|12 Months Ended|
Dec. 31, 2020
BBX Capital, Inc. and its subsidiaries (the “Company” or, unless otherwise indicated or the context otherwise requires, “we,” “us,” or “our”) is a Florida-based diversified holding company. BBX Capital, Inc. as a standalone entity without its subsidiaries is referred to as “BBX Capital.”
Spin-Off from BVH
Prior to September 30, 2020, the Company was a wholly owned subsidiary of Bluegreen Vacations Holding Corporation (“Parent” or “BVH”), which was formerly known as BBX Capital Corporation. Prior to September 30, 2020, BVH was a Florida-based diversified holding company whose principal holdings were Bluegreen Vacations Corporation (“Bluegreen”), BBX Capital Real Estate LLC (“BBX Capital Real Estate” or “BBXRE”), BBX Sweet Holdings, LLC (“BBX Sweet Holdings”), and Renin Holdings, LLC (“Renin”). On September 30, 2020, BVH completed the spin-off of the Company, which separated BVH’s business, activities, and investments into two separate, publicly-traded companies: (i) BVH, which continues to hold its investment in Bluegreen, and (ii) BBX Capital, which continues to hold all of BVH’s former businesses and investments, including BBX Capital Real Estate, BBX Sweet Holdings, and Renin. The spin-off was consummated on September 30, 2020 with the distribution by BVH to its shareholders all of the outstanding shares of BBX Capital’s Common Stock through the distribution of one share of BBX Capital’s Class A Common Stock for each share of its Class A Common Stock held on September 22, 2020, the record date for the distribution, and one share of BBX Capital’s Class B Common Stock for each share of its Class B Common Stock held on the record date. Accordingly, as of the close of business on September 30, 2020, BVH ceased to have an ownership interest in the Company, and BVH’s shareholders who received shares of BBX Capital’s Common Stock in the distribution became shareholders of the Company following the spin-off.
In connection with the spin-off, BBX Capital was converted from a Florida limited liability company into a Florida corporation and changed its name from BBX Capital Florida LLC to BBX Capital, Inc., and BVH changed its name from BBX Capital Corporation to Bluegreen Vacations Holding Corporation. In addition, in connection with the spin-off, BVH issued a $75.0 million note payable to the Company that accrues interest at a rate of 6% per annum and requires payments of interest on a quarterly basis. Under the terms of the note, BVH has the option in its discretion to defer interest payments under the note, with interest on the entire outstanding balance thereafter to accrue at a cumulative, compounded rate of 8% per annum until such time that BVH is current on all accrued payments under the note, including deferred interest. All outstanding amounts under the note become due and payable on September 30, 2025 or earlier upon certain other events.
In October 2020, BBX Capital’s Class A Common Stock commenced trading on the OTCQX Best Market under the ticker symbol “BBXIA,” and its Class B Common Stock commenced trading on the OTC Pink Market under the ticker symbol “BBXIB.”
The Company’s principal holdings include BBX Capital Real Estate, BBX Sweet Holdings, and Renin.
BBX Capital Real Estate 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 rental apartment communities, single-family master-planned for sale housing communities, and commercial properties located primarily in Florida. In addition, BBX Capital Real Estate owns a 50% equity interest in The Altman Companies, LLC (the “Altman Companies”), a developer and manager of multifamily rental apartment communities, and manages the legacy assets acquired in connection with the Company’s sale of BankAtlantic in 2012, including portfolios of loans receivable, real estate properties, and judgments against past borrowers.
BBX Sweet Holdings
BBX Sweet Holdings is engaged in the ownership and management of operating businesses in the confectionery industry, including Hoffman’s Chocolates, a retailer of gourmet chocolates with retail locations in South Florida, and Las Olas Confections and Snacks, a manufacturer and wholesaler of chocolate and other confectionery products. BBX Sweet Holdings also owns approximately 93% of the equity interests in IT’SUGAR, a specialty candy retailer whose products include bulk candy, candy in giant packaging, and licensed and novelty items. Prior to September 22, 2020, the Company consolidated the financial statements of IT’SUGAR and its subsidiaries as a result of its 93% ownership of IT’SUGAR. However, as further discussed in Note 23, on September 22, 2020, IT’SUGAR and its subsidiaries filed voluntary petitions to reorganize under Chapter 11 of Title 11 of the U.S. Code (the “Bankruptcy Code”) in the U.S. Bankruptcy Court for the Southern District of Florida (the “Bankruptcy Court”) (the cases commenced by such filings, the “Bankruptcy Cases”), and the Company deconsolidated IT’SUGAR as a result of the filings and the uncertainties surrounding the nature, timing, and specifics of the bankruptcy proceedings.
