CTO Realty Growth, Inc. — Q1 2024 Form 10-Q
Reporting period: Three months ended March 31, 2024; compared with Q1 2023 unless noted. Dollar amounts are in millions except per-share data. CTO is a self-managed equity REIT focused primarily on retail and mixed-use properties. At quarter-end, it owned and managed 20 properties across eight states, totaling 3.9 million square feet.
Financial performance
| Metric | Q1 2024 | Q1 2023 |
|---|---|---|
| Total revenue | $28.1 | $24.7 |
| Operating income | $14.5 | $3.0 |
| Net income (loss) attributable to CTO | $5.8 | $(6.0) |
| Net income (loss) attributable to common stockholders | $4.7 | $(7.2) |
| Basic / diluted EPS | $0.21 / $0.20 | $(0.32) / $(0.32) |
| Operating cash flow | $11.8 | $9.3 |
| Cash used in investing activities | $(52.0) | $(25.6) |
| Cash from financing activities | $37.2 | $3.7 |
- Revenue increased 13.8%. Income-property revenue rose 9.8% to $24.6 million; interest income from commercial loans and investments increased to $1.4 million from $0.8 million.
- Income-property segment operating income was $17.9 million, or approximately 72.6% of segment revenue, compared with $15.3 million, or approximately 68.1%, a year earlier.
- Net income included $9.2 million of gains on dispositions: $4.6 million from a Santa Fe property sale and $4.5 million from the sale of subsurface interests. Investment and other loss was $3.3 million, including an approximately $3.8 million unrealized loss on CTO’s PINE investment.
- Interest expense increased to $5.5 million from $4.6 million, primarily due to higher Credit Facility borrowings. Depreciation and amortization was $10.9 million; general and administrative expenses increased 13.1% to $4.2 million.
- FFO attributable to common stockholders was $10.8 million ($0.41 diluted per share); Core FFO was $10.7 million ($0.48 per share); and AFFO was $11.6 million ($0.52 per share). These are non-GAAP measures and are not substitutes for GAAP earnings or operating cash flow.
Balance sheet, debt, and liquidity
- At March 31, 2024, total assets were $1.04 billion, total liabilities $578.8 million, and stockholders’ equity $462.2 million.
- Long-term debt had a $543.3 million face value and a $542.0 million carrying value, up from $495.4 million carrying value at year-end 2023. Debt includes $209.5 million outstanding on the Credit Facility, $265 million of term loans, $51.0 million of 2025 convertible notes, and a $17.8 million mortgage note.
- The $300 million Credit Facility had $90.5 million undrawn. CTO reported compliance with its debt covenants. The 2025 Notes mature in April 2025; scheduled principal maturities also include $82.8 million in 2026, $309.5 million in 2027, and $100 million in 2028.
- Cash and cash equivalents were $6.8 million, with a further $8.1 million of restricted cash. Of restricted cash, $6.6 million was held for reinvestment through a like-kind exchange and $1.5 million related to loan reserves.
- Q1 ended with $14.8 million of cash, cash equivalents, and restricted cash, a decrease of $3.0 million from the beginning of the quarter. CTO paid $4.8 million of interest and $9.8 million in preferred and common dividends during the quarter.
Material changes and notable transactions
- CTO acquired The Marketplace at Seminole Towne Center in Florida for $68.8 million total acquisition cost; it was 98% occupied at acquisition. It also acquired a 4,000-square-foot property at The Exchange at Gwinnett for $2.3 million.
- CTO sold its Santa Fe mixed-use property for $20.0 million and sold its remaining subsurface interests, covering approximately 352,000 acres in Florida, for $5.0 million. It retained a management agreement related to the subsurface assets sold.
- CTO originated a $10.0 million construction loan for the Hypoluxo Project at an 11% fixed rate; $6.7 million had been funded at quarter-end. Its commercial loans and investments totaled $66.6 million net of a $0.7 million expected-credit-loss reserve.
- CTO’s PINE investment had a quarter-end fair value of $35.6 million, representing 15.7% of PINE’s outstanding equity, compared with $39.4 million at December 31, 2023.
- Common dividends were $0.38 per share and Series A preferred dividends were $0.40 per share for the quarter. CTO issued 125,857 common shares through its ATM program for $2.1 million net and repurchased 40,726 common shares for $0.7 million.
Outlook, risks, and contingencies
- Management’s 2024 investment guidance for income-producing properties, including structured investments, is $100 million to $150 million. Expected funding sources include operating cash flow, property disposition proceeds, Credit Facility borrowings, and other financing.
- Management stated it expects sufficient liquidity for operations, capital needs, maintenance, and debt service over the next 12 months and foreseeable future. It cited cash, operating cash flow, $90.5 million of undrawn Credit Facility capacity, and ATM availability. A subsequent preferred-stock offering provided $33.1 million net proceeds after quarter-end.
- CTO had $17.0 million remaining on commitments for property capital improvements, generally expected to be completed within 12 months. It also stated it expects property dispositions to qualify for like-kind exchange tax treatment; failure to qualify or reinvest could result in significant taxes.
- Key disclosed risks include tenant and retail-sector performance, competition for acquisitions, real estate illiquidity, borrower credit risk, access to capital and debt service, interest-rate exposure, REIT qualification and distribution requirements, and execution of acquisitions, dispositions, and like-kind exchanges. A 100-basis-point rate change was estimated to affect financial position, results, and cash flows by approximately $0.6 million, based on quarter-end exposure.
- CTO reported no material change in risk factors from its 2023 Form 10-K, no material expected effect from routine legal proceedings, and no off-balance-sheet arrangements. Disclosure controls were assessed as effective.
Important facts for investors to verify
- How much of reported earnings and FFO/AFFO growth reflects recurring property and lending operations versus the $9.2 million of disposition gains and other adjustments.
- Leasing, occupancy, tenant credit, and expected cash-flow contribution from the Seminole Towne Center acquisition, as well as performance of the wider property portfolio.
- Funding and repayment plans for the $51.0 million convertible notes due April 2025 and the larger 2027 debt maturities; confirm ongoing covenant compliance and borrowing capacity.
- Actual deployment of the $33.1 million preferred-offering proceeds, investment spending versus the $100–$150 million guidance range, and the impact of the preferred issuance on distributions and capital structure.
- Whether common and preferred dividends remain supported by recurring cash generation, considering Q1 cash flows, debt costs, property investment needs, and the distinction between AFFO and cash available for distribution.