CTO Realty Growth, Inc. Price & Performance (CTO)

Thank you. I would like to remind everyone that many of our comments today are considered forward looking statements under federal securities laws. The company's actual future results may differ significantly from the matters that in these forward looking statements and we undertake no duty to update these statements. Factors and risks that could cause actual results to differ materially from expectations are disclosed from time to time greater detail in the company's Form 10 ks 10 Q and other SEC filings. Today's call will include certain non GAAP financial measures.

For reconciliation of these non GAAP measures, you should also refer to our earnings release and SEC filings. You can find our SEC filings earnings release, supplemental and most recent investor presentation on our website at ctoreit.com. With that, I will turn the call over to John. Thanks, Bill. 2024 was a year of significant accomplishments towards execution of our strategic business plan, Our robust performance was driven by investment volume and leasing activity that both exceeded expectations and with efficient capital raising, we reported core FFO of $1.88 per share for the year. A record high for CTO and growth of 6% from '20 Beginning with investment activity, in 2020 we completed $331,000,000 of investments at a weighted average yield of 9.3% consisting of $227,000,000 of retail property acquisitions located in our target markets of the Southeast and Southwest and $104,000,000 of structured investments. These amounts include two investments closed in the fourth quarter. In November, we originated a $40,000,000 first mortgage loan for the development of 80,000 square foot retail center anchored by Whole Foods Market located in Atlanta, The loan has an initial term of thirty months an initial fixed interest rate of 12.15%. Additionally, this development neighbors our shopping center known as the Collection at Foresight, and we have the right of first refusal to purchase it.

In December, we acquired Granada Plaza for $17,000,000 expanding our presence in the Tampa market. Granada Plaza is a 74,000 square foot shopping center CTO anchor by a high performing public And it's a densely populated and growing retail market in the Tampa Metro Area. Our investment activity over the full year of 2024 increased our portfolio to 4,700,000 square feet Significantly, we were able to complete our first investment in Charlotte, North Carolina market while further expanding our presence in both Orlando and Tampa. With our growth in 2024, I want to note that our total and we ended the year with significantly reduced leverage and over $200,000,000 of liquidity. Now transitioning to leasing. During the fourth quarter, we signed 68,000 square feet of new leases, renewals and bringing full year leasing activity to more than 450,000 square feet in and average rent of $24.07 per square foot. A comparable lease basis, we signed 352,000 square feet for the full year 2024 at a positive cash lease spread of 23% and an average rent of $23.36 per square foot. Believe that our strong comparable leasing spreads are a further indication of the strong TED demand for our high quality properties within our strategic markets.

Significantly, our signed not open leasing pipeline now stands at $5,200,000 representing almost 6% of in place cash rents. The rent commencement associated with this pipeline will be weighted towards the second half of twenty twenty five Accordingly, we expect to recognize just over 50% of it in 2025 and for 2026 we'll receive the full benefit of it. Moving to recently announced retailer bankruptcies, given that all of our impacted leases were for spaces with meaningfully below market rents and embedded value we have been proactive in working to quickly regain them. Late in the fourth quarter, we successfully worked through the court [indiscernible] four spaces that were occupied by our two big lots, one cons and an American Freight. Furthermore, we are now working on agreements to get possession of our three party city spaces and three Joanne spaces early in 2025. Notably, we already have LOIs or negotiating leases with tenants for majority of these spaces. We believe this is a testament to our favorable markets and locations with drive tenant demand. Based on current lease negotiations, we currently estimate that potential releasing spread for these spaces could be between 4060%. While we are making rapid progress on leases with new tenants, it simply takes time for tenants CTO obtain permits complete their build out and open.

Accordingly, we expect rent from new tenants to commence during 2026.

We are also in negotiation with several anchor tenants for our 10 acres of unveled land adjacent to our shopping center at We are targeting to have this property contribute to earnings by late twenty twenty The leasing opportunity for this property combined with the re leasing and our signed not open pipeline should provide strong tailwinds for 2026 earnings growth.

As we look ahead, our acquisition pipeline is robust and we currently anticipate closing one or two acquisitions in the near term. We're excited about these opportunities and the ability continue our portfolio growth with a high quality investments at attractive yields in 2025. And look forward to providing more information to you soon. And with that, I will now hand the call back over to Phil CTO.

