Via EDGAR
and Facsimile
December
14, 2009
U.S.
Securities and Exchange Commission
Division
of Corporation Finance
Attention:
Daniel L. Gordon, Branch Chief
100 F
Street, N.E., Mail Stop 3010
Washington,
D.C. 20549
Re: Consolidated-Tomoka
Land Co.
Form 10-K
for the Year Ended December 31, 2008
Forms
10-Q for the Periods Ended March 31, June 30, and September 30,
2009
Schedule
14A filed April 22, 2009
File No.
1-11350
Dear Mr.
Gordon:
This
letter responds to comments of the staff (the “Staff”) of
the Securities and Exchange Commission (the “Commission”)
contained in the letter from the Staff dated November 30, 2009 (the “Comment
Letter”) regarding the above-referenced filings by Consolidated-Tomoka
Land Co. (the “Company”).
Set forth
below are responses to the Staff’s comments numbered 1 through 9, as set forth
in the Comment Letter.
Form 10-K
for the Year Ended December 31, 2008
Income
Properties, page 5
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1.
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Please
tell us the average occupancy rates, expressed as a percentage, of your
income properties for each of the last five years on a portfolio
basis. Confirm that you will provide similar disclosure in
future filings.
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Response
The
average occupancy rates, expressed as a percentage, of our income properties for
each of the last five years on a portfolio basis are as follows:
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Year
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Occupancy
%
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2004
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100%
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(1)
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2005
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100%
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(2)
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2006
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100%
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2007
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100%
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2008
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100%
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(1)
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As
set forth in the Form 10-K for the year ended December 31, 2008, four CVS
Corp. (CVS), (then Eckerd) stores, consisting of a total of 50,708 square
feet, were closed during the third quarter of 2004. CVS has continued to
make current lease payments in accordance with the terms of the applicable
lease agreements.
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(2)
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During
2005, two of the unoccupied CVS stores, consisting of a total of
23,082
square feet, were subleased by CVS.
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We will
provide similar disclosure in future filings.
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2.
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In
future filings, please disclose your average effective annual rental per
square foot for the last five years. Provide the proposed
disclosure in your response.
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Response
The
average effective annual rental per square foot for our income properties for
each of the last five years is as follows:
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Year
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Annual Rental Per
Square
Foot
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2004
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$21.13
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2005
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$17.85
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2006
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$17.26
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2007
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$17.27
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2008
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$16.99
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We
will provide similar disclosure in future
filings.
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3.
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Please
provide a schedule of lease expirations for each of the ten years starting
with the fiscal year to which your annual report pertains. The
schedule should include the following
information:
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·
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The
number of tenants whose leases will
expire;
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·
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The
total area in square feet covered by such
lease;
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·
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The
annual rental represented by such leases;
and
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·
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The
percentage of gross annual rental represented by such
leases.
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Provide
similar disclosure in future filings and tell us how you plan to
comply.
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Response
The information requested on lease expirations for each
of the ten years starting with 2008 is as follows:
#
of Total Percentage
of
Tenant Square
Feet Annual Gross
Leases of
Leases
Rents Annual
Rents
Year Expiring Expiring Expiring &#
160; Expiring
2008 0 0
0
0
2009 0 0
0 0
2010 1 18,150 $ 319,882 3.4%
2011 1
28,000 $ 559,893 6.0%
2012 0
0 0 0
2013 0 0 0 0
2014 0
0 0 0
2015 0 0 0
0
2016 2 40,918 $ 687,718 7.5%
2017 2
161,049 $1,266,785 13.9%
Each
lease has additional option periods beyond the original term of the lease which
are exercisable at the tenant’s option.
We will
provide similar disclosure in future filings.
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4.
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We
note your disclosure on page 9 regarding your two largest income property
tenants, CVS and Walgreens. Please identify each tenant that
occupies 10% or more of your rentable square footage or accounts for 10%
or more of your gross revenues and disclose the amounts attributed to each
as of the end of the period covered by your report. Also,
disclose the principal provisions of your leases with those
tenants. Provide similar disclosure in future filings and tell
us how you plan to comply.
