CTO Realty Growth, Inc. quarterly report, Q3 FY2021

CTO Realty Growth, Inc. — Q3 2021 Form 10-Q

Reporting period: Three and nine months ended September 30, 2021. Unless noted otherwise, amounts are in millions. CTO is a diversified REIT with 19 commercial properties totaling 2.2 million square feet, alongside management services, commercial loan and master lease investments, and real estate operations.

Financial results and liquidity

Metric	Q3 2021	Q3 2020	Nine months 2021	Nine months 2020
Revenue	$16.6	$14.6	$45.6	$40.4
Net income (loss) attributable to CTO	$23.9	$(1.5)	$28.0	$(1.2)
Net income (loss) attributable to common stockholders	$22.8	$(1.5)	$26.9	$(1.2)
Diluted earnings (loss) per common share	$3.87	$(0.33)	$4.56	$(0.25)
Operating cash flow	Not separately reported	Not separately reported	$12.4	$11.9

Income-property operating income was $9.8 million in Q3 and $27.1 million year to date; nine-month income was approximately flat versus 2020 despite higher revenue.
FFO attributable to common stockholders was $6.1 million in Q3 and $16.2 million for nine months; diluted FFO per share was $1.03 and $2.75, respectively. AFFO attributable to common stockholders was $6.4 million and $18.4 million; diluted AFFO per share was $1.09 and $3.12.
At September 30, cash and cash equivalents were $7.0 million and restricted cash was $68.5 million. Most restricted cash, $67.8 million, was held for reinvestment through like-kind exchanges. Nine-month operating, investing, and financing cash flows were $12.4 million, $(7.7) million, and $37.1 million, respectively.
Debt carrying value was $229.9 million; face-value debt was $235.7 million, comprising $109.0 million under the revolving facility, a $65.0 million term loan, and $61.7 million of convertible notes. The filing reports $101.0 million of available facility capacity, subject to the borrowing base. CTO reported compliance with debt covenants.
Total assets were $686.7 million and stockholders’ equity was $435.1 million at quarter-end. Common dividends were $1.00 per share in Q3 and $3.00 year to date; the new Series A preferred stock paid $0.3763 per share during the period.

Material changes versus prior periods

Revenue increased 13.8% in Q3 and 12.7% for the first nine months. Growth reflected recent property acquisitions, higher management fees from PINE, and increased real estate operations revenue, including subsurface-rights sales.
Reported earnings were substantially affected by property-sale gains: $22.7 million in Q3 and $28.1 million year to date. Nine-month results also included a $16.5 million impairment of the Land JV investment, partly offset in the tax provision by a $4.1 million related tax benefit.
The company sold one multi-tenant and 13 single-tenant properties during the first nine months for $140.8 million, recording $28.0 million of gains. It acquired three multi-tenant properties for an aggregate purchase price of $111.0 million.
CTO issued 3.0 million Series A preferred shares in July, receiving $72.4 million net proceeds. It used proceeds and other cash sources in its debt management; face-value debt declined $44.8 million from December 2020.
Investment and other income included a $6.9 million unrealized gain on the PINE investment for nine months, compared with a $7.1 million unrealized loss in the comparable 2020 period. Q3 included a $1.3 million unrealized loss.
FFO per diluted common share declined year over year, to $2.75 from $3.71 for nine months; AFFO per diluted common share was $3.12 versus $3.35. These non-GAAP measures are not substitutes for GAAP earnings or operating cash flow.

Outlook, commentary, and risks

Management’s 2021 investment guidance for income-producing properties was $225 million to $250 million. Funding sources identified include operating cash, disposition proceeds and like-kind exchanges, potential subsurface-interest sales, and credit-facility borrowings.
Management stated it expected adequate liquidity for operations, capital needs, maintenance, and debt service over the next 12 months. Remaining committed capital improvements were $12.1 million, generally expected to be completed within 12 months.
On October 18, 2021, CTO agreed to purchase a Raleigh-area retail center for $70.5 million, subject to customary closing conditions; completion was not assured. The Land JV’s proposed sale of substantially all remaining land to Timberline for $66.2 million was also pending customary conditions, with estimated CTO proceeds of $25.6 million before taxes.
CTO completed its purchase of the remaining 70% interest in the Mitigation Bank on September 30 for $18.0 million. Future credit issuance, marketability, and value depend on regulatory approvals and market demand; the filing gives no assurance of sales or value.
COVID-19 effects remained uncertain, including possible renewed restrictions, tenant impacts, economic conditions, inflation, and changes in real estate values and cost of capital. Some deferred rent repayments could continue into 2023.
Key other risks include tenant and retail-sector performance, competition for acquisitions, refinancing and interest-rate exposure, REIT qualification and distribution requirements, and the ability to complete like-kind exchanges. A 100-basis-point interest-rate change was estimated to affect financial position, results, and cash flows by $1.1 million, although swaps hedge substantial variable-rate exposure.
CTO is pursuing a $0.8 million escrow dispute with Buc-ee’s concerning wetlands permits; discovery was ongoing. Management did not expect ordinary legal proceedings to materially affect results.

Important facts for investors to verify

How much of reported earnings and FFO reflects recurring property operations versus the $28.1 million of disposition gains, the Land JV impairment, and PINE’s noncash valuation changes.
Availability and intended use of the $68.5 million restricted-cash balance, and whether the $101.0 million stated facility capacity remains available under borrowing-base and covenant requirements.
Closing and final economics of the Timberline land sale and the $70.5 million retail-center purchase, including funding and like-kind-exchange timing.
Progress on mitigation-credit approvals and sales, and exposure to tenant performance, COVID-19 effects, and the Buc-ee’s escrow litigation.
Dividend sustainability in light of operating cash flow, acquisition plans, debt service, and the preferred-stock dividend priority.