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 September 30, 2020 (the date of the
spin-off of the Company from Bluegreen Vacations Holding Corporation) which
reflect combined financial statements of BBX Capital, Inc. and its subsidiaries
and do not necessarily reflect what the results of operations, financial
position, or cash flows would have been had BBX Capital, Inc. and its
subsidiaries been a separate entity or what the results of operations, financial
position, or cash flows will be in the future. The following discussion contains
forward-looking statements, including those that reflect our plans, estimates,
and beliefs. Our actual results could differ materially from those discussed in
the forward-looking statements. Factors that could cause or contribute to these
differences include, without limitation, those discussed below and elsewhere in
this Annual Report on Form 10-K, particularly in Part 1. Item 1A "Risk Factors"
and Item 1 "Cautionary Note Regarding Forward-Looking Statements."
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 December 31, 2021 and 2020. Discussions of 2019 items and year-to-year
comparisons between 2020 and 2019 are not included in this Form 10-K and can be
found in "Management's Discussion and Analysis of Financial Condition and
Results of Operations" in Part II, Item 7 of the Company's Annual Report on Form
10-K for the fiscal year ended December 31, 2020. Such reports and other
information filed by the Company with the SEC are available free of charge on
our website at www.bbxcapital.com or with the SEC at www.sec.gov.
Overview
BBX Capital, Inc. (referred to together with its subsidiaries as the "Company,"
"we," "us," or "our," and without its subsidiaries as "BBX Capital") is a
Florida-based diversified holding company whose principal holdings are BBX
Capital Real Estate LLC ("BBX Capital Real Estate" or "BBXRE"), BBX Sweet
Holdings, LLC ("BBX Sweet Holdings"), and Renin Holdings, LLC ("Renin").
As of December 31, 2021, the Company had total consolidated assets of
approximately $533.4 million and shareholders' equity of approximately
$321.8 million. Net income (loss) attributable to shareholders for the years
ended December 31, 2021 and 2020 was approximately $46.9 million and
($42.3) million, respectively.
Impact of the COVID-19 Pandemic and Current Economic Issues
The COVID-19 pandemic has resulted in an unprecedented disruption in the U.S.
and global economies and the industries in which the Company operates, including
impacts on i) consumer demand, ii) disruptions in global supply chains, iii)
employee absenteeism and a general labor shortage, and iv) increased economic
uncertainty. The disruptions arising from the pandemic and the reaction of the
general public have had a significant adverse impact on the Company's
financial condition and operations, particularly with respect to BBX Sweet
Holdings, as the effects of the pandemic required IT'SUGAR to temporarily close
all of its retail locations in 2020 and ultimately resulted in IT'SUGAR and its
subsidiaries filing petitions for Chapter 11 bankruptcy in September 2020. In
addition, the Company's workforce at each of its subsidiaries has been
significantly impacted by the pandemic as a result of, among other things, the
initial implementation of temporary and permanent reductions in employee head
count in order to manage expenses, various health and safety protocols necessary
to maintain operations, and challenges related to hiring and retaining employees
and associated increased labor costs. Recent inflationary trends and suggestions
by the Federal Reserve Board regarding interest rate increases, as well as the
recent events with Russia and Ukraine and elsewhere, have also had and may in
the future have an impact on demand and the cost of goods, including commodity
and shipping costs, as well as a significant potential impact on interest rates.
Further, the Company has experienced significant increases in commodity,
freight, inventory, extended lead-times for the purchase of inventory, and
delays in inventory shipments, and these factors are impacting the Company's
operations, including requiring the Company to maintain higher inventory
balances and negatively impacting its gross margins, and may have a material
impact on its operations in future periods. In addition, the Company has adopted
policies which require vaccination or ongoing testing for employees in its
corporate offices; however, the Company has yet to adopt such policies across
all of its locations, and the implementation of such policies could result in
additional operational challenges for the Company in light of ongoing labor
shortages and the increased cost of labor.
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, BBX Capital and its subsidiaries sought to take steps to
manage expenses through cost saving initiatives, increase liquidity, and
strengthen the Company's financial position. As of December 31, 2021, the
Company's consolidated cash balances were $118.0 million.
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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
December 31, 2021 compared to the same 2020 period:
?Total consolidated revenues of $313.6 million, an 81.0% increase compared to
2020.
?Income from continuing operations before income taxes of $64.2 million compared
to a loss from continuing operations before income taxes of $58.2 million during
2020.
?Net income attributable to common shareholders of $46.9 million compared to a
net loss attributable to common shareholders of $42.3 million during 2020.
?Diluted earnings per share of $2.63 compared to a diluted loss per share of
$2.19 during 2020.
The Company's consolidated results for the year ended December 31, 2021 compared
to the same 2020 period were significantly impacted by the following:
?A net increase in sales activity at BBXRE's Beacon Lake Community development,
as BBXRE sold 299 undeveloped lots and 385 developed lots to homebuilders during
the 2021 period compared to 227 developed lots during the 2020 period;
?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, Altis
Grand at the Preserve, and Altis Grand Central;
?The recognition of a $15.9 million gain on the reconsolidation of IT'SUGAR in
the Company's financial statements as a result of IT'SUGAR emerging from Chapter
11 bankruptcy in June 2021 and the revesting of BBX Sweet Holdings' control of
IT'SUGAR;
?The recognition of a loss before income taxes of $47.5 million by BBX Sweet
Holdings during the 2020 period primarily as a result of the impact of the
COVID-19 pandemic on its businesses during 2020, including impairment losses of
$25.3 million primarily related to goodwill and long-lived assets associated
with IT'SUGAR and a loss of $3.3 million upon the Company's deconsolidation of
IT'SUGAR in connection with its filing of voluntary petitions to reorganize
under Chapter 11 of the Bankruptcy Code.
Segment Results
BBX Capital reports the results of its business activities through the following
reportable segments: BBX Capital Real Estate, BBX Sweet Holdings, and Renin.
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
BBX Capital Real Estate is engaged in the acquisition, development,
construction, ownership, financing, and management of real estate and
investments in real estate joint ventures, including investments in multifamily
rental apartment communities, single-family master-planned for sale housing
communities, and commercial properties located primarily in Florida. In
addition, BBXRE currently owns a 50% equity interest in the Altman Companies, a
developer and manager of multifamily rental apartment communities, and
anticipates acquiring an additional 40% of the Altman Companies in 2023. BBXRE
also manages the legacy assets acquired in connection with the Company's sale of
BankAtlantic in 2012, including portfolios of loans receivable, real estate
properties, and judgments against past borrowers.
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 Atlanta, Georgia
area.
