1.
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
In the opinion of the HMG/Courtland
Properties, Inc. (the “Company”), the accompanying unaudited condensed consolidated financial statements prepared
in accordance with instructions for Form 10-Q, include all adjustments (consisting only of normal recurring accruals) which are
necessary for a fair presentation of the results for the periods presented. Certain information and footnote disclosures normally
included in the consolidated financial statements prepared in accordance with accounting principles generally accepted in the
United States of America have been condensed or omitted. It is suggested that these condensed consolidated financial statements
be read in conjunction with the Company’s Annual Report for the year ended December 31, 2012. The balance sheet as of December
31, 2012 was derived from audited consolidated financial statements as of that date. The results of operations for the three and
nine months ended September 30, 2013 are not necessarily indicative of the results to be expected for the full year.
The condensed consolidated financial
statements include the accounts of the Company and entities in which the Company owns a majority voting interest or controlling
financial interest. All material transactions and balances with consolidated and unconsolidated entities have been eliminated
in consolidation or as required under the equity method. Amounts in footnotes are rounded to the nearest thousands.
2.
RECENT ACCOUNTING
PRONOUNCEMENTS
Refer to the consolidated financial
statements and footnotes thereto included in the HMG/Courtland Properties, Inc. Annual Report on Form 10-K for the year ended
December 31, 2012 for recent accounting pronouncements. The Company does not believe that any recently issued, but not yet effective
accounting standards, if currently adopted, will have a material effect on the Company’s consolidated financial position,
results of operations and cash flows.
3.
SALE OF REAL
ESTATE INTERESTS
As previously reported, on February
25, 2013 the Company completed the sale of its interests in Grove Isle Associates LLLP, Grove Isle Yacht Club Associates, Grove
Isle Investments Inc. and CII Yacht Club, Inc., which represent interests in the Grove Isle hotel, club, tennis courts and marina
(collectively, the “Grove Isle Property”) to Grove Isle Yacht & Tennis, LLC, a Florida limited liability company
and an unrelated entity (“the Purchaser”), pursuant to a purchase agreement entered into on the same day (the “Agreement”).
The purchase price was $24.4 million, consisting of $23.4 million in cash and a $1 million promissory note due from the Purchaser.
Approximately $2.7 million of the proceeds were used to pay off the existing mortgage on the Grove Isle Property. The Company
realized gain on the sale of these interests (including transactions in June 2013 described below) of approximately $19 million
(or $19 per share) net of incentive fee due to the Adviser of approximately $2.1 million, before provision for corporate income
taxes.
In June 2013 the Company received
an additional $327,000 in proceeds for unpaid rent due by the Grove Isle tenant prior to the sale. Also in June 2013 the Purchaser
exercised its option to purchase our 50% interest in the spa for $100,000.
As previously reported,
on March 29, 2013, pursuant to a Membership Interests Purchase Agreement (the “Agreement”) entered into in December
2012, HMG/Courtland Properties, Inc. and its 95% owned subsidiary, Courtland Investments, Inc. (the “Company”), completed
the sale of the Company’s 50% membership interests in Bayshore Landing LLC, Bayshore Rawbar LLC and Bayshore Restaurant
LLC, (collectively the “Monty’s property) to the other 50% owner, The Christoph Family Trusts, which are unrelated
entities. The purchase price for the membership interests of $3 million was paid in cash. The Company realized a loss on the sale
of these interests of approximately $184,000 (or $.19 per share).
4.
INVESTMENTS IN MARKETABLE
SECURITIES
Investments in marketable securities
consist primarily of large capital corporate equity and debt securities in varying industries or issued by government agencies
with readily determinable fair values. These securities are stated at market value, as determined by the most recent traded price
of each security at the balance sheet date. Consistent with the Company’s overall current investment objectives and activities
its entire marketable securities portfolio is classified as trading.
Net realized and unrealized gain
(loss) from investments in marketable securities for the three and nine months ended September 30, 2013 and 2012 is summarized
below:
|
|
|
Three months ended
September 30,
|
|
|
Nine months ended
September 30,
|
|
|
Description
|
|
2013
|
|
|
2012
|
|
|
2013
|
|
|
2012
|
|
|
Net realized (loss) gain from sales of securities
|
|
($
|
15,000
|
)
|
|
($
|
12,000
|
)
|
|
($
|
7,000
|
)
|
|
$
|
55,000
|
|
|
Unrealized net gain in trading securities
|
|
|
36,000
|
|
|
|
57,000
|
|
|
|
61,000
|
|
|
|
87,000
|
|
|
Total net gain from investments in marketable securities
|
|
$
|
21,000
|
|
|
$
|
45,000
|
|
|
$
|
54,000
|
|
|
$
|
142,000
|
|
For the three months ended September
30, 2013, net realized loss from sales of marketable securities of approximately $15,000 consisting of approximately $29,000 in
gross losses net of $14,000 of gross gains. For the nine months ended September 30, 2013, net realized loss from sales of marketable
securities of was approximately $7,000, and consisted of approximately $52,000 of gross losses net of $45,000 of gross gains.
