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

Q3 2019 Consolidated-Tomoka Land Co Earnings Call

Daytona Beach Oct 19, 2019 (Thomson StreetEvents) -- Edited Transcript of Consolidated-Tomoka Land Co earnings conference call or presentation Thursday, October 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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* Brian Rohman

Boston Partners Global Investors, Inc. - MD, Research Analyst, and Portfolio Manager

* Bruce G. Garrison

Chilton Capital Management LLC - Senior MD of REIT Strategy & Senior Portfolio Manager

* Matthew R. Werner

Chilton Capital Management LLC - MD & Portfolio Manager

* Nathanael Stewart;NAS Capital;CEO

* Raymond Howe;CFP, Inc.;Analyst

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Presentation

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Operator [1]

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Good day and welcome to the Consolidated-Tomoka Third Quarter 2019 Earnings Conference Call. (Operator Instructions) Please note that this event is being recorded.

I would now like to turn the conference over to John Albright, President and CEO. Please go ahead, sir.

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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 third quarter and 9 months ended September 30. 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 to these forward-looking statements to reflect changes after the statements were made. Factors and risks that could cause 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'll be filing our third quarter Investor Presentation later today, which will be available on our website. Our Investor Presentation provides additional information you may find useful in reviewing our third quarter results.

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. And 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) The first question comes from Bruce Garrison of Chilton Capital.

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Bruce G. Garrison, Chilton Capital Management LLC - Senior MD of REIT Strategy & Senior Portfolio Manager [2]

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John, would you mind going through the rationale for the big land sale, when in your own presentation you had the value at $158 million to $193 million and you're selling the land for $93 million? Just wondering why you did it.

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John P. Albright, Consolidated-Tomoka Land Co. - President, CEO & Director [3]

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Sure. Yes, it wasn't $93 million, it was $97 million. But as you've seen in the past and we've discussed, we've had, for instance, a parcel, that was the Minto Phase II parcel that had dropped, and then we had a subsequent purchaser of the land who had dropped their contract. So all the land contracts are fairly dynamic and have been elongated in time and a lot of them are in the permitting process and so forth. And we get a lot of questions from our shareholders about how long it'll take you to sell the land, what's going on with that parcel, what's going on with the market, that sort of thing. And we felt like this was an opportunity to monetize a fair amount of the economics in the land portfolio today, while retaining an interest going forward. And so it basically allows our shareholders to realize a significant amount of capital out of the land day 1, derisk the land portfolio, takes out a lot of the questions about land parcels and this and that, and the market wasn't valuing the land whatsoever as far as where our stock's been trading. So the market certainly didn't appreciate the land value, and this basically crystallizes a significant portion of that, while having a interest carry for possible proceeds in the future.

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Bruce G. Garrison, Chilton Capital Management LLC - Senior MD of REIT Strategy & Senior Portfolio Manager [4]

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How does that promote in the future of work? And is it a significant hurdle before you would earn anything extra?

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

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So we'll have additional disclosures here in the coming days. And so -- and then after we have that disclosure, we can basically have a discussion. But it's a typical kind of joint venture-type scenario, much like what we did with BlackRock on the Mitigation land. And so we can discuss it once we have more disclosure in the coming days.

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Operator [6]

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The next question will come from Nat Stewart with NAS Capital.

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Nathanael Stewart;NAS Capital;CEO, [7]

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Interesting news with the big land sale. The other guy asked one of my questions, but clearly it kind of accelerates the transformation, it pulls forward when you're kind of going to become a more pure play with your new strategy. I'm just curious what kind of triggered your wanting to do this. I guess you just went over it, but is it something in the market where you thought there's a very opportunistic time to maybe convert to a REIT or sell the entire portfolio? I just want to hear the other side of your strategic considerations.

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John P. Albright, Consolidated-Tomoka Land Co. - President, CEO & Director [8]

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Yes, thank you. So a big component of this is to reinvest those proceeds because it was done in a 1031 transaction. So right now, we are very focused on investing that capital in income-producing properties. And the Board has certainly been in dialog and in discussion about what this does to the company, what's the next chapter. And so as the first thing was getting this transaction closed and took a lot of resources -- human resources here to get that closed, and now a lot of the focus is on the reinvestment. And so after we kind of come out of that, we'll have more communication as the Board contemplates the next move given that the land really is basically in somewhat of the rearview mirror.