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 Florida in which BBXRE operates. In
particular, sales at BBXRE's single-family home developments and leasing at its
multifamily apartment developments sponsored by the Altman Companies are
generally exceeding pre-pandemic levels, and BBXRE believes that there has
generally been a recovery both in investor demand for the acquisition of
stabilized multifamily apartment communities and in the availability of debt and
equity capital for financing new multifamily apartment developments.
However, there has also been a significant increase in commodity and labor
prices, which has resulted in higher development and construction costs, and
disruptions in the supply chain for certain commodities and equipment, which has
resulted in ongoing supply shortages of building materials, equipment, and
appliances. These factors have impacted the timing of certain projects currently
under construction and the commencement of construction of new projects.
Further, in addition to increasing the cost of the Company's outstanding
indebtedness, rising interest rates will at some point likely have an adverse
impact of home sales, the availability of financing, and the profitability of
development projects, as a majority of development costs are financed with third
party debt. Although such factors have not yet materially impacted BBXRE's
results of operations, these increases may have a material impact on BBXRE's
operating results in future periods, as described in further detail below. In
addition, the COVID-19 pandemic resulted in significant uncertainty in the
overall economy, which could have a material adverse impact on BBXRE's results
of operations, cash flows, and financial condition in future periods.
BBXRE's operating results for the year ended December 31, 2021 significantly
benefited from the impact of demand for single-family and multifamily housing on
certain of its existing investments, including its Beacon Lake Community and
various investments in joint ventures sponsored by the Altman Companies. While
BBXRE currently expects certain of its existing investments to benefit from
these factors in 2022, BBXRE currently expects a relative decline in revenues
and net income over the next several years as compared to 2021 based on its
current pipeline of investments, which reflects a combination of i) the
accelerated monetization of certain investments from future years into 2021 and
ii) the temporary delay of the commencement of new projects in 2020 due to the
COVID-19 pandemic. Accordingly, BBXRE is focused on the sourcing and deployment
of capital in investments in new development opportunities, including i) the
expansion of its investments in multifamily rental apartment communities through
the Altman Companies and ii) investing in the development of warehouse and
logistics facilities through its recently formed logistics real estate division.
Due to the currently expected life cycle of these developments, in which the
monetization of an investment generally occurs approximately three years
following the commencement of the development, BBXRE does not expect its
operating results to significantly benefit from these efforts in the near term
but believes that these investments are ultimately consistent with BBX Capital's
goal to build long-term shareholder value and BBXRE's goal of building a
diversified portfolio of profitable real estate investments that generate
recurring earnings and cash flows in future periods. However, there is no
assurance that these investments in new development opportunities will be
successful.
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 Joel Altman engaged in the development,
construction, and management of multifamily apartment communities. During the
year ended December 31, 2021, BBXRE monetized four of its investments in joint
ventures sponsored by the Altman Companies, and as of December 31, 2021, BBXRE
had investments in eight active developments sponsored by the Altman Companies,
which are summarized in Item 1 - Business of this Annual Report.
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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 Joel Altman for a
purchase price, subject to certain adjustments (including reimbursements for
predevelopment expenditures incurred at the time of purchase), of $9.4 million
in January 2023, and Joel Altman can also, at his option or in other predefined
circumstances, require BBX Capital to purchase his remaining 10% equity interest
in the Altman Companies for $2.4 million. However, Joel Altman will retain his
membership interests, including his decision making rights, in the managing
member of any development joint ventures that are originated prior to BBXRE's
acquisition of additional equity interests in the Altman Companies.
Developments Monetized in 2021
During the year ended December 31, 2021, joint ventures sponsored by the Altman
Companies sold: i) Altis Pembroke Gardens, a 280-unit multifamily apartment
community located in Pembroke Pines, Florida, ii) Altis Promenade, a 338-unit
multifamily apartment community located in Lutz, Florida, and iii) Altis Grand
at the Preserve, a 350-unit multifamily apartment community located in Odessa,
Florida. As a result of these sales, BBXRE received total cash distributions of
$13.6 million and recognized total equity earnings of $10.5 million from its
investments in the respective joint ventures. In addition, the Altis Grand
Central joint venture recapitalized its ownership interest in Altis Grand
Central, its 314-unit multifamily apartment community located in Tampa, Florida,
in a transaction with an institutional investor based on the property's agreed
upon market value, and the joint venture retained a 10% noncontrolling interest
in the property. As a result of the recapitalization, BBXRE received a cash
distribution of approximately $7.5 million from the joint venture and recognized
equity earnings from its investment in the venture of approximately $6.2 million
during year ended December 31, 2021. Further, BBXRE's beneficial ownership
interest in Altis Grand Central was decreased from approximately 11% to
approximately 1%.
New Developments
During the year ended December 31, 2021, joint ventures sponsored by the Altman
Companies closed on development financing and commenced the development of: i)
Altis Lake Willis Phase 1, a planned 329-unit multifamily apartment community in
Orlando, Florida, ii) Altis Suncoast Pasco, a planned 449-unit multifamily
apartment community in Lutz, Florida, and iii) Altis Blue Lake, a planned
318-unit multifamily apartment community in West Palm Beach, Florida.
With respect to Altis Lake Willis Phase 1, BBXRE and Joel Altman had previously
invested in the Altis Lake Willis joint venture, which was sponsored by the
Altman Companies to acquire land, obtain entitlements, and fund predevelopment
costs for the development of a multifamily apartment community in Orlando,
Florida. In 2021, the joint venture decided to develop the project in two
phases. Accordingly, in September 2021, the Altis Lake Willis Phase 1 joint
venture was formed to develop the first phase of the project, which is expected
to be comprised of a 329-unit multifamily apartment community, and closed on its
development financing. In connection with the closing, BBXRE and Joel Altman
acquired membership interests in the managing member of the Altis Lake Willis
Phase 1 joint venture and retained their respective ownership interests in the
land and predevelopment costs related to the anticipated second phase of the
project through the existing joint venture, which is now referred to as the
Altis Lake Willis Phase 2 joint venture. BBXRE also received a cash distribution
of approximately $4.1 million related to previous capital contributions based on
the final financing structure and proceeds associated with the first phase of
the development.
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 December 31, 2021. Further, the volume of new leases and rental rates at
its completed developments have generally exceeded pre-pandemic levels and
expectations due to demand for multifamily housing in the markets in which the
Altman Companies operates. The Altman Companies has also observed increased
investor demand for the acquisition of stabilized multifamily apartment
communities, as evidenced by the sales of multifamily apartment communities by
joint ventures sponsored by the Altman Companies in 2021. While the Altman
Companies does not currently expect that the observed increases in commodity and
labor prices will have a material impact on the costs of developing its
communities currently under construction which commenced prior to 2021, the
timing of the completion of these projects has been adversely impacted by supply
chain disruptions, and the Altman Companies currently expects that the costs to
develop certain of these projects will be in excess of the estimated development
costs as a result of factors unrelated to supply chain disruptions. However, the
Altman Companies currently believes that the impact of these factors on the
overall profitability of these projects will be offset by the impact of higher
rental rates and investor demand for the acquisition of stabilized multifamily
apartment communities.
