NOTE 5.

LAND AND DEVELOPMENT COSTS AND SUBSURFACE INTERESTS

Land and development costs at December 31, 2015 and 2014, are summarized as follows:

	December 31,
	2015		2014
Undeveloped Land ($11,329,574 Related to Consolidated VIE as of December 31, 2015)	$	11,631,354	$	301,780
Developed Land and Development Costs		27,105,511		22,903,969
Land, Timber, and Subsurface Interests		14,669,155		14,865,515
Total Land and Development Costs	$	53,406,020	$	38,071,264

NOTE 5.

LAND AND DEVELOPMENT COSTS AND SUBSURFACE INTERESTS (continued)

During the year ended December 31, 2015, the Company acquired, through a real estate venture with an unaffiliated third party institutional investor, an interest in approximately six acres of vacant beachfront property located in Daytona Beach, Florida as more fully described in Note 21 “Variable Interest Entity.”

During the year ended December 31, 2015, a total of approximately 114.03 acres were sold for approximately $22.5 million as described below:

On June 1, 2015, the Company sold approximately 3.02 acres of land located in Daytona Beach, Florida on the south side of LPGA Boulevard, just east of Clyde Morris Boulevard, at a sales price of $505,000, or approximately $167,000 per acre, for a gain of approximately $476,000.

On June 17, 2015, the Company sold approximately 0.88 acres of land located in Highlands County, at a sales price of $250,000 for a gain of approximately $223,000.

On December 18, 2015, the Company sold approximately 14.98 acres of land located in Daytona Beach, Florida on the east side of Interstate 95 near the northeast corner of the intersection of LPGA Boulevard and Williamson Boulevard. The land was sold to an affiliate of Integra Land Company at a sales price of approximately $2.4 million, or approximately $159,000 per acre, for a gain of approximately $2.3 million.

On December 29, 2015, the Company sold approximately 0.86 acres of land located in Daytona Beach, Florida at a sales price of approximately $30,000 for a gain of approximately $20,000.

Sales within the Tomoka Town Center, which consists of approximately 180 developable acres located in Daytona Beach, Florida east of Interstate 95 and south of LPGA Boulevard, included the following:

Land Tract	Date Closed	No. of Acres		Sales Price		Avg. Sales Price per Acre		Gain Recognized in 2015		Deferred Revenue⁽¹⁾
Tanger Outlet	11/12/2015		38.93	$	9,700,000	$	249,165	$	2,793,419	$	6,327,421
Sam's Club	12/23/2015		18.10		4,500,000		248,619		1,278,747		2,881,795
NADG - First Parcel	12/29/2015		37.26		5,168,335		138,710		1,421,303		3,447,557
Total Tomoka Town Center Sales			94.29	$	19,368,335	$	205,412	$	5,493,469	$	12,656,773

⁽¹⁾ Deferred revenue to be recognized on the percentage-of-completion basis as remaining infrastructure costs are incurred. See Note 19 "Commitments and Contingencies" for a description of the commitments related to the remaining infrastructure costs to be incurred

The NADG – First Parcel sale represents the first of multiple transactions contemplated under a single purchase and sale agreement with an affiliate of the North American Development Group (the “NADG Agreement”). The NADG Agreement provides NADG with the ability to acquire portions of the remaining acreage under contract (the “Option Parcels”) in multiple, separate, transactions through 2018 (the “Option Period”). The Option Parcels represent a total of approximately 85.95 acres and total potential proceeds to the Company of approximately $22.2 million. Pursuant to the NADG Agreement, NADG can close on any and all of the Option Parcels at any time during the Option Period with the first of the Option Parcels contemplated to close in the first half of 2016, should certain conditions be met. The NADG Agreement also establishes a price escalation that would be applied to any of the Option Parcels that are acquired after January 2017, and an additional higher price escalation that would be applied to any Option Parcels acquired in 2018.

NOTE 5.

