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spk09: Good day and thank you for standing by. Welcome to the CTO Q1 2023 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 will need to press star 1-1 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 1-1 again. 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. Please go ahead.
spk13: Good morning, everyone, and thank you for joining us today for the CTO Realty Growth First Quarter 2023 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 the 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 relief, supplemental, and most recent investor presentation on our website at ctoread.com. With that, I'll now turn the call over to John.
spk11: Thanks Matt. Good morning everyone and thank you for joining us. Today we'll provide a brief overview of our first quarter results, discuss the largely completed repositioning of our largest assets, Ashford Lane, and highlight the continued strength we're seeing on the leasing front. Our operating business continues to demonstrate fundamental strength driven by resilient consumer, no new supply, and strong tenant demand. As CTO, we experience high retention rates with our first quarter renewals, options, and extensions, generating comparable rent growth of 8.4%. The high tenant retention is a testament to the quality of our properties and demographic trends in our markets. These dynamics have us optimistic that we can continue to build on our very strong signed but not yet opened pipeline that will drive organic earnings in the years to come. This pipeline represents more than $4 million of net revenue that will come online in the next 18 months, or upwards of 15 cents per share of annualized FFO, and more than 300 basis points of future occupancy. This prospective earnings tailwind is in addition to the progress we've made with some of the near-term tenant disruptions we discussed during our earnings call in February. More specifically, We entered into a short-term lower rent amendment with Regal to keep them at our Beaver Creek Crossings property through the first quarter of next year in order to give us runway to find a replacement tenant and evaluate a multifamily alternative for the site. Additionally, the hall at Ashford Lane is set to open in May, which we believe will be well-received in the market and finally stabilize them for long-term success. We're also in negotiations with a replacement tenant for the WeWork location at our shops and legacy property outside of Dallas, which we think will be additive to the overall tenant mix and increase foot traffic at the property. As we look forward, we see more lease up and retention opportunities in the portfolio and plan to execute on the revitalization of some of the larger centers we've purchased similar to our approach with Asher Lane. Since we purchased Ashford Lane just before the pandemic in early 2020, we have repositioned the property as a premier lifestyle center in the infill perimeter sub-market of Atlanta, Georgia. As part of our repositioning efforts, we re-tenanted previously vacant units, up-tiered the overall tenant mix by turning over approximately one-third of the square footage with new tenants, and reintegrated the community with the creation of our well-received green space, the lawn. Nearly three years later, after working our way through disruptions of the pandemic in design and permitting and construction, we have had some notable tenants such as Super Rica, Hawkers, Jenny's Ice Cream, Sweetgreen, Hay Day, and Paris Baguette open their doors for business. And we have the Hall, Camp, Grana, and Culinary Dropout on deck to open later this year. Our focus now is to replicate this success at our more recent acquisitions, West Broad Village, located just outside of Richmond, Virginia, and the collection at Foresight, which is just northeast of Atlanta. While we're in the early days of our ownership, we've already signed new leases representing more than $600,000 of base rent at acquired vacant units at West Broad Village, and we're starting to see significant activity at the collection at Foresight, which is being leased by the same team that executed our Ashford Lane repositioning. As we've discussed in the past, we've exercised caution while setting our guidance, and we will continue to maintain a disciplined approach to deploying capital for the long-term advantage of our shareholders as we execute on our value-add business plan. In terms of investments, we acquired a 6,000 square foot property in phase two of the exchange at Gwinnett located just outside of Atlanta for a purchase price of $3.3 million and a going-in cap rate of 7.2%. We currently hold the development loan for the balance of the Phase II development, and we're under contract to acquire the remaining properties that constitute the retail portion of Phase II of the exchange at Gwinnett, which we expect will occur towards the end of the second quarter. Additionally, we originated a $15 million first mortgage secured by Founders Square Property located in Dallas, Texas. This investment is a great risk-adjusted yield with a sponsor we're very familiar with and who has a great vision for long-term success of the property. On the dispositions front, we did not have any property sales during the quarter, but we do anticipate more activity in the remainder of the year as we look to opportunistically exit some of our smaller assets and create more operational efficiencies by redeploying proceeds into larger assets with more operational upside. Overall, Our 2023 earnings guidance represents a year of near-term disruption for the issues we've previously discussed. We're very positive on the prospects for earning growth in 2024 and 2025 and beyond as we work to maximize the value of our existing portfolio through active asset management, leasing, and our strategic capital investment programs. With that, I'd like to hand the call back over to Matt.
spk13: Thanks, John. As of the end of the quarter, our income property portfolio consisted of 23 properties comprised of approximately 3.7 million square feet of rentable space located in nine states and 15 markets. We take great pride in the geographic makeup of our portfolio as it includes top performing markets such as Atlanta, Dallas, Raleigh, Phoenix, and Houston. 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 Whole Foods, Publix, Darden Restaurants, Best Buy, At Home, AMC, TJ Maxx, and Ross. At quarter end, occupancy was 90% and our least occupancy was 94%, with 90% of our portfolio's annualized cash-based rents coming from retail and mixed-use properties, and the majority of those rents coming from the grocery-anchored lifestyle and power center assets. As John mentioned, the overarching fundamentals for retail real estate are strong, and these properties continue to benefit from outsized tenant demand and limited supply. Within the quarter, total revenues increased by 44% year-over-year, driven by the full quarter impact of our 2022 acquisitions, West Broad Village, Collection at Forsyth, Madison Yards, and Price Plaza, as well as the progress we made towards monetizing our subsurface interest and mitigation credits and the incremental growth in our external management fee from PINE. Same property NOI in the first quarter decreased by 1.2% due to elevated bad debt expense related to the hall at Ashford Lane, small shop tenant turnover at the shops at Legacy, elevated operating expenses at our property in Winter Park that were incurred in anticipation of the property becoming fully occupied starting in June, reduced rent from Regal at Beaver Creek Crossing, and the timing of operational expenses at our Santa Fe property, which will be positively offset in the balance of the year. For the first quarter of 2023, core FFO decreased 15% to $0.39 per share, and AFFO decreased 12% to $0.43 per share as compared to the same period in the prior year. In addition to the same property NOI decrease, lower core FFO and AFFO was due in part to higher general and administrative expenses, but primarily a result of higher relative interest expense, which represents an approximately $0.10 per share negative impact to the quarter. Per our previous announcement in February, we paid a first quarter regular cash dividend of 38 cents per share, which is a 5.6% increase over our Q1 2022 cash dividend and a very attractive current annualized yield of approximately 8.8%. Our quarterly dividend represents a cash payout ratio of 88% of Q1 2023 AFFO per share, and we continue to work towards efficiently paying out approximately 100% of projected 2023 taxable income. Turning to our balance sheet, we ended the quarter with total cash and restricted cash of nearly $9 million and more than $165 million of undrawn commitments under our revolving credit facility. It's worth noting that only 7% of our total debt is floating, and we recently entered into an interest rate swap to fix SOFR on $100 million of exposure under our revolving credit facility. Total long-term debt outstanding was $467 million at quarter end, Net debt to total enterprise value was just under 50%, and our net debt to EBITDA was 7.9 times. On the capital markets front, we repurchased more than 300,000 shares of our common stock in the open market for $5 million at an average price of $16.48 per share. And finally, as part of our earnings release yesterday, we reaffirmed our 2023 earnings guidance and made minor adjustments to our acquisitions volume and total share count assumptions. While our guidance continues to take a cautious approach to rent start dates for new tenants and does reflect the temporary impact of the tenant challenges with Regal, the Hall, and smaller tenants at various properties, we're pleased with our solid start to 2023 driven by the successful integration of our recently acquired properties and accelerating leasing activity. And we're confident in our long-term prospects to drive meaningful shareholder value. With that, we're now ready to take questions. Operator?