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 South Florida, Orlando, Florida, and the
greater Tampa, Florida area, all of which are experiencing increased demand for
multifamily housing. While the Altman Companies believes that debt and equity
capital is currently available for new development opportunities, it has
observed a significant increase in land prices, as well
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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 Joel Altman as the
managing members of projects that are ultimately pursued. Such factors could
result in, among other things, (i) increased operating losses at the Altman
Companies due to a decline in development, general contractor, and management
fees, (ii) the recognition of impairment losses by BBXRE and/or the Altman
Companies related to their current investments, including predevelopment
expenditures and (iii) the recognition of impairment losses related to BBXRE's
overall investment in the Altman Companies, as the profitability and value of
the Altman Companies depends on its ability to source new development
opportunities.
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.
Beacon Lake Master Planned Development
Following a temporary decline in sales activity during 2020 as a result of the
COVID-19 pandemic, sales at BBXRE's Beacon Lake Community during 2021 exceeded
pre-pandemic levels and expectations as a result of demand for single-family
housing in Florida, which has ultimately resulted in the acceleration of the
completion of the development. During the year ended December 31, 2021, BBXRE
sold the 299 undeveloped lots comprising Phase 4, 291 single-family lots, and 94
townhome lots, as compared to 157 single-family lots and 70 townhome lots sold
during the year ended December 31, 2020. As of December 31, 2021, BBXRE had
commenced the development of the 200 lots comprising Phase 3 of the development,
and of the 1,476 lots comprising the entire Beacon Lake Community, only 263 lots
(63 in Phase 2 and 200 in Phase 3) had yet to be sold to homebuilders, with 131
of such lots (63 in Phase 2 and 68 in Phase 3) being under contract for sale to
homebuilders.
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 Beacon Lake Community are being
impacted. BBXRE currently believes that homebuilders are likely to continue to
meet their obligations to acquire the remaining 131 lots under contract for sale
from BBXRE pursuant to the existing agreements between BBXRE and the
homebuilders, as the impact of the increase in construction costs on the
profitability of home sales is being offset to some extent by an increase in
prices for single-family homes. However, there is no assurance that this will
continue to be the case, and the increase in construction costs could result in
requests by homebuilders to extend the timing of their purchase of developed
lots and/or failure of the homebuilders to meet their obligations under these
contracts.
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Other Joint Venture Activity
In June 2019, BBXRE invested $4.2 million in the Sky Cove joint venture, which
was formed to develop Sky Cove at Westlake, a residential community comprised of
204 single-family homes in Loxahatchee, Florida. During the year ended December
31, 2021, the joint venture closed on the sale of 165 single-family homes, and
BBXRE recognized $1.5 million of equity earnings and received $3.2 million of
distributions from the venture. As of December 31, 2021, the joint venture had
executed contracts to sell an additional 31 single-family homes, and closings on
such sales are expected to occur in 2022.
In February 2021, BBXRE invested $4.9 million in the Sky Cove South joint
venture, which was formed to develop Sky Cove South at Westlake, a residential
community that will be adjacent to Sky Cove at Westlake and is expected to be
comprised of 197 single-family homes. As of December 31, 2021, the joint venture
had executed contracts to sell 103 single-family homes, and closings on such
sales are expected to commence in 2022.
Prior to 2021, BBXRE invested approximately $7.4 million in a joint venture with
CC Homes to develop Marbella, a residential community expected to be comprised
of 158 single-family homes in Miramar, Florida. As of December 31, 2021, the
joint venture had executed contracts to sell all of the 158 single-family homes
comprising Marbella and closed on the sale of 32 homes. During the year ended
December 31, 2021, BBXRE recognized $2.6 million of equity earnings and received
$9.3 million of distributions from the venture. BBXRE expects that the closing
on the sale of the remaining homes will occur in 2022 and 2023.
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 BBX Capital Real Estate is
set forth below (dollars in thousands):
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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BBX Capital Real Estate's income before income taxes for the year ended
December 31, 2021 compared to the 2020 period increased by $48.3 million
primarily due to the following:
?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 in June 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 in July 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 in September 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 the Beacon
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 the Altis 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
BBX Sweet Holdings is engaged in the ownership and management of operating
businesses in the confectionery industry, including i) IT'SUGAR, a specialty
candy retailer whose products include bulk candy, candy in giant packaging, and
licensed and novelty items and which operates in retail locations which include
a mix of high-traffic resort and entertainment, lifestyle, mall/outlet, and
urban locations throughout the United States, ii) Las Olas Confections and
Snacks, a manufacturer and wholesaler of chocolate and other confectionery
products, and iii) Hoffman's Chocolates, a retailer of gourmet chocolates with
retail locations in South Florida.
Overview
IT'SUGAR - Emergence from Bankruptcy
BBX Sweet Holdings owns over 90% of the equity interests in IT'SUGAR. Prior to
September 22, 2020, the Company consolidated the financial statements of
IT'SUGAR and its subsidiaries as a result of its over 90% ownership of IT'SUGAR.
As a result of the impact of the COVID-19 pandemic on its operations, on
September 22, 2020, IT'SUGAR and its subsidiaries filed voluntary petitions to
reorganize under Chapter 11 of Title 11 of the U.S. Code (the "Bankruptcy Code")
in the U.S. Bankruptcy Court for the Southern District of Florida (the
"Bankruptcy Court") (the cases commenced by such filings, the "Bankruptcy
Cases"), and as a result of the filings and the uncertainties surrounding the
nature, timing, and specifics of the bankruptcy proceedings, the Company
deconsolidated IT'SUGAR on September 22, 2020.
In April 2021, IT'SUGAR filed its proposed plan of reorganization with the
Bankruptcy Court. Following approval of the proposed plan by IT'SUGAR's
unsecured creditors, the Bankruptcy Court entered an order (the "Confirmation
Order") on June 16, 2021 confirming the plan of reorganization filed by
IT'SUGAR, as modified by the Confirmation Order (the "Plan"), and the Plan
became effective on June 17, 2021 (the "Effective Date"). The following summary
of the Plan is qualified in its entirety by reference to the full text of the
Confirmation Order and the Plan, which are attached as Exhibits 10.4 and 10.5 to
the Company's Current Report on Form 8-K filed by the Company with the SEC on
June 17, 2021.
