CTO Realty Growth, Inc.

Good day and welcome to the CTO Realty Growth Third 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 will need to press star 11 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 11 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Chief Financial Officer Matt Partridge. Please go ahead.

Good morning, everyone. Thank you for joining us today for CTO Realty Growth Third 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 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 filing. You can find our SEC reports, earnings release, quarterly supplemental, and most recent investor presentation on our website at ctoreet.com. With that, I'll now hand the call over to John.

Thanks, Matt, and good morning, everyone. I'm pleased to announce we had a strong quarter of operational execution that led us to a meaningfully increased our full-year FFO and AFFO guidance. The strength in our numbers were driven by better-than-forecasted tenant retention for lease renewals, accelerated new tenant rent commencements, outsized percentage rent from food and beverage and theater operators, and improved expense controls where we have direct cost exposure. All of this strength was partially offset by a credit loss associated with our WeWork location where they had stopped making payments as of September, and those payments were set to expire in April of 2024. Leasing activity during the quarter was strong. The team signed 21 leases totaling more than 132,000 square feet, including approximately 26,000 square feet of previously acquired vacancy. This is the second highest volume of square feet leased in one quarter in our company's history. The activity was relatively widespread and included the signing of a replacement lease for the food hall space at Ashford Lane in Atlanta. The new lease is with Paulson Rowe, a well-known successful operator of food halls, who has a multiple location presence in Atlanta. While the rent is lower than the previous food hall lease, we are getting a more established operator with a better credit profile, and we did not have to make any additional capital investments. They are scheduled to open before the end of the year. For the quarter, our comparable rent spreads were essentially flat, down 0.4%, largely due to the lower rent from the food hall space. When removing the impact of this specific lease, we grew comparable rents 11.4%, most notably benefiting from the solid growth in rents at Beaver Creek Crossing outside of Raleigh and the collection at Foresight near Atlanta. Year-to-date, we've signed approximately 400,000 square feet of leases at an average rent of $24.57 per square foot. Comparable rent spreads for leases signed this year increased 4.6%, with many of our larger properties experiencing the highest growth rates. Crossroads Town Center near Phoenix, Legacy North, located just outside of Dallas, Beer Creek Crossings, Collection at Foresight, and our newest investment, Plaza Rockwall, which is also in the Dallas MSA, all had year-to-date comparable rent spreads above 7%. With all this leasing activity, our signed but not open pipeline now represents 3.2% of prospective occupancy pickup and 5% of existing quarter-end portfolio cash-based rents. Suspended quarter, I'm happy to announce we've signed a lease with a financial institution to lease our vacant 7,800 square foot out parcel at Ashford Lane. The south parcel was vacant at the time of acquisition and was one of our key remaining vacancies at this property. With this lease signing, Astrid Lane is now on a path to be more than 90% leased by year end. As we discussed during the last quarter's call, we anticipated a heavier disposition activity during the back half of the year as a way to bring down leverage and be in a position to make opportunistic investments. During the third quarter, we sold two properties for $20.9 million at a weighted average exit cap rate of 6.9%, generating gains on sales of $2.5 million. One of the properties sold was a Del Taco restaurant located on an out parcel in Crossroads Town Center, and the other was a 64,000-square-foot single-tenant office building leased to General Dynamics. Year-to-date, through the first nine months of the year, we've sold three properties for $22.9 million at a weighted average exit cap rate of 6.7%, generating gains of sales of $3.3 million. Following quarter end, we also announced we've completed the sale of Westbrook Shopping Center for $14.8 million and exit cap rate of 5.2%. Until recently, it has been a challenge to generate leasing momentum at this older neighborhood shopping center. So given the recent leasing activity and expected Albertson's credit change, we thought it was a good time to monetize. On the acquisition investment side of our business, it was a relatively quiet quarter. However, we did purchase a 10.6 acre land parcel adjacent to the collection at Forsyth for 4.3 million. This was a unique opportunity to grow our investment in collection, which has experienced performance since we acquired the property at the end of 2022. Controlling the use of this land ensures that it's complimentary to our overall plans for the property, and we've already had strong interest from tenants either looking to directly acquire the land for their own use or looking to lease to be built space. Year to date, we've invested $80 million into four retail properties. This most recent land acquisition and one $15 million structured finance investment. In aggregate, we've invested at a blended going in cash yield of 7.7%. Going forward, while we're disappointed by WeWork's decision to default on their obligations, which negatively impacts our implied fourth quarter 2023 and first quarter 2024 forecasted performance, this wasn't necessarily a surprise and we're seeking all available remedies. From a transaction perspective, we will continue to prioritize selling smaller non-core assets to either repay floating rate debt or for redeployment into attractive investment opportunities. And operationally, we're optimistic we'll be able to continue our leasing momentum. Business fundamentals for retail and mixed-use properties still remain relatively strong for attractive supply-demand dynamics and what have been resilient retail sales. With that, I'll hand the call back over to Matt.