BLUEGREEN VACATIONS HOLDING A Except as otherwise noted or where the context otherwise requires, the terms "the Company," "we," "us," or "our" refers toBBX Capital Corporation and its consolidated subsidiaries, and the term "BBX Capital " refers toBBX Capital Corporation as a standalone entity. Forward-Looking Statements This document contains forward-looking statements based largely on current expectations of the Company that involve a number of risks and uncertainties. All opinions, forecasts, projections, future plans, or other statements, other than statements of historical fact, are forward-looking statements and can be identified by the use of words or phrases such as "plans," "believes," "will," "expects," "anticipates," "intends," "estimates," "our view," "we see," "would," and words and phrases of similar import. The forward-looking statements in this document are also forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the "Securities Act"), and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and involve substantial risks and uncertainties. We can give no assurance that such expectations will prove to be correct. Actual results, performance, or achievements could differ materially from those contemplated, expressed, or implied by the forward-looking statements contained herein. Forward-looking statements are based largely on our expectations and are subject to a number of risks and uncertainties that are subject to change based on factors which are, in many instances, beyond our control. When considering forward-looking statements, the reader should keep in mind the risks, uncertainties, and other cautionary statements made in this report and in the Company's other reports filed with theSEC . The reader should not place undue reliance on any forward-looking statement, which speaks only as of the date made. This document also contains information regarding the past performance of the Company and its respective investments and operations. The reader should note that prior or current performance is not a guarantee or indication of future performance. Comparisons of results for current and any prior periods are not intended to express any future trends or indications of future performance, and all such information should only be viewed as historical data. Future results and the accuracy of forward-looking statements may be affected by various risks and uncertainties, including the risk factors applicable to the Company which are described herein and in "Item 1. Business - Cautionary Note Regarding Forward-Looking Statements" and "Item 1A. Risk Factors" of the Company's Annual Report on Form 10-K for the year endedDecember 31, 2019 (the "2019 Annual Report") and the Company's Current Report on Form 8-K filed with theSEC onMarch 31, 2020 . These risks and uncertainties also include risks relating to public health issues, including, in particular, the COVID-19 pandemic, as it is not currently possible to accurately assess the expected duration and effects of the pandemic on our business. These include required closures of resorts and retail locations, travel and business restrictions, "shelter in place" and "stay at home" orders and advisories, volatility in the global and national economies and equity, credit, and commodities markets, worker absenteeism, quarantines, and other health-related restrictions; the duration and severity of the COVID-19 pandemic and the impact on demand for the Company's products and services, levels of consumer confidence, and supply chains; actions governments, businesses, and individuals take in response to the pandemic and their impact on economic activity and consumer spending, which will impact the Company's ability to successfully resume full business operations; the pace of recovery when the COVID-19 pandemic subsides; competitive conditions; the Company's liquidity and the availability of capital; the effects and duration of steps the Company takes in response to the COVID-19 pandemic, including the risk of lease defaults and the inability to rehire or replace furloughed employees; risks that the Company's current or future business and marketing alliances may not be available to it in the future; risks that default rates may increase and exceed the Company's expectations; risks related to the Company's indebtedness, including the potential for accelerated maturities and debt covenant violations; the risk of heightened litigation as a result of actions taken in response to the COVID-19 pandemic; the impact of the COVID-19 pandemic and other factors on the Company's ability to pay dividends, including that the risk that future dividends may not be paid at historical rates or at all; the impact of the COVID-19 pandemic on consumers, including, but not limited to, their income, their level of discretionary spending both during and after the pandemic, and their views towards the travel, hospitality, vacation ownership and retail industries; and the risk that certain of the Company's operations, including Bluegreen's resort management and finance operations, may not continue to generate recurring sources of cash during or following the pandemic to the extent anticipated or at all. The risk factors described in the 2019 Annual Report, as well as the other risks and factors detailed in this report and the other reports filed by the Company with theSEC , are not necessarily all of the important factors that could cause the Company's actual results to differ materially from those expressed in any of the forward-looking statements. Other unknown or unpredictable factors could cause the Company's actual results to differ materially from those expressed in any of the forward-looking statements. As a result, the Company cautions that the foregoing factors are not exclusive. 30 --------------------------------------------------------------------------------
Given these uncertainties, you are cautioned not to place undue reliance on forward-looking statements, and you should read this Quarterly Report on Form 10-Q with the understanding that actual future results, levels of activity, performance, and events and circumstances may be materially different from prior results or what the Company expects. The Company qualifies all forward-looking statements by these cautionary statements. Forward-looking statements speak only as of the date of this Quarterly Report on Form 10-Q, and the Company undertakes no obligation to publicly update or revise any forward-looking statements to reflect events or circumstances that may arise after the date of this report. Critical Accounting Policies See Item 7 - "Management's Discussion and Analysis of Financial Condition and Results of Operations" under the section "Critical Accounting Policies" to the Company's 2019 Annual Report for a discussion of the Company's critical accounting policies. New Accounting Pronouncements
See Note 1 to the Company's condensed consolidated financial statements included in Item 1 of this report for a discussion of new accounting pronouncements applicable to the Company.
Overview
The Company's goal is to build long-term shareholder value. Since many of the Company's assets do not generate income on a regular or predictable basis, the Company's objective continues to be long-term growth as measured by increases in book value and intrinsic value over time. In addition, the Company's goal is to streamline its investment verticals so that the Company can be more easily analyzed and followed by the marketplace. The Company regularly reviews the performance of its investments and, based upon economic, market, and other relevant factors, considers transactions involving the sale or disposition of all or a portion of its assets, investments, or subsidiaries. These include, among other alternatives, a sale or spin-off of its assets, investments, or subsidiaries or transactions involving public or private issuances of debt or equity securities which decrease or dilute the Company's ownership interest in such investments. Further, the Company may from time to time repurchase its outstanding securities and the outstanding securities of its subsidiaries subject to market conditions and other factors.
As of
Impact of the COVID-19 Pandemic
The COVID-19 pandemic has been, and continues to be, an unprecedented disruption in theU.S. and global economies and the industries in which the Company operates due to, among other things, government ordered "shelter in place" and "stay at home" orders and advisories, travel restrictions, and restrictions on business operations, including required closures of resorts and retail locations. The disruptions arising from the pandemic and the reaction of the general public had a significant adverse impact on the Company's financial condition and operations during the three months endedMarch 31, 2020 . The duration and severity of the pandemic and related disruptions, as well as the adverse impact on economic and market conditions, are uncertain; however, given the nature of these circumstances, the adverse impact of the pandemic on the Company's consolidated results of operations, cash flows, and financial condition in 2020 has been, and is expected to continue to be, material. Furthermore, although the duration and severity of the effects of the pandemic are uncertain, it is expected that demand for many of the Company's products and services may remain weak for a significant length of time, and the Company cannot predict if and when the industries in which the Company operates will return to pre-pandemic levels. Although the impact of the COVID-19 pandemic on the Company's principal investments, including management's efforts to mitigate the effects of the pandemic, has varied, as described in further detail below,BBX Capital and its subsidiaries have taken steps to manage expenses through cost saving initiatives and reductions in employee head count and taken actions to increase liquidity and strengthen the Company's financial position, including drawing cash 31 --------------------------------------------------------------------------------
from certain available lines of credit, reducing planned capital expenditures,
and, in the case of
See below for additional discussion related to the current and estimated impacts of the COVID-19 pandemic on the Company's principal investments.
Summary of Consolidated Results of Operations
Consolidated Results
The following summarizes key financial highlights for the three months ended
· Total consolidated revenues of
same period in 2019.
· Loss before income taxes of
taxes of
· Net loss attributable to common shareholders of
income attributable to common shareholders of
in 2019.
· Diluted loss per share of
per share of $0.02 for the same 2019 period.
The Company's consolidated results for the three months ended
· The recognition of impairment losses of
goodwill and long-lived assets associated with IT'SUGAR as a result of the
impact of the COVID-19 pandemic.
· An increase in Bluegreen's allowance for loan losses as a result of the
estimated impact of the COVID-19 pandemic on customer defaults.
· An increase in Bluegreen's selling and marketing expenses primarily
attributable to higher costs per guest tour, higher fees to
to Bluegreen's amended marketing agreement with
associated with Bluegreen's marketing operations in 21 new
· The closing of Bluegreen's sales offices and IT'SUGAR's retail locations in
March 2020 in response to the COVID-19 pandemic. Segment ResultsBBX Capital currently reports the results of its business activities through the following reportable segments: Bluegreen,BBX Capital Real Estate ,BBX Sweet Holdings , and Renin.
