John Albright - President and Chief Executive Officer Mark Patten - Senior Vice President and Chief Financial Officer.

David Corak - FBR & Co. David Winters - WinterGreen Advisors Steven Graff - Wintergreen Advisers LLC.

Hello and welcome to the Consolidated-Tomoka Fourth Quarter Earnings Call 2016. All participants will be in listen-only mode. [Operator Instructions]. After today’s presentation, there will be an opportunity to ask questions. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to John Albright.

Please go ahead..

Thank you. Good morning, and welcome to today’s Consolidated-Tomoka Land Company Conference Call to update you on the company’s recent activities and to review our operating results for the quarter and year ended December 31, 2016. My name is John Albright, President and CEO of Consolidated-Tomoka Land Company.

On the call with me this morning is Mark Patten, our CFO; and Dan Smith, our General Counsel and Corporate Secretary. Mark will review the details of our fourth quarter and full-year financial results. First, I’ll turn it over to Mark to provide you with customary disclosures regarding our comments on this call..

Thanks, John. Good morning, everyone. During our call today, we’ll make certain statements that may be considered to be forward-looking statements under federal securities laws. The company’s actual future results may differ significantly from the matters discussed in these forward-looking statements.

And we may not release revisions to these forward-looking statements to reflect changes after the statements were made. Factors and risks that could cause actual results to differ materially from expectations are disclosed from time to time in greater detail in the company’s filings with the SEC and in our press release from last night.

In addition, let me note that, we filed our year-end investor deck last night, which is now available on our website. Our investor deck provides additional information you may find useful. With that, I’ll turn it back over to John..

Thanks, Mark. While we look forward to reviewing our full-year and fourth quarter results for 2016 and to highlight a number of the developments in our business, my opening remarks will address the state of our business and the progress we’re making and achieving our business plan.

We’re very pleased to announce that the joint permit for CTO and Minto Communities from the Army Corps of Engineers has finally been issued. We hope to close the first Minto land transaction of 1,581 acres for approximately $27.2 million in the coming week or so.

Minto is anxious to get started as evidenced by their Sales Center that’s under construction on the first 4.5 acres that they acquired from us last September, and as evidenced by the multiple billboards, Minto has secured to advertise their project.

While this is anticipated, closing has taken almost three years since we originally signed the contract much longer than we both anticipated, approximately a year or more of the delay was due to the impact of the company having to reach a settlement with the EPA and Army Corps of Engineers regarding the company’s agriculture activities under prior management on both parcels that are under contract with Minto.

Minto has indicated, they expect to deliver nearly 300 homes per year when they get fully ramped up for this 3,400 unit age-restricted development, which should provide a strong economic engine for our area for years to come. ICI Homes also recognizes their housing opportunity for Daytona Beach, as evidenced by their closing on the sale with us.

So the first 604 acres of the Bayberry II project in December for $7.5 million.

In addition, our pipeline of land contracts has grown with two contracts executed in December 2016; one with an owner operator of a commercial retail business for 35 acres, along I-95 at the LPGA intersection for $14 million, or $400,000 per acre less any cost for wetland mitigation; and the other with a residential developer for 194 acres located on the west side of I-95 along the south end of LPGA Boulevard near Father Lopez High School for approximately $3.3 million, or 17,000 per acre.

We also executed an additional contract in January 2017 for the sale of approximately 28 acres located at southeast corner of LPGA Boulevard, in Clyde Morris Boulevard for industrial use for approximately $3.2 million, or approximately 115,000 per acre.

Overall, our sales pipeline remains strong with approximately 3,800 acres under contract, or approximately 39% of our land holdings, with potential proceeds of approximately $110 million, which is approximately 29,000 per acre. For clarity, this pipeline data does includes the anticipated closing of the Minto Phase 1 contract.

As we have stated on a number of occasions this past year, our Board and our company remain committed to maximizing long-term value for all of our shareholders.

