Q3 2023 CTO Realty Growth Inc Earnings Call
Speaker 1: transcript
Speaker 1: Good day and welcome to the CTO Realty Growth Third Quarter 2023 Operating Results Conference Call. At this time, all participants are in a 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 1 1 on your telephone. You will then hear an automated message advising your hand is raised.
Good day and welcome to the C. T L Realty growth third quarter 2023 operating results conference call. At this time all participants are in a listen only mode. After the speaker's presentation. There will be a question and answer session to ask a question during this.
Duston session, you will need to press star one one on your telephone you will then hear an automated message advising your hand is raised to withdraw your question. Please press star one again.
Speaker 1: transcript
Speaker 1: To withdraw your question, please press star 11 again.
Speaker 1: transcript
Speaker 1: Please be advised that today's conference is being recorded.
Please be advised that today's conference is being recorded I would now like to hand, the conference over to your Speaker today, Chief Financial Officer, Matt Partridge. Please go ahead.
Speaker 1: transcript
Speaker 1: I would now like to hand the conference over to your speaker today, Chief Financial Officer Matt Partridge. Please go ahead.
Speaker 2: transcript
Speaker 2: Good morning, everyone. Thank you for joining us today for CTO Realty Growth, third quarter, 2023 operating results conference call. With me today is our CEO and president, John Albright.
Good morning, everyone. Thank you for joining us today for CTO Realty growth third quarter 2023 operating results conference call with me today is our CEO and President John Albright.
Speaker 2: transcript
Speaker 2: Before we begin, I'd like to remind everyone that many of our comments today are considered forward-looking statements under federal securities law.
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.
Speaker 2: transcript
Speaker 2: 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.
Speaker 2: transcript
Speaker 2: 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-Q and other SEC filings.
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.
Thank you and other SEC filings.
Speaker 2: transcript
Speaker 2: You can find our SEC reports, earnings release, quarterly supplemental, and most recent investor presentation on our website at ctorit.com. With that, I'll now hand the call over to the SEC.
You can find our SEC reports earnings release quarterly supplemental and most recent investor presentation on our website at <unk> Dot com with that I'll now hand, the call over to John.
Speaker 3: transcript
Speaker 3: Thanks, Matt, and good morning, everyone. I'm pleased to announce we had a strong quarter of operational execution that led us to a meaningfully increase our full year FFO and AFFO guidance.
Thanks, Matt and good morning, everyone. I am pleased to announce we had a strong quarter of operational execution allowed us to meaningfully increase our full year <unk> guidance a.
Speaker 3: transcript
Speaker 3: The strength in our numbers were driven by better than forecasted tenant retention for lease renewals, accelerated new tenant rent commitments, outsized percentage rent from food and beverage and theater operators, and improved expense controls where we have direct cost exposure.
To strengthen our numbers were driven by better than forecasted tenant retention for lease renewals accelerated new tenant rent commencement outsized percentage rent from food and beverage and theater operators and improved expense controls, where we have direct cost exposure.
Speaker 3: transcript
Speaker 3: All of this strength was partially offset by a credit loss associated with our WeWork location where they have stopped making payments as of September . And those payments were set to expire in April of 2024.
All of this strength was partially offset by credit loss associated with our we work location, where they have stopped making payments as of September and those payments were set to expire in April of 2024.
Speaker 3: transcript
Speaker 3: Leasing activity during the quarter was strong. The team signed 21 leases totaling more than 132,000 square feet, including approximately 26,000 square feet of previously acquired vacancy. This is the second highest volume of square feet leased in one quarter in our company's history.
Leasing activity during the quarter was strong the team signed 21 leases totaling more than 132000 square feet, including approximately 26000 square feet of previously acquired vacancy. This is the second highest volume of square feet leased in one quarter in our company's history.
Speaker 3: transcript
Speaker 3: The activity was relatively widespread and included the signing of a replacement lease for the food hall space at Ashford Lane in Atlanta.
Activity was relatively widespread and included the signing of a replacement lease for the food Hall space at Ashford Lane in Atlanta.
Speaker 3: transcript
Speaker 3: The new lease is with Paulson Rowe, a well-known successful operator of food halls, who has a multiple location presence in Atlanta.
The new leases with policy in a row, a well known successful operator food halls.
As a multiple location presence in Atlanta.
Speaker 3: transcript
Speaker 3: While the rent is lower than the previous food haul lease, we are getting a more established operator with a better credit profile, and we did not have to make any additional capital investments. They are scheduled to open.
While the rate is lower than the previous food Hall lease we're getting a more established operator with a better credit profile and we did not have to make any additional capital investments. They are scheduled to open before the end of the year.
Speaker 3: transcript
Speaker 3: For the quarter, our comparable rent spreads were essentially flat, down.4%, largely due to the lower rent from the food hall space. When removing the impact of this specific lease, we grew comparable rents 11.4%, most notably benefiting from the solid growth in rents at Beaver Creek crossings outside of Raleigh and the collection at Foresight near Atlanta.
For the quarter, our comparable rent spreads were essentially flat down <unk>, 4% largely due to the lower rent from the food Hall space when removing the impact of this specific lease we grew comparable rents 11, 4%, most notably benefited from the solid growth in rents at Beaver Creek crossing.
Outside of Raleigh, and a collection of fore sight near Atlanta.
Speaker 3: transcript
Speaker 3: Year date we've signed approximately 400,000 square feet of leases at an average rent of $24.57 per square foot. Comparable rent spreads for leases signed this year increased 4.6%, with many of our larger properties experiencing the highest growth rates. Crossroads Town Center
Date, we have signed approximately 400000 square feet of leases at an average rent of $24 57 per square foot.
Comparable rent spreads for leases signed this year increased four 6% with many of our larger property is experiencing the highest growth rates Crossroads Towne Center near Phoenix.
Speaker 3: transcript
Speaker 3: Legacy North, located just outside of Dallas, Beerer Creek Crossings, Collection at Foresight, and our newest investment Plaza Rockwall, which is also in the Dallas MSA, all had year-to-date comparable rent spreads above 7%.
Legacy North located just outside of Dallas bureaucratic crossings collection of fore sight and our newest investment Plaza Rockwall, which is also in the Dallas MSA all had year to date comparable rent spreads above 7%.
Speaker 3: transcript
Speaker 3: With all this leasing activity, our Stein, but not open pipeline now represents 3.2% of prospective occupancy pickup and 5% of existing quarter-end portfolio cash-based rent.
With all of this leasing activity are signed but not opened pipeline now represents three 2% of perspective occupancy.
Our pick up and 5% of existing quarter end portfolio cash base rents.
Speaker 3: transcript
Speaker 3: Suspect to quarter, I'm happy to announce we signed a lease with a financial institution to lease our vacant 7,800 square foot out parcel at Ashford Lane. This out parcel was vacant at the time of acquisition and was one of our key remaining vacancies at this property. With this lease signing, Ashford Lane is now on a path to be more than 90% leased by year end.
Subsequent to quarter Im happy to announce we have signed a lease with financial institution to lease our vacant 7800 square foot out parcel Ashford Lane.
The south parcel was vacant at the time of acquisition. It was one of our key remaining vacancy that this property with this lease signing Nash or lane is now on a path to be more than 90% leased by year end.
Speaker 3: transcript
Speaker 3: As we discussed during the last quarter's call, we anticipated heavier disposition activity during the back half of the year as a way to bring down leverage and be in a position to make opportunities to invest.
As we discussed during last quarter's call, we anticipated heavier disposition activity during the back half of the year as a way to bring down leverage and be in a position to make opportunistic investments.
Speaker 3: transcript
Speaker 3: During the third quarter, we sold two properties for $20.9 million at a weighted average exit cap rate of 6.9%, generating gains on sales of $2.5 million. One of the properties sold was a Del Taco restaurant located on an out-parcel in Crossroads Town Center, and the other was a 64,000 square foot single-tenant office building leased to General Dynamics.
During the third quarter, we sold two properties for $29 million at a weighted average exit cap rate of six 9% generating gains on sales of $2 5 million.
One of the properties sold whether del Taco restaurant located on an out parcel and Crossroads Towne Center and the other was 64000 square foot single tenant office building leased to general dynamics.
