Day. 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'll be a question-and-answer session. To ask a question during the session, you'll need to press star one one on your telephone. You will then hear an automated message advising your hand is raised. To remove yourself from the queue, please press star one one 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 ctoreit.com. With that, I'll now hand it over to John. Thanks, Matt. 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 a otherwise quiet transactions market. We continued to make progress on our property repositioning programs, delivered another quarter of strong leasing activity, and we continue 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 sq ft retail portion of the Sprouts grocery anchor, phase two 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. In June, we purchased Plaza at Rockwall in the Dallas-Fort Worth MSA for $61.2 million. This property is a 446,000 sq ft 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 pace 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 a property just outside 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 sq ft at 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 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 Forsyth and West Broad Village. At Collection alone, we've signed or renewed a total of 13 leases, representing over 52,000 sq ft and an average rent per square foot of $27.85. 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 leasable 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's 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. Thanks, John. I'll start with a snapshot of our portfolio. At quarter end, we had 24 properties totaling 4.2 million sq ft in 15 markets. We ended the quarter with occupancy of 91.4%, an increase of 150 basis points from the 1st quarter, and leased occupancy was largely unchanged quarter-over-quarter at 93.4%. As John mentioned, with our acquisition of the Plaza at Rockwall, Atlanta and Dallas are now our top two markets, followed by Richmond, Jacksonville, Phoenix, and Raleigh. We expect to benefit from our considerable Sun Belt exposure for the foreseeable future, given our markets' outsized population growth, robust retailer demand, and the long-term benefits from being in business and tax-friendly states. Jumping into our earnings results for the quarter, Q2 2023, Core FFO decreased 8.5% to $0.43 per share, and Q2 2023 AFFO decreased 2% to $0.48 per share when compared to the same period in the prior year. Year-to-date Core FFO was $0.82 per share, and AFFO was $0.91 per share, representing year-over-year per share decreases of 12.8% and 8.1%, respectively, when compared to the first 6 months of 2022. Core FFO and AFFO benefited from the full quarter impact of our second half 2022 acquisitions, which included Madison Yards, West Broad Village, and Collection at Forsyth, as well as the partial quarter impact of Plaza at Rockwall, rent commencements at several properties where we've made strong gains in occupancy, and positive year-over-year growth in our external management fee from Pine. From a revenue perspective, Core FFO was negatively impacted by the write-off of $500,000 of straight-line rent receivables related to non-performing tenants, the vast majority of which was associated with The Hall at Ashford Lane. While The Hall was open and operating at quarter end, we were proactive in shifting to cash-based revenue recognition during the second quarter in consideration of their ongoing challenges. The straight-line rent receivable write-off does not impact our AFFO results, given that we've always adjusted for non-cash straight-line rent in our AFFO reconciliation. G&A expense in the quarter and year to date is up year-over-year due to overall organizational growth, as well as growth in our talented team. Interest expense increased due to higher rates and higher overall debt balance as compared to this time last year. Same-Property NOI decreased in the second quarter and year to date by 2.5% and 2.4%, respectively. This can be attributed to bad debt expense related to The Hall at Ashford Lane, reduced rent associated with the bankruptcy of Regal at Beavercreek Crossing, and negative effects from 2022 CAM reconciliations at The Strand in Jacksonville and Crossroads Town Center. These items were positively offset by increased percentage rent from our Daytona Beach restaurant, regular weight contractual rent growth at numerous properties, and new tenant rent commencements, most notably at Westcliff Shopping Center, Ashford Lane, and Exchange at Gwinnett. As a reminder, for our Same-Property NOI, we only include properties owned for the entirety of the current period and the comparable prior year period. As a result, some of our largest investments are not currently included in our same-store results. As we announced in May, we distributed a second quarter regular cash dividend of $0.38 per share. This marks a 1.8% increase compared to the second quarter 2022 cash dividend, resulting in a Q2 2023 AFFO payout ratio of 79% and an attractive annualized yield of approximately 8.5%. As of the end of the second quarter, our Net Debt to Total Enterprise Value is 53.5%, and our Net Debt to Pro Forma EBITDA remains steady quarter-over-quarter at 