Operator: Good day, and thank you for standing by. Welcome to the CTO Realty Growth 2026 Q3 Earnings 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, you will need to press star one one on your telephone. You will then hear an automated message advising that your hand is raised.
Operator: To withdraw your question, please press star one one again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Jenna McKinney, Director of Finance. Jenna, please go ahead.
Jenna McKinney: Good morning, everyone, and thank you for joining us today for the CTO Realty Growth Q3 2026 Operating Results Conference Call. Participating on the call this morning are John Albright, President and Chief Executive Officer, Philip Mays, Chief Financial Officer, and other members of the executive team who 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.
Jenna McKinney: The company's actual future results may differ materially 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 discussed from time to time in greater detail in the company's Form 10-K, Form 10-Q, and other SEC filings. You can find our SEC reports, earnings release, supplemental, and most recent investor presentation on our website at ctoreit.com. With that, I will turn the call over to John.
John Albright: Thanks, Jenna, and good morning, everyone. The Q3 was very productive for CTO as we continued our strong leasing and investment momentum. During the quarter, we signed 467,000sq ft of leases and completed $102.3 million of investments at a weighted average yield of 9.1%. That brings our 9-month totals to 833,000 square feet of leasing and $336.5 million of investments at a weighted average yield of 9.4%.
John Albright: This activity drove core FFO per diluted share growth of 10.4% for the quarter and 13.8% for the 9 months. We have now addressed all 11 of our vacated anchor spaces. Just after the quarter end, we signed approximately 75,000 square feet of new leases at Pompano City Center and completed an additional $135.8 million of investments, bringing year-to-date investments to $472 million at a weighted average yield of 9.4%.
John Albright: Reflecting all of this activity, we are raising our 2026 core FFO guidance, which Phil will walk through shortly. Starting with leasing, our Q3 activity included 396,000 square feet of comparable leases at a 7% cash rent spread. Year to date, comparable leasing totals 726,000 square feet at a 9% cash rent spread.
John Albright: Regarding the vacated anchor spaces, we addressed the last remaining box this quarter by subdividing the former Conn's space at Carolina Pavilion in Charlotte and signing leases with Cavender's and 2nd & Charles. We are pleased with how this all played out. Of the 11 spaces, 9 have been re-leased at approximately 70% positive spread. The remaining 2, as previously announced, are under contract to be sold to a national retailer for $20.7 million with closing expected in the Q4.
John Albright: We expect these new anchors to bring more traffic to our centers and benefit the adjacent small shop space. A few other leasing highlights. First, we signed a 55,000-square-foot lease with Crunch Fitness at Crossroads Town Center in Phoenix to replace Harkins Theatres. Although the Harkins lease runs through late 2028, we had negotiated an early termination right. That let us proactively backfill the space at a positive cash spread with a use that will drive more foot traffic.
John Albright: We expect roughly 12 months of downtime between Harkins vacating in early 2027 and the Crunch lease commencing in 2028. Second, just after the quarter end, Amped Fitness signed a lease to expand by 19,000 square feet at Pompano City Center, bringing this immersive experience-driven fitness destination to 53,000 square feet.
John Albright: An Amped affiliate also leased 56,000 square feet for research, development, and testing of gym equipment in experiential rooms, as well as office operations. This space is part of the 62,000 square feet of unfinished second-floor shell space we identified as upsize when we acquired the property last December. Because the space is not currently in the center's square footage, the lease will increase Pompano City Center to 565,000 square feet.
John Albright: Third, our out parcel program. This quarter, we signed 4 leases at multi-tenant buildings in 2 out parcel developments. T-Mobile at The Plaza at Rockwall and Jason's Deli, Acapella Nail Spa, and Nothing Bundt Cakes at Beaver Creek in Raleigh. Together with The Swig and Cooper's Hawk leases signed earlier this year, we are making steady progress.
