated in specific industry classifications and/or geographic locations and any prolonged dislocation in those industries or downturn in those geographic areas would adversely impact our results of operations and cash flows. Certain of our tenants and or geographic concentrations may account for a significant portion of our base rent revenue (see Note 2, “Summary of Significant Accounting Policies” under the heading Concentration of Credit Risk in the notes to the consolidated financial statements in Item 8).Such geographic concentrations could be heightened by the fact that our investments may be concentrated in certain areas that are affected by epidemics or pandemics such as COVID-19 more than other areas. Any financial hardship and/or economic downturns in the financial industry, including a downturn similar to the financial crisis in 2007 through 2009, or in the states noted could have an adverse effect on our results of operations and cash flows. Certain provisions of the Company’s leases may be unenforceable. The Company’s rights and obligations with respect to its leases are governed by written agreements with its tenants. A court could determine that one or more provisions of such an agreement are unenforceable, such as a particular remedy, a termination provision, or a provision governing the Company’s remedies for default of the tenant. If we were unable to enforce provisions of a lease agreement or agreements, our results of operations, financial condition, and cash flows could be adversely impacted. We may not be able to dispose of properties we target for sale to recycle our capital. While the Company’s strategy may include selectively selling non-core assets or other income-producing properties to recycle our capital, we may be unable to sell such assets or properties targeted for disposition due to adverse market or other conditions or not achieve the pricing or timing that is consistent with our expectations. This may adversely affect, among other things, the Company’s ability to deploy capital into the acquisition of other income-producing properties, the execution of our overall operating strategy and consequently our financial condition, results of operations, and cash flows. OurWe may seek to conduct development activities, including the development of new income properties or the redevelopment or renovation of existing income properties, which may cause us to experience unexpected costs and have other risks that may adversely affect our financial condition, results of operations and liquidity.
We have recently and may in the future develop new income properties. In addition, we have in recent years and may in the future redevelop, significantly renovate or otherwise invest additional capital in certain of our existing income properties to improve the assets and enhance the opportunity for increased returns on our overall investment. These various development activities, particularly the development of new income properties, is subject to a number of risks, including risks associated with construction work and risks of cost overruns due to construction delays or other factors that may increase the anticipatedexpected costs of a project. Furthermore, the commencement of development projects is subject to other risks including the receipt of zoning or entitlements and other required governmental permits and authorizations. In addition, we may incur development costs in connection with projects that are ultimately not pursued to completion. Any of the development activities noted may be financed under our existing revolving credit facilityCredit Facility or through other forms of financing. If such financing is not available on acceptable terms, our development activities may not be pursued or may be curtailed. In addition, such development activities would likely reduce the available borrowing capacity on our credit facilityCredit Facility which we use for the acquisition of income properties and other operating needs. The risks associated with development activities, including but not necessarily limited to those noted, could adversely impact our financial condition, results of operations, and liquidity. In certain instances,
Management of and Investment in PINE Our revenues include receipt of management fees and potentially incentive fees derived from our provision of management services to PINE and the loss or failure, or decline in the business or assets, of PINE could substantially reduce our revenues. Our revenues include the fees we may conduct certain developmentearn from providing management services to PINE. The revenues we generate from managing PINE depend in large part on the ability of PINE to raise capital to invest in real estate assets and on the positive performance of PINE’s investments and stockholder returns. The performance of PINE is subject to a number of risks and uncertainties. Therefore, a portion of our operating results and our ability to maintain and grow the fees we earn from providing management services to PINE depends upon the ability of PINE and its tenants to maintain and grow their respective businesses. Our ability to maintain and grow the fees we earn from providing management services to PINE also depend upon the ability of PINE to maintain and grow its market capitalization and to achieve positive stockholder returns in excess of applicable total stockholder return indexes. Reduced business activities, market capitalizations or stockholder returns, sales of assets or the failure of PINE or the termination of our management agreement with PINE could materially reduce our revenues and our profitability thereby adversely impacting our cash flows and results of operations. Our management agreement with PINE is subject to termination for events of default or non-performance, and any such termination could have a material adverse effect on our land, including preparing a site for vertical development or completing the actual development of new income properties which may cause us to be unable to utilize the like-kind exchange structure for a subsequent sale of the land which may adversely affect our financial condition,business, results of operations and cash flows. financial condition. Our management with PINE may be terminated by PINE in certain circumstances. Depending upon the circumstances of a termination, we may or may not be entitled to receive a termination fee. If our management agreement with PINE is terminated, we may be unable to replace the lost revenue. Even if we receive a termination fee upon the termination of the management agreement with PINE, we may be unable to invest the after tax proceeds from the termination fee we receive in opportunities that earn returns equal to or greater than the revenues lost as a result of the terminated management agreement. The termination of our management agreement with PINE could have a material adverse impact on our business, results of operations and financial condition. An internalization of PINE’s management functions could have a material adverse effect on our business, results of operations and financial condition. In the future, PINE’s board of directors may consider internalizing the functions performed for PINE by us. We may be unable to replace the revenue that we would have received in the future in the absence of an internalization transaction. In the event that we and PINE agree to an internalization transaction, the payment of the internalization price to us would be in lieu of the payment of any termination fee. The internalization price would be payable in cash, shares of PINE’s common stock or OP Units, or a combination thereof, as determined by a majority of PINE’s independent directors in their sole discretion. Even if the internalization price paid to us in connection with an internalization is substantial, we cannot assure you that any cash, shares of PINE’s common stock or OP Units received in connection with an internalization transaction will ultimately lead to returns equal to or greater than the revenues lost as a result of the internalization transaction. Internalization transactions, including without limitation, transactions involving the acquisition of external advisors or property managers affiliated with entity sponsors have also, in some cases, been the subject of litigation. Even if these claims are without merit, we could be forced to spend significant amounts of money defending claims which would reduce the amount of funds available for us to invest in properties or other investments and to pay distributions to our stockholders. All of these factors could have a material adverse effect on us. We may be unable to successfully operate PINE’s business. We are paid a management fee to manage PINE’s business and we may performbe paid an incentive fee which will depend on numerous factors, including our ability to make investments on behalf of PINE that generate attractive, risk-adjusted returns, and thereby result in PINE’s stockholders achieving a necessary level of return. A key element of PINE’s success includes its ability to raise additional equity capital to fund its goals for growth. Our successful performance as the site work necessarymanager of PINE therefore depends, in part, our ability to assist PINE in raising equity capital in amounts sufficient to support PINE’s goals and on acceptable terms. Our successful performance as the manager of PINE also depends on our ability to access debt financing for vertical development or the development of newPINE, and on acceptable terms. There can be no assurance that we will be successful in this business, that PINE will achieve its objectives, will invest successfully in income properties on landand will generally operate successfully, or that we own. After conducting development activitieswill earn fees from PINE sufficient to recover the costs we have incurred or to provide a suitable return on our land,investment in PINE. Declines in the market values of our investment in PINE may adversely affect periodic reported results. We hold a significant equity interest in PINE as of December 31, 2022 including the OP Units we hold in the PINE Operating Partnership as further described in Note 1, “Organization” in the notes to the consolidated financial statements in Item 8. PINE is publicly traded and as such, PINE’s common stock is subject to the risks associated with public equities, including, but not limited to, eithermarket risk broadly, risks associated with the REIT industry, and risks associated with the real estate industry more specifically. The public equity markets can be volatile, and the value of PINE’s stock and OP Units may fluctuate significantly over short periods of time. A significant decrease in the noted development activities, a saletrading price of the improved land may not qualify for treatment under the like-kind exchange structure. As aPINE’s stock could result in conjunction withlosses that have a land sale that does not utilizematerial adverse effect on the like-kind exchange structure, we may be subject to increased income taxes, which may adversely impact our financial condition, results of operations, and our cash flows. Mostvalue of our land holdings are locatedinvestment in Daytona Beach, Florida and the competition in the local and regional market, the possible impact of government regulation, permitting or development limitations, and the criteria used by parties interested in acquiring land could adversely impact the interest in our land and thereby our results of operations and cash flows. The parties typically interested in our land holdings base their decision to acquire land on, among other things, price, location, ability to entitle the land, and land use or optionality of land use, ability to obtain zoning, entitlements, and permitting. In some instances, the aforementioned acquisition criteria or other factors may make an interested party consider other land instead of ours. In addition, parties interested in acquiring our land holdings would likely consider the impact of governmental regulations or ordinances on their ability to entitle and develop the land for their intended use and may seek incentives or similar economic considerations from one or more governmental authorities that they may not be able to obtain. These conditions may make it difficult for us to complete land transactions on acceptable terms or at all,PINE which could adversely impact our financial condition, resultscondition.
There are various potential conflicts of operations, and cash flows. The Company’s real estate investments,interest in our relationship with PINE, including our land holdings and income-producing assets,executive officers and/or directors who are generally illiquid. Real estate investmentsalso officers and/or directors of PINE, which could result in decisions that are relatively illiquid; therefore, it may be difficult for us to sell such assets if the need or desire arises, and otherwise the Company’s ability to make rapid adjustmentsnot in the size and contentbest interest of our income property portfolio or other real estate assets in response to economic or other conditions is limited. Illiquid assets typically experience greater price volatility, as a ready market does not exist, and can be more difficult to value. In addition, validating third party pricing for illiquid assets may be more subjective than more liquid assets. As a result, if we are required to liquidate all or a portion of certain of our real estate assets or income producing asset portfolio quickly, we may realize significantly less than the value at which we have previously recorded our assets. Further, certain expenditures necessary to operate our income property operations, real estate operations and golf operations generally do not decrease and may in fact increase in response to weakening economic conditions or other market disruptions, which expenditures may include maintenance costs, insurance costs, and in some instances, interest expense. This relationship of revenue and expenditures may result, under certain market conditions, in reduced operating results and cash flows and thereby could have an adverse effect on the Company’s financial condition.stockholders.
Continued or increased operating losses from the golf operations may adversely impact the Company’s results of operations and cash flows. The Company has golf operations consisting of the LPGA International Golf Club, a semi-private golf club in Daytona Beach, Florida, consisting of the following: two 18-hole golf courses, a food and beverage operation, a private event operation, and club memberships. A third party manages these operations, on behalf of the Company, and employs the personnel. Since its inception, the golf operation has generated negative cash flows. In 2011, the Company recognized an impairment of approximately $4.0 million on the long-lived assets of the golf operations. In January 2017, the Company invested an additional $1.6 million of capital in the golf operations to buy-out of the long-term land lease with the City and approximately $350,000 to renovate the greens on one of the 18-hole golf courses. The results of operations from the golf operations
We are subject to the typical execution risks inherent with many golf, retail and club operations including, but not limited to: maintenance, merchandising, pricing, customer service, competition, costconflicts of food, beverage and retail products, consumer preferences and behavior, safety, compliance with various federal, state and local laws, ordinances and regulations, environmental contamination, weather conditions,interest that may exist or other trendscould arise in the local market. Althoughfuture with PINE, including our executive officers and/or directors who are also directors or officers of PINE. Conflicts may include, without limitation: conflicts arising from the negative cash flows generated byenforcement of agreements between us and PINE; conflicts in the golf operations decreased substantially, anyamount of time that our officers and employees will spend on our affairs versus PINE's affairs; and conflicts in future transactions that we may pursue with PINE. Transactions between us and PINE would be subject to certain approvals of our directors; however, there can be no assurance that such approval will be successful in achieving terms and conditions as favorable to us as would be available from a third party. Our president and chief executive officer who is also one of these execution risk factorsour directors also serves on PINE's board of directors. Our directors and executive officers have duties to our company under applicable Maryland law, and our executive officers and our directors who are also directors or officers of PINE also have duties to PINE under applicable Maryland law. Those duties may come in conflict from time to time. We have duties as the manager of PINE which may come in conflict with our duties to our stockholders from time to time. In addition, conflicts of interest may exist or could negatively impact the golf operations and thereby adversely impact the Company’s financial condition, results of operations and cash flows. Competition, seasonality and market conditions relating to golf operations could adversely affect our operating results. Our golf operations face competition from similar golf operationsarise in the surrounding areas, primarily Daytona Beachfuture with our duties to PINE as its manager in connection with future investment opportunities.
Commercial Loans and other areas of Volusia County. Any new competition from golf operations that are developed close to our existing golf operations may adversely impact the resultsInvestments A part of our golf operations. Our golf operations are also subject to changesinvestment strategy is focused on investing in market conditions, such as population trends, consumer demandcommercial loans and changing demographics of people playing golf, any ofinvestments which could adversely affect results of operations. In addition, our golf operations may suffer if the economy weakens, if the popularity of golf continues to decrease, or if unusual weather conditions or other factors cause a reduction in rounds played. Our golf operations are also seasonal, primarily due to the impact of the winter tourist season, Florida’s summer heat and rain, and the hurricane season. Should any of these factors impact our golf operations unfavorably, our financial condition, results of operations and cash flows would be impacted adversely. The revenues from our golf operations depend on a third-party operator that we do not control. We currently utilize a third-party to manage and operate our golf operations. As a result, we do not directly implement operating business decisions with respect to the operation and marketing of our golf operations and personnel decisions. For our golf operations, these decisions may concern course maintenance, membership programs, marketing programs, and employee
matters. The amount of revenue that we generate from the golf operations is dependent on the ability of the third-party manager to maintain and seek to increase the gross receipts and manage and possibly decrease the expenses at LPGA International. If the revenues from our golf operations decline or the operating expenses increase at a rate that is inconsistent with revenues, our results of operations and our cash flows would be adversely affected, and our financial condition may be adversely impacted should we be required to recognize additional impairments on the long-lived assets of the golf operations, including our recently invested capital.
Our investment strategy may involve credit risk.
As part of our business strategy, we have invested in commercial loans secured by commercial real estate and may in the future invest in other commercial loans or similar financings secured by real estate. Investments in commercial loans or similar financings of real estate involve credit risk with regard to the borrower, the borrower’s operations and the real estate that secures the financing. The credit risks include, but are not limited to, the ability of the borrower to execute their business plan and strategy, the ability of the borrower to sustain and/or improve the operating results generated by the collateral property, the ability of the borrower to continue as a going concern, and the risk associated with the market or industry in which the collateral property is utilized. Our evaluation of the investment opportunity in a mortgage loan or similar financing includes these elements of credit risk as well as other underwriting criteria and factors. Further, we may rely on third party resources to assist us in our investment evaluation process and otherwise in conducting customary due diligence. Our underwriting of the investment or our estimates of credit risk may not prove to be accurate, as actual results may vary from our estimates. In the event we underestimate the performance of the borrower and/or the underlying real estate which secures our commercial loan or financing, we may experience losses or unanticipated costs regarding our investment and our financial condition, results of operations, and cash flows may be adversely impacted. Because of competition, we may not be able to acquire commercial loans or similar financings at all or at favorable yields. We When we seek to invest in commercial loans or similar financings secured by underlying real estate, we may not be able to execute our strategy of acquiring commercial loans or similar financingsacquire such loan investments at favorable spreads over our borrowing costs. We compete with many other investment groups including other REITs, public and private investment funds, life insurance companies, commercial and investment banks and, commercial finance companies, including some of the third parties with which we expect to have relationships. In most instances the competition has greater financial capacity, are larger organizations and has a greater operating presence in the market. As a result, we may not be able to acquire commercial loans or similar financings in the future at all or at favorable spreads over our borrowing costs, which could adversely impact our results of operations and cash flows and would likely result in the need for any growth in our portfolio of income-producing assets to be achieved through the acquisition of income properties. Debt and preferred equity investments could cause us to incur expenses, which could adversely affect our results of operations. We have in the past, currently own, or mayand will own in the future, investments in first mortgages, mezzanine loans, junior participations and preferred equity interests. Such investments may or may not be recourse obligations of the borrower and are not insured or guaranteed by governmental agencies or otherwise. In the event of a default under these obligations, we may have to take possession of the collateral securing these interests including through foreclosure proceedings. Borrowers may contest enforcement of foreclosure or our other remedies and may seek bankruptcy protection to potentially block our actions to enforce their obligations to us. Relatively high loan-to-value ratios and declines in the value of the underlying collateral property may prevent us from realizing an amount equal to our investment upon foreclosure or realization even if we make substantial improvements or repairs to the underlying real estate to maximize such property’s investment potential. Although we maintainhave maintained and regularly evaluateevaluated financial reserves to properly accrue for potential future losses, our reserves would reflect management’s judgment of the probability and severity of losses and the value of the underlying collateral. We cannot be certain that our judgment will prove to be correct and that our reserves, if any, will be adequate over time to protect against future losses due to unanticipated adverse changes in the economy or events adversely affecting specific properties, assets, tenants, borrowers, industries in which our tenants and borrowers operate or markets in which our tenants and borrowers, or their properties are located. If we are unable to enforce our contractual rights, including but not limited to, taking possession of the collateral property in a foreclosure circumstance, or our reserves for credit losses prove inadequate, we could suffer losses which would have a material adverse effect on our financial condition, results of operations, and cash flows. The mezzanine loan assets that we may acquire will involve greater risks of loss than senior loans secured by income-producing properties. We may acquire mezzanine loans, which generally take the form of subordinated loans secured by the underlying property or loans secured by a pledge of the ownership interests of either the entity owning the property or a pledge of the ownership interests of the entity that owns the interest in the entity owning the property. These types of assets involve a higher degree of risk than senior mortgage lending secured by income-producing real property, because the loan may become unsecured as a result of foreclosure by the senior lender. In the event of a bankruptcy of the entity providing the pledge of its ownership interests as security, we may not have full recourse to the assets of such entity, or the assets of the entity may not be sufficient to satisfy our mezzanine loan. If a borrower defaults on our mezzanine loan or the debt that is senior to our loan, or in the event of a borrower bankruptcy, our mezzanine loan will only be satisfied after the senior debt has been satisfied. As a result, we may not recover some or all of our initial investment. In addition, mezzanine loans may have higher loan-to-value ratios than conventional mortgage loans, resulting in less equity in the property and increasing the risk of loss of principal. Significant losses related to our mezzanine loans would result in operating losses for us and could adversely impact our financial condition and cash flows. We may invest in fixed-rate loan investments, and an increase in interest rates may adversely affect the value of these investments, which could adversely impact our financial condition, results of operations and cash flows. Increases in interest rates may negatively affect the market value of our investments, particularly any fixed-rate commercial loans or other financings we have invested in. Generally, any fixed-rate commercial loans or other financings will be more negatively affected by rising interest rates than adjustable-rate assets. We are required to reduce the book value of our investments by the amount of any decrease in their fair value. Reductions in the fair value of our investments could decrease the amounts we may borrow to purchase additional commercial loan or similar financing investments, which could impact our ability to increase our operating results and cash flows. Furthermore, if our borrowing costs are rising while our interest income is fixed for the fixed-rate investments, the spread between our borrowing costs and the fixed-rate we earn on the commercial loans or similar financing investments will contract or could become negative which would adversely impact our financial condition, results of operations, and cash flows. The commercial loans or similar financings we currently own orhave acquired and may acquire in the future that are secured by commercial real estate typically depend on the ability of the property owner to generate income from operating the property. Failure to do so may result in delinquency and/or foreclosure. Commercial loans are secured by commercial property and are subject to risks of delinquency and foreclosure and therefore the risk of loss. The ability of a borrower to repay a loan secured by an income-producing property typically is dependent primarily upon the successful operation of such property rather than upon the existence of independent income or assets of the borrower. If the net operating income of the property is reduced, the borrower’s ability to repay the loan may be impaired. In the event of any default under a commercial loan held directly by us, we will bear a risk of loss of principal to the extent of any deficiency between the value of the collateral and the principal and accrued interest of the commercial loan, which could have a material adverse effect on our financial condition, operating results and cash flows. In the event of the bankruptcy of a commercial loan borrower, the mortgage loan to such borrower will be deemed to be secured only to the extent of the value of the underlying collateral at the time of bankruptcy (as determined by the bankruptcy court), and the lien securing the loan will be subject to the avoidance powers of the bankruptcy trustee or debtor-in-possession to the extent the lien is unenforceable under state law. Foreclosure of a loan can be an expensive and lengthy process, which could have a substantial negative effect on our anticipated return on the foreclosed commercial loan. If the borrower is unable to repay a mortgage loan or similar financing our inability to foreclose on the asset in a timely manner, and/or our inability to obtain value from reselling or otherwise disposing of the asset for an amount equal to our investment basis, would adversely impact our financial condition, results of operations, and cash flows. The activities or actions of a third-party servicer engaged to service our investment in a commercial loan or similar debt financing could adversely impact the value of our investment or our results of operations and cash flows.Our Any future investments in first mortgages, mezzanine loans or other debt financings secured by real estate may require a third-party servicer to service the loan on our behalf and/or on behalf of third parties who have invested in some portion of the debt financing. An intended or unintended breach by the servicer with regard to their servicing of the debt financing or in their contractual obligations and fiduciary duties to us or the other holders of the debt financing could adversely impact the value of our investment or our results of operations and cash flows. We may suffer losses when a borrower defaults on a loan and the value of the underlying collateral is less than the amount due. If a borrower defaults on a non-recourse loan, we will only have recourse to the real estate-related assets collateralizing the loan. If the underlying collateral value is less than the loan amount, we will suffer a loss. Conversely, some of our commercial loans we invest in may be unsecured or arebe secured only by equity interests in the borrowing entities. These loans are subject to the risk that other lenders in the capital stack may be directly secured by the real estate assets of the borrower or may otherwise have a superior right to repayment. Upon a default, those collateralized lenders would have priority over us with respect to the proceeds of a sale of the underlying real estate. In such cases, we may lack control over the underlying asset collateralizing our loan or the underlying assets of the borrower before a default and, as a result, the value of the collateral may be reduced by acts or omissions by owners or managers of the assets. In addition, the value of the underlying real estate may be adversely affected by some or all of the risks referenced above that pertain to the income-producing properties that we own. Some
Commercial loans we may invest in may be backed by individual or corporate guarantees from borrowers or their affiliates which guarantees are not secured. If the guarantees are not fully or partially secured, we typically rely on financial covenants from borrowers and guarantors which are designed to require the borrower or guarantor to maintain certain levels of creditworthiness. WhereShould we do not have recourse to specific collateral pledged to satisfy such guarantees or recourse loans, we will only have recourse as an unsecured creditor only to the general assets of the borrower or guarantor, some or all of which may be pledged as collateral for other lenders. There can be no assurance that a borrower or guarantor will comply with its financial covenants, or that sufficient assets will be available to pay amounts owed to us under our loans and guarantees. Because of these factors, we may suffer additional losses which could have a material adverse effect on our financial performance.condition, operating results and cash flows. Upon a borrower bankruptcy, we may not have full recourse to the assets of the borrower to satisfy our loan. Additionally, in some instances, our loans may be subordinate to other debt of certain borrowers. If a borrower defaults on our loan or on debt senior to our loan, or a borrower files for bankruptcy, our loan will be satisfied only after the senior debt receives payment. Where debt senior to our loan exists, the presence of inter-creditor arrangements may limit our ability to amend our loan documents, assign our loans, accept prepayments, exercise our remedies (through “standstill” periods), and control decisions made in bankruptcy proceedings. Bankruptcy and borrower litigation can significantly increase collection costs and the time needed for us to acquire title to the underlying collateral (if applicable), during which time the collateral and/or a borrower’s financial condition may decline in value, causing us to suffer additional losses. If the value of collateral underlying a loan declines, or interest rates increase during the term of a loan, a borrower may not be able to obtain the necessary funds to repay our loan at maturity through refinancing because the underlying property revenue cannot satisfy the debt service coverage requirements necessary to obtain new financing. If a borrower is unable to repay our loan at maturity, we could suffer additional loss which may adversely impact our financial performance.condition, operating results and cash flows. As a result of any of the above factors or events, the losses we may suffer could adversely impact our financial condition, results of operations and cash flows. Other Investments Investments in securities of companies operating in the real estate industry, including debt and equity instruments such as corporate bonds, preferred or common stock, or convertible instruments could cause us to incur losses or other expenses which could adversely affect our financial position, results of operations, and cash flows. We have ownedcurrently own and may own in the future, investments in corporate securities of companies operating in the real estate industry including debt and equity instruments such as corporate bonds, preferred or common stock, or convertible instruments. Certain of these investments may be traded on an exchange or other active market whereby the price of the underlying instrument is quoted daily and those quoted prices and thus the market value of the instrument varies during a given trading day. Certain of these investments may be traded on an exchange or market that is not deemed an active market but where the price of the investment fluctuates daily or otherwise. Adverse fluctuations in the value of these investments, whether market-generated or not, are reflected as unrealized losses on our balance sheet. We may choose to or be required to liquidate these investments in whole or in part and at prices that result in realized losses on our investment. Should we incur realized losses on liquidating these investments, our financial position, results of operations and cash flows would be adversely impacted. General We are subject to a number of risks inherent with the real estate industry and in the ownership of real estate assets or investment in financings secured by real estate, which may adversely affect our returns from our investments, our financial condition, results of operations and cash flows. Factors beyond our control can affect the performance and value of our real estate assets including our income properties, investments in commercial loans or similar financings secured by real estate or other investments, and our Subsurface Interests. Real estate assets are subject to various risks, including but not limited to the following: | ● | Adverse changes in national, regional, and local economic and market conditions where our properties or the properties underlying a loan investment are located; |
| ● | Competition from other real estate companies similar to ours and competition for tenants, including competition based on rental rates, age and location of the property and the quality of maintenance, insurance, and management services; |
| ● | Changes in tenant preferences that reduce the attractiveness and marketability of our income properties to tenants or decreases in market rental rates; |
| ● | Zoning or other local regulatory restrictions, or other factors pertaining to the local government institutions which inhibit interest in the markets in which our income-producing assets are located; |
| ● | Costs associated with the need to periodically repair, renovate or re-lease our income properties; |
| ● | Increases in the cost of our operations, particularly maintenance, insurance, or real estate taxes which may occur even when circumstances such as market factors and competition cause a reduction in our revenues; |
| ● | Changes in governmental laws and regulations, fiscal policies and zoning ordinances and the related costs of compliance with laws and regulations, fiscal policies, and ordinances; |
| ● | Illiquidity of real estate investments which may limit our ability to modify our income-producing asset portfolios promptly in response to changes in economic or other conditions; |
| ● | Acts of God, including natural disasters, which may result in uninsured losses; and |
| ● | Acts of war or terrorism, including consequences of terrorist attacks. |
If any of these or similar events occurs, it may reduce our return from an affected real estate asset or investment which could adversely impact our financial condition, results of operations and cash flows. The Company’s real estate investments are generally illiquid. Real estate investments, including investments in income properties, joint ventures and subsurface interests, are relatively illiquid; therefore, it may be difficult for us to sell such assets if the need or desire arises, and otherwise the Company’s ability to make rapid adjustments in the size and content of our income property portfolio or other real estate assets in response to economic or other conditions is limited. Illiquid assets typically experience greater price volatility, as a ready market does not exist, and can be more difficult to value. In addition, validating third party pricing for illiquid assets may be more subjective than more liquid assets. As a result, if we are required to quickly liquidate all or a portion of certain of our real estate assets or income-producing assets, we may realize significantly less than the value at which we have previously recorded our assets. Further, certain expenditures necessary to operate our income property operations generally do not decrease and may in fact increase in response to weakening economic conditions or other market disruptions, which expenditures may include maintenance costs, insurance costs and, in some instances, interest expense. This relationship of revenue and expenditures may result, under certain market conditions, in declining operating results and reduced cash flows and thereby could have an adverse effect on the Company’s financial condition. We may experience a decline in the fair value of our real estate assets or investments which could result in impairments and would impact our financial condition and results of operations. A decline in the fair market value of our long-lived assets may require us to recognize an “other-than-temporary” impairment against such assets (as defined by the Financial Accounting Standards Board (“FASB”) authoritative accounting guidance) if certain conditions or circumstances related to an asset were to change and we were to determine that, with respect to any such asset, there was an unrealized loss to the fair value of the asset. The fair value of our long-lived assets depends on market conditions, including estimates of future demand for these assets, and the revenues that can be generated from such applicable assets including land or an income property. If such a determination were to be made, we would recognize the estimated unrealized losses through earnings and write down the depreciated or amortized cost of such assets to a new cost basis, based on the fair value of such assets on the date they are considered to be other-than-temporarily impaired. Such impairment charges reflect non-cash losses at the time of recognition; subsequent disposition or sale of such assets could further affect our future losses or gains, as they are based on the difference between the sales price received and the adjusted depreciated or amortized cost of such assets at the time of sale. Downturns in the U.S. economy and real estate markets have at times caused the fair value of certain of our properties to decrease. If the real estate market were to experience another decline, we may be required to take write-downs against our earnings for other than temporary impairments in the value of our real estate assets including our income properties, commercial loans and investments and similar financings or other capitalized costs. Any such non-cash charges could have an adverse effect on our financial condition and results of operations. From time to time we make investments in companies over which we do not have control. Some of these companies may operate in industries that differ from our current operations, with different risks than investing in real estate. From time to time we make debt or equity investments in other companies that we may not control or over which we may not have sole control. Although these businesses generally have a significant real estate component, some of them may operate in businesses that are different from our primary business segments. Consequently, investments in these businesses, among other risks, subject us to the operating and financial risks of industries other than real estate and to the risk that we do not have sole control over the operations of these businesses. From time to time we may make additional investments in or acquire other entities that may subject us to similar risks. Investments in entities over which we do not have sole control, including joint ventures, present additional risks such as having differing objectives than our partners or the entities in which we invest, or becoming involved in disputes, or competing with those persons. In addition, we rely on the internal controls and financial reporting controls of these entities and their failure to maintain effectiveness or comply with applicable standards may adversely affect us. Quarterly results may fluctuate and may not be indicative of future quarterly performance. Our quarterly operating results could fluctuate; therefore, reliance should not be placed on past quarterly results as indicative of our performance in future quarters. Factors that could cause quarterly operating results to fluctuate include, among others, variations in the performance of our income-producing assets, market values of our investment in PINE, costs associated with debt, general economic conditions, the state of the real estate and financial markets and the degree to which we encounter competition in our markets. Risks related to Our Financing General The Company may be unable to obtain debt or equity capital on favorable terms, if at all, or additional borrowings may impact our liquidity.liquidity or ability to monetize any assets securing such borrowings. In orderto further our business objectives, we mayhave in the past and expect to continue to seek to obtain additional debt financing or raise equity capital and may be unable to do so on favorable terms, if at all. We may obtain unsecured debt financing in addition to our revolving credit facilityCredit Facility which could decrease our borrowing capacity onunder the credit facility.Credit Facility. Other sources of available capital may be materially more expensive or available under terms that are materially more restrictive than the Company’s existing debt capital. Any of these occurrences could adversely affect the Company’s business, financial condition, results of operations, and cash flows. An increase in our borrowing costs would adversely affect our financial condition and results of operations. While we have no short-term maturities in our long-term debt, should we seek to incur additional debt to help finance our acquisitions, increased interest rates would reduce the difference, or spread, that we may earn between the yield on the investments we make and the cost of the leverage we employ to finance such investments. It is possible that the spread on investments could be reduced to a point at which the profitability from investments would be significantly reduced or eliminated entirely. This would adversely affect our returns on our assets, and therefore adversely impact our financial condition, our results of operations, and cash flows, and could require us to liquidate certain or all of these assets. The Company’s revolving credit facility and secured financings include certain financial and/or other covenants that could restrict our operating activities, and the failure to comply with such covenants could result in a default that accelerates the required payment of such debt. As of December 31, 2017, the Company had approximately $70.0 million of outstanding indebtedness under the revolving credit facility and $55.0 million of secured debt. The revolving credit facility contains various restrictive covenants which include, among others, a maximum total indebtedness and limits on the repurchase of the Company’s stock and similar restrictions. In addition, the revolving credit facility contains certain financial covenants pertaining to debt service coverage ratios, maximum levels of investment in certain types of assets, the number and make-up of the properties in the borrowing base, and similar covenants typical for this type of indebtedness. The Company’s secured indebtedness generally contains covenants regarding debt service coverage ratios. The Company’s ability to meet or maintain compliance with these and other debt covenants may be dependent on the performance by the Company’s tenants under their leases. The Company’s failure to comply with certain of our debt covenants could result in a default that may, if not cured, accelerate the payment under such debt and limit the Company’s available cash flow for acquisitions, dividends, or operating costs, which would likely have a material adverse impact on the Company’s financial condition, results of operations, and cash flows. In addition, these defaults could impair the Company’s access to the debt and equity markets.
Servicing our debt requires a significant amount of cash, and we may not have sufficient cash flow from our business to service or pay our debt. Our ability to make scheduled payments of the principal of, to pay interest on, to pay any cash due upon conversion of, or to refinance our indebtedness, including the Company’s $75.0$51.0 million aggregate principal amount of 4.50%3.875% Convertible Senior Notes due 2025 (the “Notes”“2025 Notes”), depends on our future operating and financial performance, which is subject to economic, financial, competitive and other factors beyond our control. Our business may not continue to generate cash flow from operations in the future sufficient to service our debt and make necessary capital expenditures. If we are unable to generate such cash flow, we may be required to adopt one or more alternatives, such as selling assets, restructuring debt or obtaining additional equity capital on terms that may be onerous or highly dilutive. Our ability to refinance our indebtedness will depend on the capital markets and our financial condition at such time. We may not be able to engage in any of these activities or engage in these activities on desirable terms, which could result in a default on our debt obligations. Our level of indebtedness could have significant adverse consequences and our cash flow may be insufficient to meet our debt service obligations. Our level of indebtedness, as further described in Note 16 “Long-Term Debt” in the notes to the consolidated financial statements in Item 8, could have significant adverse consequences on our business and operations, including the following: | ● | it may increase our vulnerability to changes in economic conditions (including increases in interest rates) and limit our flexibility in planning for, or reacting to, changes in our business and/or industry; |
| ● | we may be at a disadvantage compared to our competitors with comparatively less indebtedness; |
| ● | we may be unable to hedge our debt, or such hedges may fail or expire, leaving us exposed to potentially volatile interest or currency exchange rates; and |
| ● | we may be unable to refinance our indebtedness or obtain additional financing as needed or on favorable terms. |
Our ability to generate sufficient cash flow determines whether we will be able to (i) meet our existing or potential future debt service obligations; (ii) refinance our existing or potential future indebtedness; and (iii) fund our operations, working capital, acquisitions, capital expenditures, and other important business uses. Our future cash flow is subject to many factors beyond our control and we cannot assure you that our business will generate sufficient cash flow from operations, or that future sources of cash will be available to us on favorable terms, to meet all of our debt service obligations and fund our other important business uses or liquidity needs. As a result, we may be forced to take other actions to meet those obligations, such as selling properties, raising equity, or delaying capital expenditures, any of which may not be feasible or could have a material adverse effect on us. We continue to have the ability to incur debt; if we incur substantial additional debt, the higher levels of debt may affect our ability to pay the interest and principal of our debt. Despite our current consolidated debt levels, we and our subsidiaries may incur substantial additional debt in the future (subject to the restrictions contained in our debt instruments), some of which may be secured debt. The indenture governing our 2025 Notes does not restrict our ability to incur additional indebtedness, whether secured or unsecured, or require us to maintain financial ratios or specified levels of net worth or liquidity. If we incur substantial additional indebtedness in the future, these higher levels of indebtedness may affect our ability to pay the principal of, and interest on, our outstanding debt and our creditworthiness generally. Declines in the value of the assets in which we invest will adversely affect our financial condition and results of operations and make it costlier to finance these assets. Generally, we use our income property investments as collateral for our financings or as the borrowing base for our Credit Facility. Any decline in their value, a significant decrease in the rent received from the portfolio, or perceived market uncertainty about the value of our income properties, could make it difficult for us to obtain or renew financing on favorable terms or at all, or maintain our compliance with terms of any financing arrangements already in place. We have in the past and expect to continue to utilize derivative instruments to hedge risk, which may adversely affect our borrowing cost and expose us to other risks. The derivative instruments we have used in the past and expect to continue to use in the future are and could be in the form of interest rate swaps, interest rate caps and or interest rate collars. Interest rate swaps effectively change variable-rate debt obligations to fixed-rate debt obligations or fixed-rate debt obligations to variable-rate debt obligations. Interest rate caps limit our exposure to rising interest rates. Interest rate collars limit our exposure to rising interest rates while also limited our benefit from declining interest rates. Our use of derivative instruments also involves the risk that a counterparty to a hedging arrangement could default on its obligation and the risk that we may have to pay certain costs, such as transaction fees or breakage costs, if a hedging arrangement is terminated by us. To limit the risk of counterparty default, we generally seek to enter into hedging arrangements with counterparties that are large, creditworthy financial institutions typically rated at least "A/A2" by S&P and Moody's, respectively. Developing an effective strategy for dealing with alterations in interest rates is complex and any strategy aimed at managing exposures to changing interest rates would likely not be able to completely insulate us from risks associated with such fluctuations. There can be no assurance that any hedging activities will have the desired beneficial impact on our results of operations or financial condition. Increases in interest rates could have an adverse effect on our operating results. Our operating results depend in part on the difference between the income achieved from our income-producing assets and management fee income streams and the interest expense incurred in connection with our interest-bearing liabilities. Changes in the general level of interest rates prevailing in the financial markets have in the past affected and may in the future affect the spread between our income-producing assets and management fee income streams and our interest-bearing liabilities subject to the impact of interest rate floors and caps, as well as the amounts of floating rate assets and liabilities. Any significant compression of the spreads between income-producing assets and management fee income streams and interest-bearing liabilities could have a material adverse effect on us. While interest rates remain low relative to certain historical rates, rates have recently risen and are generally expected to rise in the coming years, although there is no certainty as to the amount by which they may rise. Interest rates are highly sensitive to many factors, including governmental monetary and tax policies, domestic and international economic and political conditions, inflation, labor markets, and other factors beyond our control. In the event of a rising interest rate environment, rates could create a mismatch between the income we generate from our income-producing assets and management fee income streams and the interest expense incurred on our floating rate debt that could have a significant adverse effect on our financial condition, our operating results and, our cash flows. An increase in interest rates could also, among other things, reduce the value of certain of our income-producing assets and our ability to realize gains from the sale of such assets. Our Credit Facility The Company’s Credit Facility and secured financings include certain financial and/or other covenants that could restrict our operating activities, and the failure to comply with such covenants could result in a default that accelerates the required payment of such debt. The Credit Facility contains certain financial and operating covenants, including, among other things, certain coverage ratios and limitations on our ability to incur debt and limits on the repurchase of the Company’s stock and similar restrictions. In addition, the Credit Facility contains certain covenants pertaining to maximum levels of investment in certain types of assets, the number and make-up of the properties in the borrowing base, and similar covenants typical for this type of indebtedness. The Company’s secured indebtedness generally contains covenants regarding debt service coverage ratios. The Company’s ability to meet or maintain compliance with these and other debt covenants may be dependent on the performance of the Company’s tenants under their leases. The Company’s failure to comply with certain of our debt covenants could result in a default that may, if not cured, accelerate our payment obligations under such debt and limit the Company’s available cash flow for acquisitions, dividends, or operating costs, which would likely have a material adverse impact on the Company’s financial condition, results of operations, and cash flows. In addition, these defaults could impair the Company’s access to the debt and equity markets. Our Convertible Notes Certain investors in the convertible debt issuance may also invest in our common stock utilizing trading strategies which may increase the volatility in or adversely affect the trading price and liquidity of our common stock. Investors in, and potential purchasers of, the 2025 Notes may employ, or seek to employ, a convertible arbitrage strategy with respect to the 2025 Notes. Investors that employ a convertible arbitrage strategy with respect to our convertible debt instruments typically implement that strategy by selling short the common stock underlying the 2025 Notes and dynamically adjusting their short position while they hold the 2025 Notes. Investors may also implement this strategy by entering into swaps on our common stock in lieu of or in addition to short selling our common stock. These strategies, particularly the effect short sales or equity swaps with respect to our common stock, could increase the volatility of our stock price or otherwise adversely affect the trading price of our common stock. We may not have the liquidity or ability to raise the funds necessary to settle conversions of the 2025 Notes or purchase the 2025 Notes as required upon a fundamental change, and our future debt may contain limitations on our ability to pay cash upon a purchase or conversion of the 2025 Notes. Following certain potential events qualifying as a fundamental change under the indenture governing the 2025 Notes, including a change in control, holders of 2025 Notes will have the right to require us to purchase their 2025 Notes for cash. A fundamental change may also constitute an event of default or a prepayment event under, and result in the acceleration of the maturity of, our then-existing indebtedness. In addition, upon conversion of the 2025 Notes, unless we elect to deliver solely shares of our common stock to settle such conversion (other than paying cash in lieu of delivering any fractional share), we will be required to make cash payments in respect of the 2025 Notes being converted. There is no assurance that we will have sufficient financial resources, or will be able to arrange financing, to pay the fundamental change purchase price or make cash payments upon conversion. In addition, restrictions in our then existing credit facilities or other indebtedness, if any, may not allow us to purchase the 2025 Notes upon a fundamental change or make cash payments upon conversion. Our failure to purchase the 2025 Notes upon a fundamental change or make cash payments upon conversion thereof when required would result in an event of default with respect to the 2025 Notes which could, in turn, constitute a default under the terms of our other indebtedness, if any. If the repayment of the related indebtedness were to be accelerated after any applicable notice or grace periods, we may not have sufficient funds to repay the indebtedness and purchase the 2025 Notes or make cash payments upon conversions thereof. To the extent we issue shares of our common stock to satisfy all or a portion of the settlement of our 2025 Notes, conversions of the 2025 Notes will dilute the ownership interest of our existing shareholders,stockholders, including holders who had previously converted their 2025 Notes into common stock. To the extent we issue shares of our common stock to satisfy all or a portion of our conversion obligation pursuant to the 2025 Notes, the conversion of some or all of the 2025 Notes into common stock will dilute the ownership interests of our existing shareholders.stockholders. Any sales in the public market of our common stock issuable upon such conversion could adversely affect prevailing market prices of our common stock. In addition, the existence of the 2025 Notes may encourage short selling by market participants because the conversion of the 2025 Notes could depress the price of our common stock. The fundamental change purchase feature of our 2025 Notes may delay or prevent an otherwise beneficial attempt to take over our company. The terms of the 2025 Notes require us to offer to purchase the 2025 Notes for cash in the event of a fundamental change, as defined in the indenture agreement of the 2025 Notes. A non-stock takeover of the Company may trigger the requirement that we purchase the 2025 Notes. This feature may have the effect of delaying or preventing a takeover of the Company that would otherwise be beneficial to investors. The conditional conversion feature of our Notes, if triggered, may adversely affect our financial condition and operating results.In the event the conditional conversion feature of the Notes is triggered, holders of Notes will be entitled to convert their Notes at any time during specified periods at their option. If one or more holders elect to convert their Notes, unless we satisfy our conversion obligation by delivering solely shares of our common stock (other than cash in lieu of any fractional share), we would be required to settle all or a portion of our conversion obligation through the payment of cash, which could adversely affect our liquidity. In addition, even if holders do not elect to convert their Notes, we could be required under applicable accounting rules to reclassify all or a portion of the outstanding principal of the Notes as a current rather than long-term liability, which would result in a material reduction of our net working capital.
The accounting method for our 2025 Notes, which may be settled in cash, may have a material effect on our reported financial results. Under Accounting Standards Codification (“ASC”) 470-20, Debt with Conversion and Other Options, which we refer to as ASC 470-20, an entity must separately account for the liability and equity components of the convertible debt instruments (such as the 2025 Notes) that may be settled entirely or partially in cash upon conversion in a manner that reflects the issuer’s economic interest cost. The effect of ASC 470-20 on the accounting for the 2025 Notes is that the equity component is required to be included in the additional paid-in capital section of shareholders’stockholders’ equity on our consolidated balance sheet, and the value of the equity component would be treated as original issue discount for purposes of accounting for the debt component of the 2025 Notes. As a result, we will be required to record a greater amount of non-cash interest expense in current periods presented because of the amortization of the discounted carrying value of the 2025 Notes to their face amount over the term of the 2025 Notes. We will report lower net income (or greater net loss) in our financial results because ASC 470-20 requires interest to include both the current period’s amortization of the debt discount and the instrument’s coupon interest, which could adversely affect our reported or future financial results, and/or the market price of our common stock. Convertible debt instruments (such as
Effective January 1, 2022, the Notes) that may be settled entirely or partly in cash are currently accounted for utilizingCompany adopted ASU 2020-06 whereby diluted EPS includes the treasury stock method if we have the ability and intent to settle in cash, the effect of which is that the shares issuable upon conversiondilutive impact of the 2025 Notes are not included in(hereinafter defined) using the calculation of diluted earnings per share exceptif-converted method. Upon adoption, the Company recorded a $7.0 million adjustment to reduce additional paid-in capital to eliminate the extent that the conversion value of the Notes exceeds their principal amount. Under the treasury stock method, for diluted earnings per share purposes, the transaction is accounted for as if the number of shares of common stock that would be necessary to settle such excess, if we elected to settle such excess in shares, are issued. We cannot be sure that we will be able to continue to demonstrate the ability or intent to settle in cash or that the accounting standards in the future will continue to permit the use of the treasury stock method. If we are unable to use the treasury stock method in accounting for the shares issuable upon conversion of the Notes, then our diluted earnings per share would be adversely affected. Declines in value of the assets in which we invest will adversely affect our financial condition and results of operations, and make it costlier to finance these assets. Generally, we use our income property investments as collateral for our financings or as the borrowing base for our credit facility. Any decline in their value, a significant decrease in the rent received from the portfolio, or perceived market uncertainty about their value, could make it difficult for us to obtain or renew financing on favorable terms or at all, or maintain our compliance with terms of any financing arrangements already in place.
Our operations could be negatively impacted by the loss of key management personnel. We believe our future success depends, to a significant extent, on the efforts of each member of the Company’s senior management and our ability to attract and retain key personnel. The loss of, or our inability to replace, any member of senior management could adversely affect our operations and our ability to execute our business strategies and thereby our financial condition, results of operations and cash flows. We maintain key man life insurance on our Chief Executive Officer, but we do not have key man life insurance policies on the other members of our senior management.
The Company has a single shareholder that beneficially owns approximately 28% of the Company’s outstanding common stock and exercises the related voting rights of those shares. The significance of its investment and its recent actions could have a material adverse impact on the Company’s results of operations, cash flows, the trading price of our stock, and business operations, as well as potentially impact the investment decisions of other shareholder or interested parties. Wintergreen Advisers, LLC, an institutional investment advisory firm (“Wintergreen”), manages Wintergreen Fund (NYSE: WGRNX), a public mutual fund (the “Fund”) and other investment vehicles that, based on Wintergreen’s public statements, collectively beneficially own approximately 28% of the outstanding common stock of the Company. Based on publicly available information, in the past five years, the total value of assets under management in the Fund has decreased over 50% and as a result the Fund’s ownership of our shares has become an increasingly more significantnon-cash equity component of the Fund 2025 Notes with corresponding offsets including (i) a $4.0 million cumulative effect adjustment to the opening balance of retained earnings
and may be(ii) a $3.0 million adjustment to eliminate the largest holdingnon-cash portion of the Fund. Basedconvertible notes discount, net of accumulated amortization (the “2025 Notes Adjustment”). The 2025 Notes Adjustment was made on the average daily trading volume of our shares, Wintergreen would be unable to dispose of its shares within a reasonable time, even if its sales constituted the entire trading volume each day. This limits Wintergreen’s liquidity in its shares of the Company. Compliance with certain new regulatory requirements that will require disclosure of ownershipJanuary 1, 2022, and valuation of illiquid stocks may lead the Fund to liquidate some of the shares it ownsis reflected in the Company. Any significant liquidationaccompanying consolidated statements of shares by Wintergreen, depending upon the number of shares soldstockholders’ equity. Risks Associated with Certain Events, Environmental Issues and, the manner in which those shares are liquidated, could have an adverse impact on our stock price. The circumstances outlined above, which could lead the Fund to choose to liquidate, or be required to liquidate, some or all of its investment in the Company’s shares, could potentially impact the investment decisions and related activity of existing shareholders or other interested parties, which could adversely impact the trading price of the Company’s stock. Further, beginning in the fourth quarter of 2015 and continuing through the present, the Company has received communications from Wintergreen, and Wintergreen has made public statements which have led and will likely lead to the Company having to incur costs for financial advisory services, legal representation, accounting services, proxy advisory services and other third-party costs to address any proposals, claims, allegations or other matters contained in these communications and statements or because of other actions taken by Wintergreen. Included in Wintergreen’s activities have been a contested director election and related solicitation of proxies in conjunction with our 2017 annual shareholder meeting, in which Wintergreen sought to have four director candidates elected to our board of directors which, given the size of our board, would have given Wintergreen control of the Company. The aforementioned costs include those incurred by the Company to engage in the proxy contest last year. Such costs, while not reasonably estimable, may represent significant costs for the Company which would have an adverse impact on the Company’s financial condition, results of operations and cash flows. Climate Change The Company has several shareholders that beneficially own more than 5% of the Company’s outstanding common stock and exercise the related voting rights of those shares. Actions by these shareholders, including trading activity, could have a material adverse impact on the trading price of our stock. Certain of our shareholders, specifically several institutional investment funds, including Wintergreen, each beneficially own more than 5% of the outstanding common stock of the Company. The daily trading activity in our stock is substantially lower, on average, than the total amount of shares owned by these shareholders. Any substantial trading activity executed by these large shareholders could have an adverse impact on the trading price of the Company’s stock which may impact our ability to raise capital through equity financing, which may adversely impact our ability to execute our business plan.
Our operations and properties could be adversely affected in the event of a hurricane, earthquake, natural disaster,disasters, pandemics, or other significant disruption.disruptions. Our corporate headquarters and many of our properties are located in Florida, where major hurricanes have occurred. We have income properties in California where earthquakes have occurred. We have income properties in other states or regions that experience similar or other natural disasters. Depending on where any hurricane makes landfall, our properties in Florida could experience significant damage. Similarly, should an earthquake occur in California, our properties there could incur significant damage. In addition, the occurrence and frequency of hurricanes in Florida could also negatively impact demand for our real estate assets because of consumer perceptions of hurricane risks. In addition to hurricanes, the occurrence of other natural disasters and climate conditions in Florida and other states, such as tornadoes, floods, fires, unusually heavy or prolonged rain, droughts, and heat waves, could have an adverse effect on our ability to develop properties or realize income from our properties. In addition to the various forms of natural disasters that could impact our operations and the performance of our income producing assets, pandemics occurring throughout the world could lead to disruptions in the global economy or significant economies throughout the world which could adversely impact our tenant’s operations, their ability to pay rent and consequently our financial condition, results of operations and cash flows may be adversely impacted. If a hurricane, earthquake, natural disaster, health pandemic or other similar significant disruption occurs, we may experience disruptions to our operations and damage to our properties, which could have an adverse effect on our business, our financing condition, our results of operations, and our cash flows. Uninsured losses may adversely affect the Company’s ability to pay outstanding indebtedness. The Company’s income-producing properties are generally covered by comprehensive liability, fire, and extended insurance coverage, typically paid by the tenant under the triple-net and double-net lease structure. The Company’s golf operations and assets are similarly covered by the aforementioned insurance coverages. The Company believes that the insurance carried on our properties and golf assets is adequate and in accordance with industry standards. There are, however, types of losses (such as from hurricanes, earthquakes, floods or other types of natural disasters, or wars, terrorism, or other acts of violence) which may be uninsurable or the cost of insuring against these losses may not be economically justifiable. If an uninsured loss occurs or a loss exceeds policy limits, the Company could lose both its invested capital and anticipated revenues from the property, thereby reducing the Company’s cash flow, impairing the value of the income property or golf assets and adversely impacting the Company’s financial condition and results of operations.
Acts of violence, terrorist attacks or war may affect the markets in which the Company operates and adversely affect the Company’s results of operations and cash flows. Terrorist attacks or other acts of violence may negatively affect the Company’s operations. There can be no assurance that there will not be terrorist attacks against businesses within the United States. These attacks may directly impact the Company’s physical assets or business operations or the financial condition of its tenants, lenders or other institutions with which the Company has a relationship. The United States may be engaged in armed conflict, which could have an impact on these parties. The consequences of armed conflict are unpredictable, and the Company may not be able to foresee events that could have an adverse effect on its business. More generally, the occurrence of any of these events or the threat of these events, could cause consumer confidence and spending to decrease or result in increased volatility in the United States and worldwide financial markets and economies. They also could result in or cause an economic recession in the United States or abroad. Any of these occurrences could have an adverse impact on the Company’s financial condition, results of operations or cash flows. We may encounter environmental problems which require remediation or the incurrence of significant costs to resolve, which could adversely impact our financial condition, results of operations, and cash flows. Under various federal, state and local laws, ordinances and regulations, we may be required to investigate and clean up certain hazardous or toxic substances released on or in properties we own or operate or that we previously owned or operated, and we may be required to pay other costs relating to hazardous or toxic substances or incur costs or obligations associated with wetland areas on our land holdings. Any such liability may be imposed without regard to whether the Company’s management had knowledge, were notified or were otherwise aware of the origination of the environmental or wetland issues or were responsible for their occurrence. The presence of environmental issues or the failure to remediate properly any such losses at any of our properties may adversely affect our ability to sell or lease those properties, or to borrow using those properties as collateral. The costs or liabilities could exceed the value of the affected real estate. The costs or liabilities associated with resolving environmental issues could be significant. The uses of any of our income properties prior to our acquisition, and the building materials used in the construction of the property are among the property-specific factors that will affect how the environmental laws are applied to our properties. In general, before we acquire our income properties, independent environmental consultants are engaged to conduct Phase I environmental assessments, which generally do not involve invasive techniques such as soil or groundwater sampling. Depending on the Phase I results, we may elect to obtain Phase II environmental assessments which do involve this type of sampling. There can be no assurance that environmental liabilities have not developed since these environmental assessments were performed or that future uses or conditions (including changes in applicable environmental laws and regulations) or new information about previously unidentified historical conditions will not result in the imposition of environmental liabilities. If we are subject to any material costs or liabilities associated with environmental, our financial condition, results of operations and our cash flows could be adversely affected. We are subject to certain risks associated with investing in real estate, including potential liabilities under environmental laws and risks of loss from weather conditions, man-made or natural disasters, climate change and terrorism. Under various U.S. federal, state and local environmental laws, ordinances and regulations, a current or previous owner of real estate (including, in certain circumstances, a secured lender that succeeds to ownership or control of a property) may become liable for the costs of removal or remediation of certain hazardous or toxic substances at, on, under or in its property. Those laws typically impose cleanup responsibility and liability without regard to whether the owner or control party knew of or was responsible for the release or presence of such hazardous or toxic substances. The costs of investigation, remediation or removal of those substances may be substantial. The owner or control party of a site may be subject to common law claims by third parties based on damages and costs resulting from environmental contamination emanating from a site. Certain environmental laws also impose liability in connection with the handling of or exposure to asbestos-containing materials, pursuant to which third parties may seek recovery from owners of real properties for personal injuries associated with asbestos-containing materials. While a secured lender is not likely to be subject to these forms of environmental liability, when we foreclose on real property, we become an owner and are subject to the risks of environmental liability. Additionally, our net lease assets require our tenants to undertake the obligation for environmental compliance and indemnify us from liability with respect thereto. There can be no assurance that our tenants will have sufficient resources to satisfy their obligations to us. Weather conditions and man-made or natural disasters such as hurricanes, tornadoes, earthquakes, floods, droughts, fires and other environmental conditions can damage properties we own. Additionally, we own properties located near the coastline and the value of our properties will potentially be subject to the risks associated with long-term effects of climate change. A significant number of our properties are located in major urban areas which, in recent years, have been high risk geographical areas for terrorism and threats of terrorism. Certain forms of terrorism including, but not limited to, nuclear, biological and chemical terrorism, political risks, environmental hazards and/or Acts of God may be deemed to fall completely outside the general coverage limits of our insurance policies or may be uninsurable or cost prohibitive to justify insuring against. Furthermore, if the U.S. Terrorism Risk Insurance Program Reauthorization Act is repealed or not extended or renewed upon its expiration, the cost for terrorism insurance coverage may increase and/or the terms, conditions, exclusions, retentions, limits and sub-limits of such insurance may be materially amended, and may effectively decrease the scope and availability of such insurance to the point where it is effectively unavailable. Future weather conditions, man-made or natural disasters, effects of climate change or acts of terrorism could adversely impact the demand for, and value of, our assets and could also directly impact the value of our assets through damage, destruction or loss, and could thereafter materially impact the availability or cost of insurance to protect against these events. Although we believe our owned real estate and the properties collateralizing our loan assets are adequately covered by insurance, we cannot predict at this time if we or our borrowers will be able to obtain appropriate coverage at a reasonable cost in the future, or if we will be able to continue to pass along all of the costs of insurance to our tenants. Any weather conditions, man-made or natural disasters, terrorist attack or effect of climate change, whether or not insured, could have a material adverse effect on our financial performance, liquidity and the market price of our common or preferred stock. In addition, there is a risk that one or more of our property insurers may not be able to fulfill their obligations with respect to claims payments due to a deterioration in its financial condition. The Company’s operations and financial condition may be adversely affected by climate change, including possible changes in weather patterns, weather-related events, government policy, laws, regulations, and economic conditions. In recent years, the assessment of the potential impact of climate change has begun to impact the activities of government authorities, the pattern of consumer behavior, and other areas that impact the business environment in the United States including, but not limited to, energy-efficiency measures, water use measures, and land-use practices. The promulgation of policies, laws or regulations relating to climate change by governmental authorities in the U.S. and the markets in which the Company owns real estate may require the Company to invest additional capital in our income properties. In addition, the impact of climate change on businesses to whom the Company seeks to lease its income properties is not reasonably determinable at this time. While not generally known at this time, climate change may impact weather patterns or the occurrence of significant weather events which could impact economic activity or the value of real estate in specific markets in which the Company owns its assets. The occurrence of any of these events or conditions may adversely impact the Company’s ability to lease its income properties, which would adversely impact the Company’s financial condition, results of operations, and cash flows. Risks Related to Our Organization and Structure Certain provisions of Maryland law could inhibit changes in control of our company. Certain “business combination” and “control share acquisition” provisions of the Maryland General Corporation Law, or the MGCL, may have the effect of deterring a third party from making a proposal to acquire us or of impeding a change in control under circumstances that otherwise could provide the holders of our common stock with the opportunity to realize a premium over the then-prevailing market price of our common stock. Pursuant to the MGCL, the Board has by resolution exempted business combinations between us and any other person. Our bylaws contain a provision exempting from the control share acquisition statute any and all acquisitions by any person of shares of our stock. However, there can be no assurance that these exemptions will not be amended or eliminated at any time in the future. Our charter and bylaws and Maryland law also contain other provisions that may delay, defer or prevent a transaction or a change of control that might involve a premium price for our common stock or that our stockholders otherwise believe to be in their best interest. Our charter contains stock ownership limits, which may delay, defer or prevent a change of control. In order to maintain our qualification as a REIT, no more than 50% in value of our outstanding capital stock may be owned, directly or indirectly, by five or fewer individuals during the last half of any calendar year, and at least 100 persons must beneficially own our stock during at least 335 days for each taxable year other than our initial REIT taxable year. “Individuals” for this purpose include natural persons, private foundations, some employee benefit plans and trusts and some charitable trusts. To assist us in complying with these limitations, among other purposes, our charter generally prohibits any person from directly or indirectly owning more than 9.8% in value or number of shares, whichever is more restrictive, of the outstanding shares of any class or series of our capital stock. These ownership limitations could have the effect of discouraging a takeover or other transaction in which holders of our common stock might receive a premium for their shares over the then prevailing market price or which holders might believe to be otherwise in their best interests. Our charter’s constructive ownership rules are complex and may cause the outstanding shares owned by a group of related individuals or entities to be deemed to be constructively owned by one individual or entity. As a result, the acquisition of less than these percentages of the outstanding shares by an individual or entity could cause that individual or entity to own constructively in excess of these percentages of the outstanding shares and thus violate the share ownership limits. Our charter also provides that any attempt to own or transfer shares of our common stock or preferred stock in excess of the stock ownership limits without the consent of the Board or in a manner that would cause us to be “closely held” under Section 856(h) of the Code (without regard to whether the shares are held during the last half of a taxable year) will result in the shares being automatically transferred to a trustee for a charitable trust or, if the transfer to the charitable trust is not automatically effective to prevent a violation of the share ownership limits or the restrictions on ownership and transfer of our shares, any such transfer of our shares will be null and void. Our rights and the rights of our stockholders to take action against our directors and executive officers are limited, which could limit your recourse in the event of actions not in your best interest. Our charter limits the liability of our present and former directors and executive officers to us and our stockholders for money damages to the maximum extent permitted under Maryland law. Under current Maryland law, our present and former directors and executive officers will not have any liability to us or our stockholders for money damages other than liability resulting from (i) actual receipt of an improper benefit or profit in money, property or services or (ii) active and deliberate dishonesty by the director or executive officer that was established by a final judgment and is material to the cause of action. As a result, we and our stockholders have limited rights against our present and former directors and executive officers, which could limit your recourse in the event of actions not in your best interest. Risks Related to Our Qualification and Operation as a REIT Failure to remain qualified as a REIT, would cause us to be taxed as a regular corporation, which would substantially reduce funds available for distributions to our stockholders. We believe that our organization and method of operation has enabled us to meet the requirements for qualification and taxation as a REIT commencing with our taxable year ended December 31, 2020, and we intend to continue to be organized and operate in such a manner. However, we cannot assure you that we will remain qualified as a REIT. Accordingly, no assurance can be given that our actual results of operations for any particular taxable year will satisfy such requirements. If we fail to qualify as a REIT in any taxable year, we will face serious tax consequences that will substantially reduce the funds available for distributions to our stockholders because: | ● | we would not be allowed a deduction for dividends paid to stockholders in computing our taxable income and would be subject to U.S. federal income tax at regular corporate rates; |
| ● | we could be subject to increased state and local taxes; and |
| ● | unless we are entitled to relief under certain U.S. federal income tax laws, we could not re-elect REIT status until the fifth calendar year after the year in which we failed to qualify as a REIT. |
In addition, if we fail to remain qualified as a REIT, we will no longer be required to make distributions. As a result of all these factors, our failure to remain qualified as a REIT could impair our ability to expand our business and raise capital, and it would adversely affect our business, financial condition, results of operations or ability to make distributions to our stockholders and the trading price of our common stock. Even if we remain qualified as a REIT, we may face other tax liabilities that could reduce our cash flows and negatively impact our results of operations and financial condition. Even if we remain qualified for taxation as a REIT, we may be subject to certain U.S. federal, state and local taxes on our income and assets, including taxes on any undistributed income, tax on income from some activities conducted as a result of a foreclosure and state or local income, property and transfer taxes. In addition, any partnership in which we have an interest may be liable at the entity level for tax imposed under those procedures. Further, our TRSs will be subject to regular corporate U.S. federal, state and local taxes. The TRS rules also impose a 100% excise tax on certain transactions between a TRS and its parent REIT that are not conducted on an arm’s-length basis. Any of these taxes would decrease cash available for distributions to stockholders, which, in turn, could materially adversely affect our business, financial condition, results of operations or ability to make distributions to our stockholders and the trading price of our common stock. If we failed to distribute our Pre-REIT Conversion Earnings and Profits, we could fail to qualify as a REIT. To qualify as a REIT, we must not have any non-REIT accumulated earnings and profits, as measured for U.S. federal income tax purposes, at the end of any REIT taxable year. We were treated as a C corporation prior to our first REIT year, which was our taxable year ended December 31, 2020. Thus, we were required to distribute our Pre-REIT Conversion Earnings and Profits by the end of the 2020 taxable year. While we believe that the Special Distribution satisfied the requirements relating to the distribution of our Pre-REIT Conversion Earnings and Profits, the determination of the amount of accumulated earnings and profits attributable to non-REIT years is a complex factual and legal determination. There are substantial uncertainties relating to the computation of our Pre-REIT Earnings and Profits. Information used at the time we completed our analysis may have been less than complete or we may have interpreted the applicable law differently from the IRS. In addition, the IRS could, in auditing tax years through 2019, successfully assert that our taxable income should be increased, which could increase our Pre-REIT Conversion Earnings and Profits. Thus, we could have failed to satisfy the requirement that we distribute all of our Pre-REIT Conversion Earnings and Profits by the close of our first taxable year as a REIT. Although there are procedures available to cure a failure to distribute all of our Pre-REIT Conversion Earnings and Profits, we cannot now determine whether we will be able to take advantage of them or the economic impact to us of doing so. If it is determined that we had undistributed Pre-REIT Conversion Earnings and Profits as of the end of any taxable year in which we elect to qualify as a REIT, and we are unable to cure the failure to distribute such earnings and profits, then we would fail to qualify as a REIT under the Code. Failure to make required distributions would subject us to U.S. federal corporate income tax. We intend to continue to operate in a manner so as to maintain our qualification as a REIT for U.S. federal income tax purposes. In order to maintain our qualification as a REIT, we generally are required to distribute at least 90% of our REIT taxable income, determined without regard to the dividends paid deduction and excluding any net capital gain, each year to our stockholders. To the extent that we satisfy this distribution requirement but distribute less than 100% of our REIT taxable income, we will be subject to U.S. federal corporate income tax on our undistributed taxable income. In addition, we will be subject to a 4% nondeductible excise tax if the actual amount that we pay out to our stockholders in a calendar year is less than a minimum amount specified under the Code. Complying with REIT requirements may cause us to forego otherwise attractive opportunities or liquidate otherwise attractive investments. To maintain our qualification as a REIT for U.S. federal income tax purposes, we must continually satisfy tests concerning, among other things, the sources of our income, the nature and diversification of our assets, the amounts we distribute to our stockholders and the ownership of our stock. In order to meet these tests, we may be required to forego investments we might otherwise make. Thus, compliance with the REIT requirements may hinder our performance. In particular, we must ensure that at the end of each calendar quarter, at least 75% of the value of our assets consists of cash, cash items, government securities and qualified real estate assets. The remainder of our investment in securities (other than government securities, securities of TRSs and qualified real estate assets) generally cannot include more than 10% of the outstanding voting securities of any one issuer or more than 10% of the total value of the outstanding securities of any one issuer. In addition, in general, no more than 5% of the value of our assets (other than government securities, securities of TRSs and qualified real estate assets) can consist of the securities of any one issuer, no more than 20% of the value of our total assets can be represented by the securities of one or more TRSs and no more than 25% of our assets can be represented by debt of “publicly offered REITs” (i.e., REITs that are required to file annual and periodic reports with the SEC under the Exchange Act), unless secured by real property or interests in real property. If we fail to comply with these requirements at the end of any calendar quarter, we must correct the failure within 30 days after the end of the calendar quarter or qualify for certain statutory relief provisions to avoid losing our REIT qualification and suffering adverse tax consequences. As a result, we may be required to liquidate otherwise attractive investments. These actions could have the effect of reducing our income and amounts available for distribution to our stockholders. Our relative lack of experience in operating under the constraints imposed on us as a REIT may hinder the achievement of our investment objectives. The Code imposes numerous constraints on the operations of REITs that do not apply to other investment vehicles. Our qualification as a REIT depends upon our ability to meet requirements regarding our organization and ownership, distributions of our income, the nature and diversification of our income and assets and other tests imposed by the Code. Any failure to comply could cause us to fail to satisfy the requirements associated with maintaining our REIT status. We have relatively limited experience operating under these constraints, which may hinder our ability to take advantage of attractive investment opportunities and to achieve our investment objectives. As a result, we cannot assure you that we will be able to operate our business under these constraints. If we fail to qualify as a REIT for any taxable year, we will be subject to U.S. federal income tax on our taxable income at corporate rates. In addition, we would generally be disqualified from treatment as a REIT for the four taxable years following the year of losing our REIT status. Losing our REIT status would reduce our net earnings available for investment or distribution to stockholders because of the additional tax liability. In addition, distributions to stockholders would no longer qualify for the dividends paid deduction, and we would no longer be required to make distributions. If this occurs, we might be required to borrow funds or liquidate some investments in order to pay the applicable tax. Complying with REIT requirements may limit our ability to hedge our liabilities effectively and may cause us to incur tax liabilities. The REIT provisions of the Code may limit our ability to hedge our liabilities. Any income from a hedging transaction we enter into to manage risk of interest rate changes, price changes or currency fluctuations with respect to borrowings made or to be made to acquire or carry real estate assets, if properly identified under applicable Treasury Regulations, does not constitute “gross income” for purposes of the 75% or 95% gross income tests applicable to REITs. In addition, certain income from hedging transactions entered into to hedge existing hedging positions after any portion of the hedged indebtedness or property is extinguished or disposed of will not be included in income for purposes of the 75% and 95% gross income tests. To the extent that we enter into other types of hedging transactions, the income from those transactions will likely be treated as non-qualifying income for purposes of both of the gross income tests. As a result of these rules, we may need to limit our use of advantageous hedging techniques or implement those hedges through a TRS. This could increase the cost of our hedging activities because our TRSs would be subject to tax on gains or expose us to greater risks associated with changes in interest rates than we would otherwise want to bear. In addition, losses in a TRS generally will not provide any tax benefit, except for being carried forward against future taxable income of such TRS. Our ability to provide certain services to our tenants may be limited by the REIT rules or may have to be provided through a TRS. As a REIT, we generally cannot provide services to our tenants other than those that are customarily provided by landlords, nor can we derive income from a third party that provides such services. If we forego providing such services to our tenants, we may be at a disadvantage to competitors that are not subject to the same restrictions. However, we can provide such non-customary services to tenants or share in the revenue from such services if we do so through a TRS, though income earned by such TRS will be subject to U.S. federal corporate income tax. The prohibited transactions tax may limit our ability to dispose of our properties. A REIT’s net income from prohibited transactions is subject to a 100% tax. In general, prohibited transactions are sales or other dispositions of property, other than foreclosure property, held primarily for sale to customers in the ordinary course of business. We may be subject to the prohibited transaction tax equal to 100% of net gain upon a disposition of real property. Although a safe harbor to the characterization of the sale of real property by a REIT as a prohibited transaction is available, we cannot assure you that we can comply with the safe harbor or that we will avoid owning property that may be characterized as held primarily for sale to customers in the ordinary course of business. Consequently, we may choose not to engage in certain sales of our properties, may structure dispositions as Section 1031 like-kind exchanges, or may conduct such sales through a TRS, which would be subject to U.S. federal corporate income tax. We may pay taxable dividends in our stock and cash, in which case stockholders may sell shares of our stock to pay tax on such dividends, placing downward pressure on the market price of our stock. We may satisfy the 90% distribution test with taxable distributions of our stock. The IRS has issued Revenue Procedure 2017-45 authorizing elective cash/stock dividends to be made by “publicly offered REITs.” Pursuant to Revenue Procedure 2017-45, the IRS will treat the distribution of stock pursuant to an elective cash/stock dividend as a distribution of property under Section 301 of the Code (i.e., a dividend), as long as at least 20% of the total dividend is available in cash and certain other parameters detailed in the Revenue Procedure are satisfied. With respect to any taxable dividend payable in cash and stock, taxable stockholders receiving such dividends will be required to include the full amount of the dividend as ordinary income to the extent of our current and accumulated earnings and profits, as determined for U.S. federal income tax purposes. As a result, stockholders may be required to pay income tax with respect to such dividends in excess of the cash dividends received. If a U.S. stockholder sells the stock that it receives as a dividend in order to pay this tax, the sales proceeds may be less than the amount included in income with respect to the dividend, depending on the market price of our stock at the time of the sale. Furthermore, with respect to certain non-U.S. stockholders, we may be required to withhold U.S. federal income tax with respect to such dividends, including in respect of all or a portion of such dividend that is payable in stock. If we make a taxable dividend payable in cash and our stock and a significant number of our stockholders determine to sell shares of our stock in order to pay taxes owed on dividends, it may put downward pressure on the trading price of our stock. The ability of the Board to revoke our REIT qualification without stockholder approval may cause adverse consequences to our stockholders. Our charter provides that the Board may revoke or otherwise terminate our REIT election, without the approval of our stockholders, if it determines in good faith that it is no longer in our best interest to continue to qualify as a REIT. If we cease to qualify as a REIT, we would become subject to U.S. federal income tax on our taxable income and would no longer be required to distribute most of our taxable income to our stockholders, which may have adverse consequences on our total return to our stockholders. There are limits on our ownership of TRSs and our transactions with a TRS may cause us to be subject to a 100% penalty tax on certain income or deductions if those transactions are not conducted on arm’s-length terms. Overall, no more than 20% of the value of a REIT’s assets may consist of stock or securities of one or more TRS. A TRS will be subject to applicable U.S. federal, state and local corporate income tax on its taxable income, and its after tax net income will be available for distribution to us but is not required to be distributed to us. In addition, the Code limits the deductibility of interest paid or accrued by a TRS to its parent REIT to assure that the TRS is subject to an appropriate level of corporate taxation and, in certain circumstances, other limitations on deductibility may apply. The Code also imposes a 100% excise tax on certain transactions between a TRS and its parent REIT that are not conducted on an arm’s-length basis. We will monitor the value of our respective investments in our TRSs for the purpose of ensuring compliance with TRS ownership limitations and will structure our transactions with such TRSs on terms that we believe are arm’s length to avoid incurring the 100% excise tax described above. There can be no assurance, however, that we will be able to comply with the 20% limitation or to avoid application of the 100% excise tax. If we are not successful in utilizing the Section 1031 like-kind exchange structure in deploying the proceeds from dispositions of income properties, or our Section 1031 like-kind exchange transactions are disqualified, we could incur significant taxes and our results of operations and cash flows could be adversely impacted. Although, as a REIT, we generally will not be subject to U.S. federal income tax on the taxable income that we distribute to our stockholders, we will nevertheless pay tax at the highest applicable regular U.S. federal corporate income tax rate (currently 21%) if we recognize built-in gain on the sale or disposition of any asset we held on January 1, 2020 (the first day of our first REIT year), during the five-year period after such date (the “Built-in Gains Tax”). Our strategy of investing in income-producing properties includes the utilization, when possible, of proceeds obtained from the disposition of income properties or from prior land transactions which qualify for deferral of the applicable income tax through the Section 1031 like-kind exchange provisions (“Section 1031”). Conducting Section 1031 exchanges generally will not trigger the Built-in Gains Tax. However, sales transactions that we completed in which we applied Section 1031 may be disqualified for such treatment if we are deemed to have conducted activities on the land or in connection with the transaction that are inconsistent with the activities of a long-term investor such as the activities of a developer or a dealer. In addition, if we fail to complete a qualifying acquisition utilizing the aforementioned proceeds or complete the intended qualifying acquisition outside the specified period of time allowed for completing such transaction the application of Section 1031 would be disqualified. If a transaction we deemed qualifying for Section 1031 exchange treatment is subsequently disqualified by the IRS, we may be subject to increased income taxes, including the Built-in Gains Tax, which would adversely impact our results of operations and our cash flows. In such a case, we could also possibly be subject to the 100% prohibited transactions tax applicable to REITs. If the provisions of Section 1031 were altered substantially or eliminated, our financial position, results of operations and cash flows could be adversely impacted. A fundamental element of our strategy is investing in income-producing properties, in some instances utilizing the proceeds obtained from the disposition of our income properties in tax deferred like-kind exchanges. As noted above, the use of Section 1031 will generally allow us to avoid the Built-in Gains Tax that may apply during the five-year period following our REIT conversion. If Section 1031, including the deferral of taxes on gains related to the sale of real property such as our income properties, were to be altered substantially or eliminated, we may be limited in our ability to dispose of properties and may be subject to increased income taxes, including the Built-in Gains Tax, which may have a material adverse effect on our results of operations and our cash flows. You may be restricted from acquiring or transferring certain amounts of our common stock. The stock ownership restrictions for REITs in the Code and the 9.8% share ownership limit in our charter may inhibit market activity in our capital stock and restrict our business combination opportunities. In order to maintain our qualification as a REIT, five or fewer individuals, as defined in the Code, may not own, beneficially or constructively, more than 50% in value of our issued and outstanding capital stock at any time during the last half of a taxable year. Attribution rules in the Code determine if any individual or entity beneficially or constructively owns our shares of capital stock under this requirement. Additionally, at least 100 persons must beneficially own our shares of capital stock during at least 335 days of each taxable year other than our initial REIT taxable year. To help insure that we meet these tests, our charter restricts the acquisition and ownership of shares of our capital stock. Our charter, with certain exceptions, requires our directors to take such actions as are necessary and desirable to preserve our qualification as a REIT. Unless exempted by the Board, our charter prohibits any person from beneficially or constructively owning more than 9.8% in value or number of shares, whichever is more restrictive, of the outstanding shares of any class or series of our shares of capital stock. The Board may not grant an exemption from this restriction to any person if such exemption would result in our failing to qualify as a REIT. This as well as other restrictions on transferability and ownership will not apply, however, if the Board determines in good faith that it is no longer in our best interest to continue to qualify as a REIT. Dividends payable by REITs do not qualify for the reduced tax rates available for some dividends. The maximum U.S. federal income tax rate applicable to “qualified dividend income” payable to U.S. stockholders that are taxed at individual rates is 20% (plus the 3.8% surtax on net investment income, if applicable). Dividends payable by REITs, however, generally are not eligible for the reduced rates on qualified dividend income. However, for taxable years beginning before January 1, 2026, ordinary REIT dividends constitute “qualified business income” and thus a 20% deduction is available to individual taxpayers with respect to such dividends, resulting in a 29.6% maximum U.S. federal income tax rate (plus the 3.8% surtax on net investment income, if applicable) for individual U.S. stockholders. However, to qualify for this deduction, the stockholder receiving such dividends must hold the dividend-paying REIT stock for at least 46 days (taking into account certain special holding period rules) of the 91-day period beginning 45 days before the stock becomes ex-dividend, and cannot be under an obligation to make related payments with respect to a position in substantially similar or related property. The more favorable rates applicable to regular corporate qualified dividends could cause investors who are taxed at individual rates to perceive investments in REITs to be relatively less attractive than investments in the stocks of non-REIT corporations that pay dividends, which could adversely affect the value of the shares of REITs, including our common stock. We may be subject to adverse legislative or regulatory tax changes, in each instance with potentially retroactive effect, that could reduce the market price of our common stock. At any time, the U.S. federal income tax laws governing REITs or the administrative interpretations of those laws may be amended. We cannot predict when or if any new U.S. federal income tax law, regulation or administrative interpretation, or any amendment to any existing U.S. federal income tax law, regulation or administrative interpretation, will be adopted, promulgated or become effective and any such law, regulation or interpretation may take effect retroactively. We and our stockholders could be adversely affected by any such change in the U.S. federal income tax laws, regulations or administrative interpretations which, in turn, could materially adversely affect our ability to make distributions to our stockholders and the trading price of our common stock. Risks Associated with our Common Stock The Company has several stockholders that beneficially own more than 5% of the Company’s outstanding common stock and exercise the related voting rights of those shares. Actions by these stockholders, including trading activity, could have a material adverse impact on the trading price of our stock. Certain of our stockholders, specifically several institutional investment funds, each beneficially own more than 5% of the outstanding common stock of the Company. The daily trading activity in our stock is substantially lower, on average, than the total amount of shares owned by these stockholders. Any substantial trading activity executed by these large stockholders could have an adverse impact on the trading price of the Company’s stock which may impact our ability to raise capital through equity financing, which may adversely impact our ability to execute our business plan. Other Operational Risks Our operations could be negatively impacted by the loss of key management personnel. We believe our future success depends, to a significant extent, on the efforts of each member of the Company’s senior management and our ability to attract and retain key personnel. The loss of, or our inability to replace, any member of senior management could adversely affect our operations and our ability to execute our business strategies and thereby our financial condition, results of operations and cash flows. We maintain key man life insurance on our Chief Executive Officer, but we do not have key man life insurance policies on the other members of our senior management. Uninsured losses may adversely affect the Company’s ability to pay outstanding indebtedness. The Company’s income-producing properties are generally covered by comprehensive liability, fire, and extended insurance coverage, typically paid by the tenant under the triple-net and double-net lease structure. The Company believes the insurance carried on our properties is adequate and in accordance with industry standards. There are, however, types of losses (such as from hurricanes, earthquakes, floods or other types of natural disasters, or wars, terrorism, or other acts of violence) which may be uninsurable or the cost of insuring against these losses may not be economically justifiable. If an uninsured loss occurs or a loss exceeds policy limits, the Company could lose both its invested capital and anticipated revenues from the property, thereby reducing the Company’s cash flow, impairing the value of the impacted income properties and adversely impacting the Company’s financial condition and results of operations. We are highly dependent on information systems and certain third-party technology service providers, and systems failures not related to cyber-attacks or similar external attacks could significantly disrupt our business, which may, in turn, negatively affect the market price of our securitiescommon stock and preferred stock and adversely impact our results of operations and cash flows. Our business is highly dependent on communications and information systems. Any failure or interruption of our systems or our networks could cause delays or other problems in our operations and communications. We rely heavily on our financial, accounting and other data processing systems. In addition, much of our information technology infrastructure is or may be managed by third parties and as such we also face the risk of operational failure, termination, or capacity constraints by any of these third parties with which we do business or that facilitate our business activities. It is difficult to determine what, if any, negative impact may directly result from any specific interruption or disruption of our networks or systems or any failure to maintain performance, reliability and security of our technological infrastructure, but significant events impacting our systems or networks could have a material adverse effect on our operating results and cash flows and negatively affect the market price of our securities.common stock and preferred stock. Cybersecurity risksWe are required to make a number of judgments in applying accounting policies, and cyber incidentsdifferent estimates and assumptions could adversely affectresult in changes to our financial condition and results of operations.
