CTO Realty Growth, Inc.

Thank you for standing by and welcome to the CTO Realty Growth fourth quarter and year-end 2022 operating results conference call. At this time, all participants are on a listen-only mode. After the speaker's presentations, there'll be a question and answer session. To ask a question at that time, please press star one one on your telephone. As a reminder, today's conference call is being recorded. I will now turn the conference to the host, Mr. Matt Partridge, Chief Financial Officer. Please begin.

Good morning, everyone, and thank you for joining us today for the CTO Realty Growth fourth quarter and year-end 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 our most recent investor presentation on our website at ctoread.com. With that, I'll now turn the call over to John.

Thanks, Matt, and good morning, everyone. Our activity during the fourth quarter capped off another record year, which resulted in full year core FFO per share growth of 35% and full year AFFO per share growth of 26%. The fourth quarter was especially noteworthy because it was our largest quarter ever in terms of investment volume and included the first follow-on equity offering in the history of the company. While 2022 was very productive across all aspects of our business, I'll highlight a few of the more notable accomplishments. Excluding the fourth quarter acquisitions, we signed new leases, renewals, and extensions on 8% of the total portfolio square feet at an average cash rent of more than $31 per square foot. We grew same property NOI by 13%. Total investments were a record $375 million. Meaningfully de-risked our balance sheet by match funding our fourth quarter acquisition activity and extending all of our debt maturities out to 225 or beyond. Grew our common cash dividend by 12% year over year, and we delivered 2022 total shareholder return in the top quartile of the entire REIT industry, including outpacing most of our retail-focused peers. It was a great year, and our team's execution has us well-positioned for long-term success. Notwithstanding some near-term tenant challenges that we'll discuss as part of our 2023 guidance, we believe we've built our company and the underlying portfolio for long-term growth in value creation as we've invested in properties with very attractive demographics within markets that are projected to have some of the highest population and job growth in the country. During the fourth quarter, we completed three transactions for a quarterly record of nearly $195 million, at a weighted average going-in cash cap rate of 8%. All three investments have meaningful upside through a combination of leasing and light repositioning at an average price of less than $200 per square foot. These acquisitions represent a terrific opportunity to invest in high-quality real estate significantly below replacement costs. Our acquisition of West Broad Village in the Short Pump sub-market of Richmond, Virginia is a high-quality, whole foods, home goods, and REI-anchored property that comes with significant leasing upside through the acquired vacancy. In the four months we've owned the property, we've experienced very strong leasing demand, and we expect this property will be an excellent driver of same property NOI growth as our team's leasing efforts in 2023 convert to rent-paying tenants in 2024. Our other two acquisitions in the quarter include a five-parcel assemblage in the tourist district of Daytona Beach and the largest acquisition in the company's history, the collection at Foresight in the affluent Foresight County submarket of Atlanta. The Daytona Beach property was a unique off-market opportunity to acquire a set of complimentary parking and restaurant parcels near the beach from a successful retiring owner-operator. Given our existing investment in two high-performing Daytona Beachside restaurants, we're confident in the near-term cash flow opportunity as there is a significant operator interest in these properties. I'll move from our smallest investment during the year to our largest, which is our acquisition of the collection at Foresight. This is a property we're very excited about and one we think will provide considerable growth in 2024, 2025, and beyond. We continue to be a strong believer in the long-term prospects of the broader Atlanta market, and the collection at Foresight was a terrific opportunity to invest in a property similar to our Ashford Lane asset, where we can up-tier the quality of the tenant mix, increase rental rates as leases roll over, and really establish this property as the go-to destination for residents of Foresight County and the surrounding area. We've engaged our leasing team who helped us reposition Ashford Lane which is just 20 miles down the road. And we've already started to have a number of conversations with some very exciting concepts. Additionally, there is a vacant former Earth Fair grocery out parcel that we're hopeful will be a future grocer location for the property. And we believe that there are opportunities to potentially add green space to enhance the overall property experience. For the year, we completed five mixed use or retail income acquisitions for $314 million at a weighted average going-in