Information regarding income before income taxes by reportable segment is set forth in the table below (in thousands):
For the Three Months Ended March 31,
2020 2019 Change
Bluegreen $ 981 22,172 (21,191)
BBX Capital Real Estate 4,051 2,423 1,628
BBX Sweet Holdings (28,938) (3,283) (25,655)
Renin 714 1,056 (342)
Other (3,697) (1,337) (2,360)
Reconciling items and eliminations (9,756) (14,669) 4,913
(Loss) income before income taxes (36,645) 6,362 (43,007)
Benefit (provision) for income taxes 5,830 (1,724) 7,554
Net (loss) income (30,815) 4,638 (35,453)
Less: Net (loss) income attributable to
noncontrolling interests (2,505)
3,139 (5,644)
Net (loss) income attributable to shareholders
32
--------------------------------------------------------------------------------
Bluegreen Reportable Segment Segment Description Bluegreen is a leading vacation ownership company that markets and sells VOIs and manages resorts in popular leisure and urban destinations. Bluegreen's resort network includes 45Club Resorts (resorts in which owners in itsVacation Club have the right to use most of the units in connection with their VOI ownership) and 23Club Associate Resorts (resorts in which owners in itsVacation Club have the right to use a limited number of units in connection with their VOI ownership). Bluegreen'sClub Resorts andClub Associate Resorts are primarily located in popular, high-volume, "drive-to" vacation locations, includingOrlando ,Las Vegas ,Myrtle Beach andCharleston , among others. Through its points-based system, the approximately 221,000 owners in itsVacation Club have the flexibility to stay at units available at its resorts and have access to over 11,350 other hotels and resorts through partnerships and exchange networks. Bluegreen also has a sales and marketing platform supported by marketing relationships, such as withBass Pro and Choice Hotels. These marketing relationships have historically generated sales within its core demographic. The COVID-19 pandemic has been, and continues to be, an unprecedented disruption in theU.S. economy and the travel, hospitality and vacation ownership industries due to, among other things, government ordered travel restrictions and restrictions on business operations, including required resort closures. OnMarch 23, 2020 , Bluegreen temporarily closed all of its VOI sales centers; its retail marketing operations atBass Pro Shops ,Cabela's stores and outlet malls; and the Choice Hotels call transfer program. In connection with these actions, Bluegreen canceled existing owner reservations throughMay 15, 2020 and new prospect guest tours throughJune 30, 2020 . Further, some of Bluegreen's Club andClub Associate Resorts were closed in accordance with government mandates and advisories. Bluegreen is currently developing a plan to reopen these operations including accepting guests as ofMay 16, 2020 and VOI sales centers and marketing operations beginningJune 2020 on a phased schedule. Prior to the COVID-19 pandemic, Bluegreen started the year off with improved operating results, with system-wide sales of vacation ownership interests up 16.5% throughFebruary 29, 2020 . As a result of the effect of the pandemic, Bluegreen implemented several cost mitigating activities, including a reduction in workforce of over 970 positions and placed another 3,700 of its associates on temporary furlough and reduced work hours. As ofMarch 31, 2020 , as a result of the effect of the COVID-19 pandemic, Bluegreen incurred$2.5 million in severance and$0.8 million of payroll expenses relating to employees on temporary furlough or reduced work hours. These payments and expenses are included in selling, general and administrative expenses on the Company's condensed consolidated statement of operations and comprehensive income for the three months endedMarch 31, 2020 . As a precautionary measure designed to provide Bluegreen with additional liquidity, Bluegreen drew down$60 million under its lines-of-credit and pledged or sold receivables under its various receivable backed facilities. Bluegreen also suspended its quarterly cash dividends on its common stock. Bluegreen continues to actively pursue additional credit facility capacity, capital market transactions, and other alternatives and hopes that the steps it is taking will provide Bluegreen with sufficient available cash for a sustained period of time. In addition, while there is no assurance this will be the case, Bluegreen expects that its resorts management and finance operations will continue to generate recurring cash sources of income. For more detailed information see "Liquidity and Capital Resources - Bluegreen" below. Bluegreen has historically financed a majority of its sales of VOIs, and accordingly, is subject to the risk of defaults by its customers. GAAP requires that Bluegreen reduce sales of VOIs by an estimate of uncollectible VOI notes receivable. The COVID-19 pandemic has had a material adverse impact on unemployment inthe United States and economic conditions in general and the impact may continue for some time. While the impact of the COVID-19 pandemic throughMarch 31, 2020 was not yet reflected in Bluegreen's default or delinquency rates, Bluegreen believes that the COVID-19 pandemic will have a significant impact on its VOI notes receivable. Accordingly, Bluegreen recorded an additional allowance for loan losses of$12 million as ofMarch 31, 2020 , which includes its estimate of customer defaults as a result of the COVID-19 pandemic based on Bluegreen's historical experience, forbearance requests received from customers, and other factors, including but not limited to, the seasoning of the note receivable and FICO scores of the customers. The Coronavirus Aid, Relief, and Economic Securities Act ("CARES Act") was signed into law onMarch 27, 2020 in response to the COVID-19 pandemic in order to provide for economic support and stimulus. Bluegreen will continue to review the relevant provisions of the CARES Act and intends to take advantage of certain provisions, 33
--------------------------------------------------------------------------------
including, but not limited to, the deferral of the employer portion of the tax withholding amounts and the employee retention tax credits.
See Item 7 to the Company's 2019 Annual Report for additional information with respect to Bluegreen's business and operations.
Key Business and Financial Metrics and Terms Used by Management
In addition to the principal components of revenues and expenses affecting
Bluegreen' results of operations, which are further described in Item 7 to the
Company's 2019 Annual Report, Bluegreen's management uses certain key business
and financial metrics and terms to discuss its results of operations, including
certain terms which are not recognized by GAAP, which are described below.
Sales of VOIs. Represent sales of Bluegreen's owned VOIs, including developed
VOIs and those acquired through just-in-time ("JIT") and secondary market
arrangements, reduced by equity trade allowances and an estimate of
uncollectible VOI notes receivable. In addition to the factors impacting
system-wide sales of VOIs (as described below), sales of VOIs are impacted by
the proportion of system-wide sales of VOIs sold on behalf of third parties on a
commission basis, which are not included in sales of VOIs.
System-wide Sales of VOIs. Represents all sales of VOIs, whether owned by
Bluegreen or a third party immediately prior to the sale. Sales of VOIs owned by
third parties are transacted as sales of VOIs in Bluegreen's Vacation Club
through the same selling and marketing process used to sell Bluegreen's VOI
inventory. Bluegreen considers system-wide sales of VOIs to be an important
operating measure because it reflects all sales of VOIs by Bluegreen's sales and
marketing operations without regard to whether Bluegreen or a third party owned
such VOI inventory at the time of sale. System-wide sales of VOIs is not a
recognized term under GAAP and should not be considered as an alternative to
sales of VOIs or any other measure of financial performance derived in
accordance with GAAP or to any other method of analyzing Bluegreen's results as
reported under GAAP.
Guest Tours. Represents the number of sales presentations given at Bluegreen's sales centers during the period.
Sale to Tour Conversion Ratio. Represents the rate at which guest tours are converted to sales of VOIs and is calculated by dividing guest tours by the number of VOI sales transactions.
Average Sales Volume Per Guest ("VPG"). Represents the sales attributable to
tours at Bluegreen's sales locations and is calculated by dividing VOI sales by
guest tours. Bluegreen considers VPG to be an important operating measure
because it measures the effectiveness of Bluegreen's sales process, combining
the average transaction price with the sale-to-tour conversion ratio.
EBITDA. Bluegreen defines EBITDA as earnings, or net income (loss), before
taking into account interest income (excluding interest earned on VOI notes
receivable), interest expense (excluding interest expense incurred on debt
secured by VOI notes receivable), income and franchise taxes, and depreciation
and amortization. For the purposes of the EBITDA calculation, no adjustments are
made for interest income earned on VOI notes receivable or the interest expense
incurred on debt that is secured by such notes receivable because they are both
considered to be part of the operations of Bluegreen's business.
Adjusted EBITDA. Bluegreen defines Adjusted EBITDA as EBITDA adjusted for EBITDA
attributable to the noncontrolling interest in Bluegreen/Big Cedar Vacations (in
which Bluegreen owns a 51% interest) and items that Bluegreen believes are not
representative of ongoing operating results. Accordingly, severance charges and
incremental costs associated with COVID-19 were excluded in the computation of
Adjusted EBITDA for the three months ended March 31, 2020 .
Bluegreen considers EBITDA and Adjusted EBITDA to be an indicator of its
operating performance, and they are used by Bluegreen to measure its ability to
service debt, fund capital expenditures, and expand its business. EBITDA is also
used by companies, lenders, investors and others because it excludes certain
items that can vary widely across different industries or among companies within
the same industry. For example, interest expense can be dependent on a company's
capital structure, debt levels, and credit ratings. Accordingly, the impact of
interest expense on earnings can vary significantly among companies. The tax
positions of companies can also vary because of their differing abilities to
take advantage of tax benefits and because of the tax policies of the
jurisdictions in which they operate. As a result, effective tax rates and
provision for income taxes can vary considerably among companies. EBITDA also
excludes depreciation and amortization because companies utilize productive
assets of different ages
34
-------------------------------------------------------------------------------- and use different methods of both acquiring and depreciating productive assets. These differences can result in considerable variability in the relative costs of productive assets and the depreciation and amortization expense among companies.
Bluegreen considers Adjusted EBITDA to be a useful supplemental measure of Bluegreen's operating performance that facilitates the comparability of historical financial periods.
EBITDA and Adjusted EBITDA are not recognized terms under GAAP and should not be
considered as an alternative to net income (loss) or any other measure of
financial performance or liquidity, including cash flow, derived in accordance
with GAAP, or to any other method of analyzing Bluegreen's results as reported
under GAAP. The limitations of using EBITDA or Adjusted EBITDA as an analytical
tool include, without limitation, that EBITDA or Adjusted EBITDA does not
reflect (i) changes in, or cash requirements for, working capital needs; (ii)
interest expense, or the cash requirements necessary to service interest or
principal payments on indebtedness (other than as noted above); (iii) tax
expense or the cash requirements to pay taxes; (iv) historical cash expenditures
or future requirements for capital expenditures or contractual commitments; or
(v) the effect on earnings or changes resulting from matters that Bluegreen
considers not to be indicative of its future operations or performance. Further,
although depreciation and amortization are non-cash charges, the assets being
depreciated and amortized will often have to be replaced in the future, and
EBITDA and Adjusted EBITDA do not reflect any cash requirements for such
replacements. In addition, Bluegreen's definition of Adjusted EBITDA may not be
comparable to definitions of Adjusted EBITDA or other similarly titled measures
used by other companies.
35
--------------------------------------------------------------------------------
Results of Operations
Information regarding the results of operations for Bluegreen, including a
reconciliation of net income to EBITDA and Adjusted EBITDA, is set forth below
(dollars in thousands):
For the Three Months Ended March 31,
2020 2019
% of
System-wide
sales of VOIs % of System-wide
Amount (5) Amount sales of VOIs (5)
Developed VOI sales (1) $ 87,577 64% $ 68,153 53%
Secondary market sales 67,916 49% 59,153 45%
Fee-based sales 61,908 45% 66,794 52%
JIT sales 3,100 2% 2,234 2%
Less: Equity trade allowances (6) (83,112) -60% (66,656) -52%
System-wide sales of VOIs 137,389 100% 129,678 100%
Less: Fee-based sales (61,908) -45% (66,794) -52%
Gross sales of VOIs 75,481 55% 62,884 48%
Provision for loan losses (2) (30,353) -40% (11,153) -18%
Sales of VOIs 45,128 33% 51,731 40%
Cost of VOIs sold (3) (4,099) -9% (3,848) -7%
Gross profit (3) 41,029 91% 47,883 93%
Fee-based sales commissions (4) 41,365 67% 45,212 68%
Financing revenue, net of
financing expense 13,048 9% 12,502 10%
Other fee-based services 48,434 35% 46,612 36%
Cost of other fee-based services (33,917) -25% (32,225) -25%
Net carrying cost of VOI inventory (7,914) -6% (7,687) -6%
Selling and marketing expenses (74,140) -54% (65,222) -50%
General and administrative expenses (27,057) -20% (24,992) -19%
Operating profit 848 1% 22,083 17%
Other income 133 89
Provision for income taxes (44) (5,303)
Net income $ 937 $ 16,869
Adjustments for EBITDA:
Provision for income taxes 44 5,303
Income before taxes 981 22,172
Depreciation and amortization 3,899 3,365
Franchise taxes 17 34
Interest expense (other than interest
incurred on debt that is secured by
VOI notes receivable) 4,154 4,244
Interest income (other than interest earned on VOI notes receivable) (1,718)
(1,846)
EBITDA 7,333
27,969
Adjustments for Adjusted EBITDA: (Gain) loss on assets held for sale (44)
9
EBITDA attributable to noncontrolling interest in Bluegreen/Big Cedar Vacations (906) (1,781) Covid-19 incremental costs 106 - Severance 4,496 - Adjusted EBITDA$ 10,985 $ 26,197 36
--------------------------------------------------------------------------------
(1) Developed VOI sales represent sales of VOIs acquired or developed by
Bluegreen. Developed VOI sales do not include Secondary Market sales,
Fee-Based sales or JIT sales.
(2) Percentages for provision for loan losses are calculated as a percentage of
gross sales of VOIs, which excludes Fee-Based sales (and not as a percentage
of system-wide sales of VOIs).