Pursuant to the terms of the Plan, claims against IT'SUGAR were treated as
follows:
?The $4.0 million debtor-in-possession ("DIP") credit facility and a
$6.0 million pre-petition line of credit held by a wholly-owned subsidiary of
BBXRE were repaid in full through the Exit Facility (as defined and described
below);
?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 $13.0 million, and BBXRE's wholly-owned subsidiary
advanced $13.0 million to IT'SUGAR under the Exit Facility, less the repayment
of the $4.0 million DIP credit facility and the $6.0 million pre-petition line
of credit due from IT'SUGAR (both of which were superseded and replaced by the
Exit Facility).
Pursuant to the terms of the Plan, BBX Sweet Holdings' equity interests in
IT'SUGAR were revested on the Effective Date, and all organizational documents
of IT'SUGAR were assumed, ratified, and reinstated. Therefore, as result of the
confirmation and effectiveness of the Plan and the revesting of BBX Sweet
Holdings' equity interests in IT'SUGAR, the Company was deemed to have
reacquired a controlling financial interest in IT'SUGAR and consolidated the
results of IT'SUGAR into its consolidated financial statements as of the
Effective Date, the date that BBX Sweet Holdings reacquired control of IT'SUGAR.
As a result of the reconsolidation of IT'SUGAR, BBX Sweet Holdings recognized a
gain on consolidation of $15.9 million during the year ended December 31, 2021,
which reflects the remeasurement of the carrying value of BBX Sweet Holdings'
equity interests in IT'SUGAR at fair value as of the Effective Date.
As a result of the deconsolidation and subsequent reconsolidation of IT'SUGAR,
IT'SUGAR's operating results during the period from September 22, 2020 through
the Effective Date are not included in BBX Sweet Holdings' consolidated results
of operations; however, the section below includes discussion related to
IT'SUGAR's results of operations during the course of the Chapter 11 Cases.
IT'SUGAR - Business Update
As of December 31, 2021, IT'SUGAR was operating approximately 100 retail
locations across the United States, including 14 "temporary" retail locations.
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 U.S.
locations, and executed lease amendments with respect to 78 of its retail
locations.
?In August 2021, IT'SUGAR opened its first Oreo Café in the third floor of its
"candy department store" at American Dream in New Jersey.
?In November 2021, IT'SUGAR opened an 18,000 square foot retail location at the
Ala Moana Center in Honolulu, Hawaii, which is the second "candy department
store" in IT'SUGAR's portfolio.
?In addition to the above, as of December 31, 2021, IT'SUGAR has also executed
agreements for an expansion of an existing retail location, a relocation of a
store at an existing location, and various new "temporary" retail locations,
Further, as of December 31, 2021, IT'SUGAR had closed one existing retail
location and two "temporary" retail locations.
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 New Jersey and the Ala
Moana Center in Honolulu, Hawaii) in select high-traffic resort and
entertainment locations across the United States, ii) evaluating additional
retail locations in targeted markets in which it believes it can
opportunistically capitalize on the availability of retail space and a decline
in rental rates of retail space in certain markets as a result of the impact of
the COVID-19 pandemic, and iii) improving the remaining maturity of its store
portfolio by extending the lease terms of its existing successful retail
locations, as well as expanding the size of certain retail locations.
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 March 2020 due to the COVID-19 pandemic, the
Company does not believe that IT'SUGAR's results for the comparable 2020 periods
would provide a meaningful comparison in relation to its operating results for
the 2021 periods
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 New Jersey in December 2019, sales at its
"temporary" retail locations, and an increase in e-commerce sales, partially
offset by the impact of closed retail locations. However, IT'SUGAR does not
currently expect a significant portion of these e-commerce sales to continue in
future periods.
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 December 31, 2021 increased by
approximately 34.05% and 42.65%, respectively, as compared to its sales during
the same 2020 and 2019 periods. However, it is currently experiencing the impact
of global supply chain disruptions, including increased costs for raw materials
and supply chain delays, as well as increased labor costs in its manufacturing
facilities. In an effort to mitigate the impact of these factors, Las Olas
Confections and Snacks has increased the price of its products, with certain
price increases implemented in the third quarter of 2021 and others scheduled to
occur in 2022.
During the year ended December 31, 2021, all of Hoffman's Chocolates' locations
were open, and its revenues were $5.0 million, as compared to $4.7 million and
$7.9 million, respectively, of revenues during the comparable 2020 and 2019
periods. Although its sales have shown signs of improvement since 2020,
Hoffman's Chocolates' operations continue to be impacted by the effects of the
COVID-19 pandemic on demand, sales levels, and consumer behavior. In 2022,
Hoffman's Chocolates closed one of its retail locations.
Results of Operations
Information regarding the results of operations for BBX Sweet Holdings 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 $ 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
BBX Sweet Holdings income from continuing operations before income taxes for the
year ended December 31, 2021 compared to the same 2020 period increased by
$63.3 million primarily due to the following:
?The recognition of $25.3 million of impairment losses in the 2020 period due to
a decline in the estimated value of the goodwill and long-lived assets
associated with BBX Sweet Holdings' reporting units, including IT'SUGAR, as a
result of the impact of the COVID-19 pandemic on market conditions;
?The recognition of i) a $15.9 million gain on the reconsolidation of IT'SUGAR
in the Company's financial statements in the 2021 period as a result of IT'SUGAR
emerging from Chapter 11 bankruptcy in June 2021 and the revesting of BBX Sweet
Holdings' control of IT'SUGAR and ii) a $3.3 million loss on the deconsolidation
of IT'SUGAR during the 2020 period as a result of IT'SUGAR filing the Bankruptcy
Cases in September 2020; and
?An increase in trade sales and gross margin in 2021 as a result of the impact
of the COVID-19 pandemic on BBX Sweet Holdings' operations in 2020, including
$62.2 million of trade sales from IT'SUGAR during the year ended December 31,
2021 as compared to $31.8 million during the year ended December 31, 2020;
partially offset by
?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 December 31, 2021 is for the period from
June 17, 2021, the date that the Company reconsolidated IT'SUGAR, to December
31, 2021. IT'SUGAR's activity for the year ended December 31, 2020 is for the
period beginning on January 1, 2020 through September 22, 2020, the date that
the Company deconsolidated IT'SUGAR.
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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 Canada and three manufacturing and distribution facilities in
the United States and Canada. In addition to its own manufacturing activities,
Renin sources various products and materials from China, Brazil, and certain
other countries. In October 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 in Montreal, Canada.
Colonial Elegance's products included barn doors, closet doors, and stair parts,
and its customers included various big box retailers in the United States and
Canada which Renin believes were complementary to and expanded its existing
customer base.
