Good day, and thank you for standing by. Welcome to the CTO Realty Growth Second Quarter 2024 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers’ 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, John Albright, President and CEO. Please go ahead.

Good morning, everyone, and thank you for joining us today for the CTO Realty Growth second quarter 2024 operating results conference call. I am pleased to have Phil Mays, our new Chief Financial Officer, joining me this morning. Before we begin, I'll turn it over to Phil to provide the customary disclosures regarding today’s call. Phil?

Thanks, John. I would 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. With that, I will turn the call back over to John.

Thanks, Phil. We had another strong quarter in all areas of our business. This morning I will provide a brief overview of our second quarter results and highlight the strong leasing environment and investment opportunities we are seeing. As of quarter end, over 70% of our rents come from Georgia, Texas, and Florida, and we continue to see the benefits of owning a high-quality portfolio of shopping centers located in strong growth markets in the Southeast and Southwest. Starting with our operating business, we had another successful quarter of leasing activity. In the second quarter, we signed 79,000 square feet of new leases, renewals, and extensions at an average rent of $25.87 per square foot, bringing our leasing activity to 183,000 square feet at an average rent of $26.58 per square foot for the first half of 2024. This leasing activity was spread across our portfolio, but heavier at Ashford Lane in Atlanta and West Broad Village in Richmond. Our comparable lease spreads were 9% in the second quarter and 41% in the first half of 2024. As discussed on our last call, the 41% growth in the first half includes the significant impacts of replacing Regal Cinemas at Beaver Creek Crossing in Rowley with a fitness operator scheduled to open in mid-2025. We ended the quarter with physical occupancy of 92.6%, an increase of 2.3% from year-end 2023, and leased occupancy of 94.6%. The 200 basis point spreads between physical and leased occupancy represent almost $5 million of future cash rents in nearly 6% of our current in-place cash base rents. We will receive some earnings benefit from these leases in the second half of 2024, but most of the benefit will ramp up throughout 2025 as the new tenants take possession. We’re also in negotiations to lease approximately 24,000 square feet of the former Earth Fare store at Collection and Forsyth Atlanta, and 19,000 square feet of the space formerly leased by WeWork at the Shops at Legacy in Plano, Texas. Turning to investments, after an active first quarter, which included acquiring the marketplace with Seminole Towne Center in the Sanford submarket of Orlando, we had a relatively quiet second quarter, purchasing 1.4 acres of vacant land for $1.5 million for future development within our West Broad Village property in Richmond. More importantly, we are optimistic that we will be successful with some acquisitions in our target markets, which we would expect to close in the third quarter. Accordingly, we have increased our outlook for investments for the full year of 2024 to a range of $200 million to $250 million. On the dispositions front, although no transactions were completed during the quarter, we have a non-refundable $18 million sales contract for Jordan Landing, our property in Utah, with closing scheduled in August. We will continue to prioritize selling our few small remaining non-core assets for redeployment through attractive investment opportunities in larger format open air retail centers. Given the strong results our portfolio has delivered for the first half of 2024, along with the favorable transaction market we are seeing, we have increased the midpoint of our 2024 core FFO guidance by 12% to a range of $1.81 to $1.86. Phil will discuss our earnings and guidance in more detail, and I will now hand the call over to him.

