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Edited Transcript of CTO earnings conference call or presentation 17-Apr-19 1:00pm GMT

Q1 2019 Consolidated-Tomoka Land Co Earnings Call

Daytona Beach Apr 19, 2019 (Thomson StreetEvents) -- Edited Transcript of Consolidated-Tomoka Land Co earnings conference call or presentation Wednesday, April 17, 2019 at 1:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* John P. Albright

Consolidated-Tomoka Land Co. - President, CEO & Director

* Mark E. Patten

Consolidated-Tomoka Land Co. - Senior VP & CFO

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Conference Call Participants

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* Craig Gerald Kucera

B. Riley FBR, Inc., Research Division - Analyst

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Presentation

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Operator [1]

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Good day, and welcome to the Consolidated-Tomoka First Quarter 2019 Earnings Call. (Operator Instructions) Please note this event is being recorded. I would now like to turn the conference over to Mr. John Albright, President and CEO. Please go ahead.

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John P. Albright, Consolidated-Tomoka Land Co. - President, CEO & Director [2]

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Thank you, operator. Good morning, and welcome to today's conference call to review the operating results of Consolidated-Tomoka Land Company for the First Quarter ended March 31, 2019. My name is John Albright, President and CEO of the company. On the call with me is Mark Patten, our Chief Financial Officer; and Dan Smith, our General Counsel and Corporate Secretary. I'll turn it over to Mark to provide you with customary disclosures regarding our comments on this call today.

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Mark E. Patten, Consolidated-Tomoka Land Co. - Senior VP & CFO [3]

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Thanks, John. Good morning, everyone.

During our call today, we may make certain statements that may be considered to be forward-looking statements under federal securities law. The company's actual future results may differ significantly from the matters discussed in these forward-looking statements, and we may not release revisions for these forward-looking statements to reflect changes after the statements were made. Factors and risks that could cause the actual results to differ materially from expectations are disclosed from time to time in greater detail in the company's filings with the SEC and in our earnings release issued last night. Also, we filed our first quarter 2019 investor presentation last night, which is now available on our website.

Our investor presentation provides additional information you may find useful and that we may refer to during this call. With that, I'll turn it back over to John.

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John P. Albright, Consolidated-Tomoka Land Co. - President, CEO & Director [4]

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Thanks, Mark. At this time, we'll open it up for questions. Operator?

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Questions and Answers

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Operator [1]

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(Operator Instructions) And our first question comes from Craig Kucera of B. Riley FBR.

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Craig Gerald Kucera, B. Riley FBR, Inc., Research Division - Analyst [2]

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I had a few questions I wanted to go through. First, your top line rental revenue was down about 9% from the fourth quarter. I know you had the disposition of the Whole Foods, but were there any other changes in occupancy or accounting adjustments from the fourth quarter to the first quarter?

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Mark E. Patten, Consolidated-Tomoka Land Co. - Senior VP & CFO [3]

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No, I think -- I'll check on that, but actually, we're up 16% year-over-year. I think other than the Whole Foods, we wouldn't have any other reason we'd be off.

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Craig Gerald Kucera, B. Riley FBR, Inc., Research Division - Analyst [4]

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Okay. Wanted to circle back to the O'Connor parcel. Can you provide some color on why they elected to terminate that agreement?

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John P. Albright, Consolidated-Tomoka Land Co. - President, CEO & Director [5]

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Sure. We put the property under contract with O'Connor some time ago and gave them plenty of time to go through their entitlement since we work out a site plan and to talk with the tenants and other uses. And they did get the site rezoned, which is very beneficial to us, but they wanted more time, and we, given the amount of time we've already given them, we didn't see that they would -- we weren't confident that they'd -- they would execute under a time line that was acceptable to us, and there are ready, willing and able tenants to go on the site. And we decided that the best course of action to get the best value for us in acceptable time frame is just really to do it ourselves. And so we're in the process of moving forward on that project. And I'm sure, along the way, there'll be developers for different interests that will want to buy sites from us. There already have been people inquiring. But we just -- the tenants are ready. They just -- because O'Connor hadn't bought the site, they were unsure whether O'Connor would go ahead. So they were being very tentative. So for us to step in and say, we'll be the master developer here is very beneficial to, kind of, move forward the tenant interest. And we'll do ground leases and put them into our portfolio and just move forward. So it's really us kind of saying it's -- the market's great for this site right now and in -- rather risking it with another developer, we decided to, kind of, step up and move forward.

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Craig Gerald Kucera, B. Riley FBR, Inc., Research Division - Analyst [6]

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Got it. So are you basically saying that -- I think this is a 203-acre parcel that you're going to effectively develop the entire piece of land? Or are you also looking to sell pieces of it as you, kind of, move down the path?