(3) Percentages for costs of VOIs sold and gross profit are calculated as a
percentage of sales of VOIs (and not as a percentage of system-wide sales of
VOIs).
(4) Percentages for Fee-Based sales commission revenue are calculated as a
percentage of Fee-Based sales (and not as a percentage of system-wide sales
of VOIs).
(5) Represents the applicable line item, calculated as a percentage of
system-wide sales of VOIs, unless otherwise indicated in the above footnotes.
(6) Equity trade allowances are amounts granted to customers upon trading in
their existing VOIs in connection with the purchase of additional VOIs.
Sales of VOIs. Sales of VOIs were $45.1 million and $51.7 million during the
three months ended March 31, 2020 and 2019, respectively. Sales of VOIs were
impacted by the factors described below in system-wide sales of VOIs. Gross
sales of VOIs were reduced by $30.4 million and $11.2 million during the three
months ended March 31, 2020 and 2019, respectively, for the provision for loan
losses. The provision for loan losses varies based on the amount of financed,
non-fee based sales during the period and changes in estimates of future notes
receivable performance for existing and newly originated loans. Bluegreen's
provision for loan losses as a percentage of gross sales of VOIs was 40% and 18%
during the three months ended March 31, 2020 and 2019, respectively. The
percentage of Bluegreen's sales which were realized in cash within 30 days from
sale was 43% during the three months ended March 31, 2020 and 44% during the
three months ended March 31, 2019 .
While the impact of COVID-19 pandemic on Bluegreen's borrowers had not yet been
reflected in its default or delinquency rates as of March 31, 2020 , Bluegreen
believes that the COVID-19 pandemic will have a significant impact on its VOI
notes receivable. Accordingly, as of March 31, 2020 , Bluegreen recorded an
additional allowance for loan losses of $12.0 million , which includes an
estimate of customer defaults as a result of the COVID-19 pandemic based on
Bluegreen's historical experience, forbearance requests received from its
customers, and other factors, including but not limited to, the seasoning of the
notes receivable and FICO scores of the customers. In addition to the COVID-19
pandemic impact discussed above, the provision for loan losses was impacted by
an increase in the average annual default rates, which Bluegreen believes was
due in large part to the receipt of letters from third parties and attorneys who
purport to represent certain VOI owners and who have encouraged such owners to
become delinquent and ultimately default on their obligations. Defaults
associated with such letters in the 2020 period increased 51.9% compared to the
same period of 2019. See Note 12: Commitments and Contingencies to the
Company's condensed consolidated financial statements included in Item 1 of this
report for additional information regarding such letters and actions Bluegreen
has taken in connection with such letters. The impact of the COVID-19 pandemic
is highly uncertain. As a result, actual defaults may differ from estimates and
the allowance for loan losses may not prove to be adequate.
The average annual default rates and delinquency rates (more than 30 days past due) on Bluegreen's VOI notes receivable were as follows:
For the Years Ended March 31,
2020 2019
Average annual default rates 9.31% 8.18%
As of March 31,
2020 2019
Delinquency rates 3.19% 2.89%
System-wide sales of VOIs. System-wide sales of VOIs were $137.4 million and
$129.7 million during the three months ended March 31, 2020 and 2019,
respectively. System-wide sales of VOIs increased during the three months ended
March 31, 2020 compared to the comparable period in 2019 due to an increase in
the sale-to-tour conversion ratio and higher average sales volume per guest.
Prior to the COVID-19 pandemic, Bluegreen started the year off with improved
operating results, with system-wide sales of vacation ownership interests up
16.5% through February 29, 2020 . The closures of all marketing operations and
VOI sales centers as a result of the COVID-19 pandemic is expected to
significantly impact system-wide sales of VOIs during the remainder of 2020,
however the actual impact, including the extent and duration of the impact,
cannot be predicted at this time.
37
-------------------------------------------------------------------------------- Included in system-wide sales are Fee-Based Sales, JIT Sales, Secondary Market Sales and developed VOI sales. Sales by category are tracked based on which deeded VOI is conveyed in each transaction. Bluegreen manages which VOIs are sold based on several factors, including the needs of fee-based clients, its debt service requirements and default resale requirements under term securitizations and similar transactions. These factors and business initiatives contribute to fluctuations in the amount of sales by category from period to period. Fee-Based Sales comprised 45% and 52% of system-wide sales of VOIs during the three months endedMarch 31, 2020 and 2019, respectively. Bluegreen expects this rate to continue to decrease upon the reopening of VOI sales centers planned to begin inJune 2020 as Bluegreen intends to focus on selling Bluegreen owned inventory, including developed VOI inventory. However, Bluegreen intends to remain flexible with respect to its sales of the different categories of its VOI inventory based on economic conditions, business initiatives and other considerations, and accordingly these trends may differ from current expectations. The following table sets forth certain information related to Bluegreen's system-wide sales of VOIs: For the Three Months Ended March 31, 2020 2019 % Change Number of sales offices at period-end (1) 26 26 - Number of active sales arrangements with third-party clients at period-end 15 15 - Total number of VOI sales transactions 8,686 8,243 5% Average sales price per transaction$ 15,873 $ 15,796 - Number of total guest tours 40,665 48,138 -16% Sale-to-tour conversion ratio - total marketing guests 21.4% 17.1% 25% Number of new guest tours 22,136 28,064 -21% Sale-to-tour conversion ratio - new marketing guests 17.3% 13.9% 24% Percentage of sales to existing owners 59.7% 56.9% 5% Average sales volume per guest$ 3,390 $ 2,705 25%
(1) As previously described, during the last week of
temporarily closed all of its VOI sales centers in response to the COVID-19
pandemic.
Cost of VOIs Sold. During the three months ended March 31, 2020 and 2019, cost
of VOIs sold was $4.1 million and $3.8 million , respectively, and represented 9%
and 7%, respectively, of sales of VOIs. Cost of VOIs sold as a percentage of
sales of VOIs varies between periods based on the relative costs of the specific
VOIs sold in each period and the size of the point packages of the VOIs sold
(due to offered volume discounts, including consideration of cumulative sales to
existing owners). Additionally, the effect of changes in estimates under the
relative sales value method, including estimates of sales, future defaults,
upgrades and incremental revenue from the resale of repossessed VOI inventory,
are reflected on a retrospective basis in the period the change occurs.
Therefore, cost of sales will typically be favorably impacted in periods where a
significant amount of Secondary Market VOI inventory is acquired or actual
defaults and equity trades are higher than anticipated and the resulting change
in estimate is recognized. Cost of VOIs sold as a percentage of sales of VOIs
increased during the three months ended March 31, 2020 as compared to March 31,
2019 period, primarily due the increase in the provision for loan losses as a
result of the COVID-19 pandemic described above.
Fee-Based Sales Commission Revenue. During the three months ended March 31,
2020 and 2019, Bluegreen sold $61.9 million and $66.8 million , respectively, of
third-party VOI inventory under commission arrangements and earned sales and
marketing commissions of $41.4 million and $45.2 million , respectively, in
connection with those sales. Bluegreen earned an average sales and marketing
commission of 67% and 68% during the three months ended March 31, 2020 , and
2019, respectively, which is net of a reserve for commission refunds in
connection with early defaults and cancellations, pursuant to the terms of
certain of its fee-based service arrangements. The decrease in sales of
third-party developer inventory on a commission basis during the 2020 period was
due primarily to a decision to focus on sales of Bluegreen owned VOIs. The
decrease in sales and marketing commissions as a percentage of fee-based sales
for the 2020 period as compared to the 2019 period is primarily related to the
mix of developer sales at higher commission rates in the 2019 period as well as
higher reserves for early defaults in the 2020 period, which Bluegreen refunds
to the third-party developers in certain circumstances.
38
-------------------------------------------------------------------------------- Financing Revenue, Net of Financing Expense. During the three endedMarch 31, 2020 and 2019, financing revenue, net of financing expense was$13.0 million and$12.5 million , respectively. The increase is primarily attributable to an increase in the balance of the notes receivable portfolio and lower outstanding receivable backed debt outstanding balances. Other Fee-Based Services. During the three months endedMarch 31, 2020 and 2019, revenue from Bluegreen's resort operations, club management, and title operations was$48.4 million and$46.6 million , respectively. These other fee-based services revenues were partially offset by expenses directly related to these operations of$33.9 million and$32.2 million , respectively. Other fee-based services revenue increased 4% during the three months endedMarch 31, 2020 compared to the same period in 2019. Cost reimbursement revenue, which primarily consists of payroll and payroll related expenses for management of the HOAs and other services Bluegreen provides where it is the employer, increased 5% during the three months endedMarch 31, 2020 as compared to the three months endedMarch 31, 2019 . Net of cost reimbursement revenue, resort operations and club management revenues decreased 1% during the three monthsMarch 31, 2020 as compared to three months endedMarch 31, 2019 primarily as a result of lower retail operations and lower third-party rental commission due to lower occupancy as a result of the COVID-19 pandemic. Bluegreen managed 49 resort properties as of bothMarch 31, 2020 andMarch 31, 2019 .
