BBX CAPITAL, INC. The following discussion and analysis should be read together with the Company's
audited consolidated financial statements and related notes included in Item 8
of this Annual Report on Form 10-K, including the basis of presentation for the
consolidated financial statements prior to
The Management Discussion and Analysis of this Annual Report on Form 10-K
discusses 2021 and 2020 items and year-to-year comparisons between the years
ended
Overview
As of
Impact of the COVID-19 Pandemic and Current Economic Issues
The COVID-19 pandemic has resulted in an unprecedented disruption in the
The duration and severity of the pandemic and related disruptions, as well as
the resulting adverse impact on economic and market conditions, are uncertain,
and the Company may continue to be adversely impacted by these conditions in
future periods. Although the impact of the COVID-19 pandemic on the Company's
principal holdings and management's efforts to mitigate the effects of the
pandemic has varied,
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See below for additional discussion related to i) the current and estimated impacts of the COVID-19 pandemic on the Company's principal holdings and ii) the various risks and uncertainties associated with the effects of the pandemic, increased costs, and disruptions to supply chains on the Company's principal holdings, which have had, and could in future periods have, a material adverse impact on the Company's consolidated results of operations, cash flows, and financial condition.
Summary of Consolidated Results of Operations
Consolidated Results
The following summarizes key financial highlights for the year ended
?Total consolidated revenues of
?Income from continuing operations before income taxes of
?Net income attributable to common shareholders of
?Diluted earnings per share of
The Company's consolidated results for the year ended
?A net increase in sales activity at
?An increase in net earnings of unconsolidated real estate joint ventures
primarily due to the monetization of various investments in joint ventures
sponsored by the Altman Companies in 2021, including Altis Promenade,
?The recognition of a
?The recognition of a loss before income taxes of
Segment Results
Information regarding income (loss) before income taxes by reportable segment is set forth in the table below (in thousands):
For the Years Ended December 31,
2021 2020 2019
BBX Capital Real Estate $ 58,311 9,988 52,696
BBX Sweet Holdings 15,784 (47,473) (5,122)
Renin (986) (3,572) 1,808
Other 1,390 (2,915) 349
Reconciling items and
eliminations (10,258) (14,275) (20,746)
Income (loss) from continuing
operations before income taxes $ 64,241 (58,247) 28,985
(Provision) benefit for income
taxes (17,175) 11,231 (8,334)
Net income (loss) from continuing
operations 47,066 (47,016) 20,651
Discontinued operations - (74) (7,138)
Net income (loss) 47,066 (47,090) 13,513
Net (income) loss attributable to
noncontrolling interests (155) 4,803 224
Net income (loss) attributable to
shareholders $ 46,911 (42,287) 13,737
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BBX Capital Real Estate Reportable Segment
Segment Description
In an effort to diversify its portfolio of real estate developments, BBXRE is
also currently evaluating potential investment opportunities in the development
of warehouse and logistics facilities and has expanded its operating platform to
include a logistics real estate division. Further, the Altman Companies is
currently evaluating potential opportunities to develop multifamily apartment
communities in new geographical areas, including the greater
Overview
BBXRE's operations that were impacted by the COVID-19 pandemic during 2020,
including its sales and leasing operations, have largely returned to, and in
many cases are exceeding, pre-pandemic levels, which management believes
primarily reflects an increase in demand for single-family and multifamily
apartment housing in many of the markets in
The Altman Companies and Related Investments
In 2018, BBXRE acquired a 50% membership interest in the Altman Companies, a
joint venture between the Company and
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Pursuant to the operating agreement of the Altman Companies, BBXRE will acquire
an additional 40% equity interest in the Altman Companies from
Developments Monetized in 2021
During the year ended
New Developments
During the year ended
With respect to Altis Lake Willis Phase 1, BBXRE and
Other
Following temporary disruptions in its operations during 2020 as a result of the
COVID-19 pandemic, the operations related to the existing developments sponsored
by the Altman Companies have generally returned to pre-pandemic levels. In
particular, the Altman Companies collected over 98% of the rents at its joint
venture multifamily apartment communities under its management during the year
ended
In addition to its existing development portfolio, the Altman Companies has been
focused on the identification of new development opportunities. As described
above, it commenced the development of three new multifamily apartment
communities in 2021, and it has also identified new potential development
opportunities primarily located in
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as supply chain disruptions and material shortages, all of which are expected to
significantly increase development costs and result in possible delays in
connection with developing new multifamily apartment communities. The Altman
Companies is continuing to evaluate the impact of these costs on the overall
profitability of its potential future developments, but it currently believes
that the higher rental rates resulting from increased demand for multifamily
housing and investor demand for the acquisition of stabilized multifamily
apartment communities may to some extent offset the impact of higher development
costs on the profits expected to be earned on such developments. However,
notwithstanding these potential mitigating factors, a significant increase in
development costs could have a material impact on the Altman Companies'
operations, including, but not limited to, (i) an inability to close on the
equity and/or debt financing necessary to commence the construction of new
projects as a result of a decrease in projected investor profits and (ii) a
decrease in the profits expected to be earned by BBXRE and