7.9 times. We ended the second quarter with total liquidity of more, more than $100 million, which includes undrawn commitments on our revolving credit facility, cash, and restricted cash. While we did increase our near-term floating rate debt exposure with the funding of our second quarter investment activity, we do intend to utilize future disposition proceeds to pay down the outstanding floating rate revolver balance in the coming months as the transactions materialize. We had a relatively quiet second quarter in terms of capital markets activity, but we did opportunistically repurchase 3,931 shares of common stock at an average price of $15.73 per share, and we also repurchased 746 shares of our Series A Preferred Stock at an average price of $18.82 per share. As we shift focus to the back half of the year, we reaffirmed our 2023 Core FFO and AFFO earnings guidance while making slight adjustments to our investments and disposition outlook. For the full year 2023, we now anticipate investing between $95 million and $150 million at an initial yield between 8% and 8.25%. We're now forecasting to sell between $15 million and $75 million of assets at an exit cap rate between 6% and 7.25%. In closing, we're excited about the progress we're making on our financial and operational initiatives. We're confident our terrific team and high-quality portfolio will have us well-positioned to drive long-term value for our shareholders. With that, I'll now turn the call back to the operator to open the line for Q&A. Thank you. As a reminder, to ask a question, you'll need to press star one one on your telephone. To remove yourself from the queue, press star one one again. Please wait for your name to be announced. Please stand by while we compile the Q&A roster. One moment for our first question, please. Our first question comes from the line of Matthew Erdner with JonesTrading. Your line is now open. Hey, guys. Morning, and thanks for taking the question. You mentioned the strength in robust retailer demand. Do you have any line of sight or expectations as to how long that will continue? With the acquisitions at Gwinnett, could you talk about the lease-ups there and how those are going? On the, on the leasing activity, we've actually seen a uptick in, in leasing activity in the last 60 days. That's been really interesting. You know, it, it feels like the summer slowdown happened earlier in the summer, and even kind of going into what traditionally is a really slow month, the activity is good. I don't, I don't see anything, unless there's something happens in the, you know, broader macroeconomy, something happening to, to slow things down. We'll take it as much as we can get it. With regards to Exchange, everything's leased there. It's 100% leased, there's no lease up to do. Awesome. Thank you. Then last quarter, you guys did a first mortgage loan on the Founders Square. Are those opportunities still out there in the market? Should we expect any of those to come on later in the year? You know, we're being very selective in picking. We are looking at some opportunities. Not sure if we'll transact on them, but if we do, we'll probably pare back one of the existing investments. Awesome. Thank you. Sure. Thank you. One moment for our next question, please. Our next question comes from the line of Robert Stevenson with Janney Montgomery Scott. Your line is now open. Good morning, guys. Matt, to follow up on the leasing question, how much vacancy have you leased that hasn't yet commenced rent payments? How material is that? In terms of dollar amounts, it's over 3% of existing base rent. It's about 200 basis points of occupancy, so it's meaningful, and to John's point, it's been pretty active lately, so it's also growing. When does the bulk of that start to pay? Is that 2024 or is that fourth quarter? How should we be thinking about that as we play around with our models? Yeah, it's, it's really more in the fourth quarter and then into the first quarter of, of 2024. There's not a huge benefit, from all of that, all of that. Okay. lease occupancy in the Q, but it'll obviously have an impact on 2024 growth. Okay. John, can you give us an update on the office assets and any timing there in terms of sales or what the thought process at this point? Yeah, we're, we're actually making some good progress there. I can't really, I won't go into too much detail, we've, we are negotiating on one asset as far as the contract. One asset, there's been a leasing activity, subleasing activity that is providing more investor interest. I would say that on the property we're negotiating with, on, on, on selling, there's actually almost a little bit of a multiple bidder, bidders as far as, I wouldn't say a bidding war, but a competitive bid environment. Kind of surprising on the office side. The other property that kind of mentioning on the sublease side, you know, this is gonna provide a good path for us to find an investor and, and, and sell that property. We hopefully will be active in the late, in the fourth quarter on that as we, you know, kind of, you know, talk to investors. Okay. Is the one office asset that's got the multiple bidders, is that contemplated in the second half disposition guidance? Yes. Okay. Then, how big is your tenant credit watch list at this