Good day, and thank you for standing by. Welcome to the CTO Q1 2024 Earnings Conference Call. 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.

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.

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 been engaged in 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 6 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. This 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%, an increase of 2.3% from year-end 2023. Additionally, our leased 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 Gwinnett in Buford, Georgia, for $2.3 million. Additionally, as announced in March, we purchased Marketplace at Seminole Towne Center in the Sanford submarket of Orlando, Florida for $68.7 million. The multi-tenanted retail power center is 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 and is anchored 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 5 markets, representing over 8% of our in-place cash-based rent. And Florida has moved into our top 3 states with over 17% of our annual cash base rent. Additionally, we originated a $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 Fe, New Mexico for $20 million at an exit cap rate of 8.2% and a gain of $4.6 million. From a capital recycling perspective, we will continue to prioritize selling smaller non-core 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 Sabal 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.

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 8 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 power 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 Seminole Towne 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 one-time 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 7.6x. 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. And our first question today will be coming from Gaurav Mehta from Alliance Global Partners.

I wanted to ask you on your Orlando acquisition. Hoping to get some more color on any value-add opportunities in that property? And maybe some color on the mark-to-market rent upside?

Yes. Thanks very much. So there's not a lot of value add there. It's fairly stabilized. But what we liked about it was some vacancy that we think will be able to get leased up. And then there's some below-market leases that really have a lot of opportunities, roughly 20,000 to 40,000 square feet is the below-market. And so even though it's very stabilized as far as our occupancy, there is some future opportunity to drive some NOI growth.

Okay. Second question on your disposition guidance that was lower. And hoping to get some more color on why that was lowered.

Yes. We don't want to feel pressured to sell any assets. If we had a significant acquisition planned, we would consider selling some assets, but we prefer to be patient regarding sales. After completing the preferred raise, there's really no need to rush into any dispositions.

Our next question will be coming from Rob Stevenson of Janney Montgomery Scott.

John, I guess just continuing on the theme of dispositions. Any incremental update on your thinking on the remaining office asset at this point? Is that something that you guys think will transact this year? Or is it looking like more of '25 or later? How should we be thinking about that at this point?

Yes, I don't really think it’s going to happen this year. We're in discussions with the tenant, but they are not in a hurry. The facility suits their needs, and they have other priorities. So we just have to wait for when they can engage with us. Unless we have a significant acquisition that we can pursue, there's no urgency for us. I would love to take you to see the area because the property’s value is only improving over time. It’s like a fine Bordeaux in a cellar, getting better as time goes on. I understand why many people may feel concerned about office spaces, which is why we moved through a lot quickly. However, in this case, there’s no need to worry about exposure.

Okay. And then I think in your prepared comments, you talked about the lease but not open yet portion of the portfolio. When do the bulk of those leases commence and start paying rent? Is that late in this year with the biggest financial impact in '25? Or is it really mostly all in '25 that you'll start actually seeing that pop-up in the vacancy and in the rental line?

Yes. It's mostly the back half of this year. So 2025 is really the year that's going to get a lot of attention on the revenue coming forward, especially the replacement of the Regal; that one is probably mid-2025. But the rest of the signed but not open is really the back half of this year.

Okay. Are there any known move-outs anticipated over the next 18 to 24 months?

No. We keep on having the incentives up for any issues. But so far, all green lights.

Okay. And then last one for me. After the preferred deal, how are you thinking about incremental use of preferreds going forward? Do you think the cap structure right now is maxed out, or is there still room for you to be able to do that if the common isn't at a price that's to your liking? How should we be thinking about that and where that sort of fits in your capital stack?

Yes, we believe we have taken the right steps. One aspect to highlight is that we sized the preferred shares appropriately to be index qualified, and they have been included in the index. As you've likely seen, the preferred shares have significantly increased in both price and volume, which will provide us with a favorable impact on our future cost of capital. However, if we are successful with some acquisitions, we may hold off on utilizing the preferred shares again until we have balanced our overall capital structure.

Our next question will be coming from R.J. Milligan of Raymond James.