In addition to the impact of higher costs, economic and market conditions are uncertain as a result of various factors, including inflationary pressures and expected increases in interest rates. A prolonged economic downtown resulting from these factors could ultimately have a significant impact on rental rates, occupancy levels, and rent collections, including an increase in tenant delinquencies and/or requests for rent abatements. These effects would impact the amount of rental revenues generated from the multifamily apartment communities sponsored and managed by the Altman Companies, the extent of management fees earned by the Altman Companies, and the ability of the related joint ventures to stabilize and successfully sell such communities. Furthermore, a decline in rental revenues at developments sponsored by the Altman Companies could require it, as the sponsor and managing member, to fund operating shortfalls in certain circumstances. In addition, as discussed above, the effects of the pandemic and other factors have impacted the costs of developing and operating multifamily apartment communities, including, but not limited to, increases in commodity prices as a result of, among other things, supply chain disruptions and material shortages, labor prices, and property insurance costs as compared to pre-pandemic levels, which could also have an adverse impact on market values and the Altman Companies' operating results. If there is a significant adverse impact on real estate values as a result of increased interest rates, lower rental revenues, higher capitalization rates, or otherwise, the joint ventures sponsored by the Altman Companies may be unable to sell their respective multifamily apartment developments within the time frames previously anticipated and/or for the previously forecasted sales prices, if at all, which may impact the profits expected to be earned by BBXRE from its investment in the managing member of such projects and the ability of the joint ventures to repay or refinance construction loans on such projects and could result in the recognition of impairment losses related to BBXRE's investment in such projects. Furthermore, as further described above, the Altman Companies may be unable to close on the equity and/or debt financing necessary to commence the construction of new projects, which could result in increased operating losses at the Altman Companies, the recognition of impairment losses by BBXRE and/or the Altman Companies related to their current investments, including predevelopment expenditures, and the recognition of impairment losses related to BBXRE's overall investment in the Altman Companies.
Following a temporary decline in sales activity during 2020 as a result of the
COVID-19 pandemic, sales at
At the current time, BBXRE does not expect the observed increases in commodity
and labor prices to materially impact its remaining costs to complete the
development of the lots in Phase 3 but believes that the costs to construct
homes on the developed lots throughout the
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Other Joint Venture Activity
In
In
Prior to 2021, BBXRE invested approximately
Although the above joint ventures expect to incur increased costs to construct homes in their respective communities and have experienced disruptions in supply chains and supply shortages, BBXRE does not currently believe that such increases will have a material adverse impact on the expected profitability of these investments, as it is expected that higher demand and sales prices for single-family homes will offset to some extent the increase in construction costs.
Results of Operations
Information regarding the results of operations for
Change Change
For the Years Ended December 31, 2021 vs 2020 vs
2021 2020 2019 2020 2019
Sales of real
estate inventory $ 65,479 20,363 5,049 45,116 15,314
Interest income 2,048 1,240 750 808 490
Net gains on sales
of real estate
assets 643 255 13,616 388 (13,361)
Other 1,504 1,454 1,619 50 (165)
Total revenues $ 69,674 23,312 21,034 46,362 2,278
Cost of real
estate inventory
sold 29,690 13,171 2,643 16,519 10,528
Recoveries from
loan losses, net (7,774) (8,876) (5,428) 1,102 (3,448)
Impairment losses - 2,742 47 (2,742) 2,695
Selling, general
and administrative
expenses 7,587 6,758 9,144 829 (2,386)
Total costs and
expenses 29,503 13,795 6,406 15,708 7,389
Operating profits 40,171 9,517 14,628 30,654 (5,111)
Equity in net
earnings of
unconsolidated
real estate joint
ventures 18,154 465 37,898 17,689 (37,433)
Other (expense)
income (14) 6 170 (20) (164)
Income from
continuing
operations before
income taxes $ 58,311 9,988 52,696 48,323 (42,708)
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?An increase in equity in net earnings of unconsolidated joint ventures primarily due to the monetization of various investments in joint ventures sponsored by the Altman Companies in 2021, including 1) the Altis Promenade joint venture's sale of its multifamily apartment community inJune 2021 , which resulted in the recognition of$5.2 million of equity earnings from BBXRE's investment in the venture, ii) the Altis Grand at the Preserve joint venture's sale of its multifamily apartment community inJuly 2021 , which resulted in the recognition of$5.0 million of equity earnings from BBXRE's investment in the venture, and iii) the Altis Grand Central joint venture's recapitalization of its ownership of its multifamily apartment community inSeptember 2021 , which resulted in the recognition of$6.2 million of equity earnings from BBXRE's investment in the venture; ?An increase in net profits from the sale of lots to homebuilders at theBeacon Lake Community development, as BBXRE sold the 299 undeveloped lots comprising Phase 4 and 385 developed lots during the 2021 period compared to 227 developed lots during the 2020 period, and an increase in the estimated contingent purchase price receivable from homebuilders, which is calculated as a percentage of the sales price of completed homes on the sold lots, as a result of improvements in the market for single-family housing during the 2021 period; ?The recognition of impairment losses during the 2020 period primarily related to certain of BBXRE's investments in unconsolidated real estate joint ventures as a result of the impact of the COVID-19 pandemic on such investments; and ?An increase in interest income associated with BBXRE's loans receivable from IT'SUGAR and its preferred equity investment in theAltis Ludlam Trail joint venture; partially offset by ?A net decrease in recoveries from loan losses; and ?An increase in selling, general, and administrative expenses primarily due to new hires, which reflects the impact of BBXRE's newly formed logistics real estate division, and increased professional fees.
