PART I
Company Overview
History
BBX Capital, Inc. and its subsidiaries (the “Company” or, unless otherwise indicated or the context otherwise requires, “we,” “us,” or “our”) is a Florida-based diversified holding companycompany. BBX Capital, Inc. as a standalone entity without its subsidiaries is referred to as “BBX Capital.”
Spin-Off from Bluegreen Vacations
Prior to September 30, 2020, the Company was a wholly-owned subsidiary of Bluegreen Vacations Holding Corporation (“Bluegreen Vacations”) (formerly known as BBX Capital Corporation), whose principal holdings includewere Bluegreen Vacations Corporation (“Bluegreen”), BBX Capital Real Estate LLC (“BBX Capital Real Estate” or “BBXRE”), BBX Sweet Holdings, LLC (“BBX Sweet Holdings”), and Renin Holdings, LLC (“Renin”). BBX Capital, Inc. as a standalone entity without its subsidiaries is referred to as “BBX Capital.”
Prior to September 30, 2020, the Company was a wholly owned subsidiary of Bluegreen Vacations Holding Corporation (“BVH”). On September 30, 2020, BVHBluegreen Vacations completed thea spin-off of the Company, which separated BVH’sBluegreen Vacations’ business, activities, and investments into two separate, publicly-traded companies: (i) BVH,Bluegreen Vacations, which continues to hold its investment in Bluegreen, Vacations Corporation (“Bluegreen”), and (ii) BBX Capital, which continues to hold all of BVH’sBluegreen Vacations’ other businesses and investments, including BBX Capital Real Estate, BBX Sweet Holdings, which currently owns over 90% of IT’SUGAR, LLC (“IT’SUGAR”), and Renin. The spin-off was consummated byon September 30, 2020 with the distribution by BVHBluegreen Vacations to its shareholders of all of the outstanding shares of BBX Capital’s Common Stock through the distribution of one share of BBX Capital’s Class A Common Stock for each share of BVH’sits Class A Common Stock held on September 22, 2020, the record date for the distribution, and one share of BBX Capital’s Class B Common Stock for each share of BVH’sits Class B Common Stock held on the record date. The shares distributed inStock. Accordingly, following the spin-off, represent 100% of BBX Capital’s issued and outstanding shares. Accordingly, as of the close of business on September 30, 2020, BVHBluegreen Vacations ceased to have an ownership interest in BBX Capital,the Company, and BVH’sBluegreen Vacations’ shareholders who received shares of BBX Capital’s Class A Common Stock and/or Class B Common Stock in the distribution became shareholders of BBX Capital following the spin-off.Company.
In connection with the spin-off, BBX Capital was converted from a Florida limited liability company into a Florida corporation and changed its name from BBX Capital Florida LLC to BBX Capital, Inc., and BVHBluegreen Vacations changed its name from BBX Capital Corporation to Bluegreen Vacations Holding Corporation. In addition, in connection with the spin-off, BVHBluegreen Vacations issued a $75.0 million note payable to the Company that accrues interest at a rate of 6% per annum and requires payments of interest on a quarterly basis. Under the terms of the note, BVHBluegreen Vacations has the option in its discretion to defer interest payments under the note, with interest on the entire outstanding balance thereafter to accrue at a cumulative, compounded rate of 8% per annum until such time that BVHas Bluegreen Vacations is current on all accrued payments under the note, including deferred interest. All outstanding amounts under the note will become due and payable on September 30, 2025 or earlier upon certain other events. Bluegreen Vacations is permitted to prepay the note in whole or in part at any time. In December 2021, Bluegreen Vacations prepaid $25.0 million of the principal balance of the note, reducing the outstanding balance to $50.0 million as of December 31, 2021.
In October 2020, BBX Capital’s Class A Common Stock commenced trading on the OTCQX Best Market under the ticker symbol “BBXIA,” and its Class B Common Stock commenced trading on the OTC Pink Market under the ticker symbol “BBXIB.”
Our Strategies and Objectives
The Company’s goal is to build long-term shareholder value. Since many of the Company’s assets do not generate income on a regular or predictable basis, the Company’s objective is long-term growth as measured by increases in book value and intrinsic value over time. The Company regularly reviews the performance of its investments and, based upon economic, market, and other relevant factors, considers transactions involving the sale or disposition of all or a portion of its assets, investments, or subsidiaries. Further, subject to market conditions and other factors, the Company has and may from time to time in the future repurchase its outstanding securities.common stock.
Our Businesses
Principal Investments
BBX Capital’s principal holdings are as follows:
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Business Overview
Estate: BBX Capital Real Estate is engaged in the acquisition, development, construction, ownership, financing, and management of real estate and investments in real estate joint ventures, including investments in multifamily rental apartment communities, single-family master-planned for sale housing communities, and commercial properties located primarily in Florida. In addition, BBX Capital Real Estate currently owns a 50% equity interest in the Altman Companies, LLC (the “Altman Companies”), a developer and manager of multifamily rental apartment communities, and anticipates acquiring an additional 40% of the Altman Companies in 2023. BBXRE also manages the legacy assets acquired in connection with the Company’s sale of BankAtlantic in 2012, including portfolios of loans receivable, real estate properties, and judgments against past borrowers. BBXRE had approximately $179.6 million of assets as of December 31, 2021.
BBX Sweet Holdings:BBX Sweet Holdings is engaged in the ownership and management of operating businesses in the confectionery industry, including i) IT’SUGAR, a specialty candy retailer whose products include bulk candy, candy in giant packaging, and licensed and novelty items and which operates in retail locations which include a mix of high-traffic resort and entertainment, lifestyle, mall/outlet, and urban locations throughout the United States; ii) Las Olas Confections and Snacks, a manufacturer and wholesaler of chocolate and other confectionery products; and iii) Hoffman’s Chocolates, a retailer of gourmet chocolates with retail locations in South Florida. BBX Sweet Holdings had approximately $143.9 million of assets as of December 31, 2021.
StrategyRenin: Renin is engaged in the design, manufacture, and distribution of sliding doors, door systems and hardware, and home décor products and operates through its headquarters in Canada and three manufacturing and distribution facilities in the United States and Canada. In addition to its own manufacturing activities, Renin also sources various products and raw materials from China, Brazil, and certain other countries. Renin had approximately $101.6 million of assets as of December 31, 2021.
BBX Capital Real Estate
Business Overview
BBX Capital Real Estate is engaged in the acquisition, development, construction, ownership, financing, and management of real estate and investments in real estate joint ventures, including investments in multifamily rental apartment communities, single-family master-planned for sale housing communities, and commercial properties located primarily in Florida. In addition, BBXRE currently owns a 50% equity interest in the Altman Companies, a developer and manager of multifamily apartment communities, and anticipates acquiring an additional 40% of the Altman Companies in 2023. BBXRE also manages the legacy assets acquired in connection with the Company’s sale of BankAtlantic in 2012, including portfolios of loans receivable, real estate properties, and judgments against past borrowers.
In an effort to diversify its portfolio of real estate developments, BBXRE is also currently evaluating potential investment opportunities in the development of warehouse and logistics facilities and has expanded its operating platform to include a logistics real estate division. Further, the Altman Companies is currently evaluating potential opportunities to develop multifamily apartment communities in new geographical areas, including the greater Atlanta, Georgia area.
Strategy
BBX Capital Real Estate’s strategy is focused on:
Identifying, acquiring, and developing real estate, including multifamily rental apartment communities, single-family master-planned for sale housing communities, speculative and build-to-suit logistics real estate properties, and commercial properties; and Identifying and investing in real estate joint ventures with third party developers. |
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Although BBX Capital Real EstateBBXRE historically focused on the monetization of the legacy asset portfolio acquired fromformerly held by BankAtlantic through the collection or sale of loans receivable and the development or sale of foreclosed real estate properties, it largely completed the monetization of the portfolio was largely completed following the sale of several significant real estate properties during 2019. As a result, BBX Capital Real EstateBBXRE’s long-term goal is currently focused on increasing the activities of the Altman Companies, as well as leveraging BBX Capital Real Estate’s relationships with third party developers, to identify new development opportunities with the goal of buildingbuild a diversified portfolio of profitable real estate investments that generate recurring earnings and cash flows.flows primarily through the following activities:
Continuing to expand its investments in multifamily rental apartment communities through the Altman Companies. In addition to the development and sale of multifamily rental apartment communities thesethrough the Altman Companies, other investment opportunities may include the development of multifamily rental apartment communities that will be owned and held over a longer term investment period and the pursuit of investment opportunities in new geographic locations.locations outside of Florida. Further, while BBX Capital Real Estate’sBBXRE’s investments in joint ventures sponsored by the Altman Companies primarily involve investing in the managing member of the joint ventures, itBBXRE has in the past and may in the future consider opportunistically making increased equity investments in projects.
Diversifying its portfolio of real estate developments by investing in the development of warehouse and logistics facilities through its logistics real estate division.
InvestmentsOpportunistically deploying capital in real estate joint ventures with third party developers.
Investments
BBX Capital Real Estate currently holds investments in a diverse portfolio of real estate developments, including multifamily rental apartment communities, single-family master-planned for sale communities, mixed-used properties, and other legacy assets. The following provides a description of certain of these investments.
Multifamily Rental Apartment Communities – The Altman Companies
The Altman Companies
In November 2018, BBX Capital Real Estate acquired a 50% equity interest in the Altman Companies, a joint venture between BBX Capital Real EstateBBXRE and Joel Altman (“Mr. Altman”) engaged in the development, construction, and management of multifamily apartment communities, for cash consideration of $14.6 million, including $2.3 million in transaction costs. The Company accounts for this investment under the equity method of accounting. The Altman Companies is a fullyan integrated platform engaged in all aspects of the development process through its ownershipand sale of various operating companies that were previously owned and operated by Mr. Altman. Thesemultifamily apartment communities. Since 1968, these companies and their predecessors have operated since 1968 and have developed and managed more than 25,000 multifamily units throughout the United States, including communities in Florida, Michigan, Illinois, Tennessee, Georgia, Texas, and North Carolina. The Altman Companies currently operates through the following companies:
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BBX Capital Real Estate expectsAltman Development Company (“ADC”) – The Altman Companies owns 100% of ADC, which performs site selection and other predevelopment activities (including project underwriting and design), identifies development financing (which is typically comprised of a combination of internal and external equity and institutional debt), provides oversight of the construction process, and arranges for the ultimate sale of the projects upon stabilization. ADC enters into a development agreement with each joint venture that is formed to invest in development projects originated by the platform and earns a development fee for its services.
Altman Management Company (“AMC”) – The Altman Companies owns 100% of AMC, which performs leasing and property management services for the multifamily apartment communities developed by the Altman Companies prior to the ultimate sale of such projects. In certain cases, AMC also provides such services to apartment communities owned by third parties and certain affiliated entities. AMC enters into a leasing and property management agreement with each joint venture that is formed to invest in projects originated by the platform and earns a management fee for its services.
Altman-Glenewenkel Construction (“AGC”) – The Altman Companies owns 60% of AGC, which performs general contractor services for the multifamily apartment communities developed by the Altman Companies. AGC enters into a general contractor agreement with each joint venture that is formed to invest in projects originated by the platform and earns a general contractor fee for its services.
Pursuant to the operating agreement of the Altman Companies, BBXRE and Joel Altman invest in the managing member of the joint ventures that are formed to invest in projects originated by the platform. The managing member is typically entitled to receive an increased percentage of the joint venture distributions from the projects to the extent that the equity investors in such ventures receive agreed-upon returns on their investments. Further, BBX Capital Real EstateBBXRE has in the past and may in the future consider opportunistically making increased equity investments in one or more of such projects originated by the Altman Companies.
The Altman Companies has historically incurred operating costs in excess of the fees earned from the projects, and as a result, earnings generated by the overall platform are generally arise as a resultassociated with BBXRE and Joel Altman’s receipt of the ability to invest aspromoted equity distributions from their investments in the managing member and receive promoted equity interests inof the projects.development joint ventures.
Pursuant to the operating agreement of the Altman Companies, BBX Capital Real EstateBBXRE will acquire an additional 40% equity interest in the Altman Companies from Mr.Joel Altman for a purchase price, subject to certain adjustments (including reimbursements for predevelopment expenditures incurred at the time of purchase), of $9.4 million in January 2023, and Mr.Joel Altman can also, at his option or in other predefined circumstances, require BBX Capital to purchase his remaining 10% equity interest in the Altman Companies for $2.4 million. However, Mr.Joel Altman will retain his membership interests, including his decision making rights, in the managing member of any development joint ventures that are originated prior to BBX Capital Real Estate’s
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BBXRE’s acquisition of additional equity interests in the Altman Companies. In addition, in certain circumstances, BBX Capital Real EstateBBXRE may acquire the 40% membership interests in AGC that are not owned by the Altman Companies for a purchase price based on prescribed formulas set forth in the operating agreement of AGC.
In connection with its investment in the Altman Companies, BBX Capital Real EstateBBXRE acquired interests in the managing member of seven multifamily apartment developments, including four developments in which BBX Capital Real EstateBBXRE had previously invested as a non-managing member, for aggregate cash consideration of approximately $8.8 million. As of December 31, 2020, four of these2021, all seven joint ventures had sold their respective multifamily apartment communities.communities or had been recapitalized.
In addition, as of December 31, 2020, BBX Capital Real Estate2021, BBXRE and Mr.Joel Altman had each contributed $3.75$3.8 million to ABBX Guaranty, LLC, a joint venture established to provide guarantees on the indebtedness and construction cost overruns of new real estate joint ventures formed by the Altman Companies.
During the year endedActive Developments Sponsored by The Altman Companies
As of December 31 2020, joint ventures2021, BBXRE had investments in eight active developments sponsored by the Altman Companies, sold Altis Boca Raton, a 398 unit multifamily apartment communitywhich are summarized as follows (dollars in Boca Raton, Florida, and Altis Wiregrass, a 392 unit multifamily apartment community in Wesley Chapel, Florida. BBXRE had previously invested in these joint ventures, and in connection with these sales, BBX Capital Real Estate recognized total equity earningsthousands):
Project | Location | Apartment Units | Project Status at December 31, 2021 | Carrying Value of BBXRE Investment at December 31, 2021 | ||||
Altis Grand Central | Tampa, Florida | 314 | Stabilized - 97% Occupied | $ | 730 | |||
Altis Little Havana | Miami, Florida | 224 | Under Construction - Expected Completion in 2022 | 1,021 | ||||
Altis Miramar East/West | Miramar, Florida | 650 | Under Construction - Expected Completion in 2022 | 2,878 | ||||
Altis Ludlam Trail (1) | Miami, Florida | 312 | Under Construction - Expected Completion in 2022 | 10,831 | ||||
Altis Grand at Lake Willis Phase 1 | Orlando, Florida | 329 | Under Construction - Expected Completion in 2023 | 437 | ||||
Altis Lake Willis Phase 2 | Orlando, Florida | 238 | Predevelopment | 2,538 | ||||
Altis Grand at Suncoast | Lutz, Florida | 449 | Under Construction - Expected Completion in 2023 | 2,780 | ||||
Altis Blue Lake | West Palm Beach, Florida | 318 | Under Construction - Expected Completion in 2023 | 260 |
(1)The carrying value of $1.9BBXRE’s investment at December 31, 2021 includes $10.3 million and received total distributions of $5.1 million.
The following provides a description of certain of BBX Capital Real Estate’s current investments in multifamily apartment communities sponsored by the Altman Companies.
Altis Grand Central
In September 2017, BBX Capital Real Estate invested $1.9 million as one of a number of investors in a joint venture with Mr. Altmanrelated to develop Altis Grand Central, a 314 unit multifamily apartment community in Tampa, Florida. In November 2018, BBX Capital Real Estate also acquired approximately 50% of Mr. Altman’s membership interestBBXRE’s investment in the managing member of the joint venture for $0.6 million. Construction commenced in 2017 and was substantially completed during 2020. The 314 apartment units were approximately 86% leased as of December 31, 2020.
Altis Promenade
In December 2017, BBX Capital Real Estate invested $1.0 million as one of a number of investors in a joint venturepreferred equity associated with Mr. Altman to develop Altis Promenade, a 338 unit multifamily apartment community in Tampa, Florida. In November 2018, BBX Capital Real Estate also acquired approximately 50% of Mr. Altman’s membership interest in the managing member of the joint venture for $1.2 million. Construction commenced in 2018 and was substantially completed during 2019. The 338 apartment units were approximately 94% leased as of December 31, 2020. The joint venture currently intends to seek to sell the project in 2021.
Altis Ludlam Trail
During 2018, BBX Capital Real Estate invested $0.7 million with Mr. Altman and another investor in a joint venture to acquire land, obtain entitlements, and fund predevelopment costs for a potential multifamily apartment development in Miami, Florida. During 2019, BBX Capital Real Estate invested an additional $0.4 million in the joint venture to fund predevelopment costs. In June 2020, the joint venture obtained entitlements, closed on development financing, and commenced development of a 312 unit multifamily apartment community with 7,500 square feet of retail space. In connection with the closing, BBX Capital Real Estate received a $0.5 million distribution from the joint venture as a reimbursement of predevelopment costs and invested an additional $8.5 million in the joint venture as preferred equity. Pursuant to the operating agreement for the Altis Ludlam Trail joint venture, distributions from the joint venture are required to be paid to BBX Capital Real Estate on account of its preferred equity interest until it receives its $8.5 million investment and a preferred return of 11.9% per annum (subject to a minimum payment of $11.9 million). Following such payment, all remaining distributions will be paid to the other members, including the managing member in which BBX Capital Real Estate holds an interest.
Altis Grand at The Preserve (Suncoast)
During 2018, BBX Capital Real Estate invested $1.9 million with Mr. Altman in a joint venture to acquire land, obtain entitlements, and fund predevelopment costs for the development of Altis Grand at The Preserve (Suncoast), a 350 unit multifamily apartment community in Odessa, Florida. In 2019, the joint venture closed on its development financing and commenced construction, and in connection with the closing, BBX Capital Real Estate and Mr. Altman retained membership interests in the managing member of the joint venture and received distributions of a portion of their previous capital contributions based on the final development financing structure. Construction is substantially complete, and the 350 apartment units were approximately 52% leased as of December 31, 2020.
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Altis Pembroke Gardens
In November 2018, BBX Capital Real Estate acquired approximately 50% of Mr. Altman’s membership interest in the managing member of a joint venture invested in Altis Pembroke Gardens for $1.3 million. Altis Pembroke Gardens is a 280 unit multifamily apartment community in Pembroke Pines, Florida. Construction of the community was completed during 2017, and the 280 apartment units were approximately 97% leased as of December 31, 2020. The joint venture currently intends to seek to sell the project in 2021.
Altis Little Havana
In June 2019, BBX Capital Real Estate invested $0.8 million in a joint venture sponsored by the Altman Companies to develop Altis Little Havana, a 224 unit multifamily apartment community in Miami, Florida. Construction commenced in 2019 and is expected to be substantially completed in 2021.
Altis Lake Willis (Vineland Point)
In August 2019, BBX Capital Real Estate invested $4.5 million in a joint venture sponsored by the Altman Companies to acquire land, obtain entitlements, and fund predevelopment costs for the development of a potential multifamily apartment community in Orlando, Florida. The joint venture is continuing to evaluate its plans for the project, including the possible development of the community in two phases.investment balance and accrued preferred return.
Altis Miramar East/West
In October 2019, BBX Capital Real Estate invested $2.5 million in a joint venture sponsored by the Altman Companies to develop Altis Miramar West, a 320 unit multifamily apartment community, and Altis Miramar East, a 330 unit multifamily apartment community, on two adjacent sites in Miramar, Florida. Construction commenced in 2019 and is expected to be substantially completed in 2021.
Rights to Joint Venture Distributions
The operating agreements governing the joint ventures sponsored by the Altman Companies generally provide that the holders of the non-managing membership interests are entitled to distributions based on their pro-rata share of the capital contributions to the ventures until such members receive their aggregate capital contributions plus a specified return on their capital. After such members receive their contributed capital and the specified returns, distributions are based on an agreed-upon allocation of the remaining cash flows available for distribution, with the holders of the managing membership interests receiving an increasing percentage of the distributions. As BBX Capital Real Estate’sBBXRE’s investments in the above joint ventures primarily include investments as both a non-managing member and a managing member, BBX Capital Real Estate’sBBXRE’s overall economic interest in the expected distributions from such ventures in many cases is not the same as its pro-rata share of its contributed capital in such ventures.
Single Family Developments
Development - Beacon Lake Master Planned Development
BBX Capital Real Estate has obtained entitlements to develop raw landBBXRE is the master developer of the Beacon Lake Community, a master planned community located in St. Johns County, Florida intothat is being developed in four phases and expected to be comprised of 1,476 finished lots which will comprise the Beacon Lake Community. As part of the development, BBX Capital Real Estatesingle-family homes and townhomes. BBXRE is primarily developing the land and common areas and selling the finished lots to third-party homebuilders who will constructare constructing single-family homes and townhomes that are planned to range from 1,400 square feet to 4,400 square feet and pricedhave base prices ranging from the high $200,000’s$300,000’s to the $600,000’s. The$700,000’s. Other than in the case of the lots comprising Phase 4, the agreements pursuant to which BBX Capital Real EstateBBXRE is selling finished lots to homebuilders generally provide for a base purchase price that is paid to BBX Capital Real EstateBBXRE upon the sale of the developed lots to the homebuilders and a contingent purchase price that is calculated as a percentage of the proceeds that the homebuilders receive from the sale of the completed homes andhomes. While an estimated amount of the contingent purchase price is recognized in BBXRE’s revenues upon the sale of the lots to the homebuilders, the contingent purchase price is paid to BBX Capital Real EstateBBXRE upon the closing of such home sales.
BBX Capital Real Estate is developing
BBXRE has substantially completed the development of the lots comprising Phases 1 and 2 of the Beacon Lake Community and commenced the development of the lots comprising Phase 3 during the second quarter of 2021. In 2021, BBXRE sold the 299 undeveloped lots comprising Phase 4 in four phases. a bulk lot sale to a single homebuilder.
The following table summarizes the current status of the sale of lots to homebuilders in each phase:phase in the development as of December 31, 2021:
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Phase 1 | Phase 2 | Phase 3 | Phase 4 | Total | ||
Single-family | Townhomes | |||||
Total planned lots | 302 | 479 | 196 | 200 | 299 | 1,476 |
Lots sold to homebuilders (1) | (302) | (448) | (164) | — | (299) | (1,213) |
Remaining lots to sell | — | 31 | 32 | 200 | — | 263 |
Lots under contract with homebuilders | — | (31) | (32) | (68) | — | (131) |
Available lots (2) | — | — | — | 132 | — | 132 |
BBX Capital Real Estate(1)As further described in Item 8 - Note 2 to the Company’s consolidated financial statements included in this Annual Report, BBXRE generally recognizes revenue related to sales of lots to homebuilders, including an estimate of any contingent purchase price expected to be collected in relation to such lots, upon the closing of the sale of such lots to the homebuilders. Although BBXRE recognizes the expected contingent purchase price associated with such lots upon the closing of the sale to the homebuilders, BBXRE ultimately does not receive any contingent purchase price related to a lot until the homebuilder closes on the sale of a home on such lot and collects the proceeds from the home sale. With respect to the sale of the undeveloped lots comprising Phase 4, BBXRE received the payment of the purchase price for the lots from the homebuilder at the time of closing, subject to certain adjustments contemplated in the agreement, but the agreement related to the transaction does not provide for a contingent purchase price structure similar to the agreements related to the sale of developed lots in Phases 1 through 3.
(2)Although BBXRE was previously exploring the possible construction, leasing, and management of a portfolio of rental homes on the remaining lots in Phase 3, BBXRE is developing the remaining lots in Phase 3 and currently expects that it will sell the finished lots to a homebuilder.
The following table summarizes the status of the sale of homes by homebuilders on lots previously sold by BBXRE to such homebuilders:
Phase 1 | Phase 2 | Total | ||
Single-family | Townhomes | |||
Lots sold to homebuilders | 302 | 448 | 164 | 914 |
Homes closed | 301 | 194 | 93 | 588 |
Homes remaining to close | 1 | 254 | 71 | 326 |
BBXRE has financed a portion of the development costs for the projectBeacon Lake Community through the issuance of Community Development District Bonds. Under the terms of the agreements with the homebuilders, in connection with the sale of the finished lots, BBX Capital Real EstateBBXRE is required to repay a portion of the bonds with proceeds from such sales, while a portion of the bonds are required to be assumed by the homebuilders.
Single-Family Developments with Third Party Developers
Marbella
As of December 31, 2021, BBXRE had invested $8.1 million in a joint venture with CC Homes to develop Marbella, a residential community expected to be comprised of 158 single-family homes in Miramar, Florida. Under the terms of the operating agreement between BBXRE and CC Homes, BBXRE is entitled to receive 70.0% of the joint venture distributions until it receives its aggregate capital contributions plus a specified return on its capital. After BBXRE and CC Homes receive a specified return and the return of their contributed capital, any distributions thereafter are shared based on earnings, with CC Homes, as the managing member, receiving an increasing percentage of distributions.
The joint venture acquired the development land in 2019 and commenced site development in 2020. As of December 31, 2021, the joint venture had executed contracts to sell all of the 158 single-family homes comprising Marbella and had closed on the sale of 32 homes. During the year ended December 31, 2021, BBXRE recognized $2.6 million of equity earnings and received $9.3 million of distributions from the venture.
Sky Cove
In June 2019, BBX Capital Real EstateBBXRE invested $4.2 million as one of a number of investors in a joint venture with Label & Co. to develop Sky Cove at Westlake, a residential community comprised of 204 single-family homes in Loxahatchee, Florida. BBX Capital Real EstateUnder the terms of the operating agreement governing the joint venture, BBXRE is entitled to receive 26.25% of the joint venture distributions until it receives its aggregate capital contributions plus a specified return on its capital. After all investors receive a specified return and the return of their contributed capital, any distributions thereafter are shared based on earnings, with Label & Co., as the managing member, receiving an increasing percentage of distributions.
During the year ended December 31, 2020,2021, the joint venture closed on 47 single family165 single-family homes, and BBX Capital Real EstateBBXRE recognized $0.1$1.5 million of equity earnings and received $1.1$3.2 million of distributions from the venture. As of December 31, 2020,2021, the joint venture had agreementsexecuted contracts to sell an additional 13731 single-family homes.
Sky Cove South
In February 2021, BBX Capital Real EstateBBXRE invested $4.9 million as one of a number of investors in a new joint venture with Label & Co. to develop Sky Cove South at Westlake, a residential community that will be adjacent to Sky Cove at Westlake and is expected to be comprised of 197 single-family homes. BBX Capital Real Estate’sBBXRE’s rights to distributions from the Sky Cove South joint venture are substantially the same as its rights to distributions from the Sky Cove joint venture.
Marbella
As of December 31, 2020, BBX Capital Real Estate had invested $7.4 million in a joint venture with CC Homes to develop Marbella, a residential community comprised of 158 single-family homes in Miramar, Florida. BBX Capital Real Estate is entitled to receive 70.0% of the joint venture distributions until it receives its aggregate capital contributions plus a specified return on its capital. After BBX Capital Real Estate and CC Homes receive a specified return and the return of their contributed capital, any distributions thereafter are shared based on earnings, with CC Homes, as the managing member, receiving an increasing percentage of distributions. The joint venture acquired the development land in 2019 and commenced site development in 2020. As of December 31, 2020,2021, the joint venture had agreementscommenced construction of the community and executed contracts to sell 91103 single-family homes and expects to commence closing on sales during the second half of 2021.homes.
Mixed Use Developments
Bayview
In 2014, BBX Capital Real EstateBBXRE invested in a joint venture with an affiliate of Procacci Development Corporation (“PDC”Procacci”). At the inception of the venture, BBX Capital Real EstateBBXRE and PDCProcacci each contributed $1.8 million to the venture in exchange for a 50% interest. Theequity interest, and the joint venture acquired for $8.0 million approximately three acres of real estate in Fort Lauderdale, Florida. ThereFlorida for $8.0 million. The site is currently comprised of an approximateapproximately 84,000 square foot office building, along with a convenience store and gas station on the property.station. The office building has low occupancy with short term leases, while the lease for the convenience store ends in March 2022.
In February 2022, BBXRE agreed to sell its equity interest in the joint venture to Procacci for net cash consideration of approximately $8.9 million. Under the terms of the agreement, Procacci will fully assume the mortgage loan on the property, which currently has an outstanding balance of $5.0 million, and BBX Capital Real EstateCapital’s existing guaranty on 50% of the outstanding loan balance for any liabilities that occur following the closing. However, the closing of the sale is currently exploring possible opportunitiessubject to certain closing conditions, including obtaining a release from the lender of BBX Capital’s guaranty on the outstanding loan balance for any liabilities that occur following the site.closing, and there is no assurance that the transaction will be consummated pursuant to the terms of the agreement, or at all.
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The Main Las Olas
As of December 31, 2020, BBX Capital Real Estate2021, BBXRE had invested $3.3$3.8 million as one of a number of investors in The Main Las Olas joint venture, which was formed to invest in the development of The Main Las Olas, a mixed-used project in downtown Fort Lauderdale, Florida that is planned to be comprised of an office tower with approximately 365,000 square feet of leasable area, a residential tower with approximately 341 units, and approximately 45,000 square feet of ground floor retail. As of December 31, 2020, BBX Capital Real Estate expected to invest an additional $0.9 million in the venture as development progresses. Construction is expected to bewas substantially completed during 2021, and as of December 31, 2021, the office tower, residential tower, and retail space were 39%73%, 4%97% and 62%97% leased, respectively, as of December 31, 2020. The pace of leasing in the office tower was significantly impacted by the COVID-19 pandemic, and respectively.
BBX Capital Real Estate recognized a $1.0 million impairment loss related to this investment during the year ended December 31, 2020. BBX Capital has executed an agreement with the joint venture to leaseleases 32,166 square feet of space in the office tower for its corporate headquarters.headquarters pursuant to a lease agreement with the joint venture that has an initial term that ends in 2031.
Other Assets
In addition to the above projects, BBX Capital Real EstateBBXRE holds certain investments in real estate joint ventures in which a majority of the assets of the ventures have been sold. BBX Capital Real EstateBBXRE also holds various legacy assets acquired in connection with the Company’s sale ofprimarily formerly held by BankAtlantic, in 2012, including loans receivable and real estate with an aggregate carrying amount of approximately $19.2$16.9 million as of December 31, 2020.2021. The majority of the legacy assets do not generate cash flow on a regular or predictable basis and are not expected to do so until the assets are monetized through loan repayments or transactions involving the sale, joint venture, or development of the underlying real estate.
In recent years, BBX Capital Real EstateSince the Company’s sale of BankAtlantic in 2012, BBXRE has generated substantial income from the legacy asset portfolio, as the majority of the loans receivable and foreclosed real estate assets within the portfolio were impaired in prior periods to their estimated fair values during the recession that began in 2007 and 2008 but were ultimately monetized by BBX Capital Real EstateBBXRE following the recovery in the real estate market over the past several years. Although BBX Capital Real Estate is continuing its efforts to monetize the remaining assets within the portfolio, BBX Capital Real EstateIn recent years, BBXRE has substantially completedbelieved that the monetization of the portfolio is substantially complete and doesgenerally has not expectexpected significant earnings relating to the remaining assets in future periods. However, as a result of changes in market conditions over the past year, including a significant increase in demand for single-family housing in Florida, BBXRE now expects certain of these assets to generate earnings that are significantly higher than prior expectations
BBX Capital Real EstateBBXRE is also continuescontinuing its efforts to seek collection of legal judgments against past borrowers, and although such collection efforts have continued to generate income for BBX Capital Real EstateBBXRE over the past several years, there is significant uncertainty relating to these efforts, and there is no assurance that theythese efforts will generate income in future periods.
BBX Sweet Holdings
Business Overview
BBX Sweet Holdings is engaged in the ownership and management of operating businesses in the confectionery industry, including Hoffman’s Chocolates, a retailer of gourmet chocolates with retail locations in South Florida, and Las Olas Confections and Snacks, a manufacturer and wholesaler of chocolate and other confectionery products. BBX Sweet Holdings also owns approximately 93% of the equity interests inincluding: i) IT’SUGAR, a specialty candy retailer whose products include bulk candy, candy in giant packaging, and licensed and novelty items and which operates in retail locations which include a mix of high-traffic resort and entertainment, lifestyle, mall/outlet, and urban locations throughout the U.S. United States; ii) Las Olas Confections and Snacks, a manufacturer and wholesaler of chocolate and other confectionery products; and iii) Hoffman’s Chocolates, a retailer of gourmet chocolates with six retail locations in South Florida.
Prior to September 22, 2020, the Company consolidated the financial statements of IT’SUGAR and its subsidiaries based onas a result of its 93%over 90% ownership of IT’SUGAR. However, as a result of the impact of the COVID-19 pandemic on its operations, including the closure of all of its retail locations in MarchSeptember 22, 2020, and the impact of the pandemic on its sales following the reopening of its locations, IT’SUGAR and its subsidiaries filed voluntary petitions to reorganize under Chapter 11 of Title 11 of the BankruptcyU.S. Code (the “Bankruptcy Code”) in the U.S. Bankruptcy Court on September 22, 2020,for the Southern District of Florida (the “Bankruptcy Court”) (the cases commenced by such filings, the “Bankruptcy Cases”), and the Company deconsolidated IT’SUGAR as a result of the filings and the uncertainties surrounding the nature, timing, and specifics of the bankruptcy proceedings,proceedings. On June 16, 2021, the Bankruptcy Court confirmed IT’SUGAR’s plan of reorganization, and the plan became effective on June 17, 2021 (the “Effective Date”). Pursuant to the terms of the plan, BBX Sweet Holdings’ equity interests in IT’SUGAR were revested on the Effective Date. As a result of the confirmation and effectiveness of the plan and the revesting of its equity interests in IT’SUGAR, the Company deconsolidatedwas deemed to have reacquired a controlling financial interest in IT’SUGAR and consolidated the results of IT’SUGAR into its consolidated financial statements as of the Effective Date. See Item 7 - Management’s Discussion and Analysis of Financial Condition and Results of Operations and Note 23 in Item 8 – Financial Statements and Supplementary Data for further discussion related to the Bankruptcy Cases.
Strategy
Although there are certain synergies amongst BBX Sweet Holdings’ operating businesses, these businesses have distinct business and operating strategies based on September 22, 2020. their respective business models. In particular, IT’SUGAR’s business and operating strategy is focused on:
ReninContinuing its focus on driving traffic and sales by creating a “retailtainment” experience for customers, including developing creative and humorous product content;
Expanding on the recent success of its “candy department store” concept as implemented in retail locations at American Dream in New Jersey and the Ala Moana Center in Honolulu, Hawaii in additional select high-traffic resort and entertainment locations;
Evaluating additional retail locations in targeted markets in which it believes it can opportunistically capitalize on the availability of retail space and a decline in rental rates of retail space in certain markets as a result of the impact of the COVID-19 pandemic;
Improving the remaining maturity of its store portfolio by extending the lease terms of its existing successful retail locations, as well as expanding the size of certain retail locations;
Opening “short term” temporary stores in seasonal locations; and
Developing and leveraging industry relationships and establishing itself as a vehicle through which brands can market and sell their products at “retailtainment” locations specifically focused on candy products and candy-themed merchandise.
Las Olas Confections and Snacks’ strategy is primarily focused on growing its wholesale business and improving its gross margin and profitability through process improvements and efficiencies and reductions in product and operating costs. Hoffman’s Chocolates is primarily focused on driving sales at its six retail locations in South Florida. While it previously manufactured various products in a manufacturing location in Greenacres, Florida, Hoffman’s Chocolates expects to exit this manufacturing location in 2022 and purchase substantially all of its products from Las Olas Confections and Snacks, which has a manufacturing facility in Orlando, Florida.
Renin
Business Overview
Renin is engaged in the design, manufacture, and distribution of sliding doors, door systems and hardware, and home décor products and operates through its headquarters in Canada and three manufacturing and distribution facilities in the United States and Canada. In addition to its own manufacturing activities, Renin also sources various products and raw materials from China, Brazil, and certain other countries. In October 2020, Renin acquired substantially all of the assets and assumed certain of the liabilities of Colonial Elegance. Headquartered in Montreal, Canada, Colonial Elegance, is a supplier and distributor of building products includingthat was headquartered in Montreal, Canada. Colonial Elegance’s products included barn doors, closet doors, and stair parts, and its customers includeincluded various big box retailers in the United States and Canada which arewere complementary to and are expected to expandexpanded Renin’s existing customer base.
Renin’s products are primarily sold through three channels in North America: (i) retail, (ii) commercial, and (iii) direct installation in the greater Toronto area. For the year ended December 31, 2020,2021, Renin’s retail channel comprised approximately 67%77% of its gross sales and included big box retail customers, such as Lowe’s (U.S. and Home Depot. This channel is expected to increase as a percentage of Renin’s gross sales in 2021 as a result of its recent acquisition of Colonial Elegance, whose retail customers include Menards, Lowe’s Canada, andCanada), Home Depot Canada. For the year ended December 31, 2020,(U.S. and Canada), and Menards. Renin’s commercial channel comprised approximately 25%16% of its gross sales and included original equipment manufacturers and fabricators across North America; however, as a result of the expected expansion of Renin’s retail channel as compared to 2020, it is expected that sales in Renin’s commercial channel will decrease as a percentage of its overall sales in 2021.America, while Renin’s direct installation channel generated the remaining sales.
Revenues from one customer of Renin represented $34.2 million, $20.2 million, and $20.7 million of the Company’s total revenues for the years ended December 31, 2020, 2019 and 2018, respectively, which represented 19.7% of the Company’s total revenues forDuring the year ended December 31, 2020 and nearly 10% of the Company’s2021, Renin’s total revenues for the years ended December 31, 2019 and 2018, while revenue from a second customer of Renin represented $29.4included $123.5 million of trade sales to three major customers and their affiliates and $50.6 million of revenues generated outside the Company’s total revenues forUnited States. For the year ended December 31, 2020, which2021, revenues from three customers and their affiliates respectively represented 17.0%$50.3 million (or 16.0%), $42.8 million (or 13.6%,), and $30.4 million (or 9.7%) of the Company’s revenues duringtotal revenues. Renin’s long-lived assets located outside the year endedUnited States, which includes properties, equipment, and right of use assets, had a carrying amount of $11.5 million as of December 31, 2020.2021.
Strategy
Renin’s business and operating goals are:strategy is primarily focused on:
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Increasing sales by delivering outstanding customer service;
Lowering product and manufacturing costs through improvements in product sourcing and logistics and manufacturing efficiencies;
Balancing an appropriate mix between domestic manufacturing and global sourcing of finished goods in light of market conditions; and
Reducing customer lead-times through improved inventory planning.
Other Investments
TheIn addition to its principal holdings, the Company also has investments in other operating businesses, including a restaurant located in South Florida that was acquired through a loan foreclosure and an insurance agency.
Regulatory Matters
As a public company, the Company is subject to federal securities laws, including the Securities Exchange Act of 1934, as amended (the “Exchange Act”). In addition, the companies in which BBX Capital holds investments are subject to federal, state and local laws and regulations generally applicable to their respective businesses.
The Company collects, processes, and retains large volumes of internal and customer data, including social security numbers, credit card numbers, and other personally identifiable information of its employees and customers, in various internal information systems. The Company also transmits some of this information to third party service providers. The regulatory environment, as well as the requirements imposed on the Company by the payment card industry surrounding information, security, and privacy is increasingly demanding, in both the United States and other jurisdictions in which the Company operates. From time to time, information comes to our attention that our internal information systems, including our payment processing systems, fail to fully comply with applicable requirements and regulations. Such requirements and regulations may include, without limitation, the Florida Information Protection Act (FIPA), the Fair and Accurate Credit Transactions Act (FACTA), and the Consumer Credit Protection Act (CCPA). Upon receipt of such information, we immediately seek to remediate the issues, both directly and with our third party service providers.
See “Item 1A – Risk Factors” for a description of risks with respect to regulatory compliance.
Seasonality
BBX Sweet Holdings’ businesses are subject to seasonal fluctuations in trade sales, which cause fluctuations in BBX Sweet Holdings’ quarterly results of operations. Historically, IT’SUGAR generated its strongest retail trade sales during the months from June through August, as well as during the month of December, when families are generally on vacation.vacation, while BBX Sweet Holdings’ other operating businesses generate their strongest trade sales during the fourth quarter in connection with various holidays in the United States.
Human Resources
As of December 31, 2020,2021, the Company and its subsidiaries had approximately 1,2151,387 employees, including 644811 employees at IT’SUGAR. We believe that our employee relations are goodsatisfactory and that our employees are important to achieving our business objectives.
In 2020 and 2021, in response to the COVID-19 pandemic, we instituted safety protocols and procedures for our employees who continued to work at physical locations. These protocols includeincluded complying with social distancing and other health and safety standards as recommended by federal, state and local government agencies, as well as taking into consideration guidelines of the Centers for Disease Control and Prevention and other public health authorities. In addition, we reduced the number of in-person interactions and significantly expanded the use of virtual interactions in all aspects of our business, including administrative and operational activities. We also commenced remote work protocols for those employees that, based on their position, were capable of working from home. Wehave now returned to in-person interactions but continue to encourage a remote work protocol for portions of the workforce due to the continuing pandemic. Further, we continuously evaluate our operations in light of recent resurgences of COVID-19, federal, state, and local guidance, evolving data concerning the pandemic, and the best interests of our employees and customers.
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We seekBBX Capital seeks to offer competitive compensation and benefit programs for our employees in our effort to attract and retain superior talent.employees. In addition to competitive base wages, additional programs currently include: Incentive Compensation Plans, Long-Term Incentive Plans, a company matched 401(k) plan, healthcare and insurance benefits, health savings and flexible spending accounts, paid time off, family leave, and employee assistance programs.
We are committed to foster an inclusive work environment that supports our workforce and the communities we serve. It is our policy toWe seek to hire the best qualified employees regardless of gender, ethnicity, or other protected traits and to fully comply with all laws applicable to discrimination in the workplace.
We are committed to maintaining a work environment where employees are treated with dignity and respect, free from the threat of discrimination and harassment. We believe these same standards should apply to all stakeholders and to our interactions with customers, vendors, and independent contractors.
We are proud to be an Equal Opportunity Employer. Our policies prohibit discrimination in hiring or advancement against any individual on the basis of race, color, religion, gender, sex, national origin, age, marital status, pregnancy, physical or mental disability, veteran status, sexual orientation, or any other characteristic protected by applicable law.
We strive to ensure our employees have access to working conditions that provide a safe and healthy environment, free from work-related injuries and illnesses. We encourage employees to raise concerns about actual or suspected misconduct.
Competition
The industries in which BBX Capitalthe Company conducts its business are very competitive, and BBX Capital also faces substantial competition with respect to its investment activities from real estate investors and developers, private equity funds, hedge funds, and other institutional investors. BBX Capital competes with institutions and entities that are larger and have greater resources than the resources available to BBX Capital.
BBX Capital Real EstateBBXRE invests in the development of multifamily apartment communities. Due to the historically strong performance of this class of asset within the real estate market BBX Capital Real Estateand the recent increase in demand for housing in the markets in which BBXRE and the Altman Companies operate, BBXRE is experiencing increased competition from other real estate investors and developers, which is increasinghas resulted in an increase in the cost of land and resulting in increased inventorieslimits the number of multifamily apartment communitiesavailable development opportunities in the markets in which BBX Capital Real Estate investsBBXRE and operates. This can result in decreased rental rates and increase the time required to lease and stabilize its developments.Altman Companies operate.
Renin’s products are primarily sold to large retailers and wholesalers, and it experiences intense competition from others, including importers of foreign products.
Four unaffiliated companies in the confectionery industry currently account for the majority of the industry’s revenues, reflecting significant concentration and competition in the industry in which BBX Sweet Holdings operates.
Implications of Being an Emerging Growth Company
We qualify as an “emerging growth company” as defined in the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”). As an emerging growth company, we can take advantage of specified reduced disclosure and other requirements that are otherwise applicable generally to public companies, including reduced financial disclosure, reduced disclosure about our executive compensation arrangements, exemption from the requirements to hold non-binding advisory votes on executive compensation or shareholder approval of golden parachute payments, and exemption from the auditor attestation requirement in the assessment of our internal control over financial reporting. We expect to continue to take advantage of certain of the exemptions available to emerging growth companies until December 31, 2025 (the end of the fifth fiscal year following the completion of the initial public offeringissuance of our common stock)stock in connection with the spin-off from Bluegreen Vacations) or such earlier time that we no longer qualify as an emerging growth company. We would cease to be an emerging growth company if we have more than $1.07 billion in annual revenue, more than $700.0 million in market value of our stock is held by non-affiliates, or we issue more than $1.0 billion of non-convertible debt securities over a three-year period.
Additional Information
The Company’s corporate website is www.bbxcapital.com. The Company’s Form 10 and Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and all amendments to those reports are available free of charge through its website as soon as reasonably practicable after such material is electronically filed with, or furnished to, the Securities and Exchange Commission (“SEC”). The Company’s website and the information contained on or connected to it are not incorporated into this Annual Report on Form 10-K. The SEC also maintains a website at www.sec.gov that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC.
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Cautionary Note Regarding Forward-Looking Statements
This document contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Exchange Act. All opinions, forecasts, projections, future plans or other statements, other than statements of historical fact, are forward-looking statements. Forward-looking statements can be identified by the use of words or phrases such as “plans,” “believes,” “will,” “expects,” “anticipate,” “intends,” “estimates,” “our view,” “we see,seek,” “would,” and words and phrases of similar import. Forward-looking statements are based largely on our current expectations, and we can give no assurance that such expectations will prove to be correct. In addition, forward-looking statements are subject to a number of risks and uncertainties that are subject to change based on factors which are, in many instances, beyond our control. Actual results, performance, or achievements could differ materially from those contemplated, expressed, or implied by the forward-looking statements contained herein. When considering forward-looking statements, the reader should keep in mind the risks, uncertainties, and other cautionary statements made in this report. The reader should not place undue reliance on any forward-looking statement, which speaks only as of the date made. This document also contains information regarding the past performance of the Company and its investments and operations. The reader should note that prior or current performance is not a guarantee or indication of future performance. Comparisons of results for current and any prior periods are not intended to express any future trends or indications of future performance, and all such information should only be viewed as historical data. Future results could differ materially as a result of a variety of risks and uncertainties.
Some factors which may affect the accuracy of the forward-looking statements apply generally to the industries in which the Company operates, including the real estate development and construction industry in which BBX Capital Real Estate operates, the home improvement industry in which Renin operates, and the confectionery industry in which BBX Sweet Holdings operates.
With respect to the Company generally, the various factors include, but are not limited to:
Risks and uncertainties relating to the COVID-19 pandemic, including risks and uncertainties associated with vaccination, masking, and other deterrence policies which vary across different jurisdictions where the Company operates, and federal, state, and local government officials may in the future issue new or revised orders that are different than the orders under which the Company is currently operating; Risks and economic uncertainties, including inflationary trends, increased costs of labor, freight, shipping and materials, and increasing interest rates, and the Company’s ability to pass along the increased costs to its customers, which could adversely impact the gross margins of the Company’s operating businesses; Risks and uncertainties of supply chain disruptions on the Company’s businesses which has resulted in the higher costs of inventory and may result in the Company being unable to obtain or manufacture sufficient amounts of products or maintain sufficient inventory; Risks that labor shortages may result in issues relating to the hiring or retention of employees, increased employee turnover, and demands for higher wages; Risks related to BBX Capital’s indebtedness and the indebtedness of its subsidiaries including Renin, including the potential for accelerated maturities and debt covenant violations; Risks and uncertainties affecting BBX Capital and its results, operations, markets, products, services, and business strategies, and the risks and uncertainties associated with its ability to successfully implement its current plans and its ability to generate earnings under the current business strategy; The performance of entities in which BBX Capital has made investments may not be profitable or achieve anticipated results and the risk of impairment losses associated with declines in the value of the Company’s investments in operating businesses or the Company’s inability to recover its investments; Risks associated with acquisitions, asset or subsidiary dispositions, or debt or equity financings which the Company may consider or pursue from time to time; Risks of cybersecurity threats, including the potential misappropriation of assets or confidential information, corruption of data, or operational disruptions; The updating of, and developments with respect to, technology, including the cost involved in updating our technology and the impact that any failure to keep pace with developments in technology could have on our operations or competitive position and our information technology expenditures may not result in the expected benefits; |
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The ability of BBX Capital’s subsidiaries to compete effectively in the highly competitive industries in which they operate;
The Company’s ability to maintain the integrity of internal or customer data, the failure of which could result in damage to our reputation and/or subject us to costs, fines or lawsuits;
The Company’s relationships with key customers and suppliers may be materially diminished or terminated;
The preparation of financial statements in accordance with GAAP involves making estimates, judgments and assumptions, and any changes in estimates, judgments and assumptions used could have a material adverse impact on the financial condition and operating results of BBX Capital or its subsidiaries;
The impact on BBX Capital’s consolidated financial statements and internal control over financial reporting of the adoption of new accounting standards;
Audits of BBX Capital’s or its subsidiaries’ federal or state tax returns, including that they may result in the imposition of additional taxes;
The Company’s businesses are subject to various governmental regulations, laws and orders, compliance with which may result in significant expenses, and any noncompliance could result in civil or criminal penalties or other liabilities;
The outcome of litigation, inquiries, investigations, examinations or other legal proceedings is inherently uncertain and could subject the Company to significant monetary damages or restrictions on the Company’s ability to do business;
Any damage to physical assets or interruption of access to physical assets or operations resulting from public health issues, such as the outbreak of COVID-19, or from hurricanes, earthquakes, fires, floods, windstorms or other natural disasters, which may increase in frequency or severity due to climate change or other factors;
The risk that creditors of BBX Capital’s subsidiaries or other third-parties may seek to recover distributions or dividends, if any, made by such subsidiaries to BBX Capital or other amounts owed by such subsidiaries to such creditors or third-parties; and
If BBX Capital issues additional shares of its Class A Common Stock, Class B Common Stock or other securities, including in connection with acquisitions, investments or financings or pursuant to equity compensation plans, BBX Capital’s shareholders would experience dilution and any preferred stock issued could include dividend rights, conversion rights, voting rights, terms of redemption and liquidation preferences, any or all of which may be greater than the rights of BBX Capital’s Class A Common Stock or Class B Common Stock or otherwise adversely affect the holders of BBX Capital’s Class A Common Stock or Class B Common Stock, including the likelihood that holders of BBX Capital’s Class A Common Stock or Class B Common Stock would receive dividend payments and payments on liquidation, or the amounts thereof.
