Good morning, and welcome to the CTO Realty Growth Second Quarter 2021 Operating Results Conference Call. All participants will be in a listen-only mode. After today’s presentation, there will be an opportunity to ask questions. Please note, this event is being recorded. I would now like to turn the conference over to John Albright, President and CEO. Please go ahead.

Thank you, operator. Good morning, everyone, and thank you for joining us today for the CTO Realty Growth’s second quarter 2021 operating results conference call. With me is Matt Partridge, our Chief Financial Officer. Before we begin, I’ll turn it over to Matt to provide the customary disclosures regarding today’s call. Matt?

Thanks, John. I’d like to remind everyone that many of our comments today are considered forward-looking statements under federal securities law. The company’s actual future results may differ significantly from 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 and our earnings release on our website at ctoreit.com. With that, I’ll now turn the call back over to John.

Thanks, Matt. We had a very active second quarter making good progress on a number of initiatives we set out to accomplish at the beginning of the year. We launched our first preferred equity offering, and we’ve received extremely strong demand and attractive pricing and putting it under contract the remaining landholdings in the land joint venture which we anticipate will close by the end of the year. Starting with our most recent acquisition, we acquired the Shops at Legacy in Plano, Texas late in the quarter for $72.5 million with a 3-mile population of more than 100,000 people, a daytime population of more than 140,000, and household incomes of nearly $140,000. We believe it is an excellent addition to our growing portfolio and has positioned us well within one of the most attractive submarkets of Dallas, Texas. The property spans more than 236,000 square feet and is a retail-driven mixed-use property at the heart of the broader 2,600-acre master-planned legacy district, surrounded by a concentration of Fortune 500 companies, including the North American headquarters for Toyota, FedEx, Yum Brands, Pepsi, Capital One, Boeing, Liberty Mutual, and Freelancer. The tenant makeup is a well-performing mix of amenity-driven retailers and national and local food and beverage operators anchored by the Capital Grille and Seasons 52, which are both Darden brands. There is also a high-quality complementary office component to the property which is anchored by WeWork’s 59,000 square feet of technology and amenity-driven co-working space. Year-to-date, we have invested $111 million across three multi-tenanted properties in our target cities—Dallas, Texas; Salt Lake City, Utah; and Las Vegas, Nevada. We acquired the properties at a weighted average cap rate of 8.5%, exceeding the top end of our initial acquisition cap rate guidance and resulting in us increasing our acquisition volume and cap rate guidance for the year. As I mentioned earlier, we sold eight single-tenant properties during the second quarter for a combined sale price of $61 million at a weighted average cap rate of 7.1%. Following the end of the quarter, we’ve since sold two additional single-tenant out parcels for $7.6 million at a weighted average cap rate of 4.3%. Year-to-date, through the end of July, we’ve sold 12 properties—11 of them single-tenant—for a combined sale price of $73 million at a weighted average cap rate of 6.8%. Operationally, we've made good progress addressing a number of our 2021 lease expirations, with the largest exercise renewals being Albertsons at our West Coast shopping center in Fort Worth, Texas, and Ross at Ashford Lane in Atlanta, Georgia. From a new leasing perspective, we signed six new leases in the quarter at an average rate of more than $21 per square foot, with the most notable being Superica at Ashford Lane. I am pleased to say we are continuing to build leasing momentum for the back half of the year as we work through a number of letters of intent and actively negotiate more than a dozen leases at various properties. As of the quarter end, our income property portfolio consisted of 20 properties comprising approximately 2.7 million square feet of rentable space located in 10 to 14 markets. Our portfolio was 91% occupied at the quarter end, with the change in occupancy from the last quarter largely due to selling 100% occupied single-tenant assets and as a result of our recently announced leasing activity being in the transitional stage. Therefore, the tenants are not yet occupying the leased space. When taking into account our leased space that is not yet occupied, our portfolio is closer to 93% leased as of quarter end. We continue to emphasize faster-growing markets forecasted to exhibit excellent supply-demand dynamics and which are located in business-friendly states benefiting from notable population growth. Our largest markets are now Florida, Texas, Georgia, and Arizona to capitalize on these projected long-term trends. As of the quarter end, 90% of our portfolio rents come from MSAs with over a million people, and nearly 90% are located in the Urban Land Institute’s top 30 markets. In addition to our income property portfolio activity, we continue to make strides in monetizing our non-income producing legacy landholdings and subsurface interest. In the quarter, we sold 9,300 acres of subsurface interest, bringing our year-to-date total subsurface interest sales to almost 35,000 acres or $2.6 million. We also sold a wholly-owned land parcel in Daytona Beach for $0.5 million, and we are under contract to sell our downtown Daytona Beach development site for $6.25 million. All of this activity is, of course, in addition to the previously announced agreement to sell our remaining assets in the land joint venture. The contract purchaser of the land joint venture is currently in due diligence. So, at this point, we anticipate providing an update to the process during our third quarter earnings call. With that, now I’ll turn the call over to Matt.