For the three and nine months ended
September 30, 2013, net unrealized gains from trading securities were $36,000 and $61,000, respectively. This is compared to net
unrealized gains of $57,000 and $87,000 for the three and nine months ended September 30, 2012, respectively.
Investment gains and losses on marketable
securities may fluctuate significantly from period to period in the future and could have a significant impact on the Company’s
net earnings. However, the amount of investment gains or losses on marketable securities for any given period has no predictive
value and variations in amount from period to period have no practical analytical value.
5.
OTHER INVESTMENTS
As of September 30, 2013, the Company’s
portfolio of other investments had an aggregate carrying value of approximately $3.3 million and we have committed to fund approximately
$952,000 as required by agreements with the investees. The carrying value of these investments is equal to contributions less
distributions and loss valuation adjustments. During the nine months ended September 30, 2013, cash distributions received from
other investments totaled approximately $447,000 from several investments in privately owned partnerships owning diversified operating
companies. During the same nine months ended September 30, 2013, the Company contributed an additional $71,000 toward fulfilling
capital commitments on existing investments.
Net income from other investments
for the three and nine months ended September 30, 2013 and 2012, is summarized below:
|
|
|
Three months ended
September 30,
|
|
|
Nine months ended
September 30,
|
|
|
Description
|
|
2013
|
|
|
2012
|
|
|
2013
|
|
|
2012
|
|
|
Partnerships owning diversified businesses
|
|
$
|
63,000
|
|
|
$
|
7,000
|
|
|
$
|
104,000
|
|
|
$
|
38,000
|
|
|
Partnerships owning real estate and related
|
|
|
—
|
|
|
|
—
|
|
|
|
40,000
|
|
|
|
255,000
|
|
|
Income from investment in 49% owned affiliate (T.G.I.F. Texas, Inc.)
|
|
|
24,000
|
|
|
|
13,000
|
|
|
|
86,000
|
|
|
|
44,000
|
|
|
Total net income from other investments (excluding other than temporary impairment losses)
|
|
$
|
87,000
|
|
|
$
|
20,000
|
|
|
$
|
230,000
|
|
|
$
|
337,000
|
|
The following tables present
gross unrealized losses and fair values for those investments that were in an unrealized loss position as of September 30, 2013
and December 31, 2012, aggregated by investment category and the length of time that investments have been in a continuous
loss position:
|
|
|
As of September 30, 2013
|
|
|
|
|
12 Months or less
|
|
|
Greater than 12 Months
|
|
|
Total
|
|
|
Investment Description
|
|
Fair
Value
|
|
|
Unrealized
Loss
|
|
|
Fair
Value
|
|
|
Unrealized
Loss
|
|
|
Fair
Value
|
|
|
Unrealized
Loss
|
|
|
Partnerships owning investments in technology related industries
|
|
|
—
|
|
|
|
—
|
|
|
$
|
345,000
|
|
|
$
|
(121,000
|
)
|
|
$
|
345,000
|
|
|
$
|
(121,000
|
)
|
|
Partnerships owning real estate and related investments
|
|
|
—
|
|
|
|
—
|
|
|
|
233,000
|
|
|
|
(48,000
|
)
|
|
|
233,000
|
|
|
|
(48,000
|
)
|
|
Total
|
|
|
—
|
|
|
|
—
|
|
|
$
|
578,000
|
|
|
$
|
(169,000
|
)
|
|
$
|
578,000
|
|
|
$
|
(169,000
|
)
|
|
|
|
As of December 31, 2012
|
|
|
|
|
12 Months or less
|
|
|
Greater than 12 Months
|
|
|
Total
|
|
|
|
|
Fair
|
|
|
Unrealized
|
|
|
Fair
|
|
|
Unrealized
|
|
|
Fair
|
|
|
Unrealized
|
|
|
Investment Description
|
|
Value
|
|
|
Loss
|
|
|
Value
|
|
Loss
|
|
|
Value
|
|
|
Loss
|
|
|
Partnerships owning investments in technology related industries
|
|
$
|
11,000
|
|
|
$
|
(10,000
|
)
|
|
$
|
374,000
|
|
|
$
|
(69,000
|
)
|
|
$
|
384,000
|
|
|
$
|
(79,000
|
)
|
|
Partnerships owning diversified businesses
|
|
|
—
|
|
|
|
—
|
|
|
|
241,000
|
|
|
|
(5,000
|
)
|
|
|
241,000
|
|
|
|
(5,000
|
)
|
|
Partnerships owning real estate and
related investments
|
|
|
—
|
|
|
|
—
|
|
|
|
231,000
|
|
|
|
(49,000
|
)
|
|
|
231,000
|
|
|
|
(49,000
|
)
|
|
Total
|
|
$
|
11,000
|
|
|
$
|
(10,000
|
)
|
|
$
|
846,000
|
|
|
$
|
(123,000
|
)
|
|
$
|
856,000
|
|
|
$
|
(133,000
|
)
|
When evaluating the investments
for other-than-temporary impairment, the Company reviews factors such as the length of time and extent to which fair value has
been below cost basis, the financial condition of the issuer and any changes thereto, and the Company’s intent to sell,
or whether it is more likely than not it will be required to sell, the investment before recovery of the investment’s amortized
cost basis.