Material estimates that are particularly susceptible to significant change underlie our determination of the Company’s businessreserve for loan losses, which is based primarily on the estimated fair value of loan collateral, as well as the valuation of real estate assets and disrupt operations. Cyber incidents can result from deliberate attacks or unintentional events. These incidents can include, butdeferred tax assets. While we have identified those accounting policies that are not limitedconsidered critical and have procedures in place to gaining unauthorized access to digital systems for purposes of misappropriating assets or sensitive information, corrupting data, or causing operational disruption. The resultfacilitate the associated judgments, different assumptions in the application of these incidentspolicies could include, but are not limited to, disrupted operations, misstatedhave a material adverse effect on our financial data, liability for stolen assets or information, increased cybersecurity protection costs, litigation,performance and reputational damage adversely affecting customer or investor confidence. Should any such cyber incidents or similar events occur, the Company’s assets, particularly cash, could be lost and, as a result, the Company’s ability to execute its business and strategy could be impaired, thereby adversely affecting its financial condition, results of operations and cash flows.actual results may differ materially from our estimates. Changes in accounting rules will affect our financial reporting. 25The FASB has issued new accounting standards that will affect our financial reporting.
In January 2021, the FASB issued Accounting Standards Update (“ASU”) 2021-01 which is in response to concerns about structural risks of interbank offered rates (“IBORs”), and, particularly, the risk of cessation of the London Interbank Offered Rate (“LIBOR”), regulators in numerous jurisdictions around the world have undertaken reference rate reform initiatives to identify alternative reference rates that are more observable or transaction based and less susceptible to manipulation. The amendments in ASU 2021-01 are effective immediately and clarify that certain optional expedients and exceptions in Topic 848 for contract modifications and hedge accounting apply to derivatives that are affected by the discounting transition. The Company believes that its interest rate swaps, hereinafter described in Note 17, “Interest Rate Swaps”, meet the scope of Topic 848-10-15-3A and therefore, the Company will be able to continue to apply a perfectly effective assessment method for each interest rate swap by electing the corresponding optional expedient for subsequent assessments. In August 2020, the FASB issued ASU 2020-06 related to simplifying the accounting for convertible instruments by removing certain separation models for convertible instruments. Among other things, the amendments in the update also provide for improvements in the consistency in EPS calculations by amending the guidance by requiring that an entity use the if-converted method for convertible instruments. The amendments in ASU 2020-06 are effective for reporting periods beginning after December 15, 2021. Effective January 1, 2022, the Company adopted ASU 2020-06 whereby diluted EPS includes the dilutive impact, if any, of the 2025 Notes (hereinafter defined) using the if-converted method. Further, the Company elected, upon adoption, to utilize the modified retrospective approach, negating the required restatement of EPS for periods prior to adoption. Land useChanges in accounting standards could affect the comparability of our reported results with prior periods and environmental regulations could restrict, make costlier, or otherwise adversely impact our business. We are subject to a wide variety of federal, state, and local laws and regulations relating to land use, and development and permitting, and environmental compliance obligations. Any failureability to comply with these laws or regulations could result in capital or operating expenditures orfinancial covenants under our debt instruments. We may also need to change our accounting systems and processes to enable us to comply with the imposition of significant financial penalties or restrictions on our operations that could adversely affect present and future operations or our ability to sell land, and thereby, our financial condition, results of operations, and cash flows. Municipalities may restrict or place moratoriums on the availability of utilities, such as water and sewer. Additionally, development moratoriumsnew standards, which may be imposed duecostly.
For additional information regarding new accounting standards, refer to among other possibilities, inadequate traffic capacity provided by existing roadways. In some areas, municipalities may enact growth control initiatives, which will restrict the numberNote 2, “Summary of building permits available in a given year. If municipalities in which we own land take these or similar actions, acquirers of our land assets may experience delays, increasing costs, or limitationsSignificant Accounting Policies” in the abilitynotes to operatethe consolidated financial statements in those municipalities, which may have an adverse impact on our financial condition, results of operations, and cash flows.Item 8. under the heading "Recently Issued Accounting Standards.” We may encounter environmental problems which require remediation or the incurrence of significant costs to resolve which could adversely impact our financial condition, results of operations, and cash flows. Under various federal, state and local laws, ordinances and regulations, we may be required to investigate and clean up certain hazardous or toxic substances released on or in properties we own or operate or that we previously owned or operated, and may be required to pay other costs relating to hazardous or toxic substances or incur costs or obligations associated with wetland areas on our land holdings. Any such liability may be imposed without regard to whether the Company’s management had knowledge or were otherwise awareActions of the origination ofU.S. government, including the environmentalU.S. Congress, Federal Reserve, U.S. Treasury and other governmental and regulatory bodies, to stabilize or wetland issuesreform the financial markets, or were responsible for their occurrence. The presence of environmental issues ormarket responses to those actions, may not achieve the failure to remediate properly any such losses at any of our properties or on our land holdingsintended effect and may adversely affect our ability to sell or lease those properties, or to borrow using those properties as collateral. business.
The costs or liabilities could exceedU.S government, including the valueU.S. Congress, the Federal Reserve, the U.S Treasury and other governmental and regulatory bodies have increased their focus on the regulation of the affected real estate. The costsfinancial industry in recent years. New or liabilities associated with resolving environmentalmodified regulations and related regulatory guidance may have unforeseen or wetland issues could be significant. The uses of any of our income properties prior to our acquisition, and the building materials used in the construction of the property are among the property-specific factors that will affect how the environmental laws are applied to our properties. In general, before we acquire our income properties, independent environmental consultants are engaged to conduct Phase I environmental assessments, which generally do not involve invasive techniques such as soil or groundwater sampling. Dependingunintended adverse effects on the Phase I results, we may elect to obtain Phase II environmental assessments which do involve this type of sampling. There can be no assurance that environmental liabilities have not developed since these environmental assessments were performedfinancial industry. Laws, regulations or that future uses or conditions (including changes in applicable environmentalpolicies, including tax laws and regulations) or new information about previously unidentified historical conditions will not result in the impositionaccounting standards and interpretations, currently affecting us may change at any time. Regulatory authorities may also change their interpretation of environmental liabilities.
If we are subject to any material costs or liabilities associated with environmental or wetland issues,these statutes and regulations. Therefore, our financial condition, results of operations and our cash flows could be adversely affected.
The Company’s operations and financial conditionbusiness may also be adversely affected by climate change, including possiblefuture changes in weather patterns, weather-related events, government policy, laws, regulations, policies or interpretations or regulatory approaches to compliance and economic conditions. In recent years,enforcement.
Various legislative bodies have also considered altering the assessmentexisting framework governing creditors' rights and mortgage products including legislation that would result in or allow loan modifications of various sorts. Such legislation may change the potential impact of climate change has begun to impact the activities of government authorities, the pattern of consumer behavior, and other areas that impact the businessoperating environment in substantial and unpredictable ways. We cannot predict whether new legislation will be enacted, and if enacted, the United States including, but not limited to, energy-efficiency measures, water use measures, and land-use practices. The promulgation of policies, lawseffect that it or any regulations relating to climate change by governmental authorities in the U.S. and the markets in which the Company owns real estate may require the Company to invest additional capital inwould have on our income properties. In addition, the impact of climate change on businesses to whom the Company seeks to lease its income properties, or that may acquire its available land, is not reasonably determinable at this time. While not generally known at this time, climate change may impact weather patterns or the occurrence of significant weather events which could impact economic activity or the value of real estate in specific markets in which the Company owns its assets. The occurrence of any of these events or conditions may adversely impact the Company’s ability to lease its income properties or complete land transactions with potential buyers, which would adversely impact the Company’sactivities, financial condition, or results of operations, and cash flows. operations. Under the Americans with Disabilities Act of 1990, all public accommodations and commercial facilities must meet certain federal requirements related to access and use by disabled persons, compliance with which may be costly. Compliance with the ADA requirements could involve modifications to our income properties or golf operations.properties. Other federal, state and local laws may require modifications to or restrict further renovations of our income properties or golf operations.properties. Although we believe that our income properties and golf operation facilities are sufficiently in compliance with current requirements, noncompliance with the ADA or related laws or regulations could result in the imposition of governmental fines or in the award to private litigants of damages against us. Costs such as these, as well as the general costs of compliance with these laws or regulations, may adversely affect our financial condition, results of operations, and cash flows. Compliance with proposedWe cannot predict the unintended consequences and recently enacted changesmarket distortions that may stem from far-ranging governmental intervention in securitiesthe economic and financial system or from financial reform legislation.
The laws and regulations increasesgoverning our costs. The Dodd-Frank Act contains many regulatory changes and calls for future rulemaking that may affect our business. The final and complete set of regulations promulgating the Dodd-Frank Act has not yet been published. We are evaluating, and will continue to evaluate, the potential impact of regulatory change under the Dodd-Frank Act and other changes in securities laws and regulations. The market value of the Company’s securities is subject to various factors that may cause significant fluctuations or volatility. As with other publicly-traded securities, the market price of the Company’s common stock and convertible notes depends on various factors, whichoperations, as well as their interpretation, may change from time to time, and/orand new laws and regulations may be unrelatedenacted. Accordingly, any change in these laws or regulations, changes in their interpretation, or newly enacted laws or regulations and any failure by us to the Company’s financial condition,comply with these laws or regulations, could negatively impact our business, results of operations and financial condition, impose additional costs on us or cash flowsotherwise adversely affect our business.
The U.S. government, the U.S. Federal Reserve, the U.S. Treasury, the SEC and such factors may cause significant fluctuationsother governmental and regulatory bodies have taken or volatilityare taking various actions involving intervention in the market priceeconomic and financial system and regulatory reform of the Company’s securities. These factors include, but areoversight of financial markets. In 2010, former President Obama signed into law the Dodd- Frank Wall Street Reform and Consumer Protection Act (the "Dodd-Frank Act"), which has changed the regulation of financial institutions and the financial services industry. The current regulatory environment may be impacted by recent and potential future legislative developments, such as amendments to key provisions of the Dodd-Frank Act. The Biden Administration is likely not limitedto take a more active approach to banking and financial regulation than the prior Trump Administration, particularly to promote policy goals involving climate change, racial equity, ESG matters, consumer financial protection and infrastructure, which could affect our business and operations if enacted. However, with a Republican majority in the U.S. House of Representatives, we cannot predict whether the Biden Administration will be able to enact any significant legislative measures in these areas. In addition, the substance of regulatory supervision may be influenced through the appointment of individuals to the following:U.S. Federal Reserve Board and other financial regulatory bodies. With the support of a Democratic majority in the Senate, President Biden may be more likely to be able to have his nominees to such bodies confirmed and, accordingly, carry out the Administration's regulatory agenda. | ·
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| | Volume of average daily trading and the amount of the Company’s shares available to be traded.
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We cannot predict the ultimate content, timing, or effect of legislative and regulatory actions under the Biden Administration, nor is it possible at this time to estimate the impact of any such actions which could have a dramatic impact on our business, results of operations and financial condition. The Company’s failure to maintain effective internal control over financial reporting could have a material adverse effect on its business, operating results, and price of our securities. common stock and preferred stock. Section 404 of the Sarbanes-Oxley Act of 2002 (“SOX”) as amended or modified from time to time, requires annual management assessments of the effectiveness of the Company’s internal control over financial reporting. If the Company fails to maintain the adequacy of its internal control over financial reporting, the Company may not be able to ensure that it can conclude on an ongoing basis that it has effective internal control over financial reporting and therefore would likely not be in compliance with SOX. An effective system of internal controls over financial reporting, particularly those related to revenue recognition, are necessary for the Company to prepare and produce reliable financial reports and to maintain its qualification as a public company and are important in reducing the risk of financial fraud. If the Company cannot provide reliable financial reports or prevent fraud, its business and operating results could be harmed, qualification as a public company listed on the NYSE American stock exchange, could be jeopardized, investors could lose confidence in the Company’s reported financial information, and the market price of the Company’s securitiescommon stock and preferred stock could drop significantly. If we are unable to satisfy the requirements of Section 404 of the Sarbanes-Oxley Act or our internal control over financial reporting is not effective, the reliability of our financial statements may be questioned, and the market price of our common stock and preferred stock may suffer. Section 404 of the Sarbanes-Oxley Act requires any company subject to the reporting requirements of the U.S. securities laws to do a comprehensive evaluation of its and its consolidated subsidiaries’ internal control over financial reporting. The rules governing the standards that must be met for management to assess our internal control over financial reporting are complex and require significant documentation, testing and possible remediation to meet the detailed standards under the rules. During the course of its testing, our management may identify material weaknesses or deficiencies which may not be remedied in time to meet the deadline imposed by the Sarbanes-Oxley Act. If our management cannot favorably assess the effectiveness of our internal control over financial reporting or our auditors identify material weaknesses in our internal controls, investors may lose confidence in our reported financial results and the market price of our common stock and preferred stock may decline. We are subject to substantial regulation and numerous contractual obligations and internal policies, and failure to comply with these provisions could have a material adverse effect on our business, financial condition and results of operations. We are subject to substantial regulation and numerous contractual obligations and internal policies. We are subject to regulation by the SEC, the NYSE, and other federal, state and local or international governmental bodies and agencies or self-regulatory organizations. Moreover, we must comply with the REIT rules, and we are also responsible for managing or assisting with the regulatory aspects of PINE’s compliance with applicable REIT rules. The level of regulation and supervision to which we and PINE are subject varies from jurisdiction to jurisdiction and is based on the type of business activity involved. The regulations to which we and PINE are subject are extensive, complex and require substantial management time and attention. Our failure or PINE’s failure to comply with any of the regulations, contractual obligations or policies applicable to it may subject us to extensive investigations, as well as substantial penalties and reputational risk, and our business and operations could be materially adversely affected. Our lack of compliance with applicable law could result in, among other things, our inability to enforce contracts, our default under contracts (including our management agreements with PINE) and our ineligibility to contract with and receive revenue from PINE. We have numerous contractual obligations with which we must comply on a continuous basis to operate our business, the default of which could have a material adverse effect on our business and financial condition. We have established internal policies designed to ensure that we manage our business in accordance with applicable law and regulation and in accordance with our contractual obligations. These internal policies may not be effective in all regards; and, if we fail to comply with our internal policies, we could be subjected to additional risk and liability. Employee misconduct could harm us by subjecting us to significant legal liability, reputational harm and loss of business. There is a risk that our employees could engage in misconduct that adversely affects our business. We are subject to a number of obligations and standards arising from our business and our authority over PINE or the ventures we manage. The violation of these obligations and standards by any of our employees may adversely affect PINE or the ventures we manage and us. Our business often requires that we deal with confidential matters of great significance to PINE and the ventures we manage. If our employees improperly use or disclose confidential information, we and PINE or the ventures we manage could suffer serious harm to our and its reputation, financial position and current and future business relationships and face potentially significant litigation. It is not always possible to detect or deter employee misconduct, and the precautions we take to detect and prevent this activity may not be effective in all cases. If any of our employees were to engage in or be accused of misconduct, our business and our reputation could be adversely affected. Misconduct by an employee might rise to the level of a default that would permit PINE or the ventures we manage to terminate the management agreements with us for cause and without paying a termination fee, which could materially adversely affect our business, results of operations and financial condition. The Company’s ability to pay dividends in the future is subject to many factors. The Company has consistently paid a dividend since 1976. Payment of the Company’s dividend depends upon the Company’s financial condition, results of operations, and cash flows. The Company’s ability to continue to pay dividends may be adversely impacted if any of the events or conditions associated with the risks described in this section were to occur.occur. Risks Related to the COVID-19 Pandemic The COVID-19 Pandemic, and the future outbreak of other highly infectious or contagious diseases, could materially and adversely impact or disrupt our tenant’s business operations and as a result adversely impact our financial condition, results of operations, cash flows and performance. Since late December 2019, the COVID-19 Pandemic has spread globally, including every state in the United States. The COVID-19 Pandemic has had, and other future pandemics could have, repercussions across regional and global economies and financial markets. The outbreak of COVID-19 Pandemic and its variants have significantly adversely impacted global economic activity and produced significant volatility in the global financial markets. The global impact of the outbreak has rapidly evolved and, as cases of COVID-19 continued to be identified in additional countries, many countries, including the United States, have reacted by instituting quarantines, mandating business and school closures and restricting travel. Certain states and cities, including those in which we own properties, have also reacted by instituting quarantines, restrictions on travel, “shelter at home” rules, and importantly restrictions on the types of business that may continue to operate or requiring others to shut down completely. Additional states and cities may implement similar restrictions. As a result, the COVID-19 Pandemic has negatively impacted most every industry directly or indirectly. A number of our tenants have announced temporary closures of their stores and requested rent deferral, or in some instances, rent abatement while the pandemic remains. Many experts predict that the COVID-19 Pandemic will trigger, or even has already triggered, a period of global economic slowdown or possibly a global recession. The COVID-19 Pandemic, or a future pandemic, could have material and adverse effects on our ability to successfully operate our business and, as a result, our financial condition, results of operations and cash flows due to, among other factors: | ● | a complete or partial closure of, or other operational issues at, one or more of our properties resulting from government or tenant action; |
| ● | the reduced economic activity could severely impact our tenants' businesses, financial condition and liquidity and may cause one or more of our tenants to be unable to meet their obligations to us in full, or at all, or to otherwise seek modifications of such obligations; |
| ● | the reduced economic activity could result in a recession, which could negatively impact consumer discretionary spending; |
| ● | difficulty accessing debt and equity capital on attractive terms, or at all, and a severe disruption and instability in the global financial markets or deteriorations in credit and financing conditions may affect our access to capital necessary to fund business operations on a timely basis; |
| ● | a general decline in business activity and demand for real estate transactions could adversely affect our ability or desire to grow our portfolio of properties; |
| ● | a deterioration in our or our tenants’ ability to operate in affected areas or delays in the supply of products or services to us or our tenants from vendors that are needed for our or our tenants' efficient operations could adversely affect our operations and those of our tenants; and |
| ● | the potential negative impact on the health of the Company’s personnel, particularly if a significant number of them are impacted, could result in a deterioration in our ability to ensure business continuity during a disruption. |
The extent to which the COVID-19 Pandemic impacts our operations and those of our tenants will depend on future developments, which are highly uncertain and cannot be predicted with any degree of certainty, including the scope, severity, and duration of the COVID-19 Pandemic, and the impact of actions taken by governmental and health organizations to contain the COVID-19 Pandemic or mitigate its impact, and the direct and indirect economic effects of the COVID-19 Pandemic and containment measures, among others. Additional closures by our tenants of their businesses and early terminations by our tenants of their leases could reduce our cash flows, which could impact our ability to continue paying dividends to our stockholders at expected levels or at all. The rapid onset of the COVID-19 Pandemic and the continued uncertainty of its duration and long-term impact precludes any prediction of the magnitude of the adverse impact on the U.S. economy, our tenant’s businesses and ours. Consequently, the COVID-19 Pandemic presents material uncertainty and risk with respect to our business operations, and therefore our financial condition, results of operations, and cash flows. Further, many risk factors disclosed in this Annual Report on Form 10-K for the year ended December 31, 2022, should be interpreted as heightened risks as a result of the impact of the COVID-19 Pandemic. General Risk Factors Cybersecurity risks and cyber incidents could adversely affect the Company’s business and disrupt operations. Cyber incidents can result from deliberate attacks or unintentional events. These incidents can include, but are not limited to, gaining unauthorized access to digital systems for purposes of misappropriating assets or sensitive information, corrupting data, or causing operational disruption. The result of these incidents could include, but are not limited to, disrupted operations, misstated financial data, liability for stolen assets or information, increased cybersecurity protection costs, litigation, and reputational damage adversely affecting customer or investor confidence. Should any such cyber incidents or similar events occur, the Company’s assets, particularly cash, could be lost and, as a result, the Company’s ability to execute its business and strategy could be impaired, thereby adversely affecting its financial condition, results of operations, and cash flows. The market value of the Company’s common stock and preferred stock is subject to various factors that may cause significant fluctuations or volatility. As with other publicly-traded securities, the market price of the Company’s common stock, preferred stock and convertible notes depends on various factors, which may change from time to time and/or may be unrelated to the Company’s financial condition, results of operations, or cash flows and such factors may cause significant fluctuations or volatility in the market price of the Company’s common stock and preferred stock. These factors include, but are likely not limited to, the following: | ● | General economic and financial market conditions including a weak economic environment; |
| ● | Level and trend of interest rates; |
| ● | The Company’s ability to access the capital markets to raise additional debt or equity capital; |
| ● | Changes in the Company’s cash flows or results of operations; |
| ● | The Company’s financial condition and performance; |
| ● | Market perception of the Company compared to other real estate companies; |
| ● | Market perception of the real estate sector compared to other investment sectors; and |
| ● | Volume of average daily trading and the amount of the Company’s common stock and preferred stock available to be traded. |
Significant legal proceedings may adversely affect our results of operations or financial condition. We are subject to the risk of litigation, derivative claims, securities class actions, regulatory and governmental investigations and other litigation including proceedings arising from investor dissatisfaction with our operating performance. If any claims were brought against us and resulted in a finding of substantial legal liability, the finding could materially adversely affect our business, financial condition or results of operations or cause significant reputational harm to us, which could significantly adversely impact our business. Allegations of improper conduct by private litigants or regulators, regardless of veracity, may harm our reputation, and adversely impact our ability to grow our business or maintain our management of PINE or the ventures in which we have a financial interest. We are subject to risks related to corporate social responsibility. Our business faces public scrutiny related to environmental, social and governance (“ESG”) activities. We risk damage to our reputation if we fail to act responsibly in a number of areas, such as diversity and inclusion, environmental stewardship, support for local communities, corporate governance and transparency and considering ESG factors in our investment processes. Adverse incidents with respect to ESG activities could impact the cost of our operations and relationships with investors, all of which could adversely affect our business and results of operations. Additionally, new legislative or regulatory initiatives related to ESG could adversely affect our business. ITEM 1B. UNRESOLVED STAFF COMMENTS COMMENTS NONENone.
ITEM 2. PROPERTIES Our principal offices are located at 369 N. New York Avenue, Suite 201, Winter Park, Florida 32789. As of December 31, 2017,2022, the Company owns the following properties:assets: (i) land holdings of approximately 8,100 acres in the Daytona Beach area of Volusia County, Florida ; (ii) twenty-six single-tenant retail buildings8 properties occupied by single-tenants located in Arizona, California, Florida, Georgia, Maryland, Massachusetts, Nevada, North Carolina, Oregon, Texas, Virginia,New Mexico, and Washington; (iii) eleven Virginia; (ii) 15 multi-tenant properties located in California,Arizona, Florida, Georgia, Nevada, New Mexico, North Carolina, Texas, and Texas four of which were self-developed and are located in Daytona Beach, Florida; and (iv)Utah; (iii) full or fractional subsurface oil, gas, and mineral interests of approximately 462,000underlying 355,000 “surface acres” in 2019 counties in Florida.Florida; and (iv) an inventory of mitigation credits. Please refer to Item 1. “Business” for a more detailed discussion of our properties.
ITEM 3. LEGAL PROCEEDINGS PROCEEDINGS
From time to time, the Company may be a party to certain legal proceedings, incidental to the normal course of ourits business. While the outcome of the legal proceedings cannot be predicted with certainty, the Company does not expect that these proceedings will have a material effect upon our financial condition or results of operations. On November 21, 2011, the Company, Indigo Mallard Creek LLC See Note 22, “Commitments and Indigo Development LLC, as owners of the property leased to Harris Teeter, Inc. (“Harris Teeter”) in Charlotte, North Carolina, were served with pleadings filedContingencies” in the General Court of Justice, Superior Court Division for Mecklenburg County, North Carolina, for a highway condemnation action involving this property. The proposed road modifications would impact accessnotes to the property. The Company does not believe the road modifications provided a basisconsolidated financial statements in Item 8 for Harris Teeter to terminate its lease. Regardless, in January 2013, the North Carolina Department of Transportation (“NCDOT”) proposed to redesign the road modifications to keep the all access intersection open for ingress with no changeadditional disclosure related to the planned limitation on egress to the right-in/right-out only. Additionally, NCDOT and the City of Charlotte proposed to build and maintain a new access road/point into the property. Construction has begun and is not expected to be completed before mid-2018 to 2019. Harris Teeter has expressed satisfaction with the redesigned project and indicated that it will not attempt to terminate its lease if this project is built as currently redesigned. Because the redesigned project will not be completed until mid-2018 to 2019, the condemnation case has been placed in administrative closure. As a result, the trial and mediation will not likely be scheduled until requested by the parties, most likely in 2019.Company’s legal proceedings.
ITEM 4. MINE SAFETY DISCLOSURES DISCLOSURES
Not applicableapplicable. PART II II
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY,EQUITY, RELATED STOCKHOLDER MATTERS, AND ISSUER REPURCHASES OF EQUITY SECURITIES
COMMON STOCK PRICES AND DIVIDENDS The Company’s common stock trades on the NYSE American stock exchange under the symbol CTO.“CTO”. The Company has paid dividends on a continuous basis since 1976, the year in which its initial dividends were paid. The following table summarizes aggregateAggregate annual dividends per common share, which were paid semi-annually prior to June 30, 2016quarterly totaled $1.49 and quarterly thereafter, per share$1.33 during the years ended December 31, 20162022 and 2017:2021, respectively. The level of future dividends will be subject to an ongoing review of the Company’s operating results and financial position, the annual distribution requirements under the REIT provisions of the Codeand, among other factors, the overall economy, with an emphasis on our local real estate market and our capital needs. Indicated below are high and low sales prices41
| | | | | | | | | | | | 2017 | | 2016 | | | | High | | Low | | High | | Low | | | | $ | | $ | | $ | | $ | | First Quarter | | 56.49 | | 49.73 | | 53.00 | | 42.53 | | Second Quarter | | 57.90 | | 50.51 | | 50.41 | | 44.48 | | Third Quarter | | 61.58 | | 51.02 | | 53.00 | | 46.24 | | Fourth Quarter | | 64.31 | | 55.65 | | 55.80 | | 48.65 | |
The number of shareholdersstockholders of record as of February 15, 201817, 2023 (without regard to shares held in nominee or street name) was 335.458. Many of the Company’s shares of common stock are held by brokers and institutions on behalf of stockholders, the Company is unable to estimate the total number of stockholders represented by these record holders. Recent Sales of Unregistered Securities There were no unregistered sales of equity securities during the year ended December 31, 20172022 which were not previously reported. The following share repurchases were made during the year ended December 31, 2017:
| | | | | | | | | | | | | | Total Number
of Shares
Purchased | | Average Price
Paid per Share | | Total Number of Shares Purchased as a Part of Publicly Announced Plans or Programs | | Maximum Number (or
Approximate Dollar
Value) of Shares that
May Yet be Purchased
Under the Plans or
Programs | | 1/1/2017 - 1/31/2017 | | 2,062 | | $ | 53.00 | | 2,062 | | $ | 2,487,759 | | 2/1/2017 - 2/28/2017 | | 4,847 | | | 53.71 | | 4,847 | | | 2,227,447 | | 3/1/2017 - 3/31/2017 | | 49,334 | | | 51.85 | | 49,334 | | | 9,669,489 | (1) | 4/1/2017 - 4/30/2017 | | 18,305 | | | 53.90 | | 18,305 | | | 8,682,860 | | 5/1/2017 - 5/31/2017 | | 25,262 | | | 54.13 | | 25,262 | | | 7,315,342 | | 6/1/2017 - 6/30/2017 | | 4,288 | | | 53.93 | | 4,288 | | | 7,084,085 | | 7/1/2017 - 7/31/2017 | | 2,500 | | | 54.50 | | 2,500 | | | 6,947,835 | | 8/1/2017 - 8/31/2017 | | 22,050 | | | 54.07 | | 22,050 | | | 5,755,646 | | 9/1/2017 - 9/30/2017 | | 5,401 | | | 54.64 | | 5,401 | | | 5,460,550 | | 10/1/2017 - 10/31/2017 | | 1,280 | | | 57.00 | | 1,280 | | | 5,387,591 | | 11/1/2017 - 11/30/2017 | | — | | | — | | — | | | 5,387,591 | | 12/1/2017 - 12/31/2017 | | — | | | — | | — | | | 5,387,591 | | Total | | 135,329 | | $ | 53.27 | | 135,329 | | $ | 5,387,591 | |
Issuer Purchases of Equity Securities STOCK PERFORMANCE GRAPH COMPARISON OF 5-YEAR CUMULATIVE TOTAL RETURN* Among Consolidated-Tomoka Land Co.CTO Realty Growth, Inc., the Russell 2000 Index, the FTSE Nareit Equity REITs Index, the NYSE American Composite Index, and athe 2022 Peer Group The following performance graph shows a comparison of cumulative total shareholderstockholder return from a $100 investment in stock of the Company over the five-year period ending December 31, 2017,2022, with the cumulative shareholderstockholder return of the following: (i) the Russell 2000 Index; (ii) the FTSE Nareit Equity REITs Index; (iii) the NYSE American Composite Index, a real estate industry index provided by Research Data Group; (ii) a peer groupand (iv) an index of companies that consistsselected issuers in our Peer Group (composed of Armada Hoffler Properties, Inc., Acadia Realty Trust, Agree Realty CedarCorporation, Chatham Lodging Trust, Clipper Realty Trust, Farmland Partners, First Potomac, Forestar Group Inc., Griffin Industrial Realty, HomeFed Corporation, J.W. Mays, One Liberty Properties, Preferred Apartment Communities, Stratus Properties Inc., Tejon Ranch Company, The St. Joe Company, Urstadt Biddle Properties, and Whitestone Reit (collectively the “2017 Peer Group”); and (iii) a peer group of companies that consist of Alico Inc., Forestar GroupFour Corners Property Trust, Inc., Getty Realty Corp., Gramercy Property Trust Inc., Resource CapitalNetSTREIT Corp., StratusOne Liberty Properties Inc., Tejon Ranch Company, The New Home CompanyPlymouth Industrial REIT Inc., The St. Joe Company,RPT Realty, Seritage Growth Properties, and Whitestone Reit (collectivelyREIT (the “Peer Group”)). Monmouth Real Estate Investment Corp. was removed from the “2016 Peer Group”). The Company adjusted its peer group in 2017, and therefore the performance graph disclosures, because the Company believes the 2017 Peer Group better reflects a mix of public companies that is reasonably comparabledue to the businesses of the Company, including the investment in and operation of income-producing properties, real estate operations including land management, and Subsurface Interests. its acquisition by Industrial Logistics 
| | | | | | | | | | | | | | | 12/12 | | 12/13 | | 12/14 | | 12/15 | | 12/16 | | 12/17 | Consolidated-Tomoka Land Co. | | 100.00 | | 117.22 | | 180.51 | | 170.77 | | 173.49 | | 206.90 | NYSE American | | 100.00 | | 105.45 | | 106.98 | | 77.09 | | 92.66 | | 94.77 | 2016 Peer Group | | 100.00 | | 104.55 | | 97.23 | | 85.58 | | 95.17 | | 101.84 | 2017 Peer Group | | 100.00 | | 106.15 | | 107.14 | | 100.60 | | 120.14 | | 129.89 |
ISSUER REPURCHASES OF EQUITY SECURITIES
In the fourth quarter of 2015, the Company announced a $10 million stock repurchase program (the “$10 Million Repurchase Program”). As of March 29, 2017, the $10 Million Repurchase Program had been completed. In the first quarter of 2017, the Company announced a new $10 million stock repurchase program (the “New $10 Million Repurchase Program”) under which approximately $4.6 million of the Company’s common stock had been repurchased as of December 31, 2017. In the aggregate, during the year ended December 31, 2017, under both programs, the Company repurchased 135,329 shares of its common stock on the open market for a total cost of approximately $7.2 million, or an average price per share of $53.27, and placed those shares in treasury.
ITEM 6. SELECTED FINANCIAL DATA [Reserved]
The following table summarizes our selected historical financial information for each of the last five fiscal years. The selected financial information has been derived from our audited Consolidated Financial Statements. Additional data for fiscal years 2017, 2016, and 2015 is included elsewhere in this report.
The following selected financial data should be read in conjunction with the Company’s Consolidated Financial Statements and Notes along with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included elsewhere in this report.
| | | | | | | | | | | | | | | | | | | | Fiscal Years Ended | | | | 2017 | | 2016 | | 2015 | | 2014 | | 2013 | | | | | (In thousands except per share amounts) | | Summary of Operations: | | | | | | | | | | | | | | | | | Total Revenues | | $ | 91,412 | | $ | 71,075 | | $ | 42,998 | | $ | 36,057 | | $ | 26,070 | | Total Direct Cost of Revenues | | | (30,452) | | | (25,840) | | | (13,768) | | | (12,537) | | | (10,855) | | General and Administrative | | | (10,253) | | | (10,298) | | | (8,754) | | | (7,017) | | | (5,434) | | Impairment Charges | | | — | | | (2,181) | | | (510) | | | (421) | | | (616) | | Depreciation and Amortization | | | (12,664) | | | (8,195) | | | (5,213) | | | (3,490) | | | (2,886) | | Gain on Disposition of Assets | | | — | | | 12,759 | | | 5,517 | | | 1 | | | — | | Land Lease Income | | | 2,226 | | | — | | | — | | | — | | | — | | Operating Income | | | 40,269 | | | 37,320 | | | 20,270 | | | 12,593 | | | 6,279 | | Interest Expense, Net of Investment Income | | | (8,485) | | | (9,284) | | | (6,712) | | | (2,378) | | | (1,826) | | Loss on Early Extinguishment of Debt | | | — | | | — | | | — | | | — | | | — | | Income Tax Benefit (Expense) | | | 9,935 | | | (11,837) | | | (5,269) | | | (3,831) | | | (1,891) | | Income from Continuing Operations | | | 41,719 | | | 16,199 | | | 8,289 | | | 6,384 | | | 2,562 | | Income from Discontinued Operations, Net of Tax | | | — | | | — | | | — | | | — | | | 1,121 | | Net Income | | | 41,719 | | | 16,199 | | | 8,289 | | | 6,384 | | | 3,683 | | Less: Net Loss Attributable to Noncontrolling Interest in Consolidated VIE | | | — | | | 52 | | | 58 | | | — | | | — | | Net Income Attributable to Consolidated-Tomoka Land Co. | | $ | 41,719 | | $ | 16,251 | | $ | 8,347 | | $ | 6,384 | | $ | 3,683 | | Basic Earnings Per Share: | | | | | | | | | | | | | | | | | Income from Continuing Operations | | $ | 7.53 | | $ | 2.86 | | $ | 1.44 | | $ | 1.11 | | $ | 0.44 | | Income from Discontinued Operations, Net of Tax | | | — | | | — | | | — | | | — | | | 0.20 | | Net Income | | $ | 7.53 | | $ | 2.86 | | $ | 1.44 | | $ | 1.11 | | $ | 0.64 | | Diluted Earnings Per Share: | | | | | | | | | | | | | | | | | Income from Continuing Operations | | $ | 7.48 | | $ | 2.85 | | $ | 1.43 | | $ | 1.10 | | $ | 0.44 | | Income from Discontinued Operations, Net of Tax | | | — | | | — | | | — | | | — | | | 0.20 | | Net Income | | $ | 7.48 | | $ | 2.85 | | $ | 1.43 | | $ | 1.10 | | $ | 0.64 | | Dividends Paid Per Share | | $ | 0.18 | | $ | 0.12 | | $ | 0.08 | | $ | 0.07 | | $ | 0.06 | | Summary of Financial Position: | | | | | | | | | | | | | | | | | Property, Plant, and Equipment - Net | | $ | 347,688 | | $ | 267,611 | | $ | 257,256 | | $ | 180,789 | | $ | 147,139 | | Total Assets | | $ | 466,130 | | $ | 408,623 | | $ | 404,354 | | $ | 275,231 | | $ | 225,325 | | Shareholders’ Equity | | $ | 184,178 | | $ | 148,276 | | $ | 134,781 | | $ | 128,405 | | $ | 120,169 | | Long-Term Debt | | $ | 195,816 | | $ | 166,245 | | $ | 166,797 | | $ | 102,579 | | $ | 62,368 | |
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSISANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OVERVIEW
Forward-Looking Statements When the Company uses any words such as “anticipate,” “assume,” “believe,” “estimate,” “expect,” “intend,” or similar expressions, the Company is making forward-looking statements. Although management believes that the expectations reflected in such forward-looking statements are based upon current expectations and reasonable assumptions, the Company’s actual results could differ materially from those set forth in the forward-looking statements. Certain factors or risks that could cause actual results or events to differ materially from those the Company anticipates or projects are described in “Item 1A. Risk Factors” of this Annual Report on Form 10-K. Given these uncertainties, readers are cautioned not to place undue reliance on such statements, which speak only as of the date of this Annual Report on Form 10-K or any document incorporated herein by reference. The Company undertakes no obligation to publicly release any revisions to these forward-looking statements that may be made to reflect events or circumstances after the date of this Annual Report on Form 10-K. OVERVIEWOur Business
We are a diversified real estate operating company. publicly traded, self-managed equity REIT that focuses on the ownership, management, and repositioning of high-quality retail and mixed-use properties located primarily in what we believe to be faster growing, business-friendly markets exhibiting accommodative business tax policies, outsized relative job and population growth, and where retail demand exceeds supply. We have pursued our investment strategy by investing primarily through fee simple ownership of our properties, commercial loans and preferred equity. We own and manage, thirty-sevensometimes utilizing third-party property management companies, 23 commercial real estate properties in twelve9 states in the United States. As of December 31, 2017,2022, we owned twenty-six8 single-tenant and eleven15 multi-tenant income-producing properties with over 2.1comprising 3.7 million square feet of gross leasable space. We also own and manage a In addition to our income property portfolio, of undeveloped land totaling approximately 8,100 acres in the City of Daytona Beach, Florida (the “City”). As of December 31, 2017, we had two commercial loan investments including a variable-rate B-Note representing a secondary tranche in a commercial mortgage loan and a fixed-rate first mortgage loan. We have golf operations which consist of the LPGA International Golf Club, which is managed by a third party. We also lease some of our land for nineteen billboards, have agricultural operations that are managed by a third party, which consist of leasing land for hay production, timber harvesting, and hunting leases, and own and manage Subsurface Interests (hereinafter defined). The results of our agricultural and subsurface leasing operations are included in Agriculture and Other Income and Real Estate Operations, respectively, in our consolidated statements of operations. Subsequent to December 31, 2017, and prior to the date of this report, the Company completed two self-developed single-tenant net lease restaurant properties on a 6-acre beachfront parcel in Daytona Beach, Florida and acquired a newly constructed commercial building located in Aspen, Colorado under a twenty-year master lease to a single tenant, bringing the number of single-tenant and total income properties to 29 and 40, respectively.
Income Property Operations. We have pursued a strategy of investing in income-producing properties, when possible, by utilizing the proceeds from real estate transactions, including land sales, transactions involving our subsurface interests, and the disposition of other income properties, qualifying for income tax deferral through like-kind exchange treatment for tax purposes.
Our strategy for investing in income-producing properties is focused on factors including, but not limited to, long-term real estate fundamentals and target markets, including major markets or those markets experiencing significant economic growth. We employ a methodology for evaluating targeted investments in income-producing properties which includes an evaluation of: (i) the attributes of the real estate (e.g. location, market demographics, comparable properties in the market, etc.); (ii) an evaluation of the existing tenant (e.g. credit-worthiness, property level sales, tenant rent levels compared to the market, etc.); (iii) other market-specific conditions (e.g. tenant industry, job and population growth in the market, local economy, etc.); and (iv) considerations relating to the Company's business and strategy (e.g. strategic fit of the asset type, property management needs, alignment with the Company's 1031 like-kind exchange structure, etc.).
During the year ended December 31, 2017, the Company acquired six income properties (four single-tenant income properties and two multi-tenant income properties) for an aggregate purchase price of approximately $79.8 million as described below:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Tenant Description | | Tenant Type | | Property Location | | Date of Acquisition | | Property Square-Feet | | Property Acres | | Purchase Price | | Percentage Leased | | Remaining Lease Term (in years) | Staples, Inc. (an affiliate of) | | Single-Tenant | | Sarasota, Florida | | 01/27/17 | | 18,120 | | 1.2 | | $ | 4,075,000 | | | 100% | | | 5.0 | Grocery-Anchored Shopping Center (Westcliff) | | Multi-Tenant | | Fort Worth, Texas | | 03/01/17 | | 136,185 | | 10.3 | | | 15,000,000 | | | 96% | | | 4.1 | JoAnn Stores, Inc. | | Single-Tenant | | Saugus, Massachusetts | | 04/06/17 | | 22,500 | | 2.6 | | | 6,315,000 | | | 100% | | | 11.8 | LA Fitness
Multi-Tenant Retail Building | | Single-Tenant
Multi-Tenant | | Brandon, Florida | | 04/28/17 | | 45,000
6,715 | | 5.3 | | | 14,650,000 | | | 100% | | | 13.9 | Wells Fargo Bank, N.A. | | Single-Tenant | | Hillsboro, Oregon | | 10/27/17 | | 211,863 | | 18.9 | | | 39,750,000 | | | 100% | | | 8.2 | | | | | | | | | 440,383 | | | | $ | 79,790,000 | | | | | | 8.9 |
Additionally, on April 7, 2017, rent commenced on the 15-year lease with 24 Hour Fitness, the anchor tenant at The Grove at Winter Park located in Winter Park, Florida. The lease is for approximately 40,000 square feet, or 36% of the 112,000 square foot multi-tenant retail center. As of December 31, 2017, the multi-tenant retail center was approximately 63% leased with eleven different tenants including 24 Hour Fitness.
Our current portfolio of twenty-six single-tenant income properties generates approximately $18.8 million of revenues from lease payments on an annualized basis and has a weighted average remaining lease term of 9.2 years as of December 31, 2017. Our current portfolio of eleven multi-tenant properties generates approximately $9.9 million of revenue from lease payments on an annualized basis2022, our business included the following:
Management Services: | ● | A fee-based management business that is engaged in managing PINE, see Note 5, “Related Party Management Services Business” in the notes to the consolidated financial statements in Item 8. |
Commercial Loans and has a weighted average remaining lease term of 4.0 years as of December 31, 2017.Investments: We expect to continue to focus on acquiring income-producing properties during fiscal year 2018, and in the near term thereafter, maintaining our use of the aforementioned tax deferral structure whenever possible.
| ● | A portfolio of three commercial loan investments and one preferred equity investment which is classified as a commercial loan investment. |
As part of our overall strategy for investing in income-producing investments, we have self-developed five of our multi-tenant properties, all of which are located in Daytona Beach, Florida, four of which we still own as of December 31, 2017. The first self-developed property, located at the northeast corner of LPGA and Williamson Boulevards in Daytona Beach, Florida, is an approximately 22,000 square foot, two-story, building, known as the Concierge Office Building, which was approximately 91% leased as of December 31, 2017. The second two properties, known as the Mason Commerce Center, consists of two buildings totaling approximately 31,000 square-feet (15,360 each), which were 100% leased as of December 31, 2017. During the year ended December 31, 2014, construction was completed on two additional properties, known as the Williamson Business Park, which are adjacent to the Mason Commerce Center. One of the two 15,360 square-foot Williamson Business Park buildings was sold in April 2016. The remaining Williamson Business Park building was approximately 50% leased and 100% occupied as of December 31, 2017 as the Company now occupies the remaining 50% of the property as its new corporate office.
We also self-developed two single-tenant net lease restaurant properties on a 6-acre beachfront parcel in Daytona Beach, Florida. The development was completed in January of 2018; therefore, during the first quarter of 2018, we will add these two properties to our income property portfolio. On a limited basis, we may continue to selectively acquire other real estate, either vacant land or land with existing structures that we would demolish and develop into additional income properties, possibly in the downtown and beachside areas of Daytona Beach, Florida. Specifically, our investments in the Daytona Beach area would target opportunistic acquisitions of select catalyst sites, which are typically distressed, with an objective of having short investment horizons. Should we pursue such acquisitions, we may seek to partner with developers to develop these sites rather than self-develop the properties.
Our focus on acquiring income-producing investments includes a continual review of our existing income property portfolio to identify opportunities to recycle our capital through the sale of income properties based on, among other possible factors, the current or expected performance of the property and favorable market conditions. No income-producing properties were disposed of during the year ended December 31, 2017.
Real Estate Operations. AsOperations: | ● | A portfolio of subsurface mineral interests associated with approximately 355,000 surface acres in 19 counties in the State of Florida (“Subsurface Interests”); and |
| ● | An inventory of mitigation credits as well as mitigation credits to be produced by the Company’s formerly owned mitigation bank. |
On December 31, 2017,10, 2021, the Company ownedentity that held approximately 8,1001,600 acres of undeveloped land in Daytona Beach, Florida along six miles of the west and east sides of Interstate 95. Currently, the majority of this land is used for agricultural purposes. As of February 28, 2018, approximately 75% of this acreage, or approximately 6,042 acres, is under contract to be sold. Approximately 1,100 acres of our land holdings are located on the east side of Interstate 95 and are generally well suited for commercial development. Approximately 7,000 acres of our land holdings are located on the west side of Interstate 95 and the majority of this land is generally well suited for residential development. Included in the western land is approximately 1,100 acres, primarily an 850-acre parcel and three smaller parcels, which are located further west of Interstate 95 and a few miles north of Interstate 4 that is generally well suited for industrial purposes.
Real estate operations revenue consisted of the following for the years ended December 31, 2017, 2016, and 2015, respectively:
| | | | | | | | | | | | | 2017 | | 2016 | | 2015 | | Revenue Description | | ($000's) | | ($000's) | | ($000's) | | Land Sales Revenue | | $ | 45,472 | | $ | 11,871 | | $ | 4,276 | | Tomoka Town Center - Percentage of Completion Revenue | | | — | | | 17,490 | | | 8,128 | | Revenue from Reimbursement of Infrastructure Costs | | | 1,860 | | | 4,500 | | | — | | Impact Fee and Mitigation Credit Sales | | | 2,126 | | | 2,220 | | | 463 | | Subsurface Revenue | | | 3,048 | | | 1,802 | | | 3,003 | | Fill Dirt and Other Revenue | | | 17 | | | 261 | | | 73 | | Total Real Estate Operations Revenue | | $ | 52,523 | | $ | 38,144 | | $ | 15,943 | | | | | | | | | | | | |
For several years preceding the significant downturn in the U.S. economy in 2008, the Company’s land transaction activity had been reasonably strong. During 2009, however, land transactions decreased significantly, and in fiscal years 2010 and 2011, effectively no contracts for land transactions were entered into and no land transactions were closed. We believe the trend in Company revenues and income from real estate operations during this period were consistent with the overall trend of the national and local economies and the real estate markets in general. In the last several years, certain of the mass transit routes serving the Daytona Beach area, including both Interstate 95 and Interstate 4, have been widened or otherwise improved and in some instances are currently under construction to improve overpasses and expand the number of traffic lanes. We believe these improvements have or will benefit Company owned land and may have a positive impact on future activity of our land assets. Since 2012, the trend in entering into land transaction contracts and closing land transactions has improved markedly, as evidenced by the following summary (note the total proceeds listed below represents the gross sales price in the year the land transaction closed and is not meant to represent the revenue recognized during the year due to the timing of percentage-of-completion revenue recognition and incentive revenue on certain land transactions):
| | | | | | | | No. of | | Total Proceeds | Year | | Acres | | ($ in millions) | 2012 | | 16.6 | | $ | 0.6 | 2013 | | 11.7 | | $ | 3.0 | 2014 | | 99.7 | | $ | 8.8 | 2015 | | 114.1 | | $ | 22.5 | 2016 | | 707.7 | | $ | 13.8 | 2017 | | 1,700.9 | | $ | 47.0 |
Historical revenues and income from our sales of land are not indicative of future results because of the unique nature of land transactions and other factors including, but not limited to, variations in the cost basis of the owned land. A significant portion of the Company’s revenue and income in any given year may be generated through relatively few land transactions. The timing for these land transactions, from the time of preliminary discussions through contract negotiations, due diligence and inspection periods, and the closing, can last from several months to several years. Although we believe there have been recent indications of improvement in the overall economy and credit markets, we expect the overall real estate market, particularly home building, to remain inconsistent in the near term, and as a result we believe our ability to enter into land transactions will remain challenging.
Pipeline. For a description of our land which is currently under contract, see the land pipeline in Note 18, "Commitment and Contingencies."
Land Impairments. As more fully described in Note 8, "Impairment of Long-Lived Assets," during the years ended December 31, 2017 and 2015 the Company did not recognize any impairments on its undeveloped land holdings. During the year ended December 31, 2016, impairment charges totaled approximately $1.0 million on the Company’s undeveloped land.
Beachfront Development. During the year ended December 31, 2015, the Company acquired, through a real estate venture with an unaffiliated third party institutional investor, an interest in approximately six acres of vacant beachfront property located in Daytona Beach, Florida. The property was acquired for approximately $11.3 million,(the “Land JV”), of which the Company contributed approximately $5.7previously held a 33.5% retained interest, completed the sale of all of its remaining land holdings for $66.3 million to Timberline Acquisition Partners, LLC an affiliate of Timberline Real Estate Partners (the “Land JV Sale”). Proceeds to the Company after distributions to the other member of the Land JV, and before taxes, were $24.5 million. Prior to the completion of the Land JV Sale, the Company was engaged in managing the Land JV, as further described in Note 5, “Related Party Management Services Business” in the notes to the consolidated financial statements in Item 8. As a result of the Land JV Sale and corresponding dissolution of the Land JV, the Company no longer holds a retained interest in the Land JV as of December 31, 2021.
Our business also includes our investment in PINE. As of December 31, 2015,2022, the real estate venture was fully consolidated asfair value of our investment totaled $42.0 million, or 14.6% of PINE’s outstanding equity, including the Company determined that it wasunits of limited partnership interest (“OP Units”) we hold in Alpine Income Property OP, LP (the “PINE Operating Partnership”), which are redeemable for cash, based upon the primary beneficiaryvalue of an equivalent number of shares of PINE common stock at the time of the variable interest entity (“VIE”). On November 17, 2016,redemption, or shares of PINE common stock on a one-for-one basis, at PINE’s election. Our investment in PINE generates investment income through the Company acquireddividends distributed by PINE. In addition to the unaffiliated third party’s 50% interest for approximately $4.8 million, a discount of approximately $879,000. The discount was recorded through equitydividends we receive from PINE, our investment in PINE may benefit from any appreciation in PINE’s stock price, although no assurances can be provided that such appreciation will occur, the amount by which our investment will increase in value, or the timing thereof. Any dividends received from PINE are included in investment and other income (loss) on the accompanying consolidated balance sheet during the year ended December 31, 2016. The Company evaluated its interest in the six-acre vacant beachfront property for impairment and determined that no impairment was necessary asstatements of December 31, 2016. As the Company owns the entire real estate venture as of December 31, 2017, there is no longer a consolidated VIE. The cost basis of the six-acre vacant beachfront property asset totaled approximately $11.7 million as of December 31, 2017, which includes costs for entitlement. The beachfront property received approval of the rezoning and entitlement of the site to allow for the development of two restaurants and also for the future potential development of up to approximately 1.2 million square feet of vertical density. In the first quarter of 2017, the Company executed a 15-year lease agreement with the operator of LandShark Bar & Grill (“LandShark”), which provided for the development by the Company of an approximately 6,264 square foot restaurant property on the parcel. The annual rent under the LandShark lease is based on a percentage of the tenant’s net operating income (“NOI”) until the Company has received its investment basis in the property and thereafter, the Company will receive a lower percentage of the tenant’s NOI during the remaining lease term. In the second quarter of 2017, the Company executed a 15-year lease agreement with Cocina 214 Restaurant & Bar (“Cocina 214”) for the second restaurant property to be developed on the parcel. The annual rent under the Cocina 214 lease is equal to the greater of $360,000 per year or a certain percentage of gross sales. The lease also provides for additional percentage rent upon the achievement of certain gross sales thresholds. The Company completed the design phase and commenced construction on the two single-tenant restaurants during the third quarter of 2017. As of December 31, 2017, the Company has incurred approximately $5.9 million of design and construction costs. See Note 18, “Commitment and Contingencies” for the total expected cost to be incurred for the development of the site and both restaurant properties. The development of the two restaurant properties was completed in time for the tenants to commence operations during January of 2018. Accordingly, during the first quarter of 2018, the total investment in the beach parcel and the construction costs of the two single-tenant properties will be classified as Income Properties, Land, Building, and Improvements, within the Property, Plant, and Equipment classification on the Company’s consolidated balance sheets.
Other Real Estate Assets. The Company owns impact fees with a cost basis of approximately $402,000 and mitigation credits with a cost basis of approximately $723,000, for a combined total of approximately $1.1 million as of December 31, 2017. During the year ended December 31, 2017, the Company sold mitigation credits for approximately $1.6 million, for a gain of approximately $1.3 million, or $0.15 per share, after tax. Additionally, the Company recorded the transfer of mitigation credits with a cost basis of approximately $298,000 as a charge to direct cost of revenues of real estate operations during the year ended December 31, 2017, as more fully described in Note 18, “Commitments and Contingencies.” During the years ended December 31, 2017 and 2016, the Company received cash payments of approximately $519,000 and $2.2 million, respectively, for impact fees with a cost basis that was generally of equal value.
Subsurface Interests. As of December 31, 2017, the Company owns full or fractional subsurface oil, gas, and mineral interests underlying approximately 462,000 “surface” acres of land owned by others in 20 counties in Florida (the “Subsurface Interests”). The Company leases certain of the Subsurface Interests to mineral exploration firms for exploration. Our subsurface operations consist of revenue from the leasing of exploration rights and in some instances, additional revenues from royalties applicable to production from the leased acreage.
During the year ended December 31, 2017, the Company sold approximately 38,750 acres of subsurface interests in Osceola County, Florida for approximately $2.1 million (the "Osceola Subsurface Sale"). The gain from the Osceola Subsurface Sale totaled approximately $2.08 million, or $0.23 per share, after tax. The Company expects to utilize the proceeds from this sale to acquire an income property through the 1031 like-kind exchange structure.
During 2011, an eight-year oil exploration lease was executed covering a portion of our Subsurface Interests. On September 20, 2017, the Company amended the oil exploration lease to, among other things, extend the expiration of the original term for five additional years to the new expiration date of September 22, 2024. The lease is effectively thirteen one-year terms as the lessee has the option to terminate the lease at the end of each lease year. The lessee has exercised renewal options through lease year seven ending September 22, 2018. The terms of the lease state that the Company will receive royalty payments if production occurs, and may receive additional annual rental payments if the lease is continued in years eight through thirteen. The lease calls for annual lease payments which are recognized as revenue ratably over the respective twelve-month lease periods. In addition, non-refundable drilling penalty payments are made as required by the drilling requirements in the lease which are recognized as revenue when received.
Lease payments on the respective acreages and drilling penalties received through lease year six are as follows:
| | | | | | | | | | | | | | Acreage | | | | | | | | | | Lease Year | | (Approximate) | | Florida County | | Lease Payment (1) | | Drilling Penalty (1) | | Lease Year 1 - 9/23/2011 - 9/22/2012 | | 136,000 | | Lee and Hendry | | $ | 913,657 | | $ | — | | Lease Year 2 - 9/23/2012 - 9/22/2013 | | 136,000 | | Lee and Hendry | | | 922,114 | | | — | | Lease Year 3 - 9/23/2013 - 9/22/2014 | | 82,000 | | Hendry | | | 3,293,000 | | | 1,000,000 | | Lease Year 4 - 9/23/2014 - 9/22/2015 | | 42,000 | | Hendry | | | 1,866,146 | | | 600,000 | | Lease Year 5 - 9/23/2015 - 9/22/2016 | | 25,000 | | Hendry | | | 1,218,838 | | | 175,000 | | Lease Year 6 - 9/23/2016 - 9/22/2017 | | 15,000 | | Hendry | | | 806,683 | | | 150,000 | | Lease Year 7 - 9/23/2017 - 9/22/2018 | | 15,000 | | Hendry | | | 806,683 | | | 50,000 | | Total Payments Received to Date | | | | | | $ | 9,827,121 | | $ | 1,975,000 | |
(1)Generally, cash payment for the Lease Payment and Drilling Penalty is received on or before the first day of the lease year. The Drilling Penalty, which is due within thirty days from the end of the prior lease year, is recorded as revenue when received, while the Lease Payment is recognized on a straight-line basis over the respective lease term. Pursuant to the amendment for the Year 7 renewal, the Lease Payment and Drilling Penalty were both received on October 11, 2017. See separate disclosure of revenue recognized per period below.
Lease income generated by the annual lease payments is recognized on a straight-line basis over the guaranteed lease term. For the years December 31, 2017, 2016, and 2015, lease income of approximately $807,000, $1.1 million, and $1.7 million was recognized, respectively. There can be no assurance that the oil exploration lease will be extended beyond the expiration of the current term of September 22, 2018 or, if extended, the terms or conditions of such extension.
During the years ended December 31, 2017, 2016, and 2015, the Company also received oil royalties from operating oil wells on 800 acres under a separate lease with a separate operator. Production volume from these oil wells was 60,287 in 2017, 50,441 barrels in 2016, and 62,745 barrels in 2015, resulting in revenues received from oil royalties of approximately $86,000, $50,000 and $68,000, respectively.operations.
The Company is not prohibited from selling any or all of its Subsurface Interests. The Company may release surface entry rights or other rights upon request of a surface owner for a negotiated release fee typically based on a percentage of the surface value. Should the Company complete a transaction to sell all or a portion of its Subsurface Interests or complete a release transaction, the Company may utilize the like-kind exchange structureoperates in acquiring one or more replacementfour primary business segments: income properties, management services, commercial loans and investments, including income-producing properties. There were no releases of surface entry rights during the year ended December 31, 2017. Cash payments for the release of surface entry rights totaled approximately $493,000 and $995,000 during the years ended December 31, 2016 and 2015, respectively, which is included in revenue from real estate operations. During 2015, in conjunction with the release of the Company’s surface entry rights related to approximately 1,400 acres in Lee County, Florida, for a cash payment of approximately $920,000, the Company also received the 50% interest in the subsurface rights of those acres, which the Company did not previously own, for a fair value of approximately $68,000, which is also included in revenue from real estate operations. In addition, the Company generated revenue of approximately $250,000 and $73,000 during the years ended December 31, 2016 and 2015, respectively, from fill dirt excavation agreements, with no such revenue generated during the year ended December 31, 2017.
Golf Operations. Golf operations, which are managed by a third party, consist of the LPGA International Golf Club, a semi-private golf club consisting of two 18-hole championship golf courses, one designed by Rees Jones and the other designed by Arthur Hills, with a three-hole practice facility also designed by Rees Jones, a clubhouse facility, food and
beverage operations, and a fitness facility located within the LPGA International mixed-use residential community on the west side of Interstate 95 in the City.
In July 2012, the Company entered into an agreement with the City to, among other things, amend the lease payments under its golf course lease (the “Lease Amendment”). Under the Lease Amendment, the base rent payment, which was scheduled to increase from $250,000 to $500,000 as of September 1, 2012, remained at $250,000 for the remainder of the lease term and any extensions would have been subject to an annual rate increase of 1.75% beginning September 1, 2013. On January 24, 2017, the Company acquired the approximately 690 acres of land and improvements comprising the golf courses, previously leased from the City, for approximately $1.5 million (the “Golf Course Land Purchase”). In conjunction with the Golf Course Land Purchase, the lease between the Company and the City was terminated. Therefore, during the first quarter of 2017, the Company eliminated the remaining accrued liability of approximately $2.2 million, resulting in the recognition of approximately $0.40 per share in non-cash earnings, or $0.24 per share after tax, which comprises the land lease termination in the consolidated statements of operations. The $2.2 million consisted of approximately $1.7 million which reflects the acceleration of the remaining amount of accrued rent that was no longer owed to the City as a result of the Lease Amendment, which prior to the Golf Course Land Purchase was being recognized into income over the remaining lease term which was originally to expire in 2022. The remaining approximately $500,000 reflects the amount of rent accrued pursuant to the lease, as amended, which will no longer be owed to the City due to the lease termination on January 24, 2017.
As a part of the Golf Course Land Purchase, the Company donated to the City three land parcels totaling approximately 14.3 acres located on the west side of Interstate 95 that are adjacent to the City’s Municipal Stadium. The Company had a cost basis of effectively $0 in the donated land and paid approximately $100,000 to satisfy the community development district bonds associated with the acreage. Other terms of the Golf Course Land Purchase include the following:
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| | The Company is obligated to pay the City additional consideration in the form of an annual surcharge of $1 per golf round played each year (the “Per-Round Surcharge”) with an annual minimum Per-Round Surcharge of $70,000 and a maximum aggregate amount of the Per-Round Surcharges paid equal to $700,000. The maximum amount of $700,000 represents contingent consideration and was reflected as an increase in Golf Buildings, Improvements, and Equipment and also as an increase in Accrued and Other Liabilities on the accompany consolidated balance sheets as of December 31, 2017. The first annual payment of $70,000 was made in January 2018 leaving a remaining commitment of $630,000 as of the date of this report;
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| | Within one year following the date of the closing of the Golf Course Land Purchase, unless extended due to weather related delays outside the Company’s control, the Company is obligated to renovate the greens on the Jones Course which renovations were completed in the third quarter of 2017; and
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| | If the Company sells the LPGA International Golf Club within six years of the closing of the Golf Course Land Purchase, the Company is obligated to pay the City an amount equal to 10% of the difference between the sales price, less closing costs and any other costs required to be incurred in connection with the sale, and $4.0 million.
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Commercial Loan Investments. Our investments in commercial loans or similar structured finance investments, such as mezzanine loans or other subordinated debt, have been and are expected to continue to be secured by commercial or residential real estate or the borrower’s pledge of its ownership interest in the entity that owns the real estate. The first mortgage loans we invest in or originate are generally for commercial real estate located in the United States and its territories, and are current or performing with either a fixed or floating rate. Some of these loans may be syndicated in either a pari-passu or senior/subordinated structure. Commercial first mortgage loans generally provide for a higher recovery rate due to their senior position in the underlying collateral. Commercial mezzanine loans are typically secured by a pledge of the borrower’s equity ownership in the underlying commercial real estate. Unlike a mortgage, a mezzanine loan is not secured by a lien on the property. An investor’s rights in a mezzanine loan are usually governed by an intercreditor agreement that provides holders with the rights to cure defaults and exercise control on certain decisions of any senior debt secured by the same property.
On July 31, 2017, the Company originated a $3.0 million first mortgage loan secured by a parcel of beachfront land in the City of Daytona Beach Shores, Florida which the borrower intends to develop as a residential condominium (the “Beach Loan”). The Beach Loan matures on August 1, 2018, includes a one-year extension option, bears a fixed interest rate of 11.00%, and requires payments of interest only prior to maturity. At closing, a loan origination fee of $60,000 was received by the Company. Should the borrower seek to obtain financing for the development of the project, the Beach Loan would likely be paid off in connection with that financing.
On October 23, 2017, the Company sold its two commercial loan investments secured by hotel properties in Atlanta, Georgia and Dallas, Texas. The Company sold these investments at a premium to par for proceeds of approximately $15.1 million on an aggregate principal value of $15.0 million. The Company utilized these proceeds to pay down the Credit Facility (hereinafter defined).REIT Conversion
As of December 31, 2017,2020, the Company owned two performing commercial loan investmentshad completed certain internal reorganization transactions necessary to begin operating in compliance with the requirements for qualification and taxation as a REIT for U.S. federal income tax purposes, commencing with the taxable year ended December 31, 2020. See Item 1, “Business” for information related to the Company’s REIT conversion and related transactions. On January 29, 2021, in connection with the REIT conversion, the Company completed the Merger in order to reincorporate in Maryland and facilitate its ongoing compliance with the REIT requirements. Selected Historical Financial Information The following table summarizes our selected historical financial information for each of the last five fiscal years (in thousands except per share amounts). The selected financial information has been derived from our audited consolidated financial statements. Additional data for fiscal years 2022, 2021, and 2020 is included elsewhere in this report. | | | | | | | | | | | | | | | | | | | Fiscal Years Ended | | | 2022 | | 2021 | | 2020 | | 2019 | | 2018 | Total Revenues | | $ | 82,320 | | $ | 70,272 | | $ | 56,381 | | $ | 44,941 | | $ | 43,658 | | | | | | | | | | | | | | | | | Operating Income | | $ | 10,667 | | $ | 23,345 | | $ | 12,280 | | $ | 34,199 | | $ | 31,385 | | | | | | | | | | | | | | | | | Net Income Attributable to the Company | | $ | 3,158 | | $ | 29,940 | | $ | 78,509 | | $ | 114,973 | | $ | 37,168 | Distributions to Preferred Stockholders | | | (4,781) | | | (2,325) | | | — | | | — | | | — | Net Income (Loss) Attributable to Common Stockholders | | $ | (1,623) | | $ | 27,615 | | $ | 78,509 | | $ | 114,973 | | $ | 37,168 | | | | | | | | | | | | | | | | | Per Share Information: | | | | | | | | | | | | | | | | Basic: | | | | | | | | | | | | | | | | Income (Loss) From Continuing Operations Attributable to Common Stockholders | | $ | (0.09) | | $ | 1.56 | | $ | 5.56 | | $ | 1.11 | | $ | 0.91 | Income From Discontinued Operations (Net of Income Tax) Attributable to Common Stockholders | | | — | | | — | | | — | | | 6.57 | | | 1.35 | Basic Net Income (Loss) per Share Attributable to Common Stockholders | | $ | (0.09) | | $ | 1.56 | | $ | 5.56 | | $ | 7.68 | | $ | 2.26 | | | | | | | | | | | | | | | | | Diluted: | | | | | | | | | | | | | | | | Income (Loss) From Continuing Operations Attributable to Common Stockholders | | $ | (0.09) | | $ | 1.56 | | $ | 5.56 | | $ | 1.11 | | $ | 0.90 | Income From Discontinued Operations (Net of Income Tax) Attributable to Common Stockholders | | | — | | | — | | | — | | | 6.56 | | | 1.34 | Diluted Net Income (Loss) per Share Attributable to Common Stockholders | | $ | (0.09) | | $ | 1.56 | | $ | 5.56 | | $ | 7.67 | | $ | 2.24 | | | | | | | | | | | | | | | | | Dividends Declared and Paid - Preferred Stock | | $ | 1.59 | | $ | — | | $ | — | | $ | — | | $ | — | Dividends Declared and Paid - Common Stock | | $ | 1.49 | | $ | 1.33 | | $ | 4.63 | | $ | 0.15 | | $ | 0.09 | | | | | | | | | | | | | | | | | Summary of Financial Position: | | | | | | | | | | | | | | | | Real Estate—Net | | $ | 734,721 | | $ | 494,695 | | $ | 442,384 | | $ | 370,591 | | $ | 368,751 | Total Assets | | $ | 986,545 | | $ | 733,139 | | $ | 666,700 | | $ | 704,194 | | $ | 556,841 | Stockholders’ Equity | | $ | 504,770 | | $ | 430,480 | | $ | 350,899 | | $ | 285,413 | | $ | 211,761 | Long-Term Debt | | $ | 445,583 | | $ | 278,273 | | $ | 273,830 | | $ | 286,310 | | $ | 247,114 |
Non-U.S. GAAP Financial Measures Our reported results are presented in accordance with U.S. GAAP. We also disclose Funds From Operations (“FFO”), Core Funds From Operations (“Core FFO”), and Adjusted Funds From Operations (“AFFO”), each of which have an aggregate outstanding principal balanceare non-U.S. GAAP financial measures. We believe these non-U.S. GAAP financial measures are useful to investors because they are widely accepted industry measures used by analysts and investors to compare the operating performance of approximately $12.0 million. These loansREITs. FFO, Core FFO, and AFFO do not represent cash generated from operating activities and are securednot necessarily indicative of cash available to fund cash requirements; accordingly, they should not be considered alternatives to net income as a performance measure or cash flows from operating activities as reported on our statement of cash flows as a liquidity measure and should be considered in addition to, and not in lieu of, U.S. GAAP financial measures. We compute FFO in accordance with the definition adopted by the Board of Governors of the National Association of Real Estate Investment Trusts, or NAREIT. NAREIT defines FFO as U.S. GAAP net income or loss adjusted to exclude extraordinary items (as defined by U.S. GAAP), net gain or loss from sales of depreciable real estate or the borrower’s equity interest inassets, impairment write-downs associated with depreciable real estate locatedassets and real estate related depreciation and amortization, including the pro rata share of such adjustments of unconsolidated subsidiaries. The Company also excludes the gains or losses from sales of assets incidental to the primary business of the REIT which specifically include the sales of mitigation credits, impact fee credits, subsurface sales, and land sales, in Daytona Beach Shores, Floridaaddition to the mark-to-market of the Company’s investment securities and Sarasota, Floridainterest related to the 2025 Notes, if the effect is dilutive. To derive Core FFO, we modify the NAREIT computation of FFO to include other adjustments to U.S. GAAP net income related to gains and have an average remaining maturitylosses recognized on the extinguishment of approximately 0.5 yearsdebt, amortization of above- and a weighted average interest rate of 9.5%. Agriculture and Other Income. Effectively all of our agriculturebelow-market lease related intangibles, and other unforecastable market- or transaction-driven non-cash items. To derive AFFO, we further modify the NAREIT computation of FFO and Core FFO to include other adjustments to U.S. GAAP net income consists ofrelated to non-cash revenues generated by our agricultural operations. The Company’s agricultural lands encompass approximately 7,000 acres on the west side of Daytona Beach, Florida. Our agricultural operations are managed by a third-party and consist of leasing land for hay productionexpenses such as straight-line rental revenue, non-cash compensation, and timber harvesting,other non-cash amortization, as well as hunting leases.adding back the interest related to the 2025 Notes, if the effect is dilutive. Such items may cause short-term fluctuations in net income but have no impact on operating cash flows or long-term operating performance. We use AFFO as one measure of our performance when we formulate corporate goals.
