CTO Realty Growth(CTO) - 2023 Q2 - Quarterly Report

PART I—FINANCIAL INFORMATION Item 1. Financial Statements This section presents the unaudited consolidated financial statements for CTO Realty Growth, Inc. as of June 30, 2023, and for the three and six-month periods then ended Consolidated Balance Sheets As of June 30, 2023, total assets decreased to $986.5 million from $1.06 billion, primarily due to reductions in Real Estate—Net and Long-Term Debt Consolidated Balance Sheet Highlights (in thousands) | Account | June 30, 2023 (Unaudited) | December 31, 2022 | | :--- | :--- | :--- | | Total Assets | $986,545 | $1,061,512 | | Real Estate—Net | $734,721 | $806,062 | | Cash and Cash Equivalents | $19,333 | $7,312 | | Total Liabilities | $481,775 | $582,945 | | Long-Term Debt | $445,583 | $541,768 | | Total Stockholders' Equity | $504,770 | $478,567 | Consolidated Statements of Operations For Q2 2023, total revenues increased to $26.0 million, resulting in net income of $0.6 million, while the six-month period reported a net loss of $6.6 million Key Operating Results (in thousands, except per share data) | Metric | Q2 2023 | Q2 2022 | 6 Months 2023 | 6 Months 2022 | | :--- | :--- | :--- | :--- | :--- | | Total Revenues | $26,047 | $19,463 | $50,764 | $36,673 | | Income Properties Revenue | $22,758 | $16,367 | $45,190 | $31,535 | | Total Operating Income | $5,683 | $5,020 | $8,640 | $8,506 | | Net Income (Loss) Attributable to Common Stockholders | $605 | $22 | $(6,583) | $(971) | | Basic and Diluted EPS | $0.03 | $0.00 | $(0.29) | $(0.05) | Consolidated Statements of Cash Flows For the six months ended June 30, 2023, operating cash flow increased to $25.0 million, while investing activities significantly increased cash usage to $106.4 million Summary of Cash Flows (in thousands) | Cash Flow Activity | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | | :--- | :--- | :--- | | Net Cash Provided By Operating Activities | $25,021 | $22,413 | | Net Cash Used In Investing Activities | $(106,424) | $(54,358) | | Net Cash Provided By Financing Activities | $70,276 | $34,922 | | Net Increase (Decrease) in Cash | $(11,127) | $2,977 | Notes to Consolidated Financial Statements This section details accounting policies and financial data, covering business description, income properties, commercial loans, related party transactions, debt, equity, and segment data - The company is a self-managed equity REIT focused on high-quality retail and mixed-use properties, owning 24 properties with 4.2 million square feet as of June 30, 2023[22][23] - Business operations include a fee-based management business for PINE, a commercial loan portfolio, subsurface mineral interests, and a $37.9 million investment in PINE (14.8% of PINE's equity)[23][24][25] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the company's financial condition, operational results, and liquidity, highlighting revenue growth, increased expenses, and non-GAAP measures Overview The company is a self-managed equity REIT owning 24 retail and mixed-use properties, also providing management services for PINE and managing a commercial loan portfolio - The investment strategy prioritizes markets with favorable business policies, job growth, and population growth, evaluating acquisitions based on real estate attributes, tenant quality, and market conditions[188][194] - Multi-tenant properties generate $75.0 million in annualized base rent with a 4.4-year weighted average lease term, while single-tenant properties generate $9.3 million with a 5.6-year term[196] Comparison of Results of Operations Q2 2023 saw a 33.8% revenue increase to $26.1 million and higher net income, while the six-month period recorded a net loss due to increased non-cash depreciation, investment losses, and interest expense Revenue Variance - Q2 2023 vs Q2 2022 (in thousands) | Operating Segment | Q2 2023 | Q2 2022 | $ Variance | % Variance | | :--- | :--- | :--- | :--- | :--- | | Income Properties | $22,758 | $16,367 | $6,391 | 39.0% | | Management Services | $1,102 | $948 | $154 | 16.2% | | Commercial Loans & Investments | $1,056 | $1,290 | $(234) | (18.1)% | | Real Estate Operations | $1,131 | $858 | $273 | 31.8% | | Total Revenue | $26,047 | $19,463 | $6,584 | 33.8% | Revenue Variance - 6 Months 2023 vs 2022 (in thousands) | Operating Segment | 6 Months 2023 | 6 Months 2022 | $ Variance | % Variance | | :--- | :--- | :--- | :--- | :--- | | Income Properties | $45,190 | $31,535 | $13,655 | 43.3% | | Management Services | $2,200 | $1,884 | $316 | 16.8% | | Commercial Loans & Investments | $1,851 | $2,008 | $(157) | (7.8)% | | Real Estate Operations | $1,523 | $1,246 | $277 | 22.2% | | Total Revenue | $50,764 | $36,673 | $14,091 | 38.4% | - The increase in net income for Q2 2023 was driven by a $2.3 million extinguishment