Q4 2021 CTO Realty Growth Inc Earnings Call

February 25, 2022

Today's conference is scheduled to begin shortly please continue to standby.

For your patients.

[music].

Good day, and thank you for standing by.

The CTO Realty growth fourth quarter and year end 2021 earnings call.

At this time, all participants are in listen only mode.

After the speaker's presentation, there will be a question and answer session.

I'll ask a question during the session you will need to press Star then one on your telephone keypad.

Please be advised today's conference maybe recorded.

If you require operator assistance during the call. Please press Star then zero.

I'd now like to hand, the conference over to Matt Partridge, Chief Financial Officer.

Before we begin I would 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 earnings release and supplemental information on our website at <unk> Dot com with that I will now turn the call over to John .

Thanks, Matt.

Our first full year as a REIT, we made tremendous progress refining our portfolio and executing on our retail focused investment strategy.

Closed out the year with a number of grocery anchored traditional retail and mixed use acquisitions and highly desirable markets strong leasing activity opportunistic single tenant dispositions and the sale of the remaining assets in our land joint venture.

The final monetization of the land completes our exit from the landowner business, which spanned over 110 years.

As we reflect on our more recent activities in 2021 and the impact of those activities. We have on the future and I'm very pleased with the advances we have made to further improve our high quality portfolio.

And how we've positioned CTO could drive outsized <unk> growth through a combination of organic and external opportunities.

Drilling down into our fourth quarter activities, we had a record acquisition quarter acquiring nearly $140 million of property as we redeployed the proceeds generated from our third and fourth quarter dispositions and a new term loan we completed in November .

For the year, we acquired nearly $250 million of assets.

<unk> yield of seven 2%.

Acquisitions are located in strong submarkets in some of the most in demand cities in the United States, including Raleigh, Dallas, Atlanta, Santa Fe, Las Vegas, Salt Lake City and Orlando.

All of these acquisitions will drive future growth through repositioning opportunities and some provide strong stable in place cash flows and support our attractive 7% dividend yield.

In all instances, we expect leasing demand property cash flows and residual value of the real estate to continue to benefit from our markets robust population growth in their business friendly operating environments.

Listen front, we sold 15 properties in 2021, 14 of which were single tenant assets for a total disposition volume of 162 million.

The weighted average exit cap rate was 6% generating a combined gain on sale of more than $28 million.

Representing more than 120 basis points of net investment spread between our weighted average acquisition cap rate.

Our weighted average disposition cap rate.

Operationally, we ended the quarter with economic occupancy of nearly 89% leased occupancy of more than 92%, reflecting the significant progress we've made in executing on our repositioning plan at Ashford Inc.

And the incremental gains across a number of our properties in our portfolio.

During the fourth quarter, we signed new leases at an average rent for the $41 per square foot.

The new leases were at Ashford Lane, Atlanta, where we are currently under construction on the lawn, which we expect to be completed in late spring or early summer.

Of our renewals and extensions during the quarter, we experienced more than 15% growth in comparable new per square foot lease rates, demonstrating our ability to realize higher rents when the expiring leases have no remaining contractual options.

Impact of our leasing gains on our portfolio same store NOI is going to be significant for 2022, and 2023 and we're looking forward to reporting these more traditional retail metrics beginning in the first quarter jumped at Ashford lighting alone were scheduled to have separate though.

Paul Brown bag seafood, Paris, Baguette, wholesome juice bar Ginnie zine screen hawkers.

And Sweet Green all open their doors for business in 2022, transforming the property into a dining destination driving increased foot traffic through the properties other retail tenants as.

As we think about the upcoming year, we will continue to concentrate our efforts of high quality well located retail and mixed use acquisition opportunities.

Acquisition activity will drive our disposition efforts as we focus on selling our remaining office properties and completing our portfolio shift to retail or mixed use with that I'll now turn the call back over to Matt.

Thanks, John as John noted 2021 was an excellent year of progress for CTO as we made significant financial and operational strides and executed on a transformation of our portfolio. We ended the year with 22 properties comprised of approximately $2 7 million square feet of rentable space located in 10 States in 16 markets are.

Market is now Atlanta, where we acquired a newly constructed sprouts anchored center just down the road from Simons Mall of Georgia, and our other top five markets include Jacksonville, Dallas, Raleigh, and Phoenix, all of which are experiencing excellent demographic trends and have strong multiyear catalyst for growth.

Our portfolio was 88, 5% occupied and 92, 6% leased at year end and as John highlighted we had strong leasing spreads in the quarter. Our overall comparable blended spreads were up 12, 3% when compared to expiring rents.

With increases of 15, 5% for options and renewals and six 4% for new leases.

Because we've acquired a number of properties over the past two years with meaningful amounts of existing vacancy we exclude from these calculations new leases that were signed for space that has been vacant since our acquisition.

So the transformed portfolio that better reflects the go forward asset strategy. We do plan to report same store occupancy and net operating income metrics beginning in the first quarter of 2022.

We've expanded our supplemental disclosure that is available on our website to provide additional industry standard information for.

