Q2 2021 CTO Realty Growth Inc Earnings Call
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Good morning, and welcome to the C.
T O real tea growth second quarter 2021 operating results conference call all participants will be in listen only mode cause you need assistance. Please signal a conference specialist by pressing the Starkey followed by zero.
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Please note this event is being recorded.
I'd 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.
That's true T O real true growth second quarter 2021 operating results conference call with me is Matt Partridge, our Chief Financial Officer.
Before we begin I'll turn it over to mats and ride the customary disclosures regarding today's call Matt.
Thanks, John I'd like to remind everyone that many of our comments.
And today are considered forward looking statements under federal Securities Law.
The company's actual future results may differ significantly from matters discussed in these forward looking statements and we.
Undertakes 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 and.
Greater detail on 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 and CTO REIT Dot com with that I'll now turn the call back over to John.
Thanks, Matt.
And a very active second quarter and making good progress on a number of initiatives we set out.
To accomplish at the beginning of the year.
Some of the highlights of the quarter include acquiring a very high quality class a mixed use property and our Plano submarket of Dallas selling 8 single tenant properties launched.
Launched our first preferred offering.
Operating were received extremely strong demand and attractive pricing and.
Putting.
And under contract the remaining land holdings and the land joint venture, which we anticipate will close by the end of the year.
Starting with our most recent acquisition we acquired the shops at legacy in Plano, Texas late in the quarter for 72, and a half million dollars.
With a 3 mile population and more than 100000 people a day timeline.
Tom population and more than double.
And that.
Household incomes of nearly 140000 and we believe it is an excellent addition to our growing portfolio and has us well positioned with and 1 of the most attractive submarkets of Dallas, Texas.
The property, which spans more than a 236000.
On square feet and retail driven mixed use property that sits at the heart of the broader 2006 hundred acre Master plan and legacy district is surrounded by concentration of Fortune 500 companies, including the regional on North American headquarters for Toyota Fedex Yum brands Pepsi capital, 1 Boeing Liberty mutual.
Tool and Frito lay.
The tenant makeup as well performing mix of amenity, driven retailers and national and local food and beverage operators anchor by the capital grille and seasons 52, which are both darden brands.
There was also a high quality complementary office components of the property, which is anchored by we works.
Works 59000 square feet technology, and many driven co working space.
Year to date, we have invested $111 million across 3 multi tenanted properties and submarkets of our target cities, Dallas, Texas, Salt Lake City, Utah, and Las Vegas, Nevada, We acquired the properties at a.
A weighted average cap rate of 8.5%, which materially exceeds the top end of our initial acquisition cap rate guidance and has resulted in us increasing our acquisition volume and cap rate guidance for the year and.
As I mentioned earlier, we sold 8 single tenant properties during the second quarter for a combined sale price of 60.
In dollars and weighted average cap rate of $7.1 per cent.
Following the end of the quarter, we've since sold 2 additional single tenant out parcels for $7.6 million at a weighted average cap rate of 4.3 per cent.
Year to date through the end of July we've sold 12 properties.
11 of them single tenant for a combined sale price of $73 million at a weighted average cap rate of 6.8%.
Operationally, we made good progress on addressing a number of our remaining 2021 lease expirations with the largest exercise renewals being albertsons at our west close.
Shopping center in Fort Worth, Texas, and Ross It as per Lane and Atlanta, Georgia.
From a new leasing perspective, we signed 6 new leases and the quarter and average rent of more than $21 per square foot with the most notable being super acre and Ashford Lane.
And I'm pleased to say, we are continuing to build leasing.
Leasing momentum for the back half of the year as we worked through a number of L. O I's and actively negotiating more than half a dozen leases at various properties.
As for the end of the quarter. Our income property portfolio consisted of 20 properties comprising of approximately $2.7 million square feet of rentable square foot.
And 10 states and 14 markets.
Our portfolio was 91% occupied at the quarter and with the change and occupancy from the last quarter really more of a function of us selling a 100 per cent occupied single tenant assets and a result of our recently announced leasing activity being and the transitional stage and therefore.
Therefore, the tenant is not yet occupied the lease space when taken into account our lease space that is not yet occupied our portfolio is closer to 93 per cent leased as of quarter and Jack or being.
We continue to put an emphasis on faster growing markets that are forecasted to exhibit excellent supply demand.
And dynamics, and which are located and business friendly states benefiting from notable population growth our largest markets are now, Florida, Texas, Georgia, and Arizona to capitalize on these projected long term trends.
As of the quarter and 90 per cent of our portfolio rents come from Msas with over 1 million.
