CTO Realty Growth, Inc.

Good day, and thank you for standing by. Welcome to CTO Realty Growth second quarter 2023 operating results 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 1-1 on your telephone. You will then hear an automated message advising your hand is raised. To remove yourself from the queue, 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 Matt Partridge, Chief Financial Officer. Please go ahead.

Welcome, everyone. Thank you for joining us this morning for CTO Realty Growth Second Quarter 2023 Operating Results Conference Call. Joining 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 ctoread.com. With that, I'll now hand it over to John.

Thanks, Matt, and good morning, everyone. We've had a busy second quarter as we've made progress on a number of fronts. During the quarter, we invested in several high-quality assets in what has been an otherwise quiet transactions market. We continued to make progress on our property repositioning programs, delivered another quarter of strong leasing activity, and we continued to build on our foundation for future growth. Starting with our investments for the quarter, we made additional progress in converting our Exchange at Gwinnett Development Loan into fee-simple ownership. We acquired three buildings within the 28,000 square foot retail portion of the Sprouse Grocery Anchor Phase 2 of the Exchange at Gwinnett in the Atlanta Submarket for $11.3 million. Following these acquisitions, there is one small parcel remaining for us to acquire, which we anticipate will occur in the fourth quarter for approximately $2.3 million. Additionally, in June, we purchased Plaza at Rockwall in the Dallas-Fort Worth MSA for $61.2 million. This property is a 446,000 square foot multi-tenanted retail power center located on 42 acres along I-30, just 20 miles northeast of downtown Dallas. For us, this acquisition checked a lot of boxes. High quality construction, multiple opportunities to organically drive future cash flow growth by recapturing below market rents, the ability to invest below replacement costs in one of the wealthiest, fastest-growing counties in Texas, and the property is anchored by a number of well-performing national credit retailers such as Best Buy, Ulta Beauty, Dick's Sporting Goods, Five Below, and HomeGoods. With this acquisition, the Dallas-Fort Worth Metroplex is now the second largest market in our portfolio, behind Atlanta, representing nearly 18% of our in-place cash-based rent. Year to date, we've invested nearly $76 million into five retail properties and originated one structured investment for $15 million. In aggregate, we invested at a blended going in cash yield of 8.1%. From a funding perspective, we took down these investments with proceeds from our credit facility. However, we anticipate increased disposition activity in the back half of the year as we look to pay down this incremental debt by largely match funding our year-to-date investment activity with non-core asset sales. During the quarter, we did sell a Jollibee out parcel at our property just outside of Las Vegas in Henderson, Nevada for $2.1 million at a very attractive cash cap rate of 4.8%, generating a healthy gain on sale of $800,000. On the leasing front, we signed 24 new leases, renewals, options, and extensions in the quarter, totaling 107,000 square feet an average rent of $26.58 per square foot. Comparable rental rates, which excludes vacancy existing at the time of acquisition, grew 8.6% during the second quarter. Most importantly, as we look at the progress we're making on resetting rents to market on comparable new leases, we grew comparable rents by more than 25% during the quarter and nearly 17% year-to-date. This is a product of mark-to-market opportunities we identified when we purchased these properties, as well as the strength of our property locations and markets. Our strong leasing momentum has been driven by some of our most recent acquisitions, including Collection at Foresight and West Broad Village. At Collections alone, we've signed or renewed a total of 13 leases representing over 52,000 square feet and an average rent per square foot of $2,785. For new comparable leases at collection, we've grown rents by more than 35%. At West Broad Village, the momentum has been just as notable, where we've signed new leases on more than 7% of the property's total leaseable area, all of which was vacant at the time of our acquisition. From a lease perspective, we've seen strong performance from the majority of our existing tenants, and we continue to make progress on getting tenants open and operating. Camp recently opened its first Atlanta location at our Ashford Lane property, and its initial sales performance has been impressive. Grana, which is set to open at Ashford Lane before the end of the month in the former Carrabba space, has been highly anticipated as a new opening. On the flip side, we are in the process of bringing in a much more established food hall operator to take over our food hall tenant at Ashford Lane. We expect that the new operator will be up and running in the fourth quarter. Overall, even with the interim closure of the food hall, we've maintained our full year earnings guidance as leasing momentum continues to be robust. We've made good progress implementing our operational efficiency programs, and we have confidence our high-quality portfolio will drive long-term cash flow as we continue to execute our operating plan. With that, I'll hand the call back over to Matt.