LAND AND DEVELOPMENT COSTS AND SUBSURFACE INTERESTS (continued)

Pursuant to the agreements with Tanger, Sam’s Club and NADG (the “Town Center Sales Agreements”), which together represent the potential sale of the developable acreage in the Town Center, the Company is responsible for completion of certain infrastructure improvements (the “Infrastructure Work”) at the 235 acre Town Center. The Infrastructure Work is currently estimated to cost between $10.0 million and $13.0 million and is expected to be completed on or around the end of the third quarter of 2016. In connection with the transaction with Tanger, the Company expects to receive approximately $4.5 million for the portion of the Infrastructure Work attributable to the Tanger property from the Tomoka Town Center Community Development District (the “Town Center District”), a special purpose governmental entity, based upon the achievement of certain milestones related to the Infrastructure Work and the Tanger project, and when the Company dedicates the Infrastructure Work to the Town Center District. The payment of the $4.5 million will be recognized into revenue when earned. The Company expects to receive payments, in addition to the sales proceeds from each of the Town Center Sales Agreements (the “Incremental Payments”), including certain fixed annual payments over the next ten years from Tanger and Sam’s, which annual amounts are or would be included in the estimated gains from the transactions. In aggregate, the majority of the Incremental Payments and the payment received from the Town Center District are expected to largely offset the cost of the Infrastructure Work. As a result of our responsibility for completing the Infrastructure Work we have applied the percentage of completion accounting methodology to the Tanger Outlet, Sam’s Club and NADG – First Parcel transactions whereby we will recognize the revenue deferred for each transaction as the Infrastructure Work is completed. The Incremental Payments recorded as receivables as of December 31, 2015 totaled approximately $1.3 million and are included as a part of Other Assets on the consolidated balance sheet.

The following table provides a reconciliation of the land transactions closed (as of December 31, 2015) or under contract for all the developable parcels of the Tomoka Town Center (Sales price and estimated infrastructure reimbursement presented in $000’s) and the reimbursement amounts for the Infrastructure Work from each buyer:

Land Tract	No. of Acres		Sales Price (In $000's)		Sales Price per Acre		Infrastructure Reimbursement (in $000s)
Tanger Outlet [Closed] ⁽¹⁾		38.93	$	9,700	$	249,165	$	5,500
Sam's Club [Closed] ⁽²⁾		18.10		4,500		248,619		1,100
NADG - First Parcel [Closed]⁽³⁾		37.26		5,168		138,710		1,800
NADG - Option Parcels ⁽⁴⁾		85.95		22,195		258,237		4,100
Total Developable Area		180.24		41,564		230,602		12,500
Common Area ⁽⁵⁾		54.32	N/A		N/A			(12,500	)
Total Town Center		234.56	$	41,564	$	177,199	$	-

⁽¹⁾ Includes $4.5 million in incentives from community development district, with remainder to be paid in equal installments over 10 years;
⁽²⁾ Infrastructure reimbursement, pursuant to contract, paid in equal installments over 10 years;
⁽³⁾ Infrastructure reimbursement due upon the later of i) Infrastructure Work completion or, ii) August 31, 2016;
⁽⁴⁾ Under Contract. Sales price reflects current contract price; price escalations would occur should any of the transactions close in 2017 and 2018. Infrastructure reimbursements for each Option Parcel occurs upon later of i) transaction closing, ii) Infrastructure Work completion or, iii) August 31, 2016; and
⁽⁵⁾ Includes common area for the Town Center association and land dedicated for public use, both to be conveyed by the Company.

NOTE 5.

LAND AND DEVELOPMENT COSTS AND SUBSURFACE INTERESTS (continued)

During the year ended December 31, 2014, a total of approximately 99.66 acres were sold for approximately $8.8 million as described below:

On February 18, 2014, the Company sold approximately 3.1 acres to Halifax Humane Society, Inc. for $391,500, or approximately $128,000 per acre, for a gain of approximately $347,000. This parcel is located on LPGA Boulevard, just west of I-95 in Daytona Beach, Florida and is adjacent to an existing property owned by Halifax Humane Society, Inc.

