NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS
ENDED DECEMBER 31, 2013 and 2012
1. DESCRIPTION
OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Business
and Consolidation
. The consolidated financial statements include the accounts of HMG/Courtland Properties, Inc. (“we”
or the “Company”) and entities in which the Company owns a majority voting interest or controlling financial interest.
The Company was organized in 1972 and (excluding its 95% owned subsidiary Courtland Investments, Inc., which files a separate
tax return) qualifies for taxation as a real estate investment trust (“REIT”) under the Internal Revenue Code. The
Company’s business is the ownership and management of income-producing commercial properties and its management considers
other investments if such investments offer growth or profit potential. The Company’s recurring operating revenue is from
property rental operations of its corporate offices.
All material
transactions and balances with consolidated and unconsolidated entities have been eliminated in consolidation or as required under
the equity method.
The Company’s
consolidated subsidiaries are described below:
Courtland
Investments, Inc. (“CII”).
A 95% owned corporation in which the Company holds a 95% non-voting interest and Masscap
Investments Company, Inc. (“Masscap”) which holds a 5% voting interest in CII. The Company and Masscap have had a
continuing arrangement with regard to the ongoing operations of CII, which provides the Company with complete authority over all
decision making relating to the business, operations and financing of CII consistent with the Company’s status as a real
estate investment trust. Masscap is a wholly-owned subsidiary of Transco Realty Trust which is a 45% shareholder of the Company.
CII files a separate tax return and its operations are not part of the REIT tax return.
260 River
Corp (“260”).
This wholly owned corporation of the Company owns an approximate 70% interest in a vacant commercially
zoned building located on 5.4 acres in Montpelier, Vermont. Development of this property is being considered.
Courtland
Houston, Inc. (“CHI”)
. Effective December 31, 2013, this company ceased operations and was dissolved. This corporation
was 80% owned by CII and 20% owned by its sole employee. CHI engaged in consulting services and commercial leasing activities
in Texas.
South Bayshore
Associates (“SBA”)
. This is a 75% company owned joint venture with the Company’s 45% shareholder, Transco
Realty Trust (“TRT”). In 2013 TRT paid off its $300,000 note due to SBA.
Baleen
Associates, Inc. (“Baleen”).
This corporation is wholly owned by CII and its sole asset is a 50% interest in a
partnership which operates an executive suite rental business in Coconut Grove, Florida.
Preparation
of Financial Statements
. The preparation of consolidated financial statements in conformity with accounting principles generally
accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements
and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Income
Taxes
. 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. The Company accounts for income taxes in accordance with ASC Topic 740, “Accounting
for Income Taxes” (“ASC Topic 740”). This 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. 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 are taxed as capital gains. State income taxes are not significant.
The
Company follows the provisions of ASC Topic 740-10, “Accounting for Uncertainty in Income Taxes” which clarifies the
accounting for uncertainty in income taxes recognized in an enterprise’s financial statements in accordance with ASC Topic
740, 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. This topic 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, 2013 and 2012. The Company’s federal
income tax returns since 2010 are subject to examination by the Internal Revenue Service, generally for a period of three years
after the returns were filed.
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.
Depreciation
.
Depreciation of the corporate offices properties held for investment is computed using the straight-line method over its estimated
useful life of 39.5 years. Depreciation expense for the corporate offices for each of the years ended December 31, 2013 and 2012
was approximately $16,000.
Fair Value
of Financial Instruments.
The Company records its financial assets and liabilities at fair value, which is defined under the
applicable accounting standards as the exchange price that would be received for an asset or paid to transfer a liability (an
exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants
on the measure date. The Company uses valuation techniques to measure fair value, maximizing the use of observable outputs and
minimizing the use of unobservable inputs. The standard describes a fair value hierarchy based on three levels of inputs, of which
the first two are considered observable and the last unobservable, that may be used to measure fair value which are the following:
●
|
Level
1 – Quoted prices in active markets for identical assets or liabilities.
|
|
|
●
|
Level 2 –
Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or
liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable
market data for substantially the full term of the assets or liabilities.
|
|
|
●
|
Level 3 – Inputs include management’s
best estimate of what market participants would use in pricing the asset or liability at the measurement date. The inputs
are unobservable in the market and significant to the instrument’s valuation.
|
An investment’s
categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement.
The carrying
value of financial instruments including other receivables, notes and advances due from related parties, accounts payable and
accrued expenses and mortgages and notes payable approximate their fair values at December 31, 2013 and 2012, due to their relatively
short terms or variable interest rates.
Cash equivalents
are classified within Level 1 or Level 2 of the fair value hierarchy because they are valued using quoted market prices, broker
or dealer quotations, or alternative pricing sources with reasonable levels of transparency. Other investments which are measured
by investees at net asset value per share or its equivalent are also classified within Level 2. The fair value of the interest
rate swap contract payable is based on the value provided by the issuing bank on a monthly basis (Level 2).
The valuation
of other investments not included above requires significant judgment by the Company’s management due to the absence of
quoted market values, inherent lack of liquidity and long-term nature of such assets and have been classified within Level 3.
Such investments are valued initially based upon transaction price. Valuations are reviewed periodically utilizing available market
data and additional factors to determine if the carrying value of these investments should be adjusted. In determining valuation
adjustments, emphasis is placed on market participants’ assumptions and market-based information over entity-specific information.
Marketable
Securities
. The entire marketable securities portfolio is classified as trading consistent with the Company’s overall
investment objectives and activities. Accordingly, all unrealized gains and losses on the Company’s marketable securities
investment portfolio are included in the consolidated statements of comprehensive income.
Gross gains
and losses on the sale of marketable securities are based on the first-in first-out method of determining cost.
Marketable
securities from time to time are pledged as collateral pursuant to broker margin requirements. At December 31, 2013 and 2012,
there were no margin balances outstanding.
Notes and
other receivables.
