Hello. Thank you for standing by, and welcome to the CTO Realty Growth Second Quarter 2022 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker presentation, there will be a question-and-answer session. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Matt Partridge, Chief Financial Officer. Please go ahead.

Good morning, everyone, and thank you for joining us today for the CTO Realty Growth second quarter 2022 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 law. 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. With that, I will now turn the call over to John.

Thanks, Matt, and good morning, everyone. We've had a productive few months since our last quarter's earnings call making progress on a number of operational initiatives and continuing to accretively grow the company through a combination of high-quality acquisitions and attractive structured investments that provide strong risk-adjusted returns. During the quarter, we entered into a $30 million preferred equity investment in Watters Creek. As we spoke about during our last earnings call, there is a terrific grocery-anchored retail property that's being repositioned by the sponsor into a premier lifestyle center just outside of Dallas in Allen, Texas. We also opportunistically originated a $19 million construction loan on the retail portion of WaterStar in Orlando, as part of our structured investments program. This is a Marshalls and Burlington-anchored asset that includes 320 onsite residential units and a number of outparcels located on one of the strongest retail corridors in all of Florida across the street from the Margaritaville Resort Orlando and just around the corner from the entrance to Walt Disney World. While these types of investments will not be a significant piece of our income-generating portfolio, we have allocated a small portion of our balance sheet to these types of opportunistic investments that allow us to generate outsized returns through a prioritized position in the capital stack for assets we would otherwise like to own. These investments also act as a bridge between lower cap rates we saw earlier in the year for regular way acquisitions versus the improved yields we are starting to see in the acquisition market as prices readjust with the interest rates. Subsequent to the end of the quarter, we invested $80 million in our largest acquisition to date, Madison Yards, a Publix-anchored property with an infill location along the belt line in Atlanta, Georgia. This core investment was an opportunity to acquire a newly built grocery-anchored property in one of the strongest submarkets and one of the fastest-growing cities in America. Normally, we would have been priced out of these types of assets and we were at the beginning of the year, but we have maintained a strong relationship with a seller who is focused on certainty of close, given the challenging debt market, which is how we ended up acquiring the property at a more favorable yield. For us, this was a scenario where we were able to significantly up-tier our portfolio quality by taking the proceeds from our first quarter lower growth Carpenter Hotel and Party City property sales to reinvest at a higher yield into this grocery-anchored trophy property that has base rent increases in all of its leases. On the disposition front, we did not have any property sales during the quarter, but as evidenced by our revised guidance that Matt will talk about in more detail later in our prepared remarks, we anticipate becoming more active in the back half of the year as we look to opportunistically exit some of our legacy office assets. Operationally, we continue to focus on our property repositioning programs and leasing initiatives, which drove excellent same-store NOI growth and have us well-positioned to deliver further outsized growth through the back half of this year and into 2023. In the quarter, we signed over 40,000 square feet of new leases and renewals at an average rent of nearly $32 per square foot and an average lease term of more than 10 years. Of our renewals and extensions during the quarter, we experienced a 3.8% increase in the new per square foot lease rates versus prior rates. Similar to the past quarters, new leases signed were largely related to existing vacancy associated with units that were acquired as vacant. Notably, we had only one backfill scenario during the quarter, which allows us to double the expiring rent with a tenant that should drive significantly more foot traffic to the property and improve our overall tenant mix. Our excellent Q2 year-over-year same-store NOI growth of nearly 24% was driven by a combination of contractual rent increases, strategic reductions in operating expenses, some non-repeatable one-time items, and new leases coming online in historically vacant space. Adjusting for the one-time prior items that resulted in a positive comparison, our year-over-year same-store NOI was still up a healthy 13%. Not surprisingly, Ashford Lane was the biggest year-over-year outperformer in our portfolio as it continues to benefit from our leasing efforts and repositioning strategy. The lawn is nearly complete and most of the tenants who front the new green space will open between now and the end of the year. This property has been a great project for us, and our progress today will easily drive outsized NOI growth over the next 18 months. But with the property only being 80% leased, we still have more opportunity to go. We are working with some exciting concepts that will hopefully get us closer to 90% or higher lease levels before the end of the year and we will make this a true destination property for the surrounding community. Similarly, the repositioning of our Santa Fe property continues to come along nicely. Just this past weekend, we launched a new program for our parking garage that will start generating income from this aspect of the property, which was previously open for free use. This is in addition to the hospitality lease that we signed earlier in the year with Rosewood Hotels to take the entire top floor of one of the buildings. We are also working diligently to fill the remaining 15% of the vacancy to drive further property-level cash flow, which should translate into significant property-level same-store NOI growth in 2023. I'll now pass it over to Matt to talk about our performance in the quarter, capital markets activities, and increased guidance.

