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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2022

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                      to                     

Commission file number 001-11350

CTO REALTY GROWTH, INC.

(Exact name of registrant as specified in its charter)

Maryland

    

59-0483700

(State or other jurisdiction of

(I.R.S. Employer

incorporation or organization)

Identification No.)

1140 N. Williamson Blvd., Suite 140

Daytona Beach, Florida

32114

(Address of principal executive offices)

(Zip Code)

(386) 274-2202

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class:

    

Trading Symbols

    

Name of each exchange on which registered:

Common Stock, $0.01 par value per share

CTO

NYSE

6.375% Series A Cumulative Redeemable

Preferred Stock, $0.01 par value per share

CTO PrA

NYSE

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes      No  

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes      No  

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large Accelerated Filer

Accelerated Filer

Non-accelerated Filer

  

Smaller Reporting Company

Emerging Growth Company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in rule 12b-2 of the Exchange Act).    Yes      No  

As of April 21, 2022, there were 6,034,355 shares of the registrant’s common stock, $0.01 par value per share, outstanding.

INDEX

Page

    

No.

PART I—FINANCIAL INFORMATION

Item 1.      Financial Statements

Consolidated Balance Sheets – March 31, 2022 (Unaudited) and December 31, 2021

3

Consolidated Statements of Operations – Three months ended March 31, 2022 and 2021 (Unaudited)

4

Consolidated Statements of Comprehensive Income – Three months ended March 31, 2022 and 2021 (Unaudited)

5

Consolidated Statements of Stockholders’ Equity – Three months ended March 31, 2022 and 2021 (Unaudited)

6

Consolidated Statements of Cash Flows – Three months ended March 31, 2022 and 2021 (Unaudited)

7

Notes to Consolidated Financial Statements (Unaudited)

9

Item 2.      Management’s Discussion and Analysis of Financial Condition and Results of Operations

38

Item 3.      Quantitative and Qualitative Disclosures About Market Risk

47

Item 4.      Controls and Procedures

47

PART II—OTHER INFORMATION

48

Item 1.      Legal Proceedings

48

Item 1A.   Risk Factors

48

Item 2.      Unregistered Sales of Equity Securities and Use of Proceeds

48

Item 3.      Defaults Upon Senior Securities

48

Item 4.      Mine Safety Disclosures

48

Item 5.      Other Information

48

Item 6.      Exhibits

49

SIGNATURES

50

2

PART I—FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

CTO REALTY GROWTH, INC.

CONSOLIDATED BALANCE SHEETS

(In thousands, except share and per share data)

As of

    

(Unaudited) March 31,
2022

    

December 31,
2021

ASSETS

Real Estate:

Land, at Cost

$

205,241

$

189,589

Building and Improvements, at Cost

343,717

325,418

Other Furnishings and Equipment, at Cost

736

707

Construction in Process, at Cost

5,163

3,150

Total Real Estate, at Cost

554,857

518,864

Less, Accumulated Depreciation

(27,844)

(24,169)

Real Estate—Net

527,013

494,695

Land and Development Costs

694

692

Intangible Lease Assets—Net

81,925

79,492

Assets Held for Sale—See Note 24

6,720

Investment in Alpine Income Property Trust, Inc.

38,587

41,037

Mitigation Credits

3,702

3,702

Mitigation Credit Rights

21,018

21,018

Commercial Loan and Master Lease Investments

21,830

39,095

Cash and Cash Equivalents

9,450

8,615

Restricted Cash

26,385

22,734

Refundable Income Taxes

413

442

Deferred Income Taxes—Net

75

Other Assets—See Note 12

23,127

14,897

Total Assets

$

754,219

$

733,139

LIABILITIES AND STOCKHOLDERS’ EQUITY

Liabilities:

Accounts Payable

$

1,553

$

676

Accrued and Other Liabilities—See Note 18

13,913

13,121

Deferred Revenue—See Note 19

4,592

4,505

Intangible Lease Liabilities—Net

5,543

5,601

Deferred Income Taxes—Net

483

Long-Term Debt

298,079

278,273

Total Liabilities

323,680

302,659

Commitments and Contingencies—See Note 22

Stockholders’ Equity:

Preferred Stock – 100,000,000 shares authorized; $0.01 par value, 6.375% Series A Cumulative Redeemable Preferred Stock, $25.00 Per Share Liquidation Preference, 3,000,000 shares issued and outstanding at March 31, 2022 and December 31, 2021

30

30

Common Stock – 500,000,000 shares authorized; $0.01 par value, 6,011,611 shares issued and outstanding at March 31, 2022 and 5,916,226 shares issued and outstanding at December 31, 2021

60

60

Additional Paid-In Capital

81,092

85,414

Retained Earnings

339,828

343,459

Accumulated Other Comprehensive Income

9,529

1,517

Total Stockholders’ Equity

430,539

430,480

Total Liabilities and Stockholders’ Equity

$

754,219

$

733,139

The accompanying notes are an integral part of these consolidated financial statements.

3

CTO REALTY GROWTH, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited, in thousands, except share and per share data)

Three Months Ended

March 31,

March 31,

    

2022

    

2021

Revenues

Income Properties

$

15,168

$

11,449

Management Fee Income

936

669

Interest Income From Commercial Loan and Master Lease Investments

718

701

Real Estate Operations

388

1,893

Total Revenues

17,210

14,712

Direct Cost of Revenues

Income Properties

(4,016)

(2,917)

Real Estate Operations

(51)

(82)

Total Direct Cost of Revenues

(4,067)

(2,999)

General and Administrative Expenses

(3,043)

(3,132)

Depreciation and Amortization

(6,369)

(4,830)

Total Operating Expenses

(13,479)

(10,961)

Gain (Loss) on Disposition of Assets

(245)

708

Other Gains and Income (Loss)

(245)

708

Total Operating Income

3,486

4,459

Investment and Other Income (Loss)

(1,894)

5,332

Interest Expense

(1,902)

(2,444)

Income (Loss) Before Income Tax Benefit

(310)

7,347

Income Tax Benefit

512

438

Net Income Attributable to the Company

202

7,785

Distributions to Preferred Stockholders

(1,195)

Net Income (Loss) Attributable to Common Stockholders

$

(993)

$

7,785

Per Share Information—See Note 14:

Basic and Diluted Net Income (Loss) Attributable to Common Stockholders

$

(0.17)

$

1.32

Weighted Average Number of Common Shares

Basic and Diluted

5,908,892

5,879,085

The accompanying notes are an integral part of these consolidated financial statements.

4

CTO REALTY GROWTH, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited, in thousands)

Three Months Ended

March 31, 2022

    

March 31, 2021

Net Income Attributable to the Company

$

202

$

7,785

Other Comprehensive Income:

Cash Flow Hedging Derivative - Interest Rate Swaps

8,012

1,237

Total Other Comprehensive Income

8,012

1,237

Total Comprehensive Income

$

8,214

$

9,022

The accompanying notes are an integral part of these consolidated financial statements.