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 in Canada and three manufacturing and distribution facilities in the United States and Canada. In addition to its own manufacturing, Renin also sources various products and raw materials from China, Brazil, and certain other countries. In October 2020, Renin acquired substantially all of the assets and assumed certain of the liabilities of Colonial Elegance, Inc (“Colonial Elegance”), as further described in Note 3. Headquartered in Montreal, Canada, Colonial Elegance is a supplier and distributor of building products, including barn doors, closet doors, and stair parts, and its customers include various big box retailers in the United States and Canada.
During the year ended December 31, 2020, Renin’s total revenues included $63.6 million of trade sales to two major customers and their affiliates and $28.3 million of revenues generated outside the United States. Revenues from one customer of Renin represented $34.2 million, $20.2 million, and $20.7 million of the Company’s total revenues for the years ended December 31, 2020, 2019 and 2018, respectively, which represented 19.7% of the Company’s total revenues for the year ended December 31, 2020 and nearly 10% of the Company’s revenues for the years ended December 31, 2019 and 2018, while revenue from a second customer of Renin represented $29.4 million of the Company’s total revenues for the year ended December 31, 2020, which represented 17.0% of the Company’s revenues during the year ended December 31, 2020. Renin’s long-lived assets located outside the United States, which includes properties and equipment and right of use assets, had a carrying amount of $9.6 million as of December 31, 2020.
In addition to its principal holdings, the Company has investments in other operating businesses, including a restaurant located in South Florida that was acquired through a loan foreclosure and an insurance agency, and previously operated pizza restaurant locations as a franchisee of MOD Super Fast Pizza (“MOD Pizza”). As further described in Note 22, the Company’s operations as a franchisee of MOD Pizza are presented as discontinued operations in the Company’s consolidated financial statements.
Basis of Presentation
The accompanying consolidated financial statements of the Company include the consolidated financial statements of BBX Capital and its subsidiaries, including BBX Capital Real Estate, BBX Sweet Holdings, and Renin, as well as certain subsidiaries in which ownership was transferred from Parent in connection with the spin-off transaction described above. However, for the periods prior to the spin-off on September 30, 2020, the accompanying consolidated financial statements reflect the combined financial statements of these entities, have been derived from the accounting records of Parent and these companies, and should be read with the accompanying notes thereto. Further, the consolidated financial statements for the periods prior to the spin-off on September 30, 2020 do not necessarily reflect what the results of operations, financial position, or cash flows would have been had the Company been a separate entity nor are they indicative of the future results of the Company.
For the periods prior to the spin-off on September 30, 2020, the majority of the assets, liabilities, revenues, expenses, and cash flows of the Company have been identified based on the legal entities included in the spin-off transaction. However, the historical costs and expenses reflected in the financial statements for the periods prior to the spin-off also include an allocation for certain corporate and shared service functions that were historically provided by Parent prior to the spin-off. These expenses have been allocated to the Company on the basis of direct usage when identifiable, while the remainder of the expenses, including costs related to executive compensation, were allocated primarily on a pro-rata basis of the combined revenues and equity in earnings of unconsolidated joint ventures of Parent and its subsidiaries. However, the allocation of corporate expenses excludes costs specific to the spin-off and the acceleration of compensation expense in connection with the spin-off. The Company believes that the assumptions underlying the consolidated financial statements for the periods prior to the spin-off, including the assumptions regarding the allocation of general corporate expenses from the Parent, are reasonable. However, the consolidated financial statements may not include all of the actual expenses that would have been incurred had the Company been operating as a standalone company during the applicable periods presented. Actual costs that would have been incurred if the Company operated as a standalone company would depend on multiple factors, including organizational structure, technology infrastructure, and strategic direction. In addition, following the spin-off on September 30, 2020, the Company also incurs additional costs associated with being a public company that are not reflected in the accompanying consolidated financial statements for periods prior to September 30, 2020.
Impact of the COVID-19 Pandemic
The COVID-19 pandemic has resulted in an unprecedented disruption in the U.S. and global economies and the industries in which the Company operates due to, among other things, (i) government ordered “shelter in place” and “stay at home” orders and advisories, travel restrictions, and restrictions on business operations, (ii) government guidance and restrictions with respect to travel, public accommodations, social gatherings, and related matters, and (iii) the general public’s reaction to the pandemic. 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 year ended December 31, 2020, primarily with respect to BBX Sweet Holdings. 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 has been, and is expected to continue to be, material. Furthermore, although the duration and severity of the effects of the pandemic are uncertain, 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 or 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 holdings and management’s efforts to mitigate the effects of the pandemic has varied, BBX Capital and its subsidiaries have sought to take steps to manage expenses through cost saving initiatives and reductions in employee head count and actions to increase liquidity and strengthen the Company’s financial position, including reducing planned capital expenditures. As of December 31, 2020, the Company’s consolidated cash balances were $90.0 million.