In accordance with ASC Topic
320-10-65, Recognition and Presentation of Other-Than-Temporary Impairments, there were no OTTI impairment valuation adjustments
for the three and nine months ended September 30, 2013.
In June 2012 the Company recorded
a loss of approximately $28,000 from an investment in a partnership which operates and leases executive suites in Miami, Florida.
The Company has funded $120,000 to date in this investment and the losses incurred were associated with the initial start up of
the venture in 2010.
6.
FAIR VALUE OF
FINANCIAL INSTRUMENTS
In accordance with ASC Topic
820, the Company measures cash and equivalents, marketable debt and equity securities at fair value on a recurring basis. Other
investments are measured at fair value on a nonrecurring basis.
The following are the major
categories of assets and liabilities measured at fair value on a recurring basis at September 30, 2013 and December 31, 2012,
using quoted prices in active markets for identical assets (Level 1) and significant other observable inputs (Level 2). For the
periods presented, there were no major assets measured at fair value on a recurring basis which uses significant unobservable
inputs (Level 3):
Assets and liabilities measured
at fair value on a recurring basis are summarized below:
|
|
|
Fair value measurement at reporting date using
|
|
|
|
|
Total
|
|
|
Quoted Prices in Active
|
|
|
Significant Other
|
|
|
Significant
|
|
|
|
|
September 30,
|
|
|
Markets for Identical Assets
|
|
|
Observable Inputs
|
|
|
Unobservable Inputs
|
|
|
Description
|
|
2013
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash equivalents:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury bills
|
|
$
|
20,170,000
|
|
|
$
|
20,170,000
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Money market mutual funds
|
|
|
667,000
|
|
|
|
667,000
|
|
|
|
—
|
|
|
|
—
|
|
|
Time deposits
|
|
|
55,000
|
|
|
|
—
|
|
|
|
55,000
|
|
|
|
—
|
|
|
Marketable securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Marketable equity securities
|
|
|
3,386,000
|
|
|
|
3,386,000
|
|
|
|
—
|
|
|
|
—
|
|
|
Corporate debt securities
|
|
|
1,083,000
|
|
|
|
—
|
|
|
|
1,083,000
|
|
|
|
—
|
|
|
Total assets
|
|
$
|
25,361,000
|
|
|
$
|
24,223,000
|
|
|
$
|
1,138,000
|
|
|
$
|
—
|
|
|
|
|
Fair value measurement at reporting date using
|
|
|
|
|
Total
|
|
|
Quoted Prices in Active
|
|
|
Significant Other
|
|
|
Significant
|
|
|
|
|
December 31,
|
|
|
Markets for Identical Assets
|
|
|
Observable Inputs
|
|
|
Unobservable Inputs
|
|
|
Description
|
|
2012
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash equivalents:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Time deposits
|
|
$
|
54,000
|
|
|
|
—
|
|
|
$
|
54,000
|
|
|
|
—
|
|
|
Money market mutual funds
|
|
|
783,000
|
|
|
$
|
783,000
|
|
|
|
—
|
|
|
|
—
|
|
|
Marketable securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate debt securities
|
|
|
662,000
|
|
|
|
—
|
|
|
|
662,000
|
|
|
|
—
|
|
|
Marketable equity securities
|
|
|
1,496,000
|
|
|
|
1,496,000
|
|
|
|
—
|
|
|
|
—
|
|
|
Total assets
|
|
$
|
2,995,000
|
|
|
$
|
2,279,000
|
|
|
$
|
716,000
|
|
|
$
|
—
|
|
Assets measured at fair value
on a nonrecurring basis are summarized below:
|
|
|
Fair value measurement at reporting date using
|
|
|
Total gains
|
|
|
|
|
Total
|
|
|
Quoted Prices in Active
|
|
|
Significant Other
|
|
|
Significant
|
|
|
(losses) for
|
|
|
|
|
September 30,
|
|
|
Markets for Identical Assets
|
|
|
Observable Inputs
|
|
|
Unobservable Inputs
|
|
|
three and nine months ended
|
|
|
Description
|
|
2013
|
|
|
(Level 1)
|
|
|
(Level 2) (a)
|
|
|
(Level 3) (b)
|
|
|
9/30/2013
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other investments by investment focus:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Technology & Communication
|
|
$
|
516,000
|
|
|
$
|
—
|
|
|
$
|
516,000
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Diversified businesses
|
|
|
1,084,000
|
|
|
|
—
|
|
|
|
1,084,000
|
|
|
|
—
|
|
|
|
—
|
|
|
Real estate and related
|
|
|
1,448,000
|
|
|
|
—
|
|
|
|
500,000
|
|
|
|
948,000
|
|
|
|
—
|
|
|
Other
|
|
|
300,000
|
|
|
|
—
|
|
|
|
—
|
|
|
|
300,000
|
|
|
|
—
|
|
|
|
|
$
|
3,348,000
|
|
|
$
|
—
|
|
|
$
|
2,100,000
|
|
|
$
|
1,248,000
|
|
|
$
|
—
|
|
|
|
|
Fair value measurement at reporting date using
|
|
|
Total
|
|
|
|
|
Total
|
|
|
Quoted Prices in Active
|
|
|
Significant Other
|
|
|
Significant
|
|
|
losses for
|
|
|
|
|
December 31,
|
|
|
Markets for Identical Assets
|
|
|
Observable Inputs
|
|
|
Unobservable Inputs
|
|
|
year ended
|
|
|
Description
|
|
2012
|
|
|
(Level 1)
|
|
|
(Level 2) (a)
|
|
|
(Level 3) (b)
|
|
|
12/31/2012
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other investments by investment focus:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Technology & Communication
|
|
$
|
514,000
|
|
|
$
|
—
|
|
|
$
|
514,000
