CTO Realty Growth, Inc. (NYSE:CTO) Q1 2024 Earnings Call Transcript
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CTO Realty Growth, Inc. (NYSE:CTO) Q1 2024 Earnings Call Transcript May 3, 2024
CTO Realty Growth, Inc. isn't one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
Operator: Good day, and thank you for standing by. Welcome to the CTO Q1 2024 Earnings 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. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to turn the conference over to your speaker for today, Lisa Vorakoun. Please go ahead.
Lisa Vorakoun: Good morning, everyone, and thank you for joining us today for the CTO Realty Growth first quarter 2024 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 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. You can find our SEC reports, earnings release, supplemental and most recent investor presentation on our website at ctoreit.com. And now I'll turn it over to John for his prepared remarks.
John Albright: Thanks, Lisa. Good morning, everyone, and thank you for joining us. I'd like to start off by thanking our former CFO, Matt Partridge, for his many contributions to our company. We wish him well with his new opportunity. We've engaged a national search firm to assist us in identifying our new CFO and have started interviewing candidates. Today, we'll provide a brief overview of our first quarter results, discuss the continued strength we're seeing in the leasing front and highlight our recent transactions. Starting with our operating business. We had yet another successful quarter of leasing activity in the first quarter. We signed over 100,000 square feet of new leases, renewals, options and extensions at an average rent of $27.12 per square foot.
That's over 200,000 square feet of leasing activity in the past six months. The leasing activity was relatively widespread and included the signing of a replacement of Regal Cinemas at Beaver Creek Crossings at Apex, North Carolina. The new 45,000 square foot lease is with a well-known successful regional fitness operator. The rent is meaningfully higher than the rent under the existing Regal lease, given the reduced rent in place associated with the bankruptcy of Regal. The fitness operator tenant is tentatively scheduled to open for business in mid-2025. Comparable growth in new cash base rents versus expiring rents stood at an impressive 68%, which includes a significant impact of the Regal replacement tenant. We anticipate this activity will help push same-store NOI in 2024 and even more so in late 2025, when we get the full benefit of our rent commencement under some of the larger leases signed on acquired vacancy.
Given our recent leasing activity, our signed, but not open pipeline now represents 3.5% of prospective occupancy pickup and over 5% of our existing quarter end cash flow base rents. We ended the quarter with a strong increase in occupancy, finishing at 92.6% increase of 2.3% from year-end 2023. Additionally, our lease occupancy increased by 1% from year end 2023 to 94.3%. Turning to our investments for the quarter. We acquired the final property within the Sprouts grocery-anchored Exchange at Guinea in Beauford, Georgia, for $2.3 million. Additionally, as announced in March, we purchased Marketplace a seminal Town Center in the Sanford submarket of Orlando, Florida for $68.7 million. The multi-tenanted retail tower centers over 315,000 square feet located on 41 acres along I-4 just over 20 miles northeast of downtown Orlando.
The property is 98% leased. It is incurred by Burlington, Marshalls, World Market, Petco, Ross Dress for Less, Old Navy, Ulta, Beauty and Five Below. With this acquisition, the Orlando Metroplex, which has seen tremendous growth over the past few years is now in our top five markets, representing over 8% of our in-place cash-based rent. And Florida has moved into our top three states with over 17% of our annual cash base rent. Additionally, we originated $10 million first mortgage loan on a retail development in West Palm Beach, Florida, at a fixed interest rate of 11%, of which $6.7 million was funded during the first quarter. On the disposition front, we are pleased to complete the sale of our mixed-use property in Santa Peg, New Mexico for $20 million and ex a cap rate of 8.2% and a gain of $4.6 million.
Aerial view of a city skyline, where you can see the real estate developments of the company.
From a capital recycling perspective, we will continue to prioritize selling smaller noncore assets for redeployment into attractive investment opportunities. After quarter end, the company issued just over 1.7 million shares of our 6.38% preferred stock for net proceeds of $33 million. With the net proceeds from this issuance and the $15 million early prepayment of the Sable Pavilion seller financing loan, we were able to pay down all of our floating rate debt under our credit facility subsequent to the quarter end. This gives us ample liquidity to pursue larger format retail center acquisitions in what we believe is a very favorable environment with limited buyer competition. With that, I'd like to hand the call back over to Lisa.
Lisa Vorakoun: Thanks, John. As of the end of the quarter, our income property portfolio consisted of 20 properties comprised of approximately 3.9 million square feet of rentable space located in eight states and 11 markets. The geographic makeup of our portfolio includes top-performing markets such as Atlanta, Dallas, Richmond, Orlando and Jacksonville. As we've mentioned in the past, these markets have demonstrated outstanding potential for growth and are delivering extensive employment and population expansion, which bodes well for our tenants and the underlying value of our properties. From a tenant makeup perspective, our top retail tenants consist of well-known operators such as Best Buy, Ross, Whole Foods, T.J. Maxx, Dick's Sporting Goods, Darden Restaurants and Publix.
As John previously mentioned, at quarter end, occupancy was 93%, and our leased occupancy was 94% with 95% of our portfolio's annualized cash-based rents coming from retail and mixed-use properties, and the majority of those rents coming from grocery anchored, lifestyle and tower center assets. The overarching fundamentals for real estate are strong, and these properties continue to benefit from outsized tenant demand and limited supply. Jumping into our earnings results for the quarter. Our earnings for the first quarter of 2024 exceeded expectations with core FFO per share coming in at $0.48 per share, representing a 23% increase compared to the first quarter of 2023. First quarter 2024 AFFO was $0.52 per share, representing a 21% increase over the first quarter of 2023.
First quarter 2024 core FFO and AFFO as compared to the first quarter of 2023 benefited from a full quarter's impact of our second quarter 2023 acquisition, which included Plaza at Rockwell and out parcels at the Exchange Equinet, as well as the partial quarter impact of Marketplace at Seminal Town Center offset by asset dispositions in the same period. Core FFO and AFFO also benefited from rent commencements at several properties. Our same-property NOI increased by 6% compared to the first quarter of 2023, which increase was largely due to the lease-up of several properties, including the collection at Forsyth and West Broad Village as well as increased percentage rents at several properties. We do anticipate our same-property NOI growth will normalize during the remainder of 2024 due to certain onetime benefits included in our first quarter 2024 results, primarily related to finalizing our 2023 CAM reconciliation billing.
As we announced in February, we distributed a first quarter regular cash dividend of $0.38 per share resulting in a Q1 2024 AFFO payout ratio of 73% and an attractive current annualized yield of approximately 8.8%. Turning to our balance sheet. As of the end of the quarter, our total long-term debt outstanding was $543 million. Net debt to total enterprise value was just over 53% and our net debt-to-EBITDA was 7.6 times. While we ended the quarter with total cash and restricted cash of nearly $15 million and had $59.5 million of floating rate debt on our revolving credit facility, as John mentioned earlier, in April, we were able to pay down our revolver balance, and we currently have no floating rate debt outstanding on the revolver. On the capital markets front, during the first quarter, we repurchased nearly 41,000 shares of our common stock in the open market for approximately $700,000 at an average price of $16.28 per share.
We also issued over 125,000 shares of common stock through our ATM program for total net proceeds of $2.1 million at an average issuance price of $17.05 per share. And finally, as a part of the earnings release yesterday, we increased our full-year 2024 core FFO and AFFO earnings guidance to take into account our first quarter results and go-forward expectations. Our 2024 core FFO and AFFO guidance both increased by $0.04 per share. We also reduced our disposition guidance to a range of $50 million to $75 million for the balance of the year. And with that, I'll turn the call back to the operator to open the line up for questions and answers.