Q2 2020 CTO Realty Growth Inc Earnings Call
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Good day and welcome to the CTO Realty growth Q2 earnings Conference call. All participants will be any listen only mode should you need assistance, we figure like conference specialist, but pressing the star key followed by zero. After today's presentation there'll be an opportunity to ask questions to ask a question My press Star then.
One on your Touchtone phone to withdraw your question. Please press Star then too. Please note. This event is being recorded.
I'd now like turn the conference over to CEO and President John <unk>. Please go ahead.
Good morning, Thank you for calling in for a six year real T. gross <unk> conference call earnings call I'll hand, the call over to Mark patent for him to read some disclaimers. Thanks, John Good morning, everyone. During our call today will make certain statements that may be considered to be 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. We may not release revisions to these forward looking statements to reflect changes after the statements were made.
Factors and risks that could cause actual results to differ materially from expectations or disclose from time to time, an art in greater detail in the company's filings with the FCC and in our earnings release issued last night.
Note that we filed our Q1 Q2 Investor presentation last night, which is now available on our website. Our investor presentation provides additional information you may find useful and then we made reference during this call.
I just wanted to add one more thing that it's been a privilege to work in CTO for last eight years to work with John on the team.
And I look forward to many good things for this company going forward and sorry, if I go to job.
Thank you Mark and and we all here at the CTO and Alpine have appreciated everything marks done for the company.
We wish him well in his future endeavors at a essential and we're sorry to see him go but hopefully he stays on close contact with us.
Operator, I think we're ready for questions.
Thank you we will now begin the question and answer session. If he would like to ask your question. Please press Star then one on your Touchtone phone.
If you were using a speakerphone please pick up your handset before pressing the keys if at any time. Your question has been addressed and you would like to withdraw your question. Please press Star then too.
These pause momentarily, while we assemble our roster.
The first questions they will come from Craig Sarah with B. Riley FBR. Please go ahead.
Hi, Good morning guides before I forget Mark I, just wanted to say how much I sincerely appreciate the working with you and getting you know you over the past several years and wish you. Good luck, it's essential properties as well.
Thanks, Craig I appreciate that I I've enjoyed it as well.
Terrific well I'll start with a the first question.
Now, let's start with your top line on the income producing revenue side that was lighter than what I was looking for can you kind of walk me through some of the adjustments that were may be made to that related to coben 19, whether that's any sort of tenant write offs are.
Ah, yes issues related to maintenance anything there would be helpful.
Yeah, I think it would just be I can get to you the some specifics or we'll try and figure out.
The exact data, but in terms of deferrals, that's really where you're going to make an adjustment.
On on sort of the rent side or the cash side for the most part you know we've we've been accrual the whole way.
So I think from a piano standpoint, I'm trying to think about why it might be a little bit lighter other than the fact that a you know we had significant.
Dispositions.
In the quarter.
I'm not sure what would what might be defined by a lighter for you, but you know might just be somebody abatements really which you know if you think about the abatements.
You know, it's it's probably less than 400 grant.
Although you have to that and you have Craig obviously, we sold the loan portfolio, which is fairly high yielding.
And then obviously as Mark mentioned you know sold.
Fair amount of a ground leases and so forth, but but if there's a number of how much were off we're happy that kinda.
I do a deeper dive and get back to you.
Well, that's there I guess in regard to I think there's about 7% or so in a second quarter that had not yet been worked out with that.
I guess that would immediately sort of come out of that pool of rent is that we've got a fair assessment or is that included in there.
Yeah, that's actually a fair assessment because to the extent to we get past you know the period, where would be prudent avid as revenue that would be something we would adjust down four yeah.
And Craig its I think you probably on a chance to kind of look at all the pages on our investor presentation, but we went ahead and.
Identify the major part of that is there's 24, our fitness and falls church.
And I will tell you that I'm not only is 24, our fitness very interested in staying there. So they didn't rejected in bankruptcy and they've actually reached out to us.