5

CTO REALTY GROWTH, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(Unaudited, in thousands)

For the three months ended March 31, 2022:

Preferred Stock

Common Stock

Treasury Stock

Additional Paid-In Capital

Retained Earnings

Accumulated Other Comprehensive Income (Loss)

Stockholders' Equity

Balance January 1, 2022

$

30

$

60

$

$

85,414

$

343,459

$

1,517

$

430,480

Net Income Attributable to the Company

202

202

Adjustment to Equity Component of Convertible Debt Upon Adoption of ASU 2020-06

(7,034)

4,022

(3,012)

Vested Restricted Stock and Performance Shares

(845)

(845)

Exercise of Stock Options and Stock Issuance to Directors

149

149

Stock Issuance, Net of Equity Issuance Costs

2,789

2,789

Stock-Based Compensation Expense

619

619

Preferred Stock Dividends Declared for the Period

(1,195)

(1,195)

Common Stock Dividends Declared for the Period

(6,660)

(6,660)

Other Comprehensive Income

8,012

8,012

Balance March 31, 2022

$

30

$

60

$

$

81,092

$

339,828

$

9,529

$

430,539

For the three months ended March 31, 2021:

Preferred Stock

Common Stock

Treasury Stock

Additional Paid-In Capital

Retained Earnings

Accumulated Other Comprehensive Income (Loss)

Stockholders' Equity

Balance January 1, 2021

$

$

7,250

$

(77,541)

$

83,183

$

339,917

$

(1,910)

$

350,899

Net Income Attributable to the Company

7,785

7,785

Vested Restricted Stock and Performance Shares

(436)

(436)

Exercise of Stock Options and Stock Issuance to Directors

292

292

Stock-Based Compensation Expense

669

669

Par Value $0.01 per Share and Treasury Stock Derecognized at January 29, 2021

(7,190)

77,541

(70,351)

Stock Issuance, Net of Equity Issuance Costs

(16)

(16)

Common Stock Dividends Declared for the Period

(6,057)

(6,057)

Other Comprehensive Income

1,237

1,237

Balance March 31, 2021

$

$

60

$

$

13,341

$

341,645

$

(673)

$

354,373

The accompanying notes are an integral part of these consolidated financial statements.

6

CTO REALTY GROWTH, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited, in thousands)

Three Months Ended

March 31, 2022

March 31, 2021

Cash Flow from Operating Activities:

Net Income Attributable to the Company

$

202

$

7,785

Adjustments to Reconcile Net Income Attributable to the Company to Net Cash Provided by Operating Activities:

Depreciation and Amortization

6,369

4,830

Amortization of Intangible Liabilities to Income Property Revenue

481

(396)

Amortization of Deferred Financing Costs to Interest Expense

165

165

Amortization of Discount on Convertible Debt

69

310

Loss (Gain) on Disposition of Assets

66

(708)

Loss on Disposition of Commercial Loan and Master Lease Investments

179

Accretion of Commercial Loan and Master Lease Investment Origination Fees

(8)

Non-Cash Imputed Interest

(93)

(103)

Deferred Income Taxes

(558)

(178)

Unrealized (Gain) Loss on Investment Securities

2,457

(4,834)

Non-Cash Compensation

906

958

Decrease (Increase) in Assets:

Refundable Income Taxes

29

(252)

Land and Development Costs

(2)

(1)

Mitigation Credits and Mitigation Credit Rights

9

Other Assets

(345)

143

Increase (Decrease) in Liabilities:

Accounts Payable

876

(308)

Accrued and Other Liabilities

548

(1,225)

Deferred Revenue

87

143

Net Cash Provided By Operating Activities

11,428

6,338

Cash Flow from Investing Activities:

Acquisition of Real Estate and Intangible Lease Assets and Liabilities

(23,864)

(39,115)

Cash Contribution to Joint Ventures

(9)

Proceeds from Disposition of Property, Plant, and Equipment, Net, and Assets Held for Sale

6,754

4,702

Principal Payments Received on Commercial Loan and Master Lease Investments

17,182

Acquisition of Investment Securities

(88)

Net Cash Provided By (Used In) Investing Activities

(16)

(34,422)

Cash Flow From Financing Activities:

Proceeds from Long-Term Debt

4,000

84,000

Payments on Long-Term Debt

(5,000)

(77,183)

Cash Paid for Loan Fees

(148)

(873)

Payments for Exercise of Stock Options and Common Stock Issuance

(110)

(4)

Cash Paid for Vesting of Restricted Stock

(845)

(436)

Proceeds from Issuance of Common Stock, Net

2,789

(16)

Dividends Paid - Preferred Stock

(1,195)

Dividends Paid - Common Stock

(6,417)

(5,929)

Net Cash Used In Financing Activities

(6,926)

(441)

Net Increase (Decrease) in Cash, Cash Equivalents and Restricted Cash

4,486

(28,525)

Cash, Cash Equivalents and Restricted Cash, Beginning of Period

31,349

33,825

Cash, Cash Equivalents and Restricted Cash, End of Period

$

35,835

$

5,300

Reconciliation of Cash to the Consolidated Balance Sheets:

Cash and Cash Equivalents

$

9,450

$

4,691

Restricted Cash

26,385

609

Total Cash

$

35,835

$

5,300

The accompanying notes are an integral part of these consolidated financial statements.

7

CTO REALTY GROWTH, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)

(Unaudited, in thousands)

Three Months Ended

March 31, 2022

March 31, 2021

Supplemental Disclosure of Cash Flow Information:

Cash Paid for Taxes, Net of Refunds Received

$

$

(8)

Cash Paid for Interest

$

(1,087)

$

(1,395)

Supplemental Disclosure of Non-Cash Investing and Financing Activities:

Unrealized Gain on Cash Flow Hedges

$

8,012

$

1,237

Adjustment to Equity Component of Convertible Debt Upon Adoption of ASU 2020-06

$

3,012

$

Common Stock Dividends Declared and Unpaid

$

243

$

128

Assumption of Mortgage Note Payable

$

17,800

$

The accompanying notes are an integral part of these consolidated financial statements.

8

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

NOTE 1. DESCRIPTION OF BUSINESS

Description of Business

We are a publicly traded, primarily retail-oriented, real estate investment trust (“REIT”) that was founded in 1910. We own and manage, sometimes utilizing third-party property management companies, 21 commercial real estate properties in nine states in the United States. As of March 31, 2022, we owned seven single-tenant and 14 multi-tenant income-producing properties comprising 2.8 million square feet of gross leasable space.

In addition to our income property portfolio, as of March 31, 2022, our business included the following:

Management Services:

A fee-based management business that is engaged in managing Alpine Income Property Trust, Inc. (“PINE”), see Note 5, “Related Party Management Services Business”.

Commercial Loan and Master Lease Investments:

A portfolio of three commercial loan investments and one commercial property, which is included in the 21 commercial real estate properties above, whose lease is classified as commercial loan and master lease investment.

Real Estate Operations:

A portfolio of subsurface mineral interests associated with approximately 365,000 surface acres in 19 counties in the State of Florida (“Subsurface Interests”); and

An inventory of historically owned mitigation credits as well as mitigation credits produced by the Company’s mitigation bank. The mitigation bank owns a 2,500 acre parcel of land in the western part of Daytona Beach, Florida and, pursuant to a mitigation plan approved by the applicable state and federal authorities, produces mitigation credits that are sold to developers of land in the Daytona Beach area for the purpose of enabling the developers to obtain certain regulatory permits for property development (the “Mitigation Bank”). Prior to the Interest Purchase (hereinafter defined in Note 7, “Investment in Joint Ventures”) completed on September 30, 2021, the Company held a 30% retained interest in the entity that owns the Mitigation Bank.

Our business also includes our investment in PINE. As of March 31, 2022, the fair value of our investment totaled $38.6 million, or 15.2% of PINE’s outstanding equity, including the units of limited partnership interest (“OP Units”) we hold in Alpine Income Property OP, LP (the “PINE Operating Partnership”), which are redeemable for cash, based upon the value of an equivalent number of shares of PINE common stock at the time of the redemption, or shares of PINE common stock on a one-for-one basis, at PINE’s election. Our investment in PINE generates investment income through the dividends distributed by PINE. In addition to the dividends we receive from PINE, our investment in PINE may benefit from any appreciation in PINE’s stock price, although no assurances can be provided that such appreciation will occur, the amount by which our investment will increase in value, or the timing thereof. Any dividends received from PINE are included in investment and other income (loss) on the accompanying consolidated statements of operations.

NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Interim Financial Information

The accompanying unaudited consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission. These unaudited consolidated financial statements do not include all of the information and notes required by accounting principles generally accepted in the United States of America (“U.S. GAAP”) for complete financial statements, and should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended December 31, 2021, which provides a more complete understanding of the Company’s accounting policies, financial position, operating results, business properties, and other matters. The unaudited consolidated financial

9

statements reflect all adjustments which are, in the opinion of management, necessary to present fairly the financial position of the Company and the results of operations for the interim periods.

The results of operations for the three months ended March 31, 2022 are not necessarily indicative of results to be expected for the year ending December 31, 2022.

Principles of Consolidation

The consolidated financial statements include the accounts of the Company, its wholly owned subsidiaries, and other entities in which we have a controlling interest. Any real estate entities or properties included in the consolidated financial statements have been consolidated only for the periods that such entities or properties were owned or under control by us. All inter-company balances and transactions have been eliminated in the consolidated financial statements. As of March 31, 2022, the Company has an equity investment in PINE.

Prior to the Interest Purchase (hereinafter defined in Note 7, “Investment in Joint Ventures”) completed on September 30, 2021, the Company held a 30% retained interest in the entity that owns the Mitigation Bank. Additionally, the Company held a 33.5% retained interest in the entity that held approximately 1,600 acres of undeveloped land in Daytona Beach, Florida (the “Land JV”) prior the sale of all of its remaining land holdings, which sale was completed on December 10, 2021, for $66.3 million to Timberline Acquisition Partners, LLC an affiliate of Timberline Real Estate Partners (the “Land JV Sale”).

Use of Estimates in the Preparation of Financial Statements

The preparation of financial statements in conformity with U.S. GAAP 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 financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Among other factors, fluctuating market conditions that can exist in the national real estate markets and the volatility and uncertainty in the financial and credit markets make it possible that the estimates and assumptions, most notably those related to the Company’s investments in income properties, could change materially due to continued volatility in the real estate and financial markets, or as a result of a significant dislocation in those markets.

Recently Issued Accounting Standards

Cessation of LIBOR. In January 2021, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2021-01 which is in response to concerns about structural risks of interbank offered rates (“IBORs”), and, particularly, the risk of cessation of the London Interbank Offered Rate (“LIBOR”), regulators in numerous jurisdictions around the world have undertaken reference rate reform initiatives to identify alternative reference rates that are more observable or transaction based and less susceptible to manipulation. The amendments in ASU 2021-01 are effective immediately and clarify that certain optional expedients and exceptions in Topic 848 for contract modifications and hedge accounting apply to derivatives that are affected by the discounting transition. The Company believes that its interest rate swaps, hereinafter described in Note 17, “Interest Rate Swaps”, meet the scope of Topic 848-10-15-3A and therefore, Company will be able to continue to apply a perfectly effective assessment method for each interest rate swap by electing the corresponding optional expedient for subsequent assessments.

Debt with Conversion and Other Options. In August 2020, the FASB issued ASU 2020-06 related to simplifying the accounting for convertible instruments by removing certain separation models for convertible instruments. Among other things, the amendments in the update also provide for improvements in the consistency in EPS calculations by amending the guidance by requiring that an entity use the if-converted method for convertible instruments. The amendments in ASU 2020-06 are effective for reporting periods beginning after December 15, 2021. Effective January 1, 2022, the Company adopted ASU 2020-06 whereby diluted EPS includes the dilutive impact, if any, of the 2025 Notes (hereinafter defined) using the if-converted method. Further, the Company elected, upon adoption, to utilize the modified retrospective approach, negating the required restatement of EPS for periods prior to adoption.

10

Cash and Cash Equivalents

Cash and cash equivalents includes cash on hand, bank demand accounts, and money market accounts having original maturities of 90 days or less. The Company’s bank balances as of March 31, 2022 and December 31, 2021 include certain amounts over the Federal Deposit Insurance Corporation limits.

Restricted Cash

Restricted cash totaled $26.4 million at March 31, 2022, of which $24.3 million is being held in various escrow accounts to be reinvested through the like-kind exchange structure into other income properties, $0.6 million is being held in an escrow account in connection with the Mitigation Bank as required by the applicable state and federal permitting authorities, and the remaining $1.5 million is being held in various escrow accounts related to certain tenant improvements and commissions payable.

Derivative Financial Instruments and Hedging Activity

Interest Rate Swaps. The Company accounts for its cash flow hedging derivatives in accordance with FASB ASC Topic 815-20, Derivatives and Hedging. Depending upon the hedge’s value at each balance sheet date, the derivatives are included in either other assets or accrued and other liabilities on the consolidated balance sheet at its fair value. On the date each interest rate swap was entered into, the Company designated the derivatives as a hedge of the variability of cash flows to be paid related to the recognized long-term debt liabilities.

The Company documented the relationship between the hedging instruments and the hedged item, as well as its risk-management objective and strategy for undertaking the hedge transactions. At the hedges’ inception, the Company assessed whether the derivatives that are used in hedging the transactions are highly effective in offsetting changes in cash flows of the hedged items, and we will continue to do so on a quarterly basis.

Changes in fair value of the hedging instruments that are highly effective and designated and qualified as cash-flow hedges are recorded in other comprehensive income and loss, until earnings are affected by the variability in cash flows of the designated hedged items.

Fair Value of Financial Instruments

The carrying amounts of the Company’s financial assets and liabilities including cash and cash equivalents, restricted cash, accounts receivable, accounts payable, and accrued and other liabilities at March 31, 2022 and December 31, 2021, approximate fair value because of the short maturity of these instruments. The carrying value of the Company’s Credit Facility (hereinafter defined) as of March 31, 2022 and December 31, 2021, approximates current market rates for revolving credit arrangements with similar risks and maturities. The face value of the Company’s fixed rate commercial loan and master lease investments, the 2026 Term Loan (hereinafter defined), the 2027 Term Loan (hereinafter defined), mortgage note, and convertible debt held as of March 31, 2022 and December 31, 2021 are measured at fair value based on current market rates for financial instruments with similar risks and maturities (see Note 9, “Fair Value of Financial Instruments”).

Fair Value Measurements

The Company’s estimates of fair value of financial and non-financial assets and liabilities is based on the framework established by U.S. GAAP. The framework specifies a hierarchy of valuation inputs which was established to increase consistency, clarity and comparability in fair value measurements and related disclosures. U.S. GAAP describes a fair value hierarchy based upon three levels of inputs that may be used to measure fair value, two of which are considered observable and one that is considered unobservable. The following describes the three levels:

Level 1 – Valuation is based upon quoted prices in active markets for identical assets or liabilities.

Level 2 – Valuation is based upon 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.

11

Level 3 – Valuation is generated from model-based techniques that use at least one significant assumption not observable in the market. These unobservable assumptions reflect estimates of assumptions that market participants would use in pricing the asset or liability. Valuation techniques include option pricing models, discounted cash flow models and similar techniques.

Recognition of Interest Income from Commercial Loan and Master Lease Investments

Interest income on commercial loan and master lease investments includes interest payments made by the borrower and the accretion of purchase discounts and loan origination fees, offset by the amortization of loan costs. Interest payments are accrued based on the actual coupon rate and the outstanding principal balance and purchase discounts and loan origination fees are accreted into income using the effective yield method, adjusted for prepayments.

Mitigation Credits

Mitigation credits are stated at historical cost. As these assets are sold, the related revenues and cost of sales are reported as revenues from, and direct costs of, real estate operations, respectively, in the consolidated statements of operations.

Accounts Receivable

Accounts receivable related to income properties, which are classified in other assets on the consolidated balance sheets, primarily consist of accrued tenant reimbursable expenses and other tenant receivables. Receivables related to income property tenants totaled $1.7 million and $0.9 million as of March 31, 2022 and December 31, 2021, respectively. The $0.8 million increase is primarily attributable to an increase in estimated accrued receivables for variable lease payments including common area maintenance, insurance, real estate taxes and other operating expenses.

