Good day, and thank you for standing by. Welcome to CTO Second Quarter 2025 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you'll need to press star 11 on your telephone. You will then hear an automated message advising your hand is raised. To answer your question, please press star 11 again. Please be advised that today's conference is being recorded. I would now like to turn the conference over to your speaker for today, Jenna McKinley. Please go ahead.

Good morning, everyone, and thank you for joining us today for the CTO Realty Growth Second Quarter 2025 Operating Results Conference Call. Participating on the call this morning are John Albright, President and CEO, Philip Mays, CFO, and other members of the executive team that will be available to answer questions during the call. 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 over to John.

Thanks, Jenna. Once again, we delivered another quarter of strong operating results, driven by continued leasing momentum. During this quarter, we signed approximately 227,000 square feet of new leases, renewals, and extensions, and average cash-based rent of $25.43 per square foot, including 190,000 square feet of comparable leases at a 22% cash rent spread. Year-to-date, we have now completed 339,000 square feet of leasing, including 299,000 square feet of comparable leasing at a 27% cash rent spread. Given the robust leasing fundamentals at our shopping centers located in faster-growing, business-friendly MSAs within the Southeast and Southwest, we are making considerable progress regarding the unique mark-to-market opportunity on the 10 anchor spaces we have been discussing. With Party City and Joann's having wound down their operations and vacating in the second quarter, we now have full control of all 10 of these spaces. Furthermore, because of our proactive leasing efforts, six of the ten anchor spaces are resolved with new leases executed for five of them, and one of the leases is assigned. The new anchors include Burlington, two boot barns, Bassett Furniture, Slick City Action Park, and Bob's Discount Furniture, all concepts that will drive more foot traffic compared to the former tenants that we're replacing. Additionally, we are in active lease negotiations for the remaining four anchor spaces and look forward to announcing additional leases upon execution. Overall, we remain on target to achieve a positive cash leasing spread of 40% to 60% in total for these 10 anchor spaces. Notably, with our leasing activity this quarter, our signed not open pipeline now stands at $4.6 million, representing a 4.6 percent of in-place cash rents. This pipeline of completed leasing, along with anticipated leasing of the remaining four anchor spaces, will provide the company with earnings tailwinds going into 2026. Further, we're continuing to see strong leasing momentum from high-quality retailers and are excited about ongoing lease negotiations. One last leasing note. Our property portfolio, consisting of 5.3 million square feet, was 93.9% leased and 90.2% occupied at the end of the quarter. On the investment front, we remain disciplined in our underwriting of both property acquisitions and structured investments, and currently have a healthy pipeline of potential acquisitions. Specifically, we have one shopping center on our sites. this asset is located in one of our core target markets and has the value add attributes that align with our leasing and operating strengths providing the opportunity to acquire the asset and attractive yield and create additional long-term value we are optimistic about getting this asset under contract and we'll provide an update next quarter additionally as previously mentioned we are considering recycling some of our stabilized assets which could be a part of the funding for future acquisitions. Now I'd like to briefly discuss the exciting progress taking place at three of our properties. Starting with Carolina Pavilion, a 694,000 square foot regional power center located in Charlotte, North Carolina that we acquired in August 2024. Since acquisition, Ulta, Sierra Trading, and Academy Sports have all opened at this center, significantly increasing its vibrancy. Additionally, this property includes four of the 10 anchor spaces I discussed earlier. All four of these were identified in underwriting as value-add opportunities having significantly below market rent. Of these four spaces, two have already been leased, and we are in active lease negotiations for the other two spaces. After capturing the upside on these four anchor spaces, we expect to achieve an unlevered double-digit yields on this property. Moving to the plaza at Rockwall, a 446,000 square foot center located in the desirable suburb of Dallas, Texas. Late last year, Staples' lease at the center expired with no remaining contractual options. Staples wanted to stay at the center, but we received strong tenant interest and ultimately signed a lease with Barnes & Noble. Barnes & Noble is on schedule to open their new format here in the fall. Additionally, the center includes a former space leased to Joann's before they vacated in the second quarter. Our proactive leasing efforts also enabled us to execute a timely lease with Boot Barn, which is working hard to get open prior to year end. Similar to Carolina Pavilion, these spaces were identified as having significantly below market rent and upside in our underwriting. In combined, we are achieving 86% cash rent spread on them. Now to our last significant non-core asset, a 210,000 square foot office property located in Albuquerque, New Mexico. This asset is currently fully leased and occupied by Fidelity. However, we are finalizing the lease amendment to reduce Fidelity's space to approximately half the building around the end of November. Their lease on the remaining space has an initial maturity of 2028 with two five-year extensions this amendment provides us with the opportunity to sign a new 10-year lease with the state of new mexico which will backfill a majority of the space vacated by fidelity accordingly this property will soon have two credit tenants and a longer-awaited lease term increasing both its value and marketability again we are pleased with our leasing activity in progress as we begin to realize the embedded upside in our assets. And with that, I will now hand the call over to Phil. Thanks, John. On this call, I will discuss