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Nathanael Stewart;NAS Capital;CEO, [9]

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Good. Well, I look forward to hearing what those next moves will be. Certainly getting the stock price at a good level will probably assist with any growth you guys want to do. So I look forward to hearing about that.

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Mark E. Patten, Consolidated-Tomoka Land Co. - Senior VP & CFO [10]

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Thanks, Nat.

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

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Thank you.

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Operator [12]

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The next question will come from Raymond Howe of CFP, Inc.

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Raymond Howe;CFP, Inc.;Analyst, [13]

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Can you tell me, does the land sale include the subsurface interest?

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Mark E. Patten, Consolidated-Tomoka Land Co. - Senior VP & CFO [14]

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It does not.

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Raymond Howe;CFP, Inc.;Analyst, [15]

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Okay. And going forward, can you tell me this transaction, what kind of impact it'll have on SG&A, if any at all?

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Mark E. Patten, Consolidated-Tomoka Land Co. - Senior VP & CFO [16]

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On the SG&A, Raymond?

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Raymond Howe;CFP, Inc.;Analyst, [17]

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Yes.

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Mark E. Patten, Consolidated-Tomoka Land Co. - Senior VP & CFO [18]

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I mean I think -- I'm not sure that's really going to impact the G&A materially. We're obviously managing the venture, which really means we're managing the transactional-level activity in the venture, which is kind of similar to what we were doing before that.

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Raymond Howe;CFP, Inc.;Analyst, [19]

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Okay. And I'm guessing that this will speed up the conversation about the REIT conversion?

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John P. Albright, Consolidated-Tomoka Land Co. - President, CEO & Director [20]

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It definitely speeds up the conversation about what's next for CTO, given that this focus on the land has been more or less -- the value has been more crystallized in kind of fair amount of proceeds. So as I mentioned, we're looking to reinvest it, and certainly there'll be more communication on what the next step is for us.

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Raymond Howe;CFP, Inc.;Analyst, [21]

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And lastly, can you give us any color on sort of how the lands transaction came about? I mean was this something you were marketing or did they come to you? Was this before -- did you start talking with them before or after the 1,600-acre land sale fell through, so on and so forth?

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John P. Albright, Consolidated-Tomoka Land Co. - President, CEO & Director [22]

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Yes, it's safe to say that we've been working on this for a while. It's not something we were out there marketing. Some groups had seen what we did on the Mitigation Bank with BlackRock, and I think that was an interesting structure to groups. And so we engaged in conversation and this is what transpired. But it's been over certainly, many months and really kind of came out after doing the JV with BlackRock on the Mitigation Bank.

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Operator [23]

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The next question will come from Brian Rohman with Boston Partners.

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Brian Rohman, Boston Partners Global Investors, Inc. - MD, Research Analyst, and Portfolio Manager [24]

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Congrats on announcing this transaction. I just want to say up front, I give my vote towards becoming a REIT sooner rather than later, but that's not new news. First of all, the -- you said you sold the controlling interest in the land for $97 million. Did you -- you don't give a percentage? Obviously, they own 51%-plus.

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John P. Albright, Consolidated-Tomoka Land Co. - President, CEO & Director [25]

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It is greater than 51%, yes. And they have certain decision capabilities around pricing and parcels and things like that.

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Brian Rohman, Boston Partners Global Investors, Inc. - MD, Research Analyst, and Portfolio Manager [26]

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What -- I'm sorry, what does that mean?

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John P. Albright, Consolidated-Tomoka Land Co. - President, CEO & Director [27]

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So setting the price for one of the parcels in the portfolio. So they have -- Brian, they have, obviously as you mentioned, above 51% interest. And there -- in the agreement, we have certain release prices and so forth and so we're managing the venture. And so it's business as usual as far as selling the land and talking to land developers in the contracts that we had are still in place. And so it's really coming in with an early monetization of a majority share of it. So you'll see more details here in a subsequent filing.