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Diversified businesses
|
|
|
1,337,000
|
|
|
|
—
|
|
|
|
1,337,000
|
|
|
|
—
|
|
|
|
—
|
|
|
Real estate and related
|
|
|
1,453,000
|
|
|
|
—
|
|
|
|
500,000
|
|
|
|
953,000
|
|
|
|
28,000
|
|
|
Other
|
|
|
300,000
|
|
|
|
—
|
|
|
|
—
|
|
|
|
300,000
|
|
|
|
—
|
|
|
|
|
$
|
3,604,000
|
|
|
$
|
—
|
|
|
$
|
2,351,000
|
|
|
$
|
1,253,000
|
|
|
$
|
28,000
|
|
|
|
(a)
|
Other investments measured at fair value on a non recurring basis
include investments in certain entities that calculate net asset value per share (or its equivalent such as member units or
an ownership interest in partners’ capital to which a proportionate share of net assets is attributed,
“NAV”). This class primarily consists of private equity funds that have varying investment focus. These
investments can never be redeemed with the funds. Instead, the nature of the investments in this class is that distributions
are received through the liquidation of the underlying assets of the fund. If these investments were held it is estimated
that the underlying assets of the fund would be liquidated over 5 to 10 years. As of September 30, 2013, it is probable that
all of the investments in this class will be sold at an amount different from the NAV of the Company’s ownership
interest in partners’ capital. Therefore, the fair values of the investments in this class have been estimated using
recent observable information such as audited financial statements and/or statements of partners’ capital
obtained directly from investees on a quarterly or other regular basis. During the nine months ended September 30, 2013, the
Company received distributions of approximately $464,000 from this type of investment primarily from investments in
diversified businesses and real estate. During the nine months ended September 30, 2013 the Company made contributions
totaling $71,000 in this type of investment. As of September 30, 2013, the amount of the Company’s unfunded commitments
related to the aforementioned investments is approximately $952,000.
|
|
|
|
|
|
(b)
|
Other
investments above which are measured on a nonrecurring basis using Level 3 unobservable inputs consist of investments primarily
in commercial real estate in Florida through private partnerships and two investments in the stock of private banks in Florida
and Texas. The Company does not know when it will have the ability to redeem the investments and has categorized them as a Level
3 fair value measurement. The Level 3 real estate and related investments of approximately $953,000 include one investment in
a commercial building located near the Company’s offices purchased in 2005 with a carrying value as of September 30, 2013
of $724,000. These investments are measured using primarily inputs provided by the managing member of the partnerships with whom
the Company has done similar transactions in the past and is well known to management. The fair values of these real estate investments
have been estimated using the net asset value of the Company’s ownership interest in partners’ capital. The investments
in private bank stocks include a private bank and trust located in Coral Gables, Florida in the amount of $250,000 made in 2009,
and a $50,000 investment in a bank located in El Campo, Texas made in 2010. The fair values of these bank stock investments have
been estimated using the cost method less distributions received and other than temporary impairments. This investment is valued
using inputs provided by the management of the banks.
|
|
|
|
Level 3 Investments:
|
|
|
Balance at January 1, 2013
|
|
$
|
1,253,000
|
|
|
Additional investment in limited partnership
|
|
|
—
|
|
|
Distributions from Level 3 investments
|
|
|
(5,000
|
)
|
|
Transfers from Level 2
|
|
|
—
|
|
|
Balance at September 30, 2013
|
|
$
|
1,248,000
|
|
7.
INCOME
TAXES
The Company (excluding CII) qualifies
as a real estate investment trust and distributes its taxable ordinary income to stockholders in conformity with requirements
of the Internal Revenue Code and is not required to report deferred items due to its ability to distribute all taxable income.
In addition, net operating losses can be carried forward to reduce future taxable income but cannot be carried back. Distributed
capital gains on sales of real estate as they relate to REIT activities are not subject to taxes; however, undistributed capital
gains may be subject to corporate tax.
As of September 30,
2013 the Company (excluding CII) had an estimated net operating loss carryover of approximately $5.1 million which is available
to reduce 2013 REIT taxable income generated from gains realized from discontinued operations in 2013. The estimated REIT tax
capital gain from the sales of real estate interests in 2013 is $14.6 million, net of incentive fee due to the Adviser of approximately
$2.1 million.