As part of this commitment, we were able to purchase approximately 38,000 shares, investing approximately $1.9 million, representing an average price of around $51.22 per share in the fourth quarter of 2016. Including this activity, we’ve acquired just over 151,000 shares in 2016 for approximately $7.4 million.

Now, I’ll turn it back over to Mark to review our operating results..

Thanks, John. Total revenue for the quarter ended December 31, 2016 increased by approximately $7.9 million to approximately $27.6 million, as compared to approximately $19.8 million during the same period in 2015.

Revenue from our Real Estate Operations segment for the fourth quarter increased approximately $7.2 million, reflecting an increase of approximately $9 million in revenue from our land sales, approximately $4.5 million in revenue earned from the reimbursement of a portion of the cost we incurred to complete the infrastructure work at the Tomoka Town Center, and approximately $1.7 million in impact fee credit sales, offset by a decrease of approximately $7.1 million and the amount of revenue we recognized on the percentage of completion basis related to our land sales in the Tomoka Town Center from the fourth quarter of last year and the first quarter of this year, and decreased revenue from our subsurface interests of approximately $1.1 million.

Revenue from our income property operations for the quarter increased approximately $1 million, reflecting approximately 560,000 of incremental rent revenue due to the addition of the 245 Riverside property in Jacksonville acquired in July of 2015 and the Wells Fargo property in Raleigh acquired in November of 2015, and our acquisitions in the fourth quarter of 2016, which delivered approximately $650,000 of added revenue.

This was offset by a reduction of approximately $570,000 in single-tenant rent revenue due to recent dispositions. Our increase in revenues also included approximately $359,000 in non-cash revenue, which is related to the accretion of the below market lease intangible, primarily attributable to the Wells Fargo property.

For the quarter ended December 31, 2016, we achieved net income per share of $0.91 per share, which was a decrease of $0.08 per share compared to the period-end 2015. Our operating income was $10.3 million for the quarter, a decrease of approximately $1.1 million from the 2015 fourth quarter.

The decrease in our net income per share and the operating income for the quarter was due primarily to approximately $1.7 million in gains from the sale of two income properties during the fourth quarter of 2015, with no such dispositions in the same period in 2016.

Our net income in the fourth quarter of 2016 reflected the increased revenues I mentioned earlier, offset by the associated increase in direct cost of revenues of approximately $7.2 million, which primarily reflects the cost basis for our increased land sales revenue during the quarter, as well as the following other elements of our operating results.

A decrease in our G&A of approximately $851,000 primarily due to the decrease in non-cash stock compensation expense of approximately $550,000 and reduced charges associated with accruals for environmental matters of approximately $181,000.

In addition, an increase in depreciation and amortization of approximately $809,000 resulting from the growth in our income property portfolio. Decreases in gains recognized on the disposition of assets, which is a result of approximately $1.7 million recognized in 2015 versus no dispositions in the fourth quarter of this year, as I mentioned.

And finally, increased investment income, which primarily is the result of the loss recognized in the fourth quarter of 2015 related to the disposition of certain investment securities.

For the year ended December 31, 2016, total revenue increased approximately $28.1 million to approximately $71.1 million, as compared to approximately $43 million during the same period in 2015.

This increase primarily reflected an increase of approximately $7.7 – $7.6 million in revenue from land sales, approximately $4.5 million in revenue earned from the reimbursement of a portion of the cost I mentioned earlier regarding the infrastructure work at the Tomoka Town Center and approximately $1.8 million in impact fee credit sales and approximately $9.4 million in the amount of revenue we recognized on the percentage of completion basis for the land sales, I noted earlier, offset by decreased revenue from our subsurface interest of approximately $1.2 million.

Our increased revenues for 2016 also reflect an increase in revenue from our income property operations of approximately $6.1 million, reflecting approximately $5 million of incremental rent revenue due to the addition of the 245 Riverside and Wells Fargo properties, offset by a reduction of approximately $1.7 million in rent revenue due to our recent dispositions in 2016.