Thanks, John. As John discussed, we had NEXO fourth quarter concluding a strong 2024. Starting with the balance sheet. During the fourth quarter, we raised net proceeds of $33,000,000 at a weighted average price of $19.77 per share which brought our total net proceeds raised under our ATM program to $165,000,000 for the full year a weighted average price of $18.79 per share. To place this in context, the capital we raised represents over 40% of our common equity market capitalization at the beginning of twenty twenty four. This capital helped us to improve net debt to EBITDA by over a full turn ending the year at 6.3 times.

Further, our 2024 ATM activity along with closing $100,000,000 term loan in September of twenty twenty four, provides us with capital to significantly grow the company and importantly ended the year with $222,000,000 of liquidity and a balance sheet to support [indiscernible] In 2025, we do have one debt maturity. Our convertible notes with an outstanding face amount of $51,000,000 and the stated interest rate of 3.78% mature on April 15. Have recently sent notices to the holders of the convertible notes of our election to settle these notes in cash. Accordingly, with the terms of the notes, the cash settlement price is not fully fixed until maturity and will change primarily based on our common share price.

However, for reference purposes, a $20 common share price is equivalent to approximately a $75,000,000 settlement of all the outstanding notes at maturity. Moving to operating results. Core FFO was $14,200,000 for the fourth quarter a $3,300,000 increase compared to the $10,800,000 reported in the fourth quarter of twenty twenty three. On a per share basis, core FFO was $0.46 in the fourth quarter of twenty twenty four, compared to $0.48 in the fourth quarter of twenty twenty three. This change of $0.02 per share is primarily the result of significant reduction in leverage that I discussed earlier. For the full year 2024, Corbus was $1.88 per share compared to $1.77 per share in 2023. Representing 6% growth. Now on the guidance. For 2025, we are establishing a core FFO range of $1.8 to $1.86 per share and AFFO range of $1.93 to $1.98 per share. The assumptions that support our guidance are detailed in our earnings press release but I would like to provide additional context regarding two matters. First, selling our convertible notes for cash will cost due to the settlement price being at a premium to the face amount and rolling the relatively low coupon rate of the convertible notes, our revolving credit facility rate.

Second, Page eight of our updated investor presentation posted last night includes a summary of the 10 spaces John discussed earlier on the call.

Our guidance includes a $0.1 per share impact related to these spaces based on the assumptions that we have regained possession of all of them, around the end of the first quarter of twenty twenty five. And with that, operator, please open the line for questions.

Our first question comes from Gaurav Mehta with Alliance Global Partners.

Thank you. Good morning.

I wanted to follow-up on your comments around convertible notes and just clarify. So that you guys expecting that with cash and there's no expectation of share issuance with that conversion, right?

Yes. Hey, this is Phil. We have given no that our intentions to settle in cash so contractually, that's the only right we have. If we wanted to settle some in shares, generally the note holders would still be open to that.

And we could do an exchange with them. But at this point, we anticipate settling it in cash.

Okay. And so the cash, the source would be the line of credit?

Yes. So initially go on the line and then it would be termed out later.

Okay. Second question on the guidance. I was hoping if you could provide some more color on your 2025 outlook between acquisitions and structured investments, what kind of mix you expect Yes. So right now presently we're seeing just core acquisition opportunities. We don't have any structured investment [indiscernible] we expect to see some later in the year. But right now, it's primarily core acquisitions.

Okay.

And then lastly on the same property NOI guidance, can you provide some color on how you expect that to trend from quarter to quarter?

Yes. I mean, first, I would just say, I would always kind of focus on the annual number there because like 150,000, it's a small pool, 150,000 in one quarter. Is like 1%. But generally pretty even. It's going to bump up up and down a little, but it'll be generally pretty even. And then hopefully in the fourth quarter, it'll start CTO pick up a little more.

Okay. Thank you. That's all I had. Thank you.

Thank you. Our next question comes from Rob Stevenson with Janney Montgomery Scott. Your line is open.

Good morning, guys. That's Slide eight in the deck was very helpful. But a question for you, John. Did I understand releasing would impact '25 and that you'd get the full impact of the $4,000,000 to $4,500,000 of new rent in '26 Just trying to jive that with the $0.1 a share in the guidance.

Hey, it's Bill and I'll let John add in. But on he was talking about 50% in 2025, he was talking about our sign not open. Pipeline, which is separate from Page eight. Page eight is just these recent retailer bankruptcies and vacancies. And that's separate from that. On Page eight, all of that we're anticipating in to come online in '26. And then separately, the sign not open pipeline, we're anticipating on picking up about half of that in 2025 and then the full impact of that in 2026. To add to the pickup of these vacancies.