For the fourth quarter NAREIT <unk> was <unk> 60 per share core <unk> was $1 seven per share and adjusted <unk> was $1 23 per share. We started to report core <unk> to adjust for one time financing transactions any future mark to market adjustments and certain amortization that is transactional in nature, but not currently permitted.

And the NAREIT <unk> calculation, our 2021 core <unk> results directly aligned to our previously provided 2021 <unk> guidance and as we noted in our earnings release yesterday, our 2022 core <unk> guidance accounts for these potential future adjustments for.

For the year 2021, NAREIT <unk> was $3 35 per share and core <unk> was $3 93 per share, which was <unk> <unk> per share beat at the top end of our guidance range.

Our 2021, <unk> was $4 36 per share and represents a <unk> 16 per share beat at the top end of our <unk> guidance range.

As previously announced in November the company paid a fourth quarter regular common stock cash dividend of $1 per share on December 30.

And earlier this week, we announced an 8% increase for our first quarter 2022 regular common stock cash dividend, which will be paid on March 31 to shareholders of record on March 10th or.

Our new first quarter common stock dividend of $1 eight per share represents an annualized yield of approximately 7% and 86% implied annualized cash payout ratio based on the midpoint of our 2022 <unk> per share guidance.

As of year end 2021, we had total cash and restricted cash of $31 million in total long term debt outstanding of $283 million net.

Net debt to total enterprise value at quarter end was approximately 36% and our net debt to EBITDA was $6 one times.

We were active in a number of different aspects in the capital markets during the fourth quarter with the most notable transactions, including entering into a new $100 million term loan in November repurchasing nearly $11 million of our 2025 senior convertible notes.

More than 40000 shares of our common stock at an average price of $54 48 per share and while modest in dollar value. We did purchase 8000 shares of <unk> stock at an average price of $17 65 per share as we continue to believe there is significant unrealized value embedded in our pine ownership.

As part of the earnings release yesterday, we did release anticipated transaction and earnings guidance for 2022.

Our guidance relies on a number of significant assumptions, including but not limited to our ability to raise funds for investment at reasonable cost of capital our ability to acquire and sell assets at acceptable valuations and an overall stable economy that supports our underlying tenants.

We expect to invest between $200 million to $250 million in properties at a blended investment yield of six 5% to 675%.

Our transaction volume and investment yields take into account the increasingly competitive acquisition environment and also assumes some structured investments in the form of preferred equity or development loans that allow us to gain an interest in assets, we would otherwise like to own and where we can potentially obtain a higher yield and a shadow pipeline and opportunities to write a first refusal or right of first offer.

<unk> within the loan or preferred equity agreement.

Our dispositions guidance assumes $40 million to $70 million of asset sales at a blended exit cap rate between six 5% and seven 5%.

As John noted, we expect to focus our disposition efforts on our remaining noncore single tenant and office properties.

Which will continue to move our portfolio towards a pure play multi tenant retail and mixed use strategy.

Our full year 2022 core <unk> guidance range is $4 30 to $4 55 per share and our full year 2022, <unk> guidance range is $4 90 to $5 15 per share.

The midpoint of our <unk> guidance implies 15% year over year growth, which is driving our recently increased dividend and has also significantly improving the overall coverage of our dividend as we look to maximize free cash flow.

Overall 2022 shaping up to be another strong year of growth as we capitalize on our momentum from 2021. We appreciate the support provided by our shareholders and business partners and we look forward to continued success I'll now turn the call back over to John for his closing remarks.

Thanks, Matt we're very proud to have delivered 57% total shareholder return in 2021 part of our outperformance was from our stock being re rated in our first year as a REIT, which is still a meaningful future opportunity given that very limited current REIT dedicated shareholder in index ownership and.

And we think a large part of our outperformance was from the market recognizing our efforts.

Throughout the year as we continued our portfolio repositioning process and executed on our business strategy for.

For 2022, we provided guidance that has a top end of the range poised to deliver 18% <unk> per share growth. Our recently announced dividend increase provides a growing outside.

In yield with improved <unk> coverage and all of this is driven by our high quality portfolio that is based on some of the strongest markets in the United States.

And finally, we did announce we are moving our headquarters to Winter Park, Florida, We continue to maintain our Daytona Beach office, but winter Park is in a larger MSA that will give us access to a deeper employee pool as we look to grow our talented team.

We appreciate all of your support and with that we'll open it up for questions operator.

If you'd like to ask a question at this time. Please press. The Star then the number one key on your Touchtone telephone to withdraw your question press the pound key.

Our first question comes from Rob Stevenson with Janney.

Okay.

Good morning, John now that you've gotten.

Where does the land JV, what's the current plan for the subsurface rights portfolio and Matt what else do you guys have that would be considered bad income for the REIT at this point going forward.

Hey, Rob good morning.

John .

So on the subsurface mineral rights, we've been selling.

Lots of individual transactions to surface owners.

So more knowns.

Piece of property or large ranch, so we've been proactively reaching out to surface owners and we have.

A fair amount of activity on that they're kind of small dollar sizes, but that's the way we're going about it.

Joe So granularly selling it off and then also on.

The mitigation bank, we will be selling credit throughout the year and look to try to sell the whole bank.

We're bringing in some.

