Good day and welcome to the CTO Realty Growth First Quarter 2021 Earnings Conference Call. All participants will be in a listen-only mode. [Operator Instructions] After today’s presentation, there will be an opportunity to ask questions. [Operator Instructions] Please note, this event is being recorded.

I would now like to turn the conference over to John Albright, President and CEO. Please go ahead..

Thank you, operator. Good morning, everyone, and thank you for joining us today for the CTO Realty Growth first quarter 2021 operating results conference call. With me is Matt Partridge, our Chief Financial Officer. Before we begin, I'll turn it over to Matt to provide the customary disclosures regarding today's call.

Matt?.

Thanks, John. I'd like to remind everyone that many of our comments today are considered forward-looking statements under federal securities law. The company's actual future results may differ significantly from the matters discussed 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 in greater detail in the company's Form 10-K, Form 10-Q and other SEC filings. You can find our SEC reports and our earnings release on our website at ctoreit.com. With that, I will turn the call back over to John..

Thanks Matt. We had a nice start to the year as we invested in two new properties and terrific growth markets, sold two properties at attractive cap rates, completed our uplisting to the NYSE, continue to monetize non-income producing assets and make good progress on a number of operational initiatives across the portfolio.

Both of our acquisitions in the first quarter were new markets for us with strong demographics and great long-term growth trends. Our first acquisition, which is 183,000 square foot center was acquired for $20 million in a densely populated submarket of Salt Lake City, Utah, and anchored by At Home in Burlington.

Our second acquisition is in the Henderson submarket of Las Vegas and is shadow anchored by Trader Joe’s and anchored by Seafood City and At Home. We acquired the property for $18.5 million, a total of approximately 147,000 square feet and includes a single-tenant outparcel lease to Jollibee.

In total, we invested $38.5 million during the first quarter into two high-quality, multi-tenanted retail properties at a weighted average cap rate of 7.9% and average price per square foot of $117.

On the disposition side of things, we sold our Moe’s Southwest Grill in Jacksonville, Florida and two tenant property in Brandon, Florida for a combined sales price of $4.9 million and a weighted average cap rate of 6.4%.

The net spread on our investments, which compares our weighted average cap rate of the dispositions that funded our acquisitions against our weighted average acquisition cap rate was more than 130 basis points and represents a comparative NOI increase of approximately 20%.

In addition to our Q1 dispositions, we've continued the asset sales momentum into the second quarter, where we recently closed on the sale of the Burlington in North Richland Hills, Texas to Alpine for a sales price of approximately $11.5 million and exit cap rate of 7.3%.

As of the end of the quarter, our income property portfolio consisted of 27 properties, comprising approximately 2.8 million square feet of rentable space and is located in 12 states.

The portfolio was 93% occupied and some of our top tenants included Wells Fargo, Fidelity, Ford Motor Credit, General Dynamics and At Home, with At Home moving into our top 10 as a result of our two first quarter acquisitions.

From a geographic perspective, more than 30% of our base rent comes from our largest state Florida, which has benefiting from the accelerating population growth and companies relocating to the state as a result of tax and business-friendly policies.

Nearly 90% of our portfolio rents come from MSA's with over a million people and approximately 85% of rents come from urban land institute's top 30 markets. We think a combination of these two data points reflects the quality of the markets we're investing within in a potential for positive supply demand dynamics over long-term.

When combined with a supportive demographic trends and strong positioning of our assets, we are excited about the potential for our portfolio’s long-term success. In terms of non-income producing assets, we did have success monetizing more than 25,000 acres of subsurface interest for our net proceeds of $1.9 million in the first quarter.

And while it was a quiet quarter regarding land sales, we're building some momentum within our land sale pipeline related to our land joint venture, where we still own approximately 1,600 acres of land.

And finally, we continue to focus on our property repositioning programs and leasing initiatives, where it made solid progress during the first quarter. Of note, we are through the design phase of Ashford Lane rebranding, and we are starting to see increased leasing activity at the property.

To provide some figures for context, we are at least negotiating LOIs with more than five different tenants. So while still in the early stages with some of the opportunities, there has been a very positive reception to what we're doing with the property.