Thanks, John. The quarterly and year-to-date results outlined today are before the effects of our 3-for-1 stock split that began trading at a post-split price on July 1, 2022. However, our revised annual guidance has been adjusted to account for the 3-for-1 stock split and includes adjustments for our first and second-quarter results. We ended the quarter with 21 properties comprised of approximately 2.8 million square feet of rentable space located in nine states and 15 markets. With our acquisition of Madison Yards, we now have 22 properties comprising 3 million square feet, and Atlanta is now firmly established as the top market in our portfolio. Digging deeper into our market exposures, 65% of our base rents now come from the ULI top 15 markets of Atlanta, Dallas, Raleigh, Phoenix, Miami, Salt Lake City, Tampa, and Washington, D.C., with nearly another 10% of our base rents coming from the ULI top 25 markets of Las Vegas, Orlando, and Houston. Our market’s population growth and strong retailer demand in our property locations give us confidence that we will be able to continue our momentum with new leasing as well as manage upcoming lease rollovers positively in the back half of 2022 and the end of 2023. From a top tenant perspective, Fidelity remains our largest tenant exposure at approximately 6%, but AMC and Publix are now our number eight and number 11 tenants respectively following our purchase of Madison Yards. At quarter-end, our portfolio was 91.3% occupied, and we reported leased occupancy of 93.5%. The majority of our quarter-over-quarter increases related to in-place occupancy were driven by the shops at Legacy in the Plano submarket of Dallas, Texas, and The Strand, which is our multi-tenant retail property in Jacksonville, Florida. Total revenues for the second quarter of 2022 increased 36% to $19.5 million, and year-to-date total revenues have increased by 26% to $36.7 million. As part of our revenue gains in the quarter, we did make some incremental progress selling a $0.5 million subsurface interest, but overall, both our quarterly and year-to-date total revenue increases were largely driven by income property revenue gains. As John referenced, our year-over-year same-property NOI growth was 24% for the second quarter or 13% excluding one-time items. Year-to-date, year-over-year same-property NOI increased 20% or 14% when those one-time items from the second quarter of 2021 are removed. As a reminder, our year-over-year same-property NOI statistics only include assets owned for the entirety of the measurement periods in 2022 and 2021. For the second quarter of 2022, core FFO grew 60% to $1.41 per share and AFFO grew 38% to $1.48 per share. As a reminder, these per-share results are before the effects of our 3-for-1 stock split. Similar to our results in the first quarter, core FFO was positively impacted by the elimination of approximately $279,000 of quarterly amortization related to the discount on convertible debt we previously held on our balance sheet. This discount was eliminated at the beginning of the year as part of our implementation of certain accounting standards, which are outlined in more detail in our Form 10-Q. The convertible debt discount amortization has historically been adjusted for in our calculation of AFFO, so the elimination of this amortization has no impact on the comparability of our year-over-year AFFO results. As previously announced, the company paid a second-quarter regular cash dividend of $1.12 per share, which is a 12% year-over-year increase over the company's Q2 2021 cash dividend and a 4% increase over our Q1 2022 quarterly cash dividend and a current stock split adjusted annualized yield of approximately 7%. Our quarterly dividend represents a cash payout ratio of 76% of Q2 2022 AFFO per share, and we continue to work towards efficiently paying out approximately 100% of taxable income in 2022. We ended the quarter with $34 million of cash and restricted cash and nearly $100 million of undrawn commitments under our revolving credit facility. Our quarter-end net debt to total enterprise value was approximately 41% and our net debt-to-EBITDA was 6.6x. It was a quiet quarter on the capital markets front, but we did issue just over 88,000 shares of common stock through our ATM program for net proceeds of $5.7 million at an average issuance price of just over $66 per share or $22 per share after adjusting for the 3-for-1 stock split. Also, within the quarter, we repurchased $1.1 million of common stock at an average price of $57.37 per share, or $19.12 per share after adjusting for the 3-for-1 stock split. We increased our full-year guidance, which takes into account our strong year-to-date performance, revised expectations for transaction activity in the current capital markets environment, and our anticipation of a broader economic slowdown as well as the effects of our 3-for-1 stock split. Our new core FFO per share guidance range is $1.58 to $1.64 per share, which is an increase of $0.06 per share at the low end and $0.04 per share at the high end. Our new AFFO per share guidance range is $1.70 to $1.76 per share, which is an increase of $0.05 per share at the low end and $0.03 per share at the high end. These per-share estimates for the full year of 2022 do take into account the effects of our announced stock split. Our revised guidance also increases the top end and bottom end of our investment disposition volume estimates and the associated yields to account for our year-to-date transaction activity and expectations for the balance of the year. In 2022, we now expect to invest between $250 million and $275 million at an initial yield between 7% and 7.25% and we now anticipate selling between $50 million and $80 million of assets at an exit cap rate between 6.25% and 6.75%. I'll turn the call back over to John now for his closing remarks.