our balance sheet, earnings results, and full year 2025 guidance. Starting with the balance sheet. This quarter, as previously disclosed, we fully settled our 3.875% convertible notes, which had an outstanding balance of approximately $51 million and a state of maturity of April 15, 2025. These notes were partially settled, slightly part of maturity with a series of privately negotiated transactions with certain note holders for a combination of cash and newly issued common shares, and the remaining principal balance was settled with cash on the maturity date. Ultimately, the convertible notes were retired in full for approximately $71.1 million dollars, consisting of $50.1 million of cash and $21 million of common equity. This repayment did result in an extinguishment of debt charge of approximately $20.4 million, and consistent with past practice and our definition of non-GAAP measures, it was excluded from our computation of both core FFO and AFFO. After settlement of our convertible notes, we ended the quarter with $606.8 million of debt, of which just $74 million, or 12%, is subject to floating interest rates based on SOFR. As you may recall from our prior earnings call, when interest rates temporarily dropped in April in connection with the initial tariff announcements, we executed SOFR swaps, fixing SOFR for $100 million of principal at a weighted average rate of 3.32% for five years, effective April 30th. These swaps were applied to borrowings outstanding on a revolving credit facility, reducing our floating rate exposure, and the applicable interest rate on $100 million by nearly 100 basis points to just under 5% based on our current leverage and pricing tier. We ended the quarter with almost $85 million of liquidity, consisting of $76 million available under our revolving credit facility and approximately $9 million in cash available for use. Similar to last year, we will look to close a new term loan towards the end of the third quarter or early in the fourth quarter and use the proceeds to reduce the outstanding balance on a revolving credit facility and increase liquidity. One last balance sheet note. We ended the quarter with net debt to EBITDA of 6.9 times and improvement from 7.5 times from a year ago, but up a bit from 6.3 times at the beginning of the year. The change from the beginning of the year was due to two items. First, the approximately $80 million acquisition of Ashley Park in the first quarter, and second, the earnings associated with the 10 anchors that vacated between last year and the second quarter that John discussed. Accordingly, as these anchors and other tenants enter sign-out open pipeline, open and commence paying rent, they will assist in deleveraging. Moving on to operating results. Core FFO was $14.7 million for the quarter, a $4.3 million increase compared to $10.3 million in the comparable quarter of the prior year. On a per share basis, core FFO was 45 cents for the quarter, consistent with the comparable quarter of the prior year. The consistency of core FFO on a per share basis, despite the $4.3 million growth in core FFO, is primarily due to our reduction in leverage from a year ago. Now to guidance. We are reaffirming our full year 2025 per year outlook for core FFO, $1.80 to $1.86, and AFFO, $1.93 to $1.98. The assumptions underlying this outlook remain consistent with those previously provided. While we have completed a significant amount of leasing and built a $4.6 million sign-not-open pipeline, it does take some time for tenants, particularly anchors, to get open and commence paying rent. Accordingly, the related earnings list from this pipeline will become more noticeable as it moves through the fourth quarter of the year. And with that, operator, please open the line for questions.

Thank you. If you would like to ask a question, please press star 11 on your telephone. We also ask that you please wait for your name and company to be announced before proceeding with your question. One moment for the first question. And our first question will be coming from the line of Guav Mehta of Alliance Global Partners. Your line is open.

thank you good morning i i wanted to ask you uh around your comments around fidelity office property where you mentioned they are indicating half of that and you have state of mexico coming in can you provide some more color on on what happened with that property as far as fidelity exiting half of that and do you expect any cap access associated with state of mexico

Sure. So the building, when Forest City built the building for Fidelity, it was built in two separate sort of building structures. So Fidelity could have the flexibility to downsize and bring in another tenant. And that's actually kind of what's happening. Fidelity is going to pay us a payment for that downsizing. And then at the same time, we did get lucky that state of New Mexico had a very, very big demand for more modern space to bring some agencies out of some older facilities. And so they are extremely happy about, you know, locating here and have moved very fast in this process. And I wouldn't be surprised if, you know, they take additional space in the future. So that's going to allow us to, you know, monetize this asset probably late this year or early next year after we get everything settled down. But, yeah, it's going to be a good situation for us.