Renin's products are sold through three channels in North America: retail,
commercial, and direct installation in the greater Toronto area.
Overview
During the year ended December 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 ended
December 31, 2021 as compared to approximately 67% and 63%, respectively, for
the years December 31, 2020 and 2019, which reflects, among other things, the
expansion of Renin's retail customers to include Menards, Lowe's Canada, 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 and October 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 in July 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.
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In April 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 in Canada, 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 in the 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
In October 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 in Montreal, Canada. Colonial
Elegance's products included barn doors, closet doors, and stair parts, and its
customers included various big box retailers in the United States and Canada
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 $30.0 million term loan,
increase the availability under its existing revolving operating loan with TD
Bank to $20.0 million, and extend the maturity of the facility to October 2025.
Renin utilized $30.0 million of proceeds under the term loan and approximately
$8.0 million of proceeds under the revolving operating loan in connection with
the acquisition of Colonial Elegance.
In July 2021, Renin's credit facility with TD Bank was amended effective
June 30, 2021 to temporarily increase the availability under the revolving line
of credit from $20.0 million to $24.0 million through December 31, 2021. In
addition, the amendment to the credit facility temporarily increased the maximum
total leverage ratio included in the financial covenants of the facility but
prohibited Renin from making distributions to BBX Capital through July 1, 2022,
at which time the leverage ratio and Renin's ability to make distributions to
the Company will revert to the prior requirements under the facility.
In November 2021, Renin's credit facility with TD Bank was further amended
effective September 30, 2021 to extend the prior increase in the availability
under the revolving line of credit from $20.0 million to $24.0 million through
December 31, 2022, at which time the availability under the line of credit will
revert to $20.0 million and any amounts outstanding in excess of $20.0 million
must be repaid by Renin. In addition, the November amendment to the credit
facility i) waived the requirement for Renin to comply with the maximum total
leverage ratio included in the financial covenants of the facility as of
September 30, 2021 (but does not waive the requirement for any future period),
ii) extended the prior increase in the maximum total leverage ratio through
December 31, 2022, iii) modified the calculation of the maximum total leverage
ratio, and iv) included an additional financial covenant related to Renin
meeting certain minimum levels of specified operating results from November 2021
through December 2022. Further, the November amendment prohibits Renin from
making distributions to BBX Capital through December 31, 2022. On January 1,
2023, the financial covenants under the facility and Renin's ability to make
distributions to the Company will revert to the requirements under the facility
prior to the amendments in 2021.
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Although Renin was in compliance with the financial covenants under the TD Bank
credit facility as of December 31, 2021, Renin is not currently in compliance
with certain financial covenants under the facility that are calculated as of
January and February 2022. Renin is in discussions with TD Bank to address this
issue, whether through a waiver of such covenants or a modification to the
facility. Even if Renin is able to obtain relief in relation to its financial
covenants under its credit facility with TD Bank, if the factors described
above, including inflationary and cost pressures, labor shortages, and supply
chain disruptions, continue to have a material negative impact on Renin's
operating results and financial condition, Renin may again fall out of
compliance with the terms of its outstanding credit facility with TD Bank. If
Renin is unable to obtain such a waiver or modify the facility, Renin may lose
availability under its line of credit, be required to provide additional
collateral, or repay all or a portion of its borrowings, any of which would have
a material adverse effect on the Company's liquidity, financial position, and
results.
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 October 2020, Renin incurred approximately $6.0 million in costs for the
expedited shipment of products to Renin from a foreign supplier and an
additional $2.0 million in costs for the expedited shipment of product displays
from the same supplier. The supplier had failed to deliver both the products and
displays on the contractually agreed upon delivery schedule, and Renin incurred
these costs, which were significantly in excess of the shipping costs that would
have been incurred had such products been delivered on schedule, based on its
belief that the costs were necessary in order for Renin to meet its obligations
to one of its major customers. The products were committed to be sold by Renin
in connection with the customer's November 2020 holiday sale program, while the
displays were required to be delivered in connection with the rollout of new
products with the customer. Renin believed that the supplier was liable to Renin
for damages related to the increased costs pursuant to the terms of the
agreements between Renin and the supplier and notified the supplier that it is
exercising a right of offset of the costs against outstanding amounts due to the
supplier of approximately $8.1 million in order to recover its damages. The
supplier disputed that it was liable for the additional shipping costs.
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 December 31, 2020,
while the costs of the displays and related shipping were deferred and are being
amortized over the period in which the Company expects to benefit from their
use. In December 2021, Renin and the foreign supplier settled the dispute and
outstanding amounts due to the supplier for $4.2 million to be paid by Renin to
the supplier in two equal installments in December 2021 and June 2022. As Renin
had accrued a $8.1 million liability for amounts due to the supplier during the
year ended December 31, 2020, Renin reduced its cost of trade sales by $2.9
million for the year ended December 31, 2021 and reduced the unamortized balance
of its display contract asset by $1.0 million as of December 31, 2021. BBX
Capital made a $2.0 million capital contribution to Renin to fund the December
2021 settlement payment to the foreign supplier.
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 December 31, 2021 was
$1.0 million compared to a loss before income taxes of $3.6 million for the same
2020 period. The decrease in the loss of $2.6 million was primarily due to the
following:
?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 October 2020 and price increases to
customers, ii) a $2.9 million benefit to cost of trade sales in 2021 associated
with a recovery of previously incurred freight costs as a result of a settlement
with a foreign supplier, and iii) $6.0 million of additional freight costs
incurred in 2020 related to the expedited shipment of products to Renin from the
aforementioned foreign supplier, partially offset by i) a significant increase
in costs related to shipping and raw materials incurred during 2021 compared to
the same 2020 period and ii) the recognition of a $2.9 million inventory reserve
as of December 31, 2021 as a result of a strategic initiative to consolidate
warehouse facilities, which resulted in a decision to discount various slow
moving inventories to accelerate their sale; and
?An increase in foreign currency exchange gains due to the impact of changes in
foreign exchange rates between the U.S. dollar and Canadian dollar and an
overall increase in assets and liabilities denominated in Canadian dollars as of
December 31, 2021 as compared to December 31, 2020 as a result of the
acquisition of Colonial Elegance; partially offset by
?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 South Florida that was
acquired through a loan foreclosure and an insurance agency.
During the years ended December 31, 2021 and 2019, the Company recognized income
from continuing operations before income taxes related to these other businesses
of $1.4 million and $0.3 million, respectively, compared to a loss from
continuing operations before income taxes of $2.9 million during the year ended
December 31, 2020. The improvements in the results of operations for these
businesses for the year ended December 31, 2021 compared to the 2020 period was
primarily due to the impact of the COVID-19 pandemic on these business in 2020
and the recognition of $2.7 million of impairment losses in 2020 related to
certain of these investments primarily resulting from the effects of the
COVID-19 pandemic on the estimated value of the businesses.