SUMMARY
FFO is used by management, investors and analysts to facilitate meaningful comparisons of operating performance between periods and among our peers primarily because it excludes the effect of real estate depreciation and amortization and net gains or losses on sales, which are based on historical costs and implicitly assume that the value of real estate diminishes predictably over time, rather than fluctuating based on existing market conditions. We believe that Core FFO and AFFO are additional useful supplemental measures for investors to consider because they will help them to better assess our operating performance without the distortions created by other non-cash revenues or expenses. FFO, Core FFO, and AFFO may not be comparable to similarly titled measures employed by other companies. Reconciliation of Non-U.S. GAAP Measures (in thousands): | | | | | | | | | | | | Year Ended | | | December 31, 2022 | | December 31, 2021 | | December 31, 2020 | Net Income Attributable to the Company | | $ | 3,158 | | $ | 29,940 | | $ | 78,509 | Add Back: Effect of Dilutive Interest Related to 2025 Notes (1) | | | — | | | — | | | — | Net Income Attributable to the Company, If-Converted | | | | | | | | | | Depreciation and Amortization of Real Estate | | | 28,799 | | | 20,581 | | | 19,063 | Loss (Gain) on Disposition of Assets, Net of Income Tax | | | 4,170 | | | (28,316) | | | (9,746) | Loss (Gain) on Disposition of Other Assets | | | (2,992) | | | (4,924) | | | 2,480 | Impairment Charges, Net | | | — | | | 13,283 | | | 9,147 | Unrealized Loss (Gain) on Investment Securities | | | 1,697 | | | (10,340) | | | 8,240 | Income Tax Expense (Benefit) from Non-FFO Items and De-Recognition of REIT Deferred Tax Assets and Liabilities | | | — | | | 1,840 | | | (80,225) | Funds from Operations | | | 34,832 | | | 22,064 | | | 27,468 | Distributions to Preferred Stockholders | | | (4,781) | | | (2,325) | | | — | Funds From Operations Attributable to Common Stockholders | | | 30,051 | | | 19,739 | | | 27,468 | Loss (Gain) on Extinguishment of Debt | | | — | | | 3,431 | | | (1,141) | Amortization of Intangibles to Lease Income | | | 2,161 | | | (404) | | | (1,754) | Less: Effect of Dilutive Interest Related to 2025 Notes (1) | | | — | | | — | | | — | Core Funds From Operations Attributable to Common Stockholders | | | 32,212 | | | 22,766 | | | 24,573 | Adjustments: | | | | | | | | | | Straight-Line Rent Adjustment | | | (2,166) | | | (2,443) | | | (2,564) | COVID-19 Rent Repayments (Deferrals), Net | | | 105 | | | 842 | | | (1,005) | Other Depreciation and Amortization | | | (232) | | | (676) | | | (834) | Amortization of Loan Costs and Discount on Convertible Debt, and Capitalized Interest | | | 774 | | | 1,864 | | | 1,833 | Non-Cash Compensation | | | 3,232 | | | 3,168 | | | 2,786 | Non-Recurring G&A | | | — | | | 155 | | | 1,426 | Adjusted Funds From Operations Attributable to Common Stockholders | | $ | 33,925 | | $ | 25,676 | | $ | 26,215 | | | | | | | | | | | Weighted Average Number of Common Shares: | | | | | | | | | | Basic | | | 18,508,201 | | | 17,676,809 | | | 14,114,631 | Diluted (2) | | | 18,508,201 | | | 17,676,809 | | | 14,114,631 | | | | | | | | | | | Dividends Declared and Paid - Preferred Stock | | $ | 1.59 | | $ | 0.77 | | $ | — | Dividends Declared and Paid - Common Stock | | $ | 1.49 | | $ | 1.33 | | $ | 4.63 |
| (1) | As applicable, includes interest expense, amortization of discount, amortization of fees, and other changes in net income or loss that would result from the assumed conversion of the 2025 Convertible Senior Notes to derive FFO effective January 1, 2022 due to the implementation of ASU 2020-06 which requires presentation on an if-converted basis. For the year ended December 31 2022, a total of $2.2 million of interest was not included, as the impact of the 2025 Notes, if-converted, would be antidilutive to the net loss attributable to common stockholders of $1.6 million. |
| (2) | A total of 3.1 million shares, representing the dilutive impact of the 2025 Notes, upon adoption of ASU 2020-06 effective January 1, 2022, were not included in the computation of diluted net loss attributable to common stockholders for the year ended December 31, 2022 because they were antidilutive to the net loss attributable to common stockholders of $1.6 million. |
Other Data (in thousands except per share data): | | | | | | | | | | | | Year Ended | | | December 31, 2022 | | December 31, 2021 | | December 31, 2020 | FFO Attributable to Common Stockholders | | $ | 30,051 | | $ | 19,739 | | $ | 27,468 | FFO Attributable to Common Stockholders per Common Share - Diluted | | $ | 1.62 | | $ | 1.12 | | $ | 1.95 | | | | | | | | | | | Core FFO Attributable to Common Stockholders | | $ | 32,212 | | $ | 22,766 | | $ | 24,573 | Core FFO Attributable to Common Stockholders per Common Share - Diluted (1) | | $ | 1.74 | | $ | 1.29 | | $ | 1.74 | | | | | | | | | | | AFFO Attributable to Common Stockholders | | $ | 33,925 | | $ | 25,677 | | $ | 26,215 | AFFO Attributable to Common Stockholders per Common Share - Diluted (1) | | $ | 1.83 | | $ | 1.45 | | $ | 1.86 |
| (1) | A total of 3.1 million shares, representing the dilutive impact of the 2025 Notes, upon adoption of ASU 2020-06 effective January 1, 2022, were not included in the computation of diluted net loss attributable to common stockholders for the year ended December 31, 2022 because they were antidilutive to the net loss attributable to common stockholders of $1.6 million. |
COMPARISON OF OPERATING RESULTS FOR YEARTHE YEARS ENDED DECEMBER 31, 2017 COMPARED TO DECEMBER 31, 20162022 AND 2021 REVENUERevenue
Total revenue for the year ended December 31, 20172022 is presented in the following summary and indicates the changes as compared to the year ended December 31, 2016:2021 (in thousands): | | | | | | | | | | | | Revenue for | | Increase (Decrease) | | | Year Ended | | Vs. Same Period | | Vs. Same Period | | | 12/31/2017 | | in 2016 | | in 2016 | Operating Segment | | ($000's) | | ($000's) | | (%) | Income Properties | | $ | 31,407 | | $ | 6,314 | | | 25% | Interest Income from Commercial Loan Investments | | | 2,053 | | | (535) | | | -21% | Real Estate Operations | | | 52,522 | | | 14,378 | | | 38% | Golf Operations | | | 5,095 | | | (95) | | | -2% | Agriculture & Other Income | | | 335 | | | 275 | | | 458% | Total Revenue | | $ | 91,412 | | $ | 20,337 | | | 29% |
| | | | | | | | | | | | | | Year Ended | | | | | | Operating Segment | | December 31, 2022 | | December 31, 2021 | | $ Variance | | % Variance | Income Properties | | $ | 68,857 | | $ | 50,679 | | $ | 18,178 | | 35.9% | Management Services | | | 3,829 | | | 3,305 | | | 524 | | 15.9% | Commercial Loans and Investments | | | 4,172 | | | 2,861 | | | 1,311 | | 45.8% | Real Estate Operations | | | 5,462 | | | 13,427 | | | (7,965) | | (59.3)% | Total Revenue | | $ | 82,320 | | $ | 70,272 | | $ | 12,048 | | 17.1% |
Total revenue for the year ended December 31, 20172022 increased to approximately $91.4$82.3 million, compared to approximately $71.1$70.3 million during the same period in 2016, an increase of approximately $20.3 million, or 29%. This increase was primarily the result of the increases from our real estate operations and the income property operations as outlined in the following tables, offset by reduced revenues from our commercial loan investments resulting from the loan sales previously noted totaling approximately $535,000: | | | | | | | | | Revenue for | | Increase (Decrease) | | | Year Ended | | Vs. Same Period | | | 12/31/2017 | | in 2016 | Real Estate Operations Revenue | | ($000's) | | ($000's) | Land Sales Revenue | | $ | 45,471 | | $ | 33,600 | Tomoka Town Center - Percentage of Completion Revenue | | | — | | | (17,490) | Revenue from Reimbursement of Infrastructure Costs | | | 1,860 | | | (2,640) | Impact Fee and Mitigation Credit Sales | | | 2,126 | | | (94) | Subsurface Revenue | | | 3,048 | | | 1,246 | Fill Dirt and Other Revenue | | | 17 | | | (244) | Total Real Estate Operations Revenue | | $ | 52,522 | | $ | 14,378 | | | | | | | |
| | | | | | | | | Revenue for | | Increase (Decrease) | | | Year Ended | | Vs. Same Period | | | 12/31/2017 | | in 2016 | Income Property Operations Revenue | | ($000's) | | ($000's) | Revenue from Q4 2016 and YTD 2017 Acquisitions | | $ | 6,417 | | $ | 5,768 | Revenue from The Grove at Winter Park | | | 451 | | | 354 | Revenue from Remaining Portfolio | | | 22,345 | | | 238 | Accretion of Above Market/Below Market Intangibles | | | 2,194 | | | (46) | Total Income Property Operations Revenue | | $ | 31,407 | | $ | 6,314 | | | | | | | |
NET INCOME
Net income and basic net income per share for the years ended December 31, 2017 and 2016, and as compared to the same period in 2016, was as follows:
| | | | | | | | | | | | | | | | | | | Increase (Decrease) | | | Year Ended | | Year Ended | | Vs. Same Period | | Vs. Same Period | | | 12/31/2017 | | 12/31/2016 | | in 2016 | | in 2016 | Net Income (1) (2) | | $ | 41,719,424 | | $ | 16,251,248 | | $ | 25,468,176 | | | 157% | Basic Earnings Per Share (1) (2) | | $ | 7.53 | | $ | 2.86 | | $ | 4.67 | | | 163% |
(1)The year ended December 31, 2017 includes net income of approximately $22.2 million and basic earnings per share of $4.02 in non-cash earnings for the adjustment of deferred tax liabilities and deferred tax assets to reflect the new federal income tax rate of 21% from 35%.
(2)The year ended December 31, 2017 includes net income of approximately $2.2 million and basic earnings per share of $0.24 in non-cash earnings for the elimination of the accrued liability associated with the straight-line accounting for the land lease which was terminated as part of the acquisition of the LPGA International golf course land.
Our above results for the year ended December 31, 2017, excluding2021. The increase in total revenue is primarily attributable to increased revenue produced by the impactCompany’s recent income property acquisitions versus that of properties disposed of by the approximately $22.2Company during the comparative period. Revenues further benefited from increased management fee income from PINE as well as increases in revenue generated from the Company’s portfolio of commercial loans and investments. These increases were offset by an $8.0 million non-cash adjustment fordecrease in real estate operations primarily due to a non-recurring land sale during the new tax law and approximately $2.2 million of non-cash earnings related to the transaction to acquire the land underlying our golf operations and resulting lease termination, as compared to the same period in 2016, reflected the following significant operating elements in addition to the impacts on revenues described above:
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| | An increase in direct cost of revenues of approximately $4.6 million primarily related to (i) the increase in the direct cost of revenues for the real estate operations of approximately $3.5 million related entirely to the cost basis of the increased land sales and associated transaction costs offset by reduced costs associated with lower impact fee and mitigation credit sales; and (ii) an increase of approximately $1.7 million in the operating costs of the income property operations reflecting the larger income property portfolio;
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| | An increase in depreciation and amortization of approximately $4.5 million resulting from the growth in our income property portfolio; and
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| | Income of approximately $12.8 million recognized in 2016 in connection with the Company’s disposition of a portfolio of 14 income properties and other dispositions of income properties offset by the recognition of approximately $2.2 million in impairment charges during the year ended December 31, 2016.
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INCOME PROPERTIESyear ended December 31, 2021.
RevenuesIncome Properties
Revenue and operating income from our income property operations totaled approximately $31.4$68.9 million and $24.5$48.5 million, respectively, during the year ended December 31, 2017,2022, compared to total revenue and operating income of approximately $25.1$50.7 million and $19.9$36.9 million, respectively, for the year ended December 31, 2016.2021. The direct costs of revenues for our income property operations totaled approximately $6.9$20.4 million and $5.2$13.8 million for the years ended December 31, 20172022 and 2016,2021, respectively. The increase in revenues of approximately $6.3$18.2 million, or 25%35.9%, during the year ended December 31, 2017 reflects our expanded portfolio2022 is primarily related to the significant acquisition volume of income properties including increasesmulti-tenant properties. Management Services Revenue from our income propertiesmanagement services totaled $3.8 million during the year ended December 31, 20172022, and 2016 also includes approximately $2.2was earned from PINE. Revenue from our management services totaled $3.3 million in revenueduring the year ended December 31, 2021, including $3.2 million and $0.1 million earned from PINE and the accretion of the below-market lease intangible, which is primarily attributable to the Wells Fargo property located in Raleigh, North Carolina. Our increased operatingLand JV, respectively. Commercial Loans and Investments Interest income from our income property operations reflectscommercial loans and investments totaled $4.2 million and $2.9 million during the aforementioned increased rent revenues offset by anyears ended December 31, 2022 and 2021, respectively. The increase of approximately $1.7 million in our direct costs of revenues largely relatedis due to the recent acquisitions mentioned above. timing of investments and repayments by borrowers within the Company’s commercial loans and investment portfolio. REAL ESTATE OPERATIONS
Real Estate Operations During the year ended December 31, 2017,2022, operating income from real estate operations was approximately $35.0$3.0 million on revenues totaling approximately $52.5$5.5 million. During the year ended December 31, 2016,2021, operating income from real estate operations was approximately $23.3$4.8 million on revenues totaling approximately $38.1$13.4 million. The increase in revenue of approximately $14.4 million and operating income of approximately $11.8 million is primarily attributable to the revenue totaling approximately $47.0 million recognized for the land sales completed in 2017, including the sale of approximately 1,581 acres to Minto Communities for approximately $27.2 million, which closed in the first quarter of 2017, the third and fourth land sales transactions completed with NADG for approximately $10.6 million, which closed in the second and fourth quarters of 2017, the land sale to VanTrust of approximately 28 acres for approximately $3.2 million, which also closed in the second quarter of 2017, as well as the $2.1 million sale of subsurface interests that closed during the third quarter of 2017. The increased revenues in 2017 reflects the impact of the 2017 land sales offset by the revenue recognized utilizing percentage of completion during the year ended December 31, 2016 on the2022 was primarily due to mitigation credit sales within the Tomoka Town Center which closed during the fourth quarterand sales of 2015 and the first quarter of 2016 of approximately $17.5 million. Subsurface Interests. The increase in 2017 of approximately $2.6 million in direct costs of real estate operations is primarily the result of the increase of approximately $2.6 million in the cost basis and approximately $936,000 in closing and other costs recognized during 2017 related to the land sales closed during the year, offset by a decrease in basis related to impact fees of which approximately $1.7 million more were solddecreased operating income during the year ended December 31, 2016 than December 31, 2017. GOLF OPERATIONS
Revenues from golf operations totaled approximately $5.12022 is primarily due to the sale of the Daytona Beach Development for $6.25 million and $5.2 million forwhich occurred during the yearsyear ended December 31, 20172021.
General and 2016, respectively. The total direct cost of golf operations revenues totaled approximately $6.0 million and $5.6 million for the years ended December 31, 2017 and 2016, respectively. The Company’s golf operations had a net operating loss of approximately $864,000 and approximately $397,000 during the years ended December 31, 2017 and 2016, respectively, a decrease in operating results of approximately $467,000. The primary reason for the decline in revenues and related operating results was that one of the two 18-hole golf courses was closed during the entire third quarter of 2017 for the renovation of the greens. Administrative Expenses INTEREST INCOME FROM COMMERCIAL LOAN INVESTMENTS
Interest income from our commercial loan investments totaled approximately $2.1 million and $2.6 million during the years ended December 31, 2017 and 2016, respectively. The decrease is attributable to approximately $466,000 of revenue generated in the first six months of 2016 from the first mortgage loan secured by the leasehold interest in a hotel in San Juan, Puerto Rico that was repaid during the latter part of the second quarter of 2016. The decrease is also attributable to the two mezzanine loans that were sold during the fourth quarter of 2017, for a decrease in year-over-year revenue of approximately $288,000. These decreases were partially offset by the increase of approximately $166,000 in revenue
generated by the $3.0 million first mortgage loan originated in July 2017, as well as an increase in interest from our remaining variable rate loan due to the increase in LIBOR during the latter half of 2017.
AGRICULTURE AND OTHER INCOME
For the years ended December 31, 2017 and 2016, revenues from agriculture and other income totaled approximately $335,000 and $59,000, respectively, with the increase due to a timber harvesting contract during 2017 that generated approximately $290,000 in revenue. For the years ended December 31, 2017 and 2016, the direct cost of revenues totaled approximately $96,000 and $167,000, respectively, an improvement of approximately $71,000, which reflects reduced payroll for this segment.
GENERAL AND ADMINISTRATIVE AND OTHER CORPORATE EXPENSES
Total general and administrative expenses for the year ended December 31, 20172022 is presented in the following summary and indicates the changes as compared to the year ended December 31, 2016:2021 (in thousands): | | | | | | | | | | G&A Expense | | Decrease (Increase) | | | | Year Ended | | Vs. Same Period | | | | 12/31/2017 | | in 2016 | | General and Administrative Expenses | | ($000's) | | ($000's) | | Recurring General and Administrative Expenses | | $ | 7,293 | | $ | (1,265) | | Non-Cash Stock Compensation | | | 1,437 | | | 1,742 | | Shareholder and Proxy Matter Legal and Related Costs | | | 1,523 | | | (432) | | Total General and Administrative Expenses | | $ | 10,253 | | $ | 45 | |
General
| | | | | | | | | | | | | | Year Ended | | | | | | General and Administrative Expenses (in thousands) | | December 31, 2022 | | December 31, 2021 | | $ Variance | | % Variance | Recurring General and Administrative Expenses | | $ | 9,667 | | $ | 7,879 | | $ | 1,788 | | 22.7% | Non-Cash Stock Compensation | | | 3,232 | | | 3,168 | | | 64 | | 2.0% | REIT Conversion and Other Non-Recurring Items | | | — | | | 155 | | | (155) | | (100.0)% | Total General and Administrative Expenses | | $ | 12,899 | | $ | 11,202 | | $ | 1,697 | | 15.1% |
Gains (Losses) and administrative expensesImpairment Charges 2022 Dispositions.During the year ended December 31, 2022, the Company sold six income properties, including (i) Party City, a single-tenant income property located in Oceanside, New York for $6.9 million, (ii) the Carpenter Hotel ground lease, a single-tenant income property located in Austin, Texas, which was recorded as a commercial loan investment prior to its disposition, for $17.1 million, (iii) the multi-tenant Westland Gateway Plaza located in Hialeah, Florida, which was recorded as a commercial loan investment prior to its disposition, for $22.2 million, (iv) Chuy’s, a single-tenant property, located in Jacksonville, Florida for $5.8 million, (v) Firebirds, a single-tenant property, located in Jacksonville, Florida for $5.5 million, and (vi) 245 Riverside, a multi-tenant office income property located in Jacksonville, Florida for $23.6 million. The sale of these six properties reflect a total disposition volume of $81.1 million, resulting in aggregate gains of $4.7 million. The $4.7 million in aggregate income property sale gains were offset by an $11.9 million loss on the sale of the Company’s Mitigation Bank during the year ended December 31, 2022. 2021 Dispositions.During the year ended December 31, 2021, the Company disposed of one multi-tenant income property and 14 single-tenant income properties, including (i) World of Beer/Fuzzy’s Taco Shop, a multi-tenant income property located in Brandon, Florida for $2.3 million, (ii) Moe’s Southwest Grill, a single-tenant income property located in Jacksonville, Florida for $2.5 million, (iii) Burlington, a single-tenant income property located in North Richland Hills, Texas for $11.5 million, (iv) Staples, a single-tenant income property located in Sarasota, Florida for $4.7 million, (v) the CMBS Portfolio, sold to PINE, consisting of six single-tenant income properties for $44.5 million, (vi) Chick-fil-A, a single-tenant property, located in Chandler, Arizona for $2.9 million, (vii) JPMorgan Chase Bank, a single-tenant property, located in Chandler, Arizona for $4.7 million, (viii) Fogo De Chao, a single-tenant property, located in Jacksonville, Florida for $4.7 million, (ix) Wells Fargo, a single-tenant office income property located in Raleigh, North Carolina for $63.0 million, and (x) 24 Hour Fitness, a single-tenant income property located in Falls Church, VA for $21.5 million. The sale of the properties reflect a total disposition volume of $162.3 million, resulting in aggregate gains of $28.2 million. Impairment Charges. There were no impairment charges on the Company’s undeveloped land holdings, or its income property portfolio, during the years ended December 31, 2022 or 2021. The $17.6 million impairment charge recognized during the year ended December 31, 2021 is related to the Company’s previously held retained interest in the Land JV. The aggregate impairment charge of $17.6 million is a result of eliminating the investment in joint ventures based on the final proceeds received through distributions of the Land JV in connection with closing the sale of substantially all of the Land JV’s remaining land with Timberline, for a final sales price of $66.3 million. Loss on Extinguishment of Debt. During the year ended December 31, 2021, the Company repurchased $11.4 million aggregate principal amount of 2025 Notes at a $1.6 million premium, resulting in a loss on extinguishment of debt of $2.9 million. Additionally, in connection with the disposition of the CMBS Portfolio during the year ended December 31, 2021, and related assumption by the buyer of the Company’s $30.0 million fixed-rate mortgage note payable, the Company recognized a $0.5 million loss on extinguishment of debt related to the write-off of unamortized financing costs. There were no losses on extinguishment of debt during the year ended December 31, 2022. Depreciation and Amortization Depreciation and amortization totaled approximately$28.9 million and $20.6 million during the years ended December 31, 2022 and 2021, respectively. The increase of $8.3 million is primarily due to the increase in the Company’s income property portfolio. Investment and Other Income (Loss) During the year ended December 31, 2022, the closing stock price of PINE decreased by $0.96 per share, with a closing price of $19.08 on December 31, 2022. During the year ended December 31, 2021, the closing stock price of PINE increased by $5.05 per share, with a closing price of $20.04 on December 31, 2021. The increase (decrease) resulted in an unrealized, non-cash gain (loss) on the Company’s investment in PINE of $(1.7) million and $10.3 million which is included in investment and other income (loss) in the consolidated statements of operations for the years ended December 31, 2022 and 2021, respectively. The Company earned dividend income from the investment in PINE of $2.3 million and $2.1 million during the years ended December 31, 2022 and 2021, respectively. Interest Expense Interest expense totaled $11.1 million and $8.9 million for the years ended December 31, 20172022 and 2016. Although the total expense was relatively flat year-over-year, non-cash stock compensation expense decreased by approximately $1.72021, respectively. The increase of $2.2 million which in part, is due to the accelerated stock compensation expense of approximately $1.6 million recognized in the first quarter of 2016 relating to certain stock awards that were permanently surrendered. The decreased stock compensation expense was offset by an increase in legal and other costs of approximately $1.2 million which were specifically related to the Company’s proxy contest in connection with the 2017 Annual Meeting of Shareholders, offset by the decrease in legal costs of approximately $780,000 related to the investigations conducted in connection with certain claims made by Wintergreen that were determined to be without merit. The remaining increase wasresulted primarily related to an increase in professional fees for other advisory servicesfrom overall higher leverage as well as fees incurred with respecthigher interest rates than the variable rate Credit Facility. Net Income Net income attributable to a potential REIT conversion. INTEREST EXPENSE
Interest expensethe Company totaled approximately $8.5$3.2 million and $8.8$29.9 million forduring the years ended December 31, 20172022 and 2016,2021, respectively. The higher interest expense for 2016, reflects the $23.1 million loan that was outstanding for the majority of 2016 on the portfolio of 14decrease in net income properties that were sold during September of 2016. Additionally, during the year ended December 31, 2017, approximately $215,000 in interest was capitalized related primarilyis attributable to the tenant improvements at The Grove at Winter Park property and the construction of the two single-tenant beachfront restaurants, with no interest being capitalized during the year ended December 31, 2016. Also included in interest expense in the consolidated financial statements is the amortization of loan costs incurred in connection with the Company’s long-term debt and the amortization of the discount on the convertible debt.factors described above.
SUMMARYCOMPARISON OF OPERATING RESULTS FOR YEARTHE YEARS ENDED DECEMBER 31, 2016 COMPARED TO DECEMBER 31, 20152021 AND 2020
REVENUERevenue
Total revenue for the year ended December 31, 20162021 is presented in the following summary and indicates the changes as compared to the year ended December 31, 2015:2020 (in thousands): | | | | | | | | | | | | Revenue for | | Increase (Decrease) | | | Year Ended | | Vs. Same Period | | Vs. Same Period | | | 12/31/2016 | | in 2015 | | in 2015 | Operating Segment | | ($000's) | | ($000's) | | (%) | Income Properties | | $ | 25,093 | | $ | 6,051 | | | 32% | Interest Income from Commercial Loan Investments | | | 2,588 | | | (103) | | | -4% | Real Estate Operations | | | 38,144 | | | 22,201 | | | 139% | Golf Operations | | | 5,190 | | | (53) | | | -1% | Agriculture & Other Income | | | 60 | | | (19) | | | -25% | Total Revenue | | $ | 71,075 | | $ | 28,077 | | | 19% |
| | | | | | | | | | | | | | Year Ended | | | | | | Operating Segment | | December 31, 2021 | | December 31, 2020 | | $ Variance | | % Variance | Income Properties | | $ | 50,679 | | $ | 49,953 | | $ | 726 | | 1.5% | Management Services | | | 3,305 | | | 2,744 | | | 561 | | 20.4% | Commercial Loans and Investments | | | 2,861 | | | 3,034 | | | (173) | | (5.7)% | Real Estate Operations | | | 13,427 | | | 650 | | | 12,777 | | 1965.7% | Total Revenue | | $ | 70,272 | | $ | 56,381 | | $ | 13,891 | | 24.6% |
Total revenue for the year ended December 31, 20162021 increased approximately $28.1to $70.3 million, to approximately $71.1 million, as compared to approximately $43.0$56.4 million during the same period in 2015. This increase was primarily the result of the following elements of our Real Estate Operations segment and our Income Property Operations, respectively: | | | | | | | | | Revenue for | | Increase (Decrease) | | | Year Ended | | Vs. Same Period | | | 12/31/2016 | | in 2015 | Real Estate Operations Revenue | | ($000's) | | ($000's) | Land Sales Revenue | | $ | 11,871 | | $ | 7,595 | Tomoka Town Center - Percentage of Completion Revenue | | | 17,490 | | | 9,362 | Revenue from Reimbursement of Infrastructure Costs | | | 4,500 | | | 4,500 | Impact Fee and Mitigation Credit Sales | | | 2,220 | | | 1,757 | Subsurface Revenue | | | 1,802 | | | (1,201) | Fill Dirt and Other Revenue | | | 261 | | | 188 | Total Real Estate Operations Revenue | | $ | 38,144 | | $ | 22,201 |
| | | | | | | | | Revenue for | | Increase (Decrease) | | | Year Ended | | Vs. Same Period | | | 12/31/2016 | | in 2015 | Income Property Operations Revenue | | ($000's) | | ($000's) | Wells Fargo/Riverside Acquisitions | | $ | 7,022 | | $ | 5,029 | Accretion of Above Market (Below Market) Intangibles | | | 2,240 | | | 2,081 | Q4 2016 Acquisitions | | | 649 | | | 649 | Revenue from Remaining Portfolio (Includes Impact of 2016 Dispositions) | | | 15,182 | | | (1,708) | Total Income Property Operations Revenue | | $ | 25,093 | | $ | 6,051 |
NET INCOME
Net income for the year ended December 31, 2016 was approximately $16.3 million, compared to approximately $8.3 million in the same period in 2015. Net income per share for the year ended December 31, 2016 was $2.86 per share, as compared to $1.44 per share during the same period in 2015, an increase of $1.42 per share.
Our results for the year ended December 31, 2016 reflected our increased revenues of approximately $28.1 million as described above, offset by the associated2020. The increase in direct cost of revenues of approximately $12.1 million with such increase substantiallytotal revenue is primarily attributable to increased revenue from real estate operations related to the increasesale of the Daytona Beach Development, Subsurface Interests and mitigation credits, as further described below, in addition to increased income produced by the direct costCompany’s recent income property acquisitions versus that of revenues for our real estate operationsproperties disposed of approximately $10.6 million, which primarily reflectsby the cost basis for our increased land sales revenueCompany during the year, as well ascomparative period. Revenues further benefited from increased management fee income from PINE. These increases were offset by a decrease in revenue generated from the following other elementsCompany’s portfolio of our operating results:commercial loans and investments.
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| | Gains on the disposition of income properties of approximately $12.8 million which includes the approximate $11.4 million from the completed Portfolio Sale;
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| | An increase in our general and administrative expenses of approximately $1.5 million primarily due to the net increase in non-cash stock compensation expense of approximately $992,000, which consists of an increase of approximately $1.6 million related to the acceleration of non-cash stock compensation expense in connection with the cancellation of certain grants in the first quarter of 2016 offset by a decrease in recurring stock compensation expense of approximately $657,000,and approximately $1.4 million in charges associated with legal, accounting, and director meeting fees to address certain shareholder matters, offset by reduced expense for accruals for environmental matters of approximately $662,000;
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| | An increase in depreciation and amortization of nearly $3.0 million resulting from the growth in our income property portfolio;
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| | Increased interest expense of approximately $1.8 million primarily reflecting a full year of interest on our convertible notes issuance;
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| | A decrease in our investment income of approximately $739,000 which primarily is the result of a loss recognized in the first quarter of 2016 related to the disposition of certain investment securities; and
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| | The recognition of increased impairment charges of approximately $1.7 million whereby the total impairment charges were approximately $2.2 million which related to charges of approximately $1.2 million in connection with the sales of income properties in Sebring, Florida and Altamonte Springs, Florida which were sold in April and September 2016, respectively, and impairment charges recognized on certain land sales contracts of approximately $1.0 million in 2016.
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| | | | | | | | | | | | | | Year Ended | | | | | | Income Property Operations Revenue (in thousands) | | December 31, 2021 | | December 31, 2020 | | $ Variance | | % Variance | Revenue From Recent Acquisitions | | $ | 8,846 | | $ | — | | $ | 8,846 | | 100.0% | Revenue From Recent Dispositions | | | — | | | 7,986 | | | (7,986) | | (100.0)% | Revenue From Remaining Portfolio | | | 41,429 | | | 40,213 | | | 1,216 | | 3.0% | Accretion of Above Market/Below Market Intangibles | | | 404 | | | 1,754 | | | (1,350) | | (77.0)% | Total Income Property Operations Revenue | | $ | 50,679 | | $ | 49,953 | | $ | 726 | | 1.5% |
INCOME PROPERTIES
| | | | | | | | | | | | | | Year Ended | | | | | | Real Estate Operations Revenue (in thousands) | | December 31, 2021 | | December 31, 2020 | | $ Variance | | % Variance | Mitigation Credit Sales | | $ | 708 | | $ | 6 | | $ | 702 | | 11700.0% | Subsurface Revenue | | | 4,724 | | | 638 | | | 4,086 | | 640.4% | Fill Dirt and Other Revenue | | | — | | | 6 | | | (6) | | (100.0)% | Land Sales Revenue | | | 7,995 | | | — | | | 7,995 | | 100.0% | Total Real Estate Operations Revenue | | $ | 13,427 | | $ | 650 | | $ | 12,777 | | 1965.7% |
Income Properties RevenuesRevenue and operating income from our income property operations totaled approximately $25.1$50.7 million and $19.9$36.9 million, respectively, during the year ended December 31, 2016,2021, compared to total revenue and operating income of approximately $19.0$50.0 million and $15.4$38.0 million, respectively, for the year ended December 31, 2015.2020. The direct costs of revenues for our income property operations totaled approximately $5.2$13.8 million and $12.0 million for the years ended December 31, 2021 and 2020, respectively. The increase in revenues of $0.7 million, or 1.5%, during the year ended December 31, 2016, compared to approximately $3.7 million for the year ended December 31, 2015. The 31.8% increase in revenues reflects the impact of a full year of revenue from the income-producing properties acquired in 2015, particularly the Wells Fargo single-tenant office property and the 245 Riverside property which represented approximately $5.0 million of the increase, the impact of our acquisitions in 2016, particularly the 3600 Peterson office property in the fourth quarter which represented approximately $591,000 of the increase, offset by the reduced rental income2021 is primarily related to the dispositionstiming of 19 single-tenant income properties during 2016. In addition, our revenues increased by approximately $2.1 millionacquisitions versus dispositions. The slight decrease in connection with the recognition of non-cash revenue attributable to the accretion of the above and below market lease intangibles. Our operating income from our income property operations reflects increased 29.3%, which reflects the aforementioned increasedrent revenues, offset by an increase of approximately $1.5$1.8 million in our direct costs of revenues which was primarilyis also related to the timing of acquisitions versus dispositions.
Management Services Revenue from our management services totaled $3.3 million during the year ended December 31, 2021, including $3.2 million and $0.1 million earned from PINE and the Land JV, respectively. Revenue from our management services totaled $2.7 million during the year ended December 31, 2020, including $2.5 million and $0.2 million earned from PINE and the Land JV, respectively Commercial Loans and Investments Interest income from our commercial loans and investments totaled $2.9 million and $3.0 million during the years ended December 31, 2021 and 2020, respectively. The decrease is due to an increase in costs associated with the impacttiming of a full yearinvestments and sales within the Company’s commercial loans and investments portfolio, as further described below. 2021 Portfolio. As of expense fromDecember 31, 2021, the income-producing properties acquired in 2015, particularly the Wells Fargo single-tenant office propertyCompany’s commercial loans and the 245 Riverside property which represented approximately $1.5 millioninvestments portfolio included two commercial loan investments and two commercial properties. The timing of the increase, offset by reduced operating costs at our multi-tenant propertyinvestments includes (i) the origination of one commercial loan investment during the fourth quarter of 2020, (ii) the origination of one commercial loan investment during the second quarter of 2021, and (iii) the acquisition of two commercial properties during the third quarter of 2020 and 2019, individually, which are accounted for as commercial loan investments due to future repurchase rights. 2020 Portfolio. As of December 31, 2020, the Company’s commercial loans and investments portfolio included one commercial loan investment and two commercial properties, of which one was originated during the third quarter of 2019, and two were originated during the third and fourth quarter of 2020. Additionally, during the three months ended June 30, 2020, the Company sold four of its commercial loans and investments in Winter Park, The Grove, that totaled approximately $194,000.an effort to strengthen the Company’s liquidity in light of the COVID-19 Pandemic. REAL ESTATE OPERATIONS
Real Estate Operations During the year ended December 31, 2016,2021, operating income from real estate operations was approximately $23.3$4.8 million on revenues totaling approximately $38.1 million, as compared to operating income of approximately $11.7 million on revenues totaling approximately $15.9 million, for$13.4 million. During the year ended December 31, 2015. Revenues in 2016 include approximately $17.5 million in revenue recognized on a percentage-of-completion basis for land transactions that closed in the fourth quarter of 2015 and first quarter of 2016, and $4.5 million in revenue recognized in connection with the reimbursement of certain infrastructure costs we incurred related to those land transactions. In addition, revenues include approximately $11.9 million2020, operating loss from six land transactions of approximately 707.7 acres, and approximately $1.8 million in revenue from our subsurface operations, consisting of approximately $1.3 million from the lease of Subsurface Interests, including approximately $150,000 received as a non-refundable drilling penalty, and approximately $493,000 in surface entry release revenue. Our revenues also benefited from approximately $2.2 million in the sale of impact fees and revenue from a fill dirt contract of $250,000. The direct costs of revenues for our real estate operations for the year ended December 31, 2016 and 2015 totaled approximately $14.9was $2.6 million and $4.3 million, respectively. The increase of approximately $10.6 million is due primarily to the recognition of cost basis for the land sales recognized using percentage-of-completion accounting and the larger amount of land sales in 2016. on revenues totaling $0.7 million. The operating income for our real estate operations in 2016 reflects the aforementioned net impact of our land sales and the revenue recognized on a percentage-of-completion basis.
GOLF OPERATIONS
The Company’s golf operations incurred a loss of approximately $397,000 during the year ended December 31, 2016, representing an increase of $47,000 compared2021 was primarily due to the losssale of the Daytona Beach Development for $6.25 million, in addition to the sale of approximately $350,000 in the same period in 2015. Revenues from golf operations totaled approximately $5.284,900 acres of Subsurface Interests totaling $4.6 million for the years ended December 31, 2016 and 2015. The total directsix mitigation credits totaling $0.7 million, which revenues were offset by $8.5 million aggregate cost of golf operations revenues totaled approximately $5.6 million for the years ended December 31, 2016 and 2015. The golf operations experienced a 6.8% increase in membership but the golf operations experienced a decrease in rounds played of approximately 3.4% and a reduction in the average rate per round played of approximately 6.5%. In addition, the net margin from the food and beverage operations were off approximately $106,000 year-over-year.
INTEREST INCOME FROM COMMERCIAL LOAN INVESTMENTS
Interest income from commercial loan investments totaled approximately $2.6 million and $2.7 million for the years ended December 31, 2016 and 2015, respectively, a decrease of approximately $103,000 or 3.8%. The decrease in interest income in 2016 reflects the increased interest from our commercial loan investments with a variable rate of interest offset by the impact of a fixed-rate development loan originated during 2014 that was repaid in 2015.
AGRICULTURE AND OTHER INCOME
Forsales, as compared to the year ended December 31, 2016, revenues from our agriculture operations and other income, totaled approximately $59,000, compared2020 which includes an aggregate charge to approximately $79,000 during the same period in 2015. For the year ended December 31, 2016, the direct costscost of revenues totaled approximately $167,000, compared to approximately $227,000 during the same period in 2015 reflecting a decreasesales totaling $3.1 million, primarily comprised of $2.9 million attributable to 42 mitigation credits provided at no cost to buyers in addition to the eliminationCompany’s purchase of payroll associated with this segment.two mitigation credits for $0.2 million.
GENERAL AND ADMINISTRATIVE AND OTHER CORPORATE EXPENSES
General and Administrative Expenses Total general and administrative expenses for the year ended December 31, 20162021 is presented in the following summary and indicates the changes as compared to the year ended December 31, 2015:2020 (in thousands): | | | | | | | | | | G&A Expense | | Decrease (Increase) | | | | Year Ended | | Vs. Same Period | | | | 12/31/2016 | | in 2015 | | General and Administrative Expenses | | ($000's) | | ($000's) | | Recurring General and Administrative Expenses | | $ | 5,535 | | $ | (302) | | Non-Cash Stock Compensation | | | 3,179 | | | (993) | | Environmental Reserves | | | — | | | 917 | | Other Non-Recurring G&A | | | 199 | | | 1 | | Non-Recurring Payroll (Severance) | | | — | | | 127 | | Shareholder Matter Legal and Related Costs | | | 1,385 | | | (1,294) | | Total General and Administrative Expenses | | $ | 10,298 | | $ | (1,544) | | | | | | | | | |
General
| | | | | | | | | | | | | | Year Ended | | | | | | General and Administrative Expenses | | December 31, 2021 | | December 31, 2020 | | $ Variance | | % Variance | Recurring General and Administrative Expenses | | $ | 7,879 | | $ | 7,355 | | $ | 524 | | 7.1% | Non-Cash Stock Compensation | | | 3,168 | | | 2,786 | | | 382 | | 13.7% | REIT Conversion and Other Non-Recurring Items | | | 155 | | | 1,426 | | | (1,271) | | (89.1)% | Total General and Administrative Expenses | | $ | 11,202 | | $ | 11,567 | | $ | (365) | | (3.2)% |
Gains (Losses) and administrative expensesImpairment Charges 2021 Dispositions. During the year ended December 31, 2021, the Company sold one multi-tenant income property and 14 single-tenant income properties for a total disposition volume of $162.3 million. The sale of the properties generated aggregate gains of $28.2 million. The income properties disposed of during the year ended December 31, 2021 are described below (in thousands): | | | | | | | | | | | Tenant Description | | Tenant Type | | Date of Disposition | | Sales Price | | Gain on Sale | World of Beer/Fuzzy's Taco Shop, Brandon, FL | | Multi-Tenant | | 01/20/21 | | $ | 2,310 | | $ | 599 | Moe's Southwest Grill, Jacksonville, FL (4) | | Single-Tenant | | 02/23/21 | | | 2,541 | | | 109 | Burlington, N. Richland Hills, TX | | Single-Tenant | | 04/23/21 | | | 11,528 | | | 62 | Staples, Sarasota, FL | | Single-Tenant | | 05/07/21 | | | 4,650 | | | 662 | CMBS Portfolio (1) | | Single-Tenant | | 06/30/21 | | | 44,500 | | | 3,899 | Chick-fil-A, Chandler, AZ (4) | | Single-Tenant (2) | | 07/14/21 | | | 2,884 | | | 1,582 | JPMorgan Chase Bank, Chandler, AZ (4) | | Single-Tenant (2) | | 07/27/21 | | | 4,710 | | | 2,738 | Fogo De Chao, Jacksonville, FL (4) | | Single-Tenant (3) | | 09/02/21 | | | 4,717 | | | 866 | Wells Fargo, Raleigh, NC | | Single-Tenant | | 09/16/21 | | | 63,000 | | | 17,480 | 24 Hour Fitness, Falls Church, VA | | Single-Tenant | | 12/16/21 | | | 21,500 | | | 212 | Total | | $ | 162,340 | | $ | 28,209 |
(1) | On June 30, 2021, the Company sold the CMBS Portfolio to PINE for an aggregate purchase price of $44.5 million. |
(2) | Represents a single-tenant outparcel to Crossroads Towne Center, the Company’s multi-tenant income property located in Chandler, Arizona. |
(3) | Represents a single-tenant property at The Strand at St. Johns Town Center, the Company’s multi-tenant income property located in Jacksonville, Florida. |
(4) | Property or outparcel represents a ground lease. |
2020 Dispositions. During the year ended December 31, 2020, the Company sold 11 income properties and one vacant land parcel for a total disposition volume of $86.5 million. The sale of the properties generated aggregate gains of $8.6 million. In addition to the income property and vacant land parcel dispositions, the Company sold eight of its remaining nine billboard sites for a sales price of $1.5 million, resulting in a gain equal to the sales price. The income properties disposed of during the year ended December 31, 2020 are described below (in thousands): | | | | | | | | | | | Tenant Description | | Tenant Type | | Date of Disposition | | Sales Price | | Gain (Loss) on Sale | CVS, Dallas, TX (1) | | Single-Tenant | | 04/24/20 | | $ | 15,222 | | $ | 854 | Wawa, Daytona Beach, FL (1) | | Single-Tenant | | 04/29/20 | | | 6,002 | | | 1,769 | JPMorgan Chase Bank, Jacksonville, FL (1) | | Single-Tenant | | 06/18/20 | | | 6,715 | | | 959 | 7-Eleven, Dallas, TX | | Multi-Tenant | | 06/26/20 | | | 2,400 | | | (46) | Bank of America, Monterey, CA (1) | | Single-Tenant | | 06/29/20 | | | 9,000 | | | 3,892 | Wawa, Jacksonville, FL (1) | | Single-Tenant | | 07/23/20 | | | 7,143 | | | 246 | Carrabbas, Austin, TX | | Single-Tenant | | 08/05/20 | | | 2,555 | | | (84) | PDQ, Jacksonville, FL (1) | | Single-Tenant | | 09/08/20 | | | 2,540 | | | 128 | Macaroni Grill, Arlington, TX | | Single-Tenant | | 10/13/20 | | | 2,500 | | | 68 | Aspen Development, Aspen, CO | | Single-Tenant | | 12/21/20 | | | 28,500 | | | 501 | Outback, Austin, TX | | Single-Tenant | | 12/23/20 | | | 3,402 | | | 222 | Total | | $ | 85,979 | | $ | 8,509 |
(1) | Property represents a ground lease. |
Commercial Loans and Investments. In light of the COVID-19 Pandemic, during the three months ended March 31, 2020, the Company began marketing its commercial loan portfolio in advance of their upcoming maturities to further strengthen the Company’s liquidity. The Company received multiple bids for the portfolio including a bid offering a value that was at a discount to par. Additionally, the Company implemented the guidance regarding current expected credit losses (“CECL”) effective January 1, 2020, which resulted in an allowance reserve of $0.3 million. The CECL reserve combined with the impairment related to marketing the loan portfolio resulted in an aggregate impairment charge on the loan portfolio of $1.9 million. Additionally, during the year ended December 31, 2020, the Company sold four of its commercial loans investments in two separate transactions generating aggregate proceeds of $20.0 million, resulting in a loss of $0.4 million during the three months ended June 30, 2020. The total loss on the loan portfolio disposition, including the impairment and CECL reserve charges in the three months ended March 31, 2020, was $2.1 million. There were no losses on the Company’s commercial loans and investments portfolio during the year ended December 31, 2021. 2025 Note Repurchases. During the year ended December 31, 2021, the Company repurchased $11.4 million aggregate principal amount of 2025 Notes at a $1.6 million premium, resulting in a loss on extinguishment of debt of $2.9 million. During the year ended December 31, 2020, the Company repurchased $12.5 million aggregate principal amount of 2025 Notes at a $2.6 million discount, resulting in a gain on extinguishment of debt of $1.1 million. Mortgage Note Payable. In connection with the disposition of the CMBS Portfolio during the second quarter of 2021 and related assumption by the buyer of the Company’s $30.0 million fixed-rate mortgage note payable, the Company recognized a $0.5 million loss on extinguishment of debt related to the write-off of unamortized financing costs. Impairment Charges. There were no impairment charges on the Company’s undeveloped land holdings, or its income property portfolio, during the years ended December 31, 2021 or 2020. The $17.6 million impairment charge recognized during the year ended December 31, 2021, which is comprised of a $16.5 million charge during the three months ended June 30, 2021 and a $1.1 million charge during the three months ended December 31, 2021, is related to the Company’s previously held retained interest in the Land JV. The aggregate impairment charge of $17.6 million is a result of eliminating the investment in joint ventures based on the final proceeds received through distributions of the Land JV in connection with closing the sale of substantially all of the Land JV’s remaining land with Timberline, for a final sales price of $66.3 million. Additionally, during the year ended December 31, 2020, the Company recognized an aggregate $7.2 million impairment charge comprised of a $0.1 million impairment charge on one of the land parcels included in the Daytona Beach Development and a $ 7.1 million impairment charge on the Company’s previously held retained interest in the Land LV. The $7.1 million impairment on the Company’s previously held retained interest in the Land JV was the result of a re-forecast of the anticipated undiscounted future cash flows to be received by the Company based on the estimated timing of future land sales from the Land JV. Depreciation and Amortization Depreciation and amortization totaled approximately$20.6 million and $19.1 million during the years ended December 31, 2021 and 2020, respectively. The increase of $1.5 million is primarily due to the increase in the Company’s income property portfolio. Investment and Other Income (Loss) During the year ended December 31, 2021, the closing stock price of PINE increased by $5.05 per share, with a closing price of $20.04 on December 31, 2021. During the year ended December 31, 2020, the closing stock price of PINE decreased by $4.04 per share, with a closing price of $14.99 on December 31, 2020. The increase (decrease) resulted in an unrealized, non-cash gain (loss) on the Company’s investment in PINE of $10.3 million and approximately $8.8($8.2) million which is included in investment and other income (loss) in the consolidated statements of operations for the years ended December 31, 2021 and 2020, respectively. The Company earned dividend income from the investment in PINE of $2.1 million and $1.7 million during the years ended December 31, 2021 and 2020, respectively. Interest Expense Interest expense totaled $8.9 million and $10.8 million for the years ended December 31, 20162021 and 2015, respectively, an increase2020, respectively. The decrease of approximately $1.5 million.$1.9 million resulted primarily from (i) the repurchase of $11.4 million aggregate principal amount of 2025 Notes and (ii) the disposition of the CMBS Portfolio under which the buyer assumed a $30.0 million fixed-rate mortgage note. The increase includes approximately $1.2assumed $30.0 million in costs for legal representation, accountingmortgage note and audit fees,the 2025 Notes both had higher interest rates than the Credit Facility and director fee expenses related to communications received from our largest shareholder and approximately $200,000 in costs associated with our Strategic Review process. In addition, the increase includes approximately $992,000 in stock compensation expense, which consists of an increase of approximately $1.6 million relatedNet Income
Net income attributable to the acceleration of non-cash stock compensation expense in connection with the cancellation of certain grants in the first quarter of 2016 offset by a decrease in recurring stock compensation expense of approximately $657,000. The increased costs were partially offset by a decrease of approximately $662,000 in costs that were incurred during 2015 related to certain environmental reserves accrued. INTEREST EXPENSE
Interest expenseCompany totaled approximately $8.8$29.9 million and $6.9$78.5 million forduring the years ended December 31, 20162021 and 2015,2020, respectively. The higher interest expense for 2016, reflectsdecrease in net income is attributable to the fullfactors described above in addition to the $83.5 million income tax benefit recorded during the year impactended December 31, 2020, primarily related to the de-recognition of the $75.0deferred tax assets and liabilities associated with the entities included in the REIT totaling $82.5 million, convertible debt issuance during the first quarter of 2015 offset by our pay downas a result of the credit facilityCompany’s REIT election.
LIQUIDITY AND CAPITAL RESOURCES Cash totaled $21.2 million at December 31, 2022, including restricted cash of approximately $4.0 million. Also included$1.9 million, see Note 2 “Summary of Significant Accounting Policies” under the heading Restricted Cash in interest expense inthe notes to the consolidated financial statements is the amortization of loan costs incurred in connection withItem 8 for the Company’s long-term debt and the amortization of the discount on the convertible debt. LIQUIDITY AND CAPITAL RESOURCES
Cash totaled approximately $6.6 milliondisclosure related to its restricted cash balance at December 31, 2017, with restricted cash of approximately $6.5 million of which approximately $5.6 million is being held for investments utilizing the tax-deferred like-kind exchange structure, as well as certain escrows related to tenant improvements, reserves for property taxes and insurance required by our secured debt, and for escrow accounts related to certain land transactions.2022.
Our total cash balance at December 31, 2017, reflects2022, reflected cash flowflows provided by our operating activities totaling $56.1 million during the year ended December 31, 2022, compared to the prior year’s cash flows provided by operating activities totaling approximately $57.5$27.6 million in 2017 compared tofor the prior year which totaled approximately $14.3 million,ended December 31, 2021, an increase of approximately $43.2$28.5 million. In additionThe increase of $28.5 million is primarily related to the increase in our net income of approximately $25.5 million, the increase in our cash flowflows provided by operations was due to increased depreciation and amortizationthe Company’s portfolio of approximately $4.5 million, certain balance sheet adjustments including the decrease in our land by approximately $12.1 million reflecting our increased land sales during 2017, and the absence ofincome properties as a change in our deferred revenue in 2017 versus the reduction of approximately $12.8 million in 2016. A large component of the increase in net income was the result of the non-cash decreaseoverall growth in 2022 and 2021. Additionally, the Company sold the Mitigation Bank for a sales price of $8.1 million during the year ended December 31, 2022, while the company utilized cash of $16.1 million to purchase the remaining interest in the total deferred income tax liability, a decreaseMitigation Bank during the year ended December 31, 2021, for an increase in cash of approximately $20.6 million, which was primarily the result of the reduction in the federal corporate tax rate from 35% to 21%.$24.2 million. Our cash flows used in investing activities totaled approximately $79.2$267.6 million for the year ended December 31, 2017,2022, compared to cash flows used in investing activities of $103.0 million for the year ended December 31, 2021, an increase of approximately $55.8$164.6 million. The increase in cash used in investing activities of $164.6 million versus 2016. In 2017 we deployed approximately $97.6is primarily related to a net increase in cash outflows of $146.2 million of investment capital including $94.6 millionduring the year ended December 31, 2022 related to the timing of income property acquisitions and improvements and nearly $3.0versus dispositions, which increase in cash outflows was partially offset by $8.6 million in an investment in a mortgage loan. This compares withnet proceeds received from the deployment of approximately $92.6 million in 2016 to acquire income properties and an approximately $4.8 million investment in land related to our purchasetiming of the remaining 50% interestinvesting in the beach parcel. The investments in 2017 were offset by $15.0 million in principal payments received on our loan investments which relates to the sale of our two mezzanine loans. In 2016, the deployment of capital was offset by proceeds from the sale of a portfolio of 14 income propertiesCompany’s commercial loans and 5 other income properties totaling approximately $49.2 million, proceeds from the sale of investment securities which totaled approximately $6.3 million, and principal payments received on our loan investments totaling approximately $14.3 million. portfolio. Our cash flows provided by financing activities totaled approximately $20.5$201.4 million for the year ended December 31, 2017,2022, compared to cash flows provided by financing activities of $72.9 million for the year ended December 31, 2021, an increase in cash of approximately $7.6$128.5 million. The increase of $128.5 million versus 2016. Net borrowings on our credit facility totaled approximately $28.4 million in 2017 versus approximately $21.0 million in 2016,is primarily related to an increase in net borrowingsdebt of approximately $7.4 million. Our net borrowings in 2017 included a draw on our credit facility to repay the $7.3$146.7 million permanent financing on the two properties leased to Hilton Grand Vacations in Orlando, Florida (the “Hilton Properties”) which was scheduled to mature in 2018. In addition, the proceeds we received from the exercise of stock options increased by approximately $1.0as well as $21.9 million in 2017 compared to 2016. Long-term debt, at face value, totaled approximately $200.0 million at December 31, 2017, representing an increase of approximately $28.4 millionincreased proceeds from the balance of approximately $171.6 million at December 31, 2016. The increase in the long-term debt was due primarily to the net draws on our credit facility of approximately $35.7 million, offset by the repayment of the $7.3 million first mortgage loan that was secured by our Hilton Properties.
As of December 31, 2017, the Company’s outstanding indebtedness, at face value, was as follows:
| | | | | | | | | | | | Face | | Maturity | | Interest | | | Value Debt | | Date | | Rate | Credit Facility | | $ | 70,000,000 | | September 2021 | | | 30 ‑day LIBOR
plus 1.50% -2.20% | Mortgage Note Payable (originated with Wells Fargo) (1) | | | 30,000,000 | | October 2034 | | | 4.330% | Mortgage Note Payable (originated with Wells Fargo) (2) | | | 25,000,000 | | April 2021 | | | 30 ‑day LIBOR
plus 1.90% | 4.50% Convertible Senior Notes due 2020, net of discount | | | 75,000,000 | | March 2020 | | | 4.500% | Total Long-Term Face Value Debt | | $ | 200,000,000 | | | | | | |
(1)Secured by the Company’s interest in six income properties. The mortgage loan carries a fixed rate of 4.33% per annum during the first ten years of the term, and requires payments of interest only during the first ten years of the loan. After the tenth anniversary of the effective date of the loan, the cash flows, as defined in the related loan agreement, generated by the underlying six income properties must be used to pay down the principal balance of the loan until paid off or until the loan matures. The loan is fully pre-payable after the tenth anniversary of the effective date of the loan.
(2)Secured by the Company’s income property leased to Wells Fargo located in Raleigh, North Carolina. The mortgage loan has a 5-year term with two years interest only, and interest and a 25-year amortization for the balance of the term. The mortgage loan bears a variable rate of interest based on the 30-day LIBOR plus a rate of 190 basis points. The interest rate for this mortgage loan has been fixed through the use of an interest rate swap that fixed the rate at 3.17%. The mortgage loan can be prepaid at any time subject to the termination of the interest rate swap.
Credit Facility. The Company’s revolving credit facility (the “Credit Facility”), with Bank of Montreal (“BMO”) serving as the administrative agent for the lenders thereunder, is unsecured with regard to our income property portfolio but is guaranteed by certain wholly-owned subsidiaries of the Company. The Credit Facility bank group is led by BMO and also includes Wells Fargo and Branch Banking & Trust Company. On September 7, 2017, the Company executed the second amendment and restatement of the Credit Facility (the “Revolver Amendment”). Pursuant to the Revolver Amendment, the Credit Facility matures on September 7, 2021, with the ability to extend the term for 1 year.
As a result of the Revolver Amendment, the Credit Facility has a total borrowing capacity of $100.0 million, with the ability to increase that capacity up to $150.0 million during the term. The Credit Facility provides the lenders with a security interest in the equity of the Company subsidiaries that own the properties included in the borrowing base. The indebtedness outstanding under the Credit Facility accrues interest at a rate ranging from the 30-day LIBOR plus 150 basis points to the 30-day LIBOR plus 220 basis points based on the total balance outstanding under the Credit Facility as a percentage of the total asset value of the Company, as defined in the Credit Facility. The Credit Facility also accrues a fee of 15 to 25 basis points for any unused portion of the borrowing capacity based on whether the unused portion is greater or less than 50% of the total borrowing capacity.
At December 31, 2017, the current commitment level under the Credit Facility was $100.0 million. The available borrowing capacity under the Credit Facility was approximately $30.0 million, based on the level of borrowing base assets. As of December 31, 2017, the Credit Facility had a $70.0 million balance. During the first quarter of 2018, the Company expanded the commitment under its Credit Facility to $130.0 million, providing an additional capacity of approximately $60.0 million, based on the outstanding balance as of December 31, 2017 of approximately $70.0 million.
The Credit Facility is subject to customary restrictive covenants including, but not limited to, limitations on the Company’s ability to: (a) incur indebtedness; (b) make certain investments; (c) incur certain liens; (d) engage in certain affiliate transactions; and (e) engage in certain major transactions such as mergers. In addition, the Company is subject to various financial maintenance covenants including, but not limited to, a maximum indebtedness ratio, a maximum secured indebtedness ratio, and a minimum fixed charge coverage ratio. The Credit Facility also contains affirmative covenants and events of default including, but not limited to, a cross default to the Company’s other indebtedness and upon the occurrencecapital markets activity which consisted of a change in control. The Company’s failure to comply with these covenants or the occurrence of an event of default could result in acceleration of the Company’s debtcommon stock offering and other financial obligations under the Credit Facility.
Mortgage Notes Payable. In addition to the Credit Facility, the Company has certain other borrowings, as noted in the table above, all of which are non-recourse. The Mortgage Note Payable originated with UBS Real Estate Securities, Inc. for $7.3 million was repaidATM activity during during the year ended December 31, 2017.2022 versus a Series A Preferred Stock offering during the year ended December 31, 2021.
Convertible Debt. The Company’s $75.0 million aggregate principal amount of 4.50% Convertible Notes will mature on March 15, 2020, unless earlier purchased or converted. The initial conversion rate was 14.5136 shares of common stockSee Note 16, “Long-Term Debt” in the notes to the consolidated financial statements in Item 8 for each $1,000 principal amount of Convertible Notes, which represented an initial conversion price of approximately $68.90 per share of common stock. Since July of 2016, when the Company’s Board of Directors implemented a quarterly dividend in place of the previous semi-annual dividend, the conversion rate has been adjusted with each successive quarterly dividenddisclosure related to its long-term debt balance at December 31, 2022.
Acquisitions and is currently, after the fourth quarter 2017 dividend, equal to 14.5515 shares of common stock for each $1,000 principal amount of Convertible Notes, which represents an adjusted conversion price of approximately $68.72 per share of common stock. The conversion rate is subject to adjustment in certain circumstances. Holders may not surrender their Convertible Notes for conversion prior to December 15, 2019, except upon the occurrence of certain conditions relating to the closing sale price of the Company’s common stock, the trading price per $1,000 principal amount of Convertible Notes, or specified corporate events including a change in control of the Company.Investments. The Company may not redeem the Convertible Notes prior to the stated maturity dateacquired four multi-tenant income properties and no sinking fund is provided for the Convertible Notes. The Convertible Notes are convertible, at the electionone portfolio of the Company, into solely cash, solely shares of the Company’s common stock, or a combination of cash and shares of the Company’s common stock. The Company intends to settle the Convertible Notes in cash upon conversion, with any excess conversion value to be settled in shares of our common stock. In accordance with GAAP, the Convertible Notes are accounted for as a liability with a separate equity component recorded for the conversion option. A liability was recorded for the Convertible Notes on the issuance date at fair value based on a discounted cash flow analysis using current market rates for debt instruments with similar terms. The difference between the initial proceeds from the Convertible Notes and the estimated fair value of the debt instruments resulted in a debt discount, with an offset recorded to additional paid-in capital representing the equity component. The discount on the Convertible Notes was approximately $6.1 million at issuance, which represents the cash discount paid of approximately $2.6 million and the approximate $3.5 million attributable to the value of the conversion option recorded in equity, which is being amortized into interest expense through the maturity date of the Convertible Notes. As of December 31, 2017, the unamortized debt discount of our Convertible Notes was approximately $2.9 million.
Acquisitions and Investments. As noted previously, the Company invested approximately $79.8 million to acquire six incomethree single-tenant properties during the year ended December 31, 2017. These acquisitions included2022 for an aggregate purchase price of $314.0 million, as further described in Note 3, “Income Properties” in the following:notes to the consolidated financial statements in Item 8.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Tenant Description | | Tenant Type | | Property Location | | Date of Acquisition | | Property Square-Feet | | Property Acres | | Purchase Price | | Percentage Leased | | Remaining Lease Term (in years) | Staples, Inc. (an affiliate of) | | Single-Tenant | | Sarasota, Florida | | 01/27/17 | | 18,120 | | 1.2 | | $ | 4,075,000 | | | 100% | | | 5.0 | Grocery-Anchored Shopping Center (Westcliff) | | Multi-Tenant | | Fort Worth, Texas | | 03/01/17 | | 136,185 | | 10.3 | | | 15,000,000 | | | 96% | | | 4.1 | JoAnn Stores, Inc. | | Single-Tenant | | Saugus, Massachusetts | | 04/06/17 | | 22,500 | | 2.6 | | | 6,315,000 | | | 100% | | | 11.8 | LA Fitness
Multi-Tenant Retail Building | | Single-Tenant
Multi-Tenant | | Brandon, Florida | | 04/28/17 | | 45,000
6,715 | | 5.3 | | | 14,650,000 | | | 100% | | | 13.9 | Wells Fargo Bank, N.A. | | Single-Tenant | | Hillsboro, Oregon | | 10/27/17 | | 211,863 | | 18.9 | | | 39,750,000 | | | 100% | | | 8.2 | | | | | | | | | 440,383 | | | | $ | 79,790,000 | | | | | | 8.9 |
We are targeting investments between approximately $80.0 million to $120.0 million in income-producing properties during 2018. We currently are not planning to make investments in commercial loans secured by commercial real estate in 2018. We expect to fund ourfuture acquisitions utilizing available capacity under our credit facility,cash on hand, cash from operations, proceeds from land sales transactions, possibly the dispositions of income properties through Section 1031 like-kind exchanges, and potentially the sale of all or a portion of our Subsurface Interests, eachand borrowings on our Credit Facility, if available. We expect dispositions of which we expectincome properties and Subsurface Interests will qualify under the like-kind exchange deferred-tax structure, and additional financing sources.
Dispositions. There were no income property dispositions during During the year ended December 31, 2017. Capital Expenditures. In conjunction with2022, the Company’sCompany sold six properties, two of which were classified as a commercial loan investment due to the respective tenants’ repurchase options, for $81.1 million. The sale of approximately 3.4 acresthe properties generated aggregate gains of land to RaceTrac in December 2013, the$4.7 million.
Contractual Obligations. The Company agreed to reimburse RaceTrac for a portion of the costs for road improvements and the other costs associated with bringing multiple ingress/egress points to the entire 23 acre Williamson Crossing site, including the Company’s remaining 19.6 acres. The estimated cost for the improvements equals approximately $1.26 million, and the Company’s commitment is to reimburse RaceTrac in an amount equal to the lesser of 77.5% of the actual costs or $976,500. The Company’s commitmenthas committed to fund the improvement costs benefiting the remaining Company land within Williamson Crossing can be paid over five years utilizing proceeds from sales of the remaining land or at the end of the fifth year. In 2013, the Company deposited $283,500 of cash in escrowfollowing capital improvements. The improvements, which are related to the improvements, which is classified as restricted cash in the consolidated balance sheets. The total amount in escrowseveral properties, are estimated to be generally completed within twelve months. These commitments, as of December 31, 2017 was approximately $288,000, including accrued interest. Accordingly,2022, are as of December 31, 2017, the remaining maximum commitment is approximately $689,000.follows (in thousands):
| | | | | | As of December 31, 2022 | Total Commitment (1) | | $ | 29,033 | Less Amount Funded | | | (7,812) | Remaining Commitment | | $ | 21,221 |
(1) Commitment includes tenant improvements, leasing commissions, rebranding, facility expansion and other capital improvements. In conjunction with the Company’s sale of approximately 18.1 acres of land to an affiliate of Sam’s Club (“Sam’s”) in December 2015,addition, the Company agreedis committed to reimburse Sam’s for a portion of theirfund the two construction costs applicable to adjacent outparcels retained by the Company. As a result, in December 2015, the Company deposited $125,000 of cash in escrow related to construction work which remains classified as restricted cash in the consolidated balance sheets. The total amount in escrow as of December 31, 2017 was approximately $125,000, including accrued interest. Accordingly, the Company’s maximum commitment related to the construction work benefitting the outparcels adjacent to Sam’s land parcel is approximately $125,000, to be paid from escrow upon completion. In conjunction with the Company’s development of two single-tenant income properties, both restaurants, on the beach parcelloans as described in Note 4, “Land“Commercial Loans and Subsurface Interests,” the Company executed multiple contracts with third-parties to perform the work necessary to prepare the site, construct the restaurants, and acquire the related furniture and equipment. Pursuant to the leases with the tenantsInvestments”. The unfunded portion of the two restaurant properties, LandShark and Cocina 214, and based on the Company’s current cost estimates, the total estimated cost to improve the land and develop the income properties is approximately $6.7 million. Throughconstruction loans totaled $5.6 million of December 31, 2017,2022.
The Company is also contractually obligated under its various long-term debt and operating lease agreements. In the Company has incurred approximately $5.9 million of the total estimated cost, which is included in Construction in Progress on the Company’s consolidated balance sheets, leaving a remaining commitment of approximately $858,000. The development of the two restaurant properties was completed in time for the tenants to commence operations during January of 2018. Accordingly, during the first quarter of 2018, the total investment in the beach parcel and the construction costs of the two single-tenant properties will be classified as Income Properties, Land, Building, and Improvements, within the Property, Plant, and Equipment classification on the Company’s consolidated balance sheets. In conjunction with the extension of the leases with Hilton Grand Vacations executed during the fourth quarter of 2017,aggregate, the Company is obligated under such agreements to fund the Income Property Lease Incentive to Hilton Grand Vacations, as described in Note 9, “Other Assets” in the amount of approximately $2.7repay $447.6 million as of December 31, 2017. This payment was made during January 2018.
In connection with the Golf Course Land Purchase, each year the Company is obligated to pay the City additional consideration in the amount of an annual surcharge of $1 per golf round played (the “Per-Round Surcharge”) with an annual minimum Per-Round Surcharge of $70,000 and a maximum aggregate amount of the Per-Round Surcharges paid equal to $700,000. The maximum amount of $700,000 represents contingent consideration and has been recorded as an increase in Golf Buildings, Improvements, and Equipment and Accrued and Other Liabilities in the accompany consolidated balance sheets as of December 31, 2017. The first annual payment of $70,000 was made in January 2018 leaving a remaining commitment of $630,000 as of the date of this report.
In connection with a certain land sale contract to which the Company is a party, the purchaser’s pursuit of customary development entitlements gave rise to an inquiry by federal regulatory agencies regarding prior agricultural activities by the Company on such land. During the second quarter of 2015, we received a written information request regarding such activities. We submitted a written response to the information request along with supporting documentation. During the fourth quarter of 2015, based on discussions with the agency, a penalty related to this matter was deemed probable, and accordingly the estimated penalty of $187,500 was accrued as of December 31, 2015, for which payment was made during the quarter ended September 30, 2016. Also during the fourth quarter of 2015, the agency advised the Company that the resolution to the inquiry would likely require the Company to incur costs associated with wetlands restoration relating to approximately 148.4 acres of the Company’s land. At December 31, 2015, the Company’s third-party environmental engineers estimated the cost for such restoration activities to range from approximately $1.7 million to approximately $1.9 million. Accordingly, as of December 31, 2015, the Company accrued an obligation of approximately $1.7 million, representing the low end of the estimated range of possible restoration costs, and included such estimated costs on the consolidated balance sheets as an increase in the basis of our land and development costs associated with those and benefitting surrounding acres. As of June 30, 2016, the final proposal from the Company’s third-party environmental engineer was received reflecting a total cost of approximately $2.0 million. Accordingly, an increase in the accrual of approximately $300,000 was made during the second quarter of 2016. The Company has funded approximately $1.3 million of the total $2.0 million of estimated costs through December 31, 2017. The Company believes there is at least a reasonable possibility that the estimated remaining liability of approximately $708,000 could change within one year of
the date of the consolidated financial statements, which in turn could have a material impact on the Company’s consolidated balance sheets and future cash flows. The Company evaluates its estimates on an ongoing basis; however, actual results may differ from those estimates.
During the first quarter of 2017, the Company completed the sale of approximately 1,581 acres of land to Minto Communities LLC which acreage represents a portion of the Company’s remaining $708,000 obligation. Accordingly, the Company deposited $423,000 of cash in escrow to secure performance on the obligation. The funds in escrow can be drawn upon completion of certain milestones including completion of restoration and annual required monitoring. The first such milestone was achieved during the fourth quarter of 2017 and $189,500 of the escrow was refunded leaving an escrow balance of approximately $234,000 as of December 31, 2017. Additionally, resolution of the regulatory matter required the Company to apply for an additional permit pertaining to an additional approximately 54.66 acres, which permit may require mitigation activities which the Company anticipates could be satisfied through the utilization of existing mitigation credits owned by the Company or the acquisition of mitigation credits. Resolution of this matter allowed the Company to obtain certain permits from the applicable federal or state regulatory agencies needed in connection with the closing of the land sale contract that gave rise to this matter. As of June 30, 2017, the Company determined that approximately 36 mitigation credits were requiredbeing long-term to be utilized, which represents approximately $298,000repaid in cost basisexcess of the Company’s mitigation credits. Accordingly, the Company transferred the mitigation credits through a charge to direct cost of revenues of real estate operations during the three months ended June 30, 2017, thereby resolving the required mitigation activities related to the approximately 54.66 acres. In addition, in connection with other land sale contracts to which the Company is or may become a party, the pursuit of customary development entitlements by the potential purchasers may require the Company to utilize or acquire mitigation credits for the purpose of obtaining certain permits from the applicable federal or state regulatory agencies. Any costs incurred in connection with utilizing or acquiring such credits would be incorporated into the basis of the land under contract. No amounts related to such potential future costs have been accrued as of December 31, 2017.one year.
As of December 31, 2017,2022, we have no other contractual requirements to make capital expenditures. During the period from the fourth quarter of 2015 through the first quarter of 2016, the Company received communications from Wintergreen Advisers, LLC (“Wintergreen”), some of which have been filed publicly. In investigating Wintergreen’s allegations contained in certain of these communications, in pursuing the strategic alternatives process suggested by Wintergreen, and in engaging in a proxy contest in 2017, the Company has incurred costs of approximately $3.0 million, to date, through December 31, 2017. Approximately $1.6 million of the approximately $3.0 million was incurred during the year ended December 31, 2017, of which approximately $1.2 million is specifically for legal representation and third party costs related to the proxy contest. None of Wintergreen’s allegations, which included allegations regarding inadequate disclosure and other wrong-doing by the Company and its directors and officers, were found to have any basis or merit.Other Matters. None.
