CTO Realty Growth, Inc. Q1 FY2025 earnings call

• Acquisition Activity: Acquired Ashley Park, a 559,000 square-foot open-air lifestyle center in Newnan, Atlanta, for $79.8 million with lease-up potential, in-place below-market rents, and a basis below replacement costs.
• Leasing Activity: Signed over 112,000 square feet of new leases, renewals, and extensions at $24.14 per square foot. Anchor leasing: One former Joann's space in Houston expected to be assumed by a national retailer, two leases executed, two more soon, and discussions ongoing for remaining five anchor spaces.
• Balance Sheet: $604 million debt at quarter end, $100 million of debt swapped to fix SOFR at 3.32% for five years, reducing interest rate. Convertible notes matured and settled with cash and shares, resulting in a $20.5 million extinguishment charge. Net debt to EBITDA was 6.6x.
• Operating Results: Core FFO for Q1 2025 was $14.4 million, up from $10.7 million in Q1 2024.

CTO Realty Growth had a strong quarter with investment activity including the acquisition of Ashley Park for $79.8 million. Leasing activity was robust, with over 112,000 square feet of new leases, renewals, and extensions signed at an average rent of $24.14 per square foot, nearly 25% higher than the in-place portfolio average. At quarter end, the company had approximately $604 million of debt, with $120 million (20%) subject to floating interest rates. Core FFO for the first quarter was $14.4 million, a $3.7 million increase from the first quarter of 2024.

CTO Realty Growth is reaffirming its full year 2025 first year outlook for core FFO of $1.80 to $1.86 and AFFO of $1.93 to $1.98. The assumptions underlying this outlook remain consistent with initial projections.

• Tariff Uncertainty: Little visibility on ultimate resolution, but the company is positioned well with high-quality properties and diversified tenant base.
• Market Competition: More properties coming to market increase competition for acquisitions.

Q: Could you give more detail on anchor space negotiations and impact of recent volatility?

A: Leasing activity has been very consistent and strong, with no pause; tenants are moving forward as seen with Burlington buying Joann's leases.

Q: Can you provide detail on the new lease spreads?

A: Two leases made up the bulk of the square footage in new leasing, driving the spread over 80%, with one replacing a vacated anchor and another re-tenanting a space with no options.

Q: How much CapEx is needed for bankrupt tenant spaces?

A: CapEx is in the $9 million to $12 million range, with little spent so far as tenants generally need to get open and do work before reimbursement.

Q: What is the time frame for rent paying after signing leases?

A: A safe number is a year, but some tenants can start quicker depending on circumstances.

Q: How is funding for investments planned?

A: Initially placed on the credit facility, with a supportive bank group eager to put more money to work.

Q: What's the status of cap rates post-tariff announcement?

A: Shopping center cap rates have stayed consistent or gone lower, with no bump from credit spread widening in bond markets.

Q: What's the timeline for mark-to-market on acquisitions?

A: Expect to start seeing real movement in the middle of next year as leases are worked through from bankruptcies earlier in the year.

Q: What's the mark-to-market upside for the Ashley Park acquisition?

A: Opportunities are 10% to 20% at lease, potentially higher, with low-hanging fruit in leasing up vacant space.

Q: What drives investment guidance to the high range?

A: Strong leasing activity and more properties coming to market, with a combination of factors including recycling assets.

Q: Are structured investment opportunities still being seen?

A: Starting to see interesting other opportunities, with potential to be higher than initial $40-50 million estimates.

Q: What's the timing for sign-that-open ABR recognition?

A: It will be in the second half, building in the third quarter