Although BBXRE’s operations were impacted by the COVID-19 pandemic during 2020 and there is no assurance that they will not be impacted in the future, BBXRE’s operations are not currently being significantly impacted by the pandemic.
Following the initial outbreak of COVID-19 in March 2020, construction activities continued at BBXRE’s existing projects, while sales activities at BBXRE’s single-family for sale housing developments and rental activities at its multifamily apartment developments were temporarily impacted. Further, the effects of the pandemic, including economic uncertainty generally and in the real estate and credit markets in particular, increased uncertainty relating to the expected timing and pricing of sales of its current multifamily apartment developments and the expected timing and financing of new multifamily apartment developments. However, throughout the remainder of 2020 and to date in 2021, BBXRE has experienced a progressive recovery in its operations, which management believes is primarily attributable to demand for single-family and multifamily apartment housing in many of the markets in Florida in which BBXRE operates. In particular, sales at its single-family home developments and leasing and rent collections at its multifamily apartment developments have returned to pre-pandemic levels in most (but not all) locations. In addition, while the sale of existing projects and the commencement of new projects were delayed in 2020 as a result of a temporary decline in investment activity, BBXRE believes that there has generally been a recovery in investor demand for the acquisition of stabilized multifamily apartment communities and the availability of financing of debt and equity capital for new multifamily apartment developments.
However, the pandemic has nevertheless resulted in significant uncertainty in the overall economy and real estate and credit markets, and an increase in COVID-19 cases or the emergence of variant coronavirus strains could result in further disruptions to the U.S. and global economies. As a result, there is no assurance that the real estate market will not be materially adversely impacted by the pandemic or otherwise, that sales prices of single-family homes will not materially decline, that rents will be paid when due or at all, or that market rents will not materially decline. Further, while government efforts to delay or forestall evictions and the availability of judicial remedies have not to date materially impacted BBXRE’s operations, they may in the future have an adverse impact on both market values and BBXRE’s operating results. In addition, the effects of the pandemic may impact the costs of developing and operating BBXRE’s real estate assets, including, but not limited to, an increase in commodity and labor prices and property insurance costs as compared to pre-pandemic levels, which could also have an adverse impact on market values and BBXRE’s operating results. BBXRE will continue to monitor economic and market conditions and may recognize impairment losses in future periods as a result of various factors, including, but not limited to, material declines in overall real estate values, sales prices for single-family homes, and/or rental rates for multifamily apartments.
Further, as it specifically relates to the Altman Companies, the effects of the pandemic, including a prolonged economic downturn, high unemployment, the expiration of or a decrease in government benefits to individuals, and government-mandated moratoriums on tenant evictions, could ultimately have a longer term and more significant impact on rental rates, occupancy levels, and rent collections, including an increase in tenant delinquencies and/or requests for rent abatements. These effects would impact the amount of rental revenues generated from the multifamily apartment communities sponsored and managed by the Altman Companies, the extent of management fees earned by the Altman Companies, and the ability of the related joint ventures to stabilize and successfully sell such communities. Furthermore, a decline in rental revenues at developments sponsored by the Altman Companies could require it, as the sponsor and managing member, to fund operating shortfalls in certain circumstances. In addition, the effects of the pandemic may impact the costs of developing and operating multifamily apartment communities, including, but not limited to, an increase in commodity prices as a result of, among other things, supply chain disruptions and material shortages, labor prices, and property insurance costs as compared to pre-pandemic levels, which could also have an adverse impact on market values and the Altman Companies’ operating results. Further, the impact of the COVID-19 pandemic on economic conditions in general, including uncertainty regarding the severity and duration of such impact, may ultimately have a significant adverse impact on capitalization rates and real estate values in future periods, particularly if there is a prolonged economic downturn. If there is a significant adverse impact on real estate values as a result of lower rental revenues, higher capitalization rates, or otherwise, 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, if at all, which may impact the profits expected to be earned by BBXRE from its investment in the managing member of such projects and the ability of the joint ventures to repay or refinance construction loans on such projects and could result in the recognition of impairment losses related to BBXRE’s investment in such projects. 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 Lake Willis, which could result in increased operating losses at the Altman Companies due to a decline in development, general contractor, and management fees, the recognition of impairment losses by BBXRE and/or the Altman Companies related to their current investments in predevelopment expenditures and land acquired for development, and the recognition of impairment losses related to BBXRE’s overall investment in the Altman Companies, as the profitability and value of the Altman Companies is directly correlated with its ability to source new development opportunities.