Thanks, John. Beginning with our top line, we continued our strong rent collection results in the second quarter, collecting 100% of contractual base rents. Total revenues for the second quarter of 2021 increased 9.8% to $14.3 million, and year-to-date, total revenues increased by 12.2% to $29 million. In both instances, the increases were largely driven by real estate operations revenue associated with previously mentioned subsurface and vacant land sales. We did experience moderate growth of $900,000 in the third quarter as we start to recognize the full benefit of the increases linked to our capital raising activities. Additionally, income property revenues in the quarter were largely flat because year-over-year revenue gains from recent acquisitions are being offset by the timing between dispositions and the subsequent redeployment of disposition proceeds. However, there will be a meaningful acceleration in income property revenues as we realize the revenue benefits from our acquisition of the Shops at Legacy that occurred late in the second quarter. For the second quarter of 2021, funds from operations were $4.9 million or $0.83 per share, and adjusted funds from operations were $6.3 million or $1.07 per share. The funds from operations were impacted by our loss on extinguishment of debt related to the required write-off of deferred financing fees that occurred with the CMBS loan assumed by Alpine as part of the previously mentioned asset sales. This one-time item impacted FFO results by approximately $0.11 per share in the quarter. Conversely, our AFFO in the second quarter was positively impacted by approximately $434,000 in repayments of deferrals related to the previously mentioned rent deferral agreements. The second quarter of 2021 represented the height of our existing repayment obligations, and going forward, the scheduled payments are anticipated to be approximately $90,000 in each of the third and fourth quarters. I’ll reiterate to everyone that our year-over-year per share comparisons are materially impacted by the 1.2 million shares issued as part of the special distribution related to the company’s REIT conversion that occurred in December of 2020. As previously announced, the company paid a second quarter regular cash dividend of $1 per share on June 30 to shareholders of record on June 21. Our second quarter cash dividend represents a 300% year-over-year increase compared to the company’s second quarter 2020 cash dividend, and the annualized yield is approximately 7.4%. Our quarterly dividend represents a cash payout ratio of 94% of Q2 2021 AFFO per share. As we noted in yesterday’s press release, the company is revising its practice of their dividend for the third quarter of 2021 and future quarters in the second month of the respective quarter. Turning to our capital markets activities and the balance sheet. In May, we bought back approximately $800,000 of convertible notes, reducing the face value of our convertible notes outstanding to $61.7 million. In June, we exercised the accordion option on our existing 2026 term loan for an additional $15 million of proceeds. We ended this quarter with total cash and restricted cash of $18.6 million and total long-term debt outstanding of $311 million. Net debt to total enterprise value at quarter end was approximately 48%. As John referenced earlier, we did price and upsize our inaugural perpetual preferred Series A offering during the quarter at a 6.38% coupon, with the closing of the offering occurring on July 6. Today, with the recent asset sales and taking into account the influx of capital from the preferred offering, our net debt to enterprise value is approximately 35%. Finally, we updated our 2021 guidance yesterday, increasing the midpoint of our AFFO per share range and increasing our acquisitions and disposition guidance to account for our year-to-date performance and expected activity in the back half of the year. Notably, we increased our disposition volume midpoint by $37.5 million and decreased the midpoint of our anticipated disposition cap rate range by 55 basis points. We also increased the midpoint of our acquisition volume by $100 million and increased the midpoint of our anticipated going-in cash cap rates by 50 basis points. We reduced our FFO per share midpoint to $3.75 to account for the previously noted extinguishment of debt and other one-time items, and we increased our AFFO per share midpoint to $4.10 to account for better investment spreads on net investment activity in income properties, better growth in external management fees, and the increasing dividend payments from our investments over time. Our updated guidance does not include any additional assumptions for outside equity and could be heavily influenced by the timing of dispositions and the subsequent redeployment of proceeds into acquisitions, as well as the future performance of our current and prospective tenants. With that, I’ll now turn the call back over to John.