With respect to BBX Capital Real Estate, the risks and uncertainties include, but are not limited to:
The impact of economic, competitive, and other factors affecting BBX Capital Real Estate and its assets, including the impact of a decline in real estate values on BBX Capital Real Estate’s business and the value of BBX Capital Real Estate’s assets; Risks that the investment in the Altman Companies may not realize the anticipated benefits and will increase the Company’s exposure to risks associated with the multifamily real estate development and construction industry; The risk that homebuilder counterparties will not meet their obligations to acquire lots or to pay contingent purchase prices due on the sale of homes; The risks associated with expanding its operating platform to include a logistics real estate division and investing in the development of logistics real estate assets; The risks associated with investments in real estate developments and joint ventures include: oexposure to downturns in the real estate and housing markets; oexposure to risks associated with real estate development activities, including severe weather conditions increasing costs, delaying construction, causing uninsured losses or reducing demand for homes; oenvironmental liabilities, including claims with respect to mold or hazardous or toxic substances; orisks associated with obtaining necessary zoning and entitlements; orisks that joint venture partners may not fulfill their obligations and concentration risks associated with entering into numerous joint ventures with the same joint venture partners; orisks relating to reliance on third-party developers or joint venture partners to complete real estate projects; orisk associated with increasing interest rates, as the majority of the development costs and sales of residential communities is financed; orisks associated with not finding tenants for multifamily apartments or buyers for single-family homes and townhomes; orisk associated with finding equity partners, securing financing, and selling newly built multifamily apartments; orisk associated with rising land and construction costs and supply chain disruptions increasing construction costs and delaying construction schedules and completion of projects; orisk that the projects will not be developed as anticipated or be profitable; and orisk associated with customers or vendors not performing on their contractual obligations. |
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With respect to BBX Sweet Holdings, Renin, and the Company’s other operating businesses, the risks and uncertainties include, but are not limited to:
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11
Risks that market demand for the subsidiaries’ products could decline;
TableRisks that the reorganization of Contentscertain confectionery businesses and operations may not achieve anticipated operating efficiencies and reduction in operating losses and that the implementation of strategic alternatives, including the sale or disposal of certain operations, will result in additional losses;
Failure of the Company’s confectionery businesses or Renin to meet financial metrics may necessitate BBX Capital making further capital contributions or advances to the businesses or a decision not to support underperforming businesses;
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| Risks associated with increased commodity costs or a limited availability of commodities; Risks associated with product recalls or product liability claims; The risk of losses associated with excess and obsolete inventory and the risks of additional required reserves to recognize inventories at their net realizable values; The risks relating to IT’SUGAR’s business plans, including, but not limited to, that IT’SUGAR may not be able to fund or otherwise open new retail locations, including new “temporary” locations, as or when expected, or at all; Risks associated with the performance of vendors, commodity price volatility, shipping costs to deliver raw materials and finished products from foreign countries, and the impact of tariffs on goods imported from Canada and Asia, particularly with respect to Renin; Risks associated with exposure to foreign currency exchange risk of the U.S. dollar compared to the Canadian dollar; The amount and terms of indebtedness associated with the operations and capital expenditures of the subsidiaries may impact their financial condition and |
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In additions, there are risks and uncertainties inherent in the bankruptcy proceedings of IT’SUGAR, including the inability to predict the effect of IT’SUGAR’s reorganization and/or liquidation process on the Company’s results of operations and financial condition, thelimit their activities;
The risk that further impairment chargesthe decreased sales to Renin’s major customers and/or Renin’s efforts to maintain sales of its products to its major customers may be requirednegatively impact Renin’s sales, gross margin, and profitability, require Renin to lower its prices, and result in the future, risks relatingrecognition of impairment losses related to IT’SUGAR’s ability to develop, prosecute, confirmits goodwill and consummate a planlong-lived assets, as well as noncompliance with the terms of reorganization or liquidation, and throughits outstanding credit facility;
The risk that Renin’s acquisition of Colonial Elegance will not achieve the Chapter 11 process, reach agreement with its landlords or other third parties,benefits anticipated and the risk that creditors of IT’SUGARanticipated growth opportunities may assert claims against BBX Capitalnot be achieved or any of its subsidiaries (other than IT’SUGAR) and that BBX Capital’s or its subsidiary’s assets may become subject to or included in IT’SUGAR’s bankruptcy case.if achieved will not be advantageous.
These and other risks and uncertainties disclosed in this Annual Report on Form 10-K are not necessarily all of the important factors that could cause the Company’s actual results to differ materially from those expressed in any of the forward-looking statements. Other unknown or unpredictable factors could cause the Company’s actual results to differ materially from those expressed in any of the forward-looking statements.
Given these uncertainties, you are cautioned not to place undue reliance on forward-looking statements, and you should read this Annual Report on Form 10-K with the understanding that actual future results, levels of activity, performance, and events and circumstances may be materially different from what the Company expects.
Forward-looking statements speak only as of the date of this Annual Report on Form 10-K, and the Company undertakes no obligation to update or revise any forward-looking statements, including to reflect events or circumstances that may arise after the date of this report.
In addition to the risks and factors identified above, reference is also made to the other risks and factors described in this report, including the “Risk Factors” section hereof, and the other reports filed by the Company with the SEC. SEC.
We are subject to various risks and uncertainties relating to or arising out of the nature of our subsidiaries’ businesses, operations and investments, and general business, economic, financing, legal, regulatory, and other factors and conditions. New risk factors emerge from time to time, and it is not possible for management to either predict all risk factors or assess all potential impacts of any factor, or combination of factors, on the Company or its subsidiaries, including with respect to their operations, results and financial condition. Additional risks and uncertainties that we do not presently know about or currently believe are not material may also adversely affect our business, financial condition and results of operations. The risks discussed below also include forward-looking statements, and actual results and events may differ substantially from those expressed in, or implied by, the forward-looking statements. See “Cautionary Note Regarding Forward-Looking Statements” above.
Risks Related to BBX Capital and its Subsidiaries
The COVID-19 pandemic has had and the current and uncertain future outlook may continue to have a material adverse effect on our business financial condition, liquidity and results of operations.
The COVID-19 pandemic has been, and continues to be,resulted in an unprecedented disruption in the U.S. and global economies and its rapid spread, as wellthe industries in which the Company operates including impacts on i) consumer demand, (ii) disruptions in global supply chains, iii) employee absenteeism and a general labor shortage, and (iv) increased economic uncertainty. The disruptions arising from the pandemic and the reaction of the general public have had a significant adverse impact on the Company’s financial condition and operations, particularly with respect to BBX Sweet Holdings, as the escalating measures governments, private organizationseffects of the pandemic required IT’SUGAR to temporarily close all of its retail locations in 2020 and individuals have implementedultimately resulted in IT’SUGAR and its subsidiaries filing petitions for Chapter 11 bankruptcy in September 2020. In addition, the Company’s workforce has been significantly impacted by the pandemic as a result of, among other things, the implementation of temporary and permanent reductions in employee head count in order to stemmanage expenses and various health and safety protocols necessary for the spreadCompany to maintain operations and challenges of this pandemic, have had,hiring and retaining employees and associated increasing labor costs. Further, the Company has experienced significant increases in commodity, freight, inventory, and labor costs, extended lead-times for the purchase of inventory, and delays in inventory shipments, and these factors are expectedimpacting the Company’s operations, including requiring the Company to continue tomaintain higher inventory balances, and may have a material adverse impact on our business, operating results and financial condition, including due to government ordered travel restrictions, restrictions on businessits operations stay at home orders and guidelines, a recessionary economic environment, reduced consumer demand for our products and services, delays in our supply chain and increased costs of goods and transportation. future periods.
The adverse impact of the pandemic across the Company’s investments and on the Company’s consolidated results of operations, cash flows and financial condition has been, and is expected to continue to be, material. Furthermore, while it is not currently possible to accurately assess the expected duration and severity of the pandemic and related disruptions, as well as the resulting adverse impact on the Company’s operations, additional restrictions or other events stemming from the pandemic, including a further resurgence of COVID-19 infections globally, nationally, or in regions where the Company has significant operations, could further lengthen or exacerbate these adverse effects. The Company expects that demand for certain of the Company’s productseconomic and services may remain weak for a significant length of time,market conditions, are uncertain, and the Company cannot predict if and when the Company’s operations will returnmay continue to pre-pandemic levels.
Steps we have implemented in an attempt to mitigate the effects of the pandemic on our business and to preserve liquidity may themselves have negative consequences with respect to our business and operations, includingbe adversely impacted by reducing sales. In addition, the cost savings we are seeking to achieve from these measures will not be recognized immediately and will not completely offset the decrease in revenues and other adverse impacts of the pandemic.
Our operations could also be negatively affected further if our employees are quarantined or sickened as a result of exposure to COVID-19, or if they are subject to governmental COVID-19 curfews or “shelter in place” health orders. Measures restricting the ability of employees to come to work may adversely impact our service or operations, all of which could negatively affect our business.
We are unable to predict how long these conditions will persist, what additional measures may be introduced by governments or private parties or what effect any such additional measures may have on our business. Furthermore, notin future periods.
Not only is the duration of the pandemic and combative measures unknown, the overall situation is extremely fluid, and it is impossible to predict the timing of future changes in the situation and what their impact may be on our business. At this time we are also not able to predict whether the COVID-19 pandemic will result in permanent changes in our customers’ behavior, which may include continued or permanent decreases in discretionary spending and reductions in demand for retail store and confectionery products, home improvement products or real estate, each of which would have a material adverse impact on our business, operating results and financial condition.
The current inflationary trends including, increases in the costs of labor, freight, shipping and materials and widespread supply chain disruptions, could adversely impact gross margins of the Company’s operating businesses.
Headline inflation has surpassed 7%, its highest level since 1982, and the Federal Reserve has signaled that it plans to combat inflation through monetary policy, including the wind-down of quantitative easing and by raising the Federal Funds rate. These inflationary conditions have caused us to increase prices; however, such increases may not be accepted by our customers or may not adequately offset the increase in our costs, thereby negatively affecting our results of operations.
BBXRE has experienced a significant increase in commodity and labor prices, which has resulted in higher development and construction costs, and disruptions in the supply chain for certain commodities and equipment, which has resulted in ongoing supply shortages of building materials, equipment, and appliances. These factors have impacted the timing of certain projects currently under construction and the commencement of construction of new projects. Although such factors have not yet materially impacted BBXRE’s results of operations, these increases may have a material impact on BBXRE’s operating results in future periods. Similarly, as a result of ongoing disruptions in global supply chains, IT’SUGAR has experienced an increase in the cost of inventory and freight, as well as delays in its supply chain. While IT’SUGAR has generally been able to mitigate the impact of increased costs through increases in the prices of its products, supply chain disruptions have also impacted its ability to maintain historical inventory levels at its retail locations which IT’SUGAR believes has negatively impacted its sales volumes. To the extent that costs continue to increase, there is no assurance that IT’SUGAR will be able to continue to increase the prices of its products without significantly impacting consumer demand and its sales volume. IT’SUGAR has also experienced an increase in payroll costs as a result of shortages in available labor at its retail locations. Global supply chain disruptions has also contributed to a significant increase in Renin’s costs related to shipping and raw materials, as well as delays in its supply chains, which have: (i) negatively impacted Renin’s product costs and gross margin, (ii) increased the risk
that Renin will be unable to fulfill customer orders, and (iii) negatively impacted Renin’s working capital and cash flows due to increased inventory in transit, a prolonged period between when it is required to pay its suppliers and it is paid by its customers, and an overall decline in its gross margin. While Renin has obtained price increases for many of its products, Renin’s gross margin has nonetheless been negatively impacted by these cost pressures, and the negotiation of increased prices with customers increases the risk that customers will pursue alternative sources for Renin’s products, which may result in Renin losing customers or require it to lower prices in an effort to retain customers. Accordingly, there is no assurance that the Company operating subsidiaries will be able to continue increasing prices in response to increasing costs, which could have a material adverse effect on the Company’s results of operations and financial condition.
Any downturn in the economic environment may also have a significant adverse impact on the gross margins of the Company’s operating businesses, particularly if an economic downturn is prolonged in nature and impacts consumer demand, materially disrupts the supply chain for the Company’s operating businesses’ products and raw materials, delays the production and shipment of products and raw materials from foreign suppliers or increases shipping costs.
Additionally, Renin has recently observed a decline in consumer demand, which Renin believes may be attributable to (i) the impact of price increases and overall inflationary pressures on consumer behavior and (ii) a shift in consumer spending away from home improvements as many portions of the economy reopen, particularly in the United States.
Labor is one of the primary components of our expenses. A number of factors may adversely affect the labor force available to us or increase our labor costs, including high unemployment levels, federal unemployment subsidies and other government regulations. A sustained labor shortage or increased turnover rates could, whether caused by COVID-19 or as a result of general macroeconomic or other factors, among other things, lead to increased costs, such as increased overtime pay to meet demand and increased wage rates to attract and retain employees, or negatively affect our operations or adversely impact our business and results. Further, any mitigation measures we take in response to a decrease in labor availability or an increase in labor costs may be unsuccessful and could have negative effects.
BBX Capital relies on cash on hand and dividends from its subsidiaries.
BBX Capital relies on its cash and cash equivalents, interest payments received by it pursuant to the terms of the $75$50 million outstanding note issued to itowed BBX by BVH in connection with the spin-off of BBX Capital on September 30, 2020,Bluegreen Vacations, and dividends from its subsidiaries in order to fund its operations and investments. During the year ended December 31, 2020,2021, cash usedgenerated from operations was $6.2$37.8 million and during the year ended December 31, 20192020 cash generatedused from operations was $22.7$6.2 million.
If cash flow is not sufficient to fund BBX Capital’s liquidity needs or BBX Capital otherwise determines it is advisable to do so, BBX Capital might seek to liquidate some of its investments or seek to fund its operations with the proceeds of additional equity or debt financing. Such financing may not be available on commercially reasonable terms, if at all, and if BBX Capital chooses to liquidate its investments, it may be forced to do so at depressed prices. Further, BVHBluegreen Vacations may elect to defer interest payments due under its note to BBX Capital. See the risk factor below entitled “BVH“Bluegreen Vacations may incur additional indebtedness and may defer interest payments under its $75currently outstanding $50 million promissory note to BBX Capital.”
BBX Capital’s subsidiaries may be dependent on BBX Capital to provide liquidity.
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TableBBX Capital’s subsidiaries may not generate sufficient cash flow or maintain liquidity to fund their respective operations and investments or to maintain compliance with the terms of Contentstheir outstanding credit facilities in which case it may seek such funds from BBX Capital. If BBX Capital’s cash flow is not sufficient to fund its subsidiaries’ needs or it determines not to provide such funding, then such subsidiaries might be required to liquidate some of their respective investments or fund their respective operations with the proceeds of additional equity or debt financing. Such financing may not be available on commercially reasonable terms, if at all, and if any such subsidiary chooses to liquidate its investments, it may be forced to do so at depressed prices.
BBX Capital’s acquisitions and investments may generate losses, require it to obtain additional financing and expose it to additional risks.
BBX Capital has made investments in and acquisitions of operating companies, such asincluding its 50% equity interest investment in The Altman Companies and its acquisitions of Renin, IT’SUGAR and businesses in the confectionery industry. In addition, Renin acquired Colonial Elegance during October 2020. BBX Capital may also seek to make opportunistic investments outside of its existing portfolio. Some of these investments and acquisitions may be material. While BBX Capital seeks to make investments and acquisitions in companies that provide opportunities for growth, its investments or acquisitions may not prove to be successful or, even if successful, may not initially generate income, or may generate income on an irregular basis or over a long time period. Accordingly, our results of operations may vary significantly on a quarterly basis and from year to year as a result of acquisitions and investments. Acquisitions or investments expose BBX Capital to the risks of the businesses acquired or invested in. Acquisitions and investments entail numerous risks, including:
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Risks associated with achieving profitability;
Risks associated with the availability and costs of obtaining goods and commodities;
Difficulties in integrating and assimilating acquired management, acquired company founders, and operations;
Losses and unforeseen expenses or liabilities;
Risks associated with entering new markets in which we have no or limited prior experience;
The potential loss of key employees or founders of acquired organizations;
Risks associated with increased indebtedness incurred to finance acquisitions;
Risks associated with transferred assets and liabilities; and
The incurrence of significant due diligence expenses relating to acquisitions, including with respect to those that are not completed.
BBX Capital may not be able to integrate or profitably manage acquired businesses, including Renin, businesses in the confectionery industry, Colonial Elegance and its other operating businesses or its investment in Thethe Altman Companies, without substantial costs, delays, or other operational or financial difficulties, including difficulties in integrating information systems and personnel and establishing control environment processes across acquired businesses. Further, BBX Capital may not be able to monitor the day to day activities of its investments in joint ventures, and failure to do so could have a material adverse effect on its business, financial condition and results of operations. In addition, to the extent that operating businesses are acquired outside the United States or the State of Florida, there will be additional risks related to compliance with foreign regulations and laws including tax laws, labor laws, currency fluctuations and geographic economic conditions.
BVHBBX Capital’s subsidiaries may incur additional indebtedness,not have appropriate short and long term hiring, retention, employee development and succession planning strategies.
Due to current market conditions and other variables such as increased employee turnover, there may be inadequate personnel (both in general numbers and in specific roles) to support operations, business goals and strategies at BBX Capital’s subsidiaries. As a result, BBX Capital’s subsidiaries may be unable to successfully execute on their respective business plans and strategies.
Additionally, inadequate staff with the necessary expertise in certain matters (including, without limitation, expertise in accounting and finance) and inadequate staffing levels to perform certain control functions and maintain daily operations and segregation of duties may result in (i) inadequate internal control over financial reporting and (ii) regulatory, reporting and process objectives not being met timely or accurately.
Bluegreen Vacations Holding Corporation (“Bluegreen Vacations”) may defer interest payments under its $75 million promissorythe note it issued to BBX Capital and may not satisfy its obligations to the Company.BBX Capital.
In connection with BVH’sBluegreen Vacations’ spin-off of BBX Capital on September 30, 2020, BVHBluegreen Vacations executed a $75 million promissory note in favor of BBX Capital. Bluegreen Vacations repaid $25 million of the promissory note in December 2021 thereby decreasing the outstanding balance to $50 million. Amounts outstanding under the note accrue interest at a rate of 6% per annum. The note requires payments of interest only on a quarterly basis; provided however that interest payments may be deferred at the option of BVH,Bluegreen Vacations, with interest on the entire outstanding balance thereafter to accrue at a cumulative, compounded rate of 8% per annum until such time as BVHBluegreen Vacations is current on all accrued payments under the note, including deferred interest. All outstanding amounts under the note will become due and payable in five yearsSeptember 2025 or upon certain events. As a result of the spin-off, BVH is a Bluegreen Vacations is the holding company of Bluegreen and will in future periods rely primarily on dividends from Bluegreen in order to meet its obligations, including its debt service requirements. Bluegreen’s business has been adversely impacted by the COVID-19 pandemic and Bluegreen has suspended the payment of regular quarterly cash dividends. There is no assurance that Bluegreen will resume the payment of regular dividends consistent with prior periods, in the time frames or amounts previously paid, or at all, or pay any special cash dividends in the future. If BVHBluegreen Vacations does not receive sufficient dividends from Bluegreen, BVHBluegreen Vacations may be unable to satisfy its debt service obligations, including payments under the promissory note to BBX Capital. In addition, BVHBluegreen Vacations may in the future seek additional funds from third party sources, which may include the incurrence of additional indebtedness. Any such additional indebtedness would increase BVH’sits debt service requirements and may impair BVH’sits ability to satisfy its payment obligations under its promissory note to BBX Capital. BVH’sBluegreen Vacations promissory note to BBX Capital is unsecured.
BBX Capital may issue additional securities at BBX Capital or its subsidiaries and BBX Capital and its subsidiaries can incur additional indebtedness.
BBX Capital from time to time may pursue transactions involving the sale of its subsidiaries or investments or other transactions which would result in a decrease in BBX Capital’s ownership interest in its subsidiaries. There is no assurance that any such transactions, if pursued and consummated, will generate a profit or otherwise be advantageous to BBX Capital.
BBX Capital may in the future also seek to raise funds through the issuance of debt or equity securities. There is generally no restriction on BBX Capital’s ability to issue debt or equity securities which are pari passu or have a preference over its Class A Common Stock and Class B Common Stock. Authorized but unissued shares of BBX Capital’s capital stock are available for issuance from time to time at the discretion of BBX Capital’s board of directors, and any such issuances may be dilutive to BBX Capital’s shareholders and could cause the market price of BBX Capital’s common stock to decline.
BBX Capital and its subsidiaries have in the past and may in the future incur significant amounts of debt. Further, additional indebtedness could have important effects on BBX Capital, including that debt service requirements will reduce cash available for operations, future investment and acquisition opportunities and payments of dividends, if any, and that increased leverage could impact BBX Capital’s liquidity and increase its vulnerability to adverse economic or market conditions. Additionally, agreements relating to additional indebtedness could contain financial covenants and other restrictions limiting BBX Capital’s operations and its ability to pay dividends, if any, borrow additional funds or acquire or dispose of assets, and expose BBX Capital to the risks of being in default of such covenants.
If BBX Capital cannot generate sufficient cash flow from operations to meet future debt payment obligations or to comply with its loan covenants, then BBX Capital may be required to attempt to restructure or refinance such debt, raise additional capital or take other actions such as selling assets, or reducing or delaying capital expenditures. There is no assurance that BBX Capital will be able to effect any such actions or do so on satisfactory terms, if at all, or that such actions would be permitted by the terms of BBX Capital’s indebtedness.
Substantial sales of BBX Capital’s Class A Common Stock or Class B Common Stock could adversely affect the market prices of such securities.
Substantial sales of BBX Capital’s Class A Common Stock or Class B Common Stock, including sales of shares by controlling shareholders and management, or the perception in the market that such sales will occur, could adversely affect the market prices of such securities. Other than shareholders that are affiliates of BVH,Bluegreen Vacations, shareholders of BVHBluegreen Vacations who received shares of BBX Capital’s common stock in connection with the spin-off generally may sell those shares without restriction. Shareholders may decide to sell the shares received in the spin-off for any reason, including if, among other things, BBX Capital’s common stock does not fit their investment objectives or, in the case of index funds, if BBX Capital is not part of the index in which they invest.
Alan B. Levan, John E. Abdo, Jarett S. Levan and Seth M. Wise’s control position may adversely affect the market price of BBX Capital’s Class A Common Stock and Class B Common Stock.
Alan B. Levan, the Chairman of BBX Capital, John E. Abdo, the Vice Chairman of BBX Capital, Jarett S. Levan, the son of Mr. Alan Levan and the Chief Executive Officer and President and a director of BBX Capital, and Seth M. Wise, Executive Vice President and a director of BBX Capital, currently collectively beneficially own shares of BBX Capital’s Class A Common Stock and Class B Common Stock representing approximately 79%81% of the total voting power of BBX Capital’s Class A Common Stock and Class B Common Stock. Accordingly, and because holders of BBX Capital’s Class A Common Stock and Class B Common Stock vote as a single class on most matters, including the election of directors, as described below, Mr. Alan Levan, Mr. Abdo, Mr. Jarett Levan and Mr. Wise, without the vote or consent of any other shareholder of BBX Capital, have the voting power to elect BBX Capital’s directors and to control the outcome of any other vote of BBX Capital’s shareholders, except in limited circumstances where Florida law mandates that the holders of BBX Capital’s Class A Common Stock vote as a separate class. This control position may have an adverse effect on the market price of BBX Capital’s Class A Common Stock and Class B Common Stock. In addition, their interests may conflict with the interests of BBX Capital’s other shareholders.
BBX Capital’s Articles of Incorporation provide for fixed relative voting percentages between BBX Capital’s Class A Common Stock and Class B Common Stock.
BBX Capital’s Articles of Incorporation provide for holders of BBX Capital’s Class A Common Stock and Class B Common Stock to generally vote together as a single class, including with respect to the election of directors, with holders of BBX Capital’s Class A Common Stock possessing in the aggregate 22% of the total voting power of all common stock and holders of BBX Capital’s Class B Common Stock possessing in the aggregate the remaining 78% of the total voting power. These relative voting percentages will remain fixed unless the number of shares of BBX Capital’s Class B Common Stock outstanding decreases to 360,000 shares, at which time the aggregate voting power of BBX Capital’s Class A Common Stock will increase to 40% and the aggregate voting power of BBX Capital’s Class B Common Stock will decrease to 60%. If the number of shares of BBX Capital’s Class B Common Stock outstanding decreases to 280,000 shares, then the aggregate voting power of BBX Capital’s Class A Common Stock will increase to 53% and the aggregate voting power of BBX Capital’s Class B Common Stock will decrease to 47%. If the number of shares of BBX Capital’s Class B Common Stock outstanding decreases to 100,000 shares, then the fixed voting percentages will be eliminated and each share of BBX Capital’s Class A Common Stock and Class B Common Stock will be entitled to one vote per share. The share thresholds set forth above are subject to equitable adjustment to reflect any stock split, reverse stock split or similar transaction. The changes in the relative voting powerrepresented by each class of BBX Capital’s common stock are based only on the number of shares of Class B Common Stock outstanding, thus issuances of Class A Common Stock will have no effect on these provisions. If additional shares of Class A Common
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Stock are issued without a comparative increase in the number of outstanding shares of Class B Common Stock, the disparity between the equity interest represented by BBX Capital’s Class B Common Stock and its voting power will widen. In addition, shareholders who hold shares of both BBX Capital’s Class A Common Stock and Class B Common Stock, including Alan B. Levan, John E. Abdo, Jarett S. Levan and Seth M. Wise, are able to sell shares of Class A Common Stock without affecting in any material respect their overall voting interest. The fixed voting percentages between BBX Capital’s Class A Common Stock and Class B Common Stock may have an adverse impact on the market price of such securities.
Provisions in BBX Capital’s Articles of Incorporation and Bylaws, BBX Capital’s rights agreement, and provisions of Florida law may make it difficult for a third party to acquire BBX Capital and could impact the price of, or otherwise adversely impact, BBX Capital’s Class A Common Stock and Class B Common Stock.
BBX Capital’s Articles of Incorporation and Bylaws contain provisions that could delay, defer or prevent a change of control of BBX Capital or its management. These provisions could make it more difficult for shareholders to elect directors and take other corporate actions. As a result, these provisions could limit the price that investors are willing to pay in the future for shares of BBX Capital’s Class A Common Stock or Class B Common Stock. These provisions include:
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In addition, in connection with the spin-off, BBX Capital entered into a rights agreement substantially similar to the rights agreement adopted by BVH in light of the COVID-19 pandemic. The rights plan agreement generally provides a deterrent to any person or group from acquiring 5% or more of BBX Capital’s Class A Common Stock, Class B Common Stock, or total combined common stock without the prior approval of BBX Capital’s Board of Directors. Accordingly,Directors to issue additional shares of common or preferred stock and to fix the relative rights agreement may have an anti-takeover effect and will be an impediment to a proposed takeover which is not approved by BBX Capital’s Boardpreferences of Directors.
Further, due to the control position of Mr. Alan Levan, Mr. Abdo, Mr. Jarett Levan and Mr. Wise with respect to BBX Capital’s Class A Common Stock and Class B Common Stock,preferred stock without shareholder approval, as described above, a change in controlfurther detail below; and
advance notice procedures to be complied with by shareholders in order to make shareholder proposals or sale of BBX Capital, or any other action which requires the affirmative vote of holders of shares of BBX Capital’s Class A Common Stock and Class B Common Stock representing a majority of the voting power of such stock, will be impossible without the consent of Mr. Alan Levan, Mr. Abdo, Mr. Jarett Levan and Mr. Wise, and Mr. Alan Levan, Mr. Abdo, Mr. Jarett Levan and Mr. Wise’s interests may conflict with the interests of BBX Capital’s other shareholders. Further, subject to certain limited exceptions set forth therein, the rights agreement prevents other shareholders from acquiring a greater than 5% ownership position in BBX Capital’s Class A Common Stock, Class B Common Stock or total combined common stock and, accordingly, may prevent a meaningful challenge to the influence of Mr. Alan Levan, Mr. Abdo, Mr. Jarett Levan and Mr. Wise over BBX Capital, including matters submitted for shareholder approval.nominate directors.
Additionally, pursuant to BBX Capital’s Articles of Incorporation and Florida law, subject to the separate voting rights of BBX Capital’s Class B Common Stock in certain circumstances, BBX Capital’s Board of Directors may, without the consent of BBX Capital’s shareholders, approve the issuance of authorized but unissued shares of BBX Capital’s securities and fix the relative rights and preferences of preferred stock. If BBX Capital issues additional shares of its Class A Common Stock, Class B Common Stock or other securities, its shareholders would experience dilution. In addition, any preferred stock declared and issued could include dividend rights, conversion rights, voting rights, terms of redemption and liquidation preferences, any or all of which may be greater than the rights of BBX Capital’s Class A Common Stock or Class B Common Stock or otherwise adversely affect the holders of BBX Capital’s Class A Common Stock or Class B Common Stock, including the likelihood that holders of BBX Capital’s Class A Common Stock or Class B Common Stock would receive dividend payments and payments on liquidation, or the amounts thereof. The issuance of preferred stock, while providing flexibility in connection with possible acquisitions, financing transactions and other corporate purposes, could also, among other things, have the effect of delaying, deferring or preventing a change in control or other corporate actions, and might adversely affect the market price of BBX Capital’s Class A Common Stock or Class B Common Stock.
On September 25, 2020, BBX Capital adopted a rights agreement (the “Rights Agreement”) in light of the significant market volatility and uncertainties associated with the COVID-19 pandemic and the impact on the Company and the market price of BBX Capital’s Class A Common Stock and Class B Common Stock. The Rights Agreement provides a deterrent to shareholders from acquiring a 5% or greater ownership interest in BBX Capital’s Class A Common Stock, Class B Common Stock or total combined common stock without the prior approval of the board of directors.
In addition, as a Florida corporation, BBX Capital is also subject to the provisions of the Florida Business Corporation Act (the “FBCA”), including those limiting the voting rights of “control shares.” Under the FBCA, subject to certain exceptions, including mergers and acquisitions effected in accordance with the FBCA, the holder of “control shares” of a Florida corporation that has (i) 100 or more shareholders, (ii) its principal place of business, its principal office or substantial assets in Florida and (iii) either more than 10% of its shareholders residing in Florida, more than 10% of its shares owned by Florida residents or 1,000 shareholders residing in Florida, will not have the right to vote those shares unless the acquisition of the shares was approved by a majority of each class of voting securities of the corporation, excluding those shares held by interested persons. “Control shares” are defined in the FBCA as shares acquired by a person, either directly or indirectly, that when added to all other shares of the issuing corporation owned by that person, would entitle
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that person to exercise, either directly or indirectly, voting power within any of the following ranges: (i) 20% or more but less than 33% of all voting power of the corporation’s voting securities; (ii) 33% or more but less than a majority of all voting power of the corporation’s voting securities; or (iii) a majority or more of all of the voting power of the corporation’s voting securities.
BBX Capital’s Bylaws contain an exclusive forum provision, which could impair the ability of shareholders to obtain a favorable judicial forum for certain disputes with BBX Capital or its directors, officers or other employees and be cost-prohibitive to shareholders.
BBX Capital’s Bylaws contain an exclusive forum provision which provides that, unless its Board of Directors consents to the selection of an alternative forum, the Circuit Court located in Miami-Dade County, Florida (or, if such Circuit Court does not have jurisdiction, another Circuit Court located within Florida or, if no Circuit Court located within Florida has jurisdiction, the federal district court for the Southern District of Florida) will be the sole and exclusive forum for “Covered Proceedings,” which include: (i) any derivative action or proceeding brought on BBX Capital’s behalf; (ii) any action asserting a claim of breach of a fiduciary duty owed by any of BBX Capital’s directors, officers or other employees to BBX Capital or its shareholders; (iii) any action asserting a claim against BBX Capital or any of its directors, officers or other employees arising pursuant to any provision of the FBCA, or BBX Capital’s Articles of Incorporation or Bylaws (in each case, as may be amended or amended and restated from time to time); and (iv) any action asserting a claim against BBX Capital or any of its directors, officers or other employees governed by the internal affairs doctrine of the State of Florida. To the extent within the categories set forth in the preceding sentence, Covered Proceedings include causes of action under the Exchange Act and the Securities Act. The exclusive forum provision also provides that if any Covered Proceeding is filed in a court other than a court located within Florida in the name of any shareholder, then such shareholder shall be deemed to have consented to (a) the personal jurisdiction of the state and federal courts located within Florida in connection with any action brought in any such court to enforce the exclusive forum provision and (b) having service of process made upon such shareholder in any such enforcement action by service upon such shareholder’s counsel in the action as agent for such shareholder. Notwithstanding the foregoing, shareholders cannot waive compliance with the federal securities laws and the rules and regulations thereunder. The exclusive forum provision may limit a shareholder’s ability to bring a claim in a judicial forum that it finds favorable for disputes with BBX Capital or its directors, officers or other employees or be cost-prohibitive to shareholders, which may discourage such lawsuits against BBX Capital or its directors, officers and other employees. However, there is uncertainty regarding whether a court would enforce the exclusive forum provision. If a court were to find the exclusive forum provision to be inapplicable or unenforceable in an action, BBX Capital may incur additional costs associated with resolving such action in other jurisdictions, which could adversely affect BBX Capital’s financial condition and operating results.
BBX Capital does not plan to pay dividends on its common stock.
BBX Capital does not currently anticipate paying any cash dividends for the foreseeable future. BBX Capital’s dividend policy is established by BBX Capital’s Board of Directors based on BBX Capital’s financial condition, results of operations and capital requirements, as well as other business considerations that BBX Capital’s Board considers relevant. Further, the terms of BBX Capital’s indebtedness may limit or prohibit the payments of dividends.
Utilizing the reduced disclosure requirements applicable to BBX Capital may make BBX Capital’s common stock less attractive to investors.
BBX Capital qualifies as an “emerging growth company” and is therefore eligible to utilize certain reduced reporting and other requirements that are otherwise applicable generally to public companies. Pursuant to these reduced disclosure requirements, BBX Capital is not required to, among other things, provide certain disclosures regarding executive compensation, hold shareholder advisory votes on executive compensation or obtain shareholder approval of any golden parachute payments, and BBX Capital has reduced financial disclosure obligations. BBX Capital would cease to be an emerging growth company upon the earliest of: (i) December 31, 2025; (ii) the last day of the fiscal year in which BBX Capital has $1.07 billion or more in annual revenues; (iii) the date on which BBX Capital has issued more than $1.0 billion in non-convertible debt securities during the previous three-year period; and (iv) the date on which BBX Capital is deemed to be a “large accelerated filer” (which is the last day of the fiscal year during which the total market value of BBX Capital’s common equity securities held by non-affiliates is $700 million or more, calculated as of the end of the second quarter (June 30) of such fiscal year).
Currently, BBX Capital qualifies as a “smaller reporting company,” in which case BBX Capital would beand is eligible to utilize the reduced disclosure requirements available to smaller reporting companies even after BBX Capital ceases to be an emerging growth company.companies. The reduced disclosure requirements available to smaller reporting companies are similar to those available to emerging growth companies, including reduced financial and executive compensation disclosures. Under current SEC rules, BBX Capital will becomebecame a smaller reporting company if, as ofon June 30, 2021, theas its total market value of BBX Capital’sits common equity securities held by non-affiliates iswas less than $200 million.
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BBX Capital intends to utilize the reduced reporting requirements and available exemptions for so long as BBX Capital is permitted to do so. Investors may find BBX Capital’s common stock to be less attractive as a result of its utilization of the reduced disclosure requirements and exemptions, which may have a material adverse effect on the trading market and market price of BBX Capital’s Class A Common Stock and Class B Common Stock.
Risks Related to the Spin-Off
BBX Capital may be unable to achieve some or all of the expected benefits of the spin-off, and the spin-off may adversely affect BBX Capital’s business.
As a new, publicly-traded company, as a result of BVH’s spin-off of BBX Capital on September 30, 2020, BBX Capital may be more susceptible to market fluctuations and other adverse events than BBX Capital would have been were it still a part of BVH’s organization. BBX Capital’s performance may not meet expectations for a variety of reasons and there is no assurance that BBX Capital will achieve profitability or succeed as a separate public company.
BBX Capital’s ability to meet its capital needs may be adversely impacted by the loss of financial support from BVH; BBX Capital may not be able to obtain funds necessary to operate its business or to contribute to its subsidiaries.
The loss of financial support from BVH could materially impact BBX Capital’s ability to meet its capital needs. In the event that BBX Capital’s cash and cash equivalents, payments received by BBX Capital pursuant to the terms of the $75 million note issued to it by BVH in connection with the spin-off and dividends from BBX Capital’s subsidiaries are insufficient to fund BBX Capital’s operations and investments, it will be necessary for BBX Capital to seek to obtain funds through accessing the capital or debt markets, and not from BVH. As a standalone company apart from BVH’s organization, the cost of financing may depend on factors such as, among other things, BBX Capital’s performance and financial market conditions generally. Accordingly, BBX Capital may not be able to obtain financing or otherwise raise funds necessary to operate its business on favorable terms, or at all. If BBX Capital is unable to raise additional capital when required or on acceptable terms, BBX Capital may have to significantly delay, scale back or discontinue its investments or operations. Any of these events could significantly adversely impact BBX Capital’s business and prospects and could cause BBX Capital’s stock price to decline. In addition, any debt financing, if available, may restrict BBX Capital’s operations and activities. BBX Capital’s indebtedness could also have other important consequences for holders of BBX Capital’s common stock as described above.
See also the risk factors entitled “BBX Capital may issue additional securities at BBX Capital or its subsidiaries and BBX Capital and its subsidiaries can incur additional indebtedness” and “BVH may incur additional indebtedness, may defer interest payments under its $75 million promissory note to BBX Capital and may not satisfy its debt obligations to the Company” above.
BBX Capital may be unable to make, on a timely or cost-effective basis, or maintain the changes necessary to operate as a separate, publicly traded company, and BBX Capital may experience increased costs.
BVH has no obligation to provide BBX Capital with assistance other than the obligations and services contained in the agreements between BVH and BBX Capital relating to the spin-off, including the Separation and Distribution Agreement, the Tax Matters Agreement, the Employee Matters Agreement, and the Transition Services Agreement. These services do not include every service that BBX Capital received from BVH prior to the spin-off, and BVH is only obligated to provide the services for limited periods following the spin-off. The agreements relating to such services and to the spin-off were agreed to prior to the spin-off, at a time when BBX Capital’s business was still operated as part of BVH’s organization, and BBX Capital did not have an independent board of directors or management team representing its interests with respect to such agreements.
Following the spin-off and the expiration of the aforementioned agreements, BBX Capital will need to provide internally or obtain from unaffiliated third parties the services BBX Capital will no longer receive from BVH. These services may include, without limitation, legal, accounting, information technology, software development, human resources and other infrastructure support, the effective and appropriate performance of which may be critical to BBX Capital’s operations. BBX Capital may be unable to replace these services in a timely manner or on terms and conditions as favorable as those received from BVH. BBX Capital may be unable to successfully establish or maintain the infrastructure or implement or maintain the changes necessary to operate independently, or may incur additional costs that could adversely affect BBX Capital. If BBX Capital fails to obtain the quality of services necessary to operate effectively or incurs greater costs in obtaining these services, BBX Capital’s business, financial condition and results of operations may be adversely affected.
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As a public company, BBX Capital is now subject to the reporting requirements of the Exchange Act and the requirements of the Sarbanes-Oxley Act of 2002 (the “Sarbanes-Oxley Act”), including to maintain effective disclosure controls and procedures and internal control over financial reporting, which requires significant resources and management oversight. The procedures implemented by BBX Capital to address the standards and requirements applicable to public companies may not be successful and the costs associated with compliance may be greater than anticipated.
BBX Capital only became a standalone company apart from BVH’s organization upon completion of the spin-off on September 30, 2020, and BBX Capital’s historical financial statements may not be a reliable indicator of BBX Capital’s future results.
Other than as they relate to results subsequent to the completion of the spin-off on September 30, 2020, the historical financial information of BBX Capital included in Item 8 of this Annual Report on Form 10-K have been derived from BVH’s consolidated financial statements and accounting records and does not necessarily reflect what BBX Capital’s financial position, results of operations and cash flows would have been had BBX Capital been a separate, stand-alone entity during the periods presented. BVH did not account for BBX Capital, and BBX Capital was not operated, as a separate, stand-alone company prior to September 30, 2020. Actual costs that may have been incurred if BBX Capital had been a stand-alone company would depend on a number of factors, including the chosen organizational structure, what functions were outsourced or performed by employees, and strategic decisions made in areas such as information technology and infrastructure, and materiality thresholds would have been significantly lower. In addition, the historical information may not be indicative of what BBX Capital’s results of operations, financial position and cash flows will be in the future particularly in light of the impact of the COVID-19 pandemic on BBX Capital’s businesses, assets and prospects.
BBX Capital’s potential indemnification obligations pursuant to the Separation and Distribution Agreement and disputes under the Separation and Distribution Agreement and other spin-off agreements could have material adverse effects.
Under the Separation and Distribution Agreement pursuant to which the spin-off was consummated, BBX Capital has an obligation to indemnify BVH for liabilities associated with BBX Capital’s business, BVH’s assets and liabilities transferred to BBX Capital in connection with the spin-off, and any breach of BBX Capital’s obligations under the Separation and Distribution Agreement and other agreements entered into between BBX Capital and BVH in connection with the spin-off. The costs associated with any such indemnification could be significant and have a material adverse effect on BBX Capital’s results and financial condition. In addition, disputes between BBX Capital and BVH could arise in connection with the Separation and Distribution Agreement and other agreements entered into between BBX Capital and BVH in connection with the spin-off.
Risks Related to BBX Capital Real Estate
BBX Capital Real Estate’s business and results of operations have been and may continue to be impacted by the COVID-19 pandemic.
BBXRE’s operations have been impacted by the pandemic, and it is expected that its operations may continue to be impacted by the pandemic in future periods. While recent construction activities have continued at BBXRE’s existing projects and sales at its single-family home developments have generally returned to pre-pandemic levels following some disruptions in March and April 2020, the effects of the pandemic, including increased unemployment and economic uncertainty generally and in the real estate and credit markets in particular, as well as increases in the number of COVID-19 cases in Florida and throughout the United States, have impacted rental activities at BBXRE’s multifamily apartment developments and increased uncertainty relating to the expected timing and pricing of future sales of multifamily apartment developments, single-family homes, and developed lots at BBXRE’s Beacon Lake Community, as well as the timing and financing of new multifamily apartment developments.
There is no assurance that the real estate market will not be materially adversely impacted by the pandemic or otherwise, that the sales prices of single-family homes will not materially decline, that rents will be paid when due or at all, or that market rents will not be materially adversely affected. Further, while government efforts to delay or forestall evictions and the availability of judicial remedies have not to date materially impacted BBXRE’s operations, they may in the future have an adverse impact on both market values and BBXRE’s operating results. In addition, the effects of the pandemic may impact the costs of construction materials and the cost of operating BBXRE’s real estate assets, including, but not limited to, an increase in property insurance costs indicated by recently obtained quotes of insurance costs that are higher than pre-pandemic levels, which could also have an adverse impact on market values and BBXRE’s operating results. BBXRE will continue to monitor economic and market conditions and may recognize further impairment losses in future periods as a result of various factors, including, but not limited to, material declines in overall real estate values, sales prices for single family homes, and/or rental rates for multifamily apartments.
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Some of BBX Capital Real Estate’s operations are through unconsolidated joint ventures with others, and we may be adversely impacted by a joint venture partner’s failure to fulfill its obligations.
From time to time BBX Capital Real Estate has entered into joint ventures which reduces the amount BBX Capital Real Estate is required to invest in the development of the real estate properties. However, joint venture partners may become financially unable or unwilling to fulfill their obligations under the joint venture agreements. Most joint ventures borrow money to help finance their activities, and although recourse on the loans is generally limited to the managing members, joint ventures and their properties, BBX Capital Real Estate has in some cases and may in the future provide ongoing financial support or guarantees. If joint venture partners do not meet their obligations to the joint venture (including any obligations to acquire lots at BBXRE’s Beacon Lake community), BBX Capital Real Estate may be required to make significant expenditures, which may have an adverse effect on our operating results or financial condition. BBX Capital Real Estate has in the past and may in the future hold investments in a number of different joint ventures with the same or related developers, which could increase the adverse effects of any failures by such developer to fulfill its obligations. BBX Capital Real Estate has a substantial investment in Thethe Altman Companies and related investments in Altis multifamily apartment joint ventures developed and managed by Thethe Altman Companies and Mr.Joel Altman. Further, BBX Capital is obligated to increase its ownership in the Altman Companies in 2022 regardless of the performance of the Altman Companies at that time. There is no assurance that the value of the interest that it is required to buy will be equal to or greater than the purchase price. Additionally, BBX Capital Real Estate has contributed $3.8 million to a joint venture with Mr.Joel Altman that guarantees the indebtedness and construction cost overruns of new real estate joint ventures established by Thethe Altman Companies, which increases BBX Capital Real Estate’s risk of loss in connection with its real estate joint venture investments managed by Mr.Joel Altman and Thethe Altman Companies.
Investments by BBX Capital Real Estate in real estate developments directly or through joint ventures expose it to market and economic risks inherent in the real estate construction and development industry.
The real estate construction and development industry is highly competitive and subject to numerous risks which in many cases are beyond management’s control. The success of BBX Capital Real Estate’s investments in real estate developments is dependent on many factors, including:
Demand for or oversupply of new homes, finished lots, rental apartments and commercial real estate; Demand for commercial real estate tenants; Real estate market values; Changes in capitalization rates impacting real estate values; Availability of talented individuals in the development industry; Availability and reasonable pricing of labor; Availability and reasonable pricing of construction materials, such as lumber, framing, concrete and other building materials, including increases associated with tariffs and supply chain disruptions; Changes in laws and regulations for new construction and land entitlements, including environmental and zoning laws and regulations; Natural disasters and severe weather conditions increasing costs, delaying construction, causing uninsured losses or reducing demand for new homes; Availability and cost of mortgage financing for potential purchasers; Inventory of foreclosed homes negatively impacting selling prices; Mortgage loan interest rates; Availability of land in desirable locations at prices that result in an economically viable project; Availability, delays and costs associated with obtaining permits, approvals or licenses necessary to develop property; Construction defects and product liability claims; |
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Risk of losses resulting from cost overrun guarantees in the Altman Companies’ sponsored projects that require unique high-density apartment developments in certain markets; and
General economic conditions.
Any of these factors could give rise to delays in the start or completion of a project, increase the cost of developing a project, or result in reduced prices and values for BBX Capital’s developments, including developments underlying its joint venture investments. These factors could also result in BBX Capital being unable to identify real estate inventory opportunities which meet its investment criteria. In addition, BBX Capital’s efforts to identify additional investment opportunities, including the development of multifamily apartment communities that will be owned over a longer term investment period and the pursuit of investment opportunities in new geographic locations may not prove to be successful.
A significant portion of BBX Capital Real Estate’s loans and real estate assets are located in Florida, and conditions in the Florida real estate market could adversely affect our earnings and financial condition.
Real estate held for sale, real estate held for investment, real estate developments owned or managed by BBX Capital Real Estate, and the real estate being developed by BBX Capital Real Estate or joint ventures in which BBX Capital Real Estate has invested are primarily concentrated in Florida, and adverse changes to the Florida economy or the real estate market may negatively impact our earnings and financial condition. As a result, BBX Capital Real Estate is exposed to geographic risks of high unemployment rates, declines in the housing industry and declines in the real estate market in Florida. Adverse changes in laws and regulations in Florida, including moratoriums on evictions would have a negative impact on our revenues, financial condition and business. Declines in the Florida housing markets may negatively impact the credit performance of BBX Capital Real Estate’s loans and result in asset impairments. Further, in addition to the impact of the risks and uncertainties of the pandemic, the State of Florida is subject to the risks of natural disasters, such as tropical storms and hurricanes, which may disrupt operations, adversely impact the ability of borrowers to timely repay their loans, adversely impact the value of any collateral securing loans and BBX Capital Real Estate’s portfolio of real estate, or otherwise have an adverse effect on our results of operations. The severity and impact of tropical storms, hurricanes and other weather related events are unpredictable.
BBX Capital Real Estate’s inability to finance its real estate developments through Community Development District Bonds or obtain performance bonds or letters of credit could adversely affect its results of operations and liquidity.
BBX Capital Real Estate is often required to provide performance bonds and letters of credit under construction contracts or development agreements. BBX Capital Real Estate also obtained financing for the construction of infrastructure improvements for its Beacon Lake development in St. Johns County, Florida from the issuance of Community Development Bonds. BBX Capital Real Estate’s ability to obtain performance bonds, letters of credit, or additional issuances of Community Development Bonds is dependent on BBX Capital Real Estate’s credit rating, financial condition, and historical performance. If BBX Capital Real Estate is unable to obtain these bonds or letters of credit or cause the issuance of Community Development Bonds when required or desirable, our results of operations and liquidity could be adversely affected.
In connection with the sale of BankAtlantic to BB&T during July 2012, we acquired nonperforming loans and foreclosed real estate, and our results of operations and financial condition may be adversely affected if these assets are monetized below their current book values.