Accounts receivable related to real estate operations, which are classified in other assets on the consolidated balance sheets, totaled $1.1 million as of March 31, 2022 and December 31, 2021. The accounts receivable as of  March 31, 2022 and December 31, 2021 are primarily related to the reimbursement of certain infrastructure costs completed by the Company in conjunction with two land sale transactions that closed during the fourth quarter of 2015 as more fully described in Note 12, “Other Assets.”

As of March 31, 2022 and December 31, 2021, $0.3 million was due from the buyer of the golf operations for the rounds surcharge the Company paid to the City of Daytona Beach.

The collectability of the aforementioned receivables shall be considered and adjusted through an allowance for credit losses pursuant to ASC 326, Financial Instruments-Credit Losses. As of March 31, 2022 and December 31, 2021, the Company recorded an allowance for doubtful accounts of $0.5 million.

Purchase Accounting for Acquisitions of Real Estate Subject to a Lease

Investments in real estate are carried at cost less accumulated depreciation and impairment losses, if any. The cost of investments in real estate reflects their purchase price or development cost. We evaluate each acquisition transaction to determine whether the acquired asset meets the definition of a business. Under ASU 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business, an acquisition does not qualify as a business when there is no substantive process acquired or substantially all of the fair value is concentrated in a single identifiable asset or group of similar identifiable assets or the acquisition does not include a substantive process in the form of an acquired workforce or an acquired contract that cannot be replaced without significant cost, effort or delay. Transaction costs related to acquisitions that are asset acquisitions are capitalized as part of the cost basis of the acquired assets, while transaction costs for acquisitions that are deemed to be acquisitions of a business are expensed as incurred. Improvements and replacements are capitalized when they extend the useful life or improve the productive capacity of the asset. Costs of repairs and maintenance are expensed as incurred.

In accordance with FASB guidance, the fair value of the real estate acquired with in-place leases is allocated to the acquired tangible assets, consisting of land, building and tenant improvements, and identified intangible assets and liabilities, consisting of the value of above-market and below-market leases, the value of in-place leases, and the value of leasing costs, based in each case on their relative fair values. In allocating the fair value of the identified intangible assets

12

and liabilities of an acquired property, above-market and below-market in-place lease values are recorded as other assets or liabilities based on the present value. The capitalized above-market lease values are amortized as a reduction of rental income over the remaining terms of the respective leases. The capitalized below-market lease values are amortized as an increase to rental income over the initial term unless management believes that it is likely that the tenant will renew the lease upon expiration, in which case the Company amortizes the value attributable to the renewal over the renewal period. The value of in-place leases and leasing costs are amortized to expense over the remaining non-cancelable periods of the respective leases. If a lease were to be terminated prior to its stated expiration, all unamortized amounts relating to that lease would be written off.

Sales of Real Estate

When income properties are disposed of, the related cost basis of the real estate, intangible lease assets, and intangible lease liabilities, net of accumulated depreciation and/or amortization, and any accrued straight-line rental income balance for the underlying operating leases are removed, and gains or losses from the dispositions are reflected in net income within gain (loss) on disposition of assets. In accordance with the FASB guidance, gains or losses on sales of real estate are generally recognized using the full accrual method.

Gains and losses on land sales, in addition to the sale of Subsurface Interests and mitigation credits, are accounted for as required by FASB ASC Topic 606, Revenue from Contracts with Customers. The Company recognizes revenue from such sales when the Company transfers the promised goods in the contract based on the transaction price allocated to the performance obligations within the contract. As market information becomes available, the underlying cost basis is analyzed and recorded at the lower of cost or market.

Income Taxes

The Company elected to be taxed as a REIT for U.S. federal income tax purposes under the Internal Revenue Code of 1986, as amended (the “Code”) commencing with its taxable year ended December 31, 2020. The Company believes that, commencing with such taxable year, it has been organized and has operated in such a manner as to qualify for taxation as a REIT under the U.S. federal income tax laws. The Company intends to continue to operate in such a manner. As a REIT, the Company will be subject to U.S. federal and state income taxation at corporate rates on its net taxable income; the Company, however, may claim a deduction for the amount of dividends paid to its stockholders. Amounts distributed as dividends by the Company will be subject to taxation at the stockholder level only. While the Company must distribute at least 90% of its REIT taxable income, determined without regard to the dividends paid deduction and excluding any net capital gain, to qualify as a REIT, the Company intends to distribute all of its net taxable income. The Company is allowed certain other non-cash deductions or adjustments, such as depreciation expense, when computing its REIT taxable income and distribution requirement. These deductions permit the Company to reduce its dividend payout requirement under U.S. federal income tax laws. Certain states may impose minimum franchise taxes. To comply with certain REIT requirements, the Company holds certain of its non-REIT assets and operations through taxable REIT subsidiaries (“TRSs”) and subsidiaries of TRSs, which will be subject to applicable U.S. federal, state and local corporate income tax on their taxable income. For the periods presented, the Company held a total of two TRSs subject to taxation. The Company’s TRSs will file tax returns separately as C-Corporations.

The Company uses the asset and liability method to account for income taxes for the Company’s TRSs. Deferred income taxes result primarily from the net tax effect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes (see Note 21, “Income Taxes”). In June 2006, the FASB issued additional guidance, which clarifies the accounting for uncertainty in income taxes recognized in a company’s financial statements included in income taxes. The interpretation prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. The interpretation also provides guidance on de-recognition, classification, interest and penalties, accounting in interim periods, and disclosure and transition. In accordance with FASB guidance included in income taxes, the Company has analyzed its various federal and state filing positions and believes that its income tax filing positions and deductions are well documented and supported. Additionally, the Company believes that its accruals for tax liabilities are adequate. Therefore, no reserves for uncertain income tax positions have been recorded pursuant to the FASB guidance.

13

NOTE 3. INCOME PROPERTIES

Leasing revenue consists of long-term rental revenue from retail, office, and commercial income properties, which is recognized as earned, using the straight-line method over the life of each lease. Lease payments below include straight-line base rental revenue as well as the non-cash accretion of above and below market lease amortization. The variable lease payments are comprised of percentage rent and reimbursements from tenants for common area maintenance, insurance, real estate taxes, and other operating expenses.

The components of leasing revenue are as follows (in thousands):

Three Months Ended

March 31, 2022

March 31, 2021

Leasing Revenue

Lease Payments

$

12,285

$

9,698

Variable Lease Payments

2,883

1,751

Total Leasing Revenue

$

15,168

$

11,449

Minimum future base rental revenue on non-cancelable leases subsequent to March 31, 2022, for the next five years ended December 31 are summarized as follows (in thousands):

Year Ending December 31,

    

Amounts

Remainder of 2022

$

40,077

2023

51,224

2024

49,231

2025

47,631

2026

41,211

2027

34,104

2028 and Thereafter (Cumulative)

123,230

Total

$

386,708

2022 Acquisitions. During the three months ended March 31, 2022, the Company acquired Price Plaza Shopping Center, a multi-tenant income property located in Katy, Texas for a purchase price of $39.1 million, or a total acquisition cost of $39.2 million including capitalized acquisition costs. Price Plaza Shopping Center comprises 205,813 square feet, was 95% leased at acquisition, and had a weighted average remaining lease term of 5.7 years at acquisition. In connection with the acquisition of Price Plaza Shopping Center, the company assumed a $17.8 million fixed-rate mortgage note, as further discussed in Note 16, “Long-Term Debt.”

Of the $39.2 million total acquisition cost, $15.6 million was allocated to land, $17.9 million was allocated to buildings and improvements, and $5.9 million was allocated to intangible assets pertaining to the in-place lease value, leasing costs, and above market lease value and $0.2 million was allocated to intangible liabilities for the below market lease value. The amortization period for the intangible assets and liabilities was 5.7 years at acquisition.