Management periodically performs a review of amounts due on its notes and other receivable balances to
determine if they are impaired based on factors affecting the collectability of those balances. Management’s estimates of
collectability of these receivables requires management to exercise significant judgment about the timing, frequency and severity
of collection losses, if any, and the underlying value of collateral, which may affect recoverability of such receivables. As
of December 31, 2013 and 2012, the Company had no allowances for bad debt.
Equity
investments.
Investments in which the Company does not have a majority voting or financial controlling interest but has the
ability to exercise influence are accounted for under the equity method of accounting, even though the Company may have a majority
interest in profits and losses. The Company follows ASC Topic 323-30 in accounting for its investments in limited partnerships.
This guidance requires the use of the equity method for limited partnership investments of more than 3 to 5 percent.
The Company
has no voting or financial controlling interests in its other investments which include entities that invest venture capital funds
in growth oriented enterprises. These other investments are carried at cost less adjustments for other than temporary declines
in value.
Comprehensive
Income
. The Company reports comprehensive income in its consolidated statements of comprehensive income. Comprehensive income
is the change in equity from transactions and other events from nonowner sources. Comprehensive income includes net income (loss)
and other comprehensive income (loss). For the years ended December 31, 2013 and 2012, comprehensive income consisted of unrealized
gain from interest rate swap contract of $982,500 and $5,000, respectively.
Income
(loss) per common share
. Net income (loss) per common share (basic and diluted) is based on the net income (loss) divided
by the weighted average number of common shares outstanding during each year. Diluted net loss per share includes the dilutive
effect of options to acquire common stock. Common shares outstanding include issued shares less shares held in treasury. There
were 22,700 and 102,100 stock options outstanding as of December 31, 2013 and 2012, respectively. The 2013 options were included
in the diluted earnings per share computation as their effect was dilutive. The 2012 options were not included in the diluted
earnings per share computation as their effect would have been anti-dilutive.
Gain on
sales of properties
. Gain on sales of properties is recognized when the minimum investment requirements have been met by the
purchaser and title passes to the purchaser.
In 2013 the
Company sold its interests in the Grove Isle and Monty’s properties and recognized gain on sale of discontinued operations
of $16.4 million, net of income taxes and incentive fee to Adviser.
There were
no sales of property in 2012.
Cash and
cash Equivalents
. For purposes of the consolidated statements of cash flows, the Company considers all highly liquid investments
with an original maturity of three months or less to be cash and cash equivalents.
Concentration
of Credit Risk
. Financial instruments that potentially subject the Company to concentration of credit risk are cash and cash
equivalent deposits in excess of federally insured limits, marketable securities, other receivables and notes and mortgages receivable.
From time to time the Company may have bank deposits in excess of federally insured limits. The Company evaluates these excess
deposits and transfers amounts to brokerage accounts and other banks to mitigate this exposure. As of December 31, 2013 we have
approximately $560,000 of deposits in excess of federally insured limits.
The Company
maintains cash and equivalents in bank accounts which at times, may exceed federally-insured limits. The Company has not experienced
any losses in such accounts and believes that it is not exposed to any significant credit risk on cash. The federally insured
limit for time deposits is presently $250,000.
Interest
rate swap contract.
The Company
may or may not use interest rate swap contracts to reduce interest rate risk. The Company has no interest rate swap contracts
outstanding as of December 31, 2013. The interest rate swap contract outstanding as of December 31, 2012 was satisfied in conjunction
with the sale of the Monty’s property in March 2013.
Interest rate
swap contracts designated and qualifying as cash flow hedges are reported at fair value. The gain or loss on the effective portion
of the hedge initially is included as a component of other comprehensive income and is subsequently reclassified into earnings
when interest on the related debt is paid, or upon partial or full settlement of the contract.
Other intangible
assets:
Deferred loan
costs are amortized on a straight line basis over the life of the loan. This method approximates the effective interest rate method.
Non controlling
Interest
. Non controlling interest represents the noncontrolling or minority partners’ proportionate share of the equity
of the Company’s majority owned subsidiaries. A summary for the years ended December 31, 2013 and 2012 is as follows:
|
|
2013
|
|
|
2012
|
|
Non controlling interest balance at beginning of year
|
|
$
|
2,917,000
|
|
|
$
|
2,818,000
|
|
Non controlling partners’ interest in operating gains of consolidated subsidiaries
|
|
|
4,000
|
|
|
|
94,000
|
|
Non controlling partners’ interest in gains of discontinued operations of consolidated subsidiaries
|
|
|
93,000
|
|
|
|
—
|
|
Non controlling partners’ interest in sales of real estate
|
|
|
(1,750,000
|
)
|
|
|
—
|
|
Reclassification of unrealized loss on interest rate swap agreement
|
|
|
(982,000
|
)
|
|
|
5,000
|
|
|
|
|
|
|
|
|
|
|
Non controlling interest balance at end of year
|
|
$
|
282,000
|
|
|
$
|
2,917,000
|
|
Revenue
recognition
. CII is the lessor of the Company’s principal executive offices and the Adviser corporate offices. This
lease agreement is classified as an operating lease and accordingly all rental revenue is recognized as earned based upon total
fixed cash flow over the initial term of the lease, using the straight line method. The lease agreement originally dated December
1, 1999, and was renewed in 2009. The lease provides for base rent of $48,000 per year payable in equal monthly installments during
the five year term of the lease which expires on December 1, 2014. The Adviser, as tenant, pays utilities, certain maintenance
and security expenses relating to the leased premises.
Impairment
of long-lived assets
. The Company periodically reviews the carrying value of its properties and long-lived assets in relation
to historical results, current business conditions and trends to identify potential situations in which the carrying value of
assets may not be recoverable. If such reviews indicate that the carrying value of such assets may not be recoverable, the Company
would estimate the undiscounted sum of the expected future cash flows of such assets or analyze the fair value of the asset, to
determine if such sum or fair value is less than the carrying value of such assets to ascertain if a permanent impairment exists.
If a permanent impairment exists, the Company would determine the fair value by using quoted market prices, if available, for
such assets, or if quoted market prices are not available, the Company would discount the expected future cash flows of such assets
and would adjust the carrying value of the asset to fair value. There were no impairment of long-lived assets in 2013 and 2012.
