8-K: CTO Realty Growth Reports Strong Third Quarter 2024 Results, Raises Full-Year Guidance

CTO Realty Growth announced strong third-quarter 2024 results, including increased FFO and AFFO, driven by strategic acquisitions and leasing momentum, and raised its full-year guidance.

Summary

• CTO Realty Growth reported a net income per diluted share of $0.17 for the third quarter of 2024.
• Core Funds from Operations (FFO) reached $0.50 per diluted share, a 6.4% increase year-over-year.
• Adjusted Funds from Operations (AFFO) was $0.51 per diluted share, up 6.3% from the same period last year.
• The company raised $125.7 million through its common stock ATM offering program.
• A new 5-year $100 million unsecured term loan was secured with an initial effective interest rate of 4.7%.
• Liquidity stood at $213 million as of September 30, 2024.
• Investments totaled $191.3 million, with a weighted average yield of 9.5%, including property acquisitions and structured investments.
• One property was sold for $18.0 million at a 9.2% exit cap rate.
• Same-Property Net Operating Income (NOI) increased by 6.3% to $16.8 million.
• The signed-not-open pipeline represents $6.5 million, or 7.3%, of annual cash base rent.
• Full-year Core FFO guidance was increased to a range of $1.83 to $1.87 per diluted share.
• Full-year AFFO guidance was also raised to a range of $1.96 to $2.00 per diluted share.
• The company's GLA increased over 20% due to a $137 million portfolio acquisition of retail centers.
• A $44 million first mortgage development loan was originated with an initial yield of 11%.

Sentiment

Score: 8

Explanation: The document conveys a positive sentiment due to strong financial results, increased guidance, strategic acquisitions, and successful capital raising activities. The company's focus on growth and active asset management is also viewed favorably.

Positives

• The company experienced significant growth with a 20% increase in GLA due to a strategic portfolio acquisition.
• The company successfully funded investment activity through disciplined use of its ATM program.
• The company decreased leverage and ended the quarter with $213 million of available liquidity.
• The company's portfolio is focused on high-quality open-air shopping centers in growing markets.
• The company has a scalable platform and team that targets lease-up of existing vacancy.
• The company has a well-laddered debt maturity schedule and forward hedges to minimize interest rate volatility.
• The company has a strong leasing execution with a 26% comparable leasing spread year to date.
• The company has a diversified geographic footprint with a focus on the Southeast and Southwest.
• The company has a commitment to sustainability and corporate social responsibility.

Negatives

• Occupancy is at 90%, while leased occupancy is at 95.8%, indicating a gap between leased and occupied space.
• The company has $45 million of floating rate debt on the Revolving Credit Facility, which could be impacted by interest rate volatility.
• The company's net debt to pro forma EBITDA is 6.4x, which is a relatively high leverage ratio.
• The company's 2025 convertible senior notes of $51 million mature in April 2025.

Risks

• The company's ability to remain qualified as a REIT is subject to U.S. federal and state income tax law changes.
• General adverse economic and real estate conditions could impact the company's performance.
• Macroeconomic and geopolitical factors, including inflation and interest rate volatility, pose risks.
• Credit risk is associated with the company's investments in structured investments.
• Pandemics such as COVID-19 could negatively impact the company's financial condition.
• The inability of major tenants to pay rent due to bankruptcy or business downturns is a risk.
• The loss or decline in the business of Alpine Income Property Trust (PINE) could impact the company.
• The availability of investment properties that meet the company's goals is not guaranteed.
• Uncertainties exist in obtaining required governmental permits for acquisitions and sales.

Future Outlook

The company has increased its Core FFO and AFFO outlook for 2024, assuming continued stability in economic activity and positive business trends related to its tenants. The company expects to invest between $300 million and $350 million and dispose of assets between $35 million and $50 million.

Management Comments

• We are pleased to report another strong quarter with significant accomplishments across all aspects of our business, stated John P. Albright, President and Chief Executive Officer of CTO Realty Growth.
• We experienced significant growth as our GLA increased over 20% from our $137 million portfolio acquisition of high-quality retail centers in our target growth markets, and we originated a $44 million first mortgage development loan with an initial yield of 11%.
• Importantly, we primarily funded our investment activity with disciplined use of our ATM.
• Finally, we closed a $100 million 5-year term loan with proceeds used to pay down our credit facility, and ended the quarter with $213 million of available liquidity and decreased leverage.

Industry Context

This announcement reflects a positive trend in the retail REIT sector, with CTO demonstrating strong growth through strategic acquisitions and active asset management. The company's focus on open-air shopping centers in high-growth markets aligns with current industry trends favoring these types of properties. The company's ability to raise capital and secure favorable financing terms also positions it well compared to some of its peers.

Comparison to Industry Standards

• CTO's dividend yield of 8.0% is higher than many of its retail-focused peers, such as AKR (3.2%), FRT (3.8%), and IVT (3.2%).
• CTO's 2024E FFO multiple of 10.3x is lower than many of its peers, including AKR (18.3x), FRT (16.9x), and IVT (16.2x), suggesting a potentially undervalued stock.
• The company's same-property NOI growth of 6.3% is strong compared to the industry average, indicating effective property management and leasing strategies.
• The company's investment activity of $191.3 million in the quarter is significant, demonstrating its ability to deploy capital effectively.
• The company's net debt to pro forma EBITDA of 6.4x is within the range of industry standards for REITs, but is on the higher side.
• The company's focus on open-air shopping centers in the Southeast and Southwest is a common strategy among retail REITs seeking growth in high-demand markets.
• The company's comparable leasing spreads of 12% for the quarter and 26% year to date are strong, indicating the company's ability to increase rents on existing properties.

Stakeholder Impact

• Shareholders will benefit from increased FFO and AFFO, as well as a higher dividend yield.
• Employees will benefit from a stable and growing company with a commitment to an inclusive culture.
• Tenants will benefit from well-maintained and strategically located properties.
• Creditors will benefit from the company's strong liquidity and well-managed debt profile.
• Customers will benefit from the company's focus on high-quality retail properties.

Next Steps

• The company will host a conference call on October 25, 2024, to discuss the operating results.
• The company plans to continue its investment strategy, targeting $300-$350 million in investments for the full year.
• The company plans to dispose of assets between $35 million and $50 million for the full year.
• The company will continue to focus on leasing up existing vacancies and repositioning assets.

Key Dates

Keywords

REIT, Real Estate, Shopping Centers, Retail, FFO, AFFO, NOI, Leasing, Acquisitions, Dispositions, Debt, Investments, ATM, Dividends