CTO Realty Growth Inc (CTO) 2025 Q1 法說會逐字稿

Good day and thank you for standing by. Welcome to the CTO Realty Growth. First quarter 2025 earnings call. (Operator Instructions) Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Jenna McKinney, director of finance. Please go ahead.

Good morning, everyone, and thank you for joining us today for the CTO Realty Growth, first quarter 2025 operating results conference call. 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 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, earnings release, supplemental, and most recent investor presentation on our website at CTOE.com. With that, I will turn the call over to John.

Thanks Jenna. I am pleased to share that CTO produced another strong quarter across all areas of our business once again driven by investment volume and leasing activity. Beginning with investment activity during the quarter, we acquired Ashley Park for $79.8 million at the going in cash cap rate near the high end of our guidance range.

Ashley Park is a 559,000 square foot open air lifestyle center located in Noonan submarket of Atlanta anchored by well-known national brands. Further, Ashley Park has many of the attributes we look for in acquisitions, including lease up potential in place below market rents in a base that's significantly below replacement costs.

More specifically, we have active tenant interests for nearly half of the approximately 40,000 square feet of vacancy. Approximately 200,000 square feet of the shop space paying below market rent, of which 100,000 square feet have no contractual options.

And our acquisition basis is approximately $140 per square foot.

Accordingly, we are encouraged by the opportunity that this center provides to grow in Hawaii. In addition, we continue to have a strong pipeline of potential acquisitions across our target growth markets in the Southeast and Southwest.

On the leasing front, we signed more than 112,000 square feet of new leases, renewals, and extensions, and an average rent of $24.14 per square foot, almost 25% higher than our in-place portfolio average of $19.41 per square foot.

Our leasing results continue to demonstrate the strong tenant demand for high quality properties within our markets.

I would now like to provide an update on our anchor leasing activity. As you may recall, we have a unique mark to market opportunity related to the 10 anchor spaces that were leased to several tenants that filed for bankruptcy near the end of 2024 and early 2025. of these spaces, a former Joanne's at Price Plaza in Houston, is in line to be assumed by a national retailer pending court approval.

With regards to the other nine spaces, we have executed leases for two expect to have two more leases shortly and are actively in discussions for the remaining five.

Accordingly, our releasing outlook for these anchor spaces remains positive, and we still expect to achieve a positive cash leasing spread of 40% to 60% in total.

We also continue to make progress with respect to our 10 acres of undeveloped land adjacent to our shopping center and collection of foresight located in Atlanta.

Lease negotiations continue to progress here in addition to anchor spaces, and we look forward to providing more lease updates in the near term.

At quarter end, our portfolio was 93.8% lease and 91% occupied.

Our signed [no top] leasing pipeline now stands at $4 million of annual base rent, representing 4% of cash rents at the quarter end. The rent commitment associated with this pipeline will be weighted towards the second half of 2025, and along with our Anchor releasing will provide a strong tailwind going into 2026.

Finally, I want to provide some comments relating to the recent tiff uncertainty.

While there is little visibility today on the ultimate resolution, CTO is positioned well with high quality properties and growing markets in a well-diversified tenant base. We will continue to monitor the situation as it evolves across the tenant landscape and remain focused on executing our strategy to deliver growth for our shareholders.

And with that, I will now hand the call over to Phil.

Thanks, John. On this call, I will discuss our balance sheet, earnings results, and full year 2025 guidance.

At quarter end, we had approximately $604 million of debt with $120 million or 20% subject to floating interest rates based on SOFR. However, in April, when interest rates temporarily dropped in connection with the initial tariff announcements, we executed two SOFR swaps fixing SOFR for $100 million of principal at a weighted average rate of 3.32% for five years beginning April 30th.

These swaps are initially being applied to $100 million of borrowing currently outstanding on a revolving credit facility, reducing the applicable interest rate by nearly 100 basis points from approximately 5.8% at quarter end to approximately 4.8% based on our anticipated leverage and pricing tier.

Turning to our convertible notes, our 3.875% convertible notes with an outstanding principal balance of approximately $51 million matured on April 15th. As previously discussed, due to our common stock price and dividends paid over the term of these notes, they required settlement at a premium.

In early April prior to maturity, we completed a series of privately negotiated transactions with several of the note holders to settle their holdings with a combination of cash and newly issued common shares.

At maturity, we paid off the remaining holders solely in cash.

The strategic approach permitted us to generally settle the face amount of these notes in cash and the premium in shares. Ultimately, the convertible notes were retired in full for approximately $71.2 million consisting of $50.1 million of cash and $21.1 million of common equity.