Cost of other fee-based services decreased by 4% during the three months ended
Net Carrying Cost of VOI Inventory. The carrying cost of Bluegreen's inventory was$9.8 million and$9.3 million during the three months endedMarch 31, 2020 and 2019, respectively, which was partially offset by rental and sampler revenues of$1.9 million and$1.6 million , respectively. The increase in net carrying costs of VOI inventory was primarily related to increased maintenance fees and developer subsidies associated with Bluegreen's increase in VOI inventory partially offset by increased rentals of developer inventory. In certain circumstances, Bluegreen offsets marketing costs by using inventory for marketing guest stays. Selling and Marketing Expenses. Selling and marketing expenses were$74.1 million and$65.2 million during the three months endedMarch 31, 2020 and 2019, respectively. As a percentage of system-wide sales of VOIs, selling and marketing expenses increased to 54% during the three months endedMarch 31, 2020 from 50% during the three months endedMarch 31, 2019 , primarily attributable to higher costs per guest tour, higher fees to Bass Pro as well as a change in the timing of expense recognition under the settlement agreement with Bass Pro discussed below, additional costs related to Bluegreen's marketing operations in 21 newCabela's stores and additional costs associated with the COVID-19 pandemic. As previously described, due to the COVID-19 pandemic, onMarch 23, 2020 , Bluegreen temporarily closed all of its marketing operations and VOI sales centers. Further, Bluegreen implemented several cost mitigating activities including terminating certain marketing employees and placing a significant number of its sales, sales support and corporate associates on temporary furlough and reduced work hours. As ofMarch 31, 2020 , Bluegreen had incurred$1.9 million in severance and$0.7 million of payroll expenses relating to sales and marketing employees on temporary furlough or reduced work hours as a result of the impact of the COVID-19 pandemic. Bluegreen's agreement with Bass Pro previously provided for the payment of a variable commission upon the sale of a VOI to a marketing prospect obtained through the Bass Pro marketing channels. As previously discussed, pursuant to the settlement agreement and amended marketing arrangement with Bass Pro, the settlement payment and a portion of the ongoing annual marketing fees are fixed costs and/or are subject to annual minimums regardless of the volume of VOI sales produced from the resulting marketing prospects generated from the amended agreement. If Bluegreen's amended agreement with Bass Pro does not generate a sufficient number of prospects and leads or is terminated or limited, Bluegreen may not be able to successfully market and sell its products and services, at anticipated levels or at levels required in order to offset the costs associated with its marketing efforts. In addition, the amended arrangement with Bass Pro is expected to result in an annual 9% increase in marketing costs as a percentage of sales from the program, based on increases in program fixed costs and anticipated VOI sales volumes from this marketing channel. Should VOI sales volumes be below expectations, the increase in cost of this marketing program would adversely impact Bluegreen's results of operations and cash flow. General and Administrative Expenses. General and administrative expenses were$27.1 million and$25.0 million during the three months endedMarch 31, 2020 and 2019, respectively. As a percentage of system-wide sales of VOIs, general and administrative expenses were 20% and 19% during the three months endedMarch 31, 2020 and 2019, 39
--------------------------------------------------------------------------------
respectively. The increase in the 2020 period was primarily due to approximately
BBX Capital Real Estate Reportable Segment
Segment DescriptionBBX Capital Real Estate (or BBXRE) 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 apartment and townhome communities, single-family master-planned communities, and commercial properties located primarily inFlorida . In addition, BBXRE owns a 50% equity interest in the Altman Companies, a developer and manager of multifamily apartment communities, and also manages the legacy assets acquired in connection with the Company's sale of BankAtlantic in 2012, including portfolios of loans receivable and real estate properties. Overview Although BBXRE's operating results for the three months endedMarch 31, 2020 were not significantly impacted by the COVID-19 pandemic, the effects of the pandemic are currently impacting certain of BBXRE's operations. In particular, while construction activities remain ongoing at BBXRE's existing projects, the effects of the COVID-19 pandemic, including "shelter in place" and "stay at home" orders and advisories and increased unemployment and economic uncertainty, have disrupted sales activities at BBXRE's single-family home developments and rental activities at its multifamily apartment developments. In addition, the effects of the pandemic, including the impact on general economic conditions and real estate and credit markets, have increased uncertainty related to the expected timing and pricing of future sales of multifamily apartment developments, single-family homes, and developed lots atBBXRE's Beacon Lake Community , as well as the commencement of new multifamily apartment developments. BBXRE determined that its existing real estate investments were not impaired as ofMarch 31, 2020 as the impact of the pandemic on real estate values was uncertain at such time; however, BBXRE will continue to monitor economic and market conditions and may recognize impairment losses in future periods to the extent that the effects of the pandemic have a severe and sustained adverse impact on the real estate market. BBXRE previously disclosed that it anticipated its operating profits would decline in 2020 as compared to recent prior periods and expects that the effects of the COVID-19 pandemic will result in a further decline in its results of operations for 2020. In addition, as BBXRE's primary focus in 2020 was to source investments in new development opportunities with the goal of building a diversified portfolio of real estate investments that generate profits in future periods, the effects of the COVID-19 pandemic may impact BBXRE over a longer term to the extent that its ability to identify new development opportunities that meet its investment criteria or source debt or equity capital from unaffiliated third parties is impacted for a prolonged period of time. While BBXRE may be able to identify opportunistic investments in a recessionary environment thatBBX Capital could fund with its available cash, there is no certainty that such opportunities will arise or thatBBX Capital will determine that such investments meet its investment criteria.
As a result of the above factors, including the potential impact of the COVID-19 pandemic on sales of existing projects and investments in new development opportunities, BBXRE's results of operations and financial condition may be materially adversely impacted by the effects of the pandemic in future periods.
The Altman Companies and Related Investments
During the three months endedMarch 31, 2020 , the Altis at Wiregrass joint venture, which was sponsored by the Altman Companies, sold its 392 unit multifamily apartment community inTampa, Florida . As a result of the sale, BBXRE recognized$0.8 million of equity earnings during the three months endedMarch 31, 2020 and received approximately$2.3 million of distributions from the venture inApril 2020 . In addition, BBXRE contributed$1.3 million of additional capital to the Altman Companies to fund operations and invested$1.0 million in existing real estate joint ventures sponsored by the Altman Companies, including the Altis Miramar West,Altis Miramar East , and Altis atLake Willis joint ventures. 40
--------------------------------------------------------------------------------
With respect to the impact of the COVID-19 pandemic, construction activities remain ongoing at the existing projects sponsored by the Altman Companies, and as a result, the Altman Companies continues to generate development and general contractor fees from such projects. However, the effects of the COVID-19 pandemic, including "shelter in place" and "stay at home" orders and advisories and a recessionary economic environment, have disrupted rental activities at its multifamily apartment developments. These effects are expected to impact occupancy levels and rental rates and, although the Altman Companies has collected a significant portion of April andMay 2020 rents, may also result in an increase in tenant delinquencies and/or requests for rent abatements, particularly to the extent that there is a prolonged economic downturn and high unemployment. As a result, these effects may subsequently impact the amount of rental revenues generated from such developments, the extent of management fees earned by the Altman Companies, and the ability of the related joint ventures to stabilize and ultimately sell such developments. Furthermore, a decline in rental revenues at such developments could require the Altman Companies, as the developer and sponsor of such projects, to fund certain operating shortfalls in certain circumstances. In addition, the impact of the COVID-19 pandemic on economic conditions in general, including the uncertainty regarding the severity and duration of such impact, has resulted in a decline in real estate sales activity and tightened credit markets and may also impact real estate market values. As a result of these factors, 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. Furthermore, the Altman Companies may be unable to close on the equity and/or debt financing necessary to commence the construction of new projects, including the development of Altis atLake Willis and Altis at Ludlam. To the extent that the Altis at Ludlam joint venture is able to close on development financing, BBXRE currently anticipates that it will invest approximately$8.5 million as a preferred equity investor in such venture.
During the three months endedMarch 31, 2020 , BBXRE continued its development of the lots comprising Phase II of theBeacon Lake Community inSt. Johns County, Florida , which is expected to include approximately 400 single-family homes and 196 townhomes, and an additional 79 lots for single-family homes as part of Phase III of the project. In addition, BBXRE sold to homebuilders 49 single family lots and 38 townhome lots. BBXRE has entered into purchase agreements with homebuilders to sell developed lots for an additional 373 single-family homes and 158 townhomes and has collected deposits related to these purchase agreements. However, the effects of the COVID-19 pandemic, including the recent decline in the volume of sales traffic and home sales at theBeacon Lake Community , is expected to impact the timing of the purchase of developed lots by the homebuilders and could result in the homebuilders not performing under these contracts. In addition, a decline in home prices as a result of economic impacts associated with the COVID-19 pandemic could result in a decrease in contingent revenues expected to be earned by BBXRE in connection with sales of homes by homebuilders on developed lots sold to them in prior periods. Results of Operations
Information regarding the results of operations for BBXRE is set forth below (dollars in thousands):
41
--------------------------------------------------------------------------------
For the Three Months Ended March 31,
2020 2019 Change
Sales of real estate inventory $ 6,439 4,236 2,203
Interest income 104 202 (98)
Net (losses) gains on sales of real estate
assets (47) 1,332 (1,379)
Other 460 684 (224)
Total revenues 6,956 6,454 502
Cost of real estate inventory sold 4,632 2,643 1,989
Recoveries from loan losses, net (3,512) (961) (2,551)
Selling, general and administrative expenses 2,336 2,494 (158)
Total costs and expenses 3,456 4,176 (720)
Equity in net earnings (losses) of
unconsolidated joint ventures 551 (17) 568
Other income - 162 (162)
Income before income taxes $ 4,051 2,423 1,628
· An increase in net profits from the sale of developed lots to homebuilders at
the
the 2020 period compared to 51 developed lots sold in the 2019 period; and
· A net increase in recoveries from loan losses primarily due to a settlement
with a financial institution servicing loans for BBXRE; and
· An increase in equity in net earnings of unconsolidated joint ventures
primarily due to the Altis at Wiregrass's sale of its multifamily apartment
community, as described above; partially offset by
· A decrease in net gains on sales of real estate assets primarily due to the
recognition of a
2019 period.