Thanks, Matt. While the economic backdrop remains unpredictable, I am optimistic that we will continue to find opportunities for further growth with our disciplined investment approach, and I'm excited about the tremendous operational progress we've made and how that has translated into strong earnings growth in our revised 2022 guidance. I look forward to providing updates on our portfolio and investment activity throughout the quarter, and we appreciate all of our team's hard work and the continued support of our shareholders. At this time, we'll open it up for questions.

Thank you. Our first question comes from Gaurav Mehta with EF Hutton. You may proceed.

Yes. Thanks. Good morning. First question on your balance sheet, you guys did raise your acquisition guidance for 2022. I was wondering if you could talk about how you expect to fund the increased acquisition guidance and maybe also touch upon the balance that you have on the credit line with variable rates. Should we expect you guys to do any kind of permanent financing for that credit line?

Hey, Gaurav. With respect to the acquisition guidance, I think what you can anticipate is we're going to continue to sell assets to fund that. So we obviously announced one this morning before the market opened. And in terms of the floating rate debt that's on the revolver, we are looking at doing a new term loan, which will fix with a swap to reduce that balance and put some more fixed-rate debt on the balance sheet.

Okay. Great. Second question on the transaction market. You did touch upon seeing some higher cap rates in the transaction market as a result of higher interest rates. Can you maybe provide some more color on what you guys are seeing in the transaction market in terms of the volume and the pipeline and what you're hearing from the sellers?

Yes. This is John. So the larger the asset, probably the more problematic it is for a seller to sell just because the secured debt markets are kind of in a locked market right now. There's not a lot of – there's no securitizations happening. There's no really distribution of debt. So balance sheets, there's not a lot of balance sheet capacity for new lending. So if you're a seller and you're looking to sell larger type projects that need secured debt, the folks that would normally be buyers utilizing the secured debt market are out of the market. The buyer pool is a lot smaller. The other facet is, if you're a seller and you really want to have something sold by the end of the year, and you do have a buyer that wants to use secured debt, you are probably less likely to go with that buyer even though the price might be higher because of the risk of execution happening. So right now is a good time; we are seeing cap rates widen out because of interest rates, and they have widened out – the expectations have widened out from sellers and there are more properties coming on to the market. People are going to bring them out earlier than they may just because why would you risk being the last person to come out with a project? So we're sifting through the opportunities, and we're optimistic that we'll find something that fits with us and allows us to move through some of the office properties.

All right. Thanks for taking my questions.

Sure.

Thank you. Our next question comes from Rob Stevenson with Janney. You may proceed.