This repayment resulted in an extinguishment of debt charge of approximately $20.5 million that will be recorded in the second quarter.

Consistent with past practice, charges related to the extinguishment of debt are excluded from our computation of both core FFO and AFFO. One last balance sheet note we ended the quarter with net debt to EBITDA of 6.6 times. While this is slightly elevated from last quarter end as a result of the Ashley Park acquisition, it is still a full turn lower than one year ago.

Furthermore, at the end of this quarter, we had almost $140 million of liquidity, and with our convertible notes now extinguished, no debt maturing for the remainder of 2025.

Moving briefly to operating results for the quarter.

Core FFO was $14.4 million for the first quarter, a $3.7 million increase compared to the $10.7 million reported in the first quarter of 2024.

On a per share basis, core FFO was $0.46 in the first quarter of 2025 compared to $0.48 in the first quarter of 2024.

This change of $0.02 per share is primarily the result of our reduction in leverage and downtime associated with the releasing of the anchor spaces.

I would like to provide some additional context related to the releasing of our 10 anchor spaces that John mentioned earlier, specifically, the timing of when they vacated that is impacting our 2025 earnings. First, as a reminder, for the spaces were vacated towards the end of 2024.

In 2025, our three party city locations paid rent through March before vacating, and our three Joanne's locations paid rent through April.

We recently got back two of our Joanne's and at least for the third, as discussed, may be assumed by a national retailer this timing is in line with what we expected and is reflected in our guides.

Similar to last quarter, page 8 of our investor presentation summarizes the status and leasing upside related to these anchor spaces.

Now under guidance, we are reaffirming our full year 2025 per year outlook for core FFO of $1.80 to $1.86 and AFFO of $1.93 to $1.98.

The assumptions underlying this outlook remain consistent with those initially provided.

And with that operator, please open the line for questions.

Thank you. As a reminder to ask a question, (Operator Instructions)

RJ Milligan, Raymond James

Hey, good morning, guys. John, I was wondering if you could give us a little bit more detail on the anchor space negotiations.

I'm curious if any of the recent volatility has maybe put a pause in retailer discussions or if you're seeing any impact there as you're looking to re-tenant those boxes.

Yeah, thanks, RJ, surprisingly, at least to me, the leasing activity has been. Very consistent and very strong. There had had not been any sort of, backup or pause, tenants, whether they're public or private. Or, moving forward, and you probably saw the release that Burlington bought a bunch of party city leases are in bankruptcy, I'm sorry, Joanne's, and so, that's just kind of testament that, those tenants are moving forward and, in this market. So, yeah, so anyway, everything's been very good, strong, and robust, so, I don't see any problems there.

Okay, that's helpful. And then, the new lease spread it's obviously a big number in the quarter and I'm assuming that it was just maybe 11 big lease that that was driving that number higher, but maybe you could give some detail on that.

Yeah, RJ, this is Bill. It was actually 2 leases, and they made up the bulk of the square footage in the new leases. One of them was replacing one of the anchors that had vacated.

And another one was where we had a tenant who had no options and wanted to stay, but we know we could mark it up and had someone in waiting there and signed a new lease with them, and those two leases were really like 54,000 square feet out of the 63,000 square feet of new leasing that we signed, and they drove the leasing spread over 80%.

And so that sort of aligns to the expectation for the pretty healthy spreads on the 10 any of the boxes. Is that the way to look at it? Yes.

It was on the high end of that.

Great, thanks guys.

Rob Stevenson, Janney Montgomery Scott.

Good morning guys. How much CapEx are you guys having to put into those bankrupt tenant spaces that you're in the process of releasing or have already signed deals on?

Yeah, it still, so we have, we included the same slide we did last quarter on page 8 of our investor deck.

And in addition, we say, we're rolling those up 40% to 60% and as I was just discussing with RJ, we were on the high end of that or actually exceeded the high end of that on the one anchor that we signed this quarter. But we also in the same slide disclose the CapEx, which we say is $9 to $12 million range.

If we're on the high end of the CapEx, we expect to be on the high end of the spreads, obviously, and that includes everything, landlord work, PIs, commissions, the full boat, when we say 9 to 12 on that slide.

Okay. And then what is reasonable these days in terms of, after you sign the lease getting these guys to be rent paying? Is it a year? Is it 9 months? Is it, longer depending on the build out? How should we be thinking about the sort of time frame you announced that you signed somebody in one of these spaces today, how long would it generally be before you start seeing, monthly rents?