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John P. Albright, Consolidated-Tomoka Land Co. - President, CEO & Director [7]

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Yes, I think it's safe to say that we will start with the site that makes the most sense on the -- on with the retail interest. And along the way, people will come looking to buy the other parts of the property that would probably be more -- most acceptable or of use for multifamily and office and industrial. We've already filled it -- those types of interests. So I'm highly confident that along the way, as we put -- activate the first section of it that other people are going to come in and want to buy other pieces of it. So we will -- I doubt very seriously that we would develop all 200 acres.

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Craig Gerald Kucera, B. Riley FBR, Inc., Research Division - Analyst [8]

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Got it. And the piece that you're looking at developing, is that predominantly going to be single-tenant type of assets, which you might hang on to? Or would you expect that they might be assets that you would dispose at some point in the future when they're complete?

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John P. Albright, Consolidated-Tomoka Land Co. - President, CEO & Director [9]

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Yes, I think a lot of the low-hanging fruit will be assets that we'd like to have in our single-tenant portfolio. But I'm sure once we get going on at that still -- we'd develop some of the smaller-shop spaces that we would at some time monetize that. But a lot of the tenant interest would be worked very well in our portfolio.

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Craig Gerald Kucera, B. Riley FBR, Inc., Research Division - Analyst [10]

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Got it. I know the land transactions from a timing perspective are kind of tough to gauge. But do you anticipate closing anything in the second quarter outside of the NADG contracts?

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John P. Albright, Consolidated-Tomoka Land Co. - President, CEO & Director [11]

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I would say that there is a good possibility, but given that things have taken longer in the entitlement process and so forth that things have been slipping. But as -- there is probably a possibility but it would be more small-ticket type of land transactions, nothing of size.

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Craig Gerald Kucera, B. Riley FBR, Inc., Research Division - Analyst [12]

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Got it. And given your availability on the line of credit, would you be acquiring, maybe in advance of selling land here, as we move sort of through second quarter in the back half of the year and levering up? Or are you looking more to match fund things as you progress through the year?

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John P. Albright, Consolidated-Tomoka Land Co. - President, CEO & Director [13]

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Yes, I think you'll see us be more active on the acquisition front, so we might be levering up a bit in advance of some of these transactions. But the timing between the acquisition and some funding mechanism, whether it be a land sale or a multitenant sale, would only be a couple of months.

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Craig Gerald Kucera, B. Riley FBR, Inc., Research Division - Analyst [14]

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Got it. And going to the balance sheet, you have the convertible debt issue coming due in less than a year now. Can you give us some color about what you're contemplating as far as refinancing that or considering that as a component to the balance sheet?

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John P. Albright, Consolidated-Tomoka Land Co. - President, CEO & Director [15]

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Yes. So we're definitely going to position ourselves to take the convert out with cash at maturity. So yes, that's the way we're positioning ourselves. But obviously, we have a little bit of time left to consider that, almost a year. So we'll be in great shape to take care of that instrument.

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Craig Gerald Kucera, B. Riley FBR, Inc., Research Division - Analyst [16]

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Okay. Has there been any indications of interest as you're marketing the golf and subsurface rights here in this year?

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John P. Albright, Consolidated-Tomoka Land Co. - President, CEO & Director [17]

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Yes, I would say I'm very -- we're pleasantly pleased with the interest on the golf side. So I'm pretty optimistic that golf will be transacted this year, probably not the end of the year, maybe in the even third quarter. But it is a large parcel that has to be, kind of, in-depth surveys, so it's that sort of thing, new survey is going to take some time. But we're pleasantly surprised on the interest. So we're optimistic there. And on the subsurface, we've had some recent inquiries on that. So nothing, I would say, I wouldn't expect anything anytime soon, but Kerogen has been fairly successful in moving their drilling permit through the state, even though it's taken a long time. They've diligently pursued it. And so we're optimistic that at some point here this summer that perhaps they'll be for -- drilling, exploring for oil on their lease, and we'll see what happens there.

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Craig Gerald Kucera, B. Riley FBR, Inc., Research Division - Analyst [18]

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Okay. And one more for me, and I'll hop back in the queue. But given your commentary on just entitlements taking a longer than the, sort of, than maybe, perhaps, you'd expected and the land sales pipeline has gotten smaller certainly than where it was in the back half of last year. Do you need to see a real material pickup in land sales? Do you potentially go through a REIT conversion in 2020? Or do you see the balance sheet more or less being close enough at that point in time for that to possibly be on the horizon in early 2020?