2022 Dispositions. During the three months ended March 31, 2022, the Company sold two income properties, including (i) Party City, a single-tenant income property located in Oceanside, New York for $6.9 million resulting in a $0.06 million loss and (ii) the Carpenter Hotel ground lease, a single-tenant income property located in Austin, Texas for $17.1 million resulting in a $0.2 million loss. The lease with Carpenter Hotel included two tenant repurchase options. Pursuant to FASB ASC Topic 842, Leases, the $16.25 million investment was recorded in the accompanying consolidated balance sheets as a commercial loan and master lease investment prior to its disposition during the three months ended March 31, 2022. The sale of the properties reflect a total disposition volume of $24.0 million, resulting in aggregate losses of $0.2 million.

2021 Acquisitions. During the three months ended March 31, 2021, the Company acquired two income properties including (i) Jordan Landing, a multi-tenant income property located in West Jordan, Utah for a purchase price of $20.0 million, or a total acquisition cost of $20.1 million including capitalized acquisition costs, which income property comprises 170,996 square feet, was 100% leased at acquisition, and had a weighted average remaining lease term of 7.9 years at acquisition and (ii) Eastern Commons, a multi-tenant income property located in Henderson, Nevada for a purchase price of $18.5 million, or a total acquisition cost of $18.6 million including capitalized acquisition costs, which income property comprises 133,304 square feet, was 96% leased at acquisition, and had a weighted average remaining lease term of 6.9 years at acquisition.

14

The two multi-tenant income properties acquired during the three months ended March 31, 2021, represent an aggregate purchase price of $38.5 million, or a total acquisition cost of $38.6 million including capitalized acquisition costs. Of the total $38.6 million acquisition cost, $18.4 million was allocated to land, $14.3 million was allocated to buildings and improvements, and $5.9 million was allocated to intangible assets pertaining to the in-place lease value, leasing costs, and above market lease value. The weighted average amortization period for the intangible assets and liabilities was 7.6 years at acquisition.

2021 Dispositions. During the three months ended March 31, 2021, the Company sold two income properties, including (i) World of Beer/Fuzzy’s Taco Shop, a multi-tenant income property located in Brandon, Florida for $2.3 million resulting in a $0.6 million gain and (ii) Moe’s Southwest Grill, a single-tenant income property located in Jacksonville, Florida for $2.5 million resulting in a $0.1 million gain. The sale of the properties reflect a total disposition volume of $4.9 million, resulting in aggregate gains of $0.7 million.

NOTE 4. COMMERCIAL LOAN AND MASTER LEASE INVESTMENTS

Our investments in commercial loans or similar structured finance investments, such as mezzanine loans or other subordinated debt, have been and are expected to continue to be secured by real estate or the borrower’s pledge of its ownership interest in the entity that owns the real estate. The loans we invest in or originate are for commercial real estate located in the United States and its territories, and are current or performing with either a fixed or floating rate. Some of these loans may be syndicated in either a pari-passu or senior/subordinated structure. Commercial first mortgage loans generally provide for a higher recovery rate due to their senior position in the underlying collateral. Commercial mezzanine loans are typically secured by a pledge of the borrower’s equity ownership in the underlying commercial real estate. Unlike a mortgage, a mezzanine loan is not secured by a lien on the property. An investor’s rights in a mezzanine loan are usually governed by an intercreditor agreement that provides holders with the rights to cure defaults and exercise control on certain decisions of any senior debt secured by the same commercial property.

2022 Activity. On January 26, 2022, the Company originated a construction loan secured by the property and improvements to be constructed thereon for the second phase of The Exchange at Gwinnett project located in Buford, Georgia for $8.7 million. The construction loan matures on January 26, 2024, has a one-year extension option, bears a fixed interest rate of 7.25%, and requires payments of interest only prior to maturity. At closing, a loan origination fee of $0.1 million was received by the Company. Funding of the loan will occur as the borrower completes the underlying construction. As of March 31, 2022, the Company has not disbursed any funds to the borrower.  

On March 11, 2022, the Company sold the Carpenter Hotel ground lease located in Austin, Texas for $17.1 million. The lease with Carpenter Hotel included two tenant repurchase options. Pursuant to FASB ASC Topic 842, Leases, the initial $16.25 million investment was recorded in the consolidated balance sheets as a commercial loan and master lease investment at the time of acquisition. The carrying value at the time of sale totaled $17.3 million.

The Company’s commercial loan and master lease investments were comprised of the following at March 31, 2022 (in thousands):

Description

    

Date of Investment

    

Maturity Date

    

Original Face Amount

    

Current Face Amount

    

Carrying Value

    

Coupon Rate

Westland Gateway Plaza – Hialeah, FL

September 2020

N/A

21,085

21,085

21,151

N/A

Mortgage Note – 4311 Maple Avenue – Dallas, TX

October 2020

April 2023

400

400

394

7.50%

Mortgage Note – 110 N Beach Street – Daytona Beach, FL

June 2021

December 2022

364

364

364

10.00%

Construction Loan – The Exchange At Gwinnett – Buford, GA

January 2022

January 2024

8,700

(79)

7.25%

$

30,549

$

21,849

$

21,830

15

The Company’s commercial loan and master lease investments were comprised of the following at December 31, 2021 (in thousands):

Description

    

Date of Investment

    

Maturity Date

    

Original Face Amount

    

Current Face Amount

    

Carrying Value

    

Coupon Rate

Carpenter Hotel – 400 Josephine Street, Austin, TX

July 2019

N/A

$

16,250

$

16,250

$

17,189

N/A

Westland Gateway Plaza – Hialeah, FL

September 2020

N/A

21,085

21,085

21,148

N/A

Mortgage Note – 4311 Maple Avenue – Dallas, TX

October 2020

April 2023

400

400

394

7.50%

Mortgage Note – 110 N Beach Street – Daytona Beach, FL

June 2021

December 2022

364

364

364

10.00%

$

38,099

$

38,099

$

39,095

The carrying value of the commercial loan and master lease investments portfolio at March 31, 2022 and December 31, 2021 consisted of the following (in thousands):

As of

    

March 31, 2022

    

December 31, 2021

Current Face Amount

$

21,849

$

38,099

Imputed Interest over Rent Payments Received

66

1,002

Unaccreted Origination Fees

(81)

(2)

CECL Reserve

(4)

(4)

Total Commercial Loan and Master Lease Investments

$

21,830

$

39,095

NOTE 5. RELATED PARTY MANAGEMENT SERVICES BUSINESS

Alpine Income Property Trust. Pursuant to the Company’s management agreement with PINE, the Company generates a base management fee equal to 0.375% per quarter of PINE’s total equity (as defined in the management agreement and based on a 1.5% annual rate), calculated and payable in cash, quarterly in arrears. The structure of the base fee provides the Company with an opportunity for the base fee to grow should PINE’s independent board members determine to raise additional equity capital in the future. The Company also has an opportunity to achieve additional cash flows as manager of PINE pursuant an annual incentive fee based on PINE’s total stockholder return exceeding an 8% cumulative annual hurdle rate (the “Outperformance Amount”) subject to a high-water mark price. PINE would pay the Company an incentive fee with respect to each annual measurement period in an amount equal to the greater of (i) $0.00 and (ii) the product of (a) 15% multiplied by (b) the Outperformance Amount multiplied by (c) the weighted average shares. No incentive fee was earned for the year ended December 31, 2021.

During the three months ended March 31, 2022 and 2021, the Company earned management fee revenue from PINE totaling $0.9 million and $0.6 million, respectively. Dividend income for the three months ended March 31, 2022 and 2021 totaled $0.6 million and $0.5 million, respectively. Management fee revenue from PINE, included in management services, and dividend income, included in investment and other income (loss), are reflected in the accompanying consolidated statements of operations.