John Albright: We continue to expect a blended low double-digit unlevered yield on about $30 million of investments across these 6 outparcels, with earnings contribution beginning in 2027 and the full benefit in 2028. Turning to occupancy. Excluding Zona Rosa, leased occupancy increased to 95.7% from 95.4% last quarter.
John Albright: Including Zona Rosa, which was 67% leased when we acquired it, the total portfolio was 92.4% leased at 30 September. Zona Rosa gives us real room to grow, which I will come back to in a moment. At quarter end, our signed-not-open pipeline was $5.6 million or about 4.6% of in-place cash rent. That is down modestly from last quarter, mainly because the State of New Mexico began paying rent at our Albuquerque property in September. Though new leasing during the quarter offset most of this impact.
John Albright: We expect the majority of the signed-not-open pipeline to commence rent over the course of 2027. Moving to investments. On our last call, we said we expected to close at least one more acquisition this year. We closed 2, both in Kansas City, a new market for CTO, with more than 2.2 million people and a pro-business climate.
John Albright: Together, these 2 centers, both in strong local submarkets, add about 1.3 million square feet to our portfolio. First, Zona Rosa, which we acquired in Q3 for approximately $63 million, or $82 per square foot, well below replacement cost. It is a top lifestyle center in Kansas City's Northland submarket with about 5.5 million annual visits, and is anchored by Dick's Sporting Goods, Barnes & Noble, Old Navy, Burlington, and DSW.
John Albright: Beyond the lease-up opportunity, the property includes 10 acres of entitled development land and about 100,000 square feet of underutilized space we can reposition. Second, Summit Woods Crossing, which we acquired in early October for $103 million, or $189 per square foot, also well below replacement cost. It is a 545,000 square foot power center in Lee's Summit, one of the metro's most affluent submarkets.
John Albright: It is 99% occupied and anchored by Lowe's, Kohl's, Best Buy, TJ Maxx, and Total Wine, with a Super Target on the site that we do not own. With about 7.3 million annual visits, it is among the most visited shopping centers in the Kansas City metro area. These 2 acquisitions also strengthen our tenant credit, with Dick's and Best Buy both investment grade becoming our 2 largest tenants.
John Albright: On the structured investment side, in July, we originated a $37 million loan, of which $29.8 million was funded at closing. It is secured by a leasehold interest in a mixed-use property in Austin, Texas, has a 2-year term and carries a 9.75% initial cash yield. Then at the quarter end, we closed a $32 million preferred equity investment in a joint venture that owns 10 shopping centers.
John Albright: It is fully funded at closing, has a 3-year term, and yields 17%, including 7% paid in kind. Our structured investment portfolio now totals approximately $260 million at a blended rate of 12.1%. Finally, during the quarter, we closed a new expanded credit facility that gives us ample capacity to fund this activity. Phil will cover the details. In summary, we are very pleased with the 9 months of 2026.
John Albright: We believe our embedded growth drivers, including below-market in-place rents, the signed-not-open pipeline, lease-up opportunities, outparcel developments, and disciplined capital recycling, positions CTO for meaningful earnings growth. With that, I will turn the call over to Phil.
Philip Mays: Thanks, John. On this call, I will briefly highlight our quarterly results and provide an update on our balance sheet and revised full-year outlook. Starting with operating results. For Q3, core FFO was $0.53 per diluted share, up 10.4% from $0.48 a year ago. Growth was driven primarily by leases that commenced paying rent over the past year, along with contributions from our property acquisitions and structured investments.
Philip Mays: Year to date, core FFO is $1.57 per diluted share, up 13.8%. Shopping center same property NOI grew 3.8% for the quarter and 6.2% for the year to date. As we flagged on our last call, growth moderated as several anchors that opened in late 2025 moved into the prior year comparable period. Including our few non-core properties, total same property NOI grew 2.3% for the quarter.
Philip Mays: This reflects the downtime at our last significant non-core property in Albuquerque, where space vacated last December is now leased to the State of New Mexico, which recently commenced paying rent, as John noted. Turning to PINE. Income from our management agreement and equity investment was $2.2 million for the quarter, and our annualized run rate is now $9 million, consisting of $5.8 million of management fees and $3.2 million of dividend income.