Good morning, guys. John, given the size of the company, what drove the share repurchases in the quarter? Was it a lack of acquisition opportunities? And how are you thinking about that going forward versus acquisitions?

Yes. I mean, Rob, as you know through our history, we've been an active buyer of our stock when the stock is being sold off for no particular reasons, but that has to do with the fundamentals of the company. Whenever we see a real good opportunity to buy stock at a significant discount to NAV, it's much more accretive in our opinion to buy your own security rather than buying another property. It's a sure thing to buy our stock back when there’s a big dip, especially when there was a significant dip in the market. So people were selling for reasons unrelated to CTO, and we took advantage of it. We're happy to take advantage of it when those sort of opportunities show themselves.

Okay. So I mean, I guess the follow-up would be, I think that it was $57 in change, so that's a split adjusted, call it $19-ish. I mean relative to what your acquisition pipeline looks like today, how would – if your stock price were to pull back to that level, how would you sort of think about the inherent growth of the company and the ability to add via acquisitions versus buying back stock at whatever that implies from a cap rate for CTO, et cetera, from a balancing perspective and especially leverage neutral, right?

Yes. Look, we want to grow the company for sure, and we're looking for those opportunities and we're optimistic that we're going to be able to do that. But, having said that, if an anomaly in the market happens, again, we're all about driving shareholder value and driving NAV. This is not a game of assets under management; it’s all about delivering results to our shareholders. I think our results have proven themselves. So for whatever reason the formula works, we’re not going to deviate just because we want to reach a certain size. One thing to keep in mind, we do have a small amount of convertible debt that will convert into common stock, so that's going to deleverage us significantly. So you can also think about it as us buying back stock in anticipation of that conversion into common.

Okay. That's helpful. And then can you – it looks like you guys leased up some vacancy during the quarter. Of the stuff that's core, where are the big pockets of vacancy left and the opportunities for you, and where are you in discussions on those assets that you're likely to keep for the next 3 years or so with leasing up any of the vacancy in those assets?

Yes. I would say there's still some low-hanging fruit at Ashford Lane as far as lease up, and that's where we're seeing the most activity right now. We have negotiations going on, so we're very confident that we're going to get there this year on more leasing there. Other than that, there's vacancy at Westcliff. That's not really core, but we are actually having good leasing activity there right now. The other component would be Santa Fe, where we have 12,000 square feet on the street level, which we're demoing right now to enhance its presentation. We've had a dialogue with a few tenants regarding that space. Now that's more in the early stages for that space, but those are kind of the main areas.

Okay. And then the Orlando structured investment, what's the end game there for you guys? Given the short-term nature of that, is that an asset that you would wind up taking an equity interest in? At some point, is that just going to get repaid in 30 days or so? How should we think about that and how you're looking at that type of business going forward?

Yes. On that asset, we expect to get paid off this year. But it's one where we would like to own the project at a certain price. It depends on whether the developer meets our price expectations versus where they want to be. So it could go either way.

Okay. And then last one for me, it looks like you guys have been reliably selling $300,000, $400,000, $500,000 worth of subsurface rights over the last few quarters. Is that likely to continue at that pace going forward? Is there anything more sizable on the horizon, or is it just more of the same as we look into the rest of 2022 and into 2023?

Yes. I would say it's more of the same. You do get some inquiries from those looking for a bigger chunk, but I would say the probability is lower on those. So I wouldn't want you to model that out, but it's going to be more of the same.

Thanks, Rob.

Thank you. Our next question comes from Michael Gorman with BTIG. You may proceed.

Yes. Thanks. Good morning. John, maybe sticking with the structured investment portfolio there. As you think about it with the choppiness in the markets right now, you talked about some of the challenges in the debt markets with sellers and different projects. I'm just wondering what the pipeline looks like there, how you source those deals, and how large you're willing to make that a piece of the business if regular acquisitions are a little bit choppier too?

Yes. As mentioned, we're not looking to strategically grow that part of the business. It's almost bespoke if somebody comes to us needing liquidity because of the challenges in the debt market. Having said that, I'm surprised that we really don't have anything in front of us right now, so there's no kind of pipeline in that business at the moment, but it can happen when you least expect it. We keep our eyes open for it, but nothing is on the radar.