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Brian Rohman, Boston Partners Global Investors, Inc. - MD, Research Analyst, and Portfolio Manager [28]

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Okay. So you -- they're buying greater than 51% of the land and then they're going to be -- who is -- let me ask the question, who's going to be responsible for managing this joint venture?

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

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We are.

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John P. Albright, Consolidated-Tomoka Land Co. - President, CEO & Director [30]

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We are. Yes.

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Brian Rohman, Boston Partners Global Investors, Inc. - MD, Research Analyst, and Portfolio Manager [31]

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And are you going to get a management fee for that?

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Mark E. Patten, Consolidated-Tomoka Land Co. - Senior VP & CFO [32]

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We are.

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Brian Rohman, Boston Partners Global Investors, Inc. - MD, Research Analyst, and Portfolio Manager [33]

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How significant is that?

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

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Not tremendously significant. And then obviously, it decreases over time as the portfolio is monetized.

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Brian Rohman, Boston Partners Global Investors, Inc. - MD, Research Analyst, and Portfolio Manager [35]

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And could you just -- since you referenced it several times the Blackstone (sic) [BlackRock] subsurface joint venture as a template for what to look for here, could you just remind us of what that looks -- what that agreement looks like?

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Mark E. Patten, Consolidated-Tomoka Land Co. - Senior VP & CFO [36]

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Yes. So that was BlackRock on the Mitigation Bank.

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Brian Rohman, Boston Partners Global Investors, Inc. - MD, Research Analyst, and Portfolio Manager [37]

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That's it, yes.

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Mark E. Patten, Consolidated-Tomoka Land Co. - Senior VP & CFO [38]

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Yes, so wasn't on the subsurface. So basically, we sold there over a 51% interest to BlackRock. We're managing the Mitigation Bank, and that was to take a significant amount of acreage and create a Mitigation Bank, and we're selling credits to developers. And so there's basically a yield threshold. And after yield thresholds, we get a promoted interest, if you will. So typical JV structure.

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Brian Rohman, Boston Partners Global Investors, Inc. - MD, Research Analyst, and Portfolio Manager [39]

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Right. But get -- so but getting back to the transaction with Magnetar, you're still going to have an asset then on your balance sheet that is your minority stake in this land. Is that correct?

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Mark E. Patten, Consolidated-Tomoka Land Co. - Senior VP & CFO [40]

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Correct. That's right.

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Brian Rohman, Boston Partners Global Investors, Inc. - MD, Research Analyst, and Portfolio Manager [41]

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And we won't know about that, what that number is until you reveal it?

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John P. Albright, Consolidated-Tomoka Land Co. - President, CEO & Director [42]

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Yes, because it's a fourth quarter transaction. So it's -- but we're going to come out with something in connection with either an 8-K that follows up to this or in the Q.

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Brian Rohman, Boston Partners Global Investors, Inc. - MD, Research Analyst, and Portfolio Manager [43]

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Okay. And then last question. On your NAV worksheet as of July 15, in the presentation you got subsurface interests of $15 million, is that your piece of the Blackstone (sic) [BlackRock]?

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John P. Albright, Consolidated-Tomoka Land Co. - President, CEO & Director [44]

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No, that's -- like I mentioned, that's totally different than the Mitigation Bank. So the subsurface -- Brian, it might predate you, but we had the subsurface under contract 3 or 4 years ago at $24 million, and that group obviously did not end up buying the portfolio. So we basically had given an approximate value of $15 million assuming that, since the $24 million contract didn't go through, it's worth less and just kind of gave a rough estimate. And so that's wholly owned by us right now. The Mitigation Bank JV interest is really in other. We don't basically project values of the JV interest that we retain. And certainly on this venture that we just closed, there'll be a balance sheet recognition of our interest but we don't want to get ahead of our -- over our skis in giving you some sort of value that you use. We're basically trying to be a little bit more conservative.