Share-based
compensation.
The Company
accounts for share-based compensation in accordance with ASC Topic 718 “Share-Based Payments”. The Company has used
the Black-Scholes option pricing model to estimate the fair value of stock options on the dates of grant.
Recent
accounting pronouncements
.
In July 2013,
the FASB issued guidance on the financial statement presentation of an unrecognized tax benefit when a net operating loss carryforward,
a similar tax loss, or a tax credit carryforward exists. This guidance requires the unrecognized tax benefit to be presented in
the financial statements as a reduction to a deferred tax asset. When a deferred tax asset is not available, or the asset is not
intended to be used for this purpose, an entity should present the unrecognized tax benefit in the financial statements as a liability.
The guidance will become effective for us at the beginning of our second quarter of fiscal 2014. We do not expect the adoption
of this guidance will have a material impact on our consolidated financial statements.
In February
2013, the FASB issued ASU 2013-02, “Comprehensive Income (Topic 220): Reporting of Amounts Reclassified Out of Accumulated
Other Comprehensive Income,” or ASU 2013-02. ASU 2013-02 implements the previously deferred requirement to disclose reclassification
adjustments into and out of accumulated other comprehensive income in either a note or on the face of the financial statements.
ASU 2013-02 was effective for the first interim or annual period beginning after December 15, 2012, and was applied prospectively.
As we have not reclassified any balances into or out of accumulated other comprehensive income, the adoption of ASU 2013-02 did
not have a material impact on our consolidated financial statements.
In January
2013, the FASB issued guidance clarifying the scope of disclosure requirements for offsetting assets and liabilities. The amended
guidance limits the scope of balance sheet offsetting disclosures to derivatives, repurchase agreements, and securities lending
transactions to the extent that they are offset in the financial statements or subject to an enforceable master netting arrangement
or similar agreement. The guidance will become effective for us at the beginning of our first quarter of fiscal 2014. We do not
expect the adoption of this guidance will have a material impact on our consolidated financial statements.
2.
INVESTMENT PROPERTIES
The components
of the Company’s investment properties and the related accumulated depreciation information follow:
|
|
December 31, 2013
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
Cost
|
|
|
Depreciation
|
|
|
Net
|
|
Office building and other commercial property:
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate
Office - (Coconut Grove, FL) – Building
|
|
$
|
652,198
|
|
|
$
|
278,982
|
|
|
$
|
373,216
|
|
Corporate Office – (Coconut Grove, FL) – Land
|
|
|
325,000
|
|
|
|
—
|
|
|
|
325,000
|
|
Other (Montpelier, Vermont) – Building
|
|
|
52,000
|
|
|
|
52,000
|
|
|
|
—
|
|
Other (Montpelier, Vermont) - Land and improvements (5.4 acres)
|
|
|
111,689
|
|
|
|
—
|
|
|
|
111,689
|
|
|
|
$
|
1,140,887
|
|
|
$
|
330,982
|
|
|
$
|
809,905
|
|
|
|
December 31, 2012
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
Cost
|
|
|
Depreciation
|
|
|
Net
|
|
Office building and other commercial property:
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate Office - (Coconut Grove, FL) – Building
|
|
$
|
652,198
|
|
|
$
|
262,826
|
|
|
$
|
398,372
|
|
Corporate Office – (Coconut Grove, FL) – Land
|
|
|
325,000
|
|
|
|
—
|
|
|
|
325,000
|
|
Other (Montpelier, Vermont) – Building
|
|
|
52,000
|
|
|
|
52,000
|
|
|
|
—
|
|
Other (Montpelier, Vermont) - Land and improvements (5.4 acres)
|
|
|
111,689
|
|
|
|
—
|
|
|
|
111,689
|
|
Totals
|
|
$
|
1,140,887
|
|
|
$
|
314,826
|
|
|
$
|
826,061
|
|
3. 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 (see table below). These securities are stated at market value, as
determined by the most recently 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. Accordingly
all unrealized gains and losses on this portfolio are recorded in income. For the years ended December 31, 2013 and 2012, net
unrealized gains on trading securities were approximately $263,000 and $86,000, respectively.
|
|
December 31, 2013
|
|
|
December 31, 2012
|
|
|
|
Cost
|
|
|
Fair
|
|
|
Unrealized
|
|
|
Cost
|
|
|
Fair
|
|
|
Unrealized
|
|
Description
|
|
Basis
|
|
|
Value
|
|
|
Gain (loss)
|
|
|
Basis
|
|
|
Value
|
|
|
Gain (loss)
|
|
Real Estate Investment Trusts
|
|
$
|
345,000
|
|
|
$
|
351,000
|
|
|
$
|
6,000
|
|
|
$
|
174,000
|
|
|
$
|
122,000
|
|
|
($
|
52,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mutual Funds, ETF & other
|
|
|
2,030,000
|
|
|
|
2,144,000
|
|
|
|
114,000
|
|
|
|
760,000
|
|
|
|
817,000
|
|
|
|
57,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Equity Securities
|
|
|
962,000
|
|
|
|
1,163,000
|
|
|
|
201,000
|
|
|
|
570,000
|
|
|
|
557,000
|
|
|
|
(13,000
|
)
|
Total Equity Securities
|
|
|
3,337,000
|
|
|
|
3,658,000
|
|
|
|
321,000
|
|
|
|
1,504,000
|
|
|
|
1,496,000
|
|
|
|
(8,000
|
)
|
Debt Securities
|
|
|
1,088,000
|
|
|
|
1,065,000
|
|
|
|
(23,000
|
)
|
|
|
621,000
|
|
|
|
662,000
|
|
|
|
41,000
|
|
Total
|
|
$
|
4,425,000
|
|
|
$
|
4,723,000
|
|
|
$
|
298,000
|
|
|
$
|
2,125,000
|
|
|
$
|
2,158,000
|
|
|
$
|
33,000
|
|
As of December
31, 2013, debt securities are scheduled to mature as follows:
|
|
Cost
|
|
|
Fair Value
|
|
2019 – 2023
|
|
$
|
25,000
|
|
|
$
|
26,000
|
|
2024 – thereafter
|
|
|
1,063,000
|
|
|
|
1,039,000
|
|
|
|
$
|
1,088,000
|
|
|
$
|
1,065,000
|
|
Net gain from
investments in marketable securities for the years ended December 31, 2013 and 2012 is summarized below:
Description
|
|
2013
|
|
|
2012
|
|
Net realized (loss) gain from sales of marketable securities
|
|
($
|
119,000
|
)
|
|
$
|
35,000
|
|
Net unrealized gain from marketable securities
|
|
|
263,000
|
|
|
|
86,000
|
|
Total net gain from investments in marketable securities
|
|
$
|
144,000
|
|
|
$
|
121,000
|
|
Net realized
(loss) gain from sales of marketable securities consisted of approximately $176,000 of losses net of $57,000 of gains for the
year ended December 31, 2013. The comparable amounts in fiscal year 2012 were gains of approximately $152,000 and losses of $117,000.