People and nearly 90% are located and the urban land Institute and top 30 markets in.
In addition to our income property portfolio activity, we continued to make strides and monetizing our non income producing legacy land holdings and subsurface interests in the quarter, we sold 9003 hundred acres of subsurface interests.
So, bringing our year to day total subsurface interest sells to almost 35000 acres are $2.6 million. We also sold a wholly owned land parcel in Daytona Beach for half a million dollars. We are under contract to sell our downtown Daytona Beach development site for 6 and a quarter million dollars. All of this activity of the course.
And in addition to the previously announced agreement to sell our remaining assets and the land joint venture the contract purchaser of the land JV is currently and due diligence. So at this point we anticipate per.
Providing an update to the process during our third quarter earnings call with that now I'll turn the call over to Matt.
Thanks, Sean.
Beginning with our topline we continued our strong rent collection results from the second quarter and collecting 100% of contractual base rent.
Total revenues for the second quarter of 2021 increased 9.8% to $14.3 million and year to date total revenues increased by 12, 2% to $29 million and both instances.
Variances were largely driven by real estate operations revenue associated with previously mentioned and subsurface and vacant land sales we.
We did experienced moderate growth and management fee revenue during the second quarter, but given the recent capital raising activities at Alpine and we do expect management fee revenue to increase to a quarterly run rate of approximately.
And we incurred a $1000 and the third quarter as we start to recognize the full benefit of the increases associated with their capital raising activities.
Additionally, income property revenues and the quarter were largely flat because year over year revenue gains from recent acquisitions are being offset by the timing between dispositions and subsequent redeployment of disposition proceeds.
9 however, there will be a meaningful acceleration and income property revenues as we realize the revenue benefits from our acquisition of the shops at legacy that occurred late in the second quarter.
For the second quarter of 2021 and funds from operations were $4.9 million or 83 cents per share and adjusted funds from operations were $6.3 million or $1.7.
<unk> per share.
Our funds from operations were impacted by a loss on extinguishment of debt related to the required write off of deferred financing fees that occurred when the C. N BS loan.
Semi alpine as part of the previously mentioned asset sales.
And this 1 time item impacted <unk> results by approximately <unk> 11 per share on the quarter.
Firstly.
Our <unk> and the second quarter was positively impacted by approximately $434000 of repayments of deferrals related to the previously mentioned rent deferral agreements.
The second quarter of 2021 represented the height.
Of our existing repayment obligations and going forward. The scheduled payments are anticipated to be approximately 90.
And each of the third and fourth quarters.
We reiterate to everyone that our year over year per share comparisons are also materially impacted by the $1.2 million shares issued as part of the special distribution related to the company's REIT conversion that occurred in December of 2020.
As previously announced the company paid a second quarter regular cash dividend of 1.
$1 per share on June 30 to shareholders of record on June 21.
Our second quarter cash dividend represents a 300% year over year increase from compared to the company's second quarter 2020, cash dividend and an annualized yield of approximately 7.4%.
Our quarterly dividend represents a cash payout ratio of 94.
Q2, 2021 <unk> per share.
As we noted in yesterday's press release the company is revising its practice of declaring a quarterly cash common stock dividend concurrent with quarterly earnings.
Net anticipated announcing our quarterly cash common stock dividend and our series a perpetual preferred dividend.
And for the third quarter of 2021, and future quarters, and the second month of the respective quarter.
Turning to our capital markets activities and balance sheet.
And May we bought back approximately $800000 of convertible notes, reducing the face value of our convertible notes outstanding and the $61.7 million and.
For pursuit, we exercised the accordion option on our existing 2026 term loan for an additional $15 million per proceeds.
We ended the quarter with total cash and restricted cash of $18.6 million and total long term debt outstanding of $311 million net.
Debt to total enterprise value at quarter and was approximately 48%.
As John referenced earlier, we did price and upsize of our inaugural perpetual preferred series day offering during the quarter at a 6 and 3 eights coupon with the closing of the offering occurring on July 6 today with the recent asset sales and taking into account the influx of capital from the preferred offering our net debt to enterprise value is approximately 35%.
And finally, we did update our 2021 guidance yesterday, increasing the midpoint of our <unk> per share range and increasing our acquisition and disposition guidance to account for our year to date performance and expected activity in the back half of the year.
Of note, we increased our disposition volume midpoint by $37.5 million and decrease the midpoint of our anticipated.
Dissipate and disposition cap rate range by 55 basis points.
We increased the midpoint of our acquisition volume by $100 million and increased the midpoint of our anticipated going and cash cap rates by 50 basis points.
