Hello and welcome to the CTO Q3 2021 Earnings Call. My name is Elliot, and I will be coordinating your call today. I will now hand over to our host John Albright, President and CEO. John, please go ahead when you are ready.

Thank you, operator. Good morning, everyone, and thank you for joining us today for the CTO Realty Growth's third 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. I'm very pleased with our strong third quarter, which we believe has set us up to have a productive fourth quarter that will give us momentum to drive significant earnings growth in 2022. Transactionally, it was the best positioned heavy quarter where we sold four single tenant properties for a combined sales price of $75 million and a weighted average cap rate of 5%, generating a combined gain on sale of $22.7 million. The highlight of our third quarter disposition activity was the sale of our single tenant office building based in Raleigh, North Carolina leased to Wells Fargo, which generated a gain of more than $17 million. Year to date, we sold 14 properties, 13 of which were single tenant assets for a combined sales price of $141 million at a weighted average exit cap rate of 6%. As we announced in yesterday's earnings release, we are increasing our disposition guidance by another $25 million to account for the additional sales we anticipate will close before the end of the year. While it was a quiet third quarter from an acquisition standpoint, all of our disposition activity is setting us up for a very active fourth quarter, as evidenced by our increase to the bottom and top ends of our acquisition guidance. Our full year acquisitions guidance now has a range with a top end of $250 million, implying as much as $140 million of additional acquisition volume in the fourth quarter. We expect half of that activity to come from the retail property we are under contract to purchase for $70 million in Raleigh, North Carolina that we disclosed last week. We're also down the road on a few other interesting opportunities in very strong markets that we're hopeful can get over the finish line before the year ends. Within the existing portfolio, we've experienced strong leasing demand in the quarter, most notably at 245 Riverside Ashford Lane in our newly acquired Shop at Legacy. We signed new leases in the quarter at an average rent of more than $30 per square foot, the most notable being a Sweetgreen lease at Ashford Lane and a new lease with the Haskell Company to take more than 16,000 square feet at our only multi-tenanted office building 245 Riverside. Of our renewals and extensions during the quarter, we experienced nearly 5% growth in the new per square foot lease rate versus the prior rate. Most importantly, we anticipate continued momentum into the fourth quarter as we work to finalize a number of leases at Ashford Lane to accelerate that property's redevelopment, particularly now that we have started to make meaningful progress on the lawn. Also during the quarter, we strategically acquired our joint venture partner's 70% interest in the mitigation bank joint venture for a payment of $16.1 million in net available cash. The full market value of the mitigation credits over the 10-year credit release period is approximately $30 million. So our focus has now centered around monetizing the mitigation credits or the mitigation bank in its entirety as efficiently as possible so we can start generating income for the reinvestment of the net proceeds. The buyout of the partnership gives us more flexibility as to how we execute the sale of the individual credits or sell the mitigation bank as a whole while benefiting from lower carrying costs in the interim. We are hoping to fully monetize the mitigation in 2022. Our other joint venture, which is our 1,600-acre land joint venture, remains under contract, and the buyer's due diligence period is set to expire within next week. Proceeds before taxes are expected to be more than $25 million in closing, and we still anticipate that closing to occur before the end of the year as well. Finally, we did sell nearly $1 million in mineral rights during the quarter. We sold $3.5 million of mineral rights year-to-date, which leaves us with approximately $7 million in mineral rights left to sell on approximately 400,000 acres of land. Assuming these transactions all come to fruition, we'll be out of both the joint ventures, and we'll have sold all of our remaining land by year-end, truly positioning the company to focus on our core strategy in multi-tenanted retail and mixed-use properties. Overall, I look at the upcoming and potential value of the remaining non-income producing assets, which includes the proceeds from the land joint venture, Downtown Daytona Beach land, the remaining subsurface interest, and the current value of the mitigation bank. We believe there's more than $50 million of non-income producing equity on the balance sheet available for reinvestment. Using our current share count and the low end of our current acquisition cap rate guidance as a reinvestment rate, we have the opportunity to organically grow AFFO per share by more than 15% when compared to the midpoint of our 2021 AFFO guidance. On a leveraged neutral basis, that could result in approximately $0.75 of additional AFFO per share. When you combine that organic growth with the lift we're going to get from our reinvestment and project leasing, we're very excited about our future earnings potential and what that can mean for our shareholders. With that, I'll turn it over to Matt.

