Good day, and welcome to the CTO Realty Growth Q2 Earnings Conference Call. Please note, this event is being recorded. I would now like to turn the conference over to CEO and President, John Albright. Please go ahead.

Good morning. Thank you for calling in for CTO Realty Growth Conference Call -- Earnings Call. I'll hand the call over to Mark Patten for him to read some disclaimers.

Thanks, John. Good morning, everyone. During our call today, we'll make certain statements that may be considered to be 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 may not release revisions to these forward-looking statements to reflect changes after the statements were made. Factors and risks that could cause actual results to differ materially from expectations are disclosed from time to time and are in greater detail in the company's filings with the SEC and in our earnings release issued last night. Let me note that we filed our Q2 investor presentation last night, which is now available on our website. Our investor presentation provides additional information you may find useful and that we made reference during this call. And I just wanted to add one more thing that it's been a privilege to work at CTO for the last 8 years to work with John and the team, and I look forward to many good things for this company going forward. I'll turn it back over to John.

Thank you, Mark, and we all here at CTO and Alpine have appreciated everything Mark's done for the company, and we wish him well in his future endeavors at Essential, and we're sorry to see him go, but hopefully, he stays in close contact with us. Operator, I think we're ready for questions.

[Operator Instructions]. The first question today will come from Craig Kucera with B. Riley FBR.

Before I forget, Mark, I just wanted to say how much I sincerely appreciated working with you and getting to know you over the past several years and wish you good luck at Essential Properties as well.

Thanks, Craig. I appreciate that. I've enjoyed it as well.

Well, terrific. Well, I'll start with the first question. I want to start with your top line on the income-producing revenue side that was lighter than what I was looking for. Can you kind of walk me through some of the adjustments that were maybe made to that related to COVID-19, whether that's any sort of tenant write-offs or issues related to abatements? Anything there would be helpful.

Yes, I think it would just be -- I can get to you the -- some specifics or we'll try and figure out the exact data. But in terms of deferrals, that's really where you're going to make an adjustment on sort of the rent side or the cash side. For the most part, we've been accrual the whole way. So I think from a P&L standpoint, I'm trying to think about why it might be a little bit lighter other than the fact that we had significant dispositions in the quarter. I'm not sure what might be defined by lighter for you, but it might just be some of the abatements, really, which if you think about the abatements, it's probably less than $400,000. So you have that -- and you have -- Craig, obviously, we've sold the loan portfolio, which is fairly high-yielding and then obviously, as Mark mentioned, sold a fair amount of ground leases and so forth. But if there's a number of how much we're off, we're happy to kind of do a deeper dive and get back to you.

That's fair. I guess in regard to -- I think there's about 7% or so in the second quarter that had not yet been worked out. Would that -- I guess that would immediately sort of come out of that pool of rent. Is that a fair assessment? Or is that included in there?

Yes, that's actually a fair assessment because to the extent that we get past the period where it'd be prudent to have it as revenue, that would be something we would adjust down for. Yes. And Craig, it's -- I think you probably had a chance to kind of look at all the pages on our investor presentation, but we went ahead and identified the major part of that is 24 Hour Fitness and Falls Church. And I will tell you that not only is 24 Hour Fitness very interested in staying there. So they didn't reject it in bankruptcy, and they've actually reached out to us. But there are other operators, not only in fitness, but other industries, very strong credits that are interested in that site. And so I know when people look at a tenant list and they see kind of 24 Hour Fitness are probably scratching their heads like, okay, how long is it going to be down for on rent. But that property is in a very strong location, and we haven't even hired a broker, and we're getting interest from different tenant rep groups.

Great. I appreciate the color there. That was one of my questions. Circling to what I looked at is some of the larger news in the press release was the REIT conversion. Do you guys currently have a sense of what the E&P distribution would be in the reconversion if that occurred today? I think the last time you put out a number was right around when you created Alpine income, I think it was something in the $33 million range. Kind of do you have a sense of where that is today? Or is that still TBD?

Actually, it's a great question. I appreciate it. Given sort of our performance over the last year, our income has generated some additional E&P. So it's probably more in the $35 million to $38 million kind of category. So maybe if you call it a $36 million or so.

Got it. And I think at the time, you've sort of put out something publicly on that in the fourth quarter of last year. I believe that there was some mix between what would be paid in cash and what would be paid in stock. I guess, a, do you -- I think at that point in time, it was about 20% cash. Should investors expect something similar to that if a REIT conversion occurs? And how much control do you have over the cash versus stock component?

Well, it used to be -- you had to go to the IRS and get a private letter ruling to get the 80-20 permission. And I think that general theory was enough cash to really cover the tax portion of the dividend. But now the IRS has come out and basically codified that you could do the 80-20 if you choose, but it's obviously up to the company in many ways, but also, it's the conversions up to the shareholders in terms of approval. But most recently, and I think it's really kind of a COVID-driven thing, the IRS has been allowing a 90-10 split, so 10% in cash. I'm not sure where the Board is going to come out on that. But the 80-20 is certainly the one that is permitted.

Okay. Great. And I noted in your investor presentation that you now were talking about $4 per share in operating cash flow. I think last quarter, it was 5% in the quarter. I just want to confirm, is that just based on the existing portfolio and then the result of just the dispositions? Any color there would be great.