Okay. That's helpful. And then you have one of your structured investments, the Waters Creek, maturing in April. What is that looking like in terms of recent conversations with that borrower? Is that a repay? Is that an extend? How is that likely to be resolved? And if you're getting the money back expected to get the money back, then how is that market these days to replace that? Are you going to wind up bringing the structured investment portfolio down a little bit in size? Yes. I think I was with the borrower. We ago they're doing great on that property and we're hoping that we stay in there. We expect that we'll have probably a short term extension So what I mean short term maybe a year or something like that, but we'll see. But having said that, given that the high quality grocery anchored center, Our pricing there, if we were to get it back, we anticipate that we'd be able to reinvest that at a higher yield And I guess, how if that's staying if that's likely in the portfolio and nothing else comes out in the interim, How aggressive should we expect you guys to be in expanding the $107,000,000 portfolio today?

Is that likely to end 2025 at 150 pushing 200? Is this the current sort of upper end?

Yes, I would say maybe add $42,000,000 CTO the balance is something to expect. That's something that we we got CTO imagine we can kind of grow that by upper bounds of $50,000,000 this year. It's sort of the thought process.

Okay. That's helpful. And then last one for me. Can you talk about how your AMCs are performing these days? Is that you're starting to get back to some more robust releases with the Captain America movie and stuff like that. How are they performing versus where they were in the past and how much of a concern are they for you at this point in the cycle?

Yes. I mean, there's definitely a lot less concern because they've had a good year last year. And as you mentioned, the Capint America has been doing very well and especially in these locations. So these the AMCs That We Have Are Top Performers In Their Market. And So, We're Actually In Charlotte, the last acquisition, the AMC is not something that you would find to be exciting, experience when you drive up to it. We're actually going to paint and add lighting and everything even though it doesn't look great, it does terrific. I was with someone that lives in the Charlotte area and they mentioned that they go to this theater even though it's out of the way because it's it's the most kind of convenient for them. To get in and out of. And so long story short, all of them are performing very well. And yes, the box office, just as a macro backdrop, has been very good for them.

Okay. Thanks guys. Appreciate the time. Have a great weekend. Great. You too. Thank you. Our next question comes from Matthew Ertner with Jones Trading. Your line is open.

Hey, good morning guys. Thanks for taking the question. John, I believe you mentioned thinking about those 10 additional acres next to four sites are up in that area. Could you remind me again what the plan was with that Yes. So originally when we bought it, we had tenant right off the bat who started paying us sort of a licensing fee is really an option sort of fee. They dropped it as they were having trouble with their other operations and other locations. So they want to scale back their expansions. And so we obviously took it back and now we're discussing with several different large tenants that would be very [indiscernible] collection as far as a great draw and bringing a lot of visitors to the location. So we're in those negotiations right now. So we hopefully and expect something and let's just say, in next three months And then this is something that would probably come online whether it's late 2026 or 2027, But yes, it's something that we wanted to highlight because we're closer to a deal there.

Yes, that's helpful. And then I'm guessing that would kind of include the first right of refusal similar to others. And then as of follow-up to that, I it's probably a little ways away, but do you ever anticipate kind of closing on some of those right to refusals and taking those properties in? We could build it and have the lease ourselves and not have a first priority refusal. It's not an outside developer. It couldn't be an outside developer, but right now we're talking to tenants on a primary basis. And then with regard to your question on other deals where we've done loans, where we have first trial refusal, yes, I think the Whole Foods would be that is across the street there at collection would be high likely that we would buy that in because it's such a a complement to collection. Got it. That's helpful. Thank you. Thank you.

Thank you. Our next question comes from R. J. Milligan with Raymond James. Your line is open.

Hey, good morning guys. Appreciate the detail on Slide eight. It's helpful. But I'm curious, Phil, for the guidance, what is baked into additional potential bad debt sort of you obviously highlight the known or expected vacancies, but I'm curious what you're baking in into guidance for unknown? Yes. So we've taken out all the known, largely that on Slide eight and that's just excluded from 25 then after that as far as the tenants that are in place, it's pretty much our general 1% Nothing different from a historical run rate on that. Does that answer your question? And then for the I know you guys mentioned four of those 10 boxes, you expect the rent to commence in 2026. Can you just give me an idea of the expected timing of that rent? And [indiscernible] Yes. I mean, it's we're hoping to have most of them online. In the first half of twenty twenty six. The majority of them, there might be two or three depending on timing that could be the latter half.