Philip Mays: Moving to the balance sheet. During the quarter, we closed a $1 billion unsecured credit facility consisting of a $400 million revolver and $600 million of term loans with maturities ranging from September 2029 to March 2032. The facility added $250 million of commitments in liquidity and extended our weighted average debt maturity to 4.3 years from 1.6 years.
Philip Mays: Also during the quarter, we raised $27.3 million in net proceeds through our ATM program at an average gross price of $21.83 per share and repaid our only secured mortgage. Our debt is now entirely unsecured. We ended the quarter with net debt to pro forma adjusted EBITDA of 5.9x, essentially in line with last quarter, and down from 6.7x a year ago, and approximately $255 million of liquidity.
Philip Mays: Total debt was $723 million at a weighted average interest rate of 4.7%. Finally, turning to guidance. We are raising our 2026 core FFO guidance to a range of $2.11 to $2.14 per diluted share, up from $2.09 to $2.13. At the midpoint, that represents approximately 14% growth over 2025.
Philip Mays: We are also raising the low end of our AFFO guidance to a new range of $2.22 to $2.25 per diluted share, up from $2.21 to $2.25. Key assumptions in our revised guidance include shopping center same property NOI growth of 5% to 6%, investment volume, including commercial loans and structured investments of approximately $472 million, up from our prior range of $300 million to $400 million, and general and administrative expenses of $21 million to $21.5 million. With that, operator, please open the line for questions.
Operator: Thank you. At this time, we will conduct the question-and-answer session. As a reminder, to ask a question, you will need to press star 1 1 on your phone and wait for your name to be announced. To withdraw your question, please press star 1 1 again. Please stand by while we compile the Q&A roster. Our first question comes from Jay Kornreich of Cantor Fitzgerald. Your line is open.
Jay Kornreich: Hey, thanks. Good morning. Can you talk just about the general supply-demand fundamentals you are seeing across the portfolio? I guess, are the power centers currently a landlord's market where you have pricing power? If so, is that a trend you expect to continue throughout 2027?
John Albright: Yeah. Thanks, Jay. Yeah, we are seeing still good activity on the leasing front from really good quality tenants. I would not say that it is like a mad grab for space or anything like that, but good, consistent demand and the type of tenants you want.
Jay Kornreich: Okay. Then maybe just shifting to the office property in New Mexico, just curious if there is any update there for opportunities to start marketing that asset and any updates to timing when a potential sale could happen.
John Albright: Sure. So basically, the State of New Mexico is now in, so that is great. We are talking to the other tenant, Fidelity, about kind of what their space needs are going forward, and then waiting for the new administration, the State of New Mexico, to come online next year. So basically, next year, we will kind of basically optimize the property, rather than hastily sell it when we might be leaving some easy money on the table.
Jay Kornreich: Okay. Thank you. I will hold it there.
John Albright: Thanks.
Operator: Thank you. Our next question comes from Matthew Erdner of JonesTrading. Your line is open.
Matthew Erdner: Hey, guys. Good morning. Thanks for taking the question. I would like to kind of touch on the 2 recent acquisitions in Kansas City. You touched a little bit on why you like the environment there, but I guess, what is the opportunity that you kind of see at Zona Rosa, just the amount that you guys are able to kind of bring online over the next couple of years?
John Albright: Yeah. The property had been owned by an entity that had foreclosed on it, so there was not very much outreach on the leasing side. Phil, the property has some very high-performing tenants. Phil, we have done this many times before, and think that there is a lot of opportunity on the health and fitness side, on the entertainment side, on the restaurant side, and also we have talked to hotel developers about the pad sites. Just really attacking on all sides. Given that we bought it at a nice opportunistic current yield, and with all that vacancy opportunity to lease up, we are really excited about the opportunity there.