Consistent
with the Company’s overall current investment objectives and activities the entire marketable securities portfolio is classified
as trading (as defined by U.S. generally accepted accounting principles). Unrealized gains or losses of marketable securities
on hand are recorded in income.
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.
Investments
in marketable securities give rise to exposure resulting from the volatility of capital markets. The Company attempts to mitigate
its risk by diversifying its marketable securities portfolio.
4. OTHER INVESTMENTS
The Company’s
other investments consist primarily of nominal equity interests in various privately-held entities, including limited partnerships
whose purpose is to invest venture capital funds in growth-oriented enterprises. The Company does not have significant influence
over any investee and the Company’s investment represents less than 3% of the investee’s ownership. None of these
investments meet the criteria of accounting under the equity method and accordingly are carried at cost less distributions and
other than temporary unrealized losses.
The
Company’s portfolio of other investments consists of approximately 30 individual investments primarily in limited partnerships
with varying investment objectives and focus. Management has categorized these investments by investment focus: technology and
communications, diversified businesses/distressed debt, real estate related, stock and debt funds.
As of December
31, 2013 and 2012, other investments had an aggregate carrying value of $3.3 million and $3.6 million, respectively. The Company
has committed to fund approximately an additional $912,000 as required by agreements with the investees. The carrying value of
these investments is equal to contributions less distributions and other than temporary loss valuation adjustments. During the
years ended December 31, 2013 and 2012 the Company made contributions of approximately $136,000 and $244,000, respectively, and
received distributions from these investments of $516,000 and $662,000, respectively.
The Company’s
other investments are summarized below.
|
|
Carrying values as of December 31,
|
|
Investment Focus
|
|
2013
|
|
|
2012
|
|
|
|
|
|
|
|
|
Venture capital funds – technology and communications
|
|
$
|
473,000
|
|
|
$
|
514,000
|
|
|
|
|
|
|
|
|
|
|
Venture capital funds – diversified businesses
|
|
|
1,098,000
|
|
|
|
1,337,000
|
|
|
|
|
|
|
|
|
|
|
Real estate and related
|
|
|
1,409,000
|
|
|
|
1,453,000
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
325,000
|
|
|
|
300,000
|
|
|
|
|
|
|
|
|
|
|
Totals
|
|
$
|
3,304,000
|
|
|
$
|
3,604,000
|
|
The Company
regularly reviews the underlying assets in its investment portfolio for events, including but not limited to bankruptcies, closures
and declines in estimated fair value, that may indicate the investment has suffered other-than-temporary decline in value. When
a decline is deemed other-than-temporary, an investment loss is recognized.
Net income
from other investments is summarized below (excluding other than temporary impairment loss):
|
|
2013
|
|
|
2012
|
|
Income from investment in 49% owned affiliate (a)
|
|
$
|
94,000
|
|
|
$
|
57,000
|
|
Real estate and related (b)
|
|
|
40,000
|
|
|
|
223,000
|
|
Venture capital funds – diversified businesses (c)
|
|
|
104,000
|
|
|
|
121,000
|
|
Other
|
|
|
10,000
|
|
|
|
—
|
|
Total net income from other investments
|
|
$
|
248,000
|
|
|
$
|
401,000
|
|
(a) This
gain represents income from the Company’s 49% owned affiliate, T.G.I.F. Texas, Inc. (“TGIF”). The increase in
income is due to increased net income of TGIF as a result of higher investment income. In 2013 and 2012 TGIF declared and paid
a cash dividend, the Company’s portion of which was approximately $196,000 each year. These dividends were recorded as reduction
in the investment carrying value as required under the equity method of accounting for investments.
(b) The
gain in 2013 and 2012 consists primarily of cash distributions from an investment in real estate partnership which distributed
proceeds from sales of its real estate.
(c) The
gain in 2013 and 2012 consists of cash distributions from various investments in partnerships owning diversified businesses which
made cash and stock distributions from the sale or refinancing of operating companies and/or distributions from operating activities.
Other than
temporary impairment losses from other investments
For the years
ended December 31, 2013 and 2012, approximately $50,000 and $28,000, respectively, of valuation losses from other than temporary
impairment losses from other investments were recorded. In 2013 this consisted of an increased valuation loss of $50,000 from
an investment in a limited partnership which invests in technology related entities. In 2012 the impairment loss consisted of
an increased valuation loss of $28,000 from an investment in a private partnership which operates and leases executive suites
in Miami, Florida.
|
|
2013
|
|
|
2012
|
|
Technology and related
|
|
($
|
50,000
|
)
|
|
|
—
|
|
Real estate and related
|
|
|
—
|
|
|
($
|
28,000
|
)
|
Total other than temporary impairment loss from other investments
|
|
($
|
50,000
|
)
|
|
($
|
28,000
|
)
|
Net gain or
loss from other investments 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 gain or loss from other investments for any given period
has no predictive value and variations in amount from period to period have no practical analytical value.
