- New Leases Signed: 79,000 square feet at an average rent of $25.87 per square foot.
- Leasing Activity (First Half 2024): 183,000 square feet at an average rent of $26.58 per square foot.
- Comparable Lease Spreads: 9% in Q2 and 41% in the first half of 2024.
- Physical Occupancy: 92.6%, an increase of 2.3% from year-end 2023.
- Leased Occupancy: 94.6%.
- Future Cash Rents: Almost $5 million from the 200 basis points spread between physical and leased occupancy.
- Same-Property NOI Growth (Q2 2024): 2% compared to Q2 2023.
- Same-Property NOI Growth (First Half 2024): 4% compared to the first half of 2023.
- Core FFO (Q2 2024): $0.45 per share, 5% growth compared to Q2 2023.
- AFFO (Q2 2024): $0.48 per share, consistent with Q2 2023.
- Core FFO (First Half 2024): $0.93 per share, 13% growth compared to the first half of 2023.
- AFFO (First Half 2024): $1 per share, 10% growth compared to the first half of 2023.
- Dividend: $0.38 per share for Q2 2024, AFFO payout ratio of 79%.
- Net Debt to Total Enterprise Value: 48%.
- Net Debt to EBITDA: 7.5 times.
- Liquidity: $155 million.
- Preferred Stock Issuance: 1.7 million shares for net proceeds of $33.1 million.
- Common Shares Issuance: 250,000 shares for net proceeds of $4.3 million.
- Full Year 2024 Core FFO Guidance: Increased to a range of $1.81 to $1.86 per share.
- Full Year 2024 AFFO Guidance: Increased to a range of $1.95 to $2 per share.
- Full Year 2024 Investments: Increased to a range of $200 million to $250 million with an initial cash yield range of 8.5% to 9%.
Release Date: July 26, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- CTO Realty Growth Inc (CTO, Financial) reported strong leasing activity with 79,000 square feet of new leases, renewals, and extensions in Q2 2024.
- The company achieved a 2.3% increase in physical occupancy, reaching 92.6% by the end of the quarter.
- CTO Realty Growth Inc (CTO) increased its full-year 2024 core FFO guidance by 12% to a range of $1.81 to $1.86 per share.
- The company has a non-refundable $18 million sales contract for Jordan Landing, with closing scheduled in August.
- CTO Realty Growth Inc (CTO) ended the quarter with $155 million of liquidity and no floating rate interest exposure.
Negative Points
- No transactions were completed during the quarter on the dispositions front.
- The company has a significant amount of vacancy, with 210,000 square feet of vacant space across the portfolio.
- CTO Realty Growth Inc (CTO) has a net debt to EBITDA ratio of 7.5 times, which may be considered high.
- The company issued almost 250,000 common shares under its ATM program, potentially diluting existing shareholders.
- The company is still working on leasing the remaining 19,000 square feet of the former WeWork space in Plano, Texas.
Q & A Highlights
Q: John, I was wondering if you could just talk about the environment today in terms of what gives you the confidence to increase the guidance and maybe a comment as to what we should expect in terms of the mix between loans and regular-way investments?
A: Sure. Thanks, RJ. We're seeing a fair amount of opportunities we've been actively pursuing. A lot of what we've been seeing are quality properties in good locations. We missed on one earlier this year, but we have one right now in our line of sight that gives us confidence in this upward guidance of acquisitions. As for the mix, primarily it is core real estate power center shopping centers that we're looking to buy. I would say that out of the mix, 80% is core acquisitions, and 20% is more structured investments.
Q: Obviously, a decent increase in guidance. So I think that might imply that you expect to close some of these transactions sooner rather than later. Can you give us an idea on timing expectations and funding sources?
A: We have a fairly sizable transaction that we expect to close in about 60 days. We have the capacity of our line credit facilities to do the acquisition. Additionally, we have one property going into the closing process or under contract and other assets that we're looking to sell as well.
Q: I wanted to get some more color on the CapEx as well. It seems like you raised the CapEx guidance to 8.5% to 9% from a lower cap rate expectation. Is that specific to the acquisitions you're looking at or is that what you're seeing in the market?
A: It's a combination of what we're pursuing and what we've been making acquisition offers on. We feel like we can probably acquire assets at that rate. It's a blend of structured investments and core acquisitions.
Q: Beyond the 24,000 square feet in Atlanta and the 19,000 in Plano, where are the other larger pockets of current or future vacancy that you're working on today?
A: Those are the big ones for sure. We still have some work to do on the balance of the WeWork space. We have roughly 210,000 square feet of vacancy throughout the portfolio, mostly smaller spaces. The two big ones are the Earth Fare space and the WeWork space.
Q: How aggressively are you pursuing mixed-use assets these days? Is it focused really on retail only?
A: Right now, there's no mixed-use assets in the pipeline. It's primarily our core retail open-air centers.
Q: What are the main contributors to the increased guidance beyond just some of the better leasing?
A: It falls into four buckets: investment activity, timing of acquisitions leading dispositions, strong first-half results, and initial conservatism in guidance early in the year. You can spread the increased guidance across these four areas.
Q: Are you targeting open-air shopping centers with lower occupancy or facilities that need capital improvement to get increased cap rates?
A: We are seeing some properties that need capital, but not an incredible amount. There's some vacancy, but it's not a big component. We are targeting properties that need some upfront capital to refresh.
Q: Should we expect any other early payoffs of loans or is this a one-time thing?
A: No, nothing in front of us right now that's going to be paying off anytime soon.
Q: Are you seeing any pressure on cap rates given some of the moves in interest rates over the last couple of weeks?
A: The pressure on cap rates is more on larger assets in major MSAs. The assets we are pursuing are not seeing as much cap rate compression. We are trying to avoid being in the real core institutional capital that would be chasing these.
Q: Are you seeing any loosening of the banking market getting more active in terms of financing transactions?
A: The CMBS market has been very helpful for some folks selling assets. It brings in more competition from those using leverage on an asset basis. Better leverage is out there, which is helping the transaction market.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
