CTO Realty Growth, Inc.

Good day, and thank you for standing by, and welcome to CTO Realty Growth, Inc. Q3 2020-2022 earnings call. At this time, our 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 1 on your telephone. 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 Third 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 ctoreet.com. With that, I'll now turn the call over to John.

Thanks, Matt, and good morning, everyone. I'm very pleased with our team's strong execution during the third quarter across all phases of our business. We opportunistically sold several legacy properties, including our multi-tenanted office property, and as we discussed during our last earnings call, we invested it into our first public-anchored asset, Madison Yards, in Atlanta, Georgia. We also completed a number of capital markets transactions that fortified our balance sheet, continued to have good success with our leasing initiatives, and drove more than 36% year-over-year AFFO growth during the quarter. On top of it all, we had a nice start to the fourth quarter with our acquisition of West Broad Village in Richmond, Virginia, which is a very high-quality property that we believe has great long-term upside. If you look at our transaction activities over the past four months, we found some excellent grocery anchor opportunities as we continued our portfolio repositioning efforts by taking advantage of the disruption in the market and executing on strategic asset recycling. During the quarter, we sold 245 Riverside, our lone remaining office property in Jacksonville, Florida, and we also sold two single-tenant assets in our master lease property outside of Miami in Hialeah, Florida for a total disposition volume of $57 million at a 6.3% blended exit cap rate. These dispositions proceeds and the proceeds from our asset sales during the first half of the year effectively match funded our purchase of Madison Yards. As we've highlighted in the past, the 162,500 square foot property sits on a great infill location along the Beltline in Atlanta, Georgia. It was an opportunity to enhance our portfolios tenant quality while also improving our geographic exposure by further investing in Atlanta, which we believe is one of the best markets in the country. The asset has excellent stable cash flow, a terrific customer draw in Publix, and represents a great core property that has set the benefit from the rapid pace of growth of the Ingman Park and Reynolds sub-market and the long-term prospects of the broader Atlanta area. West Broad Village, which is our most recent acquisition that we acquired two weeks ago, spans more than 392,000 square feet on 33 acres and has some similar characteristics, including a very strong grocer in Whole Foods, as well as a great complimentary retail tenants in REI, Dave & Buster's, and HomeGoods. We acquired this property meaningfully below replacement costs with 17% vacancy, which we believe provides us upside as we emphasize value-added leasing and look to reposition the asset as dominant lifestyle property in the high-end, short-pumped sub-market of Richmond, Virginia. Overall, if we take a step back and look at how our portfolio has evolved since the beginning of the year, we've been able to trade out of office and single-tenant assets and reinvest into properties anchored by tenants such as Whole Foods, HomeGoods, Publix, REI, Ross Dress for Less, and Best Buy, while further diversifying our overall tenant exposure and giving our portfolio more long-term upside through lease-up of acquired vacancy and re-tenanting units that currently have below-market rents as they become available. We've been able to drive attractive net investment spreads while also more than doubling our grocery-anchored asset exposure to nearly 30% of the portfolio and increasing our overall retail and mixed-use portfolio makeup to nearly 90%. While we're excited about these new investments, we're also highly focused on maximizing the value of our existing portfolio through active asset management, leasing, and our capital investments program. We're starting to see the benefits of the leases we've signed over the past few quarters, with new leases beginning to open at a number of our properties. The most notable gains have occurred at Ashford Lane, where nearly a dozen new tenants have opened or will open over the next few months. The property is currently 78% occupied and more than 85% leased. And with the progress we've made on the lawn, we have a strong tailwind to fill the remaining unleased vacancy to drive additional revenue in the next 12 to 24 months. The operational gains are not just through revenue growth. We're also finding ways to operate the properties more efficiently. The combination of the two resulted in year-over-year store NOI growth of 12% in the quarter, is up more than 20% year-to-date. From a leasing perspective, we signed seven new leases in the quarter, totaling 43,000 square feet at an annual average rent of over $36 per square foot. More than half of this leased square footage is for existing vacancy acquired when we purchased the property, and the largest of the new leases signed at our property in Winter Park, Florida, where we now lease the entire top floor. Two of the new leases were in locations where the tenant either vacated the property or relocated them to a previously vacant unit. In these instances, we grew expiring rent by 47%. Of our nine renewals and extensions during the quarter, we experienced nearly 8% growth in comparable new per square foot lease rates as we continue to benefit from meaningful tenant demand for our high-quality locations. Within our structured investments portfolio, we anticipate the borrower of Water Star Loan to fully repay the outstanding balance before the end of the year, which will allow us to pay down debt until we find new additional opportunities for reinvestment. All of our successes are not without some challenges. We've been notified that the WeWork location at our shops at Legacy Property in Plano, Texas will be going dark before the end of the year. We have a corporate guarantee in place that should make the anticipated plan needed to find a replacement tenant. And while we recognize it will take some time and effort to find the right tenant, we believe we can find a productive backfill that will benefit the property given the strength of the market. Additionally, we do have one regal theater in the portfolio at our Beaver Creek crossing property outside of Raleigh, North Carolina. We've been in dialogue with their representatives and they are currently no indication that our lease will be rejected in bankruptcy. However, given that the box is separately parceled and the Raleigh market is one of the fastest-growing, most in-demand markets in the country, we believe we have an attractive set of alternatives available to us should they decide to vacate the space. Finally, on the capital investment side of things, the lawn at Ashford Lane is largely complete, and we expect that the space to be fully operational and activated as we head towards the holiday season. I'll now pass it over to Matt to talk about our performance in the quarter, capital market activities, and increased guidance.