The
following tables present gross unrealized losses and fair values for those investments that were in an unrealized loss position
as of December 31, 2013 and 2012, aggregated by investment category and the length of time that investments have been in
a continuous loss position:
|
|
As of December 31, 2013
|
|
|
|
Less than 12 Months
|
|
|
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
|
|
|
—
|
|
|
|
—
|
|
|
$
|
346,000
|
|
|
$
|
(76,000
|
)
|
|
$
|
346,000
|
|
|
$
|
(76,000
|
)
|
Partnerships owning real estate and related investments
|
|
|
—
|
|
|
|
—
|
|
|
|
246,000
|
|
|
|
(11,000
|
)
|
|
|
246,000
|
|
|
|
(11,000
|
)
|
Total
|
|
|
—
|
|
|
|
—
|
|
|
$
|
592,000
|
|
|
$
|
(87,000
|
)
|
|
$
|
592,000
|
|
|
$
|
(87,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2012
|
|
|
|
Less than 12 Months
|
|
|
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
|
|
$
|
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
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5. FAIR VALUE
INSTRUMENTS
In accordance
with ASC Topic 820, the Company measures cash and cash equivalents, marketable debt and equity securities and the interest rate
swap contract 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 during the years ended December
31, 2013 and 2012, using quoted prices in active markets for identical assets (Level 1) and significant other observable inputs
(Level 2). For the year ended December 31, 2013 and 2012, there were no major assets or liabilities measured at fair value on
a recurring basis which uses significant unobservable inputs (Level 3):
|
|
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
|
|
2013
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash equivalents:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Time deposits
|
|
$
|
55,000
|
|
|
|
—
|
|
|
$
|
55,000
|
|
|
|
—
|
|
Money market mutual funds
|
|
|
1,257,000
|
|
|
$
|
1,257,000
|
|
|
|
—
|
|
|
|
—
|
|
U.S. T-bills
|
|
|
15,305,000
|
|
|
$
|
15,305,000
|
|
|
|
—
|
|
|
|
—
|
|
Marketable securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate debt securities
|
|
|
1,065,000
|
|
|
|
—
|
|
|
|
1,065,000
|
|
|
|
—
|
|
Marketable equity securities
|
|
|
3,658,000
|
|
|
|
3,658,000
|
|
|
|
—
|
|
|
|
—
|
|
Total assets
|
|
$
|
21,340,000
|
|
|
$
|
20,220,000
|
|
|
$
|
1,120,000
|
|
|
$
|
—
|
|
|
|
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
|
|
|
1,497,000
|
|
|
|
1,497,000
|
|
|
|
—
|
|
|
|
—
|
|
Total assets
|
|
$
|
2,996,000
|
|
|
$
|
2,280,000
|
|
|
$
|
716,000
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swap contract
|
|
|
1,965,000
|
|
|
|
—
|
|
|
|
1,965,000
|
|
|
|
—
|
|
Total liabilities
|
|
$
|
1,965,000
|
|
|
|
—
|
|
|
$
|
1,965,000
|
|
|
|
—
|
|
Carrying
amount is the estimated fair value for corporate debt securities and time deposits based on a market-based approach using observable
(Level 2) inputs such as prices of similar assets in active markets.
The
following are the major categories of assets and liabilities measured at fair value on a nonrecurring basis during the years ended
December 31, 2013 and 2012. This category includes other investments and goodwill which are measured using significant other observable
inputs (Level 2) and significant unobservable inputs (Level 3):
|
|
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
|
|
2013
|
|
|
(Level 1)
|
|
|
(Level 2) (a)
|
|
|
(Level 3) (b)
|
|
|
12/31/2013
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other investments by investment focus:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Technology & Communication
|
|
$
|
472,000
|
|
|
$
|
—
|
|
|
$
|
472,000
|
|
|
$
|
—
|
|
|
$
|
50,000
|
|
Diversified businesses
|
|
|
1,098,000
|
|
|
|
—
|
|
|
|
1,098,000
|
|
|
|
—
|
|
|
|
—
|
|
Real estate and related
|
|
|
1,409,000
|
|
|
|
—
|
|
|
|
462,000
|
|
|
|
947,000
|
|
|
|
—
|
|
Other
|
|
|
325,000
|
|
|
|
—
|
|
|
|
—
|
|
|
|
325,000
|
|
|
|
—
|
|
Total assets
|
|
$
|
3,304,000
|
|
|
$
|
—
|
|
|
$
|
2,032,000
|
|
|
$
|
1,272,000
|
|
|
$
|
50,000
|
|
|
|
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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill (Bayshore)
|
|
|
5,628,000
|
|
|
|
|
|
|
|
|
|
|
|
5,628,000
|
|
|
|
—
|
|
Total assets
|
|
$
|
9,232,000
|
|
|
$
|
—
|
|
|
$
|
2,351,000
|
|
|
$
|
6,881,000
|
|
|
$
|
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 December 31, 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 year ended December 31, 2013,
the Company received distributions of approximately $511,000 from this type of investment
primarily from investments in diversified businesses and real estate. During the year
ended December 31, 2013 the Company made contributions totaling $111,000 in this type
of investment. As of December 31, 2013, the amount of the Company’s unfunded commitments
related to the aforementioned investments is approximately $912,000.
|
|
(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 $947,000 include one investment in a commercial
building located near the Company’s offices purchased in 2005 with a carrying value
as of December 31, 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 South Florida community bank in the amount of $25,000 made in December 2013,
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.