Matthew Erdner: Yeah, that is good to hear. Then, as it relates to kind of the leasing opportunity through 2028, it is about 25% of ABR right now. I guess, how much of that is attributable to Zona Rosa and kind of the newer acquisitions, and again, just the opportunity to kind of drive spreads higher there?
John Albright: I will let Phil address that.
Philip Mays: You are asking on the 2028 expirations, how much is attributable to Zona Rosa?
Matthew Erdner: Yeah.
Philip Mays: There is not too much in there. What is in there, we feel really good about. There is a JCPenney's renewal at Rockwall. It is a very low rent. We feel good, though, renew. There is actually Fidelity's renewal, which is in there, which John was talking about earlier, at the Albuquerque. They have recently generally right-sized, so we feel good about that.
Philip Mays: The other really large one in there is Harkins At Crossroads, which John talked about, we have already kind of proactively released that with Crunch Fitness. Those are the larger ones in there. After that, it is a lot of small shops. Some have contractual extensions, some do not. That will be where we will kind of grow our rents, is in those small shop renewals.
Matthew Erdner: Got it. That is helpful. Thank you, guys.
John Albright: Thanks.
Operator: Thank you. Our next question comes from Rob Stevenson of Janney Montgomery Scott. Your line is now open.
Rob Stevenson: Good morning, guys. How are you thinking about equity funding in the near and intermediate term with the stock now sort of sub $20 at this point?
John Albright: Yeah. Obviously, we don't think the stock is at the right price. Now that we've done a lot of investments this year, almost sort of getting close to the market cap of the company, we're not needing to expect that the stock price be at a certain level to raise equity here. We've done enough investments. We're definitely looking at the recycling side. Can we get premium pricing on some of the assets that are now stabilized and slower growing? You'll probably see more of that. We don't really need to rely on the equity price to be at a certain level.
Rob Stevenson: Okay. I guess given that comment, John, how are higher rates impacting the demand for some of the assets that you want to sell at this point? Are you still seeing decent demand and the brokers think that you could achieve the pricing? Is it a situation where people have sort of pulled back, waiting to see what winds up happening over the next couple of months in terms of moves, et cetera? How would you characterize that today?
John Albright: Yeah. You still have a large capital base of capital that wants to get back into the space or get into the space as far as the retail shopping centers. They're going to plow through no matter kind of what. They'll have pricing adjustments based on rates, but it's not going to inhibit the demand for sure. The demand is there from the right capital, being very core capital. Of course, there'll be a little pricing adjustment, whether it's probably 25 bips, 30 bips from six months ago, something like that, but nothing dramatic.
Rob Stevenson: Okay. Then, Phil, what is the pace of the $5.6 million signed-not-open? It does not sound like Crunch starts until 2028, but when do the big pieces of that $5.6 million start to hit the revenue line for you guys?
Philip Mays: Yeah. So we actually put in our investor presentation there. We schedule it out by year, so that might be helpful. But of the $5.6 million, about $3.2 million comes online in 2027, and pretty much all of it is online for 2028. So we get really the full benefit in 2028, a little over half the benefit in 2027.
Rob Stevenson: Okay. Then last one from-
Philip Mays: That does not reflect the leasing at Pompano that John talked about, excuse me, that happened just after the end of the quarter. So that will be a little more incremental positive on top of what is in the signed-not-open pipeline currently.
Rob Stevenson: Okay. That 3.2 in 2027, is that weighted fairly evenly throughout the year, or is there a big chunk in any specific quarters that we need to be aware of?
Philip Mays: Yeah, kind of a weighted basis. It is right around the middle of the year.
Rob Stevenson: Okay. Last one from me. The guidance today, what gets you at the high end? The low end of the guidance range for both core and AFFO is about a penny better than what you did in Q3, but the high end of that range is a few pennies higher than that. What is the variable that gets you from the low end to the high end of the guidance range for the year?