So basically I would say a safe number is in the year, but we are seeing some tenants that are aggressively trying to get into some of these markets and they're willing to kind of take as is and start really, fairly quick, but, in those circumstances, for us, it's better to get a higher rent, perhaps a better credit and might take longer more than the duration of the year.

Okay.

Alright, that's helpful. And then how are you guys thinking about, you said that you're seeing deals out there. How do you guys think about sort of funding that at the moment? Is that sale of existing assets and what are your current thoughts on selling the remaining office property? Is there other sort of ways that you're thinking about funding stuff, with the stock it call it 18 bucks or so?

Yeah, I mean, look, it's a, it's not a large number, so we can handle it internally with our liquidity, but you touched on the office building, the one office building we have left, and in that one we are, going to look to sell closer to the end of the year. We're very close to finalizing a lease there and so that will give us kind of the runway, we need to get the best price.

So, that's something that's, objective for us. But other than that, we are looking at perhaps recycling some assets and better opportunities, properties that have been stabilized, and, given that we're seeing capital come back into the space that we've talked about in the previous. Ports,

We're seeing pricing of assets, are getting very sporty, so there's maybe an opportunity for us to sell a lower cap rate, property and recycle and, more kind of a higher yielding and opportunistic sort of properties that we've been, buying lately. So a little bit of combination of things.

Okay. And then last one for me, Phil, you said that the three party cities paid through March and the Joanne's paid through April.

Combined, what are those sort of, what's a ballpark in terms of what they were paying you on a monthly basis that we need to start deducting, on a relative basis as we finalize 2nd quarter estimates here.

Yeah, so the three parties cities combined, when you include the recoveries and all, close to 900,000 a year.

And the 3 Joannes, I'll just give you the 2 because we, looks like one's going to be assumed.

So out of the two, they were paying actually about 600,000 a year.

On an annual there, so that would be, and we, the party cities were there for the full first quarter and they'll be dropping off, all three Jo and paid for April, and 2 will drop off, I dedicated the number of 600,000 on and then even the other one pretty far off.

Okay, that's helpful. Thanks guys and have a good weekend.

You too. Thank you.

Thank you.

Matthew Erdner, Jones Trading

Hey, good morning guys. Thanks for taking the question. As we look at the investment guidance, what's going to kind of drive it to that high range, we expect to see some dispositions if we're going to see about $200 million in investments are kind of up at that higher end.

Well, I mean, I think that, given that we're seeing strong leasing activity, that certainly is one component, but as we talked about that that you know there is a lag there, and we are seeing starting to see a lot more properties coming to market.

And so that's good news is there's more opportunities out there. Bad news is there's a lot more competitors, but, we think we're going to find, the opportunities where we can connect with something here. So, it's a little bit of a combination of things and then obviously the recycling would be something that. Would be more for next year, given the timing, but, certainly that's sort of, an easy part if you will, to have that sort of, calculation done to, enhance our growth, earnings growth.

Yeah, I got it. That's helpful. And then, I'm guessing a majority of this would kind of go on the credit facility and you guys don't really have a problem with taking that up and using the liquidity that you guys have available.

Yeah, so we would initially place it on the credit facility. Our bank group is very supportive, and we did a $100 million dollar term loan in September. We've had conversations with the bank group and they're all eager to put more money out to work and so we could easily term out a significant portion of our credit facility very quickly if we needed to get that liquidity right back.

Got it. That's helpful. I appreciate it.

Right, thank you.

John Massocca, B. Riley Securities.

Good morning.

And so understanding that you left the investment yield guidance unchanged, have you seen anything since, the tariff announcement change in terms of cap rates, or I was thinking particularly the yield on structured investments just given some of the widening we've seen in credit spreads and kind of bond markets.

Yeah, so it's a little bit of a disconnect between sort of the credit spreads in the in the bond market, as you mentioned, and where we're seeing sort of traditional core assets and really down the fairway sort of retail shopping centers.

You know that market has not seen a bump whatsoever as far as a higher cap rate. Cap rates have stayed consistent or have gone lower. It used to be, last year where property would come to market, brokers would sort of guide to a number and the pricing of the asset.

That would end up being at a lower number than where the brokers were guiding. Now we're seeing almost an offset where the brokers are guiding to a number and the assets are trading for higher than their guidance. And so the market the backdrop for the shopping center. Is very strong on the investment side, even with everything's going on in the capital market.