|
The
following table includes a roll-forward of the investments classified within level 3 of the fair value hierarchy for the year
ended December 31, 2013:
|
|
Level 3 Investments:
|
|
Balance at January 1, 2013
|
|
$
|
1,253,000
|
|
Investment in private community bank
|
|
|
25,000
|
|
Distributions from Level 3 investments
|
|
|
(6,000
|
)
|
Transfers from Level 2
|
|
|
—
|
|
Balance at December 31, 2013
|
|
$
|
1,272,000
|
|
6. INVESTMENT
IN AFFILIATE
Investment
in affiliate consists of CII’s 49% equity interest in T.G. I.F. Texas, Inc. (“T.G.I.F.”). T.G.I.F. is a Texas
Corporation which holds promissory notes receivable from its shareholders, including CII and Maurice Wiener, the Chairman of the
Company and T.G.I.F. Reference is made to Note 9 for discussion on notes payable by CII to T.G. I.F. This investment is recorded
under the equity method of accounting. For the years ended December 31, 2013 and 2012, income from investment in affiliate amounted
to approximately $94,000 and $57,000, respectively and is included in net income from other investments in the consolidated statements
of comprehensive income. In December 2013 and 2012 T.G.I.F. declared and paid a cash dividend of $.07 per share. CII’s dividend
amount received was approximately $196,000 each year. This dividend is recorded as a reduction in the carrying amount of CII investment
in T.G.I.F. as required under the equity method of accounting.
7. LOANS,
NOTES AND OTHER RECEIVABLES
|
|
As of December 31,
|
|
Description
|
|
2013
|
|
|
2012
|
|
Promissory note and accrued interest due from purchaser of Grove Isle (a)
|
|
$
|
1,034,000
|
|
|
$
|
—
|
|
Promissory note and accrued interest due from individual (b)
|
|
|
214,000
|
|
|
|
208,000
|
|
Other
|
|
|
160,000
|
|
|
|
88,000
|
|
Total loans, notes and other receivables
|
|
$
|
1,408,000
|
|
|
$
|
296,000
|
|
|
(a)
|
In
February 2013, the Company sold its interest in Grove Isle and related entities and received
a $1 million promissory note from the purchaser as part of the purchase proceeds. This
note bears interest of 4% per annum and will mature upon the earlier of ten years (February
25, 2023) or when any expansion or development (as defined in the purchase agreement)
occurs at Grove Isle.
|
|
|
|
|
(b)
|
In
December 2007 the Company loaned $400,000 to a local real estate developer who is well
known to the Company and which loan is secured by numerous real estate interests. In
2010 $197,000 of principal payments were received. In February 2014, the loan was modified
and the maturity date was extended to February 1, 2015. The loan modification requires
the borrower to keep current on monthly interest only payments at same annual rate of
9% and pay past due interest as of December 31, 2013 of approximately $9,000 in four
monthly installments beginning February 1, 2014.
|
8. NOTES
AND ADVANCES DUE FROM AND TRANSACTIONS WITH RELATED PARTIES
The Company
has an agreement (the “Agreement”) with HMGA, Inc. (the “Adviser”) for its services as investment adviser
and administrator of the Company’s affairs. All officers of the Company who are officers of the Adviser are compensated
solely by the Adviser for their services.
The Adviser
is majority owned by Mr. Wiener, the Company’s Chairman, with the remaining shares owned by certain individuals including
Mr. Rothstein. The officers and directors of the Adviser are as follows: Maurice Wiener, Chairman of the Board and Chief Executive
Officer; Larry Rothstein, President, Treasurer, Secretary and Director; and Carlos Camarotti, Vice President - Finance and Assistant
Secretary.
Under the
terms of the Agreement, the Adviser serves as the Company’s investment adviser and, under the supervision of the directors
of the Company, administers the day-to-day operations of the Company. All officers of the Company, who are officers of the Adviser
are compensated solely by the Adviser for their services. The Agreement is renewable annually upon the approval of a majority
of the directors of the Company who are not affiliated with the Adviser and a majority of the Company’s shareholders. The
contract may be terminated at any time on 120 days written notice by the Adviser or upon 60 days written notice by a majority
of the unaffiliated directors of the Company or the holders of a majority of the Company’s outstanding shares.
On September
19, 2013, the shareholders approved the renewal and amendment of the Advisory Agreement between the Company and the Adviser for
a term commencing January 1, 2014 and expiring December 31, 2014.
The sole amendment
to the Advisory Agreement was the change in the remuneration of the Advisor to decrease the Advisor’s current regular monthly
compensation from $85,000 to $55,000, or $1,020,000 to $660,000 annually. All other terms of the existing Advisory Agreement will
remain the same. The renewal and amendment was approved unanimously by the Directors unaffiliated with the Advisor.
For the years
ended December 31, 2013 and 2012, the Company incurred Adviser fees of approximately $3,116,000 and $1,056,000, respectively,
of which $1,020,000 represented regular compensation for 2013 and 2012. In 2013 and 2012 Advisor fees include $2,096,000 and $36,000
in incentive fee compensation.
At December
31, 2012, the Company had amounts due from the Adviser and subsidiaries of approximately $397,000 with interest at prime plus
1% and due on demand. In 2013 the Adviser and subsidiaries paid amounts due to the Company of approximately $397,000. No amounts
are due from the Adviser and subsidiaries as of December 31, 2013.
The Adviser
leases its executive offices from CII pursuant to a lease agreement. This lease agreement calls for base rent of $48,000 per year
payable in equal monthly installments. Additionally, the Adviser is responsible for all utilities, certain maintenance, and security
expenses relating to the leased premises. The lease term is five years, expiring in November 2014.
At December
31, 2012 the Company, through its 75% owned joint venture South Bayshore Associates (“SBA”), had a note receivable
from Transco (a 45% shareholder of the Company) of $300,000 with interest at the prime rate and due on demand. In 2013 this note
and accrued interest was paid.
Mr. Wiener
is an 18% shareholder and the chairman and director of T.G.I.F. Texas, Inc., a 49% owned affiliate of CII. As of December 31,
2013 and 2012, T.G.I.F. had amounts due from CII in the amount of approximately $2,503,000 and $2,815,000, respectively. These
amounts are due on demand and bear interest at the prime rate (3.25% at December 31, 2013). All interest due has been paid.
As of December
31, 2013, and 2012 T.G.I.F. owns 10,000 shares of the Company’s common stock it purchased at market value in 1996.