BBX Sweet Holdings Reportable Segment
Segment Description
Overview
IT'SUGAR - Emergence from Bankruptcy
In
Pursuant to the terms of the Plan, claims against IT'SUGAR were treated as follows:
?The
?A secured equipment note held by BBXRE's wholly-owned subsidiary was assumed, ratified, and reinstated on the Effective Date;
?Each holder of an allowed construction / mechanic's lien claim received payment in full in cash on the Effective Date or, in some cases, promptly after the Effective Date;
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?Each holder of an allowed general unsecured claim received, in full satisfaction of such claims, a one-time lump sum distribution equal to 15% of its claim on the Effective Date or, in some cases, as promptly as was practicable after the Effective Date; and
?Holders of subordinated claims did not receive any distributions in respect thereof.
Payments of claims made pursuant to the Plan, along with the payment of administrative expenses and professional fees, were funded by IT'SUGAR with its cash on-hand and net proceeds from the Exit Facility.
On the Effective Date, IT'SUGAR entered into a secured exit credit facility with
a wholly-owned subsidiary of BBXRE (the "Exit Facility") which provided for
advances to IT'SUGAR of up to
Pursuant to the terms of the Plan,
As a result of the reconsolidation of IT'SUGAR,
As a result of the deconsolidation and subsequent reconsolidation of IT'SUGAR,
IT'SUGAR's operating results during the period from
IT'SUGAR - Business Update
As of
The following summarizes activity within IT'SUGAR's portfolio of retail locations subsequent to the filing of the Bankruptcy Cases:
?During the course of the Chapter 11 Cases, IT'SUGAR permanently closed 17
retail locations, opened 10 "temporary" retail locations in select
?In
?In
?In addition to the above, as of
With respect to IT'SUGAR's "temporary" retail locations that were opened during the Bankruptcy Cases, these locations required initial capital investments that were generally significantly lower than the investments required for IT'SUGAR's traditional retail locations. In particular, these locations were generally repurposed retail spaces that were recently vacated by prior tenants, and in many cases, IT'SUGAR utilized existing fixtures from certain of its closed locations. These temporary locations are being leased pursuant to lease agreements which have terms ranging from 13-36 months and generally provide for the payment of rent based on a percentage of sales generated at the applicable location. Although IT'SUGAR has been seeking to extend the term of the lease agreements for certain of these locations, certain of the landlords have indicated that they do not intend to extend the term of the lease agreements for such locations. However, IT'SUGAR is continuing to evaluate additional locations in which to potentially open similar temporary retail locations under the same general terms as the existing temporary retail locations. In addition, IT'SUGAR is expanding on the temporary retail location concept to include "large format" locations which require higher initial capital investments but are currently expected by IT'SUGAR to generate higher sales. In certain cases, the leases for these locations will include fixed rental obligations as opposed to lease payments based on a percentage of sales at the applicable location. As certain of these temporary locations are in high-traffic locations in which IT'SUGAR desires to expand, IT'SUGAR believes that these temporary locations will allow IT'SUGAR to better evaluate whether it should incur capital expenditures and assume lease obligations related to longer-term retail locations in these locales.
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As noted above, during the course of the Chapter 11 Cases, IT'SUGAR executed lease amendments with respect to 78 of its 96 retail locations. Although the specific terms of the executed lease amendments vary, the amended leases generally provide for the forgiveness of IT'SUGAR's pre-petition rent obligations, and many (but not all) of the amended leases also provide for the payment of rent based on a percentage of sales volumes (in lieu of previously scheduled fixed lease payments), generally for a period of one to two years from the commencement of the Chapter 11 Cases. Following such periods of time, the amended leases generally require IT'SUGAR to resume the payment of previously scheduled fixed lease payments going forward. For certain retail locations, including four locations that historically generated operating losses largely based on the applicable fixed rental obligations prior to the amendments, the lease amendments provide for the payment of rent based on a percentage of sales volumes through the remainder of the lease term; however, in such cases, the landlords generally have the right to terminate the lease agreements at any time following notice periods ranging from 30 to 60 days.
Following its emergence from the Bankruptcy Cases, IT'SUGAR has been focused on
i) expanding on the recent success of its "candy department store" concept as
implemented in retail locations at American Dream in
Although there is no assurance that it will be able to maintain or increase its sales levels in future periods, IT'SUGAR has experienced an improvement in its sales since the filing of the Chapter 11 Cases. The following summarizes the increase/(decrease) in IT'SUGAR's comparable store sales and total revenues during the periods since the filing of the Chapter 11 Cases as compared to the comparable periods in 2019:
Fourth First Second Third Fourth
Quarter 2020 Quarter 2021 Quarter 2021 Quarter 2021 Quarter 2021
Compared to Compared to Compared to Compared to Compared to
Fourth First Second Third Fourth
Quarter 2019 Quarter Quarter Quarter Quarter
2019 (2) 2019 (2) 2019 (2) 2019 (2)
Comparable Store -32% -10% 8% 2% 12%
Sales (1)
Total Revenues -23% 11% 24% 15% 27%
(1)Comparable store sales represent IT'SUGAR's sales at its retail locations
excluding both the impact of e-commerce sales and changes in its store
portfolio.