Some capital for reinvesting in the in the income property that I'll let.

Matt talked about the accounting part of it yes.

Yes, Thanks, John Hey, Rob.

On the on the bad income side, the biggest components of income that's slowing through the Trs is the management fee related to alpine.

Theres nothing else Thats really substantial in there other than that.

Okay and then what is your leasing expectations for 2022 for the vacancy in the portfolio I mean, most of your assets are 100% occupied but you do have a few that are lower occupancy redevelopment et cetera, any near term leases that you guys feel confident are likely to be signed and also any move outs.

Size in 2022 on any of the currently occupied space.

Yes, so on the leasing side leasing activity is very robust, especially.

At Ashford Lane as we discussed then and some of that has to do with.

Tenants that we can move out.

Or have expiring leases. So it may not be the leasing pure vacancy, but it is taking advantage of a well.

Rental rate tenant that might.

It has to be leaving.

So there is lots of activity on leasing existing occupied space and vacancy.

One example, I'll give you is we bought.

We mentioned in our press release and empty.

Empty building adjacent to Ashford Lane and we're in.

Discussions.

LOI lease negotiations with a tenant to take all of that.

So and then on Santa Fe, we have lots of active discussions going on on some vacancy there. So we're very optimistic on what we'll be able to do on that building throughout the year, but in general I would say that very robust.

Leasing activity.

And that has to do with taking advantage of tenants with low rents and vacancy.

Rob on the on the move outside I would say, we've kind of we've address more than half of the.

The lease expirations in 2022, and the biggest one we have a backfill tenant for us so we're in pretty good shape there.

Okay, what was the cap rate on the party city disposition to pine.

It isn't.

Sorry, John you want to go ahead no go ahead.

Say it was in the high sixes.

Okay, and then last one from me John how does the board balance buying shares of pine within CTO versus repurchasing CTO shares when the stocks are undervalued given your unique knowledge of both companies obviously.

<unk> repurchased CTO shares if you're going to do at a level leverage neutral basis, you are only able to put 50 cents of every dollar to work or even less.

Versus taking cash and buying pine, how does that how does that mesh stations work inside the board when you view theoretically both companies as being undervalued.

And where do you put your incremental dollar going forward and those situations.

Well as you can see.

We're active on both fronts and so it's basically when theirs.

Dislocation and either opportunity that we have.

Certain levels.

We say that we want to invest more in either repurchasing cto's stock.

Buying buying stock so it's really a function of the opportunity and having set levels were.

We have.

Interest in both.

It's a little bit of a combination.

Okay. Thanks, guys I appreciate the time.

Thank you.

Our next question comes from Craig Kucera with B Riley Securities.

Hey, good morning, guys.

First start out with the guidance just to confirm does.

The disposition guidance include any monetization of the mitigation credits or Reits or is that just sort of a mix of expected sales of single tenant maybe some office properties.

It is just the single tenant and office properties.

Mitigation credits or the mitigation bank or any sub surface would be in addition to the guidance.

Got it okay and it sounded like you've had some success selling the subsurface kind of a one off basis, but have you have you started marketing the.

The mitigation credits.

It's more of a bulk sale and I guess, how is that going so far is that still TBD.

Yes, we have people that are that are interested and have done.

Made offers and done some.

Analysis.

A little bit of a complicated.

Investment so a lot of a lot of folks arent as.

Knowledgeable about it so we can walk them through that but basically we have a price in mind and.

Fairly optimistic that as we sell credits in the bank gets smaller.

The price will come up to a level that we're interested in transacting. So.

Anyway.

It's been pretty active and it's a sector that people.

It's just really finding the right capital source for us.

Got it.

Changing gears.

I appreciate you had seen any increased disclosure on the leasing activity and I think you noted theres about a about a 400 basis points spread between what's leased and what's currently occupied can you give us a sense of when those tenants, which have signed leases, but haven't started paying rent will take economic occupancy is that somewhere.

22, or just any color there would be helpful.

Yes.

With that.

I would say that as you can imagine with everything going on in the macro markets as far as inflation supply chains labor and everything everything is taking a little longer and tenants that we signed leases with have multiple locations that they are trying to open.

So they are slotting in our openings within their larger platforms and so I would say.

Mid year, two I would say June July August is really where the bulk of them will be coming in.

And that could slip maybe because it's just.

Hiring architects and contractors and contractor and they're saying that they're not interested in doing this because it got bigger projects going on it's just all a function of what you can imagine so I would say mid two.

Mid year and third quarter.

Okay fair enough.

And just thinking about your investment pipeline I guess.

Historically, you've done more mezzanine loans and loans et cetera, and kind of got out of that business and I guess are you should we expect to see a meaningful amount of those in 2022 as far as investments in preferred equity and.

And I guess sort of how are you thinking about that from a risk adjusted return relative to sort of your investment pipeline outside on the property side.

Yes, I mean, it's a good question, Greg and Thats why we wanted to highlight that we are seeing opportunity, it's a little bit different this time on these structured investments than before.

Before we were doing good risk adjusted yield on properties that.

May or may not fit in our portfolio, but now we're looking at structured.

<unk> finance investments and properties that wed love to have in our portfolio.