Reconciling Items and Eliminations
Reconciling items and eliminations in the Company's segment information
primarily includes the following:
?BBX Capital's corporate general and administrative expenses;
?Interest income on the note receivable from Bluegreen Vacations;
?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
BBX Capital's corporate general and administrative expenses for the years ended
December 31, 2021, 2020, and 2019 were $15.6 million, $16.0 million, and $21.0
million, respectively. During the year ended December 31, 2021 and the three
months ended December 31, 2020, BBX Capital's corporate general and
administrative expenses consisted of the actual costs of various support
functions, including executive compensation, legal, accounting, human resources,
investor relations, and executive offices, while BBX Capital's corporate general
and administrative expenses for the periods through September 30, 2020 consisted
primarily of an allocation of the cost of services provided by Bluegreen
Vacations to the Company for these support functions, most of which were
transferred to BBX Capital in connection with the spin-off from Bluegreen
Vacations.
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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 December 31,
2021. The difference for the years ended December 31, 2020 and 2019 was due to
the impact of nondeductible executive compensation and state income taxes, as
well as the impact of a nondeductible goodwill impairment loss recognized during
the year ended December 31, 2020.
Discontinued Operations
MOD Pizza Restaurant Operations
In 2016, Food for Thought Restaurant Group ("FFTRG"), a wholly-owned subsidiary
of BBX Capital, entered into area development and franchise agreements with MOD
Super Fast Pizza ("MOD Pizza") related to the development of up to approximately
60 MOD Pizza franchised restaurant locations throughout Florida. Through 2019,
FFTRG had opened nine restaurant locations. In September 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 ended December 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 September 22, 2020, the Company's consolidated financial statements
included the results of operations and financial position of IT'SUGAR, an over
90% owned subsidiary in which it held a controlling financial interest, and as a
result, the Company previously recognized a noncontrolling interest in IT'SUGAR.
As a result of the filing of the Bankruptcy Cases by IT'SUGAR and its
subsidiaries, the Company deconsolidated IT'SUGAR as of September 22, 2020 and
derecognized the related noncontrolling interest in IT'SUGAR. On June 17, 2021,
the Company reconsolidated IT'SUGAR as a result of IT'SUGAR's subsequent
emergence from bankruptcy and again recognized the noncontrolling interest in
IT'SUGAR. As IT'SUGAR is a partially-owned subsidiary, BBX Capital is required
to attribute income or loss to the noncontrolling interest in IT'SUGAR during
the periods in which IT'SUGAR is consolidated in the Company's financial
statements. As a result, during the year ended December 31, 2020, the Company
attributed income or loss to the noncontrolling interest in IT'SUGAR through
September 22, 2020, and during the year ended December 31, 2021, the Company
attributed income or loss to the noncontrolling interest in IT'SUGAR commencing
on June 17, 2021.
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 $44.0 million
during the year ended December 31, 2021 compared to the same period in 2020
primarily due to higher sales of real estate inventory by BBXRE, higher
operating distributions from unconsolidated real estate joint ventures, and
lower operating losses at BBX Sweet Holdings, partially offset by cash used in
Renin's operating activities, including inventory purchases. The decrease in
operating losses at BBX Sweet Holdings during the 2021 period compared to the
2020 period was primarily the result of operating losses incurred by IT'SUGAR
during the 2020 period as a result of the impact of the COVID-19 pandemic on
IT'SUGAR's operations.
Cash Flows from Investing Activities
Cash provided by investing activities increased by $89.2 million during the year
ended December 31, 2021 compared to the same period in 2020 primarily due to
$42.1 million of cash paid for the acquisition of Colonial Elegance in the 2020
period, receipt of a $25.0 million partial prepayment of the note receivable
from Bluegreen Vacations in the 2021 period, higher distributions from
unconsolidated real estate joint ventures, and $6.9 million of cash acquired in
connection with the consolidation of IT'SUGAR.
Cash Flows from Financing Activities
Cash used in financing activities increased by $173.6 million during the year
ended December 31, 2021 compared to the same period in 2020, which was primarily
due to a $94.3 million net transfer of cash from Bluegreen Vacations during the
2020 period, the repurchase of $34.3 million of Class A and Class B Common Stock
during the 2021 period, and higher net borrowings during the 2020 period
primarily as a result of borrowings to fund the acquisition of Colonial
Elegance.
Commitments
As of December 31, 2021, the Company's material commitments included the
required payments due on notes payable and other borrowings and commitments
under noncancelable operating leases.
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 December 31,
2021 (in thousands):
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 October 2025
contemplated in the loan agreement. Renin is not currently in compliance with
certain financial covenants under the facility that are calculated as of January
and February 2022. If Renin is unable to obtain a waiver or modify the facility
to address this issue, Renin may be required to repay all or a portion of its
borrowings, which would have a material adverse effect on the Company's
liquidity, financial position, and results.
(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 December 31, 2021.
Liquidity and Capital Resources
As of December 31, 2021, the Company had cash, cash equivalents, and short-term
investments of approximately $122.7 million. Management believes that the
Company has sufficient liquidity to fund operations, including anticipated
working capital, capital expenditure, and debt service requirements, and respond
to the challenges related to the COVID-19 pandemic and current economic
environment for the foreseeable future, subject to mitigation and cost reduction
efforts and management's determination of whether and/or the extent to which it
will fund the operations and commitments of its subsidiaries. As previously
disclosed, management has evaluated and will continue to evaluate the potential
operating deficits, commitments, and liquidity requirements of its subsidiaries
and may determine not to provide additional funding or capital to subsidiaries
whose operations it believes may not be sustainable or do not support additional
investment.
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 Bluegreen Vacations. However,
as a result of the spin-off of BBX Capital from Bluegreen Vacations, the Company
no longer receives capital contributions from Bluegreen Vacations. As a result,
the Company believes that its primary sources of liquidity for the foreseeable
future will be its available cash, cash equivalents, and short-term investments,
distributions from unconsolidated real estate joint ventures, and proceeds
received from sales of real estate.