(2)Because the results for the comparable 2020 periods were impacted by the
closure of IT'SUGAR's locations in
The improvement in total revenues as compared to the improvement in comparable
store sales reflects, among other things, the opening of its "candy department
store" at American Dream in
As a result of ongoing disruptions in global supply chains, IT'SUGAR has experienced an increase in the cost of inventory and freight, as well as delays in its supply chain. To date, IT'SUGAR has generally been able to mitigate the impact of increased costs through increases in the prices of its products. However, supply chain disruptions have also impacted its ability to maintain historical inventory levels at its retail locations, which IT'SUGAR believes has negatively impacted its sales volumes. To the extent that costs continue to increase, there is no assurance that IT'SUGAR will be able to continue to increase the prices of its products without significantly impacting consumer demand and its sales volume. Additionally, IT'SUGAR has experienced an increase in payroll costs as a result of shortages in available labor at its retail locations.
While the Company believes that the bankruptcy process has improved IT'SUGAR's financial condition as a result of the relief it obtained in relation to its pre-petition liabilities and amendments to its lease agreements that lowered its ongoing occupancy costs, the Company continues to be subject to risks and uncertainties related to IT'SUGAR that have had and could continue to have a material adverse effect on the Company and IT'SUGAR's business, results of operations, and financial condition. These risks and uncertainties include, without limitation, the success of the restructuring; the continuing adverse impact of the COVID-19 pandemic on IT'SUGAR's operations, results, and financial condition; risks associated with the current economic environment with respect to demand, sales levels, and consumer behavior, as well as increased inventory, freight, and labor costs and general supply chain disruptions which have had and may continue to have a material adverse effect in future periods; the risk that IT'SUGAR may not be able to continue to increase prices without significantly impacting consumer demand; risks relating to IT'SUGAR's business plans, including that IT'SUGAR may not be able to fund or otherwise open new retail locations, including new "temporary" locations, as or when expected, or at all; the risk that IT'SUGAR may not be able to extend or enter into new lease agreements for any existing "temporary" locations which it desires to extend, whether on favorable terms or at all; risks related to the lease amendments entered into by IT'SUGAR, including that, while many of the lease amendments provide for the payment of rent based on a percentage of sales volumes for a specified period of time as opposed to fixed rental payments, IT'SUGAR continues to bear the costs of staffing and procuring inventory and the terms of many of such amendments require IT'SUGAR to resume the payment of previously scheduled fixed lease payments going forward and, as a
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result, IT'SUGAR's ongoing occupancy costs are expected to increase as fixed rental payments under these leases resume and IT'SUGAR's overall exposure to risks related to fixed rental obligations will increase and revert to pre-bankruptcy levels in relation to such locations; and the risk that landlords may exercise their right to terminate certain leases where rent was reduced.
Las Olas Confections and Snacks and Hoffman's Chocolates
Las Olas Confections and Snacks' operations continued throughout the COVID-19
pandemic, and its sales during the year ended
During the year ended
Results of Operations
Information regarding the results of operations for
Change Change
For the Years Ended December 31, 2021 vs 2020 vs
2021 2020 2019 2020 2019
Trade sales $ 84,215 49,155 105,406 35,060 (56,251)
Cost of trade sales (52,497) (41,482) (67,703) (11,015) 26,221
Gross margin 31,718 7,673 37,703 24,045 (30,030)
Interest income 36 29 56 7 (27)
Other revenue - 281 324 (281) (43)
Interest expense (429) (193) (196) (236) 3
Impairment losses (38) (25,303) (142) 25,265 (25,161)
Selling, general and
administrative expenses (31,524) (26,855) (43,203) (4,669) 16,348
Total operating losses (237) (44,368) (5,458) 44,131 (38,910)
Other income 131 221 336 (90) (115)
Loss on the
deconsolidation of
IT'SUGAR, LLC - (3,326) - 3,326 (3,326)
Gain on the
consolidation of
IT'SUGAR, LLC 15,890 - - 15,890 -
Income (loss) from
continuing operations
before income taxes $ 15,784 (47,473) (5,122) 63,257 (42,351)
Gross margin percentage % 37.66 15.61 35.77 22.05 (20.16)
SG&A as a percent of
trade sales % 37.43 54.63 40.99 (17.20) 13.64
?The recognition of
?The recognition of i) a
?An increase in trade sales and gross margin in 2021 as a result of the impact
of the COVID-19 pandemic on
?A net increase in operating expenses associated with IT'SUGAR due to increased staffing to support sales volume and higher expenses related to new locations, including the candy department store at Ala Moana Center and new temporary locations.