We believe we will have sufficient liquidity to fund our operations, capital requirements, maintenance, and debt service requirements over the next twelve months and into the foreseeable future, with cash on hand, cash flow from our operations and approximately $30.0$186.2 million of available capacity on the existing $100.0$300.0 million Credit Facility, based on our current borrowing base of income properties, as of December 31, 2017. During the first quarter of 2018, the Company expanded the commitment under its Credit Facility to $130.0 million, providing an additional capacity of approximately $60.0 million, based on the outstanding balance as of December 31, 2017 of approximately $70.0 million.2022. In February 2020, the fourth quarter of 2015, the Company announcedBoard approved a $10$10.0 million stock repurchase program (the “$10 Million Repurchase Program”). As of March 29, 2017, the $10 Million Repurchase Program had been completed. In the first quarter of 2017, the Company announced a new $10 million stock repurchase program (the “New $10 Million Repurchase Program”) under which approximately $4.6 million of the Company’s common stock had been repurchased as of December 31, 2017. In the aggregate, duringprogram. During the year ended December 31, 2017, under both programs,2020, the Company repurchased 135,32988,565 shares for $4.1 million, or an average price of $46.29 per share. During the year ended December 31, 2021, the Company repurchased 40,553 shares for $2.2 million, or an average price of $54.48 per share. During the year ended December 31, 2022, the Company repurchased 145,724 shares of its common stock on the open market for a total cost of approximately $7.2$2.8 million, or an average price per share of $53.27,$19.15. The repurchase program does not have an expiration date. The shares of the Company’s common stock repurchased pursuant to the repurchase program were cancelled. On February 16, 2023, the Company’s Board of Directors approved a common stock repurchase program, which is expected to be in effect until the approved dollar amount has been used to repurchase shares (the “Common Stock Repurchase Program”). Pursuant to the Common Stock Repurchase Program, the Company may repurchase shares of its common stock for a total purchase price of up to $5.0 million at an average per share purchase price equal to or less than $17.00. Shares may be purchased under the Common Stock Repurchase Program in open market transactions, including through block purchases, through privately negotiated transactions or pursuant to any trading plan that may be adopted in accordance with Rule 10b5-1 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). The Common Stock Repurchase Program does not obligate the Company to acquire any particular amount of shares of its common stock and placed those shares in treasury.may be modified or suspended. Our Board of Directors and management consistently review the allocation of capital with the goal of providing the best long-term return for our shareholders.stockholders. These reviews consider various alternatives, including increasing or decreasing regular dividends, repurchasing stock,the Company’s securities, and retaining funds for reinvestment. Annually, the Board reviews our business plan and corporate strategies, and makes adjustments as circumstances warrant. Management’s focus is to continue our strategy to diversify our portfolio by redeploying proceeds from like-kind exchange transactions and utilizing our Credit Facility to increase our portfolio of income-producing properties, providing stabilized cash flows with goodstrong risk-adjusted returns primarily in larger metropolitan areas and growth markets. CONTRACTUAL OBLIGATIONS AND COMMITMENTS57
We have various contractual obligations, which are recorded as liabilities in our consolidated financial statements. Other items, such as certain development obligations, are not recognized as liabilities in our consolidated financial statements, but are required to be disclosed.
The following table summarizes our significant contractual obligations and commercial commitments on an undiscounted basis at December 31, 2017, and the future periods in which such obligations are expected to be settled in cash. In addition, the table reflects the timingTable of principal and interest payments on outstanding borrowings.Contents
PAYMENT DUE BY PERIOD
| | | | | | | | | | | | Contractual Obligations | | Total | | Less Than 1 Year | | 1-3 Years | | 3-5 Years | | More Than 5 Years | | | | $ | | $ | | $ | | $ | | $ | | Long-Term Debt Obligations | | 200,000,000 | | — | | 75,000,000 | | 95,000,000 | | 30,000,000 | | Operating Leases Obligations | | 374,567 | | 150,689 | | 218,138 | | 5,740 | | — | | Construction and Other Commitments | | 5,394,171 | | 4,826,537 | | 567,634 | | — | | — | | Total | | 205,768,738 | | 4,977,226 | | 75,785,772 | | 95,005,740 | | 30,000,000 | |
CRITICAL ACCOUNTING POLICIESESTIMATES The consolidated condensed financial statements includedCritical accounting estimates include those estimates made in this Annual Report are prepared in conformityaccordance with U.S. generally accepted accounting principles (“GAAP”). The preparationGAAP that involve a significant level of estimation uncertainty and have had or are reasonably likely to have a material impact on the Company’s financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amountscondition or results of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses. The development and selection of these critical accounting policies have been determined by management and the related disclosures have been reviewed with the Audit Committee of the Board of Directors of the Company. Actual results could differ from those estimates.
operations. Our most significant accounting policies are more fully described in Note 1 “Summary of Significant Accounting Policies” to the consolidated financial statements included in Item 8, “Financial Statements and Supplementary Data” in this Annual Report on Form 10-K; however, the most critical accounting policies, which involve the use of estimates and assumptions as to future uncertainties and, therefore, may result in actual amounts that differ from estimates, areestimate is as follows: Use of Estimates in the Preparation of Financial Statements. The preparation of financial statements in conformity with U.S. generally accepted accounting principles 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.
Because of the fluctuating market conditions that currently exist in the Florida and national real estate markets, and the volatility and uncertainty in the financial and credit markets, it is possible that the estimates and assumptions, most notably those related to the Company’s investment in income properties and commercial loans, could change materially during the time span associated with the continued volatility of the real estate and financial markets or as a result of a significant dislocation in those markets.
Purchase Accounting for Acquisitions of Real Estate Subject to a Lease. In accordance with the FASB guidance on business combinations,Lease. As required by U.S. GAAP, the fair value of the real estate acquired with in-place leases is allocated to the acquired tangible assets, consisting of land, building and tenant improvements, and identified intangible assets and liabilities, consisting of the value of above-market and below-market leases, the value of in-place leases, and the value of leasing costs, based in each case on their relative fair values. 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 reflectsvalue. The assumptions underlying the risks associated with the leases acquired)allocation of the difference betweenrelative fair values are based on market information including, but not limited to: (i) the contractual amounts to be paid pursuant to the in-place leases, and (ii) management’s estimate of fair market lease rates forreplacement cost of improvements under the corresponding in-place leases, measuredcost approach, (ii) the estimate of land values based on comparable sales under the sales comparison approach, and (iii) the estimate of future benefits determined by either a reasonable rate of return over a period equal to the remaining termsingle year’s net cash flow, or a forecast 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.
Prior to October 1, 2016, the Company determined that income property purchases subject to a lease, whether that lease is in-place or originated at the time of acquisition, qualify as a business combination, and acquisition costs are expensed in the period the transaction closes. In January 2017, the Financial Accounting Standards Board (“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 determined to be an asset acquisition. The Company early adopted ASU 2017-01 effective October 1, 2016 on a prospective basis. Accordingly, for income property acquisitions during the fourth quarter of 2016, acquisition costs have been capitalized.
Income Property Leases. The rental of the Company’s income properties are classified as operating leases. The Company recognizes lease income on these properties on a straight-line basis over the term of the lease.
Land and Development Costs. The carrying value of land and development includes the initial acquisition costs of land, improvements thereto, and other costs incidental to the acquisition or development of land. Subsurface Interests (hereinafter defined) and capitalized costs relating to timber and hay operations are also included in land and development costs. These costs are allocated to properties on a relative sales value basis and are charged to costs of sales as specific properties are sold. Due to the nature of the business, land and development costs have been classified as an operating activity on the consolidated statements of cash flows.
Sales of Real Estate. Gains and losses on sales of real estate are accounted for as required by the Topic of Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) FASB ASC Topic 976-605-25, Accounting for Sales of Real Estate. The Company recognizes revenue from the sale of real estate at the time the sale is consummated, unless the property is sold on a deferred payment plan and the initial payment does not meet established criteria, or the Company retains some form of continuing involvement in the property. As market information becomes available, real estate cost basis is analyzed and recorded at the lower of cost or market.
Long-Lived Assets. The Company follows FASB ASC Topic 360-10, Property, Plant, and Equipment in conducting its impairment analyses. The Company reviews the recoverability of long-lived assets, including land and development costs, real estate held for sale, and property, plant, and equipment, for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Examples of situations considered to be triggering events include: a substantial decline in operatingnet cash flows during the period,projected over a current or projected loss from operations, an income property not fully leased or leased at rates that are less than current market rates, and any other quantitative or qualitative events deemed significant by our management. Long-lived assets are evaluated for impairment
by using an undiscounted cash flow approach, which considers future estimated capital expenditures. Impairment of long-lived assets is measured at fair value less cost to sell.
Stock-Based Compensation. Prior to 2010, the Company maintained a stock option plan (the “2001 Plan”) pursuant to which 500,000 shares of the Company’s common stock were available to be issued. The 2001 Plan was approved at the April 25, 2001 shareholders’ meeting and expired in April 2011, with no new option shares issued after that date. Under the 2001 Plan, the option exercise price equaled the average of the high and low stock market price on the date of grant. The options generally vested over five years and expired after ten years. In connection with the grant of non-qualified options, a stock appreciation right for each share covered by the option could also be granted. The stock appreciation right entitled the optionee to receive a supplemental payment, which could be paid in whole or in part in cash or in shares of common stock equal to a portion of the spread between the exercise price and the fair market value of the underlying share at the time of exercise. The expenses associated with stock options and stock appreciation rights were recognized over their requisite service period.
Both the Company’s stock options and stock appreciation rights awardedreasonable investment horizon under the 2001 Plan were liability classified awards and were required to be remeasured to fair value at each balance sheet date until the award was settled, as required by applicable provisions of FASB ASC Topic, Share-Based Payments. See Note 18, “Stock-Based Compensation.”
At the Annual Meeting of Shareholders of the Company held on April 28, 2010, the Company’s shareholders approved the Consolidated-Tomoka Land Co. 2010 Equity Incentive Plan (the “2010 Plan”).income capitalization approach. The 2010 Plan replaced the Company’s 2001 Plan. At the Annual Meeting of Shareholders of the Company held on April 24, 2013, the Company’s shareholders approved an amendment and restatement of the entire 2010 Plan, which among other things, incorporated claw back provisions and clarified language regarding the shares available subsequent to forfeiture of any awards of restricted shares. At the Annual Meeting of Shareholders of the Company held on April 23, 2014, the Company’s shareholders approved an amendment to the 2010 Plan increasing the number of shares authorized for issuance by 240,000 shares, bringing the total number of shares authorized for issuance to 450,000. Awards under the 2010 Plan may be in the form of stock options, stock appreciation rights, restricted shares, restricted share units, performance shares, and performance units. Employees of the Company and its subsidiaries and non-employee directors may be selected by the Compensation Committee to receive awards under the 2010 Plan. The maximum number of shares of which stock awards may be granted under the 2010 Plan is 450,000 shares. No participant may receive awards during any one calendar year representing more than 50,000 shares of common stock. In no event will the number of shares of common stock issued under the plan upon the exercise of incentive stock options exceed 450,000 shares. These limitsunderlying assumptions are subject to adjustments byuncertainty and thus any changes to the Compensation Committee as provided inallocation of fair value to each of the 2010 Plan for stock splits, stock dividends, recapitalizations, and other similar transactions or events. The 2010 Plan currently provides that it will expirevarious line items within the Company’s consolidated balance sheets could have an impact on the tenth anniversaryCompany’s financial condition as well as results of the date that it was adopted by the Board,operations due to resulting changes in depreciation and that no awards will be granted under the plan after that date.
All non-qualified stock option awards, restricted share awards, and performance share awards granted under the 2010 plan were determined to be equity-based awards under FASB ASC Topic, Share-Based Payments.
The Company used the Black-Scholes valuation pricing model to determine the fair value of its non-qualified stock option awards. The determinationamortization as a result of the fair value allocation. The acquisitions of the awards is affected by the stockreal estate subject to this estimate totaled four multi-tenant income properties and one portfolio of three single-tenant properties for a combined purchase price as well as assumptions regarding a number of other variables. These variables include expected stock price volatility over the term of the awards, annual dividends, and a risk-free interest rate assumption.
The Company used a Monte Carlo simulation pricing model to determine the fair value and vesting period of the restricted share awards. The determination of the fair value of market condition-based awards is affected by the stock price as well as assumptions regarding a number of other variables. These variables include expected stock price volatility over the requisite performance term of awards, the performance of the Company’s stock price, annual dividends, and a risk-free interest rate assumption. Compensation cost is recognized regardless of the achievement of the market conditions, provided the requisite service period is met.
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 19, “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$314.0 million for the financial statement recognitionyear ended December 31, 2022 and measurementeight multi-tenant income properties for a combined purchase price 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,$249.1 million for 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.year ended December 31, 2021.
New Accounting Pronouncements. Refer toSee Note 1,2, “Summary of Significant Accounting Policies” to, for further discussion of the consolidated financial statements included in Item 8, “Financial StatementsCompany’s accounting estimates and Supplementary Data” in this Annual Report on Form 10-K.policies.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURESDISCLOSURES ABOUT MARKET RISK
The principal market risk (i.e. the risk of loss arising from adverse changes in market rates and prices), to which we are exposed is interest rate risk relating to our debt. We may utilize overnight sweep accounts and short-term investments as a means to minimize the interest rate risk. We do not believe that interest rate risk related to cash equivalents and short-term investments, if any, is material due to the nature of the investments. We are primarily exposed to interest rate risk relating to our own debt primarily in connection with theour Credit Facility, as this facility carries a variable rate of interest. Our borrowings on theour $300.0 million Credit Facility bear a variable rate of interest based on the 30-day LIBOR plusat a rate of between 150ranging from SOFR plus 0.10% plus 125 basis points andto SOFR plus 0.10% plus 220 basis points based on our level of borrowing as a percentage of our total asset value calculated pursuant to the Credit Facility.value. As of December 31, 2017,2022 and 2021, the outstanding balance on our Credit Facility was $70.0 million.totaled $113.8 million and $67.0 million, of which $113.8 million and $67.0 million, respectively, were not fixed by virtue of an interest rate swap agreement. A hypothetical change in the interest rate of 100 basis points (i.e., 1%) would affect our financial position, results of operations, and cash flows by approximately $700,000, or $0.09 per share, after tax.$1.1 million and $0.7 million as of December 31, 2022 and 2021, respectively. The $25.0 million mortgage loan which closed on April 15, 2016, bears a variable rate of interest based on the 30-day LIBOR plus a rate of 190 basis points. The interest rate for this mortgage loanCompany has been fixed through the use of anentered into interest rate swap that fixedagreements to hedge against changes in future cash flows resulting from fluctuating interest rates related to certain of its debt borrowings, see Note 17, “Interest Rate Swaps” in the rate at 3.17%.notes to the consolidated financial statements in Item 8. By virtue of fixing the variable rate on certain debt borrowings, our exposure to changes in interest rates is minimal but for the impact on Other Comprehensive Income.other comprehensive income and loss. Management’s objective is to limit the impact of interest rate changes on earnings and cash flows and to manage our overall borrowing costs. ITEM 8. FINANCIAL STATEMENTSSTATEMENTS AND SUPPLEMENTARY DATA
The Company’s Consolidated Financial Statementsconsolidated financial statements appear beginning on page F-1 of this report. See Item 15 of this report. ITEM 9. CHANGES IN AND DISAGREEMENTSDISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
There have been no disagreements with our accountants on accounting and financial disclosures. ITEM 9A. CONTROLS AND PROCEDURESPROCEDURES DISCLOSURE CONTROLS AND PROCEDURES As of the end of the period covered by this report, an evaluation, as required by rules 13(a)-15 and 15(d)-15 of the Securities Exchange Act of 1934 (the “Exchange Act”) was carried out under the supervision and with the participation of the Company’s management, including the Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), of the effectiveness of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) or 15d-15(e) of the Exchange Act). Based on that evaluation, the CEO and CFO have concluded that the design and operation of the Company’s disclosure controls and procedures are effective to ensure that information required to be disclosed by the Company in reports that it files or submits under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in Securities and Exchange Commission rules and forms, and to provide reasonable assurance that information required to be disclosed by the Company in such reports is accumulated and communicated to the Company’s management, including its CEO and CFO, as appropriate to allow timely decisions regarding required disclosure. MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING The management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. In May 2013, the Internal Control – Integrated Framework (the “2013 Framework”) was released by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). The 2013 Framework updates and formalizes the principles embedded in the original Internal Control-Integrated Framework issued in 1992 (the “1992 Framework”), incorporates business and operating environment changes over the past two decades, and improves the original 1992 Framework’s ease of use and application. The Company’s management assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2017.2022. In conducting this assessment, it used the criteria set forth by COSO in the 2013 Framework. Based on management’s assessment and those criteria, management believes that the Company has maintained effective internal control over financial reporting as of December 31, 2017.2022. The audit report, of Grant Thornton LLP, the Company’s independent registered public accounting firm, that auditedon the effectiveness of our internal control over financial statementsreporting as of December 31, 2022, is included in this Annual Report on Form 10-K and is incorporated herein as Item 15. CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING There were no changes in the Company’s internal control over financial reporting (as defined in Rules 13a-15(f) or 15d-15(f) of the Exchange Act) during the fourth fiscal quarter covered by this report that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting. ITEM 9B. OTHER INFORMATIONINFORMATION None. ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS Not Applicable. PART III III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS,OFFICERS, AND CORPORATE GOVERNANCE
The information required to be set forth herein except for the information included under the heading “Executive Officers of the Registrant” below, iswill be included in the Company’s definitive proxy statement for its 20182023 annual shareholders’stockholders’ meeting to be filed with the SEC within 120 days after the end of the registrant’s fiscal year ended December 31, 20172022 (the “Proxy Statement”), which sections are incorporated herein by reference. EXECUTIVE OFFICERS OF THE REGISTRANT
The executive officers of the Company, their ages at December 31, 2017, their business experience during the past five years, and the year first elected as an executive officer of the Company are as follows:
John P. Albright, 52, president and chief executive officer of the Company since August 1, 2011. Prior to joining the Company, Mr. Albright was the Co-Head and Managing Director of Archon Capital, a Goldman Sachs Company located in Irving, Texas. Prior to that, he was the Executive Director, Merchant Banking-Investment Management for Morgan Stanley. Prior to Morgan Stanley, Mr. Albright was Managing Director and Officer of Crescent Real Estate Equities, a publicly traded REIT, based in Fort Worth, Texas. His experience involves various aspects of investment, lending, and development of commercial properties, as well as real estate investment banking.
Mark E. Patten, 54, senior vice president and chief financial officer of the Company since April 16, 2012. Prior to joining the Company, Mr. Patten served as the executive vice president and chief financial officer of SolarBlue LLC, a developer of alternative energy solutions located in Orlando, Florida. Prior to that, he was executive vice president and chief financial officer of Legacy Healthcare Properties Trust Inc. in 2010 and held the same positions with Simply Self Storage from August 2007 to May 2010. Prior to those positions, he served as senior vice president and chief accounting officer of CNL Hotels & Resorts, Inc., a public non-traded lodging REIT, from January 2004 until the sale of the company in April 2007. Mr. Patten began his career at KPMG where he spent twelve years and was named a partner in 1997.
Daniel E. Smith, 52, senior vice president, general counsel and corporate secretary of the Company since October 22, 2014. Mr. Smith most recently served as Vice President-Hospitality and Vice President and Associate General Counsel at Goldman Sachs & Co. Prior to that, he spent ten years at Crescent Real Estate Equities, a publicly traded REIT, based in Fort Worth, Texas, where he held several positions in the legal department, most recently Senior Vice President and General Counsel.
Steven R. Greathouse, 39, senior vice president, investments of the Company since January 3, 2012. Mr. Greathouse most recently served as the Director of Finance at N3 Real Estate, a single-tenant triple net property developer. Prior to that, he was a Senior Associate, Merchant Banking-Investment Management for Morgan Stanley and Crescent Real Estate Equities, a publicly traded REIT, based in Fort Worth, Texas.
Each of our executive officers are elected annually as provided in the Company’s Bylaws.
ITEM 11. EXECUTIVE COMPENSATION COMPENSATION
The information required to be set forth herein is included in the Proxy Statement, which sections are incorporated herein by reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
The other information required towill be set forth herein is included in the Proxy Statement, which sections are incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
The information required to be set forth herein is included in the Proxy Statement, which sections are incorporated herein by reference.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
The information required to be set forth herein is included in the Proxy Statement, which section is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS 55The information required to be set forth herein will be included in the Proxy Statement, which section is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE The information required to be set forth herein will be included in the Proxy Statement, which section is incorporated herein by reference. ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES The information required to be set forth herein will be included in the Proxy Statement, which section is incorporated herein by reference. PART IV IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENTSTATEMENT SCHEDULES
1. FINANCIAL STATEMENTS The following financial statements are filed as part of this report: | | | Page No. | | | Reports of Independent Registered Public Accounting Firm (PCAOB ID Number 248) | F-2 | Consolidated Balance Sheets as of December 31, 20172022 and 20162021 | F-4F-5
| Consolidated Statements of Operations for the three years ended December 31, 2017, 2016,2022, 2021, and 20152020 | F-5F-6
| Consolidated Statements of Comprehensive Income for the three years ended December 31, 2017, 2016,2022, 2021, and 20152020 | F-6F-7
| Consolidated Statements of Shareholders’Stockholders’ Equity for the three years ended December 31, 2017, 2016,2022, 2021 and 20152020 | F-7F-8
| Consolidated Statements of Cash Flows for the three years ended December 31, 2017, 2016,2022, 2021, and 20152020 | F-8F-9
| Notes to Consolidated Financial Statements for the three years ended December 31, 2017, 2016,2022, 2021, and 20152020 | F-10F-11
|
2. FINANCIAL STATEMENT SCHEDULES Included in Part IV on Form 10-K: Schedule III—Real Estate and Accumulated Depreciation Schedule IV – Mortgage Loans on Real Estate Other schedules are omitted because of the absence of conditions under which they are required, materiality, or because the required information is given in the financial statements or notes thereof. 3. EXHIBITS See Exhibit Index on page 5863 of this Annual Report on Form 10-K. ITEM 16. FORM 10-K SUMMARY Not applicable SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 EXHIBITS TO FORM 10-K ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED December 31, 20172022 COMMISSION FILE NO. 001-11350 CONSOLIDATED-TOMOKA LAND CO.CTO REALTY GROWTH, INC.
(Exact name of registrant as specified in the charter) | | | (2.1) | | Agreement and Plan of Merger by and between CTO Realty Growth, Inc., a Florida corporation and CTO Realty Growth, Inc. (formerly CTO NEWCO REIT, Inc.), a Maryland corporation, dated September 3, 2020, filed as Exhibit 2.1 to the registrant’s Current Report on Form 8-K filed September 3, 2020, and incorporated herein by reference. | | | | ***(2.2) | | Purchase and Sale Agreement, dated of May 3, 2022, filed as Exhibit 2.1 to the registrant’s Current Report on Form 8-K filed May 20, 2022, and incorporated herein by reference. | | | | ***(2.3) | | Purchase and Sale Agreement, dated September 9, 2022, filed as Exhibit 2.1 to the registrant’s Current Report on Form 8-K filed September 12, 2022, and incorporated herein by reference. | | | | ***(2.4) | | Purchase and Sale Agreement, dated November 28, 2022, filed as Exhibit 2.1 to the registrant’s Current Report on Form 8-K filed November 30, 2022, and incorporated herein by reference. | | | | (3.1) | | Amended and Restated Articles of IncorporationAmendment and Restatement of Consolidated-Tomoka Land Co.CTO Realty Growth, Inc., dated October 26, 2011,as amended by the Articles of Amendment (Name Change), filed as Exhibit 3.1 to the registrant’s current reportCurrent Report on Form 8-K8-K12B filed October 28, 2011,February 1, 2021, and incorporated herein by reference.
| | | | (3.2) | | Third Amended and Restated Bylaws of Consolidated-Tomoka Land Co.CTO Realty Growth, Inc., dated April 26, 2016,effective as of February 16, 2023, filed as Exhibit 3.1 to the registrant’s Current Report on Form 8-K filed February 17, 2023, and incorporated herein by reference. | | | | (3.3) | | Articles Supplementary, designating CTO Realty Growth, Inc.’s 6.375% Series A Cumulative Redeemable Preferred Stock, filed as Exhibit 3.2 to the registrant’s quarterly reportregistrant's Registration Statement on Form 10-Q8-A filed May 3, 2016,July 1, 2021 (File No. 001-11350), and incorporated herein by reference. | | | | (4.1) | | Specimen Common Stock Certificate of CTO Realty Growth, Inc., filed as Exhibit 4.2 to the registrant’s Current Report on Form 8-K12B filed February 1, 2021, and incorporated herein by reference. | | | | (4.2) | | Registration Rights Agreement between Alpine Income Property Trust, Inc. and Consolidated-Tomoka Land Co.( now CTO Realty Growth, Inc.) filed as Exhibit 4.21 to the registrant’s Current Report on Form 8-K filed November 27, 2019, and incorporated herein by reference. | | | | (4.3) | | Indenture related to the 4.50%3.875% Convertible Senior Notes due 2020,2025, dated as of March 11, 2015,February 3, 2020, among Consolidated-Tomoka Land Co.( now CTO Realty Growth, Inc.) and U.S. Bank National Association as trustee, filed as Exhibit 4.1 withto the registrant’s current reportCurrent Report on Form 8-K on March 12, 2015,filed February 6, 2020, and incorporated herein by reference. | | | | (4.4) | | Supplemental Indenture No. 1, dated as of January 29, 2021, among CTO Realty Growth, Inc. (formerly CTO NEWCO REIT, Inc.), a Maryland corporation, CTO Realty Growth, Inc., a Florida corporation, and U.S. Bank National Association, as trustee, filed as Exhibit 4.3 to the registrant’s Current Report on Form 8-K12B filed February 1, 2021, and incorporated herein by reference. | | | | | (4.2)(4.5)
| | Form of 4.50%3.875% Convertible Senior Notes due 2020,2025, included with Exhibit 4.14.3 with the registrant’s current reportCurrent Report on Form 8-K on March 12, 2015,filed February 6, 2020, and incorporated herein by reference.reference. | | | | 10(4.6)
| | Material Contracts:
| | | | (10.1)
| | The Consolidated-Tomoka Land Co. 2001 Stock Option Plan, effective April 25, 2001,Description of the Registrant’s Securities, filed with the registrant’s Registration Statement on Form S-8 filed on June 20, 2001, and incorporated herein by reference (File No. 333-63400).
| | | | (10.2)
| | Lease Agreement dated August 28, 1997, between the City of Daytona Beach and Indigo International Inc., a wholly owned subsidiary of Consolidated-Tomoka Land Co., filed withas Exhibit 4.6 to the registrant’s Annual Report on Form 10-K for the year ended December 31, 1997,2021, and incorporated herein by reference.
| | | | (10.3)
| | Material Contracts: | | | | *(10.1) | | Lease Amendment dated July 25, 2012, between the City of Daytona BeachThird Amended and Indigo International LLC, a wholly owned subsidiary of Consolidated-Tomoka Land Co.Restated CTO Realty Growth, Inc., 2010 Equity Incentive Plan, filed as Exhibit 10.110.4 to thisthe registrant’s current reportQuarterly Report on Form 8-K10-Q filed July 26, 2012,October 28, 2021, and incorporated herein by reference.
| | | | (10.4)*(10.2)
| | Development Agreement dated August 18, 1997, between the City of Daytona Beach and Indigo International Inc., a wholly owned subsidiary of Consolidated-Tomoka Land Co.,( now CTO Realty Growth, Inc.) 2017 Executive Annual Cash Incentive Plan, dated February 22, 2017, filed withas Exhibit 10.28 to the registrant’s Annual Report on Form 10-K for the year ended December 31, 1997,2018, and incorporated herein by reference.
| | | | *(10.5)(10.3) | | Form of Stock Option and SAR Agreement under the Consolidated-Tomoka Land Co. 2001 Stock Option Plan filed with the registrant’s Annual Report on Form 10-K for the year ended December 31, 2006, and incorporated herein by reference.
| | | | *(10.6)
| | Consolidated-Tomoka Land Co. Amended and Restated 2010 Equity Incentive Plan, filed as Appendix A to the registrant’s Proxy Statement for the 2013 Annual Meeting of Shareholders, filed March 22, 2013, and incorporated herein by reference.
| | | | *(10.7)
| | Form of Restricted Share Award Agreement under the Consolidated-Tomoka Land Co.Third Amended and Restated CTO Realty Growth, Inc., 2010 Equity Incentive Plan, filed withas Exhibit 10.16 to the registrant’s Annual Report on Form 10-K for the year ended December 31, 2010, and incorporated herein by reference. | *(10.4) | | | *(10.8)
| | Consolidated-Tomoka Land Co. Annual Cash Bonus Plan, amended and adoptedForm of Restricted Share Award Agreement, dated July 22, 2015,1, 2022, filed as Exhibit 10.1 to the registrant’s current reportCurrent Report on Form 8-K filed on July 28, 2015,1, 2022, and incorporated herein by reference.
| | | |
*(10.5) | | Omnibus Amendment to Restricted Share Award Agreements, dated as of July 1, 2022, filed as Exhibit 10.2 to the registrant’s Current Report on Form 8-K filed on July 1, 2022, and incorporated herein by reference. | | | | *(10.6) | | Form of February 27, 2019 Non-Employee Director Stock Award Agreement, filed as Exhibit 10.31 to the registrant’s Annual Report on Form 10-K for the year ended December 31, 2018, and incorporated herein by reference. | | | | *(10.7) | | Form of January 23, 2019 Performance Share Award Agreement filed as Exhibit 10.15 to the registrant’s Annual Report on Form 10-K filed March 5, 2021, and incorporated herein by reference. | | | | *(10.8) | | Form of February 24, 2020 Performance Share Award Agreement, filed as Exhibit 10.23 to the registrant’s Annual Report on Form 10-K for the year ended December 31, 2019, and incorporated herein by reference. | | | | *(10.9) | | Form of February 10, 2021 Performance Share Award Agreement filed as Exhibit 10.17 to the registrant’s Annual Report on Form 10-K filed March 5, 2021, and incorporated herein by reference. | | | | *(10.10) | | Form of February 17, 2022 Performance Share Award Agreement, filed as Exhibit 10.8 to the registrant’s Annual Report on Form 10-K for the year ended December 31, 2021, and incorporated herein by reference. | | | | *(10.11) | | Omnibus Amendment to Performance Share Award Agreements, dated as of July 1, 2022, filed as Exhibit 10.3 to the registrant’s Current Report on Form 8-K filed on July 1, 2022, and incorporated herein by reference. | | | | *(10.12) | | Employment Agreement between Consolidated-Tomoka Land Co.( now CTO Realty Growth, Inc.) and John P. Albright entered into June 30, 2011, filed as Exhibit 10.1 to the registrant’s Current Report on Form 8-K filed July 6, 2011, and incorporated herein by reference. | | | | *(10.10)
| | Nonqualified Stock Option Award Agreement between Consolidated-Tomoka Land Co. and John P. Albright, dated August 1, 2011, filed as Exhibit 10.2 to the registrant’s Current report on Form 8-K filed July 6, 2011, and incorporated herein by reference.
| | | | *(10.11)
| | Restricted Share Award Agreement between Consolidated-Tomoka Land Co. and John P. Albright, dated August 1, 2011, filed as Exhibit 10.3 to the registrant’s current report Form 8-K filed July 6, 2011, and incorporated herein by reference.
| | | | *(10.12)
| | Employment Agreement between Consolidated-Tomoka Land Co. and Mark E. Patten entered into April 16, 2012, filed at Exhibit 10.1 to the registrant’s current report on Form 8-K filed April 16, 2012, and incorporated herein by reference.
| | | | *(10.13) | | Nonqualified Stock Option Award Agreement between Consolidated-Tomoka Land Co. and Mark E. Patten, dated April 16, 2012, filed as Exhibit 10.2 to the registrant’s current report on Form 8-K filed April 16, 2012, and incorporated by reference.
| | | |
*(10.14)
| | Restricted Share Award Agreement between Consolidated-Tomoka Land Co. and Mark E. Patten, dated April 16, 2012, filed as Exhibit 10.3 to registrant’s current report Form 8-K filed April 16, 2012, and incorporated herein by reference.
| | | | *(10.15)
| | Separation Agreement between Bruce W. Teeters and Consolidated-Tomoka Land Co., dated April 19, 2012, filed as Exhibit 10.1 to the registrant’s current report Form 8-K filed April 19, 2012, and incorporated herein by reference.
| | | | (10.16)
| | Credit Agreement between Consolidated-Tomoka Land Co. and Bank of Montreal dated February 27, 2012, filed as Exhibit 10.1 to the registrant’s current report Form 8K filed March 1, 2012, and incorporated by reference.
| | | | (10.17)
| | Loan Agreement between Bluebird Metrowest Orlando LLC and UBS Real Estate Securities, Inc. dated February 22, 2013, filed with the registrant’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2013, and incorporated herein by reference.
| | | | (10.18)
| | Loan Agreement between Consolidated-Tomoka Land Co. and affiliates of Consolidated-Tomoka Land Co. set forth therein, as borrowers, and Bank of America, N.A. dated March 8, 2013, filed with the registrant’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2013, and incorporated herein by reference.
| | | | (10.19)
| | Amendment to the Credit Agreement between Consolidated-Tomoka Land Co. and Bank of Montreal dated March 29, 2013, filed with the registrant’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2013, and incorporated herein by reference.
| | | | (10.20)
| | Amendment to the Credit Agreement between Consolidated-Tomoka Land Co. and Bank of Montreal dated August 1, 2014, filed with the registrant’s Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2014, and incorporated herein by reference.
| | | | (10.21)
| | Loan Agreement between the Company and the affiliates of the Company set forth therein, as borrowers, and Wells Fargo Bank, National Association dated September 30, 2014, filed with the registrant’s Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2014, and incorporated herein by reference.
| | | | *(10.22)
| | Employment Agreement between Consolidated-Tomoka Land Co.( now CTO Realty Growth, Inc.) and Daniel E. Smith entered into October 22, 2014, filed withas Exhibit 10.24 to the registrant’s Annual Report on Form 10-K for the year ended December 31, 2014, and incorporated herein by reference. | | | | (10.23)*(10.14)
| | AmendedEmployment Agreement between CTO Realty Growth, Inc. and Restated Credit Agreement by and among Consolidated-Tomoka Land Co., as Borrower, the subsidiaries of Consolidated-Tomoka Land Co. party thereto, as Guarantors, the financial institutions party thereto, as Lenders, Bank of Montreal, as Administrative Agent, Swing Line Lender and L/C Issuer, Wells Fargo Bank, National Association as Syndication Agent, and Branch Banking and Trust Company, as Documentation Agent, dated April 20, 2015,Matthew M. Partridge entered into September 2, 2020 filed as Exhibit 10.1 to the registrant’s Current Report on Form 8-K filed May 15, 2015,September 9, 2020, and incorporated herein by reference.
| | | | (10.24)(10.15)
| | Consent and First Amendment to Amended and Restated Credit Agreement by and among Consolidated-Tomoka Land Co., as Borrower, the subsidiaries of Consolidated-Tomoka Land Co. party thereto, as Guarantors, the financial institutions party thereto, as Lenders, Bank of Montreal, as Administrative Agent, Wells Fargo Bank, National Association as Syndication Agent, and Branch Banking and Trust Company, as Documentation Agent, dated March 21, 2016, filed as Exhibit 10.1 to the registrant’s Current Report on Form 8-K filed March 28, 2016, and incorporated herein by reference.
| | | | (10.25)
| | Purchase and Sale Agreement by and between Consolidated-Tomoka Land Co. and SBMC Mesmer, L.P. for the sale of a portfolio of 14 single-tenant income properties, dated March 28, 2016, filed with the registrant’s Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2016, and incorporated herein by reference.
| | | | (10.26)
| | Purchase and Sale Agreement by and between Consolidated-Tomoka Land Co., and Land Venture Partners, LLC for the sale of the Company’s subsurface interests, dated April 13, 2016, filed as Exhibit 10.1 to the registrant’s Current Report on Form 8-K filed April 18, 2016 and incorporated herein by reference.
| | | | (10.27)
| | Second Amendment to the Amended and Restated Credit Agreement with Bank of Montreal and the other lenders thereunder, with Bank of Montreal acting as Administrative Agent, dated April 13, 2016, filed as Exhibit 10.1 to the registrant’s Current Report on Form 8-K filed April 19, 2016, and incorporated herein by reference.
| | | | (10.28)
| | Consolidated-Tomoka Land Co. 2017 Executive Annual Cash Incentive Plan, dated February 22, 2017, filed with the registrant’s Annual Report on Form 10-K for the year ended December 31, 2016, and incorporated herein by reference.
| | | |
(10.29)
| | Second Amended and Restated Credit Agreement, which supersedes the Company’s existing Amended and Restated Credit Agreement, with Bank of Montreal (“BMO”) and the other lenders thereunder, with BMO acting as Administrative Agent, dated September 7, 2017, filed as Exhibit 10.1 to the registrant’s Current Report on Form 8-K as filed on September 13, 2017, and incorporated herein by reference. | | | | (10.30)(10.16)
| | Form of February 3, 2017 Performance Share AwardSecond Amendment to Second Amended and Restated Credit Agreement Dated May 24, 2019, filed as Exhibit 10.2910.1 to the registrant’s Current Report on Form 8-K filed June 3, 2019, and incorporated herein by reference.
| | | | (10.17) | | Third Amendment to Second Amended and Restated Credit Agreement Dated November 26, 2019 filed as Exhibit 10.1 to the registrant’s Current Report on Form 8-K filed November 27, 2019, and incorporated herein by reference. | | | | (10.18) | | Fourth Amendment to Second Amended and Restated Credit Agreement between CTO Realty Growth, Inc., the Borrower, the Guarantors party thereto, the Lenders party thereto and Bank of Montreal, as Administrative Agent, dated July 1, 2020 filed as Exhibit 10.34 to registrant’s Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2017,filed August 7, 2020, and incorporated herein by reference. | | | | (21)(10.19)
| | Fifth Amendment to Second Amended and Restated Credit Agreement between CTO Realty Growth, Inc., the Borrower, the Guarantors party thereto, the Lenders party thereto and Bank of Montreal, as Administrative Agent, dated November 9, 2020, filed as Exhibit 10.1 to registrant’s Current Report on Form 8-K filed November 13, 2020, and incorporated herein by reference. | | | | (10.20) | | Sixth Amendment to Second Amended and Restated Credit Agreement and Joinder Dated March 10, 2021 filed as Exhibit 10.1 to the registrant’s Current Report on Form 8-K filed March 12, 2021, and incorporated herein by reference. |
| | | (10.21) | | Seventh Amendment to Second Amended and Restated Credit Agreement and Joinder Dated November 5, 2021 filed as Exhibit 10.19 to the registrant’s Annual Report on Form 10-K for the year ended December 31, 2021, and incorporated herein by reference. | | | | (10.22) | | Eighth Amendment to Second Amended and Restated Credit Agreement and Joinder Dated September 20, 2022 filed as Exhibit 10.1 to the registrant’s Current Report on Form 8-K filed on September 23, 2022, and incorporated herein by reference. | | | | (10.23) | | Tax Protection Agreement among Alpine Income Property Trust, Inc., Alpine Income Property Trust OP, LP, Consolidated-Tomoka Land Co.( now CTO Realty Growth, Inc.) and Indigo Group Ltd. filed as Exhibit 10.4 to the registrant’s Current Report on Form 8-K filed November 27, 2019, and incorporated herein by reference. | | | | | | | (10.24) | | Management Agreement among Alpine Income Property Trust, Inc., Alpine Income Property OP, LP and Alpine Income Property Manager, LLC filed as Exhibit 10.2 to the registrant’s Current Report on Form 8-K filed November 27, 2019, and incorporated herein by reference. | | | | (10.25) | | Exclusivity and Right of First Offer Agreement between Alpine Income Property Trust, Inc. and Consolidated-Tomoka Land Co.( now CTO Realty Growth, Inc.) filed as Exhibit 10.3 to the registrant’s Current Report on Form 8-K filed November 27, 2019, and incorporated herein by reference. | | | | *(10.26) | | Form of February 16, 2023 Performance Share Award Agreement (filed herewith). | | | | (21.1) | | Subsidiaries of the Registrant. | | | | (23.1) | | Consent of Independent Registered Public Accounting Firm. | | | | (31.1) | | Certification furnished pursuant to Section 302 of Sarbanes-Oxley Act of 2002. | | | | (31.2) | | Certification furnished pursuant to Section 302 of Sarbanes-Oxley Act of 2002. | | | | ** (32.1) | | Certification pursuant to 18 U.S.C. Section 1350, adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | | | | ** (32.2) | | Certification pursuant to 18 U.S.C. Section 1350, adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
| | | (101.1) | | The following materials from CTO Realty Growth, Inc. Annual Report on Form 10-K for the period ended December 31, 2022, are formatted in Extensible Business Reporting Language: (i) consolidated balance sheets, (ii) consolidated statements of comprehensive income, (iii) consolidated statements of stockholders' equity (iv) consolidated statements of cash flows, and (v) notes to consolidated financial statements. |
| | | 101.INS | | Inline XBRL Instance Document | | | | 101.SCH | | Inline XBRL Taxonomy Extension Schema Document | | | | 101.CAL | | Inline XBRL Taxonomy Extension Calculation Linkbase Document | | | | 101.DEF | | Inline XBRL Taxonomy Definition Linkbase Document | | | | 101.LAB | | Inline XBRL Taxonomy Extension Label Linkbase Document | | | | 101.PRE | | Inline XBRL Taxonomy Extension Presentation Linkbase Document | | | | 104 | | Cover Page Interactive Data File (embedded within the inline XBRL document) |
*- Management Contract or Compensatory Plan or Arrangement ** In accordance with Item 601(b)(32) of Regulation S-K, this Exhibit is not deemed “filed” for purposes of Section 18 of the Exchange Act or otherwise subject to the liabilities of that section. Such certifications will not be deemed incorporated by reference into any filing under the Securities Act or the Exchange Act, except to the extent that the registrant specifically incorporates it by reference. *** Certain information has been excluded because the information is both (i) not material and (ii) the type of information that the Registrant customarily and actually treats as private and confidential. SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. | | | | CONSOLIDATED-TOMOKA LAND CO.CTO REALTY GROWTH, INC. (Registrant)
| | | | Date: February 28, 201823, 2023 | By: | /S/ JOHN P. ALBRIGHT | | | John P. Albright | | | President and Chief Executive Officer |
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. February 28, 201823, 2023 | President and Chief Executive Officer (Principal Executive Officer), and Director | /S/ JOHN P. ALBRIGHT | | | | February 28, 201823, 2023 | Senior Vice President, and Chief Financial Officer and Treasurer (Principal Financial and Accounting Officer) | /S/ MARK E. PATTENMATTHEW M. PARTRIDGE | | | | February 28, 201823, 2023 | Vice President and Chief Accounting Officer | /S/ LISA M. VORAKOUN | | (Principal Accounting Officer) | | | | | February 23, 2023 | Chairman of the Board, Director | /S/ LAURA M. FRANKLIN | February 28, 201823, 2023 | Director | /S/ JOHN J. ALLENGEORGE R. BROKAW | February 28, 201823, 2023 | Director | /S/ CHRISTOPHER J. DREW | February 23, 2023 | Director | /S/ R. BLAKESLEE GABLE | February 23, 2023 | Director | /S/ CHRISTOPHER W. HAGA | February 28, 2018
| Director
| /S/ WILLIAM L. OLIVARI
| February 28, 2018
| Director
| /S/ HOWARD C. SERKIN
| February 28, 2018
| Director
| /S/ THOMAS P. WARLOW, III
| February 28, 2018
| Director
| /S/ CASEY R. WOLD
|
CTO REALTY GROWTH, INC. CONSOLIDATED-TOMOKA LAND CO.
INDEX TO FINANCIAL STATEMENTS | | Reports of Independent Registered Public Accounting Firm | F-2F-2
| Consolidated Balance Sheets as of December 31, 20172022 and 20162021 | F-4F-5
| Consolidated Statements of Operations for the three years ended December 31, 2017, 2016,2022, 2021, and 20152020 | F-5F-6
| Consolidated Statements of Comprehensive Income for the three years ended December 31, 2017, 2016,2022, 2021, and 20152020 | F-6F-7
| Consolidated Statements of Shareholders’Stockholders’ Equity for the three years ended December 31, 2017, 2016,2022, 2021, and 20152020 | F-7F-8
| Consolidated Statements of Cash Flows for the three years ended December 31, 2017, 2016,2022, 2021, and 20152020 | F-8F-9
| Notes to Consolidated Financial Statements for the three years ended December 31, 2017, 2016,2022, 2021, and 20152020 | F-10F-11
|
Report of Independent Registered PublicPublic Accounting Firm
Board of Directors and ShareholdersStockholders Consolidated-Tomoka Land Co.:CTO Realty Growth, Inc.
Opinion on the financial statements We have audited the accompanying consolidatedbalance sheets of Consolidated-Tomoka Land Co.CTO Realty Growth, Inc. (a FloridaMaryland corporation) and subsidiaries (the(the “Company”) as of December 31, 20172022 and 2016,2021, the related consolidatedstatements of operations, comprehensive income, changes in shareholders’stockholders’ equity, and cash flows for each of the three years in the period ended December 31, 2017,2022, and the related notes and financial statement schedules included under Item 15 (collectively referred to as the “financial statements”). In our opinion, thefinancial statements present fairly, in all material respects, the financial position of the Companyas of December 31, 20172022 and 2016,2021, and the results of itsoperations and itscash flows for each of the three years in the period ended December 31, 2017,2022, in conformity with accounting principles generally accepted in the United States of America. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the Company’s internal control over financial reporting as of December 31, 2017,2022, based on criteria established in the 2013 Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”), and our report dated February 28, 201823, 2023 expressed an unqualified opinion. Basis for opinion These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence supportingregarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. | | | /s/ Grant Thornton LLP
| | | | | | We have served as the Company’s auditor since 2012.
Jacksonville, Florida
| | | February 28, 2018
| | |
Critical audit matter The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates. Fair value of real estate acquired with in-place leases As described further in note 3 to the consolidated financial statements, the Company acquired four multi-tenant income properties and one portfolio of three single-tenant income properties during 2022 for a total acquisition cost of $315.6 million. As described further in note 2 to the consolidated financial statements, the acquisition cost of real estate acquired with in-place leases is allocated to the acquired tangible assets, consisting of land, building and tenant improvements, and identified intangible assets and liabilities, consisting of the value of above-market and below-market leases, the value of in-place leases, and the value of leasing costs, based in each case on their relative fair values. In allocating the fair value of the identified intangible assets and liabilities of an acquired property, above-market and below-market in-place lease
values are recorded as other assets or liabilities based on the present value. We identified the evaluation of the fair value of real estate acquired with in-place leases as a critical audit matter. The principal considerations for our determination that the evaluation of the fair value of real estate acquired with in-place leases was a critical audit matter is that auditing the estimates of fair values of the acquired tangible assets and identified intangible assets and liabilities was complex due to the significant assumptions being sensitive to changes, including discount rates, terminal rates, and market rental rates that can be impacted by expectations about future market or economic conditions. Our audit procedures related to theevaluation of the fair value of real estate acquired with in-place leasesincluded the following, among others. | ● | We evaluated the design and tested the operating effectiveness of the key controls relating to the Company’s process to account for real estate acquisitions with in-place leases, including those addressing the development of the significant assumptions, including discount rates, terminal rates and market rental rates. |
| • | We involved internal valuation professionals who assisted in comparing the discount rates, terminal rates and market rental rates to independently developed ranges. |
/s/ GRANT THORNTON LLP We have served as the Company’s auditor since 2012. Orlando, Florida February 23, 2023 Report of Independent Registered Public Accounting Firm Board of Directors and ShareholdersStockholders Consolidated-Tomoka Land Co.:CTO Realty Growth, Inc.
Opinion on internal control over financial reporting We have audited the internal control over financial reporting of Consolidated-Tomoka Land Co. CompanyCTO Realty Growth, Inc. (a FloridaMaryland corporation) and subsidiaries (the “Company”) as of December 31, 2017,2022, based on criteria established in the 2013 Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO)(“COSO”). In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2017,2022, based on criteria established in the 2013 Internal Control—Integrated Framework issued by COSO. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the consolidatedfinancial statements of the Company as of and for the year ended December 31, 2017,2022, and our report dated February 28, 201823, 2023 expressedan unqualified opinion on those financial statements. Basis for opinion The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying management’s report.Management’s Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. Definition and limitations of internal control over financial reporting A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. | | | /s/ Grant Thornton LLP
| | | | | | Jacksonville, Florida
| | | February 28, 2018
| | |
/s/ GRANT THORNTON LLP CONSOLIDATED-TOMOKA LAND CO.
CTO REALTY GROWTH, INC. CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share data) | | | | | | | | | As of | | | December 31, 2022 | | December 31, 2021 | ASSETS | | | | | | | Real Estate: | | | | | | | Land, at Cost | | $ | 233,930 | | $ | 189,589 | Building and Improvements, at Cost | | | 530,029 | | | 325,418 | Other Furnishings and Equipment, at Cost | | | 748 | | | 707 | Construction in Process, at Cost | | | 6,052 | | | 3,150 | Total Real Estate, at Cost | | | 770,759 | | | 518,864 | Less, Accumulated Depreciation | | | (36,038) | | | (24,169) | Real Estate—Net | | | 734,721 | | | 494,695 | Land and Development Costs | | | 685 | | | 692 | Intangible Lease Assets—Net | | | 115,984 | | | 79,492 | Assets Held for Sale—See Note 24 | | | — | | | 6,720 | Investment in Alpine Income Property Trust, Inc. | | | 42,041 | | | 41,037 | Mitigation Credits | | | 1,856 | | | 3,702 | Mitigation Credit Rights | | | 725 | | | 21,018 | Commercial Loans and Investments | | | 31,908 | | | 39,095 | Cash and Cash Equivalents | | | 19,333 | | | 8,615 | Restricted Cash | | | 1,861 | | | 22,734 | Refundable Income Taxes | | | 448 | | | 442 | Deferred Income Taxes—Net | | | 2,530 | | | — | Other Assets—See Note 12 | | | 34,453 | | | 14,897 | Total Assets | | $ | 986,545 | | $ | 733,139 | LIABILITIES AND STOCKHOLDERS’ EQUITY | | | | | | | Liabilities: | | | | | | | Accounts Payable | | $ | 2,544 | | $ | 676 | Accrued and Other Liabilities—See Note 18 | | | 18,028 | | | 13,121 | Deferred Revenue—See Note 19 | | | 5,735 | | | 4,505 | Intangible Lease Liabilities—Net | | | 9,885 | | | 5,601 | Deferred Income Taxes—Net | | | — | | | 483 | Long-Term Debt | | | 445,583 | | | 278,273 | Total Liabilities | | | 481,775 | | | 302,659 | Commitments and Contingencies—See Note 22 | | | | | | | Stockholders’ Equity: | | | | | | | Preferred Stock – 100,000,000 shares authorized; $0.01 par value, 6.375% Series A Cumulative Redeemable Preferred Stock, $25.00 Per Share Liquidation Preference, 3,000,000 shares issued and outstanding at December 31, 2022 and December 31, 2021 | | | 30 | | | 30 | Common Stock – 500,000,000 shares authorized; $0.01 par value, 22,854,775 shares issued and outstanding at December 31, 2022 and 17,748,678 shares issued and outstanding at December 31, 2021 | | | 229 | | | 60 | Additional Paid-In Capital | | | 172,471 | | | 85,414 | Retained Earnings | | | 316,279 | | | 343,459 | Accumulated Other Comprehensive Income | | | 15,761 | | | 1,517 | Total Stockholders’ Equity | | | 504,770 | | | 430,480 | Total Liabilities and Stockholders’ Equity | | $ | 986,545 | | $ | 733,139 |
The accompanying notes are an integral part of these consolidated financial statements. | | | | | | | | | | | | | | | | |
December 31,
2017
| | December 31, 2016 | | ASSETS | | | | | | | | Property, Plant, and Equipment: | | | | | | | | Income Properties, Land, Buildings, and Improvements | | $ | 358,130,350 | | $ | 274,334,139 | | Golf Buildings, Improvements, and Equipment | | | 6,617,396 | | | 3,528,194 | | Other Furnishings and Equipment | | | 715,042 | | | 1,032,911 | | Construction in Progress | | | 6,005,397 | | | 5,267,676 | | Total Property, Plant, and Equipment | | | 371,468,185 | | | 284,162,920 | | Less, Accumulated Depreciation and Amortization | | | (23,779,780) | | | (16,552,077) | | Property, Plant, and Equipment—Net | | | 347,688,405 | | | 267,610,843 | | Land and Development Costs | | | 39,477,697 | | | 51,955,278 | | Intangible Lease Assets—Net | | | 38,758,059 | | | 34,725,822 | | Impact Fee and Mitigation Credits | | | 1,125,269 | | | 2,322,906 | | Commercial Loan Investments | | | 11,925,699 | | | 23,960,467 | | Cash and Cash Equivalents | | | 6,559,409 | | | 7,779,562 | | Restricted Cash | | | 6,508,131 | | | 9,855,469 | | Refundable Income Taxes | | | 1,116,580 | | | 943,991 | | Other Assets | | | 12,971,129 | | | 9,469,088 | | Total Assets | | $ | 466,130,378 | | $ | 408,623,426 | | LIABILITIES AND SHAREHOLDERS’ EQUITY | | | | | | | | Liabilities: | | | | | | | | Accounts Payable | | $ | 1,880,516 | | $ | 1,518,105 | | Accrued and Other Liabilities | | | 10,160,526 | | | 8,667,897 | | Deferred Revenue | | | 2,030,459 | | | 1,991,666 | | Intangible Lease Liabilities - Net | | | 29,770,441 | | | 30,518,051 | | Accrued Stock-Based Compensation | | | — | | | 42,092 | | Deferred Income Taxes—Net | | | 42,293,864 | | | 51,364,572 | | Long-Term Debt | | | 195,816,364 | | | 166,245,201 | | Total Liabilities | | | 281,952,170 | | | 260,347,584 | | Commitments and Contingencies - See Note 18 | | | | | | | | Shareholders’ Equity: | | | | | | | | Shareholders' Equity: | | | | | | | | Common Stock – 25,000,000 shares authorized; $1 par value, 6,030,990 shares issued and 5,584,335 shares outstanding at December 31, 2017; 6,021,564 shares issued and 5,710,238 shares outstanding at December 31, 2016 | | | 5,963,850 | | | 5,914,560 | | Treasury Stock – 446,655 shares at December 31, 2017; 311,326 shares at December 31, 2016 | | | (22,507,760) | | | (15,298,306) | | Additional Paid-In Capital | | | 22,735,228 | | | 20,511,388 | | Retained Earnings | | | 177,614,274 | | | 136,892,311 | | Accumulated Other Comprehensive Income | | | 372,616 | | | 255,889 | | Total Shareholders’ Equity | | | 184,178,208 | | | 148,275,842 | | Total Liabilities and Shareholders’ Equity | | $ | 466,130,378 | | $ | 408,623,426 | |
CTO REALTY GROWTH, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands, except share and per share data) | | | | | | | | | | | | Year Ended | | | December 31, | | December 31, | | December 31, | | | 2022 | | 2021 | | 2020 | Revenues | | | | | | | | | | Income Properties | | $ | 68,857 | | $ | 50,679 | | $ | 49,953 | Management Fee Income | | | 3,829 | | | 3,305 | | | 2,744 | Interest Income From Commercial Loans and Investments | | | 4,172 | | | 2,861 | | | 3,034 | Real Estate Operations | | | 5,462 | | | 13,427 | | | 650 | Total Revenues | | | 82,320 | | | 70,272 | | | 56,381 | Direct Cost of Revenues | | | | | | | | | | Income Properties | | | (20,364) | | | (13,815) | | | (11,988) | Real Estate Operations | | | (2,493) | | | (8,615) | | | (3,223) | Total Direct Cost of Revenues | | | (22,857) | | | (22,430) | | | (15,211) | General and Administrative Expenses | | | (12,899) | | | (11,202) | | | (11,567) | Impairment Charges | | | — | | | (17,599) | | | (9,147) | Depreciation and Amortization | | | (28,855) | | | (20,581) | | | (19,063) | Total Operating Expenses | | | (64,611) | | | (71,812) | | | (54,988) | Gain (Loss) on Disposition of Assets | | | (7,042) | | | 28,316 | | | 9,746 | Gain (Loss) on Extinguishment of Debt | | | — | | | (3,431) | | | 1,141 | Other Gain (Loss) | | | (7,042) | | | 24,885 | | | 9,746 | Total Operating Income | | | 10,667 | | | 23,345 | | | 12,280 | Investment and Other Income (Loss) | | | 776 | | | 12,445 | | | (6,432) | Interest Expense | | | (11,115) | | | (8,929) | | | (10,838) | Income (Loss) Before Income Tax Benefit | | | 328 | | | 26,861 | | | (4,990) | Income Tax Benefit | | | 2,830 | | | 3,079 | | | 83,499 | Net Income Attributable to the Company | | | 3,158 | | | 29,940 | | | 78,509 | Distributions to Preferred Stockholders | | | (4,781) | | | (2,325) | | | — | Net Income (Loss) Attributable to Common Stockholders | | $ | (1,623) | | $ | 27,615 | | $ | 78,509 | | | | | | | | | | | Per Share Information—See Note 14: | | | | | | | | | | Basic and Diluted Net Income (Loss) Attributable to Common Stockholders | | $ | (0.09) | | $ | 1.56 | | $ | 5.56 | | | | | | | | | | | Weighted Average Number of Common Shares | | | | | | | | | | Basic and Diluted | | | 18,508,201 | | | 17,676,809 | | | 14,114,631 |
The accompanying notes are an integral part of these consolidated financial statements. CONSOLIDATED TOMOKA LAND CO.
CTO REALTY GROWTH, INC. CONSOLIDATED STATEMENTS OF OPERATIONS COMPREHENSIVE INCOME
| | | | | | | | | | | | | Year Ended | | | | December 31, | | December 31, | | December 31, | | | | 2017 | | 2016 | | 2015 | | Revenues | | | | | | | | | | | Income Properties | | $ | 31,406,930 | | $ | 25,092,484 | | $ | 19,041,111 | | Interest Income from Commercial Loan Investments | | | 2,052,689 | | | 2,588,235 | | | 2,691,385 | | Real Estate Operations | | | 52,522,555 | | | 38,144,347 | | | 15,942,894 | | Golf Operations | | | 5,095,313 | | | 5,190,394 | | | 5,243,485 | | Agriculture and Other Income | | | 334,804 | | | 59,401 | | | 78,805 | | Total Revenues | | | 91,412,291 | | | 71,074,861 | | | 42,997,680 | | Direct Cost of Revenues | | | | | | | | | | | Income Properties | | | (6,917,743) | | | (5,204,863) | | | (3,655,935) | | Real Estate Operations | | | (17,480,197) | | | (14,881,311) | | | (4,292,524) | | Golf Operations | | | (5,958,888) | | | (5,587,077) | | | (5,593,085) | | Agriculture and Other Income | | | (96,149) | | | (166,769) | | | (226,554) | | Total Direct Cost of Revenues | | | (30,452,977) | | | (25,840,020) | | | (13,768,098) | | General and Administrative Expenses | | | (10,252,610) | | | (10,297,877) | | | (8,753,779) | | Impairment Charges | | | — | | | (2,180,730) | | | (510,041) | | Depreciation and Amortization | | | (12,663,959) | | | (8,195,417) | | | (5,212,897) | | Gain on Disposition of Assets | | | 38 | | | 12,758,770 | | | 5,516,444 | | Land Lease Income | | | 2,226,526 | | | — | | | — | | Total Operating Expenses | | | (51,142,982) | | | (33,755,274) | | | (22,728,371) | | Operating Income | | | 40,269,309 | | | 37,319,587 | | | 20,269,309 | | Investment Income (Loss) | | | 37,985 | | | (529,981) | | | 208,879 | | Interest Expense | | | (8,523,136) | | | (8,753,338) | | | (6,919,767) | | Income Before Income Tax Benefit (Expense) | | | 31,784,158 | | | 28,036,268 | | | 13,558,421 | | Income Tax Benefit (Expense) | | | 9,935,266 | | | (11,836,854) | | | (5,269,104) | | Net Income | | | 41,719,424 | | | 16,199,414 | | | 8,289,317 | | Less: Net Loss Attributable to Noncontrolling Interest in Consolidated VIE | | | — | | | 51,834 | | | 57,849 | | Net Income Attributable to Consolidated-Tomoka Land Co. | | $ | 41,719,424 | | $ | 16,251,248 | | $ | 8,347,166 | | | | | | | | | | | | | Per Share Information- See Note 10: | | | | | | | | | | | Basic | | | | | | | | | | | Net Income Attributable to Consolidated-Tomoka Land Co. | | $ | 7.53 | | $ | 2.86 | | $ | 1.44 | | Diluted | | | | | | | | | | | Net Income Attributable to Consolidated-Tomoka Land Co. | | $ | 7.48 | | $ | 2.85 | | $ | 1.43 | | | | | | | | | | | | | Dividends Declared and Paid | | $ | 0.18 | | $ | 0.12 | | $ | 0.08 | | | | | | | | | | | | |
(In thousands) | | | | | | | | | | | | Year Ended | | | December 31, 2022 | | December 31, 2021 | | December 31, 2020 | Net Income Attributable to the Company | | $ | 3,158 | | $ | 29,940 | | $ | 78,509 | Other Comprehensive Income (Loss): | | | | | | | | | | Cash Flow Hedging Derivative - Interest Rate Swaps | | | 14,244 | | | 3,427 | | | (1,984) | Total Other Comprehensive Income (Loss) | | | 14,244 | | | 3,427 | | | (1,984) | Total Comprehensive Income | | $ | 17,402 | | $ | 33,367 | | $ | 76,525 |
The accompanying notes are an integral part of these consolidated financial statements. CONSOLIDATED-TOMOKA LAND CO.
CTO REALTY GROWTH, INC. CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME STOCKHOLDERS’ EQUITY
(In thousands) | | | | | | | | | | | | | | | | | | | | | | | | Preferred Stock | | Common Stock | | Treasury Stock | | Additional Paid-In Capital | | Retained Earnings | | Accumulated Other Comprehensive Income (Loss) | | Stockholders' Equity | Balance January 1, 2020 | | $ | — | | $ | 6,017 | | $ | (73,441) | | $ | 26,690 | | $ | 326,073 | | $ | 74 | | $ | 285,413 | Net Income Attributable to the Company | | | — | | | — | | | — | | | — | | | 78,509 | | | — | | | 78,509 | Stock Repurchase | | | — | | | — | | | (4,100) | | | — | | | — | | | — | | | (4,100) | Equity Component of Convertible Debt | | | — | | | — | | | — | | | 5,248 | | | — | | | — | | | 5,248 | Vested Restricted Stock | | | — | | | 24 | | | — | | | (562) | | | — | | | — | | | (538) | Stock Issuance | | | — | | | 10 | | | — | | | 503 | | | — | | | — | | | 513 | Stock-Based Compensation Expense | | | — | | | — | | | — | | | 2,308 | | | — | | | — | | | 2,308 | Cash Dividends ($0.63 per share) | | | — | | | — | | | — | | | — | | | (8,866) | | | — | | | (8,866) | Special Distribution - REIT Conversion ($3.99 per share) | | | — | | | 1,199 | | | — | | | 48,996 | | | (55,799) | | | — | | | (5,604) | Other Comprehensive Loss | | | — | | | — | | | — | | | — | | | — | | | (1,984) | | | (1,984) | Balance December 31, 2020 | | | — | | | 7,250 | | | (77,541) | | | 83,183 | | | 339,917 | | | (1,910) | | | 350,899 | Net Income Attributable to the Company | | | — | | | — | | | — | | | — | | | 29,940 | | | — | | | 29,940 | Stock Repurchase | | | — | | | — | | | — | | | (2,210) | | | — | | | — | | | (2,210) | Vested Restricted Stock and Performance Shares | | | — | | | — | | | — | | | (436) | | | — | | | — | | | (436) | Exercise of Stock Options and Common Stock Issuance | | | — | | | — | | | — | | | 357 | | | — | | | — | | | 357 | Issuance of Preferred Stock, Net of Underwriting Discount and Expenses | | | 30 | | | — | | | — | | | 72,400 | | | — | | | — | | | 72,430 | Common Stock Equity Issuance Costs | | | — | | | — | | | — | | | (197) | | | — | | | — | | | (197) | Stock-Based Compensation Expense | | | — | | | — | | | — | | | 2,668 | | | — | | | — | | | 2,668 | Par Value $0.01 per Share and Treasury Stock Derecognized at January 29, 2021 | | | — | | | (7,190) | | | 77,541 | | | (70,351) | | | — | | | — | | | — | Preferred Stock Dividends Declared for the Period | | | — | | | — | | | — | | | — | | | (2,325) | | | — | | | (2,325) | Common Stock Dividends Declared for the Period | | | — | | | — | | | — | | | — | | | (24,073) | | | — | | | (24,073) | Other Comprehensive Income | | | — | | | — | | | — | | | — | | | — | | | 3,427 | | | 3,427 | Balance December 31, 2021 | | | 30 | | | 60 | | | — | | | 85,414 | | | 343,459 | | | 1,517 | | | 430,480 | Net Income Attributable to the Company | | | — | | | — | | | — | | | — | | | 3,158 | | | — | | | 3,158 | Three-for-One Stock Split | | | — | | | 122 | | | — | | | (122) | | | — | | | — | | | — | Adjustment to Equity Component of Convertible Debt Upon Adoption of ASU 2020-06 | | | — | | | — | | | — | | | (7,034) | | | 4,022 | | | — | | | (3,012) | Stock Repurchase | | | — | | | (1) | | | — | | | (2,791) | | | — | | | — | | | (2,792) | Vested Restricted Stock and Performance Shares | | | — | | | — | | | — | | | (845) | | | — | | | — | | | (845) | Exercise of Stock Options and Common Stock Issuance | | | — | | | — | | | — | | | 315 | | | — | | | — | | | 315 | Stock Issuance, Net of Equity Issuance Costs | | | — | | | 48 | | | — | | | 94,803 | | | — | | | — | | | 94,851 | Stock-Based Compensation Expense | | | — | | | — | | | — | | | 2,731 | | | — | | | — | | | 2,731 | Preferred Stock Dividends Declared for the Period | | | — | | | — | | | — | | | — | | | (4,781) | | | — | | | (4,781) | Common Stock Dividends Declared for the Period | | | — | | | — | | | — | | | — | | | (29,579) | | | — | | | (29,579) | Other Comprehensive Income | | | — | | | — | | | — | | | — | | | — | | | 14,244 | | | 14,244 | Balance December 31, 2022 | | $ | 30 | | $ | 229 | | $ | — | | $ | 172,471 | | $ | 316,279 | | $ | 15,761 | | $ | 504,770 |
The accompanying notes are an integral part of these consolidated financial statements. | | | | | | | | | | | | | Year Ended | | | | December 31,
2017 | | December 31,
2016 | | December 31,
2015 | | | | | | | | | | | | | Net Income Attributable to Consolidated-Tomoka Land Co. | | $ | 41,719,424 | | $ | 16,251,248 | | $ | 8,347,166 | | Other Comprehensive Income | | | | | | | | | | | Realized Loss (Gain) on Investment Securities Sold (Net of Income Tax of $-0-, $222,025, and $61,738, respectively) | | | — | | | 353,542 | | | (101,451) | | Unrealized Gain (Loss) on Investment Securities (Net of Income Tax of $-0-, $210,652, and $414,962, respectively) | | | — | | | 335,429 | | | (660,761) | | Cash Flow Hedging Derivative - Interest Rate Swap (Net of Income Tax of $73,304, $160,701, and $-0-, respectively) | | | 116,727 | | | 255,889 | | | — | | Total Other Comprehensive Income (Loss), Net of Income Tax | | | 116,727 | | | 944,860 | | | (762,212) | | Total Comprehensive Income | | $ | 41,836,151 | | $ | 17,196,108 | | $ | 7,584,954 | | | | | | | | | | | | |
F-8 CTO REALTY GROWTH, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) | | | | | | | | | | | | Year Ended | | | December 31, 2022 | | December 31, 2021 | | December 31, 2020 | Cash Flow from Operating Activities: | | | | | | | | | | Net Income Attributable to the Company | | $ | 3,158 | | $ | 29,940 | | $ | 78,509 | Adjustments to Reconcile Net Income Attributable to the Company to Net Cash Provided by Operating Activities: | | | | | | | | | | Depreciation and Amortization | | | 28,855 | | | 20,581 | | | 19,063 | Amortization of Intangible Liabilities to Income Property Revenue | | | 2,161 | | | (404) | | | (1,754) | Amortization of Deferred Financing Costs to Interest Expense | | | 755 | | | 586 | | | 454 | Amortization of Discount on Convertible Debt | | | 189 | | | 1,278 | | | 1,379 | Gain on Disposition of Real Estate and Intangible Lease Assets and Liabilities | | | (3,869) | | | (28,316) | | | (7,509) | Loss on Disposition of Mitigation Bank | | | 11,713 | | | — | | | — | Gain on Disposition of Assets Held for Sale | | | — | | | — | | | (2,590) | Loss (Gain) on Disposition of Commercial Loans and Investments | | | (802) | | | — | | | 353 | Loss (Gain) on Extinguishment of Debt | | | — | | | 3,431 | | | (1,141) | Impairment Charges | | | — | | | 17,599 | | | 9,147 | Accretion of Commercial Loans and Investments Origination Fees | | | (174) | | | (2) | | | (161) | Non-Cash Imputed Interest | | | (126) | | | (438) | | | (428) | Deferred Income Taxes | | | (3,013) | | | (3,038) | | | (90,532) | Unrealized (Gain) Loss on Investment Securities | | | 1,697 | | | (10,340) | | | 8,240 | Non-Cash Compensation | | | 3,232 | | | 3,168 | | | 2,786 | Decrease (Increase) in Assets: | | | | | | | | | | Refundable Income Taxes | | | (5) | | | (416) | | | (26) | Assets Held for Sale | | | — | | | 833 | | | — | Land and Development Costs | | | 7 | | | 6,391 | | | (493) | Mitigation Credits and Mitigation Credit Rights | | | 10,427 | | | (15,750) | | | 3,323 | Other Assets | | | (5,067) | | | (3,191) | | | (1,802) | (Decrease) Increase in Liabilities: | | | | | | | | | | Accounts Payable | | | 1,866 | | | (370) | | | (340) | Accrued and Other Liabilities | | | 3,863 | | | 5,680 | | | 3,402 | Deferred Revenue | | | 1,230 | | | 1,186 | | | (2,511) | Liabilities Held for Sale | | | — | | | (831) | | | — | Income Taxes Payable | | | — | | | — | | | (439) | Net Cash Provided By Operating Activities | | | 56,097 | | | 27,577 | | | 16,930 | Cash Flow from Investing Activities: | | | | | | | | | | Acquisition of Real Estate and Intangible Lease Assets and Liabilities | | | (313,926) | | | (256,381) | | | (167,811) | Acquisition of Commercial Loans and Investments | | | (53,369) | | | (364) | | | (28,235) | Acquisition of Mitigation Credits | | | — | | | — | | | (3,621) | Restricted Cash Balance Received in Acquisition of Interest in Joint Venture | | | — | | | 596 | | | — | Cash Received (Contribution to) Joint Ventures | | | — | | | 23,864 | | | (41) | Proceeds from Disposition of Property, Plant, and Equipment, Net, and Assets Held for Sale | | | 40,777 | | | 129,461 | | | 85,621 | Principal Payments Received on Commercial Loans and Investments | | | 61,628 | | | — | | | 22,965 | Acquisition of Investment Securities | | | (2,739) | | | (143) | | | — | Net Cash Used In Investing Activities | | | (267,629) | | | (102,967) | | | (91,122) | Cash Flow From Financing Activities: | | | | | | | | | | Proceeds from Long-Term Debt | | | 380,500 | | | 314,500 | | | 66,640 | Payments on Long-Term Debt | | | (233,750) | | | (283,519) | | | (72,269) | Cash Paid for Loan Fees | | | (2,724) | | | (1,587) | | | (2,187) | Cash Received (Paid for) Exercise of Stock Options and Common Stock Issuance | | | 315 | | | (162) | | | — | Proceeds from Issuance of Preferred Stock, Net of Underwriting Discount and Expenses | | | — | | | 72,430 | | | — | Cash Used to Purchase Common Stock | | | (2,792) | | | (2,210) | | | (4,100) | Cash Paid for Vesting of Restricted Stock | | | (845) | | | (436) | | | (502) | Proceeds from (Cash Paid for) Issuance of Common Stock, Net | | | 94,350 | | | (197) | | | — | Dividends Paid - Preferred Stock | | | (4,781) | | | (2,325) | | | — | Dividends Paid - Common Stock | | | (28,896) | | | (23,580) | | | (14,470) | Net Cash Provided By (Used In) Financing Activities | | | 201,377 | | | 72,914 | | | (26,888) | Net Decrease in Cash, Cash Equivalents and Restricted Cash | | | (10,155) | | | (2,476) | | | (101,080) | Cash, Cash Equivalents and Restricted Cash, Beginning of Period | | | 31,349 | | | 33,825 | | | 134,905 | Cash, Cash Equivalents and Restricted Cash, End of Period | | $ | 21,194 | | $ | 31,349 | | $ | 33,825 | | | | | | | | | | | Reconciliation of Cash to the Consolidated Balance Sheets: | | | | | | | | | | Cash and Cash Equivalents | | $ | 19,333 | | $ | 8,615 | | $ | 4,289 | Restricted Cash | | | 1,861 | | | 22,734 | | | 29,536 | Total Cash | | $ | 21,194 | | $ | 31,349 | | $ | 33,825 |
CTO REALTY GROWTH, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS(Continued) (In thousands) | | | | | | | | | | | | Year Ended | | | December 31, 2022 | | December 31, 2021 | | December 31, 2020 | Supplemental Disclosure of Cash Flow Information: | | | | | | | | | | Cash Paid for Taxes, Net of Refunds Received | | $ | 107 | | $ | 406 | | $ | 5,026 | Cash Paid for Interest (1) | | $ | 9,862 | | $ | 7,274 | | $ | 9,716 | | | | | | | | | | | Supplemental Disclosure of Non-Cash Investing and Financing Activities: | | | | | | | | | | Unrealized Gain (Loss) on Cash Flow Hedges | | $ | 14,244 | | $ | 3,427 | | $ | (1,984) | Convertible Note Exchange | | $ | — | | $ | — | | $ | 57,359 | Equity Component of Convertible Debt | | $ | — | | $ | — | | $ | 5,248 | Capital Expenditures included in Accrued and Other Liabilities | | $ | — | | $ | — | | $ | 1,600 | Special Distribution Paid in Stock | | $ | — | | $ | — | | $ | 50,194 | Adjustment to Equity Component of Convertible Debt Upon Adoption of ASU 2020-06 | | $ | 3,012 | | $ | — | | $ | — | Common Stock Dividends Declared and Unpaid | | $ | 683 | | $ | 493 | | $ | — | Assumption of Mortgage Note Payable | | $ | 17,800 | | $ | 30,000 | | $ | — |
(1) | Includes capitalized interest of $0.2 million during the year ended December 31, 2022, with no interest capitalized during the years ended December 31, 2021 or 2020. |
The accompanying notes are an integral part of these consolidated financial statements. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS F-6December 31, 2022, 2021, and 2020
NOTE 1. ORGANIZATION NATURE OF OPERATIONS The terms “us,” “we,” “our,” and “the Company” as used in this report refer to CTO Realty Growth, Inc. together with our consolidated subsidiaries. We are a publicly traded, self-managed equity REIT that focuses on the ownership, management, and repositioning of high-quality retail and mixed-use properties located primarily in what we believe to be faster growing, business-friendly markets exhibiting accommodative business tax policies, outsized relative job and population growth, and where retail demand exceeds supply. We have pursued our investment strategy by investing primarily through fee simple ownership of our properties, commercial loans and preferred equity. We own and manage, sometimes utilizing third-party property management companies, 23 commercial real estate properties in 9 states in the United States. As of December 31, 2022, we owned 8 single-tenant and 15 multi-tenant income-producing properties comprising 3.7 million square feet of gross leasable space. In addition to our income property portfolio, as of December 31, 2022, our business included the following: Management Services: | ● | A fee-based management business that is engaged in managing Alpine Income Property Trust, Inc. (“PINE”), see Note 5, “Related Party Management Services Business.” |
Commercial Loans and Investments: | ● | A portfolio of three commercial loan investments and one preferred equity investment which is classified as a commercial loan investment. |
Real Estate Operations: | ● | A portfolio of subsurface mineral interests associated with approximately 355,000 surface acres in 19 counties in the State of Florida (“Subsurface Interests”); and |
| ● | An inventory of mitigation credits as well as mitigation credits to be produced by the Company’s formerly owned mitigation bank. |
On December 10, 2021, the entity that held approximately 1,600 acres of undeveloped land in Daytona Beach, Florida (the “Land JV”), of which the Company previously held a 33.5% retained interest, completed the sale of all of its remaining land holdings for $66.3 million to Timberline Acquisition Partners, LLC an affiliate of Timberline Real Estate Partners (the “Land JV Sale”). Proceeds to the Company after distributions to the other member of the Land JV, and before taxes, were $24.5 million. Prior to the completion of the Land JV Sale, the Company was engaged in managing the Land JV, as further described in Note 5, “Related Party Management Services Business” in the notes to the consolidated financial statements in Item 8. As a result of the Land JV Sale and corresponding dissolution of the Land JV, the Company no longer holds a retained interest in the Land JV as of December 31, 2021. Our business also includes our investment in PINE. As of December 31, 2022, the fair value of our investment totaled $42.0 million, or 14.6% of PINE’s outstanding equity, including the units of limited partnership interest (“OP Units”) we hold in Alpine Income Property OP, LP (the “PINE Operating Partnership”), which are redeemable for cash, based upon the value of an equivalent number of shares of PINE common stock at the time of the redemption, or shares of PINE common stock on a one-for-one basis, at PINE’s election. Our investment in PINE generates investment income through the dividends distributed by PINE. In addition to the dividends we receive from PINE, our investment in PINE may benefit from any appreciation in PINE’s stock price, although no assurances can be provided that such appreciation will occur, the amount by which our investment will increase in value, or the timing thereof. Any dividends received from PINE are included in investment and other income (loss) on the accompanying consolidated statements of operations. CONSOLIDATED-TOMOKA LAND CO.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
| | | | | | | | | | | | | | | | | | | | | | | | | | | | Consolidated-Tomoka Land Co. Shareholders | | | | | | | | | | | | | | | | | | | | | | | | | Total | | | | | | | | | | | | | | | | | | | | | | | Consolidated- | | | | | | | | | | | | | | | | | | Accumulated | | Tomoka | | Noncontrolling | | | | | | | | | | Additional | | | | Other | | Land Co. | | Interest in | | Total | | | | Common | | Treasury | | Paid-In | | Retained | | Comprehensive | | Shareholders’ | | Consolidated | | Shareholders' | | | | Stock | | Stock | | Capital | | Earnings | | Income (Loss) | | Equity | | VIE | | Equity | | Balance January 1, 2015 | | $ | 5,862,063 | | $ | (1,381,566) | | $ | 11,289,846 | | $ | 112,561,115 | | $ | 73,241 | | $ | 128,404,699 | | $ | — | | $ | 128,404,699 | | Net Income (Loss) | | | — | | | — | | | — | | | 8,347,166 | | | — | | | 8,347,166 | | | (57,849) | | | 8,289,317 | | Contributions from Noncontrolling Interest in
Consolidated VIE | | | — | | | — | | | — | | | — | | | — | | | — | | | 5,664,787 | | | 5,664,787 | | Stock Repurchase | | | — | | | (6,484,844) | | | — | | | — | | | — | | | (6,484,844) | | | — | | | (6,484,844) | | Equity Component of Convertible Debt | | | — | | | — | | | 2,130,002 | | | — | | | — | | | 2,130,002 | | | — | | | 2,130,002 | | Exercise of Stock Options | | | 33,455 | | | — | | | 1,062,405 | | | — | | | — | | | 1,095,860 | | | — | | | 1,095,860 | | Vested Restricted Stock | | | 5,348 | | | — | | | (25,509) | | | — | | | — | | | (20,161) | | | — | | | (20,161) | | Stock Issuance | | | 644 | | | — | | | 34,258 | | | — | | | — | | | 34,902 | | | — | | | 34,902 | | Stock Compensation Expense from Restricted
Stock Grants and Equity Classified Stock Options | | | — | | | — | | | 2,500,255 | | | — | | | — | | | 2,500,255 | | | — | | | 2,500,255 | | Cash Dividends ($0.08 per share) | | | — | | | — | | | — | | | (464,279) | | | — | | | (464,279) | | | — | | | (464,279) | | Other Comprehensive Loss, Net of Income Tax | | | — | | | — | | | — | | | — | | | (762,212) | | | (762,212) | | | — | | | (762,212) | | Balance December 31, 2015 | | | 5,901,510 | | | (7,866,410) | | | 16,991,257 | | | 120,444,002 | | | (688,971) | | | 134,781,388 | | | 5,606,938 | | | 140,388,326 | | Net Income (Loss) | | | — | | | — | | | — | | | 16,251,248 | | | — | | | 16,251,248 | | | (51,834) | | | 16,199,414 | | Contributions from Noncontrolling Interest in
Consolidated VIE | | | — | | | — | | | — | | | — | | | — | | | — | | | 102,844 | | | 102,844 | | Acquisition of Noncontrolling Interest | | | — | | | — | | | — | | | 879,158 | | | — | | | 879,158 | | | (5,657,948) | | | (4,778,790) | | Stock Repurchase | | | — | | | (7,431,896) | | | — | | | — | | | — | | | (7,431,896) | | | — | | | (7,431,896) | | Exercise of Stock Options | | | 3,350 | | | — | | | 413,577 | | | — | | | — | | | 416,927 | | | — | | | 416,927 | | Vested Restricted Stock | | | 8,884 | | | — | | | (205,090) | | | — | | | — | | | (196,206) | | | — | | | (196,206) | | Stock Issuance | | | 816 | | | — | | | 39,299 | | | — | | | — | | | 40,115 | | | — | | | 40,115 | | Stock Compensation Expense from Restricted Stock
Grants and Equity Classified Stock Options | | | — | | | — | | | 3,272,345 | | | — | | | — | | | 3,272,345 | | | — | | | 3,272,345 | | Cash Dividends ($0.12 per share) | | | — | | | — | | | — | | | (682,097) | | | — | | | (682,097) | | | — | | | (682,097) | | Other Comprehensive Income, Net of Income Tax | | | — | | | — | | | — | | | — | | | 944,860 | | | 944,860 | | | — | | | 944,860 | | Balance December 31, 2016 | | | 5,914,560 | | | (15,298,306) | | | 20,511,388 | | | 136,892,311 | | | 255,889 | | | 148,275,842 | | | — | | | 148,275,842 | | Net Income | | | — | | | — | | | — | | | 41,719,424 | | | — | | | 41,719,424 | | | — | | | 41,719,424 | | Stock Repurchase | | | — | | | (7,209,454) | | | — | | | — | | | — | | | (7,209,454) | | | — | | | (7,209,454) | | Exercise of Stock Options | | | 28,527 | | | — | | | 1,056,406 | | | — | | | — | | | 1,084,933 | | | — | | | 1,084,933 | | Vested Restricted Stock | | | 18,930 | | | — | | | (413,184) | | | — | | | — | | | (394,254) | | | — | | | (394,254) | | Stock Issuance | | | 1,833 | | | — | | | 101,303 | | | — | | | — | | | 103,136 | | | — | | | 103,136 | | Stock Compensation Expense from Restricted Stock
Grants and Equity Classified Stock Options | | | — | | | — | | | 1,479,315 | | | — | | | — | | | 1,479,315 | | | — | | | 1,479,315 | | Cash Dividends ($0.18 per share) | | | — | | | — | | | — | | | (997,461) | | | — | | | (997,461) | | | — | | | (997,461) | | Other Comprehensive Income, Net of Income Tax | | | — | | | — | | | — | | | — | | | 116,727 | | | 116,727 | | | — | | | 116,727 | | Balance December 31, 2017 | | $ | 5,963,850 | | $ | (22,507,760) | | $ | 22,735,228 | | $ | 177,614,274 | | $ | 372,616 | | $ | 184,178,208 | | $ | — | | $ | 184,178,208 | |
The accompanying notes are an integral part of these consolidated financial statements.
