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Edited Transcript of CTO earnings conference call or presentation 18-Jul-19 1:00pm GMT

Q2 2019 Consolidated-Tomoka Land Co Earnings Call

Daytona Beach Jul 19, 2019 (Thomson StreetEvents) -- Edited Transcript of Consolidated-Tomoka Land Co earnings conference call or presentation Thursday, July 18, 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

* 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 morning and welcome to the Consolidated-Tomoka Second Quarter 2019 Earnings Conference Call. (Operator Instructions) Please note this event is being recorded.

 

I would now like to turn the conference over to 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 second quarter and 6 months ended June 30, 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 the 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.

 

We've also filed our second 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 reference 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 will come 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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Just wanted to touch on a few of the moving parts during the quarter. Start with the loan originations, I guess you had your last loan origination -- or your last loan roll-off, I think a little over a year ago. Were the loans that you made kind of late in the quarter and earlier this quarter more opportunistic? Or do you think you're going to be expanding more into making those types of loans?

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

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Thanks, Craig. Yes, they're more opportunistic. The group -- for instance, the industrial loan, the group came to us, or actually their broker, and we knew the group that was buying the land. And given that we've been in touch with developers and tenants and brokers in the industrial industry in Central Florida, we knew the market very well. And this was one where the buyer had a short time frame opportunity to buy it at an advantageous price and has -- came from a large REIT, industrial REIT and saw the path to a development here or just actually maybe reselling it. So it's a short duration loan. Obviously a bridge loan, high yield. But they needed to go to a group that could act fast. And that's kind of where that transaction kind of came from.

 

The other transaction was obviously kind of a package type of transaction, in that we were really most interested in doing the ground lease on the Carpenter Hotel in Austin and -- but wanted to provide the bridge financing for them to accomplish a full refi of the construction loan as the hotel gets seasoned. So the loan there is short duration as well but was able -- as part of the fact to get the ground lease at a good structure and price.

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

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Got it. You closed the quarter with, I think, about $60 million of restricted cash. Can you talk about the size of your current acquisition pipeline, maybe the types of deals you're looking at? And kind of how you see putting that cash to work throughout the second half of the year?

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

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Well, I'll let Mark talk about how that restricted cash is already being put to work. And then just on a commentary on the pipeline balance as far as acquisition balance, obviously, we've been very active here in last several weeks, and we're still pursuing acquisitions. But I wouldn't expect the flurry of activity here anytime soon, but we still are pursuing and intend on transacting for the balance of the year. But I'll let you kind of note where we are on a restricted cash balance after the last kind of transactions were done. Mark?

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Mark E. Patten, Consolidated-Tomoka Land Co. - Senior VP & CFO [6]

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Yes. We -- the transactions we just completed were both reverses and a forward, and we utilized about $38 million of that. We were at $59 million, now we're at about $21 million, as you can see from Page 30 in the deck. So that's what we've got kind of in the restricted capital source bucket.

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Craig Gerald Kucera, B. Riley FBR, Inc., Research Division - Analyst [7]

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Okay. In the press release, you did have a disclosure regarding the Cocina 214, maybe re-tenanting that. Can you discuss any sort of cash flow impact you expect from that transaction?

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Mark E. Patten, Consolidated-Tomoka Land Co. - Senior VP & CFO [8]

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Yes. I think in terms of cash flow, when we settle out with Cocina, I think it's going to basically return some of the rents that were unpaid. And then going forward, the replacement tenant is really pretty close to the same rent, but maybe a little bit more productive on their opportunity for upside. And then our percentage rent would hopefully be reflective of that.

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Craig Gerald Kucera, B. Riley FBR, Inc., Research Division - Analyst [9]

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Okay. And saw that the golf course operations look like they're going to close this quarter, which is great. I'm sure you guys will be glad to have that behind you. But any update on the subsurface rights or your thoughts there?

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John P. Albright, Consolidated-Tomoka Land Co. - President, CEO & Director [10]

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Yes. Let me give you latest and greatest on the golf. So the city commission -- we were expecting the city commission to act on really a amendment to the master lease, our master agreement of the LPGA for the new buyer last night at the city commission meeting. The city commission meeting -- at the city commission meeting, I think some commissioners were confused about what was in front of them and thought they were approving the sale, which is not -- was not the issue at all. So they have basically had a continuance for 3 weeks, so it might delay our closing. But that's kind of the update there. We fully expect the transaction still to go through. But that's the update on the golf. On the subsurface side, good news is that our oil exploration lease, they finally got their drilling permit as of a couple weeks ago. And so we should be getting a update from them here in next couple of weeks on their plans to drill on their lease.

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Craig Gerald Kucera, B. Riley FBR, Inc., Research Division - Analyst [11]

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Great. You did have a few small deals for a lot of the landfill pipeline I think borrow pit and compensating storage. Any color on what happened there?

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John P. Albright, Consolidated-Tomoka Land Co. - President, CEO & Director [12]

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I think -- well, yes, I do. So it's obviously a small transaction, but just to give you a granularity of it. It's really the easement to the site. It's kind of -- the site is a bit difficult to get to. There's no county road or anything, it's just really a dirt road. And the easement was not clear with the neighboring owner of the land. And so it's just going to take some time to get that squared away. So the buyer is still interested. It's just really on us to kind of clean up the easement and then come back to them. And then more -- the other transaction that dropped was 13 acres that was a assisted-living parcel. Even though we did keep a deposit that they left behind, that group is still interested to try to get that property closed. It was just more of a timing issue with regards to when they're going to get their entitlements and when the contract called for them to purchase it. So that could come back around.