Thanks, John. As of the end of the quarter, our income property portfolio consisted of 19 properties comprised of approximately 2.2 million square feet of rentable space located in nine states and 13 markets. Our portfolio was 90% occupied at quarter end, and similar to last quarter, the quarter-over-quarter change in occupancy is more of a function of the company selling 100% occupied single tenant assets and our recently announced leasing activities being in the transitional stage; therefore, the tenant is not yet occupying the leased space and any loss of existing tenants. From a top tenant perspective, Wells Fargo is no longer a top tenant following the sale of the office property in Raleigh, but Fidelity remains our largest tenant exposure at just over 8%. Live-work, which is our largest tenant at the Shops at Legacy, recently went public via a SPAC merger and is now trading at a market cap of more than $8 billion, providing a significant credit upgrade. Geographically speaking, our largest markets continue to be within Florida, Texas, Georgia, and Arizona, where we expect to benefit from positive long-term demographic trends. Total revenues for the third quarter increased nearly 14% to $16.6 million, and year-to-date, total revenues have increased by 12.7% to $45.6 million. We continued our strong rent collection results in the third quarter, collecting 100% of contractual base rent, and we continue to benefit from the transaction-driven revenue associated with the previously mentioned mineral rights sale. I will also highlight that we experienced quality growth in income property revenues from a full quarter impact of the Shops at Legacy and an acceleration in our management fee income from Alpine Income Property Trust due to the full quarter impact of their Q2 capital raising activities. For the third quarter of 2021, funds from operations increased to $6.1 million or $1.03 per share, and adjusted funds from operations were $6.4 million or $1.09 per share. I'll remind 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 third quarter regular cash dividend of $1 per share on September 30 to shareholders of record on September 9. Our third quarter cash dividends represent a 150% year-over-year increase when compared to the company's third quarter 2020 cash dividends and an annualized yield of approximately 7.4%. Our quarterly dividend represents a cash payout ratio of 92% of Q3 AFFO per share, and we're currently tracking the payout at approximately 100% of taxable income for 2021. As we turn to our balance sheet, we are well positioned to support the growth John talked about in the fourth quarter and into 2022. We ended the quarter with total cash and restricted cash of $75.6 million and total long-term debt outstanding of $236 million. Net debt to total enterprise value at quarter end was approximately 29% and our net debt to EBITDA was just over five times. We closed our previously announced perpetual preferred Series A offering at the beginning of the third quarter and paid a pro-rated Series A preferred dividend of $.3763 per share on September 30 to shareholders of record on September 9. For the second consecutive quarter, we updated our 2021 guidance, increasing the midpoint of our AFFO per share range by $0.10. As John previously referenced, we increased our acquisition and disposition guidance by $25 million at the top end of each range to account for our year-to-date performance and expected activity in the fourth quarter. Our updated guidance does not include any additional assumptions for outside equity, and it could be heavily influenced by the timing of dispositions and the deployment of capital into acquisitions, as well as the future performance of our current prospective tenants. With that, I'll turn the call back over to John.

Thanks, Matt. As I said before, this is about the strong quarter that positions us to execute in the fourth quarter and provides us an opportunity to deliver outsized earnings growth in 2022. There's still a lot of progress to be made, but we have a very high quality growing portfolio based on some of the fastest growing markets in the country, and I'm proud of the way our team is executing to realize the value creation opportunities we recognized when we acquired these properties over the last 24 months. I look forward to providing additional updates on our investment activity and operational successes throughout the quarter. 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 comes from Michael Gorman from BTIG. Michael, your line is now open.