cash cap rate of 7.5%, and supplemented these acquisitions with our structured investments program, where we originated $59 million of funding towards the development or redevelopment of retail and mixed-use properties in sub-markets of Atlanta, Dallas, and Orlando at a blended initial yield of 8.2%. The year in balance of these investments is just over $30 million. We continue to recycle assets through opportunistic dispositions as we look to drive attractive returns on equity through the reinvestment of low cap rate asset sales into higher upside, higher yielding core investments. While we did not have any asset sales in the fourth quarter, we sold a total of six properties, including our sole remaining multi-tenanted office property, for $81 million at a weighted average exit cap of 6.2%. These sales and their subsequent reappointment generated 130 basis point net investment spread between our weighted average acquisition cap rate and our weighted average disposition cap rate, representing terrific value creation as we navigate a volatile transactions environment. Overall, as we evaluate our execution in 2022, we've been fortunate to invest in properties anchored by high-quality tenants, such as Whole Foods, HomeGoods, Publix, REI, Ross Dress for Less, and Best Buy, while further diversifying our overall tenant exposure and getting our portfolio more long-term upside through lease up of acquired vacancy and re-tenanting units that currently have below market rents. While our investments provide additional long-term opportunities for growth, we're highly focused on maximizing the value of our existing portfolio through active asset management, leasing, and our capital investment programs. 2022 was a record year of leasing for our team, and we generated 17% comparable growth in new cash-based rents versus expiring cash-based rents. This helped drive our 13% same-store NOI growth, which will be more muted for 2023 but should see substantial increase in 2024 from tenants opening in the back half of 2023 and into 2024 across many of the properties in our portfolio. This is not only a testament to our team and the quality of assets, but is a direct reflection of the demographics surrounding our properties and long-term prospects of our markets. Our properties average five-mile household incomes of more than $136,000 and serve an average five-mile population base of over 217,000 people. While our portfolio is not the largest, what these demographics do indicate is that our properties are in some close proximity to more than 4 million people, and that represents a very strong base of demand, which is especially important as we are preparing for continued volatility in the broader economy. Furthermore, as we look out over the next three to five years, some of our top markets, such as Atlanta, Dallas, and Raleigh, are anticipating outside population employment growth, which should only benefit our tenants and properties, and especially given the limited supply projected for the foreseeable future. In the near term, we're dealing with tenant-specific issues, including a few larger tenants, such as WeWork at the Shops at Legacy, Regal at Beaver Creek, and The Hall at Ashford Lane. Matt will provide more detail around our 2023 SEMS property NOI growth guidance, but I will note that in most instances, The Hall being the outlier, we underwrote these tenants to vacate following our acquisition of their respective properties. The anticipated concessions or loss of these tenants do represent near-term disruptions as evidenced in our guidance, but each presents a unique longer-term opportunity to explore value-maximizing options, which gain as we underwrote during our acquisition process. More specifically, with rework vacating the shops at Legacy, we have an opportunity to re-tenant the space with alternative use that should drive additional traffic to the property. improve overall existing tenant performance, and help strengthen the future leasing efforts. Our sole regal location at Beaver Creek property just outside of Raleigh is separately parceled with development rights for more than 200 apartment units. We're currently reevaluating the viability of taking a mixed-use approach to the property with the potential integration of apartments, which is in addition to the more traditional out parcel development opportunities we identified at acquisition and are beginning to take shape. And finally, the hall at Ashford Lane, we provided some near-term relief as a tenant has experienced delays in opening as a result of supply chain disruptions and increasing costs to their build-out, which has presented an opportunity for us to obtain more operational transparency and a more attractive percentage rent threshold. Overall, the vast majority of our tenants are performing well, and we believe there is substantial embedded value in our high-quality portfolio as we look to mark rents to market and grow free cash flow. We've taken a prudent approach to our guidance and we continue to remain disciplined as we allocate capital for long-term benefits of our shareholders and execute on our strategic initiatives. I'll now pass it over to Matt to talk about our results and balance sheet in 2023 guidance.