David Winters Latest Letter To Consolidated Tomoka Land $CTO
David Winters has sent another letter to Consolidated-Tomoka Land (NYSE: CTO). This is a follow up to the letter he sent last month [seen here] Winters and his Wintergreen Advisers own 26% of CTO; their letter dated Jan. 12 is below:
On December 22, 2015, Consolidated-Tomoka Land Co. ("CTO" or the "Company") issued a press release that announced that the Company had completed an $8 million share repurchase program and approved a new $10 million share repurchase program. Wintergreen Advisers, LLC ("Wintergreen") believes that this release continues a pattern of misleading disclosure by CTO that fails to properly convey what is actually going on at the Company. Wintergreen believes that truly full disclosure to all shareholders would have also included the following material points:
1. CTO's outstanding share count has increased since John Albright has been appointed CEO. According to the Company's latest Form 10-Q filing, outstanding shares have increased by over 210,000 or 3.5% since Mr. Albright was hired in August 2011 --- despite the ongoing share repurchases. The typical benefit of a share repurchase program is that the outstanding share count shrinks, increasing each shareholder's equity in the company. However, since CTO's share repurchases aren't nearly enough to offset the shares being issued by the Company since Mr. Albright was hired (between August 2011 and September 30, 2015 CTO has repurchased 100,732 shares), CTO's shareholders only see continued dilution.
2. CTO's share counts continue to increase due in part to stock grants to management. Since he was hired in August 2011, Mr. Albright alone has been granted options for 314,000 shares of stock which represent over 5% of the Company's outstanding shares. Overall, since Mr. Albright was hired, CTO has authorized stock grants for over 430,000 shares of stock which represents over 7.3% of the Company's outstanding shares. CTO has continued to transfer company assets to what we view as an underperforming management team.
3. CTO holds repurchased shares in treasury, instead of retiring them. We believe this shows that the Company has no intention of reducing outstanding shares and benefiting shareholders – apparently the Board's goal for buybacks is simply to have more shares available to issue to management in future grants.
Wintergreen believes that management's goal is to extend its tenure as long as possible, including by delaying the sale of the Company and its assets. The longer that management can extend the sales process, the more opportunities it will have to acquire CTO shares via stock grants that dilute every other CTO shareholder. We believe CTO's management, with the Board's approval, repeatedly puts its personal interests ahead of shareholders. We again remind the Board of its true constituency --- the Board works for shareholders and not for management. We call upon the Board to expedite the sales process and maximize value for shareholders. We believe now is the time to act, while interest rates remain low and to realize the benefit of the ongoing and escalating recovery of real estate values in Daytona Beach which we believe has been the primary reason for the recent increases in CTO's share price.
Management's pattern of communicating what we view as half-truths and misrepresentations must be immediately corrected. Shareholders deserve a full and accurate picture of the Company – not the fairy tale that management has published. For example, we believe the Company intentionally misled shareholders in its November 24, 2015 press release announcing the inclusion in the Company's proxy materials of our shareholder proposal to hire an independent adviser to evaluate the sale or liquidation of the Company. We had been in contact with the Board and management during the months preceding the submission of our shareholder proposal and had very clearly voiced our concerns about CTO's management and the change of the Company's strategic direction. Therefore, we believe that to say the Company "appreciated Wintergreen's support" when CTO management and the Board were well aware of our dissatisfaction was an attempt to intentionally mischaracterize our position in an attempt to mislead shareholders.
Wintergreen also calls upon the Board to provide detailed disclosure to all shareholders about what advisors have been hired to oversee the sales process and also the process that was undertaken to determine the independence of these advisors. For what precise reason has the advisory firm been hired? Is the focus on the best interests of shareholders or of management? Are the advisors who have been engaged to evaluate the sale of the Company also recipients of the commissions and other fall-out benefits from the Company's transactions? Further, the Company has announced almost $120 million in transactions related to income properties, loan investments, and "venture interests" for 2015. Wintergreen believes shareholders should be provided a full accounting of all commissions, brokerage fees, and any other transaction related expenses that have been incurred in conjunction with the previously referenced $120 million in transactions, along with details as to who is being paid. We would expect that the Board would have the courtesy and respect for all shareholders to provide this full disclosure ahead of the Board's January 2016 meeting so that shareholders have more complete information to evaluate management and the Board.
Recently, CTO director Jeff Fuqua stated that "the Board has been consistently and appropriately involved in the oversight of the Company's management and the review of financial disclosures". Based on the issues we have raised to the Board's attention over the past few months, including granting Mr. Albright options for over 5% of the Company's outstanding shares, possible securities law violations and what we view as grossly inadequate disclosure regarding the Company's expanded investment and derivative portfolios, we are puzzled by Mr. Fuqua's statement. It seems to us that either the Board is not receiving from management the information it needs to effectively do its job or it is rubber-stamping whatever management puts in front of it for approval. Neither option is palatable and neither sounds to us like appropriate oversight. Mr. Fuqua also indicated that the Board and management have worked together to "create significant shareholder value." Wintergreen believes that shareholders are not seeing any benefit – all we see are increased overhead and expenses, continued dilution as shares are gifted to management, and a flurry of commissions and expenses that benefit the advisors and brokers – all at the expense of shareholders.