Thanks, John. First, it is a privilege for me to join the team here at CTO Realty. The Board of Management has done a remarkable job transforming the company's property portfolio. The positive results from this transformed portfolio and strong management team are evident throughout this quarter's results we’ll discuss on today's call. Currently, the company’s property portfolio consists of 20 properties, comprising 3.9 million square feet, located in eight states and 11 markets. More specifically, substantially all of these properties are located in business-friendly markets in the Southeast and Southwest with demographics supportive of upsized long-term growth. Accordingly, they benefit from strong tenant demand, as evidenced by occupancy, leasing spreads, and same-property NOI growth. As John previously mentioned, at quarter end, physical occupancy was 92.6% and leased occupancy was 94.6%, with the spread between them representing almost $5 million of annualized cash-based rents that will primarily contribute to NOI and earnings growth in 2025. Same-property NOI for the second quarter increased by 2% compared to the same period in the prior year. For the first six months of 2024, same-property NOI growth was 4% compared to the first six months of 2023. The growth for the first six months of 2024 was driven by lease-up and additionally benefited from higher percentage rents received in the first quarter of 2024 from certain tenants that pay percentage rent on an annual basis after year end. Moving to earnings, core FFO was $0.45 per share for the quarter, representing 5% growth when compared to the same period in the prior year. AFFO was $0.48 per share for the quarter, consistent with the same period in the prior year. For the first six months of 2024, core FFO was $0.93 per share and AFFO was $1 per share, representing growth of 13% and 10% respectively compared to the first six months of 2023. Core FFO growth for both the quarter and for six months of 2024 outpaced AFFO growth due to a $450,000 non-cash write-off of straight-line rents receivable in the second quarter of last year associated with our former food hall tenant at Ashford Lane. As disclosed in our press release and other filings, our AFFO excludes non-cash items such as straight-line rents that can cause short-term fluctuations in earnings with no impact on operating cash flows. For that reason, we present AFFO in addition to FFO. As we announced in May, we distributed a second quarter regular cash dividend of $0.38 per share, resulting in a Q2 2024 AFFO payout ratio of 79%, at an attractive current annualized yield of approximately 8%. Consistent with past practice, towards the end of August, we will announce our quarterly dividend amount for the third quarter. Now turning to our balance sheet. We ended the quarter with net debt to total enterprise value of 48%, net debt to EBITDA of 7.5 times, $155 million of liquidity, and a staggered debt maturity schedule. As previously announced, early in the second quarter, we issued 1.7 million shares of our Series A preferred stock for net proceeds of $33.1 million. Additionally, during the quarter, we issued almost 250,000 common shares under our ATM program for total net proceeds of $4.3 million. These combined proceeds of approximately $38 million, along with $15.2 million of proceeds received in connection with the repayment of one of our loan investments, were used to pay down a revolving credit facility and reduced the balance to $150 million outstanding at quarter end. Further, as disclosed in our earnings release and supplemental reporting package, we have previously entered into SOFR swaps for notional amounts that cover all of our term loans and $150 million of our revolving credit facility, thereby leaving no floating rate interest exposure at quarter end. Lastly, a guidance update. With our strong first half results and current outlook, we are increasing our full year 2024 core FFO guidance to a range of $1.81 to $1.86 per share and AFFO guidance to a range of $1.95 to $2 per share. At the midpoint, this represents a 12% increase to core FFO guidance and an 11% increase to AFFO guidance. Most of the assumptions underlying our 2024 guidance remain unchanged, except for investment. As John discussed, we are optimistic about acquisitions in the second half of the year. Accordingly, we have increased our anticipated full year 2024 investments to a range of $200 million to $250 million and an initial cash yield range of 8.5% to 9%. As a reminder, our investment assumptions are inclusive of both properties and loans. Currently, we are not increasing our disposition range of $50 million to $75 million. However, should we land on the high end of our investment range, it is possible that we could exceed our disposition range as we would look to opportunistically dispose of one or more of our few remaining non-core assets. With that, I will now turn the call back to the operator to open the line for questions.

Our first question comes from R.J. Milligan with Raymond James. Your line is now open.

Hey, good morning, guys and welcome, Phil. John, I was wondering if you could just talk about the environment today in terms of what gives you the confidence to increase the guidance and maybe a comment as to what we should expect in terms of the mix between loans and regular way investments?

Sure, thanks, RJ. Yeah, so I’ve probably mentioned this on the last call. We're seeing a fair amount of opportunities. We've been actively pursuing a lot of what we've been seeing our quality properties and good locations. We missed on one earlier this year that was fairly sizable based on due diligence. But we're able to - we have one right now in our line of sights that gives us confidence in this upward guidance of acquisitions. Then, as far as your question about the mix, primarily, it's core real estate Power Center shopping centers that we’re looking to buy. I would say that about 80% is core acquisitions and then 20% more structured investments.

That's helpful. In terms of obviously, a decent increase in guidance and so, I think that might imply that you expected to close some of these transactions sooner rather than later. I'm just curious number one that from a modeling perspective if you could give us an idea on timing expectations and then funding sources?

Yeah, so we would hope on fairly sizable transactions for us that we have something that we basically look to close on in let’s call it 60 days. We have the capacity of our line of credit facilities to do the acquisition. And as you know we obviously have been pretty good about recycling assets. So we - in addition to one property we have more or less going into the closing process or under contract, we have other assets that we're looking to sell as well.