So, what we we're hearing from the debt side as well is that, the debt property debt has been very supportive from all the credit funds and banks and even CBS. So it's, very, it's so nothing's been really disrupted in the capital markets on the shopping center side, yes.

Okay, understood, and then, just because you're pretty active on the acquisition front last year, I mean, how is the kind of non-sam for portfolio trending in terms of NOI growth?

I mean it's positive, so, we're not seeing any sort of situations where tenants are rolling down their rents, they're still, we're still able to roll them up. So, given, especially given where we're buying assets, right? I mean, like for actually in town center that we just mentioned that in our earnings that, buying that, less than half our replacement cost.

For tenants it's still a bargain for the rental rent levels that we purchased that on. So they're seeing some really some rent shock at in other locations. So, there's no resistance to pushing those rents up, given that, they really got a bargain, 5 years ago whenever they did their leases.

So, it's really catching up to, today's markets, obviously the macro being that. There's not any additional inventory being delivered, and tenants are doing well and traffic's up, sales are up, so, that's causing the kind of a good backdrop to raising rents.

Okay, if I think of like the acquisitions you did, I believe within 32 of last year. I mean, what's kind of the timeline to mark to market on those? I know it's kind of potentially accelerated by some of these, bankruptcies that occurred late last year, but is that kind of something that could happen this year still? Is that something that's kind of, 2-3 years out just kind of broad strokes?

Yeah, I wouldn't say 2 or 3 years out. I would say, I think you're going to start seeing. Especially as we work through, these tenants that went through bankruptcy last year and early this year, as we talked about, there's kind of a year lag. So if we're doing leases now, you're talking about early part of next year through the middle part of next year, I think you can kind of see the real movement, middle part of next year for sure.

Okay, I.

Appreciate that color. That's it for me.

Thank you.

Gaurav Mehta, Alliance Global Partners

Thank you. Good morning. I wanted to ask you on the Ashley Plaza, acquisition. I think in the prepared remarks you talked about some opportunity for leaser potential and then mark to market as well. Can you provide some numbers around how much mark to market upside is for that acquisition?

Yeah, I would say, basically we're seeing opportunities that are, call it 10% to 20% at least, could be north of that, but given that we bought that at, such a kind of high cap rate and we have a fair amount of vacancy to work with, we're not even like.

That's not really kind of where we're, concerned about like the market. There's so much, low hanging fruit just leasing up vacant space and creating more activity at the at the property. I mean, there's plenty to do with this property, without worrying about mark to market leasing, so we're really happy with this acquisition.

I actually had some. Out parcels and some unanchored out parcels that we can sell after 18 months. And so, those, that part of the property would, kind of trade in the low sixes and so you could see some recycling there to even enhance the acquisition yield even further and getting, pushing that closer to the double digits. So, this one is going to keep us well occupied as far as, value enhancing this acquisition in the next 12 to 24 months.

Okay, second question on the on the releasing CapEx of $9million to $12 million, how much of that is already spent and how much, do you expect to spend this year?

Yeah, very little that's been spent so far. The tenants generally have to get open and do their work before we start reimbursing on that, so very little of that's been spent at this point in time.

Okay, thank you, that's all I had.

Craig Kucera, Lucid Capital Markets

Yeah, hey, good morning guys. John, last quarter I think you mentioned that the pipeline was almost entirely sort of core property investments and you really weren't seeing much in the way of structured investment opportunities. Is that still the case here heading into mid-year?

We're starting to see some interesting other opportunities, so it has changed a little bit as far as the character of the investment opportunities. So, we're excited again on, perhaps being active in the next kind of 3 months.

Got it. And I think last quarter you sort of handicapped that you thought you might add anywhere from maybe $40 million to 50 million for the year. Is that still kind of your thinking?

It could be if things go correctly or our way it could be higher than that.

Okay, great, following up on some of your comments on Ashley Park, are you expecting any meaningful CapEx at the property to achieve some of that low hanging fruit, or is it just, a little simpler than that?

Yeah, no, there's no heavy left on the, on any kind of renovation there, so it'd be light touch CapEx.

Got it. And you had some shifting assumptions in your sign that open ABR recognition timing. Should we expect, kind of a quiet second, maybe even 3rd quarter, or how should we think about the cadence there?

Of the sign out open coming online, Craig, yes, it'll be the 2nd half and it'll build, so, more so in the 3rd quarter and then 4th quarter.

Okay, great, appreciate the time, Pat.

Thank you.

Thank you. This concludes the question and answer session in today's conference call.

Thank you for participating and you may now disconnect.