spk09: Thank you. As a reminder, to ask a question, you will need to press star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press star 11 again. Please stand by while we compile the Q&A roster. Our first question comes from the line of Gaurav Mehta from EF Hutton.
spk07: Thank you. Good morning. I wanted to ask you on your comments about $4 million of net revenues over the next 18 months. Can you maybe break it down by how much of that you're expecting this year and how much would be next year?
spk13: Hey, Gaurav. Good question. I would say most of it is going to be in 2024, probably in the first quarter to second quarter of 2024. Some will open towards the the end of this year, but the full annualized effect will probably not come until the back half of 24.
spk07: Okay. Second, on your acquisition guidance, you took the upper end of the guidance down. Can you provide some color on what you're seeing in the market and then maybe your expectations to finance the acquisitions? Should we expect that some of the leverage would go up this year as you look to acquire properties?
spk11: Yeah, so we're seeing there's not a whole lot transacting in the market, as you can imagine. So we're not seeing a terrific kind of target environment right now. We are starting to see some more offerings come out in advance of ICSE in May. So clearly, if people are looking to sell, this is the time to kind of come out and have those conversations. So we're just being a little bit conservative with what we think we'll be able to transact on. And then on the leverage side, on transacting, we'll probably move up the leverage a little bit to buy an asset and then looking to sell down some assets and bring down the leverage after we take down a property, kind of like what we've done in the past.
spk13: And Gaurav, that's Etsy, but... with all of the rent that'll be coming online between now and the end of 2024 should offset some of the increased leverage in terms of that metric.
spk06: Okay, thank you.
spk09: Thank you. One moment for our next question. Our next question comes from the line of Rob Stevenson from Jannie Montgomery Scott.
spk12: Good morning, guys. Matt, what does occupancy look like over the remainder of 23, given all that you've sort of implied in terms of move-outs, leasing, et cetera, that you've done and is in the pipeline today?
spk13: Yeah, it should stay pretty stable around this 90% level for the next few months. And then once we get into, let's say, the back four or five months of the year, it'll start to tick up. You know, in terms of lease occupancy, we've obviously provided guidance there. In terms of regular occupancy, I think it'll probably end the year in that 91% to 92% range. Now that's unadjusted for any transactions that might happen on the acquisition or disposition side, though.
spk12: Okay. And then with that, I mean, how should we be thinking about when your lowest quarterly core FFO per share is? Is that the second quarter? I mean, the high end of the guidance implies basically flat versus the first quarter of the remainder of the year. And obviously the midpoint and the lower, you know, would suggest that the first quarter would be your high point of 23. How should we be thinking about that as we move throughout the year?
spk13: Good question. The second quarter should be the low point, although it'll depend somewhat on the transactions that John's talking about. If we were to buy something and pull an acquisition forward, that could obviously change how that kind of phases through the balance of the year, but the second quarter should be the low point.
spk12: Okay. And then, John, how are you and the board evaluating doing investments like the $15 million first mortgage versus buying back the common stock? Because you did a little bit of both in the quarter and sort of curious as to how the sliding scale sort of moved towards allocating more money towards the mortgage during the quarter and whether or not in subsequent quarters we might see, depending on where the stock price is, it's sort of moving more towards stock buybacks.
spk11: Yeah, the first mortgage that we did, we were working on that at the end of the year, so that kind of basically tailed into this year. So the stock wasn't at a point where we would consider a buyback, but obviously with the disruption of the market or volatility with the banking situation, we saw an opportunity to buy back stock and filled up the program. you know, clearly we'll balance that in the future that, you know, if we see more opportunity on the stock side versus structured finance, we'll certainly adjust the investments.
spk12: Okay. And then I guess along those same lines, how are you thinking about the relative attractiveness of buying back to preferred stock? You know, it's a little bit below 20 now, was even below 19 last month, given the sort of quasi-debt treatment of that. And it's you know, a little bit easier to do that on a leverage neutral basis given the yields there.
spk11: Yeah, we certainly keep our eye on that. And, you know, there is a point where we do have an interest in that sort of buyback.
spk12: Okay. And then I guess the last one for me, you know, when you're out there today talking with people whether or not it's for, you know, the the pricing on the phase two, um, of what you just recently sort of added, um, versus, you know, what it was in phase one, how are you sort of thinking about where asset pricing has gone, you know, over the last six, nine, 12 months, um, for the type of assets that you want to be buying, uh, going forward?