BBX Sweet Holdings Reportable Segment
Segment DescriptionBBX Sweet Holdings is engaged in the ownership and management of operating businesses in the confectionery industry, including IT'SUGAR, Hoffman's Chocolates, and Las Olas Confections and Snacks. IT'SUGAR is a specialty candy retailer which has approximately 100 retail locations, which include a mix of high-traffic resort and entertainment, lifestyle, mall/outlet, and urban locations in over 25 states andWashington D.C. , and its products include bulk candy, candy in giant packaging, and licensed and novelty items. Hoffman's Chocolates is a retailer of gourmet chocolates with retail locations inSouth Florida , and Las Olas Confections and Snacks is a manufacturer and wholesaler of chocolate and other confectionery products. OverviewAlthough BBX Sweet Holdings' results from operations were improved for the first two months of 2020 as compared to 2019, which reflected, among other things, IT'SUGAR's opening of a three story candy department store at American Dream inNew Jersey inDecember 2019 and the opening of three other stores in 2019,BBX Sweet Holdings has been materially adversely impacted by the effects of the COVID-19 pandemic. AsMarch 31, 2020 , as a result of various factors, including government-mandated closures and advisories, IT'SUGAR had closed all of its retail locations and furloughed all store employees and the majority of its corporate employees. At the current time, IT'SUGAR is not generating any trade sales other than limited sales through its website and wholesale channels and has not made rent payments to the landlords of its retail locations. IT'SUGAR is currently in discussions with its landlords for rent abatements or deferrals and is hopeful that it will be in a position to commence a phased reopening of certain of its retail locations starting inMay 2020 , subject to the implementation of revised store floor plans and increased sanitation protocols. However, as a result of the prolonged closure of its retail locations that commenced inMarch 2020 , IT'SUGAR does not believe that it will have sufficient liquidity to continue its full operations if it is unable to obtain significant rent abatements or deferrals from its landlords and amended payment terms from its vendors and, if it is not successful with these negotiations, may decide to pursue a formal or informal restructuring. Further, even if IT'SUGAR is in a position to reopen its retail locations and continue its operations, the effects of the COVID-19 pandemic on demand and future sales levels, including a recessionary economic environment 42
-------------------------------------------------------------------------------- and the potential impact of the pandemic on consumer behavior, remain uncertain and could have a long-term and material adverse impact on IT'SUGAR's business, results of operations, and financial condition and its ability to continue its operations. As a result,BBX Sweet Holdings recognized$24.7 million of impairment losses related to IT'SUGAR's goodwill and long-lived assets during the three months endedMarch 31, 2020 . See Note 8 to the Company's condensed consolidated financial statements included in Item 1 of this report for additional information with respect to the recognition of these impairment losses. In addition to the significant impact of the COVID-19 pandemic on IT'SUGAR's operations,BBX Sweet Holdings' other operations have also been adversely impacted by the pandemic. In particular, Hoffman's Chocolates has closed all of its retail locations to customer traffic and limited sales to curbside pickup (where allowable by government mandates) and online customers. In addition, Hoffman's Chocolates is in discussions with its landlords for rent abatements and deferrals. While Las Olas Confections and Snacks has continued to operate its manufacturing facility and sell products to its wholesale customers, its sales activity has declined as a result of the effects of the pandemic. In response to the effects of the pandemic, both Hoffman's Chocolates and Las Olas Confections and Snacks have implemented several cost mitigating activities, including a reduction of workforce and indefinite furlough of certain employees. Results of Operations
Information regarding the results of operations for
For the Three Months Ended March 31,
2020 2019 Change
Trade sales $ 21,329 22,131 (802)
Cost of trade sales (14,770) (15,397) 627
Gross margin 6,559 6,734 (175)
Selling, general and administrative expenses 10,900 10,211 689
Total operating profits (4,341) (3,477) (864)
Interest and other income 172 238 (66)
Impairment losses (24,708) - (24,708)
Interest expense (61) (44) (17)
(Loss) income before income taxes $ (28,938) (3,283) (25,655)
Gross margin percentage % 30.75 30.43 0.32
SG&A as a percent of trade sales % 51.10 46.14 4.96
BBX Sweet Holdings' loss before income taxes for the three months ended March
31, 2020 was $28.9 million compared to $3.3 million during the same 2019 period,
which reflects the following:
· The recognition of impairment losses in 2020 due to a decline in the estimated
value of the goodwill and long-lived assets associated with
reporting units as a result of the impact of the COVID-19 pandemic on market
conditions;
· A net increase in selling, general and administrative expenses primarily due to
costs associated with new locations opened during 2019, including the Grand
Bazaar location in
· A decrease in trade sales primarily due to the temporary closing of all
IT'SUGAR stores in
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 inCanada and two manufacturing and distribution facilities inthe United States andCanada . In addition to its own manufacturing, Renin also sources various products and raw materials fromChina andVietnam . Renin's products are sold through three channels inNorth America : retail, commercial, and direct installation in the greaterToronto area. 43
--------------------------------------------------------------------------------
Overview Renin's operating results for the three months endedMarch 31, 2020 were not significantly impacted by the COVID-19 pandemic. In particular, while Renin's trade sales for the three months endedMarch 31, 2020 were down compared to the same 2019 period, its sales were consistent with expectations for the 2020 period, and the decrease was primarily attributable to sales programs to two retail customers in the 2019 period that were not expected to be repeated and did not repeat in the 2020 period. Renin's operations have not been directly impacted by certain effects of the COVID-19 pandemic, as it has been exempted from various "shelter in place" and "stay at home" orders and advisories, and Renin is continuing to operate both of its manufacturing and distribution facilities, source various products and raw materials fromChina andVietnam , and sell its products through various channels. However, Renin's sales volumes have declined subsequent toMarch 31, 2020 , which management believes is largely attributable to other effects of the pandemic, including a recessionary economic environment and rising unemployment. In addition, such effects could have a significant adverse impact on Renin's results of operations and financial condition in future periods, particularly to the extent that an economic downturn is prolonged in nature or results in material disruptions in the supply chains for its products and raw materials. As Renin continues to source products and raw materials fromChina , disruptions in its supply chain fromChina as a result of various factors, including increased tariffs or closures in the supply chain, could impact Renin's cost of product and ability to meet customer demand. Renin is continuing to monitor the effects of the pandemic and is exploring various opportunities through which it could attempt to mitigate such effects, including increasing online sales and implementing cost reduction initiatives. However, there is no assurance that any such initiatives will be successful. Results of Operations Information regarding the results of operations for Renin is set forth below (dollars in thousands): For the Three Months Ended March 31, 2020 2019 Change Trade sales$ 17,446 19,343 (1,897) Cost of trade sales (14,275) (15,117) 842 Gross margin 3,171 4,226 (1,055) Selling, general and administrative expenses 2,618 3,035 (417) Total operating profits 553 1,191 (638) Other revenue (3) - (3) Interest expense (114) (140) 26 Foreign exchange gain 278 5 273 Income before income taxes $ 714 1,056 (342) Gross margin percentage % 18.18 21.85 (3.67) SG&A as a percent of trade sales % 15.01 15.69 (0.68) Renin's income before income taxes for the three months endedMarch 31, 2020 was$0.7 million compared to$1.1 million during the same 2019 period. The decrease was primarily due to the following:
· A decrease in Renin's trade sales resulting primarily from sales programs to
two retail customers in the 2019 period that were not repeated in the 2020
period; and
· A decline in Renin's gross margin percentage, which reflects a shift in its
customer mix toward lower margin commercial customers, as there was an increase
in commercial sales and a decrease in retail sales, and an increase in tariffs
on products imported from
· A decrease in selling, general and administrative expenses primarily due to
lower travel and trade show expenses as a result of travel restrictions
associated with the COVID-19 pandemic; and
· An increase in foreign exchange gains in the 2020 period resulting from the
change in exchange rates between
Other
44
-------------------------------------------------------------------------------- Other in the Company's segment information includes its investments in other operating businesses, including a restaurant located inSouth Florida that was acquired through a loan foreclosure and an insurance agency, as well as its operations as a franchisee of MOD Pizza restaurant locations inFlorida , which the Company exited inSeptember 2019 . During the three months endedMarch 31, 2020 , the Company recognized$3.6 million of impairment losses 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 includes the following:
·
· Interest expense primarily associated with
debentures and
redeemable cumulative preferred stock;
· Interest income on interest-bearing cash accounts; and
· The elimination of Bluegreen's interest income on its
receivable from BBX Capital .
Corporate General and Administrative Expenses
BBX Capital's corporate general and administrative expenses consist primarily of costs associated with administering the various support functions at its corporate headquarters, including executive compensation, legal, accounting, human resources, investor relations, and executive offices.BBX Capital's corporate general and administrative expenses for the three months endedMarch 31, 2020 and 2019 were$8.1 million and$12.1 million , respectively. The decrease in corporate general and administrative expenses for the three months endedMarch 31, 2020 compared to the same 2019 period primarily reflects the allocation of compensation expense related toBBX Capital's Chief Executive Officer and Chief Financial Officer to Bluegreen as a result of their expanded roles at Bluegreen in the 2020 period, as well as an updated estimate of the allocation of annual executive bonus expenses expected to be paid in cash and stock. Interest Expense Excluding its note payable to Bluegreen,BBX Capital's interest expense for the three months endedMarch 31, 2020 and 2019 was$0.8 million and$1.5 million , respectively. The decrease in interest expense during the three months endedMarch 31, 2020 compared to the same 2019 period primarily resulted from the repayment of the outstanding balance of$30.0 million onBBX Capital's $50.0 million revolving line of credit inJanuary 2019 , the repayment of its mandatorily redeemable trust preferred securities inDecember 2019 , and lower interest expense onWoodbridge's junior subordinated debentures associated with lower rates on the variable rates of interest on such debt during the 2020 period.BBX Capital's interest expense on the$80.0 million note payable to Bluegreen was$1.2 million for each of the three months endedMarch 31, 2020 and 2019. The interest expense on this note and the related interest income recognized by Bluegreen are eliminated in the Company's consolidated statements of operations. Interest Income During the three months endedMarch 31, 2020 and 2019, the Company recognized$0.5 million and$0.4 million , respectively, of interest and investment income fromBBX Capital's interest-bearing cash accounts and other investments. Provision for Income Taxes The Company estimates its effective annual income tax rate on a quarterly basis based on current and forecasted operating results for the annual period and applies the estimated effective income tax rate to its income before income taxes reduced by net income attributable to noncontrolling interests in joint ventures taxed as partnerships. The Company's effective income tax rate was approximately 17% and 35% during the three months endedMarch 31, 2020 and 2019, respectively. The Company's effective income tax rate for the three months endedMarch 31, 2020 and 2019 was different than the expected federal income tax rate of 21% due to the impact of nondeductible executive 45
-------------------------------------------------------------------------------- compensation and state income taxes. The effective income tax rate for the 2020 period reflects a current estimated ordinary taxable loss for the year endedDecember 31, 2020 resulting primarily from the effects of the COVID-19 pandemic.
Net Income Attributable to Noncontrolling Interests
Net loss attributable to noncontrolling interests was$2.5 million during the three months endedMarch 31, 2020 compared to net income attributable to noncontrolling interests of$3.1 million for the comparable 2019 period. The decrease in net income attributable to noncontrolling interests for the three months endedMarch 31, 2020 compared to the same 2019 period was primarily due to IT'SUGAR's recognition of impairment losses related to its goodwill and long lived assets and a decrease in the net income of Bluegreen andBluegreen/Big Cedar Vacations . Consolidated Cash Flows
A summary of our consolidated cash flows is set forth below (in thousands):
For the Three Months Ended March 31,
2020 2019
Cash flows used in operating activities $ (29,994) (6,566)
Cash flows used in investing activities (5,513) (9,761)
Cash flows provided by (used in) financing
activities 60,874 (63,096)
Net increase (decrease) in cash, cash equivalents
and restricted cash $ 25,367 (79,423)
Cash, cash equivalents and restricted cash at
beginning of period 406,870 421,097
Cash, cash equivalents and restricted cash at end of
period $ 432,237 341,674
Cash Flows used in Operating Activities
The Company's cash used in operating activities increased by$23.4 million during the three months endedMarch 31, 2020 compared to the same 2019 period primarily due to the$4.0 million payment made by Bluegreen to Bass Pro inJanuary 2020 pursuant to the settlement agreement entered into inJune 2019 , an increase in the amount and changes in timing of certain incentive bonuses paid to certain associates during the 2020 period compared to the 2019 period, and decreases in escrow deposits from Bluegreen's customers reflecting the closure of VOI sales locations resulting from the COVID-19 pandemic, partially offset by a reduction in spending on the acquisition and development of VOI and real estate inventory during the 2020 period as compared to the 2019 period.
Cash Flows used in Investing Activities
The Company's cash used in investing activities decreased by$4.2 million during the three months endedMarch 31, 2020 compared to the same 2019 period primarily due to decreased spending by Bluegreen for property and equipment, an increase in loan recoveries in the legacy asset portfolio, and a decrease in investments in unconsolidated real estate joint ventures, partially offset by a decrease in distributions from unconsolidated real estate joint ventures and lower proceeds from the sale of real estate.