As a result of BVH’s sale of BankAtlantic in 2012, we maintain and manage a portfolio of foreclosed real estate and non-performing loans managed by BBX Capital Real Estate. As a consequence, our financial condition and results of operations will be dependent on BBX Capital Real Estate’s ability to successfully manage and monetize these legacy assets. Further, the loan portfolio and real estate may not be easily salable in the event BBX Capital Real Estate decides to liquidate an asset through a sale transaction. If the legacy assets are not monetized at or near the current book values ascribed to them, or if these assets are liquidated for amounts less than book value, our financial condition and results of operations would be adversely affected. Because a majority of these legacy assets do not generate income on a regular basis, we do not expect to generate significant revenue or income with respect to these assets until such time as an asset is monetized through repayments or BBX Capital Real Estate consummates transactions involving the sale, joint venture or development of the underlying real estate or investments.
The Company is subject to environmental laws related to its real estate activities including claims with respect to mold or hazardous or toxic substances, which could have a material adverse impact on our financial condition and operating results.
As current or previous owners or operators of real property, the Company may be liable under federal, state and local environmental laws, ordinances and regulations for the costs of removal or remediation of hazardous or toxic substances on, under or in the property. These laws often impose liability whether or not we knew of, or were responsible for, the presence of such hazardous or toxic substances. The presence of such substances, or the failure to properly remediate such substances, may adversely affect our ability to sell or lease real estate or to borrow money using such real estate or receivables generated from the sale of such property as collateral. Noncompliance with environmental, health or safety requirements may require us to cease or alter operations at one or more of our properties. Further, we may be subject to common law claims by third parties based on damages and costs resulting from violations of environmental regulations or from contamination associated with one or more of our properties. The cost of investigating, remediating or removing such hazardous or toxic substances may be substantial.
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RisksRisk Related to BBX Sweet Holdings
The COVID-19 pandemic has had and the current and uncertain future outlook may continue to have a material adverse effect on BBX Sweet Holdings’ business, financial condition, liquidity and results of operations.
In March 2020, as a result of various factors, including government-mandated closures and Centers of Disease Control “CDC” and World Health Organization “WHO” advisoriesCapital’s investment in connection with the COVID-19 pandemic, IT’SUGAR closed all of its retail locations and furloughed all store employees and the majority of its corporate employees. Between May 2020 and September 2020, IT’SUGAR reopened nearly all of its approximately 100 locations that were open prior to the pandemic as part of a phased reopening plan which included revised store floor plans, increased sanitation protocols, and the gradual recall of furloughed store and corporate employees to full or part-time employment. However, from time to time, IT’SUGAR has been required to close previously reopened locations as a result of various factors, including government-mandated closures and staffing shortages. Although IT’SUGAR was generally able to reopen its retail locations, IT’SUGAR was unable to maintain sufficient liquidity to sustain its operations and as a result, on September 22, 2020, IT’SUGAR and its subsidiaries filed voluntary petitions to reorganize under Chapter 11 of the Bankruptcy Codecompanies in the U.S. Bankruptcy Court for the Southern District of Florida. confectionery industry may result in additional losses and impairments.
In addition to the material adverse impact of the COVID-19 pandemic on IT’SUGAR’s operations, BBX Sweet Holdings’ other operations have also been impacted by the pandemic. In March 2020, Hoffman’s Chocolates closed all of its retail locations to customer traffic and limited sales to curbside pickup (where allowable by government mandates) and online customers, and during the three months ended June 30, 2020, it commenced a phased reopening of its locations to customer traffic. As of July 1, 2020, Hoffman’s Chocolates had reopened all of its locations, and its sales volumes during the six months ended December 31, 2020 were approximately 72% of pre-pandemic levels (as compared to the comparable period in 2019). Although Las Olas Confections and Snacks experienced a decline in sales through the second quarter of 2020, its manufacturing and distribution processes were not materially impacted by the pandemic during the year ended December 31, 2020.
The effects of the COVID-19 pandemic on demand, sales levels, and consumer behavior, as well as the current recessionary economic environment, have had and could continue to have a material adverse effect on BBX Sweet Holdings business, results of operations, and financial condition.
BBX Capital’s investment in companies in the confectionery industry may result in additional losses and impairments.
During the past three years other than candy manufacturing relating to Hoffman’s retail operations, BBX Sweet Holdings exited its candy manufacturing facilities in Utah and South Florida, consolidated its wholesale manufacturing operations in Orlando and centralized the executive management and back office activities in order to improve operating efficiencies and generate cost savings. These strategic initiatives may not be successful, and BBX Sweet Holdings may decide to exit the remaining manufacturing operations. In the event that BBX Sweet Holdings continues to generate losses or exits any of its businesses, this would result in additional losses and adversely affect BBX Sweet Holdings’ results of operations.
Market demand for candy products could decline.
BBX Sweet Holdings confectionery businesses operate in highly competitive markets and compete with larger companies that have greater resources. BBX Sweet Holdings success is impacted by many factors, including the following:
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Effective retail execution;
Effective and cost-efficient advertising campaigns and marketing programs;
Availability of an adequate supply of commodities at a reasonable cost;
Oversight of product safety;
Ability to sell products at competitive prices;
Response to changes in consumer preferences and tastes;
Changes in consumer health concerns, including obesity and the consumption of certain ingredients; and
Concerns related to effects of sugar or other ingredients which may be used to make its products.
A decline in market demand for candy products could negatively affect operating results.
BBX Sweet Holdings may experience product recalls or product liability claims associated with businesses in the confectionery industry.
Selling products for human consumption involves inherent legal and other risks, including product contamination, spoilage, product tampering, allergens, or other adulteration. BBX Sweet Holdings could decide or be required to destroy inventory, recall products or lose sales in connection with contamination, tampering, adulteration or other deficiencies. These events could result in significant losses and may damage the reputation of our confectionery businesses, and discourage consumers from buying products, or cause production and delivery disruptions which would adversely affect our financial condition and results of operations. BBX Sweet Holdings may also incur losses if products cause injury, illness or death. A significant product liability claim may adversely affect both reputation and profitability, even if the claim is unsuccessful.
Risks Related to Renin
The COVID-19 pandemic and the current and uncertain future outlook may have a material adverse effect on Renin’s business, financial condition, liquidity and results of operations.
As of December 31, 2020, Renin had continued to operate both of its manufacturing and distribution facilities, source various products and raw materials from China, Brazil, and certain other countries. Although Renin has experienced a decline in sales to certain customers as a result of concerns related to the pandemic, these declines have generally been offset by an overall increase in sales through its retail and commercial channels. However, as a result of the effects of the pandemic, Renin has experienced increased costs related to the shipment of products and raw materials and this has impacted its product costs and gross margin. Renin expects that this increase in costs to continue and worsen during 2021.
The effects of the pandemic, including a recessionary economic environment, could have a significant adverse impact on Renin’s results of operations and financial condition in future periods, particularly if an economic downturn is prolonged in nature and impacts consumer demand or the effects of the pandemic result in material disruptions in the supply chains for its products and raw materials, including additional delays in the production and shipment of products and raw materials from foreign suppliers and continued increases in shipping costs. Further, while Renin has begun to diversify its supply chain and transfer the assembly of certain products from foreign suppliers to its own manufacturing facilities, Renin continues to source products and raw materials from China. As a result, disruptions in its supply chain from China as a result of various factors, including closures or delays in the supply chain, could have a material impact on Renin’s cost of product and ability to meet customer demand.
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Renin’s retail sales are concentrated with big-box home center customers, and there is significant competition in the industry.
A significant amount of Renin’s sales are to big-box home centers. These home centers in many instances have significant negotiating leverage with their vendors, including Renin, and are able to affect the prices of the products sold and the terms and conditions of conducting business with them. These home centers may also from time to time reduce the number of vendors they purchase from or make significant changes in their volume of purchases. Although homebuilders, dealers and other retailers represent other channels of distribution for Renin’s products, the loss of a home center customer or reduced sales volume at any of these home centers would have a material adverse effect on Renin’s business. Further, Renin has substantial competition from overseas manufacturers of products similar to those sold by Renin. During the year ended December 31, 2020,2021, Renin’s total revenues included $63.6$123.5 million of trade sales to twothree major customers and their affiliates.affiliates and $50.6 million of revenues generated outside the United States. Revenues from one customer of Renin represented $34.2$50.3 million $20.2 million, and $20.7 millionor 16.0%, of the Company’s total revenues, forrevenues from a second customer of Renin represented $42.8 million or 13.6% of the years ended December 31, 2020, 2019Company’s total revenues and 2018, respectively, whichrevenues from a third customer of Renin represented 19.7%$30.4 million or 9.7% of the Company’s total revenues for the year ended December 31, 20202021, respectively. Renin’s long-lived assets located outside the United States, which includes properties and nearly 10%equipment and right of the Company’s revenues for the years endeduse assets, had a carrying amount of $11.5 million as of December 31, 2019 and 2018, while revenue from a second customer2021.
A significant portion of Renin’s business relies on home improvement and new home construction activity, both of which are cyclical and outside of management’s control.
A significant portion of Renin’s business is dependent on the levels of home improvement activity, including spending on repair and remodeling projects, and new home construction activity. Macroeconomic conditions, including consumer confidence levels, fluctuations in home prices, unemployment and underemployment levels, interest rates, regulatory initiatives, and the availability of home equity loans and mortgage financing affect both discretionary spending on home improvement projects as well as new home construction activity. Adverse changes in these factors or uncertainty regarding these macroeconomic conditions could result in a decline in spending on home improvement projects and a decline in demand for new home construction, both of which could adversely affect Renin’s results of operations.
Renin’s operating results would be negatively impacted if it experiences increased commodity costs or a limited availability of commodities.
Renin purchases various commodities to manufacture products, including steel, aluminum, glass and mirrors. Fluctuations in the availability and prices of these commodities could increase the cost to manufacture products. Further, increases in energy costs could increase production costs, and increases in costs to transport raw materials and finished goods have impacted and could continue to negatively affect its operating results. Renin’s existing arrangements with customers, competitive considerations or delays in deliveries and the relative negotiating power and resistance of home center customers and big-box retailers to price increases make it difficult to increase selling prices to absorb increased production costs. If Renin is not able to increase the prices of its products or achieve other cost savings or productivity improvements to offset any increased commodity and production costs, our operating results could be negatively impacted. Renin purchases raw materials and finished goods from sources in China, Brazil, and certain other countries. Changes in United States trade practices, or tariffs levied on these imports, could significantly impact Renin’s results of operations and financial condition.
General Risks
The market price of BBX Capital’s Class A Common Stock and Class B Common Stock may be volatile or may decline regardless of BBX Capital’s results.
The market price of BBX Capital’s Class A Common Stock and Class B Common Stock may be volatile due to a number of factors, many of which are beyond BBX Capital’s control, including those discussed in this “Risk Factors” section and under “Cautionary Note Regarding Forward-Looking Statements,” as well as the following:
the failure of securities analysts to cover BBX Capital’s Class A Common Stock or Class B Common Stock, or changes in financial estimates by analysts; the inability to meet the financial estimates of analysts who follow BBX Capital’s Class A Common Stock or Class B Common Stock; variations in quarterly operating results, including seasonal fluctuations; additions or departures of key personnel; general economic and stock market conditions; regulatory and legal proceedings, investigations and developments; political developments; economic effects of the Russian and Ukrainian war: changes in accounting principles; changes in tax legislation and regulations; terrorist acts; accumulation of publicly held shares and the timing and amount of future purchase or sales of BBX Capital’s Class A Common Stock, Class B Common Stock or other securities; and investor perceptions with respect to BBX Capital’s Class A Common Stock and Class B Common Stock relative to other investment alternatives. |
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The Company’s technology requires updating, the cost involved in updating the technology may be significant, and the failure to keep pace with developments in technology could impair the Company’s operations or competitive position.
The industries in which the Company does business require the utilization of technology and systems, including technology utilized for sales and marketing, mortgage servicing, property management, brand assurance and compliance. This technology requires continuous updating and refinements, including technology required to remain competitive and to comply with the legal requirements such as privacy regulations and requirements established by third parties. The Company is taking steps to update its information technology platform, which has required, and is likely to continue to require, significant capital expenditures. Older systems which have not yet been updated may increase the risk of operational inefficiencies, financial loss and non-compliance with applicable legal and regulatory requirements, and the Company may not be successful in updating such systems in the time frame or at the cost anticipated. Further, as a result of the rapidly changing technological environment, systems which the Company has put in place or expects to put in place in the near term may become outdated, requiring new technology, and the Company may not be able to replace those systems as quickly as its competition or within budgeted costs and time frames. Further, the Company may not achieve the benefits that may have been anticipated from any new technology or system.
In addition, conversions to new information technology systems require effective change management processes and may result in cost overruns, delays or business interruptions. If the Company’s information technology systems are disrupted, become obsolete, or do not adequately support our strategic, operational, or compliance needs, the Company’s business, financial position, results of operations, or cash flows may be adversely affected.
Further, the development of new technologies, products and processes, and changes in customer behavior (such as the increase in online shopping), that have changed the way in which the Company’s customers conduct business may make the Company’s existing products, services, businesses or processes obsolete or inefficient.
Information technology failures and failure to maintain the integrity of the Company’s internal or customer data could result in faulty business decisions or operational inefficiencies, damage the Company’s reputation and/or subject the Company to costs, fines, or lawsuits.
The Company relies on information technology (IT) systems, including Internet sites, data hosting facilities and other hardware and platforms, some of which are hosted by third parties. These IT systems, like those of most companies, may be vulnerable to a variety of interruptions and risks, including, but not limited to, natural disasters, telecommunications failures, hackers, and other security issues. Moreover, the Company’s computer systems, like those of most companies, may become subject to computer viruses or other malicious codes, and to cyber or phishing-attacks. Although administrative and technical controls have been implemented which attempt to minimize the risk of cyber incidents, computer intrusion efforts are becoming increasingly sophisticated, and any enhanced controls installed might be breached. If the IT systems cease to function properly, the Company could suffer interruptions in its operations. The Company collects and retains large volumes of internal and customer data, including social security numbers, credit card numbers and other personally identifiable information of its customers in various internal information systems and information systems of its service providers. The Company also maintains personally identifiable information about its employees. The integrity and protection of that customer, employee and company data is critical to the Company and faulty decisions could be made if that data is inaccurate or incomplete. The regulatory environment as well as the requirements imposed on the Company by the payment card industry surrounding information, security and privacy is also increasingly demanding, in both the United States and other jurisdictions in which the Company operates. The Company’s systems may be unable to satisfy changing regulatory and payment card industry requirements and employee and customer expectations, or may require significant additional investments or time in order to do so.
The Company’s information systems and records, including those it maintains with its service providers, may be subject to security breaches, cyberattacks, system failures, viruses, operator error or inadvertent releases of data. A significant theft, loss, or fraudulent use of customer, employee or company data maintained by the Company or by a service provider could adversely impact the Company’s reputation and could result in remedial and other expenses, fines or litigation. A breach in the security of the Company’s information systems or those of its service providers could lead to an interruption in the operation of the Company’s systems, resulting in operational inefficiencies and a loss of profits. This could require the Company to incur significant costs to comply with legally required protocols and to repair or restore the security of its systems.
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The Company’s insurance policies may not cover all potential losses and the cost of insurance may increase.
The Company maintains insurance coverage for liability, property and other risks with respect to its operations and activities. While the Company currently has comprehensive property and liability insurance policies with coverage features and insured limits that it believes are customary, market forces beyond the Company’s control may limit the scope of the insurance coverage it can obtain or ability to obtain coverage at reasonable rates. The cost of insurance may increase and coverage levels may decrease, which may affect the Company’s ability to maintain insurance coverage and deductibles at acceptable costs. There is a limit as well as various sub-limits on
the amount of insurance proceeds the Company will receive in excess of applicable deductibles. Further, certain types of losses, such as earthquakes, hurricanes and floods, terrorist acts, and certain environmental matters and business interruptions, may be outside the general coverage limits of the Company’s policies, subject to large deductibles, deemed uninsurable or too cost-prohibitive to insure against. In addition, in the event of a substantial loss, the insurance coverage the Company carries may not be sufficient to pay the full market value or replacement cost of the affected property or in some cases may not provide a recovery for any part of a loss.
If an insurable event occurs that affects more than one of the Company’s assets or properties, the claims from each affected property may in some cases may be considered together and may not in other cases be considered together to determine whether the individual occurrence limit, annual aggregate limit or sub-limits, depending on the type of claim, have been reached. As a result, the Company could lose some or all of its investments, as well as anticipated future revenue opportunities.
Adverse outcomes in legal or other regulatory proceedings, including claims of non-compliance with applicable regulations or development-related defects could adversely affect the Company’s financial condition and operating results.
In the ordinary course of business, the Company is subject to litigation and other legal and regulatory proceedings, which result in significant expenses and devotion of time and the Company may agree to indemnify third parties or its strategic partners from damages or losses associated with such risks. In addition, litigation is inherently uncertain, and adverse outcomes in the litigation and other proceedings to which the Company is or may be subject could adversely affect its financial condition and operating results.
BBX Capital Real Estate engages third-party contractors in its developments. However, BBX Capital Real Estate’s customers may assert claims against BBX Capital Real Estate for construction defects or other perceived development defects, including, without limitation, structural integrity, the presence of mold as a result of leaks or other defects, water intrusion, asbestos, electrical issues, plumbing issues, road construction, water and sewer defects and defects in the engineering of amenities. In addition, certain state and local laws may impose liability on property developers with respect to development defects discovered in the future. BBX Capital Real Estate could have to accrue a significant portion of the cost to repair such defects in the quarter when such defects arise or when the repair costs are reasonably estimable.
Costs associated with litigation, and the outcomes thereof, which in most instances are very difficult to predict, could adversely affect the Company’s liquidity, financial condition and operating results.
The Company’s business may be adversely impacted by negative publicity, including information spread through social media.
The proliferation and global reach of social media continues to expand rapidly and could cause the Company to suffer reputational harm. The continuing evolution of social media presents new challenges. Negative posts or comments about the Company, the properties it manages, orthe products it sells, its brands or customer experiences on any social networking or user-generated review website, could affect consumer opinions of the Company and its products, and the Company cannot guarantee that it will timely or adequately redress such instances.
The loss of the services of key management and personnel could adversely affect the Company’s business.
The Company’s ability to successfully implement its business strategy will depend on the ability to attract and retain experienced and knowledgeable management and other professional staff. Additionally, the “great resignation” trend that began in 2021 in which employees voluntarily resigned from their jobs could strain our ability to retain experienced and knowledgeable employees. If the Company is unable to retain and motivate its existing employees and efforts to retain and attract key management and other personnel are unsuccessful, the Company’s results of operations and financial condition may be materially and adversely impacted.
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Unexpected events, such as natural disasters, geopolitical conflicts, civil unrest, severe weather and terrorist activities, may disrupt the Company’s operations and increase our costs.
The occurrence of one or more unexpected events, including tsunamis, hurricanes, earthquakes, floods and other forms of severe weather or civil unrest, geopolitical conflicts (including the current conflict between Ukraine and Russia) and/or terrorist activities in countries or regions in which our assets, suppliers or our operating businesses are located could adversely affect our operations and financial performance.
Changes With respect to the current conflict between Ukraine and replacementRussia, if such conflict escalates or spills over to or otherwise impacts additional regions, it could heighten many of the LIBOR benchmark interest rate could adversely affect our resultsother risk factors included in this Item 1A.
In July 2017, the Financial Conduct Authority (the regulatory authority over LIBOR) stated they will plan for a phase out of regulatory oversight of LIBOR interest rate indices after 2021 to allow for an orderly transition to an alternate reference rate. The Alternative Reference Rates Committee (ARRC) has proposed that the Secured Overnight Financing Rate (SOFR) is the rate that represents best practice as the alternative to LIBOR for promissory notes or other contracts that are currently indexed to LIBOR. The ARRC has proposed a market transition plan to SOFR from LIBOR and organizations are currently working on transition plans as it relates to derivatives and cash markets exposed to LIBOR. The Company currently has $45.6 million of LIBOR indexed notes payable and lines of credit that mature after 2021. Changes in the method of calculating LIBOR, or the replacement of LIBOR with SOFR or another alternative rate or benchmark, may adversely affect interest rates and result in high borrowing costs, which could adversely affect BBX Capital’s results of operations and liquidity. We cannot predict the effect of the potential changes to LIBOR or the establishment and use of alternative rates or benchmarks.
There are inherent uncertainties involved in estimates, judgments and assumptions used in the preparation of financial statements in accordance with GAAP. Any changes in estimates, judgments and assumptions used could have a material adverse effect on our financial condition and operating results.
The preparation of financial statements in accordance with GAAP involves making estimates, judgments and assumptions that affect reported amounts of assets (including long-lived assets, goodwill and other intangible assets), liabilities and related reserves, revenues, expenses and income. This includes estimates, judgments and assumptions for assessing the amortization/accretion of purchase accounting fair value differences and the impairment of long-lived assets, goodwill and other intangible assets pursuant to applicable accounting guidance. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are often not readily apparent from other sources. However, estimates, judgments and assumptions can be highly uncertain and are subject to change in the future, and our estimates, judgments and assumptions may prove to be incorrect and our actual results may differ from these estimates under different assumptions or conditions. If any estimates, judgments or assumptions change in the future, or our actual results differ from our estimates or assumptions, we may be required to record additional expenses or impairment charges, which would be recorded as a charge against our earnings and could have a material adverse impact on our financial condition and operating results.
If BBX Capital fails to maintain proper and effective internal controls, its ability to produce accurate and timely financial statements could be impaired, which could harm its operating results ability to operate its business and its reputation.
As an SEC reporting company, BBX Capital is required to, among other things, maintain a system of effective internal control over financial reporting and to provide annual management reports on the effectiveness of its internal control over financial reporting. Ensuring that BBX Capital has adequate internal financial and accounting controls and procedures in place so that it can produce accurate financial statements on a timely basis is a costly and time-consuming effort that needs to be re-evaluated frequently. Substantial work and expenses may continue to be required to implement, document, assess, test and, as necessary, remediate BBX Capital’s system of internal controls. If BBX Capital’s internal control over financial reporting is not effective or if BBX Capital is not able to issue its financial statements in a timely manner, BBX Capital may not be able to comply with the periodic reporting requirements of the SEC, in which case the market price of BBX Capital’s Class A Common Stock and Class B Common Stock could materially suffer. In addition, BBX Capital or members of its management could be subject to investigation and sanction by the SEC and other regulatory authorities and to shareholder lawsuits, which could impose significant additional costs on BBX Capital and divert management attention.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
BBX Capital’s principal executive office is currently located at 301201 East Las Olas Boulevard, Suite 201,1900, Fort Lauderdale, Florida, 33301, under a lease with an expiration date in October 2021. BBX Capital has executed a lease for a new principal executive office located at 201 East Las Olas Boulevard, Fort Lauderdale, Florida, 33301 with occupancy anticipated in October 2021.2031. The lease agreement for the new principal executive office has an initial term of 10 years and provides the Company with the right to renew the lease for three additional terms of five years following the initial term.
BBX Sweet Holdings maintains certain offices at BBX Capital’s principal executive office, including the executive offices at the Company’s principal executive office. BBX Sweet Holdingsof IT’SUGAR. IT’SUGAR operates approximately 100 retail locations in over 25 states which are subject to leases that expire between 2022 and 2031. Hoffman’s Chocolates operates six Hoffman’s Chocolates retail locations in South Florida which are subject to leases that expire between 20212022 and 2026 and one retail location in Greenacres, Florida that it currently owns. BBX Sweet Holdings also operatesconsolidated its manufacturing operations in a manufacturing facility in Orlando, Florida which is subject to a lease that expires in 2021,2024, subject to three one-year renewalsrenewal options that may be exercised by the Company. BBX Sweet HoldingsHoffman’s Chocolates also owns a manufacturing facility in Greenacres, Florida.
IT'’SUGAR, which filed for voluntary bankruptcy In December 2021, Hoffman’s Chocolates entered into a purchase and sale agreement to sell the facility in September 2020, maintainsGreenacres, Florida to a principal executive office at 3155 Southwest 10th Street, Deerfield Beach, Florida that is occupied underthird party buyer, and the buyer has agreed to lease back a portion of the property to Hoffman’s Chocolates pursuant to a lease withwithin an expiration dateinitial term 24 months, subject to two one-year renewal options that may be exercised by Hoffman’s Chocolates. Hoffman’s Chocolates currently expects to close on the sale of October 31, 2024; however,the facility on or before April 15, 2022 and execute the lease was amended to shortenagreement on the expiration date to October 31, 2021, subject to Bankruptcy Court approval. Prior to the bankruptcy filing, IT’SUGAR maintained approximately 100 retail locations in over 25 states and Washington D.C. which are subject to leases that expire between 2021 and 2030. IT’SUGAR is currently negotiating the terms of these leases with the oversight of the Bankruptcy Court, and certain of these leases may be terminated or modified.closing date.
Renin’s principal executive office is located at 110 Walker Drive, Brampton, Ontario and is occupied under a lease with an expiration date of December 31, 2027. Renin also leases three manufacturing and distribution facilities in the United States and Canada, one of which is located at their principal executive office. These leases have expiration dates of December 31, 2022,2026, August 31, 2027, and December 31, 2027. The lease that expires inon December 31, 2026 provides Renin with the right to renew the terms of the lease for five additional terms of five years commencing after the expiration date, and the lease that expires on August 31, 2027 provides Renin with the right to renew the terms of the lease for five years commencing after the expiration date. Renin also leases a warehouse in Canada pursuant to a lease agreement with an expiration date of July 31, 20212022 and which provides Renin with the right to renew the lease for three yearsone year commencing after the expiration date. In January 2021, Renin took possession of an additional manufacturing and distribution facility in the United States under a lease with an expiration date of December 31, 2026 with the right to renew the terms of the lease for five additional terms of five years following the initial term.
BBX Capital has one lease associated with a restaurant in Palm Beach County acquired through foreclosure with an expiration date in 2030.
BBX Capital
In the ordinary course of business, BBX Capital and its subsidiaries are parties to lawsuits as plaintiff or defendant involving its operations and activities. Additionally, from time to time in the ordinary course of business, the Company is involved in disputes with existing and former employees, vendors, taxing jurisdictions, and various other parties and also receives individual consumer complaints as well as complaints received through regulatory and consumer agencies. The Company takes these matters seriously and attempts to resolve any such issues as they arise. The Company may also become subject to litigation related to the COVID-19 pandemic, including with respect to any actions we take, fail to take, or may be required to take in response thereof. Although BBX Capital and its subsidiaries believe that they have meritorious defenses in all current legal actions, the outcome of litigation and regulatory matters and timing of ultimate resolution are inherently difficult to predict and uncertain.
There were no material pending legal proceedings against BBX Capital or its subsidiaries as of December 31, 2020.2021.
ITEM 4. MINE SAFETY DISCLOSURE
Not Applicable.
PART II
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
BBX Capital’s Class A Common Stock and Class B Common Stock have substantially identical terms, except as follows:
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Under Florida law and our Articles of Incorporation and Bylaws, holders of our Class A Common Stock and Class B Common Stock vote together as a single class on most matters presented for a shareholder vote. On such matters, holders of our Class A Common Stock are entitled to one vote for each share held, with all holders of Class A Common Stock possessing in the aggregate 22% of the total voting power, while holders of Class B Common Stock possess the remaining 78% of the total voting power. If the number of shares of Class B Common Stock outstanding decreases below 360,000 shares but is greater than 280,000 shares, the Class A Common Stock’s aggregate voting power will increase to 40%, and the Class B Common Stock will have the remaining 60%. If the number of shares of Class B Common Stock outstanding decreases below 280,000 shares but is greater than 100,000 shares, the Class A Common Stock’s aggregate voting power will increase to 53%, and the Class B Common Stock will have the remaining 47%. If the number of shares of Class B Common Stock outstanding decreases below 100,000 shares, the fixed voting percentages will be eliminated, and holders of our Class A Common Stock and holders of our Class B Common Stock will each be entitled to one vote per share.
Each share of Class B Common Stock is convertible at the option of the holder thereof into one share of Class A Common Stock.
In addition to any other approval required by Florida law, the voting structure described in the first bullet point above may not be amended without the approval of holders of a majority of the outstanding shares of our Class B Common Stock, voting as a separate class. Holders of our Class B Common Stock also have certain other special voting rights with respect to matters affecting our capital structure and the Class B Common Stock.
Market Information
In October 2020, BBX Capital’s Class A Common Stock commenced trading on the OTCQX Best Market under the ticker symbol “BBXIA,” and its Class B Common Stock commenced trading on the OTC Pink Market under the ticker symbol “BBXIB.” Prior to October 2020, BBX Capital’s common stock was not publicly traded.
On March 8, 2021,2022, there were approximately 173176 record holders of our Class A Common Stock and approximately 6976 record holders of our Class B Common Stock.
BBX Capital does not currently anticipate paying any cash dividends for the foreseeable future. BBX Capital’s dividend policy is established by BBX Capital’s Board of Directors based on the Company’s financial condition, results of operations and capital requirements, as well as other business considerations that BBX Capital’s Board of Directors considers relevant. Further, the terms of BBX Capital’s indebtedness may limit or prohibit the payments of dividends.
Issuer Purchases of Equity Securities
Tender Offer
In May 2021, BBX Capital commenced a cash tender offer to purchase up to 4,000,000 shares of its Class A Common Stock at a purchase price of $6.75 per share, and in June 2021, BBX Capital amended the terms of the tender offer to increase the purchase price from $6.75 per share to $8.00 per share and reduce the number of shares sought to be purchased from 4,000,000 shares to 3,500,000 shares. In July 2021, BBX Capital purchased 1,402,785 shares of its Class A Common Stock pursuant to the cash tender offer at a purchase price of $8.00 per share for an aggregate purchase price of approximately $11.4 million, including fees. At the time that the tender offer was completed, the shares purchased represented approximately 9.3% of the total number of outstanding shares of BBX Capital’s Class A Common Stock and 7.5% of BBX Capital’s total issued and outstanding equity, which includes the issued and outstanding shares of BBX Capital’s Class B Common Stock.
October 2020 Share Repurchase Program
In October 2020, BBX Capital’s boardBoard of directorsDirectors approved a share repurchase program which authorized the repurchase of up to $10.0 million of shares of BBX Capital’s Class A Common Stock and Class B Common Stock. In September 2021, the Board of Directors approved an increase in the program from $10.0 million of shares to $20.0 million of shares, and in November 2021, the Board of Directors approved an increase in the program in an amount necessary to repurchase 1,305,416 shares of Class A Common Stock in a private transaction. As of December 31, 2021, BBX Capital had purchased 2,425,229 shares of its Class A Common Stock and 14,394 shares of its Class B Common Stock under this program for approximately $22.8 million, and there was no remaining availability to purchase shares under the program as of December 31, 2021.
Information regarding BBX Capital’s purchase of its Class A and Class B Common Stock under the repurchase program during the three months ended December 31, 2021 is set forth in the table below:
Period | (a) Total Number of Shares Purchased | (b) Average Price Paid per Share | (c) Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | (d) Maximum Number (or Approximate Dollar Value) of Shares that May Yet Be Purchased Under the Plans or Programs (1) |
October 1 – October 31, 2021 | — | — | — | $11,680,609 |
November 1 – November 31, 2021 | — | — | — | $11,680,609 |
December 1 – December 31, 2021 | 1,305,416 | 11.12 | 1,305,416 | $0 |
January 2022 Share Repurchase Program
In January 2022, BBX Capital’s Board of Directors approved a share repurchase program which authorizes the repurchase of shares of BBX Capital’s Class A and Class B Common Stock for a total aggregate purchase price of up to $15.0 million. The stock repurchase authorizationprogram authorizes BBX Capital, in management’s discretion, to repurchase shares from time to time subject to market conditions and other factors.
The timing, price, and number of shares which may be repurchased under the program in the future will be based on market conditions, applicable securities laws, and other factors considered by management. Share repurchases under the program may be made from time to time through solicited or unsolicited transactions in the open market or in privately negotiated transactions. The share repurchase program does not obligate the CompanyBBX Capital to repurchase any specific numberamount of shares and may be suspended, modified, or terminated at any time without prior notice. As of December 31, 2020, the Company had approximately 19,317,687 shares of common stock outstanding, and there had been no purchases of Class A Common Stock or Class B Common Stock under this program.
Rights Agreement
OnIn September 25, 2020, BBX Capital adopted a rights agreement (the “Rights Agreement”) in light of the significant market volatility and uncertainties associated with the COVID-19 pandemic and the impact on the Company and the market price of BBX Capital’s Class A Common Stock and Class B Common Stock. The Rights Agreement provides a deterrent to shareholders from acquiring a 5% or greater ownership interest in BBX Capital’s Class A Common Stock, Class B Common Stock, or total combined common stock without the prior approval of the boardBoard of directors.Directors.
Equity Compensation Plan Information
30
Shareholder Return Performance Graph
Set forth below isBBX Capital’s Board of Directors granted a graph comparing the cumulative total returns (assuming reinvestment of dividends) for546,523 restricted shares of BBX Capital’s Class A Common Stock to certain of its executive officers, 205,029 restricted shares of BBX Capital’s Class B Common Stock to its Chief Executive Officer and President, and a total of 25,000 restricted shares of the Company’s Class A Common Stock to certain non-executive employees. All restricted shares of Class A and Class B Common Stock were granted under the StandardBBX Capital, Inc. 2021 Incentive Plan and Poor’s 500 Stock Index and Standard and Poor’s Small-Cap Stock Index and assumes $100 was invested on October 1, 2020,reduced the date that the Company’snumber of securities remaining available for future issuance under BBX Capital’s equity compensation plan to 328,477 shares of Class A Common Stock commenced trading on the OTCQX Best Market.and 94,971 shares of Class B Common Stock.
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| 10/1/20 | 12/31/20 |
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BBX Capital, Inc. | $ | 100.00 | 223.14 |
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Standard and Poor's Small-Cap Stock Index |
| 100.00 | 129.02 |
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Standard and Poor's 500 Stock Index |
| 100.00 | 111.10 |
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ITEM 6. SELECTED FINANCIAL DATA
Not Applicable.
The Company is not able to identify a group of peer companies or industry or line of business index which it believes is comparable to the Company and its current activities. Accordingly, the Company selected the Standard and Poor’s Small-Cap Stock Index based on the Company’s market capitalization.
ITEM 6. SELECTED FINANCIAL DATA
Not Applicable.
32
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read together with the Company’s audited consolidated financial statements and related notes included in Item 8 of this Annual Report on Form 10-K, including the basis of presentation for the consolidated financial statements prior to September 30, 2020 (the date of the spin-off of the Company from Bluegreen Vacations Holding Corporation) which reflect combined financial statements of BBX Capital, Inc. and its subsidiaries and do not necessarily reflect what the results of operations, financial position, or cash flows would have been had BBX Capital, Inc. and its subsidiaries been a separate entity or what the results of operations, financial position, or cash flows will be in the future. The following discussion contains forward-looking statements, including those that reflect our plans, estimates, and beliefs. Our actual results could differ materially from those discussed in the forward-looking statements. Factors that could cause or contribute to these differences include, without limitation, those discussed below and elsewhere in this Annual Report on Form 10-K, particularly in Part 1. Item 1A “Risk Factors” and Item 1 “Cautionary Note Regarding Forward-Looking Statements.”
OverviewThe Management Discussion and Analysis of this Annual Report on Form 10-K discusses 2021 and 2020 items and year-to-year comparisons between the years ended December 31, 2021 and 2020. Discussions of 2019 items and year-to-year comparisons between 2020 and 2019 are not included in this Form 10-K and can be found in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 of the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2020. Such reports and other information filed by the Company with the SEC are available free of charge on our website at www.bbxcapital.com or with the SEC at www.sec.gov.
Overview
BBX Capital, Inc. (referred to together with its subsidiaries as the “Company,” “we,” “us,” or “our,” and without its subsidiaries as “BBX Capital”) is a Florida-based diversified holding company whose principal holdings are BBX Capital Real Estate LLC (“BBX Capital Real Estate” or “BBXRE”), BBX Sweet Holdings, LLC (“BBX Sweet Holdings”), and Renin Holdings, LLC (“Renin”).
As of December 31, 2020,2021, the Company had total consolidated assets of approximately $447.7$533.4 million and shareholders’ equity of approximately $309.2 $321.8million. Net income (loss) income attributable to shareholders for the years ended December 31, 2020, 2019,2021 and 20182020 was approximately $46.9 million and ($42.3) million, $13.7 million, and ($9.2) million, respectively.
Impact of the COVID-19 Pandemic and Current Economic Issues
The COVID-19 pandemic has resulted in an unprecedented disruption in the U.S. and global economies and the industries in which the Company operates, due to, among other things, (i) government ordered “shelterincluding impacts on i) consumer demand, ii) disruptions in place”global supply chains, iii) employee absenteeism and “stay at home” ordersa general labor shortage, and advisories, travel restrictions, and restrictions on business operations, (ii) government guidance and restrictions with respect to travel, public accommodations, social gatherings, and related matters, and (iii) the general public’s reaction to the pandemic.iv) increased economic uncertainty. The disruptions arising from the pandemic and the reaction of the general public have had a significant adverse impact on the Company's financial condition and operations, duringparticularly with respect to BBX Sweet Holdings, as the year ended December 31,effects of the pandemic required IT’SUGAR to temporarily close all of its retail locations in 2020 and ultimately resulted in IT’SUGAR and its subsidiaries filing petitions for Chapter 11 bankruptcy in September 2020. In addition, the Company’s workforce at each of its subsidiaries has been significantly impacted by the pandemic as a result of, among other things, the initial implementation of temporary and permanent reductions in employee head count in order to manage expenses, various health and safety protocols necessary to maintain operations, and challenges related to hiring and retaining employees and associated increased labor costs. Recent inflationary trends and suggestions by the Federal Reserve Board regarding interest rate increases, as well as the recent events with Russia and Ukraine and elsewhere, have also had and may in the future have an impact on demand and the cost of goods, including commodity and shipping costs, as well as a significant potential impact on interest rates. Further, the Company has experienced significant increases in commodity, freight, inventory, extended lead-times for the purchase of inventory, and delays in inventory shipments, and these factors are impacting the Company’s operations, including requiring the Company to maintain higher inventory balances and negatively impacting its gross margins, and may have a material impact on its operations in future periods. In addition, the Company has adopted policies which require vaccination or ongoing testing for employees in its corporate offices; however, the Company has yet to adopt such policies across all of its locations, and the implementation of such policies could result in additional operational challenges for the Company in light of ongoing labor shortages and the increased cost of labor.
The duration and severity of the pandemic and related disruptions, as well as the resulting adverse impact on economic and market conditions, are uncertain; however, givenuncertain, and the nature of these circumstances, the adverse impact of the pandemic on the Company’s consolidated results of operations, cash flows, and financial condition in 2020 has been, and is expected toCompany may continue to be material. Furthermore, although the duration and severity of the effects of the pandemic are uncertain, demand for many of the Company’s products and services may remain weak for a significant length of time, and the Company cannot predict if or when the industriesadversely impacted by these conditions in which the Company operates will return to pre-pandemic levels.
future periods. Although the impact of the COVID-19 pandemic on the Company’s principal holdings and management’s efforts to mitigate the effects of the pandemic has varied, as described in further detail below, BBX Capital and its subsidiaries have sought to take steps to manage expenses through cost saving initiatives, and reductions in employee head count and actions to increase liquidity, and strengthen the Company’s financial position, including reducing planned capital expenditures.position. As of December 31, 2020,2021, the Company’s consolidated cash balances were $90.0$118.0 million.
See below for additional discussionsdiscussion related to i) the current and estimated impacts of the COVID-19 pandemic on the Company’s principal holdings.holdings and ii) the various risks and uncertainties associated with the effects of the pandemic, increased costs, and disruptions to supply chains on the Company’s principal holdings, which have had, and could in future periods have, a material adverse impact on the Company’s consolidated results of operations, cash flows, and financial condition.
Summary of Consolidated Results of Operations
Consolidated Results
The following summarizes key financial highlights for the year ended December 31, 20202021 compared to the same 20192020 period:
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Total consolidated revenues of $313.6 million, an 81.0% increase compared to 2020.
33Income from continuing operations before income taxes of $64.2 million compared to a loss from continuing operations before income taxes of $58.2 million during 2020.
TableNet income attributable to common shareholders of Contents$46.9 million compared to a net loss attributable to common shareholders of $42.3 million during 2020.
Diluted earnings per share of $2.63 compared to a diluted loss per share of $2.19 during 2020.
The Company’s consolidated results for the year ended December 31, 20202021 compared to the same 20192020 period were significantly impacted by the following:
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The following summarizes key financial highlights forA net increase in sales activity at BBXRE’s Beacon Lake Community development, as BBXRE sold 299 undeveloped lots and 385 developed lots to homebuilders during the year ended December 31, 20192021 period compared to 227 developed lots during the same 2018 period:2020 period;
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The Company’s consolidated results for the year ended December 31, 2019 compared to 2018 were significantly impactedmonetization of various investments in joint ventures sponsored by the following:Altman Companies in 2021, including Altis Promenade, Altis Grand at the Preserve, and Altis Grand Central;
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The recognition of a $15.9 million gain on the reconsolidation of IT’SUGAR in the Company’s financial statements as a result of IT’SUGAR emerging from Chapter 11 bankruptcy in June 2021 and the revesting of BBX Sweet Holdings’ control of IT’SUGAR;
The recognition of a loss before income taxes of $47.5 million by BBX Sweet Holdings during the 2020 period primarily as a result of the impact of the COVID-19 pandemic on its businesses during 2020, including impairment losses of $25.3 million primarily related to goodwill and long-lived assets associated with IT’SUGAR and a loss of $3.3 million upon the Company’s deconsolidation of IT’SUGAR in connection with its filing of voluntary petitions to reorganize under Chapter 11 of the Bankruptcy Code.
Segment Results
BBX Capital reports the results of its business activities through the following reportable segments: BBX Capital Real Estate, BBX Sweet Holdings, and Renin.
Information regarding income (loss) before income taxes by reportable segment is set forth in the table below (in thousands):
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| For the Years Ended December 31, | For the Years Ended December 31, | |||||||||||||||
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BBX Capital Real Estate |
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| 9,988 |
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| 52,696 |
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| 30,214 | $ | 58,311 | 9,988 | 52,696 | |||||
BBX Sweet Holdings |
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| (47,473) |
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| (5,122) |
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| (14,986) | 15,784 | (47,473) | (5,122) | ||||||
Renin |
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| (3,572) |
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| 1,808 |
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| 2,461 | (986) | (3,572) | 1,808 | ||||||
Other |
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| (2,915) |
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| 349 |
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| 346 | 1,390 | (2,915) | 349 | ||||||
Reconciling items and eliminations |
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| (14,275) |
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| (20,746) |
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| (21,057) | (10,258) | (14,275) | (20,746) | ||||||
(Loss) income from continuing operations before income taxes |
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| (58,247) |
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| 28,985 |
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Benefit (provision) for income taxes |
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| 11,231 |
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| (8,334) |
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(Loss) income from continuing operations |
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| (47,016) |
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| 20,651 |
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| (5,887) | |||||||||
Income (loss) from continuing operations before income taxes | $ | 64,241 | (58,247) | 28,985 | ||||||||||||||
(Provision) benefit for income taxes | (17,175) | 11,231 | (8,334) | |||||||||||||||
Net income (loss) from continuing operations | 47,066 | (47,016) | 20,651 | |||||||||||||||
Discontinued operations |
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| (74) |
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| (7,138) |
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| (3,580) | — | (74) | (7,138) | ||||||
Net (loss) income |
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| (47,090) |
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| 13,513 |
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| (9,467) | |||||||||
Less: Net loss attributable to noncontrolling interests |
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| 4,803 |
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| 224 |
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| 266 | |||||||||
Net (loss) income attributable to shareholders |
| $ | (42,287) |
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| 13,737 |
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| (9,201) | |||||||||
Net income (loss) | 47,066 | (47,090) | 13,513 | |||||||||||||||
Net (income) loss attributable to noncontrolling interests | (155) | 4,803 | 224 | |||||||||||||||
Net income (loss) attributable to shareholders | $ | 46,911 | (42,287) | 13,737 | ||||||||||||||
BBX Capital Real Estate Reportable Segment
Segment Description
BBX Capital Real Estate (or BBXRE) is engaged in the acquisition, development, construction, ownership, financing, and management of real estate and investments in real estate joint ventures, including investments in multifamily rental apartment communities, single-family master-planned for sale housing communities, and commercial properties located primarily in Florida. In addition, BBXRE currently owns a 50% equity interest in the Altman Companies, a developer and manager of multifamily rental apartment communities, and anticipates acquiring an additional 40% of the Altman Companies in 2023. BBXRE also manages the legacy assets acquired in connection with the Company’s sale of BankAtlantic in 2012, including portfolios of loans receivable, real estate properties, and judgments against past borrowers.
OverviewIn an effort to diversify its portfolio of real estate developments, BBXRE is also currently evaluating potential investment opportunities in the development of warehouse and logistics facilities and has expanded its operating platform to include a logistics real estate division. Further, the Altman Companies is currently evaluating potential opportunities to develop multifamily apartment communities in new geographical areas, including the greater Atlanta, Georgia area.
Although Overview
BBXRE’s operations that were impacted by the COVID-19 pandemic during 2020, including its sales and there is no assurance that they will not be impacted in the future, BBXRE’sleasing operations, are not currently being significantly impacted by the pandemic.
Following the initial outbreak of COVID-19 in March 2020, construction activities continued at BBXRE’s existing projects, while sales activities at BBXRE’s single-family for sale housing developments and rental activities at its multifamily apartment developments were temporarily impacted. Further, the effects of the pandemic, including economic uncertainty generallyhave largely returned to, and in the real estate and credit markets in particular, increased uncertainty relating to the expected timing and pricing of sales of its current multifamily apartment developments and the expected timing and financing of new multifamily apartment developments. However, throughout the remainder of 2020 and to date in 2021, BBXRE has experienced a progressive recovery in its operations,many cases are exceeding, pre-pandemic levels, which management believes is primarily attributable toreflects an increase in demand for single-family and multifamily apartment housing in many of the markets in Florida in which BBXRE operates. In particular, sales at itsBBXRE’s single-family home developments and leasing and rent collections at its multifamily apartment developments have returned tosponsored by the Altman Companies are generally exceeding pre-pandemic levels, in most (but not all) locations. In addition, while the sale of existing projects and the commencement of new projects were delayed in 2020 as a result of a temporary decline in investment activity, BBXRE believes that there has generally been a recovery both in investor demand for the acquisition of stabilized multifamily apartment communities and in the availability of financing of debt and equity capital for financing new multifamily apartment developments.
As previously indicated, while BBXRE isHowever, there has also been a significant increase in commodity and labor prices, which has resulted in higher development and construction costs, and disruptions in the supply chain for certain commodities and equipment, which has resulted in ongoing supply shortages of building materials, equipment, and appliances. These factors have impacted the timing of certain projects currently under construction and the commencement of construction of new projects. Further, in addition to increasing the cost of the Company’s outstanding indebtedness, rising interest rates will at some point likely have an adverse impact of home sales, the availability of financing, and the profitability of development projects, as a majority of development costs are financed with third party debt. Although such factors have not currently being significantlyyet materially impacted byBBXRE’s results of operations, these increases may have a material impact on BBXRE’s operating results in future periods, as described in further detail below. In addition, the COVID-19 pandemic the pandemic has nevertheless resulted in significant uncertainty in the overall economy, and an increase in COVID-19 cases or the emergence of variant coronavirus strainswhich could result in further disruptions to the U.S. and global economies. Ashave a result, there is no assurance that the real estate market will not be materially adversely impacted by the pandemic or otherwise, that sales prices of single-family homes will not materially decline, that rents will be paid when due or at all, or that market rents will not materially decline. Further, while government efforts to delay or forestall evictions and the availability of judicial remedies have not to date materially impacted BBXRE’s operations, they may in the future have anmaterial adverse impact on both market values and BBXRE’s operating results. In addition, the effects of the pandemic may impact the costs of developing and operating BBXRE’s real estate assets, including, but not limited to, an increase in commodity and labor prices and property insurance costs as compared to pre-pandemic levels, which could also have an adverse impact on market values and BBXRE’s operating results. BBXRE will continue to monitor economic and market conditions and may recognize impairment losses in future periods as a result of various factors, including, but not limited to, material declines in overall real estate values, sales prices for single-family homes, and/or rental rates for multifamily apartments. As a result of these factors, BBXRE’s results of operations, cash flows, and financial condition may be materially adversely impactedin future periods.
BBXRE’s operating results for the year ended December 31, 2021 significantly benefited from the impact of demand for single-family and multifamily housing on certain of its existing investments, including its Beacon Lake Community and various investments in joint ventures sponsored by the effectsAltman Companies. While BBXRE currently expects certain of its existing investments to benefit from these factors in 2022, BBXRE currently expects a relative decline in revenues and net income over the next several years as compared to 2021 based on its current pipeline of investments, which reflects a combination of i) the accelerated monetization of certain investments from future years into 2021 and ii) the temporary delay of the pandemiccommencement of new projects in future periods.
Further, as2020 due to the COVID-19 pandemic. Accordingly, BBXRE is focused on the sourcing and deployment of capital in investments in new development opportunities, including i) the expansion of its investments in multifamily rental apartment communities through the Altman Companies and ii) investing in the development of warehouse and logistics facilities through its recently formed logistics real estate division. Due to the currently expected life cycle of these developments, in which the monetization of an investment generally occurs approximately three years following the commencement of the development, BBXRE does not expect its operating results to significantly benefit from these efforts in the near term but believes that these investments are ultimately consistent with theBBX Capital’s goal to build long-term shareholder value and BBXRE’s goal of building a diversified portfolio of profitable real estate investments that generate recurring earnings and cash flows in future periods, the effects of the COVID-19 pandemic may impact BBXRE over a longer term to the extentperiods. However, there is no assurance that its ability to identifythese investments in new development opportunities that meet its investment criteria or source debt or equity capital from unaffiliated third parties is adversely impacted. While BBXRE may be able to identify opportunistic investments in a recessionary environment that could be funded with available cash, there is no certainty that such opportunities will be identified, that such opportunities will meet the Company’s investment criteria, or that required funds will be available for that purpose.successful.
The Altman Companies and Related Investments
In 2018, BBXRE acquired a 50% membership interest in the Altman Companies, a joint venture between the Company and Mr.Joel Altman engaged in the development, construction, and management of multifamily apartment communities. AsDuring the year ended December 31, 2021, BBXRE monetized four of its investments in joint ventures sponsored by the Altman Companies, and as of December 31, 2020,2021, BBXRE had investments in eight active developments sponsored by the Altman Companies, comprisedwhich are summarized in Item 1 - Business of four developmentsthis Annual Report.