spk11: Yeah. Yeah. On the phase two, you know, the one thing is that, um, you've got to remember that this is part of a grocery anchored center, so we're really attaching that to a grocery anchored center, so the cap rate is accretive to, when you put that together, the property as a whole would trade south of the cap rate we just purchased. So it's really adding to the girth of that property. But going forward on acquisitions, we're certainly aiming higher than that acquisition. And you won't expect us to partake in acquisitions that are in that sort of level that we just did, that small acquisition.
spk12: Okay. Helpful. Thanks, guys. Appreciate the time.
spk13: Thanks, Rob.
spk09: Thank you. One moment for our next question. Our next question comes from the line of Jason Stewart from Jones Trading.
spk14: Hey guys, it's Matt on for Jason. Thanks for taking the question. So what do you think will bring the buyer and seller closer together and kind of get this transaction market started up again?
spk11: You know, I think it takes, you know, certainly on the buy side for buyers to be more productive as far as paying a higher price. I think there needs to be more debt in the market, more financing options for buyers. And then we are hearing some institutional capital looking to come back into retail that had gone off into industrial and multifamily, and given those cap rates are so low and the impact that any kind of expansion cap rate happens on those sectors, people are looking to come back into retail that had left retail five years ago. given that the cap rates are much higher and retail has been very sturdy during the pandemic and so forth. So I think that's going to help the buy side of the market. And then on the sell side, I think there's people that are going to have a little bit of debt issues, that they're not going to be able to roll debt without having to put in some additional equity. And people are probably deciding that We don't want to put in additional equity. We have other portfolio things to consider. And so I think both of those sort of situations will help have the transaction market kind of be more productive.
spk14: Gotcha. And then in terms of cap rates, where are you seeing the difference between private transactions and, I guess, institutional capital that would be more public transactions?
spk11: I mean, I'd say it maybe a little differently. You know, the public REITs are certainly trading at a disconnect with the private market. And so, you know, maybe who knows whether the public markets are right and the private markets are wrong or vice versa. So we'll see. Time will figure that out. Gotcha. Thank you.
spk09: Thank you. One moment for our next question. Our next question comes from the line of Craig Cucero from B. Reilly Securities.
spk03: Yeah, hey, good morning, guys. I want to start with the Founders Square investment. Is Creative Office an asset type you would want to own, or was that just a unique situation where you could get a position as a first mortgage lender within a creative yield?
spk11: Yeah, it's more of a unique situation. The property is right in front of the Dallas Convention Center. The Convention Center is about to go through another giant renovation expansion. And the buyer of the property basically is looking at this. This is on the front door of that expansion and that this would be a perfect building to convert to hotel. But the property sits right by the courthouse and is filled with lawyers and The cash flow of the property is tremendous. Our debt yield on the property is like 15%. And the parking garage is pretty large for the size of the property and underutilized. So they're going to actually even be able to drive further revenue. So they'll probably make more money just sitting back with what they have. They really bought a distressed situation where a seller had to sell. It wasn't a debt situation, it was just other portfolio mechanics going on with them. So they got a really great buy with a great location that has optionality to change it to different uses in a market or dynamic right there that's getting much better. It's strong right now, but it's going to get much better. So it's a little bit of alternate uses, but right now the use that's there isn't going anywhere. So anyway, sorry for the long story on that. No, I appreciate the color.
spk03: That was helpful. You're changing gears. You made some nice leasing gains at West Broad. How are rents that you're achieving there tracking relative to the underwriting and sort of the pace of lease up at the time that you bought the property? I think it was the late third quarter or early fourth quarter.
spk11: So the rates are better than we underwrote, and leasing is happening faster.
spk08: Great.
spk03: How meaningful was the reduction in rent with Regal over the next year?
spk11: I mean, a reduction, I mean, it was basically a pretty severe reduction in my, you know, basically anybody's estimation. But, you know, we have basically, you know, a warm body there for the next year. It gives us time to work on alternatives for the regal space. And so we'll be hitting or the broker will be hitting ICSE pretty hard. with regards to our different options, which we have a tenant that we just signed up in the property, not for that space, for another space that will further elevate that center. And we want to wait for that to get announced before basically really hitting it hard on regal alternatives. But we've already identified kind of the target list for what could become a regal but I wouldn't be shocked if regal didn't come back around and paid a kind of a normalized rent because of you know that market and in that property now there's there's another theater in that market that is actually is being closed and going to be converted to apartments so their competition is kind of going away you know we have the option to do that as well to convert this to apartments, but it's just much longer kind of permitting and process and so forth. I think we'd rather find a good retailer in there that's complimentary to the property and do that. So we'll probably know in the next three months kind of what direction we're headed. Got it.
spk03: Matt, you mentioned the operating expense increase this quarter. which was notable, but it sounded like a lot of them were more short-term in nature or maybe one-time. Can you give us a sense of the total amount, which was maybe more one-time or short-term versus more recurring?
spk13: Yeah. I don't have a dollar amount in front of me, but I'd say in terms of the one-time or short-term, it's probably 5% to 10% of the overall expenses. I'd have to follow up with you afterwards and dig into what the total dollar amount is, though.
spk03: No, that's helpful. Just a round kind of rough estimate is fine. And just one more for me. Just to double check, the guidance doesn't include any sort of – I think the WeWork lease has something like eight or nine years left on it. It doesn't include any sort of early termination fee or anything affiliated with that. Is that correct?
spk13: That's correct. So we restructured the lease when they went dark at the property, and so now the lease will expire next year. And so the one adjustment in the numbers for this quarter is just the wind down of the straight line rent, just given the shortening of that lease. But similar to the Regal situation, it gives us cash flow, comparable cash flow. The rent didn't really get cut in this instance, but comparable cash flow until we can backfill that space with an alternative.
spk02: Okay, great. That's it for me. Thanks, guys. Great.
spk09: thank you one moment for our next question our next question comes from the line of floors van dish come from compass point guys John Matt I guess two questions number one
spk05: Can you guys give some sort of broad brushes around the cost to retenants Regal and WeWorks? Obviously, there's a chance you might not have to do that for Regal based on your commentary, John, but in the case that it does, presumably, you know, to put that, you know, the cost per square foot are going to be pretty high, and they're big spaces as well. So that could eat into... And presumably you're going to have to do the same thing to, you know, to shift the WeWork space into retail, I think is what you're planning on doing. But if you can give us some more commentary on that, that would be great.
