CTO - Consolidated Tomoka Land Company

[rijk]

CTO looks like a safe® and cheap(er) version of JOE

 

a big advantage vs JOE is the income from leased properties, i.e. no need to sell assets at distressed prices just to stay in business

 

winters overpaid when he purchased CTO initially (in 2007 i believe), but his recent additions and involvement as an activist investor might persuade management to spend opex wisely until the real estate markets improve

 

the article below assigns a value of $30k per acre to undevelopped land, not sure if this is a reasonable, optimistic or conservative figure

 

obviously, there needs to be a huge MOS as this might take 5-10 years to work out.....

 

any input on the reasonableness of the $30k estimate would be highly appreciated

 

regards

rijk

 

http://navigating-markets.blogspot.com/2010/11/consolidated-tomoka-land-company-cto.html

[prevalou]

I am not sure Joe is required to sell assets at distressed prices just to stay in business. It can for instance (it does) sell some rural land that is not distressed. Joe has some cash in hand too to wait for better times.

[momentumgeek]

Can you explain how the 1031 exchange situation works here? What's the value to doing them. Can they use the proceeds to build on their land or do they need to acquire new land? Is there really any value to deferring taxes from it?

[prunes]

Can you explain how the 1031 exchange situation works here? What's the value to doing them. Can they use the proceeds to build on their land or do they need to acquire new land? Is there really any value to deferring taxes from it?

 

I think I can answer this question. I actually am the author of the blog linked in the first post. I found this lovely forum via the list of sites linking to my blog.

 

1031 exchange essentially is a rule in the internal revenue code that allows one to defer paying capital gains taxes on property by swapping properties. In the case of CTO, most of its land was acquired in the early 1900s at substantially discounted prices to today's market. By using 1031 exchange, the company is saving on the value of whatever capital gains the company would occur in selling this real estate in the present market. Instead, the company will only be taxed once, on the income generated by its investment properties. The value here, in my mind, is that the company's balance sheet overstates its liabilities because these capital gains taxes either won't be paid (company keeps using 1031 exchanges), or will be paid very far off in the future (small present value of tax liabilities).

 

I don't see why they would be unable to improve the land that they currently own. I'm not sure what you are trying to get at with that one question.

[zippy1]

CEO is retiring.  Wonder whether this is a positive development as Wintergreen has been trying to and has been able to put people to be board of directors.

http://finance.yahoo.com/news/Consolidated-Tomoka-CEO-to-prnews-502236503.html?x=0&.v=1

[Laxputs]

http://seekingalpha.com/article/2699455-the-long-case-for-consolidated-tomoka-45minus-55-percent-upside

[redskin]

I've owned Consolidated Tomoka for a while.  Nice to see the new CEO making moves to unlock value.  His leadership and the recovery of real estate should make this a nice investment.

[Lowlight]

Didn't look like there had been much posted on this company before so I started a new topic. 

 

CTO is a real estate company whose primary assets are:

• ~10,500 acres in Daytona, FL (company is 100+ years old and basis is extremely low)

• $193 million in income producing real estate properties ~$16 million in NOI

• $24 million in Real Estate Loan Investments

• $30 million in Cash

• Various other timber, golf and subsurface rights (given $0 value below)

 

The company trades at $55.60/share for a (fully diluted) market cap of  just less than $340 million, has debt of $135 million, deferred income taxes of $34 million and other liabilities of $9 million.  Overall EV is about $520 million.  As the link below and the write-up on VIC demonstrate (specifically if you follow the comments sections through to today), that the company is trading at a significant discount to NAV.  In addition, CTO has already announced their intention to convert to a REIT as early as 2017.  A REIT conversion would take away their $34 million deferred tax liability (and whatever deferred taxes arise from land sales between now and then as they use 1031 exchanges to roll land sale proceeds into income producing property acquisitions).

 

The company has ~1,700 acres under contract today for about $58 million.  1,600 acres is being sold to Minto Communities for an estimated $17,000/acre implying a $308,000/acre value for the remaining land.  The difference in value relates to what side of Interstate 95 the property is located.  Minto is on the West side (and is part of a contiguous 8,200 acres).  The commercial sales are on the East side (beach side) and are part of about 1,400 acres.  The company also owns another 900 acres on the West side that sells for industrial land (most recent sale at $36,000/acre). 

 

Both the Minto Communities property and the commercial property are important to the story.  For CTO, Minto developing the 1,600 into an age-restricted master-planned community will increase the value of the remaining 6,600 acres West of I-95 and create some need for commercial development there (look at what Howard Hughes has been able to do with the Woodlands and Summerlin).  For the commercial sales East of I-95, CTO is selling to Tanger Outlets and Sam's Club (as well as a few others).  They have already sold property to RaceTrac, Trader Joe's, Carmax and others East of I-95.  Each commercial property sale adds value to the remaining land.