Also included in the increased revenue from our income property operations for the year is an increase of approximately $2.1 million in non-cash revenue related to the accretion of the below market lease intangible, primarily attributable to the Wells Fargo property, as I mentioned.

Net income for the year ended December 31, 2016 was approximately $16.3 million, compared to approximately $8.3 million in the same period in 2015. Net income per share for the year was $2.86 per share, as compared to $1.44 per share during the same period in 2015, an increase of $1.42.

Our net income for the year ended December 31, 2016 reflected our increased revenues of approximately $28.1 million, as I mentioned earlier, offset by the associated increase in direct cost of revenue of approximately $12.1 million, which such increase was substantially related to the increase in the direct cost of revenues for our real estate operations of approximately $10.6 million, which primarily reflects the cost basis for our increase land sales, as well as the following other elements of our operating results.

Gains on the disposition of income properties totaled approximately $12.8 million, which includes approximately $11.5 in gains recognized in the third quarter from the completed disposition of the portfolio of 14 single-tenant income properties.

We had an increase in our G&A of approximately $1.5 million, primarily due to the increase in non-cash stock compensation of expense of $992,000 and approximately $1.4 million in charges associated with legal, accounting, and director meeting fees to address certain shareholder matters, offset by reduced expenses for accruals for environmental matters of approximately $662,000.

In addition, an increase in depreciation and amortization of nearly $3 million, which resulted from the growth in our income property portfolio. Our year-end results also were impacted by increased interest expense of approximately $1.8 million, primarily reflecting a full-year of interest on our convertible notes issuance.

In addition, a decrease in our investment income of approximately $739,000 which is primarily the result of a loss recognized in the first quarter of 2016 related to the disposition of certain investment securities.

And finally, the recognition of increased impairment charges of approximately $1.7 million, whereby the total impairment charges during 2016 were approximately $2.2 million, which related to the charges of approximately $1.2 million in connection with the sale of two income properties; one in Sebring, Florida and one in Altamonte Springs, Florida, which were sold in April and September of 2016, respectively, and impairment charges recognized on certain land sales that we put under contract of approximately $1 million, which are still under contract to close in the future years.

These were both parcels that were repurchased at a higher basis.

We finished the year in a stronger liquidity position than we enjoyed at the end of 2015 with approximately $16 million in cash, including approximately $8.2 million of restricted cash related to our 1031 exchange transactions and a borrowing capacity on our credit facility of approximately $40.7 million based on the level of borrowing base assets.

Our net debt, which represents the full face value of our outstanding debt at year end, less our cash and restricted cash affiliated with a 1031 exchange transactions totaled approximately $155.6 million, or approximately 32.6% relative to our total enterprise value, which compares favorably to our leverage guidance of 40% of total enterprise value.

Finally, I’d like to mention a few points regarding our recent transaction to buyout the company’s land lease in the city of Daytona Beach, thereby acquiring the fee simple interest in the land that essentially comprises the golf courses at LPGA International.

As we announced, we made of a payment of $1.5 million to the city, which effectively terminated the land lease and eliminated approximately $1.7 million in rent payments, we would have made during the remaining term of the lease, which went through September of 2022.

In addition, we contributed three small parcels totaling approximately 14 acres to the city. The three land parcels, including two relatively undeveloped parcels behind the city’s municipal stadium and a third parcel near the entrance of the stadium were uniquely valuable to the city primarily for expanded parking capacity.

By contributing these parcels which had a basis of essentially zero on our books, we eliminated nearly $14,000 a year in carrying cost.

More importantly, by completing this transaction, we’ll reduce the operating cost of our golf course operations by more than $280,000 annually, which is approximately 71% of the reported operating loss in this segment in 2016.