spk11: Sure. So I'll take Regal first. You know, we have the option to do a ground lease deal right now with a large retailer, which would be more than the rent we're getting right now with Regal. but so we would need no capex just be all on them but for the total value you know to maximize value on the center makes sense for us to kind of search for a higher pain tenant and do kind of a new build box if we didn't do regal or another theater There are some other theaters that, as I mentioned in the last quarter's conference call, we had like 13 theaters interested in this Regal box. And I think there are some, I know there are some theater operators that do a lot more on the food and beverage that could pay a higher rent. And if you're using that box and you're converting and doing a little bit of F&B, it's not going to be that much. And so, long story short, yes, if on redoing Regal, that TI dollar's gonna be, if you went and tore it down and rebuilt kind of the landlord side of it, $100, $150 a square foot sort of level, but we could go the other route and just do zero. And then on WeWork, you know, that, and this goes to both stories with regards to Legacy and Beaver Creek. When we bought these properties, we bought them at high cap rates because of the Regal situation and the WeWork situation. So that was the value proposition. So on WeWork, we're going to basically, working with a tenant right now, which will be a heavy CapEx to get the tenant, but the tenant's going to be providing so much more complimentary use for the property that will compress the cap rate greatly compared to having another co-working tenant. We're going to get a fair amount of uplift on the use change and we'll be able to drive higher rents on the retail side. These are investments that will actually have a return to them versus investments to just get back to where you were.
spk05: Thanks, John. Maybe my follow-up question here, and this sort of – you touched upon it on the retail aspect in that the investment markets are – sort of hibernation right now. And there's a standoff between buyers and sellers in terms of cap rates. And we've been writing this on the office side. It's much, much worse. And it's going to get a lot worse, probably, if you look out as banks essentially have redlined office from their lending, from everything that we're hearing. You do have three big office exposures. They're pretty decent credits, but does that mean that selling those is essentially off the table and you're going to be stuck with non-core office buildings for the foreseeable future, probably a couple of years? Or how do you think about your exposure to Fidelity, General Dynamics, and Ford, which I think accounts for over 10% of your ABR?
spk11: Yeah, so we have a buyer group interested in one of those properties that will probably be, you know, it will definitely be a good price point compared to where the market perceives office, I would say. And so I don't want to talk too much into that until we get further down the road. But the other properties, they all have specific buyers. I'm not talking about exactly which one we're negotiating with, but I'll just kind of go through the different properties. On Ford, we have Ford for about five years. It's in Tampa. There are users from the Northeast that are looking to move their operations to Florida. and would like to, or looking at it as buying the property at a nice basis and if they use the whole property, they'll get a nice check from Ford to cancel the lease. So there's a great value proposition to that sort of user that's looking to have operations in Florida or maybe they have a lease that's expiring in Tampa and are looking around for space or downsizing and this would be a building that they'd want to downsize into. So there's lots of tours happening at that property. So it's not as dead and dormant as you thought, I think, because there's people looking at this as an opportunity if you're in the right location. Now if this were in downtown Chicago, forget it. There's just no way. But this is in Tampa, low basis, good property, good yield. And then on going to General Dynamics in Reston, you know, basically it's gift space. You can't even go into the property except you can go in to see their little cafeteria. You know, General Dynamics just reported earnings. They're fantastic. You know, this gift space is unique and valuable, especially in that location. given the dynamics going on in the world politics and wars going on in Ukraine and things heating up with China. I don't think the defense industry is shrinking anytime soon. So I think we're in good shape there. And then you go to Fidelity. And as discussed, you know, this is probably the Fidelity campus is built basically with, you know, incredible architecture. It's right by the Netflix studios. And if you go to Albuquerque and you see the Netflix studios, they're spending, what, a billion dollars there? The cranes all over the place within a seven iron from this building. And so, you know, the property is Class A and probably one of the last office buildings built in Albuquerque, probably, because it was used specific for Fidelity and They they are basically a work in the office use there The use of that that property, you know people are working on 401ks and you have to have because of FINRA you have to have supervision and so you can't work from home and so You know fidelity is a office user. They like having their people in the office and So given the growth of New Mexico, given the growth of Netflix, the high quality of this property, there are buyers there. It's just that we want to sell at the appropriate price. And then lastly, I'll just say that, as I've mentioned before many times, we're trying to find an acquisition where we can buy a larger acquisition And then we could sell through the office, you know, because the acquisition is big enough to handle a couple of the 1031 exchanges there. So we need to match up an acquisition to it. So we're being picky on the acquisition side. So it's a little bit, you know, you have to have, you know, kind of both come together. So sorry for the long-winded answer to that.
spk05: No, that's great, John. Maybe if I can have a follow-up on that, just because, One of the issues with you guys is your low basis because of, you know, the history of the company and the 1031. But if you were to 1031 these assets as well, or potentially if they do, if sales do come to fruition, will that, how will that impact your tax basis and your dividend paying ability?
spk13: Hey, Florence. So most certainly if we were to sell any of the properties John just walked through, we would 1031 those transactions given our low basis. To your point, the company has historically owned land and we've sold out of that land and redeployed on a tax efficient basis into some of these properties. And so we've rolled that low basis. And so if we were to sell these assets, we would do a similar transaction where we would roll our tax basis into a new asset. We still generate tax depreciation and as we make investments into properties, as we reposition them or lease them up, that creates more tax depreciation. So it wouldn't have a meaningful effect on our dividend policy. Certainly if we didn't 1031 them, that would create significant pressure on the dividend because we wouldn't be able to shelter the tax gain from the asset sale. And so we would either have to do a special dividend or something along those lines. But to John's point, that's why we're being picky on the acquisition front and making sure that we have a redeployment opportunity if we're going to move forward with an asset sale.
spk00: Thanks, guys.
spk11: Thank you. Thank you.
spk09: Thank you. At this time, I would now like to turn the conference back over to John Albrecht for closing remarks.
spk10: Thank you very much for attending the call.