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

Thanks.

Thank you. Our next question comes from the line of Gopal Mehta with Alliance Global Partners. Your line is now open.

Yeah. Thank you. Good morning. I wanted to follow up on the investment guidance questions. Wanted to get some more color on the cap rate as well. It seems like you raised the cap rate guidance as well to 8.5% from a lower cap rate expectation to the previous guidance. I was wondering if that’s specific to the acquisitions that you're looking at or is that something you are seeing in the market?

A combination of what we're pursuing and what we've been making some acquisition offers on and feel like where we know we can probably acquire assets at and the combination of the structured investments. So it's a blend of the two. But definitely comprised of what we see that we think is transactable as far as our acquisitions.

And a follow-up on the early repayment of the seller financing loan, any color on what drove that early financing - early repayment, I'm sorry?

I am sorry. Can you ask that again?

Yeah, I think in that quarter, you had $15.2 million of early repayment of a seller financing loan. Just wanted to get some more color.

Yeah, so that was on the forward stable office building we sold in Tampa. I think we announced that in the second quarter, I believe - sorry in the last earnings call. That was one where we allowed the - on the seller financing to close earlier for a little bit of a discount.

Okay. Thank you. That’s all I had.

Sure.

Thank you. Our next question comes from the line of Rob Stevenson with Janney Montgomery and Scott. Your line is now open.

Good morning, guys. John, beyond the 24,000 square feet in Atlanta and the 19,000 in Plano that you talked about in your comments, where are the other larger pockets of current or future vacancy that you're working on today, whether there is an assigned tenant yet?

Yeah, so, I mean, those are some of the big ones for sure. The balance of the WeWork space, the amount of - as mentioned on the 20,000 square foot roughly of the WeWork space that's basically a third of it. So we still have some work to do on the balance of the space. The good news is we're seeing increased activity in that market, which is great. I love to see that. As far as where the rest of the space is, we have roughly 210,000 square feet of vacancy throughout the portfolio. Everything else is fairly scattered, so smaller spaces. Those are the two big ones would be Earth Fare, which looks like we have the lease signed up, and then the WeWork space for sure, and that's what we've been working on pretty hard to get that addressed.

Okay. That's helpful. And then back to the acquisition track. How aggressively are you guys pursuing mixed-use assets these days? Is it - is the focus really retail only? Would you do a mixed-use asset if it's a great deal and it falls into your lap, or are you still aggressively pursuing mixed-use assets going forward?

Yeah, right now, there's no mixed-use assets in the pipeline. It's primarily our core retail open-air centers.

Okay. That’s helpful. And then, Phil, what are the main contributors to the increased guidance beyond just some of the better leasing? Are there any big segments that drove up the outlook for the rest of the year?

Yeah, I think it falls into four buckets. The first one being the investment activity of loans and properties. The second, as John touched on, is timing of them, right? I think we're seeing acquisitions lead dispositions, so that also drives it. Then we've got the first half of the year behind us with very, very strong results. Then maybe initially a little conservatism in guidance early in the year, especially with our CFO just being kind of prudent early in the year.

Okay.

It falls into four buckets and could kind of spread the increased guidance across them.

All right that's helpful. Thanks guys and have a great weekend.

Thanks, you too.

Thank you. Our next question comes from the line of Matthew Erdner with Jones Trading. Your line is now open.

Hey, good morning, guys. Thanks for taking the question. I'd like to follow up on the investment opportunities and kind of the higher yield. In some of these open-air shopping centers, are you guys targeting ones with maybe some lower occupancy or some facilities that need some capital improvement to kind of get that increased cap rate?

Yeah, that's a good question. I mean, we certainly are seeing some properties that need some capital, not an incredible amount of capital, but definitely a fair amount of upfront capital to refresh the properties. We're not seeing, on the acquisition side, a lot of vacancies. There's some vacancy, but it's not a big component of it.

Gotcha. That's helpful. And then, turning to the loans, should we expect any other early payoffs? Or was this kind of a one-time thing?

Yeah, nothing in front of us right now that's going to be paying off anytime soon.

Got you. Thank you guys. That's all for me.

Thank you.

Thank you. Our next question comes from the line of John Massocca with B. Riley Securities. Your line is now open.

Good morning.

