Q4 2020 CTO Realty Growth Inc (Maryland) Earnings Call
Good day and welcome to the C.
P O fourth quarter and full year earnings conference call.
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I would like to turn the conference or with the John Albright. Please go ahead.
Thank you operator, good morning, everyone and thank you for joining us today for the CTO of royalty growth fourth quarter.
The touched here in 2020 operating results conference call with me is Matt Partridge, our CFO before we begin I will turn it over to match the 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.
And the company's actual future results may differ significantly from the matters discussed in the 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.
The SEC filings you can find our SEC reports and our earnings release on our website at the CTO Realty growth Dot com.
With that I will now turn the call back over to John.
Thanks, Matt as many of you are aware CTO has a long and storied 110 year history. This past year was yet another milestone in.
The other action and arguably our most active year, which saw us experience many challenges with the COVID-19 pandemic, but was also highlighted by the implementation of our diversified real estate investment strategy of record year of acquisitions and dispositions excellent rent collections and cash.
Culminating with the company's conversion.
<unk> two of real estate investment trust, our transition to a REIT has been a long of wind new process, but we believe the benefits of the structure for shareholders now and in the future of numerous with our REIT election, we've instituted a regularly quarterly cash dividend and that allows us to effectively pass along the income of the company to our shareholders.
Our progress. Additionally, our REIT status now allows us to be more appropriately compared to other companies owning and managing similar real estate investments and as you saw with our earnings release and supplemental financial report yesterday has served as the catalyst for improved financial reporting that we hope will drive the more comparable valuation to our.
The new peers as.
As we've previously disclosed 2020 was a record year of acquisitions and dispositions and represented the first year that we've put to work our refined diversified investment strategy emphasizing investments in states and markets that we believe are experiencing positive business trends and above average population.
Growth.
For the full year of 2020, we acquired for properties for $185 $1 million and a weighted average cap rate at some 0.8%.
For the acquisitions included three retail properties within entering Submarkets of Phoenix the law.
Lana in Miami as well as one office property in Tampa.
The acquisitions were funded with proceeds from asset dispositions throughout 2020 and with the 10 31 proceeds from the company's sale of assets. The Alpine income property Trust when alpine did its IPO in late 2019 as.
As part of the 'twenty 'twenty dispositions, we sold for assets in the fourth quarter for total disposition volume of nearly 35.
Yeah.
For a weighted average cap rate of six 1% of the 35 million $28 5 million was related to a retail property in Aspen, Colorado, which we sold back to the tenant under the terms of the tenant's existing buyback right.
For the full year 2020, we sold $86 5 million of properties at a highly attractive.
Cap rate of five 2% the net spread on the investments with approximately 260 basis points, which compares with our weighted average disposition cap rate of five 2% versus our weighted average acquisition cap rate of seven 8% representing approximately 2.2.
Two 5 million of annualized NOI accretion on the assets sold in 2020.
As we turn to the land sales activity of our land joint venture in 2020.
To carry some of the momentum from our record third quarter into the fourth quarter, where we sold 86 acres for $11 $5 million. This brings our inception.
To date land sales total to approximately $80 million the.
The of which occurred in 2020 and has allowed us to continue distribute proceeds to our joint venture capital partner, bringing their 'twenty 'twenty year end capital count to approximately $32 4 million.
We currently have 600 acres of land remaining of Atlanta.
Land joint venture, which we estimate has a value range between 70 and $95 million. This continues to be of long term source of liquidity for us out of C. T O. As we stand of received 90 cents of every dollar from land sales once our joint venture partner has been repaid the full balance of the capital account.
A few other transactions I would like to highlight as part.
Typically in 'twenty 'twenty and to date in 'twenty 'twenty. One include our sale of a Billboard sites for 1.5 million. The recent success, we've had of monetizing our subsurface interest of which we sold 345 acres for $600000. During the full year of 2020 and in January of 'twenty 'twenty, one we were able to monitor.
Of our adds another 25000 acres for $1 9 million and finally, we've largely been able to exit our commercial loan portfolio with the recent $2 million of repayment of our loan made to the buyer of our former golf operations.
While none of the smaller transactions are material, we expect similar transactions to.
<unk> throughout 2021, as we continue to make incremental progress towards monetizing noncore assets unlocking non income producing equity for deployment into future income producing investments.
As of the end of the year our portfolio consisted of 27 properties comprising of $2 5 million.
Square feet of rentable space located in 10 states.