of a contingent liability and higher operating income from the property portfolio, partially offset by increased depreciation and interest expense[212] - The net loss for the first six months of 2023 was primarily due to higher non-cash depreciation ($21.1 million vs $13.1 million YoY), a $6.2 million unrealized non-cash loss on the PINE investment, and higher interest expense ($9.8 million vs $4.2 million YoY)[219][222][226] Liquidity and Capital Resources As of June 30, 2023, the company had $7.3 million in cash and sufficient liquidity from operating cash flow and credit facility capacity to fund operations for the next twelve months - Cash from operations increased to $25.0 million in H1 2023 from $22.4 million in H1 2022, driven by portfolio growth but partially offset by higher interest payments[229] - During H1 2023, the company acquired properties for a total cost of $76.0 million and originated a $15.0 million structured investment, while also selling one property for $2.1 million[234][236] - As of June 30, 2023, the company had a remaining commitment of $11.5 million for capital improvements, including tenant improvements and leasing commissions[237] - The company has $90.4 million available under its $300.0 million credit facility and $137.7 million remaining under its ATM program[238] Non-U.S. GAAP Financial Measures This section reconciles Net Income (Loss) to non-GAAP measures, with Q2 2023 FFO per diluted share at $0.40, Core FFO at $0.43, and AFFO at $0.48 Reconciliation of Non-U.S. GAAP Measures per Diluted Share | Per Share Data | Q2 2023 | Q2 2022 | 6 Months 2023 | 6 Months 2022 | | :--- | :--- | :--- | :--- | :--- | | FFO Attributable to Common Stockholders | $0.40 | $0.44 | $0.76 | $0.88 | | Core FFO Attributable to Common Stockholders | $0.43 | $0.47 | $0.82 | $0.94 | | AFFO Attributable to Common Stockholders | $0.48 | $0.49 | $0.91 | $0.99 | - The company defines FFO according to NAREIT standards and makes further adjustments for non-cash or non-recurring items to calculate Core FFO and AFFO, which management uses to assess operating performance[247][248] Item 3. Quantitative and Qualitative Disclosures About Market Risk The company's primary market risk is interest rate risk on its variable-rate debt, with a 100 basis point increase impacting financial results by approximately $1.1 million - The principal market risk is interest rate risk on the un-hedged portion of the company's $300.0 million revolving Credit Facility[259][260] - As of June 30, 2023, $109.6 million of the Credit Facility balance was subject to variable interest rates, where a 1% change in rates would result in a $1.1 million impact on earnings and cash flows[260] Item 4. Controls and Procedures Management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were effective as of June 30, 2023, with no material changes to internal control over financial reporting - The CEO and CFO concluded that the company's disclosure controls and procedures are effective as of the end of the period covered by the report[261] - No material changes to internal control over financial reporting occurred during the three months ended June 30, 2023[261] PART II—OTHER INFORMATION Item 1. Legal Proceedings The company may be involved in legal proceedings incidental to its normal course of business but does not expect any current proceedings to have a material effect on its financial condition or results of operations - The company is not currently party to any legal proceedings that are expected to have a material impact on its financial condition[262] Item 1A. Risk Factors There have been no material changes to the risk factors previously disclosed in the company's Annual Report on Form 10-K for the year ended December 31, 2022 - No material changes in risk factors were reported from those disclosed in the 2022 Form 10-K[264] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds During Q2 2023, the company repurchased 3,931 shares of common stock for approximately $62,000 and 746 shares of Series A Preferred Stock for approximately $14,000 under approved programs Common Stock Repurchases (Q2 2023) | Period | Total Shares Purchased | Average Price Paid per Share | | :--- | :--- | :--- | | May 2023 | 3,931 | $15.73 | Series A Preferred Stock Repurchases (Q2 2023) | Period | Total Shares Purchased | Average Price Paid per Share | | :--- | :--- | :--- | | May 2023 | 398 | $18.88 | | June 2023 | 348 | $18.76 | - As of June 30, 2023, approximately $4.9 million remained available under the common stock repurchase program and $2.99 million remained under the Series A Preferred Stock repurchase program[265][266] Item 6. Exhibits This section lists the exhibits filed with the Form 10-Q, including corporate governance documents, CEO and CFO certifications, and XBRL data files