On August 15, 2014, the Company sold approximately 75.6 acres of land, located on the east side of Interstate 95, for development of a distribution center for approximately $7.8 million, or approximately $103,000 per acre, for a gain at closing of approximately $3.9 million with an additional gain of approximately $324,000 to be recognized on a percentage-of-completion basis as certain road improvements are completed through the estimated completion date of February 2015. As of December 31, 2014, approximately $277,000 of the gain had been recognized. During the year ended December 31, 2015 the remaining gain of approximately $59,000 was recognized. In addition, during the year ended December 31, 2015 the Company received two payments totaling approximately $1.0 million from Volusia County, based upon certain milestones being achieved including when the distribution center received its certificate of occupancy and the date when a specified numbers of jobs had been created at the buyer’s operations. The total gain recognized to date on this sale totals approximately $5.2 million. One remaining incentive for approximately $113,000 is yet to be earned and received from Volusia County relating to the final milestone being achieved when a specified number of jobs has been created at the buyer’s operations. The Company expects to receive this final payment in the first half of 2016 which would bring the total gain on the sale to approximately $5.3 million.

On October 30, 2014, the Company sold approximately 20.96 acres of land, which presented certain issues for development involving wetlands mitigation, to Victor Indigo Lakes, L.L.C. for $625,000, or approximately $30,000 per acre, for a gain of approximately $552,000. The land is located along the east side of Williamson Boulevard across from Indigo Lakes, in Daytona Beach, Florida.

During the year ended December 31, 2013, a total of 11.655 acres were sold for approximately $3.0 million as described below:

On December 4, 2013, the Company sold approximately 3.405 acres to RaceTrac Petroleum, Inc. (“RaceTrac”) for $1.3 million or approximately $382,000 per acre. We recognized a loss on the sale of approximately $244,000 which is primarily attributable to a higher basis in the property as a result of the Company having repurchased this land in 2010. The parcel sold to RaceTrac is part of Williamson Crossing, an approximately 23-acre, proposed commercial development located at the southeast corner of Williamson and LPGA Boulevards in Daytona Beach. RaceTrac is the first occupant for the Williamson Crossing site. In connection with the transaction, the Company agreed to reimburse RaceTrac up to $976,500 over five years for road improvements and the other costs associated with bringing multiple ingress/egress points to the entire Williamson Crossing site. As of December 31, 2015 and 2014, $283,500 of cash is held in escrow related to the improvements and is classified as restricted cash on the consolidated balance sheets. The Company anticipates that all or a portion of these reimbursable costs will be shared by other owners as parcels in the Williamson Crossing development are sold and additional businesses locate to the site. Based on the book basis of the remaining repurchased acres relative to the price per acre in the RaceTrac transaction, the Company determined that no adjustment for impairment was required as of December 31, 2013.

On December 19, 2013, the Company sold approximately 2.02 acres to Intracoastal Bank. The land was sold for $640,000 or approximately $317,000 per acre for a gain of approximately $581,000. This parcel is located on LPGA Boulevard, east of I-95 in Daytona Beach, Florida, between the Vince Carter’s and Wendy’s restaurants.

On December 20, 2013, the Company sold approximately 6.23 acres to CarMax Auto Super Stores, Inc. (“CarMax”) for $1.05 million, or approximately $168,500 per acre, for a total loss of approximately $1.0 million. We recognized a loss of approximately $416,000 on the sale. In the second quarter of 2013 the Company recognized an impairment loss of approximately $616,000 which was based on the contract price in a transaction that had been executed for approximately 3.21 acres of the total 6.23 acres sold to CarMax. That transaction was terminated prior to closing. The basis in these acres was higher than is typical for the Company’s land holdings as this land had been reacquired through foreclosure in 2009.

The Company owns full or fractional subsurface oil, gas, and mineral interests in approximately 500,000 “surface” acres of land owned by others in 20 counties in Florida. The Company leases its interests to mineral exploration firms for exploration. Our subsurface operations consist of revenue from the leasing of exploration rights and in some instances additional revenues from royalties applicable to production from the leased acreage.

NOTE 5.