Okay. Great. I think you talked a bit about Ashford Lane and some of the tenants opening up by year-end, especially the ones focused on facing The Lawn. If you look at some of the other assets like Santa Fe and Texas, where you have a decent spread between leased and currently open and occupied, when do you think those spaces start to roll online? Is that in the back half of this year as well, or will some of that leak into 2023?

Mainly leaking into 2023. Everything's taken longer from lease negotiations to build-out. So I would say it's more of a 2023 timeline.

Okay. Great. And then Matt, maybe just two quick ones on guidance. I'm just curious when you have an investment that you both originate and expect to close out in the same year, like the development financing, is that in your investment guidance? And then maybe the second piece: I'm assuming Hialeah was in the disposition guidance, but just wanted to double-check?

Yes. For the latter question, yes, Hialeah was in the disposition guidance. With respect to the former question about investment guidance, we were including WaterStar in there in terms of originations and the yields that we're originating at. If we get that capital back and reinvest it, that'll also roll into there. It's almost a double dip in the sense that you can't model out the full $250 million to $275 million as ongoing. There will be some recycling if we get that capital back from WaterStar.

Okay, perfect. And then maybe just one last quick one with Hialeah. How much notice did they give you that they were going to exercise their option?

We've been working on it for about 45 days.

Okay. Great. Thanks so much, guys.

Thank you.

Thank you. Our next question comes from Matthew Erdner with JonesTrading. You may proceed.

Hey guys. Thanks for the question and congrats on the good quarter. So I guess, what is the difference right now between institutional cap rates and what would be a high net worth family office cap rate? Are you guys seeing more strength in one of those two than the other?

I wouldn't say the cap rates are different. I would just say that more family offices have been more active of late than they have been. Previously, I think they’ve seen this as a good opportunity for them to get quality assets at higher cap rates they were priced out of before. The institutions are a little bit slower on re-engaging, but I would say that's definitely happening now. So I wouldn't say the cap rates are different; I would say that the clearing prices would be roughly the same, you're just seeing one group kind of be a little bit more active than the other.

Got it. Thanks. That's helpful. And then what assets moving forward do you desire to develop, and what would be the timeline for those?

Well, we don't really like developing too much. We think that has a whole risk associated with it. We would rather come in and buy a project that has been developed that didn’t hit pro forma or something happened, and we're able to acquire it below the development costs, where a lot of the hard work has been done – the planning, the entitlement, the leasing. There's a lot of capital and time tied up in development. We would rather be the group that comes in and buys those projects when they didn’t really work out as planned.

Awesome. And then I got one more. Could you guys provide an update on the Mitigation Bank and kind of where that is compared to last quarter?

Yes. We've started seeing more activity on credit sales. So I would expect you to see us being more active from here to the end of the year on credit sales out of the Mitigation Bank for sure.

Awesome. Thank you.

Thank you.

Thank you. Our next question comes from RJ Milligan with Raymond James. You may proceed.

Hey guys. Just one quick question; most of my questions have been answered, but Matt, maybe you could give a little bit of color on expected timing, and obviously that's important for the gap between leased and occupied and rent paying and how we should expect that to trend over the next couple of quarters?

Yes. Hey, RJ. To John's point, I think when you look at the spread at Legacy and Santa Fe, those are probably more 2022–2023 rent commencement, whereas the lease versus occupied spread at Ashford is probably a Q4 lease commitment wave for us. So it's going to be spread out over the next 12 months or so with it being a little lumpy in Q4 with all the Ashford stuff coming online around The Lawn.

Got it. So still that rent will come online through at least the second quarter of next year?

Yes.

Okay. That's it for me. Thanks guys.

Thanks.

Thank you. I'm not showing any further questions at this time. I would now like to turn the call back over to John Albright, President and Chief Executive Officer for any further remarks.

Thank you for attending the call.

Thank you. This concludes today's conference call. Thank you for participating. You may now disconnect.