For instance, what we're seeing is that let's say a developer has a project.

<unk> gotten contractor bids come back.

Bids are 30% to 40% higher than budget, rather than calling the equity.

That has a price to it.

Theyre basically bridging the gap with us for a short duration.

So we're seeing a fair amount of that sort of opportunity on assets that we really like.

And we're probably going to get yields higher than if we were the equity.

But it just won't be long duration, we're talking about one to three year to five year sort of duration.

But that keeps us.

Really.

Basically on top of assets that we'd like to own.

It keeps us with relationships with.

Developers or owners that we'd like to do more business with and so we feel like it will lead to transactions that will be kind of a long term equity properties for us in the future or could.

Okay, Great and just one more for me kind of in the same vein.

2022 looks like a pretty active year again on the external growth side can you give us a sense of kind of what your current pipeline is that youre working on in and kind of what you see may be closing in the next three to six months that you can.

Yes, I mean, we do have a property in the pipeline that.

Should close.

Relatively soon lets say next 30 days.

But we are we have been actively bidding literally on assets almost every week.

And we're not trying super hard to to buy assets the cap rates have come.

Come down quite a bit.

But we're hoping that some of the macro issues in the market will provide opportunity for us to buy at better yields so we're being a.

Being prudent about the.

The offers that we're putting out and so the good news is there's a fair amount of assets that are on the market or coming to market. So we're just picking our spots.

We're still optimistic that <unk> will fill out the acquisition side, given what we're seeing coming to market.

Okay, great. Thanks, guys.

<unk>.

As a reminder, if you'd like to ask a question at this time that is star then one.

Our next question comes from Jason Stewart with Jones trading.

Alright, thanks, good morning.

Wanted to follow up on the macro environment and your comments around the acquisition and the competitive environment. There. It sounds like great volatility has not impacted peoples acquisition appetite are you seeing new capital coming into the sector or is this from existing players.

It's mainly from existing players that.

We're on the sidelines during during the pandemic.

Basically said, okay retail.

Has done fairly well during the pandemic and so people are coming back into the market and feel like there.

Underrepresented in their portfolio on retail.

Youre seeing a lot of capital that's kind of a catch up capital I would say and so we're we're trying to stay out of the way and those those people that are are investing because they're a little bit behind on their portfolio allocations and hopefully that kind of gets.

It gets basically taken up pretty soon and we will be able to to buy a better better yields, but where we are.

We are actively pursuing all all acquisitions and we're learning lots about the players out there and we're there.

Buying proper.

Properties and where it is.

Just kind of a biding our time.

Got it Okay and then in terms of dispositions is it your expectation that the rest of the single tenant net lease properties could opine or are their required returns too high.

Yes.

There's very few.

A few that could go to pine, but where we're seeing transactions take place probably the cap rates will be lower than <unk> would have an interest.

Got it Okay, and then I don't think we've touched on the wells office. If you could just give us a quick update that'd be great.

You are talking about the world that pine owns over.

In Hillsboro.

Yes, just as it relates to the way Youre, just thinking about dispositions in terms of CTO and office portfolio.

If it relates that'd be awesome. Thank you.

Yes so.

I'll just talk about CTO, given that we've given that update at pine, but CTO, we do have.

As you know three or four office assets that we want to sell but we're trying to.

Basically meet those up with acquisitions.

So the market is strong for the property that we have even on the multi tenanted side.

Property that we have in Jacksonville and so.

We're very confident that we'll be able to transact on selling those assets. We're just it's really finding the acquisition leg of it. So so we're as we are pursuing acquisitions.

We plan on using part of that capital from Us.

Further down on the office side.

Great. Thank you.

Our next question comes from Michael Orman with BTG.

Yeah. Thanks, Good morning, guys, John I apologize if I missed it but could you maybe just talk a little bit about as you continue to shift more towards the income producing assets kind of portfolio construction strategy as you think about potential value add assets versus in place stable cash flows what's what's your comfort level there in terms of.

The balance between them.

Occupancy upside versus in place occupancy.

Yes.

Good question, I mean look given that where trade at such a low multiple and we have such strong cash flow and we're paying a very.

Nice dividend yield.

The market, we like finding.

Vacancy, where we can have outsized equity returns and not as concerned about having additional cash flow right off the bat and so that allows us to look for assets, where forensic Santa Fe was a great example, where a 66% occupied and a lot of low hanging fruit.

So we like those a lot where we can buy way below replacement costs and good locations and with the robust leasing activity and tenant activity. We feel like we can do some good work there.

But yes, we look we are bidding on stabilized assets as well, but probably not going to be as competitive.

Given the capital out there chasing those sort of assets right now I mean, you are seeing.

Lot of very low cap rates for various stabilized assets, so we'd rather find something with a little bit of vacancy that doesn't fit a lot of the other capital providers.

Okay, Great and then maybe just one on the dividend obviously.

Nice nice increase coming into the report here.

And even with that with the strong <unk> guidance your payout ratio definitely goes down but maybe can you just talk about the strategy about how.

How much you think that's getting recognized in the marketplace versus <unk>.

Retaining some excess cash flow here to fund the investment pipeline and was that increase driven by necessity or just how you were thinking about the dividend increase here versus the cash flow.