The following table represents amounts due (to) from PINE as of March 31, 2022 and December 31, 2021 which are included in other assets on the consolidated balance sheets (in thousands):

As of

Description

    

March 31, 2022

December 31, 2021

Management Services Fee due From PINE

$

936

$

913

Dividend Receivable

330

330

Other

(39)

410

Total

$

1,227

$

1,653

On November 26, 2019, as part of the initial public offering (the “IPO”) of PINE on the NYSE, the Company sold PINE 15 properties for aggregate cash consideration of $125.9 million. In connection with the IPO, the Company contributed to the PINE Operating Partnership five properties in exchange for an aggregate of 1,223,854 OP Units, which had an initial value of $23.3 million. Additionally, on November 26, 2019, the Company purchased 394,737 shares of PINE common stock for a total purchase price of $7.5 million in a private placement and 421,053 shares of PINE common stock in the IPO for a total purchase price of $8.0 million.

16

On October 26, 2021, the Board authorized the purchase by the Company of up to $5.0 million in shares of common stock of PINE, at a weighted average price not to exceed $17.75 per share. During the three months ended March 31, 2022, the Company purchased 4,765 shares of PINE common stock on the open market for a total of $0.1 million, or an average price of $18.47 per share. During the year ended December 31, 2021, the Company purchased 8,088 shares of PINE common stock on the open market for a total of $0.1 million, or an average price of $17.65 per share. As of March 31, 2022, CTO owns, in the aggregate, 1,223,854 OP Units and 828,643 shares of PINE common stock, representing an investment totaling $38.6 million, or 15.2% of PINE’s outstanding equity.

During the three months ended March 31, 2022, PINE exercised its right, pursuant to an Exclusivity and Right of First Offer Agreement between the Company and PINE (the “ROFO Agreement”), to purchase one single-tenant income property from the Company for a purchase price of $6.9 million, which sale was completed on January 7, 2022. During the year ended December 31, 2021, PINE exercised its right to purchase the following properties from the Company pursuant to the ROFO Agreement: (i) a portfolio of six net leased properties (the “CMBS Portfolio”) for an aggregate purchase price of $44.5 million, and (ii) one single-tenant income property for a purchase price of $11.5 million.  In connection with the sale of the CMBS Portfolio, PINE assumed the related $30.0 million mortgage note payable which resulted in a loss on the extinguishment of debt of $0.5 million due to the write off of unamortized debt issuance costs. These sales were completed during the three months ended June 30, 2021.

Land JV. Prior to the Land JV Sale on December 10, 2021, pursuant to the terms of the operating agreement for the Land JV, the initial amount of the management fee was $20,000 per month. The management fee was evaluated quarterly and as land sales occurred in the Land JV, the basis for the Company’s management fee was reduced as the management fee was based on the value of real property that remained in the Land JV. The monthly management fee as of March 31, 2021 was $10,000 per month. During the three months ended March 31, 2021, the Company earned management fee revenue from the Land JV totaling $0.03 million which is included in management fee income in the accompanying consolidated statements of operations and was collected in full during the period earned. As a result of the Land JV Sale, no management fee revenues were earned during the three months ended March 31, 2022.

NOTE 6. REAL ESTATE OPERATIONS

Real Estate Operations

Land and development costs at March 31, 2022 and December 31, 2021 were as follows (in thousands):

As of

    

March 31, 2022

    

December 31, 2021

Land and Development Costs

$

358

$

358

Subsurface Interests

336

334

Total Land and Development Costs

$

694

$

692

Mitigation Credits. The Company owns mitigation credits and mitigation credit rights with an aggregate cost basis of $24.7 million as of March 31, 2022 and December 31, 2021. During the three months ended September 30, 2021, the Company completed the Interest Purchase, hereinafter defined in Note 7, “Investment in Joint Ventures”. As a result of the Interest Purchase, as of September 30, 2021, the Company owns 100% of the Mitigation Bank, and therefore its underlying assets, which includes an inventory of mitigation credits. Certain of the mitigation credits are currently available for sale with the remainder to become available as they are released to the Mitigation Bank by the applicable state and federal authorities pursuant to the completion of phases of the approved mitigation plans (“Mitigation Credit Rights”). At the time of the Interest Purchase on September 30, 2021, the Company’s cost basis in the newly acquired mitigation credits and Mitigation Credit Rights totaled $0.9 million and $21.6 million, respectively, which is comprised of (i) $15.6 million of the $18.0 million Interest Purchase allocated to the mitigation credit assets and (ii) the $6.9 million previously recorded value of the retained interest in the entity that owns the Mitigation Bank.

Revenues and the cost of sales of mitigation credit sales are reported as revenues from, and direct costs of, real estate operations, respectively, in the consolidated statements of operations. There were no mitigation credit sales during the three months ended March 31, 2022 or March 31, 2021.

17

Subsurface Interests. As of March 31, 2022, the Company owns 365,000 acres of Subsurface Interests. The Company leases certain of the Subsurface Interests to mineral exploration firms for exploration. The Company’s subsurface operations consist of revenue from the leasing of exploration rights and in some instances, additional revenues from royalties applicable to production from the leased acreage, which revenues are included within real estate operations in the consolidated statements of operations. During the three months ended March 31, 2022, the Company sold approximately 4,750 acres of subsurface oil, gas, and mineral rights for a sales price of $0.4 million. During the three months ended March 31, 2021, the Company sold approximately 25,000 acres of subsurface oil, gas, and mineral rights for a sales price of $1.9 million. Revenues received from oil royalties totaled $0.01 million during each of the three months ended March 31, 2022 and 2021.

The Company is not prohibited from selling any or all of its Subsurface Interests. The Company may release surface entry rights or other rights upon request of a surface owner for a negotiated release fee typically based on a percentage of the surface value. Should the Company complete a transaction to sell all or a portion of its Subsurface Interests or complete a release transaction, the Company may utilize the like-kind exchange structure in acquiring one or more replacement investments including income-producing properties. Cash payments for the release of surface entry rights totaled $0.02 million and $0.01 million during the three months ended March 31, 2022 and 2021, respectively.

NOTE 7. INVESTMENT IN JOINT VENTURES

The Company had no investments in joint ventures as of March 31, 2022 or December 31, 2021.

Land JV.  The Company’s previously held retained interest in the Land JV represented a notional 33.5% stake in the venture, the value of which was realized in the form of distributions based on the timing and the amount of proceeds achieved when the land was ultimately sold by the Land JV. On December 10, 2021, the Land JV completed the sale of all of its remaining land holdings.

The Company served as the manager of the Land JV and was responsible for day-to-day operations at the direction of the partners of the Land JV prior to the Land JV Sale. All major decisions and certain other actions that could be taken by the Company, as manager, were approved by the unanimous consent of the JV Partners. Pursuant to the Land JV’s operating agreement, the Land JV paid the Company, as manager, a management fee in the initial amount of $20,000 per month. The management fee was evaluated quarterly, and as land sales occurred in the Land JV, the basis for the Company’s management fee was reduced as the management fee was based on the value of real property that remained in the Land JV. The final monthly management fee was received in December 2021 and totaled $10,000.

Prior to the Land JV Sale, the investment in joint ventures on the Company’s consolidated balance sheets included the Company’s previously held ownership interest in the Land JV. We concluded the Land JV to be a variable interest entity and therefore, it was accounted for under the equity method of accounting as the Company was not the primary beneficiary as defined in FASB ASC Topic 810, Consolidation. The significant factors related to this determination included, but were not limited to, the Land JV being jointly controlled by the members through the use of unanimous approval for all material actions. Under the guidance of FASB ASC 323, Investments-Equity Method and Joint Ventures, the Company used the equity method to account for the Land JV investment.