Pursuant to the operating agreement of the Altman Companies, BBXRE will acquire an additional 40% equity interest in the Altman Companies from Joel Altman for a purchase price, subject to certain adjustments (including reimbursements for predevelopment expenditures incurred at the time of purchase), of $9.4 million in January 2023, and Joel Altman can also, at his option or in other predefined circumstances, require BBX Capital to purchase his remaining 10% equity interest in the Altman Companies for $2.4 million. However, Joel Altman will retain his membership interests, including his decision making rights, in the managing member of any development joint ventures that are originated prior to BBXRE’s acquisition of additional equity interests in lease-up or have stabilized, three developments that are under construction, and one project that is currentlythe Altman Companies.
Developments Monetized in predevelopment stages.2021
To date,During the COVID-19 pandemic has not significantly impacted construction activities which remain ongoing at the existing projectsyear ended December 31, 2021, joint ventures sponsored by the Altman Companies sold: i) Altis Pembroke Gardens, a 280-unit multifamily apartment community located in Pembroke Pines, Florida, ii) Altis Promenade, a 338-unit multifamily apartment community located in Lutz, Florida, and iii) Altis Grand at the Preserve, a 350-unit multifamily apartment community located in Odessa, Florida. As a result of these sales, BBXRE received total cash distributions of $13.6 million and recognized total equity earnings of $10.5 million from its investments in the respective joint ventures. In addition, the Altis Grand Central joint venture recapitalized its ownership interest in Altis Grand Central, its 314-unit multifamily apartment community located in Tampa, Florida, in a transaction with an institutional investor based on the property’s agreed upon market value, and the joint venture retained a 10% noncontrolling interest in the property. As a result of the recapitalization, BBXRE received a cash distribution of approximately $7.5 million from the joint venture and recognized equity earnings from its investment in the venture of approximately $6.2 million during year ended December 31, 2021. Further, BBXRE’s beneficial ownership interest in Altis Grand Central was decreased from approximately 11% to approximately 1%.
New Developments
During the year ended December 31, 2021, joint ventures sponsored by the Altman Companies closed on development financing and commenced the development of: i) Altis Lake Willis Phase 1, a planned 329-unit multifamily apartment community in Orlando, Florida, ii) Altis Suncoast Pasco, a planned 449-unit multifamily apartment community in Lutz, Florida, and iii) Altis Blue Lake, a planned 318-unit multifamily apartment community in West Palm Beach, Florida.
With respect to Altis Lake Willis Phase 1, BBXRE and Joel Altman had previously invested in the Altis Lake Willis joint venture, which was sponsored by the Altman Companies to acquire land, obtain entitlements, and fund predevelopment costs for the development of a multifamily apartment community in Orlando, Florida. In 2021, the joint venture decided to develop the project in two phases. Accordingly, in September 2021, the Altis Lake Willis Phase 1 joint venture was formed to develop the first phase of the project, which is expected to be comprised of a 329-unit multifamily apartment community, and closed on its development financing. In connection with the closing, BBXRE and Joel Altman acquired membership interests in the managing member of the Altis Lake Willis Phase 1 joint venture and retained their respective ownership interests in the land and predevelopment costs related to the anticipated second phase of the project through the existing joint venture, which is now referred to as the Altis Lake Willis Phase 2 joint venture. BBXRE also received a cash distribution of approximately $4.1 million related to previous capital contributions based on the final financing structure and proceeds associated with the first phase of the development.
Other
Following temporary disruptions in its operations during 2020 as a result of the COVID-19 pandemic, the operations related to the existing developments sponsored by the Altman Companies continueshave generally returned to generate development and general contractor fees from such projects.pre-pandemic levels. In addition, while there was a slowdown in rent collections during the second and third quarters of 2020,particular, the Altman Companies had collected in excess ofover 98% of the rents at theits joint venture multifamily apartment communities under its management during the fourth quarter of 2020. While its leasing activities were conducted virtually during March through May 2020, the Altman Companies
35
has reopened its leasing offices for visits by appointment.year ended December 31, 2021. Further, although the Altman Companies experienced a decline in tenant demand and in the volume of new leases during the second quarter of 2020, itand rental rates at its completed developments have generally experienced an increaseexceeded pre-pandemic levels and expectations due to demand for multifamily housing in the volume of new leases at its communities during the third and fourth quarters of 2020. As a result, of the four active developmentsmarkets in which BBXRE has invested which are in lease-up or have stabilized, the stabilized community was 97% leased as of December 31, 2020, while the three communities which are in lease-up have stabilized or are expected to be stabilized in 2021 either on schedule or ahead of schedule based on current leasing velocity. However, in an effort to maintain occupancy at its stabilized communities and increase occupancy at its communities under development, commencing in the second quarter of 2020, the Altman Companies offered increased concessions to prospective and renewing tenants, although such concessions have declined in volume in recent months.
As noted above, following the initial months of the COVID-19 pandemic, the Altman Companies observed a decline in real estate sales activity as a result of uncertainty in the real estate and overall credit markets. However, in spite of the overall slowdown in activity, there have been indications that the capitalization rates for multifamily apartment communities similar to those sponsored and managed by the Altman Companies have generally remained steady or even decreased, as evidenced by the Altis Boca Raton joint venture’s sale of its multifamily apartment community during the fourth quarter of 2020. Further, throughout the remainder of 2020 and to date in 2021, theoperates. The Altman Companies has also observed what it believes to be a recovery in overallincreased investor demand for the acquisition of stabilized multifamily apartment communities.
Followingcommunities, as evidenced by the initial outbreaksales of COVID-19, the Altman Companies observed a decline in the availability of debt and equity capital for new multifamily apartment developments. Further, as its pipeline of potential development opportunities included several proposed projects in the greater Orlando, Florida area, which has been significantly impactedcommunities by the pandemic, the Altman Companies was required to reevaluate certain projects in its development pipeline and identify new development opportunities in an effort to rebuild its pipeline. However, in June 2020, the Altis Ludlam Trail joint venture, which isventures sponsored by the Altman Companies obtained entitlements, closedin 2021. While the Altman Companies does not currently expect that the observed increases in commodity and labor prices will have a material impact on the costs of developing its communities currently under construction which commenced prior to 2021, the timing of the completion of these projects has been adversely impacted by supply chain disruptions, and the Altman Companies currently expects that the costs to develop certain of these projects will be in excess of the estimated development financing,costs as a result of factors unrelated to supply chain disruptions. However, the Altman Companies currently believes that the impact of these factors on the overall profitability of these projects will be offset by the impact of higher rental rates and commenced developmentinvestor demand for the acquisition of a 312 unitstabilized multifamily apartment community in South Florida with 7,500 square feet of retail space. (Incommunities.
In addition to its investment in the managing member of the Altis Ludlam Trail joint venture, BBXRE also invested an additional $8.5 million as preferred equity in the joint venture.) In addition, throughout the remainder of 2020 and to date in 2021,existing development portfolio, the Altman Companies has observed whatbeen focused on the identification of new development opportunities. As described above, it believes to be an increasecommenced the development of three new multifamily apartment communities in the availability of debt and equity capital for new developments,2021, and it has also identified various new potential development opportunities which are primarily located in South Florida, Orlando, Florida, and the greater Tampa, Florida area, bothall of which are experiencing increased demand for multifamily housing. While the Altman Companies believes that debt and equity capital is currently available for new development opportunities, it has observed a significant increase in land prices, as well
Notwithstanding the foregoing,
as supply chain disruptions and material shortages, all of which are expected to significantly increase development costs and result in possible delays in connection with developing new multifamily apartment communities. The Altman Companies is continuing to evaluate the impact of the COVID-19 pandemicthese costs on the economy remains uncertain,overall profitability of its potential future developments, but it currently believes that the higher rental rates resulting from increased demand for multifamily housing and investor demand for the effectsacquisition of stabilized multifamily apartment communities may to some extent offset the pandemic,impact of higher development costs on the profits expected to be earned on such developments. However, notwithstanding these potential mitigating factors, a significant increase in development costs could have a material impact on the Altman Companies’ operations, including, but not limited to, (i) an inability to close on the equity and/or debt financing necessary to commence the construction of new projects as a prolonged economic downturn, high unemployment, the expirationresult of or a decrease in government benefitsprojected investor profits and (ii) a decrease in the profits expected to individuals,be earned by BBXRE and government-mandated moratoriumsJoel Altman as the managing members of projects that are ultimately pursued. Such factors could result in, among other things, (i) increased operating losses at the Altman Companies due to a decline in development, general contractor, and management fees, (ii) the recognition of impairment losses by BBXRE and/or the Altman Companies related to their current investments, including predevelopment expenditures and (iii) the recognition of impairment losses related to BBXRE’s overall investment in the Altman Companies, as the profitability and value of the Altman Companies depends on tenant evictions,its ability to source new development opportunities.
In addition to the impact of higher costs, economic and market conditions are uncertain as a result of various factors, including inflationary pressures and expected increases in interest rates. A prolonged economic downtown resulting from these factors could ultimately have a longer term and more significant impact on rental rates, occupancy levels, and rent collections, including an increase in tenant delinquencies and/or requests for rent abatements. These effects would impact the amount of rental revenues generated from the multifamily apartment communities sponsored and managed by the Altman Companies, the extent of management fees earned by the Altman Companies, and the ability of the related joint ventures to stabilize and successfully sell such communities. Furthermore, a decline in rental revenues at developments sponsored by the Altman Companies could require it, as the sponsor and managing member, to fund operating shortfalls in certain circumstances. In addition, as discussed above, the effects of the pandemic may impactand other factors have impacted the costs of developing and operating multifamily apartment communities, including, but not limited to, increases in commodity prices as a result of, among other things, supply chain disruptions and material shortages, labor prices, and property insurance costs as compared to pre-pandemic levels, which could also have an adverse impact on market values and the Altman Companies’ operating results. Further, the impact of the COVID-19 pandemic on economic conditions in general, including uncertainty regarding the severity and duration of such impact, may ultimately have a significant adverse impact on capitalization rates and real estate values in future periods, particularly if there is a prolonged economic downturn. If there is a significant adverse impact on real estate values as a result of increased interest rates, lower rental revenues, higher capitalization rates, or otherwise, the joint ventures sponsored by the Altman Companies may be unable to sell their respective multifamily apartment developments within the time frames previously anticipated and/or for the previously forecasted sales prices, if at all, which may impact the profits expected to be earned by BBXRE from its investment in the managing member of such projects and the ability of the joint ventures to repay or refinance construction loans on such projects and could result in the recognition of impairment losses related to BBXRE’s investment in such projects. Furthermore, as further described above, the Altman Companies may be unable to close on the equity and/or debt financing necessary to commence the construction of new projects, including the development of Altis Lake Willis, which could result in increased operating losses at the Altman Companies, due to a decline in development, general contractor, and management fees, the recognition of impairment losses by BBXRE and/or the Altman Companies related to their current investments, inincluding predevelopment expenditures, and land acquired for development, and the recognition of impairment losses related to BBXRE’s overall investment in the Altman Companies, as the profitability and value of the Altman Companies is directly correlated with its ability to source new development opportunities.Companies.
36
Beacon Lake Master Planned Development
Following a temporary decline in sales activity during 2020 as a result of the COVID-19 pandemic, sales at BBXRE’s Beacon Lake Community during 2021 exceeded pre-pandemic levels and expectations as a result of demand for single-family housing in Florida, which has ultimately resulted in the acceleration of the completion of the development. During the year ended December 31, 2020,2021, BBXRE substantially completedsold the 299 undeveloped lots comprising Phase 4, 291 single-family lots, and 94 townhome lots, as compared to 157 single-family lots and 70 townhome lots sold during the year ended December 31, 2020. As of December 31, 2021, BBXRE had commenced the development of the 200 lots comprising Phase 3 of the development, and of the 1,476 lots comprising the entire Beacon Lake Community, only 263 lots (63 in Phase 2 and 200 in Phase 3) had yet to be sold to homebuilders, with 131 of such lots (63 in Phase 2 and 68 in Phase 3) being under contract for sale to homebuilders.
At the current time, BBXRE does not expect the observed increases in commodity and labor prices to materially impact its remaining costs to complete the development of the lots comprisingin Phase II of3 but believes that the costs to construct homes on the developed lots throughout the Beacon Lake Community in St. Johns County, Florida, which is expectedare being impacted. BBXRE currently believes that homebuilders are likely to include approximately 479 single-family homes and 196 townhomes, and sold 157 single familycontinue to meet their obligations to acquire the remaining 131 lots and 70 townhome lots to homebuilders. In addition, as part of BBXRE’s efforts to maximize liquidity in light of overall economic conditions, the community development district relatedunder contract for sale from BBXRE pursuant to the Beacon Lake Community issued $8.6 million of additional community development district bonds. The funds fromexisting agreements between BBXRE and the issuance were primarily used to reimburse BBXRE for its funding of ongoing development costs related to Phases II and IIIhomebuilders, as the impact of the development. Asincrease in construction costs on the profitability of December 31, 2020, BBXRE had entered into agreements with homebuilders to sell developed lots for an additional 265 single-family homes and 126 townhomes as part of Phase II and sell 299 undeveloped lots as part of Phase IV and has collected deposits related to these purchase agreements. With respect to Phase III, BBXRE expects to commence land development in 2021 and sell a portion of these developed lots to an unaffiliated homebuilder, and it is exploring investment alternatives for the remaining lots in Phase III, including the possible construction, leasing, and management of a portfolio of rental homes.
Following the initial outbreak of COVID-19 in March 2020, the unaffiliated homebuilders at the Beacon Lake Community experienced a decline in the volume of sales traffic and home sales and requested extensions of their existing agreementsis being offset to some extent by an increase in prices for the purchase of additional developed lots from BBXRE, and BBXRE agreed to such extensions. Subsequently, sales activity significantly increased in May 2020 and generally returned to pre-pandemic levels or greater subsequent to May 2020. Based on that activity, BBXRE currently expects the sale of the remaining developed lots to occur pursuant to its agreements with the homebuilders under the modified takedown schedules.single-family homes. However, there is no assurance that this will continue to be the case, and the effects of the COVID-19 pandemic on the economy and demand for single-family housing remain uncertain andincrease in construction costs could result in further requests by homebuilders to extend the timing of their purchase of developed lots and/or failure of the homebuilders to meet their obligations under these contracts. In addition, a decline in home prices as a result
Other Joint Venture Activity
In June 2019, BBXRE invested $4.2 million in the Sky Cove joint venture, which was formed to develop Sky Cove at Westlake, a residential community comprised of 204 single-family homes in Loxahatchee, Florida. During the year ended December 31, 2020,2021, the joint venture closed on 47the sale of 165 single-family homes, and BBXRE recognized $0.1$1.5 million of equity earnings and received $1.1$3.2 million of distributions from the venture. As of December 31, 2020,2021, the joint venture had agreementsexecuted contracts to sell an additional 13731 single-family homes.homes, and closings on such sales are expected to occur in 2022.
In February 2021, BBXRE invested $4.9 million in the Sky Cove South joint venture, which was formed to develop Sky Cove South at Westlake, a residential community that will be adjacent to Sky Cove at Westlake and is expected to be comprised of 197 single-family homes.
As of December 31, 2020,2021, the joint venture had executed contracts to sell 103 single-family homes, and closings on such sales are expected to commence in 2022.
Prior to 2021, BBXRE had invested approximately $7.4 million in a joint venture with CC Homes to develop Marbella, a residential community expected to be comprised of 158 single-family homes in Miramar, Florida. As of December 31, 2020,2021, the joint venture had executed contracts to sell 91all of the 158 single-family homes comprising Marbella and expects to commence closing on sales during the second half of 2021.
Impairments
As a result of the COVID-19 pandemic and the related impactclosed on the overall market, the Company evaluated various factors, including asset-specific factors, overall economic and market conditions, and the excesssale of the expected profits associated with BBXRE’s real estate assets in relation to their carrying amounts, and concluded that, except as discussed below, there had not been a significant decline in the fair value of most of BBXRE’s real estate assets during32 homes. During the year ended December 31, 2020 that should be2021, BBXRE recognized as an impairment loss. As part of this evaluation, the Company considered the sales at its single-family home developments (which have returned to pre-pandemic levels), continued collection of rent at its multifamily apartment developments, and indications that there has not to date been a significant decline in sales prices for single family homes or an increase in capitalization rates for multifamily apartment communities. However, the Company recognized $2.7$2.6 million of impairment losses duringequity earnings and received $9.3 million of distributions from the year ended December 31, 2020 primarily related to a decline inventure. BBXRE expects that the estimated fair values of certain of BBXRE’s investments in joint ventures, including (i) a joint venture that is developing an office tower, as the market for commercial office space has been more significantly impacted by the pandemic compared to the single family and multifamily markets in which BBXRE primarily invests, and (ii) a joint venture invested in a multifamily apartment community in which BBXRE purchased its interest following the stabilization of the underlying asset at a purchase price calculated basedclosing on assumptions related to the timing and pricing of the sale of the asset, bothremaining homes will occur in 2022 and 2023.
Although the above joint ventures expect to incur increased costs to construct homes in their respective communities and have experienced disruptions in supply chains and supply shortages, BBXRE does not currently believe that such increases will have a material adverse impact on the expected profitability of which have been adversely impacted bythese investments, as it is expected that higher demand and sales prices for single-family homes will offset to some extent the pandemic. increase in construction costs.
37
Results of Operations
Information regarding the results of operations for BBX Capital Real Estate is set forth below (dollars in thousands):
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| Change |
| Change | Change | Change | ||||||||||||||||||||||
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| For the Years Ended December 31, |
| 2020 vs |
| 2019 vs | For the Years Ended December 31, | 2021 vs | 2020 vs | |||||||||||||||||||||
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| 2020 |
| 2019 |
| 2018 |
| 2019 |
| 2018 | 2021 | 2020 | 2019 | 2020 | 2019 | |||||||||||||||
Sales of real estate inventory |
| $ | 20,363 |
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| 5,049 |
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| 21,771 |
|
| 15,314 |
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| (16,722) | $ | 65,479 | 20,363 | 5,049 | 45,116 | 15,314 | |||||||||
Interest income |
|
| 1,240 |
| 750 |
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| 2,277 |
| 490 |
|
| (1,527) | 2,048 | 1,240 | 750 | 808 | 490 | ||||||||||||
Net gains on sales of real estate assets |
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| 255 |
| 13,616 |
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| 4,563 |
| (13,361) |
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| 9,053 | 643 | 255 | 13,616 | 388 | (13,361) | ||||||||||||
Other |
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| 1,454 |
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| 1,619 |
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| 2,541 |
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| (165) |
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| (922) | 1,504 | 1,454 | 1,619 | 50 | (165) | ||||||||||
Total revenues |
| $ | 23,312 |
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| 21,034 |
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| 31,152 |
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| 2,278 |
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| (10,118) | $ | 69,674 | 23,312 | 21,034 | 46,362 | 2,278 | |||||||||
Cost of real estate inventory sold |
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| 13,171 |
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| 2,643 |
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| 14,116 |
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| 10,528 |
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| (11,473) | 29,690 | 13,171 | 2,643 | 16,519 | 10,528 | ||||||||||
Recoveries from loan losses, net |
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| (8,876) |
| (5,428) |
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| (8,653) |
| (3,448) |
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| 3,225 | (7,774) | (8,876) | (5,428) | 1,102 | (3,448) | ||||||||||||
Impairment losses |
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| 2,742 |
| 47 |
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| 571 |
| 2,695 |
|
| (524) | — | 2,742 | 47 | (2,742) | 2,695 | ||||||||||||
Selling, general and administrative expenses |
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| 6,758 |
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| 9,144 |
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| 9,210 |
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| (2,386) |
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| (66) | 7,587 | 6,758 | 9,144 | 829 | (2,386) | ||||||||||
Total costs and expenses |
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| 13,795 |
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| 6,406 |
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| 15,244 |
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| 7,389 |
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| (8,838) | 29,503 | 13,795 | 6,406 | 15,708 | 7,389 | ||||||||||
Operating profits |
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| 9,517 |
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| 14,628 |
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| 15,908 |
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| (5,111) |
|
| (1,280) | 40,171 | 9,517 | 14,628 | 30,654 | (5,111) | ||||||||||
Equity in net earnings of unconsolidated joint ventures |
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| 465 |
| 37,898 |
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| 14,194 |
| (37,433) |
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| 23,704 | |||||||||||||||||
Other income |
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| 6 |
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| 170 |
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| 112 |
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| (164) |
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| 58 | |||||||||||||||
Income before income taxes |
| $ | 9,988 |
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| 52,696 |
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| 30,214 |
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| (42,708) |
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| 22,482 | |||||||||||||||
Equity in net earnings of unconsolidated real estate joint ventures | 18,154 | 465 | 37,898 | 17,689 | (37,433) | |||||||||||||||||||||||||
Other (expense) income | (14) | 6 | 170 | (20) | (164) | |||||||||||||||||||||||||
Income from continuing operations before income taxes | $ | 58,311 | 9,988 | 52,696 | 48,323 | (42,708) | ||||||||||||||||||||||||
BBX Capital Real Estate’s income before income taxes for the year ended December 31, 20202021 compared to the 20192020 period decreasedincreased by $42.7$48.3 million or 81.0%, primarily due to the following:
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An increase in equity in net earnings of unconsolidated joint ventures |
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BBX Capital Real Estate’s income before income taxes for the year ended December 31, 2019 compared to the 2018 period increased by $22.5 million, or 74.4%, primarily due to the following:monetization of various investments in joint ventures sponsored by the Altman Companies in 2021, including 1) the Altis Promenade joint venture’s sale of its multifamily apartment community in June 2021, which resulted in the recognition of $5.2 million of equity earnings from BBXRE’s investment in the venture, ii) the Altis Grand at the Preserve joint venture’s sale of its multifamily apartment community in July 2021, which resulted in the recognition of $5.0 million of equity earnings from BBXRE’s investment in the venture, and iii) the Altis Grand Central joint venture’s recapitalization of its ownership of its multifamily apartment community in September 2021, which resulted in the recognition of $6.2 million of equity earnings from BBXRE’s investment in the venture;
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An increase in net profits from the sale of lots to homebuilders at the Beacon Lake Community development, as BBXRE sold the 299 undeveloped lots comprising Phase 4 and 385 developed lots during the 2021 period compared to 227 developed lots during the 2020 period, and an increase in the estimated contingent purchase price receivable from homebuilders, which is calculated as a percentage of the sales price of completed homes on the sold lots, as a result of improvements in the market for single-family housing during the 2021 period;
The recognition of impairment losses during the 2020 period primarily related to certain of BBXRE’s investments in unconsolidated real estate joint ventures as a result of the impact of the COVID-19 pandemic on such investments; and
38An increase in interest income associated with BBXRE’s loans receivable from IT’SUGAR and its preferred equity investment in the Altis Ludlam Trail joint venture; partially offset by
A net decrease in recoveries from loan losses; and
TableAn increase in selling, general, and administrative expenses primarily due to new hires, which reflects the impact of ContentsBBXRE’s newly formed logistics real estate division, and increased professional fees.
BBX Sweet Holdings Reportable Segment
Segment Description
BBX Sweet Holdings is engaged in the ownership and management of operating businesses in the confectionery industry, including Hoffman’s Chocolates, a retailer of gourmet chocolates with retail locations in South Florida, and Las Olas Confections and Snacks, a manufacturer and wholesaler of chocolate and other confectionery products.
BBX Sweet Holdings also owns approximately 93% of the equity interests ini) IT’SUGAR, a specialty candy retailer whose products include bulk candy, candy in giant packaging, and licensed and novelty items. items and which operates in retail locations which include a mix of high-traffic resort and entertainment, lifestyle, mall/outlet, and urban locations throughout the United States, ii) Las Olas Confections and Snacks, a manufacturer and wholesaler of chocolate and other confectionery products, and iii) Hoffman’s Chocolates, a retailer of gourmet chocolates with retail locations in South Florida.
Overview
IT’SUGAR – Emergence from Bankruptcy
BBX Sweet Holdings owns over 90% of the equity interests in IT’SUGAR. Prior to September 22, 2020, the Company consolidated the financial statements of IT’SUGAR and its subsidiaries based onas a result of its 93%over 90% ownership of IT’SUGAR. However, as further discussed below,As a result of the impact of the COVID-19 pandemic on its operations, on September 22, 2020, IT’SUGAR and its subsidiaries filed voluntary petitions to reorganize under Chapter 11 of Title 11 of the U.S. Code (the “Bankruptcy Code”) in the U.S. Bankruptcy Court for the Southern District of Florida (the “Bankruptcy Court”) (the cases commenced by such filings, the “Bankruptcy Cases”), and as a result of the filings and the uncertainties surrounding the nature, timing, and specifics of the bankruptcy proceedings, the Company deconsolidated IT’SUGAR on September 22, 2020.
OverviewIn April 2021, IT’SUGAR filed its proposed plan of reorganization with the Bankruptcy Court. Following approval of the proposed plan by IT’SUGAR’s unsecured creditors, the Bankruptcy Court entered an order (the “Confirmation Order”) on June 16, 2021 confirming the plan of reorganization filed by IT’SUGAR, as modified by the Confirmation Order (the “Plan”), and the Plan became effective on June 17, 2021 (the “Effective Date”). The following summary of the Plan is qualified in its entirety by reference to the full text of the Confirmation Order and the Plan, which are attached as Exhibits 10.4 and 10.5 to the Company’s Current Report on Form 8-K filed by the Company with the SEC on June 17, 2021.
AlthoughPursuant to the terms of the Plan, claims against IT’SUGAR were treated as follows:
The $4.0 million debtor-in-possession (“DIP”) credit facility and a $6.0 million pre-petition line of credit held by a wholly-owned subsidiary of BBXRE were repaid in full through the Exit Facility (as defined and described below);
A secured equipment note held by BBXRE’s wholly-owned subsidiary was assumed, ratified, and reinstated on the Effective Date;
Each holder of an allowed construction / mechanic’s lien claim received payment in full in cash on the Effective Date or, in some cases, promptly after the Effective Date;
Each holder of an allowed general unsecured claim received, in full satisfaction of such claims, a one-time lump sum distribution equal to 15% of its claim on the Effective Date or, in some cases, as promptly as was practicable after the Effective Date; and
Holders of subordinated claims did not receive any distributions in respect thereof.
Payments of claims made pursuant to the Plan, along with the payment of administrative expenses and professional fees, were funded by IT’SUGAR with its cash on-hand and net proceeds from the Exit Facility.
On the Effective Date, IT’SUGAR entered into a secured exit credit facility with a wholly-owned subsidiary of BBXRE (the “Exit Facility”) which provided for advances to IT’SUGAR of up to $13.0 million, and BBXRE’s wholly-owned subsidiary advanced $13.0 million to IT’SUGAR under the Exit Facility, less the repayment of the $4.0 million DIP credit facility and the $6.0 million pre-petition line of credit due from IT’SUGAR (both of which were superseded and replaced by the Exit Facility).
Pursuant to the terms of the Plan, BBX Sweet Holdings’ results from operationsequity interests in IT’SUGAR were improved forrevested on the first two monthsEffective Date, and all organizational documents of 2020IT’SUGAR were assumed, ratified, and reinstated. Therefore, as compared to 2019, reflecting, among other things, IT’SUGAR’s openingresult of a three story candy department store at American Dream in New Jersey in December 2019the confirmation and effectiveness of the Plan and the openingrevesting of three other storesBBX Sweet Holdings’ equity interests in 2019,IT’SUGAR, the Company was deemed to have reacquired a controlling financial interest in IT’SUGAR and consolidated the results of IT’SUGAR into its consolidated financial statements as of the Effective Date, the date that BBX Sweet Holdings has been materially adversely impacted by the effectsreacquired control of the COVID-19 pandemic.IT’SUGAR.
In March 2020, asAs a result of various factors, including government-mandated closures and Center for Disease Control and World Health Organization advisoriesthe reconsolidation of IT’SUGAR, BBX Sweet Holdings recognized a gain on consolidation of $15.9 million during the year ended December 31, 2021, which reflects the remeasurement of the carrying value of BBX Sweet Holdings’ equity interests in connection withIT’SUGAR at fair value as of the COVID-19 pandemic, IT’SUGAR closed all of its retail locations and furloughed all store employees and the majority of its corporate employees. Between May 2020 and September 2020, IT’SUGAR reopened nearly all of its approximately 100 locations that were open prior to the pandemic as part of a phased reopening plan which included revised store floor plans, increased sanitation protocols, and the gradual recall of furloughed store and corporate employees to full or part-time employment. However, from time to time, IT’SUGAR has been required to close previously reopened locations asEffective Date.
As a result of various factors, including government- mandated closuresthe deconsolidation and staffing shortages.
subsequent reconsolidation of IT’SUGAR, ceased paying rent to the landlords of its closed locations in April 2020 and engaged in negotiations with its landlords for rent abatements, deferrals, and other modifications for bothIT’SUGAR’s operating results during the period of time that the locations were closed and the subsequent period that the locations have been opened and operating under conditions which have been affected by the pandemic. In addition to its unpaid rental obligations, IT’SUGAR ceased paying various outstanding obligations to its vendors.
Although IT’SUGAR was able to reopen its retail locations and received an advance of $2.0 million from a subsidiary of BBX Capital under an existing line of credit, IT’SUGAR was unable to maintain sufficient liquidity to sustain its operations as (i) it was unable to obtain significant rent abatements or deferrals from its landlords and amended payment terms from its vendors and (ii) its sales volumes had not sufficiently improved and stabilized following the reopening of its locations. In particular, although a significant portion of its retail locations were reopened during the three months ended September 30, 2020, IT’SUGAR’s total revenues for the period declined by approximately 50.4% as compared to the comparable period in 2019. As a result, on September 22, 2020 IT’SUGAR and its subsidiaries filed voluntary petitionsthrough the Effective Date are not included in BBX Sweet Holdings’ consolidated results of operations; however, the section below includes discussion related to reorganize underIT’SUGAR’s results of operations during the course of the Chapter 11 Cases.
IT'SUGAR – Business Update
As of the Bankruptcy Code in the Bankruptcy Court.
Under Section 362 of the Bankruptcy Code, the filing of bankruptcy petitions automatically stays most actions againstDecember 31, 2021, IT’SUGAR including most actions to collect pre-petition indebtedness or to exercise control of the property of IT’SUGAR. Accordingly, absent an order of the Bankruptcy Court, substantially all pre-petition liabilities will be subject to treatment under a plan of reorganization, as further described below.
In order to successfully exit the Bankruptcy Cases, IT’SUGAR must propose, and obtain confirmation by the Bankruptcy Court of a plan of reorganization or liquidation (the “Reorganization Plan”) that satisfies the requirements of the Bankruptcy Code. The Reorganization Plan will determine the rights and claims of various creditors and security holders, and under the priority rules established by the Bankruptcy Code, certain post-petition liabilities and pre-petition liabilities will be given priority over pre-petition indebtedness and need to be satisfied before unsecured creditors or holders of equity interests are entitled to any distribution. As provided by the Bankruptcy Code, IT’SUGAR initially has the exclusive right to solicit a plan and currently intends to submit a Reorganization Plan to the Bankruptcy Court in the first quarter of 2021. In connection with the Bankruptcy Cases, the Office ofwas operating approximately 100 retail locations across the United States, Trustee, a divisionincluding 14 “temporary” retail locations.
The following summarizes activity within IT’SUGAR’s portfolio of the Department of Justice, has appointed an official committee of unsecured creditors (the “Creditors’ Committee”), which has a right to be heard on all matters that come before the Bankruptcy Court, including the confirmation of the Reorganization Plan.
If the Bankruptcy Court does not confirm a final Reorganization Plan filed by IT’SUGAR, the Bankruptcy Cases could be converted to cases under Chapter 7 of the Bankruptcy Code. Under Chapter 7 bankruptcy cases, a trustee would be appointed to collect IT’SUGAR’s assets, reduce them to cash, and distribute the proceeds to IT’SUGAR’s creditors in accordance with the statutory scheme of the Bankruptcy Code. Alternatively, if IT’SUGAR’s Reorganization Plan is not confirmed by the Bankruptcy Court, in lieu of the conversion of the Bankruptcy Cases to Chapter 7 bankruptcy cases, the Bankruptcy Court could dismiss the Bankruptcy Cases.
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At the current time, IT’SUGAR is continuing to operate its retail locations under the supervision of the Bankruptcy Court and the participation of the Creditors’ Committee and is negotiating with its creditors in relation to a proposed Reorganization Plan, as well as the terms of amendmentssubsequent to the lease agreements associated with its retail locations. Subsequent to its filing of the Bankruptcy Cases:
During the course of the Chapter 11 Cases, IT’SUGAR has executed lease amendments in relation to many of its existingpermanently closed 17 retail locations, opened 9 new10 “temporary” retail locations in select U.S. locations, and executed lease amendments with respect to 78 of its retail locations.
In August 2021, IT’SUGAR opened its first Oreo Café in the third floor of its “candy department store” at American Dream in New Jersey.
In November 2021, IT’SUGAR opened an 18,000 square foot retail location at the Ala Moana Center in Honolulu, Hawaii, which is the second “candy department store” in IT’SUGAR’s portfolio.
In addition to the above, as of December 31, 2021, IT’SUGAR has also executed agreements for an expansion of an existing retail location, a relocation of a store at an existing location, and various new “temporary” retail locations, Further, as of December 31, 2021, IT’SUGAR had closed certain other locations,one existing retail location and continuestwo “temporary” retail locations.
With respect to negotiate with its landlords. However, all lease modifications and amendments are subject to confirmation of IT’SUGAR’s proposed Reorganization Plan. IT’SUGAR’s “temporary” retail locations that were opened during the Bankruptcy Cases, these locations required initial capital investments that were generally significantly lower than the investments required for IT’SUGAR’s typicaltraditional retail locations. In particular, these locations as IT’SUGARwere generally repurposed retail spaces that were recently vacated by the prior tenants, and utilized in many cases, IT’SUGAR utilized existing fixtures from certain of its other recently closed locations. These temporary locations and are being leased pursuant to lease agreements which have terms ranging from 13-2113-36 months and generally provide for the payment of rent based on a percentage of sales.sales generated at the applicable location. Although IT’SUGAR has been seeking to extend the term of the lease agreements for certain of these locations, certain of the landlords have indicated that they do not intend to extend the term of the lease agreements for such locations. However, IT’SUGAR is also currently evaluatingcontinuing to evaluate additional locations in which to potentially open similar “temporary”temporary retail locations under the same general terms as the existing temporary retail locations. In addition, IT’SUGAR is expanding on the temporary retail location concept to include “large format” locations which require higher initial capital investments but are currently expected by IT’SUGAR to generate higher sales. In certain cases, the leases for these locations will include fixed rental obligations as opposed to lease payments based on a percentage of sales at the applicable location. As certain of these temporary locations are in high-traffic locations in which IT’SUGAR desires to expand, IT’SUGAR believes that these temporary locations will allow IT’SUGAR to better evaluate whether it should incur capital expenditures and assume lease obligations related to longer-term retail locations in these locales.
As noted above, during the course of the Chapter 11 Cases, IT’SUGAR executed lease amendments with respect to 78 of its 96 retail locations. Although the specific terms of the executed lease amendments vary, the amended leases generally provide for the forgiveness of IT’SUGAR’s pre-petition rent obligations, and many (but not all) of the amended leases also provide for the payment of rent based on a percentage of sales volumes continue(in lieu of previously scheduled fixed lease payments), generally for a period of one to be impacted bytwo years from the effectscommencement of the Chapter 11 Cases. Following such periods of time, the amended leases generally require IT’SUGAR to resume the payment of previously scheduled fixed lease payments going forward. For certain retail locations, including four locations that historically generated operating losses largely based on the applicable fixed rental obligations prior to the amendments, the lease amendments provide for the payment of rent based on a percentage of sales volumes through the remainder of the lease term; however, in such cases, the landlords generally have the right to terminate the lease agreements at any time following notice periods ranging from 30 to 60 days.
Following its emergence from the Bankruptcy Cases, IT’SUGAR has been focused on i) expanding on the recent success of its “candy department store” concept as implemented in retail locations at American Dream in New Jersey and the Ala Moana Center in Honolulu, Hawaii) in select high-traffic resort and entertainment locations across the United States, ii) evaluating additional retail locations in targeted markets in which it believes it can opportunistically capitalize on the availability of retail space and a decline in rental rates of retail space in certain markets as a result of the impact of the COVID-19 pandemic, and iii) improving the remaining maturity of its store portfolio by extending the lease terms of its existing successful retail locations, as well as expanding the size of certain retail locations.
Although there is no assurance that it will be able to maintain or increase its sales will not further declinelevels in future periods, IT’SUGAR’sIT’SUGAR has experienced an improvement in its sales since the filing of the BankruptcyChapter 11 Cases. The following summarizes the increase/(decrease) in IT’SUGAR’s comparable store sales and total revenues during the periods since the filing of the Chapter 11 Cases have steadily improved as compared to the second and third quarters of 2020. As compared to an overall decline in sales of 50.4% for the three months ended September 30, 2020, IT’SUGAR’s revenues for the three months ended December 31, 2020 had declined by approximately 31.5% as compared to the comparable periodperiods in 2019.2019:
In April 2020, BBX Capital, through a wholly-owned subsidiary
Fourth Quarter 2020 Compared to Fourth Quarter 2019 | First Quarter 2021 Compared to First Quarter 2019 (2) | Second Quarter 2021 Compared to Second Quarter 2019 (2) | Third Quarter 2021 Compared to Third Quarter 2019 (2) | Fourth Quarter 2021 Compared to Fourth Quarter 2019 (2) | |
Comparable Store Sales (1) | -32% | -10% | 8% | 2% | 12% |
Total Revenues | -23% | 11% | 24% | 15% | 27% |
(1)Comparable store sales represent IT’SUGAR’s sales at its retail locations excluding both the impact of BBXRE, purchased IT’SUGAR’s revolving line of credite-commerce sales and equipment note fromchanges in its store portfolio.
(2)Because the respective lendersresults for the aggregate outstanding principal balancecomparable 2020 periods were impacted by the closure of IT’SUGAR’s locations in March 2020 due to the COVID-19 pandemic, the Company does not believe that IT’SUGAR’s results for the comparable 2020 periods would provide a meaningful comparison in relation to its operating results for the 2021 periods
The improvement in total revenues as compared to the improvement in comparable store sales reflects, among other things, the opening of its “candy department store” at American Dream in New Jersey in December 2019, sales at its “temporary” retail locations, and an increase in e-commerce sales, partially offset by the impact of closed retail locations. However, IT’SUGAR does not currently expect a significant portion of these e-commerce sales to continue in future periods.
As a result of ongoing disruptions in global supply chains, IT’SUGAR has experienced an increase in the cost of inventory and freight, as well as delays in its supply chain. To date, IT’SUGAR has generally been able to mitigate the impact of increased costs through increases in the prices of its products. However, supply chain disruptions have also impacted its ability to maintain historical inventory levels at its retail locations, which IT’SUGAR believes has negatively impacted its sales volumes. To the extent that costs continue to increase, there is no assurance that IT’SUGAR will be able to continue to increase the prices of its products without significantly impacting consumer demand and its sales volume. Additionally, IT’SUGAR has experienced an increase in payroll costs as a result of shortages in available labor at its retail locations.
While the Company believes that the bankruptcy process has improved IT’SUGAR’s financial condition as a result of the loans of $4.3 million plus accrued interest and subsequently advanced an additional $2.0 million to IT’SUGAR pursuant to the terms of the loans. In addition, in October 2020, IT’SUGARrelief it obtained a $4.0 million “debtor in possession” (“DIP”) credit facility from the same subsidiary of BBX Capital that was approved by the Bankruptcy Court. As of December 31, 2020, the $4.0 million available under the DIP credit facility had been funded to IT’SUGAR and remains outstanding.
At this time, it is not possible to predict the ultimate effect of the reorganization process on IT’SUGAR’s business and creditors or when, or if, IT’SUGAR may emerge from bankruptcy. While the reorganization process may improve IT’SUGAR’s result of operations, cash flows, and financial condition if it obtains relief in relation to its pre-petition liabilities and it is able to negotiate amendments to its lease agreements that lowerlowered its ongoing occupancy costs, while its businessthe Company continues to be impacted bysubject to risks and uncertainties related to IT’SUGAR that have had and could continue to have a material adverse effect on the effectsCompany and IT’SUGAR’s business, results of operations, and financial condition. These risks and uncertainties include, without limitation, the success of the restructuring; the continuing adverse impact of the COVID-19 pandemic there is no assuranceon IT’SUGAR’s operations, results, and financial condition; risks associated with the current economic environment with respect to demand, sales levels, and consumer behavior, as well as increased inventory, freight, and labor costs and general supply chain disruptions which have had and may continue to have a material adverse effect in future periods; the risk that IT’SUGAR may not be able to continue to increase prices without significantly impacting consumer demand; risks relating to IT’SUGAR’s business plans, including that IT’SUGAR may not be able to fund or otherwise open new retail locations, including new “temporary” locations, as or when expected, or at all; the risk that IT’SUGAR may not be able to extend or enter into new lease agreements for any existing “temporary” locations which it will obtain such relief,desires to extend, whether on favorable terms or at all; risks related to the lease amendments entered into by IT’SUGAR, including that, while many of the lease amendments provide for the payment of rent based on a percentage of sales volumes for a specified period of time as opposed to fixed rental payments, IT’SUGAR continues to bear the costs of staffing and procuring inventory and the ultimateterms of many of such amendments require IT’SUGAR to resume the payment of previously scheduled fixed lease payments going forward and, as a
result, IT’SUGAR’s ongoing occupancy costs are expected to increase as fixed rental payments under these leases resume and IT’SUGAR’s overall exposure to risks related to fixed rental obligations will increase and revert to pre-bankruptcy levels in relation to such locations; and the risk that landlords may exercise their right to terminate certain leases where rent was reduced.
Las Olas Confections and Snacks and Hoffman’s Chocolates
Las Olas Confections and Snacks’ operations continued throughout the COVID-19 pandemic, and its sales during the year ended December 31, 2021 increased by approximately 34.05% and 42.65%, respectively, as compared to its sales during the same 2020 and 2019 periods. However, it is currently experiencing the impact of global supply chain disruptions, including increased costs for raw materials and supply chain delays, as well as increased labor costs in its manufacturing facilities. In an effort to mitigate the Bankruptcy Casesimpact of these factors, Las Olas Confections and Snacks has increased the reorganization process on IT’SUGARprice of its products, with certain price increases implemented in the third quarter of 2021 and others scheduled to occur in 2022.
During the year ended December 31, 2021, all of Hoffman’s Chocolates’ locations were open, and its resultsrevenues were $5.0 million, as compared to $4.7 million and $7.9 million, respectively, of revenues during the comparable 2020 and 2019 periods. Although its sales have shown signs of improvement since 2020, Hoffman’s Chocolates’ operations cash flows, or financial condition remains uncertain. Further,continue to be impacted by the effects of the COVID-19 pandemic on demand, sales levels, and consumer behavior, as well as the current recessionary economic environment, have had and could continue to have a material adverse effect on IT’SUGAR’s business, results of operations, and financial condition during the bankruptcy proceedings and thereafter.
As a result of IT’SUGAR filing the Bankruptcy Cases and the uncertainties surrounding the nature, timing, and specifics of the bankruptcy proceedings, the Company deconsolidated IT’SUGAR as of September 22, 2020 and recognized a loss of $3.3 million during the year ended December 31, 2020 in connection with the deconsolidation, as further discussed in the Company’s consolidated financial statements included in Item 8 – Note 23 to this annual report. Prior to the deconsolidation of IT’SUGAR, the Company recognized $24.9 million of impairment losses during the year ended December 31, 2020 related to IT’SUGAR’s goodwill and long-lived assets as a result of the effects of the pandemic, including the recognition of a goodwill impairment loss of $20.3 million based on a decline in the estimated fair value of IT’SUGAR. The decline in the estimated fair value of IT’SUGAR during the year ended December 31, 2020 as compared to the Company’s prior valuation of IT’SUGAR as of December 31, 2019 reflected the impact on the Company’s estimated future cash flows of the temporary closure of IT’SUGAR’s retail locations commencing in March 2020, including the liabilities incurred by IT’SUGAR during the shutdown, and considered scenarios in which IT’SUGAR’s business and sales volumes would stabilize following the phased reopeningbehavior. In 2022, Hoffman’s Chocolates closed one of its retail locations. The Company’s estimated discount rate applicable to IT’SUGAR’s cash flows was also increased to reflect, among other things, changes in market conditions, the uncertainty of the duration and severity of the economic downturn, uncertainty related to the retail environment and consumer behavior, uncertainty related to IT’SUGAR’s ability to stabilize its operations and implement its long-term strategies for its business, and the deterioration in IT’SUGAR’s financial condition as a result of the effects of the COVID-19 pandemic, including its lack of sufficient liquidity for its operations during 2020.
The Company’s assessment of IT’SUGAR’s assets for impairment, as well as its estimate of the fair value of its investment in IT’SUGAR in connection with the deconsolidation of IT’SUGAR, required the Company to make estimates based on facts and circumstances as of each reporting date and assumptions about current and future economic and market conditions. These assumptions included the stabilization of IT’SUGAR following the phased reopening of its retail locations in 2020 and its ability to access and operate in its retail locations in spite of ongoing negotiations with the landlords of these locations related to unpaid rents. Further, the Company’s estimated fair value of its investment in IT’SUGAR at the time of its filing of the Bankruptcy Cases included assumptions related to relief of pre-petition obligations and improved occupancy costs as a result of renegotiated lease agreements for its retail locations. In addition, the Company’s estimates assumed that there would not be a material permanent decline in the demand for IT’SUGAR’s products and that IT’SUGAR will ultimately in the future return to its full operations and implement its long-term strategy to reinvest in and grow its business. However, as it is difficult to predict (i) the severity, magnitude, and duration, as well as the economic consequences, of the COVID-19 pandemic, which are uncertain and rapidly changing and may involve the re-implementation of
40
government mandated closures or operating restrictions, and (ii) the ultimate outcome of IT’SUGAR’s Bankruptcy Cases, these estimates and assumptions may change over time, which may result in the recognition of additional impairment losses related to the Company’s investment in IT’SUGAR that would be material to the Company’s financial statements. Changes in assumptions that could materially impact the Company’s estimates related to IT’SUGAR that could result in the recognition of impairment losses in future periods include, but are not limited to, IT’SUGAR’s Chapter 11 Bankruptcy Cases being converted to Chapter 7 bankruptcy cases, IT’SUGAR not obtaining expected relief during the reorganization, a material permanent decline in demand for IT’SUGAR’s products, IT’SUGAR abandoning its long-term strategy to reinvest and grow its business as a result of changes in consumer demand, and significant additional closures following the initial reopening of locations as a result of additional outbreaks of COVID-19.
See Notes 1, 2, 8, 9, and 23 to the Company’s consolidated financial statements included in Item 8 of this annual report for additional information with respect to (i) the Company’s recognition of impairment losses related to IT’SUGAR, including the Company’s significant estimates and assumptions related to IT’SUGAR and the fact that such assumptions may change over time as a result of the COVID-19 pandemic and the ultimate outcome of IT’SUGAR’s Bankruptcy Cases, which may result in the recognition of additional impairment losses related to the BBX Sweet Holdings’ investment in IT’SUGAR that would be material to the Company’s financial statements, and (ii) IT’SUGAR’s Bankruptcy Cases and the Company’s issuance of DIP financing to IT’SUGAR.
Hoffman’s Chocolates and Las Olas Confections and Snacks
In addition to the material adverse impact of the COVID-19 pandemic on IT’SUGAR’s operations, BBX Sweet Holdings’ other operations have also been impacted by the pandemic. In March 2020, Hoffman’s Chocolates closed all of its retail locations to customer traffic and limited sales to curbside pickup (where allowable by government mandates) and online customers, and during the three months ended June 30, 2020, it commenced a phased reopening of its locations to customer traffic. As of July 1, 2020, Hoffman’s Chocolates had reopened all of its locations, and its sales volumes during the six months ended December 31, 2020 were approximately 72% of pre-pandemic levels (as compared to the comparable period in 2019). Although Las Olas Confections and Snacks experienced a decline in sales through the second quarter of 2020, its manufacturing and distribution processes were not materially impacted by the pandemic during the year ended December 31, 2020, and its sales during the year ended December 31, 2020 increased by approximately 6% as compared to its sales during the year ended December 31, 2019.
Hoffman’s Chocolates and Las Olas Confections and Snacks have also been engaged in negotiations with the landlords of their respective retail and manufacturing locations for rent abatements, deferrals, and other modifications. As of December 31, 2020, Hoffman’s Chocolates and Las Olas Confections and Snacks had accrued and unpaid current rental obligations of $0.1 million, which are included in other liabilities in the Company’s consolidated statement of financial condition, and they had executed lease amendments with respect to all but one of these locations, including Las Olas Confections and Snacks’ manufacturing facility in Orlando, Florida. Subsequent to December 31, 2020, Hoffman’s Chocolates executed a lease amendment with respect to its remaining location. There is no assurance that Hoffman’s Chocolates’ sales volumes will improve or that their respective sales volumes will not decline in future periods as a result of the effects of the pandemic. Further, previously reopened locations may be required to be closed as a result of governments reimplementing mandated closures or otherwise, and due to the uncertainty related to these businesses as a result of the pandemic, there is no assurance they will be in a position to meet their obligations under the terms of lease agreements and amendments that have been executed.