REIT CONVERSION CONSOLIDATED-TOMOKA LAND CO.
CONSOLIDATED STATEMENTS OF CASH FLOWS
| | | | | | | | | | | | | Year Ended | | | | December 31, | | December 31, | | December 31, | | | | 2017 | | 2016 | | 2015 | | Cash Flow from Operating Activities: | | | | | | | | | | | Net Income | | $ | 41,719,424 | | $ | 16,199,414 | | $ | 8,289,317 | | Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities: | | | | | | | | | | | Depreciation and Amortization | | | 12,663,959 | | | 8,195,417 | | | 5,212,897 | | Amortization of Intangible Liabilities to Income Property Revenue | | | (2,193,957) | | | (2,240,008) | | | (158,599) | | Loan Cost Amortization | | | 509,263 | | | 828,075 | | | 365,860 | | Amortization of Discount on Convertible Debt | | | 1,194,714 | | | 1,120,859 | | | 852,368 | | Amortization of Discount on Debt Securities within Investment Securities | | | — | | | — | | | (6,555) | | Gain on Disposition of Property, Plant, and Equipment and Intangible Assets | | | (38) | | | (12,758,770) | | | (5,516,444) | | Impairment Charges | | | — | | | 2,180,730 | | | 510,041 | | Accretion of Commercial Loan Origination Fees | | | (25,232) | | | (164,893) | | | (74,781) | | Amortization of Fees on Acquisition of Commercial Loan Investments | | | — | | | 36,382 | | | 3,618 | | Discount on Commercial Loan Investment Payoff | | | — | | | 217,500 | | | — | | Realized Loss (Gain) on Investment Securities | | | — | | | 575,567 | | | (163,189) | | Impairment Charge on Investment Securities | | | — | | | — | | | 59,553 | | Deferred Income Taxes | | | (8,953,981) | | | 11,658,864 | | | 4,627,019 | | Non-Cash Compensation | | | 1,437,223 | | | 3,178,883 | | | 2,186,408 | | Decrease (Increase) in Assets: | | | | | | | | | | | Refundable Income Taxes | | | (172,589) | | | (85,520) | | | (591,191) | | Land and Development Costs | | | 12,477,581 | | | 422,020 | | | (4,005,182) | | Impact Fees and Mitigation Credits | | | 1,197,637 | | | 2,231,321 | | | 641,537 | | Other Assets | | | (3,502,041) | | | (4,128,648) | | | (3,497,262) | | Increase (Decrease) in Liabilities: | | | | | | | | | | | Accounts Payable | | | 362,411 | | | (416,312) | | | 1,075,192 | | Accrued and Other Liabilities | | | 792,629 | | | (29,492) | | | 3,373,508 | | Deferred Revenue | | | 38,793 | | | (12,732,944) | | | 12,006,067 | | Net Cash Provided By Operating Activities | | | 57,545,796 | | | 14,288,445 | | | 25,190,182 | | Cash Flow from Investing Activities: | | | | | | | | | | | Acquisition of Property, Plant, and Equipment and Intangible Lease Assets and Liabilities | | | (94,627,373) | | | (42,623,497) | | | (2,398,915) | | Acquisition of Property, Plant, and Equipment and Intangible Lease Assets and Liabilities through Business Combinations | | | — | | | (49,926,604) | | | (76,034,452) | | Acquisition of Commercial Loan Investments | | | (2,940,000) | | | — | | | (15,253,628) | | Acquisition of Land | | | — | | | (4,778,790) | | | (5,664,787) | | Decrease (Increase) in Restricted Cash | | | 3,347,338 | | | 4,205,054 | | | (9,620,425) | | Proceeds from Sale of Investment Securities | | | — | | | 6,252,362 | | | 4,751,987 | | Proceeds from Sale of Put Options | | | — | | | — | | | 92,902 | | Acquisition of Investment Securities | | | — | | | — | | | (10,763,038) | | Proceeds from Disposition of Property, Plant, and Equipment | | | — | | | 49,170,314 | | | 23,493,205 | | Principal Payments Received on Commercial Loan Investments | | | 15,000,000 | | | 14,282,500 | | | 7,200,909 | | Net Cash Used In Investing Activities | | | (79,220,035) | | | (23,418,661) | | | (84,196,242) | | Cash Flow from Financing Activities: | | | | | | | | | | | Proceeds from Long-Term Debt | | | 63,500,000 | | | 70,050,000 | | | 137,675,000 | | Payments on Long-Term Debt | | | (35,100,000) | | | (49,050,000) | | | (70,540,011) | | Cash Paid for Loan Fees | | | (532,814) | | | (400,586) | | | — | | Cash Proceeds from Exercise of Stock Options and Stock Issuance | | | 1,188,069 | | | 157,197 | | | 1,019,837 | | Contributions from Noncontrolling Interest in Consolidated VIE | | | — | | | 102,844 | | | — | | Cash Used to Purchase Common Stock | | | (7,209,454) | | | (7,431,896) | | | (6,484,844) | | Cash from Excess Tax Benefit (Expense) from Vesting of Restricted Stock | | | — | | | 299,845 | | | (20,161) | | Cash Paid for Vesting of Restricted Stock | | | (394,254) | | | (196,206) | | | — | | Dividends Paid | | | (997,461) | | | (682,097) | | | (464,279) | | Net Cash Provided By Financing Activities | | | 20,454,086 | | | 12,849,101 | | | 61,185,542 | | Net Increase (Decrease) in Cash | | | (1,220,153) | | | 3,718,885 | | | 2,179,482 | | Cash, Beginning of Year | | | 7,779,562 | | | 4,060,677 | | | 1,881,195 | | Cash, End of Period | | $ | 6,559,409 | | $ | 7,779,562 | | $ | 4,060,677 | |
The accompanying notes are an integral partAs of these consolidated financial statements.
Supplemental Disclosure of Cash Flows:
Total interest paid during the years ended December 31, 2017, 2016,2020, the Company had completed certain internal reorganization transactions necessary to begin operating in compliance with the requirements for qualification and 2015 was approximately $7.1 million, $6.8 million, and $4.7 million respectively. Interest paid included capitalized interesttaxation as a REIT for U.S. federal income tax purposes under the Internal Revenue Code of approximately $215,000 during1986, as amended (the “Code”), commencing with the taxable year ended December 31, 2017, with no interest capitalized during the years ended December 31, 2016 or 2015.2020.
Income taxes totaling approximately $334,000, $510,000, and $1.2 million were paid during the years ended December 31, 2017, 2016, and 2015, respectively. Additionally, income taxes totaling approximately $958,000 and $133,000 were refunded during the years ended December 31, 2017 and 2016, respectively, with no amounts being refunded during the year ended December 31, 2015.
In connection with the Golf Course Land Purchase (hereinafter defined), each year the Company is obligated to pay the City of Daytona Beach, Florida (the “City”) an annual surcharge of $1 per golf round played (the “Per-Round Surcharge”) with an annual minimum Per-Round Surcharge of $70,000 and a maximum aggregate amount of the Per-Round Surcharge paid equal to $700,000. The maximum amount of $700,000 represents contingent consideration and was reflected as an increase in Golf Buildings, Improvements, and Equipment and also as an increase in Accrued and Other Liabilities on the accompany consolidated balance sheets as of December 31, 2017.
During the year ended December 31, 2016, the Company closed on the Portfolio Sale (hereinafter defined). The sales price on the Portfolio Sale was approximately $51.6 million, of which approximately $23.1 million was not received in cash at closing; rather the buyer assumed the Company’s $23.1 million mortgage loan secured by the Portfolio Sale properties. The non-cash transaction was reflected on the consolidated balance sheets as a decrease in long-term debt of approximately $23.1 million.
During the year ended December 31, 2015,On January 29, 2021, in connection with the issuanceREIT conversion, the Company completed the merger of CTO Realty Growth, Inc., a Florida corporation (“CTO FL”), with and into CTO NEWCO REIT, Inc., a wholly owned Maryland subsidiary of CTO FL (“CTO MD”), in order to reincorporate in Maryland and facilitate its ongoing compliance with the REIT requirements (the “Merger”).
As a result of the Company’s $75.0 million convertible senior notes due 2020, approximately $2.1 millionMerger, existing shares of CTO FL common stock were automatically converted, on a one-for-one basis, into shares of common stock of the issuance was allocatedsurviving entity (the “CTO Company”). The CTO Company is a corporation organized in the state of Maryland and has been renamed “CTO Realty Growth, Inc.” The CTO Company’s charter includes certain standard REIT provisions, including ownership limitations and transfer restrictions applicable to the equity component for the conversion option. This non-cash allocation was reflected on the consolidated balance sheets as a decrease in long-term debt of approximately $3.4 and an increase in deferred income taxes of approximately $1.3 million.Company’s capital stock. During the year ended December 31, 2015, the Company acquired an interest in approximately six acres of vacant beachfront property in Daytona Beach, Florida through a real estate venture with an unaffiliated third party institutional investor for approximately $5.7 million. The approximate $5.7 million contribution by the third party was reflected as a non-cash increase in Land and Development Costs and Shareholders’ Equity attributable to the Noncontrolling Interest in Consolidated VIE in the accompanying consolidated balance sheet. During the year ended December 31, 2016, the Company acquired the Noncontrolling Interest from the unaffiliated third party for approximately $4.8 million, a discount of approximately $879,000. The discount was reflected as a non-cash increase in Retained Earnings in the accompanying consolidated balance sheets.
During the year ended December 31, 2015, the Company accrued approximately $1.7 million for an obligation representing the low end of the estimated range of possible wetlands restoration costs on approximately 148.4 acres. During the year ended December 31, 2016, an additional accrual of approximately $325,000 was made. These non-cash accruals were reflected on the consolidated balance sheets as an increase in the Land and Development Costs and an increase in Accrued and Other Liabilities. During the years ended December 31, 2017 and 2016, approximately $381,000 and $935,000 was spent related to the wetlands restoration accrual, respectively.
During the years ended December 31, 2015, the Company received a 50% interest in the subsurface rights of approximately 1,400 acres in Lee County, Florida, valued at approximately $68,000. This non-cash transaction was reflected on the consolidated balance sheets as an increase in Land and Development Costs and on the consolidated statements of operations as an increase in revenue from real estate operations.
During the years ended December 31, 2017, 2016, and 2015 non-cash compensation includes a reduction in the value of accrued stock-based compensation of approximately $42,000, $93,000, $314,000, respectively. This portion of non-cash compensation was reflected on the consolidated balance sheets as a decrease in accrued stock-based compensation and on the consolidated statements of operations as a decrease in general and administrative expenses.
The accompanying notes are an integral part of these consolidated statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2017, 2016, and 2015
NOTE 1.2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES NATURE OF OPERATIONS
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-seven commercial real estate properties in twelve states in the United States. As of December 31, 2017, we owned twenty-six single-tenant and eleven multi-tenant income-producing properties with over 2.1 million square feet of gross leasable space. We also own and manage a portfolio of undeveloped land totaling approximately 8,100 acres in the City of Daytona Beach, Florida (the “City”). As of December 31, 2017, we had two commercial loan investments including a variable-rate B-Note representing a secondary tranche in a commercial mortgage loan and a fixed-rate first mortgage loan. We have golf operations which consist of the LPGA International Golf Club, which is managed by a third party. We also lease some of our land for nineteen billboards, have agricultural operations that are managed by a third party, which consist of leasing land for hay production, timber harvesting, and hunting leases, and own and manage Subsurface Interests (hereinafter defined). The results of our agricultural and subsurface leasing operations are included in Agriculture and Other Income and Real Estate Operations, respectively, in our consolidated statements of operations.
Subsequent to December 31, 2017, and prior to the date of this report, the Company completed two self-developed single-tenant net lease restaurant properties on a 6-acre beachfront parcel in Daytona Beach, Florida and acquired a newly constructed commercial building located in Aspen, Colorado under a twenty-year master lease to a single tenant, bringing the number of single-tenant and total income properties to 29 and 40, respectively.
PRINCIPLES OF CONSOLIDATION The consolidated financial statements include the accounts of the Company, its wholly owned subsidiaries, and other entities in which we have a controlling interest. Any real estate entities or properties included in the consolidated financial statements have been consolidated only for the periods that such entities or properties were owned or under control by us. All significant inter-company balances and transactions have been eliminated in the consolidated financial statements. Noncontrolling interestsAs of December 31, 2022, the Company has an equity investment in consolidated pass-through entities are recognized beforePINE. Prior to the Interest Purchase (hereinafter defined in Note 7, “Investment in Joint Ventures”) completed on September 30, 2021, the Company held a 30% retained interest in the entity that owns the Mitigation Bank. On December 29, 2022, the Company completed the sale of the entity that owned the Mitigation Bank. Additionally, the Company held a 33.5% retained interest in the entity that held approximately 1,600 acres of undeveloped land in Daytona Beach, FL (the “Land JV”) prior the sale of all of its remaining land holdings, which sale was completed on December 10, 2021, for $66.3 million to Timberline Acquisition Partners, LLC an affiliate of Timberline Real Estate Partners (the “Land JV Sale”). SEGMENT REPORTING ASC Topic 280, Segment Reporting, establishes standards related to the manner in which enterprises report operating segment information. The Company operates in four primary business segments including income taxes.properties, management services, commercial loans and investments, and real estate operations, as further discussed within Note 23, “Business Segment Data”. The Company has no other reportable segments. The Company’s chief executive officer, who is the chief operating decision maker, reviews financial information on an aggregate basis for purposes of allocating and evaluating financial performance. USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS The preparation of financial statements in conformity with U.S.accounting principles generally accepted accounting principlesin the United States of America (“U.S. GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Because of theAmong other factors, fluctuating market conditions that currentlycan exist in the Florida and national real estate markets and the volatility and uncertainty in the financial and credit markets make it is possible that the estimates and assumptions, most notably those
related to the Company’s investment in income properties, and commercial loans, could change materially during the time span associated with thedue to continued volatility ofin the real estate and financial markets, or as a result of a significant dislocation in those markets. RECENTLY ISSUED ACCOUNTING STANDARDS Cessation of LIBOR. In January 2021, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2021-01 which is in response to concerns about structural risks of interbank offered rates (“IBORs”), and, particularly, the risk of cessation of the London Interbank Offered Rate (“LIBOR”), regulators in numerous jurisdictions around the world have undertaken reference rate reform initiatives to identify alternative reference rates that are more observable or transaction based and less susceptible to manipulation. The amendments in ASU 2021-01 are effective immediately and clarify that certain optional expedients and exceptions in Topic 848 for contract modifications and hedge accounting apply to derivatives that are affected by the discounting transition. The Company believes that its interest rate swaps, hereinafter described in Note 17, “Interest Rate Swaps”, meet the scope of Topic 848-10-15-3A and therefore, the Company will be able to continue to apply a perfectly effective assessment method for each interest rate swap by electing the corresponding optional expedient for subsequent assessments. Debt with Conversion and Other Options. In August 2020, the FASB issued ASU 2020-06 related to simplifying the accounting for convertible instruments by removing certain separation models for convertible instruments. Among other things, the amendments in the update also provide for improvements in the consistency in EPS calculations by amending the guidance by requiring that an entity use the if-converted method for convertible instruments. The amendments in ASU 2020-06 are effective for reporting periods beginning after December 15, 2021. Effective January 1, 2022, the Company adopted ASU 2020-06 whereby diluted EPS includes the dilutive impact, if any, of the 2025 Notes (hereinafter defined) using the if-converted method. Further, the Company elected, upon adoption, to utilize the modified retrospective approach, negating the required restatement of EPS for periods prior to adoption. CASH AND CASH EQUIVALENTS Cash and cash equivalents includes 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 December 31, 20172022 and 2021 include certain amounts over the Federal Deposit Insurance Corporation limits. RESTRICTED CASH Restricted cash totaled approximately $6.5$1.9 million at December 31, 20172022, of which approximately $5.6$0.6 million of cash is being held in an escrow to be reinvested throughaccount in connection with the like-kind exchange structure into other income properties; approximately $646,000Mitigation Bank as required by the applicable state and federal permitting authorities, and $1.3 million is being held in three separate escrowtwo interest reserve accounts related to three separate land transactions of which one closed in each of December 2013, December 2015,the Company’s commercial loans and February 2017; approximately $127,000 is being held in a reserve for interest and property taxes for the $3.0 million first mortgage loan investment originated in July 2017; and approximately $160,000 is being held in a capital replacement reserve account in connection with our financing of six income properties with Wells Fargo.investments. INVESTMENT SECURITIES In accordance with the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”)FASB ASC Topic 320, Investments – Debt and Equity Securities and pursuant to ASU 2016-01, effective January 1, 2018, the Company’s investments in debt and equity securities (“Investment Securities”) have been determined to be classified as available-for-sale. Available-for-sale securities are carried at fair value in the consolidated balance sheets, with the unrealized gains and losses recognized in net of income tax, reported in other comprehensive income. Realized The unrealized gains and losses and declines in value judged to be other-than-temporary related to equity securities, are included in investment income in the consolidated statements of operations. With respect to debt securities, when the fair value of a debt security classified as available-for-sale is less than its cost, management assesses whether or not: (i) it has the intent to sell the security or (ii) it is more likely than not that the Company will be required to sell the security before its anticipated recovery. If either of these conditions are met, the Company must recognize an other-than-temporary impairment through earnings for the differences between the debt security’s cost basis and its fair value, and such amount is included in investment income in the consolidated statements of operations. There were no other-than-temporary impairments during the years ended December 31, 2017 or 2016, respectively. As of and for the year ended December 31, 2015, an other-than-temporary impairment was deemed to exist on a portion of the Company’s equity securities resulting in an impairment charge of approximately $60,000 which is included as a reduction in investment income in the consolidated statements of operations. The Company completed the disposition of its remaining position in Investment Securities during the year ended December 31, 2016 resulting in a loss of approximately $576,000. There were no Investment Securities remaining as of December 31, 2017 or 2016.
The cost of Investment Securities sold, if any, is based on the specific identification method. Interest and dividends on Investment Securities classified as available-for-sale are included in investment income in the consolidated statements of operations. The fair value of the Company’s available-for-sale equity securities was measured quarterly, on a recurring basis, using Level 1 inputs, or quoted prices for identical, actively traded assets. The fair value of the Company’s available-for-sale debt securities was measured quarterly, on a recurring basis, using Level 2 inputs.
DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGING ACTIVITY Interest Rate Swap. During the year ended December 31, 2016, in conjunction with the variable-rate mortgage loan secured by our property located in Raleigh, North Carolina leased to Wells Fargo Bank, NA (“Wells Fargo”), the Company entered into an interest rate swap to fix the interest rate (the “Interest Rate Swap”). The Company accounts for its cash flow hedging derivativederivatives in accordance with FASB ASC Topic 815-20, Derivatives and Hedging.Hedging. Depending upon the hedge’s value at each balance sheet date, the derivative isderivatives are included in either Other Assetsother assets or Accruedaccrued and Other Liabilitiesother liabilities on the consolidated balance sheet at its fair value. On the date the Interest Rate Swapeach interest rate swap was entered into, the Company designated the derivativederivatives as a hedge of the variability of cash flows to be paid related to the recognized long-term debt liability.liabilities.
The Company formally documented the relationship between the hedging instrumentinstruments and the hedged item, as well as its risk-management objective and strategy for undertaking the hedge transaction.transactions. At the hedge’shedges’ inception, the Company formally assessed whether the derivativederivatives that isare used in hedging the transaction istransactions are highly effective in offsetting changes in cash flows of the hedged item. As the terms of the Interest Rate Swapitems, 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. we will continue to do so on a quarterly basis. Changes in fair value of the Interest Rate Swaphedging instruments that are highly effective and designated and qualified as a cash-flow hedgehedges are recorded in other comprehensive income and loss, until earnings are affected by the variability in cash flows of the designated hedged item.items (See Note 17, “Interest Rate Swaps”). Put Options. There were no derivatives outstanding as of December 31, 2017, 2016, or 2015. There were certain derivatives outstanding as of September 30, 2015 which were exercised during the quarter ended December 31, 2015. These derivatives were not designated as hedging instruments and, accordingly, the changes in fair value (i.e. gains or losses) were recorded in the consolidated statements of operations through investment income. The fair value of the Company’s derivatives not designated as hedging instruments are measured quarterly, on a recurring basis, using Level 2 inputs. The Company’s derivatives exercised during the year ended December 31, 2015 were for put options sold related to common stock investments included in the investment securities asset category; see Note 5, “Investment Securities.” The liability for the fair market value of the put options sold was included on the consolidated balance sheet in Accrued and Other Liabilities prior to their execution.
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 December 31, 20172022 and 2016,2021, approximate fair value because of the short maturity of these instruments. The carrying amount of the Company’s investments in variable rate commercial loans approximates fair value at December 31, 2017 and 2016, since the floating rates of the loans reasonably approximate current market rates for notes with similar risks and maturities. The carrying value of the Company’s credit facilityCredit Facility (hereinafter defined) as of December 31, 2022 and 2021, approximates current market rates for revolving credit arrangements with similar risks and maturities. The face value of the Company’s fixed rate commercial loan investment,loans and investments, the 2026 Term Loan (hereinafter defined), the 2027 Term Loan (hereinafter defined), the 2028 Term Loan (hereinafter defined), mortgage notes,note, and convertible debt isheld as of December 31, 2022 and 2021 are measured at fair value based on current market rates for financial instruments with similar risks and maturities. Seematurities (see Note 6,9, “Fair Value of Financial Instruments.”Instruments”). FAIR VALUE MEASUREMENTS The Company’s estimates of fair value of financial and non-financial assets and liabilities is based on the framework established in the fair value accounting guidance.by U.S. GAAP. The framework specifies a hierarchy of valuation inputs which was established to increase consistency, clarity and comparability in fair value measurements and related disclosures. The guidanceU.S. GAAP describes a fair value hierarchy based upon three levels of inputs that may be used to measure fair value, two of which are considered observable and one that is considered unobservable. The following describes the three levels: | ·
● | | Level 1 – Valuation is based upon quoted prices in active markets for identical assets or liabilities. |
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● | | 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. |
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● | | 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 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.
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 December 31, 2017 and 2016, no allowance for impairment was required.
RECOGNITION OF INTEREST INCOME FROM COMMERCIAL LOANLOANS AND INVESTMENTS Interest income on commercial loanloans and investments includes interest payments made by the borrower and the accretion of purchase discounts and loan origination fees, offset by the amortization of loan costs. Interest payments are accrued 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 FEESMITIGATION CREDITS AND MITIGATION CREDITSCREDIT RIGHTS
Impact feesMitigation credits and mitigation creditscredit rights are stated at historical cost. As these assets are sold, the related revenues and cost basisof sales are reported as revenues from, and direct costs of, real estate operations, respectively, in the consolidated statements of operations.
ACCOUNTS RECEIVABLE Accounts receivable related to income properties, which are classified in Other Assetsother assets on the consolidated balance sheets, primarily consist of accrued tenant reimbursable expenses.expenses and other tenant receivables. Receivables related to the tenant reimbursable expensesincome property tenants totaled approximately $895,000$2.2 million and $125,000$0.9 million as of December 31, 20172022 and 2016,2021, respectively. The $1.3 million increase is primarily attributable to an increase in estimated accrued receivables for variable lease payments including common area maintenance, insurance, real estate taxes and other operating expenses. Accounts receivable related to real estate operations, which are classified in other assets on the consolidated balance sheets, totaled approximately $2.2$0.8 million and $3.8$1.1 million as of December 31, 20172022 and 2016,2021, respectively. The accounts receivable as of December 31, 20172022 and 20162021 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 as more fully described in Note 9,12, “Other Assets.” Trade accounts receivable primarily consist of receivables related to golf operations, which are classified in other assets on the consolidated balance sheets. Trade accounts receivable related to golf operations, which primarily consist of membership and event receivables, totaled approximately $349,000 and $326,000 as
As of December 31, 20172022 and 2016,2021, $0.2 million and $0.3 million was due from the buyer of the golf operations for the rounds surcharge the Company paid to the City of Daytona Beach, respectively. The collectability of the aforementioned receivables is determined based on a review of specifically identified accounts using judgments.shall be considered and adjusted through an allowance for credit losses pursuant to ASC 326, Financial Instruments-Credit Losses. As of December 31, 20172022 and 2016, no2021, the Company recorded an allowance for doubtful accounts was required.of $1.8 million and $0.5 million, respectively. PURCHASE ACCOUNTING FOR ACQUISITIONS OF REAL ESTATE SUBJECT TO A LEASE Investments in real estate are carried at cost less accumulated depreciation and impairment losses, if any. The cost of investments in real estate reflects their purchase price or development cost. We evaluate each acquisition transaction to determine whether the acquired asset meets the definition of a business. Under ASU 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business, an acquisition does not qualify as a business when there is no substantive process acquired or substantially all of the fair value is concentrated in a single identifiable asset or group of similar identifiable assets or the acquisition does not include a substantive process in the form of an acquired workforce or an acquired contract that cannot be replaced without significant cost, effort or delay. Transaction costs related to acquisitions that are asset acquisitions are capitalized as part of the cost basis of the acquired assets, while transaction costs for acquisitions that are deemed to be acquisitions of a business are expensed as incurred. Improvements and replacements are capitalized when they extend the useful life or improve the productive capacity of the asset. Costs of repairs and maintenance are expensed as incurred. In accordance with the FASB guidance, on business combinations, the fair value of the real estate acquired with in-place leases is allocated to the acquired tangible assets, consisting of land, building and tenant improvements, and identified intangible assets and liabilities, consisting of the value of above-market and below-market leases, the value of in-place leases, and the value of leasing costs, based in each case on their relative fair values. The fair value of the tangible assets of an acquired leased property is determined by valuing the property as if it were vacant, and the “as-if-vacant” value is then allocated to land, building and tenant improvements based on the determination of the fair values of these assets.
In allocating the fair value of the identified intangible assets and liabilities of an acquired property, above-market and below-market in-place lease values are recorded as other assets or liabilities based on the present value (using an interest rate which reflects the risks associated with the leases acquired) of the difference between (i) the contractual amounts to be paid pursuant to the in-place leases, and (ii) management’s estimate of fair market lease rates for the corresponding in-place leases, measured over a period equal to the remaining term of the lease, including the probability of renewal periods.value. The capitalized above-market lease values are amortized as a reduction of rental income over the remaining terms of the respective leases. The capitalized below-market lease values are amortized as an increase to rental income over the initial term unless the Companymanagement believes that it is likely that the tenant will renew the option wherebylease upon expiration, in which case the Company amortizes the value attributable to the renewal over the renewal period. The aggregate value of other acquired intangible assets, consisting of in-place leases, is measured by the excess of (i) the purchase price paid for a property after adjusting existing in-place leases to market rental rates over (ii) the estimated fair value of the property as-if-vacant, determined as set forth above. The value of in-place leases exclusive of the value of above-market and below-market in-place leases isleasing costs are amortized to expense over the remaining non-cancelable periods of the respective leases. If a lease were to be terminated prior to its stated expiration, all unamortized amounts relating to that lease would be written off.
The valueCompany incurs costs related to the development and leasing of its properties. Such costs include, but are not limited to, tenant relationshipsimprovements, leasing commissions, rebranding, facility expansion and other capital improvements, and are included in construction in progress during the development period. When a construction project is reviewed on individual transactionsconsidered to be substantially complete, the capitalized costs are reclassified to the appropriate real estate asset and depreciation begins. The Company assesses the level of construction activity to determine the amount, if future value was derivedany, of interest expense to be capitalized to the underlying construction projects. SALES OF REAL ESTATE When income properties are disposed of, the related cost basis of the real estate, intangible lease assets, and intangible lease liabilities, net of accumulated depreciation and/or amortization, and any accrued straight-line rental income balance for the underlying operating leases are removed, and gains or losses from the acquisition. Prior to October 1, 2016, the Company determined thatdispositions are reflected in net income property purchases subject to a lease, whether that lease is in-place or originated at the timewithin gain on disposition of acquisition, qualify as a business combination, and acquisition costs are expensed in the period the transaction closes.assets. In January 2017,accordance with the FASB issued Accounting Standards Update (“ASU”) 2017-01, Business Combinations which clarified the definition of a business. Pursuant to ASU 2017-01, the acquisition of an income property subject to a lease no longer qualifies as a business combination, but rather determined to be an asset acquisition. The Company early adopted ASU 2017-01 effective October 1, 2016 on a prospective basis. Accordingly, for income property acquisitions during the fourth quarter of 2016 and during 2017, acquisition costs have been capitalized.
LAND AND DEVELOPMENT COSTS
The carrying value of land and development includes the initial acquisition costs of land, improvements thereto, and other costs incidental to the acquisitionguidance, gains or development of land. Subsurface Interests (hereinafter defined) and capitalized costs relating to timber and hay operations are also included in land and development costs. These costs are allocated to properties on a relative sales value basis and are charged to costs of sales as specific properties are sold. Due to the nature of the business, land and development costs have been classified as an operating activity on the consolidated statements of cash flows.
SALE OF REAL ESTATE
Gains and losses on sales of real estate are generally recognized using the full accrual method.
Gains and losses on land sales, in addition to the sale of Subsurface Interests and mitigation credits, are accounted for as required by FASB ASC Topic 976-605-25, Accounting for Sales of Real Estate.606, Revenue from Contracts with Customers. The Company recognizes revenue from the sale of real estate at the time the sale is consummated, unless the property is sold on a deferred payment plan and the initial payment does not meet established criteria, orsuch sales when the Company retains some form of continuing involvementtransfers the promised goods in the property.contract based on the transaction price allocated to the performance obligations within the contract. As market information becomes available, real estatethe underlying cost basis is analyzed and recorded at the lower of cost or market. PROPERTY, PLANT, AND EQUIPMENT Property, plant, and equipment are stated at cost, less accumulated depreciation and amortization. Such properties are depreciated on a straight-line basis over their estimated useful lives. Renewals and betterments are capitalized to property accounts. The cost of maintenance and repairs is expensed as incurred. The cost of property retired or otherwise disposed of, and the related accumulated depreciation or amortization, are removed from the accounts, and any resulting gain or loss is recorded in the consolidated statement of operations. The amount of depreciation of property, plant, and equipment, exclusive of amortization related to intangible assets, recognized for the years ended December 31, 2017, 2016,2022, 2021, and 2015,2020, was approximately $7.9$16.6 million, $5.5$12.3 million, and $3.5$11.3 million, respectively. Interest of approximately $215,000No interest was capitalized to construction in progress during 2017, respectively with nothe years ended December 31, 2021 or 2020. During the year ended December 31, 2022, $0.2 million of interest capitalized in 2016 or 2015.was capitalized. The range of estimated useful lives for property, plant, and equipment is as follows:
| | | | | | | Golf Buildings and Improvements | | 10 | - | 43 | Years | | Golf Equipment | | 3 | - | 10 | Years | | Income Properties Buildings and Improvements | | 5 | - | 55 | Years | | Other Furnishings and Equipment | | 3 | - | 10 | Years | | Agriculture Equipment | | 10 | - | 20 | Years | |
| | | Income Properties Buildings and Improvements | 3 - 48 | Years | Other Furnishings and Equipment | 3 - 25 | Years |
LONG-LIVED ASSETS The Company follows FASB ASC Topic 360-10, Property, Plant, and Equipment in conducting its impairment analyses. The Company reviews the recoverability of long-lived assets, including land and development costs, real estate held for sale, and property, plant, and equipment, for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Examples of situations considered to be triggering events include: a substantial decline in operating cash flows during the period, a current or projected loss from operations, an income property not fully leased or leased at rates that are less than current market rates, and any other quantitative or qualitative events deemed significant by our management. Long-lived assets are evaluated for impairment by using an undiscounted cash flow approach, which considers future estimated capital expenditures. Impairment of long-lived assets is measured at fair value less cost to sell. INCOME PROPERTY LEASES The rental of the Company’s income properties are classified as operating leases. ThePursuant to FASB ASC Topic 842, Leases, the Company recognizes lease income on these properties on a straight-line basis over the term of the lease. The periodic difference between lease income recognized under this method and contractual lease payment terms (i.e., straight-line rent) is recorded as a deferred operating lease receivable and is included in straight-line rent adjustment within other assets on the accompanying consolidated balance sheets. The Company’s leases provide for reimbursement from tenants for variable lease payments including common area maintenance, insurance, real estate taxes and other operating expenses. A portion of our variable lease payment revenue is estimated each period and is recognized as rental income in the period the recoverable costs are incurred and accrued. OPERATING LEASE EXPENSE The Company leases property and equipment, which are classified as operating leases. The Company recognizes lease expense on a straight-line basis over the term of the lease. GOLF OPERATIONS
The Company operates two 18-hole golf courses and a 3-hole practice facility, a clubhouse facility, including food and beverage operations, and a fitness center. Revenues from this operation, including greens fees, cart rentals, merchandise, and food and beverage sales, are recognized at the time of sale. Initiation fees and membership dues are recognized over the life of the membership, which is generally twelve months.
OTHER REAL ESTATE INTERESTS From time to time, the Company will release surface orentry rights related to subsurface entry rightsacres owned by the Company upon request of the surface owner. The Company recognizes revenue from the release at the time the transaction is consummated, unless the propertyright is released under a deferred payment plan and the initial payment does not meet the criteria established under FASB ASC Topic 976-605-25, Accounting606, Revenue from Contracts with Customers. INCOME TAXES The Company elected to be taxed as a REIT for Sales of Real Estate,U.S. federal income tax purposes under the Code commencing with its taxable year ended December 31, 2020. The Company believes that, commencing with such taxable year, it has been organized and has operated in such a manner as to qualify for taxation as a REIT under the U.S. federal income tax laws. The Company intends to continue to operate in such a manner. As a REIT, the Company retains some form of continuing involvement in the property, or the transaction does not meet other requirements. STOCK-BASED COMPENSATION
Priorwill be subject to 2010,U.S. federal and state income taxation at corporate rates on its net taxable income; the Company, maintainedhowever, may claim a stock option plan (the “2001 Plan”) pursuantdeduction for the amount of dividends paid to which 500,000 shares ofits stockholders. Amounts distributed as dividends by the Company’s common stock were availableCompany will be subject to be issued. The 2001 Plan was approvedtaxation at the April 25, 2001 shareholders’ meetingstockholder level only. While the Company must distribute at least 90% of its REIT taxable income, determined without regard to the dividends paid deduction and expired in April 2011,excluding any net capital gain, to qualify as a REIT, the Company intends to distribute all of its net taxable income. The Company is allowed certain other non-cash deductions or adjustments, such as depreciation expense, when computing its REIT taxable income and distribution requirement. These deductions permit the Company to reduce its dividend payout requirement under U.S. federal income tax laws. Certain states may impose minimum franchise taxes. To comply with no new option shares issued after that date. Undercertain REIT requirements, the 2001 Plan,Company holds certain of its non-REIT assets and operations through taxable REIT subsidiaries (“TRSs”) and subsidiaries of TRSs, which will be subject to applicable U.S. federal, state and local corporate income tax on their taxable income. For the option exercise price equaled the average of the high and low stock market price on the date of grant. The options generally vested over five years and expired after ten years. In connection with the grant of non-qualified options, a stock appreciation right for each share covered by the option could also be granted. The stock appreciation right entitled the optionee to receive a supplemental payment, which could be paid in whole or in part in cash or in shares of common stock equal to a portion of the spread between the exercise price and the fair market value of the underlying share at the time of exercise. The expenses associated with stock options and stock appreciation rights were recognized over their requisite service period.
Both the Company’s stock options and stock appreciation rights awarded under the 2001 Plan were liability classified awards and were required to be remeasured to fair value at each balance sheet date until the award was settled, as required by applicable provisions of FASB ASC Topic, Share-Based Payments. See Note 16, “Stock-Based Compensation.” As of December 31, 2017, none of these options remained.
At the Annual Meeting of Shareholders ofperiods presented, the Company held on April 28, 2010, the Company’s shareholders approved the Consolidated-Tomoka Land Co. 2010 Equity Incentive Plan (the “2010 Plan”). The 2010 Plan replaced the Company’s 2001 Plan. At the Annual Meetinga total of Shareholders of the Company held on April 24, 2013, the Company’s
shareholders approved an amendment and restatement of the entire 2010 Plan, which among other things, incorporated claw back provisions and clarified language regarding the shares available subsequent to forfeiture of any awards of restricted shares. At the Annual Meeting of Shareholders of the Company held on April 23, 2014, the Company’s shareholders approved an amendment to the 2010 Plan increasing the number of shares authorized for issuance by 240,000 shares, bringing the total number of shares authorized for issuance to 450,000. Awards under the 2010 Plan may be in the form of stock options, stock appreciation rights, restricted shares, restricted share units, performance shares, and performance units. Employees of the Company and its subsidiaries and non-employee directors may be selected by the Compensation Committee to receive awards under the 2010 Plan. The maximum number of shares of which stock awards may be granted under the 2010 Plan is 450,000 shares. No participant may receive awards during any one calendar year representing more than 50,000 shares of common stock. In no event will the number of shares of common stock issued under the plan upon the exercise of incentive stock options exceed 450,000 shares. These limits aretwo TRSs subject to adjustments by the Compensation Committeetaxation. The Company’s TRSs will file tax returns separately as provided in the 2010 Plan for stock splits, stock dividends, recapitalizations, and other similar transactions or events. The 2010 Plan currently provides that it will expire on the tenth anniversary of the date that it was adopted by the Board, and that no awards will be granted under the plan after that date.C-Corporations.
All non-qualified stock option awards, restricted share awards, and performance share awards granted under the 2010 plan were determined to be equity-based awards under FASB ASC Topic, Share-Based Payments.
The Company used the Black-Scholes valuation pricing model to determine the fair value of its non-qualified stock option awards. The determination of the fair value of the awards is affected by the stock price as well as assumptions regarding a number of other variables. These variables include expected stock price volatility over the term of the awards, annual dividends, and a risk-free interest rate assumption.
The Company used a Monte Carlo simulation pricing model to determine the fair value and vesting period of the restricted share awards. The determination of the fair value of market condition-based awards is affected by the stock price as well as assumptions regarding a number of other variables. These variables include expected stock price volatility over the requisite performance term of awards, the performance of the Company’s stock price, annual dividends, and a risk-free interest rate assumption. Compensation cost is recognized regardless of the achievement of the market conditions, provided the requisite service period is met.
INCOME TAXES
The Company uses the asset and liability method to account for income taxes.taxes for the Company’s TRSs. Deferred income taxes result primarily from the net tax effect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes see(see Note 17,21, “Income Taxes.”Taxes”). In June 2006, the FASB issued additional guidance, which clarifies the accounting for uncertainty in income taxes recognized in a company’s financial statements included in income taxes. The interpretation prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. The interpretation also provides guidance on de-recognition, classification, interest and penalties, accounting in interim periods, and disclosure and transition. In accordance with FASB guidance included in income taxes, the Company has analyzed its various federal and state filing positions and believes that its income tax filing positions and deductions are well documented and supported. Additionally, the Company believes that its accruals for tax liabilities are adequate. Therefore, no reserves for uncertain income tax positions have been recorded pursuant to the FASB guidance. EARNINGS PER COMMON SHARE Basic earnings per common share is computed by dividing net income attributable to common stockholders for the period by the weighted average number of shares outstanding.outstanding for the period. Diluted earnings per common share areis based on the assumption of the conversion of stock options and vesting of restricted stock at the beginning of each period using the treasury stock method at average cost for the year,periods. Effective as of January 1, 2022, diluted earnings per common share also reflects the 2025 Notes (hereinafter defined) on an if-converted basis, see Note 10,14, “Common Stock and Earnings Per Share.” CONCENTRATION OF CREDIT RISK Financial instruments which potentially subject the Company to concentrations of credit risk consist principally of cash and cash equivalents. Approximately 29% of the Company’sThe Company also has certain tenants within our income property portfolio based on square footage, and all of the Company’s land holdings, golf operations, agriculture operations, and Subsurface Interests (hereinafter defined) are in the State of
Florida. Uncertainty of the duration of a prolonged real estate and economic downturn could have an adverse impact on the Company’s real estate values.
Due to the continuing diversification of our income property tenant mix, significant revenues from our real estate operations, and the addition of new revenue sources including the interest income from commercial loan investments, on a revenue basis, none of the Company’s income property tenants individually accounted forthat make up more than 10% of consolidatedour geographic concentration and/or revenues, during the years ended December 31, 2017, 2016, or 2015.
RECENTLY ISSUED ACCOUNTING STANDARDS
In May 2014, the FASB issued 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 three months ended September 30, 2017 and has determined there will be no material impact on the Company’s revenue recognition within the consolidated financial statements. All required disclosures relating to ASU 2014-09 will be implemented as required by the standard. The Company adopted ASU 2014-09 effective January 1, 2018 utilizing the modified retrospective method.described below:
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 has determined there will be 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 March 2016, the FASB issued ASU 2016-09, which amends certain aspects of the stock-based compensation guidance. The amendments in this update are effective for annual reporting periods beginning after December 15, 2016. The Company adopted ASU 2016-09 effective January 1, 2017.
In August 2016, the FASB issued ASU 2016-15, which clarifies the appropriate classification of certain cash receipts and payments in the statement of cash flows. The amendments in this update are effective for annual reporting periods beginning after December 15, 2017. The Company adopted ASU 2016-15 effective January 1, 2018 and has determined there will be 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 is currently evaluating the provisions to determine the potential impact, if any, the adoption will have on its consolidated statements of cash flows. The Company adopted ASU 2016-18 effective January 1, 2018 and will classify the changes in restricted cash between operating, investing, and financing in the consolidated statements of cash flows as applicable per the new guidance.
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.
| ● | Square Footage Concentrations. As of December 31, 2022, a total of 29%, 15%, 12%, and 11% of the Company’s income property portfolio, based on square footage, were located in the state of Georgia, Texas, Virginia, and Florida, respectively. As of December 31, 2021, a total of 23%, 13%, 13%, 12%, and 16% of the Company’s income property portfolio, based on square footage, were located in the state of Florida, Georgia, New Mexico, North Carolina, and Texas, respectively. |
| ● | Tenant Concentrations. We did not have any tenants that accounted for more than 10% of total revenues during the years ended December 31, 2022 or 2021. We had one tenant, Wells Fargo, located in Raleigh, North Carolina, that accounted for 10.9% of our total revenue during the year ended December 31, 2020. This property also represented 18.1% of the total square footage of our income property portfolio as of December 31, 2020. |
| ● | Base Rent Concentrations. A total of 33%, 16%, 13%, and 12% of our base rent revenue during the year ended December 31, 2022 was generated from tenants located in Georgia, Texas, Virginia and Florida, respectively. |
NOTE 2.3. INCOME PROPERTIES 2017 Activity. Leasing revenue consists of long-term rental revenue from retail, office, and commercial income properties, and billboards, which is recognized as earned, using the straight-line method over the life of each lease. Lease payments below include straight-line base rental revenue as well as the non-cash accretion of above and below market lease amortization. The variable lease payments are primarily comprised of reimbursements from tenants for common area maintenance, insurance, real estate taxes, and other operating expenses.
The components of leasing revenue are as follows (in thousands): | | | | | | | | | | | | Year Ended December 31, | | | 2022 | | 2021 | | 2020 | Leasing Revenue | | | | | | | | | | Lease Payments | | $ | 54,083 | | $ | 41,791 | | $ | 39,825 | Variable Lease Payments | | | 14,774 | | | 8,888 | | | 10,128 | Total Leasing Revenue | | $ | 68,857 | | $ | 50,679 | | $ | 49,953 |
Minimum future base rental revenue on non-cancelable leases subsequent to December 31, 2022, for the next five years ended December 31 are summarized as follows (in thousands). Certain of our tenant leases include tenant renewal options which could be exercised at the tenant’s election and are not included in the amounts in the table below. | | | | Year Ending December 31, | | Amounts | 2023 | | $ | 72,552 | 2024 | | | 66,390 | 2025 | | | 61,717 | 2026 | | | 52,866 | 2027 | | | 42,785 | 2028 and Thereafter (Cumulative) | | | 118,490 | Total | | $ | 414,800 |
2022 Acquisitions. During the year ended December 31, 2017,2022, the Company acquired four single-tenantmulti-tenant income properties and two multi-tenant incomeone portfolio of three single-tenant properties for an aggregate purchase price of approximately $79.8$314.0 million, or an aggregatea total acquisition cost of approximately $80.6$315.6 million, including capitalized acquisition costs. Based on independent third-party purchase price allocation valuations,as follows: | ● | Acquired Price Plaza Shopping Center on March 3, 2022, a multi-tenant income property located in Katy, Texas for a purchase price of $39.1 million, or a total acquisition cost of $39.2 million including capitalized acquisition costs. Price Plaza Shopping Center comprises 200,576 square feet and was 95% leased at acquisition. In connection with the acquisition of Price Plaza Shopping Center, the Company assumed a $17.8 million fixed-rate mortgage note, as further discussed in Note 16, “Long-Term Debt.” |
| ● | Acquired Madison Yards on July 8, 2022, a multi-tenant grocery-anchored income property located in Atlanta, Georgia for a purchase price of $80.2 million, or a total acquisition cost of $80.5 million including capitalized acquisition costs. Madison Yards comprises 162,521 square feet and was 98% leased at acquisition. |
| ● | Acquired West Broad Village on October 14, 2022, a multi-tenant income property located in Glen Allen, Virgina for a purchase price of $93.9 million, or a total acquisition cost of $94.6 million including capitalized acquisition costs. West Broad Village comprises 392,007 square feet and was 83% leased at acquisition. |
| ● | Acquired Collection at Forsyth on December 29, 2022, a multi-tenant income property located in Cummings, Georgia for a purchase price of $96.0 million, or a total acquisition cost of $96.4 million including capitalized acquisition costs. Collection at Forsyth comprises 560,434 square feet and was 80% leased at acquisition. |
| ● | Acquired MainStreet Portfolio on December 29, 2022, a restaurant portfolio comprised of three single tenant income properties located in Daytona Beach, Florida for a purchase price of $4.8 million, or a total acquisition cost of $4.9 million including capitalized acquisition costs. MainStreet Portfolio comprises 28,511 square feet and was 100% leased at acquisition. |
Of the totalaggregate $315.6 acquisition cost, approximately $28.0$60.1 million was allocated to land, approximately $45.2$208.3 million was allocated to buildings and improvements, approximately $9.3$52.7 million was allocated to intangible assets pertaining to the in-place lease value, leasing feescosts, and above market lease value, and approximately $1.9$5.5 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 8.96.0 years at acquisition. The properties acquired during 2022 Dispositions. During the year ended December 31, 2017 are described below: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Tenant Description | | Tenant Type | | Property Location | | Date of Acquisition | | Property Square-Feet | | Property Acres | | Purchase Price | | Percentage Leased | | Remaining Lease Term (in years) | Staples, Inc. (an affiliate of) | | Single-Tenant | | Sarasota, Florida | | 01/27/17 | | 18,120 | | 1.2 | | $ | 4,075,000 | | | 100% | | | 5.0 | Grocery-Anchored Shopping Center (Westcliff) | | Multi-Tenant | | Fort Worth, Texas | | 03/01/17 | | 136,185 | | 10.3 | | | 15,000,000 | | | 96% | | | 4.1 | JoAnn Stores, Inc. | | Single-Tenant | | Saugus, Massachusetts | | 04/06/17 | | 22,500 | | 2.6 | | | 6,315,000 | | | 100% | | | 11.8 | LA Fitness
Multi-Tenant Retail Building | | Single-Tenant
Multi-Tenant | | Brandon, Florida | | 04/28/17 | | 45,000
6,715 | | 5.3 | | | 14,650,000 | | | 100% | | | 13.9 | Wells Fargo Bank, N.A. | | Single-Tenant | | Hillsboro, Oregon | | 10/27/17 | | 211,863 | | 18.9 | | | 39,750,000 | | | 100% | | | 8.2 | | | | | | | | | 440,383 | | | | $ | 79,790,000 | | | | | | 8.9 |
No2022, the Company sold six income properties, were disposed of during the year ended December 31, 2017.
On April 7, 2017, rent commenced on the 15-year lease with 24 Hour Fitness, the anchor tenant at The Grove at Winter Parkincluding (i) Party City, a single-tenant income property located in Winter Park, Florida. TheOceanside, New York for $6.9 million, (ii) the Carpenter Hotel ground lease, isa single-tenant income property located in Austin, Texas, which was recorded as a commercial loan investment prior to its disposition, for approximately 40,000 square feet, or 36% of the 112,000 square foot multi-tenant retail center. As of December 31, 2017,$17.1 million, (iii) the multi-tenant retail centerWestland Gateway Plaza located in Hialeah, Florida, which was approximately 63% leased with eleven different tenants including 24 Hour Fitness.recorded as a commercial loan investment prior to its disposition, for $22.2 million, (iv) Chuy’s, a single-tenant property, located in Jacksonville, Florida for $5.8 million, (v) Firebirds, a single-tenant property, located in Jacksonville, Florida for $5.5 million, and (vi) 245 Riverside, a multi-tenant office income property located in Jacksonville, Florida for $23.6 million. The sale of these six properties reflect a total disposition volume of $81.1 million, resulting in aggregate gains of $4.7 million.
2016 Activity.
2021 Acquisitions. During the year ended December 31, 2016,2021, the Company acquired teneight multi-tenant income properties seven single-tenant and three multi-tenant, atfor an aggregate purchase price of approximately $86.7 million. Based on independent third-party purchase price allocation valuations,$249.1 million, or a total acquisition cost of $249.8 million including capitalized acquisition costs. Of the total acquisition cost, approximately $40.4$78.0 million was allocated to land, approximately $27.4$124.9 million was allocated to buildings and improvements, approximately $20.0and $49.7 million was allocated to intangible assets pertaining to the in-place lease value, leasing costs, and above-marketabove market lease value and approximately $1.1$2.8 million was allocated to intangible liabilities pertaining tofor the below-marketbelow market lease value. The weighted average amortization period for the intangible assets and liabilities was approximately 14.36.8 years at the time of acquisition. Nineteen income properties were disposed of during the year ended December 31, 2016 for an aggregate sales price of approximately $74.3 million. Aggregate gains on 2016 dispositions were approximately $12.8 million, while impairments on disposals were approximately $1.2 million. 2015 Activity.
2021 Dispositions.During the year ended December 31, 2015,2021, the Company disposed of one multi-tenant income property and 14 single-tenant income properties, including (i) World of Beer/Fuzzy’s Taco Shop, a multi-tenant income property located in Brandon, Florida for $2.3 million, (ii) Moe’s Southwest Grill, a single-tenant income property located in Jacksonville, Florida for $2.5 million, (iii) Burlington, a single-tenant income property located in North Richland Hills, Texas for $11.5 million, (iv) Staples, a single-tenant income property located in Sarasota, Florida for $4.7 million, (v) the CMBS Portfolio, sold to PINE, consisting of six single-tenant income properties for $44.5 million, (vi) Chick-fil-A, a single-tenant property, located in Chandler, Arizona for $2.9 million, (vii) JPMorgan Chase Bank, a single-tenant property, located in Chandler, Arizona for $4.7 million, (viii) Fogo De Chao, a single-tenant property, located in Jacksonville, Florida for $4.7 million, (ix) Wells Fargo, a single-tenant office income property located in Raleigh, North Carolina for $63.0 million, and (x) 24 Hour Fitness, a single-tenant income property located in Falls Church, VA for $21.5 million. The sale of the properties reflect a total disposition volume of $162.3 million, resulting in aggregate gains of $28.2 million. 2020 Acquisitions. During the year ended December 31, 2020, the Company acquired fourtwo multi-tenant income properties and two single-tenant one multi-tenant, and one vacant outparcel adjacent to one of our multi-tenantincome properties at an aggregate acquisition cost of approximately $76.5 million, for an aggregate purchase price of approximately $76.4 million. Based on the finalization$185.1 million, or a total acquisition cost of independent third-party purchase price allocation valuations completed during 2015, of$185.7 million including capitalized acquisition costs. Of the total acquisition cost, approximately $17.1$50.0 million was allocated to land, approximately $78.9$94.6 million was allocated to buildings and improvements, approximately $12.1$21.9 million was allocated to intangible assets pertaining to the in-place lease value, leasing costs, and above-marketabove market lease value, and approximately $31.6$1.8 million was allocated to intangible liabilities pertainingfor the below market lease value. The remaining $21.0 million was classified as a commercial loan investment, see below in addition to the below-market lease value.Note 4, “Commercial Loans and Investments.” The weighted average amortization period for the intangible assets and liabilities was approximately 15.74.5 years at the time of acquisition. Six income properties were disposed of during 2020 Dispositions. During the year ended December 31, 2015,2020, the Company sold 11 income properties and one vacant land parcel for ana total disposition volume of $86.5 million. The sale of the properties generated aggregategains of $8.6 million. In addition to the income property and vacant land parcel dispositions, the Company sold eight of its remaining nine billboard sites for a sales price of approximately $24.3 million. Aggregate gains on 2015 dispositions were approximately $5.5$1.5 million, while impairments on disposals were approximately $510,000.resulting in a gain equal to the sales price. NOTE 4. COMMERCIAL LOANS AND INVESTMENTS NOTE 3. COMMERCIAL LOAN INVESTMENTS
Our investments in commercial loans or similarsimilarly structured finance investments, such as preferred equity, mezzanine loans or other subordinated debt, have been and are expected to continue to be secured by commercial or residential real estate or the borrower’s pledge of its ownership interest in the entity that owns the real estate. The first mortgage loans we invest in or originateinvestments are generally forassociated with commercial real estate located in the United States and its territories, and are current or performing with either a fixed or floating rate. Some of these loans may be syndicated in either a pari-passu or senior/subordinated structure. Commercial first mortgage loans generally provide for a higher recovery rate due to their senior position in the underlying collateral. Commercial mezzanine loans are typically secured by a pledge of the borrower’s equity ownership in the underlying commercial real estate. Unlike a mortgage, a mezzanine loan is not secured by a lien on the property. An investor’s rights in a mezzanine loan are usually governed by an intercreditor agreement that provides holders with the rights to cure defaults and exercise control on certain decisions of any senior debt secured by the same commercial property.property. 2022 Activity. On July 31, 2017,January 26, 2022, the Company originated a $3.0 million first mortgageconstruction loan secured by a parcelthe property and improvements to be constructed thereon for the second phase of beachfront landThe Exchange at Gwinnett project located in the City of Daytona Beach Shores, Florida which the borrower intends to develop as a residential condominium (the “Beach Loan”).Buford, Georgia for $8.7 million. The Beach Loanconstruction loan matures on August 1, 2018, includesJanuary 26, 2024, has a one-year extension option, bears a fixed interest rate of 11.00%7.25%, and requires payments of interest only prior to maturity. At closing, a loanan origination fee of $60,000$0.1 million was received by the Company. ShouldFunding of the loan occurs as the borrower seek to obtain financing forcompletes the development of the project, the Beach Loan would likely be paid off in connection with that financing. On October 23, 2017, the Company sold its two commercial loan investments secured by hotel properties in Atlanta, Georgia and Dallas, Texas. The Company sold these investments at a premium to par for proceeds of approximately $15.1 million on an aggregate principal value of $15.0 million. The Company utilized these proceeds to pay down the Credit Facility (hereinafter defined).
underlying construction. As of December 31, 2017,2022, the Company ownedhad funded $3.2 million to the borrower, leaving a remaining commitment of $5.5 million to the borrower. During the year ended December 31, 2022, the Company received principal payments totaling $2.9 million, leaving an outstanding loan balance of $0.2 million as of December 31, 2022. On March 11, 2022, the Company sold the Carpenter Hotel ground lease located in Austin, Texas for $17.1 million. The lease with Carpenter Hotel included two performingtenant repurchase options. Pursuant to FASB ASC Topic 842, Leases, the initial $16.25 million investment was recorded in the consolidated balance sheets as a commercial loan investmentsinvestment at the time of acquisition. The carrying value at the time of sale totaled $17.3 million, resulting in a loss of $0.2 million. On April 7, 2022, the Company entered into a preferred equity agreement to provide $30.0 million of funding towards the total investment in Watters Creek at Montgomery Farm, a grocery-anchored, mixed-use property located in Allen, Texas (the “Watters Creek Investment”). Pursuant to FASB ASC Topic 810, Consolidation, and as further described in Note 7. “Investment in Joint Ventures,” the Company determined it is not the primary beneficiary of the entity underlying the Watters Creek Investment; accordingly, the $30.0 million was recorded in the consolidated balance sheets as a commercial loan investment at the time of acquisition. The Watters Creek Investment matures on April 6, 2025, has two one-year extension options, bears a fixed interest rate of 8.50% at the time of acquisition with increases during the initial term as well as the option terms, and requires payments of interest only prior to maturity. At closing, an origination fee of $0.15 million was received by the Company. On April 29, 2022, the Company originated a construction loan secured by the property and improvements to be constructed thereon for the WaterStar Residential and Retail project located in Kissimmee, Florida for $19.0 million. The construction loan matures on August 31, 2022, bears a fixed interest rate of 8.00%, and requires payments of interest only prior to maturity. At closing, an origination fee of $0.1 million was received by the Company. Funding of the loan occurred as the borrower completed the underlying construction. The entire $19.0 million was funded to the borrower, leaving no remaining commitment. As of December 31, 2022, the borrower had repaid the $19.0 million construction loan principal balance. On May 9, 2022, the Company originated an improvement loan for a tenant at the Ashford Lane property located in Atlanta, Georgia for $1.5 million. The improvement loan matures on April 30, 2025, bears a fixed interest rate of 12.00%, until the location is open at which have an aggregate outstandingtime the fixed interest rate will be 10.00%, and requires payments of interest only prior to maturity. Funding of the loan will occur as the borrower completes the underlying improvements. As of December 31, 2022, the Company had funded $1.5 million to the borrower. On July 28, 2022, the Company sold the Westland Gateway Plaza located in Hialeah, Florida for $22.2 million. The lease with Westland Gateway Plaza included a tenant purchase option. Pursuant to FASB ASC Topic 842, Leases, the initial $21.1 million investment was recorded in the consolidated balance sheets as a commercial loan investment at the time of acquisition. The carrying value at the time of sale totaled $21.2 million, resulting in a gain of $1.0 million. On November 4, 2022, the borrower of the 110 N Beach St. mortgage note repaid the principal balance of approximately $12.0 million. These loans are secured by real estate, or the borrower’s equity interest in real estate, located in Daytona Beach Shores, Florida and Sarasota, Florida and have an average$0.4 million, leaving no remaining maturitybalance outstanding at December 31, 2022. The Company’s commercial loan investment portfolio wasloans and investments were comprised of the following at December 31, 2017:2022 (in thousands): | | | | | | | | | | | | | | | | | | | Date of | | Maturity | | Original Face | | Current Face | | Carrying | | | | Description | | Investment | | Date | | Amount | | Amount | | Value | | Coupon Rate | | B-Note – Retail Shopping Center, Sarasota, FL | | May 2014 | | June 2018 | | $ | 8,960,467 | | $ | 8,960,467 | | $ | 8,960,467 | | 30 ‑day LIBOR
plus 7.50% | | First Mortgage – Land Parcel, Daytona Beach, FL | | July 2017 | | July 2018 | | | 3,000,000 | | | 3,000,000 | | | 2,965,232 | | 11.00% | | Total | | | | | | $ | 11,960,467 | | $ | 11,960,467 | | $ | 11,925,699 | | | |
| | | | | | | | | | | | | | | | Description | | Date of Investment | | Maturity Date | | Original Face Amount | | Current Face Amount | | Carrying Value | | Coupon Rate | Mortgage Note – 4311 Maple Avenue – Dallas, TX | | October 2020 | | April 2023 | | $ | 400 | | $ | 400 | | $ | 395 | | 7.50% | Construction Loan – The Exchange At Gwinnett – Buford, GA | | January 2022 | | January 2024 | | | 8,700 | | | 220 | | | 173 | | 7.25% | Preferred Investment - Watters Creek – Allen, TX | | April 2022 | | April 2025 | | | 30,000 | | | 30,000 | | | 29,887 | | 8.50% | Improvement Loan - Ashford Lane – Atlanta, GA | | May 2022 | | April 2025 | | | 1,500 | | | 1,453 | | | 1,453 | | 12.00% | | | | | | | $ | 40,600 | | $ | 32,073 | | $ | 31,908 | | |
2021 Activity. On June 30, 2021, the Company originated a loan in connection with the sale of a land parcel with an existing structure located in Daytona Beach, Florida. The carrying valueprincipal loan amount of the commercial loan investment as$0.4 million bears interest at a fixed rate of December 31, 2017 consisted10.00% and had an initial term of the following: | | | | | | | Total
| | Current Face Amount
| | $
| 11,960,467
| | Unamortized Fees
| | | —
| | Unaccreted Origination Fees
| | | (34,768)
| | Total Commercial Loan Investments
| | $
| 11,925,699
| |
No commercial loan investments were classified as held for sale as of December 31, 2017.1.5 years.