point? I mean, whether you want to call it, good or bad, a lot of the tenant credit issues that we had historically identified sort of came to fruition in the first and second quarter with the Hall and Regal and WeWork. The tenant credit watch list is actually in pretty good shape. We just have to work through, obviously, the replacement of those credits. Okay. How far along are you at this point on the Regal space? You know, we have several different parties that want it. We're trying to, you know, obviously, look for the, the best one for the company and the property, and so we're, we're there are some others that we'd like to see that, that have expressed interest, so we're kind of taking our time a little bit here to find out which path we want to go down. The good news is, given it's Raleigh, given the box size, there's not a lot of opportunities in the market for tenants, and so we're, we're seeing, you know, that, that expression of interest from a variety of different users, and, and, and we're just really trying to choose the path there. I would say, I would say, you know, next 60 days, we'll figure out a path on, on which way we wanna go. Okay. Then last one for me, Matt. The proceeds from dispositions, is that to pay down portions of the $210 out on the revolvers, or is there some other tranche of debt that you're eyeing as more opportunistic at this point? No, I mean, given that we're, we're fixed out on all of the debt other than what we largely drew down in the second quarter, those proceeds will be used to pay that floating rate back down. Okay, thanks. Have a good weekend, guys. You too. Thank you. One moment for our next question, please. Our next question comes from the line of Edward Najarian with EF Hutton. Your line is now open. Good morning, guys. Morning. I guess my first question is pretty simple: I mean, it looks like you, you know, beat the quarter pretty significantly on both, core FFO and AFFO. What is holding you back from raising the full year guidance a little bit? Yeah, that's a good question. Just a little bit of detail. I won't go, I won't go too deep. The second quarter did benefit from about $250,000 of increased percentage rent at some of the Daytona Beach restaurant properties. That's adding some strength to the quarter that we're not forecasting to repeat, although they continue to perform really well, so we're, we're hopeful, but it's not in the numbers. The other big piece of what the drop-off would be from the second quarter into the third and fourth, would be both the expectations that floating rate debt that we borrowed in the second quarter, the rate's going to continue to increase in the third quarter before we pay that down with assumed dispositions in the third and fourth quarter. As well as the loss of the rent from the Hall that John talked about in the prepared remarks, that, obviously, we'll, we'll look to replace here, but it probably won't be replaced until the beginning of, of 2024. Okay. So, I don't know how, maybe how to ask this question better, so I'll just ask it. You're not feeling like you're being a little bit overly conservative with, with your forecast at this point, and just kind of wanting to be conservative, but, but, you know, we can hit the top end or potentially beat it, or, or does that forecast still feel like the, the realistic, you know, range of expectations without sort of an extra dose of conservatism in there? I'm just trying to think about it the right way, given, obviously, some of those headwinds, near-term headwinds that you pointed out, and just trying to frame them from a size standpoint, you know, thinking about the linked quarters. Yeah, no, I can appreciate that. I would say there's, call it a, an appropriate amount of conservatism in our guidance. I think it's a, a reasonable range set. Obviously, we would hope to be towards the top end or, or even beat if, if things go our way on a number of items. Given some of the movement that we've experienced with tenants and, and the broader economy in the first half of the year, we're, we're being a little bit conservative in terms of our expectations. Certainly if some of those expectations don't hit the right way, then we would be towards the bottom end. I think it's an appropriate range with, with the potential for more upside. Certainly, all of those items that I'm talking about, assuming they get resolved as we move forward, that's going to significantly benefit 2024. Okay. Thank you. And then, could you just remind us what you're paying currently on the-- how much debt you took down for the Dallas, you know, the Plaza at Rockwall, the Dallas property, and what the rate is on that right now? Because, you know, that, how quickly that gets paid off obviously makes a difference. Yeah. The, the Plaza at Rockwall and the acquisition activity with Exchange in the second quarter, it was a little over $70 million of incremental debt that we took down. That's, you know, high sixes, around a seven today in terms of a floating rate. If we can sell some assets at attractive cap rates, that's obviously going to be a better trade that, that we'll benefit from in 2024. Okay. It sounds like you expect that 7% to weigh on the numbers, to weigh on, you know, FFO and AFFO in the third quarter a little bit. Is that