CTO Realty Growth, Inc. Q3 FY2025 earnings call

• Strong leasing performance: Year-to-date completed 482,000 sq ft of leasing, including 424,000 sq ft of comparable leasing at 21.7% spread; third quarter executed 143,000 sq ft of retail leases, etc., with 10.3% base rent spread. • Shops at Legacy: Just after the quarter, signed a 30,000 sq ft lease with a co-working operator to open by year-end 2026, and had signed a 20,000 sq ft private members-only social club in the third quarter; 85% lease percentage at the Shops at Legacy. • Anchor space progress: Six of 10 vacant anchor spaces leased, 4 in active negotiations, aiming for 40%-60% positive cash leasing spread across these 10 anchor spaces. • SNO pipeline: $5.5 million pipeline, positioning for earnings growth with 76% of ABR recognized in 2026 and 100% in 2027. • Florida acquisition: Expect to close the shopping center acquisition in South Florida before year-end and recycle an asset to fund it.

Year-to-date through September 30, CTO Realty Growth completed 482,000 square feet of overall leasing activity, including 424,000 square feet of comparable leasing at a weighted average base rent spread of 21.7%. In the third quarter, 143,000 square feet of new retail leases, renewals and extensions were executed at an average base rent of $23 per square foot, with 125,000 square feet of comparable leases and a 10.3% base rent spread. Core FFO for the quarter was $15.6 million, a $3 million increase compared to the prior year. Same-property NOI increased 2.3% during the quarter. The company's signed-not-open (SNO) pipeline stands at $5.5 million, representing approximately 5.3% of annual cash base rents in place as of quarter end, with approximately 76% of ABR from the SNO pipeline anticipated to be recognized in 2026 and 100% in 2027.

• Raised core FFO range for 2025 to $1.84 to $1.87 per diluted share from the previous $1.80 to $1.86 per share. • Raised AFFO range for 2025 to $1.96 to $1.99 per diluted share from the previous $1.93 to $1.98 per share.

• Uncertainty in the timing of asset recycling to fund the Florida acquisition. • Potential delays in leasing negotiations for the remaining 4 anchor spaces. • Fluctuations in nonrecurring items and tenant improvement allowances that could impact financial results.

Q: What's the pro forma debt-to-EBITDA look like once you complete the Florida acquisition and sell the existing asset and the near-term signed but not commenced leases start to drive revenue?

A: As John discussed, the Florida asset will be temporarily parked on the line with ample liquidity, ultimately funded by recycling and should not significantly change debt to EBITDA; the signed-not-open pipeline will take off about half a turn as it comes online.

Q: What is the timing of the bulk of that revenue from the signed-not-open pipeline?

A: It will start beginning of next year, with approximately $0.5 million in Q1, $1 million in Q2, $1 million in Q3, and $1.5 million in Q4, growing to ~$4 million in 2026 and the full $5.5 million in 2027.

Q: Where is your most significant vacancy today that's not either under contract, letter of intent or pretty far down the road where you still have some work to do?

A: There's a 40,000 square foot vacancy at Carolina Pavilion, with some false starts with prospective tenants.

Q: You've got about $45 million of structured investments that are -- have maturity dates in the first part of '26. When you take a look at those today, are those likely to be redeemed around that point in time? Or are those likely to be extended?

A: Founders Square will pay off; Watters Creek may extend or pay off depending on how they capitalize the property.

Q: You guys touched on what I was going to ask a little bit with the Florida acquisition, but I'm just trying to think about how you guys are going about capital allocation moving forward kind of between buybacks and structured investments. Given where the stock is trading, are you guys going to continue to buy back shares down at this level?

A: Yes, clearly going to do as much as possible given credit facility restrictions, as the stock is trading below a 9 multiple and 5-year lows with almost a 10% dividend yield, making own stock the best acquisition.

Q: Do you guys have any restrictions on investing more into PINE? And if not, is that something that you guys are considering doing just given that, that stock price is trading at similar multiples?

A: Do have a bit more room without hitting restrictions on PINE ownership, and are opportunistic depending on PINE's stock price, but feel CTO is the double discount.

Q: You've been pretty active on the structured finance side at PINE. Are you seeing any pickup in potential loans that work for CTO? Or are property investments really more compelling right now?

A: Not so much at CTO; seeing more at PINE as the CMBS market for shopping centers has come back strong, reducing the need for structured finance there, but keeping an eye out.

Q: You have a decent amount of leases expiring here in the fourth quarter, I think about 3% of ABR, one is an anchor. Can you talk about your expectations there?

A: Not really seeing any risk of nonrenewal, as many acquisitions have tenants way below market rent and some we want to replace with higher rents.

Q: Can you give a sense of how additive the Shops at Legacy leasing is to the signed-not-open pipeline?

A: Out of the entire $5.5 million signed-not-open pipeline, Legacy accounts for close to $1 million, including the private members club and the co-working lease signed in October.

Q: Any change to the credit watch negative list?

A: Not this quarter, same sort of tenants, and credits have gotten a bit better.

Q: I wanted to ask you on the nonrecurring items. I think you reported $0.5 million of nonrecurring this quarter and also raised your G&A guidance a little bit. Just want to get some color on what those items were.

A: Nonrecurring items typically fluctuate between $100,000 and $300,000 per quarter, averaged around $250,000, slightly elevated this quarter; G&A for Q4 will be similar to this quarter.

Q: On tenant improvement allowances. It seems like it was higher this quarter than last few quarters. How should we think about that line item as you sign new leases?

A: It was very light in the first half of the year, elevated this quarter due to Onelife at Beaver Creek, Boot Barn and Barnes at Rockwell, etc., and the fourth quarter is expected to be elevated again depending on anchor openings and TI reimbursements.

Q: On the asset recycling that you talked about to fund the acquisition. Is that expected to happen this year or that's expected to happen next year?

A: Think something will happen this year, probably at the end of the year, but some things may need extensions.

Q: As you think about the anchor box re-leasing in the $4 million to $4.5 million of potential new base rent there, how much of that is already set with the 6 leases you've closed? And how much is still contingent on the 4 leases that you're negotiating or trying to close here in the next couple of months?

A: Out of the anchors, the 6 leased ones represent about $2.5 million, and the remaining $2 million is from the 4 in negotiation.

Q: Anything else in the pipeline you're seeing that might close in 2025 beyond the kind of Florida shopping center transaction you talked about earlier?

A: Given tight time, wouldn't expect an additional one, but are bidding on assets and hopeful to close by year-end if important for the seller.

Q: The Fidelity property or the New Mexico property is a potential candidate for that capital recycling, either for the acquisition we talked about earlier on the call or 2026 investment activity?

A: Definitely a candidate, likely looking at early '26 to sell that asset as it takes time to settle lease expansion.

Q: The Shops at Legacy, the kind of remaining square footage to be leased once you bring in the co-working tenant, what kind of is that? Just big picture, is it all kind of small shop space? Is there any kind of anchor space still left in that property?

A: It's more small shop space, with a little bit of WeWork space left, and the private club may have expansion opportunities, very manageable and being picky about who is put in.