During the year ended December 31, 2021, the Company recognized impairment charges on its previously held retained interest in the Land JV totaling $17.6 million. The aggregate $17.6 million impairment on the previously held retained interest in the Land JV is comprised of a $16.5 million charge during the three months ended June 30, 2021 and a $1.1 million charge during the three months ended December 31, 2021, which is a result of eliminating the investment in joint ventures based on the final proceeds received through distributions of the Land JV in connection with the Land JV Sale.

18

The following table provides summarized financial information of the Land JV for the three months ended March 31, 2021 (in thousands):

Three Months Ended

March 31, 2021

Revenues

$

21

Direct Cost of Revenues

(81)

Operating Loss

$

(60)

Other Operating Expenses

(71)

Net Loss

$

(131)

The Company’s share of the Land JV’s net loss was zero for the three months ended March 31, 2021. Pursuant to ASC 323, certain adjustments are made when calculating the Company’s share of net income (loss) of the Land JV, including adjustments required to reflect the investor’s share of changes in investee’s capital to reflect distributions from the Land JV. Additionally, basis differences are also considered. The Company recorded the initial retained interest in the Land JV of $48.9 million at the estimated fair market value based on the relationship of the $97.0 million sales price of the 66.5% equity interest to the 33.5% retained interest. The Land JV recorded the assets contributed by the Company at carry-over basis pursuant to ASC 845 which states that transfers of nonmonetary assets should typically be recorded at the transferor’s historical cost basis. Accordingly, the Company’s basis difference in the 33.5% retained equity interest was evaluated each quarter upon determining the Company’s share of the Land JV’s net income (loss). As a result of the Land JV Sale, the liquidation of the Land JV’s assets, and the dissolution of the underlying entities, such evaluation was no longer required subsequent to December 31, 2021.

Mitigation Bank. The mitigation bank transaction completed in June 2018 consisted of the sale of a 70% interest in the entity that owns the Mitigation Bank (the “Mitigation Bank JV”). The purchaser of the 70% interest in the Mitigation Bank JV was comprised of certain funds and accounts managed by an investment advisor subsidiary of BlackRock, Inc. (“BlackRock”). The Company retained a 30% non-controlling interest in the Mitigation Bank JV. A third-party was retained by the Mitigation Bank JV as the day-to-day manager of the Mitigation Bank JV property, responsible for the maintenance, generation, tracking, and other aspects of wetland mitigation credits. Prior to September 30, 2021, the investment in joint ventures included on the Company’s consolidated balance sheets included $6.9 million related to the fair market value of the 30% retained interest in the Mitigation Bank JV.

On September 30, 2021, the Company, through a wholly owned and fully consolidated TRS, purchased the remaining 70% interest in the Mitigation Bank JV from BlackRock for $18.0 million (the “Interest Purchase”) resulting in a net cash payment by the Company of $16.1 million after utilizing the available cash in the Mitigation Bank JV of $1.9 million. As a result of the Interest Purchase, the Mitigation Bank JV is now wholly owned by the Company and is referred to as the Mitigation Bank. Pursuant to ASU 2017-01, Business Combinations: Clarifying the Definition of a Business, the Interest Purchase represents an asset acquisition as substantially all of the fair value of the gross assets acquired are concentrated in a group of similar identifiable assets, i.e. the mitigation credits and mitigation credit rights. Accordingly, the Company recorded the Interest Purchase by allocating the total cost of the asset group to the individual assets acquired. The Company’s total cost of the Interest Purchase totaled $24.9 million which is comprised of (i) the $18.0 million Interest Purchase and (ii) the $6.9 million previously recorded value of the retained interest in the entity that owns the Mitigation Bank. In connection with the Interest Purchase, the previously recorded value of $6.9 million of the retained interest was eliminated and the $24.9 million total cost was allocated as follows: (i) $1.8 million to cash and cash equivalents, (ii) $0.6 million to restricted cash, (iii) $0.9 million to the mitigation credits, and (iv) $21.6 million to the mitigation credit rights.

During the period from June 2018 through the date of the Interest Purchase on September 30, 2021, the operations of the Mitigation Bank JV are summarized as follows. The operating agreement of the Mitigation Bank JV (the “Operating Agreement”) was executed in conjunction with the mitigation bank transaction and stipulated that the Company should have arranged for sales of the Mitigation Bank JV’s mitigation credits to unrelated third parties totaling no less than $6.0 million of revenue to the Mitigation Bank JV, net of commissions, by the end of 2020, utilizing a maximum of 60 mitigation credits (the “Minimum Sales Requirement”). The Operating Agreement stipulated that if the Minimum Sales Requirement was not achieved, then BlackRock had the right, but was not required, to cause the Company to purchase the number of mitigation credits necessary to reach the Minimum Sales Requirement (the “Minimum Sales Guarantee”). As a result of not having achieved the Minimum Sales Requirement prior to December 31, 2020, during the nine months ended September 30, 2021, the Company had active discussions with BlackRock whereby BlackRock did not cause the

19

Company to effectuate the Minimum Sales Guarantee; rather, the Company purchased the remaining 70% interest in the Mitigation Bank JV from BlackRock.

The following table provides summarized financial information of the Mitigation Bank JV for the three months ended March 31, 2021 (in thousands):

Three Months Ended

March 31, 2021

Revenues

$

104

Direct Cost of Revenues

(7)

Operating Income

$

97

Other Operating Expenses

(100)

Net Loss

$

(3)

The Company’s share of the Mitigation Bank JV’s net loss was zero for the three months ended March 31, 2021. Pursuant to ASC 323, certain adjustments are made when calculating the Company’s share of net income (loss), including adjustments required to reflect the investor’s share of changes in investee’s capital to reflect distributions from the Mitigation Bank JV. Additionally, basis differences are also considered. The Company recorded the initial retained interest in the Mitigation Bank JV of $6.8 million in June 2018 at the estimated fair market value based on the relationship of the $15.3 million sales price of the 70% equity interest to the 30% retained interest. The Mitigation Bank JV recorded the assets contributed by the Company at carry-over basis pursuant to ASC 845 which states that transfers of nonmonetary assets should typically be recorded at the transferor’s historical cost basis. Accordingly, the Company’s basis difference in the 30% retained equity interest was evaluated each quarter upon determining the Company’s share of the Mitigation Bank JV’s net income (loss). As a result of the Interest Purchase, such evaluation was no longer required subsequent to December 31, 2021.  

NOTE 8. INVESTMENT SECURITIES

The Company acquired 815,790 shares of PINE common stock in connection with the IPO. During the three months ended March 31, 2022, the Company purchased 4,765 shares of PINE common stock on the open market for a total of $0.1 million, or an average price of $18.47 per share. During the year ended December 31, 2021, the Company purchased 8,088 shares of PINE common stock on the open market for a total of $0.1 million, or an average price of $17.65 per share. As of March 31, 2022, the Company owns, in the aggregate and on a fully diluted basis, 2.05 million shares of PINE, or 15.2% of PINE’s total shares outstanding for an investment value of $38.6 million, which total includes 1.2 million OP Units, or 9.1%, which the Company received in exchange for the contribution of certain income properties to the PINE Operating Partnership, in addition to 828,643 shares of common stock owned by the Company, or 7.0%. The Company has elected the fair value option related to the aggregate investment in securities of PINE pursuant to ASC 825, otherwise such investments would have been accounted for under the equity method.

The Company calculates the unrealized gain or loss based on the closing stock price of PINE at each respective balance sheet date. The unrealized, non-cash gains and losses resulting from the changes in the closing stock price of PINE are included in investment and other income (loss) in the consolidated statements of operations for the three months ended March 31, 2022 and 2021.