As previously reported,
on October 21, 2013 the Company declared a cash dividend of $4.00 per share payable to shareholders of record as of November 1,
2013, payable on November 8, 2013. This dividend will reduce the REIT 2013 taxable income and, accordingly, as of September 30,
2013 the Company (excluding CII) has estimated a corporate tax liability of approximately $1.7 million which is netted in gain
from sale of discontinued operations.
The Company’s 95%-owned subsidiary,
CII, files a separate income tax return and its operations are not included in the REIT’s income tax return.
As of September 30,
2013 CII has an estimated net operating loss carryover of approximately $1.4 million which is available to reduce 2013 CII taxable
income generated primarily from capital gains realized from the sale of real estate interests in 2013. As of September 30, 2013,
after utilization of net operating loss carryover, CII has estimated a current provision for state and federal income taxes of
$156,000.
The Company accounts
for income taxes in accordance with ASC Topic 740, “Accounting for Income Taxes”. ASC Topic 740 requires a Company
to use the asset and liability method of accounting for income taxes. Under this method, deferred income taxes are recognized
for the tax consequences of “temporary differences” by applying enacted statutory tax rates applicable to future years
to differences between the financial statement carrying amounts and the tax bases of existing assets and liabilities. The effect
on deferred income taxes of a change in tax rates is recognized in income in the period that includes the enactment date. Deferred
taxes only pertain to CII. As of September 30, 2013 the Company has recorded a net deferred tax liability of $140,000 as a result
of timing differences associated with the carrying value of other investments and depreciable assets and the future benefit of
a net operating loss. This increase from deferred tax asset to deferred tax liability of $838,000 is a deferred tax expense and
was primarily the result of the reduction in the deferred tax asset of $471,000 for utilization of CII NOL carryover of $471,000
and a net decrease in investments with tax basis in excess of book of $228,000 primarily relating to Grove Isle entities sold
in 2013.
The provision
for income taxes in the condensed consolidated statements of comprehensive income consists of the following:
|
For the nine months ended
|
|
September 30,
2013
|
|
|
September 30,
2012
|
|
|
Current:
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
1,581,000
|
|
|
|
—
|
|
|
State
|
|
|
275,000
|
|
|
|
—
|
|
|
|
|
|
1,856,000
|
|
|
|
—
|
|
|
Deferred:
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
754,000
|
|
|
$
|
2,000
|
|
|
State
|
|
|
84,000
|
|
|
|
1,000
|
|
|
|
|
|
838,000
|
|
|
|
3,000
|
|
|
Total
|
|
$
|
2,694,000
|
|
|
$
|
3,000
|
|
We adopted the provisions of ASC
Topic 740-10, “Accounting for Uncertainty in Income Taxes” on January 1, 2007. This topic clarifies the accounting
for uncertainty in income taxes recognized in an enterprise’s financial statements in accordance with ASC Topic 740, “Accounting
for Income Taxes”, and prescribes a recognition threshold and measurement process for financial statement recognition and
measurement of a tax position taken or expected to be taken in a tax return. Topic 740-10 also provides guidance on de-recognition,
classification, interest and penalties, accounting in interim periods, disclosure and transition.
Based on our evaluation, we have
concluded that there are no significant uncertain tax positions requiring recognition in our consolidated financial statements.
Our evaluation was performed for the tax years ended December 31, 2009, 2010, 2011 and 2012, the tax years which remain subject
to examination by major tax jurisdictions as of September 30, 2013.
We may from time to time be assessed
interest or penalties by major tax jurisdictions, although any such assessments historically have been minimal and immaterial
to our financial results. In the event we have received an assessment for interest and/or penalties, it has been classified in
the consolidated financial statements as selling, general and administrative expense.
8.
STOCK OPTIONS
Stock based compensation
expense is recognized using the fair-value method for all awards. The Company granted reload options related to options
previously granted which were exercised during the nine months ended September 30, 2013. A reload stock option is granted for
the number of shares tendered as payment for the exercise price and tax withholding obligation (if any) upon the exercise of
a stock option with a reload provision. The exercise price of the reload option is equal to the market price of the stock on
the date of grant and the reload option will expire on the same date as the original option which was exercised. The Company
determined the fair value of its option awards using the Black-Scholes option pricing model. The following assumptions were
used to value the reload options granted during the nine months ended September 30, 2013: 3 year expected life; expected
volatility of approximately 37%; risk-free of. 11% and annual dividend yield of 17%. The expected life for options granted
during the period represents the period of time that options are to be outstanding based on the expiration date of the Plan.
Expected volatilities are based upon historical volatility of the Company’s stock over a period equal to the 3 year
expected life.
The weighted average fair value for
reload options granted during the nine months ended September 30, 2013 was $18.35 per share. For the three and nine months ended
the Company recorded approximately $20,000 in non-employee stock option expense relating to the reload options granted in 2013.