As of December
31, 2013 and 2012, T.G.I.F. had amounts due from Mr. Wiener in the amount of approximately $707,000. These amounts bear interest
at the prime rate and principal and interest are due on demand. All interest due has been paid.
Mr. Wiener
received consulting and director’s fees from T.G.I.F totaling $22,000 for each of the years ended December 31, 2013 and
2012.
9. 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 previously
reported, in November 2013, the Company paid a cash dividend of $4.2 million (or $4.00 per share) to shareholders of record as
of November 1, 2013. This dividend reduced 2013 REIT taxable income and was a distribution of REIT tax capital gains primarily
from gain on sales of real estate interests in 2013. The Company’s undistributed tax capital gains for the year ended December
31, 2013 were approximately $3.8 million (or $3.67 per share), after giving effect for the utilization of $5.1 net operating loss
carryover. The Company (REIT only, excluding CII) has federal and state tax liability of $1.35 million and $250,000, respectively
as of December 31, 2013. The $1.6 million federal and state liability 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.
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 December 31, 2013 the Company has recorded a net deferred tax liability of $217,000 as a result
of timing differences associated with the carrying value of the investment in affiliate (TGIF) and other investments. The increase
from deferred tax asset of $698,000 as of December 31, 2012 to a deferred tax liability of $217,000 as of December 31, 2013 resulted
in a $915,000 deferred tax expense. This was primarily the result of the reduction in the deferred tax asset of $361,000 from
utilization of $1.2 million of CII’s net operating loss carryover (NOL), net decrease in excess of tax basis over book basis
of other investments of $189,000 and net decrease in excess of tax basis over book basis of assets associated with real estate
interests held for sale of $286,000. CII NOL carryover to 2014 is estimated at $296,000 expiring in 2033.
The components
of income before income taxes and the effect of adjustments to tax computed at the federal statutory rate for the years ended
December 31, 2013 and 2012 were as follows:
|
|
2013
|
|
|
2012
|
|
Income (loss) before income taxes
|
|
$
|
17,684,000
|
|
|
($
|
60,000
|
)
|
Computed tax at federal statutory rate of 34%
|
|
$
|
6,012,000
|
|
|
($
|
20,000
|
)
|
State taxes at 5.5%
|
|
|
973,000
|
|
|
|
(4,000
|
)
|
REIT capital gains dividend paid
|
|
|
(1,645,000
|
)
|
|
|
—
|
|
Utilization of net operating loss carryover
|
|
|
(2,408,000
|
)
|
|
|
—
|
|
REIT related adjustments
|
|
|
(407,000
|
)
|
|
|
(21,000
|
)
|
Unrealized gain from marketable securities for book not tax
|
|
|
(26,000
|
)
|
|
|
(31,000
|
)
|
Other items, net
|
|
|
9,000
|
|
|
|
10,000
|
|
Tax provision for (benefit from) income taxes
|
|
$
|
2,508,000
|
|
|
($
|
66,000
|
)
|
The REIT related
adjustments represent the difference between estimated taxes on undistributed income and/or capital gains and book taxes computed
on the REIT’s income before income taxes.
The
benefit from income taxes in the consolidated statements of comprehensive income consists of the following:
Year ended December 31,
|
|
2013
|
|
|
2012
|
|
Current:
|
|
|
|
|
|
|
|
|
Federal
|
|
|
1,347,000
|
|
|
|
—
|
|
State
|
|
|
246,000
|
|
|
|
—
|
|
|
|
|
1,593,000
|
|
|
|
—
|
|
Deferred:
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
905,000
|
|
|
($
|
60,000
|
)
|
State
|
|
|
10,000
|
|
|
|
(6,000
|
)
|
|
|
|
915,000
|
|
|
|
(66,000
|
)
|
Total
|
|
$
|
2,508,000
|
|
|
($
|
66,000
|
)
|
As of December
31, 2013 and 2012, the components of the deferred tax assets and liabilities are as follows:
|
|
As of December 31, 2013
|
|
|
As of December 31, 2012
|
|
|
|
Deferred tax
|
|
|
Deferred tax
|
|
|
|
Assets
|
|
|
Liabilities
|
|
|
Assets
|
|
|
Liabilities
|
|
Net operating loss carry forward
|
|
$
|
110,000
|
|
|
|
|
|
|
$
|
471,000
|
|
|
|
|
|
Excess of book basis of 49% owned corporation over tax basis
|
|
|
|
|
|
$
|
424,000
|
|
|
|
|
|
|
$
|
418,000
|
|
Excess of tax basis over book basis of assets associated with real estate interests held for sale
|
|
|
—
|
|
|
|
|
|
|
|
286,000
|
|
|
|
|
|
Unrealized gain on marketable securities
|
|
|
|
|
|
|
105,000
|
|
|
|
|
|
|
|
32,000
|
|
Excess of tax basis over book basis of other investments
|
|
|
306,000
|
|
|
|
104,000
|
|
|
|
508,000
|
|
|
|
117,000
|
|
Totals
|
|
$
|
416,000
|
|
|
$
|
633,000
|
|
|
$
|
1,265,000
|
|
|
$
|
567,000
|
|
10. STOCK-BASED
COMPENSATION
The Company’s
2011 Stock Option Plan (the Plan) provides for the grant of options to purchase up to 120,000 shares of the Company’s common
stock to the officers and directors of the Company.
The Company’s
policy is to record stock compensation expense in accordance with ASC Topic 505-50, “Equity-Based Payments to Non-Employees”.
Stock based compensation expense is recognized using the fair-value method for all awards. The Company granted 17,700 reload options
related to options previously granted which were exercised during the year ended December 31, 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 year ended December 31, 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 the 17,700 reload options granted during the year ended December 31, 2013 was $18.35 per share.
The Company’s
non-employee stock compensation expense based on the fair value at the date of grant for stock options was approximately $20,000
and $12,000 for the years ended December 31, 2013 and 2012, respectively, and is included in the results of operations in the
condensed consolidated financial statements.