20

The Company’s available-for-sale securities as of March 31, 2022 and December 31, 2021 are summarized below (in thousands):

    

Cost

    

Unrealized Gains in
Investment Income

    

Unrealized
Losses in
Investment Income

    

Estimated
Fair Value
(Level 1 Inputs)

March 31, 2022

Common Stock

$

15,731

$

$

(152)

$

15,579

Operating Units

23,253

(245)

23,008

Total Equity Securities

38,984

(397)

38,587

Total Available-for-Sale Securities

$

38,984

$

$

(397)

$

38,587

December 31, 2021

Common Stock

$

15,643

$

868

$

$

16,511

Operating Units

23,253

1,273

24,526

Total Equity Securities

38,896

2,141

41,037

Total Available-for-Sale Securities

$

38,896

$

2,141

$

$

41,037

NOTE 9. FAIR VALUE OF FINANCIAL INSTRUMENTS

The following table presents the carrying value and estimated fair value of the Company’s financial instruments not carried at fair value on the consolidated balance sheets at March 31, 2022 and December 31, 2021 (in thousands):

March 31, 2022

December 31, 2021

    

Carrying Value

    

Estimated Fair Value

    

Carrying Value

    

Estimated Fair Value

Cash and Cash Equivalents - Level 1

$

9,450

$

9,450

$

8,615

$

8,615

Restricted Cash - Level 1

$

26,385

$

26,385

$

22,734

$

22,734

Commercial Loan and Master Lease Investments - Level 2

$

21,830

$

21,922

$

39,095

$

39,109

Long-Term Debt - Level 2

$

298,079

$

301,902

$

278,273

$

288,000

To determine estimated fair values of the financial instruments listed above, market rates of interest, which include credit assumptions, were used to discount contractual cash flows. The estimated fair values are not necessarily indicative of the amount the Company could realize on disposition of the financial instruments. The use of different market assumptions or estimation methodologies could have a material effect on the estimated fair value amounts.

21

The following table presents the fair value of assets measured on a recurring basis by level as of March 31, 2022 and December 31, 2021 (in thousands). See Note 17, “Interest Rate Swaps” for further disclosure related to the Company’s interest rate swaps.

Fair Value at Reporting Date Using

Fair Value

    

Quoted Prices in Active Markets for Identical Assets (Level 1)

    

Significant Other Observable Inputs (Level 2)

    

Significant Unobservable Inputs (Level 3)

March 31, 2022

Cash Flow Hedge - 2026 Term Loan Interest Rate Swap (1)

$

2,984

    

$

    

$

2,984

    

$

Cash Flow Hedge - 2026 Term Loan Interest Rate Swap (2)

$

929

    

$

    

$

929

    

$

Cash Flow Hedge - 2027 Term Loan Interest Rate Swap (3)

$

5,616

    

$

    

$

5,616

    

$

Investment Securities

$

38,587

    

$

38,587

    

$

    

$

December 31, 2021

Cash Flow Hedge - 2026 Term Loan Interest Rate Swap (1)

$

727

    

$

    

$

727

    

$

Cash Flow Hedge - 2026 Term Loan Interest Rate Swap (2)

$

240

    

$

    

$

240

    

$

Cash Flow Hedge - 2027 Term Loan Interest Rate Swap (3)

$

550

    

$

    

$

550

    

$

Investment Securities

$

41,037

    

$

41,037

    

$

    

$

(1)

Effective March 10, 2021, the Company redesignated the interest rate swap, entered into as of August 31, 2020, to fix LIBOR and achieve a fixed interest rate of 0.22% plus the applicable spread on the $50.0 million 2026 Term Loan, hereinafter defined.

(2)

Effective August 31, 2021, the Company utilized an interest rate swap to fix LIBOR and achieve a fixed interest rate of 0.77% plus the applicable spread on the remaining $15.0 million outstanding principal balance on the 2026 Term Loan, hereinafter defined.

(3)

Effective November 5, 2021 the Company redesignated the interest rate swap, entered into as of March 31, 2020, to fix LIBOR and achieve a fixed interest rate of 0.73% plus the applicable spread on the $100.0 million 2027 Term Loan, hereinafter defined.

No assets were measured on a non-recurring basis as of March 31, 2022 or December 31, 2021.

NOTE 10. INTANGIBLE ASSETS AND LIABILITIES

Intangible assets and liabilities consist of the value of above-market and below-market leases, the value of in-place leases, and the value of leasing costs, based in each case on their fair values. Intangible assets and liabilities consisted of the following as of March 31, 2022 and December 31, 2021 (in thousands):

As of

    

March 31,
2022

    

December 31,
2021

Intangible Lease Assets:

Value of In-Place Leases

$

63,206

$

59,293

Value of Above Market In-Place Leases

24,001

23,216

Value of Intangible Leasing Costs

19,626

18,456

Sub-total Intangible Lease Assets

106,833

100,965

Accumulated Amortization

(24,908)

(21,473)

Sub-total Intangible Lease Assets—Net

81,925

79,492

Intangible Lease Liabilities (Included in Accrued and Other Liabilities):

Value of Below Market In-Place Leases

(7,146)

(6,942)

Sub-total Intangible Lease Liabilities

(7,146)

(6,942)

Accumulated Amortization

1,603

1,341

Sub-total Intangible Lease Liabilities—Net

(5,543)

(5,601)

Total Intangible Assets and Liabilities—Net

$

76,382

$

73,891

During the three months ended March 31, 2022, the value of in-place leases increased by $3.9 million, the value of above-market in-place leases increased by $0.8 million, the value of intangible leasing costs increased by $1.2 million, and the value of below-market in-place leases increased by $0.2 million. Such changes reflect the acquisition of one multi-tenant income property, net of two single-tenant income properties sold during the three months ended March 31, 2022. Net accumulated amortization increased by $3.2 million, for a net increase during the three months ended March 31, 2022 of $2.5 million.

22

The following table reflects the net amortization of intangible assets and liabilities during the three months ended March 31, 2022 and 2021 (in thousands):

Three Months Ended

March 31,
2022

March 31,
2021

Amortization Expense

$

2,695

$

1,827

Accretion to Income Properties Revenue

481

(396)

Net Amortization of Intangible Assets and Liabilities

$

3,176

$

1,431

The estimated future amortization expense (income) related to net intangible assets and liabilities is as follows (in thousands):

Year Ending December 31,

    

Future Amortization Amount

    

Future Accretion to Income Property Revenue

    

Net Future Amortization of Intangible Assets and Liabilities

Remainder of 2022

$

8,419

$

1,492

$

9,911

2023

11,128

2,013

13,141

2024

11,117

2,097

13,214

2025

8,891

2,153

11,044

2026

7,384

1,871

9,255

2027

7,125

1,550

8,675

2028 and Thereafter

8,848

2,294

11,142

Total

$

62,912

$

13,470

$

76,382

As of March 31, 2022, the weighted average amortization period of total intangible assets and liabilities was 7.7 years and 8.5 years, respectively.

NOTE 11. IMPAIRMENT OF LONG-LIVED ASSETS

The Company assesses the impairment of long-lived assets whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. The fair value of long-lived assets required to be assessed for impairment is determined on a non-recurring basis using Level 3 inputs in the fair value hierarchy. These Level 3 inputs may include, but are not limited to, executed purchase and sale agreements on specific properties, third party valuations, discounted cash flow models, and other model-based techniques.

There were no impairment charges on the Company’s income property portfolio during the three months ended March 31, 2022 or 2021.

NOTE 12. OTHER ASSETS

Other assets consisted of the following as of March 31, 2022 and December 31, 2021 (in thousands):

As of

    

March 31, 2022

    

December 31, 2021

Income Property Tenant Receivables

$

1,679

$

885

Income Property Straight-line Rent Adjustment and COVID-19 Deferral Balance

5,597

5,180

Operating Leases - Right-of-Use Asset

143