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Results of Operations
Information regarding the results of operations for BBX Sweet Holdings is set forth below (dollars in thousands):
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| Change |
| Change | Change | Change | ||||||||||||||||||||||
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| For the Years Ended December 31, |
| 2020 vs |
| 2019 vs | For the Years Ended December 31, | 2021 vs | 2020 vs | |||||||||||||||||||||
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| 2020 |
| 2019 |
| 2018 |
| 2019 |
| 2018 | 2021 | 2020 | 2019 | 2020 | 2019 | |||||||||||||||
Trade sales |
| $ | 49,155 |
|
| 105,406 |
|
| 101,187 |
|
| (56,251) |
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| 4,219 | $ | 84,215 | 49,155 | 105,406 | 35,060 | (56,251) | |||||||||
Cost of trade sales |
|
| (41,482) |
|
| (67,703) |
|
| (65,829) |
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| 26,221 |
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| (1,874) | (52,497) | (41,482) | (67,703) | (11,015) | 26,221 | ||||||||||
Gross margin |
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| 7,673 |
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| 37,703 |
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| 35,358 |
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| (30,030) |
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| 2,345 | 31,718 | 7,673 | 37,703 | 24,045 | (30,030) | ||||||||||
Interest income |
| 29 |
| 56 |
| 61 |
| (27) |
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| (5) | 36 | 29 | 56 | 7 | (27) | ||||||||||||||
Other revenue |
| 281 |
| 324 |
| 10 |
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| (43) |
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| 314 | — | 281 | 324 | (281) | (43) | |||||||||||||
Interest expense |
| (193) |
| (196) |
| (308) |
| 3 |
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| 112 | (429) | (193) | (196) | (236) | 3 | ||||||||||||||
Impairment losses |
| (25,303) |
| (142) |
| (4,147) |
| (25,161) |
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| 4,005 | (38) | (25,303) | (142) | 25,265 | (25,161) | ||||||||||||||
Selling, general and administrative expenses |
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| (26,855) |
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| (43,203) |
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| (46,130) |
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| 16,348 |
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| 2,927 | (31,524) | (26,855) | (43,203) | (4,669) | 16,348 | ||||||||||
Total operating losses |
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| (44,368) |
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| (5,458) |
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| (15,156) |
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| (38,910) |
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| 9,698 | (237) | (44,368) | (5,458) | 44,131 | (38,910) | ||||||||||
Other income | 131 | 221 | 336 | (90) | (115) | |||||||||||||||||||||||||
Loss on the deconsolidation of IT'SUGAR, LLC |
|
| (3,326) |
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| — |
|
| — |
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| (3,326) |
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| — | — | (3,326) | — | 3,326 | (3,326) | ||||||||||
Other income |
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| 221 |
|
| 336 |
|
| 170 |
|
| (115) |
|
| 166 | |||||||||||||||
Loss before income taxes |
| $ | (47,473) |
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| (5,122) |
|
| (14,986) |
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| (42,351) |
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| 9,864 | |||||||||||||||
Gain on the consolidation of IT'SUGAR, LLC | 15,890 | — | — | 15,890 | — | |||||||||||||||||||||||||
Income (loss) from continuing operations before income taxes | $ | 15,784 | (47,473) | (5,122) | 63,257 | (42,351) | ||||||||||||||||||||||||
Gross margin percentage |
| % | 15.61 |
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| 35.77 |
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| 34.94 |
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| (20.16) |
|
| 0.83 | % | 37.66 | 15.61 | 35.77 | 22.05 | (20.16) | |||||||||
SG&A as a percent of trade sales |
| % | 54.63 |
|
| 40.99 |
|
| 45.59 |
|
| 13.64 |
|
| (4.60) | % | 37.43 | 54.63 | 40.99 | (17.20) | 13.64 | |||||||||
BBX Sweet Holdings lossincome from continuing operations before income taxes for the year ended December 31, 20202021 compared to the same 20192020 period increased by $42.4$63.3 million primarily due to the following:
| The recognition of $25.3 million of impairment losses in the 2020 period due to a decline in the estimated value of the goodwill and long-lived assets associated with |
|
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|
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|
|
|
|
BBX Sweet Holdings’ reporting units, including IT’SUGAR, as a result of the impact of the COVID-19 pandemic on market conditions;
The recognition of i) a $15.9 million gain on the reconsolidation of IT’SUGAR in the Company’s financial statements in the 2021 period as a result of IT’SUGAR emerging from Chapter 11 bankruptcy in June 2021 and the revesting of BBX Sweet Holdings’ control of IT’SUGAR and ii) a $3.3 million loss before income taxes foron the deconsolidation of IT’SUGAR during the 2020 period as a result of IT’SUGAR filing the Bankruptcy Cases in September 2020; and
An increase in trade sales and gross margin in 2021 as a result of the impact of the COVID-19 pandemic on BBX Sweet Holdings’ operations in 2020, including $62.2 million of trade sales from IT’SUGAR during the year ended December 31, 20192021 as compared to $31.8 million during the same 2018 period decreasedyear ended December 31, 2020; partially offset by $9.9 million, or 65.8%, primarily
A net increase in operating expenses associated with IT’SUGAR due to increased staffing to support sales volume and higher expenses related to new locations, including the following:candy department store at Ala Moana Center and new temporary locations.
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42
Information regarding the results of operations for IT’SUGAR that were included in the Company’s consolidated financial statements is set forth below (dollars in thousands):
|
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| Change |
| Change | Change | Change | ||||||||||||||||||
|
| For the Years Ended December 31, |
| 2020 vs |
| 2019 vs | For the Years Ended December 31, | 2021 vs | 2020 vs | |||||||||||||||||||||
|
| 2020 |
| 2019 |
| 2018 |
| 2019 |
| 2018 | 2021 | 2020 | 2019 | 2020 | 2019 | |||||||||||||||
Trade sales |
| $ | 31,794 |
|
| 85,275 |
|
| 79,618 |
|
| (53,481) |
|
| 5,657 | $ | 62,161 | 31,794 | 85,275 | 30,367 | (53,481) | |||||||||
Cost of trade sales |
|
| (26,923) |
|
| (50,748) |
|
| (46,718) |
|
| 23,825 |
|
| (4,030) | (34,423) | (26,923) | (50,748) | (7,500) | 23,825 | ||||||||||
Gross margin |
|
| 4,871 |
|
| 34,527 |
|
| 32,900 |
|
| (29,656) |
|
| 1,627 | 27,738 | 4,871 | 34,527 | 22,867 | (29,656) | ||||||||||
Interest income |
|
| 8 |
| 10 |
| 11 |
| (2) |
|
| (1) | — | 8 | 10 | (8) | (2) | |||||||||||||
Interest expense |
|
| (109) |
| (114) |
| (40) |
| 5 |
|
| (74) | (314) | (109) | (114) | (205) | 5 | |||||||||||||
Impairment losses |
|
| (24,948) |
| (142) |
| — |
| (24,806) |
|
| (142) | (38) | (24,948) | (142) | 24,910 | (24,806) | |||||||||||||
Selling, general and administrative expenses |
|
| (21,121) |
|
| (36,521) |
|
| (35,404) |
|
| 15,400 |
|
| (1,117) | (24,915) | (21,121) | (36,521) | (3,794) | 15,400 | ||||||||||
Total operating losses |
|
| (41,299) |
|
| (2,240) |
|
| (2,533) |
|
| (39,059) |
|
| 293 | |||||||||||||||
Total operating income (losses) | 2,471 | (41,299) | (2,240) | 43,770 | (39,059) | |||||||||||||||||||||||||
Other income |
|
| 117 |
|
| 276 |
|
| 149 |
|
| (159) |
|
| 127 | 45 | 117 | 276 | (72) | (159) | ||||||||||
Loss income before income taxes |
| $ | (41,182) |
|
| (1,964) |
|
| (2,384) |
|
| (39,218) |
|
| 420 | |||||||||||||||
Income (loss) before income taxes | $ | 2,516 | (41,182) | (1,964) | 43,698 | (39,218) | ||||||||||||||||||||||||
Gross margin percentage |
| % | 15.32 |
|
| 40.49 |
|
| 41.32 |
|
| (25.17) |
|
| (0.83) | % | 44.62 | 15.32 | 40.49 | 29.30 | (25.17) | |||||||||
SG&A as a percent of trade sales |
| % | 66.43 |
|
| 42.83 |
|
| 44.47 |
|
| 23.60 |
|
| (1.64) | % | 40.08 | 66.43 | 42.83 | (26.35) | 23.60 | |||||||||
TheIT’SUGAR’s activity for the year ended December 31, 2021 is for the period from June 17, 2021, the date that the Company reconsolidated IT’SUGAR, to December 31, 2021. IT’SUGAR’s activity for the year ended December 31, 2020 is for the period beginning on January 1, 2020 through September 22, 2020, the date that the Company deconsolidated IT’SUGAR.
Renin Reportable Segment
Segment Description
Renin is engaged in the design, manufacture, and distribution of sliding doors, door systems and hardware, and home décor products and operates through its headquarters in Canada and three manufacturing and distribution facilities in the United States and Canada. In addition to its own manufacturing activities, Renin also sources various products and materials from China, Brazil, and certain other countries. In October 2020, Renin acquired substantially all of the assets and assumed certain of the liabilities of Colonial Elegance, a supplier and distributor of building products that was headquartered in Montreal, Canada. Colonial Elegance’s products included barn doors, closet doors, and stair parts, and its customers included various big box retailers in the United States and Canada which Renin believes were complementary to and expanded its existing customer base.
Renin’s products are sold through three channels in North America: retail, commercial, and direct installation in the greater Toronto area. As described below, Renin acquired substantially all of
Overview
During the assets and assumed certain of the liabilities of Colonial Elegance, Inc. (“Colonial Elegance”) in October 2020.
Overview
As ofyear ended December 31, 2020,2021, Renin’s had not been significantly impacted by the COVID-19 pandemic, and it has continued to operate both of its manufacturing and distribution facilities, source various products and raw materials from China, Brazil, and certain other countries, and sell its products through various channels. Although Renin has experienced a decline in sales to certain customers as a result of concerns relatedincreased compared to the pandemic, these declines have generally been offset by an overall increase in sales through its retail2020 and commercial channels. However,2019 periods primarily as a result of the effectsacquisition of Colonial Elegance and price increases to customers, as further discussed below. Its retail channel comprised approximately 77% of its gross sales for the year ended December 31, 2021 as compared to approximately 67% and 63%, respectively, for the years December 31, 2020 and 2019, which reflects, among other things, the expansion of Renin’s retail customers to include Menards, Lowe’s Canada, and Home Depot Canada as a result of the pandemic,acquisition of Colonial Elegance.
However, Renin has experienced increaseda significant increase in costs related to the shipment of productsshipping and raw materials, as well as delays in its supply chains, which hashave: (i) negatively impacted its product costs and gross margin, (ii) increased the risk that Renin will be unable to fulfill customer orders, and (iii) negatively impacted its working capital and cash flows due to increased inventory in transit, a prolonged period between when it is required to pay its suppliers and it is paid by its customers, and an overall decline in its gross margin. Further, as described below, these factors have negatively impacted Renin’s ability to maintain compliance with the covenants contained in its credit facility with TD Bank. In an effort to mitigate the impact of certain of these factors, Renin expects this increasehas sought to: (i) negotiate price increases with its customers, (ii) maintain higher inventory levels in costsan effort to continue and worsen during 2021.
Although Renin’s operations had not been significantly impacted by the pandemic as of December 31, 2020, the effects of the pandemic, including a recessionary economic environment and increased costs, could have a significant adverse impact on Renin’s results of operations and financial condition in future periods, particularly if (i) an economic downturn is prolonged in nature and impacts consumer demand or (ii) the effects of the pandemic result in material disruptions in theensure that it can fulfill customer orders, (iii) diversify its global supply chains, for its products and raw materials, including additional delays in the production and shipment of products and raw materials from foreign suppliers and continued increases in shipping costs. Further, while Renin has begun to diversify its supply chain and(iv) transfer the assembly of certain products from unaffiliated foreign suppliers to its own manufacturing facilities,facilities.
Although the steps Renin continuesis seeking to sourcetake are intended to mitigate the risks it faces, Renin’s product costs and gross margin have been and are expected to continue to be adversely impacted in 2022. While Renin has obtained price increases for many of its products, including in many cases multiple price increases during 2021, the timing of the implementation of these price increases with its major customers has generally lagged behind the timing of the increase in its costs, which has resulted in significantly lower gross margins during the periods in which Renin has continued to fulfill orders prior to the implementation of price increases. In particular, Renin negotiated several price increases that were implemented between August and October 2021; but, in certain cases, the negotiated price increases do not fully offset the increase in Renin’s costs. As a result, Renin’s gross margins were negatively impacted and, with respect to sales to certain customers, will continue to be negatively impacted unless Renin can negotiate additional price increases in the future, global supply chains stabilize, and/or Renin is able to identify and implement alternative sources to manufacture its products.
Further, Renin’s efforts to mitigate its increase in costs have had and may have other negative impacts on Renin. In particular, the combination of maintaining higher inventory levels and the increased time between its purchase of inventory and receipt of payments from customers have negatively impacted its liquidity and required it to obtain a temporary increase in the availability under its credit facility with TD Bank in July 2021, as further described below. In addition, although the increase in product and shipping costs is impacting the entire industry in which Renin operates, generally resulting in an overall increase in prices to customers, the negotiation of increased prices with customers increases the risk that customers will pursue alternative sources for Renin’s products, which may result in Renin losing customers or require it to lower prices in an effort to retain customers. Further, while Renin is generally seeking to diversify its supply chain and limit its exposure to risks associated with geographic locations and suppliers, supply chain delays and the scarcity of products and raw materials have made this difficult.
In April 2021, Renin was notified by one of its major customers that the customer will no longer be purchasing certain products from China. As aRenin commencing in late 2021. At the time that Renin was notified by the customer, these products were previously estimated to comprise approximately 7% of Renin’s estimated net sales for 2021. Although the customer was also evaluating alternative sources for certain other products that, at the time, were previously estimated to comprise approximately 6% of Renin’s estimated net sales for fiscal 2021, Renin has been notified by the customer that it will continue to purchase such products from Renin. Although Renin was able to maintain its existing pricing for these products, Renin expects that the gross margin for these products will be negatively impacted by the overall increase in product costs that it is experiencing. Renin expects that these events will negatively impact its sales, gross margin, and profitability and is evaluating possible cost saving initiatives to offset the impact of these events.
Further, although Renin’s manufacturing and distribution facilities remained open throughout the pandemic, increases in COVID-19 cases may result disruptionsin closures in its supply chain from China as afacilities, including its facilities located in Canada, and worker shortages may also result of various factors, including closures or delays in the supply chain, could haveclosure of facilities or such facilities operating below capacity. Additionally, while consumer demand for Renin’s products generally remained strong throughout the COVID-19 pandemic and into the first half of 2021, Renin has recently observed a materialdecline in consumer demand, which Renin believes may be attributable to (i) the impact of price increases and overall inflationary pressures on Renin’s costconsumer behavior and (ii) a shift in consumer spending away from home improvements as many portions of product and ability to meet customer demand.the economy reopen, particularly in the United States. In addition, Renin would be negatively impacted by an increase in interest rates, as its borrowings bear interest at variable rates.
Acquisition of Colonial Elegance
In October 2020, Renin acquired substantially all of the assets and assumed certain of the liabilities of Colonial Elegance. Headquartered in Montreal, Canada, Colonial Elegance, is a supplier and distributor of building products includingthat was headquartered in Montreal, Canada. Colonial Elegance’s products included barn doors, closet doors, and stair parts, and its customers includeincluded various big box retailers in the United States and Canada which areRenin believes were complementary to and expand Renin’sexpanded its existing customer base. Renin believes the acquisition of Colonial Elegance will establish Renin as a leader in barn doors and closet doors products, support the expansion of the growing door hardware and stair parts business, and provide a promising avenue for continued growth. In addition, Renin believes that the increased scale of the combined businesses will result in better overall service and selection for its customers and improved logistics and cost efficiencies for Renin.
The base purchase price for the acquisition of Colonial Elegance was $38.8 million. In addition to the base purchase price, Renin acquired excess working capital held by Colonial Elegance above an agreed upon target working capital amount of $9.9 million for $4.3 million, which resulted in total purchase consideration of $43.1 million. BBX Capital made a $5.0 million capital contribution to Renin to partially fund the acquisition of Colonial Elegance, while the remainder of the acquisition was funded by Renin using borrowings under its amended and restated credit facility with TD Bank, as described below.
Amendment and Restatement of TD Bank Credit Facility
In connection with the acquisition of Colonial Elegance, Renin amended and restated its credit facility with TD Bank to include a $30.0 million term loan, increase the availability under its existing revolving operating loan with TD Bank to $20$20.0 million, and extend the maturity of the facility to October 2025. Renin utilized $30.0 million of proceeds under the term loan and approximately $8.0 million of proceeds under the revolving operating loan in connection with the acquisition of Colonial Elegance.
In July 2021, Renin’s credit facility with TD Bank was amended effective June 30, 2021 to temporarily increase the availability under the revolving line of credit from $20.0 million to $24.0 million through December 31, 2021. In addition, the amendment to the credit facility temporarily increased the maximum total leverage ratio included in the financial covenants of the facility but prohibited Renin from making distributions to BBX Capital through July 1, 2022, at which time the leverage ratio and Renin’s ability to make distributions to the Company will revert to the prior requirements under the facility.
In November 2021, Renin’s credit facility with TD Bank was further amended effective September 30, 2021 to extend the prior increase in the availability under the revolving line of credit from $20.0 million to $24.0 million through December 31, 2022, at which time the availability under the line of credit will revert to $20.0 million and any amounts outstanding in excess of $20.0 million must be repaid by Renin. In addition, the November amendment to the credit facility i) waived the requirement for Renin to comply with the maximum total leverage ratio included in the financial covenants of the facility as of September 30, 2021 (but does not waive the requirement for any future period), ii) extended the prior increase in the maximum total leverage ratio through December 31, 2022, iii) modified the calculation of the maximum total leverage ratio, and iv) included an additional financial covenant related to Renin meeting certain minimum levels of specified operating results from November 2021 through December 2022. Further, the November amendment prohibits Renin from making distributions to BBX Capital through December 31, 2022. On January 1, 2023, the financial covenants under the facility and Renin’s ability to make distributions to the Company will revert to the requirements under the facility prior to the amendments in 2021.
Although Renin was in compliance with the financial covenants under the TD Bank credit facility as of December 31, 2021, Renin is not currently in compliance with certain financial covenants under the facility that are calculated as of January and February 2022. Renin is in discussions with TD Bank to address this issue, whether through a waiver of such covenants or a modification to the facility. Even if Renin is able to obtain relief in relation to its financial covenants under its credit facility with TD Bank, if the factors described above, including inflationary and cost pressures, labor shortages, and supply chain disruptions, continue to have a material negative impact on Renin’s operating results and financial condition, Renin may again fall out of compliance with the terms of its outstanding credit facility with TD Bank. If Renin is unable to obtain such a waiver or modify the facility, Renin may lose availability under its line of credit, be required to provide additional collateral, or repay all or a portion of its borrowings, any of which would have a material adverse effect on the Company’s liquidity, financial position, and results.
See Note 3 to the Company’s consolidated financial statements included in Item 8 of this annual report for additional information with respect to Renin’s acquisition of Colonial Elegance and Note 11 to the Company’s consolidated financial statements included in Item 8 of this annual reportAnnual Report on Form 10-K for additional information with respect to Renin’s amended and restated credit facility with TD Bank.
44
Supplier Dispute
In October 2020, Renin incurred approximately $6.0 million in costs for the expedited shipment of products to Renin from a foreign supplier and an additional $2.0 million in costs for the expedited shipment of product displays from the same supplier. The supplier had failed to deliver both the products and displays on the contractually agreed upon delivery schedule, and Renin incurred these costs, which were significantly in excess of the shipping costs that would have been incurred had such products been delivered on schedule, based on its belief that the costs were necessary in order for Renin to meet its obligations to one of its major customers. The products were committed to be sold by Renin in connection with the customer’s November 2020 holiday sale program, while the displays were required to be delivered in connection with the rollout of new products with the customer. Renin believesbelieved that the supplier iswas liable to Renin for damages related to the increased costs pursuant to the terms of the agreements between Renin and the supplier and has notified the supplier that it is exercising a right of offset of the costs against outstanding amounts due to the supplier of approximately $8.1 million in order to recover its damages. However, theThe supplier is disputingdisputed that it iswas liable for the additional shipping costs and has demanded that Renin pay any outstanding amounts due to it. costs.
As the supplier is disputing that it is liable to Renin for damages andSince there iswas no assurance regarding the ultimate resolution of the matter, and whether Renin’s assertion that it is entitled to damages will be sustained, Renin recognized the cost of the products and related shipping costs upon the sale of such products in cost of trade sales in the Company’s statement of operations and comprehensive income during the year ended December 31, 2020, while the costs of the displays and related shipping were deferred and will beare being amortized over the period in which the Company expects to benefit from their use. As ofIn December 31, 2020, this matter did not impact Renin’s compliance with2021, Renin and the financial covenants under its outstanding credit facility with TD Bank. However, if Renin is unable to sustain its assertion that it is entitled to damages fromforeign supplier settled the supplierdispute and is ultimately required to pay the supplier for outstanding amounts due to it,the supplier for $4.2 million to be paid by Renin may be unable to comply withthe supplier in two equal installments in December 2021 and June 2022. As Renin had accrued a $8.1 million liability for amounts due to the supplier during the year ended December 31, 2020, Renin reduced its covenants, If Renin is unable to comply with its covenants, it would be required to seek a waiver fromcost of trade sales by $2.9 million for the bank,year ended December 31, 2021 and if unable to obtain a waiver, might lose availability under its line of credit, be required to provide additional collateral, or repay all or a portionreduced the unamortized balance of its borrowings, anydisplay contract asset by $1.0 million as of which could haveDecember 31, 2021. BBX Capital made a material adverse effect on$2.0 million capital contribution to Renin to fund the Company’s liquidity, financial position, and results.December 2021 settlement payment to the foreign supplier.
Results of Operations
Information regarding the results of operations for Renin is set forth below (dollars in thousands):
|
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|
|
|
|
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|
|
|
|
| |||||||||||||||||||
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|
| ||||||||||||||||||||||||
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|
|
| Change |
| Change | Change | Change | ||||||||||||||||||||||
|
| For the Years Ended December 31, |
| 2020 vs |
| 2019 vs | For the Years Ended December 31, | 2021 vs | 2020 vs | |||||||||||||||||||||
|
| 2020 |
| 2019 |
| 2018 |
| 2019 |
| 2018 | 2021 | 2020 | 2019 | 2020 | 2019 | |||||||||||||||
Trade sales |
| $ | 93,036 |
|
| 67,537 |
|
| 68,417 |
|
| 25,499 |
|
| (880) | $ | 146,255 | 93,036 | 67,537 | 53,219 | 25,499 | |||||||||
Cost of trade sales |
|
| (83,563) |
|
| (54,243) |
|
| (55,483) |
|
| (29,320) |
|
| 1,240 | (130,366) | (83,563) | (54,243) | (46,803) | (29,320) | ||||||||||
Gross margin |
|
| 9,473 |
|
| 13,294 |
|
| 12,934 |
|
| (3,821) |
|
| 360 | 15,889 | 9,473 | 13,294 | 6,416 | (3,821) | ||||||||||
Interest expense |
|
| (615) |
| (498) |
|
| (638) |
| (117) |
|
| 140 | (1,830) | (615) | (498) | (1,215) | (117) | ||||||||||||
Selling, general and administrative expenses |
|
| (11,735) |
|
| (11,066) |
|
| (9,903) |
|
| (669) |
|
| (1,163) | (15,857) | (11,735) | (11,066) | (4,122) | (669) | ||||||||||
Total operating (losses) profits |
|
| (2,877) |
|
| 1,730 |
|
| 2,393 |
|
| (4,607) |
|
| (663) | |||||||||||||||
Total operating (loss) income | (1,798) | (2,877) | 1,730 | 1,079 | (4,607) | |||||||||||||||||||||||||
Other (expense) income |
|
| (3) |
|
| 153 |
|
| — |
|
| (156) |
|
| 153 | — | (3) | 153 | 3 | (156) | ||||||||||
Foreign exchange (loss) gain |
|
| (692) |
|
| (75) |
|
| 68 |
|
| (617) |
|
| (143) | |||||||||||||||
Foreign exchange gain (loss) | 812 | (692) | (75) | 1,504 | (617) | |||||||||||||||||||||||||
(Loss) income before income taxes |
|
| (3,572) |
|
| 1,808 |
|
| 2,461 |
|
| (5,380) |
|
| (653) | (986) | (3,572) | 1,808 | 2,586 | (5,380) | ||||||||||
Gross margin percentage |
| % | 10.18 |
|
| 19.68 |
|
| 18.90 |
|
| (9.50) |
|
| 0.78 | % | 10.86 | 10.18 | 19.68 | 0.68 | (9.50) | |||||||||
SG&A as a percent of trade sales |
| % | 12.61 |
|
| 16.39 |
|
| 14.47 |
|
| (3.78) |
|
| 1.92 | % | 10.84 | 12.61 | 16.39 | (1.77) | (3.78) | |||||||||
Renin’s loss before income taxes for the year ended December 31, 20202021 was $3.6$1.0 million compared to incomea loss before income taxes of $1.8$3.6 million for the same 20192020 period. The decrease in earningsthe loss of $5.4$2.6 million was primarily due to the following:
|
An increase in Renin’s gross margin and gross margin percentage primarily due to i) an increase in Renin’s trade sales resulting primarily |
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|
|
Renin’s income before income taxes for the year ended December 31, 2019expedited shipment of products to Renin from the aforementioned foreign supplier, partially offset by i) a significant increase in costs related to shipping and raw materials incurred during 2021 compared to the same 20182020 period decreasedand ii) the recognition of a $2.9 million inventory reserve as of December 31, 2021 as a result of a strategic initiative to consolidate warehouse facilities, which resulted in a decision to discount various slow moving inventories to accelerate their sale; and
An increase in foreign currency exchange gains due to the impact of changes in foreign exchange rates between the U.S. dollar and Canadian dollar and an overall increase in assets and liabilities denominated in Canadian dollars as of December 31, 2021 as compared to December 31, 2020 as a result of the acquisition of Colonial Elegance; partially offset by $0.7 million, or 26.5%,
An increase in selling, general, and administrative expenses primarily due to ongoing expenses associated with Colonial Elegance, including amortization expense related to acquired intangible assets; and
An increase in interest expense associated with Renin’s use of its credit facility with TD Bank to fund a significant portion of the following: purchase price for the Colonial Elegance acquisition and to fund higher inventory balances.
|
|
|
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|
|
Other
Other in the Company’s segment information includes its investments in other operating businesses, including a restaurant located in South Florida that was acquired through a loan foreclosure and an insurance agency.
LossDuring the years ended December 31, 2021 and 2019, the Company recognized income from continuing operations before income tax for thetaxes related to these other businesses wasof $1.4 million and $0.3 million, respectively, compared to a loss from continuing operations before income taxes of $2.9 million during the year ended December 31, 2020. The improvements in the results of operations for these businesses for the year ended December 31, 2021 compared to the 2020 period was primarily due to the impact of the COVID-19 pandemic on these business in 2020 and $0.3 million for eachthe recognition of the years ended December 31, 2019 and 2018. During the year ended December 31, 2020, the Company recognized $2.7 million of impairment losses in 2020 related to certain of these investments primarily resulting from the effects of the COVID-19 pandemic on the estimated value of the businesses.
Reconciling Items and Eliminations
Reconciling items and eliminations in the Company’s segment information primarily includes the following:
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|
|
|
|
BBX Capital’s corporate general and administrative expenses;
Interest income on the note receivable from Bluegreen Vacations;
Interest income on interest-bearing cash accounts; and
Interest expense capitalized in connection with the development and construction of real estate.
Corporate General and Administrative Expenses
Through September 30,BBX Capital’s corporate general and administrative expenses for the years ended December 31, 2021, 2020, and 2019 were $15.6 million, $16.0 million, and $21.0 million, respectively. During the year ended December 31, 2021 and the three months ended December 31, 2020, BBX Capital’s corporate general and administrative expenses consisted primarily of an allocation of the costactual costs of services provided by BVH to the Company for various support functions, including executive compensation, legal, accounting, human resources, investor relations, and executive offices, while subsequent to September 30, 2020, itsBBX Capital’s corporate general and administrative expenses for the periods through September 30, 2020 consisted primarily of an allocation of the actual costscost of services provided by Bluegreen Vacations to the Company for these support functions, as manymost of these functionswhich were transferred to BBX Capital in connection with the spin-off. BBX Capital’s corporate general and administrative expenses for the years ended December 31, 2020, 2019, and 2018 were $15.8 million, $20.8 million, and $21.2 million, respectively. The decrease in the corporate general and administrative expenses for the 2020 period as compared to the prior periods in 2019 and 2018 primarily reflects (i) compensation expense related to BVH’s Chief Executive Officer and Chief Financial Officer moving tospin-off from Bluegreen as a resultVacations.
(Provision) Benefit for Income Taxes from Continuing Operations
The provision for income taxes from continuing operations for the year ended December 31, 2020 reflected the Company’s effective tax rate of 19% on income before income taxes from continuing operations. The effective tax rate was lower than the expected federal income tax rate of 21.0% primarily due to nondeductible executive compensation, noncontrolling interests in subsidiaries not consolidated for income tax purposes, and nondeductible goodwill impairments, partially offset by state income taxes.
46
The provision for income taxes for the year ended December 31, 2019 reflected the Company’s effective tax rate of 29% on income before income taxes from continuing operations. The effective tax rate was higher than the expected federal income tax rate of 21.0% primarily due to nondeductible executive compensation and state income taxes.
The provision for income taxes for the year ended December 31, 2018 reflected the Company’s effective tax rate of (96%) on income before income taxes from continuing operations. The effective tax rate was higherdifferent than the expected federal income tax rate of 21% primarily due to the impact of state income taxes and an increase in the Canadian valuation allowance during the year ended December 31, 2021. The difference for the years ended December 31, 2020 and 2019 was due to the impact of nondeductible executive compensation and state income taxes, as well as the impact of a nondeductible goodwill impairment nondeductible executive compensation, which included a $2.8 million adjustment associated withloss recognized during the Company’s completion of its analysis of its accounting for the enactment of the Tax Reform Act inyear ended December 2017, and state income taxes.31, 2020.
Discontinued Operations
MOD Pizza Restaurant Operations
In 2016, Food for Thought Restaurant Group (“FFTRG”), a wholly-owned subsidiary of BBX Capital, entered into area development and franchise agreements with MOD Super Fast Pizza (“MOD Pizza”) related to the development of up to approximately 60 MOD Pizza franchised restaurant locations throughout Florida. Through 2019, FFTRG had opened nine restaurant locations. In September 2019, due to FFTRG’s overall operating performance and the Company’s goal of streamlining its investment verticals, the Company entered into an agreement with MOD Pizza to terminate the area development and franchise agreements and transferred seven of its restaurant locations, including the related assets, operations, and lease obligations, to MOD Pizza. In addition, the Company closed the remaining two locations and terminated the related lease agreements. FFTRG’s operations as a franchisee of MOD Pizza are presented as discontinued operations in the Company’s consolidated financial statements.
The net lossesloss before taxes from the Company’s MOD Pizza franchise operations for the yearsyear ended December 31, 2019 and 2018 werewas $9.4 million, and $4.5 million, respectively. The net losses for the year ended December 31, 2019which included aggregate impairment losses of $6.7 million related to the transfer of the seven restaurant locations to MOD Pizza and the closure of the two restaurant locations.
The net losses in the 2018 period were primarily attributable to selling, general, and administrative expenses, including compensation expenses associated with store employees and operations, human resource, marketing, and finance personnel that were hired in connection with establishing initial restaurant operations, depreciation expense associated with leasehold improvements, furniture, and fixtures at restaurant locations, and costs associated with store openings and the review of potential restaurant sites. During the year ended December 31, 2018, the selling, general and administrative expenses were partially offset by sales generated from the five restaurant locations opened during 2018 and the two restaurant locations opened during the fourth quarter of 2017.
Net Income Attributable to Noncontrolling Interests
Through September 22, 2020, the Company’s consolidated financial statements included the results of operations and financial position of IT’SUGAR, a 93%an over 90% owned subsidiary in which it held a controlling financial interest, and as a result, the Company was previously required to attribute net income or loss to therecognized a noncontrolling interest in IT’SUGAR. As a result of the filing of the Bankruptcy Cases by IT’SUGAR and its subsidiaries, the Company deconsolidated IT’SUGAR as of September 22, 2020 and derecognized the related noncontrolling interest in IT’SUGAR.
Net On June 17, 2021, the Company reconsolidated IT’SUGAR as a result of IT’SUGAR’s subsequent emergence from bankruptcy and again recognized the noncontrolling interest in IT’SUGAR. As IT’SUGAR is a partially-owned subsidiary, BBX Capital is required to attribute income or loss attributable to the noncontrolling interests was $4.8 million, $0.2 million and $0.3 million, respectivelyinterest in IT’SUGAR during years ended December 31, 2020, 2019 and 2018. The increasethe periods in which IT’SUGAR is consolidated in the net loss attributable to noncontrolling interests forCompany’s financial statements. As a result, during the year ended December 31, 2020, as comparedthe Company attributed income or loss to the same 2019 periods was primarily duenoncontrolling interest in IT’SUGAR through September 22, 2020, and during the year ended December 31, 2021, the Company attributed income or loss to increased operating losses atthe noncontrolling interest in IT’SUGAR including the recognition of impairment losses related to its goodwill and long lived assets.commencing on June 17, 2021.
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Consolidated Cash Flows
A summary of our consolidated cash flows is set forth below (in thousands):
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| 2020 |
| 2019 |
| 2018 | 2021 | 2020 | 2019 | |||||||||
Cash flows (used in) provided by operating activities |
| $ | (6,183) |
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| 22,669 |
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| 11,207 | |||||||||
Cash flows (used in) provided by investing activities |
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| (52,399) |
| 35,963 |
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| 1,574 | ||||||||||
Cash flows provided by (used in) financing activities |
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| 127,682 |
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| (67,427) |
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| (10,084) | |||||||||
Cash flows provided by (used in) operating activities | $ | 37,828 | (6,183) | 22,669 | ||||||||||||||
Cash flows provided by (used in) investing activities | 36,785 | (52,399) | 35,963 | |||||||||||||||
Cash flows (used in) provided by financing activities | (45,955) | 127,682 | (67,427) | |||||||||||||||
Net increase (decrease) in cash, cash equivalents and restricted cash |
| $ | 69,100 |
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| (8,795) |
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| 2,697 | $ | 28,658 | 69,100 | (8,795) | |||||
Cash, cash equivalents and restricted cash at beginning of period |
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| 21,287 |
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| 30,082 |
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| 27,385 | 90,387 | 21,287 | 30,082 | ||||||
Cash, cash equivalents and restricted cash at end of period |
| $ | 90,387 |
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| 21,287 |
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| 30,082 | $ | 119,045 | 90,387 | 21,287 | |||||
Cash Flows provided by/used infrom Operating Activities
The Company’s cash provided by operating cash flows decreased $28.9activities increased by $44.0 million during the year ended December 31, 20202021 compared to the same period in 2019. The decrease was2020 primarily due to lowerhigher sales of real estate inventory by BBXRE, higher operating distributions from unconsolidated real estate joint ventures, and increasedlower operating losses at BBX Sweet Holdings, partially offset by cash used in Renin’s operating activities, including inventory purchases. The decrease in operating losses at BBX Sweet Holdings during the 2021 period compared to the 2020 period was primarily the result of operating losses incurred by IT’SUGAR during the 2020 period as a result of the impactsimpact of the COVID-19 pandemic including a decline in trade sales primarily reflecting the closure of BBX Sweet Holdings’ retail locations and subsequent impact on consumer demand, partially offsetIT’SUGAR’s operations.
Cash Flows from Investing Activities
Cash provided by higher sales of real estate inventoryinvesting activities increased by BBXRE during the 2020 period as compared to the 2019 period and higher trade sales and operating income at Renin partially due to the acquisition of Colonial Elegance.
The Company’s operating cash flows increased $11.5$89.2 million during the year ended December 31, 20192021 compared to the same period in 2018. The increase was2020 primarily due to increase in operating distributions from real estate joint ventures partially offset by a decrease in proceeds from the sale of developed lots at the Beacon Lake Community development and an increase in spending on the development of real estate inventory at Beacon Lake.
Cash Flows provided by/used in Investing Activities
Cash provided by investing activities decreased by $88.4 million during the year ended December 31, 2020 compared to the same period in 2019. The decrease primarily reflects $42.1 million of cash paid for the acquisition of Colonial Elegance lowerin the 2020 period, receipt of a $25.0 million partial prepayment of the note receivable from Bluegreen Vacations in the 2021 period, higher distributions from unconsolidated real estate joint ventures, decreased proceedsand $6.9 million of cash acquired in connection with the consolidation of IT’SUGAR.
Cash Flows from the sale of real estate and funding of debtor-in-possession loans receivable to IT’SUGAR, partially offset by lower investmentsFinancing Activities
Cash used in unconsolidated real estate joint ventures, higher loan recoveries and a decline in purchases of property and equipment.
Cash provided by investingfinancing activities increased by $34.4$173.6 million during the year ended December 31, 20192021 compared to the same period in 2018. The increase primarily reflects a $19.4 million increase in distributions from unconsolidated real estate joint ventures, $17.3 million of higher proceeds from the sale of real estate and property and equipment, and a $4.0 million net decrease in investments in unconsolidated real estate joint ventures, partially offset by a $13.1 million decrease in proceeds from net loan recoveries.
Cash Flows provided by/used in Financing Activities
Cash provided by financing activities increased by $195.1 million during the year ended December 31, 2020, compared to the same period in 2019. The increasewhich was primarily due to a $94.3 million net transfer of cash from Bluegreen Vacations during the 2020 period, the repurchase of $34.3 million of Class A and Class B Common Stock during the 2021 period, and higher net transfers from BVH and an increase inborrowings during the 2020 period primarily as a result of borrowings to fund the acquisition of Colonial Elegance in the 2020 period.Elegance.
Cash used in financing activities increased by $57.3 million during the year ended December 31, 2019 compared to the same period in 2018. The increase was primarily the result of $65.4 million of net transfers to BVH compared to net transfers from BVH of $7.6 million during 2018. The increase in cash used from financing activities was partially offset by a $14.1 million decrease in repayments of notes payable.Commitments
Liquidity and Capital Resources
As of December 31, 2020,2021, the Company’s material commitments included the required payments due on notes payable and other borrowings and commitments under noncancelable operating leases.
The following table summarizes the contractual minimum principal and interest payments required on the Company’s outstanding debt and payments required on the Company’s noncancelable operating leases by period due date as of December 31, 2021 (in thousands):
Payments Due by Period | ||||||||||||||||||
Unamortized | ||||||||||||||||||
Debt | ||||||||||||||||||
Less than | 1 — 3 | 4 — 5 | After 5 | Issuance | ||||||||||||||
Contractual Obligations (1) | 1 Year | Years | Years | Years | Costs | Total | ||||||||||||
Notes payable and other borrowings (2) | $ | 3,177 | 10,601 | 33,867 | 7,860 | (622) | 54,883 | |||||||||||
Noncancelable operating leases | 17,847 | 35,226 | 28,806 | 38,779 | — | 120,658 | ||||||||||||
Settlement of supplier dispute | 2,025 | — | — | — | — | 2,025 | ||||||||||||
Purchase an additional 40% interest in the Altman Companies (3) | — | 9,400 | — | — | — | 9,400 | ||||||||||||
Total contractual obligations | 23,049 | 55,227 | 62,673 | 46,639 | (622) | 186,966 | ||||||||||||
Interest Obligations (2)(4) | ||||||||||||||||||
Notes payable and other borrowings | 2,010 | 4,013 | 3,004 | 7,162 | — | 16,189 | ||||||||||||
Total contractual interest | 2,010 | 4,013 | 3,004 | 7,162 | — | 16,189 | ||||||||||||
Total contractual obligations | $ | 25,059 | 59,240 | 65,677 | 53,801 | (622) | 203,155 | |||||||||||
(1)The above table excludes certain additional amounts that the Company may invest in the Altman Companies or its sponsored joint ventures.
(2)Obligations under Renin’s credit facility with TD Bank are presented based on the scheduled principal payments and stated maturity date of October 2025 contemplated in the loan agreement. Renin is not currently in compliance with certain financial covenants under the facility that are calculated as of January and February 2022. If Renin is unable to obtain a waiver or modify the facility to address this issue, Renin may be required to repay all or a portion of its borrowings, which would have a material adverse effect on the Company’s liquidity, financial position, and results.
(3)Subject to certain adjustments, including, but not limited to, reimbursements for excess working capital and predevelopment expenditures incurred by the Altman Companies at the time of purchase.
(4)Assumes that the scheduled minimum principal payments are made in accordance with the table above and the interest rate on variable rate debt remains the same as the rate at December 31, 2021.
Liquidity and Capital Resources
As of December 31, 2021, the Company had cash, and cash equivalents, and short-term investments of approximately $90.0$122.7 million. Management believes that the Company has sufficient liquidity to fund operations, including anticipated working capital, capital expenditure, and debt service requirements, and to respond to the challenges related to the COVID-19 pandemic and current economic environment for the foreseeable future, subject to mitigation and cost reduction efforts and management’s determination of whether and/or the extent to which it will fund the operations and commitments of its subsidiaries. As discussed in this report, the Companypreviously disclosed, management has sought to take various mitigating measures to manage through the current challenges resulting from the COVID-19 pandemic, including costevaluated and capital expenditure reductions at its
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subsidiaries. However, management is continuingwill continue to evaluate the potential operating deficits, commitments, and liquidity requirements of its subsidiaries as a result of the impact of the COVID-19 pandemic and may determine not to provide additional funding or capital to subsidiaries whose operations it believes may not be sustainable includingor do not support additional DIP funding to IT’SUGAR during the Bankruptcy Court proceedings.investment.
The Company’s principal sources of liquidity have historically been i) its available cash, cash equivalents, and short-term investments, ii) distributions from unconsolidated real estate joint ventures, iii) proceeds received from sales of real estate, including lot sales at the Beacon Lake Community development, and iv) contributions from BVH.Bluegreen Vacations. However, the COVID-19 pandemic has impacted and resulted in uncertainty regarding many of these sources of liquidity. Further, as a result of the spin-off of BBX Capital from BVH,Bluegreen Vacations, the Company will no longer receivereceives capital contributions from BVH, although it expects to receive quarterly interest payments on the $75.0 million promissory note that was issued by BVH in favor of BBX Capital in connection with the spin-off, subject to BVH’s right to defer interest payments under the terms of the promissory note. Based on these factors,Bluegreen Vacations. As a result, the Company believes that its primary sourcesources of liquidity for the foreseeable future will be its available cash, cash equivalents, and cash equivalents.short-term investments, distributions from unconsolidated real estate joint ventures, and proceeds received from sales of real estate.
In addition to the above sources of liquidity, the Company expects to receive quarterly interest payments on the promissory note that was issued by Bluegreen Vacations in favor of BBX Capital in connection with the spin-off. The original principal amount of the note was $75.0 million; however, in December 2021, Bluegreen Vacations prepaid $25.0 million of the principal balance, reducing the outstanding balance to $50.0 million as of December 31, 2021.Amounts outstanding under the $75.0 million BVH promissory note receivable accrue interest at a rate of 6% per annum, with interest payments scheduled to occur on a quarterly basis. However, BVHBluegreen Vacations may elect to defer such quarterly interest payments, with interest on the entire outstanding balance thereafter to accrue at a cumulative, compounded rate of 8% per annum until such time as BVHBluegreen Vacations is current on all accrued payments under the note, including deferred interest. All outstanding amounts under the note will become due and payable on September 30, 2025 or earlier upon certain other events. Bluegreen Vacations is permitted to prepay the note in whole or in part at any time.
BBX CapitalThe Company believes that its current financial condition will allow it to meet its anticipated near-term liquidity needs. The Company may also seek additional liquidity from outside sources, including traditional bank financing, secured or unsecured indebtedness, or the issuance of equity and/or debt securities. However, these alternatives may not be available to the Company on attractive terms, or at all. The inability to raise any needed funds through the sources discussed above would have a material adverse effect on the Company’s business, results of operations, and financial condition.
Anticipated and Potential Liquidity Requirements
The Company has historically usedcurrently expects to use its available funds forliquidity to fund operations and general(including corporate purposes (includingexpenses, working capital, capital expenditures, debt service requirements, and lease obligations), tothe Company’s other commitments described above) and make additional investments in real estate, opportunities,its existing operating businesses, or other opportunities, or to make distributions to BVH. While the Company will continue to evaluate opportunistic investments, the Company currently expects to use its available funds primarily for operations and general corporate purposes and to fund operating deficits resulting from the COVID-19 pandemic.opportunities. However, as discussed above, the Company’s management intends to evaluate theany operating deficits, commitments, and liquidity requirements of its subsidiaries as a result of the impact of the COVID-19 pandemic on operations, and general economic conditions, and other relevant factors and may make a determination that it will not provide additional funding or capital to certainits subsidiaries.
BBX Capital
During the year ended December 31, 2021, BBX Capital repurchased 3,828,014 shares of its subsidiaries. Class A Common Stock and 14,394 shares of its Class B Common Stock for an aggregate of $34.3 million. In January 2022, the Board of Directors approved a share repurchase program which authorizes the repurchase of up to $15.0 million of shares of the Company’s Class A and Class B Common Stock. The repurchase program authorizes the Company, in management’s discretion, to repurchase shares from time to time subject to market conditions and other factors. The timing, price, and number of shares which may be repurchased under the program in the future will be based on market conditions, applicable securities laws, and other factors considered by management. Share repurchases under the
program may be made from time to time through solicited or unsolicited transactions in the open market or in privately negotiated transactions. The share repurchase program does not obligate the Company to repurchase any specific amount of shares and may be suspended, modified, or terminated at any time without prior notice.
BBX Capital Real Estate
In November 2018, BBXRE acquired a 50% membership interest in the Altman Companies, a joint venture between BBXRE and Mr.Joel Altman engaged in the development, construction, and management of multifamily apartment communities. Although the Altman Companies generates revenues from the performance of development, general contractor, leasing, and property management services to the joint ventures that are formed to invest in the development projects that it originates, it is expected that any profits generated for BBXRE and Mr.Joel Altman wouldwill primarily be through the equity distributions that BBXRE and Mr.Joel Altman receive through their investment in the managing member of such joint ventures. Therefore, as the timing of any such distributions to BBXRE and Mr.Joel Altman is generally contingent upon the sale or refinancing of a completed development project, it is anticipated that BBXRE and Mr.Joel Altman will be required to contribute capital to the Altman Companies for its ongoing operating costs and predevelopment expenditures, as well as to the managing member of newly formed joint ventures. At the current time, BBXRE currently anticipates that it will invest approximately $3.5$8.0 million to $4.5$10.0 million in the Altman Companies and certain related joint ventures during the year ended December 31, 2021 relating to2022 for planned predevelopment expenditures, ongoing operating costs, and potential operating shortfalls related to certain existing projects, and projects. Further, based on its current pipeline of new potential development projects and certain existing development projects for which the equity contributions to the joint ventures are expected to be funded over time, BBXRE currently estimates that it may invest an additional $3.0 million to $4.0in excess of $10.0 million in the managing member of newly formed joint ventures for new projects.during the year ended December 31, 2022; however, the timing of the commencement of such projects and the pace of development may result in such estimated investments being made in 2023 or a later period, if at all. As previously disclosed, BBXRE may also consider opportunistically making increased equity investments in one or more of such new projects originated by the Altman Companies. Furthermore, if the Altman Companies closesbased on its current pipeline of new potential development financing for additional projects, BBXRE currently expects that it wouldwill be required to contribute an estimated additional $1.25 million to ABBX Guaranty, LLC, a joint venture between BBXRE and Mr.Joel Altman that provides guarantees on the indebtedness and construction cost overruns of new real estate joint ventures formed by the Altman Companies. Based on its current pipeline of new potential development projects, BBXRE expects that it will make this contribution to ABBX Guaranty, LLC in 2021.Companies, during the year ended December 31, 2022.
Pursuant to the operating agreement of the Altman Companies, BBXRE will also acquire an additional 40% equity interest in the Altman Companies from Mr.Joel Altman for a purchase price of $9.4 million, subject to certain adjustments, in January 2023, while Mr.and Joel Altman can also, at his option or in other predefined circumstances, require BBXRE to purchase his remaining 10% equity interest in the Altman Companies for $2.4 million. In addition, in certain circumstances, BBXRE may acquire the 40% membership interests in Altman-
49
GlenewinkelAltman-Glenewinkel Construction that are not owned by the Altman Companies for a purchase price based on prescribed formulas in the operating agreement of Altman-Glenewinkel Construction.
In addition to BBXRE’s anticipated investments in the Altman Companies and related joint ventures, BBXRE currently expects to invest $7.0 million to $8.0 million in its logistics real estate division for planned predevelopment expenditures and ongoing operating costs. In addition, if the division ultimately commences the development of warehouse and logistics facilities, BBXRE expects that it maywill seek to develop such projects through joint ventures with third party investors and that it will invest in the managing member of the joint ventures formed to invest in such development projects. Accordingly, if such joint ventures are formed to invest in these projects, BBXRE expects that it will be requiredreimbursed for previously incurred predevelopment expenditures by such ventures.
BBXRE has entered into purchase and sale agreements to contribute additionalacquire two land parcels for the purpose of developing logistics facilities for an aggregate purchase price of $30.6 million. These purchase and sale agreements are subject to the successful completion of due diligence, and the escrowed deposits paid by BBXRE in connection with the agreements are refundable up to the end of the due diligence period. BBXRE expects that it will seek to develop these projects through joint ventures with third party investors and assign the agreements to the applicable joint ventures.
The operating agreements of certain of real estate joint ventures in which BBXRE is an investor contain customary buy-sell provisions which could result in either the sale of BBXRE’s interest or the use of available cash to acquire the partner’s interest, and the Company’s commitments and liquidity requirements described above do not include amounts that the Company could pay as a result of the initiation of these provisions.
BBX Sweet Holdings
IT’SUGAR currently expects to incur in excess of $10.0 million of capital expenditures during the year ended December 31, 2022 to fund construction costs associated with new retail locations and the expansion of approximately $1.0existing retail locations, and BBX Capital currently expects that it will loan up to $8.0 million to oneIT’SUGAR to partially fund such capital expenditures.