In addition to the above sources of liquidity, the Company expects to receive
quarterly interest payments on the promissory note that was issued by Bluegreen
Vacations in favor of BBX Capital in connection with the spin-off. The original
principal amount of the note was $75.0 million; however, in December 2021,
Bluegreen Vacations prepaid $25.0 million of the principal balance, reducing the
outstanding balance to $50.0 million as of December 31, 2021. Amounts
outstanding under the note accrue interest at a rate of 6% per annum, with
interest payments scheduled to occur on a quarterly basis. However, Bluegreen
Vacations may elect to defer such quarterly interest payments, with interest on
the entire outstanding balance thereafter to accrue at a cumulative, compounded
rate of 8% per annum until such time as Bluegreen Vacations is current on all
accrued payments under the note, including deferred interest. All outstanding
amounts under the note will become due and payable on September 30, 2025 or
earlier upon certain other events. Bluegreen Vacations is permitted to prepay
the note in whole or in part at any time.
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.
BBX Capital
During the year ended December 31, 2021, BBX Capital repurchased 3,828,014
shares of its Class A Common Stock and 14,394 shares of its Class B Common Stock
for an aggregate of $34.3 million. In January 2022, the Board of Directors
approved a share repurchase program which authorizes the repurchase of up to
$15.0 million of shares of the Company's Class A and Class B Common Stock. The
repurchase program authorizes the Company, in management's discretion, to
repurchase shares from time to time subject to market conditions and other
factors. The timing, price, and number of shares which may be repurchased under
the program in the future will be based on market conditions, applicable
securities laws, and other factors considered by management. Share repurchases
under the
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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.
BBX Capital Real Estate
In November 2018, BBXRE acquired a 50% membership interest in the Altman
Companies, a joint venture between BBXRE and Joel Altman engaged in the
development, construction, and management of multifamily apartment communities.
Although the Altman Companies generates revenues from the performance of
development, general contractor, leasing, and property management services to
the joint ventures that are formed to invest in the development projects that it
originates, it is expected that any profits generated for BBXRE and Joel Altman
will primarily be through the equity distributions that BBXRE and Joel Altman
receive through their investment in the managing member of such joint ventures.
Therefore, as the timing of any such distributions to BBXRE and Joel Altman is
generally contingent upon the sale or refinancing of a completed development
project, it is anticipated that BBXRE and Joel Altman will be required to
contribute capital to the Altman Companies for its ongoing operating costs and
predevelopment expenditures, as well as to the managing member of newly formed
joint ventures. BBXRE currently anticipates that it will invest approximately
$8.0 million to $10.0 million in the Altman Companies and certain related joint
ventures during the year ended December 31, 2022 for planned predevelopment
expenditures, ongoing operating costs, and potential operating shortfalls
related to certain projects. Further, based on its current pipeline of new
potential development projects and certain existing development projects for
which the equity contributions to the joint ventures are expected to be funded
over time, BBXRE currently estimates that it may invest in excess of $10.0
million in the managing member of joint ventures during the year ended December
31, 2022; however, the timing of the commencement of such projects and the pace
of development may result in such estimated investments being made in 2023 or a
later period, if at all. As previously disclosed, BBXRE may also consider
opportunistically making increased equity investments in one or more new
projects originated by the Altman Companies. Furthermore, based on its current
pipeline of new potential development projects, BBXRE currently expects that it
will be required to contribute an estimated additional $1.25 million to ABBX
Guaranty, LLC, a joint venture between BBXRE and Joel Altman that provides
guarantees on the indebtedness and construction cost overruns of new real estate
joint ventures formed by the Altman Companies, during the year ended December
31, 2022.
Pursuant to the operating agreement of the Altman Companies, BBXRE will also
acquire an additional 40% equity interest in the Altman Companies from Joel
Altman for a purchase price of $9.4 million, subject to certain adjustments, in
January 2023, and Joel Altman can also, at his option or in other predefined
circumstances, require BBXRE to purchase his remaining 10% equity interest in
the Altman Companies for $2.4 million. In addition, in certain circumstances,
BBXRE may acquire the 40% membership interests in Altman-Glenewinkel
Construction that are not owned by the Altman Companies for a purchase price
based on prescribed formulas in the operating agreement of Altman-Glenewinkel
Construction.
In addition to investments in the Altman Companies and related joint ventures,
BBXRE currently expects to invest $7.0 million to $8.0 million in its logistics
real estate division for planned predevelopment expenditures and ongoing
operating costs. In addition, if the division ultimately commences the
development of warehouse and logistics facilities, BBXRE expects that it will
seek to develop such projects through joint ventures with third party investors
and that it will invest in the managing member of the joint ventures formed to
invest in such development projects. Accordingly, if such joint ventures are
formed to invest in these projects, BBXRE expects that it will be reimbursed for
previously incurred predevelopment expenditures by such ventures.
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 $30.6 million. These purchase and sale agreements are subject to the
successful completion of due diligence, and the escrowed deposits paid by BBXRE
in connection with the agreements are refundable up to the end of the due
diligence period. BBXRE expects that it will seek to develop these projects
through joint ventures with third party investors and assign the agreements to
the applicable joint ventures.
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.
BBX Sweet Holdings
IT'SUGAR currently expects to incur in excess of $10.0 million of capital
expenditures during the year ended December 31, 2022 to fund construction costs
associated with new retail locations and the expansion of existing retail
locations, and BBX Capital currently expects that it will loan up to $8.0
million to IT'SUGAR to partially fund such capital expenditures.
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Renin
During the year ended December 31, 2021, BBX Capital contributed $15.0 million
to Renin to provide additional liquidity for working capital requirements as a
result of the impact of global supply chain disruptions on Renin's operations.
Further, as a result of the resolution of a dispute between Renin and one of its
suppliers, BBX Capital contributed $2.0 million to Renin in order to fund the
first half installment payable by Renin to the supplier and expects to fund an
additional $2.0 million to Renin in order to fund the final installment of the
settlement. Further, BBX Capital may consider providing additional funds to
Renin in future periods to fund working capital and its commitments. However, as
discussed above, BBX Capital's management evaluates the operating results,
financial condition, commitments and prospects of its subsidiaries on an ongoing
basis and may determine that it will not provide additional funding or capital
to its subsidiaries, including Renin.
Credit Facilities with Future Availability
As of December 31, 2021, BBX Capital and certain of its subsidiaries had the
following credit facilities with future availability, subject to eligible
collateral and the terms of the facilities, as applicable.
Toronto-Dominion Commercial Bank ("TD Bank") Credit Facility. Renin has a credit
facility with TD Bank that includes a $30.0 million term loan (the "Term Loan")
and a revolving operating loan of up to $20.0 million (which amount was
increased as described below) (the "Operating Loan"), both of which mature in
October 2025. As of December 31, 2021, the outstanding amounts under the term
loan and revolving credit facility were $27.8 million and $16.6 million,
respectively, with effective interest rates of 3.49% and 4.26%, respectively.