Speaker 3: transcript
Speaker 3: Year to date, through the first nine months of the year, we've sold three properties for 22.9 million at a weighted average exit cap rate of 6.7%, generating gains of sales of 3.3 million.
Year to date through the first nine months of the year, we sold three properties for $22 9 million at a weighted average exit cap rate of six 7% generating gains of sales of $3 3 million.
Speaker 3: transcript
Speaker 3: Following quarter end, we also announced we completed the sale of Westfield Shopping Center for $14.8 million and exit cap rate of 5.2%. Until recently, it has been a challenge to generate leasing momentum at this older neighborhood shopping center. So given the recent leasing activity and expected Albertson's credit change, we thought it was a good time to monetize.
Following quarter end, we also announced we've completed the sale of Westwood shopping center for $14 $8 million, an exit cap rate of five 2% until recently has been a challenge to generate leasing momentum at this older neighborhood shopping center. So given the recent leasing activity and expected Alberta as credit change we thought.
It was a good time to monetize.
Speaker 3: transcript
Speaker 3: On the acquisition and investment side of our business, it was a relatively quiet quarter. However, we did purchase a 10.6 acre land parcel adjacent to the collection at Foresight for $4.3 million.
On the acquisition and investment side of our business. It was a relatively quiet quarter.
However, we did purchase a 10 six acre land parcel adjacent to the collection of $45 to $4 3 million.
Speaker 3: transcript
Speaker 3: This was a unique opportunity to grow our investment in collection, which has experienced strong performance since we acquired the property at the end of 2022. Controlling the use of this land ensures that it's complementary to our overall plans for the property, and we've already had strong interest from tenants either looking to directly acquire the land for their own use or looking to lease to the developed space.
This was a unique opportunity to grow our investment in collection, which has experienced strong performance since we acquired the property at the end of 2020 to.
Controlling the use of this land insurers that are complementary to our overall plans for the property.
We've already had strong interest from tenants either looking to directly acquire the land for their own use are looking to lease to.
Speaker 3: transcript
Speaker 3: Year to date, we've invested $80 million into four retail properties. This most recent land acquisition and one $15 million structured finance investment. In aggregate, we've invested a blended going in cash yield of 7.7%.
The Bill space.
Year to date, we've invested $80 million into four retail properties.
Recent land acquisition and $1 $15 million structured finance investment.
In aggregate, we've invested at a blended going in cash yield of seven 7%.
Speaker 3: transcript
Speaker 3: Going forward, while we're disappointed by we work decisions to fault on their obligations, which negatively impacts our implied fourth quarter, 2023 and first quarter, 2024 forecasted performance, this wasn't necessarily a surprise and we're seeking all available remedies. From a transaction perspective, we will continue to prioritize selling smaller non-core assets to either repay floating rate debt or for redeployment into attractive investment opportunities.
Going forward, while we're disappointed by <unk> decision to default on their obligations, which negatively impacts our implied fourth quarter 2023, and first quarter 2024 forecast their performance. This wasn't necessarily a surprise and we're seeking all available remedies from a transaction perspective, we will continue to prioritize selling smaller <unk>.
Oncor assets, either repay floating rate debt or for redeployment into attractive investment opportunities and.
Speaker 2: transcript
Speaker 2: And operationally, we're optimistic we'll be able to continue our leasing momentum. Business fundamentals for retail and mixed-use properties still remain relatively strong for attractive supply-demand dynamics and what have been resilient retail sales. With that, I'll hand the call back over to Matt. Thanks, John . Starting with an overview of our portfolio, we ended the quarter with 23 properties totaling 4.1 million square feet of leaseable space located in nine states and 14 markets.
And operationally, we're optimistic we'll be able to continue our leasing momentum business fundamentals for retail and mixed use properties still remain relatively strong for attractive supply demand dynamics and what have been resilient retail sales with that I'll hand, the call back over to Matt. Thanks, John starting with an overview of our <unk>.
Portfolio, we ended the quarter with 23 properties totaling $4 1 million square feet of leasable space located in nine states in 2014 markets at.
Speaker 2: transcript
Speaker 2: At quarter end, portfolio occupancy was 90% and portfolio lease occupancy was 93%.
At quarter end portfolio occupancy was 90% and portfolio leased occupancy was 93% as John mentioned are signed but not open or <unk> pipeline continues to grow representing nearly $4 million of incremental future base rent.
Speaker 2: transcript
Speaker 2: As John mentioned, our signed but not open, or S&O pipeline, continues to grow, representing nearly $4 million of incremental future-based rent. Within our S&O pipeline, more than half of future rents are related to space that was vacant at the time of acquisition. So the benefit from these new leases is not only the addition of base rent, but also the reimbursement income that comes from tenants paying their pro rata share of common area maintenance, insurance, and real estate taxes that the company has previously absorbed as non-reimbursable operating expenses.
Within our ethanol pipeline more than half of future rents are related to space that was vacant at the time of acquisition. So the benefit from these new leases is not only the addition of base rent, but also the reimbursement income that comes from tenants paying their pro rata share of common area maintenance insurance and real estate taxes that the company has previously absorbed as non reimbursable operate.
Speaker 2: transcript
Speaker 2: Earnings for the third quarter of 2023 were better than forecasted, with Core FFO per share results accelerating for the fourth quarter in a row. Core FFO for the third quarter of 2023 was $0.47 per share, which was unchanged when compared to the third quarter of 2022, and AFFO decreased 2% to 48 tons per share when compared to the same period of 2020.
<unk> expenses.
Earnings for the third quarter of 2023 were better than forecasted with core <unk> per share results accelerating for the fourth quarter in a row core <unk> for the third quarter of 2023 was <unk> 47 per share, which was unchanged when compared to the third quarter of 2022, and <unk> decreased 2% to <unk> 48 per share when compared to the same period.
Speaker 2: transcript
Speaker 2: These results are especially notable given the year-over-year impact of higher interest rates and some of the tenant credit issues impacting our 2023 results that we discussed on prior calls.
2022.
These results are especially notable given the year over year impact of higher interest rates and some of the tenant credit issues impacting our 2023 results that we've discussed on prior calls.
Speaker 2: transcript
Speaker 2: Breaking down the quarterly results further, total revenues increased by over 23% to $28 million. This increase is largely driven by the full period impact of our Q4 2022 and year-to-date 2023 acquisitions, such as West Broad Village, Collection at Foresight, Plaza at Rockwall, and the Exchange at Gwinnett Phase II, as well as the positive comparable same property net operating income increases at Exchange at Gwinnett Phase I, Westcliff Shopping Center, Price Plaza, and all of our single-tenant property.
Breaking down the quarterly results further total revenues increased by over 23% to $28 million. This.
This increase was largely driven by the full period impact of our Q4 2022 and year to date 2023 acquisitions, such as West broad village collection at Foresight Plaza Rockwall and the exchange of going that phase II as well as the positive comparable same property net operating income increases at exchange it when that phase one Westcliff shopping center price part.
And all of our single tenant properties.
Speaker 2: transcript
Speaker 2: These positive gains were partially offset by decreases in some of our properties where we have credit loss or tenants in transition, such as Legacy North, Beaver Creek Crossing, Ashford Lane, and Crossroads Town Center, as well as the full period impact of the last 12 months...
These positive gains were partially offset by decreases at some of our properties, where we have credit loss or tenants in transition such as legacy North Beavercreek crossing Ashford Lane and Crossroads Towne Center as well as the full period impact of the last 12 months of disposition.
Speaker 2: transcript
Speaker 2: Given the meaningful amount of transaction activity we've had over the past 12 months and the fact that our same property and OI calculation only includes properties we've owned for the entirety of the current period and the comparable prior period. Our third quarter and year-to-date same property and OI results do not include four of our largest investments, which are collection of four sites, West Broad Village, Madison Yards, and Plaza at Rockwell, and therefore not completely representative of the operating trends of our overall portfolio.
Given the meaningful amount of transaction activity, we've had over the past 12 months and the fact that our same property NOI calculation only includes properties. We have owned for the entirety of the current period and the comparable prior period, our third quarter and year to date same property NOI results do not include four of our largest investments which are collection of foresight west broad village Matt.
Addison yards and plot that Rockwell and therefore are not completely representative of the operating trends of our portfolio that being said our same property NOI for the quarter was down four 5% given the dynamics I just discussed.
Speaker 2: transcript
Speaker 2: That being said, our same property NOI for the quarter was down 4.5% given the dynamic I just discussed.
Speaker 2: transcript
Speaker 2: As we round out the quarter over quarter comparisons, G&A expenses were up year over year due to overall organizational growth and interest expense increase due to higher rates and higher overall debt balances compared to this time last year.
As we round out the quarter over quarter comparisons G&A expenses were up year over year due to overall organizational growth and interest expense increased due to higher rates and at a higher overall debt balances compared to this time last year.
Speaker 2: transcript
Speaker 2: For our announcement in August , we paid a third quarter regular cash dividend of 38 cents per share. This represents a Q3 2023 AFSO payout ratio of 79%, and a very attractive current annualized yield of approximately 9.5%.
Our announcement in August we paid our third quarter regular cash dividend of <unk> 38 per share. This represents a Q3 2023, <unk> payout ratio of 79% and a very attractive current annualized yield of approximately nine 5% shifting.
Speaker 2: transcript
Speaker 2: Shifting to the balance sheet, at the end of the third quarter, our net debt to total enterprise value was 54%, and our net debt to pro forma EBITDA decreased slightly a quarter over quarter to 7.8 times.
Shifting to the balance sheet at the end of the third quarter, our net debt to total enterprise value was 54% and our net debt to pro forma EBITDA decreased slightly quarter over quarter to seven eight times. We ended the quarter with total liquidity of more than $110 million, which includes cash restricted cash and undrawn commitments on our revolving credit facility with respect to the <unk>.
Speaker 2: transcript
Speaker 2: We ended the quarter with total liquidity of more than $110 million.
Speaker 2: transcript
Speaker 2: includes cash, restricted cash, and undrawn commitments on our revolting credit facility.
Speaker 2: transcript
Speaker 2: With respect to the capital markets, we were opportunistic in the third quarter, repurchasing over 6,000 shares of our Series A preferred stock at an average price of $18.52 per share.
Capital markets, we were opportunistic in the third quarter repurchasing over 6000 shares of shares of our series a preferred stock at an average price of $18 52 per share.
Speaker 2: transcript
Speaker 2: We also put in place $160 million in forward starting interest rate swaps to add you can potentially higher teacher interest rates when our existing in place interest rate swaps expire.
We also put in place $160 million of forward, starting interest rate swaps to hedge against potentially higher future interest rates when our existing in place interest rate swaps expire for specifically the $160 million of new forward, starting swaps represent approximately 60% of our existing term loan rollover exposure in there.
Speaker 2: transcript
Speaker 2: More specifically, the $160 million of new forward starting SilverSwap represent approximately 60% of our existing term-lonal rollover exposure and their start dates are latter beginning in 2026, 2027 and 2028 with five year durations that hedge against flooding interest rates through 2031, 2032 and 2033.
Start dates are ladder, beginning in 2026, 2027, and 2028 with five year durations that hedge against floating interest rates through 2031, 2032 and 2033.
Speaker 2: transcript
Speaker 2: While the rates are slightly different by tranche and the effective all in rates would be in the mid fives after accounting for the fixed swap rate, current spread and so for adjustment factor in our existing debt agreement.
While the rates are slightly different by tranche and the effect of all in rates would be in the mid fives after accounting for the fixed swap rate current spreads and suffer adjustment factor on our existing debt agreement.
Speaker 2: transcript
Speaker 2: The origination of these swaps is not meant to be a bet against the forward yield curve over the next 10 years, but instead a risk-adjusted way to lock in what we believe are attractive long-term interest rates and match those rates with our existing and future long-term investments.
The origination of these swaps is not meant to be a bet against the forward yield curve over the next 10 years, but instead a risk adjusted way to lock in what we believe are attractive long term interest rates and match those rates with our existing and future long term investments.
Speaker 2: transcript
Speaker 2: From a guidance perspective, we are increasing our 2023 Core FFO and AFFO or INSC guidance to take into account our third quarter results and go forward expectations regarding investments, decisions, capital market activities and property operate.
From a guidance perspective, we are increasing our 2023 core <unk> earnings guidance to take into account our third quarter results and go forward expectations regarding investments dispositions capital markets activities and property operations for.
Speaker 2: transcript
Speaker 2: For the full year 2023, we've raised the bottom end and lowered the top end of our investment and disposition guidance. And we now anticipate investing between 95 and 100 million at an initial yield of approximately 7.7%. And we're now forecasting to sell between 38 million and 65 million of assets during 2023 at an exit cap rate between 6.15% and 6.75%.
For the full year 2023, we've raised the bottom end and lowered the top end of our investment and disposition guidance and we now anticipate investing between 95 and $100 million at an initial yield of approximately seven 7% and we're now forecasting to sell between $38 million at $65 million of assets. During 2023 at an exit cap rate between $6 one five.
And 675%.
Speaker 2: transcript
Speaker 2: While we are forecasting stronger quarter over quarter increases in same property and OI for the fourth quarter, we have adjusted down our full year forecast for same property and OI growth and forecasted year in lease occupancy given the impact of we work non payment and default as well as the fact we're selling properties that are 100 percent.
While we are forecasting stronger quarter over quarter increases in same property NOI for the fourth quarter, we have adjusted down our full year forecast for same property NOI growth and forecasted year end leased occupancy given the impact of Wee works nonpayment in default as.
As well as the fact, we're selling properties that are 100% leased however.
Speaker 2: transcript
Speaker 2: However, given the strength of our third quarter results, momentum at many of our more recent acquisitions, and approved expense controls, we've increased the midpoint of our core FFO and AFFO guidance ranges by nearly 5%, with an 8 cent per share increase to the bottom end of the ranges, and a 7 cent per share increase to the top end.
However, given the strength of our third quarter results momentum at many of our recent acquisitions and improved expense controls we've increased the midpoint of our core <unk> guidance ranges by nearly 5% with an 8% per share increase to the bottom end of the ranges and a seven cent per share increase to the top end overall, we had a solid quarter.
Speaker 2: transcript
Speaker 2: Overall, we had a solid quarter of execution and we continue to build leasing momentum and benefit from the strength of our Sunbelt focus portfolio.
Our execution and we continue to build leasing momentum and benefit from the strength of our sunbelt focus portfolio, we're taking a cautious approach as we move towards the end of the year, given the uncertainty and volatility in the world today, but we are optimistic we can continue to create long term value for our shareholders with that I'll now turn the call back to the operator to open the line for questions.
Speaker 2: transcript
Speaker 2: We're taking a cautious approach as we move towards the end of the year, given the uncertainty and volatility in the world today, but we're optimistic we can continue to create long-term value for our shareholders. With that, I'll now turn the call back to the audience.
Speaker 1: transcript
Speaker 1: Thank you. At this time, we'll conduct the question and answer session. As a reminder to ask a question, you will need to press star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press star 11 again. One moment for our first question.
Thank you at this time, we will conduct a question and answer session. As a reminder to ask a question you will need to press star one one on your telephone and wait for your name to be announced to withdraw. Your question. Please press star one again, one moment for our first question.
Okay.
Speaker 4: transcript
Speaker 4: Our first question comes from Rob Stevenson with Janey Montgomery Scott. Your line is open. Good morning, guys. Matt, how much was the prior rent on the food hall and versus the new? And is that going to be open for any meaningful part of fourth quarter or for modeling purposes should we just assume the contribution basically starts in the first quarter?
Our first question comes from Rob Stevenson with Janney Montgomery Scott Your line is open.
Good morning, guys.
How much was the.
Prior rents on the food Hall.
And versus the new and is that going to be open for any meaningful part of fourth quarter for modeling purposes should we just assume the contribution basically starts in the first quarter.
Speaker 2: transcript
Speaker 2: Good morning, Rob. The rent's about 25% lower on the food hall replacement tenant. The food hall was paying $51,000 and the new tenant's paying obviously a little bit less. I would assume for modeling purposes they don't rent, commence and start paying rent until January 1. We're hopeful they'll get open in December , but it's a fluid process obviously.
Good morning, Rob the rents about 25% lower on the food Hall replacement tenant the food Hall is paying 51, and then the new tenants paying obviously, a little bit less I would assume for modeling purposes. They don't rent commencement start paying rent until January one.
Helpful They'll get opened in December but.
Yes, it's a fluid process obviously.
Speaker 4: transcript
Speaker 4: Okay. And then similarly, did WeWork make its September payment or was August their last payment? And how much should we be thinking about that as a month?
Okay and then similarly.
Did we work make it September payment or was August their last payment and how much should we be thinking about that as a month.
Speaker 2: transcript
Speaker 2: August was their last payment. It's about 240,000 a month. So we lost 240.
<unk> was their last payment it's about 240000 a month.
So we lost 240 in for September and then obviously, we're losing that each month in Q4 and Q1 of next year Okay.
Speaker 2: transcript
Speaker 2: for September and then obviously we're losing that each month in Q4 and Q1 of next year.
Speaker 4: transcript
Speaker 4: So, you know, you've got the, the food haul, you know, wasn't contributing basically anything in the third quarter.
So you've got the food hall wasn't contributing.
Speaker 4: transcript
Speaker 4: you did get two of the three WeWork payments.
Basically anything in the third quarter.
You did get two of the three we work payments can you sort of what are the other sort of adjustments that we need to be thinking about it. So if I walk to the fourth quarter core <unk> guidance, you're 128 year to date.
Speaker 4: transcript
Speaker 4: Can you sort of, what are the other sort of adjustments that we need to be thinking about? So if I walk to the fourth quarter core of FFO guidance.
Speaker 4: transcript
Speaker 4: You know, you're 128 year to date, you know, the low end of your guidance is 158. So at the low end, you're 30 cents if I'm doing my math correctly. And at the high end, 34 for the fourth quarter versus a 47. What's the other adjustments that we need to be thinking about there on a significant base?
And your guidance is $1 58, so at the low end Youre 30 cents, if im doing my math correctly in at the high end 34 for the fourth quarter versus a 47, what the other adjustments that we need to be thinking about there on a significant basis, yes.
Speaker 2: transcript
Speaker 2: Yeah, there's a decent amount of percentage rent in the third quarter that won't be in the fourth quarter, in part because one of the tenants who pays a significant amount of percentage rent, they have a fiscal year and in August . So the sort of build-up resets.
Yes, there is.
There's a decent amount of percentage rent in the third quarter that won't be in the fourth quarter in part because one of the tenants to pay a significant amount of percentage rent.
I have a fiscal year end in August and so that the.
The sort of buildup resets.
Speaker 2: transcript
Speaker 2: And then obviously we're losing WeWork. We've had a few other tenants who didn't renew and so they're going to be coming out of cash flow going forward. We sold the Westcliff property and so obviously that's sitting in restricted cash until we close out the reverse 1031 that that goes into. There's
In September.
And then obviously were losing we work.
We've had a few other tenants, who didnt renew and so theyre going to be coming out of out of cash flow going forward, we sold the westcliff property and so.
Obviously, that's sitting in restricted cash until we close out the reverse 1031 that that because then too so there's.
Speaker 2: transcript
Speaker 2: There's a bunch of different items and then to my prepared comments, I would say we are being a little bit conservative because some of the red start dates. We'll see if the tenants get there.
A bunch of different items, and then to my prepared comments I would say, we are being a little bit conservative because some of the rent start dates.
Speaker 2: transcript
Speaker 2: And then, you know, with the state of the world today, we're not sure if we're gonna lose anybody else, but so we're being cautious with the fourth quarter, so I would say there is upside to our fourth quarter implied gap.
We'll see if the tenants get there.
And then with the state of the World today, we're not sure if we're going to lose anybody else, but so we're being cautious with the fourth quarter. So I would say that there is upside to our fourth quarter implied guidance. Okay. That's helpful. And then John what do you plan to do with the land that you bought it for.
Speaker 4: transcript
Speaker 4: Okay, that's helpful. And then John , what do you plan to do with the land that you bought at Forsey? And is that entitled?
And is that entitled.
Speaker 3: transcript
Speaker 3: Yeah, so the land has a very flexible commercial zoning. Not residential, but commercial. It was part of the original plan when Cousins Marketplace was developing this, you know, 20 some odd years ago.
Yeah. So the the land has very flexible commercial zoning.
I'm not.
Not not residential but commercial.
Hi.
Is was part of the original plan when cousins marketplace was developing 20, some odd years ago.
Speaker 3: transcript
Speaker 3: And when we bought collection, it was already under contract with a with a spa operator who was going to build like a destination spa sort of thing.
And when we bought collection, who is already under contract with a.
With a spa, operator, who is going to build like a destination spa sort of thing.
Speaker 3: transcript
Speaker 3: And we just kept touch base with cousins. And when they fell out of contract, we jumped in.
And we just kept touch base with.
With cousins and when they fell out of contract we jumped in.
Speaker 3: transcript
Speaker 3: There's a dynamic amount of interest in that size parcel from single users, but it could be multiple users.
There are there is a dynamic amount of interest in that parcel that sized parcel from.
Single users, but it could be multiple users. So we wanted to.
Speaker 3: transcript
Speaker 3: In effect, control our adjacent land and it's going to be a benefit to our property to make sure that the use is complimentary to collection. So we're pretty excited about the opportunity there.
And in fact control our adjacent land and it's going to be a benefit to our property to make sure that it uses complementary to collection. So we're pretty excited about the opportunity there.
Speaker 4: transcript
Speaker 4: And the time frame for that is that, you know, a few years out, how, you know, soon would you be thinking that you'd wind up having some sort of decision as to what's going to go in there and start moving dirt around.
And the timeframe for that is that a few years out how soon would you be thinking that you'd wind up having some sort of decision as to what's going to go in there and start moving dirt around.
Speaker 3: transcript
Speaker 3: So ideally, we would ground lease it to one or two users. But as you know, we don't like to spend a lot of development money.
So ideally we would ground lease it too.
One or two users.
But.
As you know we don't like too.
<unk> spent a lot of development money.
Speaker 3: transcript
Speaker 3: But we're already having some dialogue with tenants and a lot of them want to purchase the land rather than doing a lease structure. So we're working through that, but for modeling purposes, it takes a long time and so forth. I would say kind of end of fourth quarter in a next year would probably have something figured out there for sure.
And but we're already having some dialogue with tenants and a lot of them want to purchase.
The land rather than doing a lease structure. So we're working through that but for for.
Our modeling purposes. It takes a long time and so forth I would say.
In the fourth quarter next year would be kind of.
Probably have.
Yes, something something figured out there for sure.
Speaker 4: transcript
Speaker 4: okay that's helpful and then last one for me John how are you in the board thinking about capital deployment in the sort of trade off between making a fifteen million dollar first mortgage during the quarter and buying back stock it you know fifteen sixteen bucks how you sort of uh... balancing that and thinking about that going forward terms of capital uses
Okay. That's helpful. And then last one for me John how are you and the board thinking about capital deployment and sort of trade off between making a $15 million first mortgage during the quarter and buying back stock at $15 16 Bucks how are you sort of.
Balancing that and thinking about that going forward in terms of capital uses.
Speaker 3: transcript
Speaker 3: Yes, I mean, obviously we find the stock very, you know, and the preferred very attractive here. So we certainly discuss that every quarter, but we are hopeful to find some deployment and some opportunities. And where we think that pricing right now, you know, isn't as favorable as you might expect, given the macroeconomic backdrop.
Yes, so I mean, obviously, we find that the stock vary.
And the preferred very attractive here.
So we certainly discuss that every quarter, but we are hopeful to find some deployment on some opportunities.
And where we think that the pricing right now.
He isn't as favorable as you might expect given the macro economic backdrop.
Speaker 3: transcript
Speaker 3: And so we're waiting to kind of find that you have good opportunity to reinvest in investments, but we're being patient. So we're at the same time, we'll think of an advantage of depressed stock prices, but waiting for more of an investment opportunity.
So we're waiting to kind of find that you have a good opportunity to reinvest in.
<unk>, but.
We're being patient so we're at yes.
Same time will we will take advantage of.
Oppressed stock prices.
But waiting for more of an investment opportunity.
Speaker 4: transcript
Speaker 4: Okay, I guess a follow up to that. Matt, are you guys getting any benefit from the preferred in terms of credit pricing or is it basically just being treated as debt?
Hey, I guess.
Follow up to that Matt are you guys getting any benefit from the preferred in terms of credit pricing.
Or is it basically just being treated as debt.
Speaker 2: transcript
Speaker 2: It is being treated as equity from a leverage ratio perspective, but obviously the fixed coupon payment gets picked up in our fixed charge coverage ratio. So it depends on which covenant we're talking about within the facility agreement on how it gets treated.
It is being treated as equity from a leverage ratio perspective, but obviously the fixed coupon payment gets picked up and our fixed charge coverage ratio. So it depends on which covenant, we're talking about within the facility agreement on how it gets treated.
Speaker 5: transcript
Speaker 5: Okay, so there is some sort of trade off by buying that back versus the common equity. That's correct. From a leverage ratio perspective, yes. Okay. All right, guys. Thanks. I appreciate the time. Have a great weekend. Thanks, Rob. Thank you, Dave. One moment for our next question.
Okay. So there is some some sort of.
Trade off by buying that back versus equity versus the common equity.
From a leverage ratio perspective, yes, okay, alright, guys. Thanks I appreciate the time have a great weekend. Thanks.
Thanks, Brian.
Okay.
One quick question.
Speaker 1: transcript
Speaker 1: Our next question comes from Matthew Ardener with Jones Trading. Your line is open.
Our next question comes from Matthew <unk> with Jones trading your line is open.
Speaker 6: transcript
Speaker 6: Hey guys, morning and thanks for taking the question. What kind of opportunities are you seeing the most of right now? Is it land, financing, or just physical properties themselves? And I guess what are you looking at the hardest at the moment?
Hey, guys. Good morning, and thanks for taking the question what kind of opportunities are you seeing the most of right now is it land financing.
Physical properties themselves and I guess, what are you looking at the hardest at the moment.
Speaker 3: transcript
Speaker 3: Yeah, I mean, we're not really seeing a lot of good opportunities right now. It's a kind of quiet market. People that want to sell assets don't think that this is a great time to be selling an asset. And so we're waiting for some sellers that need to sell an asset.
Yes.
Not really seeing a lot of.
Good opportunities right now, it's kind of a quiet market.
All that wanted to sell assets.
I think that this is a great time to be selling an asset.
And so we're waiting for some of the sellers that need to sell an asset.
Speaker 3: transcript
Speaker 3: whether they have debt maturities or they have a fun life issue or something like that.
Whether they have debt maturities are they have a fun life issue or something like that so.
Speaker 3: transcript
Speaker 3: So, you know, the market's fairly quiet right now. We're not looking to buy additional land. The 10 acres next to the collection was unique in expanding the campus and controlling the site.
The market is fairly quiet right now.
We're not looking to buy additional land.
<unk> Nextera collection was unique and expanding the campus in controlling the site.
Speaker 3: transcript
Speaker 3: But on the financing side, we're not really searching out financing opportunities. If they come to us, we'll certainly consider them. And it'll be more, if we do a financing deal, we'll probably recycle out of some of our existing investments. And so just keep.
But you know on the financing side.
Not we were not really searching out financing opportunities if they come to us, we'll certainly consider them to be more if we do a financing deal will probably recycle out of some of our existing investments and so I'll just keep keep the size neutral, but yeah. We we expect probably first.
Speaker 3: transcript
Speaker 3: keep the size neutral. But yeah, we expect probably first quarter, there'll be better opportunities out there on the investment side. And so we're being patient.
Quarter, there'll be better opportunities out there on the investment side and so we're being patient.
Speaker 6: transcript
Speaker 6: Gotcha, thanks. And then in terms of tenant recycling, and once it didn't renew, could you talk about the leasing activity and what kind of tenants are looking to go into these properties?
Got you. Thanks, and then in terms of tenant recycling and ones that didn't renew can you talked about the leasing activity and what kind of tenants are looking to go into these properties.
Speaker 3: transcript
Speaker 3: Yeah, I mean, we're having still good leasing activity, especially on our newer acquisition that West Broad and collection.
Yes, I mean, we're having still good leasing activity.
Especially on our newer acquisitions at West broad and collection and Ashford Lane.
Speaker 3: transcript
Speaker 3: and Ashford Lane. And it's, you know, it's really...
Operator: Good day and welcome to the CTO Realty Growth Third Quarter 2023 Operating Results Conference Call. At this time, all participants are in a 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 11 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 11 again. Please be advised that today's conference is being recorded.
And it's.
Speaker 3: transcript
Speaker 3: a little bit trying to kind of get the right mix of tenants on some of these property that we've done a lot of the heavy leaps.
It's really a little bit trying to kind of get the right mix of tenants on some of these properties is we've done a lot of.
Speaker 3: transcript
Speaker 3: And so, you know, for instance, soft goods wants to be next to soft goods. And so tenants basically, you know, don't want to commit until the other tenant commits. And so we're playing that dance a little bit.
The heavy lease up and so for instance, soft goods wants to be next to soft goods and so China is basically done.
Want to commit until the other tenant commitments.
Speaker 3: transcript
Speaker 3: But the activity has been very good and then the legacy we've seen an uptick of activity on the WeWork space.
We're playing that dance a little bit but the activity has been very good in that legacy. We've we've seen an uptick of activity on the we work space.
Speaker 3: transcript
Speaker 3: which has been great to see. We were working with a fitness tenant for about six months who wanted to take all the space and it would have been fantastic use for the property.
Which has been <unk> been great to see we were working with.
Matthew Partridge: I would now like to hand the conference over to your speaker today, Chief Financial Officer, Matt Partridge. Please go ahead. Good morning everyone. Thank you for joining us today for CTO Realty Growth Third Quarter 2023 Operating Results Conference Call. With me today 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 in risk because actual results differ materially from expectations are disclosed from time to time in greater detail in the company's Form 10K, Form 10Q and other SEC filing.
Our fitness tenant for about six months, who wanted to take all of the space, who have been fantastic use for the property and it just was the economics of the deal given how much it would cost to do the build out we thought it just didn't really make sense.
Speaker 3: transcript
Speaker 3: And it just was the economics of the deal, given how much it would cost to do the buildout. We thought, you know, it just didn't really make sense. So we terminate those conversations in an hour. We picked up conversations on regular way. 10S and that activity has been very active in the last 45 days. So we're hopeful there.
So we can terminate those conversation and hour, we picked up conversations on regular way tenants and that activity is.
<unk> has been very very active in the last 45 days. So so we're hopeful there.
That's helpful. Thank you guys.
Question.
Speaker 1: transcript
Speaker 1: Our next question comes from RJ Milligan with Raymond James. Your line is open.
Our next question comes from RJ Milligan with Raymond James Your line is open.
Operator: You can find our SEC reports, earnings release, quarterly supplemental, and most recent investor presentation on our website at CTOREET.com.
Speaker 3: transcript
Speaker 3: Hey, good morning, guys. So, in the quarter for the two properties that were sold, a pretty low cap rate, especially given the interest rate environment. I'm just curious when those deals were struck and who were the buyers.
Hey, good morning, guys.
So in the quarter for the two properties that were sold at pretty low cap rate, especially given the interest rate environment I'm. Just curious when those deals were struck and who are the buyers.
John Albright: With that, I'll now hand the call over to John. Thanks, Matt. And good morning everyone.
John Albright: I'm pleased to announce we had a strong quarter of operational execution that led us to a meaningfully increase our full-year FFO and AFFO guidance. The strength in our numbers were driven by better than forecasted tenant retention for lease renewals, accelerated new tenant rent commencements, outsides percentage rent from food and beverage and feeder operators, and improved expense controls where we have direct cost exposure. All of this strength was partially offset by a credit loss associated with our we work location where they have stopped making payments as of September and those payments were set to expire in April of 2024.
Speaker 3: transcript
Speaker 3: So on, I'll start with the Jones Dynamics Office Building. You know, that was more of a syndicator and that's where we're seeing a lot of office buyer interests is from groups that are syndicating out equity and looking for attractive.
So on I'll start with Joe <unk>. The office building that was more of a <unk>.
Syndicator, and Thats, where were seeing a lot of office buyer interest from groups that are.
Syndicating out equity in and looking for attractive.
Speaker 3: transcript
Speaker 3: attractive, you know, low replacement cost properties with good yield and good credit.
Attractive.
Below replacement costs properties with good yield and good credit.
Speaker 3: transcript
Speaker 3: On Westcliffe, the low cap rate is a little bit, you know, a little bit misdirected in that. There's a lot of leases we did recently, but those leases don't come online until next year. So the cap rate does go up next year, but that was a value-add group. That was local to that asset. Gotcha.
On an westcliff the low cap rate is a little bit.
A little bit misdirected in that there's a lot of leases we did recently, but those leases don't come online until next year. So the cap rate does go up next year.
John Albright: Leasing activity during the quarter was strong. The team signed 21 leases totally more than 132,000 square feet, including approximately 26,000 square feet of previously acquired vacancy. This is the second highest volume of square feet leased in one quarter in our company's history. The activity was relatively widespread and included the signing of replacement lease for the food hall space at Ashford Lane in Atlanta. The new lease is with Paulson Row, a well-known successful operator of food halls who has a multiple location presence in Atlanta.
But that was the value add group that was local to that to that asset.
Got you Thanks and then.
Speaker 3: transcript
Speaker 3: talk about the decision to buy back some preferreds in the quarter versus buying back stock and then the thought process about you know either buying back preferreds or stock going forward.
Can you talk about the decision to buy back some preferreds in the quarter versus buying back stock and then the thought process about either buying back preferred stock going forward.
John Albright: While the rent is lower than the previous food hall lease, we are getting a more established operator with a better credit profile and we did not have to make any additional capital investments. They are scheduled to open for the end of the year. For the quarter, our comparable rent spreads were essentially flat, down 0.4%, largely due to the lower rent from the food hall space. When removing the impact of this specific lease, we grew comparable rents 11.4%, most notably benefiting from the solid growth in rents at Beaver Creek Crossing, outside of Raleigh and the collection of foresight near Atlanta.
Speaker 3: transcript
Speaker 3: Yeah, I mean, we have set rates or set prices on on both where we find those be attractive on the on the preferred, you know, buying at the discount the liquidation preference.
Yes, I mean, we have set set rates are set prices on both where we find those be attractive on the on the preferred buying at the discount the liquidation preference.
Speaker 3: transcript
Speaker 3: We find that very attractive and a meaningful pickup for our NAV for our shareholders. So it's a way to buy your liabilities at a big discount.
We find that very very attractive and a meaningful pickup for our NAV for our shareholders.
So it's a way to buy your somewhat your liabilities at a big discount and then into the stock obviously, where we're trading at.
Speaker 3: transcript
Speaker 3: And then the stock, obviously, where we're trading at high nines dividend yield and way below replacement or NAV, we obviously have a set price there that we will be very active in the buyback program if the stock continues to be at certain prices.
High nines dividend yield and way below replacement.
R R.
We obviously have a set price there that.
We will be.
Be very active in the buyback program if the stock continues to be at certain prices.
Speaker 2: transcript
Speaker 2: In RJ, just to expand on John's comments, these are facilitated through 10B51 plan. So it's not like we're resetting the price all the time. It's established at a point in time, and then it stays in place going forward.
And RJ just to expand on John's comments. These are facilitated through <unk>. One plan. So it's not like we're resetting the price all the time, it's established at a point in time and then it stays in place going forward.
John Albright: You today we've signed approximately 400,000 square feet of Lisa's an average rent of 24, 57 per square foot. Comparable rent spreads for Lisa's sign this year increase 4.6% with many of our larger properties experiencing the highest growth rates. Crossroads, counts in our near Phoenix, Legacy North, located just outside Dallas, beer, creek, crossings, collection of foresight, and our newest investment, Plaza Rockwall, which is also in the Dallas MSA, all had year-to-day comparable rent spreads above 7%.
Under the program.
Speaker 7: transcript
Speaker 7: Yeah, sure. And then just one more question on sort of the broader environment and you guys talked about this and your comments about the time to get to rent commencement. And I'm just curious what you're seeing overall in the sector. Is it taking longer? Are you, and I think what we've been hearing from the peers is that the time from signing a lease to getting open is taking longer. And I'm just curious what's driving.
Got you and then just one more question on sort of the broader environment.
You guys talked about this in your comments about.
The time to get to rent commencement and I'm, just curious what youre seeing.
Overall in the sector is it taking longer argue.
I think what we've been hearing from the peers is that.
The time from signing a lease to getting opened and it's taking longer and I'm just curious what's driving that.
John Albright: With all this leasing activity, our sign but not open pipeline now represents 3.2% of prospective occupancy that pick up in 5% of existing quarter-end portfolio cash-based rents. Suspended quarter, I'm happy to announce we've signed a lease with financial institution to lease our vacant 7,800 square foot out parcel of Ashford Lane. This out parcel was vacant at the time of acquisition and was one of our key remaining vacancies at this property. With this lease signing, Ashford Lane is now on a path to be more than 90% lease by year-end.
Speaker 3: transcript
Speaker 3: Yeah, that's been the case for some time now. So I don't think that's a new element, I would say that the construction costs have not come down. We're working with a prospective tenant right now. Obviously several prospective tenants, but one that I had to meet with yesterday, where we brought in a contractor to discuss construction costs and the build out of some of the spaces.
Yes, that's that's been the case for some time now so I don't think that's a new a new element I would say that the construction costs have not come down.
We're working with a prospective tenant right now obviously several prospective tenants, but one that I had a meeting with yesterday.
Where.
We brought in a contractor to discuss construction costs.
The build out of some of the spaces.
Speaker 3: transcript
Speaker 3: two X, what it was five years ago. And the costs are not coming down as much as you would think with activity kind of slowing. So you're still dealing with elevated construction costs, T.I. costs and the timing, contractors are still busy. So timing is, if you go from up.
Two <unk>, what it was five years ago.
And the costs are not coming down as much as you would think with.
John Albright: As we discussed during last quarter's call, we anticipated heavier disposition activity during the back half of the year as a way to bring down leverage and be in a position to make opportunistic investments. During the third quarter, we sold two properties for $20.9 million that awaited average exit cap rate at 6.9%, generating gains on sales of $2.5 million. One of the property sold was a Del Taco restaurant located on an out parcel in Crossroads Town Center and the other was a $64,000 square foot single tenant office billing lease to journal dynamics.
Activity slowing so so youre still dealing with elevated <unk>.
Construction costs Ti costs, and the timing contractors are still still busy so.
<unk>.
Speaker 3: transcript
Speaker 3: A discussion with the tenant right now on signing a lease. You're probably not going to be open for a year, so. It's frustrating, but something we just have to work through.
From a <unk>.
A discussion with the tenant right now on signing the lease you're probably not going to be opened for a year. So.
Yes.
Australia, but it's something we just have to work there.
Okay. Thanks, that's it for me.
Speaker 1: transcript
Speaker 1: Thank you. That concludes the question and answer session. Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.
John Albright: Year-to-day through the first nine months of the year, we sold three properties for $22.9 million at a weighted average exit cap rate at 6.7%, generating gains of sales of $3.3 million. Following quarter-end, we also announced we completed the sale of West Plot Shopping Center for $14.8 million and exit cap rate at 5.2%. Until recently it had been a challenge to generate leasing momentum at this older neighborhood shopping center. So given the recent leasing activity and expected Albertson's credit change, we thought it was a good time to monetize.
Thank you that concludes the question and answer session. Thank you for your participation in today's conference. This does conclude the program you may now disconnect.
Okay.
[music].
Okay.
Good.
Yes.
[music].
John Albright: On the acquisition investment side of our business, it was a relatively quiet quarter. However, we did purchase a 10.6 acre land parcel adjacent to the collection at four side for $4.3 million. This was a unique opportunity to grow our investment in collection which has experienced strong performance since we acquired the property at the end of 2022. Controlling the use of this land is sure as complimentary to our overall plans for the property and we've already had strong interest from tenants.
Okay.
[music].
John Albright: See, they're looking to directly acquire the land for their own use or looking to lease to the built space. Here today we've invested $80 million into four retail properties. The most recent land acquisition and $115 million structure finance investment. In aggregate, we've invested a blended going in cash yield of 7.7%. Going forward, while we're disappointed by we work decisions to fault on their obligations, which negatively impacts our implied fourth quarter 2023 and first quarter 2024 forecasted performance, this wasn't necessarily a surprise and we're seeking all available remedies. From a transaction perspective, we will continue to prioritize selling smaller non-core assets to either repay floating rate debt or for redeployment to attractive investment opportunities.
<unk>.
[music].
John Albright: and operationally we're optimistic we'll be able to continue our Lithium Ominum business fundamentals for retail and mixed-use properties still remain relatively strong for attractive supply demand dynamics and what have been resilient retail sales with that I'll hand it called back over to Matt. Thanks John.
Matthew Partridge: Starting with an overview of our portfolio we ended the quarter with 23 properties totaling 4.1 million square feet of lethal space located 9 states and 14 markets. At quarter end portfolio occupancy was 90% and portfolio leaf occupancy was 93%. As John mentioned our sign but not open or SNOPI's line continues to grow representing nearly 4 million dollars of incremental future base rent. Within our SNOPI's line more than half a future rent are related to space that was vacant at the time of acquisition so the benefit from these new leases is not only the addition of base rent but also the reimbursement income that comes from tenants paying their pro-radish share of common areas.
Matthew Partridge: The maintenance insurance and real estate taxes that the company has previously absorbed is non-reimbursable operating expenses earnings for the third quarter of 2023 were better than forecasted with core FFO for share results accelerating for the fourth quarter in a row. Core FFO for the third quarter of 2023 was 47 cents per share which was unchanged when compared to the third quarter of 2022 and AFFO decreased 2% to 48 cents per share when compared to the same period of 2022.
Matthew Partridge: These results are especially notable given the year-over-year impact of higher interest rates and some of the tenant credit issues impacting our 2023 results that we discussed on prior calls. Breaking down the quarterly results further total revenues increased by over 23% to 28 million dollars. This increase is largely driven by the full period impact of our Q4 2022 and year-to-date 2023 acquisition such as West Broad Village collection of four-size plaza at Rockwall and the Exchange of Gwyneth Phase 2 as well as the positive comparable same property net operating income increases at Exchange of Gwyneth Phase 1 West Clif Shopping Center of Price Plaza and all of our single tenant properties.
Matthew Partridge: These positive gains were partially offset by decreases at some of our properties where we have credit loss or tenants in transition such as Legacy North, Beaver Creek Crossing, Ashford Lane and Crossroads Town Center as well as the full period impact of the last 12 months of disposition. Given the meaningful amount of transaction activity we've had over the past 12 months and the fact that our same property in a Y calculation only includes properties we've owned for the entirety of the current period and the comparable prior period.
Matthew Partridge: Our third quarter and year-to-date same property in a Y results do not include four of our largest investments which are collection of four-size West Broad Village, Madison Yards and Plaza at Rockwall and therefore not completely representative of the operating trends of our overall portfolio. That being said our same property in a Y for the quarter was down 4.5% given the dynamics I just discussed. As we round out the quarter of a quarter comparisons, GNA expenses were up year-over-year due to overall organizational growth and interest expense increased due to higher rates and a higher overall debt balance is compared to this time last year.
Matthew Partridge: For our announcement in August we paid a third quarter regular cash dividend of 38 cents per share. This represents a Q3 2023 AFSO payout ratio of 79% and a very attractive current annualized yield of approximately 9.5%. Shifting to the balance sheet, at the end of the third quarter, our net debt and total enterprise value was 54% and our net debt and to pro forma EBITDA decreased slightly of quarter over quarter to 7.8 times.
Matthew Partridge: We ended the quarter with total liquidity of more than $110 million, which includes cash, restricted cash and undrun commitments on our revolving credit facility. With respect to the capital markets, we were opportunistic in the third quarter, repurchasing over 6,000 shares of our series A preferred stock at an average price of $18.52 per share. We also put in place $160 million in forward starting interest rate swaths to hedge against potentially higher future interest rates when our existing in place interest rate swaths expire.
Matthew Partridge: More specifically, the $160 million of new forward starting sofa swaths represent approximately 60% of our existing term loan rollover exposure, and their start dates are laddered beginning in 2026, 2027 and 2028, with five year durations that hedge against floating interest rates through 2031, 2032 and 2033. While the rates are slightly different by tranche, and the effective all-in rates would be in the mid-fives after accounting for the fixed swap rate, current spread and suffer adjustment factor in our existing debt agreement.
Matthew Partridge: The origination of these swaths is not meant to be a bet against the forward yield curve over the next 10 years, but instead a risk adjusted way to lock in what we believe are attractive long-term interest rates, and match those rates with our existing and future long-term investments.
Matthew Partridge: From a guidance perspective, we are increasing our 2023 core FFO and AFFO earnings guidance to take into account our third quarter results and go forward expectations regarding investments, disposition, capital market activities and property operations. For the full year 2023, we've raised the bottom end and lowered the top end of our investment and disposition guidance, and we now anticipate investing between 95 and 100 million at an initial yield of approximately 7.7%, and we're now forecasting to sell between 38 million and 65 million of assets during 2023 at an exit cap rate between 6.15% and 6.75%.
Matthew Partridge: While we are forecasting stronger quarter over quarter increases in same property and OI for the fourth quarter, we've adjusted down our full year forecast for same property and OI growth, and forecasted year in least occupancy given the impact of we works non-payment and default, as well as the fact we're selling properties that are 100% least. However, given the strength of our third quarter results, momentum at many of our more recent acquisitions and approved expense controls, we've increased the midpoint of our core FFO and AFFO guidance ranges by nearly 5%, with an 8 cent per share increase to the bottom end of the ranges, and a 7 cent per share increase to the top end.
Matthew Partridge: Overall, we have a solid quarter of execution, and we continue to build leasing momentum and benefit from the strength of our sun belt focus portfolio. We're taking a cautious approach as we move towards the end of the year, given the uncertainty and volatility in the world today, but we're optimistic we can continue to create long-term value for our shareholders.
Operator: With that, I'll now turn the call back to the operator to open the line for questions. Thank you. At this time, we'll conduct the question and answer session. As a reminder to ask a question, you will need to press star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press star 11 again. One moment for our first question. Thank you.
Rob Stevenson: Our first question comes from Rob Stevenson with Janie Montgomery Scott. Your line is open. Good morning, guys.
Matthew Partridge: Matt, how much was the prior rent on the food hall and versus the new? And is that going to be open for any meaningful part of fourth quarter or for modeling purposes should we just assume the contribution basically starts in the first quarter? Good morning, Rob. The rent's about 25 percent lower on the food hall replacement tenant. The food hall was paying 51 and then the new tenant's paying obviously a little bit less. I would assume for modeling purposes they don't rent commence and start paying rent until January 1. We're helpful to get open in December but you know the fluid process obviously.
Matthew Partridge: Okay and then similarly did we work make it September payment or was August their last payment and how much should we be thinking about that is a month? August was their last payment? It's about 240,000 a month so we lost 240 in per September and then obviously we're losing that each month in Q4 and Q1 of next year.
Matthew Partridge: Okay so you know you've got the the food hall you know wasn't contributing basically anything the third quarter. You did get two of the three we work payments.
Matthew Partridge: Can you sort of what are the other sort of adjustments that we need to be thinking about? So if I walk to the fourth quarter core of FFO guidance you know you're 128 year to date you know the low end of your guidance is 158 so at the low end you're 30 cents if I'm doing my math correctly and at the high end 34 for the fourth quarter versus a 47. What's the other adjustments that we need to be thinking about there on a significant basis?
John Albright: Yeah there's a decent amount of percentage rent in the third quarter that won't be in the fourth quarter in part because one of the tenants who pays a significant amount of percentage rent they have a fiscal year and in August and so the the sort of build-up resets in September and then obviously we're losing we work we've had a few other tenants who didn't renew and so they're going to be coming out of cash so going forward we sold the Westcliffe property and so obviously that's sitting in a restricted cash till we close out the reverse 1031 that that goes into so there's there's a bunch of different items and then to my prepared comments I would say we are being a little bit conservative because some of the rent start dates we'll see if the tenants get there and then you know with the state of the world today we're not sure if we're going to lose anybody else but so we're being cautious with the fourth quarter so I would say there's there is upside to our fourth quarter implied guidance okay that's helpful and then John what do you plan to do with the land that you bought it for say and is that entitled yeah so the the land has very flexible commercial zoning not not residential but commercial it was part of the original plan when cousins marketplace was developing this you know 20 some odd years ago and when we bought collection it was already under contract with a with a spa operator who was going to build like a destination spa sort of thing and we we just kept touch base with with cousins and when they they fell out of contract we jumped in there there's a dynamic amount of interest in that parcel that size parcel from single users but it could be multiple users so we wanted to in effect control our adjacent land and it's going to be a benefit to our property to make sure that the use is complimentary to collection so we're pretty excited about the opportunity there and the timeframe for that is that you know a few years out how you know soon would you be thinking that you'd wind up having some sort of decision as to what's going to go in there and start moving dirt around So ideally we would, you know, ground lease it to one or two users. But as you know, we don't like to spend a lot of development money, but we're already having some dialogue with tenants, and a lot of them want to purchase the land rather than doing a lease structure.
John Albright: So we're working through that, but for, you know, modeling purposes, it takes, you know, a long time and so forth. I would say kind of end of fourth quarter in a next year would be kind of, you know, we'd probably have, you know, something, something figured out there for sure.
John Albright: Okay, that's helpful.
John Albright: And then last one for me, John, how are you in the board thinking about capital deployment and the sort of trade off between making a $15 million first mortgage during the quarter and buying back stock at, you know, 15, 16 bucks. How are you sort of balancing that and thinking about that going forward in terms of capital uses? Yes, I mean, obviously we find the stock very, you know, and the preferred very attractive here.
John Albright: So we certainly discussed that every quarter, but we are hopeful to find some deployment and some opportunities. And where we think that pricing right now, you know, isn't as favorable as you might expect, given the macro economic backdrop. And so we're waiting to, you know, kind of find that you have good opportunity to reinvest in investments, but, you know, we're being patient. So we're at the same time, we'll think of an inch of, you know, depressed stock prices, but waiting for more of an investment opportunity.
Matthew Partridge: Okay, I guess follow up to that, Matt, are you guys getting any benefit from the preferred in terms of credit pricing? Or is it basically just being treated as debt? It is being treated as equity from a leverage ratio perspective, but obviously the fixed coupon payment gets picked up in our fixed charge coverage ratio. So it depends on which covenant we're talking about within the facility agreement on how it gets treated. Okay, so there is some, some sort of, you know, trade off by buying that back versus equity versus the common equity. Correct. From a leverage ratio perspective, yes. Okay.
Rob Stevenson: All right guys, thanks. I appreciate the time. Have a great weekend. Thanks for having to see you there.
Operator: One moment for our next question.
Matthew Ardener: Our next question comes from Matthew Ardener with Jones Trading. Your line is open. Hey guys, morning, and thanks for taking the question. What kind of opportunities are you seeing the most of right now? Is it land, financing, or just physical properties themselves? And I guess what are you looking at the hardest at the moment?
John Albright: Yeah, I mean, we're, we're not really seeing a lot of good opportunities right now. It's a kind of quiet market people that want to sell assets. Don't think that this is a great time to be selling an asset. And so we're waiting for, you know, some of the sellers that need to sell an asset, whether they have debt materities or they have a fun life issue or something like that. So, you know, the market's fairly quiet right now.
John Albright: We're not looking to buy additional land of the 10 acres next to collection was unique in expanding the campus and controlling the site. But, you know, on the financing side, not new or not really searching out, you know, financing opportunities that they come to us will certainly consider them and it would be more. If we do a financing deal, we'll probably recycle out of some of our existing investments and so just keep keep the size neutral.
Matthew Ardener: But yeah, we expect probably first quarter, you know, there'll be better opportunities out there on the investment side and so we're being patient. Gotcha, thanks.
John Albright: And then in terms of tenant recycling and once it didn't renew, could you talk about the leasing activity and what kind of tenants are looking to go into these properties? Yeah, I mean we're having still good leasing activity, especially on our newer acquisitions at West Broad and collection and Ashford Lane, and it's really a little bit trying to kind of get the right mix of tenants on some of these properties as we've done a lot of the heavy lease up.
John Albright: And so, you know, for instance, soft goods want to be next to soft goods and so tenants basically, you know, don't want to commit until the other tenant commits and so we're playing that dance a little bit. But the activity's been very good and then the legacy, we've seen a pick of activity on the WeWork space, which has been great to see. We were working with a fitness tenant for about six months who wanted to take all the space and it would have been fantastic use for the property.
John Albright: And it just was the economics of the deal, given how much it would cost to do the build-out. We thought, you know, it just didn't really make sense. So we terminate those conversations and now we've picked up conversations on regular way. Tenants in that activity has been very active in the last 45 days. So we're hopeful there. That's helpful. Thank you, guys.
Operator: Next question.
R.J. Milligan: Our next question comes from R.J. Milligan with Raymond James. Your line is open. Hey, good morning, guys. So in the quarter for the two properties that were sold a pretty low cap rate, especially given the interest rate environment, I'm just curious, when those deals were struck and who were the buyers? So on, I'll start with the Jones Dynamics Office building. You know, that was more of a syndicator and that's where we're seeing a lot of office buyer interest is from groups that are syndicating out equity and looking for attractive, attractive, you know, low replacement cost properties with good yields and good credit.
R.J. Milligan: On Westcliffe, the low cap rate is a little bit, you know, a little bit misdirected in that. There's a lot of leases we did recently, but those leases don't come online until next year. So the cap rate does go up next year. But that was a value ad group that was local to that asset.
John Albright: Gotcha. Thanks.
John Albright: And then can you talk about the decision to buy back some preferance in the quarter versus buying back stock and then the thought process about, you know, either buying back preferance or stock going forward? Yeah, I mean, we have set rates or set prices on both where we find those be attractive on the preferred, you know, buying at the discount, the liquidation preference. You know, we find that very, very attractive and in a meaningful pickup for our NAV for our shareholders.
John Albright: So it's a way to buy your, you know, somewhat your liabilities of the discount. And then the stock, obviously, where we're trading, you know, high nines, dividend yield and, you know, way below replacement or NAV. We obviously have a set price there that we will, you know, be very active in the buy back program if the stock continues to be at certain prices, in R.J. Just to expand on John's comments. You know, these are facilitated through 10 to 5.1 plan, so it's not like we're resetting the price all the time. It's established at a point in time and then it stays in place going forward under the program.
Matthew Partridge: Yeah, sure.
John Albright: And then just one more question on sort of the broader environment and you guys talked about this and your comments about the time to get to rent commencement. And I'm just curious what you're seeing overall in the sector. Is it taking longer? Are you, and I think what we've been hearing from the peers is that the time from signing a lease to getting open and taking longer, I'm just curious what's driving that.
John Albright: Yeah, that's been the case for some time now. So I don't think that's a new element. I would say that the construction costs have not come down. We're working with a prospective tenant right now, obviously several prospective tenants, but one that I had to meet with yesterday where we brought in a contractor to discuss, you know, construction costs and, you know, the build out of some of the spaces, you know, 2X, what it was five years ago.
John Albright: And in the costs are not coming down as much as you would think with, you know, activity kind of slowing. So, so you're still dealing with elevated construction costs, TI costs and the timing, you know, contractors are still, still busy. So, you know, timing is, if you go from a discussion with a tenant right now on signing a lease, you know, probably not going to be open for a year. So it's, you know, frustrating, but something we just have to work through.
Matthew Ardener: Okay. Thanks. That's it for me. Thank you.
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