The Company’s commercial loan investment portfolio wasloans and investments were comprised of the following at December 31, 2016:2021 (in thousands): | | | | | | | | | | | | | | | | | | | Date of | | Maturity | | Original Face | | Current Face | | Carrying | | | | Description | | Investment | | Date | | Amount | | Amount | | Value | | Coupon Rate | | Mezz – Hotel – Atlanta, GA | | January 2014 | | February 2019 | | $ | 5,000,000 | | $ | 5,000,000 | | $ | 5,000,000 | | 12.00% | | B-Note – Retail Shopping Center, Sarasota, FL | | May 2014 | | June 2017 | | | 8,960,467 | | | 8,960,467 | | | 8,960,467 | | 30 day LIBOR
plus 7.50% | | Mezz – Hotel, Dallas, TX | | September 2014 | | September 2017 | | | 10,000,000 | | | 10,000,000 | | | 10,000,000 | | 30 day LIBOR
plus 7.25% | | Total | | | | | | $ | 23,960,467 | | $ | 23,960,467 | | $ | 23,960,467 | | | |
| | | | | | | | | | | | | | | | Description | | Date of Investment | | Maturity Date | | Original Face Amount | | Current Face Amount | | Carrying Value | | Coupon Rate | Carpenter Hotel – 400 Josephine Street, Austin, TX | | July 2019 | | N/A | | $ | 16,250 | | $ | 16,250 | | $ | 17,189 | | N/A | Westland Gateway Plaza – Hialeah, FL | | September 2020 | | N/A | | | 21,085 | | | 21,085 | | | 21,148 | | N/A | Mortgage Note – 4311 Maple Avenue – Dallas, TX | | October 2020 | | April 2023 | | | 400 | | | 400 | | | 394 | | 7.50% | Mortgage Note – 110 N Beach Street – Daytona Beach, FL | | June 2021 | | December 2022 | | | 364 | | | 364 | | | 364 | | 10.00% | | | | | | | $ | 38,099 | | $ | 38,099 | | $ | 39,095 | | |
The carrying value of the commercial loanloans and investment portfolio at December 31, 2022 and 2021 consisted of the following (in thousands): | | | | | | | | | As of | | | December 31, 2022 | | December 31, 2021 | Current Face Amount | | $ | 32,073 | | $ | 38,099 | Imputed Interest over Rent Payments Received | | | — | | | 1,002 | Unaccreted Origination Fees | | | (161) | | | (2) | CECL Reserve | | | (4) | | | (4) | Total Commercial Loans and Investments | | $ | 31,908 | | $ | 39,095 |
NOTE 5. RELATED PARTY MANAGEMENT SERVICES BUSINESS The Company’s management fee income is within the scope of FASB ASC Topic 606, Revenue from Contracts with Customers, and totaled $3.8 million, $3.3 million, and $2.7 million during the years ended December 31, 2022, 2021, and 2020, respectively. Management fee income is recognized as revenue over time, over the period the services are performed. Alpine Income Property Trust. Pursuant to the Company’s management agreement with PINE, the Company generates a base management fee equal to 0.375% per quarter of PINE’s total equity (as defined in the management agreement and based on a 1.5% annual rate), calculated and payable in cash, quarterly in arrears. The structure of the base fee provides the Company with an opportunity for the base fee to grow should PINE’s independent board members determine to raise additional equity capital in the future. The Company also has an opportunity to achieve additional cash flows as manager of PINE pursuant an annual incentive fee based on PINE’s total stockholder return exceeding an 8% cumulative annual hurdle rate (the “Outperformance Amount”) subject to a high-water mark price. PINE would pay the Company an incentive fee with respect to each annual measurement period in an amount equal to the greater of (i) $0.00 and (ii) the product of (a) 15% multiplied by (b) the Outperformance Amount multiplied by (c) the weighted average shares. No incentive fee was earned for the year ended December 31, 2022 or 2021. During the years ended December 31, 2022, 2021, and 2020, the Company earned management fee revenue from PINE totaling $3.8 million, $3.2 million, and $2.6 million, respectively. Dividend income for the years ended December 31, 2022, 2021, and 2020 totaled $2.3 million, $2.1 million, and $1.7 million, respectively. Management fee revenue from PINE, included in management services, and dividend income, included in investment and other income (loss), are reflected in the accompanying consolidated statements of operations. The following table represents amounts due from PINE to the Company as of December 31, 2016 was equal2022 and 2021 which are included in other assets on the consolidated balance sheets (in thousands): | | | | | | | | | As of | Description | | December 31, 2022 | | December 31, 2021 | Management Services Fee due From PINE | | $ | 993 | | $ | 913 | Dividend Receivable | | | 337 | | | 330 | Other | | | (30) | | | 410 | Total | | $ | 1,300 | | $ | 1,653 |
On November 26, 2019, as part of PINE’s IPO, the Company sold PINE 15 properties for aggregate cash consideration of $125.9 million. In connection with the IPO, the Company contributed to the face amount. No commercial loan investments were classifiedPINE Operating Partnership five properties in exchange for an aggregate of 1,223,854 OP Units, which had an initial value of $23.3 million. Additionally, on November 26, 2019, the Company purchased 394,737 shares of PINE common stock for a total purchase price of $7.5 million in a private placement and 421,053 shares of PINE common stock in the IPO for a total purchase price of $8.0 million. On October 26, 2021, the Board authorized the purchase by the Company of up to $5.0 million in shares of common stock of PINE, at a weighted average price not to exceed $17.75 per share (the “Prior PINE Share Purchase Authorization”). Pursuant to the Prior PINE Share Purchase Authorization, during the year ended December 31, 2022, CTO purchased 155,665 shares of PINE common stock in the open market for $2.7 million, or an average price per share of $17.57. Pursuant to the Prior PINE Share Purchase Authorization, during the year ended December 31, 2021, the Company purchased 8,088 shares of PINE common stock on the open market for a total of $0.1 million, or an average price of $17.65 per share. As of December 31, 2022, CTO owns, in the aggregate, 1,223,854 OP Units and 979,543 shares of PINE common stock, representing an investment totaling $42.0 million, or 14.6% of PINE’s outstanding equity. On February 16, 2023, the Board cancelled the Prior PINE Share Purchase Authorization and authorized the purchase by the Company of up to $2.1 million in shares of common stock of PINE, at a weighted average price not to exceed $18.50 per share (the “2023 PINE Share Purchase Authorization”). Shares of PINE may be purchased under the 2023 PINE Share Purchase Authorization through open market purchases or unsolicited or solicited privately negotiated transactions. The 2023 PINE Share Purchase Authorization does not obligate the Company to acquire any particular amount of shares of PINE and may be modified or suspended. During the year ended December 31, 2022, PINE exercised its right, pursuant to an Exclusivity and Right of First Offer Agreement between the Company and PINE (the “ROFO Agreement”), to purchase one single-tenant income property from the Company for a purchase price of $6.9 million, which sale was completed on January 7, 2022. During the year ended December 31, 2021, PINE exercised its right to purchase the following properties from the Company pursuant to the ROFO Agreement: (i) a portfolio of six net leased properties (the “CMBS Portfolio”) for an aggregate purchase price of $44.5 million, and (ii) one single-tenant income property for a purchase price of $11.5 million. In connection with the sale of the CMBS Portfolio, PINE assumed the related $30.0 million mortgage note payable which resulted in a loss on the extinguishment of debt of $0.5 million due to the write off of unamortized debt issuance costs. Land JV. Prior to the Land JV Sale on December 10, 2021, pursuant to the terms of the operating agreement for the Land JV, the initial amount of the management fee was $20,000 per month. The management fee was evaluated quarterly and as heldland sales occurred in the Land JV, the basis for salethe Company’s management fee was reduced as the management fee was based on the value of real property that remained in the Land JV. The monthly management fee as of December 31, 2016. NOTE 4. LAND AND DEVELOPMENT COSTS AND SUBSURFACE INTERESTS
2021 was $10,000 per month. As a result of the Land JV Sale, no management fee revenues pertaining to the Land JV were earned during the year ended December 31, 2017,2022. During the years ended December 31, 2021, and 2020, the Company owned approximately 8,100 acresearned management fee revenue from the Land JV totaling $0.1 million, $0.2 million, respectively. Table of undeveloped land in Daytona Beach, Florida, along six miles of the west and east sides of Interstate 95. Currently, the majority of this land is used for agricultural purposes. As of February 28, 2018, approximately 75% of this acreage, or approximately 6,042 acres, is under contract to be sold. Approximately 1,100 acres of our land holdings are located on the east side of Interstate 95 and are generally well suited for commercial development. Approximately 7,000 acres of our land holdings are located on the west side of Interstate 95 and the majority of this land is generally well suited for residential development. Included in the western land is approximately 1,100 acres, primarily an 850-acre parcel and three smaller parcels, which are located further west of Interstate 95 and a few miles north of Interstate 4 that is generally well suited for industrial purposes.Contents NOTE 6. REAL ESTATE OPERATIONS Real Estate Operations Land and development costs at December 31, 20172022 and 2016, are summarized2021 were as follows:follows (in thousands): | | | | | | | | | | December 31, | | | | 2017 | | 2016 | | Land and Development Costs | | $ | 32,625,857 | | $ | 39,681,558 | | Land, Timber, and Subsurface Interests | | | 6,851,840 | | | 12,273,720 | | Total Land and Development Costs | | $ | 39,477,697 | | $ | 51,955,278 | |
Real
| | | | | | | | | As of | | | December 31, 2022 | | December 31, 2021 | Land and Development Costs | | $ | 358 | | $ | 358 | Subsurface Interests | | | 327 | | | 334 | Total Land and Development Costs | | $ | 685 | | $ | 692 |
The Company’s real estate operations revenue is within the scope of FASB ASC Topic 606, Revenue from Contracts with Customers as summarized below. Revenue from real estate operations is recognized at the point in time the underlying assets are transferred. Revenue from continuing real estate operations consisted of the following for the years ended December 31, 2017, 2016,2022, 2021, and 2015, respectively:2020 (in thousands): | | | | | | | | | | | | | 2017 | | 2016 | | 2015 | | Revenue Description | | ($000's) | | ($000's) | | ($000's) | | Land Sales Revenue | | $ | 45,472 | | $ | 11,871 | | $ | 4,276 | | Tomoka Town Center - Percentage of Completion Revenue | | | — | | | 17,490 | | | 8,128 | | Revenue from Reimbursement of Infrastructure Costs | | | 1,860 | | | 4,500 | | | — | | Impact Fee and Mitigation Credit Sales | | | 2,126 | | | 2,220 | | | 463 | | Subsurface Revenue | | | 3,048 | | | 1,802 | | | 3,003 | | Fill Dirt and Other Revenue | | | 17 | | | 261 | | | 73 | | Total Real Estate Operations Revenue | | $ | 52,523 | | $ | 38,144 | | $ | 15,943 | | | | | | | | | | | | |
| | | | | | | | | | | | December 31, | | | 2022 | | 2021 | | 2020 | Mitigation Credit Sales | | $ | 3,462 | | $ | 708 | | $ | 6 | Subsurface Revenue - Other | | | 1,904 | | | 4,724 | | | 638 | Land Sales Revenue | | | 96 | | | 7,995 | | | — | Fill Dirt and Other Revenue | | | — | | | — | | | 6 | Total Real Estate Operations Revenue | | $ | 5,462 | | $ | 13,427 | | $ | 650 |
Tomoka Town Center. The Tomoka Town Center consists
Daytona Beach Development. During the year ended December 31, 2021, the Company entered into a purchase and sale agreement to sell a six-acre parcel of approximately 235 acres of which approximately 180 acres are developable. During 2015land with existing structures in downtown Daytona Beach and 2016, land sales withother contiguous parcels (the “Daytona Beach Development”) for a gross sales price totaling approximately $21.4of $6.25 million, within the Tomoka Town Center consisted of sales of approximately 99 acres to Tanger Outlets, Sam’s Club, and North American Development Group (“NADG”) (the “Tomoka Town Center Sales Agreements”). The Company performed certain infrastructure work, beginning in the fourth quarter of 2015 through completion in the fourth quarter of 2016, which required the sales price on the Tomoka Town Center Sales Agreements to be recognized on the percentage-of-completion basis. As the infrastructure worksale was completed on December 28, 2021, resulting in a gain of $0.2 million. The Daytona Beach Development, representing a substantial portion of an entire city block in downtown Daytona Beach adjacent to International Speedway Boulevard, a major thoroughfare in Daytona Beach, was acquired by the fourth quarter of 2016, all revenueCompany for $4.1 million. Prior to its disposition, the Company incurred $1.6 million in raze and entitlement costs related to the Tomoka Town Center Sales Agreements had been recognizedDaytona Beach Development. Mitigation Credits and Mitigation Credit Rights. The Company owns mitigation credits and mitigation credit rights with an aggregate cost basis of $2.6 million as of December 31, 2016. The timing of2022, representing a $22.1 million decrease from the remaining reimbursements for the cost of the infrastructure work which totals approximately $2.2 million is more fully described in Note 9, “Other Assets.” Tanger Outlets completed its approximately 350,000 square foot outlet mall in November 2016. Asbalance as of December 31, 2017, NADG has begun construction on its approximately 400,000 square foot retail power center.
During the second quarter of 2017,2021. On December 29, 2022, the Company completed the sale of approximately 19 acres to NADG (the “Third NADG Land Sale”). During the fourth quarterentity that owned the Mitigation Bank for a sales price of 2017,$8.1 million resulting in a loss on disposition of assets of $11.9 million. A balance of mitigation credits and mitigation credit rights were retained by the Company completedas part of the sale agreement.
Revenues and the cost of approximately 27 acres to NADG (the “Fourth NADG Land Sale”). The remaining developable acreagesales of approximately 35 acres is currently under contract with NADGmitigation credit sales are reported as describedrevenues from, and direct costs of, real estate operations, respectively, in the land pipeline in Note 18, “Commitment and Contingencies.” Land Sales. consolidated statements of operations. During the year ended December 31, 2017,2022, the Company sold 34 mitigation credits for proceeds of $3.5 million with a totalcost basis of approximately 1,701 acres were sold for approximately $47.0 million as described below:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | Gross Sales | | | | Gain | | | | | | | Date of | | No. of | | Price (1) | | Price | | on Sale | | | Buyer (or Description) | | Location | | Sale | | Acres | | ($000's) | | per Acre | | ($000's) | 1 | | Minto Communities, LLC | | West of I-95 | | 02/10/17 | | 1,581.0 | | $ | 27,151 | | $ | 17,000 | | $ | 20,041 | 2 | | Commercial | | East of I-95 | | 03/22/17 | | 6.4 | | | 1,556 | | | 245,000 | | | 11 | 3 | | Commercial | | East of I-95 | | 04/05/17 | | 27.5 | | | 3,218 | | | 117,000 | | | 2,955 | 4 | | Commercial | | East of I-95 | | 04/13/17 | | 4.5 | | | 1,235 | | | 274,000 | | | 13 | 5 | | Commercial | | West of I-95 | | 04/25/17 | | 30.0 | | | 2,938 | | | 98,000 | | | 627 | 6 | | Third NADG Land Sale | | East of I-95 | | 06/27/17 | | 19.4 | | | 4,422 | | | 228,000 | | | 3,263 | 7 | | Commercial | | West of I-95 | | 10/13/17 | | 5.1 | | | 275 | | | 54,000 | | | 239 | 8 | | Fourth NADG Land Sale | | East of I-95 | | 12/29/17 | | 27.0 | | | 6,216 | | | 230,000 | | | 4,609 | | | | | | | | | 1,700.9 | | $ | 47,011 | | $ | 28,000 | | $ | 31,758 |
(1)The Gross Sales Price of land sales during 2017 of approximately $47.0 million above includes the infrastructure reimbursement payments received in the amount of approximately $955,000 for the Third NADG Land Sale and approximately $584,000 for the Fourth NADG Land Sale. Additionally, during 2017, approximately $321,000 was received from Minto Communities, LLC as an infrastructure reimbursement for improvements to the I-95 off ramp, which is not included in the gross sales price in the table above.
$2.3 million. During the year ended December 31, 2016, a total of approximately 707.7 acres were sold for approximately $13.8 million as described below: | | | | | | | | | | | | | | | | | | | | | | | | | | | | Gross Sales | | | | Gain | | | | | | | Date of | | No. of | | Price (1) | | Price | | on Sale | | | Buyer (or Description) | | Location | | Sale | | Acres | | ($000's) | | per Acre | | ($000's) | 1 | | Commercial / Retail | | East of I-95 | | 02/12/16 | | 3.1 | | $ | 190 | | $ | 61,000 | | $ | 145 | 2 | | NADG - OutParcel | | East of I-95 | | 03/30/16 | | 4.4 | | | 2,000 | | | 455,000 | | | 1,304 | 3 | | Minto Sales Center | | West of I-95 | | 09/27/16 | | 4.5 | | | 205 | | | 46,000 | | | 126 | 4 | | Commercial / Retail | | West of I-95 | | 10/13/16 | | 17.1 | | | 3,034 | | | 177,000 | | | 2,675 | 5 | | Commercial / Retail | | East of I-95 | | 12/22/16 | | 74.6 | | | 830 | | | 11,000 | | | 751 | 6 | | ICI Homes | | West of I-95 | | 12/29/16 | | 604.0 | | | 7,500 | | | 12,000 | | | 3,303 | | | | | | | | | 707.7 | | $ | 13,759 | | $ | 19,000 | | $ | 8,304 | | | | | | | | | | | | | | | | | | |
(1)Land Sales Revenue for 2016 is equal to the Gross Sales Price of land sales during 2016 of approximately $13.8 million above, less the $2.0 million sales price for the NADG – OutParcel, plus approximately $112,000 of incentives earned and received during 2016 related to the Distribution Center sale which closed during 2014.
During the year ended December 31, 2015, a total of approximately 114.1 acres were sold for approximately $22.5 million as described below:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | Gross Sales | | | | Gain | | | | | | | Date of | | No. of | | Price (1) | | Price | | on Sale | | | Buyer (or Description) | | Location | | Sale | | Acres | | ($000's) | | per Acre | | ($000's) | 1 | | Commercial / Retail | | East of I-95 | | 06/01/15 | | 3.0 | | $ | 505 | | $ | 168,000 | | $ | 476 | 2 | | Commercial / Retail | | Highlands County | | 06/17/15 | | 0.9 | | | 250 | | | 278,000 | | | 223 | 3 | | Tanger | | East of I-95 | | 11/12/15 | | 38.9 | | | 9,700 | | | 249,000 | | | 2,793 | 4 | | Integra Land Company | | East of I-95 | | 12/18/15 | | 15.0 | | | 2,376 | | | 158,000 | | | 2,265 | 5 | | Sam's Club | | East of I-95 | | 12/23/15 | | 18.1 | | | 4,500 | | | 249,000 | | | 1,279 | 6 | | NADG - First Parcel | | East of I-95 | | 12/29/15 | | 37.3 | | | 5,168 | | | 139,000 | | | 1,421 | 7 | | Commercial / Retail | | East of I-95 | | 12/29/15 | | 0.9 | | | 30 | | | 33,000 | | | 20 | | | | | | | | | 114.1 | | $ | 22,529 | | $ | 197,000 | | $ | 8,477 |
(1)Land Sales Revenue for 2015 is equal to the Gross Sales Price of land sales during 2015 of approximately $22.5 million above, less the aggregate $19.4 million sales price for the Tomoka Town Center Sales (Tanger, Sam’s Club, and NADG – First Parcel), plus approximately $1.03 million of incentives received and earned during 2015 related to the Distribution Center sale which closed during 2014, plus approximately $87,000 of percentage-of-completion revenue earned during 2015 for the Distribution Center Sale which closed during 2014.
Pipeline. For a description of our land which is currently under contract, see the land pipeline in Note 18, “Commitment and Contingencies.”
Land Impairments. As more fully described in Note 8, "Impairment of Long-Lived Assets," during the years ended December 31, 2017 and 20152021, the Company did not recognize any impairments on its undeveloped land holdings. During the year ended December 31, 2016, impairment charges totaled approximately $1.0sold six mitigation credits for proceeds of $0.7 million on the Company’s undeveloped land.
Beachfront Development. During the year ended December 31, 2015, the Company acquired, through a real estate venture with an unaffiliated third party institutional investor, an interest in approximately six acres of vacant beachfront property located in Daytona Beach, Florida. The property was acquired for approximately $11.3 million, of which the Company contributed approximately $5.7 million. As of December 31, 2015, the real estate venture was fully consolidated as the Company determined that it was the primary beneficiary of the variable interest entity (“VIE”). On November 17, 2016, the Company acquired the unaffiliated third party’s 50% interest for approximately $4.8 million, a discount of approximately $879,000. The discount was recorded through equity on the consolidated balance sheet during the year ended December 31, 2016. The Company evaluated its interest in the six-acre vacant beachfront property for impairment and determined that no impairment was necessary as of December 31, 2016. As the Company owns the entire real estate venture as of December 31, 2017, there is no longer a consolidated VIE.
The cost basis of the six-acre vacant beachfront property asset totaled approximately $11.7 million as of December 31, 2017, which includes costs for entitlement. The beachfront property received approval of the rezoning and entitlement of the site to allow for the development of two restaurants and also for the future potential development of up to approximately 1.2 million square feet of vertical density. In the first quarter of 2017, the Company executed a 15-year lease agreement with the operator of LandShark Bar & Grill (“LandShark”), which provided for the development by the Company of an approximately 6,264 square foot restaurant property on the parcel. The annual rent under the LandShark lease is based on a percentage of the tenant’s net operating income (“NOI”) until the Company has received its investment basis in the property and thereafter, the Company will receive a lower percentage of the tenant’s NOI during the remaining lease term. In the second quarter of 2017, the Company executed a 15-year lease agreement with Cocina 214 Restaurant & Bar (“Cocina 214”), for the second restaurant property to be developed on the parcel. The annual rent under the Cocina 214 lease is equal to the greater of $360,000 per year or a certain percentage of gross sales. The lease also provides for additional percentage rent upon the achievement of certain gross sales thresholds. The Company completed the design phase and commenced construction on the two single-tenant restaurants during the third quarter of 2017. As of December 31, 2017, the Company has incurred approximately $5.9 million of design and construction costs. See Note 18, “Commitment and Contingencies” for the total expected cost to be incurred for the development of the site and both restaurant properties. The development of the two restaurant properties was completed in time for the tenants to commence operations during January of 2018. Accordingly, during the first quarter of 2018, the total investment in the beach parcel
and the construction costs of the two single-tenant properties will be classified as Income Properties, Land, Building, and Improvements, within the Property, Plant, and Equipment classification on the Company’s consolidated balance sheets.
Other Real Estate Assets. The Company owns impact fees with a cost basis of approximately $402,000 and$0.5 million. Additionally, two mitigation credits with a cost basis of approximately $723,000,$0.1 million were accrued for a combined total of approximately $1.1 million as of December 31, 2017. Duringan expense during the year ended December 31, 2017,2021, as such credits are to be provided to buyers of land at no cost. Mitigation credit sales totaled less than $0.1 million during the Company sold mitigation credits for approximately $1.6year ended December 31, 2020, which sales were offset by an aggregate charge to cost of sales totaling $3.1 million, for a gaincomprised of approximately $1.3 million, or $0.15 per share, after tax. Additionally, the Company recorded the transfer of(i) 42 mitigation credits with a cost basis of approximately $298,000 as$2.9 million that were provided at no cost to buyers, (ii) the Company’s purchase of two mitigation credits for $0.2 million, and (iii) 31 mitigation credits with a chargecost basis of less than $0.1 million transferred to direct costbuyers of revenuesland previously sold and of real estate operationswhich costs were accrued for in prior years at the time of the original land sale. Additionally, during the year ended December 31, 2017,2020, the Company transferred 13.31 federal mitigation credits to the permit related to the land that gave rise to an environmental restoration matter that has been fully resolved as more fully describedof December 31, 2021. These credits had an aggregate cost basis of $0.1 million and are included in Note 18, “Commitmentsgeneral and Contingencies.” Duringadministrative expenses in the yearsconsolidated statements of operations for the year ended December 31, 2017 and 2016, the Company received cash payments2020.
Subsurface Interests.As of December 31, 2017,2022, the Company owns full or fractional subsurface oil, gas, and mineral interests underlying approximately 462,000 “surface”355,000 acres of land owned by others in 20 counties in Florida (the “Subsurface Interests”).Subsurface Interests. The Company leases certain of the Subsurface Interests to mineral exploration firms for exploration. OurThe Company’s subsurface operations consist of revenue from the leasing of exploration rights and in some instances, additional revenues from royalties applicable to production from the leased acreage. acreage, which revenues are included within real estate operations in the consolidated statements of operations. During the year ended December 31, 2017,2022, the Company sold approximately 38,75014,600 acres of subsurface oil, gas, and mineral rights for a sales price of $1.7 million. During the year ended December 31, 2021, the Company sold approximately 84,900 acres of subsurface oil, gas, and mineral rights for a sales price of $4.6 million. During the year ended December 31, 2020, the Company sold 345 acres of subsurface interests in Osceola County, Florida for approximately $2.1 million (the "Osceola Subsurface Sale"). The gain from the Osceola Subsurface Sale totaled approximately $2.08 million, or $0.23 per share, after tax. The Company expects to utilize the proceeds from this sale to acquire an income property through the 1031 like-kind exchange structure. During 2011, an eight-year oil exploration lease was executed covering a portion of our Subsurface Interests. On September 20, 2017, the Company amended the oil exploration lease to, among other things, extend the expiration of the original term for five additional years to the new expiration date of September 22, 2024. The lease is effectively thirteen one-year terms as the lessee has the option to terminate the lease at the end of each lease year. The lessee has exercised renewal options through lease year seven ending September 22, 2018. The terms of the lease state that the Company will receive royalty payments if production occurs, and may receive additional annual rental payments if the lease is continued in years eight through thirteen. The lease calls for annual lease payments which are recognized as revenue ratably over the respective twelve-month lease periods. In addition, non-refundable drilling penalty payments are made as required by the drilling requirements in the lease which are recognized as revenue when received.
Lease payments on the respective acreages and drilling penalties received through lease year seven are as follows:
| | | | | | | | | | | | | | Acreage | | | | | | | | | | Lease Year | | (Approximate) | | Florida County | | Lease Payment (1) | | Drilling Penalty (1) | | Lease Year 1 - 9/23/2011 - 9/22/2012 | | 136,000 | | Lee and Hendry | | $ | 913,657 | | $ | — | | Lease Year 2 - 9/23/2012 - 9/22/2013 | | 136,000 | | Lee and Hendry | | | 922,114 | | | — | | Lease Year 3 - 9/23/2013 - 9/22/2014 | | 82,000 | | Hendry | | | 3,293,000 | | | 1,000,000 | | Lease Year 4 - 9/23/2014 - 9/22/2015 | | 42,000 | | Hendry | | | 1,866,146 | | | 600,000 | | Lease Year 5 - 9/23/2015 - 9/22/2016 | | 25,000 | | Hendry | | | 1,218,838 | | | 175,000 | | Lease Year 6 - 9/23/2016 - 9/22/2017 | | 15,000 | | Hendry | | | 806,683 | | | 150,000 | | Lease Year 7 - 9/23/2017 - 9/22/2018 | | 15,000 | | Hendry | | | 806,683 | | | 50,000 | | Total Payments Received to Date | | | | | | $ | 9,827,121 | | $ | 1,975,000 | |
| (1)
| | Generally, cash payment for the Lease Payment and Drilling Penalty is received on or before the first day of the lease year. The Drilling Penalty, which is due within thirty days from the end of the prior lease year, is recorded as revenue when received, while the Lease Payment is recognized on a straight-line basis over the respective lease term. Pursuant to the amendment for the Year 7 renewal, the Lease Payment and Drilling Penalty were both received on October 11, 2017. See separate disclosure of revenue recognized per period below.
|
Lease income generated by the annual lease payments is recognized on a straight-line basis over the guaranteed lease term. For the years December 31, 2017, 2016, and 2015, lease income of approximately $807,000, $1.1 million, and $1.7 million was recognized, respectively. There can be no assurance that the oil exploration lease will be extended beyond the expiration of the current term of September 22, 2018 or, if extended, the terms or conditions of such extension.
totaling $0.4 million. During the years ended December 31, 2017, 2016,2022, 2021, and 2015,2020, the Company also received oil royalties from operating oil wells on 800 acres under a separate lease with a separate operator. Production volume from these oil wells was 60,287 in 2017, 50,441 barrels in 2016, and 62,745 barrels in 2015, resulting in revenuesRevenues received from oil royalties of approximately $86,000, $50,000 and $68,000, respectively.totaled less than $0.1 million during each respective year. The Company is not prohibited from selling any or all of its Subsurface Interests. The Company may release surface entry rights or other rights upon request of a surface owner for a negotiated release fee typically based on a percentage of the surface value. Should the Company complete a transaction to sell all or a portion of its Subsurface Interests or complete a release transaction, the Company may utilize the like-kind exchange structure in acquiring one or more replacement investments including income-producing properties. There were no releases of surface entry rights during the year ended December 31, 2017. Cash payments for the release of surface entry rights totaled approximately $493,000$0.2 million, $0.1 million, and $995,000$0.2 million during the years ended December 31, 20162022, 2021 and 2015, respectively, which is included in revenue from real estate operations. During 2015, in conjunction with the release of2020, respectively. Land Impairments. There were no impairment charges on the Company’s surface entry rights related to approximately 1,400 acres in Lee County, Florida, for a cash payment of approximately $920,000, the Company also received the 50% interest in the subsurface rights of those acres, which the Company did not previously own, for a fair value of approximately $68,000, which is also included in revenue from real estate operations. In addition, the Company generated revenue of approximately $250,000 and $73,000undeveloped land holdings, or its income property portfolio, during the years ended December 31, 2016 and 2015, respectively, from fill dirt excavation agreements, with no such revenue generated2022, 2021, or 2020. The $17.6 million impairment charge recognized during the year ended December 31, 2017.2021 is related to the Company’s previously held retained interest in the Land JV. The aggregate impairment charge of $17.6 million is a result of eliminating the investment in joint ventures based on the final proceeds received through distributions of the Land JV in connection with closing the sale of substantially all of the Land JV’s remaining land to Timberline Acquisition Partners, an affiliate of Timberline Real Estate Partners (“Timberline”), for a final sales price of $66.3 million.
Additionally, during the year ended December 31, 2020, the Company recognized an aggregate $7.2 million impairment charge comprised of a $0.1 million impairment charge on one of the land parcels included in the Daytona Beach Development and a $7.1 million impairment charge on the Company’s previously held retained interest in the Land LV. The $7.1 million impairment on the Company’s previously held retained interest in the Land JV was the result of a re-forecast of the anticipated undiscounted future cash flows to be received by the Company based on the estimated timing of future land sales from the Land JV. Real Estate Operations – Land JV The Land JV, of which the Company previously held a 33.5% retained interest, completed the sale of all of its remaining land holdings on December 10, 2021. From its inception on October 16, 2019 through December 31, 2021, the Land JV completed $147.0 million in land sales. Upon the closing of the sale of the Land JV's remaining assets to Timberline, the value of the Company’s previously held retained interest in the Land JV was realized in the form of proceeds, which totaled $24.5 million, to the Company after distributions to the other member of the Land JV. Through December 31, 2021, the Company served as the manager of the Land JV and was responsible for day-to-day operations at the direction of the partners of the Land JV (the “JV Partners”). All major decisions and certain other actions taken by the manager were approved by the unanimous consent of the JV Partners (the “Unanimous Actions”). Unanimous Actions included such matters as the approval of pricing for all land parcels in the Land JV; approval of contracts for the sale of land that contain material revisions to the standard purchase contract of the Land JV; entry into any lease agreement affiliated with the Land JV; entering into listing or brokerage agreements; approval and amendment of the Land JV’s operating budget; obtaining financing for the Land JV; admission of additional members; and dispositions of the Land JV’s real property for amounts less than market value. As a result of the Land JV Sale, no management fee revenues pertaining to the Land JV were earned during the year ended December 31, 2022. NOTE 7. INVESTMENT IN JOINT VENTURES The Company has no investments in joint ventures as of December 31, 2022 or 2021. Watters Creek Investment. As described in Note 4. “Commercial Loans and Investments,” on April 7, 2022, the Company entered into the Watters Creek Investment. The Watters Creek Investment represents $30.0 million, or approximately 23%, of funding towards the total investment in Watters Creek at Montgomery Farm, a grocery-anchored, mixed-use property located in Allen, Texas (the “Watters Creek Property”). The remaining funding is comprised of a combination of third-party sponsorship equity and a secured first mortgage. The Company’s variable interest in the entity underlying the Watters Creek Investment is primarily due to the inherent credit risk associated with the $30.0 million fixed-return preferred investment. The day-to-day operations, including asset management and leasing, of the Watters Creek Property are managed by an unrelated third-party. Pursuant to FASB ASC Topic 810, Consolidation, the Company determined we are not the primary beneficiary of the entity underlying the Watters Creek Investment; accordingly, the entity was not consolidated. The investment was recorded in the consolidated balance sheets as a commercial loan investment at the time of acquisition. The significant factors related to this determination included, but were not limited to, the Company not having the power to direct the activities of the entity underlying the Watters Creek Investment due to (i) the day-to-day operations being managed by an unrelated third-party and (ii) the Company’s position as minority lender with fixed returns and maturity dates for the repayment of the $30.0 million preferred investment. Land JV. The Company’s previously held retained interest in the Land JV represented a notional 33.5% stake in the venture, the value of which was realized in the form of distributions based on the timing and the amount of proceeds achieved when the land was ultimately sold by the Land JV. As of September 30, 2021, the Land JV had completed $80.7 million in land sales since its inception in mid-October 2019. On December 10, 2021, the Land JV completed the sale of all of its remaining land holdings to Timberline for $66.3 million. Proceeds to the Company after distributions to the other member of the Land JV, and before taxes, were $24.5 million. Through December 31, 2021, the Company served as the manager of the Land JV and was responsible for day-to-day operations at the direction of the JV Partners. All Unanimous Actions taken by the manager were approved by the unanimous consent of the JV Partners. Pursuant to the Land JV’s operating agreement, the Land JV paid the manager a management fee in the initial amount of $20,000 per month. The management fee was evaluated quarterly, and as land sales occurred in the Land JV, the basis for our management fee was reduced as the management fee was based on the value of real property that remained in the Land JV. The monthly management fee as of December 31, 2021, was $10,000 per month. No management fees pertaining to the Land JV were earned during the year ended December 31, 2022. Prior to the Land JV Sale, the investment in joint ventures on the Company’s consolidated balance sheets included the Company’s previously held ownership interest in the Land JV. We concluded the Land JV to be a variable interest entity and therefore, it was accounted for under the equity method of accounting as the Company was not the primary beneficiary as defined in FASB ASC Topic 810, Consolidation. The significant factors related to this determination included, but were not limited to, the Land JV being jointly controlled by the members through the use of unanimous approval for all material actions. Under the guidance of FASB ASC 323, Investments-Equity Method and Joint Ventures, the Company used the equity method to account for the Land JV investment. During the year ended December 31, 2021, the Company recognized impairment charges on its previously held retained interest in the Land JV totaling $17.6 million. The aggregate $17.6 million impairment on the previously held retained interest in the Land JV was a result of eliminating the investment in joint ventures based on the final proceeds received through distributions of the Land JV in connection with the sale of the Land JV’s remaining land. Additionally, during the year ended December 31, 2020, the Company recognized an impairment on its previously held retained interest in the Land JV totaling $7.1 million. The $7.1 million impairment on the Company’s previously held retained interest in the Land JV is the result of a re-forecast of the then anticipated undiscounted future cash flows to be received by the Company based on the estimated timing of future land sales from the Land JV. The following table provides summarized financial information of the Land JV for the years ended December 31, 2022, 2021, and 2020 (in thousands): | | | | | | | | | | Year Ended | | December 31, 2022 | | December 31, 2021 | | December 31, 2020 | Revenues | $ | — | | $ | 67,367 | | $ | 65,446 | Direct Cost of Revenues | | — | | | (8,867) | | | (13,012) | Operating Income | $ | — | | $ | 58,500 | | $ | 52,434 | Other Operating Expenses | | — | | | (376) | | | (462) | Net Income | $ | — | | $ | 58,124 | | $ | 51,972 |
The Company’s share of the Land JV’s net income (loss) was zero for the years ended December 31, 2022, 2021, and 2020. Pursuant to ASC 323, certain adjustments are made when calculating the Company’s share of net income, including adjustments required to reflect the investor’s share of changes in investee’s capital to reflect distributions from the venture. Additionally, basis differences are also considered. The Company recorded the initial retained interest in the Land JV of $48.9 million at the estimated fair market value based on the relationship of the $97.0 million sales price of the 66.5% equity interest to the 33.5% retained interest. The Land JV recorded the assets contributed by the Company at carry-over basis pursuant to ASC 845 which states that transfers of nonmonetary assets should typically be recorded at the transferor’s historical cost basis. Accordingly, the Company’s basis difference in the 33.5% retained equity interest was evaluated each quarter upon determining the Company’s share of the Land JV’s net income. As a result of the Land JV Sale, the liquidation of the Land JV’s assets, and the dissolution of the underlying entities, such evaluation was and will no longer be required as of and subsequent to December 31, 2021. Mitigation Bank. The mitigation bank transaction completed in June 2018 consisted of the sale of a 70% interest in the entity that owns the Mitigation Bank (the “Mitigation Bank JV”). The purchaser of the 70% interest in the Mitigation Bank JV was comprised of certain funds and accounts managed by an investment advisor subsidiary of BlackRock, Inc. (“BlackRock”). The Company retained a 30% non-controlling interest in the Mitigation Bank JV. A third-party was retained by the Mitigation Bank JV as the day-to-day manager of the Mitigation Bank JV property, responsible for the maintenance, generation, tracking, and other aspects of wetland mitigation credits. Prior to September 30, 2021, the investment in joint ventures included on the Company’s consolidated balance sheets included $6.9 million related to the fair market value of the 30% retained interest in the Mitigation Bank JV. On September 30, 2021, the Company, through a wholly owned and fully consolidated TRS, purchased the remaining 70% interest in the Mitigation Bank JV from BlackRock for $18.0 million (the “Interest Purchase”) resulting in a net cash payment by the Company of $16.1 million after utilizing the available cash in the Mitigation Bank JV of $1.9 million. As a result of the Interest Purchase, the Mitigation Bank JV is now wholly owned by the Company and is referred to as the Mitigation Bank. Pursuant to ASU 2017-01, Business Combinations: Clarifying the Definition of a Business, the Interest Purchase represents an asset acquisition as substantially all of the fair value of the gross assets acquired are concentrated in a group of similar identifiable assets, i.e. the mitigation credits and mitigation credit rights. Accordingly, the Company recorded the Interest Purchase by allocating the total cost of the asset group to the individual assets acquired. The Company’s total cost of the Interest Purchase totaled $24.9 million which is comprised of (i) the $18.0 million Interest Purchase and (ii) the $6.9 million previously recorded value of the retained interest in the entity that owns the Mitigation Bank. In connection with the Interest Purchase, the previously recorded value of $6.9 million of the retained interest was eliminated and the $24.9 million total cost was allocated as follows: (i) $1.8 million to cash and cash equivalents, (ii) $0.6 million to restricted cash, (iii) $0.9 million to the mitigation credits, and (iv) $21.6 million to the mitigation credit rights. On December 29, 2022, the Company completed the sale of the entity that owned the Mitigation Bank for a sales price of $8.1 million resulting in a loss on disposition of assets of $11.9 million. A balance of mitigation credits and mitigation credit rights were retained by the Company as part of the sale agreement. The following table provides summarized financial information of the Mitigation Bank JV for the years ended December 31, 2022, 2021 and 2020 (in thousands). | | | | | | | | | | Year Ended | | December 31, 2022 | | December 31, 2021 | | December 31, 2020 | Revenues | $ | — | | $ | 512 | | $ | 4,109 | Direct Cost of Revenues | | — | | | (16) | | | (167) | Operating Income | $ | — | | $ | 496 | | $ | 3,942 | Other Operating Expenses | | — | | | (162) | | | (175) | Net Income | $ | — | | $ | 334 | | $ | 3,767 |
The Company’s share of the Mitigation Bank JV’s net income (loss) was zero for the years ended December 31, 2022, 2021, and 2020. Pursuant to ASC 323, certain adjustments are made when calculating the Company’s share of net income, including adjustments required to reflect the investor’s share of changes in investee’s capital to reflect distributions from the venture. Additionally, basis differences are also considered. The Company recorded the initial retained interest in the Mitigation Bank JV of $6.8 million in June 2018 at the estimated fair market value based on the relationship of the $15.3 million sales price of the 70% equity interest to the 30% retained interest. The Mitigation Bank JV recorded the assets contributed by the Company at carry-over basis pursuant to ASC 845 which states that transfers of nonmonetary assets should typically be recorded at the transferor’s historical cost basis. Accordingly, the Company’s basis difference in the 30% retained equity interest was evaluated each quarter upon determining the Company’s share of the Mitigation Bank JV’s net income. As a result of the Interest Purchase, such evaluation was and will no longer be required as of and subsequent to December 31, 2021. NOTE 5. 8.INVESTMENT SECURITIES During
As of December 31, 2022, the yearCompany owns, in the aggregate and on a fully diluted basis, 2.2 million shares of PINE, or 14.6% of PINE’s total shares outstanding for an investment value of $42.0 million, which total includes 1.2 million OP Units, or 8.1%, which the Company received in exchange for the contribution of certain income properties to the PINE Operating Partnership, in addition to 979,543 shares of common stock owned by the Company, or 6.5%. The Company has elected the fair value option related to the aggregate investment in securities of PINE pursuant to ASC 825, otherwise such investments would have been accounted for under the equity method. For detailed financial information regarding PINE, please refer to its financial statements, which are publicly available on the website of the Securities and Exchange Commission at http://www.sec.gov under the ticker symbol “PINE.” The Company calculates the unrealized gain or loss based on the closing stock price of PINE at each respective balance sheet date. The unrealized, non-cash gains and losses resulting from the changes in the closing stock price of PINE are included in investment and other income (loss) in the consolidated statements of operations for years ended December 31, 2016, the Company completed the disposition2022, 2021, and 2020. The Company had no remainingCompany’s available-for-sale securities as of December 31, 2017 or 2016.2022 and 2021 are summarized below (in thousands): | | | | | | | | | | | | | | | Cost | | Unrealized Gains in
Investment Income | | Unrealized
Losses in
Investment Income | | Estimated
Fair Value
(Level 1 Inputs) | December 31, 2022 | | | | | | | | | | | | | Common Stock | | $ | 18,382 | | $ | 308 | | $ | — | | $ | 18,690 | Operating Units | | | 23,253 | | | 98 | | | — | | | 23,351 | Total Equity Securities | | | 41,635 | | | 406 | | | — | | | 42,041 | Total Available-for-Sale Securities | | $ | 41,635 | | $ | 406 | | $ | — | | $ | 42,041 | | | | | | | | | | | | | | December 31, 2021 | | | | | | | | | | | | | Common Stock | | $ | 15,643 | | $ | 868 | | $ | — | | $ | 16,511 | Operating Units | | | 23,253 | | | 1,273 | | | — | | | 24,526 | Total Equity Securities | | | 38,896 | | | 2,141 | | | — | | | 41,037 | Total Available-for-Sale Securities | | $ | 38,896 | | $ | 2,141 | | $ | — | | $ | 41,037 |
The following is a table reflecting the gains and losses recognized on the sale of investment securities during the years ended December 31, 2017, 2016, and 2015:
| | | | | | | | | | | | | For the Year Ended December 31, | | | | 2017 | | 2016 | | 2015 | | Proceeds from the Disposition of Debt Securities | | $ | — | | $ | 827,738 | | $ | 2,084,994 | | Cost Basis of Debt Securities Sold | | | — | | | (843,951) | | | (1,930,080) | | Loss recognized in Statement of Operations on the Disposition of Debt Securities | | | — | | | (16,213) | | | 154,914 | | Proceeds from the Disposition of Equity Securities | | | — | | | 5,424,624 | | | 2,574,091 | | Cost Basis of Equity Securities Sold | | | — | | | (5,983,978) | | | (2,565,816) | | Gain (Loss) recognized in Statement of Operations on the Disposition of Equity Securities | | $ | — | | $ | (559,354) | | $ | 8,275 | | Total Gain (Loss) recognized in Statement of Operations on the Disposition of Debt and Equity Securities | | $ | — | | $ | (575,567) | | $ | 163,189 | |
NOTE 6.9. FAIR VALUE OF FINANCIAL INSTRUMENTS The following table presents the carrying value and estimated fair value of the Company’s financial instruments not carried at fair value on the consolidated balance sheets at December 31, 20172022 and 2016:2021 (in thousands): | | | | | | | | | | | | | | | | December 31, 2017 | | December 31, 2016 | | | | Carrying | | Estimated | | Carrying | | Estimated | | | | Value | | Fair Value | | Value | | Fair Value | | Cash and Cash Equivalents - Level 1 | | $ | 6,559,409 | | $ | 6,559,409 | | $ | 7,779,562 | | $ | 7,779,562 | | Restricted Cash - Level 1 | | | 6,508,131 | | | 6,508,131 | | | 9,855,469 | | | 9,855,469 | | Commercial Loan Investments - Level 2 | | | 11,925,699 | | | 12,015,628 | | | 23,960,467 | | | 24,228,242 | | Long-Term Debt - Level 2 | | | 195,816,364 | | | 200,000,776 | | | 166,245,201 | | | 171,111,337 | |
| | | | | | | | | | | | | | | December 31, 2022 | | December 31, 2021 | | | Carrying Value | | Estimated Fair Value | | Carrying Value | | Estimated Fair Value | Cash and Cash Equivalents - Level 1 | | $ | 19,333 | | $ | 19,333 | | $ | 8,615 | | $ | 8,615 | Restricted Cash - Level 1 | | $ | 1,861 | | $ | 1,861 | | $ | 22,734 | | $ | 22,734 | Commercial Loans and Investments - Level 2 | | $ | 31,908 | | $ | 32,960 | | $ | 39,095 | | $ | 39,109 | Long-Term Debt - Level 2 | | $ | 445,583 | | $ | 426,421 | | $ | 278,273 | | $ | 288,000 |
To determine estimated fair values of the financial instruments listed above, market rates of interest, which include credit assumptions, were used to discount contractual cash flows. The estimated fair values are not necessarily indicative of the amount the Company could realize on disposition of the financial instruments. The use of different market assumptions or estimation methodologies could have a material effect on the estimated fair value amounts. The following table presents the fair value of assets (liabilities) measured on a recurring basis by Level atlevel as of December 31, 2017:2022 and 2021 (in thousands). See Note 17, “Interest Rate Swaps” for further disclosure related to the Company’s interest rate swaps. | | | | | | | | | | | | | | | | | | Fair Value at Reporting Date Using | | | | | | Quoted Prices in | | | | | Significant | | | | | | Active Markets | | Significant Other | | Unobservable | | | | | | for Identical | | Observable Inputs | | Inputs | | | 12/31/2017 | | Assets (Level 1) | | (Level 2) | | (Level 3) | | | | | | | | | | | | | | Cash Flow Hedge - Interest Rate Swap | | $ | 606,621 | | $ | — | | $ | 606,621 | | $ | — | Total | | $ | 606,621 | | $ | — | | $ | 606,621 | | $ | — |
| | | | | | | | | | | | | | | | | | Fair Value at Reporting Date Using | | | Fair Value | | Quoted Prices in Active Markets for Identical Assets (Level 1) | | Significant Other Observable Inputs (Level 2) | | Significant Unobservable Inputs (Level 3) | December 31, 2022 | | | | | | | | | | | | | Cash Flow Hedge - 2026 Term Loan Interest Rate Swap | | $ | 4,586 | | $ | — | | $ | 4,586 | | $ | — | Cash Flow Hedge - 2026 Term Loan Interest Rate Swap | | $ | 1,461 | | $ | — | | $ | 1,461 | | $ | — | Cash Flow Hedge - 2027 Term Loan Interest Rate Swap | | $ | 10,111 | | $ | — | | $ | 10,111 | | $ | — | Cash Flow Hedge - 2028 Term Loan Interest Rate Swap | | $ | (397) | | $ | — | | $ | (397) | | $ | — | Investment Securities | | $ | 42,041 | | $ | 42,041 | | $ | — | | $ | — | December 31, 2021 | | | | | | | | | | | | | Cash Flow Hedge - 2026 Term Loan Interest Rate Swap | | $ | 727 | | $ | — | | $ | 727 | | $ | — | Cash Flow Hedge - 2026 Term Loan Interest Rate Swap | | $ | 240 | | $ | — | | $ | 240 | | $ | — | Cash Flow Hedge - 2027 Term Loan Interest Rate Swap | | $ | 550 | | $ | — | | $ | 550 | | $ | — | Investment Securities | | $ | 41,037 | | $ | 41,037 | | $ | — | | $ | — |
The following table presents the fair value of assets measured on a recurring basis by Level at December 31, 2016:
| | | | | | | | | | | | | | | | | | Fair Value at Reporting Date Using | | | | | | Quoted Prices in | | | | | Significant | | | | | | Active Markets | | Significant Other | | Unobservable | | | | | | for Identical | | Observable Inputs | | Inputs | | | 12/31/2016 | | Assets (Level 1) | | (Level 2) | | (Level 3) | | | | | | | | | | | | | | Cash Flow Hedge - Interest Rate Swap | | $ | 416,590 | | $ | — | | $ | 416,590 | | $ | — | Total | | $ | 416,590 | | $ | — | | $ | 416,590 | | $ | — |
No assets were measured on a non-recurring basis as of December 31, 2017. At December 31, 2016, approximately eight acres2022 or 2021. | | | | | | | | | | | | | | | | | | Fair Value at Reporting Date Using | | | | | | Quoted Prices in | | | | | Significant | | | | | | Active Markets | | Significant Other | | Unobservable | | | | | | for Identical | | Observable Inputs | | Inputs | | | 12/31/2016 | | Assets (Level 1) | | (Level 2) | | (Level 3) | | | | | | | | | | | | | | Land Parcel - 3.6 Repurchased Acres | | $ | 1,398,374 | | $ | — | | $ | — | | $ | 1,398,374 | Land Parcel - 4.5 Repurchased Acres | | | 1,119,410 | | | — | | | — | | | 1,119,410 | Total | | $ | 2,517,784 | | $ | — | | $ | — | | $ | 2,517,784 |
NOTE 7.10. INTANGIBLE ASSETS AND LIABILITIES Intangible assets and liabilities consist of the value of above-market and below-market leases, the value of in-place leases, and the value of leasing costs, based in each case on their fair values. Intangible assets and liabilities consisted of the following as of December 31, 20172022 and 2016:2021 (in thousands): | | | | | | | | | | | As of | | | | | December 31, 2017 | | December 31, 2016 | | | | | | | | | | | | As of | | | | December 31,
2022 | | December 31,
2021 | Intangible Lease Assets: | | | | | | | | | | | | Value of In-Place Leases | | $ | 36,827,226 | | $ | 30,978,776 | | | $ | 90,335 | | $ | 59,293 | Value of Above Market In-Place Leases | | | 2,966,322 | | | 2,905,624 | | | 32,008 | | 23,216 | Value of Intangible Leasing Costs | | | 10,405,135 | | | 7,010,192 | | | | 25,531 | | | 18,456 | Sub-total Intangible Lease Assets | | | 50,198,683 | | | 40,894,592 | | | 147,874 | | 100,965 | Accumulated Amortization | | | (11,440,624) | | | (6,168,770) | | | | (31,890) | | | (21,473) | Sub-total Intangible Lease Assets—Net | | | 38,758,059 | | | 34,725,822 | | | | 115,984 | | | 79,492 | Intangible Lease Liabilities (included in accrued and other
liabilities): | | | | | | | | | Intangible Lease Liabilities (Included in Accrued and Other Liabilities): | | | | | | Value of Below Market In-Place Leases | | | (35,312,017) | | | (33,370,217) | | | | (12,307) | | | (6,942) | Sub-total Intangible Lease Liabilities | | | (35,312,017) | | | (33,370,217) | | | (12,307) | | (6,942) | Accumulated Amortization | | | 5,541,576 | | | 2,852,166 | | | | 2,422 | | | 1,341 | Sub-total Intangible Lease Liabilities—Net | | | (29,770,441) | | | (30,518,051) | | | | (9,885) | | | (5,601) | Total Intangible Assets and Liabilities—Net | | $ | 8,987,618 | | $ | 4,207,771 | | | $ | 106,099 | | $ | 73,891 |
During the year ended December 31, 2017, the value of in-place leases increased by approximately $5.8 million, the value of above-market in-place leases increased by approximately $61,000, the value of intangible leasing costs increased by approximately $3.4 million, and the value of below-market in-place leases increased by approximately $1.9 million due to the acquisition of ten income properties, offset by the net amortization of approximately $2.6 million, for a net increase during 2017 of approximately $4.8 million.
As of December 31, 2017 and 2016, approximately $26.7 and $29.0 million, respectively, of the total below market in-place lease value is related to the Wells Fargo property located in Raleigh, North Carolina which was acquired on November 18, 2015.
The following table reflects the net amortization of intangible assets and liabilities during the years ended December 31, 2017, 2016,2022, 2021, and 2015:2020 (in thousands): | | | | | | | | | | | | Year Ended | | Year Ended | | Year Ended | | | 12/31/2017 | | 12/31/2016 | | 12/31/2015 | | | ($000's) | | ($000's) | | ($000's) | Depreciation and Amortization Expense | | $ | 4,776 | | $ | 2,696 | | $ | 1,674 | Increase to Income Properties Revenue | | | (2,194) | | | (2,240) | | | (159) | Net Amortization of Intangible Assets and Liabilities | | $ | 2,582 | | $ | 456 | | $ | 1,515 |
| | | | | | | | | | | | Year Ended | | | December 31,
2022 | | December 31,
2021 | | December 31,
2020 | Amortization Expense | | $ | 12,300 | | $ | 8,264 | | $ | 7,805 | Accretion to Income Properties Revenue | | | 2,161 | | | (404) | | | (1,754) | Net Amortization of Intangible Assets and Liabilities | | $ | 14,461 | | $ | 7,860 | | $ | 6,051 |
The estimated future amortization expense (income) related to net intangible assets and liabilities is as follows:follows (in thousands): | | | | | | | | | | | | | | | | Future Accretion | | Net Future | | | | Future | | to Income | | Amortization of | | | | Amortization | | Property | | Intangible Assets | | Year Ending December 31, | | Amount | | Revenue | | and Liabilities | | 2018 | | $ | 5,340,302 | | $ | (2,269,867) | | $ | 3,070,435 | | 2019 | | | 5,311,743 | | | (2,264,743) | | | 3,047,000 | | 2020 | | | 4,870,322 | | | (2,198,014) | | | 2,672,308 | | 2021 | | | 3,179,886 | | | (2,348,869) | | | 831,017 | | 2022 | | | 2,561,959 | | | (2,420,029) | | | 141,930 | | Thereafter | | | 15,387,811 | | | (16,162,883) | | | (775,072) | | Total | | $ | 36,652,023 | | $ | (27,664,405) | | $ | 8,987,618 | |
| | | | | | | | | | Year Ending December 31, | | Future Amortization Amount | | Future Accretion to Income Property Revenue | | Net Future Amortization of Intangible Assets and Liabilities | 2023 | | $ | 14,977 | | $ | 2,757 | | $ | 17,734 | 2024 | | | 14,764 | | | 2,803 | | | 17,567 | 2025 | | | 12,944 | | | 2,878 | | | 15,822 | 2026 | | | 11,233 | | | 2,597 | | | 13,830 | 2027 | | | 10,978 | | | 1,408 | | | 12,386 | 2028 and Thereafter | | | 25,509 | | | 3,251 | | | 28,760 | Total | | $ | 90,405 | | $ | 15,694 | | $ | 106,099 |
As of December 31, 2017,2022, the weighted average amortization period of both the total intangible assets and liabilities was approximately 13 years.6.1 years and 7.7 years, respectively. NOTE 8.11. IMPAIRMENT OF LONG-LIVED ASSETS The Company assesses the impairment of long-lived assets whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. The fair value of long-lived assets required to be assessed for impairment is determined on a non-recurring basis using Level 3 inputs in the fair value hierarchy. These Level 3 inputs may include, but are not limited to, executed purchase and sale agreements on specific properties, third party valuations, discounted cash flow models, and other model-based techniques. There were no impairment charges on the Company’s undeveloped land holdings, or its income property portfolio, during the years ended December 31, 2022, 2021, or 2020. The $17.6 million impairment charge recognized during the year ended December 31, 2017.2021, is related to the Company’s previously held retained interest in the Land JV as a result of the estimated proceeds received in connection with the contract entered into with Timberline Acquisition Partners, an affiliate of Timberline Real Estate Partners (“Timberline”), which closed on December 10, 2021. In
Additionally, during the second quarter of 2016,year ended December 31, 2020, the Company recognized an aggregate $7.2 million impairment charge as a result of approximately $942,000 was recognized on an income property in Altamonte Springs, Florida leased to PNC Bank under contract for sale asa re-forecast of June 30, 2016. The total impairment charge represented the anticipated loss on the sale plus estimated closing costs. This sale closed in September 2016. In the second quarter of 2016, an impairment charge of approximately $717,000 was recognized on approximately four of the approximately six acres of undeveloped land in the City for which a contract for sale was executed during the three months ended June 30, 2016. Such acreage was repurchased in prior yearsundiscounted future cash flows to be received by the Company and carried a higher cost basis than the remainder of the Company’s historical land holdings. The total impairment charge represented the anticipated lossbased on the saleestimated timing of approximately $646,000 plus estimated closing costs of approximately $71,000. This sale closed in March 2017.future land sales from the Land JV.
In the second quarter of 2016, an impairment charge of approximately $311,000 was recognized on approximately four acres of undeveloped land in the City for which a contract for sale was executed during the three months ended June 30, 2016. Such acreage was repurchased in prior years by the Company and carried a higher cost basis than the remainder of the Company’s historical land holdings. The total impairment charge represented the anticipated loss on the sale of approximately $256,000 plus estimated closing costs of approximately $55,000. This sale closed in April 2017.
In the first quarter of 2016, an impairment charge of approximately $210,000 was recognized on an income property held for sale as of March 31, 2016. The total impairment charge represented the loss on the sale of approximately $134,000 plus closing costs of approximately $76,000. This sale closed in April 2016.
During the first quarter of 2015, an impairment charge of approximately $510,000 was recognized on two income properties held for sale as of March 31, 2015. The total impairment charge represented the loss on the sale of approximately $277,000 plus estimated closing costs of approximately $233,000. As the actual loss on the sale was approximately $497,000, an adjustment to reduce that charge in the amount of approximately $13,000 was recognized during the three months ended June 30, 2015. This sale closed in April 2015.
NOTE 9.12. OTHER ASSETS Other assets consisted of the following:following as of December 31, 2022 and 2021 (in thousands): | | | | | | | | | As of | | | December 31, 2022 | | December 31, 2021 | Income Property Tenant Receivables, Net of Allowance for Doubtful Accounts (1) | | $ | 2,206 | | $ | 885 | Income Property Straight-line Rent Adjustment and COVID-19 Deferral Balance | | | 6,214 | | | 5,180 | Operating Leases - Right-of-Use Asset | | | 63 | | | 168 | Golf Rounds Surcharge | | | 216 | | | 338 | Cash Flow Hedge - Interest Rate Swap | | | 16,158 | | | 1,543 | Infrastructure Reimbursement Receivables | | | 824 | | | 1,080 | Prepaid Expenses, Deposits, and Other | | | 5,421 | | | 3,526 | Due from Alpine Income Property Trust, Inc. | | | 1,300 | | | 1,653 | Financing Costs, Net of Accumulated Amortization | | | 2,051 | | | 524 | Total Other Assets | | $ | 34,453 | | $ | 14,897 |
| | | | | | | | | | As of | | | | December 31,
2017 | | December 31,
2016 | | Income Property Tenant Receivables | | $ | 895,476 | | $ | 125,383 | | Income Property Straight-line Rent Adjustment | | | 2,517,195 | | | 1,773,946 | | Income Property Lease Incentive | | | 2,696,678 | | | — | | Interest Receivable from Commercial Loan Investments | | | 38,078 | | | 72,418 | | Cash Flow Hedge - Interest Rate Swap | | | 606,621 | | | 416,590 | | Infrastructure Reimbursement Receivables | | | 2,213,305 | | | 3,844,236 | | Golf Operations Receivables | | | 349,220 | | | 325,510 | | Deferred Deal Costs | | | 480,257 | | | 745,878 | | Prepaid Expenses, Deposits, and Other | | | 3,174,299 | | | 2,165,127 | | Total Other Assets | | $ | 12,971,129 | | $ | 9,469,088 | |
(1)Includes a $1.8 million and $0.5 million allowance for doubtful accounts as of December 31, 2022 and 2021, respectively. Income Property Straight-Line Rent Adjustment.As of December 31, 2017,2022 and 2021, the straight-line rent adjustment includes a balance of $0.05 million and $0.1 million of deferred rent related to the COVID-19 Pandemic, respectively. Pursuant to the interpretive guidance issued by the FASB in April 2020 on lease modifications, for leases in which deferred rent agreements were reached, the Company has continued to account for the lease concessions by recognizing the normal straight-line rental income and as the deferred rents are repaid by the tenant, the straight-line receivable will be reduced. Infrastructure Reimbursement ReceivablesReceivables. As of December 31, 2022 and 2021, the infrastructure reimbursement receivables were all related to the land sales within the Tomoka Town Center land sales andCenter. The balance as of December 31, 2022 consisted of approximately $1,575,000$0.7 million due from Tanger for infrastructure reimbursement to be repaid in ninefour remaining annual installments of $175,000,approximately $0.2 million each, net of a discount of approximately $172,000,$0.08 million, and approximately $880,000$0.2 million due from Sam’s Club for infrastructure reimbursement to be repaid in eighttwo remaining annual installments of $110,000,$0.1 million each, net of a discount of approximately $75,000.$0.02 million. As
NOTE 13. EQUITY STOCK SPLIT On April 27, 2022, the Company announced that its Board of Directors approved a three-for-one stock split of the Company’s common stock to be effected in the form of a stock dividend. Each stockholder of record at the close of business on June 27, 2022 (the “Record Date”), received two additional shares of the Company’s common stock for each share held as of the Record Date. The new shares were distributed after the market closed on June 30, 2022. The Company’s stock began trading at the post-split price on July 1, 2022. Pursuant to FASB ASC Topic 505, Equity, the Company has adjusted the computations of basic and diluted earnings per share retroactively for all periods presented. Similarly, the Company has retroactively updated the disclosures in each prior period presented to conform to the split-adjusted dividend amount, for per share amounts including but not limited to dividends declared, stock-based compensation shares outstanding, ATM program activity, and share repurchases. SHELF REGISTRATION On April 1, 2021, the Company filed a shelf registration statement on Form S-3, relating to the registration and potential issuance of its common stock, preferred stock, debt securities, warrants, rights, and units with a maximum aggregate offering price of up to $350.0 million. The Securities and Exchange Commission declared the Form S-3 effective on April 19, 2021. On October 11, 2022, the Company filed a new shelf registration statement on Form S-3, relating to the registration and potential issuance of its common stock, preferred stock, debt securities, warrants, rights, and units with a maximum aggregate offering price of up to $500.0 million. The Securities and Exchange Commission declared the Form S-3 effective on October 26, 2022. EQUITY OFFERING On December 5, 2022, the Company completed a follow-on public offering of 3,450,000 shares of common stock, which included the full exercise of the underwriters’ option to purchase an additional 450,000 shares of common stock. Upon closing, the Company issued 3,450,000 shares and received net proceeds of $62.4 million, after deducting the underwriting discount and expenses. ATM PROGRAM On April 30, 2021, the Company implemented a $150.0 million “at-the-market” equity offering program (the “2021 ATM Program”) pursuant to which the Company may sell, from time to time, shares of the Company’s common stock. During the year ended December 31, 2017,2022, the Income Property Lease IncentiveCompany sold 961,261 shares under the 2021 ATM Program for gross proceeds of approximately $2.7$21.1 million relates toat a tenant improvement allowance provided to Hilton Grand Vacationsweighted average price of $21.99 per share, generating net proceeds of $20.8 million after deducting transaction fees totaling less than $0.3 million. The Company was not active under the 2021 ATM Program during the year ended December 31, 2021. The 2021 ATM Program was terminated in conjunctionconnection with the extensionestablishment of the 2022 ATM Program, hereinafter defined. On October 28, 2022, the Company implemented a $150.0 million “at-the-market” equity offering program (the “2022 ATM Program”) pursuant to which the Company may sell, from time to time, shares of the Company’s common stock. During the year ended December 31, 2022, the Company sold 604,765 shares under the 2022 ATM Program for gross proceeds of $12.3 million at a weighted average price of $20.29 per share, generating net proceeds of $12.1 million after deducting transaction fees totaling $0.2 million. In the aggregate, under the 2021 ATM Program and 2022 ATM Program, during the year ended December 31, 2022, the Company sold 1,566,026 shares for gross proceeds of $33.4 million at a weighted average price of $21.33 per share, generating net proceeds of $32.9 million after deducting transaction fees totaling $0.5 million. PREFERRED STOCK On June 28, 2021, the Company priced a public offering of 3,000,000 shares of its 6.375% Series A Cumulative Redeemable Preferred Stock (the “Series A Preferred Stock”) at a public offering price of $25.00 per share. The offering closed on July 6, 2021 and generated total net proceeds to the Company of $72.4 million, after deducting the underwriting discount and expenses. The Series A Preferred Stock ranks senior to the Company’s common stock with respect to dividend rights and rights upon liquidation, dissolution or winding up of the Company. The Series A Preferred Stock has no maturity date and will remain outstanding unless redeemed. The Series A Preferred Stock is not redeemable by the Company prior to July 6, 2026 except under limited circumstances intended to preserve the Company’s qualification as a REIT for U.S. federal income tax purposes or upon the occurrence of a change of control, as defined in the Articles Supplementary designating the Series A Preferred Stock (the “Articles Supplementary”). Upon such change in control, the Company may redeem, at its election, the Series A Preferred Stock at a redemption price of $25.00 per share plus any accumulated and unpaid dividends up to, but excluding the date of redemption, and in limited circumstances, the holders of preferred stock shares may convert some or all of their leases of two buildings from November 30, 2021 to November 30, 2026 which will be recognized as an offset to rental revenue over the remaining termSeries A Preferred Stock into shares of the leases.Company’s common stock at conversion rates set forth in the Articles Supplementary. The following details the public offering (in thousands, except per share data): | | | | | | | | | | | | | | | | | | Series | | Dividend Rate | | Issued | | Shares Outstanding | | Gross Proceeds | | Net Proceeds | | Dividend
per Share | | Earliest Redemption Date | Series A | | 6.375% | | July 2021 | | 3,000,000 | | $ | 75,000 | | $ | 72,428 | | $ | 0.3984 | | July 2026 |
SERIES A PREFERRED STOCK REPURCHASE PROGRAM On February 16, 2023, the Company’s Board of Directors approved a Series A Preferred Stock repurchase program, which is expected to be in effect until the approved dollar amount has been used to repurchase shares (the “Series A Preferred Stock Repurchase Program”). Pursuant to the Series A Preferred Stock Repurchase Program, the Company may repurchase shares of its Series A Preferred Stock for a total purchase price of up to $3.0 million at a purchase price per share equal to or less than $19.00. Shares may be purchased under the Series A Preferred Stock Repurchase Program in open market transactions, including through block purchases, through privately negotiated transactions or pursuant to any trading plan that may be adopted in accordance with Rule 10b5-1 under the Exchange Act. The Series A Preferred Stock Repurchase Program does not obligate the Company to acquire any particular amount of shares of its Series A Preferred Stock and may be modified or suspended. DIVIDENDS The Company elected to be taxed as a REIT for U.S. federal income tax purposes under the Code commencing with its taxable year ended December 31, 2020. In order to maintain its qualification as a REIT, the Company must annually distribute, at a minimum, an amount equal to 90% of its taxable income, determined without regard to the deduction for dividends paid and excluding net capital gains, and must distribute 100% of its taxable income (including net capital gains) to eliminate U.S. federal income taxes payable by the Company. Because taxable income differs from cash flow from operations due to non-cash revenues and expenses (such as depreciation and other items), in certain circumstances, the Company may generate operating cash flow in excess of its dividends, or alternatively, may need to make dividend payments in excess of operating cash flows. The following table outlines dividends declared and paid for each issuance of CTO’s stock during the years ended December 31, 2022, 2021, and 2020 (in thousands, except per share data): | | | | | | | | | | | | | Year Ended | | | | December 31,
2022 | | December 31,
2021 | | December 31,
2020 | | Series A Preferred Stock | | | | | | | | | | | Dividends | | $ | 4,781 | | $ | 2,325 | | $ | — | | Per Share | | $ | 1.59 | | $ | 0.77 | | $ | — | | | | | | | | | | | | | Common Stock | | | | | | | | | | | Dividends | | $ | 28,896 | | $ | 23,580 | | $ | 64,665 | (1) | Per Share | | $ | 1.49 | | $ | 1.33 | | $ | 4.63 | (1) |
| | (1) | Represents the aggregate of (i) $0.63 per share of regular cash dividends totaling $8.9 million and (ii) $3.99 per share Special Distribution totaling $55.8 million, of which $5.6 million was paid in cash. |
2025 NOTES Effective January 1, 2022, the Company adopted ASU 2020-06 whereby diluted EPS includes the dilutive impact of the 2025 Notes (hereinafter defined) using the if-converted method. Upon adoption, the Company recorded a $7.0 million adjustment to reduce additional paid-in capital to eliminate the non-cash equity component of the 2025 Notes with corresponding offsets including (i) a $4.0 million cumulative effect adjustment to the opening balance of retained earnings and (ii) a $3.0 million adjustment to eliminate the non-cash portion of the convertible notes discount, net of accumulated amortization (the “2025 Notes Adjustment”). The 2025 Notes Adjustment was made on January 1, 2022, and is reflected in the accompanying consolidated statements of stockholders’ equity. 2025 NOTES REPURCHASE PROGRAM On February 16, 2023, the Company’s Board of Directors approved a 2025 Notes repurchase program, which is expected to be in effect until the approved dollar amount has been used to repurchase 2025 Notes (the “2025 Notes Repurchase Program”). Pursuant to the 2025 Notes Repurchase Program, the Company may repurchase, in one or more transactions, 2025 Notes in the aggregate principal amount of not more than $4.74 million, at a price not to exceed 117% of par value. The 2025 Notes Repurchase Program does not obligate the Company to acquire any particular amount of 2025 Notes and may be modified or suspended. NOTE 10.14. COMMON STOCK AND EARNINGS PER SHARE Basic earnings per common share wereis computed by dividing net income (loss) attributable to common stockholders during the period by the weighted average number of shares of common stock outstanding during the year.period. Diluted earnings per common share were determinedis based on the assumption of the conversion of stock options and vesting of restricted stock at the beginning of each period using the treasury stock method at average market pricescost for the periods.Effective as of January 1, 2022, diluted earnings per common share also reflects the 2025 Notes on an if-converted basis. The following is a reconciliation of basic and diluted earnings per common share for each of the periods presented (in thousands, except share and per share data): | | | | | | | | | | | | Year Ended | | | December 31,
2022 | | December 31,
2021 | | December 31,
2020 | Basic and Diluted Earnings: | | | | | | | | | | Net Income (Loss) Attributable to Common Stockholders, Used in Basic EPS | | $ | (1,623) | | $ | 27,615 | | $ | 78,509 | Add Back: Effect of Dilutive Interest Related to 2025 Notes (1) | | | — | | | — | | | — | Net Income (Loss) Attributable to Common Stockholders, Used in Diluted EPS | | $ | (1,623) | | $ | 27,615 | | $ | 78,509 | | | | | | | | | | | Basic and Diluted Shares: | | | | | | | | | | Weighted Average Shares Outstanding, Basic | | | 18,508,201 | | | 17,676,809 | | | 14,114,631 | Common Shares Applicable to Dilutive Effect of 2025 Notes (2) | | | — | | | — | | | — | Weighted Average Shares Outstanding, Diluted | | | 18,508,201 | | | 17,676,809 | | | 14,114,631 | | | | | | | | | | | Per Share Information: | | | | | | | | | | Net Income (Loss) Attributable to Common Stockholders | | | | | | | | | | Basic and Diluted | | $ | (0.09) | | $ | 1.56 | | $ | 5.56 |
| (1) | As applicable, includes interest expense, amortization of discount, amortization of fees, and other changes in net income or loss that would result from the assumed conversion of the 2025 Convertible Senior Notes to derive FFO effective January 1, 2022 due to the implementation of ASU 2020-06 which requires presentation on an if-converted basis. For the year ended December 31 2022, a total of $2.2 million of interest was not included, as the impact of the 2025 Notes, if-converted, would be antidilutive to the net loss attributable to common stockholders of $1.6 million. |
| (2) | A total of 3.1 million shares, representing the dilutive impact of the 2025 Notes, upon adoption of ASU 2020-06 effective January 1, 2022, were not included in the computation of diluted net loss attributable to common stockholders for the year ended December 31, 2022 because they were antidilutive to the net loss attributable to common stockholders of $1.6 million. |
| | | | | | | | | | | | | | Year Ended | | | | | December 31, 2017 | | | December 31, 2016 | | | December 31, 2015 | | Income Available to Common Shareholders: | | | | | | | | | | | Net Income Attributable to Consolidated-Tomoka Land Co. | | $ | 41,719,424 | | $ | 16,251,248 | | $ | 8,347,166 | | Weighted Average Shares Outstanding | | | 5,538,859 | | | 5,680,165 | | | 5,804,655 | | Common Shares Applicable to Stock | | | | | | | | | | | Options Using the Treasury Stock Method | | | 40,933 | | | 13,697 | | | 25,423 | | Total Shares Applicable to Diluted Earnings Per Share | | | 5,579,792 | | | 5,693,862 | | | 5,830,078 | | | | | | | | | | | | | Per Share Information: | | | | | | | | | | | Basic | | | | | | | | | | | Net Income Attributable to Consolidated-Tomoka Land Co. | | $ | 7.53 | | $ | 2.86 | | $ | 1.44 | | | | | | | | | | | | | Diluted | | | | | | | | | | | Net Income Attributable to Consolidated-Tomoka Land Co. | | $ | 7.48 | | $ | 2.85 | | $ | 1.43 | |
In addition to theThere were no potentially dilutive securities presented above, thefor years ended December 31, 2022, 2021, or 2020. The effect of 57,750, 85,500,68,269, 2,497, and 60,20039,558 potentially dilutive securities were not included for the years ended December 31, 2017, 2016,2022, 2021 and 2015,2020, respectively, as the effect would be antidilutive.anti-dilutive.
Effective January 1, 2022, the Company adopted ASU 2020-06 whereby diluted EPS includes the dilutive impact, if any, of the 2025 Notes using the if-converted method, irrespective of intended cash settlement. The Company intends to settle its 4.50%3.875% Convertible Senior Notes due 20202025 (the “2025 Notes”) in cash upon conversion with any excess conversion value to be settled in shares of our common stock. Therefore, onlyThe Company elected, upon adoption, to utilize the amount in excessmodified retrospective approach, negating the required restatement of EPS for periods prior to adoption. The Company overcame the presumption of share settlement prior to the adoption of ASU 2020-06, and therefore, there was no dilutive impact for the years ended December 31, 2021 or 2020. The effect of 3.1 million potentially dilutive 2025 Notes, if-converted, were not included for the year ended December 31, 2022, as the effect would be anti-dilutive. NOTE 15. SHARE REPURCHASES Prior to March 31, 2021, repurchases of the par valueCompany’s common stock were returned to treasury. As a result of the Notes will be included in our calculation of diluted net income per share usingMerger and pursuant to Maryland state law, the Company’s treasury stock method. As such, the Notes have no impact on diluted net income per share until the price of our commonceased to be outstanding and was returned to unissued status. Accordingly, a $77.5 million adjustment to eliminate treasury stock exceeds the current conversion price of $68.72. The average price of our common stockwith a corresponding decrease to additional paid-in capital was made during the year ended December 31, 2017 did not exceed2021 and is reflected in the conversion price which resulted in no additional diluted outstanding shares.accompanying consolidated statements of stockholders’ equity. NOTE 11. TREASURY STOCK
In February 2020, the fourth quarter of 2015, the Company announcedCompany’s Board approved a $10$10.0 million common stock repurchase program (the “$1010.0 Million Common Stock Repurchase Program”). As of March 29, 2017, the $10 Million Repurchase Program had been completed. In the first quarter of 2017, the Company announced a new $10 million stock repurchase program (the “New $10 Million Repurchase Program”) under which approximately $4.6 million of the Company’s common stock had been repurchased as of December 31, 2017. In the aggregate, duringDuring the year ended December 31, 2017, under both programs,2020, the Company repurchased 135,32988,565 shares of its common stock on the open market for a total cost of approximately $7.2$4.1 million, or an average price per share of $53.27,$46.29. During the year ended December 31, 2021, the Company repurchased 40,553 shares of its common stock on the open market for a total cost of $2.2 million, or an average price per share of $54.48. During the year ended December 31, 2022, the Company repurchased 145,724 shares of its common stock on the open market for a total cost of $2.8 million, or an average price per share of $19.15. The $10.0 Million Common Stock Repurchase Program does not have an expiration date. On February 16, 2023, the Company’s Board of Directors approved a common stock repurchase program, which is expected to be in effect until the approved dollar amount has been used to repurchase shares (the “$5.0 Million Common Stock Repurchase Program”). Pursuant to the $5.0 Million Common Stock Repurchase Program, the Company may repurchase shares of its common stock for a total purchase price of up to $5.0 million at an average per share purchase price equal to or less than $17.00. Shares may be purchased under the Common Stock Repurchase Program in open market transactions, including through block purchases, through privately negotiated transactions or pursuant to any trading plan that may be adopted in accordance with Rule 10b5-1 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). The $5.0 Million Common Stock Repurchase Program does not obligate the Company to acquire any particular amount of shares of its common stock and placed those shares in treasury.may be modified or suspended. NOTE 12.16. LONG-TERM DEBT As of December 31, 2017,2022, the Company’s outstanding indebtedness, at face value, was as follows:follows (in thousands): | | | | | | | | | | | | Face Value Debt | | Maturity Date | | Interest Rate | Credit Facility | | $ | 113,750 | | January 2027 | | | 30-day SOFR + 0.10% +
[1.25% - 2.20%] | 2026 Term Loan (1) | | | 65,000 | | March 2026 | | | 30-day SOFR + 0.10% +
[1.25% - 2.20%] | 2027 Term Loan (2) | | | 100,000 | | January 2027 | | | 30-day SOFR + 0.10% +
[1.25% - 2.20%] | 2028 Term Loan (3) | | | 100,000 | | January 2028 | | | 30-day SOFR + 0.10% +
[1.20% - 2.15%] | 3.875% Convertible Senior Notes due 2025 | | | 51,034 | | April 2025 | | | 3.875% | Mortgage Note Payable | | | 17,800 | | August 2026 | | | 4.060% | Total Long-Term Face Value Debt | | $ | 447,584 | | | | | | |
| | | | | | | | | | | | Face | | Maturity | | Interest | | | Value Debt | | Date | | Rate | Credit Facility | | $ | 70,000,000 | | September 2021 | | | 30 ‑day LIBOR
plus 1.50% -2.20% | Mortgage Note Payable (originated with Wells Fargo) (1) | | | 30,000,000 | | October 2034 | | | 4.330% | Mortgage Note Payable (originated with Wells Fargo) (2) | | | 25,000,000 | | April 2021 | | | 30 ‑day LIBOR
plus 1.90% | 4.50% Convertible Senior Notes due 2020, net of discount | | | 75,000,000 | | March 2020 | | | 4.500% | Total Long-Term Face Value Debt | | $ | 200,000,000 | | | | | | |
| (1) | The Company utilized interest rate swaps on the $65.0 million 2026 Term Loan balance to fix SOFR and achieve a weighted average fixed swap rate of 0.26% plus the 10 bps SOFR adjustment plus the applicable spread. |
| (2) | The Company utilized interest rate swaps on the $100.0 million 2027 Term Loan balance to fix SOFR and achieve a fixed swap rate of 0.64% plus the 10 bps SOFR adjustment plus the applicable spread |
| (3) | The Company entered into interest rate swaps on the $100.0 million 2028 Term Loan balance to fix SOFR and achieve a weighted average fixed swap rate of 3.78% plus the 10 bps SOFR adjustment plus the applicable spread. |
(1)Secured by the Company’s interest in six income properties.