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Craig Gerald Kucera, B. Riley FBR, Inc., Research Division - Analyst [13]

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Okay. Great. One more for me and I'll hop back in the queue. Just wanted to circle on G&A. It was down nicely year-over-year. And with the proxy battle behind you, is that a decent run rate to think about going forward? Or was that maybe a little light? Or kind of how should we think about that?

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John P. Albright, Consolidated-Tomoka Land Co. - President, CEO & Director [14]

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Actually, I think that's probably a pretty good run rate. When you look at it, we don't have a lot of things that will create alterations from that. I mean the only thing -- if you're including stock comp when you think of G&A, that might be the only thing that's really kind of a variable.

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Operator [15]

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Our next question comes from Brian Rohman of Boston Partners.

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Brian Rohman, Boston Partners Global Investors, Inc. - MD, Research Analyst, and Portfolio Manager [16]

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Frankly, Craig did such a great job. He asked my questions.

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Operator [17]

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

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Unidentified Participant, [18]

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I did not notice if it was disclosed the number of shares remaining on the $10 million January of this -- earlier this year, the authorization on the buyback. Can you update us on that? And comment on management or the Board's thinking on a new authorization?

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

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Thanks, Steve. By the way, thanks for coming on the call. Actually, great question. The program that was approved in January has actually been fully utilized. So that's now been wrapped up. And then with regards to a new program or something like that, obviously, we're very active and purchased quite a bit of shares this year. So that could be something we revisit in the future. But we feel like we've done a pretty good amount here in the first half of the year.

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Unidentified Participant, [20]

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And then on the Carpenter Hotel investment, the loan, I was a little bit uncertain about the security for that. The press release mentioned leasehold interest. That might be because it's subject to a land lease versus being referred to as a mortgage. But is that a first priority lien? Are there -- is there any other debt ahead of us regarding the building and the entity that I guess is subject to the land lease?

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John P. Albright, Consolidated-Tomoka Land Co. - President, CEO & Director [21]

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Yes. So the leasehold loan, there is no debt in front of that loan. It's really -- the only thing in front of it is our ground lease.

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Unidentified Participant, [22]

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Okay. And I guess kind of similar to Craig's questions about the beachfront, the Cosienda (sic) [Cocina]. Mark, I guess because you mentioned no cash flow -- they spent tenant improvements, they have lower rent than the other restaurant because I believe they spent more in tenant improvements. I assume based upon your answer to that earlier question, the company -- CTO will not be reimbursing them, is not obligated to reimburse them for that tenant improvements. Maybe they'll get the other operator to reimburse? Or can you comment about that tenant improvement liability on the books?

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John P. Albright, Consolidated-Tomoka Land Co. - President, CEO & Director [23]

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Yes. Steve, this is John. Maybe I'll help out with part of it. So we're in the final throes of that negotiation, but there are some improvements that the tenant does own. For instance, all the kitchen equipment and so forth. And because the new tenant would not meet any TI requirement, they're -- it's safe to say that there could be a payment to Cocina for the -- some of the stuff that they put in that's over and beyond other costs that they did, which we will basically buy in order to facilitate the new tenant coming in, in a seamless transaction.

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Unidentified Participant, [24]

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Okay. I view the ground lease investment and the Reston, Virginia investment as different, significantly different. Can you comment or what the kind of expected returns or holding periods or how you view those investments? And as you put the $21 million plus other land sales to invest, where you think or what type of investments can we expect to see in the future?

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

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Yes. So I think somewhere in the past, we disclosed that we target an 8% unleveraged total return with our investments or better. And so all of these investments have that sort of return profile in different manners. So the -- on the ground lease, for instance, it has a low initial going-in yield, but it has an annual escalation. And at some point, most likely, the owner of the leasehold is going to want to buy out that ground lease perhaps. And so the total return matrix there fits very nicely there with us. And then on the General Dynamics lease in Reston, that tenant has put a lot of capital in that building, basically, almost built a new building from the inside out. And that area is quick, rapidly improving. New metro station within walking distance is under construction. Brookfield has a massive development less than basically half a mile away from the building where there is a new Wegmans going in. So we like that profile a lot. So yes, that's kind of the thoughts on the returns and how we look at those investments.

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Unidentified Participant, [26]

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And final question, just on the land that was under contract to O'Connor, the large 200 acres. Is there any update on any potential company self-development or entering into ground leases for a portion of that parcel?

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

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Yes. So -- yes, good question, and probably -- definitely, for the third quarter, we'll probably dive in and give you more color on that. We are very actively -- we've hired a leasing group, a retail leasing group, and we finally have gotten a site plan that we feel -- a couple of different version site plans that we feel work best. And so we're in active dialogue with tenants. And we picked up on some of the tenants that O'Connor had been talking to and we're talking to others. And we're also, at the same time, working on the cost estimates with the civil engineers and contractors and getting that squared away. So long story short, there is activity, and we'll have more color for you in the next quarter.

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Operator [28]

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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.

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John P. Albright, Consolidated-Tomoka Land Co. - President, CEO & Director [29]

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Thank you very much for attending this call.

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Operator [30]

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