spk09: this concludes today's conference call thank you for participating you may now disconnect you you Thank you. Bye. Thank you. Good day and thank you for standing by. Welcome to the CTO Q1 2023 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 will need to press star 1-1 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 1-1 again. 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. Please go ahead.
spk13: Good morning, everyone, and thank you for joining us today for the CTO Realty Growth First Quarter 2023 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 the 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 relief, supplemental, and most recent investor presentation on our website at ctoread.com. With that, I'll now turn the call over to John.
spk11: Thanks Matt. Good morning everyone and thank you for joining us. Today we'll provide a brief overview of our first quarter results, discuss the largely completed repositioning of our largest assets, Ashford Lane, and highlight the continued strength we're seeing on the leasing front. Our operating business continues to demonstrate fundamental strength driven by resilient consumer, no new supply, and strong tenant demand. As CTO, we experience high retention rates with our first quarter renewals, options, and extensions, generating comparable rent growth of 8.4%. The high tenant retention is a testament to the quality of our properties and demographic trends in our markets. These dynamics have us optimistic that we can continue to build on our very strong signed but not yet opened pipeline that will drive organic earnings in the years to come. This pipeline represents more than $4 million of net revenue that will come online in the next 18 months, or upwards of 15 cents per share of annualized FFO, and more than 300 basis points of future occupancy. This perspective earnings tailwind is in addition to the progress we've made with some of the near-term tenant disruptions we discussed during our earnings call in February. More specifically, We entered into a short-term lower rent amendment with Regal to keep them at our Beaver Creek Crossings property through the first quarter of next year in order to give us runway to find a replacement tenant and evaluate a multifamily alternative for the site. Additionally, the hall at Ashford Lane is set to open in May, which we believe will be well-received in the market and finally stabilize them for long-term success. We're also in negotiations with a replacement tenant for the WeWork location at our shops and legacy property outside of Dallas, which we think will be additive to the overall tenant mix and increase foot traffic at the property. As we look forward, we see more lease up and retention opportunities in the portfolio and plan to execute on the revitalization of some of the larger centers we've purchased similar to our approach with Asher Lane. Since we purchased Ashford Lane just before the pandemic in early 2020, we have repositioned the property as a premier lifestyle center in the infill perimeter sub-market of Atlanta, Georgia. As part of our repositioning efforts, we re-tenanted previously vacant units, up-tiered the overall tenant mix by turning over approximately one-third of the square footage with new tenants, and reintegrated the community with the creation of our well-received green space, the lawn. Nearly three years later, after working our way through disruptions of the pandemic in design and permitting and construction, we have had some notable tenants such as Super Rica, Hawkers, Jenny's Ice Cream, Sweetgreen, Hay Day, and Paris Baguette open their doors for business. And we have the Hall, Camp, Grana, and Culinary Dropout on deck to open later this year. Our focus now is to replicate this success at our more recent acquisitions, West Broad Village, located just outside of Richmond, Virginia, and the collection at Foresight, which is just northeast of Atlanta. While we're in the early days of our ownership, we've already signed new leases representing more than $600,000 of base rent at acquired vacant units at West Broad Village, and we're starting to see significant activity at the collection at Foresight, which is being leased by the same team that executed our Ashford Lane repositioning. As we've discussed in the past, we've exercised caution while setting our guidance, and we will continue to maintain a disciplined approach to deploying capital for the long-term advantage of our shareholders as we execute on our value-add business plan. In terms of investments, we acquired a 6,000 square foot property in phase two of the exchange at Gwinnett located just outside of Atlanta for a purchase price of $3.3 million and a going-in cap rate of 7.2%. We currently hold the development loan for the balance of the Phase II development, and we're under contract to acquire the remaining properties that constitute the retail portion of Phase II of the exchange at Gwinnett, which we expect will occur towards the end of the second quarter. Additionally, we originated a $15 million first mortgage secured by Founders Square Property located in Dallas, Texas. This investment is a great risk-adjusted yield with a sponsor we're very familiar with and who has a great vision for long-term success of the property. On the dispositions front, we did not have any property sales during the quarter, but we do anticipate more activity in the remainder of the year as we look to opportunistically exit some of our smaller assets and create more operational efficiencies by redeploying proceeds into larger assets with more operational upside. Overall, Our 2023 earnings guidance represents a year of near-term disruption for the issues we've previously discussed. We're very positive on the prospects for earning growth in 2024 and 2025 and beyond as we work to maximize the value of our existing portfolio through active asset management, leasing, and our strategic capital investment programs. With that, I'd like to hand the call back over to Matt.