fair? That's correct. That's correct. Okay. Okay, thank you. Lease occupancy at 93.4, where should we think about that potentially being by the end of the year? Just if you have a thought on that. Yeah. We have some guidance out there or some indications that we'll be in that 94%-95% range, and then hopefully we can build on that as we, as we get into the first half of 2024. Okay. Thank you. Thanks, Ed. Thank you. One moment for our next question, please. Our next question comes from the line of Craig Kucera with B. Riley Securities. Your line is now open. Yeah, thanks. Good morning. John, you, you mentioned that the Plaza at Rockwall, which I believe is 95% occupied, is a below-market rent story. Can you give us some color on how meaningful the opportunity might be there? Well, the opportunity would be meaningful. We don't expect it to come anytime soon. In other words, you know, JCPenney is one of the largest tenants. Their rent is, you know, you know, maybe even a tenth of market rental rate. They're very profitable. They are profitable. There's not expectations that we're going to be able to grab that, that space anytime soon, but you never know. One of the other large box could be more of a potential, you know, depending on their, what happens to their business. So it's all, it's all there, and, you know, it's a great optionality for us, and we hope that, there may be some possibilities in the future. And after we, you know, kind of do the regular way, leasing of some of the direct vacancy, we'll start maybe having those, those dialogues and see what we can do. That, that makes sense. Thanks. In the quarter, you had pretty positive leasing momentum at nearly all your properties except for Santa Fe. Can you talk about those assets and maybe leasing activity in that market? Sure. On, on Santa Fe, we had, as you may remember, the luxury hotel across the street wanted to lease up, or we had a lease with them for the top floor, where they were gonna do some presidential suites or executive suites, and the build-out costs were just prohibitive. The lease got canceled. We're now, you know, basically, pretty close to a potential tenant on half that space. We're basically doing some cost estimates for roughly 10,000 sq ft on another space that, hopefully, we'll get some indications on build-out costs here in the next 30 days. The good news is, the leasing activity's been steady. We actually have one tenant who had downsized with us and now wants the space back. that's a unusual turn of events in our favor. The, the activity and, the momentum's actually been a lot better in the last 45 days. Okay, great. Shifting gears to the guidance, you know, you lowered the high end, I think, by about $50 million in regard to acquisitions. Is that due to a lack of potential opportunities? I know you mentioned that things are pretty quiet, or is that really more related to, you know, your cost of capital? A little bit of combination. Right now, we're not seeing any opportunities that are completely compelling. I will give you kind of a little bit of color on the market that, you know, cap rate dialogue from brokers, sellers, is basically coming down as there's been more entrants into investors coming into the space. We have buyers coming off the sidelines that have been on the sidelines for a while, that's basically providing a bid to the market. We're not seeing any, you know, really compelling opportunities right now. We hear of some that should be coming out in later this year, that we would have an interest in at a particular price. We also, you know, wanna get some asset sales done, you know, pay down our line, kind of get, you know, back to our, our leverage down where we like to have it and then, and then wait for a good opportunity. Got it. I know last quarter, you discussed sort of a couple of different directions you might go with the WeWork situation. Do you have any update on, on sort of where things are, are tilting at this point? Yeah. I mean, we've spent literally the last quarter in, in basically cost estimating the build-out costs of a tenant that we're, you know, basically have terms agreed to. The cost estimates have been higher than what, you know, we want to provide as far as capital there. We're having that negotiation of either they need to, you know, value engineer it, or they're gonna put up more money to make it happen. Outside of that particular party that we're, you know, talking with, there's the activity for leasing that sort of space has actually picked up. We have answered, you know, 3 RFPs of active tenants looking for that amount of space at least. Actually, the RFPs are actually for more space than what we have. You know, unfortunately, we can't accommodate somebody with the actual demand that they have. We're hoping that because the space is unique in its walkability, which is highly desirous by office tenants, we feel like if somebody has a 75,000 sq ft demand, they're gonna take a hard look at us at 58,000 sq ft, just because the space is so attractive for an office user. As we all know, no one wants to go into just a plain vanilla office building, standalone office building that is separated from, you know, activity as far as retail and living. We're, we're getting, we're getting the tours and the looks, and so that's