CTO Realty Growth, Inc. — Q3 2022 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2022. Amounts below are in U.S. dollars; financial statement amounts are rounded to millions unless noted. CTO is a primarily retail-focused REIT. At quarter-end, it owned 18 properties across nine states, totaling 2.7 million square feet, and held commercial loan investments and other real estate-related assets.
Financial performance and position
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Total revenue | $23.1 million | $16.6 million | $59.8 million | $45.6 million |
| Net income attributable to company | $4.8 million | $23.9 million | $6.2 million | $28.0 million |
| Net income attributable to common stockholders | $3.6 million | $22.8 million | $2.7 million | $26.9 million |
| Basic/diluted EPS | $0.20 / $0.19 | $1.29 / $1.29 | $0.15 / $0.15 | $1.52 / $1.52 |
| FFO attributable to common stockholders | $8.7 million | $6.1 million | $23.9 million | $16.2 million |
| AFFO attributable to common stockholders | $9.0 million | $6.4 million | $26.6 million | $18.4 million |
Revenue grew 39.5% in Q3 and 31.2% year to date, led by income properties; management attributed the increase mainly to acquisitions and portfolio growth. Q3 operating income was $10.8 million versus $26.8 million a year earlier. Income from operations included $5.0 million of disposition gains in Q3 2022, compared with $22.7 million in Q3 2021. Net income also reflected a non-cash $3.7 million Q3 loss on the PINE investment; year-to-date that mark-to-market loss was $8.1 million, versus a $6.9 million gain in 2021.
For the nine months, operating cash flow was $34.1 million, investing cash flow was negative $80.4 million, and financing cash flow was positive $61.8 million. Cash and cash equivalents were $9.5 million and restricted cash was $37.3 million at quarter-end. Restricted cash includes $35.1 million held primarily for reinvestment through like-kind exchanges and is not all freely available for general use.
Total assets were $845.8 million and stockholders’ equity was $444.4 million at September 30, 2022. Long-term debt had a $370.2 million carrying value ($372.3 million face value), up from $278.3 million at December 31, 2021. The $300 million revolving credit facility had $38.5 million outstanding and $261.5 million undrawn. Management reported compliance with debt covenants. Common dividends declared were $0.38 per share for Q3; preferred dividends were $0.40 per share.
Material changes and transactions
- CTO acquired two multi-tenant properties for an aggregate purchase price of $119.3 million during the first nine months of 2022. It sold six properties for $81.1 million, with aggregate gains of $4.7 million; the comparable 2021 period included $140.8 million of dispositions and $28.0 million of gains.
- Commercial loans and investments were $46.2 million at quarter-end. New activity included a $30 million preferred investment in Watters Creek and construction/improvement lending; the WaterStar loan was extended to November 1, 2022 at 12% after its original maturity date.
- In September, the company added a $100 million 2028 term loan and amended its credit facility, increasing revolving commitments to $300 million, extending maturity to January 2027, adding sustainability-linked pricing, and releasing pledged collateral. The company also entered into swaps covering the term loans; the $38.5 million revolver balance remained variable-rate.
- CTO raised $20.8 million net through its ATM common-stock program in the first nine months and repurchased $2.8 million of common stock. A three-for-one common stock split took effect July 1, 2022; reported per-share figures are adjusted for the split.
Outlook, commentary and risks
Management’s 2022 investment guidance for income-producing properties was $271 million. It expected to fund acquisitions with cash, operating cash flow, disposition proceeds (including like-kind exchanges), possible sales of subsurface interests, and borrowing capacity. Management stated it believed liquidity was sufficient for operations, capital needs, and debt service over the next 12 months and foreseeable future, citing cash, operating cash flow, $128.9 million of remaining ATM capacity, and $261.5 million of revolver availability.
After quarter-end, CTO acquired West Broad Village, a 392,000-square-foot property in Virginia, on October 14 for $93.9 million. The filing says its going-in cap rate was above the range of CTO’s guidance for initial cash yields. Funding included $35 million of restricted disposition proceeds, available cash, and revolving-credit draws.
Key disclosed risks include tenant and retail-sector performance, competition for acquisitions, credit risk in commercial loans, access to capital and debt-service needs, variable interest rates, real estate illiquidity, environmental matters, and maintaining REIT qualification. Management reported no material change in risk factors from its 2021 Form 10-K, no expected material effect from routine legal proceedings, and effective disclosure controls.
Important facts for investors to verify
- How property-level occupancy, lease expirations, tenant concentration, and acquisition performance support recurring rental growth and cash generation.
- Whether operating cash flow and AFFO adequately cover common and preferred dividends, capital improvements, and debt service; reconcile AFFO with GAAP results and cash flow.
- The terms, collateral, repayment status, and extensions of commercial loans—particularly WaterStar—and the remaining unfunded loan and capital-improvement commitments.
- Debt exposure to changing rates, swap effectiveness and maturities, covenant headroom, and the financing used for the West Broad Village acquisition.
- The assumptions behind the $271 million investment guidance and the post-quarter acquisition’s yield, given the filing’s note that its cap rate exceeded the stated guidance range for initial cash yields.
- The impact of PINE’s share-price volatility on reported earnings and the company’s related-party management and investment exposure.