Credit Facility. The mortgage loan carries a fixed rate of 4.33% per annum during the first ten years of the term, and requires payments of interest only during the first ten years of the loan. After the tenth anniversary of the effective date of the loan, the cash flows, as defined in the related loan agreement, generated by the underlying six income properties must be used to pay down the principal balance of the loan until paid off or until the loan matures. The loan is fully pre-payable after the tenth anniversary of the effective date of the loan. (2)Secured by the Company’s income property leased to Wells Fargo located in Raleigh, North Carolina. The mortgage loan has a 5-year termCredit Facility, with two years interest only, and interest and a 25-year amortization for the balance of the term. The mortgage loan bears a variable rate of interest based on the 30-day LIBOR plus a rate of 190 basis points. The interest rate for this mortgage loan has been fixed through the use of an interest rate swap that fixed the rate at 3.17%. The mortgage loan can be prepaid at any time subject to the termination of the interest rate swap.
Credit Facility. The Company’s revolving credit facility (the “Credit Facility”), with Bank of Montreal (“BMO”) serving as the administrative agent for the lenders thereunder, is unsecured with regard to our income property portfolio but is guaranteed by certain wholly-ownedwholly owned subsidiaries of the Company. The Credit Facility bank group is led by BMO and also includes Truist Bank and Wells Fargo and Branch Banking & Trust Company.Fargo. On September 7, 2017, the Company executed the second amendment and restatement of the Credit Facility (the “Revolver“2017 Amended Credit Facility”). As a result of the March 2021 Revolver Amendment, as defined below, The Huntington National Bank was added as a lender to the Company’s Credit Facility.
On May 24, 2019, the Company executed the second amendment to the 2017 Amended Credit Facility (the “May 2019 Revolver Amendment”). Pursuant toAs a result of the May 2019 Revolver Amendment, the Credit Facility matures on September 7, 2021, with the ability to extend the term for 1 year. As a result of the Revolver Amendment, the Credit Facility hashad a total borrowing capacity of $100.0$200.0 million with the ability to increase that capacity up to $150.0$300.0 million during the term.term, subject to lender approval. The Credit Facility provides the lenders with a security interest in the equity of the Company subsidiaries that own the properties included in the borrowing base. The indebtedness outstanding under the Credit Facility accrues interest at a rate ranging from the 30-day LIBOR plus 150135 basis points to the 30-day LIBOR plus 220195 basis points based on the total balance outstanding under the Credit Facility as a percentage of the total asset value of the Company, as defined in the 2017 Amended Credit Facility.Facility, as amended by the May 2019 Revolver Amendment. The Credit Facility also accrues a fee of 15 to 25 basis points for any unused portion of the borrowing capacity based on whether the unused portion is greater or less than 50% of the total borrowing capacity. Pursuant to the May 2019 Revolver Amendment, the Credit Facility matures on May 24, 2023, with the ability to extend the term for 1 year.
On November 26, 2019, the Company entered into the third amendment to the 2017 Amended Credit Facility (the “November 2019 Revolver Amendment”), which further amends the 2017 Amended Credit Facility. The November 2019 Revolver Amendment included, among other things, an adjustment of certain financial maintenance covenants, including a temporary reduction of the minimum fixed charge coverage ratio to allow the Company to redeploy the proceeds received from the sale of certain income properties to PINE, and an increase in the maximum amount the Company may invest in stock and stock equivalents of real estate investment trusts to allow the Company to invest in the common stock and OP Units. On July 1, 2020, the Company entered into the fourth amendment to the 2017 Amended Credit Facility (the “July 2020 Revolver Amendment”) whereby the tangible net worth covenant was adjusted to be more reflective of market terms. The July 2020 Revolver Amendment was effective as of March 31, 2020. On November 12, 2020, the Company entered into the fifth amendment to the 2017 Amended Credit Facility (the “November 2020 Revolver Amendment”). The November 2020 Revolver Amendment provided that, among other things, (i) the Company must comply with certain adjusted additional financial maintenance requirements, including (x) a new restricted payments covenant which limits the type and amount of cash distributions that may be made by the Company and (y) an adjusted fix charges ratio, which now excludes certain onetime expenses for purposes of calculation and (ii) the Company must, from and after the date that the Company elects to qualify as a REIT, maintain its status as a REIT. On March 10, 2021, the Company entered into the sixth amendment to the 2017 Amended Credit Facility (the “March 2021 Revolver Amendment”). The March 2021 Revolver Amendment included, among other things, (i) increase of the revolving credit commitment from $200.0 million to $210.0 million, (ii) addition of the 2026 Term Loan in the aggregate amount of $50.0 million, (iii) updates to certain financing rate provisions provided therein, and (iv) joinder of The Huntington National Bank as a 2026 Term Loan lender and Credit Facility lender. The March 2021 Revolver Amendment also includes accordion options that allow the Company to request additional 2026 Term Loan lender commitments up to a total of $150.0 million and additional Credit Facility lender commitments up to a total of $300.0 million. During the three months ended June 30, 2021, the Company exercised the 2026 Term Loan accordion option for $15.0 million, increasing total lender commitments to $65.0 million. On November 5, 2021, the Company entered into the seventh amendment to the 2017 Amended Credit Facility (the “November 2021 Revolver Amendment”). The November 2021 Revolver Amendment included, among other things, (i) addition of the 2027 Term Loan in the aggregate amount of $100.0 million and (ii) joinder of KeyBank National Association, Raymond James Bank, and Synovus Bank as 2027 Term Loan lenders. The November 2021 Revolver Amendment also includes an accordion option that allows the Company to request additional term loan lender commitments up to a total of $400.0 million in the aggregate. On September 20, 2022, the Company entered into the eighth amendment to the 2017 Amended Credit Facility (the “Eighth Amendment”), which includes among other things: (i) the origination of the 2028 Term Loan, as defined in the Credit Agreement, (ii) the increase of Revolving Credit Commitments, as defined in the Credit Facility, up to $300.0 million, (iii) an accordion option that allows the Company to request additional revolving loan commitments and additional term loan commitments, provided, (a) the aggregate amount of revolving loan commitments shall not exceed $750,000,000 and (b) the aggregate amount of term loan commitments shall not exceed $500,000,000, (iv) an extension of the Revolving Credit Termination Date, as defined in the Credit Facility, from May 24, 2023 to January 31, 2027, (v) a sustainability-linked pricing component pursuant to which the Company will receive interest rate reductions based on its performance against certain sustainability performance targets, (vi) the release of the Pledge Collateral, as defined in the Eighth Amendment, and (vii) the joinder of PNC Bank, National Association (“PNC”) as a Term Loan Lender, as defined in the Credit Facility, and PNC and Regions Bank as Revolving Lenders, as defined in the Credit Facility. At December 31, 2017,2022, the current commitment level under the Credit Facility was $100.0$300.0 million. The availableundrawn borrowing capacity under the Credit Facility was approximately $30.0$186.2 million, based on the level of borrowing base assets. As of December 31, 2017,2022, the Credit Facility had a $70.0$113.8 million balance. See Note 21, “Subsequent Events” for a description of increase in in the commitment level subsequent to December 31, 2017.balance outstanding. The Credit Facility is subject to customary restrictive covenants including, but not limited to, limitations on the Company’s ability to: (a) incur indebtedness; (b) make certain investments; (c) incur certain liens; (d) engage in certain affiliate transactions; and (e) engage in certain major transactions such as mergers. In addition, the Company is subject to various financial maintenance covenants including, but not limited to, a maximum indebtedness ratio, a maximum secured indebtedness ratio, and a minimum fixed charge coverage ratio. The Credit Facility also contains affirmative covenants and events of default including, but not limited to, a cross default to the Company’s other indebtedness and upon the occurrence of a change in control. The Company’s failure to comply with these covenants or the occurrence of an event of default could result in acceleration of the Company’s debt and other financial obligations under the Credit Facility. Mortgage Notes Payable. In addition toPayable. On March 3, 2022, in connection with the Credit Facility,acquisition of Price Plaza Shopping Center, the Company has certain other borrowings, as notedassumed an existing $17.8 million secured fixed-rate mortgage note payable, which bears interest at a fixed rate of 4.06% and matures in the table above, allAugust 2026. Convertible Debt. The Company had an initial aggregate principal amount of which are non-recourse. The Mortgage Note Payable originated with UBS Real Estate Securities, Inc. for $7.3$75.0 million was repaid duringof 3.875% Convertible Notes (the “2025 Notes”). During the year ended December 31, 2017. Convertible Debt. The Company’s $75.02020, the Company repurchased $12.5 million aggregate principal amount of 4.50% Convertible2025 Notes (the “Notes”) willat a $2.6 million discount, resulting in a gain on extinguishment of debt of $1.1 million. During the year ended December 31, 2021, the Company repurchased $11.4 million aggregate principal amount of 2025
Notes at a $1.6 million premium, resulting in a loss on extinguishment of debt of $2.9 million. Following the repurchases, $51.0 million aggregate principal amount of the 2025 Notes remains outstanding at December 31, 2022. The 2025 Notes represent senior unsecured obligations of the Company and pay interest semi-annually in arrears on each April 15th and October 15th, commencing on April 15, 2020, at a rate of 3.875% per annum. The 2025 Notes mature on MarchApril 15, 2020, unless earlier purchased or converted.2025 and may not be redeemed by the Company prior to the maturity date. The conversion rate for the 2025 Notes was initially 12.7910 shares of the Company’s common stock per $1,000 of principal of the 2025 Notes (equivalent to an initial conversion price of $78.18 per share of the Company’s common stock). The initial conversion price of the 2025 Notes represented a premium of 20% to the $65.15 closing sale price of the Company’s common stock on the NYSE American on January 29, 2020. If the Company’s Board increases the quarterly dividend above the $0.13 per share in place at issuance, the conversion rate was 14.5136is adjusted with each such increase in the quarterly dividend amount. After the fourth quarter 2022 dividend, the conversion rate is equal to 62.2047 shares of common stock for each $1,000 principal amount of Convertible Notes, which represented an initial conversion price of approximately $68.90 per share of common stock. Since July of 2016, when the Company’s Board of Directors implemented a quarterly dividend in place of the previous semi-annual dividend, the conversion rate has been adjusted with each successive quarterly dividend and is currently, after the fourth quarter 2017 dividend, equal to 14.5515 shares of common stock for each $1,000 principal amount of Convertible2025 Notes, which represents an adjusted conversion price of approximately $68.72$16.08 per share of common stock. At the maturity date, the 2025 Notes are convertible into cash, common stock or a combination thereof, subject to various conditions, at the Company’s option. Should certain corporate transactions or events occur prior to the stated maturity date, the Company will increase the conversion rate for a holder that elects to convert its 2025 Notes in connection with such corporate transaction or event. The conversion rate is subject to adjustment in certain circumstances. Holders may not surrender their Convertible2025 Notes for conversion prior to DecemberJanuary 15, 20192025 except upon the occurrence of certain conditions relating to the closing sale price of the Company’s common stock, the trading price per $1,000 principal amount of Convertible2025 Notes, or specified corporate events including a change in control of the Company. The Company may not redeem the Convertible2025 Notes prior to the stated maturity date and no sinking fund is provided for the Convertible2025 Notes. The Convertible2025 Notes are convertible, at the election of the Company, into solely cash, solely shares of the Company’s common stock, or a combination of cash and shares of the Company’s common stock. The Company intends to settle the Convertible2025 Notes in cash upon conversion, with any excess conversion value to be settled in shares of our common stock. InAt time of issuance, in accordance with U.S. GAAP, the Convertible2025 Notes arewere accounted for as a liability with a separate equity component recorded for the conversion option. A liabilityThe equity component was recorded foreliminated on January 1, 2022 with the Convertible2025 Notes on the issuance date at fair value based on a discounted cash flow analysis using current market rates for debt instruments with similar terms. The difference between the initial proceeds from the Convertible Notes and the estimated fair value of the debt instruments resulted in a debt discount, with an offset recorded to additional paid-in capital representing the equity component. The discount on the Convertible Notes was approximately $6.1 million at issuance, which represents the cash discount paid of approximately $2.6 million and the approximate $3.5 million attributable to the value of the conversion option recorded in equity, which is being amortized into interest expense through the maturity date of the Convertible Notes. Adjustment. As of December 31, 2017,2022, the unamortized debt discount of our Convertible2025 Notes was approximately $2.9 million.$0.4 million, which represents the cash component of the discount. Long-term debt consisted of the following:following (in thousands): | | | | | | | | | | | | | | | December 31, 2022 | | December 31, 2021 | | | Total | | Due Within One Year | | Total | | Due Within One Year | Credit Facility | | $ | 113,750 | | $ | — | | $ | 67,000 | | $ | — | 2026 Term Loan | | | 65,000 | | | — | | | 65,000 | | | — | 2027 Term Loan | | | 100,000 | | | — | | | 100,000 | | | — | 2028 Term Loan | | | 100,000 | | | — | | | — | | | — | 3.875% Convertible Senior Notes, net of Discount | | | 50,670 | | | — | | | 47,469 | | | — | Mortgage Note Payable | | | 17,800 | | | — | | | — | | | | Financing Costs, net of Accumulated Amortization | | | (1,637) | | | — | | | (1,196) | | | — | Total Long-Term Debt | | $ | 445,583 | | $ | — | | $ | 278,273 | | $ | — |
| | | | | | | | | | | | | | | December 31, 2017 | | December 31, 2016 | | | | | | Due Within | | | | | Due Within | | | Total | | One Year | | Total | | One Year | Credit Facility | | $ | 70,000,000 | | $ | — | | $ | 34,300,000 | | $ | — | Mortgage Note Payable (originated with UBS) | | | — | | | — | | | 7,300,000 | | | — | Mortgage Note Payable (originated with Wells Fargo) | | | 30,000,000 | | | — | | | 30,000,000 | | | — | Mortgage Note Payable (originated with Wells Fargo) | | | 25,000,000 | | | — | | | 25,000,000 | | | — | 4.50% Convertible Senior Notes due 2020, net of discount | | | 72,075,295 | | | — | | | 70,880,581 | | | — | Loan Costs, net of accumulated amortization | | | (1,258,931) | | | — | | | (1,235,380) | | | — | Total Long-Term Debt | | $ | 195,816,364 | | $ | — | | $ | 166,245,201 | | $ | — |
Payments applicable to reduction of principal amounts as of December 31, 2022 will be required as follows:follows (in thousands): | | | | | Year Ending December 31, | | Amount | | 2018 | | $ | — | | 2019 | | | — | | 2020 | | | 75,000,000 | | 2021 | | | 95,000,000 | | 2022 | | | — | | Thereafter | | | 30,000,000 | | Total Long-Term Debt - Face Value | | $ | 200,000,000 | |
| | | | As of December 31, 2022 | | Amount | 2023 | | $ | — | 2024 | | | — | 2025 | | | 51,034 | 2026 | | | 82,800 | 2027 | | | 213,750 | 2028 and Thereafter | | | 100,000 | Total Long-Term Debt - Face Value | | $ | 447,584 |
The carrying value of long-term debt as of December 31, 20172022 consisted of the following:following (in thousands): | | | | | | | | Total | | | | | | | | | | Total | Current Face Amount | | $ | 200,000,000 | | | $ | 447,584 | Unamortized Discount on Convertible Debt | | | (2,924,705) | | | (364) | Loan Costs, net of accumulated amortization | | | (1,258,931) | | | Financing Costs, net of Accumulated Amortization | | | | (1,637) | Total Long-Term Debt | | $ | 195,816,364 | | | $ | 445,583 |
In addition to the $1.6 million of financing costs, net of accumulated amortization included in the table above, as of December 31, 2022, the Company also had financing costs, net of accumulated amortization related to the Credit Facility of $2.1 million which is included in other assets on the consolidated balance sheets. These costs are amortized on a straight-line basis over the term of the Credit Facility and are included in interest expense in the Company’s accompanying consolidated statements of operations. The following table reflects a summary of interest expense incurred and paid during the years ended December 2017, 2016,31, 2022, 2021 and 2015:2020 (in thousands): | | | | | | | | | | | | | Year Ended | | Year Ended | | Year Ended | | | | 12/31/2017 | | 12/31/2016 | | 12/31/2015 | | | | ($000's) | | ($000's) | | ($000's) | | | | | | | | | | | | | Year Ended | | | | December 31, 2022 | | December 31, 2021 | | December 31, 2020 | Interest Expense | | $ | 7,034 | | $ | 6,804 | | $ | 5,703 | | $ | 10,171 | | $ | 7,065 | | $ | 9,005 | Amortization of Loan Costs | | | 509 | | | 828 | (1) | | 365 | | Amortization of Deferred Financing Costs | | | | 755 | | 586 | | 454 | Amortization of Discount on Convertible Notes | | | 1,195 | | | 1,121 | | | 852 | | | 189 | | | 1,278 | | | 1,379 | Capitalized Interest | | | (215) | | | — | | | — | | Total Interest Expense | | $ | 8,523 | | $ | 8,753 | | $ | 6,920 | | $ | 11,115 | | $ | 8,929 | | $ | 10,838 | | | | | | | | | | | | | | | | | | | | Total Interest Paid | | $ | 7,060 | | $ | 6,779 | | $ | 4,705 | | $ | 9,862 | | $ | 7,274 | | $ | 9,716 |
The Company was in compliance with all of its debt covenants as of December 31, 20172022 and 2016.2021. NOTE 13.17. INTEREST RATE SWAPSWAPS During April 2016, theThe Company has entered into an interest rate swap agreementagreements to hedge against changes in future cash flows tiedresulting from fluctuating interest rates related to changes in the underlying floatingbelow noted borrowings. The interest rate tied to LIBOR for the $25.0 million mortgage note payable as discussed in Note 12, “Long-Term Debt.” Duringagreements were 100% effective during the years ended December 31, 20172022, 2021, and 2016, the interest rate swap agreement was 100% effective.2020. Accordingly, the changechanges in fair value on the interest rate swap hasswaps have been classified in accumulated other comprehensive income. As of December 31, 2017 and 2016, theincome (loss). The fair value of ourthe interest rate swap agreement, which was a gain of approximately $607,000 and $417,000, respectively, wasagreements are included in other assets and accrued and other liabilities, respectively, on the consolidated balance sheets. TheInformation related to the Company’s interest rate swap was effective on April 7, 2016 and matures on April 7, 2021. The interest rate swap fixed the variable rate debt on the notional amount of related debt of $25.0 million to a rate of 3.17%.agreements are noted below (in thousands):
| | | | | | | | | | | | | Hedged Item (1) | | Effective Date | | Maturity Date | | Rate | | Amount | | Fair Value as of December 31, 2022 | 2026 Term Loan | | 3/10/2021 | | 3/29/2024 | | 0.12% + 0.10% + applicable spread | | $ | 50,000 | | $ | 2,818 | 2026 Term Loan | | 3/29/2024 | | 3/10/2026 | | 1.44% + 0.10% + applicable spread | | $ | 50,000 | | $ | 1,768 | 2026 Term Loan | | 8/31/2021 | | 3/10/2026 | | 0.70% + 0.10% + applicable spread | | $ | 15,000 | | $ | 1,461 | 2027 Term Loan | | 11/5/2021 | | 3/29/2024 | | 0.64% + 0.10% + applicable spread | | $ | 100,000 | | $ | 5,007 | 2027 Term Loan | | 3/29/2024 | | 1/31/2027 | | 1.35% + 0.10% + applicable spread | | $ | 100,000 | | $ | 5,104 | 2028 Term Loan | | 9/30/2022 | | 1/31/2028 | | 3.78% + 0.10% + applicable spread | | $ | 50,000 | | $ | (194) | 2028 Term Loan | | 9/30/2022 | | 1/31/2028 | | 3.78% + 0.10% + applicable spread | | $ | 50,000 | | $ | (203) |
(1) | Effective September 30, 2022 the Company converted its existing interest rate swaps from 1-month LIBOR to SOFR. |
NOTE 14.18. ACCRUED AND OTHER LIABILITIES Accrued and other liabilities consisted of the following: | | | | | | | | | As of | | | December 31,
2017 | | December 31,
2016 | Golf Course Lease | | $ | — | | $ | 2,226,527 | Golf $1 Round Surcharge | | | 700,000 | | | — | Accrued Property Taxes | | | 66,909 | | | 28,973 | Reserve for Tenant Improvements | | | 3,302,831 | | | 398,621 | Accrued Construction Costs | | | 1,360,950 | | | 856,947 | Accrued Interest | | | 1,194,681 | | | 1,220,990 | Environmental Reserve and Restoration Cost Accrual | | | 866,936 | | | 1,505,757 | Other | | | 2,668,219 | | | 2,430,082 | Total Accrued and Other Liabilities | | $ | 10,160,526 | | $ | 8,667,897 |
Golf Course Lease. In July 2012, the Company entered into an agreement with the City to, among other things, amend the lease payments under its golf course lease (the “Lease Amendment”). Under the Lease Amendment, the base rent payment, which was scheduled to increase from $250,000 to $500,000 as of September 1, 2012, remained at $250,000 for the remainder of the lease term and any extensions would have been subject to an annual rate increase of 1.75% beginning September 1, 2013. On January 24, 2017, the Company acquired the approximately 690 acres of land and improvements comprising the golf courses, previously leased from the City, for approximately $1.5 million (the “Golf Course Land Purchase”). In conjunction with the Golf Course Land Purchase, the lease between the Company and the City was terminated. Therefore, during the first quarter of 2017, the Company eliminated the remaining accrued liability of approximately $2.2 million, resulting in the recognition of approximately $0.40 per share in non-cash earnings, or $0.24 per share after tax, which comprises the land lease termination in the consolidated statements of operations. The balance as of December 31, 2016 of approximately $2.2 million consisted of approximately $1.7 million which reflected the acceleration of the remaining amount of accrued rent that was no longer owed to the City as a result of the Lease Amendment, which prior to the Golf Course Land Purchase was being recognized into income over the remaining lease term which was originally to expire in 2022. The remaining approximately $500,000 reflected the amount of rent accrued pursuant to the lease, as amended, which is no longer owed to the City due to the lease termination on January 24, 2017.following (in thousands):
Golf $1 Round Surcharge. In connection with the Golf Course Land Purchase, each year the Company is obligated to pay the City additional consideration in the amount of an annual surcharge of $1 per golf round played (the “Per-Round Surcharge”) with an annual minimum Per-Round Surcharge of $70,000 and a maximum aggregate amount of the Per-Round Surcharges paid equal to $700,000. The maximum amount of $700,000 represents contingent consideration and has been recorded as an increase in Golf Buildings, Improvements, and Equipment and Accrued and Other Liabilities in the accompany consolidated balance sheets as of December 31, 2017. The first annual payment of $70,000 was made in January 2018 leaving a remaining commitment of $630,000 as of the date of this report.
| | | | | | | | | As of | | | December 31,
2022 | | December 31,
2021 | Accrued Property Taxes | | $ | 716 | | $ | 813 | Reserve for Tenant Improvements | | | 6,186 | | | 5,457 | Tenant Security Deposits | | | 2,719 | | | 1,942 | Accrued Construction Costs | | | 903 | | | 190 | Accrued Interest | | | 872 | | | 431 | Environmental Reserve | | | 67 | | | 81 | Cash Flow Hedge - Interest Rate Swaps | | | 397 | | | 26 | Operating Leases - Liability | | | 64 | | | 198 | Other | | | 6,104 | | | 3,983 | Total Accrued and Other Liabilities | | $ | 18,028 | | $ | 13,121 |
Reserve for Tenant Improvements. In connection with recent acquisitions, the acquisition on April 22, 2014Company received, an aggregate $8.9 million from the sellers of the propertyproperties for tenant improvement allowances, leasing commissionsand other capital improvements. These amounts are included in Katy, Texas leased to Lowe’s,accrued and other liabilities on the Company was credited approximately $651,000 at closing for certain required tenant improvements, some of which were not required to be completed until December 2016.consolidated balance sheets. Through December 31, 2016, approximately $100,000 of these tenant improvements had been completed and funded, leaving approximately $551,000 remaining to be funded. The remaining commitment as of December 31, 2016, totaled approximately $381,000, which was equal to the amount of the final reimbursement request the Company received from Lowe’s and was paid during the year ended December 31, 2017, leaving no remaining commitment related to the Lowe’s property. In connection with the acquisition on April 28, 2017 of the property in Tampa, Florida leased to LA Fitness, the Company was credited approximately $400,000 at closing for certain tenant improvements. As of December 31, 2017, no amounts have been completed and funded related to the LA Fitness property. Additionally, the Company is obligated to fund the Income Property Lease Incentive to Hilton Grand Vacations, as described in Note 9, “Other Assets” in the amount of approximately2022, payments totaling $2.7 million as of December 31, 2017. The approximately $2.7 million Income Property Lease Incentive payment waswere made, during January 2018. These two items comprise the majority of the approximately $3.3 millionleaving a remaining reserve for tenant improvements as of December 31, 2017.$6.2 million.
Environmental Reserve. During the year ended December 31, 2014, the Company accrued an environmental reserve of approximately $110,000$0.1 million in connection with an estimate of additional costs required to monitor a parcel of less than one acre of land owned by the Company in Highlands County, Florida, on which environmental remediation work had previously been performed. The Company engaged legal counsel who, in turn, engaged environmental engineers to review the site and the prior monitoring test results. During the year ended December 31, 2015, their review was completed, and the Company made an additional accrual of approximately $500,000,$0.5 million, representing the low end of the range of possible costs estimated by the engineers to be between approximately $500,000$0.5 million and $1.0 million to resolve this matter subject to the approval of the state department of environmental protection (the “FDEP”). The FDEP issued a Remedial Action Plan Modification Approval Order (the “FDEP Approval”) in August 2016 which supports the approximate $500,000$0.5 million accrual made in 2015. The Company is implementing the remediation plan pursuant to the FDEP Approval. During the fourth quarter of 2017, the Company made an additional accrual of approximately $51,000less than $0.1 million for the second year of monitoring as the low end of the original range of estimated costs was increased for the amount of monitoring now expected.anticipated. Since the total accrual of approximately $661,000$0.7 million was made, approximately $502,000$0.6 million in costs have been incurred through December 31, 2017,2022, leaving a remaining accrual of approximately $159,000.less than $0.1 million. Restoration Accrual. As partF-39
Table of the resolution of a regulatory matter pertaining to the Company’s prior agricultural activities on certain of the Company’s land located in Daytona Beach, Florida, as of December 31, 2015, the Company accrued an obligation of approximately $1.7 million, representing the low end of the estimated range of possible wetlands restoration costs for approximately 148.4 acres within such land, and such estimated costs were included on the consolidated balance sheets as an increase in the basis of our land and development costs associated with those and benefitting surrounding acres. The final proposal for restoration work was received during the second quarter of 2016 which totaled approximately $2.0 million. Accordingly, an increase in the accrual of approximately $300,000 was recorded during the second quarter of 2016. The Company funded approximately $1.3 million of the total $2.0 million of estimated costs through the period ended December 31, 2017, leaving a remaining accrual of approximately $708,000. This matter is more fully described in Note 18, “Commitments and Contingencies.”Contents NOTE 15.19. DEFERRED REVENUE Deferred revenue consisted of the following:following (in thousands): | | | | | | | | | | | As of | | | | | December 31,
2017 | | December 31,
2016 | | | Deferred Oil Exploration Lease Revenue | | $ | 585,675 | | $ | 585,674 | | | | | | | | | | | | | | As of | | | | December 31,
2022 | | December 31,
2021 | Prepaid Rent | | | 1,126,408 | | | 1,068,972 | | | $ | 3,951 | | $ | 3,921 | Interest Reserve from Commercial Loans and Investments | | | | 1,262 | | | — | Tenant Contributions | | | | 522 | | | 574 | Other Deferred Revenue | | | 318,376 | | | 337,020 | | | | — | | | 10 | Total Deferred Revenue | | $ | 2,030,459 | | $ | 1,991,666 | | | $ | 5,735 | | $ | 4,505 |
On September 20, 2016, the Company received an approximate $807,000 rent payment for the sixth year of the Company’s thirteen-year oil exploration lease, which was recognized ratably over the twelve-month lease period ending in September 2017. On October 11, 2017, the Company received an approximate $807,000 rent payment for the seventh year of the Company’s thirteen-year oil exploration lease, which is being recognized ratably over the twelve-month lease period ending in September 2018. The oil exploration lease is more fully described in Note 4 “Land and Subsurface Interests.”
NOTE 16.20. STOCK-BASED COMPENSATION SUMMARY OF STOCK-BASED COMPENSATION A summary of share activity for all equity and liability classified stock compensation during the year ended December 31, 2017,2022, is presented below:below. As described in Note 13, “Equity” all share counts herein have been retroactively adjusted for the three-for-one stock split effective July 1, 2022. | | | | | | | | | | | | | | | | Shares | | | | Vested / | | | | | | Shares | | | | Outstanding | | Granted | | Exercised | | Expired | | Forfeited | | Outstanding | | | | | | | | | | | | | | | | | | | | | Type of Award | | at 1/1/2017 | | Shares | | Shares | | Shares | | Shares | | at 12/31/2017 | | Shares Outstanding at 1/1/2022 | | Granted Shares | | Vested / Exercised Shares | | Expired Shares | | Forfeited Shares | | Shares Outstanding at 12/31/22 | Equity Classified - Performance Share Awards - Peer Group Market Condition Vesting | | — | | 12,635 | | — | | — | | — | | 12,635 | | | 234,354 | | | 69,168 | | (73,275) | | | — | | | — | | | 230,247 | Equity Classified - Market Condition Restricted Shares - Stock Price Vesting | | 69,500 | | — | | (7,750) | | (32,000) | | — | | 29,750 | | Equity Classified - Three Year Vest Restricted Shares | | 37,504 | | 17,451 | | (17,298) | | — | | (267) | | 37,390 | | | 154,509 | | | 137,448 | | (72,465) | | | — | | | (7,413) | | | 212,079 | Equity Classified - Non-Qualified Stock Option Awards | | 113,500 | | — | | (23,500) | | — | | — | | 90,000 | | | 64,623 | | | — | | | (64,623) | | | — | | | — | | | — | Liability Classified - Stock Options and Stock Appreciation Rights | | 11,000 | | — | | (6,000) | | (5,000) | | — | | — | | Total Shares | | 231,504 | | 30,086 | | (54,548) | | (37,000) | | (267) | | 169,775 | | | 453,486 | | | 206,616 | | | (210,363) | | | — | | | (7,413) | | | 442,326 |
Amounts recognized in the financial statements for stock-based compensation are as follows (in thousands): | | | | | | | | | | | | Year Ended | | | December 31, 2022 | | December 31, 2021 | | December 31, 2020 | Total Cost of Share-Based Plans Charged Against Income Before Tax Effect | | $ | 3,232 | | $ | 3,168 | | $ | 2,786 | | | | | | | | | | | Income Tax Expense Recognized in Income | | $ | — | | $ | — | | $ | (678) |
EQUITY-CLASSIFIED STOCK COMPENSATION Performance Share Awards – Peer Group Market Condition Vesting On February 3, 2017, the Company awarded 12,635 Performance Sharesshares have been granted to certain employees under the Amended and Restated 2010 Equity Incentive Plan (the “2010 Plan”).Plan. The Performance Sharesperformance share awards entitle the recipient to receive, upon the vesting thereof, shares of common stock of the Company equal to between 0% and 150% of the number of Performance Sharesperformance shares awarded. The number of shares of common stock to be issued upon vesting will beultimately received by the award recipient is determined based on the calculation of the Company’s total shareholder return compared to the total shareholder return of the peer group of companies, established at the grant date, during a three-year performance period commencing on January 1, 2017 and ending on December 31, 2019.
The Company used a Monte Carlo simulation pricing model to determine the fair value of its awards that are based on market conditions. The determination of the fair value of market condition-based awards is affected by the Company’s stock price as well as assumptions regarding a number of other variables. These variables include expected stock price volatility over the three-year performance period, the relative performance of the Company’s stock price and shareholder return compared to the companies in the peer group, annual dividends paid by the Company, and a risk-free interest rate assumption. Compensation cost is recognized regardless of the achievement of the market conditions, provided the requisite service period is met.
A summary of activity during the years ended December 31, 2017, 2016, and 2015 is presented below:
| | | | | | | | | | Wtd. Avg. | Performance Shares with Market Conditions | | Shares | | Fair Value | Outstanding at January 1, 2015 | | — | | $ | — | Granted | | — | | | — | Vested | | — | | | — | Expired | | — | | | — | Forfeited | | — | | | — | Outstanding at December 31, 2015 | | — | | $ | — | Granted | | — | | | — | Vested | | — | | | — | Expired | | — | | | — | Forfeited | | — | | | — | Outstanding at December 31, 2016 | | — | | $ | — | Granted | | 12,635 | | | 55.66 | Vested | | — | | | — | Expired | | — | | | — | Forfeited | | — | | | — | Outstanding at December 31, 2017 | | 12,635 | | $ | 55.66 |
As of December 31, 2017, there was approximately $469,000 of unrecognized compensation cost, adjusted for estimated forfeitures, related to Performance Share awards, which will be recognized over a remaining weighted average period of 2.0 years.
Market Condition Restricted Shares – Peer Group Vesting
Under the 2010 Plan, in September 2010 and January 2011, the Company granted to certain employees restricted shares of the Company’s common stock, which would vest upon the achievement of certain market conditions, including thresholds relating to the Company’s total shareholderstockholder return as compared to the total shareholderstockholder return of a certain peer group during a five-yearthree-year performance period. The Company granted a total of 69,168 performance shares during the year ended December 31, 2022.
The Company used a Monte Carlo simulation pricing model to determine the fair value of its awards that are based on market conditions. The determination of the fair value of market condition-based awards is affected by the Company’s stock price as well as assumptions regarding a number of other variables. These variables include expected stock price volatility over the requisite performance term of the awards, the relative performance of the Company’s stock price and shareholderstockholder returns to companies in its peer group, annual dividends, and a risk-free interest rate assumption. Compensation cost is recognized regardless of the achievement of the market conditions, provided the requisite service period is met. As of December 31, 2022, there was $1.4 million of unrecognized compensation cost, adjusted for estimated forfeitures, related to the outstanding performance share awards, which will be recognized over a remaining weighted average period of 1.7 years. A summary of the activity for these awards during the years ended December 31, 2017, 2016,2022, 2021, and 20152020 is presented below: | | | | | | | | | | | Wtd. Avg. | | | | | | Grant Date | | Market Condition Non-Vested Restricted Shares | | Shares | | Fair Value | | Outstanding at January 1, 2015 | | 5,067 | | $ | 23.13 | | Granted | | — | | | — | | Vested | | (2,034) | | | 22.80 | | Expired | | — | | | — | | Forfeited | | (633) | | | 22.80 | | Outstanding at December 31, 2015 | | 2,400 | | $ | 23.42 | | Granted | | — | | | — | | Vested | | (2,300) | | | 23.42 | | Expired | | — | | | — | | Forfeited | | (100) | | | 23.42 | | Outstanding at December 31, 2016 | | — | | $ | — | | Granted | | — | | | — | | Vested | | — | | | — | | Expired | | — | | | — | | Forfeited | | — | | | — | | Outstanding at December 31, 2017 | | — | | $ | — | |
As of December 31, 2017, there is no unrecognized compensation as there are no outstanding shares remaining.
| | | | | | | Performance Shares With Market Conditions | | Shares | | Wtd. Avg. Fair Value Per Share | Non-Vested at January 1, 2020 | | | 147,825 | | $ | 21.86 | Granted | | | 79,323 | | $ | 18.61 | Vested | | | (37,905) | | $ | 18.55 | Expired | | | — | | | — | Forfeited | | | (21,690) | | $ | 21.27 | Non-Vested at December 31, 2020 | | | 167,553 | | $ | 21.15 | Granted | | | 144,402 | | $ | 10.68 | Vested | | | (52,254) | | $ | 19.43 | Expired | | | — | | | — | Forfeited | | | (25,347) | | $ | 15.68 | Non-Vested at December 31, 2021 | | | 234,354 | | $ | 15.67 | Granted | | | 69,168 | | $ | 20.76 | Vested | | | (73,275) | | $ | 16.76 | Expired | | | — | | | — | Forfeited | | | — | | | — | Non-Vested at December 31, 2022 | | | 230,247 | | $ | 16.85 |
Market Condition Restricted Shares–Shares– Stock Price Vesting “Inducement” grants of 96,000 and 17,000 shares of restrictedRestricted Company common stock were awardedhas been granted to Mr. Albright and Mr. Patten, in 2011 and 2012, respectively. Mr. Albright’s restricted shares were granted outside of the 2010 Plan while Mr. Patten’s restricted shares were awardedcertain employees under the 2010 Plan. The restricted Company filed a registration statement with the Securities and Exchange Commission on Form S-8 to register the resale of Mr. Albright’s restrictedcommon stock award under this award. The restricted shares willoutstanding from these grants vest in six increments based upon the price per share of the Company’s common stock during the term of their employment (or within sixty days after termination of employment by the Company without cause), meeting or exceeding the target trailing sixty-day average closing prices ranging from $36 per share for the first increment to $65 per share for the final increment. If any increment of the restricted shares fails to satisfy the applicable stock price condition prior to six years from the grant date, that increment of the restricted shares will be forfeited. As of December 31, 2017, four increments of Mr. Albright’s grants had vested. On August 1, 2017, the remaining 32,000 unvested “inducement” grant restricted shares, for the $60 and $65 price increments, awarded to Mr. Albright expired without vesting. As of December 31, 2017, the first five increments of Mr. Patten’s grants had vested.
Additional grants of 2,500 and 3,000 shares of restricted Company common stock were awarded to Mr. Smith and Steven R. Greathouse, the Company’s Sr. Vice President of Investments, under the 2010 Plan, during the fourth quarter of 2014 and the first quarter of 2015, respectively. The restricted stock will vest in two increments based upon the price per share of Company common stock during the term of their employment (or within sixty days after termination of employment by the Company without cause), meeting or exceeding the target trailing sixty-day average closing prices of $60 per share and $65 per share for the two increments. If any increment of the restricted shares fails to satisfy the applicable stock price condition prior to six years from the grant date, that increment of the restricted shares will be forfeited. As of December 31, 2017, the first increment of Mr. Smith’s and Mr. Greathouse’s grants had vested.
A grant of 94,000 shares of restricted Company common stock was awarded to Mr. Albright under the 2010 Plan during the second quarter of 2015. As more fully described at the end of this Note 16, “Stock-Based Compensation,” on February 26, 2016, 72,000 of these shares were surrendered, of which 4,000 were re-granted on February 26, 2016 with identical terms of the surrendered restricted stock (68,000 of the shares having been permanently surrendered). The 26,000 shares of restricted Company common stock outstanding from these grants will vest in four increments based upon the price per share of the Company’s common stock during the term of his employment (or within sixty days after termination of employment by the Company without cause), meeting or exceeding the target trailing thirty-day average closing prices ranging from $60prices. Effective January 28, 2021, the 22,000 shares outstanding, consisting of 18,000 shares with a $70 per share for the first increment toprice vesting criteria and 4,000 shares with a $75 per share for the final increment. If any increment of the restricted shares fails to satisfy the applicable stock price conditionvesting criteria, expired prior to January 28, 2021, that increment of the restricted shares will be forfeited. As of December 31, 2017, one increment of this award had vested.
Pursuant to amendments to the employment agreements and certain restricted share award agreements entered into by the Company on February 26, 2016 and August 4, 2017, the restricted shares granted thereunder will fully vest following a change in control only if the executive’s employment is terminated without cause or if the executive resigns for good reason (as such terms are defined in the executive’s employment agreement), in each case, at any time during the 24-month period following the change in control (as defined in the executive’s employment agreement).vesting.
The Company used a Monte Carlo simulation pricing model to determine the fair value of its awards that are based on market conditions. The determination of the fair value of market condition-based awards is affected by the Company’s stock price as well as assumptions regarding a number of other variables. These variables include expected stock price volatility over the requisite performance term of the awards, the relative performance of the Company’s stock price and shareholderstockholder returns to companies in its peer group, annual dividends, and a risk-free interest rate assumption. Compensation cost is recognized regardless of the achievement of the market conditions, provided the requisite service period is met. As of December 31, 2022 and 2021, there was no unrecognized compensation cost related to market condition restricted stock. A summary of the activity for these awards during the years ended December 31, 2017, 2016,2022, 2021, and 20152020 is presented below: | | | | | | | | | | | Wtd. Avg. | | Market Condition Non-Vested Restricted Shares | | Shares | | Fair Value | | Outstanding at January 1, 2015 | | 40,500 | | $ | 15.55 | | Granted | | 97,000 | | | 36.85 | | Vested | | — | | | — | | Expired | | — | | | — | | Forfeited | | — | | | — | | Outstanding at December 31, 2015 | | 137,500 | | $ | 30.58 | | Granted | | 4,000 | | | 38.98 | | Vested | | — | | | — | | Expired | | — | | | — | | Forfeited | | (72,000) | | | 34.46 | | Outstanding at December 31, 2016 | | 69,500 | | $ | 27.03 | | Granted | | — | | | — | | Vested | | (7,750) | | | 34.30 | | Expired | | (32,000) | | | 14.08 | | Forfeited | | — | | | — | | Outstanding at December 31, 2017 | | 29,750 | | $ | 39.07 | |
In connection with the permanent surrender of 68,000 shares of restricted Company common stock, approximately $1.6 million of related stock-based compensation expense was recognized during the year ended December 31, 2016 to accelerate the remaining expense pertaining the total grant date fair value of these awards.
| | | | | | | Market Condition Non-Vested Restricted Shares | | Shares | | Wtd. Avg. Fair Value | Non-Vested at January 1, 2020 | | | 22,000 | | $ | 41.71 | Granted | | | — | | | — | Vested | | | — | | | — | Expired | | | — | | | — | Forfeited | | | — | | | — | Non-Vested at December 31, 2020 | | | 22,000 | | $ | 41.71 | Granted | | | — | | | — | Vested | | | — | | | — | Expired | | | (22,000) | | $ | 41.71 | Forfeited | | | — | | | — | Non-Vested at December 31, 2021 | | | — | | | — | Granted | | | — | | | — | Vested | | | — | | | — | Expired | | | — | | | — | Forfeited | | | — | | | — | Non-Vested at December 31, 2022 | | | — | | | — |
As of December 31, 2017, there is no unrecognized compensation cost related to market condition restricted stock.
Three Year Vest Restricted Shares On January 22, 2014, the CompanyRestricted shares have been granted to certain employees 14,500 shares of restricted Company common stock under the 2010 Plan. One-thirdOne-third of the restricted shares will vest on each of the first, second, and third anniversaries of the grant date, provided they are an employeeJanuary 28 of the Company on those dates. In addition, any unvested portion of the restricted shares will vest upon a change in control.
On January 28, 2015, the Company granted to certain employees, which did not include Mr. Albright, 11,700 shares of restricted Company common stock under the 2010 Plan. Additionally, on February 9, 2015, the Company granted 8,000 shares of restricted Company common stock to Mr. Albright under the 2010 Plan. One-third of both awards of restricted shares will vest on each of the first, second, and third anniversaries of the January 28, 2015 grant date,applicable year provided the grantee is an employee of the Company on those dates. In addition, any unvested portion of the restricted shares will vest upon a change in control.
On January 27, 2016, the The Company granted to certain employees 21,100a total of 137,448 shares of restricted Company common stock under the 2010 Plan. One-third of the restricted shares will vest on each of the first, second, and third anniversaries of January 28, 2016, provided the grantee is an employee of the Company on those dates. In addition, any unvested portion of the restricted shares will vest upon a change in control.
On January 25, 2017, the Company granted to certain employees 17,451 shares of restricted Company common stock under the 2010 Plan. One-third of the restricted shares will vest on each of the first, second, and third anniversaries of January 28, 2017 provided the grantee is an employee of the Company on those dates. In addition, any unvested portion of the restricted shares will vest upon a change in control.
Effective as of August 4, 2017, the Company entered into amendments to the employment agreements and certain stock option award agreements and restricted share award agreements of certain employees including Messrs. Albright, Patten, Smith, and Greathouse, whereby such awards will fully vest following a change in control (as defined in the executive’s employment agreement) only if the executive’s employment is terminated without cause or if the executive resigns for good reason (as such terms are defined in the executive’s employment agreement), in each case, at any time during the 24-month period followingyear ended December 31, 2022.
During the change in control. Theyears ended December 31, 2022 and 2021, the Company’s determination of the fair value of the threethree-year vest restricted stock awards was calculated by multiplying the number of shares issued by the Company’s stock price at the grant date. During the year ended December 31, 2020, the Company’s determination of the fair value of the three-year vest restricted stock awards was calculated by multiplying the number of shares issued by the Company’s stock price at the grant date, less the present value of expected dividends during the vesting period. Compensation cost is recognized on a straight-line basis over the applicable vesting period.
A summary of activity for these awards during the years ended December 31, 2017, 2016, and 2015, is presented below:
| | | | | | | | | | | Wtd. Avg. | | | | | | Fair Value | | Three Year Vest Non-Vested Restricted Shares | | Shares | | Per Share | | Outstanding at January 1, 2015 | | 14,200 | | | 36.08 | | Granted | | 19,700 | | | 55.93 | | Vested | | (4,734) | | | 36.08 | | Expired | | — | | | — | | Forfeited | | (2,266) | | | 46.59 | | Outstanding at December 31, 2015 | | 26,900 | | | 49.73 | | Granted | | 21,100 | | | 44.88 | | Vested | | (10,363) | | | 47.89 | | Expired | | — | | | — | | Forfeited | | (133) | | | 46.08 | | Outstanding at December 31, 2016 | | 37,504 | | | 47.53 | | Granted | | 17,451 | | | 55.06 | | Vested | | (17,298) | | | 46.70 | | Expired | | — | | | — | | Forfeited | | (267) | | | 52.51 | | Outstanding at December 31, 2017 | | 37,390 | | $ | 51.39 | |
As of December 31, 2017,2022, there was approximately $1.0$2.5 million of unrecognized compensation cost, adjusted for estimated forfeitures, related to the three yearthree-year vest non-vested restricted shares, which will be recognized over a remaining weighted average period of 1.72.1 years. A summary of the activity for these awards during the years ended December 31, 2022, 2021, and 2020 is presented below: | | | | | | | Non-Vested Restricted Shares | | Shares | | Wtd. Avg. Fair Value Per Share | Non-Vested at January 1, 2020 | | | 112,785 | | $ | 20.07 | Granted | | | 70,353 | | $ | 18.63 | Vested | | | (54,162) | | $ | 19.90 | Expired | | | — | | | — | Forfeited | | | (13,539) | | $ | 20.05 | Non-Vested at December 31, 2020 | | | 115,437 | | $ | 19.27 | Granted | | | 129,150 | | $ | 11.82 | Vested | | | (63,660) | | $ | 16.18 | Expired | | | — | | | — | Forfeited | | | (26,418) | | $ | 15.53 | Non-Vested at December 31, 2021 | | | 154,509 | | $ | 14.96 | Granted | | | 137,448 | | $ | 19.72 | Vested | | | (72,465) | | $ | 14.96 | Expired | | | — | | | — | Forfeited | | | (7,413) | | $ | 17.01 | Non-Vested at December 31, 2022 | | | 212,079 | | $ | 17.97 |
Non-Qualified Stock Option Awards PursuantStock option awards have been granted to the Non-Qualified Stock Option Award Agreements between the Company and Messrs. Albright, Patten, and Smith, each of these Companycertain employees was granted an option to purchase 50,000, 10,000, and 10,000 shares of Company common stock, in 2011, 2012, and 2014, respectively, under the 2010 Plan with an exercise price per share equal to the fair market value on their respective grant dates. One-thirdPlan. The vesting period of the options awards granted ranged from a period of one to three years. All options had vested on the first, second, and third anniversariesas of their respective grant dates.December 31, 2018. The options expireoption expires on the earliest of: (a) the tenth anniversary of the grant date; (b) twelve months after the employee’s death or termination for disability; or (c) thirty days after the termination of employment for any reason other than death or disability.
On January 23, 2013, the Company granted options to purchase 51,000 shares of the Company’s common stock under the 2010 Plan to certain employees of the Company, including 10,000 shares to Mr. Patten, with an exercise price of $34.95. One-third of these options vested on each of the first, second, and third anniversaries of the grant date. As of December 31, 2017, all 51,000 of these options have been exercised, including the 10,000 shares awarded to Mr. Patten.
On February 9, 2015, the Company granted to Mr. Albright an option to purchase 20,000 shares of the Company’s common stock under the 2010 Plan with an exercise price of $57.50. The option vested on January 28, 2016. The option expires on the earliest of: (a) January 28, 2025; (b) twelve months after the employee’s death or termination for disability; or (c) thirty days after the termination of employment for any reason other than death or disability.
On May 20, 2015, the Company granted to Mr. Albright an option to purchase 40,000 shares of the Company’s common stock under the 2010 Plan, with an exercise price of $55.62. As more fully described at the end of this Note 16, “Stock-Based Compensation,” on February 26, 2016, this option was surrendered and an option to purchase 40,000 shares was granted on February 26, 2016 with identical terms. One-third of the options vested immediately and the remaining two-thirds vested on January 28, 2017 and January 28, 2018. The option expires on the earliest of: (a) January 28, 2025; (b) twelve
months after the employee’s death or termination for disability; or (c) thirty days after the termination of employment for any reason other than death or disability.
On June 29, 2015, the Company granted to an officer of the Company an option to purchase 10,000 shares of the Company’s common stock under the 2010 Plan, with an exercise price of $57.54. One-third of the option will vest on each of the first, second, and third anniversaries of the grant date, provided the recipient is an employee of the Company on those dates. In addition, any unvested portion of the option will vest upon a change in control. The option expires on the earliest of: (a) June 29, 2025; (b) twelve months after the employee’s death or termination for disability; or (c) thirty days after the termination of employment for any reason other than death or disability.
Effective as of August 4, 2017, the Company entered into amendments to the employment agreements and certain stock option award agreements and restricted share award agreements whereby such awards will fully vest following a change in control (as defined in the executive’s employment agreement) only if the executive’s employment is terminated without cause or if the executive resigns for good reason (as such terms are defined in the executive’s employment agreement), in each case, at any time during the 24-month period following the change in control.
The Company used the Black-Scholes valuation pricing model to determine the fair value of its non-qualified stock option awards. The determination of the fair value of the awards is affected by the stock price as well as assumptions regarding a number of other variables. These variables include expected stock price volatility over the term of the awards, annual dividends, and a risk-free interest rate assumption. A summary of the activity for these awards during the years ended December 31, 2017, 2016,2022, 2021, and 2015,2020 is presented below: | | | | | | | | | | | | | | | | | | | Wtd. Avg. | | | | | | | | | | | | Remaining | | | | | | | | | | | | Contractual | | | Aggregate | | | | | | Wtd. Avg. | | Term | | | Intrinsic | | Non-Qualified Stock Option Awards | | Shares | | Ex. Price | | (Years) | | | Value | | Outstanding at January 1, 2015 | | 84,765 | | $ | 34.39 | | | | | | | Granted | | 70,000 | | | 56.43 | | | | | | | Exercised | | (30,155) | | | 30.24 | | | | | | | Expired | | — | | | — | | | | | | | Forfeited | | (7,760) | | | 34.95 | | | | | | | Outstanding at December 31, 2015 | | 116,850 | | | 48.63 | | | | | | | Granted | | 40,000 | | | 55.62 | | | | | | | Exercised | | (3,350) | | | 34.95 | | | | | | | Expired | | — | | | — | | | | | | | Forfeited | | (40,000) | | | 55.62 | | | | | | | Outstanding at December 31, 2016 | | 113,500 | | | 49.03 | | | | | | | Granted | | — | | | — | | | | | | | Exercised | | (23,500) | | | 34.95 | | | | | | | Expired | | — | | | — | | | | | | | Forfeited | | — | | | — | | | | | | | Outstanding at December 31, 2017 | | 90,000 | | $ | 52.71 | | 6.98 | | $ | 971,400 | | Exercisable at December 31, 2016 | | 76,600 | | $ | 45.94 | | 1.87 | | $ | 573,181 | | Exercisable at December 31, 2017 | | 73,000 | | $ | 51.94 | | 6.88 | | $ | 843,968 | |
| | | | | | | | | | | | | Non-Qualified Stock Option Awards | | | Shares | | Wtd. Avg. Ex. Price | | Wtd. Avg. Remaining Contractual Term (Years) | | Aggregate Intrinsic Value | Outstanding at January 1, 2020 | | | 240,000 | | $ | 18.54 | | | | | | | Granted | | | — | | | — | | | | | | | Exercised | | | — | | | — | | | | | | | Expired | | | — | | | — | | | | | | | Forfeited | | | — | | | — | | | | | | | Outstanding at December 31, 2020 | | | 240,000 | | $ | 18.54 | | | | | | | Granted | | | 60,996 | | | — | | | | | | | Exercised | | | (236,373) | | $ | 14.88 | | | | | | | Expired | | | — | | | — | | | | | | | Forfeited | | | — | | | — | | | | | | | Outstanding at December 31, 2022 | | | 64,623 | | $ | 14.46 | | | | | | | Granted | | | — | | | — | | | | | | | Exercised | | | (64,623) | | $ | 14.46 | | | | | | | Expired | | | — | | | — | | | | | | | Forfeited | | | — | | | — | | | | | | | Outstanding at December 31, 2022 | | | — | | $ | — | | | — | | $ | — | Exercisable at January 1, 2022 | | | 64,623 | | $ | 14.46 | | | 3.21 | | $ | 388,837 | Exercisable at December 31, 2022 | | | — | | $ | — | | | — | | $ | — |
A summary of the non-vested options for these awards during the years ended December 31, 2017, 2016, and 2015, is presented below:
| | | | | | | | | | | Fair Value | | | | | | of Shares | | Non-Qualified Stock Option Awards | | Shares | | Vested | | Non-Vested at January 1, 2015 | | 47,570 | | | | | Granted | | 70,000 | | | | | Vested | | (21,550) | | $ | 783,764 | | Expired | | — | | | | | Forfeited | | (7,760) | | | | | Non-Vested at December 31, 2015 | | 88,260 | | | | | Granted | | 40,000 | | | | | Vested | | (51,360) | | $ | 2,643,088 | | Expired | | — | | | | | Forfeited | | (40,000) | | | | | Non-Vested at December 31, 2016 | | 36,900 | | | | | Granted | | — | | | | | Vested | | (19,900) | | $ | 1,094,066 | | Expired | | — | | | | | Forfeited | | — | | | | | Non-Vested at December 31, 2017 | | 17,000 | | | | |
No options were granted during the year ended December 31, 2017. The total intrinsic value of options exercised during the year ended December 31, 2017 was approximately $451,000.2022 totaled $0.4 million. As of December 31, 2017,2022, there was approximately $78,000 ofis no unrecognized compensation cost related to non-qualified, non-vested stock option awards, which will be recognized over a weighted average periodawards.
NON-EMPLOYEE DIRECTOR STOCK COMPENSATION Each member of 0.4 years. LIABILITY-CLASSIFIED STOCK COMPENSATION
the Company’s Board of Directors has the option to receive his or her annual retainer and meeting fees in shares of Company common stock rather than cash. The Company previously had a stock option plan (the “2001 Plan”) pursuantnumber of shares awarded to which 500,000 sharesthe directors making such election is calculated quarterly by dividing (i) the sum of (A) the amount of the quarterly retainer payment due to such director plus (B) meeting fees earned by such director during the quarter, by (ii) the closing price of the Company’s common stock were eligibleon the last business day of the quarter for issuance.which such payment applied, rounded down to the nearest whole number of shares. Each non-employee director serving as of the beginning of each calendar year shall receive an annual award of the Company’s common stock. The 2001 Plan expired in 2010,value of such award totaled $35,000 for the years ended December 31, 2022 and no new2021 and $20,000 for the year ended December 31, 2020 (the “Annual Award”). The number of shares awarded is calculated based on the trailing 20-day average price of the Company’s common stock options may be issued underas of the 2001 Plan. Underdate two business days prior to the 2001 Plan, both stock options and stock appreciation rights were issued in prior years and such issuances were deemed to be liability-classified awards under FASB ASC Topic, Share-Based Payments, which are required to be remeasured at fair value at each balance sheet date untilof the award, is settled.rounded down to the nearest whole number of shares. Commencing in 2021, non-employee directors will no longer receive meeting fees, but will receive additional retainers for service on Board committees, as set forth in the Company’s Non-Employee Director Compensation Policy available on the Company’s website (www.ctoreit.com). A summary of share option activity under the 2001 PlanCompany’s common stock received by non-employee directors totaled $0.5 million or 25,034 shares, $0.5 million or 32,766 shares, and $0.5 million, or 30,384 shares, respectively. The expense recognized during the years ended December 31, 2017, 2016,2022, 2021, and 2015 is presented below:2020 includes the Annual Award received during the first quarter of each year.
Stock Options
| | | | | | | | | | | | | | | | | | | Wtd. Avg. | | | | | | | | | | | | Remaining | | | | | | | | | | | | Contractual | | Aggregate | | | | | | Wtd. Avg. | | Term | | Intrinsic | | Liability-Classified Stock Options | | Shares | | Ex. Price | | (Years) | | Value | | Outstanding at January 1, 2015 | | 35,300 | | | 62.47 | | | | | | | Granted | | — | | | — | | | | | | | Exercised | | (3,300) | | | 33.16 | | | | | | | Expired | | — | | | — | | | | | | | Forfeited | | (14,000) | | | 66.54 | | | | | | | Outstanding at December 31, 2015 | | 18,000 | | | 64.69 | | | | | | | Granted | | — | | | — | | | | | | | Exercised | | — | | | — | | | | | | | Expired | | (3,000) | | | 67.27 | | | | | | | Forfeited | | (4,000) | | | 64.99 | | | | | | | Outstanding at December 31, 2016 | | 11,000 | | | 63.87 | | | | | | | Granted | | — | | | — | | | | | | | Exercised | | (6,000) | | | 52.73 | | | | | | | Expired | | (5,000) | | | 52.73 | | | | | | | Forfeited | | — | | | — | | | | | | | Outstanding at December 31, 2017 | | — | | $ | — | | — | | $ | — | | Exercisable at December 31, 2017 | | — | | $ | — | | — | | $ | — | |
NOTE 21. INCOME TAXES The Company elected to be taxed as a REIT for U.S. federal income tax purposes, commencing with its taxable year ended December 31, 2020. The Company believes that, commencing with such taxable year, it has been organized and has operated in such a manner as to qualify for taxation as a REIT under the grantU.S. federal income tax laws. The Company intends to continue to operate in such a manner. As a REIT, the Company will be subject to U.S. federal and state income taxation at corporate rates on its net taxable income; the Company, however, may claim a deduction for the amount of non-qualified stock options, a stock appreciation right for each share covereddividends paid to its stockholders. Amounts distributed as dividends by the option was also granted.Company will be subject to taxation at the stockholder level only. While the Company must distribute at least 90% of its REIT taxable income, determined without regard to the dividends paid deduction and excluding any net capital gain, to qualify as a REIT, the Company intends to distribute all of its net taxable income. The stock appreciation right entitlesCompany is allowed certain other non-cash deductions or adjustments, such as depreciation expense, when computing its REIT taxable income and distribution requirement. These deductions permit the optioneeCompany to receivereduce its dividend payout requirement under U.S. federal income tax laws. Certain states may impose minimum franchise taxes. To comply with certain REIT requirements, the Company holds certain of its non-REIT assets and operations through taxable REIT subsidiaries (“TRSs”) and subsidiaries of TRSs, which will be subject to applicable U.S. federal, state and local corporate income tax on their taxable income. For the periods presented, the Company held a supplemental payment, which may be paid in whole or in part in cash or in sharestotal of common stock, equaltwo TRSs subject to taxation. The Company’s TRSs will file tax returns separately as C-Corporations. As a portionresult of the spread between the exercise price and the fair market value of the underlying shares at the time of exercise. The total intrinsic value of options exercisedCompany’s election to be taxed as a REIT, during the year ended December 31, 20172020, an $82.5 million deferred tax benefit was approximately $316,000. No options remain outstandingrecorded to de-recognize the deferred tax assets and exercisable as of December 31, 2017. Stock Appreciation Rights
| | | | | | | | | | | | | | | | | | | Wtd. Avg. | | | | | | | | | | | | Remaining | | | | | | | | | | | | Contractual | | Aggregate | | | | | | Wtd. Avg. | | Term | | Intrinsic | | Liability-Classified Stock Appreciation Rights | | Shares | | Fair Value | | (Years) | | Value | | Outstanding at January 1, 2015 | | 35,300 | | | 5.56 | | | | | | | Granted | | — | | | — | | | | | | | Exercised | | (3,300) | | | 12.19 | | | | | | | Expired | | — | | | — | | | | | | | Forfeited | | (14,000) | | | 4.84 | | | | | | | Outstanding at December 31, 2015 | | 18,000 | | | 2.64 | | | | | | | Granted | | — | | | — | | | | | | | Exercised | | — | | | — | | | | | | | Expired | | (3,000) | | | — | | | | | | | Forfeited | | (4,000) | | | 0.87 | | | | | | | Outstanding at December 31, 2016 | | 11,000 | | | 1.33 | | | | | | | Granted | | — | | | — | | | | | | | Exercised | | (6,000) | | | 3.84 | | | | | | | Expired | | (5,000) | | | — | | | | | | | Forfeited | | — | | | — | | | | | | | Outstanding at December 31, 2017 | | — | | $ | — | | — | | $ | — | | Exercisable at December 31, 2017 | | — | | $ | — | | — | | $ | — | |
The total intrinsic value of stock appreciation rights exercised duringliabilities associated with the year ended December 31, 2017 was approximately $23,000. No stock appreciation rights remain outstanding and exercisable as of December 31, 2017.
The aggregate intrinsic value of options is calculated by taking the current stock price of the Company as of the balance sheet date less the option exercise price, times the respective number of shares outstanding or exercisable, on a weighted average basis. Options with an exercise price greater than the current stock price are excluded from the calculation.
The fair value of each share option and stock appreciation right is estimated on the measurement date using the Black-Scholes option pricing model based on assumptions noted in the following table. Expected volatility is based on the historical volatility of the Company and other factors. The Company has elected to use the simplified method of estimating the expected term of the options and stock appreciation rights.
Due to the small number of employeesentities included in the 2001 Plan, the Company uses the specific identification method to estimate forfeitures and includes all participants in one group. The risk-free rate for periods within the contractual term of the share option is based on the U.S. Treasury rates in effect at the time of measurement.
The Company issues new, previously unissued, shares as options are exercised.
Following are assumptions used in determining the fair value of stock options and stock appreciation rights for the years ended December 31, 2016 and 2015. There were no assumptions for the year ended December 31, 2017 as there are no remaining stock options or stock appreciation rights:
| | | | | | | | | | | Assumptions at: | | December 31, 2017 | | | December 31, 2016 | | | December 31, 2015 | | | Expected Volatility | | — | % | | 14.13 | % | | 29.40 | % | | Expected Dividends | | — | % | | 0.22 | % | | 0.15 | % | | Expected Term | | — | years | | 0.61 | years | | 1.3 | years | | Risk-Free Rate | | — | % | | 0.66 | % | | 0.75 | % | |
There were no stock options or stock appreciation rights granted under the 2001 Plan during the years ended December 31, 2017, 2016, or 2015.
The liability for stock options and stock appreciation rights, at fair value, reflected on the consolidated balance sheet at December 31, 2016, was approximately $42,000. There was no remaining liability as of December 31, 2017 because there were no options outstanding and exercisable as of December 31, 2017. These fair value measurements are based on Level 2 inputs based on Black-Scholes and market implied volatility. The Black-Scholes determination of fair value is affected by variables including stock price, expected stock price volatility over the term of the awards, annual dividends, and a risk-free interest rate assumption.
Amounts recognized in the financial statements for stock options, stock appreciation rights, and restricted stock are as follows:
| | | | | | | | | | | | | Year Ended | | | | December 31, 2017 | | December 31, 2016 | | December 31, 2015 | | Accelerated Charge for Stock-Based Compensation | | $ | — | | $ | 1,649,513 | | $ | — | | Recurring Charge for Stock-Based Compensation | | | 1,437,223 | | | 1,529,370 | | | 2,186,408 | | Total Cost of Share-Based Plans Charged Against Income Before Tax Effect | | $ | 1,437,223 | | $ | 3,178,883 | | $ | 2,186,408 | | | | | | | | | | | | | Income Tax Expense Recognized in Income | | $ | (554,409) | | $ | (1,226,254) | | $ | (843,407) | |
In January 2015, the Compensation Committee awarded to Mr. Albright 8,000 restricted shares of the Company’s common stock. In February 2015, the Compensation Committee awarded to Mr. Albright options to purchase a total of 20,000 shares of the Company’s common stock. In May 2015, in connection with the extension of Mr. Albright’s employment agreement, the Compensation Committee awarded to Mr. Albright 94,000 restricted shares of the Company’s common stock (the “May 2015 Restricted Share Grant”) and options to purchase a total of 40,000 shares of the Company’s common stock (the “May 2015 Option Grant”). Each of these awards were approved by the Company’s Board.
Upon review of the total equity awards to Mr. Albright in 2015, it was determined that the annual per person award limit under the 2010 Plan was inadvertently exceeded. In determining the extent to which the 2010 Plan’s individual annual award limit had been exceeded by the above awards, the Compensation Committee, as the administrator of the 2010 Plan, identified a conflict between Sections 3(d) and 3(e) of the 2010 Plan, the relevant provisions which provide limitations of the 2010 Plan. Section 3(d) of the 2010 Plan could be read to provide an overall limit of 50,000 shares applicable to all awards granted to a participant in any calendar year; however, the Compensation Committee could not disregard Section 3(e) of the 2010 Plan. Section 3(e) could be read to provide for two additional limits of 50,000 shares each for any (a) “Qualified Performance-Based Awards” (as defined in the 2010 Plan) constituting stock options and stock appreciation rights and (b) “Qualified Performance-Based Awards” other than stock options and stock appreciation rights. If the Compensation Committee were to determine that Section 3(e) of the 2010 Plan provides the applicable limits for two categories of “Qualified Performance-Based Awards,” then the Compensation Committee could conclude that Section 3(d) of the 2010 Plan provides the limit for awards other than Qualified Performance-Based Awards.
The Compensation Committee consulted with outside advisors and determined that it was not possible to conclude which interpretation of the 2010 Plan was conclusively correct. Pursuant to its authority to interpret the 2010 Plan, the Compensation Committee elected to comply with the limit in Section 3(d) of the 2010 Plan. As a result of applying this interpretation of the 2010 Plan, the awards granted to Mr. Albright in 2015 exceeded the 2010 Plan’s individual annual award limit by 112,000 shares of our common stock (the “Excess 2015 Awards”).
On February 26, 2016, the Company notified the NYSE American (i) that the Excess 2015 Awards may have violated Rule 711 of the NYSE American Company Guide and (ii) of the Company and Mr. Albright’s intention to rectify the Excess 2015 Awards in the manner described below. On March 4, 2016, the NYSE American notified the Company that it would not take any action and considered the matter closed.
In consultation with the Board, Mr. Albright elected to rectify the Excess 2015 Awards by surrendering, in full, the May 2015 Option Grant and surrendering, in part, the May 2015 Restricted Share Grant. In 2016, aREIT. A significant portion of the surrendered awards were replaced with new awards under the 2010 Plan. Effective as of February 26, 2016, the Compensation Committee awarded Mr. Albright (i) an option to purchase an additional 40,000 shares of our common stock under the 2010 Plan (the “New Option Grant”) and (ii) a grant of 4,000 restricted shares of our common stock (the “New Restricted Share Grant”).
The New Option Grant has an exercise price per share of $55.62, which is equaldeferred tax benefit recognized related to the exercise price per share applicablede-recognition of deferred tax liabilities resulting from Section 1031 like-kind exchanges (“1031 Exchanges”). The Company will be subject to the May 2015 Option Grant. This option is intendedcorporate income taxes related to have the same vesting terms as the May 2015 Option Grant, and as a result has vested with respect to 26,400 shares, and will vest with respect to 13,600 shares on January 28, 2018. The New Restricted Share Grant is intended to have the same vesting terms as the May 2015 Restricted Share Grant, and as a result will vest upon the price per share of Company common stockassets held by it that are sold during the term of Mr. Albright’s employment (or within 60 days after termination of his employment by the Company other than for cause, due to death or disability or due to his voluntary resignation) meeting or exceeding the target trailing 30-day average closing price of $75 per share. If the restricted shares fail to satisfy the stock price condition prior to January 28, 2021, the restricted shares will be forfeited. Any unvested restricted shares will vest immediately upon Mr. Albright’s termination of employment without Cause or for his resignation for Good Reason (as such terms are defined in his amended and restated employment agreement), in each case, at any time during the 24-month period following a change in control. Mr. Albright has the right to vote the restricted shares prior to their vesting but is not entitled to dividends paid on any unvested shares. These restricted shares have not yet vested.
Because the Excess 2015 Awards exceeded the 2010 Plan limits, the grants do not qualify, for purposes of calculating the Code Section 162(m) compensation for Mr. Albright for tax purposes, as performance-based awards.
As noted herein, 112,000 shares of the awards granted to Mr. Albright in 2015 were deemed to have exceeded the limits of the 2010 Plan. However, when granted these shares were issued and outstanding as of their grant date and all legal requirements for their issuance under Florida law and the Company’s organizational documents were fulfilled and Mr. Albright’s ability to enforce his rights to such grants could not be negated or otherwise impaired. All requirements under FASB ASC Topic 718-10-20 were met, including a mutual understanding of the key terms and conditions of the awards, the Company was contingently liable to issue the shares underlying the awards, and all required approvals for the awards to be legally issued and outstanding were obtained as of the grant date. Consequently, the 112,000 shares were deemed appropriately reflected as stock compensation expense as of the year ended December 31, 2015.
Effective as of February 26, 2016, the Company entered into amendments to the employment agreements and certain restricted share award agreements of Messrs. Albright, Patten, and Smith to clarify the Company’s intention that the restricted shares granted thereunder, that are subject to performance-based vesting conditions, will fully vest upon the executive’s termination of employment without cause or his resignation for good reason (as such terms are defined in his employment agreement), in each case, at any time during the 24-month period following a change in control. There was no impact to the valuation established at the original date of grant pertaining to this modification of the restricted share award agreements of Messrs. Albright, Patten, and Smith.
Effective as of August 4, 2017, the Company entered into amendments to the employment agreements and certain stock option award agreements and restricted share award agreements whereby such awards will fully vest following a change in control (as defined in the executive’s employment agreement) only if the executive’s employment is terminated without cause or if the executive resigns for good reason (as such terms are defined in the executive’s employment agreement), in each case, at any time during the 24-month5-year period following the change in control.date of conversion to the extent such sold assets had a built-in gain as of January 1, 2020. The Company generally does not intend to dispose of any REIT assets after the REIT conversion within the 5-year period, unless various tax planning strategies, including 1031 Exchanges or other deferred tax structures are available to mitigate the built-in gain tax liability of conversion.