We also reduced our <unk> per share midpoint to $3.75 to account for the previously noted extinguishment of debt.
And other 1 time items and we increased our <unk> per share midpoint to $4.10 to account for better investment spreads on net investment activity and income properties better growth and external management fees and the increasing dividend payments from our investment and time.
Our updated guidance does not include any additional assumptions for outside equity.
And it could be heavily influenced by the timing of dispositions and the subsequent redeployment of proceeds into acquisitions as well as the future performance of our current and prospective tenants.
I'll now turn the call back over to John.
Thanks, Matt and closing, we're very pleased with our activity to date and we are excited about what we're projecting for the balance of.
And 21 with our revised guidance.
What we're anticipating not only represents improved growth prospects for the year, but also positions us to meaningfully grow earnings in 2022 and beyond as we realize the full benefits of our net investment activity and the growth of alpine and our overall.
2000, and evolution I wanted to thank all of our investors and partners for their continued support and with that we'll open it up for questions operator.
We will now begin the question and answer session to ask a question you May Press Star then 1 on your Touchtone phone, thank you and using.
Company and could probably pick up your handset before pressing and tea.
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Our first question today comes from Rob Stevenson with Janney.
Hi, Good morning, guys. John can you talk about you know the the new guidance is.
As you know essentially a hunter to $150 million of acquisitions in the back half of the year do you have some of that already under contract what types of assets are you looking at here.
And sort of what should we be expecting in terms of are.
Are these fully occupied or is there some lease up how and how would you characterize what you are looking at these days.
Yes so.
And we have the guidance is that a twofold..1 we are seeing a lot of quality assets that are being teed up to come to market. This fall.
And so we're pretty excited about the target rich environment and we've been.
We actually.
Bid on a property. This week on you know best and final like and just say that because we we didn't make it win win it but there is and you know there is more capital chasing.
Properties, which isn't good but there is and it's breathing now.
Some some higher quality property, so the way to think of it as we love obviously legacy that we bought with a little bit of lease up opportunity. So that would be our favorite sort of acquisition that there are some some vacancy that we can capitalize on and.
And then the other thing and that's really driving.
And the upside on the guidance for acquisitions is really dispositions the capital markets are very favorable.
On selling some assets and so we're looking at.
Our single tenant office buildings is as good candidates and the pricings are very good. So that's that's kind of what we're doing.
Okay.
And then the the the deal to sell the remaining land holdings that does not include anything with the subsurface rights is that correct.
Correct what is the what's the current thinking and the plan for that is does that go away at some point and the next.
Year on year and a half is that stay for a while is the monetization further out for that how should we be fine.
And as you've seen and our announcement, we've been whittling away at it so.
And so we've been going to a lot of the surface owners and operating opportunity to Dubai.
Their subsurface our.
Yeah, Chris.
Rights underneath their land and that's been going pretty well as you can see but yes, we plan on selling that.
As soon as we can and get the right price, but I would give it 12 months.
Okay, and then Matt what is the construction and progress on the balance sheet.
Yes.
So a lot of that.
And build out for tenants and most notably the food Hall at Ashford way and that.
It's gonna commensurate here later in the later on the third quarter.
But we've got some other got some other projects with other tenants and different centers that are also on process.
Alright, and then 1 last 1 from me John and to what extent.
Is the remaining dispositions.
That you would wind up doing or even exceeding the top end of the guidance range on dispositions reliant on you guys closing the acquisitions as well and using that as a source of funding I mean, if you don't for some reason the acquisitions get pushed into 2022 to the dispositions get pushed.
From a lining up from of NOI replacement standpoint on a 10 to 31 perspective.
Yes, I would say that that's fair that if for some reason.
The Canada acquisition candidates arent there at the right pricing and we won't we won't move the offices without.
And I'm feeling very comfortable that there is a good acquisition opportunity to match up with that.
Hey, Thanks, guys I appreciate the time thanks.
Okay.
Our next question comes from Michael Gorman with <unk>.
Yeah. Thanks, Good morning, John if I could just go back to the acquisitions for a minute.
You mentioned, obviously 1 of your favorite types is kind of what you did at legacy there, where there's some lease up opportunity and I was just wondering given some of the commentary that we've heard from some of the strip center operators. This quarter about the leasing velocity and things like that are you seeing more hesitancy for.
Tom.
And they can see or are they asking for more value attributed to the vacancy when they're bringing assets to market just because there is more certainty around that kind of lease up growth potential.
So good question, so what we're seeing and there's a lot of the the assets that we are hearing coming to market. This fall after the summer.