Yes. It's based on, again, the loans being sold down, sold off. And the properties, $46 million of properties that we have sold that majority of that's in cash waiting to be redeployed. So that's the bulk of it.

Got it. No, that makes sense. And just circling back to what you carry as a remaining loan investment. I think the Carpenter Hotel ground lease is the primary investment there. Can you remind me what the yield is on that ground lease?

It starts the way that ground lease is set up, it starts with a low 5% type of cap rate kind of 5.25%. Then it escalates rather rapidly every year. And so the expectation is that most likely, the operator buys out that lease at some point, but it could be where we get a nice ground lease position that's escalating at a fairly rapid pace.

Okay. I want to talk about your guidance. I think you're, in 2020, looking at anywhere from maybe an additional, call it, $25 million to upwards of $75 million of acquisitions. Clearly, you have the capital and the debt capacity to be at the high end of that. But can you talk about the existing pipeline of what you're looking at? Is there any skew toward office or retail or the types of properties you're considering?

Yes. So it's obviously a great time to be out looking for acquisitions. I will tell you that the environment is a little strange in that. The people that are out looking to sell their assets have a motivation to sell, clearly, but some of the higher-quality assets aren't in the market, even though people are sellers because they just fear this is a terrible time to be selling an asset. So what you're seeing is for very high-quality properties, you're seeing the cap rates being compressed, obviously, with interest rates so low, that makes sense. And then with properties that are higher risk or not as core. The cap rates are wider. So we're looking for more kind of opportunistic acquisitions with higher-yielding potential, higher returns. And so more on the flavor of on the office side, as obviously, retail has its headwinds, we've spent the majority of our pipeline on the office side.

Great. And I know that you're ahead of your 2020 disposition expectations. You sold the Wawa earlier this quarter. Are you still looking to dispose of single-tenant assets in the rest of the year, maybe a ground-hit lease here or there? Or you think you've done more or less?

Yes. So on the smaller ground lease type situations, there's more to do. Obviously, since we had a lot done, we're not as aggressively selling them. But given where we've been able to execute on a cap rate basis, we'll sell there all day long. So there probably will be some more sales in the latter half of the year.

I want to change gears and go to the land joint venture with Magnetar. In your presentation, you put off that the remaining land value estimate is anywhere from $90 million to $110 million. Just to confirm, is that inclusive of the $31 million that's under contract? Or is that outside of that $31 million under contract?

That's inclusive.

[Operator Instructions]. The next question will come from Craig Gilbert with Linden Advisors.

I just had a few. One is on the unresolved. So it looks like the majority of that is for 24 Hour Fitness. Can you speak to the other, call it, 3 or so percent maybe and what's going on there? And any prospects for recovery?

Yes. So most of the balance is really small shop space in our larger centers like Crossroads; Perimeter, Atlanta; or The Strand in Jacksonville. So it's mainly smaller operators. I will say that realize, for obvious reasons, people have a lot of concern for retail. I would say that we've had a lot of tenant interest in these spaces lately. I would say, in the last 3 or 4 weeks, the activity has increased dramatically. And so we feel very confident. It's not more or less chasing these unresolved. It's really finding stronger operators who want that new vacancy. So given that, we have really strong centers there, that's really the opportunity to trade up with a stronger operator.

Got it. Got it. And then just on the geographic diversity, it looks like, obviously, you're in some of the states, Florida, Georgia, Texas, where we could see maybe re-shutdowns. How are you thinking about that? And I mean, just trying to manage that risk.

Yes. I mean to be honest with you, we're not spending a lot of time worrying about it, in that we have a solid tenant base. Even if we were to shut down again, our cash flows never came close to being an issue. So -- and that was -- I mean, maybe this is the reason why Florida is in a little bit of trouble on the COVID side, our restaurants on the Beach in Daytona had some of the best days they've ever had in the last couple of weeks. So I don't think -- I mean, I'm not trying to guess what happens in the national basis here on the COVID or statewide. But I don't think we're going back to a shutdown, just given kind of where we are. I don't think that's what people are talking about, at least here in Florida, they're not talking about it. And when I was in Texas last week, and I would say that it's more on a municipal basis, whether a city or town decides to do something, but not on a statewide basis.

Okay. Okay. And then the last one is just on the timing of the reconversion. I think the press release said as soon as late 2020. What is, I guess, the outer bound of how late you think it could go? And I guess, the main driver, kind of what you're waiting on for it to come sooner rather than later?

Well, great question, by the way, and thanks for asking about that. So sequencing-wise, there are a couple of things that have to happen. I alluded to the shareholder meeting. But if you kind of back up from there, we've got to file an S-4 to merge the C Corp into the REIT. So any time you file a registration statement, you got to go through the SEC process. And that's -- that is an unknown amount of time, even though we're a fairly experienced filer. So it could be upwards of 90 days. So if you kind of go down that route, and then you soon after that file a proxy for the shareholder meeting, those are kind of your gating items to get you there.

This will conclude today's question-and-answer session. I would now like to turn it back over to Mr. John Albright for any closing remarks.

Thank you, everyone. Again, thank you, Mark Patten for being our CFO, undergoing through a lot of changes and progress for the company. And we look forward to talking with you throughout the quarter. Thank you. Bye.

The conference has now concluded. Thank you for attending today's presentation, and you may now disconnect.