Thanks, Matt. In closing, we are very pleased with our activity to date, and we are excited about what we are projecting for the balance of 2021 with our revised guidance. What we’re anticipating not only represents improved growth prospects for the year but also positions us to meaningfully grow earnings in 2022 and beyond as we realize the full benefits of our net investment activity and the growth of Alpine and our overall company evolution. I want to thank all of our investors and partners for their continued support. With that, we’ll open it up for questions. Operator?

Our first question today comes from Rob Stevenson with Janney.

John, can you talk about the new guidance essentially being $100 million to $150 million of acquisitions in the back half of the year? Do you have some of that already under contract? What types of assets are you looking at here? And what should we expect in terms of whether these are fully occupied or if there is some lease-up? How do you characterize what you’re looking at these days?

So the reason we upped the guidance is twofold; one, we are seeing a lot of quality assets that are being teed up to come to market this fall, and we’re pretty excited about the target-rich environment. We actually just bid on a property this week in the best and final, I can just say that because we didn’t win it, but there is more capital chasing properties, which isn’t good. However, it’s breeding out some higher-quality properties. So the way to think about it is that we love, obviously, Legacy that we bought, which has a little bit of lease-up opportunity. That would be our preferred type of acquisition—properties with some vacancy that we can capitalize on. The other thing that’s really driving the upside on the guidance for acquisitions is the dispositions. The capital markets are very favorable for selling some assets. We’re looking at our single-tenant office buildings as good candidates, and the pricing is very good. So that’s kind of what we’re doing.

And the deal to sell the remaining land holdings, that does not include anything with the subsurface rights, is that correct?

Correct.

What’s the current thinking of the plan for that? Does that go away at some point in the next year or year and a half? Does that stay for a while? Is the monetization further out for that? How should we think about that?

As you’ve seen in our announcement, we’ve been whittling away at it. We’ve been going to a lot of the service owners and offering the opportunity to buy their subsurface rights underneath their land, and that’s been going pretty well as you can see. But yes, we plan on selling that as soon as we can and get the right price but always give 12 months.

And Matt, what is the construction in progress on the balance sheet?

So, a lot of that build-out is for tenants, most notably Food Hall at Ashford Lane that is going to commence right here later in the third quarter. But we’ve got some other projects with other tenants at different centers that are also in process.

And then one last one for me. John, to what extent are the remaining dispositions that you would wind up doing or even exceeding the top end of the guidance range on dispositions reliant on you guys closing the acquisitions as well and using that as a source of funding? I mean, if for some reason the acquisitions get pushed into 2022, do the dispositions get pushed from a lining-up standpoint from an NOI replacement perspective?

I would say that's fair that if for some reason the acquisition candidates aren’t there at the right pricing, then we won’t move the offices without feeling very comfortable that there’s a good acquisition opportunity to match up with that.

Our next question comes from Michael Gorman with BTIG.