Renin
During the next twelve to twenty-four months based on the current plans and estimates associated with the related development project. Further, in Februaryyear ended December 31, 2021, BBXRE invested $4.9 million in the Sky Cove South joint venture, which was formed to develop Sky Cove South at Westlake, a residential community that will be adjacent to Sky Cove at Westlake and is expected to be comprised of 197 single-family homes.
In October 2020, the CompanyBBX Capital contributed $5.0$15.0 million to Renin to partially fundprovide additional liquidity for working capital requirements as a result of the impact of global supply chain disruptions on Renin’s acquisitionoperations. Further, as a result of Colonial Elegance, as further described in this report,the resolution of a dispute between Renin and the Company will continue to evaluate opportunistic investments which may involve the useone of its available cashsuppliers, BBX Capital contributed $2.0 million to Renin in order to fund the first half installment payable by Renin to the supplier and cash equivalents.
The Company owns allexpects to fund an additional $2.0 million to Renin in order to fund the final installment of IT’SUGAR’s Class A Preferred Unitsthe settlement. Further, BBX Capital may consider providing additional funds to Renin in future periods to fund working capital and 90.4%its commitments. However, as discussed above, BBX Capital’s management evaluates the operating results, financial condition, commitments and prospects of its Class B Common Units and has loans outstanding to IT’SUGAR of approximately $10.0 million, including DIP financing provided to IT’SUGAR in connection with its bankruptcy proceedings.
In October 2020, BBX Capital’s board of directors approved a share repurchase program which authorized the repurchase of up to $10.0 million of shares of BBX Capital’s Class A Common Stock and Class B Common Stock. The stock repurchase authorization does not obligate the Company to repurchase any specific number of sharessubsidiaries on an ongoing basis and may be suspended, modified,determine that it will not provide additional funding or terminated at any time by BBX Capital’s board of directors without prior notice. As of December 31, 2020, the Company had approximately 19,317,687 shares of common stock outstanding, and there had been no purchases of Class A Common Stock or Class B Common Stock under this program.capital to its subsidiaries, including Renin.
Credit Facilities with Future Availability
As of December 31, 2020,2021, BBX Capital and certain of its subsidiaries had the following credit facilities with future availability, subject to eligible collateral and the terms of the facilities, as applicable.
Toronto-Dominion Commercial Bank. In May 2017,Bank (“TD Bank”) Credit Facility. Renin entered intohas a credit facility with TD Bank that was subsequently renewed in September 2019 and 2018. Under the terms and conditions of the credit facility, TD Bank agreed to provide term loans for up to $1.7 million and loans under a revolving credit facility for up to approximately $16.3 million subject to certain terms and conditions. During the first quarter of 2020, Renin received a waiver from TD Bank of its breach of the quarterly debt service coverage ratio under the facility, and the credit facility was amended to replace the existing debt service coverage ratio with an interest coverage ratio. In connection with the amendment to the credit facility, Renin repaid the outstanding balance of the term loan with borrowings from the revolving line of credit. Further, in July 2020, the credit facility was also amended to extend the maturity date of the facility from September 2020 to September 2022.
In connection with Renin’s acquisition of Colonial Elegance in October 2020, the credit facility with TD Bank was amended and restated to includeincludes a $30.0 million term loan (the “Term Loan”) and ana revolving operating loan of up to $20.0 million (which amount was increased as described below) (the “Operating Loan”), with the Operating Loan serving as a continuationboth of the existing revolving line of credit under the prior credit facility. Both the Term Loan and Operating Loanwhich mature in October 2025. For additional information, see Item 8 – Note 14 of this Annual Report.
As of December 31, 2020,2021, the outstanding amounts under the term loan and revolving credit facility were $30.0$27.8 million and $15.6$16.6 million, respectively, with effective interest rates of 3.34%3.49% and 3.89%4.26%, respectively.
As previously described, Renin’s credit facility was amended in July 2021 and November 2021. As a result of such amendments, the availability under the Operating Loan was increased from $20.0 million to $24.0 million through December 31, 2022. at which time the availability under the line of credit will revert to $20.0 million and any amounts outstanding in excess of $20.0 million must be repaid by Renin. In addition, the November 2021 amendment to the credit facility, i) extended the prior increase in the maximum total leverage ratio through December 31, 2022, ii) modified the calculation of the maximum total leverage ratio, and iii) included an additional financial covenant related to Renin meeting certain minimum levels of specified operating results from November 2021 through December 2022. Further, the November amendment prohibits Renin from making distributions to BBX Capital through December 31, 2022. On January 1, 2023, the financial covenants under the facility and Renin’s ability to make distributions to BBX Capital will revert to the requirements under the facility prior to the amendments in 2021.
As a result of increased costs, higher inventory levels, and the increased time between purchases of inventory and receipt of payments from customers, Renin may be required to utilize substantially all of its availability under the Operating Loan in the near future. Further, the effects of the current economic environment, including increased costs and the potential loss of customers following price increases, could impact Renin’s ability to remain in compliance with the financial covenants under its credit facility. This in turn could limit the extent of availability, if any, under the Operating Loan in future periods, require Renin to provide additional collateral, and/or require Renin to repay all or a portion of the borrowings from TD Bank prior to scheduled maturity.
As of December 31, 2020,2021, Renin had availability of approximately $4.4$7.4 million under the above revolving line of credit,Operating Loan, subject to eligible collateral and the terms of the facility, as applicable. However, the potential effects of the COVID-19 pandemic on Renin’s operations could impact its abilityfailure to remain in compliance with the financial covenants under these facilities andthe credit facility would limit the extent of availability under the facilities, including under the terms of the facilities as amended and restated as described below,Operating Loan in future periods.
As described above, Although Renin is currently engagedwas in a dispute with one of its suppliers and recognized costs related to this dispute during the year ended December 31, 2020. As of December 31, 2020, this matter did not impact Renin’s compliance with the financial covenants under its outstandingthe credit facility as of December 31, 2021, Renin is not currently in compliance with certain financial covenants under the facility that are calculated as of January and February 2022. Renin is in discussions with TD Bank. However, ifBank to address this issue, whether through a waiver of such covenants or a modification to the facility. If Renin isin unable to sustain its assertion that it is entitled to damages from the supplier and is ultimately required to pay the supplier for outstanding amounts due to it, Renin may be unable to complyreach a satisfactory resolution with its covenants. If Renin is unable to comply with its covenants, itTD Bank, this would be required to seek a waiver from TD bank, and if unable to obtain a waiver, might lose availability under its line of credit, be required to provide additional collateral, or repay all or a portion of its borrowings, any of which could have a material adverse effect on the Company’s liquidity, financial position and results.results of operations.
LOCS Credit Facility. In July 2021, BBX Sweet Holdings and certain of its subsidiaries, including Las Olas Confections and Snacks, entered into a credit agreement (the “LOCS Credit Facility”) with IberiaBank which provides for a revolving line of credit of up to $2.5 million that matures in July 2023. Amounts outstanding under the LOCS Credit Facility bear interest at the higher of the Wall Street Journal Prime Rate plus 50 basis points or 3.0% per annum, and the facility requires monthly payments of interest only, with any outstanding principal and accrued interest due at the maturity date. The LOCS Credit Facility is collateralized by a blanket lien on all of the assets of the borrowers under the facility and is guaranteed by BBX Capital. The facility contains certain financial covenants, including a minimum liquidity requirement for BBX Capital as guarantor under the facility and a requirement that the borrowers maintain a zero balance on the facility for thirty consecutive days during each calendar year during the term of the facility. As of December 31, 2021, the outstanding amount under the credit facility was $2.0 million, and the effective interest rate was 3.75%.
Off-balance-sheet Arrangements
BBX Capital guarantees certain obligations of its wholly-owned subsidiaries and unconsolidated real estate joint ventures, which are described in further detail in Item 8 – Note 14 of this Annual Report.
The Company has investments in joint ventures involved in the development of multifamily rental apartment communities, as well as single-family master planned for sale housing communities. The Company’s investments in these joint ventures are accounted for under the equity method of accounting, and as a result, the Company does not recognize the assets and liabilities of these joint ventures in its financial statements. As of December 31, 20202021 and 2019,2020, the Company’s investments in these joint ventures totaled $58.1$53.0 million and $57.3$58.1 million, respectively. These unconsolidated real estate joint ventures generally finance their activities with a combination of debt financing and equity. The Company generally does not directly guarantee the financing of these joint ventures, other than as described in further detail in Item 8 – Note 14 of this Annual Report on Form 10-K, and the Company’s maximum exposure to losses from these joint ventures is its equity investment. The Company is typically not obligated to fund additional capital to its joint ventures; however, the Company’s interest in a joint venture may be diluted if the Company elects not to fund a joint venture capital call.
The Company owns all of IT’SUGAR’s Class A Preferred Units and 90.4% of its Class B Common Units and accounts for its $23.0 million of investments in and advances to IT’SUGAR at cost. Although the Company is not obligated to finance the activities of IT’SUGAR during the pendency of the Bankruptcy Cases, in October 2020, a subsidiary of the Company entered into a $4.0 million DIP credit facility with IT’SUGAR and the Company may advance additional funds to IT’SUGAR in order to maintain its ownership interest. In the future, the Company may decide not to advance additional funds to IT’SUGAR during the pendency of the Bankruptcy Cases, if needed, which could dilute the Company’s investment in IT’SUGAR and result in additional impairment charges.
Critical Accounting Policies
Management views critical accounting policies as accounting policies that are important to the understanding of our financial statements and also involve estimates and judgments about inherently uncertain matters. In preparing the financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the consolidated statements of financial condition and assumptions that affect the recognition of income and expenses on the consolidated statements of operations and comprehensive income (loss) for the periods presented. On an ongoing basis, management evaluates its estimates, including, but not limited to, those that relate to the determination of: the recognition of revenue; the recovery of the carrying value of real estate inventories; the fair value of assets measured at, or compared to, fair value on a non-recurring basis, such as assets held for sale, intangible assets, other long-lived assets, and goodwill; the valuation of assets and liabilities assumed in the acquisition of a business; the amount of deferred tax valuation allowance and accounting for uncertain tax positions; and the estimate of contingent liabilities related to litigation and other claims and assessments. The accounting policies and estimates that we have identified as critical accounting policies are: the recognition of revenue; evaluating goodwill for impairment; and evaluating long-lived assets and definite lived intangible assets for impairment. Management bases its estimates on historical experience and on various other assumptions that it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ materially from these estimates under different assumptions and conditions. If actual results significantly differ from management’s estimates, our results of operations and financial condition could be materially and adversely impacted.
Revenue Recognition - Variable Consideration on Trade Sales and Sales of Real Estate Inventory
The Company’s trade sales are generally sold with a right of return, and the Company may provide other sales credits or incentives, such as volume discounts or rebates. Additionally, the Company is entitled to contingent consideration on certain single-family lot sales to builders. These programs are accounted for as variable consideration when determining the amount of revenue to recognize upon transfer of control. Estimates of contingent consideration, returns, and incentives are calculated using the expected value method and updated at the end of each reporting period when additional information becomes available. Variable consideration estimates are based on historical experience adjusted for, among other things, current and expected economic conditions and sales trends. These estimates rely on assumptions and judgments regarding issues where the outcome is unknown, and actual results or values may differ significantly from these estimates. A significant change in the timing of revenue recognized could occur if actual variable consideration is significantly different than our estimates.
Evaluating Goodwill for Impairment
The process of evaluating goodwill for impairment involves the determination of the fair value of the Company’s reporting units. Inherent in such fair value determinations are certain judgments and estimates relating to future cash flows, including the Company’s interpretation of current economic indicators and market valuations, and assumptions about the Company’s strategic plans with regard to its operations. Due to the uncertainties associated with such evaluations, actual results could differ materially from such estimates.The Company’s goodwill as of December 31, 2021 was $18.4 million.
51
During the year ended December 31, 2020, the Company concluded that the effects of the COVID-19 pandemic, including the recessionary economic environment and the impact on certain of the Company’s operations, indicated that it was more likely than not that the fair values of certain of its reporting units with goodwill had declined below the respective carrying amounts of such reporting units as of March 31, 2020. As a result, the Company tested the goodwill associated with such reporting units for impairment by estimating the fair values of the respective reporting units as of March 31, 2020 and recognized goodwill impairment losses of $20.3 million associated with IT’SUGAR and $2.1 million associated with certain of its other reporting units. On September 22, 2020,
the Company deconsolidated IT’SUGAR as a result of IT’SUGAR filing the Bankruptcy Cases and derecognized the remaining IT’SUGAR goodwill balance of approximately $14.9 million as of that date. The Company’s goodwill as ofDuring the year ended December 31, 2020 was $8.3 million.2021, IT’SUGAR emerged from bankruptcy, and the Company reconsolidated IT’SUGAR. The Company accounted for the consolidation of IT’SUGAR upon under the acquisition method of accounting, which requires that the assets acquired and liabilities assumed associated with an acquiree be recognized at their fair values at the consolidation date. As a result, the Company remeasured the carrying value of its equity interests in IT’SUGAR at fair value with the remeasurement adjustment recognized in the Company’s statement of operations, and recognized goodwill based on the difference between (i) the fair values of IT’SUGAR’s identifiable assets and liabilities at the consolidation date and (ii) the fair values of the Company’s interests in IT’SUGAR and the noncontrolling interests in IT’SUGAR. Control. The Company recognized $14.3 million of goodwill upon the consolidation of IT’SUGAR. Inherent in the Company’s determinations of fair value of IT’SUGAR’s assets and liabilities are certain judgments and estimates relating to future cash flows, including the Company’s assessment of current economic indicators and market valuations, and assumptions about the Company’s strategic plans with regard to its operating businesses.
Due to the uncertainties associated with such evaluations, changes in the assumptions could have a materially effect on such estimates, particularly in light of the ongoing disruptions and uncertainty in the U.S. and global economics and global supply chains. In particular, the Company’s estimated fair value of the Renin reporting unit included, among other things, various assumptions related to the impact of disruptions and uncertainty in the U.S. and global economies and global supply chains on Renin’s operations, and the estimate of the fair value of Renin under the discounted cash flow methodology assumed that the supply chain disruptions and material shortages that are currently having a negative impact on Renin’s gross margins will be resolved by the end of 2022. If the ongoing supply chain disruptions and material shortages are not resolved within the anticipated timeframes, the estimated fair value of the Renin reporting unit may continue to decline, and the Company may be required to record goodwill impairment charges in future periods. Similarly, with respect to IT’SUGAR, the Company estimates that i) there will not be a material permanent decline in the demand for IT’SUGAR’s products in the future, ii) IT’SUGAR will ultimately be able implement its long-term strategy to reinvest in and grow its business, and iii) IT’SUGAR will be able to manage supply chain and cost pressures through price increases.
Evaluating Long-lived Assets and Definite-lived Intangible Assets for Impairment
The Company evaluates its long-lived assets and definite-lived intangible assets, including property and equipment, and real estate held-for-investment, for potential impairment whenever events or changes in circumstances indicate that the carrying amounts of such assets may not be recoverable. The carrying amounts of assets are not considered recoverable when the carrying amounts exceed the undiscounted cash flows estimated to be generated by those assets. As the carrying amounts of these assets are dependent upon estimates of future earnings that they are expected to generate, these assets may be impaired if cash flows decrease significantly or do not meet expectations, in which case they would be written down to their fair value. The estimates of useful lives and expected cash flows require us to make significant judgments regarding future periods that are subject to a number of factors, many of which may be beyond our control. As a result of the Company’s testing ofThe Company determined that its long-lived assets for impairment, thewere not impaired as of December 31, 2021. The Company recognized impairment losses of $5.4 million during the year ended December 31, 2020 related primarily to leasehold improvements and right-of-use assets associated with certain of IT’SUGAR’s retail locations. The recognition of these impairment losses primarily resulted from the effects of the COVID-19 pandemic on the estimated cash flows expected to be generated by the related assets. The Company’s property and equipment, operating lease assets and definite-lived intangible asset balances were $7.8$30.6 million, $13.5$90.6 million and $22.4$32.0 million as of December 31, 2020,2021, respectively.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market Risk
Market risk is defined as the risk of loss arising from adverse changes in market valuations resulting from interest rate risk, foreign currency exchange rate risk, commodity price risk and equity price risk. The Company’s primary market risk is equity price risk, interest rate risk and commodity price risk.
The Company’s real estate assets market risk consists primarily of equity pricing risk and secondarily interest rate risk. The Company’s real estate assets are investments in unconsolidated real estate companies, real estate held-for-investment or held-for-sale and real estate inventory. The Company’s financial condition and earnings are affected by changes in real estate values in the markets where the real estate or real estate collateral is located and changes in interest rates which affects the affordability of real estate. As a result, there is exposure to equity pricing and interest rate risk in the real estate market.
The Company’s results of operations are subject to foreign currency exchange risk of the U.S. dollar compared to the Canadian dollar though its ownership of Renin. Renin’s assets, liabilities, revenue and expenses that are denominated in foreign currencies will be affected by changes in the exchange rates between the U.S. dollar and the Canadian dollar. As of December 31, 2020,2021, the Company has not entered into any foreign exchange forward contracts as hedges against foreign currency exchange risk.
The market price of BBX Capital’s Class A Common Stock and Class B Common are important to the valuation and financing capability of BBX Capital.
The Company is affected by interest rates, which are subject to the influence of economic conditions generally, both domestic and foreign, and also to the monetary and fiscal policies of the United States and its agencies, particularly the Federal Reserve. The nature and timing of any changes in such policies or general economic conditions and their effect on the Company and its subsidiaries are unpredictable.
As of December 31, 2020,2021, the Company had fixed interest rate debt of approximately $29.0$11.1 million and floating interest rate debt of approximately $45.6$44.4 million. The floating interest rates are subject to floors and are generally based either upon the prevailing prime or LIBOR rates. For floating rate financial instruments, interest rate changes generally do not affect the market value of the debt, but do impact earnings and cash flows relating to the debt, assuming other factors are held constant. Conversely, for fixed rate financial instruments, interest rate changes affect the market value of the debt but do not impact earnings or cash flows relating to the debt, assuming other factors are held constant.
The Company is subject to commodity pricing risk in connection with its businesses. Commodity price increases or decreases ultimately result in corresponding changes in raw material prices which could impact the costs of producing the products we sell to our customers and also impact construction costs for real estate assets and impact our financial condition and results of operations. We have not in the past entered into, and do not currently have any plans to enter into, commodity futures and options contracts to reduce our commodity pricing risk.
To the extent inflationary trends, tightened credit markets or other factors affect interest rates, the Company’s debt service costs may increase. In the event of tightened credit markets, there may be a significant tightening of availability under our existing lines, we may be unable to renew our lines of credit or obtain new facilities. As a result, instability or volatility in the financial markets restricting the availability of credit, including any tightening of the credit markets in connection with the recent COVID-19 pandemic, may adversely impact the Company’s business, results of operations, liquidity, or financial condition.
Impact of Inflation
The financial statements and related financial data and notes presented herein have been prepared in accordance with GAAP, which requires the measurement of financial position and operating results in terms of historical dollars without considering changes in the relative purchasing power of money over time due to inflation.
The Company believes that inflation and changing prices have had and may in the future have a material impact on its revenues and results of operations. Furthermore, while increases in real estate construction and development costs may result in increases in rental rates and real estate sales prices, rental rates and sales prices may not increase commensurate with the increase in costs or they may decrease, and increased construction costs may have a material adverse impact on gross margin. In addition, inflation is often accompanied by higher interest rates which could have a negative impact on consumer demand for housing and the costs of financing activities. Rising interest rates as well as increased materials and labor costs may reduce margins.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
BBX CAPITAL, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Registered Public Accounting Firm (PCAOB ID Number 248) |
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Consolidated Statements of Financial Condition as of December 31, |
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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors and Shareholders
BBX Capital, Inc.
Opinion on the financial statements
We have audited the accompanying consolidated statements of financial condition of BBX Capital, Inc. (a Florida corporation) and subsidiaries (the “Company”) as of December 31, 20202021 and 2019,2020, the related consolidated statements of operations and comprehensive income, changes in equity, and cash flows for each of the three years in the period ended December 31, 2020,2021, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 20202021 and 2019,2020, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2020,2021, in conformity with accounting principles generally accepted in the United States of America.
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 Public Company Accounting Oversight Board (United States) (“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. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
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 regarding 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.
GRANT THORNTON LLP
We have served as the Company’s auditor since 2020.
Fort Lauderdale, Florida
March 16, 20212022
Consolidated Statements of Financial Condition
(In thousands, except share data)
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| December 31, |
| December 31, | December 31, | December 31, | ||||||
(in thousands, except share data) |
| 2020 |
| 2019 | ||||||||
2021 | 2020 | |||||||||||
ASSETS |
|
|
|
|
|
| ||||||
Cash and cash equivalents |
| $ | 90,037 |
| 20,723 | $ | 118,045 | 90,037 | ||||
Restricted cash |
| 350 |
| 529 | 1,000 | 350 | ||||||
Trade accounts receivable, net |
| 29,507 |
| 13,104 | 29,899 | 29,507 | ||||||
Trade inventory |
| 31,846 |
| 22,843 | 41,895 | 31,846 | ||||||
Real estate ($9,031 in 2020 and $11,297 in 2019 held for sale) |
| 55,800 |
| 65,818 | ||||||||
Real estate ($7,679 in 2021 and $9,031 in 2020 held for sale) | 22,868 | 55,800 | ||||||||||
Investments in and advances to unconsolidated real estate joint ventures |
| 58,010 |
| 57,330 | 52,966 | 58,010 | ||||||
Investment in and advances to IT'SUGAR, LLC |
| 22,976 |
| — | — | 22,976 | ||||||
Note receivable from Bluegreen Vacations Holding Corporation |
| 75,000 |
| — | 50,000 | 75,000 | ||||||
Property and equipment, net |
| 7,803 |
| 29,836 | 30,611 | 7,803 | ||||||
Goodwill |
| 8,277 |
| 37,248 | 18,414 | 8,277 | ||||||
Intangible assets, net |
| 22,420 |
| 6,671 | 31,982 | 22,420 | ||||||
Operating lease assets |
| 13,488 |
| 87,082 | 90,639 | 13,488 | ||||||
Deferred tax asset, net |
| 7,424 |
| 3,280 | 3,776 | 7,424 | ||||||
Contingent purchase price receivable | 19,925 | 2,935 | ||||||||||
Other assets |
| 24,718 |
| 16,051 | 21,335 | 21,783 | ||||||
Discontinued operations total assets |
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| — |
|
| 992 | ||||||
Total assets |
| $ | 447,656 |
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| 361,507 | $ | 533,355 | 447,656 | |||
LIABILITIES AND EQUITY |
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Liabilities: |
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Accounts payable |
| $ | 14,472 |
| 10,104 | $ | 12,980 | 14,472 | ||||
Accrued expenses |
| 30,852 |
| 14,115 | 33,136 | 30,852 | ||||||
Other liabilities |
| 5,455 |
| 6,336 | 5,002 | 5,455 | ||||||
Due to parent |
| — |
| 1,362 | ||||||||
Operating lease liabilities |
| 14,141 |
| 99,568 | 103,262 | 14,141 | ||||||
Notes payable and other borrowings |
| 73,483 |
| 42,736 | 54,883 | 73,483 | ||||||
Discontinued operations total liabilities |
|
| — |
|
| 1,041 | ||||||
Total liabilities |
|
| 138,403 |
|
| 175,262 | 209,263 | 138,403 | ||||
Commitments and contingencies (See Note 14) |
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Redeemable noncontrolling interest |
| — |
| 4,009 | 1,144 | — | ||||||
Equity: |
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Bluegreen Vacations Holding Corporation equity |
| — |
| 179,681 | ||||||||
Preferred stock of $0.01 par value; authorized 10,000,000 shares |
| — |
| — | ||||||||
Class A Common Stock of $0.01 par value; authorized 30,000,000 shares; issued and outstanding 15,624,091 in 2020 |
| 156 |
| — | ||||||||
Class B Common Stock of $0.01 par value; authorized 4,000,000 shares; issued and outstanding 3,693,596 in 2020 |
| 37 |
| — | ||||||||
Class A Common Stock of $0.01 par value; authorized 30,000,000 shares; | 118 | 156 | ||||||||||
Class B Common Stock of $0.01 par value; authorized 4,000,000 shares; | 37 | 37 | ||||||||||
Additional paid-in capital |
| 310,588 |
| — | 310,588 | 310,588 | ||||||
Accumulated deficit |
| (3,457) |
| — | ||||||||
Accumulated earnings (deficit) | 9,226 | (3,457) | ||||||||||
Accumulated other comprehensive income |
|
| 1,830 |
|
| 1,554 | 1,836 | 1,830 | ||||
Total shareholders' equity |
|
| 309,154 |
|
| 181,235 | 321,805 | 309,154 | ||||
Noncontrolling interests |
|
| 99 |
|
| 1,001 | 1,143 | 99 | ||||
Total equity |
|
| 309,253 |
|
| 182,236 | 322,948 | 309,253 | ||||
Total liabilities and equity |
| $ | 447,656 |
|
| 361,507 | $ | 533,355 | 447,656 | |||
See Notes to Consolidated Financial Statements
Consolidated Statements of Operations and Comprehensive Income
(In thousands, except per share data)
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| For the Years Ended December 31, | For the Years Ended December 31, | |||||||||||||||
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| 2020 |
| 2019 |
| 2018 | 2021 | 2020 | 2019 | |||||||||
Revenues: |
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Trade sales |
| $ | 147,210 |
| 180,319 |
| 175,499 | $ | 238,078 | 147,210 | 180,319 | |||||||
Sales of real estate inventory |
| 20,363 |
| 5,049 |
| 21,771 | 65,479 | 20,363 | 5,049 | |||||||||
Interest income |
| 2,399 |
| 811 |
| 2,338 | 6,413 | 2,399 | 811 | |||||||||
Net gains on sales of real estate assets |
| 255 |
| 13,616 |
| 4,563 | 643 | 255 | 13,616 | |||||||||
Other revenue |
|
| 3,002 |
|
| 3,929 |
|
| 4,394 | 2,984 | 3,002 | 3,929 | ||||||
Total revenues |
|
| 173,229 |
|
| 203,724 |
|
| 208,565 | 313,597 | 173,229 | 203,724 | ||||||
Costs and Expenses: |
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Costs and expenses: | ||||||||||||||||||
Cost of trade sales |
| 126,152 |
| 124,560 |
| 123,367 | 185,146 | 127,028 | 124,560 | |||||||||
Cost of real estate inventory sold |
| 13,171 |
| 2,643 |
| 14,116 | 29,690 | 13,171 | 2,643 | |||||||||
Interest expense |
| 237 |
| 433 |
| 803 | 1,439 | 237 | 433 | |||||||||
Recoveries from loan losses, net |
| (8,876) |
| (5,428) |
| (8,653) | (7,774) | (8,876) | (5,428) | |||||||||
Impairment losses |
| 30,772 |
| 189 |
| 4,718 | 38 | 30,772 | 189 | |||||||||
Selling, general and administrative expenses |
|
| 66,757 |
|
| 90,830 |
|
| 91,775 | 76,014 | 65,881 | 90,830 | ||||||
Total costs and expenses |
|
| 228,213 |
|
| 213,227 |
|
| 226,126 | 284,553 | 228,213 | 213,227 | ||||||
Operating losses |
|
| (54,984) |
|
| (9,503) |
|
| (17,561) | |||||||||
Operating income (losses) | 29,044 | (54,984) | (9,503) | |||||||||||||||
Equity in net earnings of unconsolidated real estate joint ventures |
|
| 465 |
|
| 37,898 |
|
| 14,194 | 18,154 | 465 | 37,898 | ||||||
Loss on the deconsolidation of IT'SUGAR, LLC |
| (3,326) |
| — |
|
| — | — | (3,326) | — | ||||||||
Gain on the consolidation of IT'SUGAR, LLC | 15,890 | — | — | |||||||||||||||
Other income |
| 290 |
| 665 |
|
| 277 | 341 | 290 | 665 | ||||||||
Foreign exchange (loss) gain |
|
| (692) |
|
| (75) |
|
| 68 | |||||||||
(Loss) income from continuing operations before income taxes |
|
| (58,247) |
|
| 28,985 |
|
| (3,022) | |||||||||
Benefit (provision) for income taxes |
|
| 11,231 |
|
| (8,334) |
|
| (2,865) | |||||||||
(Loss) income from continuing operations |
|
| (47,016) |
|
| 20,651 |
|
| (5,887) | |||||||||
Discontinued Operations |
|
|
|
|
|
| ||||||||||||
Foreign exchange gain (loss) | 812 | (692) | (75) | |||||||||||||||
Income (loss) from continuing operations before income taxes | 64,241 | (58,247) | 28,985 | |||||||||||||||
(Provision) benefit for income taxes | (17,175) | 11,231 | (8,334) | |||||||||||||||
Income (loss) from continuing operations | 47,066 | (47,016) | 20,651 | |||||||||||||||
Discontinued operations | ||||||||||||||||||
Loss from operations |
| (91) |
| (9,434) |
| (4,529) | — | (91) | (9,434) | |||||||||
Benefit for income taxes |
|
| 17 |
|
| 2,296 |
|
| 949 | — | 17 | 2,296 | ||||||
Loss from discontinued operations |
|
| (74) |
|
| (7,138) |
|
| (3,580) | — | (74) | (7,138) | ||||||
Net (loss) income |
|
| (47,090) |
|
| 13,513 |
|
| (9,467) | |||||||||
Less: Net loss attributable to noncontrolling interests |
|
| 4,803 |
|
| 224 |
|
| 266 | |||||||||
Net (loss) income attributable to shareholders |
| $ | (42,287) |
|
| 13,737 |
|
| (9,201) | |||||||||
Net income (loss) | 47,066 | (47,090) | 13,513 | |||||||||||||||
Net (income) loss attributable to noncontrolling interests | (155) | 4,803 | 224 | |||||||||||||||
Net income (loss) attributable to shareholders | $ | 46,911 | (42,287) | 13,737 | ||||||||||||||
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|
|
|
|
|
|
|
|
| |||||||||
Net (loss) income |
| $ | (47,090) |
| 13,513 |
| (9,467) | |||||||||||
Other comprehensive income (loss), net of tax: |
|
|
|
|
|
|
| |||||||||||
Unrealized gain (loss) on securities available for sale |
| 35 |
|
| 51 |
| (46) | |||||||||||
Net income (loss) | $ | 47,066 | (47,090) | 13,513 | ||||||||||||||
Other comprehensive income, net of tax: | ||||||||||||||||||
Unrealized gain on securities available for sale | 3 | 35 | 51 | |||||||||||||||
Foreign currency translation adjustments |
|
| 241 |
|
| 287 |
|
| (194) | 3 | 241 | 287 | ||||||
Other comprehensive income (loss), net |
|
| 276 |
|
| 338 |
|
| (240) | |||||||||
Comprehensive (loss) income, net of tax |
|
| (46,814) |
|
| 13,851 |
|
| (9,707) | |||||||||
Less: Comprehensive loss attributable to noncontrolling interests |
|
| 4,803 |
|
| 224 |
|
| 266 | |||||||||
Comprehensive (loss) income attributable to shareholders |
| $ | (42,011) |
|
| 14,075 |
|
| (9,441) | |||||||||
Basic and diluted (loss) earnings per share from continuing operations |
| $ | (2.19) |
|
| 1.08 |
|
| (0.29) | |||||||||
Other comprehensive income, net | 6 | 276 | 338 | |||||||||||||||
Comprehensive income (loss), net of tax | 47,072 | (46,814) | 13,851 | |||||||||||||||
Comprehensive (income) loss attributable to noncontrolling interests | (155) | 4,803 | 224 | |||||||||||||||
Comprehensive income (loss) attributable to shareholders | $ | 46,917 | (42,011) | 14,075 | ||||||||||||||
Basic and diluted earnings (loss) per share from continuing operations | $ | 2.63 | (2.19) | 1.08 | ||||||||||||||
Basic and diluted loss per share from discontinued operations |
|
| — |
|
| (0.37) |
|
| (0.19) | — | — | (0.37) | ||||||
Total basic and diluted (loss) earnings per share |
| $ | (2.19) |
|
| 0.71 |
|
| (0.48) | |||||||||
Total basic and diluted earnings (loss) per share | $ | 2.63 | (2.19) | 0.71 | ||||||||||||||
Weighted average number of common shares outstanding (1) |
|
| 19,318 |
|
| 19,318 |
|
| 19,318 | 17,840 | 19,318 | 19,318 | ||||||
|
|
|
|
|
|
|
|
|
| |||||||||
(1) For periods prior to the spin-off on September 30, 2020, the number of shares is based on the shares issued in connection with the spin-off. See Note 1 for further discussion. | (1) For periods prior to the spin-off on September 30, 2020, the number of shares is based on the shares issued in connection with the spin-off. See Note 1 for further discussion. | (1) For periods prior to the spin-off on September 30, 2020, the number of shares is based on the shares issued in connection with the spin-off. See Note 1 for further discussion. | ||||||||||||||||
See Notes to Consolidated Financial Statements
BBX Capital, Inc.
Consolidated Statements of Changes in Equity
For Each of the Years in the Three Year Period Ended December 31, 20202021
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Shares of |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
|
| Common Stock |
| Common |
|
|
|
|
|
|
| Accumulated |
|
|
|
|
|
| |||||||||
|
| Outstanding |
| Stock |
|
|
|
| Additional |
| Other |
|
|
|
|
|
| ||||||||||
|
| Class |
| Class |
| Parent |
| Paid-in |
| Comprehensive |
| Noncontrolling |
| Total | |||||||||||||
|
| A |
| B |
| A |
| B |
| Equity |
| Capital |
| Income |
| Interest |
| Equity | |||||||||
Balance at December 31, 2017 |
|
| — |
|
| — |
| $ | — |
|
| — |
|
| 237,259 |
|
| — |
|
| 1,785 |
|
| (238) |
|
| 238,806 |
Cumulative effect from the adoption of ASU 2016-01 |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 329 |
|
| — |
|
| (329) |
|
| — |
|
| — |
Net loss excluding $369 of loss attributable to redeemable noncontrolling interest |
|
| — |
|
| — |
|
| — |
|
| — |
|
| (9,201) |
|
| — |
|
| — |
|
| 103 |
|
| (9,098) |
Other comprehensive loss |
|
| — |
|
| — |
|
| — |
|
| — |
|
|
|
|
| — |
|
| (240) |
|
| — |
|
| (240) |
Acquisition of noncontrolling interest |
|
| — |
|
| — |
|
| — |
|
| — |
|
| (587) |
|
| — |
|
| — |
|
| 329 |
|
| (258) |
Increase in noncontrolling interest from loan foreclosures |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 705 |
|
| 705 |
Net transfers from parent |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 7,615 |
|
| — |
|
| — |
|
| — |
|
| 7,615 |
Balance at December 31, 2018 |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 235,415 |
|
| — |
|
| 1,216 |
|
| 899 |
|
| 237,530 |
Cumulative effect from the adoption of ASU 2016-02 net of income taxes and redeemable noncontrolling interest |
|
| — |
|
| — |
|
| — |
|
| — |
|
| (2,202) |
|
| — |
|
| — |
|
| — |
|
| (2,202) |
Accretion of redeemable noncontrolling interest |
|
| — |
|
| — |
|
| — |
|
| — |
|
| (1,902) |
|
| — |
|
| — |
|
| — |
|
| (1,902) |
Net income excluding $326 of loss attributable to redeemable noncontrolling interest |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 13,737 |
|
| — |
|
| — |
|
| 102 |
|
| 13,839 |
Other comprehensive income |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 338 |
|
| — |
|
| 338 |
Net transfers to parent |
|
| — |
|
| — |
|
| — |
|
| — |
|
| (65,367) |
|
| — |
|
| — |
|
| — |
|
| (65,367) |
Balance at December 30, 2019 |
|
| — |
|
| — |
| $ | — |
|
| — |
|
| 179,681 |
|
| — |
|
| 1,554 |
|
| 1,001 |
|
| 182,236 |
Shares of | |||||||||||||||||||||||||||
Common Stock | Common | Accumulated | |||||||||||||||||||||||||
Outstanding | Stock | Bluegreen | Additional | Other | |||||||||||||||||||||||
Class | Class | Vacations | Paid-in | Comprehensive | Noncontrolling | Total | |||||||||||||||||||||
A | B | A | B | Equity | Capital | Income | Interest | Equity | |||||||||||||||||||
Balance at December 31, 2018 | — | — | $ | — | — | 235,415 | — | 1,216 | 899 | 237,530 | |||||||||||||||||
Cumulative effect from the adoption of ASU 2016-02 net of income taxes and redeemable noncontrolling interest | — | — | — | — | (2,202) | — | — | — | (2,202) | ||||||||||||||||||
Accretion of redeemable noncontrolling interest | — | — | — | — | (1,902) | — | — | — | (1,902) | ||||||||||||||||||
Net income excluding $326 of loss attributable to redeemable noncontrolling interest | — | — | — | — | 13,737 | — | — | 102 | 13,839 | ||||||||||||||||||
Other comprehensive income | — | — | — | — | — | — | 338 | — | 338 | ||||||||||||||||||
Net transfers to Bluegreen Vacations | — | — | — | — | (65,367) | — | — | — | (65,367) | ||||||||||||||||||
Balance at December 31, 2019 | — | — | $ | — | — | 179,681 | — | 1,554 | 1,001 | 182,236 | |||||||||||||||||
See Notes to Consolidated Financial Statements
BBX Capital, Inc.
Consolidated Statements of Changes in Equity
For Each of the Years in the Three Year Period Ended December 31, 20202021
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||||||||||||||||
|
| Shares of |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Shares of | ||||||||||||||||||||||||||||||||||||||
|
| Common Stock |
| Common |
|
|
|
|
|
|
|
|
| Accumulated |
|
|
|
| Common Stock | Common | Accumulated | |||||||||||||||||||||||||||||||||||||||
|
| Outstanding |
| Stock |
|
|
|
| Additional |
|
|
|
| Other |
|
|
|
| Outstanding | Stock | Bluegreen | Additional | Other | |||||||||||||||||||||||||||||||||||||
|
| Class |
| Class |
| Parent |
| Paid-in |
| Accumulated |
| Comprehensive |
| Noncontrolling |
| Total | Class | Class | Vacations | Paid-in | Accumulated | Comprehensive | Noncontrolling | Total | ||||||||||||||||||||||||||||||||||||
|
| A |
| B |
| A |
| B |
| Equity |
| Capital |
| Deficit |
| Income |
| Interest |
| Equity | A | B | A | B | Equity | Capital | Deficit | Income | Interest | Equity | ||||||||||||||||||||||||||||||
Balance at December 30, 2019 |
|
| — |
|
| — |
| $ | — |
|
| — |
|
| 179,681 |
|
| — |
|
| — |
|
| 1,554 |
|
| 1,001 |
|
| 182,236 | ||||||||||||||||||||||||||||||
Balance at December 31, 2019 | — | — | $ | — | — | 179,681 | — | — | 1,554 | 1,001 | 182,236 | |||||||||||||||||||||||||||||||||||||||||||||||||
Net loss excluding $4,073 of loss attributable to redeemable noncontrolling interest |
|
| — |
| — |
| — |
| — |
|
| (38,830) |
| — |
|
| (3,457) |
| — |
| (730) |
| (43,017) | — | — | — | — | (38,830) | — | (3,457) | — | (730) | (43,017) | |||||||||||||||||||||||||||
Other comprehensive income |
|
| — |
| — |
| — |
| — |
|
| — |
| — |
|
| — |
| 276 |
| — |
| 276 | — | — | — | — | — | — | — | 276 | — | 276 | |||||||||||||||||||||||||||
Distributions to noncontrolling interest |
|
| — |
| — |
| — |
| — |
|
| — |
| — |
|
| — |
| — |
| (54) |
| (54) | — | — | — | — | — | — | — | — | (54) | (54) | |||||||||||||||||||||||||||
Accretion of redeemable noncontrolling interest |
|
| — |
| — |
| — |
| — |
|
| (1,248) |
| — |
|
| — |
| — |
| — |
| (1,248) | — | — | — | — | (1,248) | — | — | — | — | (1,248) | |||||||||||||||||||||||||||
Reversal of accretion of redeemable noncontrolling interest |
|
| — |
| — |
| — |
| — |
|
| 3,150 |
| — |
|
| — |
| — |
| — |
| 3,150 | — | — | — | — | 3,150 | — | — | — | — | 3,150 | |||||||||||||||||||||||||||
Acquisition of noncontrolling interest |
|
| — |
| — |
| — |
| — |
|
| — |
| 118 |
|
|
|
| — |
| (118) |
| — | — | — | — | — | — | 118 | — | (118) | — | ||||||||||||||||||||||||||||
Net transfers from parent |
|
| — |
| — |
| — |
| — |
|
| 167,910 |
| — |
|
| — |
| — |
| — |
| 167,910 | |||||||||||||||||||||||||||||||||||||
Net transfers from Bluegreen Vacations | — | — | — | — | 167,910 | — | — | — | — | 167,910 | ||||||||||||||||||||||||||||||||||||||||||||||||||
Issuance of common stock |
|
| 15,624 |
| 3,694 |
| 156 |
| 37 |
|
| (193) |
| — |
|
| — |
| — |
| — |
| — | 15,624 | 3,694 | 156 | 37 | (193) | — | — | — | — | — | |||||||||||||||||||||||||||
Transfer to additional paid-in capital |
|
| — |
|
| — |
|
| — |
|
| — |
|
| (310,470) |
|
| 310,470 |
|
| — |
|
| — |
|
| — |
|
| — | ||||||||||||||||||||||||||||||
Balance at December 30, 2020 |
| $ | 15,624 |
|
| 3,694 |
| $ | 156 |
|
| 37 |
|
| — |
|
| 310,588 |
|
| (3,457) |
|
| 1,830 |
|
| 99 |
|
| 309,253 | ||||||||||||||||||||||||||||||
Transfer to additional paid in capital | — | — | — | — | (310,470) | 310,470 | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||
Balance at December 31, 2020 | 15,624 | 3,694 | $ | 156 | 37 | — | 310,588 | (3,457) | 1,830 | 99 | 309,253 | |||||||||||||||||||||||||||||||||||||||||||||||||
See Notes to Consolidated Financial Statements
BBX Capital, Inc.
Consolidated Statements of Changes in Equity
For Each of the Years in the Three Year Period Ended December 31, 2021
(In thousands)
Shares of | |||||||||||||||||||||||||||
Common Stock | Common | Accumulated | |||||||||||||||||||||||||
Outstanding | Stock | Additional | Accumulated | Other | |||||||||||||||||||||||
Class | Class | Paid-in | (Deficit) | Comprehensive | Noncontrolling | Total | |||||||||||||||||||||
A | B | A | B | Capital | Earnings | Income | Interest | Equity | |||||||||||||||||||
Balance at December 31, 2020 | 15,624 | 3,694 | $ | 156 | 37 | 310,588 | (3,457) | 1,830 | 99 | 309,253 | |||||||||||||||||
Net income excluding $141 of income attributable to redeemable noncontrolling interest | — | — | — | — | — | 46,911 | — | 14 | 46,925 | ||||||||||||||||||
Contributions from noncontrolling interests | — | — | — | — | — | — | — | 1,030 | 1,030 | ||||||||||||||||||
Other comprehensive income | — | — | — | — | — | — | 6 | — | 6 | ||||||||||||||||||
Conversion of common stock from Class B to Class A | 8 | (8) | — | — | — | — | — | — | — | ||||||||||||||||||
Purchase and retirement of common stock from tender offer | (1,403) | — | (14) | — | — | (11,417) | — | — | (11,431) | ||||||||||||||||||
Purchase and retirement of common stock | (2,425) | (15) | (24) | — | — | (22,811) | — | — | (22,835) | ||||||||||||||||||
Balance at December 31, 2021 | 11,804 | 3,671 | $ | 118 | 37 | 310,588 | 9,226 | 1,836 | 1,143 | 322,948 | |||||||||||||||||
BBX Capital, Inc.
Consolidated Statements of Cash Flows
(In thousands)
|
|
|
|
|
|
| ||||||||||||
|
|
|
|
|
|
| ||||||||||||
|
| For the Years Ended December 31, | For the Years Ended December 31, | |||||||||||||||
|
| 2020 |
| 2019 |
| 2018 | 2021 | 2020 | 2019 | |||||||||
Operating activities: |
|
|
|
|
|
|
|
|
| |||||||||
Net (loss) income |
| $ | (47,090) |
| 13,513 |
| (9,467) | |||||||||||
Adjustments to reconcile net (loss) income to net cash |
|
|
|
|
|
| ||||||||||||
(used in) provided by operating activities: |
|
|
|
|
|
| ||||||||||||
Net income (loss) | $ | 47,066 | (47,090) | 13,513 | ||||||||||||||
Adjustments to reconcile net income (loss) to net cash | ||||||||||||||||||
provided by (used in) operating activities: | ||||||||||||||||||
Recoveries from loan losses, net |
| (8,876) |
| (5,428) |
| (8,653) | (7,774) | (8,876) | (5,428) | |||||||||
Depreciation, amortization and accretion, net |
| 6,532 |
| 8,008 |
| 8,322 | ||||||||||||
Depreciation, amortization and accretion | 7,329 | 6,532 | 8,008 | |||||||||||||||
Net gains on sales of real estate and property and equipment |
| (255) |
| (13,305) |
| (4,563) | (696) | (255) | (13,305) | |||||||||
Equity earnings of unconsolidated real estate joint ventures |
| (465) |
| (37,898) |
| (14,194) | (18,154) | (465) | (37,898) | |||||||||
Return on investment in unconsolidated real estate joint ventures |
| 4,910 |
| 39,043 |
| 17,679 | 20,573 | 4,910 | 39,043 | |||||||||
Loss on the deconsolidation of IT'SUGAR, LLC |
| 3,326 |
| — |
| — | — | 3,326 | — | |||||||||
(Increase) decrease in deferred income tax asset, net |
| (4,737) |
| 2,343 |
| 1,084 | ||||||||||||
Gain on the consolidation of IT'SUGAR, LLC | (15,890) | — | — | |||||||||||||||
Decrease (increase) in deferred income tax asset, net | 3,648 | (4,737) | 2,343 | |||||||||||||||
Impairment losses |
| 31,620 |
| 6,938 |
| 4,718 | 38 | 31,620 | 6,938 | |||||||||
(Increase) decrease in trade receivable |
| (7,975) |
| 5,190 |
| (2,323) | ||||||||||||
(Increase) decrease in trade inventory |
| (3,245) |
| (2,733) |
| 3,882 | ||||||||||||
Decrease (increase) in trade receivable | 192 | (7,975) | 5,190 | |||||||||||||||
Increase in trade inventory | (9,838) | (3,957) | (3,122) | |||||||||||||||
Provision for excess and obsolete inventory | 2,340 | 712 | 389 | |||||||||||||||
Decrease (increase) in real estate inventory |
| 3,482 |
| (7,445) |
| 12,001 | 25,879 | 3,482 | (7,445) | |||||||||
Net change in operating lease asset and operating lease liability |
| (621) |
| 515 |
| — | 1,944 | (621) | 515 | |||||||||
(Increase) decrease in other assets |
| (6,802) |
| 6,817 |
| 2,197 | ||||||||||||
(Decrease) increase in accounts payable |
| (1,253) |
| (596) |
| 1,648 | ||||||||||||
Net change in due/from to parent |
| (1,362) |
| 3,284 |
| (1,282) | ||||||||||||
Increase in accrued expenses |
| 27,668 |
| 927 |
| 1,638 | ||||||||||||
(Increase) decrease in contract assets | (16,990) | (1,658) | 1,219 | |||||||||||||||
Decrease (increase) in other assets | 4,701 | (5,144) | 5,598 | |||||||||||||||
Decrease in accounts payable | (51) | (1,253) | (596) | |||||||||||||||
Net change in due/from to Bluegreen Vacations | — | (1,362) | 3,284 | |||||||||||||||
(Decrease) increase in accrued expenses | (6,161) | 27,668 | 927 | |||||||||||||||
(Decrease) increase in other liabilities |
|
| (1,040) |
|
| 3,496 |
|
| (1,480) | (328) | (1,040) | 3,496 | ||||||
Net cash (used in) provided by operating activities |
|
| (6,183) |
|
| 22,669 |
|
| 11,207 | |||||||||
Net cash provided by (used in) operating activities | 37,828 | (6,183) | 22,669 | |||||||||||||||
Investing activities: |
|
|
|
|
|
|
|
|
| |||||||||
Return of investment in unconsolidated real estate joint ventures |
| 7,567 |
| 31,442 |
| 12,080 | 19,243 | 7,567 | 31,442 | |||||||||
Investments in unconsolidated real estate joint ventures |
| (14,276) |
| (25,179) |
| (29,187) | (16,618) | (14,276) | (25,179) | |||||||||
Loan funding to IT'SUGAR, LLC, net |
| (3,947) |
| — |
| — | 222 | (3,947) | — | |||||||||
Proceeds from repayment of loans receivable |
| 9,296 |
| 6,339 |
| 19,394 | 8,844 | 9,296 | 6,339 | |||||||||
Proceeds from repayment of Bluegreen Vacations note receivable | 25,000 | — | — | |||||||||||||||
Proceeds from sales of real estate held-for-sale |
| 2,608 |
| 23,512 |
| 17,431 | 2,439 | 2,608 | 23,512 | |||||||||
Proceeds from sales of property and equipment |
| — |
| 11,762 |
| 569 | — | — | 11,762 | |||||||||
Additions to real estate held-for-sale and held-for-investment |
| (91) |
| (600) |
| (1,221) | (565) | (91) | (600) | |||||||||
Purchases of property and equipment |
| (5,345) |
| (11,091) |
| (12,796) | (8,526) | (5,345) | (11,091) | |||||||||
Cash acquired in the consolidation of IT'SUGAR, LLC | 6,909 | — | — | |||||||||||||||
Cash paid for acquisition, net of cash received |
| (42,133) |
| — |
| — | — | (42,133) | — | |||||||||
Decrease in cash from other investing activities |
|
| (6,078) |
|
| (222) |
|
| (4,696) | (163) | (6,078) | (222) | ||||||
Net cash (used in) provided by investing activities |
|
| (52,399) |
|
| 35,963 |
|
| 1,574 | |||||||||
Net cash provided by (used in) investing activities | 36,785 | (52,399) | 35,963 | |||||||||||||||
|
|
|
|
|
| (Continued) |
|
|
| (Continued) | ||||||||
See Notes to Consolidated Financial Statements
BBX Capital, Inc.