spk13: Thanks, John. As of the end of the quarter, our income property portfolio consisted of 23 properties comprised of approximately 3.7 million square feet of rentable space located in nine states and 15 markets. We take great pride in the geographic makeup of our portfolio as it includes top performing markets such as Atlanta, Dallas, Raleigh, Phoenix, and Houston. 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 Whole Foods, Publix, Darden Restaurants, Best Buy, At Home AMC, TJ Maxx, and Ross. At quarter end, occupancy was 90% and our least occupancy was 94%, with 90% of our portfolio's annualized cash-based rents coming from retail and mixed-use properties, and the majority of those rents coming from the grocery-anchored lifestyle and power center assets. As John mentioned, the overarching fundamentals for retail real estate are strong, and these properties continue to benefit from outside tenant demand and limited supply. Within the quarter, total revenues increased by 44% year-over-year, driven by the full quarter impact of our 2022 acquisitions, West Broad Village, Collection at Foresight, Madison Yards, and Price Plaza, as well as the progress we made towards monetizing our subsurface interest and mitigation credits and the incremental growth in our external management fee from PINE. Same property NOI in the first quarter decreased by 1.2% due to elevated bad debt expense related to the hall at Ashford Lane, small shop tenant turnover at the shops at Legacy, elevated operating expenses at our property in Winter Park that were incurred in anticipation of the property becoming fully occupied starting in June, reduced rent from Regal at Beaver Creek Crossing, and the timing of operational expenses at our Santa Fe property, which will be positively offset in the balance of the year. For the first quarter of 2023, core FFO decreased 15% to $0.39 per share, and AFFO decreased 12% to $0.43 per share as compared to the same period in the prior year. In addition to the same property NOI decrease, lower core FFO and AFFO was due in part to higher general and administrative expenses, but primarily a result of higher relative interest expense, which represents an approximately $0.10 per share negative impact to the quarter. Per our previous announcement in February, we paid a first quarter regular cash dividend of 38 cents per share, which is a 5.6% increase over our Q1 2022 cash dividend and a very attractive current annualized yield of approximately 8.8%. Our quarterly dividend represents a cash payout ratio of 88% of Q1 2023 AFFO per share, and we continue to work towards efficiently paying out approximately 100% of projected 2023 taxable income. Turning to our balance sheet, we ended the quarter with total cash and restricted cash of nearly $9 million and more than $165 million of undrawn commitments under our revolving credit facility. It's worth noting that only 7% of our total debt is floating, and we recently entered into an interest rate swap to fix SOFR on $100 million of exposure under our revolving credit facility. Total long-term debt outstanding was $467 million at quarter end, Net debt to total enterprise value was just under 50%, and our net debt to EBITDA was 7.9 times. On the capital markets front, we repurchased more than 300,000 shares of our common stock in the open market for $5 million at an average price of $16.48 per share. And finally, as part of our earnings release yesterday, we reaffirmed our 2023 earnings guidance and made minor adjustments to our acquisitions volume and total share count assumptions. While our guidance continues to take a cautious approach to rent start dates for new tenants and does reflect the temporary impact of the tenant challenges with Regal, DeHall, and smaller tenants at various properties, we're pleased with our solid start to 2023 driven by the successful integration of our recently acquired properties and accelerating leasing activity. And we're confident in our long-term prospects to drive meaningful shareholder value. With that, we're now ready to take questions. Operator?
spk09: Thank you. As a reminder, to ask a question, you will need to press star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press star 11 again. Please stand by while we compile the Q&A roster. Our first question comes from the line of Gaurav Mehta from EF Hutton.
spk07: Thank you. Good morning. I wanted to ask you on your comments about $4 million of net revenues over next 18 months. Can you maybe break it down by how much of that you're expecting this year and how much would be next year?
spk13: Hey, Gaurav. Good question. I would say most of it is going to be in 2024, probably in the first quarter to second quarter of 2024. Some will open towards the the end of this year, but the full annualized effect will probably not come until the back half of 24.
spk07: Okay. Second, on your acquisition guidance, you took the upper end of the guidance down. Can you provide some color on what you're seeing in the market and then maybe your expectations to finance the acquisitions? Should we expect that some of the leverage would go up this year as you look to acquire properties?
spk11: Yeah, so we're seeing there's not a whole lot transacting in the market, as you can imagine. So we're not seeing a terrific kind of target environment right now. We are starting to see some more offerings come out in advance of ICSE in May. So clearly, if people are looking to sell, this is the time to kind of come out and have those conversations. So we're just being a little bit conservative with what we think we'll be able to transact on. And then on the leverage side, you know, on transacting, we'll probably, you know, move up the leverage a little bit to buy an asset and then looking to sell down some assets and bring down the leverage after we take down a property, kind of like what we've done in the past.
spk13: And, Gaurav, that's the EBITDA. with all of the rent that'll be coming online between now and the end of 2024 should offset some of the increased leverage in terms of that metric.
spk06: Okay, thank you.
spk09: Thank you. One moment for our next question. Our next question comes from the line of Rob Stevenson from Janie Montgomery Scott.
spk12: Good morning, guys. Matt, what does occupancy look like over the remainder of 23, given all that you've sort of implied in terms of move-outs, leasing, et cetera, that you've done and is in the pipeline today?
spk13: Yeah, it should stay pretty stable around this 90% level for the next few months. And then once we get into, let's say, the back four or five months of the year, it'll start to tick up. In terms of lease occupancy, we've obviously provided guidance there. In terms of regular occupancy, I think it'll probably end the year in that 91% to 92% range. Now that's unadjusted for any transactions that might happen on the acquisition or disposition side, though.
spk12: Okay. And then with that, I mean, how should we be thinking about when your lowest quarterly core FFO per share is? Is that the second quarter? I mean, the high end of the guidance implies basically flat versus the first quarter of the remainder of the year. And obviously the midpoint and the lower would suggest that the first quarter would be your high point of 23. How should we be thinking about that as we move throughout the year?
spk13: Good question. The second quarter should be the low point, although it'll depend somewhat on the transactions that John's talking about. If we were to buy something and pull an acquisition forward, you know, that could obviously change how that, how that kind of phases through the balance of the year, but the second quarter should be the low point.
spk12: Okay. And then John, how are you in the board evaluating, you know, doing investments like the $15 million first mortgage versus buying back the common stock? Cause you did a little bit of both in the quarter and sort of curious as to how, you know, the sliding scale sort of moved towards allocating more money towards the mortgage during the quarter versus and whether or not in subsequent quarters we might see, depending on where the stock price is, it's sort of moving more towards stock buybacks.
spk11: Yeah, the first mortgage that we did, we were working on that at the end of the year, so that kind of basically tailed into this year. So the stock wasn't at a point where we would consider a buyback, but obviously with the the disruption in the market or volatility with the banking situation, we saw an opportunity to buy back stock and filled up the program. And so, you know, clearly we'll balance that in the future that, you know, if we see more opportunity on the stock side versus structured finance, we'll certainly adjust the investments.
spk12: Okay. And then I guess along those same lines, how are you thinking about the relative attractiveness of of buying back to preferred stock. You know, it's a little bit below 20 now, was even below 19 last month, given the sort of quasi-debt treatment of that. And it's, you know, a little bit easier to do that on a leverage-neutral basis, given the yields there.
spk11: Yeah, we certainly keep our eye on that. And, you know, there is a point where we do have an interest in that sort of buyback.
spk12: Okay. Okay. And then I guess the last one for me, when you're out there today talking with people, whether or not it's for the pricing on the phase two of what you just recently sort of added versus what it was in phase one, how are you sort of thinking about where asset pricing has gone over the last six, nine, 12 months? for the type of assets that you want to be buying going forward.
