10-Q: CTO Realty Growth Reports Strong Q3 Earnings, Bolstered by Property Acquisitions and Strategic Investments

Sentiment:

Quarterly Report 24 October 2024 4:21 PM

CTO Realty Growth, Inc. announced positive third-quarter results for 2024, driven by increased revenue from income properties and strategic investments, despite some losses on asset dispositions.

Capital raiseThe company sold 7,226,192 shares under the 2022 ATM Program for gross proceeds of $134.2 million.The company sold 15,844 shares under the 2024 Preferred Stock ATM Program generating net proceeds of $0.4 million.The company priced a public offering of 1,500,000 additional shares of the Series A Preferred Stock, generating net proceeds of $33.1 million.

Better than expectedThe company's net income attributable to common stockholders increased significantly compared to the same period last year.The company's revenue growth was strong, driven by both income properties and commercial loan investments.The company's FFO and AFFO also showed positive growth compared to the same period last year.

Summary

CTO Realty Growth reported a net income attributable to common stockholders of $4.3 million, or $0.17 per share, for the three months ended September 30, 2024, compared to $1.5 million, or $0.07 per share, for the same period in 2023.
For the nine months ended September 30, 2024, net income attributable to common stockholders was $8.3 million, or $0.35 per share, a significant improvement from a net loss of $5.1 million, or $0.23 per share, in the same period of 2023.
Total revenue for the third quarter of 2024 increased to $31.8 million, up from $28.5 million in the third quarter of 2023, primarily due to growth in income properties and commercial loan investments.
The company acquired four multi-tenant income properties, one vacant land parcel, and one building for a total cost of $207.8 million during the first nine months of 2024.
CTO sold two income properties for an aggregate sales price of $38.0 million, resulting in a net gain of $3.8 million during the first nine months of 2024.
The company also sold its remaining mitigation credits and subsurface mineral interests for $5.0 million, resulting in a gain of $4.5 million.
The fair value of the company's investment in Alpine Income Property Trust (PINE) totaled $43.0 million as of September 30, 2024, representing 15.3% of PINE's outstanding equity.
The company's commercial loans and investments portfolio totaled $103.0 million as of September 30, 2024, up from $61.8 million at the end of 2023.
The company's long-term debt totaled $526.8 million as of September 30, 2024, compared to $495.4 million at the end of 2023.

Sentiment

Score: 8

Explanation: The document presents a positive outlook with strong financial results, strategic acquisitions, and growth in key areas. While there are some negatives, the overall tone is optimistic and indicates a company on a positive trajectory.

Positives

The company experienced a significant increase in net income attributable to common stockholders for both the quarter and the first nine months of 2024.
Revenue growth was strong, driven by both income properties and commercial loan investments.
The company successfully acquired new properties and made strategic investments, expanding its portfolio.
The company realized gains from the sale of properties and other assets.
The company's investment in PINE continues to be a valuable asset.

Negatives

The company experienced a loss on the sale of one multi-tenant income property in West Jordan, Utah.
The company recorded a $0.7 million impairment charge related to commercial loans and investments.
Interest expense increased slightly due to changes in fixed rates on term loans.

Risks

The company is subject to risks related to the ownership of commercial real estate, which could affect the performance and value of its properties.
The company's business is dependent on its tenants successfully operating their businesses.
Competition from e-commerce could adversely affect the company's business.
The company operates in a highly competitive market for the acquisition of income properties.
The company may be unable to successfully execute on asset acquisitions or dispositions.
The loss of revenues from the company's income property portfolio or certain tenants would adversely impact its results of operations and cash flows.
The company's revenues include management fees from PINE, and a decline in PINE's business could reduce revenues.
There are potential conflicts of interest in the company's relationship with PINE.
A prolonged downturn in economic conditions could adversely impact the company's business.
The company's commercial loans and investments may involve credit risk.
The company may suffer losses when a borrower defaults on a loan.
The company's real estate investments are generally illiquid.
The company may be unable to obtain debt or equity capital on favorable terms.
Servicing the company's debt requires a significant amount of cash.
The company's operations and properties could be adversely affected by natural disasters or pandemics.
The company may encounter environmental problems which require remediation.
Failure to remain qualified as a REIT would cause the company to be taxed as a regular corporation.
The company has limited experience operating as a REIT.
The company is exposed to changes in U.S. federal and state income tax laws.
General business and economic conditions, including inflation and rising interest rates, could adversely affect the company.

Future Outlook

The company's guidance for 2024 investments in income-producing properties, including structured investments, ranges from $300.0 million to $350.0 million. The company expects to fund future acquisitions utilizing cash on hand, cash from operations, proceeds from the dispositions of income properties through 1031 like-kind exchanges, borrowings on its Credit Facility, if available, and additional financing sources.

Management Comments

Management believes the expectations reflected in such forward-looking statements are based upon present expectations and reasonable assumptions.
Managements focus is to continue our strategy to diversify our portfolio by redeploying proceeds from like-kind exchange transactions and utilizing our Credit Facility to increase our portfolio of income-producing properties, providing stabilized cash flows with strong risk-adjusted returns primarily in larger metropolitan areas and growth markets.

Industry Context

The company's focus on multi-tenant, primarily retail-oriented properties aligns with current trends in the commercial real estate market, where demand for such properties is increasing. The company's strategic investments in commercial loans and preferred equity also reflect a broader trend of diversification in the real estate sector.

