NOTE 4. LAND AND SUBSURFACE INTERESTS

As of September 30, 2019, the Company owned approximately 5,300 acres of undeveloped land in Daytona Beach, Florida, along six miles of the west and east sides of Interstate 95. Currently, a significant amount of this land is used for agricultural purposes. As of October 21, 2019, approximately 30% of this acreage, over 1,500 acres, is under contract to be sold. Approximately 800 acres of our land holdings are located on the east side of Interstate 95 and are generally well-suited for commercial development. Approximately 4,500 acres of our land holdings are located on the west side of Interstate 95 and the majority of this land is generally well-suited for residential development. Included in the western land is approximately 1,000 acres, primarily an 850-acre parcel and three smaller parcels, which are located further west of Interstate 95 and a few miles north of Interstate 4 that are generally well-suited for industrial purposes.

In October 2019, the Company completed the sale of a controlling interest in a wholly-owned entity that holds the Company’s remaining Daytona Beach land portfolio of approximately 5,300 acres. See Note 22, “Subsequent Events” for a description of this transaction.

Real estate operations revenue consisted of the following for the three and nine months ended September 30, 2019 and 2018, respectively:


		Three Months Ended				Nine Months Ended
	September 30, 2019		September 30, 2018		September 30, 2019		September 30, 2018
Revenue Description	($000's)		($000's)		($000's)		($000's)
Land Sales Revenue	$	350	$	6,971	$	10,900	$	21,821
Impact Fee and Mitigation Credit Sales		—		665		—		1,251
Subsurface Revenue		196		377		637		1,403
Fill Dirt and Other Revenue		18		—		72		1
Agriculture		68		—		68		22
Total Real Estate Operations Revenue	$	632	$	8,013	$	11,677	$	24,498

2019 Land Sales. During the nine months ended September 30, 2019, a total of approximately 76 acres were sold for approximately $11.1 million, as described below:


					Gross Sales				Gain
			Date of	No. of	Price (1)		Price		on Sale
	Buyer (or Description)	Location	Sale	Acres	($000's)		per Acre		($000's)
1	Unicorp Site	East of I-95	02/27/19	9.9	$	3,300	$	333,000	$	2,274
		Subtotal - Q1 2019		9.9		3,300		333,000		2,274

2	Compensating Storage Pond	East of I-95	04/29/19	38.0		710		19,000		596
3	Final NADG Land Sale	East of I-95	05/15/19	12.6		3,000		239,000		1,964
4	Unicorp-Clyde Morris	East of I-95	06/20/19	13.7		3,800		277,000		365
		Subtotal - Q2 2019		64.3		7,510		117,000		2,925

5	LPGA Parcel	West of I-95	09/11/19	2.2		300		136,000		283
		Subtotal - Q3 2019		2.2		300		136,000		283

				76.4	$	11,110	$	145,000	$	5,482

(1)The gain recognized during the nine months ended September 30, 2019 on the Unicorp-Clyde Morris sale totaling approximately $365,000 includes approximately $260,000 for the Company’s estimated reimbursement of wetland mitigation credits. The Company expects to reimburse the buyer for required wetland mitigation credits estimated at approximately $260,000.

2018 Land Sales. During the nine months ended September 30, 2018, the Company completed land sale transactions representing approximately 2,583 acres of land including: (i) the sale of a 70% interest in the Mitigation Bank (hereinafter defined in Note 5, “Investment in Joint Venture”) that holds approximately 2,492 acres of land for proceeds of $15.3 million and (ii) four land sales totaling approximately 91 acres for aggregate proceeds of approximately $22.6 million, as described below:


					Gross Sales				Gain
			Date of	No. of	Price (1)		Price		on Sale
	Buyer (or Description)	Location	Sale	Acres	($000's)		per Acre		($000's)
1	Buc-ee's	East of I-95	03/16/18	34.9	$	13,948	$	400,000	$	11,926
		Subtotal - Q1 2018		34.9		13,948		400,000		11,926

2	Residential	West of I-95	06/12/18	19.0		265		14,000		226
3	Commercial / Retail	East of I-95	06/25/18	5.7		625		110,000		224
4	Commercial / Retail	East of I-95	06/28/18	7.7		819		106,000		628
		Subtotal - Q2 2018		32.4		1,709		53,000		1,078