Yes, I'll, let I'll, let Matt talk about that.

Help me give you some background there.

Yes, Mike.

We're very focused on maximizing cash flows. So when you see us do a dividend increase it largely to track to a 100% payout of taxable income or not.

We're not increasing it just continue to increase the dividend.

Think of doing it.

Going to be pretty efficient with with retained cash flow in terms of the market recognition I think as we continue to improve the payout ratio as you noted we're in the mid eighties now for an <unk> payout ratio, which is.

I'm much more palatable for people.

I think we'll start to get more recognition for the dividend and the outsized yield that we're providing but.

Obviously coming into this year it was more elevated so I think thats a good step forward.

Okay, great. So I guess, maybe Matt just the way that we should think about it.

Is it right to think that the.

The dividend will probably track <unk> growth from this point forward or could.

Could we still see a little bit of a reduction in the payout ratio or how should we think about dividend growth going forward yes.

Yes, I would say with the status quo, you should assume an attractive <unk> growth and then <unk>.

If we raise additional capital and have a bit more of a depreciation shield on the deployment of that additional capital Youll see the payout ratio come down as we continue to try to maximize cash flow.

Okay, great. Thanks, very much guys.

Thank you.

I'm showing no further questions in queue at this time I'd like to turn the call back to John Albright for closing remarks.

Thank you very much for attending this call and we look forward to talking with you.

Throughout the quarter. Thank you.

This concludes today's conference call. Thank you for participating you may now disconnect.

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And then.

Yes.

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Tom.

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Yes.

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Good day, and thank you for standing by welcome to the CTO Realty growth fourth quarter and year end 2021 earnings call.

At this time, all participants are in listen only mode.

After the speaker's presentation, there will be a question and answer session.

To ask a question during the session you will need to press Star then one on your telephone keypad.

Please be advised today's conference maybe recorded.

If you require operator assistance during the call. Please press Star then zero.

I'd now like to hand, the conference over to Matt Partridge, Chief Financial Officer.

Good morning, everyone and thank you for joining us today for the CTO Realty growth fourth quarter and year end 2021 operating results conference call with me is our CEO and President John Albright before we begin 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.

<unk> earnings release, and supplemental information on our website at <unk> Dot com with that I will now turn the call over to John .

Thanks, Matt and our first full year as a REIT, we made tremendous progress refining our portfolio and executing on our retail focused investment strategy.

The final monetization of the land completes our exit from the landowner business, which spanned over a 110 years.

As we reflect on our more recent activities of 2021 and the impact of those activities. We have on the future I am very pleased with the advances we have made to further improve our high quality portfolio.

And how we've positioned CTO could drive outsized <unk> growth through a combination of organic and external opportunities.

Drilling down into our fourth quarter activities, we had a record acquisition quarter acquiring nearly a $140 million of property as we redeploy the proceeds generated from our third and fourth quarter dispositions and the new term loan we completed in November .

For the year, we acquired nearly $250 million of assets.

<unk> yield of seven 2%.

Acquisitions are located in strong submarkets in some of the most in demand cities in the United States, including Raleigh, Dallas, Atlanta, Santa Fe, Las Vegas, Salt Lake City and Orlando.

Some of these acquisitions will drive future growth through repositioning opportunities and some provide strong stable in place cash flows and support our attractive 7% dividend yield and.

In all instances, we expect leasing to ban property cash flows and residual value of the real estate to continue to benefit from our markets robust population growth in their business friendly operating environments.

Listen front, we sold 15 properties in 2021, 14 of which were single tenant assets for a total disposition volume of $162 million.

Weighted average exit cap rate was 6% generating a combined gain on sale of more than $28 million.

Representing more than 120 basis points of net investment spread between our weighted average acquisition cap rate and our weighted average disposition cap rate.

Operationally, we ended the quarter with economic occupancy of nearly 89% in leased occupancy of more than 92%.

Reflecting the significant progress we've made in executing on our repositioning plan at Ashford Inc.

And the incremental gains across a number of our properties in our portfolio.

During the fourth quarter, we signed new leases at an average rent more than $41 per square foot.

Most of the new leases were at Ashford line, Atlanta, where we are currently under construction on the lawn, which we expect to be completed in late spring or early summer of.

The hall Brown bag seafood Harrisburg at wholesome juice bar Jenny's ice cream hawkers.

Donna.

Sweet Green all open their doors for business in 2022, transforming the property into a dining destination driving increased foot traffic through the properties other retail tenants as.

As we think about the upcoming year, we will continue to concentrate our efforts of high quality well located retail and mixed use acquisition opportunities.

Physician activity will drive our disposition efforts as we focus on selling our remaining office properties and completing our portfolio shift to retail or mixed use with that I'll now turn the call back over to Matt.

With increases of 15, 5% for options and renewals and six 4% for new leases.

But the transformed portfolio that better reflects the go forward asset strategy. We do plan to report same store occupancy and net operating income metrics beginning in the first quarter of 2022.

We've expanded our supplemental disclosure that is available on our website to provide additional industry standard information for.