John, I wonder if you could just spend a minute talking about the Raleigh acquisition and the pipeline, understand that there are limits to what you can disclose there, but maybe just spend a minute talking about how these opportunities came under your radar screen, how they were sourced, and maybe just to the extent any kind of characteristics. Is it a mixed-use type of asset or kind of how that positions within the portfolio?

Sure. So when we sold the Wells Fargo office building in Raleigh, you know, it's a little bit of mixed emotions because it was a fantastic asset in a fantastic market. But given the cap rate being so low and the profit that we would earn, being able to reinvest at a higher cap rate was very attractive to us. We were lucky to find a similarly sized asset in Raleigh, even though that wasn't the main objective. It was something we had talked about with the developer pre-pandemic. It is an asset in a joint venture, and we had been actively making acquisition offers on other assets in other locations, and that developer circled back with us. We were very pleased that it was still available, and we really dug in and did due diligence. It's just a fantastic market. I’d say it's more of a neighborhood power type center than mixed-use.

Okay, great, that's helpful. And then switching gears a bit, the mitigation bank, I know you talked about hoping to monetize in 2022. Just wondering, when looking at the timing here, is there an opportunity that the mitigation credits could be teamed up with the landfill, with the 1,600 acres, or am I thinking about that incorrectly?

No, you're thinking about it right. The reason we repurchased our joint venture interest was that BlackRock came into the joint venture, a great partner, but there was some uncertainty on the entitlement. Their cost of capital was rightly high due to a little bit of speculation. We repurchased it as we've gotten full entitlements of the bank. We have been selling credits from the bank. We finally got the last federal permit there, and there’s an opportunity for us to buy them out and have a better cost of capital and better flexibility. The buyers of our remaining land portfolio realize they need a lot of our credits to exercise their operational plans. So, we're in discussions on when we would sell credits to them and at what price. Overall, there is more credit demand than we'll have credits for. We'll monetize some of this on our own and then probably sell the whole bank or do another joint venture on better economic terms for us.

Okay. Great. That's helpful. And then last one for me. In your presentation, you've got a pretty impressive slide in terms of the total return performance for CTO over a couple of the different timeframes. I'm just interested in kind of how you're thinking about positioning CTO as you get toward the end of this transition within the different peer groups. How do you think about comps and the track record being what it is? What gets you that next leg up in valuation that would certainly seem warranted given the track record?

Yes, I appreciate that. We included this 10-year track record because I think we get lost in the shuffle, especially given our conversion to a REIT and the special dividend. It surprised us when we decided to do it because over the last 10 years, though the success has often been overlooked. We didn't have great coverage from analysts in the past and we actively worked our portfolio, moving to cash flow assets. We're all about generating cash flow. We are not the types to buy something for a long-term development project. That high dividend and low multiple we're trading on should lead to a better understanding once we finish selling our non-income-producing assets. If we sell the land joint venture, monetize the mitigation bank, and invest that money, we can dramatically increase our FFO given our small size.

Our next question comes from Rob Stevenson from Janney Montgomery Scott. Rob, your line is now open.

John, can you talk a little bit about the sales process for Wells? Understanding it only takes one buyer, how robust is the demand for these types of office assets these days? It seems like, at least in the public market valuation, that offices are where people have been avoiding like the plague. What's been your experience as you market these assets?

Yes, the Wells situation was special in that the rent was a third of market rate, and you had this fantastic campus in Raleigh. It was really a family office type deal; it didn't matter what the cap rate was to the buyer, just a generational asset because the basis was so low. It didn’t work well for us as a public company because we didn't get credit for it. But now, reinvesting this capital will do much more for us than holding the asset. As for appetite, there is surprisingly more demand for office than you'd imagine. To recap, our properties are in stronger areas than urban settings in places like the Northeast where there are significant costs and no rent growth.