The following table summarizes stock
option activity during the nine months ended September 30, 2013:
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
Average
|
|
|
|
|
Options
|
|
|
Exercise
|
|
|
|
|
Outstanding
|
|
|
Price
|
|
|
Outstanding at January 1, 2013
|
|
|
102,100
|
|
|
$
|
4.99
|
|
|
Granted
|
|
|
17,700
|
|
|
$
|
18.35
|
|
|
Exercised
|
|
|
(89,100
|
)
|
|
$
|
5.02
|
|
|
Outstanding at September 30, 2013
|
|
|
30,700
|
|
|
$
|
12.61
|
|
The intrinsic value of options exercised
during the nine months ended September 30, 2013 was approximately $1.2 million.
The following table summarizes information
concerning outstanding and exercisable options as of September 30, 2013:
|
|
|
|
Number Outstanding
|
|
|
Weighted Average
|
|
|
Strike Prices
|
|
|
and exercisable
|
|
|
Strike Prices
|
|
|
$
|
4.80
|
|
|
|
13,000
|
|
|
$
|
4.80
|
|
|
$
|
17.84
|
|
|
|
9,500
|
|
|
$
|
17.84
|
|
|
$
|
18.89
|
|
|
|
7,500
|
|
|
$
|
18.89
|
|
|
$
|
19.50
|
|
|
|
700
|
|
|
$
|
19.50
|
|
|
|
|
|
|
|
30,700
|
|
|
$
|
12.61
|
|
As of September 30, 2013 the intrinsic
value of options outstanding and exercisable was approximately $234,000.
9.
BASIC AND DILUTED
EARNINGS PER SHARE
Basic and diluted earnings per share
for the three and nine months ended September 30, 2013 were computed as presented in the table below. There was no difference
between basic and diluted weighted average common shares for the three and nine months ended September 30, 2012.
|
|
|
For the three months ended
|
|
|
For the nine months ended
|
|
|
|
|
September 30, 2013
|
|
|
September 30, 2013
|
|
|
Basic:
|
|
|
|
|
|
|
|
|
|
Net (loss) income
|
|
($
|
1,947,622
|
)
|
|
$
|
15,296,381
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding
|
|
|
1,031,350
|
|
|
|
1,004,599
|
|
|
Basic (loss) earnings per share
|
|
($
|
1.89
|
)
|
|
$
|
15.23
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2013
|
|
|
2013
|
|
|
Diluted:
|
|
|
|
|
|
|
|
|
|
Net (loss) income
|
|
($
|
1,947,622
|
)
|
|
$
|
15,296,381
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding
|
|
|
1,031,350
|
|
|
|
1,004,599
|
|
|
Plus incremental shares from assumed conversion:
|
|
|
|
|
|
|
|
|
|
Stock options anti-dilutive for three months ended September 30, 2013
|
|
|
—
|
|
|
|
21,341
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted weighted average common shares
|
|
|
1,031,350
|
|
|
|
1,025,939
|
|
|
Diluted (loss) earnings per share
|
|
($
|
1.89
|
)
|
|
$
|
14.91
|
|
During the three month period ended
September 30, 2013, 30,700 stock options were excluded from the computation of diluted (loss) earnings per share as their effect
would be anti-dilutive.
10.
DISCONTINUED OPERATIONS
AND REAL ESTATE INTERESTS HELD FOR SALE
As previously reported, on February
25, 2013 the Company completed the sale of its interests in Grove Isle Associates LLLP, Grove Isle Yacht Club Associates, Grove
Isle Investments Inc. and CII Yacht Club, Inc., which represent interests in the Grove Isle hotel, club, tennis courts and marina
(collectively, the “Grove Isle Property”) to Grove Isle Yacht & Tennis, LLC, a Florida limited liability company
and an unrelated entity (“the Purchaser”), p
ursuant to a
pur
chase agreement entered into on the same day (the “Agreement”). The purchase price was $24.4 million, consisting
of $23.4 million in cash and a $1 million promissory note due from the Purchaser. Approximately $2.7 million of the proceeds were
used to pay off the existing mortgage on the Grove Isle Property. The Company realized a gain on the sale of these interests (including
amounts received in June 2013 described below) of approximately $19 million (or $19.00 per share) net of incentive fee due to
the Adviser of approximately $2.1 million and before provision for corporate income taxes.
In June 2013 the Company received
approximately $327,000 of past due rental payments from the Grove Isle tenant. This amount is included in the realized gain on
the sale of Grove Isle. Also in June 2013 the Purchaser exercised its option to purchase our 50% interest in the spa for $100,000
as provided in the Agreement. There was no gain or loss realized on this transaction.
As previously reported,
on March 29, 2013, pursuant to a Membership Interests Purchase Agreement (the “Agreement”) entered into in December
2012, HMG/Courtland Properties, Inc. and its 95% owned subsidiary, Courtland Investments, Inc. (the “Company”), completed
the sale of the Company’s 50% membership interests in Bayshore Landing LLC, Bayshore Rawbar LLC and Bayshore Restaurant
LLC, (collectively the “Monty’s property) to the other 50% owner, The Christoph Family Trusts, which are unrelated
entities. The purchase price for the membership interests of $3 million was paid in cash. The Company realized a loss on the sale
of these interests of approximately $184,000 (or $.19 per share).