For the fourth quarter NAREIT <unk> was <unk> 60 per share core <unk> was $1 seven per share and adjusted <unk> was $1 23 per share. We've started to report core <unk> to adjust for one time financing transactions any future mark to market adjustments and certain amortization that is transactional in nature, but not currently permitted.

Within the NAREIT <unk> calculation, our 2021 core <unk> results directly aligned to our previously provided 2021 <unk> guidance and as we noted in our earnings release yesterday, our 2022 core <unk> guidance accounts for these potential future adjustments for.

For the year 2021, NAREIT <unk> was $3 35 per share and core <unk> was $3 93 per share, which was <unk> <unk> per share beat at the top end of our guidance range.

2021, <unk> with $4 36 per share and represents a <unk> <unk> per share be at the top end of our <unk> guidance range.

As previously announced in November the company paid a fourth quarter regular common stock cash dividend of $1 per share on December 30.

And earlier this week, we announced an 8% increase for our first quarter 2022 regular common stock cash dividend, which will be paid on March 31 to shareholders of record on March 10th.

As of year end 2021, we had total cash and restricted cash of $31 million in total long term debt outstanding of $283 million.

Net debt to total enterprise value at quarter end was approximately 36% and our net debt to EBITDA was $6 one times.

<unk> more than 40000 shares of our common stock at an average price of $54 48 per share and while modest in dollar value. We did purchase 8000 shares of <unk> stock at an average price of $17 65 per share as we continue to believe there is significant unrealized value embedded in our pine ownership.

As part of the earnings release yesterday, we did release anticipated transaction and earnings guidance for 2022.

We expect to invest between $200 million to $250 million in properties at a blended investment yield of six 5% to 675%.

Our transaction volume and investment yield is taken into account the increasingly competitive acquisition environment and also assumes some structured investments in the form of preferred equity or development loans that allow us to gain an interest in assets, we would otherwise like to own and where we can potentially obtain a higher yield and a shadow pipeline and opportunities through right of first refusal or right of first offer.

Within the loan or preferred equity agreement.

Our dispositions guidance assumes $40 million to $70 million of asset sales at a blended exit cap rate between six 5% and seven 5%.

As John noted, we expect to focus our disposition efforts on our remaining noncore single tenant and office properties, which will continue to move our portfolio towards a pure play multi tenant retail and mixed use strategy. Our full year 2022 core <unk> guidance range is $4 30 to $4 55 per share and our full year 2022 <unk>.

<unk> guidance range is $4 90 to $5 15 per share.

The mid point of our <unk> guidance implies 15% year over year growth, which is driving our recently increased dividend and has also significantly improving the overall coverage of our dividend as we look to maximize free cash flow.

And we think a large part of our outperformance as from the market recognizing our efforts.

Throughout the year as we continued our portfolio repositioning process and executed on our business strategy for.

For 2022, we provided guidance that has a top end of the range poised to deliver 18% <unk> per share growth and our recently announced dividend increase provides a growing outside.

In yield with improved <unk> coverage and all of this is driven by our high quality portfolio that is based on some of the strongest markets in the United States and.

We appreciate all of your support and with that we'll open it up for questions operator.

If you'd like to ask a question at this time. Please press. The Star then the number one key on your Touchtone telephone to withdraw your question press the pound key.

Our first question comes from Rob Stevenson with Janney.

Okay.

Good morning, John now that you've gotten.

Where does the land JV, what's the current plan further subsurface rights portfolio and Matt what else do you guys have that would be considered bad income for the REIT at this point going forward.

Hey, Rob good morning.

John .

So on the subsurface mineral rights, we've been selling.

Lots of individual transactions to surface owners.

Other somewhere knowns.

Piece of property or large ranch. So we have been proactively reaching out to service owners and we have.

A fair amount of activity on that they're kind of small dollar sizes, but that's the way we're going about it.

Joseph Granularly sell and move it off and then also on.

The mitigation bank, we will be selling credits throughout the year and look to try to sell the whole bank.

Which would bring in some some capital for reinvesting in the in the income property that I'll, let Matt talk about the accounting part of it yes.

Yes, Thanks, John Hey, Rob.

On the bad income side, the biggest components of income that's slowing through the Trs is the management fee related to alpine.

There is nothing else thats really substantial in there other than that.

Okay.

And then what is your leasing expectations for 2022 for the vacancy in the portfolio I mean, most of your assets are 100% occupied but you do have a few that are lower occupancy redevelopment et cetera, any near term leases that you guys feel confident are likely to be signed and also any move outs of size in 2020.

Two on any of the currently occupied space.

Yes, so on the leasing side the leasing activity is very robust, especially.

At Ashford land as we discussed then and some of that has to do with.

Tenants that we can move outs.

Or have an expiring leases.

So it may not be the leasing pure vacancy, but it is taking advantage of a well.

Lower rental rate tenant that might.

It has to be leaving.

So there is lots of activity on leasing existing occupied space and vacancy.

One example, I'll give you is we bought it.

We mentioned in our press release and.

Empty building adjacent to Ashford Lane and we're in.

Discussions.

Lease negotiations with a tenant to take all of that.

So and then on <unk>.

Santa Fe, we have.