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Response
CVS and
Walgreen each account for 10% or more of both rentable square feet and gross
income property revenues while Lowe’s accounts for more than 10% of rentable
square feet. Information regarding those tenants, including principal
provisions of our leases with these tenants is as follows:
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CVS
Corp. -- 21% of portfolio by square feet, 28% by
Revenue
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100%
of CVS Stores owned by CTO were originally leased and occupied by Eckerd
Corporation; CVS Pharmacy Inc. acquired Eckerd Corporation in August 2004
and assumed the leases
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Primarily
20 yr. initial lease terms (one lease term is 25
years)
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Primarily
4 option periods of 5 yrs. each
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Primarily
no rent increases until option
period
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Rent
ranges from $19+/- per square foot (PSF) to $27+/-
PSF
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All
CVS leases are triple-net (no Landlord operating expense and maintenance
responsibility)
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Walgreen's
Co. -- 21% of portfolio by square feet, 24% by Revenue
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20
yr. or 25 yr. initial lease terms
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Primarily
6 option periods of 5 yrs. each
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No
rent increases until option period
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Rent
ranges from $19+/- to $26+/- PSF
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Walgreen
leases are either double-net (Landlord responsible for structure, roof and
in some leases the parking lot) or triple-net (no Landlord operating
expense and maintenance
responsibility)
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Lowe's
Corporation (19% of portfolio by square feet, 8% by Revenue)
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20
yr. initial lease term
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6
option periods of 5 yrs. each
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No
rent increases until option period
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Rent
of $6+ PSF
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Double-net
(Landlord responsible for structure, roof, and parking
lot)
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We will
provide similar information in future filings.
Item 7.
Management’s Discussion and Analysis of Financial Condition and Results of
Operations
Operations
Overview, page 17
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5.
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We
note that you have experienced a decline in net income in each fiscal year
since 2005. This appears to be a material trend in your
operations. Please revise future filings to include a
discussion of this trend and the economic or other factors that have had
an adverse impact on your revenues. We note that the
year-to-year comparisons attribute decreases in profits in part to lower
profits from commercial land sales. Your overview should
discuss in more detail the factors that management believes contributed to
lower profits from commercial land sales. In your response
letter, please tell us how you will comply with this
comment.
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Response
(Including narrative to illustrate compliance with comment)
Historical
sales and profits are not indicative of future results because of the discrete
nature of land sales and variations in the cost basis of owned
land. A significant portion of the Company’s profits, in any given
year, are generated through relatively large discreet commercial land sales
transactions. The process for these land sales transactions, from the
time of preliminary discussions through contract negotiations, due diligence
periods, and the closing, can last from several months to several
years. The trend in Company profits in 2005 through 2008, in
particular profits from real estate sales during that period, followed the
overall general trend of the national and local economies and the real estate
markets. The residential real estate market reached its peak in late
2005 and early 2006 with the market, hampered by the overall economy and credit
crisis, reaching its low point in 2008. The local commercial real
estate market lagged the residential market downturn by approximately two years.
The Company was able to close sales contracts during 2007 which were generated
during the years of the strong real estate market. We entered
2008 with a relatively strong contract backlog of real estate
contracts. As the economy, real estate markets, and credit markets
continued to slow several of the contracts in place did not result in closings
as buyers took a more conservative approach.
In future
filings we intend to include a similar discussion of trends and the economic or
other factors that have had an impact on our profits and revenues.
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Form
10-Q for the Period Ended September 30,
2009
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Note
6. Notes Receivable, page 10
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6.
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Please
tell us, and disclose in future filings, the nature and extent of the
collateralization of non-accrual loans and how you measured impairment of
these loans for each period during which they were on non-accrual
status. In addition, in future filings include all disclosures
required by SFAS No. 114. Please provide us with your proposed
disclosures.
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Response
At
September 30, 2009 we had one non-accrual mortgage note receivable recorded on
the balance sheet in the amount of $2,158,317, with an additional $111,263 in
accrued interest receivable. This note receivable was collateralized
by a first mortgage on 317 acres of land located in Daytona Beach,
Florida. The land has both residential and commercial land use
designations. In measuring for impairment of the loan we evaluated the fair
value of the property collateralizing the loan based on our knowledge of the
Daytona Beach real estate market, as the largest landholder in the
area. On November 6, 2009, we completed foreclosure on the
mortgage note receivable.