The portfolio was 93% occupied and some of our top tenants include Wells Fargo Fidelity Ford Motor credit and general dynamics with our other top to top tenants the tenants for Carpenter of hotel and our all day anchored center.
The occurred Hale of Florida surveying of the ground or master lease C for the respective properties.
While we've not historically highlighted the advantageous lease structures of some of our assets. We do think it's important to note that over 10% of our rents are related to ground lease our master lease properties. We believe this is especially.
The interval given that the tenant has a significant investment in the underlying improvements of the locations, which includes investments in building, some fixtures and equipment and of which these improvements would revert to us in the event, we recapture of the asset of the result of of the default or should the tenant chose not to renew the lease.
As a result of there.
No direct investment in many of the improvements the tenant has more of an incentive to properly maintain the asset and their investment gives us additional comfort regarding our long term occupancy I'll also note that nearly 90% of our portfolio of rents come from Msas with over a million people and approximately 84 per cent of the rents come from urban land.
It's top 30 markets as a result of the vast majority of our assets benefit for the significant population base of demand and strong near to intermediate demographic trends.
Shifting the focus to the future, we're now more than a month into 'twenty and 'twenty one.
We're excited about our property level.
The institution does for the upcoming year and early indications of leasing activity of a number of our properties as we have announced in the fourth quarter. We've begun the for rebranding process for Ashford Lane, which was previously known as perimeter of place the rebranding when combined with some strategic capital investments and thoughtful re tenant even of certain spaces.
And this is going to allow us to meaningfully drive in place yields over the next few years.
The lease up of momentum began in the fourth quarter with new <unk>.
The 17000 square foot food Hall lease who I am excited to say just announced their first chef and food stall concept we expect.
<unk> on this momentum as we renew some existing tenants and execute leases with some exciting new concepts.
In addition to our efforts of Ashford line, we anticipate moving forward with building upgrades of result in increase ran at our Wells Fargo occupied property in Raleigh, The previously announced new lease related to the expansion of crowds on the beach in Daytona and we're encouraged.
The build by preliminary the leasing efforts at our West Cliffs shopping center in Fort worth where Albertsons just exercise their option for an additional five years.
All of this activity has the potential to drive meaningful growth over the next few years and while we are excited by these prospects and it is important to note that the uncertainty remains regarding.
<unk> <unk> performance of our existing of prospective tenants as we look forward. We continue to believe the we're well positioned to execute on our investment strategy, which is driven in large part by our opportunity to recycle capital out of approximately $150 million of existing single tenant assets over the next few years and redeploy the proceeds into multi channel to retail.
The operating office assets that we think have potential to provide more attractive risk adjusted returns. This strategy combined with our portfolio of strong underlying real estate fundamentals and our team's ability to execute will drive us forward and finally I think it is important to highlight that we did provide comprehensive 'twenty 'twenty, one guidance, which we took a balanced approach.
<unk> of the confidence in conservatism, given the uneven progress towards broader vaccination efforts and the general state of the overall economy with that I'll now turn the call over to Matt to discuss our financial results and balance sheet activities.
Thanks, John the company experienced excellent rent collection results during the fourth quarter.
Collecting an average of 99 per set of contractual base rent.
These rent collection efforts combined with the sale of non income producing assets in the subsequent reinvestment in the income producing properties allowed the company to report total revenue of $16 million during the fourth quarter of more than 33 per cent increase over the fourth quarter of 2019.
For.
Year of 2020, total revenues increased 25% to $56 $4 million, the 99% collection rate for the fourth quarter represents rents that were contractually due in each respective months and includes the effects of rent deferrals agreed to prior to the rent payment date.
The acceleration in collections from the third quarter of 2020.
For the phone merrily of result.
The company resolving outstanding balances due from Harkins theaters, and 24 hour of fitness the latter of which had previously filed for bankruptcy in a sense of reorganized and reemerged for January were excited to announce we've collected 99 per cent of contractual day threats due in payable.
In consideration of our REIT conversion, we will.
Now of the reporting funds from operations or <unk> and adjusted funds from operations or <unk> as it is standard in the industry.
For the fourth quarter of 2020 funds from operations for $10 1 million or $2.11 per diluted share. This represents a 174 per cent year over year increase from the fourth quarter of 2019.
19, adjusted funds from operations for the fourth quarter of 2020 of our 10 6 million or $2.20 per diluted share and this represents the 210 per cent of year over year increase from the fourth quarter of 2019.
