CTO Realty Growth Inc (CTO) (Q1 2024) Earnings Call Transcript Highlights: Strong Performance ...

GuruFocus Research

Sat, May 4, 2024, 1:07 AM 4 min read

Occupancy Rate: Increased to 92.6%, up 2.3% from year-end 2023.
Lease Occupancy Rate: Rose to 94.3%, up 1% from year-end 2023.
Core FFO per Share: $0.48, up 23% from Q1 2023.
AFFO per Share: $0.52, up 21% from Q1 2023.
Same-Property NOI: Increased by 6% compared to Q1 2023.
Dividend: Q1 regular cash dividend of $0.38 per share.
Net Debt to EBITDA: 7.6 times.
Total Long-Term Debt: $543 million.
Cash and Restricted Cash: Nearly $15 million at quarter end.
Leasing Activity: Over 200,000 square feet, with new cash base rents growth of 68%.
Acquisitions: Purchased properties including a multi-tenanted retail power center for $68.7 million.
Dispositions: Sold mixed-use property for $20 million, gain of $4.6 million.

Warning! GuruFocus has detected 8 Warning Signs with CTO.

Release Date: May 03, 2024

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

CTO Realty Growth Inc reported strong leasing activity with over 100,000 square feet of new leases, renewals, options, and extensions at an average rent of $27.12 per square foot.
The company successfully replaced Regal Cinemas with a regional fitness operator at a significantly higher rent, which is expected to boost same-store NOI in 2024 and more so in 2025.
Occupancy rates improved, ending the quarter at 92.6%, a 2.3% increase from year-end 2023, with lease occupancy also up by 1% to 94.3%.
CTO Realty Growth Inc's earnings for Q1 2024 exceeded expectations, with core FFO per share at $0.48, representing a 23% increase compared to Q1 2023.
The company made strategic acquisitions, including a multi-tenanted retail power center in Orlando, enhancing its presence in top markets and increasing its annual cash base rent in Florida to over 17%.

Negative Points

The departure of CFO Matt Partridge introduces a period of transition and potential uncertainty as the company searches for a replacement.
Despite strong leasing activity, the full financial benefits of new leases, such as the fitness operator replacing Regal Cinemas, will not materialize until mid-2025.
CTO Realty Growth Inc's net debt to EBITDA ratio stands at 7.6 times, indicating a relatively high level of debt compared to earnings before interest, taxes, depreciation, and amortization.
The company reduced its disposition guidance for the year, which may suggest a slower pace of capital recycling and potential missed opportunities for reinvestment.
There are ongoing uncertainties in the office asset segment, with significant discussions and decisions regarding the remaining office asset pushed beyond 2024.

Q & A Highlights

Q: Could you provide more details on any value-add opportunities at the Orlando property and the potential for mark-to-market rent upside? A: (John Albright - President, Chief Executive Officer) The property is fairly stabilized with limited value-add opportunities. However, there is some vacancy and below-market leases, particularly around 20 to 40,000 square feet, which present future opportunities for NOI growth.

Q: Why has the disposition guidance been lowered? A: (John Albright - President, Chief Executive Officer) The company is not under pressure to sell assets currently. With the preferred raise, there's no urgent need to push through dispositions, allowing for a more patient approach on the sell side.

Q: Any updates on the potential transaction of the remaining office asset? A: (John Albright - President, Chief Executive Officer) It seems unlikely that the transaction will occur this year. Discussions with the tenant are ongoing, but they are not in a rush, and the property's value is appreciating over time.

Q: When do the leases that are signed but not yet opened start paying rent? A: (John Albright - President, Chief Executive Officer) Most of the leases will commence in the latter half of this year, with significant revenue impact expected in 2025, especially from the replacement of the Regal lease around mid-2025.

Q: Are there any known significant move-outs in the next 18 to 24 months? A: (John Albright - President, Chief Executive Officer) Currently, there are no significant move-outs anticipated, and the outlook remains positive.

Q: How are you thinking about the use of preferred equity in your capital structure going forward? A: (John Albright - President, Chief Executive Officer) The recent preferred issuance was sized to be index qualified and has performed well. While there's no immediate plan to issue more preferred equity, it remains an option depending on future acquisition activities and the balance of the capital structure.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

This article first appeared on GuruFocus.

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