Cash Flows provided by Financing Activities
The Company's cash provided by financing activities increased by$124.0 million during the three months endedMarch 31, 2020 compared to the same 2019 period, which was primarily due to a$104.2 million increase in net borrowings on the Company's notes payable and other borrowings, which included additional borrowings by Bluegreen on its credit facilities and various receivable-backed facilities to increase its cash position in an effort to ensure adequate liquidity for a prolonged period as a result of the COVID-19 pandemic. In addition, repayments of notes payable and other borrowings declined by$31.4 million primarily due toBBX Capital's repayment of the outstanding balance of$30.0 million on its credit facility with IberiaBank in the 2019 period. These increases in cash 46
-------------------------------------------------------------------------------- provided by financing activities during the 2020 period compared to the 2019 period were partially offset by Bluegreen's repurchase of$11.7 million of its common stock in a private transaction during the 2020 period. Seasonality Bluegreen has historically, and expects to continue to experience, seasonal fluctuations in its revenues and results of operations. This seasonality has resulted, and may continue to result, in fluctuations in its quarterly operating results. Due to consumer travel patterns, Bluegreen typically has seen more tours and experiences higher VOI sales during the second and third quarters. However, due to the closures of all marketing operations and VOI sales centers as a result of the COVID-19 pandemic, Bluegreen anticipates significantly decreased sales of VOIs for the remainder of 2020 as compared to the same periods in prior years.BBX Sweet Holdings' businesses are subject to seasonal fluctuations in trade sales, which cause fluctuations inBBX Sweet Holdings' quarterly results of operations. Historically, IT'SUGAR generated its strongest retail trade sales during the months from June through August, as well as during the month of December, when families are on vacation.BBX Sweet Holdings' other operating businesses historically generated their strongest trade sales during the fourth quarter in connection with various holidays inthe United States . Due primarily to the closures of IT'SUGAR's retail locations as a result of COVID-19 pandemic,BBX Sweet Holdings anticipates significantly reduced sales during the coming months as compared to the same months in prior years. Commitments The Company's material commitments as ofMarch 31, 2020 included the required payments due on receivable-backed debt, notes payable and other borrowings, junior subordinated debentures, commitments to complete certain projects based on its sales contracts with customers, subsidy advances to certain HOAs, and commitments under non-cancelable operating leases. The following table summarizes the contractual minimum principal and interest payments required on the Company's outstanding debt, outstanding payments required under the Bass Pro settlement agreement, and payments required on the Company's non-cancelable operating leases by period due date as ofMarch 31, 2020 (in thousands): Payments Due by Period Unamortized Debt Less than 1 - 3 4 - 5 After 5 Issuance
Contractual Obligations 1 year Years Years Years
Costs Total
Receivable-backed notes
payable $ - 34,943 106,430 283,076 (4,752) 419,697
Notes payable and other
borrowings 21,114 31,157 191,019 24,500 (2,101) 265,689
Jr. subordinated
debentures - - - 177,129 (39,653) 137,476
Non-cancelable
operating leases 20,220 50,279 33,954 44,796 - 149,249
Bass Pro settlement
agreement 4,000 8,000 4,000 - - 16,000
Total contractual
obligations 45,334 124,379 335,403 529,501 (46,506) 988,111
Interest Obligations
(1)
Receivable-backed notes
payable 15,706 29,977 26,787 76,254 - 148,724
Notes payable and other
borrowings 9,739 17,604 12,997 20,187 - 60,527
Jr. subordinated
debentures 10,915 21,829 21,829 119,108 - 173,681
Total contractual
interest 36,360 69,410 61,613 215,549 - 382,932
Total contractual
obligations $ 81,694 193,789 397,016 745,050
(46,506) 1,371,043
(1) 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 March 31, 2020 .
In lieu of paying maintenance fees for unsold VOI inventory, Bluegreen may enter
into subsidy agreements with certain HOAs. Bluegreen paid $1.9 million in
subsidy payments in connection with these arrangements during each of the three
months ended March 31, 2020 and 2019, which are included in cost of other
fee-based services. As of March 31, 2020 , Bluegreen had $3.3 million accrued for
such subsidies, which is included in other liabilities in the Company's
condensed consolidated statement of financial condition as of such date. As of
December 31, 2019 , Bluegreen had no accrued liabilities for such subsidies.
In
47
--------------------------------------------------------------------------------
remained payable as of March 31, 2020 . Additionally, during 2019, Bluegreen
entered into certain agreements with other executives related to their
separation from Bluegreen or change in position. Pursuant to the terms of these
agreements, Bluegreen agreed to make payments totaling $2.5 million through
November 2020 . As of March 31, 2020 , $1.0 million remained payable under these
agreements.
At the current time,BBX Capital intends to use its cash in order to satisfy the payments required under its contractual obligations for the foreseeable future, while its subsidiaries will use, to the extent available, their respective cash on hand, cash flows from operations, and cash received from new borrowings under existing or future debt facilities in order to satisfy their respective obligations. However, as a result of the COVID-19 pandemic, there is no assurance thatBBX Capital's subsidiaries will have sufficient cash from such sources to satisfy their respective contractual obligations and maintain their respective operations. WhileBBX Capital has available cash that it may use to contribute to or fund the obligations and commitments of its subsidiaries,BBX Capital intends to evaluate the facts and circumstances of the cash requirements of each of its subsidiaries, including their operating deficits, their liquidity requirements, and the sustainability of their operations as a result of the COVID-19 pandemic, and make a determination of whether and/or how much it will make available to each subsidiary. Bluegreen Bluegreen intends to use cash on hand and cash flows from operations, including cash received from the sale/pledge of VOI notes receivable, as well as cash received from new borrowings under existing or future debt facilities, in order to satisfy the principal payments required on its contractual obligations. While there is no assurance that it will be successful, Bluegreen believes that it will be successful in renewing certain debt facilities and/or obtaining extensions of such facilities. Based on this and the actions implemented in an effort to mitigate the impact of the COVID-19 pandemic, Bluegreen believes that it will be in a position to meet required debt payments; however, there is no assurance that this will be the case. Bluegreen also believes that its existing cash, anticipated cash to be generated from operations, anticipated future permitted borrowings under existing or future credit facilities, and anticipated future sales of notes receivable under existing, future, or replacement purchase facilities will be sufficient to meet its anticipated working capital, capital expenditures and debt service requirements, including the contractual payment of the obligations set forth above, for the foreseeable future, subject to the success of its ongoing business strategy, the ongoing availability of credit, and the success of the actions Bluegreen has taken in response to the COVID-19 pandemic. Bluegreen will continue its efforts to renew, extend, or replace any credit and receivables purchase facilities that have expired or that will expire in the near term. Bluegreen may, in the future, also obtain additional credit facilities and may issue corporate debt or equity securities. Any debt incurred or issued may be secured or unsecured, bear interest at fixed or variable rates, and may be subject to such terms as the lender may require. In addition, Bluegreen's efforts to renew or replace credit facilities or receivables purchase facilities which have expired or which are scheduled to expire in the near term may not be successful, and sufficient funds may not be available from operations or under existing, proposed, or future revolving credit or other borrowing arrangements or receivables purchase facilities to meet cash needs, including debt service obligations. To the extent Bluegreen is unable to sell notes receivable or borrow under such facilities or generate sufficient cash from operations, Bluegreen's ability to satisfy its obligations would be materially adversely affected. Bluegreen's receivables purchase facilities, credit facilities, indentures, and other outstanding debt instruments include what Bluegreen believes to be customary conditions to funding, eligibility requirements for collateral, cross-default and other acceleration provisions, and certain financial and other affirmative and negative covenants, including, among others, limits on the incurrence of indebtedness, payment of dividends, investments in joint ventures and other restricted payments, the incurrence of liens and transactions with affiliates, as well as covenants concerning net worth, fixed charge coverage requirements, debt-to-equity ratios, portfolio performance requirements and cash balances, and events of default or termination. In the future, Bluegreen may be required to seek waivers of such covenants but may not be successful in obtaining waivers, and such covenants may limit its ability to raise funds, sell receivables, or satisfy or refinance its obligations, or otherwise adversely affect its financial condition and results of operations, as well as its ability to pay dividends. InApril 2020 , Bluegreen's board of directors suspended quarterly cash dividends on its common stock due to the impact of the COVID-19 pandemic. In addition, Bluegreen's future operating performance and ability to meet its financial obligations will be subject to future economic conditions and to financial, business and other factors, many of which may be beyond Bluegreen's control. 48
--------------------------------------------------------------------------------
Pursuant to the settlement agreement Bluegreen entered into with Bass Pro and its affiliates duringJune 2019 , Bluegreen paid Bass Pro$20.0 million and agreed to make five annual payments to Bass Pro of$4.0 million each commencing in 2020. Additionally, in lieu of the previous commission arrangement, Bluegreen agreed to pay Bass Pro a fixed annual fee of$70,000 for each Bass Pro andCabela's retail store that Bluegreen is accessing (excluding sales at retail stores which are designated to provide tours toBluegreen/Big Cedar Vacations , or "Bluegreen/Big Cedar feeder stores"), plus$32.00 per net vacation package sold (less cancellations or refunds within 45 days of sale). Bluegreen also agreed to contribute to theWonders of Wildlife Foundation $5.00 per net package sold (less certain cancellations and refunds within 45 days of sale), subject to an annual minimum of$700,000 . Subject to the terms and conditions of the settlement agreement, Bluegreen will generally be required to pay the fixed annual fee with respect to at least 59 Bass Pro retail stores and a minimum number ofCabela's retail stores that increases over time to a total of at least 60Cabela's retail stores by the end of 2021. InJanuary 2020 , Bluegreen paid$5.2 million for this fixed fee, of which$4.1 million was prepaid and is included in other assets in the Company's condensed consolidated statement of financial condition as ofMarch 31, 2020 . Bluegreen had marketing operations at 21Cabela's stores atMarch 31, 2020 and is required to begin marketing operations in at least 25 more stores byDecember 31, 2020 . Notwithstanding the foregoing, the minimum number of Bass Pro andCabela's retail stores for purposes of the fixed annual fee may be reduced under certain circumstances set forth in the agreement, including as a result of a reduction of traffic in the stores in excess of 25% year-over-year. InMarch 2020 , as a result of the COVID-19 pandemic, Bluegreen temporarily closed its retail marketing operations atBass Pro Shops andCabela's stores. Bluegreen is currently developing a plan to reopen these operations.