LAND AND DEVELOPMENT COSTS AND SUBSURFACE INTERESTS (continued)

During November 2015, the Company hired Lantana Advisors, a subsidiary of SunTrust, to evaluate the possible sale of its approximately 500,000 acres of mineral interests located in the State of Florida, including royalty interests in two operating oil wells in Lee County, Florida and its interests in the recently renewed oil exploration lease with Kerogen Florida Energy Company LP. Currently, the Company anticipates receiving bids from interested parties during the first quarter of 2016. There can be no assurances regarding the likelihood or timing of a sale of all or a portion of the subsurface interests, or the transaction terms, including price, should a transaction occur.

During 2011, an eight-year oil exploration lease was executed. The lease calls for annual lease payments which are recognized as revenue ratably over the respective twelve month lease periods. In addition, non-refundable drilling penalty payments are made as required by the drilling requirements in the lease which are recognized as revenue when received. Cash payments for both the annual lease payment and the drilling penalty, if applicable, are received in full on or before the first day of the respective lease year.

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

Lease Year	Acreage (Approximate)		Florida County	Lease Payment ⁽¹⁾		Drilling Penalty ⁽¹⁾
Lease Year 1 - 9/23/2011 - 9/22/2012		136,000	Lee and Hendry	$	913,657	$	-
Lease Year 2 - 9/23/2012 - 9/22/2013		136,000	Lee and Hendry		922,114		-
Lease Year 3 - 9/23/2013 - 9/22/2014		82,000	Hendry		3,293,000		1,000,000
Lease Year 4 - 9/23/2014 - 9/22/2015		42,000	Hendry		1,866,146		600,000
Lease Year 5 - 9/23/2015 - 9/22/2016		25,000	Hendry		1,218,838		175,000
Total Payments Received to Date				$	8,213,755	$	1,775,000

⁽¹⁾Cash payment for the Lease Payment and Drilling Penalty is received on or before the first day of the lease year. The Drilling Penalty is recorded as revenue when received, while the Lease Payment is recognized on a straight-line basis over the respective lease term. See separate disclosure of the revenue per year below.

The terms of the lease state the Company will receive royalty payments if production occurs, and may receive additional annual rental payments if the lease is continued in years six through eight. The lease is effectively eight one-year terms as the lessee has the option to terminate the lease annually or modify the acres subject to the lease.

Lease income generated by the annual lease payments is recognized on a straight-line basis over the guaranteed lease term. For the years December 31, 2015, 2014, and 2013, lease income of approximately $1.7 million, $2.9 million, and $1.6 million was recognized, respectively. There can be no assurance that the oil exploration lease will be extended beyond the expiration of the current term of September 22, 2016 or, if renewed, on similar terms or conditions.

During the years ended December 31, 2015, 2014, and 2013, the Company also received oil royalties from operating oil wells on 800 acres under a separate lease with a separate operator. Production volume from these oil wells was 62,745 barrels in 2015, 64,835 barrels in 2014 and 88,782 barrels in 2013, resulting in revenues received from oil royalties of approximately $68,000, $198,000 and $268,000, respectively.

The Company is not prohibited from the disposition of any or all of its subsurface interests. Should the Company complete a transaction to sell all or a portion of its subsurface interests, the Company may utilize the like-kind exchange structure in acquiring one or more replacement investments such as income-producing properties. The Company may release surface entry rights or other rights upon request of a surface owner for a negotiated release fee based on a percentage of the surface value. Cash payments for the release of surface entry rights totaled approximately $995,000, $4,000, and $120,000 during the years ended December 31, 2015, 2014, and 2013, respectively, which is included in revenue from real estate operations. In conjunction with the release of the Company’s surface entry rights related to approximately 1,400 acres in Lee County, Florida, for a cash payment of approximately $920,000 during the fourth quarter of 2015, the Company also received the 50% interest in the subsurface rights of those acres, which the Company did not previously own, for a fair value of approximately $68,000, which is also included in revenue from real estate operations.

In addition, the Company generated revenue of approximately $73,000 and $119,000 during the years ended December 31, 2015 and 2014, respectively, from fill dirt excavation agreements. There was no fill dirt revenue during the year ended December 31, 2013.