Consolidated-Tomoka Land Company (CTO) Q1 2019 Earnings Call Transcript

Consolidated-Tomoka Land Company (CTO)
Q1 2019 Earnings Call
April 17, 2019, 9:00 a.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Good day and welcome to the Consolidated-Tomoka first-quarter 2019 earnings call. All participants will be in listen-only mode [Operator instructions] After today's presentation, there will be an opportunity to ask questions. [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.

John Albright -- President and Chief Executive Officer

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 31st 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.

Mark Patten -- Chief Financial Officer

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. 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 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 reference during this call. With that, I'll turn it back over to John.

John Albright -- President and Chief Executive Officer

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

Questions and Answers:

Operator

We will now begin the question-and-answer session. [Operator instructions] And our first question comes from Craig Kucera of B. Riley FBR. Please go ahead.

Craig Kucera -- B. Riley FBR, Inc. -- Analyst

Yes, thanks. Good morning guys. 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?

John Albright -- President and Chief Executive Officer

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

Craig Kucera -- B. Riley FBR, Inc. -- Analyst

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

John Albright -- President and Chief Executive Officer

Sure. We put the property under contract with O'Connor some time ago and gave them plenty of time to go through their entitlements and to work out a site plan and to talk with tenants and other users. And they did get the site rezoned, which is very beneficial to us. But they wanted more time, and given the amount of time we've already given them we didn't see that they would, we weren't confident that they would execute under a timeline 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 the 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 will be developers for different interests that will want to buy sites from us. There already have been people inquiring. The tenants are ready, they just, because O'Connor hadn't bought the site, they weren't sure whether O'Connor would go ahead.

So they're 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 the market is great for this site right now and rather risking it with another developer, we decided to kind of step up and move forward.

Craig Kucera -- B. Riley FBR, Inc. -- Analyst

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?

John Albright -- President and Chief Executive Officer

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

Craig Kucera -- B. Riley FBR, Inc. -- Analyst

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 of at some point in the future when they're complete?

John Albright -- President and Chief Executive Officer

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 it, that we'd develop some of the small shop spaces, that we would at some time monetize that. But a lot of the tenant interest would work very well in our portfolio.

Craig Kucera -- B. Riley FBR, Inc. -- Analyst

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 contract?

John Albright -- President and Chief Executive Officer

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

Craig Kucera -- B. Riley FBR, Inc. -- Analyst

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 and the back half of the year and levering up, or are you looking more to match fund things as you progress through the year?

John Albright -- President and Chief Executive Officer

Yes, I think you'll see us being more active on the acquisition front, so it 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 multi-tenant sale, would only be a couple of months.

Craig Kucera -- B. Riley FBR, Inc. -- Analyst

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 [Inaudible] in the balance sheet?

John Albright -- President and Chief Executive Officer

Yes, so we're definitely going to position ourselves to take the convert out with cash and maturity. So 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.

Craig Kucera -- B. Riley FBR, Inc. -- Analyst

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

John Albright -- President and Chief Executive Officer

Yes, I would say 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 even third quarter. But it is a large parcel, there has to be kind of an in depth survey. So it's that sort of thing, a 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.

Craig Kucera -- B. Riley FBR, Inc. -- Analyst

OK. And one more for me and I'll hop back in the queue. But given your commentary on just entitlements taking longer than sort of maybe perhaps you had 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 to potentially go through a reconversion 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?

John Albright -- President and Chief Executive Officer

I would say that given that we really want to optimize the company for that possible conversion, that you're getting the land as fully addressed as possible. It 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 in the company. So I don't think there's any rush to do a reconversion without having addressed the land more fully. So given that our federal tax payments are still de minimis, 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's more fully addressed, then that would be when we take up that opportunity.

Craig Kucera -- B. Riley FBR, Inc. -- Analyst

OK, thank you.

John Albright -- President and Chief Executive Officer

Thanks, Craig.

Operator

[Operator instructions] And our next question will come from Steve Olson [Sp] a private investor. Please go ahead.

Unknown speaker

Good morning, thanks for taking my questions. 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?

John Albright -- President and Chief Executive Officer

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.

Unknown speaker

OK. 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?

John Albright -- President and Chief Executive Officer

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, Unicorp putting back under contract 13 acres to Clyde Morris and LPGA is really being driven by an op zone investor. But we're open to looking at it 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, if there's a tenant demand for parcel and it's in op zone, we're certainly open to creating our own op zone investment and taking advantage of it that way.

Unknown speaker

OK. I appreciate the update on the golf and subsurface. Is there any other updates on selling of the multi-tenant buildings?

John Albright -- President and Chief Executive Officer

I think you'll see some more activity from us this year. 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.

Unknown speaker

OK. And 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?

John Albright -- President and Chief Executive Officer

I think I'll let Mark address it, but 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 happens, something was found out that it traded in a less than a pinpoint price that we gave you. So just trying to be conservative in our expectations. Is that fair, Mark?

Mark Patten -- Chief Financial Officer

That's absolutely right.

Unknown speaker

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?

John Albright -- President and Chief Executive Officer

Sure. I don't want to comment on -- I won't comment specifically on one of those three, but there are opportunities in the three 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. And then I would say that there's tenant interest to stay in those locations as well.

And I know that's a little opaque, but I can't really talk specifically.

Unknown speaker

OK, thank you and good luck with everything. And the O'Connor, I appreciate the additional description of the opportunities with the O'Connor tract. That seems like a tremendous opportunity for the company to add value through doing some of its own development or retaining some of the tracts.

John Albright -- President and Chief Executive Officer

Thanks, Steve.

Mark Patten -- Chief Financial Officer

Thanks, Steve.

Unknown speaker

All right, thanks.

Operator

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

John Albright -- President and Chief Executive Officer

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

Operator

[Operator signoff]

Duration: 19 minutes

Call Participants:

John Albright -- President and Chief Executive Officer

Mark Patten -- Chief Financial Officer

Craig Kucera -- B. Riley FBR, Inc. -- Analyst

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