Second question I have is around acquisitions. I think you mentioned that you're looking at one shopping center for a potential acquisition. And if you would acquire that property, should we expect leverage to go up in the near term to fund that acquisition?

Maybe in the near term. But as I mentioned, I think, last earnings, we are looking to recycle some assets. So we would not see the kind of leverage after recycling tick up at all.

Okay. And then lastly, can you remind if you have any dispositions in your guidance?

Yeah, there's no dispositions in the current guidance.

Okay. Thank you. That's all I have. Thank you.

Thank you. One moment for the next question. And our next question will be coming from the line of Rob Stevenson of Jannie Montgomery. Your line is open.

Good morning, guys. Are the fidelity in the state of New Mexico leases, are those second quarter leases or those third quarter leases?

The fidelity is, so we have an agreement with them to downsize. We're still working through the exact square footage there. So it's going to be approximately half, but just have to work through, you know, kind of the common areas. and stuff like that, the lobby and all, to make sure that it works for both tenants. So it's not 100% fine lines, but it's substantially done, and we do have an agreement in place. It's just fine-tuning the layout and the exact square footage. And then the state of New Mexico was signed, and it was this quarter.

Okay, so that was in the $226,000 in changes of leasing that you reported for the second quarter?

It is not. If you look at our leasing spreads and all, that is just retail leases. We sporadically have some office leases here and there that aren't just representative of the majority of our portfolio. And so as we disclose on that schedule, it does exclude those. So that was not in there.

Okay. And then at this point, given that, you know, we're a month into the third quarter, any significant leasing that you guys have signed thus far? And where does the, you know, the sign not open pipeline, you know, sort of sit today versus the $4.6 million at June 30th?

I mean, we're working on a fair amount of leases. Again, actually, if you take all of our vacancy that's remaining, we're negotiating either LOIs or leases on a majority of the remaining vacancy. So we're just not there yet. I would say probably the next 60 days is kind of where, you know, things will be getting signed.

Okay. And then you talked about potentially doing some dispositions. Basically, I think that the next or the first of the structured investments doesn't come due until, I think there's one in March and one in April. Any thoughts that those guys might pay off early and or would you wind up selling any of the structured investments in lieu of stabilized assets?

Yeah, I mean, they could pay off early. I don't really see them paying off anytime soon. And then we're not really seeing any structured finance investments right now. We're really seeing some good quality sort of core acquisition opportunity. So, yeah, they could monetize early if we wanted to or needed to, but don't see that happening.

Okay. Thanks, guys. Appreciate the time this morning.

Thank you.

Thank you. One moment for the next question. And the next question will be coming from the line of Matthew Ebrner of Jones Trading. Your line is open.

Hey, good morning, guys. Thanks for taking the question. So it seems like you're still seeing a lot of strength on the leasing side. Could you kind of talk about how those processes go? And then, you know, with those kind of four that aren't signed yet, you know, that have multiple offers or maybe multiple tenants that want to go in, how you guys are kind of evaluating the credit and which tenant you guys want to go in that spot?

Yeah, thanks for the question. I mean, look, we're pleasantly surprised at the strength of leasing and the tenants that we're talking about are kind of household names. So, good credits. I think where it becomes a little bit more challenging is, you know, we do have other tenants that are interested And if you split a box and bring in two tenants, maybe you make more money, but it costs more money, takes a little longer. So it's kind of high class problems. But, you know, we're we're really going with more easier sort of solutions with credit. You know, it'll be a little faster. But having said that, you know, nothing happens fast these days. You know, just, you know, a lot of, you know, on these lease negotiations have been taking quite a bit of time as these tenants have a pretty full deck of other leases that they're working on as well. So it's just the process is elongated these days, but the good news is we have a lot of good options on the leasing side. And as mentioned, you know, given that, you know, out of our vacancy that, you know, we're really talking to about almost 70% of it that we're negotiating one form or the other, it's great to see.

Yeah, that's great. And then, you know, you mentioned there kind of the process, you know, with it taking long. And then kind of on that turnover with the 94 percent to be recognized next year, you know, what do you see as risks that would cause, you know, less than 94 percent to be recognized in 26?