But assuming we can, I mean, we are working really hard, RJ, to get them back soon as possible and get them released? If we can get them back sooner, we would hope to have them all early in the first half or in the first half.

But there could be a few boxes that might take a little longer to get a hold of and then those could be delayed to getting them online in the second half. But we would hope to have a majority of them on up and paying rent in the first half And a little bit of it, RJ, is we do have opportunities to do tenants that could come in faster, but would not be as accretive to the whole center and not as good kind of credit. And so we're we're willing to kind of take a longer lease delivery, rent commence investment grade and that sort of thing.

And that's helpful. That sort of leads into my last question, John, which is who are the tenants that you're talking to that are interested in those spaces? And then just curious how you think about the overall value creation as you get those new tenants the space. Yes. I mean, the value creation is definitely low hanging fruit for sure. I mean, think about Sanford and Orlando that we bought a year ago [indiscernible] you have big lots coming back at roughly $12 a square foot and we're talking to a tenant that is investment grade at basically double that. So I mean just the not only the income accretion, but then the cap rate compression of having that credit versus when we bought it, it was big lots. So it's that's across the board on these party cities. The backfills are enterprising tenants that are growing that are kind of darlings of Wall Street sort of thing. So we're very excited about the mix that we'll be able to backfill here.

That's helpful. Thank you, guys.

Thanks.

Thank you. Our next question comes from John Massocca with B. Riley Securities. Your line is open.

Good morning. Maybe kind of going back to Slide eight, the $9,000,000 to $12,000,000 of CapEx I mean, how does that kind of impact the CapEx outlook for 2025 versus say what's kind of more run rate or what's you were doing in '20 sorry, 2025 versus what you were doing in 2024. Yes, I mean, so that's incremental CTO what we are kind of our regular run rate there. So it would be on top of that. John. And the way to think about that CapEx too is if we're on the lower end of that, we'll be on the lower end of the spreads there like 40% and if we're on the higher end 12% will be on the higher ends of the spread there with a much larger mark to market but that is kind of a one time incremental to get these boxes up and running again.

Okay. And kind of with that in mind, I mean, what lease durations are you kind of talking about today with potential replacement tenants given there is a decent amount of CapEx going into these boxes?

Yes, roughly ten CTO fifteen years. So So good lease duration and good credit behind them.

Appreciate that. And then on the On the kind of The re leasing side of things, is the timing you're seeing typical of what you would see for vacancies, maybe kind of smaller [indiscernible] IG versus maybe some smaller tenants can come in faster. But I mean, is it indicative of anything in the kind of macro environment or specific CTO these assets Or is that timing just kind of typical if you were to see other vacancies going forward?

Yes. I mean, it's definitely typical of the macro environment with with these highly desired boxes, these national tenants that we're talking to just have their normal pipeline of what they're delivering the year, next year, years out. So it's just if you want the higher quality 10 ads, you're just kind of getting into their pipeline and they just have a process. So it just takes more time. Now if you want to go the local route with a smaller operator, certainly it's a lot faster. But certainly, we're looking at the total value creation of having higher credits in these centers. Okay.

And then last one for me, maybe broad if you don't have the exact number in front of you, but what would kind of same store NOI growth expectation have been for 2025 if you weren't dealing with these vacancies? Yes, two to three. So we're putting guidance out at one.

Would have been more in the two to three range.

Perfect.

That's very helpful. And that's it for me.

Thanks.

Thank you. Our next question comes from Craig Kucera with Lucid Capital Markets. Your line is open.

Yes. Hey, good morning, guys.

Got a lot of activity planned in 2025 without any dispositions.

And I know you're comfortable running the company at higher leverage. But is the plan to be leveraged neutral or did you maybe front load some equity in 2024 and you're willing to lever up [indiscernible] to have a trajectory on the leverage to go down the converts are kind of a unique situation this year. But given that what we have kind of in front of us We feel like the acquisitions that we're seeing right now are accretive even at these lower stock price levels. So So just depending on how things go, remember when we settle these converts, they are they are basically hedged against our stock. So So they will be covering on the stock. There should be a good backdrop. And then hopefully, given the size of the company and the growth of what we did last year, We're getting closer to REIT index inclusion. So if you look at the investor base that came in December, we're starting to get more of that index buying, as you can see, BlackRock bought a lot in the quarter. Had some a new re dedicated come in. So So we're starting to get that traction that we always wanted.