5	Commercial / Retail	East of I-95	07/16/18	3.5		285		81,000		262
6	Unicorp-Williamson Crossing	East of I-95	08/30/18	20.6		6,685		325,000		1,502
		Subtotal - Q3 2018		24.1		6,970		289,000		1,764

				91.4	$	22,627	$	248,000	$	14,768

(1)The gain recognized during the nine months ended September 30, 2018 on the Buc-ee’s sale totaling approximately $11.9 million excludes approximately $831,000 held in an escrow reserve related to the portion of the acreage sold for which the Company remains obligated to perform wetlands mitigation. The Company expects to recognize the remaining gain of approximately $831,000 upon completion of the mitigation work. See Note 16, “Deferred Revenue”.

Land Impairments. There were no impairment charges related to the Company’s undeveloped land during the nine months ended September 30, 2019 or 2018.

Daytona Beach Development. We may selectively acquire other real estate in Daytona Beach, Florida. We may target either vacant land or land with existing structures that we would demolish and develop into additional income properties. During 2018, the Company acquired a 5-acre parcel of land with existing structures in downtown Daytona Beach, for a purchase price of approximately $2.0 million. As of September 30, 2019, the Company had also acquired other contiguous parcels totaling approximately 1-acre for approximately $2.1 million. Combined, these parcels represent the substantial portion of an entire city block in downtown Daytona Beach adjacent to International Speedway Boulevard, a major thoroughfare in Daytona Beach. The combined 6 acres is located in an opportunity zone and a community redevelopment area. In addition, this property is proximate to the future headquarters of Brown & Brown Inc., the sixth largest insurance broker in the U.S. and a publicly listed company, that is expected to be occupied by at least 600 of their employees. We have engaged a national real estate brokerage firm to assist us in identifying a developer or investor to acquire a portion or all of the property or to contribute into a potential joint venture to redevelop the property. We are pursuing entitlements for the potential redevelopment of these parcels, along with certain other adjacent land parcels, some of which we have under contract for purchase. As of September 30, 2019, we have incurred approximately $0.8 million in demolition and entitlement costs related to these parcels. Our intent for investments in the Daytona Beach area is to target opportunistic acquisitions of select catalyst sites, which are typically distressed, with the objective of short-to-medium investment horizons. We may enter into joint ventures or other partnerships to develop land we have acquired or may acquire in the future in lieu of self-developing.

Other Real Estate Assets. The Company owns impact fees with a cost basis of approximately $2,000 and mitigation credits with a cost basis of approximately $445,000 for a combined total of approximately $447,000 as of September 30, 2019. There were no impact fee or mitigation credit sales during the nine months ended September 30, 2019. During the nine months ended September 30, 2018, the Company transferred mitigation credits with a basis of approximately $124,000 to the land acquired by Buc-ee’s. During the nine months ended September 30, 2018, the Company sold mitigation credits for approximately $1.0 million, for a gain of approximately $882,000, or $0.12 per share, after tax. During the nine months ended September 30, 2018, the Company received cash payments of approximately $251,000 for impact fees with a cost basis that was generally of equal value. Additionally, during the nine months ended September 30, 2018, impact fees with a cost basis of approximately $72,000 were transferred to the beachfront restaurant leased to LandShark Bar & Grill.

Subsurface Interests. As of September 30, 2019, the Company owns full or fractional subsurface oil, gas, and mineral interests underlying approximately 455,000 “surface” acres of land owned by others in 20 counties in Florida (the “Subsurface Interests”). The Company leases certain of the Subsurface Interests to mineral exploration firms for exploration. Our subsurface operations consist of revenue from the leasing of exploration rights and in some instances, additional revenues from royalties applicable to production from the leased acreage.

There were no subsurface sales during the nine months ended September 30, 2019 or 2018.