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John P. Albright, Consolidated-Tomoka Land Co. - President, CEO & Director [19]

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I would say that, given that we really want to optimize the company for that possible conversion that you're getting this -- the land as fully addressed as possible just makes us much more of a cleaner story and more of a pure story versus trying to convert to a REIT early and just having the same sort of story as far as the mixed assets of -- in the company side. I don't think there's any rush to do a REIT conversion without having addressed the land more fully. So given that our federal tax payments are still de minimis, they're -- it -- probably more reflective of making that decision when the tax payments are that -- it is a burden on our shareholders. And so since we're in a C Corp structure, we're able to retain cash flow, we kind of like that optionality. And so I think once the land is more fully addressed then that would be when we take up that opportunity.

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Operator [20]

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(Operator Instructions) And our next question will come from [Steve Olsen,] a private investor.

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Unidentified Participant, [21]

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The investor presentation, I noticed, did not include the expected cash flow. Last presentation had about $18 million as the operating cash flow. Is that still the expected amount for this calendar year?

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Mark E. Patten, Consolidated-Tomoka Land Co. - Senior VP & CFO [22]

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Yes, we just didn't -- the first quarter kind of standing on its own. We didn't put it in there, but that's still our expectation to be in that range.

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Unidentified Participant, [23]

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Okay. And regarding the land owned by the company within opportunity zone areas, and I'm not speaking about the downtown land. But is our opportunity most likely to sell those lands to someone else to develop? Or may we develop the lands or create joint ventures, could the tax advantages be beneficial to CTO?

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John P. Albright, Consolidated-Tomoka Land Co. - President, CEO & Director [24]

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Yes. I mean we're open to both structures, but it has been more that there have been opportunity zone funded investors who are looking for sites. And so for instance, the Unicorp putting back under contract 13 acres at Clyde Morris and LPGA is really being driven by a opp zone investor. And so -- but we're open to looking at it on -- in both manners, if you will. So if there's somebody here that wants to buy a property at good price, we'll go ahead and transact that. But at the same notion that there's a tenant demand for parcel, and it's in a opp zone, we're certainly open to creating our own opp zone investment and taking advantage of it that way.

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Unidentified Participant, [25]

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I appreciate the update on the golf and subsurface. Is there any updates on selling of the multitenant buildings?

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John P. Albright, Consolidated-Tomoka Land Co. - President, CEO & Director [26]

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I think you'll see some more activity from us this year. I just -- we just don't want to, kind of, be in a position to announce something before something happens. So I think you'll see more activity there.

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Unidentified Participant, [27]

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Okay. And just -- I did notice that there's a tight range on the additional gains on dispositions, yet there's a wide range on the sales value. That seems to indicate that some of the sales are not going to result in either much gain or loss. Am I thinking about that correctly?

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John P. Albright, Consolidated-Tomoka Land Co. - President, CEO & Director [28]

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I think I'll let Mark address, but just for my -- we're just trying to be very conservative in giving a wide range there because we're not trying to pinpoint exactly the value of what's going to transact or may transact. And so we don't want to be in a position where something happened, something was found out that it traded in a less than a pin baked price that we gave you. So just trying to be conservative in our expectations. That fair, Mark?

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Mark E. Patten, Consolidated-Tomoka Land Co. - Senior VP & CFO [29]

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That's absolutely right.

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Unidentified Participant, [30]

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And is there any update on any activities regarding any of the income properties that offer redevelopment opportunities? And I guess I'm thinking about Monterey or the Reno or even the CBS in Dallas that you can comment on?

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John P. Albright, Consolidated-Tomoka Land Co. - President, CEO & Director [31]

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Sure. I don't want to comment on -- I won't comment specifically on one of those 3, but there are opportunities in that -- the 3 that you mentioned, but don't want to comment on which one, but we're actively looking at something that might be value creating for us. So -- and then I would say that there's tenant interest to stay in those locations as well. So I hope -- I know that's a little opaque but can't really talk specifically.

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Unidentified Participant, [32]

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Good luck with everything. And the O'Connor, I appreciate the additional description of the opportunities with the O'Connor track. That seems like a tremendous opportunity for the company to add value to doing some of its own development or retaining some of the tracks.

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Operator [33]

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This concludes our question-and-answer session. I would like to turn the conference back over to Mr. John Albright for any closing remarks.

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John P. Albright, Consolidated-Tomoka Land Co. - President, CEO & Director [34]

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Thank you very much for attending the call and look forward to seeing some of you at the annual meeting next week. Thank you.

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Operator [35]

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The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.