Comparison to Industry Standards

CTO Realty Growth's performance in Q3 2024, with a net income of $4.3 million, shows a positive trend compared to the same period last year. This is a significant improvement compared to the net loss of $5.1 million in the first nine months of 2023.
The company's revenue growth of 11.7% in Q3 2024 is a positive indicator, suggesting that its strategic investments and property acquisitions are yielding results. This growth is comparable to other REITs in the sector that are actively expanding their portfolios.
The company's FFO of $12.5 million in Q3 2024 is a key metric for REITs, and its increase from $9.9 million in Q3 2023 indicates improved operational performance. This is in line with industry standards for REITs that are focused on growth and expansion.
The company's AFFO of $13.1 million in Q3 2024, which is a more comprehensive measure of profitability, also shows a positive trend compared to $10.8 million in Q3 2023. This indicates that the company is effectively managing its non-cash revenues and expenses.
The company's long-term debt of $526.8 million as of September 30, 2024, is a significant figure, but it is important to note that the company is actively using its credit facility to fund acquisitions and investments. This is a common practice among REITs that are focused on growth.
The company's investment in PINE, valued at $43.0 million, is a strategic move that provides additional income and potential for appreciation. This is a common strategy among REITs to diversify their holdings and generate additional revenue streams.
The company's commercial loans and investments portfolio of $103.0 million as of September 30, 2024, is a significant increase from $61.8 million at the end of 2023. This indicates that the company is actively pursuing opportunities in the commercial lending space, which is a growing trend in the REIT sector.
The company's acquisition of four multi-tenant income properties, one vacant land parcel, and one building for a total cost of $207.8 million in the first nine months of 2024 is a significant investment. This is in line with the company's strategy to expand its portfolio and generate long-term value.
The company's sale of two income properties for $38.0 million, resulting in a net gain of $3.8 million, indicates that the company is actively managing its portfolio and capitalizing on opportunities to realize gains. This is a common practice among REITs to optimize their holdings.
The company's sale of its remaining mitigation credits and subsurface mineral interests for $5.0 million, resulting in a gain of $4.5 million, is a strategic move to divest non-core assets and focus on its core business of commercial real estate.

Management Changes

Role	Previous Person	New Person	Effective Date	Reason
Senior Vice President and Chief Accounting Officer	NA	Lisa M. Vorakoun	October 22, 2024	Formalized employment agreement

Legal Proceedings

The company may be a party to certain legal proceedings, but does not expect them to have a material effect on its financial condition or results of operations.

Related Party Transactions

The company's management agreement with PINE generates management fee revenue.
The company's investment in PINE generates investment income through dividends.

Stakeholder Impact

Shareholders will benefit from the company's improved financial performance and strategic growth initiatives.
Employees will benefit from the company's continued growth and success.
Tenants will benefit from the company's focus on high-quality properties and management.
Creditors will benefit from the company's strong financial position and ability to service its debt.

Next Steps

The company will continue to focus on acquiring income-producing properties and making strategic investments.
The company will continue to manage its existing portfolio and capitalize on opportunities to realize gains.
The company will continue to monitor and manage its debt levels and financial performance.

Key Dates

Date	Description
January 7, 2013	Lisa M. Vorakoun began employment with the Company.
September 7, 2017	The Company executed the second amendment and restatement of the Credit Facility.
November 26, 2019	The Company sold 15 properties to PINE for $125.9 million and contributed 5 properties to the PINE Operating Partnership.
December 5, 2022	The Company completed a follow-on public offering of 3,450,000 shares of common stock.
February 16, 2023	The Board cancelled the Prior PINE Share Purchase Authorization and authorized the purchase by the Company of up to $2.1 million in shares of common stock of PINE.
December 4, 2023	The Company entered into an asset management agreement with a third party to manage a portfolio of multi-tenant and single-tenant assets.
December 12, 2023	The Board authorized the purchase by the Company of up to $2.0 million in shares of common stock of PINE.
February 2, 2024	The borrower under the construction loan repaid the principal balance of $1.9 million.
February 16, 2024	The Company entered into the Subsurface Management Agreement with a third party.
March 26, 2024	The Company originated a construction loan for $10.0 million.
April 4, 2024	The Company priced a public offering of 1,500,000 additional shares of the Series A Preferred Stock.
April 18, 2024	The borrower on the mortgage loan secured by the Sabal Pavilion property repaid the mortgage loan.
July 11, 2024	The Company funded $10.0 million into an escrow account for a Series A preferred stock investment.
August 1, 2024	The escrow closed on the Series A preferred stock investment.
August 23, 2024	The Company implemented a $24.5 million at-the-market preferred stock equity offering program.
September 25, 2024	The Company signed an amendment with the borrower of the Hypoluxo project, reducing the total funding obligation to $5.6 million.
September 27, 2024	The Company originated a $43.8 million first mortgage loan secured by the Rivana at Innovation Station property.
September 30, 2024	The Company and certain subsidiaries entered into a credit agreement for a term loan in an aggregate principal amount of $100.0 million.
October 16, 2024	The Company filed a new shelf registration statement on Form S-3.
October 22, 2024	The Company entered into an employment agreement with Lisa M. Vorakoun and amendments to employment agreements with John P. Albright, Steven R. Greathouse and Daniel E. Smith.
October 24, 2024	The consolidated financial statements were issued.

Keywords

Real Estate Investment Trust, REIT, Commercial Real Estate, Income Properties, Property Acquisitions, Commercial Loans, Strategic Investments, Retail Properties, Multi-Tenant Properties, Financial Results

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