NOTE 6. LAND AND INVESTMENT IN THE LAND JV

Land and development costs at December 31, 2019 and 2018 were as follows:


	December 31,
	2019		2018
Land and Development Costs	$	6,068,810	$	5,001,795
Land, Timber, and Subsurface Interests		663,481		623,050
Total Land and Development Costs	$	6,732,291	$	5,624,845

As of December 31, 2018, the Company owned approximately 5,400 acres of undeveloped land in Daytona Beach, Florida, along six miles of the west and east sides of Interstate 95. The significant decrease in land and development costs above is primarily the result of the Company’s completion of the sale of a controlling interest in its wholly-owned subsidiary, Crisp39 SPV LLC to affiliates of Magnetar Capital LLC (the “Magnetar Investors”) (the “Magnetar Land Sale”) on October 16, 2019, pursuant to an Interest Purchase Agreement (the “Purchase Agreement”) for proceeds of approximately $97.0 million. Crisp39 SPV LLC holds the approximately 5,300 acres of undeveloped land in Daytona Beach, Florida (the “Land JV”).

As a result of the closing of the Purchase Agreement, the Magnetar Investors collectively own a notional 66.50% equity interest in the Land JV, and the Company owns a notional 33.50% equity interest in the Land JV (collectively the Company and the Magnetar Investors are herein referred to as the “JV Partners”). The transaction resulted in a gain of approximately $78.6 million, or approximately $12.21 per share, after tax, on the sale of the 66.50% equity interest in the Land JV and a non-cash gain of approximately $48.9 million on the Company’s retained interest in the Land JV, or approximately $7.59 per share, after tax.

The direct impact of the Magnetar Land Sale is that the Company divested itself of its land holdings, but for the 6-acre Daytona Beach development land described below, and as such the occurrence of land sales, which had been a primary element of the Company’s business for virtually its entire 109-year history, has been essentially discontinued. Consequently, the operations associated with our land holdings were treated as discontinued operations and accordingly the revenues and expenses that had been presented within the Company’s real estate operations segment in prior periods were reclassified in the statement of operations for the year ended December 31, 2019 and all prior periods presented.

However, the Company is continuing to pursue land sales on the approximately 5,300 acres that formerly comprised its land holdings in its role as Manager (of the Land JV) on behalf of the JV Partners. The Company’s retained interest in the Land JV represents a notional 33.5% stake in the venture, the value of which may be realized in the form of distributions based on the timing and the amount of proceeds achieved when the land is ultimately sold by the Land JV. As of March 6, 2020, the Land JV has completed approximately $22 million in land sales since its inception in mid-October 2019 and currently has a pipeline of 10 purchase and sale agreements for potential land sale transactions representing approximately $97 million of potential proceeds to the Land JV. The 4,200 acres under contract represents approximately 84% of the total remaining land in the Land JV.

The Company will serve as the initial manager of the Land JV and is responsible for day-to-day operations at the direction of the JV Partners. All major decisions and certain other actions that can be made by the Manager must be approved by the unanimous consent of the JV Partners (the “Unanimous Actions”). Unanimous Actions include such matters as the approval of pricing for all land parcels in the Land JV; approval of contracts for the sale of land that contain material revisions to the standard purchase contract of the Land JV; entry into any lease agreement affiliated with the Land JV; entering into listing or brokerage agreements; approval and amendment of the Land JV’s operating budget; obtaining financing for the Land JV; admission of additional members; and dispositions of the Land JV’s real property for amounts less than market value. Pursuant to the LLC Agreement the Land JV will pay the Manager a management fee in the initial amount of $20,000 per month, which amount will be evaluated on a quarterly basis and reduced based on the value of real property that remains in the Land JV.

Real Estate Operations – Discontinued Operations

Since the transition in our land operations occurred late in 2019, the impact of land sales for the periods prior to October 2019 are no longer germane to our financial condition, results of operations and cash flows. As such the following summarized information is provided regarding land sales activity prior to October 2019.

Revenue from discontinued real estate operations consisted of the following for the years ended December 31, 2019, 2018, and 2017:


	2019		2018		2017
Revenue Description	($000's)		($000's)		($000's)
Land Sales Revenue	$	10,975	$	41,452	$	45,471
Revenue from Reimbursement of Infrastructure Costs		—		1,556		1,860
Agriculture		68		23		335
Total Real Estate Operations Revenue - Discontinued Operations	$	11,043	$	43,031	$	47,666

2019 Land Sales. During the year ended December 31, 2019, the Company completed five land sales transactions, including: (i) the Magnetar Land Sale for approximately 5,300 acres of land, for total proceeds of approximately $97.0 million; (ii) two transactions with Unicorp Development representing approximately 23.6 acres and generating aggregate proceeds of approximately $7.1 million; (iii) the sale of approximately 38 acres for total proceeds of $710,000, and (iv) a land sale to NADG for approximately 13 acres generating proceeds of approximately $3 million. In total the Company, in 2019, sold approximately 5,400 acres generating proceeds of approximately $108 million. Including the approximately $48.9 million recognized on the retained interest in the Land JV, resulting in gains of approximately $133 million, or approximately $20.60 per share after tax, were recognized.