We believe that by combining the fee simple and leasehold ownership interests, our ability to maximize the value potential of this asset will be greatly enhanced. Now, I’ll turn it back over to John to discuss some of the other activities from the fourth quarter..

Thanks, Mark. With regard to our income property portfolio, we had a strong quarter investing more than $36.9 million during the fourth quarter at a weighted average investment yield at acquisition of approximately 7.92%.

As we mentioned last quarter, we acquired 3,600 Peterson office property in the strong Santa Clara, California market, in our off-market transaction for $30 million at a 7.77% investment cap rate yield on the acquisition date.

This single story Class A office property is situated near an intense redevelopment of surrounding properties in the Class A office product. In addition, we required a movie theater property in downtown Reno, Nevada for $6.9 million at a cap rate at the acquisition date of approximately 8.57%.

The property is 95% leased to Century Theatres, an affiliate of Cinemark, under a triple-net lease with remaining term of approximately three years.

We like this property acquisition, which was – this property was built in 2000 and sits on the entire city block with frontage along the Truckee River, because the Reno market is seeing significant employment and economic growth, particularly from the lives of Tesla and Amazon, both come into the Reno market.

For the year, we completed an acquisition of 10 income properties for approximately $86.7 million at a weighted average investment cap rate of 6.33%, which is low within our guidance for the year. Our 2016 acquisitions represents the largest level of investments in our company’s history.

In addition to our income property acquisitions, we also completed the acquisition of 50% interest we did already own in the real estate venture that owns a six acre vacant beach front parcel in Daytona Beach. You’ll recall that we acquired the original 50% interest in August 2015 for $5.7 million.

We acquired the remaining 50% interest for approximately $4.7 million from the institutional investor we had partnered with on this investment. That investor was liquidating the remaining asset of a fund and disposition was the last asset to be sold.

During the fourth quarter, we received approval of the rezoning and entitlement of the site for up to approximately 1.2 million square feet of density, as well as the near-term entitlement for two restaurants on the site.

We very much like the return opportunity for this investment presents the company both in the near-term for the two restaurants the company plans to develop on the parcel and in the long-term from a larger-scale vertical development should the market conditions permit.

As a final note, I would like to point out that, CTO now has new equity research coverage by David Corak at FBR & Company, which was initiated in early January of 2017 That concludes our prepared remarks. At that time, we’ll open it up for questions.

Operator?.

We will now begin the question-and-answer session. [Operator Instructions] Our first question comes from David Corak of FBR Capital. Please go ahead..

Good morning, guys. Thanks for the press. Just to start off, I’ll start with the growth.

Can you just give us a sense as to the total expected NOI once I think fully leased? And then maybe, what it is for the 50% that you mentioned today, the 70% that you said for 6/30, really just trying to look at what’s the timing on that when it starts the cash flow? And then maybe give us some comment on where you see the valuation of that today and then where you see that shaking out?.

Thanks, David, and great to have you on the call. So on the growth as we have out in our Investor deck, basically the total estimated investment for the growth as far as the acquisition in tenant improvements and leasing commissions and renovation is roughly $12.5 million. And we think that, the expected return on that would be 8% to 10%.

And we think that as potential to be on the high-end of that return scenario. And so 24-hour, as we noted, opened this weekend. It was a strong opening for them. Even though they didn’t have a lot of time to do as much pre-marketing as they usually like to do.

And there – the cash flow on that asset from their lease and for the other leases that we have signed up should really kick in, in the fourth quarter. So there’s – right now, there are still – there are some still renovation going on. [indiscernible] is basically in their permitting process for the Old McDonald’s Pet [ph] site.

And their expectation is that, they would open up and start construction for 2018. So that’s kind of where we are.

And then on valuation, we have to come out with anything, but we can probably help you out with some brokers who could kind of tell you where they think it would trade once it’s kind of stabilized, but we’ll kind of let that have somebody else kind of fill in the details there..

So do you have an estimate of kind of what your stabilized NOI is?.

