CTO Realty Growth, Inc. (CTO) Earnings Call Transcript & Summary

Good afternoon. Welcome to the Consolidated-Tomoka shareholder meeting conference Call. [Operator Instructions] Please note that this event is being recorded. I would now like to turn the conference over to Laura Franklin, Chairman. Please go ahead.

Thank you. Good afternoon, everyone. My name is Laura Franklin. I am Chairman of the Board of Directors of Consolidated-Tomoka Land Co. And pursuant to the company's bylaws, I will preside as chair of this meeting. I would like to welcome all of you to the 2020 Annual Meeting of Shareholders of Consolidated-Tomoka Land Co. As you know, because of the coronavirus pandemic, we have elected to conduct this meeting telephonically. The senior management team is located at the company's corporate office in Daytona Beach, and all of the independent directors as well as Computershare, the inspector of elections, and a representative of Grant Thornton, our independent registered public accounting firm, are all participating via conference call. Mr. Dan Smith, Secretary of the Company, will act as secretary of the meeting. Now to proceed with the business of the meeting. Mr. Smith will confirm that the notice of this meeting was given to all shareholders as of the record date for the meeting. Dan?

I hereby certify that the shareholder meeting notice regarding the notice of annual meeting of shareholders and availability of the 2020 proxy statement over the internet was mailed to shareholders of record as of March 5, 2020, and that the mailing was commenced on March 19, 2020. Additional copies of the proxy statement and a complete list of the shareholders of record as of the record date are available for your inspection and have been properly filed with the minutes of this meeting.

Thank you, Dan. I would now like to introduce Ms. Christine Abbey of Computershare Trust Company, who is participating in the meeting via conference call. Computershare has been appointed as inspector of elections for this meeting. Ms. Abbey's oath as inspector of elections will be filed with the minutes of this meeting. Ms. Abbey will confirm the presence of a quorum when she completes her tally of shareholders' proxies and ballots. Now it is my pleasure to introduce to you your Board of Directors. First is John P. Albright, our President and CEO of the company; George Brokaw; myself, Laura Franklin; Blake Gable; Chris Haga; Howard Serkin; and Casey Wold; are all on the call for this shareholder meeting. I would also like to take this opportunity to introduce to you the officers of the company that are present on the call. Mark Patten, CFO; Dan Smith, our General Counsel; Steven Greathouse, who is the Senior Vice President of Investments; Scott Bullock, who is Vice President of Real Estate; Teresa Thornton-Hill, Vice President, Corporate Counsel and Assistant Corporate Secretary; and Lisa Vorakoun, who is our Controller. We also have representatives with us today from Grant Thornton, our independent accounting firm, as well as a representative from Pillsbury Winthrop Shaw Pittman, our securities counsel. One ministerial item I'd like to go over before we head into the business of the meeting, which is the rules of conduct and procedures. A copy of the agenda for the meeting is available on the company's website, along with the list of the rules of conduct for the meeting. The website address is www.ctlc.com. By following those rules and procedures, everyone will have an opportunity to participate in the meeting, and we will be able to handle the business of the meeting efficiently and fairly. Also available on our website is a copy of the shareholder meeting