Okay. How are you thinking about dispositions going forward? You have the cash from previous dispositions and non-income producing assets that you detailed that could sell. Will you be marketing more single-tenant assets at year-end to take advantage of the 1031 markets or will you wait until you identify acquisition opportunities? How should we consider that as well as your desire to raise common equity here?

Given that we have the 1031 exchange on the office assets, it’s almost like an airport with planes circling waiting to land. We have some assets ready to go, but we need to find acquisition opportunities that work for us. We are actively bidding on retail and multi-tenanted retail properties in many states. As we find them, like in Raleigh, we'll start moving the office properties through the process. We have no need for outside capital since we have plenty of liquidity.

I know you don’t want to get into too much detail, but when you look at the Raleigh acquisition, are there any material vacancies or upcoming expirations that may not renew that you have to re-tenant, or are there redevelopment or outparcel opportunities? What’s the upside here?

Yes, that's why we like this asset a lot. There are some outparcel development opportunities, as well as re-tenanting opportunities down the road for suboptimal tenants. If they were to leave, we would have a chance to better occupancy. So there are good combinations of opportunities here, with development and re-tenanting pathways, but not as much in terms of vacancy.

Just housekeeping, Matt, is the mitigation bank stuff in a TRS?

That's correct.

Are you anywhere near your TRS limits for 2021?

No, we're in good shape from that perspective. The land joint venture and the mitigation bank as well as the Alpine management TRS are not anywhere close to the limitation.

Our next question comes from Craig Kucera from B. Riley Securities. Craig, your line is now open.

Matt, I wanted to talk about the guidance. Year-to-date, you've bought assets at about an 8.5 cap rate. You're guiding to a kind of low 7 for the year, which would imply that the remaining assets you're buying are kind of priced maybe between a 5.5 and 6. Is that conservatism on your part? Or are you looking at maybe higher tenant credit in which you're looking to close the rest of the year? Or is that just market-based; you're seeing cap rate compression?

Yes, I'll let John talk a little about the mix, but in terms of the guidance, it is a little bit of conservatism. It is a little bit about what's going to hit at the end of the year versus what may or may not flow into Q1. The mix is going to drive traffic cap rates. We are looking to upgrade the quality of the portfolio that John talked about.

Yes. Craig, you know, it's really a little bit of a function of the opportunities we're seeing for purchase. We're looking at some that provide a chance to significantly add growth to the portfolio or additional growth from a dividend coverage ratio standpoint. We’re evaluating redevelopment plays down the road that could result in a better opportunity for total return.

I feel like Westcliff, which is the one property that has a bit more vacancy than the others in the portfolio, you’ve discussed maybe some developer interest there in the past. Has there been any movement on that front?

Yes, it is indeed a frustration from my standpoint. There are about three groups looking at that large 38,000 square foot vacancy. Some are fitting it into their pipeline, while others are focusing on capital raises before they can commit. It's frustrating, but I believe we’ll have better success and visibility in the first quarter, which as you know can be impactful for a company like us. We are fully focused on this.

No, that makes sense. One more for me: I know that you were pretty excited when you added Superica as the food hall operator at Ashford Lane. Has that translated yet to increased leasing activity and interest at Ashford Lane?

So just a little background on the food hall: while they are making progress towards an end-of-year opening, the supply chain has affected their build-out, pushing it back from our initial thoughts of summer. However, we have seen incredible leasing activity there. It's not entirely driven by food hall excitement, but rather the prime location of Ashford Lane, which is in high demand as tenants seek to expand in the suburbs outside of Atlanta.

We have no further questions. I'll now hand back to John for any closing remarks.

Thank you very much for attending our earnings call. I look forward to talking to you through the rest of the year. Thank you.

This concludes today's call. You may now disconnect your lines, and we thank you for joining.