As a
policy, the accrual of interest income on the notes receivable is stopped at the
time it is determined that collection of the note is not probable.
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September
30,
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December
31,
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2009
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2008
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Investment
in Impaired
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Notes
with Allowance
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for
Losses
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-- | -- | ||||||
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Investment
in Impaired
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Notes
with No Allowance
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for
Losses
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2,269,580 | 1,945,912 | ||||||
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Following are average investments
in impaired loans and accrued interest income recorded on these loans for
the periods ending:
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Three Months
Ended
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Nine Months
Ended
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September
30,
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September
30,
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September
30,
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September
30,
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|||||||||||||
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2009
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2008
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2009
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2008
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Average
Investment in
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Impaired
Loans
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3,242,536 | 486,478 | 3,826,309 | 194,591 | ||||||||||||
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Interest
Income Recorded
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On
Impaired Loans While
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Loans
Were Impaired
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-- | -- | -- | -- | ||||||||||||
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Interest
Income Recognized
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Using
Cash-Basis Method
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of
Accounting
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-- | -- | -- | -- | ||||||||||||
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There
was no allowance for credit losses during the periods as we looked at the
fair value of the collateral supporting the notes receivable and
determined no provision was necessary.
As
a policy interest income is not accrued once the note has been determined
to be impaired, no cash receipts were received on the impaired
notes.
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Similar
disclosure will be included in future
filings.
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Exhibits
31.1 and 31.2
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7.
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We
note that you have omitted from your certifications the phrase “(the
registrant’s fourth fiscal quarter in the case of an annual report)” from
paragraph 4(d) and the phrase “(or persons performing the equivalent
functions)” from paragraph 5. Please confirm that in future
filings, you will file certifications in the exact form as outlined in
Item 601(B)(31)(i) of Regulation
S-K.
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Response
We
confirm that in future filings we will file certifications in the exact form as
outlined in Item 601(B)(31)(i) of Regulation S-K.
Definitive
Proxy Statement filed April 22, 2009
Compensation
Discussion and Analysis, page 25
Base
Salary, page 26
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8.
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We
note that Messrs. McMunn, Teeters and Apgar received cost of living and
merit increases in their base salaries for 2008 and that such merit
increases were based on the company’s and individual’s 2007
performance. Please identify and quantify the specific aspects
of company and individual performance that the Compensation Committee
considered in making these determinations. Provide us with
sample disclosure and confirm that you will provide similar disclosure as
applicable in future filings.
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Response
Historically,
the Compensation Committee has evaluated individual performance based on the
Company’s earnings per share (“EPS”) in the prior year and the individual’s
contribution to the Company’s performance. In evaluating individual
performance the Compensation Committee also considers any additional duties or
responsibilities assumed by the individual during the prior year, individual
contribution to any new strategies developed and adopted by the Company,
individual contribution to the Company’s public image, the individual’s
leadership and motivation skills, and any significant actions by the individual
that have had a positive effect on long-term shareholder value. The
Compensation Committee analyzes the total mix of available information in
determining salary increases on a qualitative, not quantitative,
basis.
Based on
these performance considerations, set forth below is a sample of the disclosure
that might have appeared in the Base Salary discussion (under Executive
Compensation Elements) contained in the Compensation Discussion and Analysis
section of our 2009 definitive proxy statement:
The cost
of living portion of the increase in base salary was 75% of the total increase
in salary for each of Messrs. McMunn and Teeters and 100% of the total increase
in salary for Mr. Apgar. Mr. Apgar did not receive any merit increase
in base salary based on his performance in 2007; in January 2008 the Board
analyzed the duties of Mr. Apgar and his position and determined that he was no
longer an executive officer of the Company.
For
Messrs. McMunn and Teeters, the merit increase in base salary was 1%
(constituting 25% of the total increase in base salary for each of
them). In determining the merit-based portion of base salary
increases for each of Messrs. McMunn and Teeters, the Compensation Committee
performed a qualitative review of each such named executive officer’s
performance during 2007 that was based on the Compensation Committee’s
subjective judgment and in each case determined that such named executive
officer’s performance was outstanding.