As of December
31, 2013, there is no unrecognized non-employee stock compensation expense related to unvested stock options under the Plan. As
of December 31, 2012, there was approximately $5,000 of total unrecognized non-employee stock compensation expense related to
unvested stock options under the Plan. This expense was recognized over the vesting periods ending August 25, 2013.
A summary
of the status of the Company’s stock option plan as of December 31, 2013 and 2012, and changes during the periods ending
on those dates are presented below:
|
|
As of December 31, 2013
|
|
|
As of December 31, 2012
|
|
|
|
Shares
|
|
|
Weighted
Average Exercise
Price
|
|
|
Shares
|
|
|
Weighted
Average Exercise
Price
|
|
Outstanding at the beginning of the period
|
|
|
102,100
|
|
|
$
|
4.99
|
|
|
|
102,100
|
|
|
$
|
4.99
|
|
Granted
|
|
|
17,700
|
|
|
$
|
18.35
|
|
|
|
—
|
|
|
|
—
|
|
Exercised
|
|
|
(97,100
|
)
|
|
$
|
5.00
|
|
|
|
—
|
|
|
|
—
|
|
Expired
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Forfeited
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Outstanding at the end of the period
|
|
|
22,700
|
|
|
$
|
15.37
|
|
|
|
102,100
|
|
|
$
|
4.99
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options exercisable at period-end
|
|
|
22,700
|
|
|
$
|
15.37
|
|
|
|
102,100
|
|
|
$
|
4.99
|
|
Weighted average fair value of options granted during the period
|
|
|
17,700
|
|
|
$
|
18.35
|
|
|
|
102,100
|
|
|
|
—
|
|
Aggregate intrinsic value of outstanding and exercisable options at the end of the period
|
|
|
22,700
|
|
|
$
|
2.63
|
|
|
|
|
|
|
|
—
|
|
The
intrinsic value of options exercised during the year ended December 31, 2013 was approximately $1.3 million
.
The following table summarizes outstanding and exercisable options as of December 31, 2013:
Number Outstanding
|
|
|
Weighted Average
|
|
and exercisable
|
|
|
Strike Prices
|
|
|
5,000
|
|
|
$
|
4.80
|
|
|
9,500
|
|
|
$
|
17.84
|
|
|
7,500
|
|
|
$
|
18.89
|
|
|
700
|
|
|
$
|
19.50
|
|
|
22,700
|
|
|
$
|
15.37
|
|
As
of December 31, 2013, the intrinsic value of options outstanding and exercisable was approximately $60,000.
There were
no options granted, exercised or forfeited during the year ended December 31, 2012.
11. BASIC
AND DILUTED EARNINGS PER SHARE
Basic
and diluted earnings per share for the year ended December 31, 2013 were computed as presented in the table below.
|
|
For the year ended
|
|
Basic:
|
|
December 31, 2013
|
|
Net income
|
|
$
|
15,175,987
|
|
|
|
|
|
|
Weighted average shares outstanding
|
|
|
1,004,599
|
|
Basic earnings per share
|
|
$
|
15.11
|
|
|
|
For the year ended
|
|
Diluted:
|
|
December 31,
2013
|
|
Net income
|
|
$
|
15,175,987
|
|
|
|
|
|
|
Weighted average shares outstanding
|
|
|
1,004,599
|
|
Plus incremental shares from assumed conversion
|
|
|
1,468
|
|
|
|
|
|
|
Diluted weighted average common shares
|
|
|
1,006,067
|
|
Diluted earnings per share
|
|
$
|
15.08
|
|
There was
no difference between basic and diluted weighted average common shares for the year ended December 31, 2012.
11.
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”), 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 a 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 and before provision for corporate income taxes estimated at $2.5 million (consisting of approximately $1.6 million
in current income tax expense and $915,000 in deferred income tax expense).
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 gain on the sale
of these interests (as adjusted) of approximately $28,000 (or $.03 per share).
We have classified
the results of operations for the real estate interests discussed above into discontinued operations in the accompanying consolidated
financial statements of operations.
|
|
For the
year
|
|
|
|
ended December
31,
|
|
Revenues:
|
|
2013
|
|
|
2012
|
|
Rental
and related revenue
|
|
$
|
171,000
|
|
|
$
|
1,802,000
|
|
Food
& beverage sales
|
|
|
1,950,000
|
|
|
$
|
6,179,000
|
|
Marina
revenue
|
|
|
382,000
|
|
|
$
|
1,657,000
|
|
Other
|
|
|
—
|
|
|
$
|
430,000
|
|
Total
revenue
|
|
$
|
2,503,000
|
|
|
$
|
10,068,000
|
|
Expenses:
|
|
|
|
|
|
|
|
|
Rental
operating expenses
|
|
|
97,000
|
|
|
|
550,000
|
|
Food
& beverage operation expenses
|
|
|
1,430,000
|
|
|
|
5,150,000
|
|
Marina
expenses
|
|
|
178,000
|
|
|
|
959,000
|
|
Professional
fees
|
|
|
53,000
|
|
|
|
227,000
|
|
Interest
expense
|
|
|
190,000
|
|
|
|
769,000
|
|
Depreciation,
amortization and other expenses
|
|
|
199,000
|
|
|
|
1,291,000
|
|
Total
expenses
|
|
$
|
2,147,000
|
|
|
$
|
8,946,000
|
|
|
|
|
|
|
|
|
|
|
Less:
noncontrolling interest sold
|
|
|
(212,000
|
)
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
Gain
on sale of discontinued operations, net of incentive fee
|
|
|
18,803,000
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
Provision
for income tax expense on gain on sale of discontinued operations
|
|
|
(2,508,000
|
)
|
|
|
—
|
|
Income
from discontinued operations
|
|
$
|
16,439,000
|
|
|
$
|
1,122,000
|
|
The major
classes of assets and liabilities associated with the real estate interest held for sale as of December 31, 2013 and 2012 were
as follows:
|
|
December 31, 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
|
|