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Information regarding the results of operations for IT'SUGAR that were included
in the Company's consolidated financial statements is set forth below (dollars
in thousands):
Change Change
For the Years Ended December 31, 2021 vs 2020 vs
2021 2020 2019 2020 2019
Trade sales $ 62,161 31,794 85,275 30,367 (53,481)
Cost of trade sales (34,423) (26,923) (50,748) (7,500) 23,825
Gross margin 27,738 4,871 34,527 22,867 (29,656)
Interest income - 8 10 (8) (2)
Interest expense (314) (109) (114) (205) 5
Impairment losses (38) (24,948) (142) 24,910 (24,806)
Selling, general and
administrative expenses (24,915) (21,121) (36,521) (3,794) 15,400
Total operating income
(losses) 2,471 (41,299) (2,240) 43,770 (39,059)
Other income 45 117 276 (72) (159)
Income (loss) before
income taxes $ 2,516 (41,182) (1,964) 43,698 (39,218)
Gross margin percentage % 44.62 15.32 40.49 29.30 (25.17)
SG&A as a percent of
trade sales % 40.08 66.43 42.83 (26.35) 23.60
IT'SUGAR's activity for the year ended
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Table of Contents Renin Reportable Segment Segment Description
Renin is engaged in the design, manufacture, and distribution of sliding doors,
door systems and hardware, and home décor products and operates through its
headquarters in
Renin's products are sold through three channels in
Overview
During the year endedDecember 31, 2021 , Renin's sales increased compared to the 2020 and 2019 periods primarily as a result of the acquisition of Colonial Elegance and price increases to customers, as further discussed below. Its retail channel comprised approximately 77% of its gross sales for the year endedDecember 31, 2021 as compared to approximately 67% and 63%, respectively, for the yearsDecember 31, 2020 and 2019, which reflects, among other things, the expansion of Renin's retail customers to include Menards, Lowe'sCanada , and Home Depot Canada as a result of the acquisition of Colonial Elegance. However, Renin has experienced a significant increase in costs related to shipping and raw materials, as well as delays in its supply chains, which have: (i) negatively impacted its product costs and gross margin, (ii) increased the risk that Renin will be unable to fulfill customer orders, and (iii) negatively impacted its working capital and cash flows due to increased inventory in transit, a prolonged period between when it is required to pay its suppliers and it is paid by its customers, and an overall decline in its gross margin. Further, as described below, these factors have negatively impacted Renin's ability to maintain compliance with the covenants contained in its credit facility with TD Bank. In an effort to mitigate the impact of certain of these factors, Renin has sought to: (i) negotiate price increases with its customers, (ii) maintain higher inventory levels in an effort to ensure that it can fulfill customer orders, (iii) diversify its global supply chains, and (iv) transfer the assembly of certain products from unaffiliated foreign suppliers to its own manufacturing facilities. Although the steps Renin is seeking to take are intended to mitigate the risks it faces, Renin's product costs and gross margin have been and are expected to continue to be adversely impacted in 2022. While Renin has obtained price increases for many of its products, including in many cases multiple price increases during 2021, the timing of the implementation of these price increases with its major customers has generally lagged behind the timing of the increase in its costs, which has resulted in significantly lower gross margins during the periods in which Renin has continued to fulfill orders prior to the implementation of price increases. In particular, Renin negotiated several price increases that were implemented between August andOctober 2021 ; but, in certain cases, the negotiated price increases do not fully offset the increase in Renin's costs. As a result, Renin's gross margins were negatively impacted and, with respect to sales to certain customers, will continue to be negatively impacted unless Renin can negotiate additional price increases in the future, global supply chains stabilize, and/or Renin is able to identify and implement alternative sources to manufacture its products. Further, Renin's efforts to mitigate its increase in costs have had and may have other negative impacts on Renin. In particular, the combination of maintaining higher inventory levels and the increased time between its purchase of inventory and receipt of payments from customers have negatively impacted its liquidity and required it to obtain a temporary increase in the availability under its credit facility with TD Bank inJuly 2021 , as further described below. In addition, although the increase in product and shipping costs is impacting the entire industry in which Renin operates, generally resulting in an overall increase in prices to customers, the negotiation of increased prices with customers increases the risk that customers will pursue alternative sources for Renin's products, which may result in Renin losing customers or require it to lower prices in an effort to retain customers. Further, while Renin is generally seeking to diversify its supply chain and limit its exposure to risks associated with geographic locations and suppliers, supply chain delays and the scarcity of products and raw materials have made this difficult. 41