We also anticipate that previously announced expansion of Crabby's Zona Beach and Daytona Beach to finish this design process and begin expansion in the back half of the year.

Crabby’s and our other Daytona base beach side restaurants has seen extremely strong sales as Florida has continued to see an influx of vacationers and people relocating for a number of reasons. And there are no signs of that trend slowing. So their expansion can't come send it up.

Overall, within the quarter, we excluded new leases or renewals or extensions on more than 133,000 square feet and we're looking forward to announcing an additional leasing activity in the coming months. With that, I'll now turn over the call to Matt to discuss our financial results and balance sheet activities..

Thanks, John. The company continued to experience excellent recollection results. During the first quarter collecting 100% of contractual base rent.

Total revenues for the first quarter of 2021 were $14.7 million, a 14.6% increase over the first quarter of 2020 and were largely driven by a 4% increase in revenues associated with our income property portfolio, and $1.9 million of revenues from the sale of subsurface interest John previously referenced.

Revenues within the quarter were also impacted by the timing of asset sales in the fourth quarter and the subsequent redeployment of the proceeds late in the first quarter, which will normalize as we move into the second quarter. G&A expense in the first quarter was relatively flat increasing 1.3% as compared to the first quarter of 2020.

For the first quarter of 2021 funds from operations were $5.2 million or $0.89 per share and adjusted funds from operations were $5.7 million or $0.97 per share.

I'll remind everybody that our year-over-year per share comparisons are materially impacted by the 1.2 million shares issued as part of the special distribution related to the company's reconversion that occurred on December 21, 2020.

Our AFFO in the first quarter was also positively impacted by approximately $220,000 repayments of deferrals related to the previously mentioned rent referral agreements.

We do anticipate a continued positive impact to our AFFO in future periods 2021 from the scheduled repayments to previously deferred rent, with the second quarter of 2021 representing the height of the repayment obligations.

As previously announced the company paid a first quarter regular cash dividend of $1 per share on March 31 to shareholders of record on March 22.

And as we highlighted in yesterday's press release, our Board of Directors has approved and the company has declared a second quarter cash dividend of $1 per share to be paid on June 30, 2021 to stockholders of record as of the close of business on June 21, 2021.

Our second quarter cash dividend represents a 300% increase year-over-year when compared to the company's second quarter of 2020 cash dividends and an annualized yield of approximately 7.5%. We ended the quarter with total cash and restricted cash of $5.3 million and total long-term debt outstanding of $287.3 million.

Net debt to total enterprise value at quarter end was approximately 48%. Within the quarter, we originated a new five year $50 million unsecured term loan at an initial fixed interest rates of 1.72%.

This term loan allowed us to bring in a new banking partner, extend our debt maturity profile and provide an ample liquidity to repay the mortgage secured by our Wells Fargo occupied property in Raleigh, North Carolina ahead of the schedule maturity date in April.

Looking forward to the balance of 2021, we're reaffirming our guidance, which suggests increasing transaction activity as we move throughout the year, the disposition is still largely focused on the sales single-tenant properties.

2021 total disposition volume guidance continues to be $75 million to $125 million with expected exit cap rates falling into a range between 6.35% and 6.75%.

We anticipate corresponding acquisition volumes as we redeployed disposition proceeds with target investment yields between 6.5% and 7.25%, although this could move higher as our pipeline continues to firm up.

2021 FFO per share is anticipated to be between $3.80 and $4.10 per diluted share, and AFFO per share guidance is $3.90 to $4.20 per diluted share.

I'll remind everyone that this guidance does not include any additional assumptions for outside equity, it can be heavily influenced by the timing of dispositions and the subsequent redeployment of proceeds and it's subject to the future performance of our current tenants and prospective tenants and includes the full year dilutive effect of the 1.2 million shares issued as part of the company special distribution related to the reconversion.

With that, I’ll turn the call back over to John..

Thanks, Matt. We're off to a good start of the year and we have some very exciting opportunities to continue positioning ourselves as one of the highest quality diversified rates in the industry. I want to thank our shareholders for their continued support. And at this time, we'll now open it up for questions.

Operator?.

The first question comes from Rob Stevenson with Janney. Please go ahead..

Good morning guys..