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Mark E. Patten, Consolidated-Tomoka Land Co. - Senior VP & CFO [45]

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And Brian, on the Mitigation Bank, on the balance sheet, it's the investment and joint venture, which is about $6.8 million.

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Brian Rohman, Boston Partners Global Investors, Inc. - MD, Research Analyst, and Portfolio Manager [46]

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All right. And then the other 2 little pieces here, the Daytona -- Downtown Daytona Beach Land and the Golf + Mitigation fee impact credits, $5.3 million and $4.3 million, respectively, those also are not part of this?

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Mark E. Patten, Consolidated-Tomoka Land Co. - Senior VP & CFO [47]

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Correct.

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Operator [48]

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(Operator Instructions) Our next question will come from Matt Werner of Chilton Capital.

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Matthew R. Werner, Chilton Capital Management LLC - MD & Portfolio Manager [49]

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I just -- sorry to keep repeating this, but on the $97 million and the -- and given the fact that there was a controlling interest that was sold, what is the implied valuation of the land on a gross basis at 100%?

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Mark E. Patten, Consolidated-Tomoka Land Co. - Senior VP & CFO [50]

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So at 100%, the implied is about $146 million.

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Matthew R. Werner, Chilton Capital Management LLC - MD & Portfolio Manager [51]

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Got it. That's helpful. And what was the closing date on the transaction?

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Mark E. Patten, Consolidated-Tomoka Land Co. - Senior VP & CFO [52]

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Yesterday.

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Matthew R. Werner, Chilton Capital Management LLC - MD & Portfolio Manager [53]

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Okay. And I assume all that was included in the new guidance for the year in terms of on that line item for land sales for the year?

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John P. Albright, Consolidated-Tomoka Land Co. - President, CEO & Director [54]

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We didn't adjust guidance, we just reported sort of where we were against the guidance. So we didn't really -- because it was kind of a transaction that involved all the remaining land, sort of adjusting guidance for that, we just -- we didn't go through that yet.

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Matthew R. Werner, Chilton Capital Management LLC - MD & Portfolio Manager [55]

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Okay. Will you be doing that maybe in this 8-K that you were talking about?

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John P. Albright, Consolidated-Tomoka Land Co. - President, CEO & Director [56]

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Most likely, yes. We'll give the impact and that'll kind of reflect and update where we think things end up on an earnings front.

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Matthew R. Werner, Chilton Capital Management LLC - MD & Portfolio Manager [57]

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Okay. And then on an accounting basis, you said you sold a controlling interest but you're still going to be managing the joint venture. So does that mean it's going to be a consolidated joint venture or unconsolidated?

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Mark E. Patten, Consolidated-Tomoka Land Co. - Senior VP & CFO [58]

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Yes, that's what John was referring to when we come out with the 8-K, that'll kind of -- we'll kind of lay it out for you, so that you can take a look at the accounting for it.

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Matthew R. Werner, Chilton Capital Management LLC - MD & Portfolio Manager [59]

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Okay. And then if -- I know you told the other gentlemen that the golf course and Downtown land would not be included. Would ownership of either of those properties prevent or be a roadblock in a REIT conversion?

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Mark E. Patten, Consolidated-Tomoka Land Co. - Senior VP & CFO [60]

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No. The Downtown assemblage is real estate, so that would fit. The Golf, on the other hand, could potentially be, if you didn't transact it, which I think we've been pretty out in front in terms of disclosing that as an asset held for sale that we think transacts within the next year, frankly, by the end of the year. But should that be around if you were to convert to a REIT, that income might be bad income so you might have to structure around that.

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Operator [61]

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Our next question is a follow up from Raymond Howe of CFP, Inc.

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Raymond Howe;CFP, Inc.;Analyst, [62]

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John, is any of the $97 million at risk based on performance of the sale of the land?

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John P. Albright, Consolidated-Tomoka Land Co. - President, CEO & Director [63]

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No.

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Operator [64]

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

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John P. Albright, Consolidated-Tomoka Land Co. - President, CEO & Director [65]

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Thank you very much for attending this call and look forward to talking with you in the future.

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Operator [66]

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