Philip Mays: Yeah. It is a few things. A lot of it is the signed-not-open, rent commencement. Some of that could come online late this year, and that would bump us up. That is probably. That, and there is always in Q4, there is percent rent, right? We have a significant amount that happens in Q4. So it is really just rent commencement dates, percent rent, and where those shake out in Q4.
Rob Stevenson: Okay. Thanks, guys. Appreciate the time.
John Albright: Thanks.
Operator: Thank you. Our next question comes from Craig Kucera of Lucid Capital Markets. Your line is open.
Craig Kucera: Yeah. Hey, good morning, guys. I want to circle back to Zona Rosa, which is a pretty interesting acquisition. I guess you have about 250,000 square feet of vacancy there, and you mentioned you also had 100,000 square feet of underutilized space. Those are independent of each other, correct?
Philip Mays: No. The 100,000 is part of the 250.
Craig Kucera: Okay.
Philip Mays: Yeah. So it is in total, but there is 100 that is just very underutilized where it sits and not really activated because there is not an anchor to really drive people back there currently. We are working on finding ways to implement and activate that part of the center to get some leasing momentum for that 100,000 specifically. But the 250 includes that, Craig.
Craig Kucera: Okay. That is helpful. Are you expecting a meaningful amount of CapEx to reposition this acquisition, or is there a lot of low-hanging fruit, maybe like we saw at Carolina Pavilion?
John Albright: Yeah, there is not a lot of capital needed to do to basically deferred maintenance or anything. There definitely is deferred maintenance, but it is not a huge amount, and we are working on all that, landscaping, painting, that sort of thing. But the real capital will come with tenants. So, very much a revenue-producing sort of capital yielding investment.
Craig Kucera: Right. That makes sense. As far as repositioning there, is this a situation where some of the tenants are paying way below market and you can kind of replace them with markets? Or is it really more what you alluded to before, I think, about bringing in health and fitness and a restaurant, maybe hotels on the pads?
John Albright: Yeah, it's more about activating the property to its potential. There's not any huge mark-to-market. It's just a lot of vacancy opportunity.
Craig Kucera: Got it.
John Albright: Missing uses.
Craig Kucera: Okay. That makes sense. Changing gears with the $32 million preferred equity investment you made earlier this quarter, are you likely to keep that whole investment or sell a portion similar to what you did at PINE for some of the higher-yielding investments you have there?
John Albright: Yeah, that one we are really lucky to have and happy to help out on the transaction that transpired. It is on a portfolio that we tried to buy. We lost on the transaction, but was able to do this preferred investment at a lower basis than where we were willing to buy the portfolio. So we expect that to be a hold.
Craig Kucera: Okay. Phil, is the swap on the 2030 term loan the only swap expiring next year?
Philip Mays: Yeah, there is one swap maturing. It is on about $100 million, and it rolls up about 180 basis points. I cannot remember, Craig, if that is on the 2030 or the 2032 loan, but either way, it is the 2032 loan. It is $100 million, and it will roll up 180 basis points. That is the only one we have changing in 2027. In 2028, we got a couple, but they are fairly close to market, so there will not be a significant drag in 2028 from any swaps expiring.
Craig Kucera: Okay. Just one more from me. You mentioned the lease termination at Harkins. How much was that fee? Was that recognized in Q3, or will it be recognized this quarter or in the future?
Philip Mays: Yeah, we just got an early termination option. We actually just, in order to get that and have the flexibility to exercise it on timing that works with Crunch coming in and limiting the downtime, we just actually just gave them a little bit of break in rent. We didn't get any income, and then we got that option in exchange for that break in rent. Crunch is well underway of working to get all their approvals and everything. Then we'll hit that option at the most opportune time to limit the downtime there. So there's no kind of one-time income this quarter related to that.
Craig Kucera: Okay, great. Thanks for the color.
Operator: Thank you. Our next question comes from Gaurav Mehta at Alliance Global Partners. Your line is open.
Gaurav Mehta: Thank you. Good morning. I wanted to follow up on the $32 million loan that you guys did in Q4. So why is the yield at 17% higher than, I guess, some of the other loans that you've done in the past?