During 2011, an eight-year oil exploration lease was executed covering a portion of our Subsurface Interests. On September 20, 2017, the Company amended the oil exploration lease to, among other things, extend the expiration of the original term for five additional years to the new expiration date of September 22, 2024. The lease is effectively thirteen one-year terms as the lessee has the option to terminate the lease at the end of each lease year. The lessee has exercised renewal options through lease year eight which ended September 22, 2019. The Company has granted the lessee a 30-day extension to determine whether the lease will be extended and, if so, the terms thereof. There can be no assurance that the oil exploration lease will be extended or, if extended, the terms or conditions of such extension. The terms of the lease state the Company will receive royalty payments if production occurs, and may receive additional annual rental payments if the lease is continued in years nine through thirteen. The lease calls for annual lease payments which are recognized as revenue ratably over the respective twelve-month lease periods. Pursuant to the amendment for the lease year eight renewal the annual lease payment is to be paid in installments. In addition, non-refundable drilling penalty payments are made as required by the drilling requirements in the lease which are recognized as revenue when earned, i.e. when the amount is agreed upon. The lessee, an affiliate of Kerogen Exploration LLC, has submitted a drilling permit application in Hendry County to allow for drilling to commence.

Lease payments on the respective acreages and drilling penalties through lease year eight are as follows:


	Acreage
Lease Year	(Approximate)	Florida County	Lease Payment (1)		Drilling Penalty (1)
Lease Year 1 - 9/23/2011 - 9/22/2012	136,000	Lee and Hendry	$	913,657	$	—
Lease Year 2 - 9/23/2012 - 9/22/2013	136,000	Lee and Hendry		922,114		—
Lease Year 3 - 9/23/2013 - 9/22/2014	82,000	Hendry		3,293,000		1,000,000
Lease Year 4 - 9/23/2014 - 9/22/2015	42,000	Hendry		1,866,146		600,000
Lease Year 5 - 9/23/2015 - 9/22/2016	25,000	Hendry		1,218,838		175,000
Lease Year 6 - 9/23/2016 - 9/22/2017	15,000	Hendry		806,683		150,000
Lease Year 7 - 9/23/2017 - 9/22/2018	15,000	Hendry		806,683		50,000
Lease Year 8 - 9/23/2018 - 9/22/2019	15,000	Hendry		806,684		150,000
Total Payments			$	10,633,805	$	2,125,000

(1)Generally, cash payment for the Lease Payment is received on or before the first day of the lease year. The Drilling Penalty, which is due within thirty days from the end of the prior lease year, is recorded as revenue when earned, i.e., when the amount is agreed upon, while the Lease Payment is recognized on a straight-line basis over the respective lease term.

Lease income generated by the annual lease payments is recognized on a straight-line basis over the guaranteed lease term. For the three and nine months ended September 30, 2019, respectively, lease income of approximately $186,000 and $586,000 was recognized. For the three and nine months ended September 30, 2018, respectively, lease income of approximately $203,000 and $603,000 was recognized. There can be no assurance that the oil exploration lease will be extended beyond lease year eight which ended September 22, 2019 or, if extended, the terms or conditions of such extension.

During the nine months ended September 30, 2019 and 2018, the Company also received oil royalties from operating oil wells on 800 acres under a separate lease with a separate operator. Revenues received from oil royalties totaled approximately $10,000 and $11,000, during the three months ended September 30, 2019 and 2018, respectively. Revenues received from oil royalties totaled approximately $39,000 and $50,000, during the nine months ended September 30, 2019 and 2018, respectively.

The Company is not prohibited from the disposition of any or all of its Subsurface Interests. Should the Company complete a transaction to sell all or a portion of its Subsurface Interests, the Company may utilize the like-kind exchange structure in acquiring one or more replacement investments including income-producing properties. The Company may release surface entry rights or other rights upon request of a surface owner for a negotiated release fee typically based on a percentage of the surface value.

There were no releases of surface entry rights during the nine months ended September 30, 2019. During the nine months ended September 30, 2018, the Company completed a transaction releasing our surface entry rights on approximately 600 acres in exchange for approximately $185,000 in cash and fee title to approximately 40 additional acres in Hendry County, valued at approximately $320,000. Including the non-cash value received, the gain from the transaction totaled approximately $435,000, or $0.06 per share, after tax. The Company also received cash payments for the release of surface entry rights of approximately $73,000 during the nine months ended September 30, 2018.