Good morning. Sorry about that awkward delay. Not sure what happened to our operator, but they were here..

Rob, are you there?.

Yes, we can hear you Rob..

Okay.

So John, can you talk a little bit about the pipeline right now and that sort of timing to offset the sales department as to how quickly you expect to be able to backfill that NOI and what’s the – from a standpoint of some of the land sales, is that going into the funding as well, that you'll need to replace?.

Yes. So in general, we have a good pipeline of acquisitions that we're actively pursuing. More in the due diligence phase. We're hopeful, we like kind of what we have in front of us. We’re hopeful we can kind of close on it. And that will be I guess pretty far down the road on the acquisition side.

And once we know we have something that we're looking like it's going to go to closing, we'll accelerate some of the dispositions that we want to do. So we feel like the timing of acquisitions and dispositions will be pretty good for us. And then on the land side, we're going to start becoming a little bit more aggressive in moving out the land.

A lot of these contracts are taking a long time, we're getting good activity. But as people that really want a long time for due diligence in closing, and we're going to try to accelerate that. But we're not really depending on the land to fund the acquisitions, because we just, as you know have so much single-tenant properties want to monetize.

So we have plenty of that, so if we get some land sales done, that'll just be on top of kind of what we have in the plan..

Okay.

And then what's left in the CTO portfolio that might appeal to PINE from both an asset and a pricing standpoint after this transaction?.

Yes. I mean, just to kind of give you probably broad brush numbers, maybe it's kind of in a $20 million to $50 million range, that could be a possibility for PINE down the road..

And given what your pipeline looks like? Is there a chance that additional sales would wind up being in 2021 or is that more likely to be in 2022, as you back fill the pipeline?.

It’s probably late 2021..

Okay. Appreciate the time guys..

Yes. Thank you..

The next question comes from William Olivari, who is a private investor. Please go ahead..

Hi, John and Matt good morning..

Good morning, Bill..

I wanted to ask regarding in light of what the new administration is looking at in Washington. What kind of activity are we looking at into the opportunity zone properties that we still have? Is anything copying on that, that seems to be a way to go for some future investment for folks..

Yes.

So we've been talking with – it's funny the opportunity zone structure we thought was going to have an incredible amount of lags and capital chasing opportunity zone investments, but the opportunity zone funds that have been raised, they've had – the funds that they've raised haven't been as much as they thought and there are as you know some of the opportunity zones around the country are in areas that or in much larger MSAs like, for instance, a good part of Washington DC is an opportunity zone, Alexandria, Virginia, places that a lot of funds are want to focus on the larger MSAs versus smaller MSIs, like, Daytona Beach.

So to answer your question, there hasn't been as much activity as we would have thought. But having said that, there are a couple that we've run into that are looking at some of our landholdings for that..

Yes. There seems to be a lot of focus on the low income housing or whatever. I'm looking at the opportunity zones as a vehicle and I was wondering, if you were getting more activity in that direction, so that we can move more of that land. And that's it, I would not ask, how we in our peer group has structured regarding our book value to market value.

Are we in the mid range or where do we stand? Whereabouts $8 are so low our book value in market..

Yes, so – so obviously we’re closer to book then we have in a long time. And I think converting to REIT obviously made that kind of gap narrow a bit. But look, what we look at is FFO multiple, and there is only a second quarter being a REIT. And so people who haven't looked at us as a REIT are starting to look.

And when we compare ourselves that way, we're very low valued in the market compared to other REITs. And so, we want to kind of get the story out, people start looking at us on the FFO multiple basis and I think we'll be in good shape..

Okay. Thank you..

Thank you, Bill..

Okay..

[Operator Instructions] The next question comes from Craig Kucera with B. Riley Securities. Please go ahead..

Hey, good morning guys. Matt, I think you were expecting about 400,000 of deferrals in 2021 last quarter. You brought in a little north of 200,000 this quarter, second quarter looks higher.

Can you give us an update of what you're expecting for the whole year at this point?.

Yes. It's actually a little bit higher than that, Craig. For the full year, I think it's going to be probably closer to 700 – 750,000, next quarter, it’s going to be around 400,000 in and of itself..

Okay, okay..