NOTE 17. INCOME TAXES
Total income tax benefit is summarized as follows (in thousands): | | | | | | | | | | | | Year Ended December 31, | | | 2022 | | 2021 | | 2020 | Income Tax Benefit | | $ | 2,830 | | $ | 3,079 | | $ | 83,499 |
The provisions for income tax benefit (expense) are summarized as follows:follows (in thousands): | | | | | | | | | | | | | | | | | | | | | | | 2017 | | 2016 | | 2015 | | | | | Current | | Deferred | | Current | | Deferred | | Current | | Deferred | | | | | | | | | | | | | | | | | | | | | | | | | | 2022 | | 2021 | | 2020 | | | | Current | | Deferred | | Current | | Deferred | | Current | | Deferred | Federal | | $ | 794,174 | | $ | 8,317,453 | | $ | (159,596) | | $ | (10,740,617) | | $ | 479,671 | | $ | (5,607,970) | | | $ | (183) | | $ | 2,571 | | $ | 235 | | $ | 2,362 | | $ | 341 | | $ | 70,106 | State | | | 70,384 | | | 753,255 | | | (311,525) | | | (625,116) | | | 185,584 | | | (326,389) | | | | — | | | 442 | | | 44 | | | 438 | | | 63 | | | 12,989 | Total | | $ | 864,558 | | $ | 9,070,708 | | $ | (471,121) | | $ | (11,365,733) | | $ | 665,255 | | $ | (5,934,359) | | | $ | (183) | | $ | 3,013 | | $ | 279 | | $ | 2,800 | | $ | 404 | | $ | 83,095 |
Deferred tax assets and liabilities are recognized for the future tax consequences attributable to the differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. The sources of these differences and the related deferred income tax assets (liabilities) are summarized as follows:follows (in thousands): | | | | | | | | | | Deferred Tax | | | | 2017 | | 2016 | | Deferred Income Tax Assets | | | | | | | | Depreciation | | $ | 2,073,439 | | $ | 2,475,898 | | Intangible Lease Liabilities | | | 7,512,629 | | | 11,714,651 | | Impairment Reserves | | | 1,139,918 | | | 2,085,808 | | Stock Options and Restricted Stock | | | 883,725 | | | 1,438,292 | | Net Operating Loss Carryforward | | | 266,036 | | | — | | Capital Loss Carryforward | | | 20,750 | | | — | | Deferred Oil Lease Income | | | 148,439 | | | 225,924 | | Deferred Lease Expense | | | — | | | 858,882 | | Other - Net | | | 60,480 | | | 217,887 | | Gross Deferred Income Tax Assets | | | 12,105,416 | | | 19,017,342 | | Less - Valuation Allowance | | | (272,966) | | | (415,453) | | Net Deferred Income Tax Assets | | | 11,832,450 | | | 18,601,889 | | Deferred Income Tax Liabilities | | | | | | | | Sales of Real Estate | | | (52,720,764) | | | (68,358,404) | | Discount on Equity Component of Convertible Debt | | | (421,895) | | | (904,422) | | Basis Difference in Joint Venture | | | (224,715) | | | (342,015) | | Interest Rate Swap | | | (452,873) | | | (255,891) | | Deferred Revenue (Net of Straight-line Rent Adjustments) | | | (226,673) | | | (105,729) | | Other - Net | | | (79,394) | | | — | | Total Deferred Income Tax Liabilities | | | (54,126,314) | | | (69,966,461) | | Net Deferred Income Tax Liabilities | | $ | (42,293,864) | | $ | (51,364,572) | |
| | | | | | | | | Deferred Tax | | | 2022 | | 2021 | Deferred Income Tax Assets | | | | | | | Capital Loss Carryforward | | $ | 1,800 | | $ | 2,249 | Net Operating Loss Carryforward | | | 2,597 | | | 291 | Gross Deferred Income Tax Assets | | | 4,397 | | | 2,540 | Less - Valuation Allowance | | | (1,800) | | | (2,249) | Net Deferred Income Tax Assets | | | 2,597 | | | 291 | Deferred Income Tax Liabilities | | | | | | | Unrealized Gain on Investment Securities | | | (39) | | | — | Basis Differences in Mitigation Credit Assets | | | (28) | | | (774) | Total Deferred Income Tax Liabilities | | | (67) | | | (774) | Net Deferred Income Tax Liabilities | | $ | 2,530 | | $ | (483) |
In assessing the realizability of deferred income tax assets, Managementmanagement considers whether it is more likely than not that some portion or all of the deferred income tax assets will not be realized. The ultimate realization of deferred income tax assets is dependent upon the realization of future taxable income during the periods in which those temporary differences become deductible. We consider past history, the scheduled reversal of taxable temporary differences, projected future taxable income, and tax planning strategies in making this assessment. As of December 31, 20172022 and 2016, we believe it2021, the Company has $2.6 million and $0.3 million in net operating loss (“NOL”) carryforwards, respectively. The Tax Cuts and Jobs Act allows for indefinite carryforwards for all NOLs generated in taxable years beginning after December 31, 2017. Additionally, there is more likely than not that a portionno taxable income limitation, thus allowing an NOL carryforward to fully offset taxable income in tax years beginning before January 1, 2021. Accordingly, as of December 31, 2022 and 2021, no valuation allowance was considered necessary related to the Company’s deferred income tax assets will not be realized, and accordingly, a valuation allowance has been provided.NOL carryforwards. As of December 31, 20172022 and 2016,2021, the valuation allowance was approximately $273,000Company had a capital loss carryforward totaling $7.2 million and $415,000,$9.0 million, respectively, with the decrease being related solely to the decreaseelimination of the Company’s interest in the federal corporateLand JV. The Company does not currently anticipate being able to utilize the capital loss carryforward and accordingly, has allowed for the $1.8 million and $2.2 million deferred tax rate. Asasset in full as of December 31, 20172022 and 2016, the valuation allowance relates solely to a basis difference in a joint venture with a wholly owned and fully consolidated subsidiary, and no valuation allowance is provided for charitable contribution carryforwards due to the expectation of full utilization during 2017 and 2016.
2021, respectively. Following is a reconciliation of the income tax computed at the federal statutory rate of 21% for 20172022, 2021, and 35% 20162020, individually, for continuing operations (in thousands): | | | | | | | | | | | | | | | | | | | | | Year Ended December 31, | | | 2022 | | 2021 | | 2020 | Income Tax Benefit Computed at Federal Statutory Rate | | $ | 2,795 | | 852.1 | % | | $ | 4,408 | | 16.4 | % | | $ | 971 | | (19.5) | % | Increase (Decrease) Resulting from: | | | | | | | | | | | | | | | | | | | State Income Tax, Net of Federal Income Tax Benefit | | | 593 | | 180.8 | % | | | 936 | | 3.5 | % | | | 180 | | (3.6) | % | Income Tax on Permanently Non-Deductible Items | | | (484) | | (147.6) | % | | | — | | 0.0 | % | | | (112) | | 2.2 | % | Tax Benefit due to De-Recognition of REIT Deferred Tax Liabilities | | | — | | 0.0 | % | | | — | | 0.0 | % | | | 82,460 | | (1652.6) | % | Valuation Allowance | | | — | | 0.0 | % | | | (2,216) | | (8.2) | % | | | — | | 0.0 | % | Other Reconciling Items | | | (74) | | (22.6) | % | | | (49) | | (0.2) | % | | | — | | 0.0 | % | Benefit for Income Taxes | | $ | 2,830 | | 862.8 | % | | $ | 3,079 | | 11.5 | % | | $ | 83,499 | | (1673.4) | % |
The effective income tax rate assumes a blended rate for estimated state and 2015: | | | | | | | | | | | | | Year ended December 31, | | | | 2017 | | 2016 | | 2015 | | | | | | | | | | | | | Income Tax (Expense) Benefit Computed at Federal Statutory Rate | | $ | (10,528,124) | | $ | (9,219,942) | | $ | (4,481,029) | | Increase (Decrease) Resulting from: | | | | | | | | | | | State Income Tax, Net of Federal Income Tax Benefit | | | (1,703,805) | | | (1,693,578) | | | (755,481) | | Income Tax on Permanently Non-Deductible Items | | | 66,015 | | | (1,015,936) | | | — | | Change in Corporate Federal Tax Rate | | | 22,249,536 | | | — | | | — | | Other Reconciling Items | | | (148,356) | | | 92,602 | | | (32,594) | | Benefit (Expense) for Income Taxes | | $ | 9,935,266 | | $ | (11,836,854) | | $ | (5,269,104) | |
local taxes on its income and property. The effective income tax rate for each of the three years ended December 31, 2017, 2016,2022, 2021, and 2015,2020, including income taxes attributable to the discontinued operations, was (31.0)%862.5%, 42.2%11.5%, and 38.9%(1673.4)%, respectively. The provision for income taxes reflects the Company’s estimate of the effective rate expected to be applicable for the full fiscal year, adjusted for any discrete events, which are reported in the period that they occur. During the fourth quarter of 2017, the Company recorded an income tax benefit of approximately $22.2 million due to the impact of the reduction in the corporate tax rate from 35% to 21% for the Tax Cuts and Jobs Act. During the first quarter of 2016, 68,000 shares of restricted Company common stockThere were permanently surrendered which constituted ano discrete event in which the total related stock compensation expense charged to earnings under GAAP of approximately $2.3 million, of which approximately $1.6 million was recognized during the first quarter of 2016 and approximately $676,000 was recognizedevents during the year ended December 31, 2015, became permanently non-deductible2022. The year ended December 31, 2021, included the impact of the capital loss carryforward valuation allowance. The year ended December 31, 2020 included the impact for tax purposes as the surrendered shares will not vest. Accordingly, no income tax benefit was recordeddiscrete event described above related to the approximately $2.3 millionde-recognition of stock compensation expense.the deferred tax assets and liabilities associated with the entities included in the REIT. TheFor prior taxable years through the year ended December 31, 2021 the Company fileshas filed a consolidated income tax return in the United States Federal jurisdiction and the Statesstates of Alabama, Arizona, California, Colorado, California, Florida, Illinois, Georgia, Maryland, Massachusetts, Nevada, New Mexico, New York, North Carolina, Oregon, Texas, Virginia, Washington, and Washington.Wisconsin. The Internal Revenue Service (“IRS”) has audited the federal tax returns through the year 2012, with all proposed adjustments settled. The Florida Department of Revenue has audited the Florida tax returns through the year 2014, with all proposed adjustments settled. The Company recognizes all potential accrued interest and penalties to unrecognized tax benefits in income tax expense. For the years ended December 31, 2017, 2016,2022, 2021, and 20152020, the Company recognized no uncertain tax positions or accrued interest and penalties for uncertain tax positions. If such positions do arise, it is the Company’s intent that any interest or penalty amount related to such positions will be recorded as a component of the income tax provision (benefit) in the applicable period.
Net incomeIncome taxes totaling $0.1 million, $0.4 million, and $5.0 million were paid during the years ended December 31, 2017, 2016,2022, 2021, and 2015 totaled approximately $334,000, $510,000, and $1.2 million,2020, respectively. Additionally, income taxes totaling approximately $958,000 and $133,000less than $0.1 million were refunded during the years ended December 31, 2017 and 2016, respectively.2021, with no income taxes refunded during the years ended December 31, 2022 or 2020.
NOTE 18.22. COMMITMENTS AND CONTINGENCIES MINIMUM FUTURE RENTAL PAYMENTS
The Company leases, as lessee, certain equipment under operating leases.
Minimum future rental payments under non-cancelable operating leases having remaining terms in excess of one year as of December 31, 2017, are summarized as follows:
| | | | | Year Ending December 31, | | Amounts | | 2018 | | $ | 150,689 | | 2019 | | | 146,334 | | 2020 | | | 71,804 | | 2021 | | | 5,740 | | 2022 | | | — | | 2023 and thereafter (cumulative) | | | — | | Total | | $ | 374,567 | |
Rental expense under all operating leases amounted to approximately $339,000, $389,000, and $410,000, for the years ended December 31, 2017, 2016, and 2015, respectively.
MINIMUM FUTURE RENTAL RECEIPTS
Additionally, the Company, as lessor, leases certain land, buildings, and improvements under operating leases.
Minimum future rental receipts under non-cancelable operating leases having remaining terms in excess of one year as of December 31, 2017, are summarized as follows:
| | | | | Year Ending December 31, | | Amounts | | 2018 | | $ | 27,723,892 | | 2019 | | | 27,062,887 | | 2020 | | | 25,829,071 | | 2021 | | | 22,671,393 | | 2022 | | | 21,043,187 | | 2023 and thereafter (cumulative) | | | 94,483,824 | | Total | | $ | 218,814,254 | | | | | | |
LEGAL PROCEEDINGS From time to time, the Company may be a party to certain legal proceedings, incidental to the normal course of its business. While the outcome of the legal proceedings cannot be predicted with certainty, the Company does not expect that these proceedings will have a material effect upon our financial condition or results of operations. Buc-ee’s. On November 21, 2011,March 31, 2021, the Company Indigo Mallard Creek LLC and its wholly-owned subsidiary, Indigo Development LLC, as owners of the property leased to Harris Teeter, Inc. (“Harris Teeter”a Florida limited liability company (collectively, “CTO”) in Charlotte, North Carolina, were served with pleadings filed a Complaint for Declaratory Relief in the GeneralCircuit Court, Seventh Judicial Circuit, in and for Volusia County, Florida (Case No. 2021-30415-CICI) against Buc-ee’s Ltd., a Texas limited partnership (“Buc-ee’s”), in connection with a dispute over funds deposited in escrow by CTO in the amount of Justice, Superior Court Division for Mecklenburg$0.8 million (the “Escrowed Funds”). The Escrowed Funds were deposited simultaneously with CTO’s sale to Buc-ee’s in March 2018 of 35 acres of real property located in Daytona Beach, Volusia County, North Carolina, forFlorida (the “Buc-ee’s Parcel”). Pursuant to a highway condemnation action involving this property. The proposed road modifications would impact access topost-closing escrow agreement between CTO and Buc-ee’s, the property. The Company does not believe the road modifications provided a basis for Harris Teeter to terminate its lease. Regardless, in January 2013, the North Carolina Department of Transportation (“NCDOT”) proposed to redesign the road modifications to keep the all access intersection open for ingress with no change to the planned limitation on egress to the right-in/right-out only. Additionally, NCDOT and the City of Charlotte proposed to build and maintain a new access road/point into the property. Construction has begun and is not expectedEscrowed Funds were to be completed before mid-2018released to 2019. Harris Teeter has expressed satisfaction withCTO once CTO had obtained certain wetlands-related permits for the redesigned project and indicated that it will not attempt to terminate its lease if this project is built as currently redesigned. Because the redesigned project will not be completed until mid-2018 to 2019, the condemnation case has been placed in administrative closure. As a result, the trial and mediation will not likely be scheduled until requested by the parties, most likely in 2019. CONTRACTUAL COMMITMENTS - EXPENDITURES
In conjunction with the Company’s salebenefit of approximately 3.4 acres of land to RaceTrac in December 2013, the Company agreed to reimburse RaceTrac for a portion of the costsBuc-ee’s Parcel. CTO was ultimately successful in obtaining the permits, although the permits were issued later than originally contemplated by the escrow agreement. Buc-ee’s was aware of and acquiesced to CTO’s continuing efforts and expenditures in obtaining the permits, including after the date originally contemplated in the escrow agreement; however, not until after the permits were issued did Buc-ee’s inform CTO that Buc-ee’s would not agree to release the Escrowed Funds to CTO. CTO’s complaint sought a declaratory judgment determining the parties’ entitlement to the Escrowed Funds and to reimburse CTO for road improvements and the otherits costs associated with bringing multiple ingress/egress points toseeking legal relief. On October 29, 2021, the entire 23 acre Williamson Crossing site, includingCompany entered into a settlement agreement with Buc-ee’s whereby the Company’s remaining 19.6 acres. The estimated cost for the improvements equals approximately $1.26Company received $0.6 million and the Company’s commitment is to reimburse RaceTrac in an amount equal to the lesser of 77.5% of the actual costs or $976,500. Escrowed Funds, which revenue is included within real estate operations in the consolidated statements of operations.
CONTRACTUAL COMMITMENTS – EXPENDITURES The Company’s commitmentCompany has committed to fund the improvement costs benefiting the remaining Company land within Williamson Crossing can be paid over five years utilizing proceeds from sales of the remaining land or at the end of the fifth year. In 2013, the Company deposited $283,500 of cash in escrowfollowing capital improvements. The improvements, which are related to the improvements, which is classified as restricted cash in the consolidated balance sheets. The total amount in escrowseveral properties, are estimated to be generally completed within twelve months. These commitments, as of December 31, 2017 was approximately $288,000, including accrued interest. Accordingly,2022, are as of December 31, 2017, the remaining maximum commitment is approximately $689,000.follows (in thousands): | | | | | | As of December 31, 2022 | Total Commitment (1) | | $ | 29,033 | Less Amount Funded | | | (7,812) | Remaining Commitment | | $ | 21,221 |
| (1) | Commitment includes tenant improvements, leasing commissions, rebranding, facility expansion and other capital improvements. |
In conjunction with the Company’s sale of approximately 18.1 acres of land to an affiliate of Sam’s Club (“Sam’s”) in December 2015,addition, the Company agreedis committed to reimburse Sam’s for a portion of theirfund the two construction costs applicable to adjacent outparcels retained by the Company. As a result, in December 2015, the Company deposited $125,000 of cash in escrow related to construction work which remains classified as restricted cash in the consolidated balance sheets. The total amount in escrow as of December 31, 2017 was approximately $125,000, including accrued interest. Accordingly, the Company’s maximum commitment related to the construction work benefitting the outparcels adjacent to Sam’s land parcel is approximately $125,000, to be paid from escrow upon completion.
In conjunction with the Company’s development of two income properties, both restaurants, on the beach parcelloans as described in Note 4, “Land“Commercial Loans and Subsurface Interests,” the Company has executed multiple contracts with third-parties to perform the work necessary to prepare the site, construct the restaurants, and acquire the related furniture and equipment. Pursuant to the leases with the tenantsInvestments”. The unfunded portion of the two restaurant properties, LandShark and Cocina 214, and based on the Company’s current cost estimates, the total estimated cost to improve the land and develop the income properties is approximately $6.7 million. Through December 31, 2017, the Company has incurred approximately $5.9construction loans totaled $5.6 million of the total estimated cost, which is included in Construction in Progress on the Company’s consolidated balance sheets, leaving a remaining commitment of approximately $858,000. The development of the two restaurant properties was completed in time for the tenants to commence operations during January of 2018. Accordingly, during the first quarter of 2018, the total investment in the beach parcel and the construction costs of the two single-tenant properties will be classified as Income Properties, Land, Building, and Improvements, within the Property, Plant, and Equipment classification on the Company’s consolidated balance sheets.
In conjunction with the extension of the leases with Hilton Grand Vacations executed during the fourth quarter of 2017, the Company is obligated to fund the Income Property Lease Incentive to Hilton Grand Vacations, as described in Note 9, “Other Assets” in the amount of approximately $2.7 million as of December 31, 2017. This payment was made during January 2018.
In connection with the Golf Course Land Purchase, each year the Company is obligated to pay the City additional consideration in the amount of an annual surcharge of $1 per golf round played (the “Per-Round Surcharge”) with an annual minimum Per-Round Surcharge of $70,000 and a maximum aggregate amount of the Per-Round Surcharges paid equal to $700,000. The maximum amount of $700,000 represents contingent consideration and has been recorded as an increase in Golf Buildings, Improvements, and Equipment and Accrued and Other Liabilities in the accompany consolidated balance sheets as of December 31, 2017. The first annual payment of $70,000 was made in January 2018 leaving a remaining commitment of $630,000 as of the date of this report.
CONTRACTUAL COMMITMENTS – LAND PIPELINE
As of February 28, 2018, the Company’s pipeline of potential land sales transactions, including the terms of an executed non-binding term sheet to form a joint venture with an institutional investor to establish a mitigation bank on a parcel of our land (the “Mitigation Bank”), included the following eighteen potential transactions with sixteen different buyers, representing more than 6,000 acres or approximately 75% of our land holdings:
| | | | | | | | | | | | | | | | | No. of | | Amount | | Price | | Estimated | | | Transaction (Buyer) | | Acres | | ($000's) | | per Acre | | Timing | 1 | | Commercial/Retail - O'Connor - East of I-95 (2) | | 123 | | $ | 29,250 | | $ | 238,000 | | '18 - '19 | 2 | | Residential (AR) - Minto Communities - West of I-95 | | 1,614 | | | 26,500 | | | 16,000 | | Q4 '18 | 3 | | Residential (SF) - ICI Homes - West of I-95 | | 1,016 | | | 21,000 | | | 21,000 | | '19 | 4 | | Mitigation Bank - Term Sheet - West of I-95 (1) | | 2,492 | | | 15,000 | | | 6,000 | | Q2 '18 | 5 | | Mixed-Use Retail - North American - East of I-95 (5) | | 35 | | | 14,362 | | | 409,000 | | Q4 '18 | 6 | | Commercial/Retail - Buc'ees - East of I-95 (2) | | 35 | | | 14,000 | | | 400,000 | | Q2 '18 | 7 | | Residential (Multi-Family) - East of I-95 (3) | | 45 | | | 5,200 | | | 116,000 | | Q3 '18 & '20 | 8 | | Distribution/Warehouse - VanTrust - East of I-95 | | 71 | | | 5,000 | | | 70,000 | | '19 | 9 | | Commercial/Retail - East of I-95 | | 20 | | | 4,250 | | | 213,000 | | Q4 '18 - '19 | 10 | | Residential (SF) - West of I-95 (4) | | 200 | | | 3,324 | | | 17,000 | | Q4 '18 & '20 | 11 | | Commercial/Distribution - VanTrust - East of I-95 | | 26 | | | 3,215 | | | 124,000 | | Q4 '18 - '19 | 12 | | Specialty Grocer - East of I-95 | | 9 | | | 2,790 | | | 310,000 | | Q4 '18 | 13 | | Auto Dealership - West of I-95 | | 13 | | | 2,000 | | | 154,000 | | Q3 '18 | 14 | | Commercial (RV) - West of I-95 | | 164 | | | 1,900 | | | 12,000 | | '19 | 15 | | Residential (SF) - ICI Homes - West of I-95 | | 146 | | | 1,400 | | | 10,000 | | Q4 '18 | 16 | | Commercial/Retail - East of I-95 | | 8 | | | 782 | | | 98,000 | | Q4 '18 | 17 | | Commercial/Retail - East of I-95 | | 6 | | | 625 | | | 104,000 | | Q4 '18 | 18 | | Commercial/Retail - West of I-95 | | 19 | | | 285 | | | 15,000 | | Q4 '18 | | | Total (Average) | | 6,042 | | $ | 150,883 | | $ | 25,000 | | |
(1)The amount for the Mitigation Bank represents the amount in the term sheet for buyer’s acquisition of approximately 70% of the joint venture that owns the Mitigation Bank, with the Company retaining 30%.
(2)Land sales transactions which require the Company to incur the cost to provide the requisite mitigation credits necessary for obtaining the applicable regulatory permits for the buyer, with such costs representing either our basis in the credits that we own, or potentially up to 5% - 10% of the contract amount noted.
(3)The acres and amount include the buyer’s option to acquire approximately 19 acres for approximately $2.0 million, in addition to the base contract of approximately 26 acres for approximately $3.2 million.
(4)The acres and amount include the buyer’s option to acquire approximately 71 acres for approximately $574,000, in addition to the base contract of approximately 129 acres for approximately $2.75 million.
(5)Pursuant to the contract, amount includes the reimbursement of infrastructure costs incurred by the Company for Tomoka Town Center plus interest accrued as of December 31, 2017.
As noted above, these agreements contemplate closing dates ranging from early 2018 through fiscal year 2020, and although some of the transactions may close in 2018, some of the buyers are not contractually obligated to close until after 2018. Each of the transactions are in varying stages of due diligence by the various buyers including, in some instances, making submissions to the planning and development departments of the City, and other permitting activities with other applicable governmental authorities, including wetlands permits from the St. John’s River Water Management District and the U.S. Army Corps of Engineers, and conducting traffic analyses with local government and the Florida Department of Transportation and negotiating other matters with Volusia County. In addition to other customary closing conditions, the majority of these transactions are conditioned upon the receipt of approvals or permits from those various governmental authorities, as well as other matters that are beyond our control. If such approvals are not obtained, the prospective buyers may have the ability to terminate their respective agreements prior to closing. As a result, there can be no assurances regarding the likelihood or timing of any one of these potential land transactions being completed or the final terms thereof, including the sales price.
OTHER MATTERS
In connection with a certain land sale contract to which the Company is a party, the purchaser’s pursuit of customary development entitlements gave rise to an inquiry by federal regulatory agencies regarding prior agricultural activities by the Company on such land. During the second quarter of 2015, we received a written information request regarding such activities. We submitted a written response to the information request along with supporting documentation. During the fourth quarter of 2015, based on discussions with the agency, a penalty related to this matter was deemed probable, and accordingly the estimated penalty of $187,500 was accrued as of December 31, 2015, for which payment was made during the quarter ended September 30, 2016. Also during the fourth quarter of 2015, the agency advised the Company that the resolution to the inquiry would likely require the Company to incur costs associated with wetlands restoration relating to approximately 148.4 acres of the Company’s land. At December 31, 2015, the Company’s third-party environmental engineers estimated the cost for such restoration activities to range from approximately $1.7 million to approximately $1.9 million. Accordingly, as of December 31, 2015, the Company accrued an obligation of approximately $1.7 million, representing the low end of the estimated range of possible restoration costs, and included such estimated costs on the consolidated balance sheets as an increase in the basis of our land and development costs associated with those and benefitting surrounding acres. As of June 30, 2016, the final proposal from the Company’s third-party environmental engineer was received reflecting a total cost of approximately $2.0 million. Accordingly, an increase in the accrual of approximately $300,000 was made during the second quarter of 2016. The Company has funded approximately $1.3 million of the total $2.0 million of estimated costs through December 31, 2017. The Company believes there is at least a reasonable possibility that the estimated remaining liability of approximately $708,000 could change within one year of the date of the consolidated financial statements, which in turn could have a material impact on the Company’s consolidated balance sheets and future cash flows. The Company evaluates its estimates on an ongoing basis; however, actual results may differ from those estimates.
During the first quarter of 2017, the Company completed the sale of approximately 1,581 acres of land to Minto Communities LLC which acreage represents a portion of the Company’s remaining $708,000 obligation. Accordingly, the Company deposited $423,000 of cash in escrow to secure performance on the obligation. The funds in escrow can be drawn upon completion of certain milestones including completion of restoration and annual required monitoring. The first such milestone was achieved during the fourth quarter of 2017 and $189,500 of the escrow was refunded leaving an escrow balance of approximately $234,000 as of December 31, 2017. Additionally, resolution of the regulatory matter required the Company to apply for an additional permit pertaining to an additional approximately 54.66 acres, which permit may require mitigation activities which the Company anticipates could be satisfied through the utilization of existing mitigation credits owned by the Company or the acquisition of mitigation credits. Resolution of this matter allowed the Company to obtain certain permits from the applicable federal or state regulatory agencies needed in connection with the closing of the land sale contract that gave rise to this matter. As of June 30, 2017, the Company determined that
approximately 36 mitigation credits were required to be utilized, which represents approximately $298,000 in cost basis of the Company’s mitigation credits. Accordingly, the Company transferred the mitigation credits through a charge to direct cost of revenues of real estate operations during the three months ended June 30, 2017, thereby resolving the required mitigation activities related to the approximately 54.66 acres. In addition, in connection with other land sale contracts to which the Company is or may become a party, the pursuit of customary development entitlements by the potential purchasers may require the Company to utilize or acquire mitigation credits for the purpose of obtaining certain permits from the applicable federal or state regulatory agencies. Any costs incurred in connection with utilizing or acquiring such credits would be incorporated into the basis of the land under contract. No amounts related to such potential future costs have been accrued as of December 31, 2017.
During the period from the fourth quarter of 2015 through the first quarter of 2016, the Company received communications from Wintergreen Advisers, LLC (“Wintergreen”), some of which have been filed publicly. In investigating Wintergreen’s allegations contained in certain of these communications, in pursuing the strategic alternatives process suggested by Wintergreen, and in engaging in a proxy contest in 2017, the Company has incurred costs of approximately $3.0 million, to date, through December 31, 2017. Approximately $1.6 million of the approximately $3.0 million was incurred during the year ended December 31, 2017, of which approximately $1.2 million is specifically for legal representation and third party costs related to the proxy contest. None of Wintergreen’s allegations, which included allegations regarding inadequate disclosure and other wrong-doing by the Company and its directors and officers, were found to have any basis or merit.
NOTE 19.23. BUSINESS SEGMENT DATA The Company operates in four primary business segments: income properties, management services, commercial loanloans and investments, and real estate operations,operations. The management services segment consists of the revenue generated from managing PINE and golf operations. the Land JV. Our income property operations consist primarily of income-producing properties, and our business plan is focused on investing in additional income-producing properties. Our income property operations accounted for 83.4%91% and 74.1%86% of our identifiable assets as of December 31, 20172022 and 2016,2021, respectively, and 34.4%83.6%, 35.3%72.1%, and 44.3%88.6% of our consolidated revenues for the years ended December 31, 2017, 2016,2022, 2021, and 2015,2020, respectively. Our management fee income consists of the management fees earned for the management of PINE and the Land JV. As of December 31, 2017, we had two2022, our commercial loan and investment portfolio consisted of three commercial loan investments including a variable-rate B-Note representing a secondary tranche inand one preferred equity investment which is classified as a commercial mortgage loan and a fixed-rate first mortgage loan.investment. Our continuing real estate operations primarily consistconsists of revenues generated from land transactions and leasing and royalty income from our interests in subsurface oil, gas, and mineral rights. Our golf operations consistrights, and the generation and sale of a single property located in the City of Daytona Beach, with two 18-hole championship golf courses, a practice facility, and clubhouse facilities, including a restaurant and bar operation and pro-shop with retail merchandise. The majority of the revenues generated by our golf operations are derived from members and public customers playing golf, club memberships, and food and beverage operations.mitigation credits. The Company evaluates segment performance based on profit or loss from operations before income taxes.operating income. The Company’s reportable segments are strategic business units that offer different products. They are managed separately because each segment requires different management techniques, knowledge, and skills. Information about the Company’s operations in different segments for the years ended December 31, 2017, 2016,2022, 2021, and 20152020 is as follows:follows (in thousands): | | | | | | | | | | | | For the Year Ended | | | December 31, 2022 | | December 31, 2021 | | December 31, 2020 | Revenues: | | | | | | | | | | Income Properties | | $ | 68,857 | | $ | 50,679 | | $ | 49,953 | Management Fee Income | | | 3,829 | | | 3,305 | | | 2,744 | Interest Income From Commercial Loans and Investments | | | 4,172 | | | 2,861 | | | 3,034 | Real Estate Operations | | | 5,462 | | | 13,427 | | | 650 | Total Revenues | | $ | 82,320 | | $ | 70,272 | | $ | 56,381 | Operating Income: | | | | | | | | | | Income Properties | | $ | 48,493 | | $ | 36,864 | | $ | 37,964 | Management Fee Income | | | 3,829 | | | 3,305 | | | 2,744 | Interest Income From Commercial Loans and Investments | | | 4,172 | | | 2,861 | | | 3,034 | Real Estate Operations | | | 2,969 | | | 4,812 | | | (2,572) | General and Corporate Expense | | | (41,754) | | | (31,783) | | | (30,630) | Impairment Charges | | | — | | | (17,599) | | | (9,147) | Gain (Loss) on Disposition of Assets | | | (7,042) | | | 28,316 | | | 9,746 | Gain (Loss) on Extinguishment of Debt | | | — | | | (3,431) | | | 1,141 | Total Operating Income | | $ | 10,667 | | $ | 23,345 | | $ | 12,280 | Depreciation and Amortization: | | | | | | | | | | Income Properties | | $ | 28,799 | | $ | 20,561 | | $ | 19,036 | Corporate and Other | | | 56 | | | 20 | | | 27 | Total Depreciation and Amortization | | $ | 28,855 | | $ | 20,581 | | $ | 19,063 | Capital Expenditures: | | | | | | | | | | Income Properties | | $ | 331,754 | | $ | 256,456 | | $ | 188,849 | Commercial Loans and Investments | | | 53,369 | | | 364 | | | 7,150 | Corporate and Other | | | 42 | | | 34 | | | 30 | Total Capital Expenditures | | $ | 385,165 | | $ | 256,854 | | $ | 196,029 |
| | | | | | | | | | | | | Year Ended | | | | December 31, 2017 | | December 31, 2016 | | December 31, 2015 | | Revenues: | | | | | | | | | | | Income Properties | | $ | 31,406,930 | | $ | 25,092,484 | | $ | 19,041,111 | | Commercial Loan Investments | | | 2,052,689 | | | 2,588,235 | | | 2,691,385 | | Real Estate Operations | | | 52,522,555 | | | 38,144,347 | | | 15,942,894 | | Golf Operations | | | 5,095,313 | | | 5,190,394 | | | 5,243,485 | | Agriculture and Other Income | | | 334,804 | | | 59,401 | | | 78,805 | | Total Revenues | | $ | 91,412,291 | | $ | 71,074,861 | | $ | 42,997,680 | | Operating Income: | | | | | | | | | | | Income Properties | | $ | 24,489,187 | | $ | 19,887,621 | | $ | 15,385,176 | | Commercial Loan Investments | | | 2,052,689 | | | 2,588,235 | | | 2,691,385 | | Real Estate Operations | | | 35,161,533 | | | 23,263,036 | | | 11,650,370 | | Golf Operations | | | (863,575) | | | (396,683) | | | (349,600) | | Agriculture and Other Income | | | 238,655 | | | (107,368) | | | (147,749) | | General and Corporate Expense | | | (20,809,180) | | | (7,915,254) | | | (8,960,273) | | Total Operating Income | | $ | 40,269,309 | | $ | 37,319,587 | | $ | 20,269,309 | | Depreciation and Amortization: | | | | | | | | | | | Income Properties | | $ | 12,272,265 | | $ | 7,872,689 | | $ | 4,898,803 | | Golf Operations | | | 349,261 | | | 266,074 | | | 263,335 | | Agriculture and Other | | | 42,433 | | | 56,654 | | | 50,759 | | Total Depreciation and Amortization | | $ | 12,663,959 | | $ | 8,195,417 | | $ | 5,212,897 | | Capital Expenditures: | | | | | | | | | | | Income Properties | | $ | 92,125,062 | | $ | 92,434,774 | | $ | 84,261,324 | | Commercial Loan Investments | | | 3,000,000 | | | — | | | 15,394,879 | | Real Estate Operations ($5,744,636 Contributed by Consolidated VIE in 2015) | | | — | | | — | | | 11,489,272 | | Golf Operations | | | 2,373,894 | | | 95,513 | | | 109,505 | | Agriculture and Other | | | 128,716 | | | 19,881 | | | 38,714 | | Total Capital Expenditures | | $ | 97,627,672 | | $ | 92,550,168 | | $ | 111,293,694 | |
| | | | | | | | | | As of | | | | December 31, 2017 | | December 31, 2016 | | Identifiable Assets: | | | | | | | | Income Properties | | $ | 388,602,721 | | $ | 302,757,565 | | Commercial Loan Investments | | | 11,963,777 | | | 24,032,885 | | Real Estate Operations | | | 43,296,528 | | | 58,868,298 | | Golf Operations | | | 6,262,634 | | | 3,675,842 | | Agriculture and Other | | | 16,004,718 | | | 19,288,836 | | Total Assets | | $ | 466,130,378 | | $ | 408,623,426 | |
Identifiable assets of each segment as of December 31, 2022 and 2021 are as follows (in thousands): | | | | | | | | | As of | | | December 31, 2022 | | December 31, 2021 | Identifiable Assets: | | | | | | | Income Properties | | $ | 902,427 | | $ | 630,747 | Management Services | | | 1,370 | | | 1,653 | Commercial Loans and Investments | | | 32,269 | | | 39,095 | Real Estate Operations | | | 4,041 | | | 26,512 | Corporate and Other | | | 46,438 | | | 35,132 | Total Assets | | $ | 986,545 | | $ | 733,139 |
Operating income represents income from continuing operations before loss on early extinguishment of debt, interest expense, investment income, and income taxes. General and corporate expenses are an aggregate of general and administrative expenses impairment charges,and depreciation and amortization expense, and gains (losses) on the disposition of assets.expense. Identifiable assets by segment are those assets that are used in the Company’s operations in each segment. OtherReal Estate Operations includes the identifiable assets of the Land JV, the Mitigation Bank, and Subsurface Interests. Corporate and other assets consist primarily of cash and restricted cash, property, plant, and equipment related to the other operations, as well as the general and corporate operations. Land, timber, and Subsurface Interests were previously stated as a separate line item within property, plant, and equipment on the consolidated financial statements and are now included with land, timber, and development costs as all of the costs are related to the Company’s land portfolio of approximately 8,100 acres. NOTE 20. VARIABLE INTEREST ENTITY
During the year ended December 31, 2015, the Company entered into a real estate venture with an unaffiliated third party institutional investor, whereby the venture acquired approximately six acres of vacant beachfront property located in Daytona Beach, Florida. The Company acquired its 50% interest in the real estate venture for approximately $5.7 million and served as its general partner with day-to-day management responsibilities. The venture was structured such that the Company earned a base management fee and would have received a preferred interest as well as a promoted interest if certain return hurdles were achieved. The Company’s preferred interest represents the first 9% of the investment return achieved at the disposition of the property. GAAP requires consolidation of a VIE in which an enterprise has a controlling financial interest and is the primary beneficiary. Upon entering into the venture described above andManagement Services segment had no capital expenditures as of December 31, 2015, the Company determined it has a controlling financial interest2022, 2021 or 2020.
NOTE 24. ASSETS AND LIABILITIES HELD FOR SALE Assets and is the primary beneficiary; therefore, the venture is a VIE and has been consolidated in the Company’s financial statements. As of December 31, 2015, the VIE had one asset totaling $11,329,574, consisting of the six acre vacant beachfront property. During the year ended December 31, 2015, the Company contributed 50%, or $5,664,787, to the VIEliabilities held for the initial property acquisition, with the other 50% contributed by the noncontrolling interest in the consolidated VIE. This consolidated venture has been accounted for in real estate operations with the inter-company management fees totaling approximately $9,000 during the year ended 2015 eliminated upon consolidation.
On November 17, 2016, the Company acquired the unaffiliated third party’s interest for approximately $4.8 million, a discount of approximately $879,000. The discount was recorded through equity on the consolidated balance sheet during the quarter and year ended December 31, 2016. The Company evaluated its interest in the six-acre vacant beachfront property for impairment and determined that no impairment was necessarysale as of December 31, 2017 and 2016. As the Company owned the entire real estate venture2021 are summarized below (in thousands). There were no assets or liabilities held for sale as of December 31, 2016, there is no longer a consolidated VIE.2022.
The cost basis of the six-acre vacant beachfront property asset totaled approximately $11.7 million as of December 31, 2017 which includes costs for entitlement. The beachfront property received approval of the rezoning and entitlement of the site to allow for the development of two restaurants and also for the future potential development of up to approximately 1.2 million square feet of vertical density. In the first quarter of 2017, the Company executed a 15-year lease agreement with the operator of LandShark, which provided for the development by the Company of an approximately 6,264 square foot restaurant property on the parcel. The annual rent under the LandShark lease is based on a percentage of the tenant’s net operating income (“NOI”) until the Company has received its investment basis in the property and thereafter, the Company will receive a lower percentage of the tenant’s NOI during the remaining lease term. In the second quarter of 2017, the Company executed a 15-year lease agreement with Cocina 214, for the second restaurant property to be developed on the parcel. The annual rent under the Cocina 214 lease is equal to the greater of $360,000 per year or a certain percentage of gross sales. The lease also provides for additional percentage rent upon the achievement of certain gross sales thresholds. The Company completed the design phase and commenced construction on the two restaurants during the third quarter of 2017. As of December 31, 2017, the Company has incurred approximately $5.9 million of design and construction costs. See Note 18, “Commitment and Contingencies” for the total expected cost to be incurred for the development of the site and both restaurants. The development of the two restaurant properties was completed in time for the tenants to commence operations during January of 2018. Accordingly, during the first quarter of 2018, the total investment in the beach parcel and the construction costs of the two single-tenant properties will be classified as Income Properties, Land, Building, and Improvements, within the Property, Plant, and Equipment classification on the Company’s consolidated balance sheets.
| | | | | | As of December 31, 2021 | Plant, Property, and Equipment—Net | | $ | 6,016 | Intangible Lease Assets—Net | | | 704 | Total Assets Held for Sale | | $ | 6,720 |
NOTE 21.25. SUBSEQUENT EVENTS The Company reviewed all subsequent
Subsequent events and transactions that have occurred after December 31, 2017,were evaluated through February 23, 2023, the date of the consolidated balance sheet. During the first quarter of 2018, the Company expanded the commitment under its Credit Facility to $130.0 million, providing an additional capacity of approximately $60.0 million, based on the outstanding balance as of December 31, 2017 of approximately $70.0 million.
On February 21, 2018, the Company acquired a 19,596-square foot, newly constructed commercial building (the “Aspen Property”) located in downtown Aspen, Colorado for approximately $28 million, with the Company’s net investment totaling approximately $26.5 million after giving affect for contributions made by the Master Tenant. Simultaneously with the closing, the Company entered a twenty-year master lease on the Aspen Property with a Dallas, Texas based family office (the “Master Tenant”). The lease includes annual rent escalations, tenant repurchase options and is absolute net to the Company.
financial statements were issued. There were no other reportable subsequent events or transactions. NOTE 22. QUARTERLY FINANCIAL DATA
QUARTERLY FINANCIAL DATA
(UNAUDITED)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | March 31, | | June 30, | | September 30, | | December 31, | | | | 2017 | | 2016 | | 2017 | | 2016 | | 2017 | | 2016 | | 2017 | | 2016 | | Revenues | | | | | | | | | | | | | | | | | | | | | | | | | | Income Properties | | $ | 7,073,240 | | $ | 6,429,241 | | $ | 7,565,007 | | $ | 6,033,082 | | $ | 7,928,258 | | $ | 6,021,331 | | $ | 8,840,425 | | $ | 6,608,830 | | Interest Income from Commercial Loan Investments | | | 536,489 | | | 881,245 | | | 553,159 | | | 635,050 | | | 637,801 | | | 534,212 | | | 325,240 | | | 537,728 | | Real Estate Operations | | | 29,474,460 | | | 9,560,898 | | | 13,257,355 | | | 4,774,620 | | | 2,926,406 | | | 4,643,646 | | | 6,864,334 | | | 19,165,183 | | Golf Operations | | | 1,474,944 | | | 1,464,359 | | | 1,383,513 | | | 1,412,196 | | | 797,420 | | | 1,001,368 | | | 1,439,436 | | | 1,312,471 | | Agriculture and Other Income | | | 154,151 | | | 18,692 | | | 78,749 | | | 18,990 | | | 90,717 | | | 10,388 | | | 11,187 | | | 11,331 | | Total Revenues | | | 38,713,284 | | | 18,354,435 | | | 22,837,783 | | | 12,873,938 | | | 12,380,602 | | | 12,210,945 | | | 17,480,622 | | | 27,635,543 | | Direct Cost of Revenues | | | | | | | | | | | | | | | | | | | | | | | | | | Income Properties | | | (1,411,713) | | | (1,176,707) | | | (1,629,515) | | | (1,204,040) | | | (1,715,516) | | | (1,430,642) | | | (2,160,999) | | | (1,393,474) | | Real Estate Operations | | | (9,156,849) | | | (2,257,041) | | | (5,792,529) | | | (1,124,641) | | | (459,169) | | | (1,257,183) | | | (2,071,650) | | | (10,242,446) | | Golf Operations | | | (1,498,678) | | | (1,404,588) | | | (1,401,919) | | | (1,447,176) | | | (1,272,647) | | | (1,302,920) | | | (1,785,644) | | | (1,432,393) | | Agriculture and Other Income | | | (40,437) | | | (48,051) | | | (30,536) | | | (52,654) | | | (18,874) | | | (52,894) | | | (6,302) | | | (13,170) | | Total Direct Cost of Revenues | | | (12,107,677) | | | (4,886,387) | | | (8,854,499) | | | (3,828,511) | | | (3,466,206) | | | (4,043,639) | | | (6,024,595) | | | (13,081,483) | | General and Administrative Expenses | | | (3,220,147) | | | (4,797,457) | | | (2,727,187) | | | (1,899,126) | | | (1,995,512) | | | (1,821,827) | | | (2,309,764) | | | (1,779,467) | | Impairment Charges | | | — | | | (209,908) | | | — | | | (1,970,822) | | | — | | | — | | | — | | | — | | Depreciation and Amortization | | | (2,762,575) | | | (2,067,367) | | | (3,215,690) | | | (1,805,559) | | | (3,161,169) | | | (1,945,460) | | | (3,524,525) | | | (2,377,031) | | Gain (Loss) on Disposition of Assets | | | — | | | — | | | — | | | 1,362,948 | | | (266) | | | 11,479,490 | | | 304 | | | (83,668) | | Land Lease Income | | | 2,226,526 | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | Total Operating Expenses | | | (15,863,873) | | | (11,961,119) | | | (14,797,376) | | | (8,141,070) | | | (8,623,153) | | | 3,668,564 | | | (11,858,580) | | | (17,321,649) | | Operating Income | | | 22,849,411 | | | 6,393,316 | | | 8,040,407 | | | 4,732,868 | | | 3,757,449 | | | 15,879,509 | | | 5,622,042 | | | 10,313,894 | | Investment Income (Loss) | | | 9,183 | | | (566,384) | | | 8,524 | | | 2,691 | | | 9,724 | | | 2,531 | | | 10,554 | | | 31,181 | | Interest Expense | | | (2,061,891) | | | (2,091,766) | | | (2,144,176) | | | (2,154,437) | | | (2,073,299) | | | (2,454,390) | | | (2,243,770) | | | (2,052,745) | | Income Before Income Tax Benefit (Expense) | | | 20,796,703 | | | 3,735,166 | | | 5,904,755 | | | 2,581,122 | | | 1,693,874 | | | 13,427,650 | | | 3,388,826 | | | 8,292,330 | | Income Tax Benefit (Expense) | | | (8,050,311) | | | (2,342,601) | | | (2,225,847) | | | (1,000,480) | | | (726,974) | | | (5,281,646) | | | 20,938,398 | | | (3,212,127) | | Net Income | | | 12,746,392 | | | 1,392,565 | | | 3,678,908 | | | 1,580,642 | | | 966,900 | | | 8,146,004 | | | 24,327,224 | | | 5,080,203 | | Less: Net Loss (Income) Attributable to Noncontrolling Interest in Consolidated VIE | | | — | | | 32,153 | | | — | | | (10,199) | | | — | | | 15,010 | | | | | | 14,870 | | Net Income Attributable to Consolidated-Tomoka Land Co. | | $ | 12,746,392 | | $ | 1,424,718 | | $ | 3,678,908 | | $ | 1,570,443 | | $ | 966,900 | | $ | 8,161,014 | | $ | 24,327,224 | | $ | 5,095,073 | | | | | | | | | | | | | | | | | | | | | | | | | | | | Per Share Information: | | | | | | | | | | | | | | | | | | | | | | | | | | Basic | | | | | | | | | | | | | | | | | | | | | | | | | | Net Income Attributable to Consolidated-Tomoka Land Co. | | $ | 2.28 | | $ | 0.25 | | $ | 0.67 | | $ | 0.28 | | $ | 0.18 | | $ | 1.44 | | $ | 4.42 | | $ | 0.91 | | | | | | | | | | | | | | | | | | | | | | | | | | | | Diluted | | | | | | | | | | | | | | | | | | | | | | | | | | Net Income Attributable to Consolidated-Tomoka Land Co. | | $ | 2.27 | | $ | 0.25 | | $ | 0.66 | | $ | 0.28 | | $ | 0.18 | | $ | 1.44 | | $ | 4.38 | | $ | 0.90 | |
SCHEDULE III REAL ESTATE AND ACCUMULATED DEPRECIATION FOR THE YEAR ENDED DECEMBER 31, 2017 | | | | | | | | | | | | | | | | | | | | Costs Capitalized | | | | | | | | | | Subsequent to | | | | Initial Cost to Company | | | | Acquisition | | | | | | | | Buildings & | | | | Carrying | | Description | | Encumbrances | | Land | | Improvements | | Improvements | | Costs | | | | $ | | $ | | $ | | $ | | $ | | Income Properties: | | | | | | | | | | | | 3600 Peterson, Santa Clara, CA | | — | | 17,855,023 | | 8,414,925 | | — | | — | | 7-Eleven, Inc., Dallas, TX | | — | | 974,862 | | 1,550,744 | | — | | — | | At Home, Raleigh, NC | | — | | 2,118,420 | | 5,774,284 | | — | | — | | Bank of America, Monterey, CA | | — | | 4,458,840 | | — | | — | | — | | Barnes & Noble, Daytona Beach, FL | | — | | 1,798,600 | | 3,803,000 | | — | | — | | Best Buy, McDonough, GA | | — | | 2,622,682 | | 3,150,000 | | 82,264 | | — | | Big Lots, Germantown, MD | | 3,300,000 | | 1,781,918 | | 2,951,231 | | — | | — | | Big Lots, Phoenix, AZ | | 3,400,000 | | 1,715,717 | | 3,050,164 | | — | | — | | Carrabba's Italian Grill, Austin, TX | | — | | 1,160,925 | | 1,305,117 | | — | | — | | Century Theatre, Reno, NV | | — | | 1,669,377 | | 4,484,938 | | 11,140 | | — | | Container Store, Glendale, AZ | | — | | 1,968,398 | | 5,493,102 | | — | | — | | CVS, Dallas, TX | | — | | 7,535,013 | | — | | — | | — | | Dick's Sporting Goods, McDonough, GA | | — | | 3,934,022 | | 4,725,000 | | — | | — | | Harris Teeter Supermarket, Charlotte, NC | | 6,600,000 | | 5,601,837 | | 3,409,338 | | — | | — | | Hilton Grand Vacations (Office), Orlando, FL | | — | | 2,810,942 | | 6,590,681 | | 20,188 | | — | | Hilton Grand Vacations (Office), Orlando, FL | | — | | 1,210,138 | | 2,453,690 | | 282,099 | | — | | Joann's, Saugus, MA | | — | | 1,574,594 | | 4,769,946 | | — | | — | | LA Fitness, Brandon, FL | | — | | 3,208,889 | | 9,677,636 | | — | | — | | Lowe's, Katy, TX | | 8,500,000 | | 9,412,181 | | 3,480,650 | | — | | — | | Maple Ave Land, Dallas, TX | | — | | 359,116 | | — | | — | | — | | Outback Steakhouse, Austin, TX | | — | | 1,376,793 | | 1,585,791 | | ��— | | — | | Outback Steakhouse, Charlottesville, VA | | — | | 1,308,881 | | 3,135,515 | | — | | — | | Outback steakhouse, Huntersville, NC | | — | | 1,987,831 | | 1,299,017 | | — | | — | | Rite Aid, Renton, WA | | 4,700,000 | | 2,036,235 | | 4,148,415 | | — | | — | | Riverside, Jacksonville, FL | | — | | 6,019,815 | | 14,239,515 | | 264,128 | | — | | Staples, Sarasota, FL | | — | | 2,728,083 | | 1,145,137 | | — | | — | | The Grove, Winter Park, FL | | — | | 1,240,000 | | 1,860,000 | | 8,431,336 | | — | | Walgreens, Alpharetta, GA | | — | | 3,265,623 | | 1,406,160 | | — | | — | | Walgreens, Clermont, FL | | 3,500,000 | | 3,021,665 | | 1,269,449 | | — | | — | | Wells Fargo, Hillsboro, OR | | — | | 10,005,650 | | 25,902,632 | | — | | — | | Wells Fargo, Raleigh, NC | | 25,000,000 | | 8,680,056 | | 59,166,753 | | 241,641 | | — | | Westcliff, Fort Worth, TX | | — | | 10,520,822 | | 4,196,359 | | — | | — | | Whole Foods Market Centre, Sarasota, FL | | — | | 4,497,825 | | 13,104,352 | | 274,085 | | — | | Mason Commerce Center-Bldg 1, Daytona Beach, FL | | — | | 66,304 | | 1,277,027 | | 1,064,124 | | — | | Mason Commerce Center-Bldg 2, Daytona Beach, FL | | — | | 66,304 | | 1,277,027 | | 913,032 | | — | | Williamson Business Park-Bldg 3, Daytona Beach, FL | | — | | 110,509 | | 1,008,784 | | 986,104 | | — | | Concierge Office Building, Daytona Beach, FL | | — | | 293,872 | | 2,862,171 | | 157,497 | | — | | Vacant Pad Site, Winter Park, FL | | — | | 436,400 | | — | | — | | — | | | | 55,000,000 | | 131,434,162 | | 213,968,550 | | 12,727,638 | | — | |
2022 (In thousands) | | | | | | | | | | | | | | | | | | | | | | | | | | | Costs Capitalized | | | | | | Initial Cost to Company | | Subsequent to Acquisition | Description | | Encumbrances | | Land | | Buildings & Improvements | | Improvements | | Carrying Costs | Income Properties: | | | | | | | | | | | | | | | | Westcliff Shopping Center, Fort Worth, TX | | $ | — | | $ | 10,521 | | $ | 4,196 | | $ | 400 | | $ | — | Crabby's Oceanside, Daytona Beach, FL | | | — | | | 5,836 | | | 4,249 | | | 45 | | | — | LandShark Bar & Grill, Daytona Beach, FL | | | — | | | 5,836 | | | 4,577 | | | 10 | | | — | Fidelity, Albuquerque, NM | | | — | | | 5,739 | | | 29,537 | | | 12 | | | — | General Dynamics, Reston, VA | | | — | | | 7,530 | | | 9,068 | | | — | | | — | The Strand at St. Johns Town Center, Jacksonville, FL | | | — | | | 12,551 | | | 36,431 | | | 314 | | | — | Crossroads Towne Center, Chandler, AZ | | | — | | | 9,592 | | | 41,717 | | | 364 | | | — | Ashford Lane, Atlanta, GA | | | — | | | 37,717 | | | 33,422 | | | 11,622 | | | — | Sabal Pavilion, Tampa, FL | | | — | | | 3,265 | | | 20,629 | | | — | | | — | Jordan Landing, West Jordan, UT | | | — | | | 10,529 | | | 5,752 | | | — | | | — | Eastern Commons, Henderson, NV | | | — | | | 7,894 | | | 8,575 | | | — | | | — | The Shops at Legacy, Plano, TX | | | — | | | 22,008 | | | 27,192 | | | 794 | | | — | Beaver Creek Crossings, Apex, NC | | | — | | | 21,383 | | | 39,194 | | | 260 | | | — | 125 Lincoln & 150 Washington, Santa Fe, NM | | | — | | | 459 | | | 12,525 | | | — | | | — | 369 N. New York Ave., Winter Park, FL | | | — | | | 8,524 | | | 5,139 | | | 18 | | | — | The Exchange at Gwinnett, Buford, GA | | | — | | | 4,450 | | | 25,300 | | | 10 | | | — | Price Plaza, Katy, TX | | | — | | | 15,630 | | | 17,978 | | | — | | | — | Madison Yards, Atlanta, GA | | | — | | | 19,780 | | | 47,938 | | | 224 | | | — | West Broad Village, Glen Allen, VA | | | — | | | 12,120 | | | 65,829 | | | — | | | — | Collection at Forsyth, Cummings, GA | | | — | | | 9,062 | | | 75,286 | | | — | | | — | MainStreet Portfolio, Daytona Beach, FL | | | — | | | 3,504 | | | 1,422 | | | — | | | — | | | $ | — | | $ | 233,930 | | $ | 515,956 | | $ | 14,073 | | $ | — |
| (1) | The aggregate cost, net of deferred tax liabilities, of Income Properties, Land, Buildings, and Improvements for Federal income tax purposes at December 31, 2022 is approximately $448.5 million. |
Gross Amount at Which Carried at Close of Period December 31, 2017 | | | | | | | | | | | | | | | | | | Land | | Buildings | | Total | | Accumulated Depreciation | | Date of Completion of Construction | | Date Acquired | | Life | | | | $ | | $ | | $ | | $ | | | | | | | | Income Properties: | | | | | | | | | | | | | | | | 3600 Peterson, Santa Clara, CA | | 17,855,023 | | 8,414,925 | | 26,269,948 | | 718,307 | | N/A | | 10/14/16 | | 30 Yrs. | | 7-Eleven, Inc., Dallas, TX | | 974,862 | | 1,550,744 | | 2,525,606 | | 71,076 | | N/A | | 02/18/16 | | 40 Yrs. | | At Home, Raleigh, NC | | 2,118,420 | | 5,774,284 | | 7,892,704 | | 429,700 | | N/A | | 09/29/16 | | 20 Yrs | | Bank of America, Monterey, CA | | 4,458,840 | | — | | 4,458,840 | | — | | N/A | | 08/17/16 | | N/A | | Barnes & Noble, Daytona Beach, FL | | 1,798,600 | | 3,803,000 | | 5,601,600 | | 1,616,275 | | N/A | | 12/15/05 | | 40 Yrs. | | Best Buy, McDonough, GA | | 2,622,682 | | 3,232,264 | | 5,854,946 | | 915,616 | | N/A | | 06/15/06 | | 40 Yrs. | | Big Lots, Germantown, MD | | 1,781,918 | | 2,951,231 | | 4,733,149 | | 319,717 | | N/A | | 09/13/13 | | 40 Yrs. | | Big Lots, Phoenix, AZ | | 1,715,717 | | 3,050,164 | | 4,765,881 | | 374,916 | | N/A | | 01/23/13 | | 40 Yrs. | | Carrabba's Italian Grill, Austin, TX | | 1,160,925 | | 1,305,117 | | 2,466,042 | | 88,026 | | N/A | | 09/15/16 | | 25 Yrs | | Century Theatre, Reno, NV | | 1,669,377 | | 4,496,078 | | 6,165,455 | | 260,643 | | N/A | | 11/30/16 | | 23 Yrs | | Container Store, Glendale, AZ | | 1,968,398 | | 5,493,102 | | 7,461,500 | | 335,042 | | N/A | | 05/18/15 | | 55 Yrs. | | CVS, Dallas, TX | | 7,535,013 | | — | | 7,535,013 | | — | | N/A | | 09/22/16 | | N/A | | Dick's Sporting Goods, McDonough, GA | | 3,934,022 | | 4,725,000 | | 8,659,022 | | 1,368,280 | | N/A | | 06/15/06 | | 40 Yrs. | | Harris Teeter Supermarket, Charlotte, NC | | 5,601,837 | | 3,409,338 | | 9,011,175 | | 831,026 | | N/A | | 04/17/08 | | 40 Yrs. | | Hilton Grand Vacations (Office), Orlando, FL | | 2,810,942 | | 6,610,869 | | 9,421,811 | | 804,368 | | N/A | | 01/30/13 | | 40 Yrs. | | Hilton Grand Vacations (Office), Orlando, FL | | 1,210,138 | | 2,735,789 | | 3,945,927 | | 328,545 | | N/A | | 01/30/13 | | 40 Yrs. | | Joann's, Saugus, MA | | 1,574,594 | | 4,769,946 | | 6,344,540 | | 97,692 | | N/A | | 04/06/17 | | 50 Yrs. | | LA Fitness, Brandon, FL | | 3,208,889 | | 9,677,636 | | 12,886,525 | | 271,310 | | N/A | | 04/28/17 | | 30 Yrs. | | Lowe's, Katy, TX | | 9,412,181 | | 3,480,650 | | 12,892,831 | | 491,997 | | N/A | | 04/22/14 | | 30 Yrs. | | Maple Ave Land, Dallas, TX | | 359,116 | | — | | 359,116 | | — | | N/A | | 03/17/17 | | N/A | | Outback Steakhouse, Austin, TX | | 1,376,793 | | 1,585,791 | | 2,962,584 | | 91,270 | | N/A | | 09/15/16 | | 30 Yrs. | | Outback Steakhouse, Charlottesville, VA | | 1,308,881 | | 3,135,515 | | 4,444,396 | | 161,768 | | N/A | | 09/15/16 | | 30 Yrs. | | Outback steakhouse, Huntersville, NC | | 1,987,831 | | 1,299,017 | | 3,286,848 | | 109,046 | | N/A | | 09/15/16 | | 20 Yrs. | | Rite Aid, Renton, WA | | 2,036,235 | | 4,148,415 | | 6,184,650 | | 458,054 | | N/A | | 07/25/13 | | 40 Yrs. | | Riverside, Jacksonville, FL | | 6,019,815 | | 14,503,643 | | 20,523,458 | | 1,601,471 | | N/A | | 07/16/15 | | 43 Yrs. | | Staples, Sarasota, FL | | 2,728,083 | | 1,145,137 | | 3,873,220 | | 52,584 | | N/A | | 01/27/17 | | 40 Yrs. | | The Grove, Winter Park, FL | | 1,240,000 | | 10,291,336 | | 11,531,336 | | 439,199 | | N/A | | 12/30/14 | | 40 Yrs. | | Walgreens, Alpharetta, GA | | 3,265,623 | | 1,406,160 | | 4,671,783 | | 483,368 | | N/A | | 03/31/04 | | 40 Yrs. | | Walgreens, Clermont, FL | | 3,021,665 | | 1,269,449 | | 4,291,114 | | 431,084 | | N/A | | 05/27/04 | | 40 Yrs. | | Wells Fargo, Hillsboro, OR | | 10,005,650 | | 25,902,632 | | 35,908,282 | | 226,204 | | N/A | | 10/27/17 | | 35 Yrs. | | Wells Fargo, Raleigh, NC | | 8,680,056 | | 59,408,394 | | 68,088,450 | | 4,198,411 | | N/A | | 11/18/15 | | 45 Yrs. | | Westcliff, Fort Worth, TX | | 10,520,822 | | 4,196,359 | | 14,717,181 | | 338,105 | | N/A | | 03/01/17 | | 10 Yrs. | | Whole Foods Market Centre, Sarasota, FL | | 4,497,825 | | 13,378,437 | | 17,876,262 | | 1,099,829 | | N/A | | 10/07/14 | | 40 Yrs. | | Mason Commerce Center-Bldg 1, Daytona Beach, FL | | 66,304 | | 2,341,151 | | 2,407,455 | | 948,544 | | 09/01/08 | | N/A | | 40 Yrs. | | Mason Commerce Center-Bldg 2, Daytona Beach, FL | | 66,304 | | 2,190,059 | | 2,256,363 | | 843,737 | | 09/01/08 | | N/A | | 40 Yrs. | | Williamson Business Park-Bldg 3, Daytona Beach, FL | | 110,509 | | 1,994,888 | | 2,105,397 | | 157,395 | | 05/01/14 | | N/A | | 40 Yrs. | | Concierge Office Building, Daytona Beach, FL | | 293,872 | | 3,019,668 | | 3,313,540 | | 915,860 | | 07/01/09 | | N/A | | 40 Yrs. | | Vacant Pad Site, Winter Park, FL | | 436,400 | | — | | 436,400 | | — | | N/A | | 05/28/15 | | N/A | | | | 131,434,162 | | 226,696,188 | | 358,130,350 | | 21,878,465 | | | | | | | |
2022 (In thousands) | | | | | | | | | | | | | | | | | | | | | Land | | Buildings | | Total | | Accumulated Depreciation | | Date of Completion of Construction | | Date Acquired | | Life | Income Properties: | | | | | | | | | | | | | | | | | | | Westcliff Shopping Center, Fort Worth, TX | | $ | 10,521 | | $ | 4,596 | | $ | 15,117 | | $ | 2,528 | | N/A | | 03/01/17 | | 10 Yrs. | Crabby's Oceanside, Daytona Beach, FL | | | 5,836 | | | 4,294 | | | 10,130 | | | 1,151 | | 01/25/18 | | N/A | | 40 Yrs. | LandShark Bar & Grill, Daytona Beach, FL | | | 5,836 | | | 4,587 | | | 10,423 | | | 1,092 | | 01/25/18 | | N/A | | 40 Yrs. | Fidelity, Albuquerque, NM | | | 5,739 | | | 29,549 | | | 35,288 | | | 4,779 | | N/A | | 10/04/18 | | 45 Yrs. | General Dynamics, Reston, VA | | | 7,530 | | | 9,068 | | | 16,598 | | | 1,703 | | N/A | | 7/12/2019 | | 35 Yrs. | The Strand at St. Johns Town Center, Jacksonville, FL | | | 12,551 | | | 36,745 | | | 49,296 | | | 4,331 | | N/A | | 12/9/2019 | | 48 Yrs. | Crossroads Towne Center, Chandler, AZ | | | 9,592 | | | 42,081 | | | 51,673 | | | 4,220 | | N/A | | 1/24/2020 | | 35 Yrs. | Ashford Lane, Atlanta, GA | | | 37,717 | | | 45,099 | | | 82,816 | | | 3,547 | | N/A | | 2/21/2020 | | 36 Yrs. | Sabal Pavilion, Tampa, FL | | | 3,265 | | | 20,629 | | | 23,894 | | | 2,184 | | N/A | | 8/21/2020 | | 40 Yrs. | Jordan Landing, West Jordan, UT | | | 10,529 | | | 5,752 | | | 16,281 | | | 549 | | N/A | | 3/2/2021 | | 30 Yrs. | Eastern Commons, Henderson, NV | | | 7,894 | | | 8,575 | | | 16,469 | | | 715 | | N/A | | 3/10/2021 | | 35 Yrs. | The Shops at Legacy, Plano, TX | | | 22,008 | | | 27,986 | | | 49,994 | | | 2,794 | | N/A | | 6/23/2021 | | 32 Yrs. | Beaver Creek Crossings, Apex, NC | | | 21,383 | | | 39,454 | | | 60,837 | | | 2,005 | | N/A | | 12/2/2021 | | 30 Yrs. | 125 Lincoln & 150 Washington, Santa Fe, NM | | | 459 | | | 12,525 | | | 12,984 | | | 672 | | N/A | | 12/20/2021 | | 30 Yrs. | 369 N. New York Ave., Winter Park, FL | | | 8,524 | | | 5,157 | | | 13,681 | | | 303 | | N/A | | 12/20/2021 | | 30 Yrs. | The Exchange at Gwinnett, Buford, GA | | | 4,450 | | | 25,310 | | | 29,760 | | | 765 | | N/A | | 12/30/2021 | | 45 Yrs. | Price Plaza, Katy, TX | | | 15,630 | | | 17,978 | | | 33,608 | | | 857 | | N/A | | 3/3/2022 | | 25 Yrs. | Madison Yards, Atlanta, GA | | | 19,780 | | | 48,162 | | | 67,942 | | | 646 | | N/A | | 7/8/2022 | | 42 Yrs. | West Broad Village, Glen Allen, VA | | | 12,120 | | | 65,829 | | | 77,949 | | | 639 | | N/A | | 10/14/2022 | | 40 Yrs. | Collection at Forsyth, Cummings, GA | | | 9,007 | | | 75,286 | | | 84,293 | | | 31 | | N/A | | 12/29/2022 | | 31 Yrs. | MainStreet Portfolio, Daytona Beach, FL | | | 3,504 | | | 1,422 | | | 4,926 | | | 1 | | N/A | | 12/29/2022 | | 25 Yrs. | | | $ | 233,875 | | $ | 530,084 | | $ | 763,959 | | $ | 35,512 | | | | | | |
F-56
REAL ESTATE AND ACCUMULATED DEPRECIATION FOR THE YEAR ENDED DECEMBER 31, 2017 | | | | | | | | | | 2017 | | 2016 | | 2015 | | | | $ | | $ | | $ | | Cost: | | | | | | | | Balance at Beginning of Year | | 274,334,139 | | 268,970,875 | | 209,294,277 | | Additions and Improvements | | 83,796,211 | | 68,274,211 | | 97,767,725 | | Adjust to Fair Value | | — | | — | | (2,343,013) | | Cost of Real Estate Sold | | — | | (62,910,947) | | (20,431,548) | | Reclassification to Land and Development Costs | | — | | — | | (15,316,566) | | Balance at End of Year | | 358,130,350 | | 274,334,139 | | 268,970,875 | | | | | | | | | | | | $ | | $ | | $ | | Accumulated Depreciation: | | | | | | | | Balance at Beginning of Year | | 14,391,567 | | 14,374,079 | | 14,073,096 | | Depreciation and Amortization | | 7,486,898 | | 5,346,538 | | 3,224,227 | | Depreciation on Real Estate Sold | | — | | (5,329,050) | | (2,472,192) | | Reclassification to Land and Development Costs | | — | | — | | (451,052) | | Balance at End of Year | | 21,878,465 | | 14,391,567 | | 14,374,079 | | | | | | | | | | (1) Reconciliation to Consolidated Balance Sheet at December 31, 2017 | | | | | | | | Income Properties, Land, Buildings, and Improvements | | | | | | 358,130,350 | | | | | | | | 358,130,350 | | (2) Cost Basis of Assets Classified as Held for Sale on Balance Sheet | | | | | | — | | Total Per Schedule | | | | | | 358,130,350 | |
2022 (In thousands) | | | | | | | | | | | | 2022 | | 2021 | | 2020 | Cost: | | | | | | | | | | Balance at Beginning of Year | | $ | 521,260 | | $ | 472,126 | | $ | 392,842 | Additions and Improvements | | | 281,562 | | | 206,646 | | | 147,359 | Cost of Real Estate Sold | | | (38,863) | | | (157,512) | | | (68,075) | Balance at End of Year | | $ | 763,959 | | $ | 521,260 | | $ | 472,126 | | | | | | | | | | | Accumulated Depreciation: | | | | | | | | | | Balance at Beginning of Year | | | 23,936 | | | 30,316 | | | 22,552 | Depreciation and Amortization | | | 16,262 | | | 12,270 | | | 11,207 | Depreciation on Real Estate Sold | | | (4,686) | | | (18,650) | | | (3,443) | Balance at End of Year | | $ | 35,512 | | $ | 23,936 | | $ | 30,316 | | | | | | | | | | | Reconciliation to Consolidated Balance Sheet at December 31, 2022: | | | | | | | | | | Income Properties, Land, Buildings, and Improvements | | $ | 763,959 | | $ | 515,007 | | | | | | | 763,959 | | | 515,007 | | | | Cost Basis of Assets Classified as Held for Sale on Balance Sheet | | | - | | | 6,253 | | | | Total Per Schedule | | $ | 763,959 | | $ | 521,260 | | | |
SCHEDULE IV MORTGAGE LOANS ON REAL ESTATE FOR THE YEAR ENDED DECEMBER 31, 20172022 There was a portfolio of three commercial loan investments and one preferred equity investment which is classified as a commercial loan investment as of December 31, 2022 (in thousands). | | | | | | | | | | | | | | | | | | | | | | Description | | | Interest Rate | | | Final Maturity
Date | | | Periodic Payment
Terms | | Prior
Liens | | Face Amount
of Mortgages | | Carrying Amounts
of Mortgages (2) | | Principal Amount of
Loans Subject to
Delinquent
Principal or Interest | Mortgage Note – 4311 Maple Avenue – Dallas, TX | | | 7.50% | | | April 2023 | | | Monthly Interest Payments | | $ | — | | $ | 400 | | $ | 395 | | $ | — | Construction Loan – The Exchange At Gwinnett – Buford, GA | | | 7.25% | | | January 2024 | | | Monthly Interest Payments | | | — | | | 220 | | | 173 | | | — | Preferred Investment - Watters Creek – Allen, TX | | | 8.50% | | | April 2025 | | | Monthly Interest Payments | | | — | | | 30,000 | | | 29,887 | | | — | Improvement Loan - Ashford Lane – Atlanta, GA | | | 12.00% | | | April 2025 | | | Monthly Interest Payments | | | — | | | 1,453 | | | 1,453 | | | — | Totals | | | | | | | | | | | $ | — | | $ | 32,073 | | $ | 31,908 | | $ | — |
The following represents the activity within the Company’s commercial loans and investments segment for the years ended December 31, 2022, 2021, and 2020 (in thousands): | | | | | | | | | | | | 2022 | | 2021 | | 2020 | Balance at Beginning of Year | | $ | 39,095 | | $ | 38,320 | | $ | 34,625 | Additions During the Year: | | | | | | | | | | New Mortgage Loans | | | 53,282 | | | 364 | | | 28,360 | Collection of Origination Fees | | | 87 | | | — | | | (125) | Accretion of Origination Fees (1) | | | 174 | | | 2 | | | 161 | Gain on Sale of Loans | | | 807 | | | — | | | — | Imputed Interest Over Rent Payments on Ground Lease Loan | | | 97 | | | 409 | | | 399 | Deductions During the Year: | | | | | | | | | | Collection of Principal | | | (61,634) | | | — | | | (23,132) | Impairment / CECL Reserve | | | — | | | — | | | (1,968) | Balance at End of Year | | $ | 31,908 | | $ | 39,095 | | $ | 38,320 |
| | | | | | | | | | | | | | | | Description | | Interest Rate | | Final Maturity
Date | | Periodic Payment
Terms | | Prior
Liens | | Face Amount
of Mortgages | | Carrying Amounts
of Mortgages | | Principal Amount of
Loans Subject to
Delinquent
Principal or Inter | | | | % | | | | | | $ | | $ | | $ | | $ | | Junior Mortgage Loan: | | | | | | | | | | | | | | | | Retail Shopping Center – Sarasota, FL | | 30-day LIBOR
plus 7.50% | | June 2018 | | Principal payable
in full at maturity | | — | | 8,960,467 | | 8,960,467 | | — | | First Mortgage: | | | | | | | | | | | | | | | | Land Parcel -
Daytona Beach, FL | | 11.00% | | July 2018 | | Principal payable
in full at maturity | | — | | 3,000,000 | | 2,965,232 | | — | | Totals | | | | | | | | — | | 11,960,467 | | 11,925,699 | | — | |
| | | | | | | | | | 2017 | | 2016 | | 2015 | | | | $ | | $ | | $ | | Balance at Beginning of Year | | 23,960,467 | | 38,331,956 | | 30,208,074 | | Additions During the Year: | | | | | | | | New Mortgage Loans (1) | | ��3,000,000 | | — | | 15,394,878 | | Loan Fees Paid | | — | | — | | 40,000 | | Accretion of Origination Fees (2) | | (34,768) | | 132,923 | | 74,781 | | Deductions During the Year: | | | | | | | | Collection of Principal | | (15,000,000) | | (14,282,500) | | (7,200,909) | | Discount on Payoff | | — | | (217,500) | | — | | Collection of Origination Fees | | — | | — | | (181,250) | | Amortization of Fees | | — | | (4,412) | | (3,618) | | Balance at End of Year | | 11,925,699 | | 23,960,467 | | 38,331,956 | |
| (1) | (1)
| | Includes 2015 construction loan draws
|
| (2)
| | Non-cash accretion of loan origination fees fees. |
| (2) | The aggregate carrying amount of mortgages for Federal income tax purposes at December 31, 2022 totaled $31.9 million. |
|