Active discussions going on on some vacancy there. So we're very optimistic on what we'll be able to do on that building throughout the year, but in general I would say that it's very robust.

Leasing activity.

And that has to do with taking advantage of tenants with low rents and vacancy.

Okay and Rob on the on the move outside I would say, we've kind of we've addressed some more than half of the.

The lease expirations in 2022, and the biggest one we have a backfill tenant for us so we're in pretty good shape there okay.

Okay, what was the cap rate on the party city disposition to pine.

It isn't.

Sorry, John you want to go ahead no go ahead.

Say it was in the high sixes.

Okay, and then last one for me John how does the board balance buying shares of pine within CTO versus repurchasing CTO shares when the stocks are undervalued given your unique knowledge of both companies obviously.

<unk> repurchased CTO shares if you're going to do it at a level leveraged neutral basis, you are only able to put 50 cents of every dollar to work or even less.

Versus taking cash and buying pine, how does that how does that match stations work inside the board when you view theoretically both companies as being undervalued.

And where do you put your incremental dollar going forward and those situations.

Well as you can see.

We're active on both fronts and so it's basically when theirs.

Dislocation and either opportunity that we have.

Certain levels, where they were.

Say that we want to invest more in either repurchasing CTO stock or buying <unk>. So it's really a function of the opportunity and having set levels were.

We have.

Interest in both.

<unk>.

So a little bit of a combination.

Okay. Thanks, guys I appreciate the time.

Thank you.

Your next question comes from Craig Kucera with B Riley Securities.

Hey, good morning, guys.

First start out with the guidance and just to confirm does the disposition guidance include any monetization of the mitigation credits or Reits or is that just sort of a mix of expected sales of single tenant maybe some office properties.

That is just the single tenant and office properties.

The mitigation credits or the mitigation bank or any sub surface would be in addition to the guidance.

Got it okay.

And it sounded like you've had some success selling the subsurface kind of a one off basis, but have you have you started marketing the mitigation credits.

It's more of a bulk sale and I guess, how is that going so far is that still TBD.

Yes, we have people that are that are interested and have done.

<unk> done some.

Analysis, it's a little bit of a complicated.

Investment so a lot of a lot of folks arent as.

Knowledgeable about it so we walk them through that but basically we have a price in mind and.

Fairly optimistic that as we sell credits in the bank gets smaller the price will come up to a level that we're interested in transacting. So.

Anyway.

<unk> been pretty active and it's a sector that people like it's just really finding the right capital source for us.

Got it.

Changing gears.

I appreciate it seeing the increased disclosure on the leasing activity and I think you noted theres about a about a 400 basis points spread between what's leased and what's currently occupied.

Can you give us a sense of when those tenants, which have signed leases, but haven't started paying rent will will take economic occupancy is that somewhere mid 'twenty, two or just any color there would be helpful.

Yes.

Start with that.

I would say that as you can imagine with everything going on in the macro markets as far as inflation supply chain is labor and everything everything is taking a little longer and tenants that we.

We signed leases with have multiple locations that they are trying to open.

So they are slotting in our openings within their larger platforms and so I would say.

Kind of mid year, two I would say June July August is really where the bulk of them will be coming in.

And that could slip maybe because theres just.

Hiring architects and contractors and contractors are saying that they're not interested in doing this because it got bigger projects going on it's just all a function of what you can imagine so I would say mid two.

Mid year and third quarter.

Okay fair enough.

And just thinking about your investment pipeline.

And I guess sort of how are you thinking about that from a risk adjusted return relative to sort of your investment pipeline outside on the property side.

Yes, I mean, it's a good question, Greg and Thats why we wanted to highlight that we are seeing opportunity, it's a little bit different this time on the structured investments than before.

Before we were doing good risk adjusted yield on properties that.

May or may not fit in our portfolio, but now we're looking at structured.

Finance investments and properties that wed love to have in our portfolio.

For instance, what we're seeing is that let's say a developer has a project.

<unk> gotten contractor bids come back.

Bids are 30% to 40% higher than budget, rather than calling the equity.

That has a price to it.

Basically bridging the gap with us for a short duration.

So we're seeing a fair amount of that sort of opportunity on assets that we really like.

And we're probably going to get yields higher than if we were the equity.

But it just won't be long duration, we're talking about one to three year to five year sort of duration.

But that keeps us.

It really.

Basically on top of assets that we'd like to own.

It keeps us with relationships with.

Developers or owners that we'd like to do more business with us.

So we feel like it will lead to transaction that will be kind of long term equity properties for us in the future or could.

Okay, Great and just one more from me kind of in the same vein.

2022 looks like a pretty active year again on the external growth side can you give us a sense of kind of what your current pipeline is that youre working on and kind of what you see may be closing in the next three to six months that you can.

Yes, I mean, we do have a property in the pipeline that.

Should close.

Relatively soon lets say next 30 days.

But we are we've been actively bidding literally on assets almost every week.

And we're not trying super hard to to to buy assets the cap rates have.

Come down quite a bit.

But we're hoping that some of the macro issues in the market will provide opportunity for us to buy at a better yield so we're being.

Being prudent about the.