Both of <unk> <unk> per diluted share benefited from the monetization of non income producing assets and the subsequent reinvests.
And in 2020 as compared to 2019.
The results for the fourth quarter of 2020 benefited from a one type of tenant repurchase right extension of payment of approximately 300000 related to the company's Aspen, Colorado retail property.
For the full year of 2028 funds from operations were $27 5 million or $5 84.
<unk> per diluted share and adjusted funds from operations for $26 2 million or $5 57 per diluted share both per share values represent a year over year increase of 105 per cent and 87% respectively.
As compared to the full year of 2019.
It should be noted the <unk> was negatively impacted by approximately one.
$1 million from the net impact of previously agreed to deferrals and repayments of deferred rent.
Related to the COVID-19, pandemic and the company expects the benefit from those deferred repayments over the next few years.
As previously announced the company paid of fourth quarter of regular cash dividend of $1 per share on November 30th share.
Holders of record on November 16. This represented a quarterly payout ratio of 47% of <unk> per share and 45 per cent of <unk> per share.
In connection with the company's REIT conversion the company paid a special distribution of $55 8 million or $11 98 per share on December 20, <unk> to shareholders of record as.
Of the business on November 19th the.
Breakdown of the special distribution included a $5 6 million aggregate cash dividend and the issuance of one 2 million shares.
The company paid regular cash dividends for the full year of 2020 of $1 90 per share in total dividends, which includes the effects of the company's special distribution in connection.
With the three conversion of $13 88 per share as highlighted in Tuesday's press release, our board of Directors has approved and the company has declared a first quarter regular cash dividend of $1 per share to be paid on March 31, 2021 to stockholders of record as of the close of business on March 22021, This first quarter cash.
Of the claim represents of 400% year over year increase over the company's first quarter 2020, cash dividend and an annualized yield of almost 8%.
This is the 45th consecutive year in a row that the company.
<unk> has paid a cash dividend and it's consistent with the company's previously announced the dividend policy of providing a reliable and consistent dividend.
And to our shareholders.
I'd like to note that we expect our dividend payout ratio is relative to <unk> to be in the range of 90% to 100% annually. This is the.
The higher ratio than most other Reits and as the product of our low taxable depreciation which increases our overall taxable income and must be paid out in order to maintain our REIT status.
Turning to the balance.
Cash dividend total long term debt outstanding as of December 31.
$285 million and net debt to total enterprise value at quarter end was approximately 50%.
We did opportunistically buyback $12 $5 million of our 2025 convertible notes earlier in the year, which resulted in the gain of approximately $1.
$1 million, and we repurchased $4 $1 million or <unk> 88, 565 shares at an average price of $46 29 per share.
The share repurchases of which the price is unadjusted for the dilutive effect of the company's special distribution, where particularly beneficial.
Total cash and cash equivalents and restricted cash as of year end 2020 was nearly $34 million with the majority of the cash being restricted cash related to 10 31 exchanges that will be reinvested in the future acquisition opportunities and finally I'll highlight the 'twenty and 'twenty one guidance, we provided in yesterday's press release as John noted above we felt it was important.
Pragmatic approach to our assumptions for 2021, given the overall environment.
Having said, we do expect to have another very active year on the transaction side of things as we continue to monetize single tenant assets and redeploy proceeds through our diversified investment strategy 2021 guidance anticipates total disposition volume of $75 million.
Take up for it in $25 million with exit cap rates falling into the range between $6, 35% and 675%.
We expect similar acquisition volume as we redeploy disposition proceeds the targeted investment yields between 675% and seven 5%.
21 <unk> per share.
Two of unrelated to be between $3 80 and.
$4 10.
Per diluted share in the <unk> per share guidance is $3 90 to $4 20 per diluted share.
This guidance does not include the additional assumptions for outside equity it can be heavily influenced by the timing of dispositions and the subsequent redeployment of proceeds.
And the future performance of our current tenants from prospective tenants and includes the full year dilutive effect of the one 2 million shares issued as part of the company's special distribution related to the reconversion.
That I will now turn the call back over to John for his closing remarks.
Thanks, Matt the 'twenty 'twenty was the transformative year for us.
<unk> I'm, so proud of our team and all of that they accomplish.
I wanted to thank all of our investors and partners for their continued support of especially for their patients during our REIT conversion.
At this time, we'll now open it up for questions operator.
We will not book in the question and answer session.
Last quick.