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InApril 2021 , Renin was notified by one of its major customers that the customer will no longer be purchasing certain products from Renin commencing in late 2021. At the time that Renin was notified by the customer, these products were previously estimated to comprise approximately 7% of Renin's estimated net sales for 2021. Although the customer was also evaluating alternative sources for certain other products that, at the time, were previously estimated to comprise approximately 6% of Renin's estimated net sales for fiscal 2021, Renin has been notified by the customer that it will continue to purchase such products from Renin. Although Renin was able to maintain its existing pricing for these products, Renin expects that the gross margin for these products will be negatively impacted by the overall increase in product costs that it is experiencing. Renin expects that these events will negatively impact its sales, gross margin, and profitability and is evaluating possible cost saving initiatives to offset the impact of these events. Further, although Renin's manufacturing and distribution facilities remained open throughout the pandemic, increases in COVID-19 cases may result in closures in its facilities, including its facilities located inCanada , and worker shortages may also result in the closure of facilities or such facilities operating below capacity. Additionally, while consumer demand for Renin's products generally remained strong throughout the COVID-19 pandemic and into the first half of 2021, Renin has recently observed a decline in consumer demand, which Renin believes may be attributable to (i) the impact of price increases and overall inflationary pressures on consumer behavior and (ii) a shift in consumer spending away from home improvements as many portions of the economy reopen, particularly inthe United States . In addition, Renin would be negatively impacted by an increase in interest rates, as its borrowings bear interest at variable rates. Acquisition of Colonial Elegance InOctober 2020 , Renin acquired substantially all of the assets and assumed certain of the liabilities of Colonial Elegance, a supplier and distributor of building products that was headquartered inMontreal, Canada . Colonial Elegance's products included barn doors, closet doors, and stair parts, and its customers included various big box retailers inthe United States andCanada which Renin believes were complementary to and expanded its existing customer base. The base purchase price for the acquisition of Colonial Elegance was$38.8 million . In addition to the base purchase price, Renin acquired excess working capital held by Colonial Elegance above an agreed upon target working capital amount of$9.9 million for$4.3 million , which resulted in total purchase consideration of$43.1 million .BBX Capital made a$5.0 million capital contribution to Renin to partially fund the acquisition of Colonial Elegance, while the remainder of the acquisition was funded by Renin using borrowings under its amended and restated credit facility with TD Bank, as described below.
Amendment and Restatement of TD Bank Credit Facility
In connection with the acquisition of Colonial Elegance, Renin amended and
restated its credit facility with TD Bank to include a
In
In
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Although Renin was in compliance with the financial covenants under the TD Bank
credit facility as of
See Note 3 to the Company's consolidated financial statements included in Item 8 of this annual report for additional information with respect to Renin's acquisition of Colonial Elegance and Note 11 to the Company's consolidated financial statements included in Item 8 of this Annual Report on Form 10-K for additional information with respect to Renin's amended and restated credit facility with TD Bank.
Supplier Dispute
In
Since there was no assurance regarding the ultimate resolution of the matter,
Renin recognized the cost of the products and related shipping costs upon the
sale of such products in cost of trade sales in the Company's statement of
operations and comprehensive income during the year ended
Results of Operations
Information regarding the results of operations for Renin is set forth below
(dollars in thousands):
Change Change
For the Years Ended December 31, 2021 vs 2020 vs
2021 2020 2019 2020 2019
Trade sales $ 146,255 93,036 67,537 53,219 25,499
Cost of trade
sales (130,366) (83,563) (54,243) (46,803) (29,320)
Gross margin 15,889 9,473 13,294 6,416 (3,821)
Interest expense (1,830) (615) (498) (1,215) (117)
Selling, general
and administrative
expenses (15,857) (11,735) (11,066) (4,122) (669)
Total operating
(loss) income (1,798) (2,877) 1,730 1,079 (4,607)
Other (expense)
income - (3) 153 3 (156)
Foreign exchange
gain (loss) 812 (692) (75) 1,504 (617)
(Loss) income
before income
taxes (986) (3,572) 1,808 2,586 (5,380)
Gross margin
percentage % 10.86 10.18 19.68 0.68 (9.50)
SG&A as a percent
of trade sales % 10.84 12.61 16.39 (1.77) (3.78)
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Renin's loss before income taxes for the year ended
?An increase in Renin's gross margin and gross margin percentage primarily due
to i) an increase in Renin's trade sales resulting primarily from the
acquisition of Colonial Elegance in
?An increase in foreign currency exchange gains due to the impact of changes in
foreign exchange rates between the
?An increase in selling, general, and administrative expenses primarily due to ongoing expenses associated with Colonial Elegance, including amortization expense related to acquired intangible assets; and
?An increase in interest expense associated with Renin's use of its credit facility with TD Bank to fund a significant portion of the purchase price for the Colonial Elegance acquisition and to fund higher inventory balances.
Other
Other in the Company's segment information includes its investments in other
operating businesses, including a restaurant located in
Reconciling Items and Eliminations
Reconciling items and eliminations in the Company's segment information primarily includes the following:
?
?Interest income on the note receivable from
?Interest income on interest-bearing cash accounts; and
?Interest expense capitalized in connection with the development and construction of real estate.
