NOTE 6. REAL ESTATE OPERATIONS

Real Estate Operations – Continuing

Revenue from continuing real estate operations consisted of the following for the three months ended March 31, 2020 and 2019:


		Three Months Ended
	March 31, 2020		March 31, 2019
Revenue Description	($000's)		($000's)
Mitigation Credit Sales	$	4	$	—
Subsurface Revenue		77		208
Fill Dirt and Other Revenue		—		27
Total Real Estate Operations Revenue	$	81	$	235

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 March 31, 2020, the Company has 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 March 31, 2020, we have incurred approximately $1.2 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 $2.6 million as of March 31, 2020. As of December 31, 2019, the Company owned mitigation credits with a cost basis of approximately $2.3 million. The increase in mitigation credit cost basis for the three months ended March 31, 2020 compared to December 31, 2019 is primarily the result of the 20 mitigation credits acquired from the Mitigation Bank, as defined in Note 7, “Investments in Joint Ventures”, during March 2020 totaling approximately $1.5 million, or approximately $75,000 per credit. The cost basis was reduced by the impact of approximately 16 mitigation credits with a cost basis of approximately $1.2 million that were provided at no cost to buyers. Additionally, the Company purchased approximately 2 mitigation credits from the Mitigation Bank JV, for approximately $224,000. The aggregate cost of sales charge of approximately $1.5 million, which is not expected to be a recurring charge, was included in direct costs of revenues of real estate operations during the three months ended March 31, 2020 in the consolidated statements of operations. Mitigation credit sales totaled approximately $4,000 during the three months ended March 31, 2020. There were no mitigation credit sales during the three months ended March 31, 2019.

Subsurface Interests. As of March 31, 2020, 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 three months ended March 31, 2020 and 2019.

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.

Lease payments on the respective acreages and drilling penalties through lease year eight were 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.

Lease income generated by the annual lease payments is recognized on a straight-line basis over the guaranteed lease term. For the three months ended March 31, 2019, lease income of approximately $199,000 was recognized, with no lease income recognized during the three months ended March 31, 2020.

During the three months ended March 31, 2020 and 2019, 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 $8,000 during the three months ended March 31, 2020 and 2019, 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.

Cash payments for the release of surface entry rights totaled approximately $65,000 during the three months ended March 31, 2020. There were no releases of surface entry rights during the three months ended March 31, 2019.

Real Estate Operations – Discontinued Operations

As of March 31, 2020, the Company continues to pursue land sales of the approximately 4,900 acres that formerly comprised its land holdings on behalf of the JV Partners in its role as Manager of the Land JV. 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 31, 2020, the Land JV has completed approximately $22.0 million in land sales since its inception in mid-October 2019 and currently has a pipeline of 12 purchase and sale agreements for potential land sale transactions representing approximately $87.9 million of potential proceeds to the Land JV. The roughly 4,100 acres under contract represents approximately 84% of the total remaining land in the Land JV.

The Company currently serves as the 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 taken 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 Land JV’s operating agreement, the Land JV will pay the Manager a management fee in the initial amount of $20,000 per month, which amount will be reevaluated on a quarterly basis and reduced based on the value of real property that remains in the Land JV.

During the three months ended March 31, 2019, a total of approximately 9.9 acres were sold for approximately $3.3 million.