Good morning.

Good. It sounds like a lot of the investment pipeline is pretty far along at this point and therefore kind of pricing on that was set a while ago. But maybe if you look beyond what's kind of closed in the pipeline today, or even some of the deals that are a little more up in the air that you have in the pipeline today, are you seeing any pressure on cap rates given some of the moves in interest rates you've seen over the last couple of weeks?

Yeah, I mean, I would say that the pressure on cap rates is kind of in the larger type of assets in major MSAs. I would say, more of the - almost the $200 million sort of assets seem to get more of the pricing pressure. The assets that we’re basically pursuing really we're trying to avoid the real core institutional capital that we would be chasing these and so trying to buy around the edges. So we're not seeing as much cap rate compression there yet we expect it. That’s kind of why we're trying to get busy on the acquisition front.

Okay. And then it probably extends to most of the distribution side of things. But are you seeing any loosening of kind of the banking market getting a little more active, if you will, in terms of financing transactions?

Yeah, it seems like the CMBS market has been very helpful for folks that are selling assets or for the acquirers that look for secured debt. That's been really helping the transaction market for sure. We don't like to see that, because it brings in more competition from folks that are using leverage on the asset bases. But there is better leverage out there, and so that's been helping the transaction market for sure.

Okay. And then, in terms of kind of financing the investment pipeline, particularly on the debt side, what are you seeing in terms of your own cost of debt capital?

We're largely an unsecured borrower. In terms of maybe terming at the line or something that gets full or just doing another term loan, five-year swaps have come in. They're under four now, and our spreads are about 135 basis points. So we could probably do an all-in fixed five-year term loan right in the neighborhood of 5% right now.

Okay. Would there be any interest in pursuing mortgages depending on what the investment looks like? Or is it pretty much all going to be in the term loan market if you do permanent?

Yeah, that's - we don't like to do secured debt on the assets that keeps us the flexibility because that folks that we see something we want to sell just makes it a lot better transaction for us.

Okay. That's it for me. Thank you very much.

Thank you.

Thank you. Our next question comes from the line of Michael Gorman with BTIG. Your line is now open.

Yeah. Thanks. Good morning. Just a quick question following up on the signed but not opened pipeline John that you mentioned about the incremental almost $5 million collecting online over the course of 2025. How much of that will be a net add versus how much should we think about there's kind of just the durable spread between leased and occupied space that will always be there? So if we think about that 260 basis or a 250 basis point gap like, what would that normalize to as you think about the business?

I mean, look, the signed-not-opened kind of pipeline is something that we've been really talking about in the last couple of quarters for sure. That's what we feel like the market has been missing with us, that we've been doing a lot of leasing, and these tenants take a while to get open. Now we're finally seeing this bear fruit. So that $5 million is obviously a pretty big number with regards to our portfolio. But one thing is beyond that, yes, we do have a lot of in-place tenants with low lease rates. If you think about the average vintage of our assets being, call it, we’ve built like 15 years ago, these leases are below market. We hope to get back some of these spaces. One example I give quite a bit is that Tuesday Morning space in Beaver Creek and Raleigh where we now have opened a total line at over double the rent. We’d love buying properties with a little bit of vacancy where we can move up the numbers. But it's less to do with the replacement rents, but we - wherever we do see a replacement opportunity, there is uplift, but it's mainly new leasing.

Okay. That's helpful. And then, maybe just an additional question on the financing front, appreciate all the color around the debt side. Maybe as you think about the equity here, obviously off to a good start in the third quarter, which is nice to see. Given the volatility that we’ve seen in the capital markets, just strategically, how do you think about opportunistically tapping equity markets and preloading the balance sheet for the opportunity set as you start to think about 2025?

Yeah, I mean, obviously we - as you know, given that we've been public since 1969 and we've only done one follow-on offering in that time period, we've learned to live without the capital markets. But we certainly love to see the recent strength, especially for the small cap sector. For sure, if it makes sense we will be looking to grow the company, but we're not trying to rely on the capital markets given that can be very finicky for these size companies. But we love the backdrop. Given the strength of our earnings and a lot of people coming back into retail, I think that's a great backdrop for us.

Okay. Thanks guys.

Thank you.

Thank you. And I'm currently showing no further questions at this time. This does conclude today's conference call. Thank you all for participating. You may now disconnect.