First, just to clarify, I'm not sure if I missed it, but for the big same-store NOI growth in single tenant, is that percentage rents? Or is that CAM catch-ups? Or is it both?

Yes, I'm going to let Lisa answer that, R.J..

R.J., yes. So really what that is on the single tenant side is our properties we have in Daytona Beach, which we bought in the back of 2024. We bought those as vacant and rents came on board in Q3 of 2023. So what you're seeing there is about $140,000 of rents in Q1 2024 when there was none in Q1 of last year. So that's about 15% of the 21% increase there.

That's helpful. And then, John, maybe you could just elaborate a little bit more on the acquisition environment. Obviously, there's been some adjustment in this higher for longer interest rate environment. I'm just curious what you're seeing out there in terms of sellers and seller expectations.

Yes. The good news is we are finding many opportunities. We are being patient and placing bids where we see value. However, there are definitely other buyers in the market. Being an all-cash buyer, we are noticing that a lot of the competition needs financing. This situation forces sellers to consider whether they want to take a risk on a buyer dependent on financing, who might offer a higher price, or to go with a more reliable all-cash buyer at a lower price. We are waiting for the right opportunities. There are plenty out there. Sellers currently in the market are likely motivated by factors such as upcoming financing deadlines, redemption queues from funds that own these properties, or partners looking for the right time to sell. Overall, it's a favorable environment, and we are just focusing on being patient.

John, I’d like to add to that. I'm interested in your view on the interest rate environment that could lead to more transactions. Do you think stability in interest rates or lower rates would encourage that? This morning, we’ve noticed a decline in the ten-year rate, and many sellers have mentioned they believe rates will drop later, prompting them to hold back for now. So, are you leaning towards a desire for stability or simply lower rates overall?

I think from the sell side, people are not really waiting. If they're in the market now, they need to sell in the next 6 months or so. I think that as far as your general question there, I think with stability and kind of knowing that there's going to be some rate cuts in the future, I think you're going to see more buyers come off the sideline. And so that's not going to be good for us. But we're all trying to kind of get some transactions while the getting is good. So we are surprised to see some transactions happen at cap rates that are just slightly above the tenure. And so it's just like how does that math ever work. But there are some buyers that kind of fit into their model. So I think any kind of stability in interest rates really does the trick.

And our next question is coming from Matthew Erdner of JonesTrading.

Could you talk a little bit about acquisition timing? Should we expect that to kind of happen more so in the near term? Or is it back half ended? And then, can you also talk about the difference in opportunities that you're seeing between the loans and just overall asset acquisitions?

Yes. So the acquisitions are more kind of back half of the year. We were hoping to have something in the first half of the year, but it didn't work out. With regards to loans, there are certainly some acquisitions that we weren't the winner on, and we felt like there would be buyers that would need some help on the financing side. So we've offered it up, but so far, no takers. But I think we're hopeful that we'll have a little opportunity there as there are some really great basis sort of property value adds, a lot of heavy lift. So the financing market is not going to be very productive for these buyers, and it will be a pretty big gap in the capital structure, which we hope to fill.

And our next question will be coming from John Massocca of B. Riley Securities.

Can you provide some insights on the old Regal box? You noted that the rents are higher than what Regal is currently paying. How do those rents compare to Regal's rents before the bankruptcy?

Yes. So pre-bankruptcy, it's basically double digits percentage up from their previous rent.

Okay. Very helpful. And then the Lake Worth loan investment or loan you put in place. Are there any kind of options on that to purchase the property or any kind of other moving pieces to that loan besides just obviously, the interest income and the drawdown?

Yes. There’s definitely, we do have a right of first refusal if certain cap rates are above a certain level. So we do have the right to acquire if the yields get to a level of interest for us.

Okay. That's very helpful. As we consider disposition guidance, is the seller loan repayment included in that or is it excluded since the transaction took place last year?

Yes, it does not include that.

Thank you. This concludes our Q&A session. As well, this concludes the meeting for today. Thank you all for joining. You may disconnect.