CTO Realty Growth, Inc. — Q1 2021 Form 10-Q
Reporting period: Three months ended March 31, 2021; comparisons are with Q1 2020 unless noted. CTO is a diversified REIT with 27 commercial properties across 12 states, totaling 2.8 million square feet. It also manages investments, holds commercial loan and master lease investments, and conducts real estate operations. CTO completed its REIT conversion in 2020 and reincorporated in Maryland in January 2021.
Financial performance and position
| Metric | Q1 2021 | Q1 2020 / prior date |
|---|---|---|
| Total revenue | $14.7 million | $12.8 million; up 14.6% |
| Operating income | $4.5 million | $0.3 million |
| Net income (loss) | $7.8 million; $1.32 per diluted share | $(12.3) million; $(2.60) per diluted share |
| FFO / AFFO (non-GAAP) | $5.2 million / $5.7 million; $0.89 / $0.97 per diluted share | $9.3 million / $9.2 million; $1.97 / $1.95 per diluted share |
| Operating cash flow | $6.3 million | $3.8 million |
| Cash and restricted cash | $5.3 million | $33.8 million at December 31, 2020 |
| Debt | $287.3 million face value; $280.2 million carrying value | $280.5 million face value at December 31, 2020 |
| Credit Facility availability | $52.9 million | $210.0 million current commitment |
| Dividend declared and paid | $1.00 per share | $0.25 per share |
Revenue growth reflected $2.4 million from recent property acquisitions and $1.9 million from the sale of about 25,000 acres of subsurface interests, partly offset by dispositions and lower revenue from the remaining property portfolio. Income-property operating income declined to $8.5 million from $8.9 million as property operating costs rose. Reported net income included a $4.8 million non-cash unrealized gain on CTO’s PINE investment; Q1 2020 included a $13.7 million non-cash unrealized loss on that investment. The filing reports total operating expenses of $11.0 million and total revenue of $14.7 million in Q1 2021.
Net cash used in investing was $34.4 million, including $39.1 million for property acquisitions and capital expenditures, partly offset by $4.7 million of disposition proceeds. Net cash used in financing was $0.4 million; CTO paid $5.9 million in dividends. The cash decline also reflects the use of restricted cash associated with a land transaction. The company stated it was in compliance with debt covenants at quarter-end and believed available cash, operating cash flow, and credit capacity would meet expected needs over the next 12 months.
Material changes and transactions
- Acquired two multi-tenant properties for a combined purchase price of $38.5 million: Jordan Landing in Utah and Eastern Commons in Nevada. Both were less than fully leased at acquisition.
- Disposed of two properties for total proceeds of $4.9 million, recognizing a combined gain of $0.7 million. A further single-tenant property sale closed after quarter-end for $11.5 million.
- Amended the Credit Facility in March: revolving commitment increased from $200 million to $210 million, and CTO added a $50 million term loan maturing in 2026. CTO repaid a $23.2 million Wells Fargo mortgage and made net Credit Facility repayments of $20 million.
- Completed the merger and Maryland reincorporation on January 29, 2021; CTO common stock began trading on the NYSE under “CTO” on February 1. The share count and equity presentation changed in connection with the merger.
- Filed a shelf registration statement permitting potential issuance of up to $350 million of securities; it became effective April 19, 2021.
Outlook, commentary, and risks
- Management’s 2021 investment guidance is $75 million to $125 million for income-producing properties. Expected funding sources include operating cash, dispositions and potential like-kind exchanges, possible subsurface-interest sales, and borrowings.
- CTO collected 100% of contractual base rent due in Q1 and reported 100% collection for April 2021. Some pandemic-related rent deferrals and abatements remain; certain deferred payments may extend into 2023. Management cautioned that collections, vacancies, and tenant performance remain exposed to pandemic and economic developments.
- CTO’s $1.9 million obligation under the Mitigation Bank JV minimum-sales guarantee may require payment in the second half of 2021; the filing records a $0.1 million liability. The company was also discussing a possible buyout of BlackRock’s interest, with no assurance on timing or terms.
- Risks include tenant and retail-sector weakness, property acquisition competition, variable-rate debt and refinancing, access to capital, REIT qualification and distribution requirements, PINE-related concentration and conflicts of interest, and real-estate valuation and liquidity. A 100-basis-point rate change was estimated to affect results and cash flows by $1.4 million before considering hedges; $150 million of variable-rate borrowings had been swapped to fixed rates.
- Two disclosed legal matters include an $0.8 million escrow dispute with Buc-ee’s and a highway-condemnation matter involving a Harris Teeter property. Management did not expect legal proceedings to materially affect financial condition or results, but outcomes are uncertain.
- The company declared a second-quarter 2021 dividend of $1.00 per share, payable June 30 to holders of record June 21. No full-year earnings or FFO guidance was provided in the supplied filing text.
Key investor verification points
- Assess recurring property-level performance separately from the $4.8 million non-cash PINE valuation gain and the subsurface asset sale; compare AFFO per share and cash generation with the dividend.
- Verify the sustainability of the $1.00 quarterly dividend against REIT taxable income, cash flow, debt covenants, and funding needs.
- Review debt maturities, variable-rate exposure, the $52.9 million borrowing availability, and the effect of the borrowing-base terms on actual liquidity.
- Monitor rent collections and recovery of deferred rents, particularly after the reported 100% Q1 and April collections.
- Track acquisition and disposition closings, use of like-kind exchanges, and progress toward the $75 million to $125 million investment plan.
- Confirm the amount and timing of any Mitigation Bank JV guarantee payment or buyout, and the resolution of the Buc-ee’s escrow dispute.