Corporate General and Administrative Expenses
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(Provision) Benefit for Income Taxes from Continuing Operations
The provision for income taxes was different than the expected federal income
tax rate of 21% primarily due to the impact of state income taxes and an
increase in the Canadian valuation allowance during the year ended
Discontinued Operations
MOD Pizza Restaurant Operations
In 2016, Food forThought Restaurant Group ("FFTRG"), a wholly-owned subsidiary ofBBX Capital , entered into area development and franchise agreements withMOD Super Fast Pizza ("MOD Pizza") related to the development of up to approximately 60 MOD Pizza franchised restaurant locations throughoutFlorida . Through 2019, FFTRG had opened nine restaurant locations. InSeptember 2019 , due to FFTRG's overall operating performance and the Company's goal of streamlining its investment verticals, the Company entered into an agreement with MOD Pizza to terminate the area development and franchise agreements and transferred seven of its restaurant locations, including the related assets, operations, and lease obligations, to MOD Pizza. In addition, the Company closed the remaining two locations and terminated the related lease agreements. FFTRG's operations as a franchisee of MOD Pizza are presented as discontinued operations in the Company's consolidated financial statements. The net loss before taxes from the Company's MOD Pizza franchise operations for the year endedDecember 31, 2019 was$9.4 million , which included aggregate impairment losses of$6.7 million related to the transfer of the seven restaurant locations to MOD Pizza and the closure of the two restaurant locations. Net Income Attributable to Noncontrolling Interests
Through
Consolidated Cash Flows
A summary of our consolidated cash flows is set forth below (in thousands):
For the Years Ended December 31,
2021 2020 2019
Cash flows provided by (used in) operating
activities $ 37,828 (6,183) 22,669
Cash flows provided by (used in) investing
activities 36,785 (52,399) 35,963
Cash flows (used in) provided by financing
activities (45,955) 127,682 (67,427)
Net increase (decrease) in cash, cash
equivalents and restricted cash $ 28,658 69,100 (8,795)
Cash, cash equivalents and restricted cash at
beginning of period 90,387 21,287 30,082
Cash, cash equivalents and restricted cash at
end of period $ 119,045 90,387 21,287
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Cash Flows from Operating Activities
The Company's cash provided by operating activities increased by
Cash Flows from Investing Activities
Cash provided by investing activities increased by
Cash Flows from Financing Activities
Cash used in financing activities increased by
Commitments
As of
The following table summarizes the contractual minimum principal and interest
payments required on the Company's outstanding debt and payments required on the
Company's noncancelable operating leases by period due date as of
Payments Due by Period
Unamortized
Debt
Less than 1 - 3 4 - 5 After 5 Issuance
Contractual
Obligations (1) 1 Year Years Years Years Costs Total
Notes payable and
other borrowings
(2) $ 3,177 10,601 33,867 7,860 (622) 54,883
Noncancelable
operating leases 17,847 35,226 28,806 38,779 - 120,658
Settlement of
supplier dispute 2,025 - - - - 2,025
Purchase an
additional 40%
interest in the
Altman Companies
(3) - 9,400 - - - 9,400
Total contractual
obligations 23,049 55,227 62,673 46,639 (622) 186,966
Interest
Obligations (2)(4)
Notes payable and
other borrowings 2,010 4,013 3,004 7,162 - 16,189
Total contractual
interest 2,010 4,013 3,004 7,162 - 16,189
Total contractual
obligations $ 25,059 59,240 65,677 53,801 (622) 203,155
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(1)The above table excludes certain additional amounts that the Company may invest in the Altman Companies or its sponsored joint ventures.
(2)Obligations under Renin's credit facility with TD Bank are presented based on
the scheduled principal payments and stated maturity date of
(3)Subject to certain adjustments, including, but not limited to, reimbursements for excess working capital and predevelopment expenditures incurred by the Altman Companies at the time of purchase.
(4)Assumes that the scheduled minimum principal payments are made in accordance
with the table above and the interest rate on variable rate debt remains the
same as the rate at
Liquidity and Capital Resources
As of
The Company's principal sources of liquidity have historically been i) its
available cash, cash equivalents, and short-term investments, ii) distributions
from unconsolidated real estate joint ventures, iii) proceeds received from
sales of real estate, and iv) contributions from
In addition to the above sources of liquidity, the Company expects to receive
quarterly interest payments on the promissory note that was issued by
The Company believes that its current financial condition will allow it to meet its anticipated near-term liquidity needs. The Company may also seek additional liquidity from outside sources, including traditional bank financing, secured or unsecured indebtedness, or the issuance of equity and/or debt securities. However, these alternatives may not be available to the Company on attractive terms, or at all. The inability to raise any needed funds through the sources discussed above would have a material adverse effect on the Company's business, results of operations, and financial condition.
Anticipated and Potential Liquidity Requirements
The Company currently expects to use its available liquidity to fund operations (including corporate expenses, working capital, capital expenditures, debt service requirements, and the Company's other commitments described above) and make additional investments in real estate, its existing operating businesses, or other opportunities. However, as discussed above, management intends to evaluate any operating deficits, commitments, and liquidity requirements of its subsidiaries as a result of the impact of the COVID-19 pandemic on operations, general economic conditions, and other relevant factors and may make a determination that it will not provide additional funding or capital to its subsidiaries.
During the year ended
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program may be made from time to time through solicited or unsolicited transactions in the open market or in privately negotiated transactions. The share repurchase program does not obligate the Company to repurchase any specific amount of shares and may be suspended, modified, or terminated at any time without prior notice.