And.
Oh really.
Transactions that were attempted pre COVID-19.
And they didn't get the pricing.
Not that the pricing is has gone back to pre COVID-19, but people feel like.
Theyre not going to take the discount that they were getting prepared to take.
Number of win win kind of Covid came around.
So you feel like this is another chance at and exit and so I think that's kind of what youre seeing as people kind of rushing to the doors with assets that they had lined up to sell pretty COVID-19 and COVID-19 happened and now they are not going to risk.
And and so on with regards to lease up if the property. If if there is some some vacancy there they don't expect to get paid for the vacancy.
We are seeing is.
Some assets the sellers deciding to wait a little longer so they can do.
Leasing and then come to market with it.
Good to go but if it if it has a vacancy they are not asking for value for that because if they haven't got and at least by now how can we assume a buyer is going to give them value for that.
Okay. That's that's helpful and then.
Just on the capital structure side, obviously with pine.
There were some success.
And with doing.
A N O P unit transaction during the quarter.
I'm just curious as you think about the potential future acquisitions for CTO.
And especially if the equity value and this higher R. O P units going to be a potential tool and the capital structure here as well.
Yeah, we don't have a.
So unit structure CTO yet.
So definitely not and we were.
Would it be issuing equity at these type of prices.
So luckily we can we still have internal capital through the landfill through subsurface sell through re monetizing.
And opening the single tenant property. So so we don't really need to rely on outside capital, but look I mean, we want to grow the company. So when when the pricing and the equity is better and we'll look at and look at those options.
Okay, Great and then just 1 last question on the on the land sale.
Isaac.
Obviously, the buyers and their due diligence and so that's that's the next step but.
Having gone through that and and selling these land parcels I mean kind of.
What level of certainty or what kind of what's involved and the due diligence here on on the land side are they looking at zone and potential are they looking at improvement rights or kind.
What's the process.
Yes, right now they're deep into actually planning.
Development on the properties engaging civil engineers architects.
On how they would look at developing the parcels. So theres no rezoning risk everything has been zoned appropriately.
<unk> for the different uses.
And they're spending a lot of time talking with consultants talking with brokers developers and so.
And so they're just getting kind of a better and better feel for the market and the land and and any of the development issues with regards to.
Lately.
And what the cost and put in roads and utilities and and all.
All of that kind of thing, but nothing nothing really is subject to zoning or entitlement.
Okay, great. Thank you very much.
Sure.
If you have further questions. Please press star 1 to join and Ikea.
Our next question comes from Craig Kucera with B Riley.
Yeah.
Hey, good morning, guys I wanted to follow up on the JV land sale.
You've got it on the contract for 67 million and the partner has I think it's 33 plus million dollars balance what.
What do you expect to receive on a on a net basis is there any taxes tied to that and how should we think about that.
Yeah. Thanks, Craig So we expect to receive somewhere around $26 million before taxes.
This is held and attach.
<unk> REIT subsidiary so there is some.
Some taxable.
Taxable.
Durations that we have to work through as a result of it being on the Trs, but I think on a net basis, it's going to be worst case $20 million.
On the kind of net subsidiary, but I think we have the potential.
And maybe get more than that depending on how we maneuver the tax side of things.
Got it and I know you mentioned.
And that you had the $6 million Daytona parcel on.
And your contract is that and guidance and kind of what are you thinking on when that might close.
That's not in guidance, but it would close by and ended the year.
Got it and.
And just thinking about the preferred.
Conceptually and Youre changing your guidance I think you know it.
It looks like Youre, acquiring 100 million more of its selling 25% to 50.
Talk about how youre thinking about leverage.
And the preferred and the capital stack.
Yes, so I think from a leverage perspective, we've got we've got strong coverage from.
On a.
And just a coverage perspective, even with the new preferred on a pro forma basis. So we feel pretty good about.
And where that stands.
I look at the preferred is leveraged to the common but it is perpetual capital. So it certainly has that equity quality and so I think we have some room to move leverage back up as we identify opportunities and.
The market hopefully in the back half of the year like John talked about so I think we'll probably run at somewhere between 6 and 7 times net debt to EBITDA and over the long run.
But that will move around obviously, depending on timing, where we're at right below and right now at 35% net debt.
Total enterprise value today.
Sir.
Okay got it.
And that's it from me thank you.
Correct.
This concludes our question and answer session and I'd like to turn the call back over to John Albright for any closing remarks.
Thank you very much for attending the call and look forward to talking.
Moving to you and.
Next couple of days thank you.
Yeah.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.