2018 Land Sales. During the year ended December 31, 2018, the Company completed land transactions representing approximately 2,697 acres including: (i) the sale of a 70% interest in the Mitigation Bank (hereinafter defined) that holds approximately 2,492 acres for proceeds of $15.3 million and (ii) twelve land sales totaling approximately 205 acres for aggregate proceeds of approximately $43.7 million. The twelve land sales generated gains of approximately $32.6 million, or approximately $4.44 per share, after tax.

2017 Land Sales. During the year ended December 31, 2017, the Company completed land transactions representing approximately 1,700 acres including: (i) the sale of nearly 1,600 acres to Minto Communities generating proceeds of approximately $27.2 million; (ii) two transactions with NADG of approximately 46 acres for total proceeds of approximately $10.6 million, and (iii) five other transactions representing approximately 73.5 acres that generated approximately $9.2 million of proceeds. The land sales in 2017 generated aggregate proceeds of approximately $45.5 million and gains of approximately $31.8 million, or approximately $3.51 per share, after tax.

Land Impairments. As more fully described in Note 11, "Impairment of Long-Lived Assets," during the years ended December 31, 2019, 2018, and 2017, the Company did not recognize any impairments on its undeveloped land holdings.

Real Estate Operations – Continuing

Revenue from continuing real estate operations consisted of the following for the years ended December 31, 2019, 2018, and 2017:


	2019		2018		2017
Revenue Description	($000's)		($000's)		($000's)
Impact Fee and Mitigation Credit Sales		—		1,338		2,126
Subsurface Revenue		748		1,625		3,048
Fill Dirt and Other Revenue		104		3		17
Total Real Estate Operations Revenue - Continuing Operations	$	852	$	2,966	$	5,191

Daytona Beach Development. 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 December 31, 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. 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 December 31, 2019, we have incurred approximately $1.1 million in raze and entitlement costs related to these parcels.

Other Real Estate Assets. The Company owns mitigation credits with a cost basis of approximately $2.3 million as of December 31, 2019. The increase in mitigation credits includes the 25 credits acquired from the Mitigation Bank during December 2019 as described in Note 7, Investment in Joint Ventures. There were no mitigation credit sales during the year ended December 31, 2019. During the year ended December 31, 2018, the Company transferred mitigation credits with a basis of approximately $124,000 to the land acquired by Buc-ee’s. During the year ended December 31, 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 year ended December 31, 2017, the Company sold mitigation credits for approximately $1.6 million, for a gain of approximately $1.3 million, or $0.15 per share, after tax. Additionally, the Company recorded the transfer of mitigation credits with a cost basis of approximately $298,000 as a charge to direct cost of revenues of real estate operations during the year ended December 31, 2017, as more fully described in Note 21, “Commitments and Contingencies.” During the years ended December 31, 2018 and 2017, the Company received cash payments of approximately $338,000 and $519,000, respectively, for impact fees with a cost basis that was generally of equal value, with no such impact fee sales during the year ended December 31, 2019 as the balance of impact fees is only approximately $2,000. Additionally, during the year ended December 31, 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 December 31, 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.

Prior to September 2019, the Company leased certain of the Subsurface Interests to a mineral exploration organization for exploration. An eight-year oil exploration lease was executed in 2011 that covered 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. As a result, the lease was effectively comprised of thirteen one-year terms as the lessee had the option to terminate the lease at the end of each lease year. The lessee had previously exercised renewal options through the eighth year of the lease which ended on September 22, 2019. The Lessee elected not to renew the oil exploration lease beyond September 22, 2019. During the eight years the lease was active the annual lease payments were recognized as revenue ratably over the respective twelve-month lease period. During the lease term a number of the renewals included the payment of a drilling penalty by the Lessee. The non-refundable drilling penalty payments were recognized as revenue when earned, i.e. when the amount agreed upon was paid. Lease income generated by the annual lease payments is recognized on a straight-line basis over the guaranteed lease term. For the years December 31, 2019, 2018, and 2017, lease income of approximately $598,000, approximately $807,000, and approximately $807,000 was recognized, respectively.

Lease payments on the respective acreages and drilling penalties received 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 and Drilling Penalty 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. The oil exploration lease has not been renewed beyond September 22, 2019 and has effectively terminated.

There were no sales of subsurface acres during the years ended December 31, 2019 or 2018. During the year ended December 31, 2017, the Company sold approximately 38,750 acres of subsurface interests in Osceola County, Florida for approximately $2.1 million (the "Osceola Subsurface Sale"). The gain from the Osceola Subsurface Sale totaled approximately $2.08 million, or $0.23 per share, after tax.

During the years ended December 31, 2019, 2018, and 2017, the Company also received oil royalties from operating oil wells on 800 acres under a separate lease with a separate operator. Production volume from these oil wells resulted in revenues received from oil royalties of approximately $42,000, $72,000, and $86,000, respectively.

The Company is not prohibited from selling any or all of its Subsurface Interests. 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. Should the Company complete a transaction to sell all or a portion of its Subsurface Interests or complete a release transaction, the Company may utilize the like-kind exchange structure in acquiring one or more replacement investments including income-producing properties. During the year ended December 31, 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. Additional cash payments for the release of surface entry rights during 2018 totaled approximately $73,000. Cash payments for the release of surface entry rights totaled approximately $104,000 during the year ended December 31, 2019, while there were no releases of surface entry rights during the year ended December 31, 2017.