In
Pursuant to the operating agreement of the Altman Companies, BBXRE will also
acquire an additional 40% equity interest in the Altman Companies from
In addition to investments in the Altman Companies and related joint ventures,
BBXRE currently expects to invest
BBXRE has entered into purchase and sale agreements to acquire two land parcels
for the purpose of developing logistics facilities for an aggregate purchase
price of
The operating agreements of certain of real estate joint ventures in which BBXRE is an investor contain customary buy-sell provisions which could result in either the sale of BBXRE's interest or the use of available cash to acquire the partner's interest, and the Company's commitments and liquidity requirements described above do not include amounts that the Company could pay as a result of the initiation of these provisions.
IT'SUGAR currently expects to incur in excess of
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Renin
During the year ended
Credit Facilities with Future Availability
As of
As previously described, Renin's credit facility was amended in
As a result of increased costs, higher inventory levels, and the increased time between purchases of inventory and receipt of payments from customers, Renin may be required to utilize substantially all of its availability under the Operating Loan in the near future. Further, the effects of the current economic environment, including increased costs and the potential loss of customers following price increases, could impact Renin's ability to remain in compliance with the financial covenants under its credit facility. This in turn could limit the extent of availability, if any, under the Operating Loan in future periods, require Renin to provide additional collateral, and/or require Renin to repay all or a portion of the borrowings from TD Bank prior to scheduled maturity.
As of
LOCS Credit Facility. In
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Off-balance-sheet Arrangements
The Company has investments in joint ventures involved in the development of
multifamily rental apartment communities, as well as single-family master
planned for sale housing communities. The Company's investments in these joint
ventures are accounted for under the equity method of accounting, and as a
result, the Company does not recognize the assets and liabilities of these joint
ventures in its financial statements. As of
Critical Accounting Policies
Management views critical accounting policies as accounting policies that are important to the understanding of our financial statements and also involve estimates and judgments about inherently uncertain matters. In preparing the financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the consolidated statements of financial condition and assumptions that affect the recognition of income and expenses on the consolidated statements of operations and comprehensive income (loss) for the periods presented. On an ongoing basis, management evaluates its estimates, including, but not limited to, those that relate to the determination of: the recognition of revenue; the recovery of the carrying value of real estate inventories; the fair value of assets measured at, or compared to, fair value on a non-recurring basis, such as assets held for sale, intangible assets, other long-lived assets, and goodwill; the valuation of assets and liabilities assumed in the acquisition of a business; the amount of deferred tax valuation allowance and accounting for uncertain tax positions; and the estimate of contingent liabilities related to litigation and other claims and assessments. The accounting policies and estimates that we have identified as critical accounting policies are: the recognition of revenue; evaluating goodwill for impairment; and evaluating long-lived assets and definite lived intangible assets for impairment. Management bases its estimates on historical experience and on various other assumptions that it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ materially from these estimates under different assumptions and conditions. If actual results significantly differ from management's estimates, our results of operations and financial condition could be materially and adversely impacted.
Revenue Recognition - Variable Consideration on
The Company's trade sales are generally sold with a right of return, and the Company may provide other sales credits or incentives, such as volume discounts or rebates. Additionally, the Company is entitled to contingent consideration on certain single-family lot sales to builders. These programs are accounted for as variable consideration when determining the amount of revenue to recognize upon transfer of control. Estimates of contingent consideration, returns, and incentives are calculated using the expected value method and updated at the end of each reporting period when additional information becomes available. Variable consideration estimates are based on historical experience adjusted for, among other things, current and expected economic conditions and sales trends. These estimates rely on assumptions and judgments regarding issues where the outcome is unknown, and actual results or values may differ significantly from these estimates. A significant change in the timing of revenue recognized could occur if actual variable consideration is significantly different than our estimates.
Evaluating Goodwill for Impairment
The process of evaluating goodwill for impairment involves the determination of
the fair value of the Company's reporting units. Inherent in such fair value
determinations are certain judgments and estimates relating to future cash
flows, including the Company's interpretation of current economic indicators and
market valuations, and assumptions about the Company's strategic plans with
regard to its operations. Due to the uncertainties associated with such
evaluations, actual results could differ materially from such estimates. The
Company's goodwill as of
During the year ended
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the Company deconsolidated IT'SUGAR as a result of IT'SUGAR filing the
Bankruptcy Cases and derecognized the remaining IT'SUGAR goodwill balance of
approximately
Due to the uncertainties associated with such evaluations, changes in the
assumptions could have a materially effect on such estimates, particularly in
light of the ongoing disruptions and uncertainty in the
Evaluating Long-lived Assets and Definite-lived Intangible Assets for Impairment
The Company evaluates its long-lived assets and definite-lived intangible
assets, including property and equipment, and real estate held-for-investment,
for potential impairment whenever events or changes in circumstances indicate
that the carrying amounts of such assets may not be recoverable. The carrying
amounts of assets are not considered recoverable when the carrying amounts
exceed the undiscounted cash flows estimated to be generated by those assets. As
the carrying amounts of these assets are dependent upon estimates of future
earnings that they are expected to generate, these assets may be impaired if
cash flows decrease significantly or do not meet expectations, in which case
they would be written down to their fair value. The estimates of useful lives
and expected cash flows require us to make significant judgments regarding
future periods that are subject to a number of factors, many of which may be
beyond our control. The Company determined that its long-lived assets were not
impaired as of
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