The
elements of individual performance of Mr. McMunn that were considered were his
assumption of additional duties and responsibilities as Chairman; his development
of new strategies in the areas of planning and environmental matters; his
contribution to the positive image and agenda of the Company with the elective,
business and regulatory communities through several leadership positions; his
effectiveness as a leader and motivation of employees to achieve the Company’s
objectives; and his leadership in negotiating agreements that the Company
determined would positively impact long-term shareholder value. The
elements of individual performance of Mr. Teeters that were considered were his
assumption of additional duties and responsibilities as the chief development
officer; his role in implementing new strategies in the areas of planning and
environmental matters; his contribution to the positive image and agenda of the
Company through several leadership positions; his effectiveness as a leader and
motivation of employees to achieve the Company’s objectives; and his assistance
in negotiating agreements that the Company determined would positively impact
long-term shareholder value. In each case the Committee also
considered the Company’s EPS performance in 2007, including the determination
that the Company’s EPS performance was in the top quartile of seven designated
peer companies. The Committee did not quantify the factors considered
in the merit increase and did not base any specific portion of the increase on
any specific factor that was considered.
We
confirm that we will include in future filings the specific elements of Company
and individual performance that our Compensation Committee considered when
making its assessment of each executive’s performance during the past year for
the purposes of setting compensation.
Stock
Option Compensation, page 27
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9.
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In
future filings, with respect to long-term incentive awards, such as stock
option compensation, please provide a more detailed analysis of how the
company determined the actual awards. Please disclose the
actual factors considered in making the equity awards for each named
executive officer.
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Response
Our Chief
Executive Officer annually recommends potential recipients (other than the Chief
Executive Officer) of long-term incentive awards to the Compensation Committee;
to be eligible to be recommended the recipient must be in a management position
with the ability to directly affect the revenues or expenses of the Company,
must have demonstrated a commitment to the Company and must possess sufficient
talents that it would be in the Company’s best interests to retain the recipient
as an employee over the long term. The Compensation Committee
approves long-term incentive awards based on each individual recipient’s prior
year performance, with the quantity of individual awards based on the
recipient’s base salary and level of management responsibility; because
executive officers have the greatest potential to impact long-term shareholder
value and stock price the Compensation Committee has granted larger awards to
those recipients. The Compensation Committee has used a combination
of historic grant information, data from compensation experts and peer group
comparisons to determine the quantity of long-term incentive awards, but does
not base any specific portion of the award on any specific information that was
considered.
With
respect to the April 2008 grants of stock options for 2007 performance, the
Compensation Committee performed a qualitative review of each named executive
officer’s performance during 2007 that was based on the Compensation Committee’s
subjective judgment and, in the case of Messrs. McMunn and Teeters, determined
that such named executive officer’s performance was outstanding. As a
result the Compensation Committee granted stock options at the same level as the
prior year. In the case of Mr. Apgar the Compensation Committee
determined that his performance was below his prior year’s performance and as a
result decreased his stock option award from the prior year by 17%.
With
respect to the January 2009 grants of stock options for 2008 performance, the
Compensation Committee performed a qualitative review of each named executive
officer’s performance during 2008 (excluding Mr. Apgar, as he was no longer an
executive officer at such time) that was based on the Compensation Committee’s
subjective judgment and determined that while such named executive officer’s
performance was outstanding it was below the prior year’s performance and, as a
result, it reduced the stock option awards by 20% from the amount awarded for
the prior year’s performance.
We
confirm that in future filings we will provide more detailed analysis of how the
Company determined actual long-term incentive awards
* * * *
The
undersigned, in response to the request contained in the Comment Letter and on
behalf of the Company, hereby acknowledges that:
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·
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the
Company is responsible for the adequacy and accuracy of the disclosure in
the filing;
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·
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Staff
comments or changes to disclosure in response to Staff comments do not
foreclose the Commission from taking any action with respect to the
filings; and
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·
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the
Company may not assert Staff comments as a defense in any proceeding
initiated by the Commission or any person under the federal securities
laws of the United States.
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We
appreciate your assistance in this matter. Please address any comments or
questions with respect to the foregoing to Bruce W. Teeters, Senior Vice
President-Finance and Treasurer, or in his absence me at (386)
274-2202.
Sincerely,
CONSOLIDATED-TOMOKA LAND CO.
/s/ William
H. McMunn____________
William H. McMunn
President and Chief Executive
Officer