Off-balance-sheet Arrangements
BBX Capital guarantees certain obligations of its wholly-owned subsidiaries and unconsolidated real estate joint ventures as described in further detail in Note 12 to the Company's condensed consolidated financial statements included in Item 1 of this report. The Company has investments in joint ventures involved in the development of multifamily apartment and townhome communities, as well as single-family master planned 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 ofMarch 31, 2020 andDecember 31, 2019 , the Company's investments in these joint ventures totaled$59.4 million and$57.3 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 above and in Note 7 to the Company's condensed consolidated financial statements included in Item 1 of this report, 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. 49
--------------------------------------------------------------------------------
Liquidity and Capital Resources
As ofMarch 31, 2020 , the Company, excluding Bluegreen, had cash, cash equivalents, and short-term investments of approximately$156.0 million , including$137.8 million held directly byBBX Capital . 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 COVID-19 pandemic challenges 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. The Company has taken various mitigating measures to manage through the current challenges resulting from the COVID-19 pandemic, as discussed in this report, including cost and capital expenditure reductions at its subsidiaries. However, management is continuing to evaluate the potential operating deficits and liquidity requirements of its subsidiaries as a result of the impact of the COVID-19 pandemic and may determine not to provide additional funding or capital to subsidiaries whose operations they believe may not be sustainable.BBX Capital's principal sources of liquidity have historically been its available cash and short-term investments, dividends received from Bluegreen, borrowings from its$50.0 million IberiaBank revolving line of credit, distributions from unconsolidated real estate joint ventures, proceeds received from lot sales at theBeacon Lake Community development, and sales of real estate. However, as described below, the COVID-19 pandemic has impacted or otherwise resulted in uncertainty regarding many of these sources of liquidity, andBBX Capital believes that its primary source of liquidity for the foreseeable future will be its available cash, cash equivalents, and short-term investments. Bluegreen has announced that it has suspended its regularly quarterly dividend, and accordingly,BBX Capital does not expect to receive quarterly dividends from Bluegreen for the foreseeable future. For the three months endedMarch 31, 2020 and 2019,BBX Capital received dividends from Bluegreen of$8.7 million and$11.4 million , respectively. The resumption of dividends payments by Bluegreen, as well as the amount and timing of such dividends, will be based upon factors that Bluegreen's board of directors deems to be appropriate, including Bluegreen's operating results, financial condition, cash position, and operating and capital needs. Dividends from Bluegreen are also dependent on restrictions contained in Bluegreen's debt facilities. Except as otherwise noted, the debts and obligations of Bluegreen are not direct obligations ofBBX Capital and generally are non-recourse toBBX Capital . Similarly, the assets of Bluegreen are not available toBBX Capital , absent a dividend or distribution. Furthermore, certain of Bluegreen's credit facilities contain terms which could limit the payment of cash dividends without the lender's consent or waiver, and Bluegreen may only pay dividends subject to such restrictions as well as the declaration of dividends by its board of directors. As a consequence,BBX Capital may not resume receiving dividends from Bluegreen consistent with prior periods, in the time frames or amounts anticipated, or at all. AlthoughBBX Capital has a$50.0 million revolving line of credit with IberiaBank, subject to available collateral, the effects of the COVID-19 pandemic on the Company's operations and the value of the collateral could impact its ability to remain in compliance with the financial covenants under the facility and limit the extent of availability under the facility in future periods. As ofMarch 31, 2020 ,BBX Capital had availability of approximately$22.4 million under the facility as a result of a decline in the value of the collateral. While BBXRE has historically provided liquidity toBBX Capital through various sources, including distributions from unconsolidated real estate joint ventures and proceeds from real estate sales, the effects of the pandemic, including the impact on general economic conditions and real estate and credit markets, have increased the uncertainty regarding the expected timing and pricing of future sales of multifamily apartment developments, single-family homes, and developed lots atBBXRE's Beacon Lake Community . As a result, BBXRE is not expected to provide significant liquidity toBBX Capital for the foreseeable future.BBX Capital has also historically received funds from its subsidiaries, including Bluegreen, in connection with the parties' tax sharing agreement to the extent that a subsidiary utilizedBBX Capital's tax benefits inBBX Capital's consolidated tax return. However,BBX Capital did not receive tax sharing payments from its subsidiaries during the three months endedMarch 31, 2020 and does not expect to receive any significant payments for the remainder of 2020 primarily as a result of the impact of COVID-19 on the Company's operations.BBX Capital believes that its current financial condition will allow it to meet its anticipated near-term liquidity needs.BBX Capital 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 50 -------------------------------------------------------------------------------- available toBBX Capital on attractive terms, or at all. The inability to raise 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
BBX Capital has historically used its available funds for operations and general corporate purposes (including working capital, capital expenditures, debt service requirements, and the Company's other commitments described above), to make additional investments in real estate opportunities, operating businesses, or other opportunities, to declare and pay cash dividends on its common stock, or to purchase shares of its common stock. WhileBBX Capital may continue to evaluate opportunistic investments,BBX Capital currently expects to use its available funds primarily for operations and general corporate purposes and to fund operating deficits resulting from the COVID-19 pandemic. However, as discussed above,BBX Capital's management intends to evaluate the operating deficits and liquidity requirements of its subsidiaries as a result of the impact of the COVID-19 pandemic on operations and general economic conditions and may make a determination that it will not provide additional funding or capital to certain of its subsidiaries. InNovember 2018 , BBXRE acquired a 50% membership interest in the Altman Companies, a joint venture between the Company andJoel Altman ("JA") 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 to generate profits for BBXRE and JA primarily through the equity distributions that BBXRE and JA receive through their investment in the managing member of such joint ventures. Therefore, as the timing of such distributions to BBXRE and JA is generally contingent upon the sale or refinancing of a completed development project, it is anticipated that BBXRE and JA 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. At the current time, BBXRE anticipates that it will invest approximately$1.0 million to$2.0 million in the Altman Companies and related joint ventures during the remainder of 2020 relating to planned predevelopment expenditures and ongoing operating costs. Furthermore, although the COVID-19 pandemic has resulted in uncertainty in the ability of the Altman Companies to close on the capital necessary to commence the construction of new projects, BBXRE currently anticipates that it will invest approximately$8.5 million as a preferred equity investor in its Altis at Ludlam joint venture if the venture is able to close on development financing. In addition, if the Altman Companies closes on development financing for additional projects beyond Altis at Ludlam, BBXRE expects that it would be required to contribute an additional$1.25 million toABBX Guaranty, LLC , a joint venture between BBXRE and JA that provides guarantees on the indebtedness and construction cost overruns of new real estate joint ventures formed by the Altman Companies. Pursuant to the operating agreement of the Altman Companies, BBXRE will also acquire an additional 40% equity interest in the Altman Companies from JA for a purchase price of$9.4 million inJanuary 2023 , while JA 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 inAltman-Glenewinkel Construction that are not owned by the Altman Companies for a purchase price based on prescribed formulas in the operating agreement ofAltman-Glenewinkel Construction . In addition to BBXRE's anticipated investments in the Altman Companies and related joint ventures, BBXRE has entered into two real estate joint ventures,CCB Miramar, LLC andL03/212 Partners, LLC , in which the Company expects to contribute additional capital of approximately$3.4 million during the next twelve to twenty-four months based on the current plans and estimates associated with the related development projects.BBX Capital previously indicated its intention to declare regular quarterly dividends on its Class A and Class B Common Stock and declared cash dividends of$0.05 per share on its common stock, or$4.8 million in the aggregate, during the year endedDecember 31, 2019 . However, inApril 2020 ,BBX Capital suspended its regular quarterly dividend due to the impacts of the COVID-19 pandemic. Future declaration and payment of cash dividends with respect to the Company's common stock, if any, will be determined in light of the then-current financial condition of the Company, its operating and capital needs, its debt covenants, and other factors deemed relevant by the board of directors. InJune 2017 ,BBX Capital's board of directors approved a share repurchase program which authorizes the purchase of a total of up to 5,000,000 shares of the Company's Class A Common Stock and Class B Common Stock at an aggregate cost of no more than$35.0 million . This program authorizes management, at its discretion, to purchase shares from time to time subject to market conditions and other factors. As ofMarch 31, 2020 ,BBX Capital had 51 --------------------------------------------------------------------------------
purchased 4,750,483 shares of its Class A Common Stock for approximately
InApril 2015 ,BBX Capital borrowed$80.0 million from a wholly-owned subsidiary of Bluegreen. Payments of interest are required on a quarterly basis, and all outstanding amounts are due and payable at maturity. EffectiveApril 17, 2020 ,Bluegreen andBBX Capital amended the loan agreement to extend the maturity date of the loan fromApril 2020 toApril 2021 and reduce the interest rate from 6% to 4% per annum.BBX Capital may be required to repay all or a portion of the$80.0 million borrowed from Bluegreen if Bluegreen is not in compliance with debt covenants under its debt instruments. In addition to the note payable to Bluegreen, the Company has other indebtedness which is summarized in Commitments above. The Company's indebtedness, including any future debt incurred by the Company, may make it more vulnerable to downturns in the economy and may subject the Company to covenants or restrictions on its operations and activities.
Credit Facilities with Future Availability
As of
IberiaBank$50.0 million Revolving Line of Credit. InMarch 2018 ,BBX Capital and certain of its wholly-owned subsidiaries entered into a Loan and Security Agreement and related agreements with IberiaBank ("Iberia"), as administrative agent and lender, andCity National Bank of Florida , as lender, which provide for a$50.0 million revolving line of credit. Amounts borrowed under the facility accrue interest at a floating rate of 30-day LIBOR plus a margin of 3.0% to 3.75% or the Prime Rate plus a margin of 1.50% to 2.25%. The applicable margin is based onBBX Capital's debt to EBITDA ratio. Payments of interest only are payable monthly. The facility matures, and all outstanding principal and interest will be payable, onJune 30, 2021 , with twelve-month renewal options atBBX Capital's request, subject to satisfaction of certain conditions. The facility is secured by a pledge of a percentage ofBBX Capital's membership interests inWoodbridge . The amount available for future borrowings under this facility was$22.4 million as ofMarch 31, 2020 . The borrowings under the facility may be used for business acquisitions, real estate investments, stock repurchases, letters of credit, and general corporate purposes. Under the terms and conditions of the Loan and Security Agreement,BBX Capital is required to comply with certain financial covenants, including maintaining minimum unencumbered liquidity and complying with debt to EBITDA financial ratios. The Loan and Security Agreement also contains customary affirmative and negative covenants, including those that, among other things, limit the ability ofBBX Capital and the other borrowers to incur additional indebtedness and to make certain loans and investments. As ofMarch 31, 2020 , there were no borrowings outstanding under the credit facility.Toronto-Dominion Commercial Bank . InMay 2017 , Renin entered into a credit facility with TD Bank that was subsequently renewed inSeptember 2019 and 2018. Under the terms and conditions of the credit facility, TD Bank agreed to provide term loans for up to$1.7 million and loans under a revolving credit facility for up to approximately$16.3 million subject to certain terms and conditions. During the first quarter of 2020, Renin received a waiver from TD Bank of its breach of the quarterly debt service coverage ratio under the facility, and the credit facility was amended to replace the existing debt service coverage ratio with an interest coverage ratio. In connection with the amendment to the credit facility, Renin repaid the outstanding balance of the term loan with borrowings from the revolving credit facility. As ofMarch 31, 2020 , the outstanding amounts under the revolving credit facility was$10.5 million with an effective interest rate of 4.72%.Banc of America Leasing & Capital Equipment Note andBank of America Revolving Line of Credit . InAugust 2018 , IT'SUGAR entered into a revolving credit facility withBank of America , and inSeptember 2018 , IT'SUGAR entered into aMaster Loan and Security Agreement withBanc of America Leasing & Capital, LLC . As ofMarch 31, 2020 , the outstanding principal balance of the revolving credit facility and the equipment note was$4.0 million and$0.3 million , respectively, and there was no availability under the revolving credit facility. InApril 2020 , a wholly-owned subsidiary ofBBX Capital Real Estate purchased the revolving credit facility and equipment note from the respective lenders for the outstanding principal balance of the loans plus accrued interest. As ofMarch 31, 2020 ,BBX Capital and certain of its subsidiaries (other than Bluegreen) had availability of approximately$25.1 million under the above revolving lines of credit, subject to eligible collateral and the terms of the facilities, as applicable. However, the effects of the COVID-19 pandemic on the Company's operations could 52
-------------------------------------------------------------------------------- impact its ability to remain in compliance with the financial covenants under these facilities and limit the extent of availability under the facilities in future periods. Bluegreen Bluegreen believes that it has sufficient liquidity from the sources described below to fund operations, including its anticipated working capital, capital expenditure, debt service requirements and impacts associated with the COVID-19 pandemic challenges for the foreseeable future, subject to the success of its ongoing mitigating measures to manage through current challenges caused by the COVID-19 pandemic, as discussed in this report, including cost and capital expenditure reductions and the ongoing availability of credit. Bluegreen's primary sources of funds from internal operations are: (i) cash sales, (ii) down payments on VOI sales which are financed; (iii) proceeds from the sale of, or borrowings collateralized by, notes receivable, (iv) cash from finance operations, including mortgage servicing fees and principal and interest payments received on the purchase money mortgage loans arising from sales of VOIs, and (v) net cash generated from sales and marketing fee-based services and other fee-based services, including resort management operations. While the vacation ownership business has historically been capital intensive and Bluegreen may from time to time pursue transactions or activities which may require significant capital investment and adversely impact near term cash flows, Bluegreen has generally sought to focus on the generation of "free cash flow" (defined as cash flow from operating activities, less capital expenditures) by: (i) incentivizing sales associates and creating programs with third-party credit card companies to generate a higher percentage of sales in cash; (ii) maintaining sales volumes that focus on efficient marketing channels; (iii) limiting capital and inventory expenditures; (iv) utilizing sales and marketing, mortgage servicing, resort management services, title and construction expertise to pursue fee-based-service business relationships that generally require less up-front capital investment and have the potential to produce incremental cash flows; and (v) more recently, by selling VOIs obtained through secondary market or JIT arrangements. Bluegreen considers free cash flow to be a measure of cash generated by operating activities that can be used for future investing and financing activities, however, there is no assurance that Bluegreen will generate free cash flow or that any generated will be used for such purposes. The COVID-19 pandemic has been and continues to be an unprecedented disruption in the economy and the timeshare industry due to government ordered travel restrictions and restrictions on business operations. While Bluegreen is currently developing plans to reopen its VOI sales centers and marketing operations beginningJune 2020 , onMarch 23, 2020 , Bluegreen temporarily closed all of its VOI sales centers; its retail marketing operations atBass Pro Shops ,Cabela's stores and outlet malls; and the Choice Hotels call transfer program. In connection with these actions, Bluegreen canceled existing owner reservations throughMay 15, 2020 and new prospect guest tours throughJune 30, 2020 . Bluegreen also implemented several mitigating activities in an attempt to better position its operations for the impact of the COVID-19 pandemic. Bluegreen anticipates that as a result of these and other initiatives, its sales of VOIs for 2020 will be materially less than its 2019 sales of VOIs. Bluegreen intends to continue to adjust its business to conditions as they change over the remainder of 2020. The ongoing goals of Bluegreen's mitigating activities are designed to preserve cash and reduce expenses by: · Significantly reducing its workforce. · Reducing overhead and increasing efficiency. · Minimizing capital spending. · Maintaining compliance under its outstanding indebtedness.
