CTO Realty Growth, Inc. — Q1 2023 Form 10-Q
Reporting period: Three months ended March 31, 2023; comparisons are with Q1 2022. Dollar amounts are in millions unless otherwise noted. CTO is a self-managed equity REIT focused on retail and mixed-use real estate. At quarter-end, it owned 23 properties across nine states, totaling 3.7 million square feet, alongside commercial loans and investments, management services, and Florida subsurface interests.
Financial performance and position
| Metric | Q1 2023 | Q1 2022 / prior date |
|---|---|---|
| Total revenue | $24.7 | $17.2; up 43.6% |
| Operating income | $3.0 | $3.5 |
| Net income (loss) attributable to company | $(6.0) | $0.2 |
| Net loss attributable to common stockholders; diluted EPS | $(7.2); $(0.32) | $(1.0); $(0.06) |
| FFO attributable to common stockholders | $8.2; $0.36 per share | $7.7; $0.44 per share |
| Core FFO / AFFO attributable to common stockholders | $8.9 / $9.9; $0.39 / $0.43 per share | $8.2 / $8.7; $0.46 / $0.49 per share |
| Operating cash flow | $9.3 | $11.4 |
| Cash, cash equivalents and restricted cash | $8.6 | $21.2 at Dec. 31, 2022 |
| Long-term debt, carrying value | $465.1 | $445.6 at Dec. 31, 2022 |
| Total assets / stockholders’ equity | $981.3 / $478.6 | $986.5 / $504.8 at Dec. 31, 2022 |
Operating margin was approximately 12.0%, compared with 20.3% in Q1 2022. The decline in GAAP results reflected higher depreciation and amortization, interest expense, and investment losses, partly offset by stronger property operating income. FFO, Core FFO, and AFFO are non-GAAP measures and should not be treated as cash flow or substitutes for GAAP results.
Material changes and capital allocation
- Income-property revenue increased 47.9% to $22.4 million, primarily reflecting portfolio growth and the timing of acquisitions and dispositions. Management-service revenue rose to $1.1 million; commercial-loan interest income was $0.8 million.
- Interest expense increased to $4.6 million from $1.9 million. Management attributed the increase mainly to higher debt balances and rates, including the Price Plaza mortgage and 2028 Term Loan.
- CTO recorded a $4.9 million unrealized, non-cash loss on its PINE investment as PINE’s share price declined. The PINE investment was valued at $39.3 million at quarter-end, or 14.8% of PINE’s outstanding equity. Interest-rate swaps generated a $4.9 million other comprehensive loss.
- Investing activities used $25.6 million, including $16.1 million for commercial loans and investments and $7.8 million for real estate and lease assets. Financing activities provided $3.7 million; CTO repurchased $5.0 million of common stock, paying an average $16.48 per share.
- Quarter-end debt face value was $467.0 million, including $133.2 million drawn on a $300.0 million revolving facility. The company reported $166.8 million undrawn capacity and compliance with debt covenants. Approximately $33.2 million of the revolver balance was not fixed through swaps; a 100-basis-point rate change would affect results and cash flows by an estimated $0.3 million.
- Common and preferred dividends declared were $0.38 and $0.40 per share, respectively. On April 25, 2023, the board authorized a further common-stock repurchase program of up to $5.0 million, subject to a per-share price limit.
Outlook, risks and contingencies
Management’s 2023 investment guidance is $100 million to $200 million for income-producing properties, including structured investments. Expected funding sources include operating cash flow, cash, property dispositions and potential subsurface-interest sales, credit-facility borrowings, and equity issuance. Management stated it expects liquidity to cover operations, capital requirements, and debt service for the next 12 months and beyond, citing available ATM capacity of $137.7 million and the $166.8 million undrawn credit commitment.
Risks highlighted include commercial-property and tenant performance, retail competition, acquisition and disposition execution, borrower credit and collateral values, access to capital and debt-service needs, rising interest rates, economic conditions, REIT qualification and tax rules, and potential conflicts relating to PINE. The filing reported no material changes to previously disclosed risk factors. Capital-improvement commitments remaining were $19.3 million, plus $4.3 million of unfunded construction-loan commitment. Management did not expect routine legal proceedings to materially affect financial condition or results.
Investor verification priorities
- Assess whether portfolio growth can translate into sustained operating income and per-share FFO/AFFO growth, given lower year-over-year per-share measures.
- Review debt maturities, variable-rate exposure, swap coverage, covenant headroom, and the capacity to fund dividends and planned investments.
- Evaluate the valuation and cash-income contribution of the PINE investment, including the effect of share-price volatility on GAAP earnings.
- Track performance and collectability of commercial loans, including the new Founders Square loan and the recorded credit-loss provision.
- Verify progress against the $100 million to $200 million investment guidance, remaining capital commitments, and stated liquidity sources.
- Consider that the filing provides no formal earnings or per-share guidance; reported investment guidance is the stated 2023 outlook.