spk11: Yeah, on the basis of, you know, the one thing is that, you know, you've got to remember that this is part of a grocery anchored center. So we're really attaching that to a grocery anchored center. So the cap rate is accretive to, you know, when you put that together, the property as a whole would trade, you know, south of the cap rate we just purchased. So it's really, you know, adding to the girth of that property. But, you know, going forward on acquisitions, we're certainly aiming higher than that acquisition. And you won't expect us to partake in acquisitions that, you know, are in that sort of level that we just did, that small acquisition.
spk12: Okay. Helpful. Thanks, guys. Appreciate the time.
spk13: Thanks, Rob.
spk09: Thank you. One moment for our next question. Our next question goes to the line of Jason Stewart from Jones Trading.
spk14: Hey guys, it's Matt on for Jason. Thanks for taking the question. So what do you think will bring the buyer and seller closer together and kind of get this transaction market started up again?
spk11: I think it takes, certainly on the buy side, for buyers to be more productive as far as paying a higher price. I think there needs to be more debt in the market, more financing options for buyers. And then we are hearing... some institutional capital looking to come back into retail that had gone off into industrial and multifamily, and given those cap rates are so low and the impact that any kind of expansion cap rate happens on those sectors, people are looking to come back into retail that had left retail five years ago, given that the cap rates are much higher and retail has been very sturdy during the pandemic and so forth. So I think that's going to help the buy side of the market. And then on the sell side, I think there's people that are going to have a little bit of debt issues, that they're not going to be able to roll debt without having to put in some additional equity. And people are probably deciding that we don't want to put in additional equity. We have other portfolio things to consider. So I think both of those sort of situations will help have the transaction market kind of be more productive.
spk14: Gotcha. And then in terms of cap rates, where are you seeing the difference between private transactions and, I guess, institutional capital that would be more public transactions?
spk11: I mean, I'd say it maybe a little differently. You know, the public REITs are certainly trading at a disconnect with the private market. And so, you know, maybe who knows whether the public markets are right and the private markets are wrong or vice versa. So we'll see. Time will figure that out. Gotcha. Thank you.
spk09: Thank you. One moment for our next question. Our next question comes from the line of Craig Cucero from B. Reilly Securities.
spk03: Yeah, hey, good morning, guys. I want to start with the Founders Square investment. Is creative office an asset type you would want to own, or was that just a unique situation where you could get a position as a first mortgage lender within a creative yield?
spk11: Yeah, it's more of a unique situation. The property is right in front of the Dallas Convention Center. The Convention Center is about to go through another giant renovation expansion. The buyer of the property basically is looking at this. This is on the front door of that expansion and that this would be a perfect building to convert to a hotel. But the property sits right by the courthouse and is filled with lawyers. The cash flow of the property is tremendous. Our debt yield on the property is like 15%. And the parking garage is pretty large for the size of the property and underutilized. So they're going to actually even be able to drive further revenue. So they'll probably make more money just sitting back with what they have. They really bought a distressed situation where a seller had to sell. It wasn't a debt situation. It was just other portfolio mechanics going on with them. So they got a really great buy with a great location that has optionality to change it to different options. uses in a market or dynamic right there that's getting much better. It's strong right now, but it's going to get much better. So it's a little bit of alternate uses, but right now the use that's there isn't going anywhere. So anyway, sorry for the long story on that. No, I appreciate the color.
spk03: That was helpful. Changing gears, you made some nice leasing gains at West Broad. How are rents that you're achieving there tracking relative to the underwriting and sort of the pace of lease up at the time that you bought the property, I think it was the late third quarter or early fourth quarter?
spk11: So the rates are better than we underwrote, and leasing is happening faster.
spk08: Great.
spk03: How meaningful was the reduction in rent with Regal over the next year?
spk11: I mean, a reduction, I mean, it was basically a pretty severe reduction in my, you know, basically anybody's estimation. But, you know, we have basically, you know, a warm body there for the next year. It gives us time to work on alternatives for the regal space. And so we'll be hitting or the broker will be hitting ICSE pretty hard. with regards to our different options, which we have a tenant that we just signed up in the property, not for that space, for another space that will further elevate that center. And we want to wait for that to get announced before basically really hitting it hard on regal alternatives. But we've already identified kind of the target list for what could become a Regal, but I wouldn't be shocked if Regal didn't come back around and paid a kind of a normalized rent because of, you know, that market and that property. No, there's another theater in that market that is actually is being closed and going to be converted to apartments, so their competition is kind of going away. You know, we have the option to do that as well to convert this to apartments, but it's just much longer kind of permitting and process and so forth. I think we'd rather find a good retailer in there that's complimentary to the property and do that. So we'll probably know in the next three months kind of what direction we're headed. Got it.
spk03: Matt, you mentioned the operating expense increase this quarter. which was notable, but it sounded like a lot of them were more short-term in nature or maybe one-time. Can you give us a sense of the total amount, which was maybe more one-time or short-term versus more recurring?
spk13: Yeah. I don't have a dollar amount in front of me, but I'd say in terms of the one-time or short-term, it's probably 5% to 10% of the overall expenses. I'd have to follow up with you afterwards and dig into what the total dollar amount is, though.
spk03: No, that's helpful. Just a round kind of rough estimate is fine. And just one more for me. Just to double check, the guidance doesn't include any sort of – I think the WeWork lease has something like eight or nine years left on it. It doesn't include any sort of early termination fee or anything affiliated with that. Is that correct?
spk13: That's correct. So we restructured the lease when they went dark at the property, and so now the lease will expire next year. And so the one adjustment in the numbers for this quarter is just the wind down of the straight line rent, just given the shortening of that lease. But similar to the Regal situation, it gives us cash flow, comparable cash flow. The rent didn't really get cut in this instance, but comparable cash flow until we can backfill that space with an alternative.
spk02: Okay, great. That's it for me. Thanks, guys. Great.
spk09: thank you one moment for our next question our next question comes from the line of floors van dish come from compass point guys John Matt I guess two questions number one
spk05: Can you guys give some sort of broad brushes around the cost to retenants Regal and WeWorks? Obviously, there's a chance you might not have to do that for Regal based on your commentary, John, but in the case that it does, presumably, you know, to put that, you know, the cost per square foot are going to be pretty high, and they're big spaces as well. So that could eat into... into CapEx, and presumably you're going to have to do the same thing to shift the WeWork space into retail, I think is what you're planning on doing. But if you can give us some more commentary on that, that would be great.