presentation, which our CEO, John Albright, will present and discuss after conclusion of the formal business portion of today's meeting. As stated in the rules of conduct, shareholders should not address the meeting until recognized. If you would like to ask a question or speak during the meeting, please follow the operator's instructions for asking questions. After being recognized, first, identify yourself and your status, as a shareholder or representative of a shareholder, then state your point and ask your question. As stated in the rules of conduct, we ask that you restrict your remarks to the items on the meeting agenda. Also, as we have customarily done at prior shareholder meetings, we are imposing a limit of 2 minutes on any shareholder statement. Please note that shareholders will be permitted to address questions and comments to the Board and management during a question-and-comment period that will occur later in the meeting after the formal business portion. Thank you for your cooperation on this. It is now time to begin the formal part of the meeting. As noted in the notice and proxy statement previously furnished to you, the record date for shareholders entitled to vote at the meeting was the close of business on March 5, 2020. We believe that the total number of shares of the company which are held by holders of record now present at the meeting either in person or by proxy is sufficient to declare that we have a quorum. Such determination is subject to verification by the inspector of elections. The next order of business to come before this meeting is a description of the matters properly brought before today's meeting. As you are aware, shareholder proposals and nominations must have been submitted by November 13, 2019 and November 25, 2019, respectively, to be properly brought before this meeting. Voting on the proposals will commence after all proposals have been presented. The first proposal before the shareholders of the company is the election of 7 directors for 1-year terms expiring upon the election and qualification of directors at the company's 2021 Annual Meeting of Shareholders. The directors of the company has recommended the election of John Albright, George Brokaw, Laura Franklin, Blake Gabel, Chris Haga, Howard Serkin and Casey Wold to the Board. These 7 individuals are the only persons who have been nominated to stand for election to the 7 positions on our Board of Directors. No other nominations were made in compliance with the company's bylaws. Accordingly, all nominations are closed. The second proposal before the shareholders of the company is the ratification of the appointment by our Audit Committee of Grant Thornton LLP as the company's independent registered public accounting firm for fiscal year 2020. The third proposal before the shareholders of the company is an advisory vote to approve executive compensation. The fourth proposal before the shareholders of the company is the approval of an amendment to the company's second amended and restated 2010 equity incentive plan to increase the number of shares authorized for issuance thereunder. The fifth proposal before the shareholders of the company is the approval of an amendment to the company's articles of incorporation to change the company's name from Consolidated-Tomoka Land Co. to CTO Realty Growth, Inc. The next order of business is a vote on the proposals. It is currently 2:09 p.m., and I declare the voting open. Normally, I would state that the voting today will be both by proxy and ballot. However, since there are no shareholders in physical attendance at the meeting today, voting was conducted by proxy via mail, phone, and internet. [Voting]