As previously described, Renin's credit facility was amended in July 2021 and
November 2021. As a result of such amendments, the availability under the
Operating Loan was increased from $20.0 million to $24.0 million through
December 31, 2022. at which time the availability under the line of credit will
revert to $20.0 million and any amounts outstanding in excess of $20.0 million
must be repaid by Renin. In addition, the November 2021 amendment to the credit
facility, i) extended the prior increase in the maximum total leverage ratio
through December 31, 2022, ii) modified the calculation of the maximum total
leverage ratio, and iii) included an additional financial covenant related to
Renin meeting certain minimum levels of specified operating results from
November 2021 through December 2022. Further, the November amendment prohibits
Renin from making distributions to BBX Capital through December 31, 2022. On
January 1, 2023, the financial covenants under the facility and Renin's ability
to make distributions to BBX Capital will revert to the requirements under the
facility prior to the amendments in 2021.
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 December 31, 2021, Renin had availability of approximately $7.4 million
under the Operating Loan, subject to eligible collateral and the terms of the
facility, as applicable. However, Renin's failure to remain in compliance with
the financial covenants under the credit facility would limit the extent of
availability under the Operating Loan in future periods. Although Renin was in
compliance with the financial covenants under the credit facility as of December
31, 2021, Renin is not currently in compliance with certain financial covenants
under the facility that are calculated as of January and February 2022. Renin is
in discussions with TD Bank to address this issue, whether through a waiver of
such covenants or a modification to the facility. If Renin in unable to reach a
satisfactory resolution with TD Bank, this would have a material adverse effect
on the Company's financial position and results of operations.
LOCS Credit Facility. In July 2021, BBX Sweet Holdings and certain of its
subsidiaries, including Las Olas Confections and Snacks, entered into a credit
agreement (the "LOCS Credit Facility") with IberiaBank which provides for a
revolving line of credit of up to $2.5 million that matures in July 2023.
Amounts outstanding under the LOCS Credit Facility bear interest at the higher
of the Wall Street Journal Prime Rate plus 50 basis points or 3.0% per annum,
and the facility requires monthly payments of interest only, with any
outstanding principal and accrued interest due at the maturity date. The LOCS
Credit Facility is collateralized by a blanket lien on all of the assets of the
borrowers under the facility and is guaranteed by BBX Capital. The facility
contains certain financial covenants, including a minimum liquidity requirement
for BBX Capital as guarantor under the facility and a requirement that the
borrowers maintain a zero balance on the facility for thirty consecutive days
during each calendar year during the term of the facility. As of December 31,
2021, the outstanding amount under the credit facility was $2.0 million, and the
effective interest rate was 3.75%.
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Off-balance-sheet Arrangements
BBX Capital guarantees certain obligations of its wholly-owned subsidiaries and
unconsolidated real estate joint ventures, which are described in further detail
in Item 8 - Note 14 of this Annual Report.
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 December 31, 2021 and 2020, the
Company's investments in these joint ventures totaled $53.0 million and
$58.1 million, respectively. These unconsolidated real estate joint ventures
generally finance their activities with a combination of debt financing and
equity. The Company generally does not directly guarantee the financing of these
joint ventures, other than as described in further detail in Item 8 - Note 14 of
this Annual Report on Form 10-K, and the Company's maximum exposure to losses
from these joint ventures is its equity investment. The Company is typically not
obligated to fund additional capital to its joint ventures; however, the
Company's interest in a joint venture may be diluted if the Company elects not
to fund a joint venture capital call.
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 Trade Sales and Sales of Real
Estate Inventory
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 December 31, 2021 was $18.4 million.
During the year ended December 31, 2020, the Company concluded that the effects
of the COVID-19 pandemic, including the recessionary economic environment and
the impact on certain of the Company's operations, indicated that it was more
likely than not that the fair values of certain of its reporting units with
goodwill had declined below the respective carrying amounts of such reporting
units as of March 31, 2020. As a result, the Company tested the goodwill
associated with such reporting units for impairment by estimating the fair
values of the respective reporting units as of March 31, 2020 and recognized
goodwill impairment losses of $20.3 million associated with IT'SUGAR and
$2.1 million associated with certain of its other reporting units. On
September 22, 2020,
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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 $14.9 million as of that date. During the year ended December 31,
2021, IT'SUGAR emerged from bankruptcy, and the Company reconsolidated IT'SUGAR.
The Company accounted for the consolidation of IT'SUGAR upon under the
acquisition method of accounting, which requires that the assets acquired and
liabilities assumed associated with an acquiree be recognized at their fair
values at the consolidation date. As a result, the Company remeasured the
carrying value of its equity interests in IT'SUGAR at fair value with the
remeasurement adjustment recognized in the Company's statement of operations,
and recognized goodwill based on the difference between (i) the fair values of
IT'SUGAR's identifiable assets and liabilities at the consolidation date and
(ii) the fair values of the Company's interests in IT'SUGAR and the
noncontrolling interests in IT'SUGAR. Control. The Company recognized $14.3
million of goodwill upon the consolidation of IT'SUGAR. Inherent in the
Company's determinations of fair value of IT'SUGAR's assets and liabilities are
certain judgments and estimates relating to future cash flows, including the
Company's assessment of current economic indicators and market valuations, and
assumptions about the Company's strategic plans with regard to its operating
businesses.
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 U.S. and global
economics and global supply chains. In particular, the Company's estimated fair
value of the Renin reporting unit included, among other things, various
assumptions related to the impact of disruptions and uncertainty in the U.S. and
global economies and global supply chains on Renin's operations, and the
estimate of the fair value of Renin under the discounted cash flow methodology
assumed that the supply chain disruptions and material shortages that are
currently having a negative impact on Renin's gross margins will be resolved by
the end of 2022. If the ongoing supply chain disruptions and material shortages
are not resolved within the anticipated timeframes, the estimated fair value of
the Renin reporting unit may continue to decline, and the Company may be
required to record goodwill impairment charges in future periods. Similarly,
with respect to IT'SUGAR, the Company estimates that i) there will not be a
material permanent decline in the demand for IT'SUGAR's products in the future,
ii) IT'SUGAR will ultimately be able implement its long-term strategy to
reinvest in and grow its business, and iii) IT'SUGAR will be able to manage
supply chain and cost pressures through price increases.
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 December 31, 2021. The Company recognized impairment losses of
$5.4 million during the year ended December 31, 2020 related primarily to
leasehold improvements and right-of-use assets associated with certain of
IT'SUGAR's retail locations. The recognition of these impairment losses
primarily resulted from the effects of the COVID-19 pandemic on the estimated
cash flows expected to be generated by the related assets. The Company's
property and equipment, operating lease assets and definite-lived intangible
asset balances were $30.6 million, $90.6 million and $32.0 million as of
December 31, 2021, respectively.
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