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Listening to Keith.
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Tom maybe we'll pause momentarily to assemble.
That's true.
The first question comes from Rob Stevenson of Janney. Please go ahead.
Good morning, guys, John what does the acquisition pipeline look like today and what types of assets are in there I mean, you guys have a pretty well defined sort of sources of cash but help us understand you know the.
The current thinking on uses.
<unk> of cash in the at least in the first half of the year.
Sure, Yes, so as you know Rob we of the $28 million sitting in the bank.
And so we've been on the hunt for acquisitions very actively in the last 60 days.
We have found some some good candidates and I would say the.
All of them are multi tenanted.
Retail properties.
In in areas that markets that we really like a lot. So we're pretty happy with kind of the.
The candidates that we have that we're undergoing due diligence right now.
But.
All retail and all of multi tenanted and the strong markets.
Does that I mean, the way that you guys are thinking about the business today is that the.
The focus I mean would we see something along the lines of carpenter or sort of office stuff or is that really as youre thinking about.
These days not really where the the best opportunities lie for you.
We're actively looking at those type of mixed use opportunities because of the you know the capital for those type of acquisitions.
Somewhat evaporated and so there's actually some good opportunity in that sector.
Really getting the right price of course, so youre, having sellers that.
Coming off of their pre COVID-19 valuations, but slowly getting there. So so we've been actively looking at.
Think of our opportunistic type of purchases where the property.
You might have a combination of office and retail, but more on the retail side.
And they may have some vacancy kind of like how we picked up perimeter had a lot of.
Vacancy opportunity.
So we are seeing some good good opportunity just a matter of trying to trying to get the right deal.
Okay.
And then.
The 2021 guidance.
That.
Does that include the $1 8 million land sale gain in the first quarter.
Yes.
And I would say when you think about the guidance, obviously theres a lot of transaction.
Baked into that and so there's some drag on the redeployment of assumed.
As well as it's a fairly conservative approach on the renewals and lease up assumptions.
The.
And so does the dispositions numbers include land sales either outright or subsurface sales during the year.
<unk> well.
Those are purely income existing income assets.
Okay and is there anything else in the 2021 guidance that would be considered sort of non core are you guys anticipating in that additional subsurface sales or additional land sales out of the JV et cetera.
Here is from of subsurface.
Sales I'll, let John talk about it I think on the land JV side, we still got some heavy lifting to do to get to where we are in the money on the land JV, but I'll, let John talk about the subsurface expectations, yeah. So Rob.
We expect to have more of subsurface activity. This year, we're having some.
Good.
Dialog with people that own the surface land that we own the minerals and its actually through a new mapping service that we we came about that can actually find out who owns.
Of the properties and the more efficient way than we had in the past so having.
400 for 2000 acres around a bunch of counties in Florida and.
We're able to find.
Farms and ranches that have 2003 thousand acres of something like that so we're we think there'll be more activity definitely in the <unk>.
Subsurface side this year and then <unk>.
Again on the.
Having on the land side of the <unk> JV.
Having good good progress on additional land sales, but it's just going to take two years or so until we start seeing economics coming to the CTO.
So is there anything other than the one eight that you didnt of.
Gained in the first quarter.
The implied in that $3.
$80 to $4 10 guidance number.
There is not okay, and then I guess the last one from me Matt just from the.
The sort of figure everything out what was the recurring <unk> per share in the fourth quarter sort of stripping out the land sale and all of the other noise I mean from the sort of recurring.
Whether or not you want to call it recurring or core how should we be thinking about sort of the build throughout as were looking is that $380 to for 10, obviously, there was $1 8 million of land sales in there, but what are we basing the fourth quarter of sort of run rate from a recurring basis off of.
Yes, so existing NOI today is a little over $35 million on the income portfolio.
Yes.
Mitigation credits and some other extraneous stuff of that runs through the P&L. The there'll be some noise with that I'll get adjusted out in <unk>, which is.
<unk> I would say focus on the <unk> number because of the way some of the.
The non core assets get treated on certain transactions, but the 30 of little over $35 million of existing NOI number, but obviously that's kind of move around based on what assets are sold and the proceeds are redeployed.
Okay, Alright, guys. Thanks.
Yes, thanks, Rob.
As a reminder, if you have a question. Please press star then one to be joined into the queue.
The next question comes from Craig Kucera with.
B Riley Securities. Please go ahead.
Hey, good morning.
I appreciate it.
I'll just start out talking about your.