spk11: Sure. So I'll take Regal first. You know, we have the option to do a ground lease deal right now with a large retailer, which would be more than the rent we're getting right now with Regal. but so we would need no capex just be all on them but for the total value you know to maximize value on the center makes sense for us to kind of search for a higher paying tenant and do kind of a new build box if we didn't do regal or another theater There are some other theaters that, as I mentioned in the last quarter's conference call, we had like 13 theaters interested in this Regal box. And I think there are some, I know there are some theater operators that do a lot more on the food and beverage that could pay a higher rent. And if you're using that box and you're converting and doing a little bit of F&B, it's not going to be that much. And so, long story short, yes, if on redoing Regal, that TI dollar is going to be, if you went and tore it down and rebuilt kind of the landlord side of it, $100, $150 a square foot sort of level, but we could go the other route and just do zero. And then on On WeWork, you know, that, and this goes to both stories with regards to Legacy and Beaver Creek. When we bought these properties, we bought them at high cap rates because of the Regal situation and the WeWork situation. So that was the value proposition. So on WeWork, we're going to basically, working with a tenant right now, which will be a heavy CapEx, to get the tenant, but the tenant is going to be providing so much more complimentary use for the property that will compress the cap rate greatly compared to having another co-working tenant. We're going to get a fair amount of uplift on the use change and we'll be able to drive higher rents on the retail side. These are investments that will actually have a return to them versus investments to just get back to where you were.
spk05: Thanks, John. Maybe my follow-up question here, and this sort of – you touched upon it on the retail aspect in that the investment markets are in – sort of hibernation right now. And there's a standoff between buyers and sellers in terms of cap rates. And we've been writing this on the office side. It's much, much worse. And it's going to get a lot worse, probably, if you look out as banks essentially have redlined office from their lending, from everything that we're hearing. You do have three big office exposures. They're pretty decent credits, but does that mean that selling those is essentially off the table and you're going to be stuck with non-core office buildings for the foreseeable future, probably a couple of years? Or how do you think about your exposure to Fidelity, General Dynamics, and Ford, which I think accounts for over 10% of your ABR?
spk11: Yeah, so we have a buyer group interested in one of those properties that will probably be, you know, it will definitely be a good price point compared to where the market perceives office, I would say. And so I don't want to talk too much into that until we get further down the road. But the other properties, they all have specific buyers. I'm not talking about exactly which one we're negotiating with, but I'll just kind of go through the different properties. On Ford, we have Ford for about five years. It's in Tampa. There are users from the Northeast that are looking to move their operations to Florida. and would like to, or looking at it as buying the property at a nice basis and if they use the whole property, they'll get a nice check from Ford to cancel the lease. So there's a great value proposition to that sort of user that's looking to have operations in Florida or maybe they have a lease that's expiring in Tampa and are looking around for space or downsizing and this would be building that they want downsize into so there's lots of tours happening at that property so it's not as dead and dormant as you thought I think because there's people looking at this as an opportunity if you're in the right location now if this were in downtown Chicago forget it you know there's just no way but this is in Tampa you know low basis good property good yield And then on going to General Dynamics in Reston, you know, basically it's gift space. You can't even go into the property except you can go in to see their little cafeteria. You know, General Dynamics just reported earnings. They're fantastic. You know, this gift space is unique and valuable, especially in that location. given the dynamics going on in the world politics and wars going on in Ukraine and things heating up with China. I don't think the defense industry is shrinking anytime soon. So I think we're in good shape there. And then you go to Fidelity, and as discussed, you know, this is probably the Fidelity campus is built basically with, you know, incredible architecture it's right by the netflix studios and if you go to albuquerque you see the netflix studios are spending what a billion dollars there uh the cranes all over the place within a seven iron from this building and so um you know the property is is class a uh and probably one of the last office buildings built in albuquerque probably because it was used specific for Fidelity and they they are basically a work in the office use there The use of that that property, you know people are working on 401ks and you have to have because of FINRA you have to have supervision and so you can't work from home and so You know fidelity is a office user. They like having their people in the office and So given the growth of New Mexico, given the growth of Netflix, the high quality of this property, there are buyers there. It's just that we want to sell at the appropriate price. And then lastly, I'll just say that, as I've mentioned before many times, we're trying to find an acquisition where we can buy a larger acquisition And then we could sell through the office, you know, because the acquisition is big enough to handle a couple of the 1031 exchanges there. So we need to match up an acquisition to it. So we're being picky on the acquisition side. So it's a little bit, you know, you have to have, you know, kind of both come together. So sorry for the long-winded answer to that.
spk05: No, that's great, John. Maybe if I can have a follow-up on that, just because, One of the issues with you guys is your low basis because of the history of the company and the 1031. But if you were to 1031 these assets as well, or potentially if they do, if sales do come to fruition, how will that impact your tax basis and your dividend paying ability?
spk13: Hey, Florence. So most certainly if we were to sell any of the properties John just walked through, we would 1031 those transactions given our low basis. To your point, the company has historically owned land and we've sold out of that land and redeployed on a tax efficient basis into some of these properties. And so we've rolled that low basis. And so if we were to sell these assets, we would do a similar transaction where we would roll our tax basis into a new asset. We still generate tax depreciation and as we make investments into properties, as we reposition them or lease them up, that creates more tax depreciation. So it wouldn't have a meaningful effect on our dividend policy. Certainly if we didn't 1031 them, that would create significant pressure on the dividend because we wouldn't be able to shelter the tax gain from the asset sale. And so we would either have to do a special dividend or something along those lines. But to John's point, that's why we're being picky on the acquisition front and making sure that we have a redeployment opportunity if we're going to move forward with an asset sale.
spk00: Thanks, guys.
spk11: Thank you. Thank you.
spk09: Thank you. At this time, I would now like to turn the conference back over to John Albrecht for closing remarks.
spk10: Thank you very much for attending the call.
spk09: this concludes today's conference call thank you for participating you may now disconnect
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