Business context and reporting period
CTO Realty Growth, Inc. filed this Form 10-K for the fiscal year ended December 31, 2021. The company is a retail-oriented REIT operating income properties, management services, commercial loan and master lease investments, and real estate operations. At year-end it owned 22 properties across 10 states—9 single-tenant and 13 multi-tenant properties totaling 2.7 million square feet. It also held Florida subsurface mineral interests, mitigation assets, and a 15.6% equity interest in Alpine Income Property Trust (PINE).
CTO completed its Maryland reincorporation in January 2021 in connection with its REIT conversion, effective beginning with tax year 2020. The filing reports annual results; it does not provide a clear standalone fourth-quarter financial summary.
Key financial metrics
| Metric | 2021 | 2020 |
|---|---|---|
| Total revenue | $70.3 million | $56.4 million |
| Operating income | $23.3 million | $12.3 million |
| Net income attributable to CTO | $29.9 million | $78.5 million |
| Net income per common share, basic and diluted | $4.69 | $16.69 |
| Net cash from operating activities | $27.6 million | $16.9 million |
| Cash used in investing activities | $103.0 million | $91.1 million |
| Cash from (used in) financing activities | $72.9 million | ($26.9) million |
| Total assets | $733.1 million | $666.7 million |
| Stockholders’ equity | $430.5 million | $350.9 million |
| Long-term debt, carrying value | $278.3 million | $273.8 million |
Income-property revenue was $50.7 million, with segment operating income of $36.9 million (approximately 72.7% of segment revenue). Multi-tenant occupancy improved to 86% economic and 85% physical at year-end, from 83% and 82%, respectively, in 2020; single-tenant occupancy was 100%.
Year-end cash and cash equivalents were $8.6 million, plus $22.7 million of restricted cash. CTO reported $143.0 million of availability under its $210 million revolving credit facility, subject to borrowing-base assets. Debt at face value totaled $283.0 million: $67 million on the revolver, $65 million on the 2026 term loan, $100 million on the 2027 term loan, and about $51 million of 3.875% convertible notes due 2025. There was no principal due in 2022; the revolver matures in 2023. The company reported compliance with debt covenants at year-end.
Common dividends were $4.00 per share in 2021; preferred dividends were $0.77 per share. AFFO attributable to common stockholders was $25.7 million, or $4.36 per diluted share, versus $26.2 million, or $5.57, in 2020. FFO was $19.7 million, or $3.35 per diluted share, versus $27.5 million, or $5.84. FFO, Core FFO and AFFO are non-GAAP measures and are not substitutes for GAAP earnings or operating cash flow.
Material changes versus the prior year
- Revenue rose 24.6%, chiefly from real estate operations, acquisitions and higher PINE management fees. Real estate operations revenue reached $13.4 million, including land, subsurface-interest and mitigation-credit sales.
- CTO acquired eight multi-tenant properties for approximately $249.1 million and sold one multi-tenant and 14 single-tenant properties for $162.3 million, recording approximately $28.2 million of gains on the property dispositions.
- Income-property revenue increased only 1.5%, while segment operating income declined to $36.9 million from $38.0 million, reflecting higher direct costs and acquisition/disposition timing.
- Operating cash flow increased by $10.7 million. Financing cash flow improved substantially, including $72.4 million net proceeds from issuance of 3 million Series A preferred shares and new term-loan borrowings.
- Net income fell from $78.5 million to $29.9 million. The comparison is substantially affected by the $83.5 million income-tax benefit recorded in 2020, primarily from derecognizing deferred tax assets and liabilities upon REIT conversion.
Outlook, commentary, risks and unusual items
Management’s stated strategy is to expand primarily through multi-tenant, retail-oriented income properties in major and growth markets, funded with operating cash, cash on hand, property dispositions and 1031 exchanges, and borrowings where appropriate. 2021 acquisitions were described as nearing the top end of acquisition guidance issued in October; the supplied filing text does not state a clear guidance amount or a specific 2022 earnings outlook. Management believed liquidity was sufficient for operations, capital needs and debt service over the next 12 months and foreseeable future.
- CTO recorded a $17.6 million impairment of its retained interest in the Land JV, which completed its final land sale and dissolved in December 2021. CTO received $24.5 million in distributions from the venture, before taxes.
- CTO purchased the remaining 70% interest in the Mitigation Bank for $18.0 million; net cash paid was $16.1 million after using venture cash. The company now owns the bank and its mitigation-credit assets.
- The PINE investment’s share-price increase generated a $10.3 million unrealized, non-cash gain in 2021; PINE dividends contributed $2.1 million of income. No incentive management fee was earned in 2021.
- CTO repurchased $11.4 million principal amount of convertible notes at a premium, recording a $2.9 million extinguishment loss. Interest expense nevertheless declined to $8.9 million from $10.8 million.
- COVID-19 remained a risk to tenants and rent collections, although management reported no significant adverse effects on CTO in 2021 and no new COVID-related deferred-rent agreements that year. Other material risks include retail/e-commerce competition, tenant and geographic concentration, interest-rate and refinancing exposure, environmental and severe-weather liabilities, REIT qualification and 1031 exchange tax risks, and potential conflicts with PINE.
- Capital-improvement commitments were $14.7 million remaining at year-end, generally expected to be completed within 12 months. The Buc-ee’s escrow dispute was settled, with CTO receiving $0.6 million. The auditor gave unqualified opinions on the financial statements and internal controls; management also concluded controls were effective.
Important facts for investors to verify
- Confirm current occupancy, leasing progress and tenant-improvement spending for the year-end acquisitions, particularly properties acquired at lower occupancy or with shorter remaining lease terms.
- Assess recurring earnings and dividend coverage using operating cash flow and AFFO, separating them from asset-sale gains, impairment charges and the non-cash PINE valuation change.
- Review debt maturities, variable-rate exposure, swap coverage, facility covenants and the company’s ability to refinance or repay the 2023 revolver maturity.
- Evaluate the tax treatment and execution of 1031 exchanges, REIT qualification, built-in-gain exposure and the usability of the capital-loss carryforward.
- Review PINE-related management-fee dependence, investment valuation and related-party governance, alongside the shift toward a multi-tenant-focused portfolio.