So the good thing is we're on the other side of all of the deferrals and all of our tenants are back to their treated for old rents. And so there was no impact from deferrals in this quarter, other than the repayments, which we expect obviously to wrap up here in the second quarter..

Got it. So that'll just leave a stub, I think, of about 300,000 then kind of post-2021.

Is that correct?.

Yes, it'll be a little bit less than that. So some of it got pulled forward into 2021 so in 2022, we're expecting about 100,000 and then closer to 35,000 in 2023 and that will resolve all of the deferral repayments. So the bulk of it should come in the second quarter. And obviously, we had a decent amount in the first quarter of this year..

Okay. No, that's helpful. I'd like to talk about your leasing activity this quarter. Not a ton of leases, but you did execute reasonably well.

Can you give us a sense of where those leases were typically executed versus prior rents on either a cash or GAAP basis?.

A lot of it was tenants who are doing early exercising of renewals. With regards to new leases, they were very accretive to our acquisition underwriting. And if I had to kind of, handicap kind of where it was – somewhere 10% to 20% above kind of acquisition underwriting as far as for lease up of vacant space that we bought through an acquisition..

Okay. That's helpful. Thanks. Just with housing booming as it is.

Can you give us a sense of how much land in the JV is zoned for residential? I know there's the large industrial piece that's still there, but is there much industrial residential left?.

Unfortunately, not, because as your point if we have residential land, it would be flying off the shelves. So with regards to the industrial piece, given that that's a large component of the portfolio, the good news is there are some industrial land trades going on about 20 miles from our park at really high per acre prices.

So we're starting to see activity from developers, who weren't able to buy that particular site and are discovering kind of the value proposition of our land. So, I mean, like literally in the last couple of weeks, we've had people come out, do property tours, dig in. So that's good. And then the other large piece 177 acres around Bucky's.

Bucky's has opened, people have gone to see it, you're just extremely surprised at how incredible amount of energy there and how busy it is, people coming from 90 miles away and further. So it's a real destination.

And so that's helped activate the site a bit, but it's really a little bit difficult find on the retail developers these days who will take on that kind of size property. So we're looking at other ways to kind of parcel out the property and get that monetized..

Got it. You've made sort of a strategic shift at PINE and maybe exiting or at least reducing your exposure to single-tenant office.

Are you thinking at all about recycling capital out of the remaining single-tenant office at CTO?.

Eventually, so if we find some really good acquisition opportunities at CTO, we'll not be shy about taking advantage of it and use that as an opportunity to bring forward some monetization. So eventually yes. But it's really acquisition dependent..

Got it.

And I know you don't have a lot of leases rolling over in 2021, but are any of those single-tenant office or are they predominantly in retail?.

Mostly retail, not on the single-tenant office side..

Okay, great. And I know you mentioned that you've made some real progress at Ashford Lane.

Are you undergoing any strategic redevelopment at Westcliff Center? Or are you basically looking just to kind of lease up the existing space more or less as it is?.

Yes. The way we're doing is, really doing it as it is. But we've been approached by literally in last couple of weeks by developers, fairly large developers who want to look at it as a redevelopment play for themselves.

So we're obviously open to selling that and letting someone else do a heavy lift if they want to do a redevelopment, because as we bought it, it was always under the premise as really a covered land play. And that's kind of happening.

But we're leasing it up as it is because we'll get some of those space leased up and it has a nice yield to the investment, but if someone really wants to do a bigger play there, we're happy to sell it at the right price..

Got it. And just one more from me.

Matt, I just want to kind of confirm this, when you turned out the $50 million of debt and amended the credit facility, what would your total debt capacity beyond the line of credit at the – as of the end of first quarter?.

What's the debt capacity on the line of credit? Is that the question, correct?.

Yes, yes..

Yes. So we've got about $65 million remaining on the revolver, and then obviously have $5 million of cash on the balance sheet. So we've got a decent amount of dry powder to work with over the next couple of months..

Okay. That's it for me. Thanks guys..

Thanks Craig..

Thank you..

As we have no further questions, this concludes our question-and-answer session. I would now let's turn the conference back over to John Albright for any closing remarks..

Thank you for joining us..

The conference is now concluded. Thank you for attending today's presentation. You may now disconnect..