 

From a valuation standpoint, if we assume the income producing properties are worth book value (probably worth more in a REIT structure), value the existing sales at the contracted amount, use what should be low values for the land assets (I'm using these numbers so as not to speculate on the timing of land sales and discount rates), and delete the deferred tax liability, I come up with the SOTP valuation below.  Note that the author on SA is a little more bullish than I am but we both come to a pretty healthy number. 

 

Valuation:

• Land Under Contract: $58 million

• Cash: $30 million

• Income Producing Properties: $193 million

• 6,600 acres West of I-95 at $17,000/acre: $112 million

• 900 acres at $15,000/acre: $13 million

• 1,300 acres East of I-95 at $225,000/acre: $292 million

• Real Estate Loans: $24 million

 

Total Enterprise Value: $722 million

Less Debt: $144 million

Equity Value: $578 million

 

Per Share: $94 (72% upside)

 

I think this value is probably low when looking out to the end of 2016 when REIT conversion becomes likely in the near future.  Additionally, a sale to an existing REIT would unlock substantial value.  Either way, today's $56 share price provides a fairly significant margin of safety.

 

Seeking Alpha Article Link

http://seekingalpha.com/article/3222696-cto-huge-hidden-value-major-catalysts-imminent?app=1&auth_param=6pjd3:1amhesc:26d7c22035c431c93096c37be7287de6&uprof=32

 

[thepupil]

I've followed Tomoka for years and admire the company and management. I've always procrastinated buying it because I wanted to see more progress on the land sales and that has finally picked up (of course the stock has gone up a lot in the interim so that's a miss on my part) and I think CTO under current management is pretty much fully optimized and ideal. Upside will come solely from business results and execution; I tend to own things that aren't optimized or pure play or have some hair on them to try to get upside form business results and change in cap structure/management/hair/litigation/overhang/ etc. This can also be seen as a big positive of course.

 

I'm not sure if it's as interesting as the bullish articles and cuyler imply.

 

not counting the land you've got

$206MM Property (gross book, a lot of the portfolio is fresh so I think it's fine to use gross book) + the asset for sale

$30MM in commercial loans

$25MM in cash

$15MM grab bag of other

$261MM non-land assets

 

That $261MM is encumbered by $129MM of debt is $132MM of equity in the non-land stuff, which means you are paying $200MM for the land.

 

You'll get $56MM from the land under contract, so that means you are paying $145MM for the remaining 8800 acres, $16K per acre.

 

6600 of those acres are west of 95 and contiguous and not very convenient to anything (Minto changes this but if you are paying the same $ / acre as the guys who bought Minto, there isn't a ton of upside to the full 6600 acres in the near term. Is another homebuilder going to buy a similar sized greenfield development like that? If so, then I could see more upside, but I don't know enough about Daytona to conclude that.

 

The east of 95 stuff is obviously worth more than 6600 acres but I'm not sure how much gas is left in the tank there with a lot of the most prime interchanges and intersections having been bought in the first land sale boom in the mid 2000's and now.

 

I don't see a ton of risk at current prices, but am not as bullish. I own a lot of similar things and may have a closer look but it doesn't really excite me to pay $145MM for the west of 95 land, but 1 or 2 more big Trader Joe's or Tanger like transactions could change that equation.

 

One hypothetical question i would ask is how long do you think it would take to get your money back if you bought the land for your NAV numbers. In other words, if you paid $112MM for the 6600 west of 95 and $292MM for the 1300 east of 95, and used recent pace of land sales the cycle average of number of acres sold at x price, then how does it all work out to get your $400MM back?

 

 

[thepupil]

there also could be more upside if you get a NNN or O like valuation for the triple net assets. Then you really aren't paying much for the land at all.

 

There is a lot of optionality here. Slapping a 6% cap rate on the $16MM of NOI gets you to $266MM (instead of $200MM) which reduces your implied price of the land significantly. But that does imply a lot of recent value creation and I'm not sure if 25 yr leases to big lots and a portfolio of old Bank of America branches and stuff is worth that.

 

They have cleaned up and upgraded the triple net portfolio and have added some multi-tenant properties that have some upside/probably more risk.

[Lowlight]

New article on SA.  I like the commentary from the CEO.  I expect to see more positive news from the company throughout the remainder of 2015. 

 

http://seekingalpha.com/article/3248376-consolidated-tomoka-why-i-see-70-percent-potential-upside-over-the-next-12-months?source=bloomberg

[thepupil]

the increase in land sale pipeline from $50MM --> $80MM helped put me over the edge and I've bought some shares today. The implied valuation of land is sensitive to cap rates you throw on the income properties, but with more and more land sales, this is getting incrementally more interesting.