There are other operators not only of fitness, but other industries very strong credits that are interested in that site.
And so you know so I know when when people look at you know tenant list and I see kind of 24, our fitness or probably you know scratching. Their head is like Okay. You know how long is going to be down four on rent but.
Property is in a very strong location.
We would even hired a broker and we're getting you know in balance from a different a tenant rep groups.
Okay, Great and I appreciate the color there was that was one of my questions.
And certainly to what I would I looked at as some of the larger news in the press release was that the reconversion do you guys. Currently have a sense of what the E. N P distribution would be the reconversion. If it occurred today I think the last time, you put out a number.
Was you know right around when you you know created alpine income I think it was something in that $33 million range.
You know kind of get a sense of where that is today or is that still TBD.
Actually it's a great question appreciate it its a given sort of our performance over the last year, our income as a generated some additionally in piece so it's probably more in the.
35 to 38 kind of category. So maybe if you call it 36 or so.
Got it and and I think at the timing you sort of put out something publicly on that in the fourth quarter of last year.
I believe that there was some a mix between you know what would be paid in cash and what would be paid and stock I guess 18, I think at that point in time, it was about 20% cash.
We are should investors expect something similar to that if a REIT conversion occurs and how much you know control do you have over over the cash versus stock component.
Well.
It used to be you had to go to the IRS and get a private letter ruling ticket the 80 20 permission.
And I think the general theory was Oh, you know enough cash to really cover the a the tax portion of the of the dividend.
Yeah, but now the FCC or the IRS has come out and basically you sort of codified that that you could do the 80 20, if you choose but it's obviously up to the company and in many ways, but also it's the conversions up to the shareholders in terms of approval, but in a most recently and I think it's really kind of a KOVA driven thing.
The IRS is a has been allowing a 90 10 split so 10% in cash.
I'm not sure where the board's gonna come out on that but the 80 20 is certainly the one that is permitted.
Okay great.
And I noted in your Investor presentation that a you now we're talking about $4 per share an operating cash flow I think last quarter. It was five in the quarter I. Just wanted to confirm is is that just based on the existing portfolio and then it was all that I've, just the dispositions or any color there would be great.
Yes, it's based on a again the the loans being sold down sold off and ER and the the properties $46 million properties that we have sold that majority of that saying in cash waiting to be redeployed.
So that that's the bulk of it.
Got it into that that makes sense.
And just circling back to two what you carry as the remaining on investment I think the Carpenter how hotel ground leases. The primary investment there can you remind me what that the yield is on that ground lease.
Ah. It's it starts is a wave of that that ground lease set up it starts with they are in the low 5%.
Type of a cap rate kind of five in the quarter.
Escalates, rather every year rather rapidly in so you know they the expectation is that up you know most likely the operator do buys out that that lease at some point, but ah could be where Ah we get a nice ground lease position that's escalate.
And at a fairly rapid rapid pace.
Okay.
Can you talk about your guidance I think you're.
2020, looking at anywhere from maybe an additional call it 25 million to upwards of 75 million of acquisition.
Clearly you had the capital on the debt capacity, if you eat the high end of that can you talk about the existing pipeline of what you're looking at you know is there any skewed toward office or retail or the types of properties you're considering.
Yeah. So a you know it's it's obviously a great time to be out looking for acquisitions I will tell you that the the environments a little little strange in that the people that are out looking to sell their assets you know a have a motivation to sell clearly but at some of the high.
Our quality assets.
Our in the market, even though people are sellers because they just figure. This is a terrible time to be selling an asset. So yea. So what we're seeing is for very high quality properties you're seeing.
You know the cap rates being compressed obviously with interest rate so low that that makes sense.
And then with properties that are you know higher risk or not as core or they could be a cap rates are wider. So we're looking for more kind of opportunistic acquisitions with higher yielding potential higher returns and so a in more.
We're on a flavor of Ah on the office side.
As a you know obviously for retail having the headwinds that does you know we've spent the majority of our pipeline has been on alpha side.