Expectations for 2021 baked into the guidance as well of the cap rate expectations of quite a bit different than what you either bought last year are sold and I guess I'm curious is that just a function of what youre seeing in the market for or you're just being maybe a little bit more conservative on.
Morning, Guy, where you are buying assets and selling assets in 2021.
Yes, so I would say, it's a little bit of a combination of on the acquisition side remember, we're trying to give you guidance on the initial cap rate.
That were buying but that may imply that property has some vacancy so.
On the total return obviously is going to be higher than that but just the initial cash cap rate, we're being kind of conservative there in case, we have some some properties that are.
Have some lease up opportunity.
And then on the disposition side, just given you know trying to be.
The conservative there.
Typically we do better but.
Just wanted to kind of.
The way that out there.
Okay fair enough.
Frequency of the impairment on the land JV you took what was that at any particular parcel in Daytona beach or was that sort of across the market any color there would be great. Yes.
So we bought a I would call.
For a lack of better term of spike piece.
That of developer that's near our ascend.
Assemblage that we're talking with the apartment developers.
And.
That was really kind of of blocking tactic of you will and so we're going to go ahead and sell that asset and so.
The <unk> small asset small impairment, yes, and then on the on the actual land JV Craig.
Part of that is just due to timing related to expectations of sales. So.
We're occurring of preferred return on the land JV and so the farther out sales go.
Yes.
The more of the preferred return of criticism.
The less.
<unk>.
The less we get close to our basis thats on the balance sheets of that was the the.
Of the driver of the impairment on the land JV.
Okay I appreciate that.
I want to talk about leverage.
Closed the fourth quarter at about 35.
The net debt sitting out of lot of restricted cash.
And it looks like you're kind of match funding acquisitions in 2021 understanding that there's probably going to be of timing difference, but I guess just going forward.
Should we consider the leverage to be relatively constant or any movement there.
Yes, I think from a leverage standpoint.
Five years, that's really delever over time as we unlock the equity that's in subsurface rights the land joint venture the law.
Land that John talked about just a minute ago, so will naturally delever as we unlock net equity and redeployed in the income producing assets, but from our total debt outstanding perspective, I think you can expect.
We want that to stay relatively constant it'll it'll move around a little bit based on timing of acquisitions and dispositions.
But I don't at this point, we don't have any intention to materially move leverage up.
Okay got it got it.
And in your opening comments, John you kind of went through on some renewals.
Spec than some other leasing activity.
Entering 2021, you'd have about 5% of your of your rent expiring. This year can you talk about sort of where you are specifically in the in regards to sort of those discussions and are there any known move outs in 2021.
Yeah, there's only really one.
Any kind of size of the tenant.
245 Riverside.
Which is kind of a full floor type of size tenant 20000 square feet or so.
We're having actually decent.
The tenant activity on the office side, which.
Which would be surprising I think for all of us given what's going on with the with Covid. So.
Of that property is held up over the years into the high Ninety's because it's just the.
Somewhat of a boutique asset that's not downtown on the river.
So that would be the only.
The thing that the kind of a known move out.
Yeah.
On perimeter, there's there's tenants that we're trying to get out.
Because we can do better on the lease rate. So so the hopefully there will be some move outs and perimeter because we have.
Better better.
Better kind of paying tenants to backfill it.
Got it.
And in regard to.
The debt side of things I think you've got the mortgage coming due here in a couple of months on the Wells Fargo property in Raleigh.
Kind of what's the expectation there is that just to refinance that and kind of what are we looking.
Looking at as far as.
Financing options there.
Yes, so we're going to what the term out of portion of the revolver currently.
Which will free up some capacity to refinance debt mortgage onto the revolver.
Okay.
And you mentioned there was about $1 million.
<unk>.
On the deferred rent impact to <unk> in 2020 kind of what's the expectation for recovering that in 2021.
Yes, so 2021.
Looking at about 400000 for the full year.
It's pretty smooth throughout the year, it's not too lumpy.
And deferrals will deferral of collections will go out through 2023, so we've got a little bit of of longer longer timeline on the the recollection side of things, but that's the impact for 2021.
Okay, great. Thanks, that's it for me appreciate it.
Thanks, Craig.
This concludes our Q&A session I would like to turn the conference back over to John O'brien for any closing remarks.
Thank you for attending the the earnings call and look forward to talking to you this quarter.
The conference has now concluded thank you for attending today's presentation.
You may now disconnect.
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