[zippy1]

Wintergreen Advisers Urges Consolidated-Tomoka Land Co. to Take Steps to Maximize Shareholder Value

Wintergreen Advisers submits shareholder proposal to hire an independent adviser to evaluate sale of the company or liquidation of its assets

http://finance.yahoo.com/news/wintergreen-advisers-urges-consolidated-tomoka-220600772.html

[Travis Wiedower]

This thread should probably be combined with the other CTO thread (even though neither is very active). The Winters announcement will no doubt get the stock moving (already has today), but I'm not sure I want the company sold in the near future. Here's my comment on a Seeking Alpha article related to the Winters release:

 

"I'm not sure I like it either but need more time to think it through. If the company sold in a few months for $80 would I be happy? Of course, but I'm also perfectly happy to let management grow this thing over several years to be even more valuable. I'm sure Winters is more tuned in to the specifics of management performance than I am but I have zero complaints--kinda surprised to see his comments. I guess Albright could put more effort into promoting how undervalued they are (which has been discussed here), but frankly that doesn't bother me. Focus on running the company and eventually Mr. Market will stop being dumb."

 

Either way, I like this investment a lot--hard downside protection plus large upside.

[Guest MarkS]

Interesting times at CTO.

https://www.sec.gov/Archives/edgar/data/23795/000091957416012298/d6673322a_13d-a3.htm

Is anyone following this?

Thanks

Mark

 

(No position at this time.)

[shhughes1116]

Interesting times at CTO.

https://www.sec.gov/Archives/edgar/data/23795/000091957416012298/d6673322a_13d-a3.htm

Is anyone following this?

Thanks

Mark

 

(No position at this time.)

Did I just see that Wintergreen owns 47% of CTO?

[Guest MarkS]

The "deemed" language makes it hard to determine. If Wintergreen controled 47%, you wouldn't be having a public dispute. But even a 26% position is a formidable position. All wintergreen needs is a little help from their friends.

[Travis Wiedower]

Did I just see that Wintergreen owns 47% of CTO?

 

He owns 26.1%.

[BeerBBQ]

This thread should probably be combined with the other CTO thread

 

Where is the other CTO thread?

[fareastwarriors]

This thread should probably be combined with the other CTO thread

 

Where is the other CTO thread?

 

http://www.cornerofberkshireandfairfax.ca/forum/investment-ideas/cto-consolidated-tomoka-land-co/msg224911/#msg224911

[jmp8822]

Is anyone still in this stock? I have been following from 30k feet. Is the NAV still estimated to be maybe $90 per share?

 

My uniformed view is management only cares about themselves, not shareholders. How can you buy more property instead of your own stock, when the stock is trading at a 40-percent discount?

[gg]

One of the important arguments in favor of purchasing the new properties (instead of buybacks) is the program of 1031 exchanges. So in order to defer taxes, they need to plow proceeds from property sales into new real estate, and they will have a large deferred tax liability until a REIT conversion removes that tax liability. Having said that, it would be great to see a far more aggressive buyback.

[Travis Wiedower]

Is anyone still in this stock? I have been following from 30k feet. Is the NAV still estimated to be maybe $90 per share?

 

My uniformed view is management only cares about themselves, not shareholders. How can you buy more property instead of your own stock, when the stock is trading at a 40-percent discount?

 

I still own it. My NAV estimate is a little over $100. My opinion of management fell off a cliff after the whole "strategic review" and that conference call they did. I'm still in it because a) the NAV is really high compared to the current price and b) I'll be surprised if John and company have jobs after the next annual meeting. If they keep their jobs I'll probably be selling because I lost confidence in them.

[valcont]

$90 NAV is pretty ambitious. I would say its between $75-80. From what I've heard the highest offer they got was $65 a few months ago. The ongoing fight between Wintergreen and Mgmt is not helpful . I am sure Wintergreen with 25% stake will try to get rid of the management next year especially after the failed strategic review. That is why you are not seeing more buybacks since that would increase Wintergreen's share.

 

The only hope for this is the REIT conversion in 2018 , a special dividend to pass on the retained earnings and 1031 exchange of deferred taxes.

[gg]

$90 NAV is pretty ambitious. I would say its between $75-80. From what I've heard the highest offer they got was $65 a few months ago. The ongoing fight between Wintergreen and Mgmt is not helpful . I am sure Wintergreen with 25% stake will try to get rid of the management next year especially after the failed strategic review. That is why you are not seeing more buybacks since that would increase Wintergreen's share.

 

The only hope for this is the REIT conversion in 2018 , a special dividend to pass on the retained earnings and 1031 exchange of deferred taxes.

 

Where did you hear the $65 figure? I've heard a few different sources speculate on what some of the offers were, but don't know where anyone is getting the info from.

 

Agreed that at this point it's just a wait until the REIT conversion. There's about $10/share in deferred taxes that will fall to equity, and REIT buyers should help price it to 60+ at a minimum.