CTO Realty Growth, Inc. — FY 2023 Form 10-K
Reporting period: Fiscal year ended December 31, 2023. This is an annual filing, not a standalone fourth-quarter report. CTO is a self-managed equity REIT focused primarily on retail and mixed-use properties. At year-end, it owned 20 properties in eight states, totaling approximately 3.7 million square feet.
Financial results and position
| Metric | FY 2023 | FY 2022 |
|---|---|---|
| Total revenue | $109.1 million | $82.3 million |
| Operating income | $26.5 million | $10.7 million |
| Net income attributable to CTO | $5.5 million | $3.2 million |
| Net income (loss) attributable to common stockholders | $0.8 million | $(1.6) million |
| FFO attributable to common stockholders | $37.5 million; $1.66/share | $30.1 million; $1.62/share |
| Core FFO attributable to common stockholders | $39.8 million; $1.77/share | $32.2 million; $1.74/share |
| AFFO attributable to common stockholders | $43.1 million; $1.91/share | $33.9 million; $1.83/share |
| Cash provided by operating activities | $46.4 million | $56.1 million |
| Cash, including restricted cash | $17.8 million | $21.2 million |
| Long-term debt, carrying value | $495.4 million | $445.6 million |
| Total assets | $989.7 million | $986.5 million |
| Stockholders’ equity | $457.5 million | $504.8 million |
- Income-property revenue rose 40.4% to $96.7 million, primarily reflecting acquisitions made in late 2022 and in 2023. Multi-tenant properties were 90% economically and physically occupied at year-end; single-tenant properties were 100% occupied.
- Interest expense more than doubled to $22.4 million, mainly due to higher leverage and interest rates. Debt at face value totaled $496.8 million, including $163.0 million drawn on a $300.0 million credit facility; $137.0 million of facility capacity remained undrawn. The company reported compliance with debt covenants.
- Operating cash flow decreased by $9.7 million. Investing activities used $52.6 million, while financing activities provided $2.8 million. Restricted cash was $7.6 million, including $6.9 million held for reinvestment through like-kind exchanges.
Material changes and significant activity
- CTO acquired property interests for a total cost of $80.3 million and sold nine income properties for $87.1 million. Sales generated reported aggregate gains of $6.6 million, including an impairment charge before the Westcliff sale.
- Revenue increased 32.6% year over year. Management-services revenue grew to $4.4 million; commercial-loan interest income was $4.1 million, slightly lower than 2022; and real estate operations revenue fell to $4.0 million, primarily due to lower mitigation-credit sales.
- The commercial loans and investments portfolio increased to $61.8 million, including four loans and one preferred investment. CTO recorded a $0.6 million expected-credit-loss provision; the year-end CECL reserve was $0.6 million.
- The fair value of CTO’s 15.7% investment in PINE was $39.4 million, down from $42.0 million. CTO recorded a $4.7 million unrealized, non-cash loss on the investment, partly offset by $2.5 million of dividend income.
- CTO repurchased $6.0 million of common stock and $0.4 million of Series A preferred stock during 2023. Common dividends were $1.52 per share, up from $1.49; preferred dividends were $1.59 per share. The filing provides no specific earnings or dividend guidance.
Outlook, risks and unusual items
- Management expects to fund future acquisitions with cash, operating cash flow, property-sale proceeds, possible sales of subsurface interests, and credit-facility borrowings. It stated that available liquidity should cover operations, capital needs and debt service over the next 12 months and the foreseeable future. This is management’s assessment, not earnings guidance.
- CTO’s strategy emphasizes multi-tenant retail properties and portfolio diversification. Its agreement with PINE generally limits CTO’s investment in single-tenant net-lease properties. CTO also earns management fees from PINE; 2023 fees were $4.4 million, and no incentive fee was earned in 2023.
- Debt includes $51.0 million of 3.875% convertible notes due April 2025. The company says it intends to settle conversions in cash, with any excess conversion value in common shares. Variable-rate exposure remained: a hypothetical 100-basis-point rate increase would affect financial position, results and cash flows by an estimated $0.6 million at year-end.
- Other notable items included a $2.8 million gain from extinguishing tenant-improvement obligations, $1.5 million of impairment and credit-loss charges, and an $8.9 million loss in other comprehensive income from interest-rate swaps. In 2022, the sale of the Mitigation Bank produced an $11.9 million loss, affecting period comparability.
- Key risks include tenant defaults or vacancies, retail-sector and e-commerce pressures, geographic concentration, refinancing and interest-rate exposure, loan-credit risk, reliance on PINE and potential related-party conflicts, real-estate valuation and liquidity, environmental and weather events, REIT qualification, and the tax consequences of Section 1031 exchanges.
- After year-end, on February 16, 2024, CTO sold its remaining subsurface interests for $5.0 million gross proceeds and entered into a management agreement with the buyer.
- The independent auditor issued unqualified opinions on the financial statements and internal control over financial reporting. Management also concluded disclosure controls and internal controls were effective at year-end.
Important facts for investors to verify
- Review the $51.0 million convertible-note maturity in 2025, refinancing plans, and the company’s intended cash settlement approach.
- Assess the effect of higher interest expense and remaining variable-rate exposure on cash available for debt service and distributions.
- Compare AFFO and FFO with dividends and capital needs; these non-GAAP measures are not substitutes for operating cash flow.
- Examine occupancy, upcoming lease expirations—including 23.6% of gross annual rents expiring in 2028—and tenant and geographic rent concentrations.
- Evaluate loan collateral, maturities, repayment prospects, and the adequacy of the CECL allowance, particularly for the Watters Creek preferred investment and other larger exposures.
- Confirm the use and reinvestment of restricted exchange proceeds, the treatment of the February 2024 subsurface-sale proceeds, and any related tax implications.