The offers that we're putting out and so the good news is there's a fair amount of assets that are on the market or coming to market. So we're just picking our spots.

We're still optimistic that <unk> will fill out the acquisition side, given what we're seeing coming to market.

Okay, great. Thanks, guys.

As a reminder.

If you'd like to ask a question at this time that is star then one.

Our next question comes from Jason Stewart with Jones trading.

Alright, thanks, good morning.

It's mainly from existing players that.

We are on the sidelines during during the pandemic.

Basically said, okay retail.

Has done fairly well during the pandemic and so people are coming back into the market and feel like there.

Underrepresented in their portfolio on retail.

Youre seeing a lot of capital that's kind of a catch up capital I would say and so we're we're trying to stay out of the way of those those people that are are investing because they're a little bit behind on their portfolio allocations and hopefully that kind of gets.

It gets basically taken up pretty soon and we will be able to to buy a better better yields, but where we are.

We are actively pursuing all all acquisitions and we're learning lots about the players out there and we're there.

Buying properties.

Properties.

Just kind of biding our time.

Got it Okay and then in terms of dispositions is it your expectation that the rest of the single tenant net lease properties could opine or are their required returns too high.

Yes.

There's very few.

A few that could go to pine, but where we're seeing transactions take place probably the cap rates will be lower than and we're buying would have an interest.

Got it Okay, and then I don't think we've touched on the wells office. If you could just give us a quick update that'd be great.

Youre talking about the wells that pine owns over.

In Hillsboro.

Yes, just as it relates to the way Youre just thinking about dispositions in terms of CTO in the office portfolio.

If it relates that'd be awesome. Thank you.

So.

I'll just talk about CTO, given that we've given that update at pine, but CTO, we do have.

As you know three or four office assets that we want to sell but we are trying to.

Basically meet those up with acquisitions and so the market is strong for the property that we have been on a multi tenanted side.

Property that we have in Jacksonville and so.

We're very confident that we'll be able to transact on selling those assets. We're just it's really finding the acquisition leg of it. So so we're as we are pursuing acquisitions.

We plan on using part of that capital from Us.

Further down on the office side.

Alright, thank you.

Our next question comes from Michael Orman with BTG.

Yes.

Yeah. Thanks, good morning, guys.

John I apologize if I missed it but could you maybe just talk a little bit about as you continue to shift more towards the income producing assets kind of portfolio.

Construction strategy as you think about potential value add assets versus in place stable cash flows what's your comfort level there in terms of the balance between them.

Occupancy upside versus in place occupancy.

Yes.

Good question, I mean look given that where trade at such a low multiple and we have such strong cash flow and we're paying a very.

Nice dividend yield.

The market, we like finding.

<unk> vacancy, where we can have outsized equity returns and not as concerned about having additional cash flow right off the bat and so that allows us to look for assets, where forensic Santa Fe was a great example, where a 66% occupied and a lot of low hanging fruit.

So we like those a lot where we can buy way below replacement costs and good locations and with the robust leasing activity and tenant activity. We feel like we can do some good work there.

But yes, we look we are bidding on stabilized assets as well, but probably not going to be as competitive.

Given the capital out there chasing those sort of assets right. Now I mean, you are seeing a lot of very low cap rates for various stabilized assets. So we'd rather find something with a little bit of vacancy that that doesn't fit a lot of the other capital providers.

Okay, Great and then maybe just one on the dividend, obviously nice nice increase coming into the report here.

And even with that with the strong <unk> guidance your payout ratio definitely goes down but maybe can you just talk about the strategy about.

How much you think that's getting.

<unk> in the marketplace versus <unk>.

Retaining some excess cash flow adhere to fund the investment pipeline and was that increase driven by necessity or just how youre thinking about the dividend increase here versus the cash flow.

Yes, I'll, let I'll, let Matt talk about that.

Help you give you some background there.

Yes, Mike.

We're very focused on maximizing cash flow so.

When you see us do a dividend increase it largely to track to a 100% payout of taxable income or not.

We're not increasing it just continue to increase the dividend.

Sake of doing it.

Trying to be pretty efficient with with retained cash flow in terms of the market recognition I think as we continue to improve the payout ratio as you noted we're in the mid eighties now for an <unk> payout ratio, which is.

Much more palatable for people.

I think we'll start to get more recognition for the dividend and the outsized yield that we're providing but.

Obviously coming into this year it was more elevated so I think thats a good step forward.

Okay, great and so I guess, maybe Matt just the way that we should think about it.

Is it right to think that the dividend will probably track <unk> growth from this point forward or could.

Could we still see a little bit of a reduction in the payout ratio or how should we think about dividend growth going forward.

Yes, I would say with the status quo, you should assume that attract <unk> growth and then <unk>.

If we raise additional capital and have a bit more of a depreciation shield on the deployment of that additional capital Youll see the payout ratio will come down as we continue to try to maximize cash flow.

Okay, great. Thanks, very much guys.

Thank you.

I'm showing no further questions in queue at this time I'd like to turn the call back to John Albright for closing remarks.

Thank you very much for attending this call and we look forward to talking with you.

Throughout the quarter. Thank you.

This concludes today's conference call. Thank you for participating you may now disconnect.

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