With respect to BBXRE’s Beacon Lake Master Planned Development, the effects of the COVID-19 pandemic on the economy and demand for single-family housing remain uncertain and could result in requests by homebuilders to extend the timing of their purchase of developed lots from BBXRE and/or failure of the homebuilders to meet their obligations under the contracts with BBXRE to purchase developed lots. In addition, a decline in home prices as a result of the economic impacts associated with the COVID-19 pandemic could result in a decrease in contractually owed contingent revenues expected to be earned by BBXRE in connection with sales of homes by homebuilders on developed lots previously sold to them, as well as a decrease in the expected sales prices for the unsold lots comprising the remainder of the Beacon Lakes Community. Although BBXRE does not currently expect that there will be a significant decrease in the sales prices or fair value of its unsold lots, a significant decline in the demand and pricing for single-family homes could have such an effect and result in the recognition of impairment losses in future periods.
As a result of the above factors, BBXRE’s results of operations and financial condition may be materially adversely impacted by the effects of the pandemic in future periods.
BBX Sweet Holdings
BBX Sweet Holdings has been materially adversely impacted by the effects of the COVID-19 pandemic, primarily with respect to the impact on IT’SUGAR.
As further described in Note 23, in March 2020, IT’SUGAR closed all of its retail locations and furloughed all store employees and the majority of its corporate employees as a result of various factors, including government-mandated closures and Center for Disease Control and the World Health Organization advisories in connection with the COVID-19 pandemic, and between May 2020 and September 2020, it reopened nearly all of its approximately 100 locations that were open prior to the pandemic as part of a phased reopening plan. IT’SUGAR ceased paying rent to the landlords of its closed locations in April 2020 and engaged in negotiations with its landlords for rent abatements, deferrals, and other modifications for both the period of time that the locations were closed and the subsequent period that the locations have been opened and operating under conditions which have been affected by the pandemic. In addition to its unpaid rental obligations, IT’SUGAR ceased paying various outstanding obligations to its vendors.
Although IT’SUGAR was able to reopen its retail locations and received an advance of $2.0 million from a subsidiary of BBX Capital (as further described in Note 11), IT’SUGAR was unable to maintain sufficient liquidity to sustain its operations as (i) it was unable to obtain significant rent abatements or deferrals from its landlords and amended payment terms from its vendors and (ii) its sales volumes had not sufficiently improved and stabilized following the reopening of its locations. As a result, on September 22, 2020, IT’SUGAR and its subsidiaries filed voluntary petitions to reorganize under Chapter 11 of the Bankruptcy Code in the Bankruptcy Court. As a result of IT’SUGAR filing the Bankruptcy Cases and the uncertainties surrounding the nature, timing, and specifics of the bankruptcy proceedings, the Company deconsolidated IT’SUGAR as of September 22, 2020 and recognized a loss of $3.3 million during the year ended December 31, 2020 in connection with the deconsolidation. Prior to the deconsolidation of IT’SUGAR, the Company also recognized $25.3 million of impairment losses during the year ended December 31, 2020 related to IT’SUGAR’s goodwill and long-lived assets as a result of the effects of the pandemic, including the recognition of a goodwill impairment loss of $20.3 million based on a decline in the estimated fair value of IT’SUGAR.
See Note 23 for additional information, including risks and uncertainties, related to the impacts of the COVID-19 pandemic and Bankruptcy Cases on IT’SUGAR and Notes 8, 9, and 10 for additional information with respect to the Company’s recognition of impairment losses related to IT’SUGAR.
As of December 31, 2020, Renin’s had not been significantly impacted by the COVID-19 pandemic, and it has continued to operate both of its manufacturing and distribution facilities, source various products and raw materials from China, Brazil, and certain other countries, and sell its products through various channels. However, as a result of the effects of the pandemic, Renin has experienced increased costs related to the shipment of products and raw materials, which has impacted its product costs and gross margin, and Renin expects this increase in costs to continue and worsen during 2021. Although Renin’s operations had not been significantly impacted by the pandemic as of December 31, 2020, the effects of the pandemic, including a recessionary economic environment, could have a significant adverse impact on Renin’s results of operations and financial condition in future periods, particularly if an economic downturn is prolonged in nature and impacts consumer demand or the effects of the pandemic result in material disruptions in the supply chains for its products and raw materials, including additional delays in the production and shipment of products and raw materials from foreign suppliers and continued increases in shipping costs. Further, while Renin has begun to diversify its supply chain and transfer the assembly of certain products from foreign suppliers to its own manufacturing facilities, Renin continues to source products and raw materials from China. As a result, disruptions in its supply chain from China as a result of various factors, including closures or delays in the supply chain, could have a material impact on Renin’s cost of product and ability to meet customer demand.
The entire disclosure for the general note to the financial statements for the reporting entity which may include, descriptions of the basis of presentation, business description, significant accounting policies, consolidations, reclassifications, new pronouncements not yet adopted and changes in accounting principles.
Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef