Q2 2025 CTO Realty Growth Inc Earnings Call

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Good day and thank you for standing by welcome to see T. O 's second quarter 2025 earnings Conference call. At this time all participants are in a listen only mode. After the speaker's presentation there'll be a question and answer session to ask a question during the <unk>.

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I'd now like to turn the conference or Whats your speaker for today John Mckenzie. Please go ahead.

Jenna McKinney: Good morning, everyone, and thank you for joining us today for the CTO Realty Growth Inc. second quarter 2025 operating results conference call. Participating on the call this morning are John Albright, President and CEO, Philip Mays, CFO, and other members of the executive team that will be available to answer questions during the call. I would like to remind everyone that many of our comments today are considered forward-looking statements under federal securities laws. 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.

Good morning, everyone and thank you for joining us today for the CTO Realty growth second quarter, 'twenty 25 operating results conference call.

Participating on the call. This morning are John Albright, President and CEO, Philip Mays, CFO and other members of the executive team that will be available to answer questions during the call.

I would like to remind everyone that many of our comments today are considered forward looking statements under federal Securities laws.

The company's actual future results may differ significantly from the matters discussed in these forward looking statements.

Okay, 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.

Jenna McKinney: You can find our SEC reports, earnings release, supplemental, and most recent investor presentation on our website at ctorealty.com. With that, I will turn the call over to John.

You can find our SEC reports earnings release supplemental and most recent investor presentation on our website at CTO REIT dotcom.

That I will turn the call over to John.

John Albright: Thanks, Jenna. Once again, we delivered another quarter of strong operating results driven by continued leasing momentum. During this quarter, we signed approximately 227,000 square feet of new leases, renewals, and extensions, and an average cash-based rent of $25.43 per square foot, including 190,000 square feet of comparable leases at a 22% cash rent spread. Year to date, we have now completed 339,000 square feet of leasing, including 299,000 square feet of comparable leasing at a 27% cash rent spread. Given the robust leasing fundamentals at our shopping centers located in faster growing, business-friendly MSAs within the Southeast and Southwest, we are making considerable progress regarding the unique mark-to-market opportunity on the 10 anchor spaces we have been discussing. With Party City and JoAnn's having wound down their operations and vacating in the second quarter, we now have full control of all 10 of these spaces.

Thanks, Ken I'm once again, we delivered another quarter of strong operating results driven by continued leasing momentum during this quarter, we signed approximately 227000 square feet of new leases renewals and extensions.

Average cash base rent of $25 43 per square foot.

190000 square feet of comparable leases at a 22% cash rent spread.

Year to date, we have now completed 339000 square feet of leasing, including 299000 square feet of comparable leasing a 27% cash rent spreads.

The robust leasing fundamentals at our shopping centers located in faster growing business friendly msas within the southeast and southwest.

We're making considerable progress regarding the unique mark to market opportunity on the churn anchor spaces, we have been discussing.

With party city, and Joanne having wound down their operations in vacating in the second quarter. We now have full control of all 10 of these spaces. Furthermore, because of our proactive leasing efforts six of the 10 anchor spaces are resolved with new leases executed for five of them and one of the leases are signed.

John Albright: Furthermore, because of our proactive leasing efforts, six of the 10 anchor spaces are resolved with new leases executed for five of them, and one of the leases is signed. The new anchors include Burlington, Two Boot Barns, Bassett Furniture, Slick City Action Park, and Bob's Discount Furniture, all concepts that will drive more foot traffic compared to the former tenants that we're replacing. Additionally, we are in active lease negotiations for the remaining four anchor spaces and look forward to announcing additional leases upon execution. Overall, we remain on target to achieve a positive cash leasing spread of 40% to 60% in total for these 10 anchor spaces. Notably, with our leasing activity this quarter, our signed not open pipeline now stands at $4.6 million, representing a 4.6% of in-place cash rents.

The new anchors include Burlington to boot barns, Bassett furniture slick City action Park, and Bob's discount furniture, all concepts that will drive more foot traffic compared to the former tenants that we're replacing.

Additionally, we are in active lease negotiations for the remaining four anchor spaces and look forward to announcing additional leases upon execution.

Overall, we remain on target to achieve a positive cash leasing spread of 40% to 60% in total for these 10 anchor spaces.

Notably with our leasing activity this quarter, our signed not open pipeline now stands at $4 6 million.

Zane a four 6% of in place cash rents. This pipeline of completed leasing along with anticipated leasing the remaining four anchor spaces, we will provide the company with earnings tailwind going into 2026.

John Albright: This pipeline of completed leasing, along with anticipated leasing for the remaining four anchor spaces, will provide the company with earnings tailwinds going into 2026. Further, we're continuing to see strong leasing momentum from high-quality retailers and are excited about ongoing lease negotiations. One last leasing note: our property portfolio consisting of 5.3 million square feet was 93.9% leased and 90.2% occupied at the end of the quarter. On the investment front, we remain disciplined in our underwriting of both property acquisitions and structured investments and currently have a healthy pipeline of potential acquisitions. Specifically, we have one shopping center on our sites. This asset is located in one of our core target markets and has a value-add attribute that aligns with our leasing and operating strengths, providing the opportunity to acquire the asset at an attractive yield and create additional long-term value.

Further we are continuing to see strong leasing momentum from high quality retailers and are excited about ongoing lease negotiations.

One last leasing note our property portfolio, consisting of $5 3 million square feet was 93, 9% leased and 92% occupied at the end of the quarter.

On the investment front.

We remain disciplined in our underwriting about property acquisitions and structured investments and currently have a healthy pipeline of potential acquisitions, specifically, we have one shopping center on our sites.

This asset is located in one of our core target markets and has a value add attributes that align with our leasing and operating strengths.

And the opportunity to acquire the asset attractive yield and create additional long term value.

John Albright: We are optimistic about getting this asset under contract and will provide an update next quarter. Additionally, as previously mentioned, we are considering recycling some of our stabilized assets, which could be a part of the funding for future acquisitions. Now I would like to briefly discuss the exciting progress taking place at three of our properties. Starting with Carolina Pavilion, a 694,000 square foot regional power center located in Charlotte, North Carolina, that we acquired in August 2024. Since acquisition, Ulta, Sierra Trading, and Academy Sports have all opened at this center, significantly increasing its vibrancy. Additionally, this property includes four of the 10 anchor spaces I discussed earlier. All four of these were identified in underwriting as value-add opportunities, having significantly below market rent. Of these four spaces, two have already been leased, and we are in active lease negotiations for the other two spaces.

We are optimistic about getting this asset under contract will provide an update next quarter additions.

Additionally, as previously mentioned, we are considering recycling some of our stabilized assets, which could be a part of the funding for future acquisitions.

Now I would like to briefly discuss the exciting progress taking place at three of our properties, starting with Carolina Pavilion, a 694000 square foot regional power Center located in Charlotte North Carolina that we acquired in August 2024.

Since acquisition Alta Sierra trading Academy Sports have all opened up that center significantly increasing its vibrancy.

This property includes four of the 10 anchor space as I discussed earlier.

All four of these were identified in underwriting as value add opportunities, having significantly below market rent of.

Of these four spaces to have already been leased and we are in active lease negotiations for the other two spaces.

John Albright: After capturing the upside on these four anchor spaces, we expect to achieve an unlevered double-digit yield on this property. Moving to the Plaza Rockwall, a 446,000 square foot center located in the desirable suburb of Dallas, Texas. Late last year, Staples' lease at the center expired with no remaining contractual options. Staples wanted to stay at the center, but we received strong tenant interest and ultimately signed a lease with Barnes & Noble. Barnes & Noble is on schedule to open their new format here in the fall. Additionally, the center includes a former space leased to JoAnn's before they vacated in the second quarter. Our proactive leasing efforts also enabled us to execute a timely lease with Boot Barn, which is working hard to get open prior to year end.

After capturing the upside on these four anchor spaces, we expect to achieve an unlevered double digit yield on this property.

Moving to the Plaza at Rockwall, a 446000 square foot center located in a desirable suburb of Dallas, Texas.

Late last year Staples leaves at the centre expired with no remaining contractual options Staples wanted to stay at the center, but we received strong interest and ultimately signed a lease with Barnes <unk> noble.

Barnes <unk> noble is on schedule to open their new format here in the fall. Additionally, the center includes a former space lease to Joanne before they vacated in the second quarter.

Our proactive leasing efforts also enabled us to execute a timely leads with boot barn, which is working hard to get opened prior to year end.

John Albright: Similar to Carolina Pavilion, these spaces were identified as having significantly below market rent and upside in our underwriting. Combined, we are achieving an 86% cash rent spread on them. Now to our last significant non-core asset, a 210,000 square foot office property located in Albuquerque, New Mexico. This asset is currently fully leased and occupied by Fidelity. However, we are finalizing the lease amendment to reduce Fidelity's space to approximately half the building around the end of November. Their lease on the remaining space has an initial maturity of 2028 with two five-year extensions. This amendment provides us with the opportunity to sign a new 10-year lease with the state of New Mexico, which will backfill a majority of the space vacated by Fidelity. Accordingly, this property will soon have two credit tenants and a longer weighted lease term, increasing both its value and marketability.

Similar to Carolina familiar in these spaces were identified as having significantly below market rent and upside in our underwriting and combined we are achieving 86% cash rent spread on them.

So our last significant noncore asset a 210000 square foot office property located in Albuquerque, New Mexico. This asset is currently fully leased and occupied by fidelity.

We are finalizing a lease amendment to reduce.

Modality space to approximately half the building around the end of November.

Their lease on the remaining space has an initial maturity of 2028 with two five year extensions.

And that provides us with the opportunity to sign a new 10 year lease with the state of New Mexico, which will backfill a majority of the space vacated by fidelity.

Currently this property will soon have to credit tenants and a longer weighted lease term increasing both its value and marketability.

John Albright: Again, we are pleased with our leasing activity and progress as we begin to realize the embedded upside in our assets. With that, I will now hand the call over to Phil.

Again, we are pleased with our leasing activity and progress as we began to realize the embedded upside in our assets and with that I will now hand, the call over to Phil.

Philip Mays: Thanks, John. On this call, I will discuss our balance sheet, earnings results, and full-year 2025 guidance. Starting with the balance sheet. This quarter, as previously disclosed, we fully settled our 3.875% convertible notes, which had an outstanding balance of approximately $51 million and a state of maturity of April 15, 2025. These notes were partially settled, slightly prior to maturity, with a series of privately negotiated transactions with certain noteholders for a combination of cash and newly issued common shares, and the remaining principal balance was settled with cash on the maturity date. Ultimately, the convertible notes were retired in full for approximately $71.1 million, consisting of $50.1 million of cash and $21 million of common equity.

Thanks, John on this call I will discuss our balance sheet earnings results and full year 2025 guidance.

Starting with the balance sheet.

This quarter as previously disclosed we fully settled our three 875% convertible notes, which had an outstanding balance of approximately $51 million.

Stated maturity of April 15th 2025.

These notes were partially settled slightly part of maturity with a series of privately negotiated transactions.

Note holders for a combination of cash and newly issued common shares and.

And the remaining principal balance with that all the cash on the maturity date.

Ultimately the convertible notes were retired in full for approximately $71 $1 million.

Consisting of $15 $1 million of cash and $21 million of common equity.

Philip Mays: This repayment did result in an extinguishment of debt charge of approximately $20.4 million, and consistent with past practice and our definition of non-GAAP measures, it was excluded from our computation of both core FFO and AFFO. After settlement of our convertible notes, we ended the quarter with $606.8 million of debt, of which just $74 million, or 12%, is subject to floating interest rates based on SOFR. As you may recall from our prior earnings call, when interest rates temporarily dropped in April in connection with the initial tariff announcements, we executed SOFR swaps, fixing SOFR for $100 million of principal at a weighted average rate of 3.32% for five years, effective April 30.

This repayment did result in an extinguishment of debt charge of approximately $24 million.

And consistent with past practice and our definition of non-GAAP measures. It was excluded from our computation of both <unk> and <unk>.

After settlement of our convertible notes, we ended the quarter with $606 million to $8 million of debt of which just $74 million or 12%.

Floating interest rates based on so far.

As you may recall from our prior earnings call when interest rate temporarily dropped in April in connection with the initial tariff announcements, we executed so far swaps fixing seo prefer $100 million of principal at a weighted average rate of 332% for five years effective April 30th.

Philip Mays: These swaps were applied to borrowings outstanding on a revolving credit facility, reducing our floating rate exposure and the applicable interest rate on $100 million by nearly 100 basis points to just under 5% based on our current leverage and pricing tier. We ended the quarter with almost $85 million of liquidity, consisting of $76 million available under our revolving credit facility and approximately $9 million in cash available for use. Similar to last year, we will look to close a new term loan towards the end of the third quarter or early in the fourth quarter and use the proceeds to reduce the outstanding balance on a revolving credit facility and increase liquidity. One last balance sheet note.

These swaps were applied to borrowings outstanding on our revolving credit facility, reducing our floating rate exposure and the applicable interest rate on $100 million by nearly 100 basis points to just under 5% based on our current leverage and pricing tier.

We ended the quarter with almost $85 million of liquidity, consisting of $76 million available under our revolving credit facility and approximately $9 million in cash available for use.

Similar to last year, we will look to close the new term loan towards the end of the third quarter early in the fourth quarter and used the proceeds to reduce the outstanding balance on our revolving credit facility and increased liquidity.

Philip Mays: We ended the quarter with net debt to EBITDA of 6.9 times and improvement from 7.5 times from a year ago, but up a bit from 6.3 times at the beginning of the year. The change from the beginning of the year was due to two items. First, the approximately $80 million acquisition of Ashley Park in the first quarter, and second, the earnings associated with the 10 acres that vacated between last year and the second quarter that John discussed. Accordingly, as these anchors and other tenants in our signed not open pipeline open and commence paying rent, it will assist in deleveraging. Moving on to operating results. Core FFO was $14.7 million for the quarter, a $4.3 million increase compared to $10.3 million in the comparable quarter of the prior year.

One last balance sheet, we ended the quarter with net debt to EBITDA was six nine times, an improvement from seven five times from a year ago, but up a bit from six three times at the beginning of the year.

From the beginning of the year was due to two items.

First the approximately $80 million acquisition of Ashley Park in the first quarter and second the earnings associated with the 10 acres that vacated between last year and the second quarter that John discussed.

Accordingly, as these anchors and other tenant in our signed not open pipeline open and commence paying rent.

The deleveraging.

Moving on to operating results corvette, though with $14 $7 million for the quarter at $4 3 million increase compared to $10 $3 million in the comparable quarter of the prior year on.

Philip Mays: On a per-share basis, core FFO was $0.45 for the quarter, consistent with the comparable quarter of the prior year. The consistency of core FFO on a per-share basis, despite the $4.3 million growth in core FFO, is primarily due to our reduction in leverage from a year ago. Now to guidance. We are reaffirming our full-year 2025 per-share outlook for core FFO of $1.80 to $1.86 and AFFO of $1.93 to $1.98. The assumptions underlying this outlook remain consistent with those previously provided. While we have completed a significant amount of leasing and built a $4.6 million signed not open pipeline, it does take some time for tenants, particularly anchors, to get open and commence paying rent. Accordingly, the related earnings left in this pipeline will become more noticeable as we move through the fourth quarter of the year. With that, operator, please open the line for questions.

On a per share basis core <unk> was 45 <unk> for the quarter consistent with the comparable quarter of the prior year.

Consistency of core <unk> on a per share basis. Despite the $4 3 million dollar growth in <unk> is primarily due to a reduction in leverage from a year ago.

Now to guidance, we are reaffirming our full year 2025 per share outlook for core <unk> of $1 80 to $1 86.

And <unk> of $1 93 to $1 98.

The assumptions underlying this outlook remain consistent with those previously provided.

While we have completed a significant amount of leasing and build a $4 $6 million signed not open pipeline. It does take some time for tenants, particularly anchors to get open and commence paying rent accordingly related earnings estimate pipeline will become more noticeable as it moves through the fourth quarter of the year.

And with that operator, please open the line for questions.

Jenna McKinney: Thank you. If you would like to ask a question, please press star one one on your telephone. We also ask that you please wait for your name and company to be announced before proceeding with your question. One moment for the first question. Our first question will be coming from the line of Gaurav Mehta of Alliance Global Partners. Your line is open.

Thank you.

I would like to ask a question. Please press star one on your telephone. We also ask that you. Please wait for your name and company as we announced before proceeding with your question one for the first question.

And our first question will be coming from the line of <unk> Mehta of Alliance Global Partners. Your line is open.

Gaurav Mehta: Thank you. Good morning. I wanted to ask you around your comments around Fidelity office property. You mentioned they are vacating half of that, and you have State of Mexico coming in. Can you provide some more color on what happened with that property as far as Fidelity exiting half of that, and do you expect any CapEx associated with State of Mexico?

Yes.

Thank you good morning, I wanted to ask you.

Around your comments around Fidelity office property, where you mentioned there were getting half of that in the state of Mexico coming in April.

Get some more color on what happened with that property.

As far as fidelity exiting half of that and do you expect any capex associated with Mexico.

John Albright: Sure. The building, when Forest City built the building for Fidelity, it was built in two separate sort of building structures. Fidelity could have the flexibility to downsize and bring in another tenant. That is actually kind of what is happening. Fidelity is going to pay us a payment for that downsizing. At the same time, we did get lucky that State of New Mexico had a very, very big demand for more modern space to bring some agencies out of some older facilities. They are extremely happy about locating here and have moved very fast in this process. I would not be surprised if they take additional space in the future. That is going to allow us to monetize this asset probably late this year or early next year after we get everything settled down. It has been, it is going to be a good situation for us.

Sure So hey.

The building when forest city built the building for Fidelity was built in two separate.

Sort of building structures, so fidelity could have the flexibility to downsize and bringing it to another tenant and that's actually kind of what's happening if at all he is going to pay us.

A payment for that downsizing and then at the same time.

We did get Lucky the state of New Mexico had a very very.

Very big demand for more modern space to bring some agencies out of some older facilities and so they are extremely.

Happy about.

Locating here and have moved very fast in this process.

And I wouldn't be surprised if.

Yes.

Take additional space in the future. So so that's going to allow us to monetize this asset probably late this year or early next year. After we get everything settled down.

But yes, it's been it's going to be good.

A good situation for us.

Gaurav Mehta: Okay. Second question I have is around acquisitions. I think you mentioned that you are looking at one shopping center for a potential acquisition. If you were to acquire that property, should we expect leverage to go up in the near term to fund that acquisition?

Okay. Second question I have is around acquisitions I think you mentioned that Youre looking at one shopping center.

For a potential acquisition and ensure that acquired the properties. We expect leverage to go up in the near term to fund that acquisition.

John Albright: Maybe in the near term. But as I mentioned, I think last earnings, we are looking to recycle some assets. So, we would not see the leverage after recycling tick up at all.

Maybe in the near term, but as I mentioned I think last earnings we are looking to recycle some some asset so I would not see no we would not see the kind of the leverage after after recycling tick up at all.

Gaurav Mehta: Okay. Lastly, can you remind if you have any dispositions in your guidance?

Okay, and then lastly can you remind if you have any dispositions in your guidance.

Philip Mays: There is no dispositions in the current guidance.

Yeah, there's no dispositions in the current guidance.

Gaurav Mehta: Okay. Thank you. That's all I had.

Okay. Thank you that's all I had.

John Albright: Thank you.

Thank you.

Jenna McKinney: Thank you. One moment for the next question. Our next question will be coming from the line of Rob Stevenson of Janney Montgomery Scott. Your line is open.

Thank you one moment for the next question.

And our next question will be coming from the line of Rob Stevenson of Janney Montgomery. Your line is open.

Rob Stevenson: Good morning, guys. Are the Fidelity and State of New Mexico leases second quarter leases or are those third quarter leases?

Hey, good morning, guys.

Are the fidelity of the state of New Mexico leases are those second quarter leases are those third quarter leases.

Philip Mays: The Fidelity is, so we have an agreement with them to downsize. We are still working through the exact square footage there. It is going to be approximately half, but just have to work through, you know, kind of the common areas and stuff like that, the lobby and all to make sure that it works for both tenants. So it is not 100% finalized, but it is substantially done, and we do have an agreement in place. It is just fine-tuning the layout and the exact square footage. The State of New Mexico was signed, and it was this quarter.

The fidelity is.

So we have an agreement with them.

The downside so we're still working through the exact square footage there. So it's going to be approximately half, but just have to work through kind of the common areas and stuff like that the lobby in order to make sure that it works for both tenants.

So it's not 100% filings, but it's substantially done and we do have an agreement in place. It's just fine tuning.

Lay out an exact square footage.

And then the state of New Mexico West side than it was this quarter.

Rob Stevenson: That was in the 226,000 and change of leasing that you reported for the second quarter?

Okay. So so that was in the 226000 and changes of leasing that you reported for the second quarter.

Philip Mays: It is not. If you look at our leasing spreads and all, that is just retail leases. You know, we sporadically have some office leases here and there that are not just representative of the majority of our portfolio. As we disclose on that schedule, it does exclude those. So that was not in there.

It is not if you look at our leasing spreads and all that is just retail leases.

At least theoretically have some office leases here and there.

That arent just representative of the majority of our portfolio and so as we disclosed on that schedule and it does exclude those so that was not in there.

Rob Stevenson: Okay. At this point, given that we are a month into the third quarter, any significant leasing that you guys have signed thus far, and where does the signed not open pipeline sit today versus the $4.6 million at June 30th?

Okay and then at this point given that we're a month into the third quarter any significant leasing that you guys have.

Signed thus.

Thus far and where does the.

The signed not open pipeline.

Sit today versus the $4 6 million at June 30.

John Albright: We are working on a fair amount of leases. If you take all of our vacancy that is remaining, we are negotiating either LOIs or leases on a majority of the remaining vacancy. We are just not there yet. I would say probably in the next 60 days is kind of where things will be getting signed.

We're working on a fair amount of leases again actually.

If you take.

All of our vacancy.

Remaining.

We're negotiating either LOI their leases on.

A majority of the.

The remaining vacancy.

So we're just not there yet I would say probably the next 60 days is kind of where.

Things will get signed.

Rob Stevenson: Okay. Then you talked about potentially doing some dispositions. Basically, I think that the next or the first of the structured investments doesn't come due until, I think there's one in March and one in April. Any thoughts that those guys might pay off early, or would you wind up selling any of the structured investments in lieu of stabilized assets?

Okay, and then you talked about potentially doing.

Some dispositions.

Basically I think that the next or the first of the structured investments doesn't come due until.

I think there's one in March and one in April.

Any thoughts.

Those guys might pay off early.

And or would you wind up selling any of the structured investments.

In lieu of.

Stabilized assets.

John Albright: Yeah, I mean, they could pay off early. I do not really see them, you know, paying off, you know, anytime soon. We are not really seeing any structured finance investments right now. We are really seeing some good quality sort of core acquisition opportunity. So yeah, they could monetize early if we wanted to or needed to, but I do not see that happening.

Yes.

They could pay off early I don't really see them paying off.

Anytime soon.

And then we're not really seeing any any structured finance investments right now we're really seeing some some good.

Quality sort of core acquisition opportunity.

So yes, so it could they could monetize early if we wanted to or needed to but don't see that happening.

Rob Stevenson: Okay. Thanks, guys. Appreciate the time this morning.

Okay. Thanks, guys. Appreciate the time this morning.

John Albright: Thank you.

Thank you.

Jenna McKinney: Thank you. One moment for the next question. The next question will be coming from the line of Matthew Erdner of JonesTrading. Your line is open.

Okay.

Thank you one moment for the next question.

And the next question will be coming from the line of Matthew.

<unk> of Jones trading your line is open.

Matthew Erdner: Hey, good morning, guys. Thanks for taking the question. It seems like you are still seeing a lot of strength on the leasing side. Could you kind of talk about how those processes go? Then, with those kind of four that are not signed yet, that have multiple offers or maybe multiple tenants that want to go in, how you guys are kind of evaluating the credit and which tenant you guys want to go in that spot?

Hey, good morning, guys. Thanks for taking the question. So it seems like Youre still seeing a lot of strength on the leasing side could you kind of talk about how those processes go and then with those kind of four that arent signed yet.

That have multiple offers there may be multiple tenants that want to go and how you guys are kind of evaluating that credit and which tenant you guys want to go in that spot.

John Albright: Yeah, thanks for the question. Look, we're pleasantly surprised at the strength of leasing. The tenants that we're talking about are kind of household names, so good credits. I think where it becomes a little bit more challenging is we do have other tenants that are interested. If you split a box and bring in two tenants, maybe you make more money, but it costs more money. It takes a little longer. So it's kind of high-class problems. We're really going with more easier sort of solutions with credit. It'll be a little faster. Having said that, nothing happens fast these days. A lot of these lease negotiations have been taking quite a bit of time as these tenants have a pretty full deck of other leases that they're working on as well. So it's just the process that is elongated these days.

Yeah. Thanks for the question I mean look we are.

Pleasantly surprised at the strength of leasing.

The tenants that we're talking about are kind of household names. So good credit so I think where it becomes a little bit more challenging as you know we do have other tenants that are interested in if you split a box and bring into <unk>, maybe you make more money, but it costs more money it takes a long.

So it's kind of a high class problems.

Yes.

We're really going with more easier sort of solutions with credit.

It'll be a little faster, but having said that nothing happens fast these days.

Just.

A lot of lot of.

Lease negotiations have been taking quite a bit of time as well.

These tenants have pretty full deck.

Are there other leases that they're working on as well so it's just the.

The process has elongated these days, but the good news is we have a lot of good options on the leasing side.

John Albright: The good news is we have a lot of good options on the leasing side. As mentioned, given that out of our vacancy, we're really talking to about almost 70% of it that we're negotiating one form or the other, it's great to see.

Yes as mentioned.

And getting that out of our vacancy that we are really talking to about almost 70% of it that were negotiated in one form or the other it's great to see.

Matthew Erdner: Yeah, that is great. You mentioned there kind of the process, with it taking long. On that turnover with the 94% to be recognized next year, what do you see as risks that would cause less than 94% to be recognized in 2026?

Yes, that's great and then you mentioned, they're kind of the process.

Is it taking long and then.

Kind of on that turnover with the 94% to be recognized next year, what do you see as risks that would cause less the 94% to be recognized in 2006.

John Albright: You know, the good news is, as you know, on our acquisitions, we've been buying properties with low embedded lease rates. So the mark-to-market is fairly opportunistic and would be terrific to have happen. We're not really concerned about a lease rollover because it's more opportunity if unexpectedly tenants do not stay in the spaces. So, you know, it's nothing that kind of keeps us up at night, if you will.

You know the good news is as you know that on the our acquisitions, we've been buying properties with.

Low embedded lease rates, so the mark to market.

Fairly opportunistic in and it would be terrific to have happened. So we're not really concerned about lease rollover because theres more opportunity of unexpectedly tenants do not stay in the spaces. So.

Nothing that keeps us up but not if you will.

Matthew Erdner: Yeah, I got it. Then one last quick one from me. Going to the structured investment book, on that construction loan, there's only $29.6 million in unfunded commitments. There's no other additional unfunded portions on additional loans.

Yes, I got it and then one last quick one for me.

Going to the structured investment book on that construction loan.

Only $29 million or $29 6 million in unfunded commitments.

Theres no other additional unfunded portions on additional loans.

John Albright: Correct. If you look at our investor deck, we have a little bit of an updated photo of the Whole Foods anchored site there that we are doing the construction loan at Collection at Forsyth, which, as mentioned before, that is almost like a shadow acquisition pipeline for us because we have the right to acquire that and the developer is building to sell. It would be nice to have that option to buy that and bring that into Collection at Forsyth.

Correct.

If you will.

Look at our Investor deck, we have a little bit of an updated photo of the whole foods anchored site. There that we're doing the construction loan at collection, which.

As mentioned before that's almost like a shadow acquisition pipeline for us because we have the right.

To acquire that and developer is building to sell so be nice to have that option to buy that and bring that into the collection.

Matthew Erdner: Yep. That is great. Thank you, guys.

That's great. Thank you guys.

John Albright: Thank you.

Thank you.

Jenna McKinney: Thank you. One moment for the next question. The next question will be coming from the line of John Massocca of B. Riley Securities. Your line is open.

Thank you one moment for the next question.

And the next question will be coming from the line of John Mucosa of B Riley. Your line is open.

Matthew Erdner: Good morning.

Good morning.

John Albright: Morning.

Matthew Erdner: As I think about the physical occupancy, the decline quarter over quarter, was there anything other than maybe some of the moving pieces around the re-tenanting of the anchor boxes and the Staples to Barnes & Noble conversion that you called out that was driving that? Just seeing the color there would be helpful.

Good morning.

So as I think about the physical occupancy.

Client kind of quarter over quarter.

Is there anything other than maybe some of the moving pieces around the recasting of the anchor boxes and staples to Barnes and noble conversion that you'd called out that was driving that just just any other color there would be helpful.

John Albright: No, it is really what we have talked about for some time now. It is all the, you know, the usual suspects as far as that had went bankrupt in the industry: Party City, JoAnn's, Conn's. So, you know, it is really just dealing with Big Lots, dealing with those. So nothing, nothing out of the ordinary of what has been talked about in the industry.

No.

Really what we've talked about for some time now it's all a.

Usual suspects as far as the banker.

Bankrupt in the industry Party city Joanne cons so.

It's really just dealing with big lots dealing with those so nothing nothing out of the ordinary of what it's been talked about in the industry.

Matthew Erdner: Was the Staples to Barnes & Noble conversion in those numbers, or was that a seamless transition or something that is going to occur in like Q3, Q4?

Was the staples to Barnes and noble conversion in those numbers or was that a seamless transition or something that's going to occur in late <unk>.

Philip Mays: So this quarter, the real driver was JoAnn's and Party City. Party City left the very beginning of the quarter. JoAnn's kind of in the middle. The Staples, their lease goes until, I believe it is November. So that will happen in the fourth quarter, John, where they will vacate. So the dip of 80 bps or so this quarter was largely JoAnn's and Party City.

Yes. So this quarter the real driver was Joanna and party city's party city. They are beginning of the quarter Joanna is kind of in the middle.

Staples their lease it goes until I believe it is November.

And so that will happen in the fourth quarter, John where they will vacate at the depth of 80 bps or so this quarter was largely Joanna and party city.

Matthew Erdner: Is there any kind of temporary loss of rent there as it transitions to Barnes & Noble, or is that something that, because of the demand for that space, because you had a new tenant in place, that it should be pretty seamless?

And any any kind of temporary loss of rent there as it transitioned to Barnes <unk> noble or is that something that.

Because of the demand for that space, because you have a tenant in place that it should be pretty seamless.

Philip Mays: Yeah, there will be a little downtime towards the very end of this year, early next year, but it will not be an extended period of time.

There'll be a little downtime.

Towards the very end of this year early next year.

But it will not be an extended period of time.

Okay.

Matthew Erdner: I know we talked about the Fidelity leasing situation a decent amount, but am I right in interpreting that, you know, the negotiations are still ongoing, but am I right in interpreting that there could be a potential lease termination fee paid to you as a result of this? Understanding you are trying to close the asset at some point here in the coming quarters, is the rent that you are getting from the building going to be relatively the same once you split it into two tenants, or is there any kind of change in rent around, you know, reducing the size for Fidelity and bringing in the state of New Mexico?

And then I know you talked about the fidelity.

Leasing situation, a decent amount, but just am I right in interpreting that.

Negotiations are still ongoing but am I right interpreting that there could be a potential lease termination fee.

To you as a result of this and understanding you are trying to do.

As of the asset at some point here in the coming quarters.

Is the rent that you're getting from the building going to be relatively the same once you split it into two tenants or is there any kind of change in rent.

Around.

Reducing the size of fidelity and bringing in the state of New Mexico.

Philip Mays: Yeah, so two pieces there. Fidelity will make a payment to us, John. The way the accounting will likely work on that is it will just get blended in with their rent on the half that they maintain and keep for several years. So, you know, don't expect to see like a pop to miscellaneous income or anything in the fourth quarter related to a big term fee. That is not baked into the guidance. It will just generally kind of be the way GAAP will treat that, you know, even though we will get a nice little cash payment in the fourth quarter, is it will just blend it in with the rent on the remaining space over the remaining term. What was the other part of your question, the second part again?

Yes, it's in two pieces there fidelity, we will make a payment to us John.

The way the accounting will likely work on that is it will just get blended in with their ramp on their behalf that they maintain and keep for several years. So don't expect to see like a pop to miscellaneous income or anything in the fourth quarter related to a big currency and that is not baked into the guidance.

It'll just generally kind of the.

GAAP a trade that they.

We'll get a nice little cash payment in the fourth quarter.

Blended in with the rent on the remaining space over the remaining term.

What was the other part of your question second part again.

Matthew Erdner: What is kind of the rent going to be going forward?

And just whats kind of going to be going forward.

Philip Mays: Yeah.

Matthew Erdner: Post-tenant?

Philip Mays: The rent, there won't be a roll-down in rent there. There will just, you know, maybe be a little bit of downtime, but there will not be a roll-down in rent.

Okay.

There won't be a roll down in rent there they'll just maybe be a little bit of downtime, but it will not be a roll down in rent.

Matthew Erdner: Lastly, on the potential shopping center acquisition you talked about, could we expect term loan financing to kind of come either before or maybe around that transaction? Do you view those kind of as being one-on-one, or is that something where you feel comfortable taking more on the line? I think you said Q3, Q4 for executing on the term loan. I just kind of was wondering how related financing might be to closing that transaction.

And then.

Lastly on the potential of shopping center acquisition, you talked about.

Should we expect term loan financing to kind of come either before or maybe around that transaction do you view those kind of as being one and one or is that something where you feel comfortable taking more on the line and.

Yes, I think you said <unk> <unk> for X gene in the term loan, but I just kind of wondering how related.

Financing might be to closing that transaction.

Philip Mays: Yeah, I mean, the timing may not line up right on top of each other. Based on conversations we've had with our bank group, we don't have any concerns about terming that out. We'll just want to make sure we get the best execution there that we can get. It would be great to kind of have a similar timeline there to keep a little more liquidity on the line, but there could be just a little period of time there where the acquisition comes down before the new term loan and/or disposition gets completed. There won't be a large gap there.

Yes, I mean, the timing may not lineup right on top of each other.

Sure.

But based on conversations we've had with our bank group, we don't have any concerns about terming that out.

So we'll just want to make sure we get the best execution, there that we can get.

It would be great to kind of have it some.

Timeline, there to keep a little more liquidity on the line, but there could be just a little bit period of time, there where the acquisition comes down.

Before the new term loan and our disposition gets completed.

But it won't be.

A large gap there.

Matthew Erdner: That's it for me. Thank you very much.

That's it for me thank you very much.

John Albright: Thank you very much.

Matthew Erdner: Thank you.

Thank you.

Jenna McKinney: Thank you. This does conclude today's Q&A session, and it concludes today's presentation. Thank you so much for joining. You may all disconnect.

Okay.

Thank you and this does conclude today's Q&A session and this concludes today's presentation. Thank you much so much for joining you may all disconnect.

Okay.

[music].

Yeah.

Okay.