Consolidated Statements of Cash Flows
(In thousands)
|
|
|
|
|
|
| ||||||||||||
|
| For the Years Ended December 31, | For the Years Ended December 31, | |||||||||||||||
|
| 2020 |
| 2019 |
| 2018 | 2021 | 2020 | 2019 | |||||||||
Financing activities: |
|
|
|
|
|
|
|
|
| |||||||||
Repayments of notes payable and other borrowings |
| (16,459) |
| (3,947) |
| (18,037) | (22,096) | (16,459) | (3,947) | |||||||||
Proceeds from notes payable and other borrowings |
| 50,136 |
| 1,983 |
| 721 | 9,359 | 50,136 | 1,983 | |||||||||
Purchase and retirement of Class A and Class B Common Stock | (22,835) | — | — | |||||||||||||||
Purchase and retirement of Class A Common Stock from tender offer | (11,431) | — | — | |||||||||||||||
Payments for debt issuance costs |
| (216) |
| (96) |
| (125) | — | (216) | (96) | |||||||||
Acquisition of noncontrolling interest |
| — |
| — |
| (258) | ||||||||||||
Contributions from noncontrolling interests | 1,048 | — | — | |||||||||||||||
Distribution to noncontrolling interest |
| (54) |
| — |
| — | — | (54) | — | |||||||||
Net transfers from (to) parent |
|
| 94,275 |
|
| (65,367) |
|
| 7,615 | |||||||||
Net cash provided by (used in) financing activities |
|
| 127,682 |
|
| (67,427) |
|
| (10,084) | |||||||||
Net transfers from (to) Bluegreen Vacations | — | 94,275 | (65,367) | |||||||||||||||
Net cash (used in) provided by financing activities | (45,955) | 127,682 | (67,427) | |||||||||||||||
Increase (decrease) in cash, cash equivalents and restricted cash |
|
| 69,100 |
|
| (8,795) |
|
| 2,697 | 28,658 | 69,100 | (8,795) | ||||||
Cash, cash equivalents and restricted cash at beginning of period |
|
| 21,287 |
|
| 30,082 |
|
| 27,385 | 90,387 | 21,287 | 30,082 | ||||||
Cash, cash equivalents and restricted cash at end of period |
| $ | 90,387 |
|
| 21,287 |
|
| 30,082 | $ | 119,045 | 90,387 | 21,287 | |||||
|
|
|
|
|
|
|
|
|
| |||||||||
Supplemental cash flow information: |
|
|
|
|
|
|
| |||||||||||
Interest paid on borrowings, net of amounts capitalized |
| $ | — |
| 721 |
| 854 | $ | 2,503 | — | 721 | |||||||
Income taxes paid |
| 330 |
| 1,227 |
| 678 | 10,628 | 330 | 1,227 | |||||||||
Supplementary disclosure of non-cash investing and financing activities: |
|
|
|
|
|
|
| |||||||||||
Bluegreen Vacations Holding Corporation note receivable |
| 75,000 |
| — |
|
| — | — | 75,000 | — | ||||||||
Construction funds receivable transferred to real estate |
| — |
| 18,318 |
| 14,548 | 861 | — | 18,318 | |||||||||
Loans receivable transferred to real estate |
| — |
| 333 |
| 1,673 | — | — | 333 | |||||||||
Increase in other assets upon issuance of Community Development District Bonds |
| 827 |
| 8,110 |
| 15,996 | — | 827 | 8,110 | |||||||||
Assumption of Community Development District Bonds by homebuilders |
| 4,170 |
| 1,035 |
| 5,572 | 6,684 | 4,170 | 1,035 | |||||||||
Operating lease assets recognized upon adoption of ASC 842 |
| — |
| 86,431 |
| — | — | — | 86,431 | |||||||||
Operating lease liabilities recognized upon adoption of ASC 842 |
| — |
| 95,296 |
| — | — | — | 95,296 | |||||||||
Operating lease assets obtained in exchange for new operating lease liabilities |
| 4,721 |
| 22,942 |
| — | 32,867 | 4,721 | 22,942 | |||||||||
Reconciliation of cash, cash equivalents and restricted cash: |
|
|
|
|
|
| ||||||||||||
Cash and cash equivalents |
| 90,037 |
| 20,723 |
| 22,103 | 118,045 | 90,037 | 20,723 | |||||||||
Restricted cash |
| 350 |
| 529 |
| 966 | 1,000 | 350 | 529 | |||||||||
Cash discontinued operations |
|
| — |
|
| 35 |
|
| 7,013 | — | — | 35 | ||||||
Total cash, cash equivalents, and restricted cash |
| $ | 90,387 |
|
| 21,287 |
|
| 30,082 | |||||||||
Total cash, cash equivalents and restricted cash | $ | 119,045 | 90,387 | 21,287 | ||||||||||||||
See Notes to Consolidated Financial Statements
Notes to Consolidated Financial Statements
1. Organization
BBX Capital, Inc. and its subsidiaries (the “Company” or, unless otherwise indicated or the context otherwise requires, “we,” “us,” or “our”) is a Florida-based diversified holding company. BBX Capital, Inc. as a standalone entity without its subsidiaries is referred to as “BBX Capital.”
Spin-Off from BVHBluegreen Vacations
Prior to September 30, 2020, the Company was a wholly owned subsidiary of Bluegreen Vacations Holding Corporation (“Parent” or “BVH”Bluegreen Vacations”), which was formerly known as BBX Capital Corporation. Prior to September 30, 2020, BVHBluegreen Vacations was a Florida-based diversified holding company whose principal holdings were Bluegreen Vacations Corporation (“Bluegreen”), BBX Capital Real Estate LLC (“BBX Capital Real Estate” or “BBXRE”), BBX Sweet Holdings, LLC (“BBX Sweet Holdings”), and Renin Holdings, LLC (“Renin”). On September 30, 2020, BVHBluegreen Vacations completed the spin-off of the Company, which separated BVH’sBluegreen Vacations’ business, activities, and investments into two2 separate, publicly-traded companies: (i) BVH,Bluegreen Vacations, which continues to hold its investment in Bluegreen, and (ii) BBX Capital, which continues to hold all of BVH’sBluegreen Vacations’ former businesses and investments, including BBX Capital Real Estate, BBX Sweet Holdings, and Renin. The spin-off was consummated on September 30, 2020 with the distribution by BVHBluegreen Vacations to its shareholders all of the outstanding shares of BBX Capital’s Common Stock through the distribution of one share of BBX Capital’s Class A Common Stock for each share of its Class A Common Stock held on September 22, 2020, the record date for the distribution, and one share of BBX Capital’s Class B Common Stock for each share of its Class B Common Stock held on the record date. Accordingly, as of the close of business on September 30, 2020, BVHBluegreen Vacations ceased to have an ownership interest in the Company, and BVH’sBluegreen Vacations’ shareholders who received shares of BBX Capital’s Common Stock in the distribution became shareholders of the Company following the spin-off.
In connection with the spin-off, BBX Capital was converted from a Florida limited liability company into a Florida corporation and changed its name from BBX Capital Florida LLC to BBX Capital, Inc., and BVHBluegreen Vacations changed its name from BBX Capital Corporation to Bluegreen Vacations Holding Corporation. In addition, in connection with the spin-off, BVHBluegreen Vacations issued a $75.0 million note payable to the Company that accrues interest at a rate of 6% per annum and requires payments of interest on a quarterly basis. Under the terms of the note, BVHBluegreen Vacations has the option in its discretion to defer interest payments under the note, with interest on the entire outstanding balance thereafter to accrue at a cumulative, compounded rate of 8% per annum until such time that BVHas Bluegreen Vacations is current on all accrued payments under the note, including deferred interest. All outstanding amounts under the note will become due and payable on September 30, 2025 or earlier upon certain other events. Bluegreen Vacations is permitted to prepay the note in whole or in part at any time. In December 2021, Bluegreen Vacations prepaid $25.0 million of the principal balance of the note, reducing the outstanding balance to $50.0 million as of December 31, 2021.
In October 2020, BBX Capital’s Class A Common Stock commenced trading on the OTCQX Best Market under the ticker symbol “BBXIA,” and its Class B Common Stock commenced trading on the OTC Pink Market under the ticker symbol “BBXIB.”
Principal Investments
The Company’s principal holdings include BBX Capital Real Estate, BBX Sweet Holdings, and Renin.
BBX Capital Real Estate is engaged in the acquisition, development, construction, ownership, financing, and management of real estate and investments in real estate joint ventures, including investments in multifamily rental apartment communities, single-family master-planned for sale housing communities, and commercial properties located primarily in Florida. In addition, BBX Capital Real Estate owns a 50% equity interest in The Altman Companies, LLC (the “Altman Companies”), a developer and manager of multifamily rental apartment communities, and manages the legacy assets acquired in connection with the Company’s sale of BankAtlantic in 2012, including portfolios of loans receivable, real estate properties, and judgments against past borrowers.
F-9
BBX Sweet Holdings
BBX Sweet Holdings is engaged in the ownership and management of operating businesses in the confectionery industry, including Hoffman’s Chocolates, a retailer of gourmet chocolates with retail locations in South Florida, and Las Olas Confections and Snacks, a manufacturer and wholesaler of chocolate and other confectionery products. BBX Sweet Holdings also owns approximately 93%over 90% of the equity interests in IT’SUGAR, a specialty candy retailer whose products include bulk candy, candy in giant packaging, and licensed and novelty items. Prior to September 22, 2020, the Company consolidated the financial statements of IT’SUGAR and its subsidiaries as a result of its 93%over 90% ownership of IT’SUGAR. However, as further discussed in Note 23, on September 22, 2020, IT’SUGAR and its subsidiaries filed voluntary petitions to
reorganize under Chapter 11 of Title 11 of the U.S. Code (the “Bankruptcy Code”) in the U.S. Bankruptcy Court for the Southern District of Florida (the “Bankruptcy Court”) (the cases commenced by such filings, the “Bankruptcy Cases”), and the Company deconsolidated IT’SUGAR as a result of the filings and the uncertainties surrounding the nature, timing, and specifics of the bankruptcy proceedings. On June 16, 2021, the Bankruptcy Court confirmed IT’SUGAR’s plan of reorganization, and the plan became effective on June 17, 2021 (the “Effective Date”). Pursuant to the terms of the plan, BBX Sweet Holdings’ equity interests in IT’SUGAR were revested on the Effective Date.As a result of the confirmation and effectiveness of the plan and the revesting of its equity interests in IT’SUGAR, the Company was deemed to have reacquired a controlling financial interest in IT’SUGAR and consolidated the results of IT’SUGAR into its consolidated financial statements as of the Effective Date. See Note 23 for further discussion.
Renin
Renin is engaged in the design, manufacture, and distribution of sliding doors, door systems and hardware, and home décor products and operates through its headquarters in Canada and three manufacturing and distribution facilities in the United States and Canada. In addition to its own manufacturing activities, Renin also sources various products and raw materials from China, Brazil, and certain other countries. In October 2020, Renin acquired substantially all of the assets and assumed certain of the liabilities of Colonial Elegance, Inc (“Colonial Elegance”), as further described in Note 3. Headquartered in Montreal, Canada, Colonial Elegance is a supplier and distributor of building products includingheadquartered in Montreal, Canada. Colonial Elegance’s products included barn doors, closet doors, and stair parts, and its customers includeincluded various big box retailers in the United States and Canada.Canada which were complementary to and expanded Renin’s existing customer base.
During the year ended December 31, 2020,2021, Renin’s total revenues included $63.6$123.5 million of trade sales to two3 major customers and their affiliates and $28.3$50.6 million of revenues generated outside the United States. Revenues from one customer of Renin represented $50.3 million, $34.2 million, $20.2 million, and $20.7 million of the Company’s total revenues for the years ended December 31, 2020, 2019 and 2018, respectively, which represented 19.7% of the Company’s total revenues for the year ended December 31, 2020 and nearly 10% of the Company’s revenues for the years ended December 31, 2019 and 2018, while revenue from a second customer of Renin represented $29.4$20.2 million, of the Company’s total revenues for the year ended December 31, 2021, 2020 and 2019, respectively, which represented 16.0%, 19.7% and nearly 10% of the Company’s total revenues for the years ended December 31, 2021, 2020 and 2019, respectively. Revenue from a second customer of Renin represented $42.8 million and $29.4 million of the Company’s revenues for the years ended December 31, 2021 and 2020, respectively, which represented 13.6% and 17.0% of the Company’s revenues during the years ended December 31, 2021 and 2020, respectively. Revenue from a third customer of Renin represented $30.4 million of the Company’s total revenues for the year ended December 31, 2020.2021, which represented 9.7% of the Company's total revenues for the year ended December 31, 2021. Renin’s long-lived assets located outside the United States, which includes properties and equipment and right of use assets, had a carrying amount of $9.6$11.5 million as of December 31, 2020. 2021.
Other
In addition to its principal holdings, the Company has investments in other operating businesses, including a restaurant located in South Florida that was acquired through a loan foreclosure and an insurance agency, and previouslyprior to 2020, operated pizza restaurant locations as a franchisee of MOD Super Fast Pizza (“MOD Pizza”). As further described in Note 22, the Company’s operations as a franchisee of MOD Pizza are presented as discontinued operations in the Company’s consolidated financial statements.
Impact of the COVID-19 Pandemic
The COVID-19 pandemic has resulted in an unprecedented disruption in the U.S. and global economies and the industries in which the Company operates due to, among other things, (i) government ordered “shelter in place” and “stay at home” orders and advisories, travel restrictions, and restrictions on business operations, (ii) government guidance and restrictions with respect to travel, public accommodations, social gatherings, and related matters, (iii) the general public’s reaction to the pandemic including impacts on consumer demand, (iv) disruptions in global supply chains, and (v) increased economic uncertainty. The disruptions arising from the pandemic and the reaction of the general public have had a significant adverse impact on the Company's financial condition and operations, particularly with respect to BBX Sweet Holdings, as the effects of the pandemic required IT’SUGAR to temporarily close all of its retail locations in 2020 and ultimately resulted in IT’SUGAR and its subsidiaries filing petitions for Chapter 11 bankruptcy in September 2020. In addition, the Company’s workforce has been significantly impacted by the pandemic as a result of, among other things, the implementation of temporary and permanent reductions in employee head count in order to manage expenses and various health and safety protocols necessary for the Company to maintain operations. Further, the Company has experienced significant increases in commodity, freight, inventory, and labor costs, extended lead-times for the purchase of inventory, and delays in inventory shipments, and these factors are impacting the Company’s operations, including requiring the Company to maintain higher inventory balances, and may have a material impact on its operations in future periods. In addition, the duration and severity of the pandemic and related disruptions, as well as the resulting adverse impact on economic and market conditions, are uncertain, and the Company may continue to be adversely impacted by these conditions in future periods. Vaccination policies also vary across different jurisdictions where the Company operates, and federal, state, and local government officials may in the future issue new or revised orders that are different than the ones under which the Company is currently operating. The Company adopted policies which require vaccination or ongoing testing for employees in its corporate offices; however, the Company has yet to adopt such policies across all of its locations, and the implementation of such policies could result in additional operational challenges for the Company in light of ongoing labor shortages and the increased cost of labor.
The duration and severity of the pandemic and related disruptions, as well as the resulting adverse impact on economic and market conditions, are uncertain, and the Company may continue to be adversely impacted by these conditions in future periods. Although the impact of the COVID-19 pandemic on the Company’s principal holdings and management’s efforts to mitigate the effects of the pandemic has varied, BBX Capital and its subsidiaries sought to take steps to manage expenses through cost saving initiatives and steps intended to increase liquidity and strengthen the Company’s financial position, including delaying planned capital expenditures. As of December 31, 2021, the Company’s consolidated cash balances were $118.0 million.
Basis of Presentation
The accompanying consolidated financial statements of the Company include the consolidated financial statements of BBX Capital and its subsidiaries, including BBX Capital Real Estate, BBX Sweet Holdings, and Renin, as well as certain subsidiaries in which ownership was transferred from ParentBluegreen Vacations in connection with the spin-off transaction described above. However, for the periods prior to the spin-off on September 30, 2020, the accompanying consolidated financial statements reflect the combined financial statements of these entities, have been derived from the accounting records of ParentBluegreen Vacations and these companies, and should be read with the accompanying notes thereto. Further, the consolidated financial statements for the periods prior to the spin-off on September 30, 2020 do not necessarily reflect what the results of operations, financial position, or cash flows would have been had the Company been a separate entity nor are they indicative of the future results of the Company.
For the periods prior to the spin-off on September 30, 2020, the majority of the assets, liabilities, revenues, expenses, and cash flows of the Company have been identified based on the legal entities included in the spin-off transaction. However, the historical costs and expenses reflected in the financial statements for the periods prior to the spin-off also include an allocation for certain corporate and shared service functions that were historically provided by ParentBluegreen Vacations prior to the spin-off. These expenses have been allocated to the Company on the basis of direct usage when identifiable, while the remainder of the expenses, including costs related to executive compensation, were allocated primarily on a pro-rata basis of the combined revenues and equity in earnings of unconsolidated joint ventures of ParentBluegreen Vacations and its subsidiaries. However, the allocation of corporate expenses excludes costs specific to the spin-off and the acceleration of compensation expense in connection with the spin-off. The Company believes that the assumptions underlying the consolidated financial statements for the periods prior to the spin-off, including the assumptions regarding the allocation of general corporate expenses from the Parent,Bluegreen Vacations, are reasonable. However, the consolidated financial statements may not include all of the actual
F-10
expenses that would have been incurred had the Company been operating as a standalone company during the applicable periods presented. Actual costs that would have been incurred if the Company operated as a standalone company would depend on multiple factors, including organizational structure, technology infrastructure, and strategic direction. In addition, following the spin-off on September 30, 2020, the Company also incurs additional costs associated with being a public company that are not reflected in the accompanying consolidated financial statements for periods prior to September 30, 2020.
Impact of the COVID-19 Pandemic
The COVID-19 pandemic has resulted in an unprecedented disruption in the U.S. and global economies and the industries in which the Company operates due to, among other things, (i) government ordered “shelter in place” and “stay at home” orders and advisories, travel restrictions, and restrictions on business operations, (ii) government guidance and restrictions with respect to travel, public accommodations, social gatherings, and related matters, and (iii) the general public’s reaction to the pandemic. The disruptions arising from the pandemic and the reaction of the general public had a significant adverse impact on the Company's financial condition and operations during the year ended December 31, 2020, primarily with respect to BBX Sweet Holdings. The duration and severity of the pandemic and related disruptions, as well as the adverse impact on economic and market conditions, are uncertain; however, given the nature of these circumstances, the adverse impact of the pandemic on the Company’s consolidated results of operations, cash flows, and financial condition has been, and is expected to continue to be, material. Furthermore, although the duration and severity of the effects of the pandemic are uncertain, demand for many of the Company’s products and services may remain weak for a significant length of time, and the Company cannot predict if or when the industries in which the Company operates will return to pre-pandemic levels.
Although the impact of the COVID-19 pandemic on the Company’s principal holdings and management’s efforts to mitigate the effects of the pandemic has varied, BBX Capital and its subsidiaries have sought to take steps to manage expenses through cost saving initiatives and reductions in employee head count and actions to increase liquidity and strengthen the Company’s financial position, including reducing planned capital expenditures. As of December 31, 2020, the Company’s consolidated cash balances were $90.0 million.
Although BBXRE’s operations were impacted by the COVID-19 pandemic during 2020 and there is no assurance that they will not be impacted in the future, BBXRE’s operations are not currently being significantly impacted by the pandemic.
Following the initial outbreak of COVID-19 in March 2020, construction activities continued at BBXRE’s existing projects, while sales activities at BBXRE’s single-family for sale housing developments and rental activities at its multifamily apartment developments were temporarily impacted. Further, the effects of the pandemic, including economic uncertainty generally and in the real estate and credit markets in particular, increased uncertainty relating to the expected timing and pricing of sales of its current multifamily apartment developments and the expected timing and financing of new multifamily apartment developments. However, throughout the remainder of 2020 and to date in 2021, BBXRE has experienced a progressive recovery in its operations, which management believes is primarily attributable to demand for single-family and multifamily apartment housing in many of the markets in Florida in which BBXRE operates. In particular, sales at its single-family home developments and leasing and rent collections at its multifamily apartment developments have returned to pre-pandemic levels in most (but not all) locations. In addition, while the sale of existing projects and the commencement of new projects were delayed in 2020 as a result of a temporary decline in investment activity, BBXRE believes that there has generally been a recovery in investor demand for the acquisition of stabilized multifamily apartment communities and the availability of financing of debt and equity capital for new multifamily apartment developments.
However, the pandemic has nevertheless resulted in significant uncertainty in the overall economy and real estate and credit markets, and an increase in COVID-19 cases or the emergence of variant coronavirus strains could result in further disruptions to the U.S. and global economies. As a result, there is no assurance that the real estate market will not be materially adversely impacted by the pandemic or otherwise, that sales prices of single-family homes will not materially decline, that rents will be paid when due or at all, or that market rents will not materially decline. Further, while government efforts to delay or forestall evictions and the availability of judicial remedies have not to date materially impacted BBXRE’s operations, they may in the future have an adverse impact on both market values and BBXRE’s operating results. In addition, the effects of the pandemic may impact the costs of developing and operating BBXRE’s real estate assets, including, but not limited to, an increase in commodity and labor prices and property insurance costs as compared to pre-pandemic levels, which could also have an adverse impact on market values and BBXRE’s operating results. BBXRE will continue to monitor economic and market conditions and may recognize impairment losses in future periods as a result of various factors, including, but not limited to, material declines in overall real estate values, sales prices for single-family homes, and/or rental rates for multifamily apartments.
Further, as it specifically relates to the Altman Companies, the effects of the pandemic, including a prolonged economic downturn, high unemployment, the expiration of or a decrease in government benefits to individuals, and government-mandated moratoriums on tenant evictions, could ultimately have a longer term and more significant impact on rental rates, occupancy levels, and rent collections, including an increase in tenant delinquencies and/or requests for rent abatements. These effects would impact the amount of rental revenues generated from the multifamily apartment communities sponsored and managed by the Altman Companies, the extent of
F-11
management fees earned by the Altman Companies, and the ability of the related joint ventures to stabilize and successfully sell such communities. Furthermore, a decline in rental revenues at developments sponsored by the Altman Companies could require it, as the sponsor and managing member, to fund operating shortfalls in certain circumstances. In addition, the effects of the pandemic may impact the costs of developing and operating multifamily apartment communities, including, but not limited to, an increase in commodity prices as a result of, among other things, supply chain disruptions and material shortages, labor prices, and property insurance costs as compared to pre-pandemic levels, which could also have an adverse impact on market values and the Altman Companies’ operating results. Further, the impact of the COVID-19 pandemic on economic conditions in general, including uncertainty regarding the severity and duration of such impact, may ultimately have a significant adverse impact on capitalization rates and real estate values in future periods, particularly if there is a prolonged economic downturn. If there is a significant adverse impact on real estate values as a result of lower rental revenues, higher capitalization rates, or otherwise, the joint ventures sponsored by the Altman Companies may be unable to sell their respective multifamily apartment developments within the time frames previously anticipated and/or for the previously forecasted sales prices, if at all, which may impact the profits expected to be earned by BBXRE from its investment in the managing member of such projects and the ability of the joint ventures to repay or refinance construction loans on such projects and could result in the recognition of impairment losses related to BBXRE’s investment in such projects. Furthermore, the Altman Companies may be unable to close on the equity and/or debt financing necessary to commence the construction of new projects, including the development of Altis Lake Willis, which could result in increased operating losses at the Altman Companies due to a decline in development, general contractor, and management fees, the recognition of impairment losses by BBXRE and/or the Altman Companies related to their current investments in predevelopment expenditures and land acquired for development, and the recognition of impairment losses related to BBXRE’s overall investment in the Altman Companies, as the profitability and value of the Altman Companies is directly correlated with its ability to source new development opportunities.
With respect to BBXRE’s Beacon Lake Master Planned Development, the effects of the COVID-19 pandemic on the economy and demand for single-family housing remain uncertain and could result in requests by homebuilders to extend the timing of their purchase of developed lots from BBXRE and/or failure of the homebuilders to meet their obligations under the contracts with BBXRE to purchase developed lots. In addition, a decline in home prices as a result of the economic impacts associated with the COVID-19 pandemic could result in a decrease in contractually owed contingent revenues expected to be earned by BBXRE in connection with sales of homes by homebuilders on developed lots previously sold to them, as well as a decrease in the expected sales prices for the unsold lots comprising the remainder of the Beacon Lakes Community. Although BBXRE does not currently expect that there will be a significant decrease in the sales prices or fair value of its unsold lots, a significant decline in the demand and pricing for single-family homes could have such an effect and result in the recognition of impairment losses in future periods.
As a result of the above factors, BBXRE’s results of operations and financial condition may be materially adversely impacted by the effects of the pandemic in future periods.
BBX Sweet Holdings
BBX Sweet Holdings has been materially adversely impacted by the effects of the COVID-19 pandemic, primarily with respect to the impact on IT’SUGAR.
As further described in Note 23, in March 2020, IT’SUGAR closed all of its retail locations and furloughed all store employees and the majority of its corporate employees as a result of various factors, including government-mandated closures and Center for Disease Control and the World Health Organization advisories in connection with the COVID-19 pandemic, and between May 2020 and September 2020, it reopened nearly all of its approximately 100 locations that were open prior to the pandemic as part of a phased reopening plan. IT’SUGAR ceased paying rent to the landlords of its closed locations in April 2020 and engaged in negotiations with its landlords for rent abatements, deferrals, and other modifications for both the period of time that the locations were closed and the subsequent period that the locations have been opened and operating under conditions which have been affected by the pandemic. In addition to its unpaid rental obligations, IT’SUGAR ceased paying various outstanding obligations to its vendors.
Although IT’SUGAR was able to reopen its retail locations and received an advance of $2.0 million from a subsidiary of BBX Capital (as further described in Note 11), IT’SUGAR was unable to maintain sufficient liquidity to sustain its operations as (i) it was unable to obtain significant rent abatements or deferrals from its landlords and amended payment terms from its vendors and (ii) its sales volumes had not sufficiently improved and stabilized following the reopening of its locations. As a result, on September 22, 2020, IT’SUGAR and its subsidiaries filed voluntary petitions to reorganize under Chapter 11 of the Bankruptcy Code in the Bankruptcy Court. As a result of IT’SUGAR filing the Bankruptcy Cases and the uncertainties surrounding the nature, timing, and specifics of the bankruptcy proceedings, the Company deconsolidated IT’SUGAR as of September 22, 2020 and recognized a loss of $3.3 million during the year ended December 31, 2020 in connection with the deconsolidation. Prior to the deconsolidation of IT’SUGAR, the Company also recognized $25.3 million of impairment losses during the year ended December 31, 2020 related to IT’SUGAR’s goodwill and long-lived assets as a result of the effects of the pandemic, including the recognition of a goodwill impairment loss of $20.3 million based on a decline in the estimated fair value of IT’SUGAR.
F-12
See Note 23 for additional information, including risks and uncertainties, related to the impacts of the COVID-19 pandemic and Bankruptcy Cases on IT’SUGAR and Notes 8, 9, and 10 for additional information with respect to the Company’s recognition of impairment losses related to IT’SUGAR.
Renin
As of December 31, 2020, Renin’s had not been significantly impacted by the COVID-19 pandemic, and it has continued to operate both of its manufacturing and distribution facilities, source various products and raw materials from China, Brazil, and certain other countries, and sell its products through various channels. However, as a result of the effects of the pandemic, Renin has experienced increased costs related to the shipment of products and raw materials, which has impacted its product costs and gross margin, and Renin expects this increase in costs to continue and worsen during 2021. Although Renin’s operations had not been significantly impacted by the pandemic as of December 31, 2020, the effects of the pandemic, including a recessionary economic environment, could have a significant adverse impact on Renin’s results of operations and financial condition in future periods, particularly if an economic downturn is prolonged in nature and impacts consumer demand or the effects of the pandemic result in material disruptions in the supply chains for its products and raw materials, including additional delays in the production and shipment of products and raw materials from foreign suppliers and continued increases in shipping costs. Further, while Renin has begun to diversify its supply chain and transfer the assembly of certain products from foreign suppliers to its own manufacturing facilities, Renin continues to source products and raw materials from China. As a result, disruptions in its supply chain from China as a result of various factors, including closures or delays in the supply chain, could have a material impact on Renin’s cost of product and ability to meet customer demand.
2. Basis of Presentation and Significant Accounting Policies
Consolidation Policy - The consolidated financial statements are prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”) and include the accounts of BBX Capital’s wholly-owned subsidiaries, other entities in which BBX Capital or its subsidiaries hold controlling financial interests, and any variable interest entities (“VIEs”) in which BBX Capital or one of its consolidated subsidiaries is deemed the primary beneficiary of the VIE. All significant inter-company accounts and transactions have been eliminated in consolidation.
Use of Estimates –The preparation of GAAP financial statements 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 materially from those estimates. On an ongoing basis, management evaluates its estimates, including those that relate to the recognition of revenue; the allowance for expected credit losses; the recovery of the carrying value of real estate; the measurement of assets and liabilities at fair value, including amounts recognized in business combinations and items measured at fair value on a non-recurring basis, such as intangible assets, goodwill, and real estate; the amount of the deferred tax valuation allowance and accounting for uncertain tax positions; and the estimate of contingent liabilities related to litigation and other claims and assessments. Management bases its estimates on historical experience and on other various assumptions that it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ materially from these estimates under different assumptions and conditions.
Due to among other things, the impact and potential future impact of disruptions and uncertainty in the ongoingU.S. and global economies resulting from, among other things, the COVID-19 pandemic, which is discussed above, disruptions in global supply chains, and recent events with Russia and Ukraine, actual conditions could materially differ from the Company’s expectations and estimates, which could materially affect the Company’s results of operations and financial condition. The severity, magnitude, and duration, as well as the economic consequences, of the COVID-19 pandemic,ongoing disruptions in the U.S. and global economies, are uncertain, rapidly changing, and difficult to predict. As a result, the Company’s accounting estimates and assumptions may change over time, in response to the COVID-19 pandemic. Suchand such changes could result in, among other adjustments, future impairments of intangibles, long-lived assets, and investments in unconsolidated subsidiaries and future reserves for inventory and receivables.
Reclassifications - Certain amounts for prior years have been reclassified to conform to the revised financial statement presentation for 2021. Contingent purchase price receivables were reclassified out of other assets to a separate line item in the statement of financial condition as of December 31, 2020. The reclassifications had no impact on the Company’s statements of operations and comprehensive income or statements of cash flows.
Cash, Cash Equivalents,and Restricted Cash- Cash equivalents consist of demand deposits at financial institutions, money market funds, and other short-term investments with original maturities at the time of purchase of 90 days or less. Cash in excess of the Company’s immediate operating requirements are generally invested in short-term time deposits and money market instruments that typically have original maturities at the date of purchase of three months or less. Restricted cash consists primarily of cash held at financial institutions associated with our insurance subsidiary or with borrowings.real estate projects. Cash and cash equivalents are maintained at various financial institutions located throughout the United States and Canada in amounts exceeding the $250,000 federally insured limit. Accordingly, the Company is subject to credit risk. Management performs periodic evaluations of the relative credit standing of financial institutions maintaining the Company’s deposits to evaluate and, if necessary, take actions in an attempt to mitigate credit risk.
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Revenue Recognition
Trade sales – Revenue is recognized on trade sales as follows:
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Revenue is recognized on wholesale trade sales when control of the products is transferred to customers, which generally occurs when the products are shipped or the customers accept delivery. Wholesale trade sales typically have payment terms between 30 and 60 days. Certain customer trade sale contracts have provisions for right of return, volume rebates, and price concessions. These types of discounts are accounted for as variable consideration, and the Company uses the expected value method to calculate the estimated reduction in the trade sales revenue. The inputs used in the expected value method include historical experience with the customer, sales forecasts, and outstanding purchase orders.
Revenue is recognized on retail trade sales at the point of sale, which occurs when products are sold at the Company’s retail locations.
Sales and other taxes imposed by governmental authorities that are collected by the Company from customers are excluded from revenue or the transaction price.
Shipping and handling activities that occur after the control of goods is transferred to a customer are accounted for as fulfillment activities instead of a separate performance obligation.
Revenue is not adjusted for the effects of a significant financing component if the Company expects, at the contract inception, that the performance obligation will be satisfied within one year or less.
Sales of real estate inventory -Revenue is generally recognized on sales of real estate inventory to customers when the sales are closed and title passes to the buyer. The Company generally receives payment from the sale of real estate inventory at the date of closing. In addition, certain real estate sales contracts provide for a contingent purchase price. The contingent purchase price in contracts pursuant to which the Company sells developed lots to homebuilders is generally calculated as a percentage of the proceeds that the homebuilders receive from sales to their own customers, and the Company does not receive payment of such amounts until the homebuilders close on such sales. The Company accounts for the contingent purchase price in these contracts as variable consideration and estimates the amount of such consideration that may be recognized upon the closing of the real estate transaction based on the expected value method. The estimate of variable consideration is recognized as revenue to the extent that it is not probable that a significant reversal in the amount of cumulative revenue recognized will occur when the uncertainty associated with the variable consideration is subsequently resolved. The inputs used in the expected value method include current and expected sales prices (net of incentives), historical contingent purchase price receipts, and sales contracts on similar properties.
Interest income – Interest income from loans receivable originated by the Company and the note receivable from BVHBluegreen Vacations is recognized on accruing loans when management determines that it is probable that all of the principal and interest will be collected in accordance with the loan’s contractual terms. Interest income is recognized on non-accrual loans on a cash basis. Other than the note receivable from BVH,Bluegreen Vacations, the Company’s loans receivable are included in other assets in the Company’s consolidated statements of financial condition.
Net gains on sales of real estate assets – Net gains on sales of real estate assets represents sales of assets to non-customers. Gains (or losses) are recognized from sales to non-customers when the control of the asset has been transferred to the buyer, which generally occurs when title passes to the buyer.
Other revenue –Other revenue is primarily comprised of rental income from properties under short-term operating leases and insurance commissions earned from insurance carriers. Rental income is recognized as rents become due, and rental payments received in advance are deferred until earned.
Trade Accounts Receivables and Allowance for Expected Credit Losses – Accounts receivable are stated at the amounts billed to customers for sale of goods or services with a contractual maturity of one year or less. The Company provides an allowance for expected credit losses. This allowance is based on a review of outstanding receivables and historical collection information and an evaluation of both existing economic conditions and reasonable and supportable forecasts of future economic conditions impacting the Company’s customers. Accounts receivable are ordinarily due 30 to 60 days after the issuance of the invoice (based on terms). Accounts receivable are considered delinquent after 30 days past the due date. These delinquent receivables are monitored and are charged to the allowance for expected credit losses based on an evaluation of individual circumstances of the customer. Account balances are written off after collection efforts have been made and the potential recovery is considered remote.
Trade Inventory – Trade inventory is measured at the lower of cost or market.net realizable value. Cost includes all costs of conversions, including materials, direct labor, production overhead, depreciation of equipment, and shipping costs. Raw materials are not written down unless the goods in which they are incorporated are expected to be sold for less than cost, in which case, they are written down by reference to replacement cost of the raw materials. Finished goods and work in progress are stated at the lower of cost or marketnet realizable value determined on a first-in, first-out or average cost basis. Shipping and handling fees billed to customers are recorded as trade sales, and shipping and handling fees paid by the Company are recorded as cost of trade sales.
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In valuing inventory, the Company makes assumptions regarding write-downs required for excess and obsolete inventory based on judgments and estimates formulated from available information. Estimates for excess and obsolete inventory are based on historical and forecasted usage. Inventory is also examined for upcoming expiration, and write-downs are recorded where appropriate. Because the value of inventory that will ultimately be realized cannot be known with exact certainty, we rely upon both past sales history and future sales forecasts to provide a basis for the determination of the write-down. Inventory is considered potentially obsolete if we have withdrawn those products from the market or had no sales of the product for the past 12 months and have no sales forecasted for the next 12 months. Inventory is considered potentially excess if the quantity on hand exceeds 12 months of expected remaining usage. The resulting potentially obsolete and excess parts are then reviewed to determine if a substitute usage or a future need exists. Items without an identified current or future usage are written down in an amount equal to 100% of the FIFO cost of such inventory. We review these assumptions regularly for all of our inventories which include sales demonstration and service inventories.
Real Estate – From time to time, the Company acquires real estate or takes possession or ownership of real estate through the foreclosure of collateral on loans receivable. Such real estate is classified as real estate held-for-sale, real estate held-for-investment, or real estate inventory. When real estate is classified as held-for-sale, it is initially recorded at fair value less estimated selling costs and subsequently measured at the lower of cost or estimated fair value less selling costs. When real estate is classified as held-for-investment, it is initially recorded at fair value and, if applicable, is depreciated in subsequent periods over its useful life using the straight-line method. Real estate is classified as real estate inventory when the property is under development for sale to customers and is measured at cost, including costs of improvements and amenities incurred subsequent to acquisition, capitalized interest and real estate taxes, and other costs incurred during the construction period. Expenditures for capital improvements are generally capitalized, while the ongoing costs of owning and operating real estate are charged to selling, general and administrative expenses as incurred. Impairments required on loans receivable at the time of foreclosure of real estate collateral are charged to the allowance for loan losses, while impairments of real estate required under ASC 360 to reflect subsequent declines in fair value are recorded as impairment losses in the Company’s consolidated statements of operations and comprehensive income.
Investments in Unconsolidated Real Estate Joint Ventures - The Company uses the equity method of accounting to record its equity investments in entities in which it has significant influence but does not hold a controlling financial interest, including equity investments in VIEs in which the Company is not the primary beneficiary. Under the equity method, an investment is reflected on the statement of financial condition of an investor as a single amount, and an investor’s share of earnings or losses from its investment is reflected in the statement of operations as a single amount. The investment is initially measured at cost and subsequently adjusted for the investor’s share of the earnings or losses of the investee and distributions received from the investee. The investor recognizes its share of the earnings or losses of the investee in the periods in which they are reported by the investee in its financial statements rather than in the period in which an investee declares a distribution. Intra-entity profits and losses on assets still remaining with an investor or investee are eliminated.
The Company recognizes its share of earnings or losses from certain equity method investments based on the hypothetical liquidation at book value (“HLBV”) method. Under the HLBV method, earnings or losses are recognized based on how an entity would allocate and distribute its cash if it were to sell all of its assets and settle its liabilities for their carrying amounts and liquidate at the reporting date. The HLBV method is used to calculate the Company’s share of earnings or losses from equity method investments when the contractual cash disbursements to the investors are different than the investors’ stated ownership percentage.
The Company capitalizes interest expense on investments in and advances to or loans to real estate joint ventures accounted for under the equity method that have commenced qualifying activities, such as real estate development projects. The capitalization of interest expense ceases when the investee completes its qualifying activities, and total capitalized interest expense cannot exceed interest expense incurred.
The Company reviews its investments on an ongoing basis for indicators of other-than-temporary impairment. This determination requires significant judgment in which the Company evaluates, among other factors, the fair market value of its investments, general market conditions, the duration and extent to which the fair value of an investment is less than cost, and the Company’s intent and ability to hold an investment until it recovers. The Company also considers specific adverse conditions related to the financial health and business outlook of the investee, including industry and market performance, rating agency actions, and expected future operating and financing cash flows. If a decline in the fair value of an investment is determined to be other-than-temporary, an impairment loss is recorded to reduce the investment to its fair value, and a new cost basis in the investment is established.
Property and Equipment, net – Property and equipment is stated at cost less accumulated depreciation and amortization. Depreciation is computed using the straight-line method over the estimated useful lives of the assets, which is generally 3 to 5 years for computer equipment 3 to 5 years forand software, 5 years for furniture and fixtures, and 7 to 10 years for manufacturing equipment. The cost of leasehold improvements is depreciated using the straight-line method over the shorter of the term of the related lease or the estimated useful lives of the improvements. Expenditures for new property, leasehold improvements, and equipment, as well as major renewals and betterments, are capitalized, while expenditures for maintenance and repairs are expensed as incurred. Gains or losses on the disposal of property and equipment are reflected in current operations.
Goodwill – The Company recognizes goodwill upon the acquisition of a business when the fair values of the consideration transferred and any noncontrolling interests in the acquiree are in excess of the fair value of the acquiree’s identifiable net assets. The Company tests goodwill for potential impairment on an annual basis as of December 31 or during interim periods if impairment indicators exist. TheEach period and for each reporting unit the Company can elect to first assessesassess qualitatively whether it is necessary to perform goodwill impairment testing. Impairment testingIf the Company believes, as a result of its qualitative assessment, that it is not more likely than not that the fair value of any reporting unit containing goodwill is less than its carrying amount, then the quantitative goodwill impairment test is unnecessary. If the Company elects to bypass the qualitative assessment option, or if the qualitative assessment was performed whenand resulted in the Company being unable to conclude that it is not more likely than not that the fair value of a reporting unit containing goodwill is lessgreater than its carrying amount, including goodwill. the Company will perform the quantitative goodwill impairment test.
The Company evaluates various factors affecting a reporting unit in its qualitative assessment, including, but not limited to, macroeconomic
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conditions, industry and market considerations, cost factors, and financial performance. If the Company concludes from its qualitative assessment that goodwill impairment testing is required or if the Company bypasses the qualitative test, the fair value of the reporting unit is compared to its carrying amount. If the carrying amount of a reporting unit exceeds its fair value, the Company records an impairment loss for the excess amount, although the impairment loss is limited to the amount of goodwill allocated to the reporting unit.
The Company generally applies an income approach utilizing a discounted cash flow methodology and a market approach utilizing a guideline public company and transaction methodology to estimate the fair value of its reporting units. The estimated fair values obtained from the income and market approaches are compared and reviewed for reasonableness to determine a best estimate of fair value. The Company’s discounted cash flow methodology establishes an estimate of fair value by estimating the present value of the projected future cash flows to be generated from a reporting unit. The discount rate applied to the projected future cash flows to arrive at the present value is intended to reflect all risks of ownership and the associated risks of realizing the stream of projected future cash flows. The Company generally uses a five to ten-year period in computing discounted cash flow values. The most significant assumptions used in the discounted cash flow methodology are generally the terminal value, the discount rate, and the forecast of future cash flows. The guideline public company methodology establishes an estimate of fair value based upon the trading prices of public traded companies that are similar to the applicable reporting unit, while the guideline transaction methodology establishes an estimate of fair value based on acquisitions of companies that are similar to the applicable reporting unit. Under these methods, the Company develops multiples of revenue and earnings before interest, taxes, depreciation and amortization (“EBITDA”) based upon the indicated enterprise value, revenues, and EBITDA of the guideline companies and makes adjustments to such multiples based on various considerations, including the financial condition, operating performance, and relative risk of the guideline companies. The adjusted multiples are then applied to the revenues and EBITDA of the reporting unit to develop an estimated fair value of the reporting unit. Depending on the facts and circumstances applicable to the reporting unit and the guideline companies, the Company may place greater emphasis on the income or market approach to determine its best estimate of fair value.
Inherent in the Company’s determinations of fair value are certain judgments and estimates relating to future cash flows, including the Company’s assessment of current economic indicators and market valuations, and assumptions about the Company’s strategic plans with regard to its operating businesses. Due to the uncertainties associated with such evaluations, actual results could differ materially from such estimates.
Intangible Asset, net – Intangible assets in the Company’s financial statements primarily consist of intangible assets acquired in connection with certain business combinations, including acquired customer relationships, trademarks, and noncompetition agreements. These definite-lived intangible assets are recognized at fair value upon acquisition and amortized on a straight-line basis over their respective estimated useful lives.
Operating Lease Assetsand Operating Lease Liabilities – The Company recognizes right-of-use assets and lease liabilities associated with lease agreements with an initial term of greater than 12 months, while lease agreements with an initial term of 12 months or less are not recorded in the Company’s consolidated statements of financial condition. The Company determines if an arrangement is a lease at inception. Operating lease assets represent the Company’s right to use an underlying asset for the lease term, and operating lease liabilities represent the Company’s obligation to make lease payments. Operating lease assets and liabilities are recognized when the Company takes possession of the underlying asset based on the present value of lease payments over the lease term. The Company generally does not include lease payments associated with renewal options that are exercisable at its discretion in the measurement of its operating lease assets and operating lease liabilities as it is not reasonably certain that such options will be exercised. The Company generally recognizes lease costs associated with its operating leases on a straight-line basis over the lease term, while variable lease payments that do not depend on an index or rate are recognized as variable lease costs in the period in which the obligation for those payments is incurred. The Company recognizes accrued straight-line rent and unamortized tenant allowances received from landlords associated with its operating leases as a reduction of the operated lease assets associated with such leases. The Company has lease agreements with lease and non-lease components which it generally accounts for as a single lease component for lease classification, recognition, and measurement purposes.
Impairment of Long-Lived Assets – The Company evaluates its long-lived assets, including property and equipment, definite-lived intangible assets, and right-of-use assets associated with its lease agreements, for potential impairment whenever events or changes in circumstances indicate that the carrying amount of an asset (or asset group) may not be recoverable. Factors which could indicate that an asset (or asset group) may not be recoverable include, but are not limited to, significant underperformance relative to historical or projected future operating results, significant changes in the manner of use of the assets or the strategy for the overall business, a significant decrease in the market value of the assets, and significant negative industry or economic trends. The carrying amount of an asset (or asset group) is not considered recoverable when the carrying amount exceeds the sum of the undiscounted cash flows expected to result from the use of the asset (or asset group). To the extent that the carrying amount of an asset (or asset group) exceeds the sum of such undiscounted cash flows, an impairment loss is measured and recorded based on the amount by which the carrying amount of the asset (or asset group) exceeds its fair value. Impairment losses associated with an asset group are allocated to long-lived assets within the asset group based on their relative carrying amounts; however, the carrying amounts of individual long-lived assets within an asset group are not reduced below their individual fair values.
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To the extent that impairment testing is required, the Company generally estimates the fair values of its long-lived assets utilizing a discounted cash flow methodology which estimates the present value of the projected future cash flows expected to be generated from the applicable assets or asset groups. When estimating the fair value of asset groups related to a retail location, the Company’s estimated fair value considers the relevant market participants and the highest and best use for the location, including whether the value of the location would be maximized by operating the location in its current use or by permanently closing the location and subleasing it. To the extent applicable, the Company estimates the fair value of right-of-use assets associated with its retail locations using a discounted cash flow methodology which estimates the present value of market rental rates applicable to such right-of-use assets. When estimating the fair value of intangible assets, the Company uses a form of the income approach relevant to the applicable asset or asset group. The Company uses the relief from royalty valuation method, a form of the income approach, to estimate the fair value of trademarks. Under this method, the fair value of trademarks is determined by calculating the present value using a risk-adjusted discount rate of the estimated future royalty payments that would have to be paid if the trademarks were not owned. The Company uses the multi-period excess earnings method, a form of the income approach, to estimate the fair value of customer relationships. Under this method, the fair value of customer relationships is determined by isolating the expected cash flows attributable to the customer relationship intangible asset and discounting these cash flows using a risk-adjusted discount rate.
As the carrying amounts of the Company’s long-lived assets are dependent upon estimates of future cash flows that they are expected to generate, these assets may be impaired if cash flows decrease significantly or do not meet expectations, in which case they would be written down to their estimated fair values. The estimates of useful lives and expected cash flows require the Company to make significant judgments regarding future periods that are subject to a number of factors, many of which are beyond the Company’s control.
Deferred Financing Costs – Deferred financing costs are comprised of costs incurred in connection with obtaining financing from third-party lenders and are presented in the Company’s consolidated statements of financial condition as other assets or as a direct deduction from the carrying amount of the associated debt liability. These costs are capitalized and amortized to interest expense over the terms of the related financing arrangements. As of December 31, 2020 and 2019, unamortized deferred financing costs presented in other assets totaled $0.2 million and $0.1 million, respectively, while unamortized costs presented against the associated debt liabilities totaled $1.1 million and $0.8 million, respectively. Interest expense from the amortization of deferred financing costs for the years ended December 31, 2020, 2019 and 2018 was $28,000, $72,000, and $41,000, respectively.
Income Taxes – Subsequent to September 30, 2020, BBX Capital and its subsidiaries in which it owns 80% or more of the voting power and value of the subsidiary’s stock file a consolidated U.S. Federal and Florida income tax return. Other than Florida, BBX Capital and its subsidiaries file separate or unitary state income tax returns for each jurisdiction. Subsidiaries in which BBX Capital owns less than 80% of the outstanding equity are not included in the Company’s consolidated U.S. Federal or Florida state income tax return. Prior to September 30, 2020, the Company was a wholly owned subsidiary of BVH,Bluegreen Vacations, and its activities were included in BVH’sBluegreen Vacations’ tax return filings. While it was a wholly owned subsidiary of BVH,Bluegreen Vacations, the Company accounted for income taxes on a separate return basis.
The Company accounts for income taxes using the asset and liability method. Accordingly, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between financial statement carrying amounts of existing assets and liabilities and their respective tax bases. 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 the tax rate is recognized in income or expense in the period that the change is effective. Income tax benefits are recognized when it is probable that the deduction will be sustained. A valuation allowance is established when it is more likely than not that all or a portion of a deferred tax asset will either expire before the Company is able to realize the benefit, or that future deductibility is uncertain. If a valuation allowance is recorded, a subsequent change in circumstances that causes a change in judgment about the realization of the related deferred tax amount could result in the reversal of the deferred tax valuation allowance.
An uncertain tax position is defined as a position taken or expected to be taken in a tax return that is not based on clear and unambiguous tax law and which is reflected in measuring current or deferred income tax assets and liabilities for interim or annual periods. The Company may recognize the tax benefit from an uncertain tax position only if it believes that it is more likely than not that the tax position will be sustained on examination by the taxing authorities based on the technical merits of the position. The Company measures the tax benefits recognized based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate resolution. The Company recognizes interest and penalties related to unrecognized tax benefits in its provision for income taxes. The Company has not0t identified any uncertain tax positions as of December 31, 2020.2021.