It is currently 2:10 p.m., and I hereby declare the voting closed. The inspector of election will now count the votes. I'd also like to turn it over to Dan Smith, our secretary, to please report the results of the voting once received.

Thanks, Laura. We have been informed by the inspector of elections that the ballots have been counted and that the 7 nominees for election to the Board for a 1-year term have all been duly elected. The appointment of Grant Thornton LLP has been ratified. The advisory vote regarding executive compensation has been in the affirmative, and the shareholders have approved the amendment to the company's equity incentive plan and the change of the company's name.

Thank you, Dan. Consistent with the company's bylaws, no advance notice has been given to the company regarding any other business to be conducted at this meeting. Therefore, no other business will be considered. The official business portion of this meeting is now adjourned. Before we disperse, though, as is customary, we would like to turn our remaining time over to the company's President and CEO, John Albright, who will now give a report about the company and our business. Afterwards, we will have a Q&A period. If you have a question or comment, please be respectful of the 2-minute time line. I'll now turn it over to Mr. Albright. John?

Thank you, Laura. Thank you, everyone, for attending our annual meeting under these unique circumstances. And hopefully, next year, we'll be together again in person. So if you have our presentation in front of you, I'm on Page 3 to kind of give you overview of the company. We have 35 income properties now after making some large early-in-this-quarter acquisitions. We're in 12 states. We have 2.3 million square feet in our income property portfolio and an annualized NOI of $37.5 million. In addition, as most of you know, we've made an investment for the IPO of Alpine Income Property Trust of a little over 2 million shares, and that is owned by the company with a market value of $25 million at the end of the quarter. We have a portfolio of first mortgage loans of roughly $25 million, and we have cash on the balance sheet of $33 million. Our equity market cap is slightly below $200 million. Our debt is $323 million, and our enterprise value is $521 million. As mentioned in our first quarter operating results, we have had a loss in the first quarter of $2.60 per share. Most of that had to do with the mark-to-market of our 2 million shares of Alpine Income Property Trust, which, if you did the mark-to-market as of a couple of minutes ago, we'd be up $0.50 a share. So that's just going to be the mark-to-market every quarter with regards to Alpine Income Property Trust stock price. The book value, which is a relevant measure, is $57.72 per share. And I'll just go on to Page 4. Some of the strategic focus of the company is -- especially in this unique time, is to have a lot of liquidity and to have capital ready for any opportunities down the road. So we have $33 million of cash on the balance sheet. We're creating additional liquidity by selling and monetizing our low-income, single-tenant net lease properties. We're targeting roughly a disposition of $25 million to $35 million of those assets. We're evaluating monetizing $25 million of our loan portfolio to have more capital for investments down the road if there's unique investment opportunities. So as we recycle the capital from these low cap rate investments into higher-yielding assets, we're targeting the multi-tenanted office and retail assets. We have, in the first quarter, been active in repurchasing CTO's common and our convertible notes. In the first quarter, we repurchased $9 million of a combination of common stock and convertible notes. In the first quarter, we announced the dividend of $0.25 per share, which is a 50% increase over the fourth quarter. One of the -- as we discussed, one of the big components of our company is our ownership in Alpine Income Property Trust. So through that 2 million share investment, we will receive significant dividend income and management contract where we receive a management fee income stream quarterly income. On Page 5, we'll talk a little bit about the impact of the virus in -- with regards to our tenants. The operational status of our tenants at CTO is 33% of them are open, more kind of essential-type operations, and 33% are modified. That's meaning that you could have restaurants with takeout in operation, but not in full operation. 34% of the tenants are closed because of the various lockdowns in the various states. With regards to the April rent collection, 63% of our tenants have paid. 28% we're in discussion with some sort of deferral possible. It should be noted that in discussion with tenants who want to defer rent, we're looking for something in return, whether that be some sort of interest rate on the rent that is owed or a lease extension or some sort of combination. 9% of those tenants of the rent collection have been addressed, and we've negotiated some form of deferral. Page 6 just gives you -- this is a common slide we have every quarter, just kind of giving you trajectory of our total revenues, our earnings per share, operating income and book value per share. We're certainly focused on growing revenues and operating income and book value and earnings at all 4 categories. And with the reinvestments of our single-tenant properties, our recycling, we feel like we're in good position to continue the trajectory of those categories. On Page 7, we get asked a lot from our shareholders on the growth profile -- cash flow growth profile of the company. We're in the strongest position the company has ever been in, in its over 100-year history with regards to annualized operating cash flow. You can see here that through income property NOI, interest on loan investments, management fee income, Alpine dividend income, and we have roughly almost $45 million of reoccurring cash flows. It should be noted that this column is unaffected cash flow with regards to the COVID. And so you could see a situation where there's some sort of rent structure that would have this as a