Yes. I mean and we do and we – I just kind of went through it. So [Multiple Speakers].

Okay. But the 8% to 10% return..

…let’s say, we’re at the high-end just to make the numbers easy but it’s 10% than we’re talking about $1.02..

Okay, that’s helpful. Thank you.

And then can you give some details on the termination of the subservice agreement? But more importantly, have you guys put together a plan for marketing selling that those kind of interest to that?.

Yes, sure. So the group that had it under contract was really looking to try to lay-off some of their exposure by going to different counties and pre-selling, if you will, reselling some of the interests. And they just – and then they weren’t really satisfied with some of the title.

So it was kind of a combination of the two that they didn’t feel like they got enough of their exposure down and some of the title they weren’t happy with.

So what we’re doing right now is, we’re kind of picking up the ball where they left off on some of the counties, talking to groups that may have a strategic interest in buying the subsurface in those counties in that they have – someone might have a large surface ownership and they’d like to collapse that with buying our subsurface interest.

So we’re having that sort of dialogue. And then also on a note with regards to Kerrigan, [ph] Kerrigan is very interested to move forward on a drilling program on our lease in Henry County. So we obviously hope that, they’re successful in that program. There’s some things to do.

They need to get permitted on some wells and they need to raise some capital. But that’s kind of a – to be determined how that comes about, so that’s kind of where we are right now with the subsurface program..

Okay, fair enough.

And then lastly, can you just talk about the Staples acquisition, how you acquired, that was at off-market? And then maybe just some general color on what you’re seeing in the acquisition market for net leased assets?.

Sure. So the Staple deal was off-market. The seller basically was – basically hired a broker, but the broker we’ve done some transactions within the past. And so they gave us kind of a first shot, given that they knew that we had a position in Sarasota, so we knew the market. And so we really like that transaction, Fruitville Road, very busy road.

And then the Staples, front the Road and behind is the Regal theater that a new owner – new real estate operators bought and they plans on doing a renovation. So that little neighborhood should get better.

On the acquisition market, I’ll say that the lower tier type properties, lower quality properties, definitely cap rates have expanded and there’s more of that product available, lot of things that were launched to sell and basically have come back on the market, because they didn’t sell.

But for the higher-quality assets that we’re trying to procure, those have seen less pricing pressure than we’d like. And so we’re trying to be selective in finding those. But – so I’d say that the higher-quality properties have not – the cap rates have not expanded out as much as you may think, but the lower tier properties certainly have..

Thanks. That’s a good color. That’s all for me. Thank you, guys..

Sure. Thanks, David..

The next question comes from David Winters of WinterGreen Advisors. Please go ahead..

The shareholder day tape recording that is available online is severely edited to omit the majority of the questions asked and answered.

The overall tone and tenor of the day was edited as the meeting that’s on your website, why? Will the company make the unedited version available to all shareholders?.

We don’t control the edited version or unedited version. So we’ll look into that. We’ll take a look at it. But thank you..

Well, how do you – how is that you don’t control a job.

And why would you not provide us with the full detail that went on during the Investor Day?.

Oh, during the Investor Day. Investor Day, we actually – the recorded portion of the meeting was simply management’s presentation. So we didn’t record the remainder of the day actually, so it’s not an editing, it’s actually what was the conference call portion of the meeting was the management presentation..

Well, but if you look – listen to the tape, there’s a number of questions on it and there’s a number of questions that were asked and answered that are not included.

So I mean, I don’t think that’s the complete answer gentlemen?.

Well, we’ll definitely take a look at it. You might recall that, we opened up for questions after management’s presentation then we moved into another presentation by Kerry Karl and then there was Q&A again after that, which we hadn’t anticipated. So we didn’t record all the way through Kerry’s presentation.

But I think we also, David, we had a speaker phone that was close to where the speakers were. So I think it didn’t pick up a lot of the Q&A that was out of their range of that speaker phone, that’s also possible. We’ll take a look at it though in terms of what that is..

