BFC FINANCIAL CORP

IT’SUGAR is a specialty candy retailer which operates approximately 100 retail locations, which include a mix of high-traffic resort and entertainment, lifestyle, mall/outlet, and urban locations in over 25 states and Washington D.C., and its products include bulk candy, candy in giant packaging, and licensed and novelty items. IT’SUGAR has historically utilized a store model for its retail locations that requires a relatively low initial investment, with a goal of shorter payback periods and increased investment returns. However, as a result of trends in retail consumer traffic, IT’SUGAR is currently focused on opening and operating larger stores in select resort and entertainment locations which generally experience higher traffic and sales volume but require a higher initial investment. During 2019, IT’SUGAR continued to invest capital in these types of locations, including Grand Bazaar, a 6,000 square foot location in Las Vegas, Nevada that was opened in June 2019, and a 22,000 square foot, three story candy department store at American Dream, a 3 million square foot shopping and entertainment complex in New Jersey, that was opened in December 2019. In addition, IT’SUGAR is also continuing to evaluate its current retail locations where sales volumes may give rise to early lease termination rights and the potential opportunity to renegotiate lease terms and occupancy costs. For certain underperforming locations where IT’SUGAR does not have early lease termination rights, IT’SUGAR is evaluating potential opportunities to close or sublease such locations. In certain circumstances, IT’SUGAR may determine that it is in its best interest to incur costs to exit a location if the Company believes that the closure of such locations will improve IT’SUGAR’s overall operating efficiencies and profitability over the long term.

Our businesses could be materially and adversely affected by widespread public health risks, including the recent outbreak of the coronavirus, which may, among other things, cause disruptions in our supply chains and the demand for our products. Disruptions in supply chains may impact the operations and results of certain of our businesses, including Renin, which has products drop shipped from Asia; the Altman Companies, which utilizes construction materials from outside the United States; and BBX Sweet Holdings, which sources confections and other products, including cacao, globally. To the extent the impact of the coronavirus continues or worsens, our businesses may have difficulty obtaining the materials necessary for the production and packaging of their products and factories which produce products may remain closed for sustained periods of time. A widespread coronavirus outbreak in the United States could cause a decline in the level of leisure travel and Bluegreen’s liquidity will be adversely impacted if there is a tightening of credit or instability in the financial markets, which may adversely affect the number of marketing guests at Bluegreen resorts, resulting in a significant decline in revenues or the closure of resorts. While it is too early to gauge the likely duration or ultimate impact, package sales have declined and trip cancelations have increased since the coronavirus outbreak in the United States. There is no assurance that Bluegreen will be able to finance or sell receivables in the term securitization market on acceptable terms or at all. In addition, our businesses may be impacted by disruptions, which may include, among other things, a decrease in sales associated with traffic, or the closure of stores or other retail or high-traffic locations or malls where our businesses have marketing activities. In addition, candy sales may be adversely impacted by public health concerns. Further, our businesses could be disrupted, and their results adversely impacted, if employees have, or are suspected of having, the coronavirus, as this could require the closure of stores or facilities or for some or all of the employees in a location to be quarantined. The extent to which the coronavirus or any public health issue may impact our results of operations and financial condition cannot be predicted, and will depend on future developments and conditions which are highly uncertain, including the ultimate geographic spread of the coronavirus, the severity of the coronavirus, the duration of the outbreak, and actions taken by governmental authorities to contain the coronavirus or address its impact. 

On March 15, 2018, BVU entered into an Agreement for Purchase and Sale of Assets (“Purchase and Sale Agreement”) with T. Park Central, LLC, O. Park Central, LLC, and New York Urban Ownership Management, LLC (collectively “New York Urban”), which provided for BVU’s purchase of The Manhattan Club inventory over a number of years and the assumption of  the management contract with The Manhattan Club HOA  anticipated to occur in 2021. On October 7, 2019, New York Urban initiated arbitration proceedings against BVU alleging that The Manhattan Club HOA (of which BVU is a member) was obligated to pay an increased management fee to a New York Urban affiliate and that this higher amount would be the benchmark for BVU’s purchase of the management contract under the Purchase and Sale Agreement. New York Urban also sought damages in the arbitration proceedings in excess of $10 million for promissory estoppel and tortious interference. BVU denied New York Urban’s claims and terminated the Purchase and Sale Agreement and the related Security Agreement based on, among other things, New York Urban prematurely initiating arbitration in violation of the Purchase and Sale Agreement. On November 25, 2019, New York Urban sent its own Notice of Termination of the Purchase and Sale Agreement and a separate letter containing an offer to compromise if BVU resigned its position on the Manhattan Club HOA board and permitted New York Urban to enforce its rights under the Security Agreement. On November 29, 2019, BVU accepted the offer. BVU has provided New York Urban with resignations of its members on the Manhattan Club HOA board consistent with the parties’ settlement agreement and believes it has fulfilled all of its legal obligations under the settlement.

As a result of BBXRE’s monetization of a significant number of investments in its portfolio in 2019 and the overall decline in the balance of the legacy asset portfolio, BBXRE expects that its operating profits and income before income taxes will decline in the near term, including a significant decline in equity in net earnings of unconsolidated joint ventures in 2020. In addition, the Altman Companies has historically incurred operating costs in excess of the fees earned from the projects, and its earnings have generally arisen as a result of the promoted equity interests received as the managing member of the projects. As a result, BBXRE is currently focused on leveraging the Altman Companies, as well as BBXRE’s relationships with third party developers, to source investments in new development opportunities with the goal of building a diversified portfolio of real estate investments that generate profits. In addition to the development and sale of multifamily apartment communities, these investment opportunities may also include the development of multifamily apartment communities that will be owned over a long-term hold period and the acquisition of existing multifamily apartment communities which can be renovated and re-leased pursuant to a “value add” strategy to generate sustainable cash flows. Furthermore, while BBXRE’s investments in multifamily apartment communities sponsored by the Altman Companies primarily involve investing in the managing member in the joint ventures that are formed to invest in such projects, BBXRE may also consider opportunistically making increased debt or equity investments in one or more of such projects in lieu of seeking such funding from unaffiliated third parties.

In addition to its principal investments, 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 described below.

In 2016, Food for Thought Restaurant Group (“FFTRG”), a wholly-owned subsidiary of BBX Capital, entered into area development and franchise agreements with MOD Pizza related to the development of up to approximately 60 MOD Pizza franchised restaurant locations throughout Florida. Through 2019, FFTRG had opened nine restaurant locations. As a result of FFTRG’s overall operating performance and the Company’s goal of streamlining its investment verticals, the Company entered into an agreement with MOD Pizza to terminate the area development and franchise agreements and transferred seven of its restaurant locations, including the related assets, operations, and lease obligations, to MOD Pizza during the third quarter of 2019. In addition, the Company closed the remaining two locations and terminated the related lease agreements. In connection with the transfer of the seven restaurant locations to MOD Pizza, the Company recognized an aggregate impairment loss of $4.0 million related to the disposal group, which included property and equipment, intangible assets, and net lease liabilities. In addition, prior to the transaction, the Company previously recognized $2.7 million of impairment losses associated with property and equipment at three restaurant locations. Accordingly, the Company recognized $6.7 million of impairment losses associated with its investment in MOD Pizza restaurant locations during the year ended December 31, 2019.