We have classified the results of
operations for the real estate interests discussed above into discontinued operations in the accompanying condensed consolidated
financial statements of comprehensive income.
|
|
|
For the three months
|
|
|
For the nine months
|
|
|
|
|
ended September 30,
|
|
|
ended September 30,
|
|
|
Revenues:
|
|
2013
|
|
|
2012
|
|
|
2013
|
|
|
2012
|
|
|
Rental and related revenue
|
|
$
|
—
|
|
|
$
|
485,000
|
|
|
$
|
171,000
|
|
|
$
|
1,415,000
|
|
|
Food & beverage sales
|
|
|
—
|
|
|
|
1,271,000
|
|
|
|
1,950,000
|
|
|
$
|
4,628,000
|
|
|
Marina revenue
|
|
|
—
|
|
|
|
408,000
|
|
|
|
382,000
|
|
|
$
|
1,239,000
|
|
|
Other
|
|
|
—
|
|
|
|
110,000
|
|
|
|
—
|
|
|
$
|
350,000
|
|
|
Total revenue
|
|
$
|
—
|
|
|
$
|
2,274,000
|
|
|
$
|
2,503,000
|
|
|
$
|
7,632,000
|
|
|
Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rental operating expenses
|
|
|
—
|
|
|
|
43,000
|
|
|
|
97,000
|
|
|
|
149,000
|
|
|
Food & beverage operation expenses
|
|
|
—
|
|
|
|
1,127,000
|
|
|
|
1,430,000
|
|
|
|
3,840,000
|
|
|
Marina expenses
|
|
|
—
|
|
|
|
224,000
|
|
|
|
178,000
|
|
|
|
641,000
|
|
|
Professional fees
|
|
|
—
|
|
|
|
45,000
|
|
|
|
53,000
|
|
|
|
162,000
|
|
|
Interest expense
|
|
|
—
|
|
|
|
190,000
|
|
|
|
190,000
|
|
|
|
579,000
|
|
|
Depreciation, amortization and other expenses
|
|
|
—
|
|
|
|
424,000
|
|
|
|
199,000
|
|
|
|
1,261,000
|
|
|
Total expenses
|
|
$
|
—
|
|
|
$
|
2,053,000
|
|
|
$
|
2,147,000
|
|
|
$
|
6,632,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less: noncontrolling interest sold
|
|
|
—
|
|
|
|
—
|
|
|
|
(212,000
|
)
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain on sale of discontinued
operations, net of incentive fee
|
|
|
(34,000
|
)
|
|
|
—
|
|
|
|
18,805,000
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for income tax expense on
gain on sale of discontinued ops
|
|
|
(1,626,000
|
)
|
|
|
—
|
|
|
|
(2,694,000
|
)
|
|
|
—
|
|
|
Income from discontinued operations
|
|
$
|
(1,660,000
|
)
|
|
$
|
221,000
|
|
|
$
|
16,255,000
|
|
|
$
|
1,000,000
|
|
The major classes of assets and liabilities
associated with the real estate interest held for sale as of September 30, 2013 and December 31, 2012 were as follows:
|
|
|
September 30, 2013
|
|
|
December 31, 2012
|
|
|
Grove Isle Spa remaining interest
|
|
$
|
—
|
|
|
$
|
1,434,000
|
|
|
Grove Isle land, hotel, club building and marina
|
|
|
—
|
|
|
|
1,801,000
|
|
|
Grove Isle other assets
|
|
|
—
|
|
|
|
222,000
|
|
|
Bayshore Restaurant, marina and retail offices
|
|
|
—
|
|
|
|
7,822,000
|
|
|
Bayshore goodwill
|
|
|
—
|
|
|
|
5,629,000
|
|
|
Bayshore other receivables
|
|
|
—
|
|
|
|
206,000
|
|
|
Bayshore other assets
|
|
|
—
|
|
|
|
985,000
|
|
|
Assets associated with real estate interests held for sale
|
|
$
|
—
|
|
|
$
|
18,099,000
|
|
|
|
|
|
|
|
|
|
|
|
|
Grove Isle mortgage note payable
|
|
$
|
—
|
|
|
$
|
2,696,000
|
|
|
Grove Isle accrued and other liabilities
|
|
|
—
|
|
|
|
23,000
|
|
|
Bayshore mortgage note payable
|
|
|
—
|
|
|
|
8,190,000
|
|
|
Bayshore interest rate swap contract payable
|
|
|
—
|
|
|
|
1,965,000
|
|
|
Bayshore accrued and other liabilities
|
|
|
—
|
|
|
|
510,000
|
|
|
Obligations associated with real estate interests held for sale
|
|
$
|
—
|
|
|
$
|
13,384,000
|
|
|
|
Item 2.
|
Management’s Discussion
and Analysis of Financial Condition and Results of Operations
|
RESULTS OF OPERATIONS
The Company reported a net
loss of approximately $1.9 million ($1.89 per share) and net income of approximately $15.3 million ($15.23 per basic shares
and $14.91 per diluted shares) for the three and nine months ended September 30, 2013, respectively. For the three and nine months
ended September 30, 2012, we reported a net loss of $96,000 ($.09 per share) and net income of $138,000 ($.14 per share), respectively.