While there can be no assurance that these goals will be achieved, initial actions taken to date include the following:
· Bluegreen has ceased marketing programs.
· Bluegreen reduced inventory acquisition and development expenditures.
· Bluegreen implemented a reduction in workforce of over 970 positions and placed
another 3,700 of its associates on temporary furlough and reduced work hours.
· In an effort to ensure adequate liquidity for a sustained period, Bluegreen
drew down
facilities to increase its cash position.
· Bluegreen suspended the payment of dividends.
Bluegreen has
53
--------------------------------------------------------------------------------Bluegreen intends to seek renewal or extend its debt and believes that the implementation of its mitigating activities will best position Bluegreen to address these matters with its lenders.
The ability to sell and/or borrow against notes receivable from VOI buyers has been critical to Bluegreen's continued liquidity. A financed VOI buyer is generally only required to pay a minimum of 10% to 20% of the purchase price in cash at the time of sale; however, selling, marketing and administrative expenses attributable to the sale are primarily cash expenses that generally exceed a buyer's minimum required down payment. Accordingly, having financing facilities available for the hypothecation, sale or transfer of Bluegreen's VOI notes receivable has been critical to Bluegreen's ability to meet its short and long-term cash needs. Bluegreen has attempted to maintain a number of diverse financing facilities. Historically, Bluegreen has relied on its ability to sell receivables in the term securitization market in order to generate liquidity and create capacity in Bluegreen's receivable facilities. Bluegreen has historically financed a majority of its sales of VOIs, and accordingly, are subject to the risk of defaults by its customers. While the impact of the COVID-19 pandemic had not yet been reflected in Bluegreen's default or delinquency rates as ofMarch 31, 2020 , Bluegreen believes that the COVID-19 pandemic will have a significant impact on its VOI notes receivable. Accordingly, Bluegreen recorded an additional allowance for loan losses of$12.0 million as ofMarch 31, 2020 , which includes an estimate of customer defaults as a result of the COVID-19 pandemic based on Bluegreen's historical experience, forbearance requests received from Bluegreen's customers, and other factors, including, but not limited to, the seasoning of the note receivable and FICO scores of the customers. The impact of the COVID-19 pandemic is rapidly changing and highly uncertain. Accordingly, and due to other risks and uncertainties associated with assumptions and changing market conditions, Bluegreen's allowance may not prove to be accurate and may be increased in future periods, which would adversely impact Bluegreen's operating results for those periods. Further, the COVID-19 pandemic has resulted in instability and volatility in the financial markets. Bluegreen's ability to borrow against or sell its VOI notes receivable has historically been a critical factor in its liquidity. If Bluegreen is unable to renew credit facilities or obtain new credit facilities, its business, results of operations, liquidity, or financial condition may be materially, adversely impacted. In connection with its capital-light business activities, Bluegreen has entered into agreements with third-party developers that allow Bluegreen to buy VOI inventory, typically on a non-committed basis, prior to when Bluegreen intends to sell such VOIs, although there is no assurance that these third party developers will be in a position to deliver that inventory in the future. Bluegreen's capital-light business strategy also includes secondary market sales, pursuant to which Bluegreen enters into secondary market arrangements with certain HOAs and others on a non-committed basis, which allows Bluegreen to acquire VOIs generally at a significant discount, as such VOIs are typically obtained by the HOAs through foreclosure in connection with maintenance fee defaults. Acquisitions of JIT and secondary market inventory during the remainder of 2020 are expected to range from$3.0 million to$5.0 million . Bluegreen's level of debt and debt service requirements have several important effects on Bluegreen's operations, including the following: (i) significant debt service cash requirements reduce the funds available for operations and future business opportunities and increase Bluegreen's vulnerability to adverse economic and industry conditions, as well as conditions in the credit markets, generally; (ii) Bluegreen's leverage position increases its vulnerability to economic and competitive pressures; (iii) the financial covenants and other restrictions contained in indentures, credit agreements and other agreements relating to Bluegreen's indebtedness require Bluegreen to meet certain financial tests and may restrict Bluegreen's ability to, among other things, pay dividends, borrow additional funds, dispose of assets or make investments; and (iv) Bluegreen's leverage position may limit funds available for acquisitions, working capital, capital expenditures, dividends, and other general corporate purposes. Certain of Bluegreen's competitors operate on a less leveraged basis and have greater operating and financial flexibility than Bluegreen does. 54
--------------------------------------------------------------------------------
Credit Facilities for Bluegreen Receivables with Future Availability
Bluegreen maintains various credit facilities with financial institutions which allow Bluegreen to borrow against or sell its VOI notes receivable. As ofMarch 31, 2020 , Bluegreen had the following credit facilities with future availability, all of which are subject to revolving availability terms during the advance period and therefore provide for additional availability as the facility is paid down, subject in each case to compliance with covenants, eligible collateral and applicable terms and conditions during the advance period (dollars in thousands): Advance Period Expiration; Borrowing Borrowing Limit as of Outstanding Availability as Maturity as Borrowing Rate; March 31, Balance as of of March 31, of March 31, Rate as of March 2020 March 31, 2020 2020 2020 31, 2020 Liberty Bank June 2020; Prime Rate; floor Facility$ 50,000 $ 23,184 $ 26,816 March 2023 of 4.00%; 4.75% September 30 day NBA Receivables 2020; LIBOR+2.75%;floor Facility 70,000 29,033 40,967 March 2025 of 3.50%;3.74% September 2021; 30 day Pacific Western September LIBOR+2.75% to Facility 40,000 28,256 11,744 2024 3.00%; 3.87% December 2022; 30 day LIBOR or KeyBank/DZ December CP +2.25%; 3.29%
Purchase Facility 80,000 60,899 19,101 2024 (1)
June 2020;
Quorum Purchase December
Facility 50,000 39,092 10,908 2032 (2)
$ 290,000 $ 180,464 $ 109,536 (1) Borrowings accrue interest at a rate equal to either LIBOR, a "Cost of Funds"
rate or commercial paper ("CP") rates plus 2.25%. As described in further
detail below, the interest rate will increase to the applicable rate plus
3.25% upon the expiration of the advance period.
(2) Of the amounts outstanding under the Quorum Purchase Facility at
2020,
million accrues interest at a fixed rate of 4.95%,
interest at a fixed rate of 5.0%,
rate of 5.10%, and
See Note 9 under Item 1 included in this report and Note 13 to the Company's consolidated financial statements included in the 2019 Annual Report for additional information with respect to Bluegreen's receivable-backed notes payable facilities.
Other Credit Facilities and Outstanding Notes Payable
Fifth Third Syndicated Line of Credit and Fifth Third Syndicated Term Loan.
In
December 2016 , Bluegreen entered into a$100.0 million syndicated credit facility withFifth Third Bank , as administrative agent and lead arranger, and certain other bank participants as lenders. InOctober 2019 , Bluegreen amended the facility and increased the facility to$225.0 million . The amended facility includes a$100.0 million term loan (the "Fifth Third Syndicated Term Loan") with quarterly amortization requirements and a$125.0 million revolving line of credit (the "Fifth Third Syndicated Line-of-Credit"). Borrowings under the amended facility generally bear interest at LIBOR plus 2.00% - 2.50%, depending on Bluegreen's leverage ratio, are collateralized by certain of Bluegreen's VOI inventory, sales center buildings, management fees, short-term receivables and cash flows from residual interests relating to certain term securitizations, and will mature inOctober 2024 . As ofMarch 31, 2020 , outstanding borrowings under the facility totaled$207.5 million , including$97.5 million under the Fifth Third Syndicated Term Loan with an interest rate of 3.61% and$110.0 million under the Fifth Third Syndicated Line of Credit with an interest rate of 3.32%. As ofMarch 31, 2020 , Bluegreen had availability of approximately$15.0 million under the Fifth Third Syndicated Line of Credit.
Bluegreen also has outstanding obligations under various credit facilities and securitizations that have no remaining future availability as the advance periods have expired.
See Note 9 under Item 1 included in this report and Note 13 to the Company's
consolidated financial statements included in the 2019 Annual Report for
additional information with respect to Bluegreen's other credit facilities and
outstanding notes payable.
55
--------------------------------------------------------------------------------
© Edgar Online, source