So I think the backdrop really good for this year. And so looking forward to kind of executing on on acquisitions that are going to be complementary and accretive and and see what we have in front of us.

Okay, great. Changing gears, at the time of the Carolina Pavilion acquisition, I think it was 93% occupied. I guess as part of your underwriting process, were you aware you would lose a number of tenants in the fourth quarter or want to kick them out? And was that mark to market opportunity part of the attractiveness of the purchase?

Yes. So I think I might have mentioned that in the last earnings call that when we put under contract Carolina Pavilion and by the time we closed, we had three tenants basically go bankrupt and CTO their stores.

Which is highly unusual and most people would maybe say that would be detrimental and you drop the contract. But actually it was in our underwriting that it came sooner, of course, on the closings. But the mark to market opportunity to happen faster was just so extraordinary for us that the excitement level for what that property can do is pretty exciting. So we're we have great activity as we mentioned on these boxes and and in the process of getting these tenants to backfill. So the economics of those property are going to be totally different here in twelve, twenty four months.

Right. And just one more for me.

Given the changes in the current administration and some job losses in DC have the folks at Revana communicated any changes to you regarding their development schedule or any of that of that sort.

No, they're seeing great activity on the multifamily front on that project. And they are it's they have incredible amount of activity and demand for for that land. That Northern Virginia area, as you know, Loudoun County, the data center market is just been extraordinary. And a lot of the contractors are out in the market to your point, but there's still such housing demand that they're there are no bumps at all along the road.

Okay. That's it for me. Thanks guys. Great. Thank you.

Our next question comes from Michael Gorman with BTIG. Your line is open.

Yes, thanks. John, maybe just sticking with some of the discussions around acquisitions and some of your underwriting. I'm curious if maybe not yet, but if you think there'll be some additional opportunities in the acquisition market shaken loose by some of these recent retailer bankruptcies where maybe smaller landlords don't want to have to go through a retenanting or don't want to have to go through another CapEx cycle? Are you seeing or starting to see any opportunities because of these new vacancies in the marketplace? For acquisitions?

No, we're not seeing that. I think we're seeing almost the opposite institutional capital starting to creep into this market. And we expect it's a little it's kind of gotten there in the market a little bit. There's going to be probably a large trade that's going to be very complementary to to one of our assets that's in the market of so you're going to see some sort of dramatic acquisitions as you're seeing large pension sovereign capital, my [indiscernible] ROIC acquisition closed and that was Yeah. A little. And I think we're all kind of lucky with the horrible Palisades fire and everything going on in California, whether they're BSA situation there, but that closed like clockwork. I mean, so you're starting to see really that sort of wave of capital come in for the long term. And as I mentioned that party cities and the big lots and all the cons kind of that's just that's really opportunity versus headwinds because those tenants are at such low rents and did really nothing for shopping centers and actually probably was a deterrent some of the shopping centers. So this is more of an opportunity than a headwind.

Got it. Great. And then I think I could probably tell just based on the CapEx expectations, but for any of the LOIs you're discussing, would any of that add a gross or to an existing center or are these all non grosser tenants?

These are all non grocer. We had a grocer opportunity, which but the grocer was just going to deliver it longer than we wanted to really sit around and wait for. They had a lot of things in their pipeline to kind of get done first. And even though having a grocer and one of our shopping center have been great, just we felt like we're not buying green bananas Perfect. Thanks so much. Thank you.

Thank you. Our next question is a follow-up from John Massocca with B. Riley Securities. Your line is open.

Hi. Just a quick one for me given some of the conversations on mark to market with Brent. What's the outlook for the 2025 lease expirations, I mean, just kind of noting it's above your average cash rent per square foot, but [indiscernible] portfolio like this?

There's nothing where there's a roll down situation. Everything's a positive. It's definitely not kind of the the mark to market we're seeing in our in the Page eight of our presentation, [indiscernible] everything the trajectory is definitely up, but there's no drawdown as far as having higher rents rolling.

Okay.

Any like any kind of broad stroke ranges you're kind of looking at for just this year's I would say kind of the 10% range is kind of a good range. To say plus or minus where Those tenants are rolling CTO if they're coming out the market rents are at least 10% higher. [indiscernible] Thanks.

Thank you. There are no further questions at this time. Everyone, have a great day. [indiscernible]