lower number. But this is the number as annualized projected 2020 without the effect. And so that -- if you take it down to what the expectations for the operating expenses and expenses of the company, you get roughly net cash flow before any dividends of almost $25 million, which is over $5 per share. So meaningful strength in the company with regards to our cash flow generation and income per share or cash flow per share. On Page 8, it gives you a sense of our debt overview and our leverage. We have $322 million of leverage with an average rate of 3%. It should be noted that we took the opportunity with interest rates going down to swap out $100 million of our credit line with a low LIBOR rate, which gives us, in effect, 2.38% of a fixed rate at -- right now at our LIBOR spread. And so that kind of has locked in at a favorable rate our debt and kind of gives us significant interest expense savings over LIBOR from the earlier in the first quarter. On Page 9 is our income property portfolio, gives you a sense of where our properties are located. And I think we can surmise that we're in more of the higher-growth locations, Florida, Texas, Carolinas. And we think that those states are definitely going to be in the positive trend, and in Georgia, with regards to population. And once the job growth market is back in favor, we feel like those markets are going to be stronger than perhaps some other markets. So it gives you a sense of the mix, and we feel like there's been a good diversity of locations and product type. We have a mix of 25% of our portfolio is in office and 72% is in retail. We may balance that more back towards the office as retail has its own challenges that we all know about. On Page 10, spend a little time with the most significant investment in the first quarter is the Perimeter property in -- outside Atlanta in the Perimeter submarket. Page 11 goes a little bit further in depth. We bought it for $75 million. It's 260,000 square feet, 78% leased. We like this asset quite a bit even in the current environment because a lot of the upside in this property is taking some very low-rent-paying tenants and with the opportunity of backfilling those tenants over time with more mark-to-market rent and tenants. So for instance, one of the tenants is Crunch Fitness, which may be challenged to come out of this particular environment and they're only paying $5 per square foot in rent. So that's a real significant opportunity for us to enhance cash flow. And there's a couple of restaurants in this development that could be replaced with better prototypes. And so we think that this is a great long-term investment for the company. And even in this environment, it actually will just, more or less, get us to where we want this property to be in a shorter period of time. On Page 12, it shows the Crossroads Towne Center in Chandler, Arizona, that was bought in January. Even in this current environment, this has a Harkins Theater. Harkins is a very solid operator that's been a long-term operator in the business. This is their home market. We've had very good discussions with them. And so there's more opportunity at this property to enhance its operations. So we're excited with this acquisition as well in a very fast-growing market outside of Tempe. On Page 13, it gives you a sense of the 2020 guidance and where we are year-to-date. So even though guidance was made at the first of the year of acquisitions of $160 million to $210 million. As most of you know, we had a lot of cash on our balance sheet from the Magnetar land JV from last year, and we deployed -- successfully deployed that capital, which really translates into the year-to-date acquisitions of $137 million. So really kind of ahead of the curve on the acquisition guidance. With the monetization plan of some of our low cap rate, single-tenant properties, most likely, we will definitely make guidance. And so that's why we're probably one of the firms that have not changed our guidance because we think the trajectory to make our guidance is very much intact. The target investment yield is year-to-date, we -- the acquisitions were at 7.8% cap rate. The guidance was 6.25% to 7.25%. We feel like with the -- all the changes in the market that we'll be able to be above the guidance as far as where we can get acquisitions. And so on the disposition side, as some of you may have seen, last week, we sold the CVS in downtown Dallas at $15 million at a 4.5% cap. So that's -- gets us a good start on the disposition guidance of $40 million to $60 million, and certainly better than the guidance of 6.5% to 7.5% yield. Our leverage target is 40% to 50%. We're a little bit higher at 59%, a little bit of that's the function of the stock price as far as getting hit pretty hard. But as the stock price recovers, hopefully, that leverage will go back down. On Page 14, it just gives you a sense of our largest assets by NOI. Again, we talked about Perimeter deal, our largest asset now; The Strand in Jacksonville right by the St. Johns Town Center; and then Crossroads in Chandler are outside Phoenix; the Fidelity Office in Albuquerque, which actually was in the paper in New Mexico about adding additional employees at that facility; and then Wells Fargo in Raleigh, an asset that -- class A office project that Wells Fargo has been in for a long time is a nice sturdy asset for the company. Page 15 and 16 and 17 just goes through the asset list that I think we've had for all of our investor presentation, so you can go through that list. But that really sums up our presentation. I know it's a little bit quick, and it's a little bit harder to do it on the phone rather than be in person, but I hope that's been helpful to our shareholders. Now I'll turn it back over to Laura.

Thank you, John. I'd like to open it up for questions at this time.

[Operator Instructions] At this time, we have no questions, so we would like to turn the conference over to Laura Franklin.

Okay. Thank you, operator. That concludes today's presentation. And I want to thank everybody for your attendance today and just wish you well. Thank you.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.