John, if I could just go back to the acquisitions for a minute. You mentioned one of your favorite types is kind of what you did at Legacy there, where there’s some lease-up opportunity. Given some of the commentary that we’ve heard from some of the strip center operators this quarter about the leasing velocity and things like that, are you seeing more hesitancy for owners to sell vacancy? Are they asking for more value attributed to the vacancy when they bring assets to market just because there is more certainty around that kind of lease-up growth potential?

What we’re seeing is a lot of the assets that we hear coming to market this fall, after the summer, are really transactions that were attempted pre-COVID. They didn’t get the pricing. It’s not that the pricing has gone back to pre-COVID levels, but people feel they’re not going to take the discount they were prepared to accept when COVID hit. It feels like this is another chance at an exit, and so that’s kind of what you’re seeing is people rushing to sell assets they had lined up to sell pre-COVID. With regards to lease-up, if the property has some vacancy there, they don’t expect to get paid for that vacancy. What we are seeing is some sellers deciding to wait a little longer to lease before coming to market, but if there is a vacancy, they’re not asking for value because they haven’t secured a lease by now.

And then just on the capital structure side. Obviously, with the pine, there was some success with doing an OP unit transaction during the quarter. Just curious as you think about the potential future acquisitions for CTO, especially if the equity value moves higher, are OP units going to be a potential tool in the capital structure here as well?

Yes. We don’t have an OP unit structure at CTO yet, so definitely not. We wouldn’t be issuing equity at these types of prices. We still have internal capital through the land sale, through subsurface sales, and through re-monetizing the single-tenant properties. So we don’t really need to rely on outside capital. But we want to grow the company, so when the equity pricing is better, we’ll look at those options.

And then just one last question on the land sale. The buyers are in their due diligence, so that’s the next step. But having gone through that and selling these land parcels, kind of what level of certainty or what’s involved in the due diligence on the land side? Are they looking at zoning potential? Are they looking at improvement rights, or what’s the process?

Right now, they’re deep into actually planning developments on the properties. They’re engaging civil engineers and architects on how they would approach developing the parcel. There’s no rezoning risk. Everything’s been zoned appropriately for the different uses, and they’re spending a lot of time talking with consultants, brokers, and developers to get a better feel for the market and the land and any development issues regarding the cost of utilities and roads. Nothing is really subject to zoning or entitlement.

Our next question comes from Craig Kucera with B. Riley.

I wanted to follow up on the JV land sale. You’ve got another contract for $67 million. The partner has, I think, a $33-plus million balance. What do you expect to receive on a net basis? Is there any taxes tied to that? How should we think about that?

We expect to receive somewhere around $26 million before taxes. This is held in a taxable REIT subsidiary, so there are some taxable considerations we have to work through because of it being in the TRS. But I think on a net basis, it’s going to be, worst case, $20 million that nets up to the REIT, but I think we have the potential to possibly get more than that depending on how we maneuver the tax side.

I know you mentioned that you had the $6 million Daytona parcel under contract. Is that in guidance? And what are you thinking when that might close?

That’s not in guidance, but it would close by the end of the year.

And just thinking about the preferred that you issued and you’re changing your guidance, it looks like you’re acquiring $100 million more but selling $25 million to $50 million. Can we talk about how you’re thinking about leverage now that you do have preferred in the capital stack?

From a leverage perspective, we’ve got strong coverage from a debt service perspective, even with the new preferred on a pro forma basis. We feel pretty good about where that stands. I view the preferred as leverage to the common, but it has equity quality since it is perpetual capital. I think we have room to move leverage up as we identify opportunities in the market, hopefully in the back half of the year like John discussed. I think we’ll probably run it somewhere between 6x and 7x net debt-to-EBITDA over the long run, but that will fluctuate depending on timing. We’re at the low end right now at 35% net debt to total enterprise value today.

This concludes our question-and-answer session. I’d like to turn the call back over to John Albright for any closing remarks.

Thank you very much for attending the call. I look forward to talking to you in the next couple of days. Thank you.

The conference has now concluded. Thank you for attending today’s presentation. You may now disconnect.