Because there’s – if you remember, there was a – shareholders who asked why is the company so hostile to its shareholders? And that question is not included in the Investor Day..

Yes, I think….

I mean, there were number of questions that seem to be missing or omitted and….

Well, David, there was nothing omitted. So I appreciate that. We’ll take a look at it..

I think you should have the full release, full recording on your website..

Is there another question?.

Move on to the next question..

Operator:.

.:.

Good morning, gentlemen. In your.July 2016 press release, that announced the results of Deutsche Bank’s evaluation of ways to maximize shareholder value for the company. The company indicated that had intended to complete the $7 million remaining on its buyback program by the end of the year? Obviously, the company sales falling $2.6 million short.

And furthermore in quarter four, Mr.

Albright sold CTO shares in the amount equaling over 46% of CTO’s buybacks over the same? Third question is, who is responsible for managing the buyback plan? And what are the consequences for falling so materially short of the stated goals?.

So I’ll let Dan Smith, who is our General Counsel discuss how that buyback program is implemented. But in short, we basically enter into a program and it’s kind of out of our hands.

And as you know, the – as far as falling short on the buyback program, the buybacks cannot be – can’t happen at certain times of the day and can only be a certain amount of the volume. And so given that our shares don’t trade a lot, just hampered by that sort of natural trading. So we’re hopeful to have executed fully. We did a lot of it.

But given the low liquidity in the stock, I think, we got a fair – a good amount on, I think..

But – I’m sorry. Just looking at average volumes though and the number of shares that had to be purchased since the press release worked out to be about 1,200 shares a day.

So when the average volume during that period is 11,000 shares, so I don’t think it’s a volume issue, little more to within that?.

Well, there’s a pricing issue too. So that we’ve given guidelines on the buyback and basically it’s only execute if it’s in a price range and that’s allowed through the volume or the time a day..

Right. The main restriction is the Safe Harbor that we want to make sure that we stay within in connection with every single one of our purchases. So there are lot of frictions that John covered well just now that were subject to in connection with staying within the Safe Harbor..

So when you made the commitment to complete the buyback, was it even possible at that time for it to be completed, or is it just a statement?.

It was certainly our intent. So the consequence to your other part of your question is that, we have $2.6 million remaining to buyback, which were still in the program..

Great. Thank you..

Thank you..

Operator:.

.:.

Yes, good morning.

I was wondering, last Stockholders Day, I also asked the same question that we’re buying back at this moment stock, which are like effect might be the best investment at this moment with the – probably a reduction, but are we not [Technical Difficulty]my stock has a more value?.

Hey, Jan, you cut out there for a second.

Would you mind repeating last part, where your question was?.

Okay. I would like to see that the stock, which you’re buying is being destroyed.

So that we’ve got less stock and I have got more value?.

I appreciate that, Jan. I remember you bring it up at the Investor Day that it’s a fairly standard process to put it into treasury, so I appreciate the question..

Yes, it’s more – it’s a bit more than a question.

I really would like them not to put in this – into treasuries, but we need to lower that the number of stock?.

Okay. Well, thank you. We’ll make sure that Board is aware of your suggestion..

Okay. Thank you..

The next question is a follow-up from David Winters of WinterGreen Advisors. Please go ahead..

I think what the gentlemen is asking is, why you just don’t cancel the stock and then number of shares are reissued in comp plans and it’s much more shareholder-friendly.

I believe that’s what he’s asking? And I don’t know, if you want to comment, or you’re going to defer to the Board but…?.

I think we did comment, we’ll certainly take his point and share that with the Board..

And this concludes the question-and-answer session. I would now like to turn the conference back over to John Albright for any closing remarks..

All right. Well, thank you very much for being on the call and we’re round if anyone has any follow-up questions. Thank you..

The conference is now concluded. Thank you for attending today’s presentation. You may now disconnect your lines. Have a great day..