You know, the good news is, as you know, on our acquisitions, we've been buying properties with low embedded lease rates. So the mark-to-market is fairly opportunistic and would be terrific to have happen. So we're not really concerned about a lease rollover because it's more opportunity if unexpectedly tenants do not stay in the spaces. So, you know, it's nothing that kind of keeps us up at night, if you will.

Yeah, I got it. And then one last quick one for me, going to the structured investment book on that construction loan um there's only 29 million or 29.6 million in unfunded commitments um you know there's no other additional unfunded portions on additional loans uh correct and uh if you

you know look at our investor deck we have a little bit of an updated photo of the of the whole foods uh anchored site there that we're doing the construction loan at collection which as mentioned before, you know, that's almost like a shadow acquisition pipeline for us because we have the right to acquire that and the developer is building to sell. So it would be nice to have that option to buy that and bring that into collection. Yep. That's great. Thank you, guys. Thank you.

Thank you. One moment for the next question. And the next question will be coming from the line of John Mocosa of B. Riley. Your line is open.

Good morning. So as I think about the physical occupancy, the decline kind of quarter over quarter, was there anything other than maybe some of the moving pieces around the retenanting of the anchor boxes and the staples to Barnes & Noble conversion that you called out that was driving that?

just any other color there would be helpful no it's really what we've talked about for some time now it's all the you know the usual suspects as far as that went bankrupt in the industry party city joann's cons so um you know it's it's really just dealing with big lots dealing with those so nothing nothing out of the ordinary of what's been talked about in the industry

was the staples to barnes the noble conversion in those numbers or was that a seamless transition

or something that's going to occur in like 3q 4q yeah so this quarter the real driver was joanne's and party cities uh party city left the very beginning of the quarter joanne's kind of in the middle uh the staples their lease it uh goes till i believe it is november and so that will happen in the fourth quarter, John, where they will vacate. So the dip of 80 dips or so this quarter was largely Joann's and Party City.

And any kind of, you know, temporary loss of rent there as it transitioned to Barnes & Noble, or is that something that, you know, because of the demand for that space, because you had a tenant in place, that it should be pretty seamless?

There'll be a little downtime, you know, towards the very end of this year or early next year, but it will not be an extended period of time.

And then we talked about the Fidelity leasing situation a decent amount, but just am I right in interpreting that, you know, negotiations are still ongoing, but am I right interpreting that there could be a potential lease termination fee paid to you as a result of this? And understanding you're trying to dispose of the asset at some point here in the coming quarters, is the rent that you're getting from the building going to be relatively the same once you split it into two tenants? Or is there any kind of change in rent around, you know, reducing the size for Fidelity and bringing in the state of New Mexico?

Yeah, there's two pieces there. Fidelity will make a payment to us, John. The way the accounting will likely work on that is it will just get blended in with their rent on the half that they maintain and keep for several years. So, you know, don't expect to see like a pop to miscellaneous income or anything in the fourth quarter related to a big term fee. And that is not baked into the guidance. It'll just generally kind of be the way GAAP will treat that, you know, even though we'll get a nice little cash payment in the fourth quarter. is it'll just blend it in with the rent on the remaining space over the remaining term. What was the other part of your question, the second part again?

And just what's kind of the rent going to be going forward?

There won't be a roll down in rent there. There'll just, you know, maybe be a little bit of downtime, but there will not be a roll down in rent.

And then lastly, on the potential shopping center acquisition you talked about, But could we expect, you know, term loan financing to kind of come either before or maybe around that transaction? Do you view those kind of as being one-on-one, or is that something where you feel comfortable taking more on the line? And, yeah, I think you said 3Q4Q4X on the term loan. But I just kind of was wondering how related, you know, financing might be to closing that transaction.

Yeah, I mean, the timing may not line up, you know, right on top of each other. but, you know, based on conversations we've had with our bank group, you know, we don't have any concerns about terming that out. So, you know, we'll just want to make sure we get the best execution there that we can get. It would be great to kind of have a similar timeline there to keep a little more liquidity on the line, but there could be just a little bit of a period of time there where the acquisition comes down before the new term loan and or disposition gets completed but it won't be a large gap there that's it for me thank you

very much thank you thank you thank you and this does conclude today's Q&A session and it concludes today's presentation thank you much so much for joining you may all disconnect