very positive for, you know, getting the space leased. We're pretty, pretty happy with the activity right now. Great. Just one more for me. I know you mentioned that you're gonna be focused on selling assets and paying down the, the floating portion of the line of credit. Matt, are you, are you contemplating sort of, once that's completed, entering into any swap, or are you most likely to just sort of leave that balance outstanding on, on a floating basis? Of the $209 million, $100 million is already swapped. You know, we'd like to pay a substantial portion of that, that, $109 that's floating down. I think it always makes sense for us to have a little bit of floating rate debt, just so we can, when we have free cash flow, we can pay that down if it's not readily investable on the transaction side. Unless we have a significant growth opportunity where we'll need to originate some more debt, I wouldn't anticipate us swapping out any more of the existing floating rate balance just to maintain some flexibility for, for additional prepayments. Okay, thanks. Thanks, Greg. Thank you. Thank you. One moment for our next question, please. Our next question comes from the line of RJ Milligan with Raymond James. Your line is now open. Hey, good morning, guys. A couple follow-up questions. John, what's the expected timing on the backfill of the hall? Who do you think might take that space? Well, we've had discussions with the potential tenant operator this week and over the weekend, and we're pretty much there on an agreement. We're, you know, going to paper it down. We expect, and this, this tenant operator is, has, has wanted this space for a while, so it's not like a new opportunity. They're very engaged and interested and are actually starting on their operational plans and, and basically bringing in, you know, setting up with, with chefs and so forth. We feel very, very good that we have a solution here, and, and as I mentioned, in the prepared remarks, that we expect them to be open in the fourth quarter. Okay. Then for the, 300 basis points of rent, just from a modeling perspective, how, how should we think about that coming online? Yeah, RJ, I, I would say, you know, the vast majority of it's gonna come online in the fourth quarter and, and really more in the first quarter of 2024, just given the build-out timelines that we're working through with, with a number of the tenants. Not a huge benefit for 2023, other than in the same-store NOI, with what comes online in the fourth quarter, and then obviously, 2024 will, will more benefit from when all of that converts to rent pay. That's helpful. My last question is, given the dispositions being more back-end loaded to the second half of this year, I'm curious, you know, the expectation as to where you think leverage will, will fall out by year-end. Yeah, I think it'll probably stay in the 7s in terms of Net Debt to EBITDA, and, and probably, you know, plus or minus that 50% range from a debt to Total Enterprise Value, although that, that can move around with stock price. You know, hopefully, we'll have some delevering here, but it's, it's probably not going to get us into the, the 6s from a Net Debt to EBITDA perspective. Okay. Thank you. Thanks. That's it for me. Thank you. Thanks. Thank you. As a reminder, ladies and gentlemen, that's star one one to ask your question. Our final question comes from the line of Michael Gorman with BTIG. Your line is now open. Yeah, thanks. John, just quickly, and I'm sorry if I missed this, following up on, on the hall. Just given the timing, it sounds like it would be a pretty even trade-out. Is that, is that a fair way to think about it? There isn't gonna be any kind of new TI package or any kind of rearranging of the hall or a material shift in rents with the new operators? I mean, I'll, I'll mention the on the TI side, there's no, no additional TI. They can basically use everything that's there. They do have some operational differencing as far as plans, where they, they'll do some changes at their expense. Then, on the rent, you know, I'll let Matt discuss that. Yeah, from a rent perspective, it's not gonna be a, a dollar-for-dollar replacement, but I think on a risk-adjusted basis, obviously, given the challenges that the prior tenant had, this will, this will be an upgrade. Given that we're really not going to get much in the way of rent this year, you know, it, it will benefit Same-store NOI for, for Ashford Lane in particular next year. Okay, I'm sorry, just remind me again, from a run rate perspective, how much rent was in the second quarter from the Hall? Only about $157,000. So that, that'll get removed, obviously, with guidance for the back half of the year. Got it. Got it. Just last one from me. Obviously, looking to make the change-out in the operator there, in the meantime, are there any, either pending or current leases at Ashford that are co-tenancy with the hall, that, that could become an issue, or is there nothing else tied to that? No, there's, there's no co-tenancy issues with the hall. Great. Thanks for the time, guys. All right, thank you. Thank you. I'm currently showing no further questions at this time. This concludes today's conference call. Thank you for your participation. You may now disconnect. Everyone, have a wonderful day.