Okay great.
And I know that you're ahead of your 2020 disposition expectations you sold the Wawa earlier this quarter.
Are you still looking to dispose a single tenant assets you know the rest of the year media ground at least here or there are you think you're done more or less.
Yeah. So on the smaller the ground lease type situations. There there's more to do obviously since we had a lot on a were not you know, we're not as aggressively selling them, but given given where we've been able to execute on a cap rate basis, we'll we'll sell their all day long so.
So there there probably will be some more sales a latter half of the year.
I want to change gears and go to the land joint venture with a magnet tar.
And your presentation, you put off at the remaining land value estimate is anywhere from 90 million to $110 million. It just to confirm is that inclusive of the 31 million, it's under contract or is that outside of that that $31 million under contract that's inclusive.
Okay, that's what I thought.
Okay, I think that that's it for me thanks, guys.
Great that's correct.
As a reminder, she would like to ask your question. Please press Star then one.
The next question will come from Craig Gilbert with Linden Advisors. Please go ahead.
Thanks for taking my question I just had a few one is on the the unresolved. So it looks like those the majority of that is for 24 that just can you speak to the other you don't call. It three years so percent.
Maybe a win and what's going on there and any prospects for recovery.
Yeah, so, but the most of the balances really small shop space in our larger centers like crossroads.
Parameter Atlanta or the strand in a in Jacksonville, So it's mainly smaller operators.
I will say that you realize for obvious reasons people have a lot of concern for retail I will say that we've had a lot of.
Tenant interest in in these spaces lately, so I would say in the last.
Three or four weeks as the activity has increased dramatically.
And so a week, we feel very confident it's not just not more or less chasing or these unresolved it's really finding.
Stronger operators, who want that new vacancy so.
Given that we have you know really strong centers there.
That's really the opportunity is to titrate up with a stronger operator.
Got it got it and then just on the geographic diversity it looks like.
Obviously, you're in some states, Florida, Georgia, Texas.
Where we could see you know maybe re shutdowns how are you thinking about that and I mean, just trying to manage that that risk.
Yeah, I mean are to be honest with you you know we're not spending a lot of time worrying about it and then that we have a solid you know tenant base. Even if we were to shut down again you are cash flows never came close to being an issue.
So.
No I mean, maybe because this is the reason why florida's and little bit of trouble in the covert side, a you know our restaurants on the beach in Daytona has some of the best days they've ever had in last couple of weeks.
So I don't think it maybe I'm not trying to I guess what happens in the.
International basis here on the cobot or a state wide, but I don't think we're going back to a shutdown just so.
You know given kind of where we where we are out of that that's what people are talking about lease here in Florida, they're not talking about and I wasn't Texas last weekend.
I would say that it's more on municipal basis. The you know whether a city or town decides to do something but not a statewide basis.
Okay. Okay and then that's the last one is just on the timing of the REIT conversion I think the press release that as soon as late 2020, what is I guess the outer pound of Holly you think it could go and I guess the main driver.
So what you're what you're waiting on for you know for it to come sooner rather than later.
Well at Great question by the way thanks for asking about that so sequencing wise there a couple of things that have to happen.
I alluded to the shareholder meeting, but if you kinda back up from there we've got a file an S. Four to merge the C Corp into the right.
So anytime you filed a registration statement you Gotta go through the FCC process and you know that's that isn't unknown amount of time, even though we're a fairly experience filer. So could be upwards of 90 days. So you know if you kind of go down that route.
And then you soon after that file a proxy for the shareholder meeting those are kind of your gating items to get you there.
Okay makes sense I appreciate it thank you.
Okay. Thank you.
This will conclude today's question and answer session I would now like to turn it back over to Mr., John Albright for any closing remarks.
Thank you everyone again, thank you Mark patent for being or CFO under Oh going through a lot of changes in and progress for the company and we look forward to talking with you throughout the quarter. Thank you bye.
The conference has now concluded. Thank you for attending today's presentation and you may now disconnect.