CTO Realty Growth (NYSE: CTO) had a robust third quarter in 2023, leading to an upward revision of its full-year Funds from Operations (FFO) and Adjusted Funds from Operations (AFFO) guidance. The company attributed the positive results to better-than-expected tenant retention, new tenant rent commencements, percentage rent from food and beverage and theater operators, and improved expense controls. Despite a credit loss associated with WeWork, the company expressed optimism about the resilience of the retail market.
Key takeaways from the earnings call include:
- CTO Realty signed 21 leases in Q3, including a replacement lease for the food hall space at Ashford (NYSE:AINC) Lane in Atlanta.
- The company sold two properties for $20.9 million in Q3 and three properties for $22.9 million year-to-date.
- CTO Realty acquired a 10.6-acre land parcel adjacent to The Collection at Forsyth.
- The company implemented $160 million of forward-starting interest rate swaps to hedge against potential future interest rate increases.
- It plans to invest between $95 million and $100 million at an initial yield of approximately 7.7% and sell between $38 million and $65 million of assets at an exit cap rate between 6.15% and 6.75%.
- The company increased its core FFO and AFFO guidance ranges by nearly 5% based on strong third-quarter results and improved expense control.
- CTO Realty is taking a cautious approach due to uncertainty and volatility but remains optimistic about creating long-term value for shareholders.
John Albright, CEO of CTO Realty, discussed the company's leasing activity during the earnings call. He noted that they are experiencing good leasing activity, particularly on their newer acquisitions at West Broad, Collection, and Ashford Lane. Albright also mentioned an uptick in activity at the Legacy property, specifically with WeWork.
In terms of property sales, Albright noted that the General Dynamics (NYSE:GD) office building was purchased by a syndicator, while the Westcliff property was acquired by a local value-add group. The low cap rate on the Westcliff property is due to leases that will come online next year. The CEO also discussed their decision to buy back preferred shares at a discount to liquidation preference, which he said is attractive for shareholders. He further expressed interest in buying back stock if the price remains at attractive levels.
The discussion also touched on the time it takes to go from signing a lease to opening a property, with Albright mentioning that construction costs have increased and contractors are still busy, resulting in longer timelines. Despite these challenges, CTO Realty remains optimistic about its ability to deliver long-term value to its shareholders.
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