As previously reported, on February
25, 2013 the Company completed the sale the Grove Isle Property to Grove Isle Yacht & Tennis, LLC, a Florida limited liability
company and an unrelated entity (“the Purchaser”), pursuant to a purchase agreement entered into on the same day (the
“Agreement”). The purchase price was $24.4 million, consisting of $23.4 million in cash and a $1 million promissory
note due from the Purchaser. Approximately $2.7 million of the proceeds were used to pay off the existing mortgage on the Grove
Isle Property. The Company realized gain on the sale of these interests (including amounts received in June 2013) of approximately
$19 million (or $19 per share) net of incentive fee due to the Adviser of approximately $2.1 million, before provision for corporate
income taxes. In June 2013 the Company received approximately $327,000 of past due rental payments from the Grove Isle tenant
which is included in the realized gain on the sale of Grove Isle.
As previously reported,
on March 29, 2013, pursuant to a Membership Interests Purchase Agreement (the “Agreement”) entered into in December
2012, HMG/Courtland Properties, Inc. and its 95% owned subsidiary, Courtland Investments, Inc. (the “Company”), completed
the sale of the Company’s 50% membership interests in Bayshore Landing LLC, Bayshore Rawbar LLC and Bayshore Restaurant
LLC, (collectively the “Monty’s property) to the other 50% owner, The Christoph Family Trusts, which are unrelated
entities. The purchase price for the membership interests of $3 million was paid in cash. The Company realized a loss on the sale
of these interests of approximately $184,000 (or $.17 per share).
REVENUES
Rentals and related revenues for
the three and nine months ended September 30, 2013 and 2012 primarily consists of rent from the Advisor to CII for its corporate
office.
Net realized and unrealized gain
from investments in marketable securities:
Net realized loss from sales of marketable
securities for the three and nine months ended September 30, 2013 was approximately $15,000 and $7,000, respectively. As compared
with net realized (loss) gain from sales of marketable securities for the three and nine months ended September 30, 2012 was approximately
($12,000) and $55,000, respectively. Net unrealized gain from investments in marketable securities for the three and nine months
ended September 30, 2013 was approximately $36,000 and $61,000, respectively. Net unrealized gain from investments in marketable
securities for the three and nine months ended September 30, 2012 was approximately $57,000 and $87,000, respectively. For further
details refer to Note 4 to Condensed Consolidated Financial Statements (unaudited).
Net income from other investments:
Net income from other investments
for the three and nine months ended September 30, 2013 was approximately $87,000 and $230,000, respectively. Net income from other
investments for the three and nine months ended September 30, 2012 was approximately $20,000 and $337,000, respectively. For further
details refer to Note 5 to Condensed Consolidated Financial Statements (unaudited).
EXPENSES
Rental and other properties expenses
for the three and nine months ended September 30, 2013 as compared with the same periods in 2012 decreased by approximately $9,000
(37%) and $20,000 (28%), respectively, related primarily due to non recurring repairs and maintenance to the corporate office
in 2012.
General and
administrative expenses for the nine months ended September 30, 2013 as compared with the same period in 2012 decreased by approximately
$25,000 (9%). This decrease was primarily due to a $28,000 nonrecurring loss on abandonment of vacant land by Courtland Investments
in April 2012.
Professional
fees and expenses for the three months ended September 30, 2013 as compared with the same period in 2012 increased by approximately
$17,000 (54%) primarily due to increased shareholder relations costs. Professional fees and expenses for the nine months ended
September 30, 2013 as compared with the same period in 2012 increased by approximately $39,000 (40%) primarily due to a 2012 change
in recording accounting fee expense from accrual to actual billing method.
EFFECT
OF INFLATION:
Inflation affects the costs of holding
the Company’s investments. Increased inflation would decrease the purchasing power of our mainly liquid investments.
LIQUIDITY, CAPITAL EXPENDITURE
REQUIREMENTS AND CAPITAL RESOURCES
The Company’s material commitments
primarily consist of a note payable to the Company’s 49% owned affiliate, T.G.I.F. Texas, Inc. (“TGIF”) of approximately
$2.5 million due on demand and contributions committed to other investments of approximately $952,000 due upon demand. The funds
necessary to meet these obligations are expected from the proceeds from the sales of investments, distributions from investments
and available cash.
MATERIAL COMPONENTS OF CASH
FLOWS
For the nine months ended September
30, 2013, net cash used in operating activities was approximately $1.2 million, primarily consisting of the Advisers regular fee
of $765,000 and other general and administrative expenses.
For the nine months ended September
30, 2013, net cash provided by investing activities was approximately $21.3 million and consisted primarily of net cash proceeds
from the sale of real estate interests of approximately $23 million, proceeds from sales of marketable securities of $864,000,
distributions from other investments of $447,000 and distribution from affiliate (TGIF) of $196,000. These sources were partially
offset by uses of funds of $3.1 million for purchase of marketable securities and $71,000 of contributions to other investments.
For the nine months ended September
30, 2013, net cash used in financing activities was approximately $189,000 and consisted primarily principal repayment of note
payable to affiliate (TGIF) of $311,000 partially offset by $122,000 of proceeds from the exercise of stock options.