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Noncontrolling Interests – Noncontrolling interests reflect third parties’ ownership interests in entities that are consolidated in the Company’s financial statements but are less than 100% owned by the Company. Noncontrolling interests are recognized as equity in the consolidated statements of financial condition and presented separately from the equity attributable to BBX Capital’s shareholders, while noncontrolling interests that are redeemable for cash at the holder’s option or upon a contingent event outside of the Company’s control are classified as redeemable noncontrolling interests and presented in the mezzanine section between total liabilities and equity in the consolidated statements of financial condition. The Company measures redeemable noncontrolling interests on an ongoing basis by accreting changes in the estimated redemption value of such interests from the date of issuance to the earliest redemption date and adjusts the carrying amount of such interests to the calculated value in the event that it is in excess of the carrying amount of such interests at such time.
A change in the ownership interests of a subsidiary is accounted for as an equity transaction if the Company retains its controlling financial interest in the subsidiary.
The amounts of consolidated net income and comprehensive income attributable to BBX Capital’s shareholders and noncontrolling interests are separately presented in the Company’s consolidated statements of operations and comprehensive income.
Cost of Trade Sales – Cost of trade sales includes the cost of inventory, shipping and handling, warehousing, and occupancy expenses related to the Company’s retail locations and manufacturing facilities.
Advertising – The Company expenses advertising and marketing costs as incurred. Advertising and marketing costs, which are included as selling, general and administrative expenses in the accompanying consolidated statements of operations and comprehensive income, were $1.4 million, $1.1 million, $2.5 million, and $2.3$2.5 million for the years ended December 31, 2021, 2020, and 2019, and 2018, respectively.
Accounting for Loss Contingencies – Loss contingencies, including those arising from legal actions, are recorded as liabilities when the likelihood of loss is probable and an amount or range of loss can be reasonably estimated.
Earnings Per Share – Basic and diluted earnings per share is computed by dividing net income attributable to BBX Capital’s shareholders by the weighted average shares outstanding. For periods prior to the spin-off on September 30, 2020, the weighted average shares outstanding was based on the shares issued in connection with the spin-off, while for periods subsequent to spin-off, the shares outstanding was based on the actual weighted average number of shares outstanding.
Recently Adopted Accounting Pronouncements
The Financial Accounting Standards Board (“FASB”) has issued the following accounting pronouncements and guidance relevant to the Company’s operations which have been adopted as of January 1, 2020:2021:
ASU No. 2016-13, Financial Instruments - Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments (as subsequently amended and clarified by various ASUs). This standard requires an approach of estimating credit losses on certain types of financial instruments based on expected losses and expands the disclosure requirements regarding an entity’s assumptions, models, and methods for estimating its allowance for credit losses. The standard also requires entities to record an allowance for credit losses for available for sale debt securities rather than reduce the carrying amount under the other-than temporary impairment model. In addition, the standard requires entities to disclose the amortized cost balance for each class of financial asset by credit quality indicator, disaggregated by the year of origination (i.e., by vintage year). The Company adopted this standard on January 1, 2020 using a modified retrospective method and did not recognize a cumulative effect adjustment upon adoption of the standard as the Company’s trade receivables are generally due 30 to 60 days from the date of the invoice with minimal historical loss experience. The Company’s loans receivable are legacy loans from BVH’s sale of BankAtlantic that have been written down to the collateral value less cost to sell with interest recognized on a cash basis. As such, the adoption of the standard did not have a material impact on the Company’s consolidated financial statements.
ASU No. 2018-13, Fair Value Measurement (Topic 820), Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement. This standard modifies the disclosure requirements in Topic 820 related to the valuation techniques and inputs used in fair value measurements, uncertainty in measurement, and changes in measurements applied. This standard was effective for the Company on January 1, 2020, and the adoption of the standard did not have a material impact on the Company’s consolidated financial statements and disclosures.
FASB Staff Q&A Accounting for Lease Concessions Related to the Effects of the COVID-19 Pandemic (Topic 842): The FASB issued guidance on lease concessions related to the effects of the COVID-19 pandemic allowing entities to make an election to account for lease concessions related to the effects of the COVID-19 pandemic as if the enforceable rights and obligations for those concessions existed in the lease contract (regardless of whether those enforceable rights and obligations for the concessions explicitly exist in the lease contract). Consequently, for concessions related to the effects of the COVID-19 pandemic, an entity will not have to analyze each
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contract to determine whether enforceable rights and obligations for concessions exist in the contract and can elect to apply or not apply the lease modification guidance of Topic 842. The election only applies to concessions that do not result in a substantial increase in the rights of the lessor or the obligations of the lessee.
Pursuant to this FASB guidance, the Company has elected to account for lease concessions related to the effects of the COVID-19 pandemic as if the rights and obligations related to such concessions existed in the related lease agreements. Accordingly, if a concession does not result in a substantial increase in the rights of the lessor or the Company’s obligations as the lessee, the Company will elect to not account for the concession as a modification and will not remeasure the lease liability and right-of-use asset for such leases. If rent is deferred pursuant to a concession, such rents will be accrued pursuant to the existing terms of the lease, and the related liability will be relieved when the rental payment is made to the landlord pursuant to the terms of the concession. If rent is abated pursuant to a concession, the Company’s rent expense will be decreased by the amount of the abated rental payment in the period in which the payment was otherwise due pursuant to the existing terms of the lease.
As of December 31, 2020, excluding agreements executed by IT’SUGAR prior to its filing of the Bankruptcy Cases and related deconsolidation by the Company, the Company had executed 7 agreements related to lease concessions associated with the COVID-19 pandemic, which included a combination of rent deferrals and abatements. Under the terms of such agreements, rent payments subject to deferral are generally required to be paid between 1- 21 months following the execution of the agreements based on the payment schedules specified in such agreements. The Company accounted for 3 of these agreements as modifications and remeasured the related lease liabilities as the concessions extended the lease terms and increased the Company’s overall obligations under the related lease agreements. The Company did not account for the remaining 4 agreements as modifications as the concessions did not result in a substantial increase in the rights of the lessor or the obligations of the Company as the lessee. Under these agreements, deferrals and abatements of rental payments were $0.2 million and $0.3 million, respectively, for the year ended December 31, 2020, which were not accounted for as modifications. As of December 31, 2020, $0.2 million of these deferred amounts had been paid to the respective landlords.
Future Adoption of Recently Issued Accounting Pronouncements
The FASB has issued the following accounting pronouncements and guidance relevant to the Company’s operations which had not been adopted as of December 31, 2020:
ASU No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. This standard removes specific exceptions to the general principles in Topic 740, including exceptions related to (i) the incremental approach for intraperiod tax allocations, (ii) accounting for basis differences when there are ownership changes in foreign investments, and (iii) interim period income tax accounting for year-to-date losses that exceed anticipated losses. The statement is effective for the Company on January 1, 2021 and interim periods within that fiscal year. Early adoption is permitted. The adoption of the standard did not have a material impact on the Company’s consolidated financial statements.
Future Adoption of Recently Issued Accounting Pronouncements
The FASB has issued the following accounting pronouncements and guidance relevant to the Company’s operations which had not been adopted as of December 31, 2021:
ASU No. 2020-04 Reference Rate Reform (Topic 848):Facilitation of the Effects of Reference Rate Reform on Financial Reporting. This standard provides relief for companies preparing for discontinuation of LIBOR in response to the Financial Conduct Authority (the regulatory authority over LIBOR) plan for a phase out of regulatory oversight of LIBOR interest rate indices after 2021 to allow for an orderly transition to an alternate reference rate. The Alternative Reference Rates Committee (“ARRC”) has proposed that the Secured Overnight Financing Rate (“SOFR”) is the rate that represents best practice as the alternative to LIBOR for promissory notes or other contracts that are currently indexed to LIBOR. The ARRC has proposed a market transition plan to SOFR from LIBOR, and organizations are currently working on transition plans as it relates to derivatives and cash markets exposed to LIBOR. The Company currently has a LIBOR indexed credit facility which has a balance of $45.6$44.4 million and matures after 2021. Although companies can apply this standard immediately, the guidance will only be available for a limited time, generally through December 31, 2022. The Company is currently evaluating the potential impact that the eventual replacement of the LIBOR benchmark interest rate could have on its results of operations, liquidity and consolidated financial statements and the related impact that this standard may have on its consolidated financial statements.
3. Acquisition
Acquisition of Colonial Elegance
On October 22, 2020, Renin acquired substantially all of the assets and assumed certain of the liabilities of Colonial Elegance. Elegance, Inc (“Colonial Elegance, which is headquartered in Montreal, Canada, isElegance”), a supplier and distributor of building products includingthat was headquartered in Montreal, Canada. Colonial Elegance’s products included barn doors, closet doors, and stair parts, and its customers includeincluded various big box retailers in the United States and Canada.
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The base purchase price for the acquisition was $38.8 million, substantially all of which was paid in cash by Renin at closing.million. In addition to the base purchase price, Renin acquired excess working capital held by Colonial Elegance above an agreed upon target working capital amount of $9.9 million for $4.3 million, which resulted in total purchase consideration of $43.1 million. BBX Capital made a $5.0 million capital contribution to Renin to partially fund the acquisition of Colonial Elegance, while the remainderpaid substantially all of the acquisitionpurchase consideration in cash at closing, which was funded by Renin underwith proceeds from its amended and restated credit facility with TD Bank described in Note 11. and a $5.0 million capital contribution from BBX Capital.
The consolidated net assets and results of operations of Colonial Elegance are included in the Company’s consolidated financial statements commencing on October 22, 2020 and resulted in the following impact to trade sales and income before income taxes from the acquisition date to December 31, 2020 (in thousands):
October 22, 2020 | |||
to December 31, 2020 | |||
Trade sales | $ | 12,393 | |
Income before income taxes | $ | 722 | |
Purchase Price Allocation
The Company accounted for the acquisition of Colonial Elegance using the acquisition method of accounting, which requires that the assets acquired and liabilities assumed associated with an acquiree be recognized at their fair values at the acquisition date.
The following table summarizes the provisional purchase price allocation based on the Company’s preliminary valuation, including the fair values of the assets acquired and liabilities assumed at the acquisition date (in thousands):
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Cash | $ | 557 | |
Trade accounts receivable | 10,244 | ||
Trade inventory | 12,133 | ||
Property and equipment | 1,007 | ||
Identifiable intangible assets (1) | 21,795 | ||
Operating lease asset (2) | 3,919 | ||
Other assets | 650 | ||
Total assets acquired | 50,305 | ||
Accounts payable | (5,619) | ||
Other liabilities | (3,524) | ||
Operating lease liability | (2,213) | ||
Total liabilities assumed | (11,356) | ||
Fair value of identifiable net assets | 38,949 | ||
Goodwill | 4,140 | ||
Purchase consideration | 43,089 | ||
Less: cash acquired | (557) | ||
Less: consideration payable | (194) | ||
Cash paid for acquisition less cash acquired | $ | 42,338 | |
Acquisition-related costs included in selling, general and administrative expenses | $ | 441 |
|
|
(1)Identifiable intangible assets were comprised of $2.9 million, $18.7 million and $0.2 million associated with Colonial Elegance’s trademark, customer relationships, and noncompetition agreements, respectively. The provisionalidentifiable intangible assets are amortized over their expected useful lives of 5 years for noncompetition agreements and 13 years for trademarks and customer relationships.
(2)Includes an intangible asset of $1.7 million related to below market rents associated with the lease for a distribution facility that is expected to be recognized over the lease term of approximately seven years.
The fair values reported in the above table were estimated by the Company using available market information and appropriateapplicable valuation methods. As considerable judgment is involved in estimates of fair value, the provisional fair values presented above are not necessarily indicative of the amounts that the Company could realize in a current market exchange. The use of different market assumptions and/or estimation methods couldwould have a material effect on the estimated fair value amounts.
As management is still in the process of completing its valuation analysis, the Company’s accounting for the acquisition is not complete as of the date of this report. As a result, the amounts reported in the above table are provisional amounts that may be updated in subsequent periods to reflect the completion of the Company’s valuation analysis and any additional information obtained during the measurement period.
F-20
The following summarizes the Company’s methodologies for estimating the provisional fair value of certain assets and liabilities associated with Colonial Elegance:
Trade Receivables
Trade receivables were recorded at fair value using the cost approach. The inputs used were trade receivable balances, allowances, charge-offs, sales discounts and volume of returned merchandise. The cost approach was used for the valuation of trade receivables due to their short maturities.
Trade Inventories
Raw materials were fair valued using the cost approach. Raw material items replaced on a regular basis were recorded at fair value based on historical costs. Finished goods inventory was recorded at fair value by adding a gross margin based on earnings before income taxes from building product distributors to the finished goods historical cost amounts in order to estimate a reasonable profit margin for selling finished goods.
Identifiable Intangible Assets and Liabilities
The fair value of the acquired trademark was estimated using the relief-from-royalty method, a form of the income approach. Under this approach, the fair value was estimated by calculating the present value using a risk-adjusted discount rate of the expected future royalty payments that would have to be paid if the Colonial Elegance trademark was not owned.
The fair value of the acquired customer relationships was estimated using the multi-period excess earnings method. The multi-period excess earnings method isolates the expected cash flows attributable to Colonial Elegance’s customer relationships and discounts these cash flows at a risk-adjusted discount rate.
Goodwill
The goodwill recognized in connection with the acquisition reflects the difference between the estimated fair value of the net assets acquired and the consideration paid by Renin to acquire Colonial Elegance. The goodwill recognized in the acquisition is deductible for income tax purposes.
Pro Forma Information (unaudited)
The following unaudited pro forma financial data presents the Company’s revenues and earnings for the years ended December 31, 2020 and 2019 as if the acquisition was completed on January 1, 2019 (in thousands):
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| Pro Forma |
| Actual | Unaudited Pro Forma | Actual | ||||||||||||||||||
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| For the Years Ended December 31, |
| For the Years Ended December 31, | For the Years Ended December 31, | For the Years Ended December 31, | ||||||||||||||||||
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| 2020 |
| 2019 |
| 2020 |
|
| 2019 | 2020 | 2019 | 2020 | 2019 | |||||||||||
Trade sales |
| $ | 188,146 |
|
| 226,033 |
|
| 147,210 |
|
| 180,319 | $ | 188,146 | 226,033 | 147,210 | 180,319 | |||||||
(Loss) income from continuing operations before income taxes |
| $ | (55,619) |
|
| 29,333 |
|
| (57,947) |
|
| 28,985 | $ | (55,619) | 29,333 | (57,947) | 28,985 | |||||||
(Loss) income from continuing operations |
| $ | (45,035) |
|
| 21,000 |
|
| (46,703) |
|
| 20,651 | $ | (45,035) | 21,000 | (46,703) | 20,651 | |||||||
Net (loss) income attributable to shareholders |
| $ | (40,306) |
|
| 14,086 |
|
| (41,974) |
|
| 13,737 | $ | (40,306) | 14,086 | (41,974) | 13,737 | |||||||
The unaudited pro forma financial data for the years ended December 31, 2020 and 2019 includes estimated interest expense of $1.5 million and $2.3 million, respectively, associated with borrowings used to fund the acquisition of Colonial Elegance.
The unaudited pro forma financial data reported in the above table does not purport to represent what the actual results of the Company’s operations would have been assuming that the acquisition date was January 1, 2019, nor does it purport to predict the Company’s results of operations for future periods.
F-21
4. Trade Receivables, net
The Company’s trade receivables consisted of the following (in thousands):
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| December 31, |
| December 31, | December 31, | December 31, | ||||||
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| 2020 |
| 2019 | 2021 | 2020 | ||||||
Trade receivables |
| $ | 29,860 |
|
| 13,274 | $ | 30,124 | 29,860 | |||
Allowance for expected credit losses |
|
| (353) |
|
| (170) | (225) | (353) | ||||
Total trade receivables |
| $ | 29,507 |
|
| 13,104 | $ | 29,899 | 29,507 | |||
5. Trade Inventory
The Company’s trade inventory consisted of the following (in thousands):
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| December 31, |
| December 31, | ||
|
| 2020 |
| 2019 | ||
| Raw materials | $ | 6,191 |
|
| 3,048 |
| Paper goods and packaging materials |
| 1,322 |
|
| 1,327 |
| Finished goods |
| 24,333 |
|
| 18,468 |
| Total trade inventory | $ | 31,846 |
|
| 22,843 |
December 31, | December 31, | ||||
2021 | 2020 | ||||
Raw materials | $ | 7,485 | 6,191 | ||
Paper goods and packaging materials | 1,416 | 1,322 | |||
Finished goods | 32,994 | 24,333 | |||
Total trade inventory | $ | 41,895 | 31,846 | ||
Renin reviews its slow-moving and obsolete inventory for potential write-downs on a quarterly basis. During the fourth quarter of 2021, Renin commenced a strategic initiative to exit and consolidate certain warehouse facilities, and as a result of this initiative, Renin determined that it would discount various slow moving inventories to accelerate the sale of such inventories. As a result of this determination, Renin recognized a $2.4 million write-down on certain slow moving inventories, which is included in cost of trade sales for the year ended December 31, 2021, in order to reflect such inventories at their estimated realizable value based upon the expected discounts necessary to sell the inventories within the desired timeframes.
6. Real Estate
The Company’s real estate consisted of the following (in thousands):
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| December 31, |
| December 31, | December 31, | December 31, | ||||||
|
| 2020 |
| 2019 | 2021 | 2020 | ||||||
Real estate held-for-sale |
| $ | 9,031 |
|
| 11,297 | $ | 7,679 | 9,031 | |||
Real estate held-for-investment |
| 5,992 |
|
| 6,015 | 6,113 | 5,992 | |||||
Real estate inventory |
|
| 40,777 |
|
| 48,506 | 9,076 | 40,777 | ||||
Total real estate |
| $ | 55,800 |
|
| 65,818 | $ | 22,868 | 55,800 | |||
During the yearyears ended December 31, 2021 and 2020, the Company sold various real estate assets that were classified as held-for-sale. As a result of these sales, the Company recognized total net gains on sales of real estate of $0.6 million and $0.3 million, respectively, and received aggregate net proceeds of $2.4 million and $2.6 million.million, respectively.
During the year ended December 31, 2019, the Company sold various real estate assets that were classified as held-for-sale or held-for-investment, including its remaining land parcels located at PGA Station in Palm Beach Gardens, Florida and various land parcels located in Florida, as well as RoboVault, a self-storage facility in Fort Lauderdale, Florida that was previously classified in property and equipment. As a result of these sales, the Company recognized total net gains on sales of real estate of $13.6 million and received aggregate net proceeds of $35.2 million during the year ended December 31, 2019.
During the year ended December 31, 2021, BBXRE sold 299 undeveloped lots, 291 single-family lots, and 94 townhome lots in its Beacon Lake Community development, as compared to 157 single-family lots and 70 townhomes during the year ended December 31, 2020 and 51 single-family lots during the year ended December 31, 2019. The Company recognized gross profits of $35.8 million, $7.2 million, and $2.4 million related to these sales during the years ended December 31, 2021, 2020, and 2019, respectively.
Impairment Testing
As a result of disruptions and uncertainty in the U.S. and global economies resulting from, among other things, the COVID-19 pandemic and the related impact on the overall market,disruptions in global supply chains, the Company evaluated various factors, including asset-specific factors and overall economic and market conditions, and concluded that, except as discussed in Note 7 in relation to certain of its investments in unconsolidated real estate joint ventures, there had not been a significant decline in the fair value of BBXRE’s real estate assets during the yearyears ended December 31, 2021 and 2020 that required the Company to recognize any material impairment losses. As part of this evaluation, the Company considered the excess of the expected profits associated with BBXRE’s real estate assets in relation to their carrying amounts. sales at BBXRE’s single-family home developments, (which have returned to pre-pandemic levels), indications that there has not to date been a significant decline in sales prices for single-family homes,of its multifamily apartment communities, and appraisals of certain of its real estate held-for-sale and held-for-investment.
0
7. Investments in and Advances to Unconsolidated Real Estate Joint Ventures
As of December 31, 2020,2021, the Company had equity interests in and advances to unconsolidated real estate joint ventures primarily involved in the development of multifamily rental apartment communities, as well as single-family master planned for sale housing communities. In addition, the Company owns a 50% equity interest in the Altman Companies, a developer and manager of multifamily apartment communities.
F-22
Investments in unconsolidated real estate joint ventures are accounted for as unconsolidated VIEs.VIEs under the equity method of accounting.
Investments in and advances to unconsolidated real estate joint ventures consisted of the following (in thousands):
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| December 31, |
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| December 31, | December 31, | December 31, | |||||||||
|
| 2020 |
| Ownership(1) |
| 2019 | 2021 | Ownership(1) | 2020 | |||||||||
Altis Grand Central |
| $ | 2,287 |
| % | 11.07 |
| $ | 2,653 | $ | 730 | % | 1.49 | $ | 2,287 | |||
Altis Promenade |
| 1,964 |
|
| 6.61 |
| 2,126 | — | — | 1,964 | ||||||||
Altis Bonterra |
| — |
|
| 96.73 |
| 618 | |||||||||||
Altis Ludlam Trial (2) |
| 9,653 |
|
| 33.30 |
| 1,081 | |||||||||||
Altis Grand at The Preserve (Suncoast) |
| 1,086 |
|
| 33.30 |
| 753 | |||||||||||
Altis Ludlam Trail(2) | 10,831 | 33.30 | 9,653 | |||||||||||||||
Altis Grand at The Preserve | 194 | 33.30 | 1,086 | |||||||||||||||
Altis Pembroke Gardens |
| 310 |
|
| 0.41 |
| 1,277 | — | — | 310 | ||||||||
Altis Boca Raton |
| — |
|
| 0.42 |
| 1,880 | |||||||||||
Altis Wiregrass |
| 163 |
|
| 2.22 |
| 1,792 | — | — | 163 | ||||||||
Altis Little Havana |
| 844 |
|
| 3.43 |
| 811 | 1,021 | 3.43 | 844 | ||||||||
Altis Lake Willis (Vineland Pointe) |
| 5,446 |
|
| 50.00 |
| 4,712 | |||||||||||
Altis Lake Willis Phase 1 | 437 | 1.23 | — | |||||||||||||||
Altis Lake Willis Phase 2 | 2,538 | 50.00 | 5,446 | |||||||||||||||
Altis Miramar East/West |
| 2,818 |
|
| 5.00 |
| 2,631 | 2,878 | 5.00 | 2,818 | ||||||||
Altis Grand at Suncoast | 2,780 | 11.00 | — | |||||||||||||||
Altis Blue Lake | 260 | 1.22 | — | |||||||||||||||
The Altman Companies (3) |
| 15,222 |
|
| 50.00 |
| 14,745 | 16,716 | 50.00 | 15,222 | ||||||||
ABBX Guaranty |
| 3,750 |
|
| 50.00 |
| 3,750 | 3,750 | 50.00 | 3,750 | ||||||||
Bayview |
| 1,563 |
|
| 50.00 |
| 1,562 | 1,308 | 50.00 | 1,563 | ||||||||
PGA Design Center |
| — |
|
| 40.00 |
| 996 | |||||||||||
Marbella |
| 6,971 |
|
| 70.00 |
| 5,999 | 974 | 70.00 | 6,971 | ||||||||
Chapel Trail |
| 153 |
|
| 46.75 |
| 1,126 | |||||||||||
L03/212 Partners |
| 2,462 |
|
| 3.41 |
| 2,087 | |||||||||||
PGA Lender |
| — |
|
| 45.88 |
| 2,111 | |||||||||||
The Main Las Olas | 1,990 | 3.41 | 2,462 | |||||||||||||||
Sky Cove |
| 3,287 |
|
| 26.25 |
| 4,178 | 1,686 | 26.25 | 3,287 | ||||||||
Sky Cove South | 4,708 | 26.25 | — | |||||||||||||||
Other |
|
| 31 |
|
|
|
|
| 442 | 165 | 184 | |||||||
Total |
| $ | 58,010 |
|
|
|
| $ | 57,330 | $ | 52,966 | $ | 58,010 | |||||
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(1)The Company’s ownership percentage in each real estate joint venture represents the Company’s percentage of the contributed capital in each venture. The operating agreements for many of these ventures provide for a disproportionate allocation of distributions to the extent that certain investors receive specified returns on their investments, and as a result, these percentages do not necessarily reflect the Company’s economic interest in the expected distributions from such ventures.
(2)Ownership percentage represents the Company's ownership of the managing member of the joint venture and excludes its preferred interest accounted for as a loan receivable from the joint venture.
(3)The investment in the Altman Companies includes $2.3 million of transaction costs that were incurred in connection with the formation of the joint venture. See additional information below in this Note 7 regarding the Company’s acquisition of its interest in the Altman Companies.
Unconsolidated Variable Interest Entities
In accordance with the applicable accounting guidance for the consolidation of VIEs, the Company analyzes its investments in real estate joint ventures to determine if such entities are VIEs, and to the extent that such entities are VIEs, if the Company is the primary beneficiary. Based on the Company’s analysis of the forecasted cash flows and structure of these ventures, including the respective operating agreements governing these entities and any relevant financial agreements, such as financing arrangements, the Company has determined that its real estate joint ventures are VIEs in which the Company is not the primary beneficiary, and therefore, the Company accounts for its investments in the real estate joint ventures under the equity method of accounting. The Company’s conclusion that it is not the primary beneficiary of these entities is primarily based on the determination that the Company does not have the power to direct activities of the entities that most significantly affect their economic performance. In certain joint ventures, the Company is not the operating manager and has limited protective rights under the operating agreements, while in other joint ventures, the investors share decision-making authority in a manner that prevents any individual investor from exercising power over such entities.
The Company’s maximum exposure to loss in its unconsolidated real estate joint ventures was $60.5$55.5 million as of December 31, 2020.2021.
Basis Differences
The aggregate difference between the Company’s investments in unconsolidated real estate joint ventures and its underlying equity in the net assets of such ventures was $4.1$2.5 million and $9.2$4.1 million as of December 31, 20202021 and 2019,2020, respectively, which includes (i) $4.8$2.3 million and $8.5$4.8 million associated with the Company’s investment in the Altman Companies and certain multifamily apartment developments which were acquired for cash consideration based on their estimated fair values as of the acquisition date, as described below, and (ii) $1.5$1.2 million and $0.7$1.5 million associated with the capitalization of interest on real estate development projects, partially offset by (iii) $2.2 million of impairments as of December 31, 2020, as described below.
F-23
Equity in Net Earnings and Distributions of Certain Unconsolidated Real Estate Joint Ventures
For the years ended December 31, 2021, 2020, 2019, and 2018,2019, the Company’s equity in net earnings of unconsolidated real estate joint ventures was $18.2 million, $0.5 million, and $37.9 million, respectively.
Equity earnings for the year ended December 31, 2021 includes $5.2 million and $14.2$5.0 million respectively.of equity in net earnings from the Altis Promenade and Altis Grand at Preserve joint ventures, respectively, which includes the Company’s share of gains recognized by the ventures upon the sale of their respective multifamily apartment communities. Equity earnings for the year ended December 31, 2021 also includes $6.2 million of equity in net earnings from the Altis Grand Central joint venture, which reflects the recapitalization of its ownership interest in its multifamily apartment community.
Equity earnings for the year ended December 31, 2020 includes $1.1 million and $0.8 million in equity earnings from the Altis Boca Raton and Altis Wiregrass joint ventures, respectively, which includes the Company’s share of gains recognized by the ventures upon the sale of their respective multifamily apartment communities.
Equity earnings for the year ended December 31, 2019 includes $29.2 million and $5.0 million in equity earnings from the Altis Bonterra and the Altis Lakeline joint ventures, respectively, which includes the Company’s share of gains recognized by the ventures upon the sale of their respective multifamily apartment communities. Equity earnings for the year ended December 31, 2018 includes $9.3 million in equity earnings from the Addison on Millenia joint venture, which includes the Company’s share of the gain recognized by the venture upon the sale of its multifamily apartment community.
Altis Ludlam Trail Joint Venture
As of December 31, 2019, BBXRE had invested $1.1 million in the Altis Ludlam Trail joint venture to acquire land, obtain entitlements, and fund predevelopment costs for a potential multifamily apartment development in Miami, Florida. In June 2020, the joint venture obtained entitlements, closed on development financing, and commenced development of a 312 unit multifamily apartment community with 7,500 square feet of retail space. In connection with the closing, BBXRE received a $0.5 million distribution from the joint venture as a reimbursement of predevelopment costs and invested an additional $8.5 million in the joint venture as preferred equity. Pursuant to the applicable operating agreement for the Altis Ludlam Trail joint venture, distributions from the joint venture are required to be paid to BBXRE on account of its preferred equity interest until it receives its $8.5 million investment and a preferred return of 11.9% per annum (subject to a minimum payment of $11.9 million). Following such payment, all remaining distributions will be paid to the other members, including the managing member in which BBXRE holds an interest. Further, BBXRE’s preferred interest is required to be redeemed by the joint venture for a cash amount equal to its preferred return and initial investment in December 2023, although the joint venture has the option to extend the redemption for three one-year3 one-year periods, subject to certain conditions. As BBXRE’s preferred membership interest in the joint venture is mandatorily redeemable, the Company is accounting for its preferred interest in the joint venture as a loan receivable from the Altis Ludlam Trail joint venture, while the Company’s remaining investment in the managing member of the joint venture is being accounted for under the equity method of accounting. BBXRE’s preferred interest, including the preferred return, in the joint venture was $10.3 million and $9.1 million as of December 31, 2021 and 2020, respectively.
The Altman Companies, LLC
In November 2018, BBXRE acquired a 50% equity interest in the Altman Companies, a joint venture between BBXRE and Joel Altman (“Mr. Altman”) engaged in the development, construction, and management of multifamily apartment communities, for cash consideration of $14.6 million, including $2.3 million in transaction costs.
The Altman Companies owns 100% of the membership interests in Altman Development Company and Altman Management Company and 60% of the membership interests in Altman-Glenewinkel Construction and generates revenues from the performance of development, general contractor, leasing, and property management services to joint ventures that are formed to invest in development projects originated by the Altman Companies. In addition, BBXRE and Mr.Joel Altman invest in the managing member of such joint ventures based on their relative ownership percentages in the Altman Companies.
Pursuant to the operating agreement of the Altman Companies, BBXRE will acquire an additional 40% equity interest in the Altman Companies from Mr.Joel Altman for a purchase price of $9.4 million, subject to certain adjustments, in January 2023, and Mr.Joel Altman can also, at his option or in other predefined circumstances, require the Company to purchase his remaining 10% equity interest in the Altman Companies for $2.4 million. However, Mr.Joel Altman will retain his membership interests, including his decision making rights, in the managing member of any development joint ventures that are originated prior to BBXRE’s acquisition of additional equity interests in the Altman Companies. In addition, in certain circumstances, BBXRE may acquire the 40% membership interests in Altman-Glenewinkel Construction that are not owned by the Altman Companies for a purchase price based on prescribed formulas in the operating agreement of Altman-Glenewinkel Construction.
Under the terms of the operating agreement of the Altman Companies, the venture is being jointly managed by BBXRE and Mr.Joel Altman until the Company’s acquisition of the additional 40% equity interest from Mr.Joel Altman, with the partners sharing decision making authority for all significant operating and financing decisions. To the extent that the parties cannot reach consensus on a matter, the operating agreement generally provides that a third party will resolve such matter; however, for certain decisions, the operating agreement provides that the venture cannot proceed with such matters without approval from both parties.
In connection with its investment in the Altman Companies, BBXRE acquired interests in the managing member of seven7 multifamily apartment developments, including four4 developments in which BBXRE had previously invested as a non-managing member, for aggregate cash consideration of $8.8 million. As of December 31, 2020, four of these2021, all seven joint ventures had sold their respective
F-24
multifamily apartment communities. In addition, BBXRE and Mr.Joel Altman have each contributed $3.8 million to ABBX Guaranty, LLC, a joint venture established to provide guarantees on the indebtedness and construction cost overruns of new real estate joint ventures formed by the Altman Companies.
Bayview
In February 2022, BBXRE agreed to sell its equity interest in the Bayview joint venture to Procacci Development Corporation (“Procacci”) for net cash consideration of approximately $8.9 million. Under the terms of the agreement, Procacci will fully assume the mortgage loan on the property, which currently has an outstanding balance of $5.0 million, and BBX Capital’s existing guaranty on 50% of the outstanding loan balance for any liabilities that occur following the closing. However, the closing of the sale is subject to certain closing conditions, including obtaining a release from the lender of BBX Capital’s guaranty on the outstanding loan balance for any liabilities that occur following the closing, and there is no assurance that the transaction will be consummated pursuant to the terms of the agreement, or at all.
Impairment Testing
As described in Note 2, the Company evaluates its equity method investments for impairment when events or changes in circumstances indicate that the fair values of the investments may be below the carrying values. When a decline in the fair value of an investment is determined to be other-than-temporary, an impairment loss is recorded to reduce the carrying amount of the investment to its fair value. The Company’s determination of whether an other-than-temporary impairment has occurred requires significant judgment in which the Company evaluates, among other factors, the fair value of an investment, general market conditions, the duration and extent to which the fair value of an investment is less than cost, and the Company’s intent and ability to hold an investment until it recovers. The Company also considers specific adverse conditions related to the financial health and business outlook of the investee, including industry and market performance and expected future operating and financing cash flows.
AsDuring the years ended December 31, 2021 and 2020, as a result of disruptions and uncertainty in the U.S. and global economies resulting from, among other things, the COVID-19 pandemic and the related impact on the overall market,disruptions in global supply chains, the Company evaluated various factors, including asset-specific factors, overall economic and market conditions, and the excess of the expected profits associated with BBXRE’s real estate assets in relation to their carrying amounts, and concluded that, except as discussed below, there had not been a significant decline in the fair value of most of BBXRE’s real estate assets, including its investments in unconsolidated real estate joint ventures, during the year ended December 31, 2020 that should be recognized as an impairment loss. As part of this evaluation, the Company considered, theamong other things, sales at its single-family home developments (which have returned to pre-pandemic levels), continued collectionand sales of rent at its multifamily apartment developments, and indications that there has not to date been a significant decline in sales prices for single family homes or an increase in capitalization rates for multifamily apartment communities. However, during the year ended December 31, 2020, the Company recognized $2.2 million of impairment losses related to a decline in the estimated fair values of certain of BBXRE’s investments in unconsolidated real estate joint ventures, including (i) a joint venture that is developing an office tower, as the market for commercial office space hasduring the year ended December 31, 2020 had been more significantly impacted by the COVID-19 pandemic compared to the single family and multifamily markets in which BBXRE primarily invests, and (ii) a joint venture invested in a multifamily apartment community in which BBXRE purchased its interest following the stabilization of the underlying asset at a purchase price calculated based on assumptions related to the timing and pricing of the sale of the asset, both of which have beenwere adversely impacted by the COVID-19 pandemic. The Company estimated the fair value of these investments utilizing a discounted cash flow methodology which estimated the present value of the projected future cash flows expected to be generated from such investments. The Company did not0t record any impairment charges related to its equity method investments during the years ended December 31, 20192021 and 2018.2019.
Summarized Financial Information of Certain Unconsolidated Real Estate Joint Ventures
The tables below set forth financial information, including condensed statements of financial condition and operations, related to Thethe Altman Companies joint venture (in thousands):
|
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|
|
| ||||||||
|
|
|
|
| ||||||||
|
| December 31, | December 31, | |||||||||
|
| 2020 |
| 2019 | 2021 | 2020 | ||||||
Assets |
|
|
|
|
|
| ||||||
Cash |
| $ | 3,100 |
| 1,634 | $ | 995 | 3,100 | ||||
Properties and equipment |
| 363 |
| 315 | 387 | 363 | ||||||
Investment in unconsolidated subsidiaries |
| 7,382 |
| 6,353 | 7,153 | 6,803 | ||||||
Goodwill |
| 16,683 |
| 16,683 | 16,683 | 16,683 | ||||||
Due from related parties |
| 2,306 |
| 2,954 | 4,462 | 2,885 | ||||||
Other assets |
|
| 3,443 |
|
| 209 | 8,662 | 3,445 | ||||
Total assets |
| $ | 33,277 |
|
| 28,148 | $ | 38,342 | 33,279 | |||
Liabilities and Equity |
|
|
|
|
|
| ||||||
Other liabilities |
| $ | 6,408 |
|
| 2,719 | $ | 8,463 | 6,409 | |||
Total liabilities |
|
| 6,408 |
|
| 2,719 | 8,463 | 6,409 | ||||
Total equity |
|
| 26,869 |
|
| 25,429 | 29,879 | 26,870 | ||||
Total liabilities and equity |
| $ | 33,277 |
|
| 28,148 | $ | 38,342 | 33,279 | |||
For the Years Ended December 31, | |||||||||
2021 | 2020 | 2019 | |||||||
Total revenues | $ | 8,577 | $ | 8,700 | 7,242 | ||||
Other expenses | (11,755) | (10,670) | (9,493) | ||||||
Operating loss | (3,178) | (1,970) | (2,251) | ||||||
Equity in earnings (losses) from unconsolidated investment in Altman Glenewinkel Construction, LLC | 321 | 1,737 | (913) | ||||||
Net loss | (2,857) | (233) | (3,164) | ||||||
Equity in net loss of unconsolidated real estate joint venture - The Altman Companies | $ | (1,429) | $ | (117) | (1,582) | ||||
F-25
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| For the Years Ended December 31, | |||||||
|
| 2020 |
| 2019 |
| 2018 | |||
Total revenues |
| $ | 8,700 |
|
| 7,242 |
|
| 362 |
Other expenses |
|
| (10,670) |
|
| (9,493) |
|
| (652) |
Operating loss |
|
| (1,970) |
|
| (2,251) |
|
| (290) |
Equity in earnings (losses) from unconsolidated investment in Altman Glenewinkel Construction, LLC |
|
| 1,737 |
|
| (913) |
|
| 113 |
Net loss |
|
| (233) |
|
| (3,164) |
|
| (177) |
Equity in net (loss) earnings of unconsolidated real estate joint venture - The Altman Companies |
| $ | (117) |
|
| (1,582) |
|
| (88) |
The tables below set forth financial information, including condensed statements of financial condition and operations, related to the Altis BonterraPromenade joint venture (in thousands):
|
|
|
|
| ||||||||
|
|
|
|
| ||||||||
|
| December 31, | December 31, | |||||||||
|
| 2020 |
| 2019 | 2021 | 2020 | ||||||
Assets |
|
|
|
|
|
| ||||||
Cash |
| $ | — |
| 855 | $ | 1,197 | 536 | ||||
Restricted cash |
| — |
| 559 | ||||||||
Real estate |
| — |
| — | — | 50,411 | ||||||
Other assets |
|
| — |
|
| — | 208 | 259 | ||||
Total assets |
| $ | — |
|
| 1,414 | $ | 1,405 | 51,206 | |||
Liabilities and Equity |
|
|
|
|
|
| ||||||
Notes payable |
| $ | — |
| — | $ | — | 35,750 | ||||
Other liabilities |
|
| — |
|
| 751 | 1,405 | 456 | ||||
Total liabilities |
|
| — |
|
| 751 | 1,405 | 36,206 | ||||
Total equity |
|
| — |
|
| 663 | — | 15,000 | ||||
Total liabilities and equity |
| $ | — |
|
| 1,414 | $ | 1,405 | 51,206 | |||
|
|
|
|
|
|
| ||||||||||||
|
| For the Years Ended December 31, | For the Years Ended December 31, | |||||||||||||||
|
| 2020 |
| 2019 |
| 2018 | 2021 | 2020 | 2019 | |||||||||
Total revenues |
| $ | — |
| $ | 4,498 |
|
| 6,510 | $ | 2,589 | 3,795 | 639 | |||||
Gain on sale of real estate |
| — |
| 33,843 |
| — | 40,010 | — | — | |||||||||
Other expenses |
|
| — |
|
| (4,480) |
|
| (5,937) | (2,635) | (6,238) | (2,439) | ||||||
Net earnings |
| $ | — |
| $ | 33,861 |
|
| 573 | |||||||||
Equity in net earnings of unconsolidated real estate joint venture - Altis Bonterra |
| $ | — |
| $ | 29,221 |
|
| 544 | |||||||||
Net earnings (loss) | $ | 39,746 | (2,443) | (1,800) | ||||||||||||||
Equity in net earnings of unconsolidated real estate joint venture - Altis Promenade | $ | 5,178 | (161) | (119) | ||||||||||||||
The tables below set forth financial information, including condensed statements of financial condition and operations, related to the Altis LakelineGrand Central joint venture (in thousands):
|
|
|
|
| ||||||||
|
|
|
|
| ||||||||
|
| December 31, | December 31, | |||||||||
|
| 2020 |
| 2019 | 2021 | 2020 | ||||||
Assets |
|
|
|
|
|
| ||||||
Cash |
| $ | — |
| $ | 628 | $ | — | 727 | |||
Restricted cash |
| — |
| 5 | ||||||||
Real estate |
| — |
| — | — | 73,703 | ||||||
Investment in Altis Grand Central JV | 4,879 | — | ||||||||||
Other assets |
|
| — |
|
| 144 | — | 3,976 | ||||
Total assets |
| $ | — |
| $ | 777 | $ | 4,879 | 78,406 | |||
Liabilities and Equity |
|
|
|
|
|
| ||||||
Notes payable |
| $ | — |
| $ | — | $ | — | 54,835 | |||
Other liabilities |
|
| — |
|
| — | — | 5,517 | ||||
Total liabilities |
|
| — |
|
| — | — | 60,352 | ||||
Total equity |
|
| — |
|
| 777 | 4,879 | 18,054 | ||||
Total liabilities and equity |
| $ | — |
| $ | 777 | $ | 4,879 | 78,406 | |||
For the Years Ended December 31, | |||||||||
2021 | 2020 | 2019 | |||||||
Total revenues | $ | 5,735 | 2,630 | 7 | |||||
Gain on sale of equity interest in joint venture | 53,537 | — | — | ||||||
Total expenses | (7,180) | (6,294) | (318) | ||||||
Net earnings (loss) | 52,092 | (3,664) | (311) | ||||||
Equity in net earnings of unconsolidated real estate joint venture - Altis Grand Central | $ | 6,182 | (406) | (34) | |||||
F-26
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| For the Years Ended December 31, | |||||||
|
| 2020 |
| 2019 |
| 2018 | |||
Total revenues |
| $ | — |
| $ | 1,458 |
|
| 5,842 |
Gain on sale of real estate |
|
| — |
|
| 17,178 |
|
| — |
Other expenses |
|
| — |
|
| (1,801) |
|
| (6,746) |
Net earnings (loss) |
| $ | — |
| $ | 16,835 |
|
| (904) |
Equity in net (loss) earnings of unconsolidated real estate joint venture - Altis Lakeline |
| $ | — |
| $ | 5,029 |
|
| (312) |
The tables below set forth financial information, including condensed statements of financial condition and operations, related to the Chapel Trail joint venture (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| December 31, | ||||
|
| 2020 |
| 2019 | ||
Assets |
|
|
|
|
|
|
Cash |
| $ | — |
|
| 1,725 |
Real estate |
|
| — |
|
| 2,134 |
Other assets |
|
| — |
|
| 6 |
Total assets |
| $ | — |
|
| 3,865 |
Liabilities and Equity |
|
|
|
|
|
|
Notes payable |
| $ | — |
|
| 184 |
Other liabilities |
|
| — |
|
| 357 |
Total liabilities |
|
| — |
|
| 541 |
Total equity |
|
| — |
|
| 3,324 |
Total liabilities and equity |
| $ | — |
|
| 3,865 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| For the Years Ended December 31, | |||||||
|
| 2020 |
| 2019 |
| 2018 | |||
Total revenues |
| $ | — |
|
| 44,988 |
|
| — |
Costs of sales |
|
| — |
|
| (35,575) |
|
| — |
Other expenses |
|
| — |
|
| (2,341) |
|
| (1,388) |
Net earnings (loss) |
|
| — |
|
| 7,072 |
|
| (1,388) |
Equity in net earnings of unconsolidated real estate joint venture - Chapel Trail |
| $ | — |
|
| 3,306 |
|
| (649) |
The tables below set forth financial information, including condensed statements of financial condition and operations, related to the Altis Shingle CreekGrand at the Preserve joint venture (in thousands):
|
|
|
|
| ||||||||
|
|
|
|
| ||||||||
|
| December 31, | December 31, | |||||||||
|
| 2020 |
| 2019 | 2021 | 2020 | ||||||
Assets |
|
|
|
|
|
| ||||||
Cash |
| $ | �� |
| — | $ | 1,400 | 264 | ||||
Real estate |
| — |
| — | — | 46,447 | ||||||
Other assets |
|
| — |
|
| — | — | 12,518 | ||||
Total assets |
| $ | — |
|
| — | $ | 1,400 | 59,229 | |||
Liabilities and Equity |
|
|
|
|
|
| ||||||
Notes payable |
| $ | — |
| — | $ | — | 35,782 | ||||
Other liabilities |
|
| — |
|
| — | 100 | 2,971 | ||||
Total liabilities |
|
| — |
|
| — | 100 | 38,753 | ||||
Total equity |
|
| — |
|
| — | 1,300 | 20,476 | ||||
Total liabilities and equity |
| $ | — |
|
| — | $ | 1,400 | 59,229 | |||
For the Years Ended December 31, | ||||||||||
2021 | 2020 | 2019 | ||||||||
Total revenues | $ | 1,965 | 399 | — | ||||||
Gain on sale of real estate | 37,675 | — | — | |||||||
Other expenses | (3,476) | (1,645) | — | |||||||
Net earnings (loss) | 36,164 | (1,246) | — | |||||||
Equity in net earnings of unconsolidated real estate joint venture - Altis Grand at Suncoast | $ | 4,977 | (35) | — | ||||||
F-27
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| For the Years Ended December 31, | |||||||
|
| 2020 |
| 2019 |
| 2018 | |||
Total revenues |
| $ | — |
|
| — |
|
| 1,704 |
Gain on sale of real estate |
|
| — |
|
| — |
|
| 22,027 |
Other expenses |
|
| — |
|
| — |
|
| (2,156) |
Net earnings |
| $ | — |
|
| — |
|
| 21,575 |
Equity in net earnings of unconsolidated real estate joint venture - Altis Shingle Creek |
| $ | — |
|
| — |
|
| 3,401 |
8. Property and Equipment
The Company’s property and equipment consisted of the following (in thousands):
|
|
|
|
| ||||||||
|
| December 31, | December 31, | |||||||||
|
| 2020 |
| 2019 | 2021 | 2020 | ||||||
Land, building and building improvements |
| $ | 2,271 |
|
| 2,258 | $ | 2,286 | 2,271 | |||
Leasehold improvements |
| 5,554 |
|
| 35,768 | 22,523 | 5,554 | |||||
Office equipment, furniture, fixtures and software |
| 14,421 |
|
| 11,941 | 22,442 | 14,421 | |||||
Transportation |
|
| 515 |
|
| 379 | 407 | 515 | ||||
|
|
| 22,761 |
|
| 50,346 | 47,658 | 22,761 | ||||
Accumulated depreciation |
|
| (14,958) |
|
| (20,510) | (17,047) | (14,958) | ||||
Property and equipment, net |
| $ | 7,803 |
|
| 29,836 | $ | 30,611 | 7,803 | |||
During the years ended December 31, 2021, 2020, 2019, and 2018,2019, the Company recognized approximately $4.1 million, $5.1 million, $6.4 million, and $7.5$6.4 million, respectively, of depreciation expense from continuing operations related to its property and equipment which is reflected in selling, general and administrative expenses and cost of trade sales in the Company’s statements of operations and comprehensive income.
As described in Note 2, the Company tests its long-lived assets, including property and equipment, for recoverability whenever events or changes in circumstances indicate that the carrying amount of such assets or asset groups may not be recoverable. During the year ended December 31, 2020, the Company concluded that the effects of the COVID-19 pandemic indicated that the carrying amount of certain of its property and equipment may not be recoverable, including asset groups associated with certain of its retail locations which were temporarily closed as a result of the pandemic. In such circumstances, the Company compared its estimated undiscounted cash flows expected to result from the use of such assets or asset groups with their respective carrying amounts, and to the extent that such carrying amounts were in excess of the related undiscounted cash flows, the Company estimated the fair values of the applicable assets or asset groups and recognized impairment losses based on the excess of the carrying amounts of such assets or asset groups over their estimated fair values.
As a result of the Company’s testing of its property and equipment for impairment, the Company recognized impairment losses of $1.3 million during the year ended December 31, 2020 related primarily to leasehold improvements associated with certain of IT’SUGAR’s retail locations. The recognition of these impairment losses primarily resulted from the effects of the COVID-19 pandemic on the estimated cash flows expected to be generated by the related assets. The Company did not record any impairment losses from continuing operations related to property and equipment during the years ended December 31, 20192021 and 2018.2019.
9. Goodwill and Intangible Assets
Goodwill
The activity in the balance of the Company’s goodwill was as follows (in thousands):
|
|
|
|
|
|
| ||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||
|
| For the Years Ended December 31, | For the Years Ended December 31, | |||||||||||||||
|
| 2020 |
| 2019 |
| 2018 | 2021 | 2020 | 2019 | |||||||||
Balance, beginning of period |
| $ | 37,248 |
|
| 37,248 |
|
| 39,482 | $ | 8,277 | 37,248 | 37,248 | |||||
Acquisitions |
|
| 8,277 |
|
| — |
|
| 1,727 | — | 8,277 | — | ||||||
Deconsolidation of IT'SUGAR |
|
| (14,864) |
|
| — |
|
| — | — | (14,864) | — | ||||||
IT'SUGAR emergence from bankruptcy | 14,274 | — | — | |||||||||||||||
Impairment losses |
|
| (22,384) |
|
| — |
|
| (3,961) | — | (22,384) | — | ||||||
Colonial Elegance acquisition adjustments to goodwill | (4,137) | — | — | |||||||||||||||
Balance, end of period |
| $ | 8,277 |
|
| 37,248 |
|
| 37,248 | $ | 18,414 | 8,277 | 37,248 | |||||