John Albright: Just because the complexity of the transaction. It was fast-moving. It needed to be done by a date certain. It gave them some flexibility on when they can kind of repay us, expect it to be more of a 2-year duration sort of investment. It was just really, they had to have the capital by a certain time and didn't have a lot of time to go shop around. Because we, as I mentioned before, tried to acquire the portfolio, we had already underwritten it, and if they went out to other people that would need time to underwrite it would be impossible for them to have something closed in the timing they needed to have it closed.
Gaurav Mehta: Okay. Second question. Your commercial loan investments seem like they're 14% of undepreciated assets. Can you remind us what the target is for the loan investment portfolio?
John Albright: Yeah. This is basically the level. 15%, I think we've mentioned before. So, I don't anticipate this going higher than the level where it is right now.
Gaurav Mehta: All right. Thank you. That's all I had.
John Albright: Thank you.
Operator: Thank you. Our next question comes from John Massocca of B. Riley Securities. Your line is open.
John Massocca: Good morning. So maybe just given some of the moving pieces happening subsequent to quarter end in your outlook on the capital markets, how are you thinking about leverage currently? I guess you mentioned it a little bit to one of the earlier questions, but does that kind of set up for some more maybe systematic dispositions next year? Or are you kind of happy at this level and you are going to be more opportunistic with sales?
Philip Mays: Yeah. I will take the leverage piece, John. So, at the end of the quarter, we were a little under 6x. With all that activity, I think we go up to maybe 6.5x debt to EBITDA. Then keep in mind, we have a really robust signed-not-open pipeline. We have these pads. They are not going to take it down a half a turn or anything, but they will incrementally bring it down 0.2 or so, right? So we would be in the low 6s. So it is a level we are comfortable with. But that said, we can always look to recycle depending on the opportunities we are seeing. On the market side, I will let John answer.
John Albright: Yeah, I think as I mentioned before, we will opportunistically recycle if we get the right pricing for some of the assets. I expect something to happen in the next 6 months on the recycling side. Expect a little bit of that.
John Massocca: Okay. On the Summit Woods transaction, anything to be aware of that could be additive there, either re-tenanting or re-leasing, or was it just a very attractive day one yield for the quality of asset you purchased?
John Albright: Yeah, I would say it is the latter, that it is a really high-quality property with solid tenant quality. There are very below-market leases on that property. The Kohl's and the Lowe's are really low rents. Almost sort of like a covered land play, if you will. We like the solid nature of the asset.
John Massocca: Okay. On Pompano City Center, you are kind of adding square footage with the new tenant. Is there any more opportunities for that with some of the second-floor space if you can activate it, or is that going to be fully utilized post that lease-up?
John Albright: No, we still have room to go there. There is still opportunity there on the leasing side, and we are getting really good traction. We are excited about the runway at Pompano. The AMP expansion is going to do a lot for just driving more energy there. They are taking over a corridor space, so expenses that we were paying on sort of dead space, that is going to go away. It is all kind of lining up really well for us.
John Massocca: How much more square footage could be added, either as a quantum of what AMP is doing, or just absolute maximum?
Philip Mays: Yeah. The lease at the end of the quarter was low 90s percents, like 92%, 93%. There is a lot of runway just there, and that is on the existing square feet. AMP took the vast majority of that unfinished space, and for lack of a better way to describe it was like enclosed structure parking. They took 55,000 square feet, and that space was, I think, right around 60,000 square feet.
Philip Mays: We had underwritten that at zero. When we tend to do that to be conservative on our underwriting, John and our head of leasing take it very personal, and they went out and found a creative use for it there. That unfinished space now is largely filled with AMP. We still have a lot of runway just on the property itself because it is, on a relative basis, low leased.
John Massocca: Okay. I appreciate all that color. That is it for me. Thank you.
Operator: Thank you. I am showing no further questions at this time. This concludes the question and answer session. Thank you for your participation in today's conference. This does conclude the program, and you may now disconnect.
