CTO Realty Growth(CTO) - 2024 Q1 - Quarterly Report

PART I—FINANCIAL INFORMATION Item 1. Financial Statements Presents CTO Realty Growth, Inc.'s unaudited consolidated financial statements for Q1 2024 and comparative periods, detailing financial position and performance Consolidated Balance Sheets Consolidated Balance Sheet Highlights (in thousands) | Metric | March 31, 2024 | December 31, 2023 | | :-------------------------- | :------------- | :---------------- | | Total Assets | $1,041,083 | $989,668 | | Total Liabilities | $578,842 | $532,142 | | Total Stockholders' Equity | $462,241 | $457,526 | - Total assets increased by $51.4 million, and total liabilities increased by $46.7 million from December 31, 2023, to March 31, 2024, primarily driven by growth in real estate assets and long-term debt[28] Consolidated Statements of Operations Consolidated Statements of Operations Highlights (in thousands, except per share data) | Metric | Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 | | :---------------------------------------------- | :-------------------------------- | :-------------------------------- | | Total Revenues | $28,127 | $24,717 | | Total Operating Expenses | $(22,767) | $(21,760) | | Gain on Disposition of Assets | $9,163 | $— | | Total Operating Income | $14,523 | $2,957 | | Net Income (Loss) Attributable to the Company | $5,842 | $(5,993) | | Basic Net Income (Loss) Attributable to Common Stockholders per share | $0.21 | $(0.32) | | Diluted Net Income (Loss) Attributable to Common Stockholders per share | $0.20 | $(0.32) | - Total revenues increased by 13.8% YoY, driven by income properties, commercial loans, and real estate operations. Net income attributable to the Company significantly improved from a loss of $5.993 million in Q1 2023 to a gain of $5.842 million in Q1 2024, largely due to a $9.163 million gain on asset dispositions[38][316] Consolidated Statements of Comprehensive Income Consolidated Statements of Comprehensive Income Highlights (in thousands) | Metric | Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 | | :-------------------------------------- | :-------------------------------- | :-------------------------------- | | Net Income (Loss) Attributable to the Company | $5,842 | $(5,993) | | Cash Flow Hedging Derivative - Interest Rate Swaps | $7,513 | $(4,891) | | Total Comprehensive Income (Loss) | $13,355 | $(10,884) | - Total comprehensive income saw a substantial positive swing from a loss of $10.884 million in Q1 2023 to a gain of $13.355 million in Q1 2024, primarily due to a $7.513 million positive change in cash flow hedging derivatives[33] Consolidated Statements of Stockholders' Equity Consolidated Statements of Stockholders' Equity Highlights (in thousands) | Metric | Balance January 1, 2024 | Balance March 31, 2024 | | :------------------------------------- | :---------------------- | :--------------------- | | Total Stockholders' Equity | $457,526 | $462,241 | | Net Income Attributable to the Company | — | $5,842 | | Common Stock Dividends Declared | — | $(8,945) | | Other Comprehensive Income | — | $7,513 | - Total stockholders' equity increased from $457.526 million at January 1, 2024, to $462.241 million at March 31, 2024, driven by net income and other comprehensive income, partially offset by common stock dividends[42] Consolidated Statements of Cash Flows Consolidated Statements of Cash Flows Highlights (in thousands) | Metric | Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 | | :-------------------------------------- | :-------------------------------- | :-------------------------------- | | Net Cash Provided By Operating Activities | $11,757 | $9,327 | | Net Cash Used In Investing Activities | $(51,974) | $(25,559) | | Net Cash Provided By Financing Activities | $37,215 | $3,650 | | Net Decrease in Cash, Cash Equivalents and Restricted Cash | $(3,002) | $(12,582) | | Cash, Cash Equivalents and Restricted Cash, End of Period | $14,817 | $8,612 | - Net cash provided by operating activities increased by $2.4 million YoY to $11.757 million. Net cash used in investing activities significantly increased to $51.974 million, primarily due to higher acquisition activity of income properties. Net cash provided by financing activities surged to $37.215 million, mainly from increased net debt activity and common stock issuance[45][172][174][175] Notes to Consolidated Financial Statements NOTE 1. DESCRIPTION OF BUSINESS CTO Realty Growth, Inc. is a publicly traded, self-managed equity REIT focused on owning, managing, and repositioning high-quality retail and mixed-use properties in faster-growing, business-friendly markets - CTO Realty Growth, Inc. operates as a self-managed equity REIT, primarily investing in retail and mixed-use properties in growth markets[51][309] - As of March 31, 2024, the company's portfolio includes 20 commercial real estate properties (3.9 million sq ft) in 8 states[52][282] - Business segments include income properties, management services (for PINE and other assets), commercial loans and investments, and real estate operations (mitigation credits, formerly subsurface interests)[52][53][54][329][310] NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES This note outlines significant accounting policies, including unaudited interim financial statements, consolidation principles, segment reporting, estimates, cash, derivatives, fair value, mitigation credits, interest income, receivables, purchase accounting, real estate sales, and REIT income taxes - Interim financial statements are unaudited and prepared under SEC rules and U.S. GAAP, requiring estimates and assumptions[55][58] - The Company operates in four primary business segments: income properties, management services, commercial loans and investments, and real estate operations[57] - The Company elected REIT taxation status from December 31, 2020, and intends to maintain it, distributing at least 90% of its taxable income[79][80] - Fair value measurements are categorized into Level 1 (quoted prices), Level 2 (observable inputs), and Level 3 (unobservable inputs) based on U.S. GAAP hierarchy[66] NOTE 3. INCOME PROPERTIES This note details the Company's income property segment, including leasing revenue, future base rental receipts, and acquisition/disposition activities, with Q1 2024 acquisitions totaling $71.0 million and a $4.6 million gain on disposition Leasing Revenue (in thousands) | Metric | March 31, 2024 | March 31, 2023 | | :---------------------- | :------------- | :------------- | | Lease Payments | $18,501 | $18,038 | | Variable Lease Payments | $6,122 | $4,394 | | Total Leasing Revenue | $24,623 | $22,432 | - Total leasing revenue increased by $2.191 million (9.8%) YoY, primarily due to portfolio growth and timing of acquisitions versus dispositions[318] - In Q1 2024, the Company acquired two properties for $71.0 million and disposed of one mixed-use property for $20.0 million, generating a $4.6 million gain[84][85] NOTE 4. COMMERCIAL LOANS AND INVESTMENTS This note describes the Company's commercial loan and investment portfolio, which includes commercial loans and preferred equity secured by real estate, increasing to $66.552 million as of March 31, 2024 - Commercial loans and investments are secured by real estate or borrower's equity, with fixed or floating rates[87][88] - In Q1 2024, a $10.0 million construction loan was originated (with $6.7 million funded), and a $1.9 million construction loan was repaid[90][91] Commercial Loans and Investments Carrying Value (in thousands) | Metric | March 31, 2024 | December 31, 2023 | | :------------------------------------- | :------------- | :---------------- | | Current Face Amount | $67,475 | $62,657 | | Unaccreted Origination Fees | $(248) | $(181) | | CECL Reserve | $(675) | $(627) | | Total Commercial Loans and Investments | $66,552 | $61,849 | NOTE 5. MANAGEMENT SERVICES BUSINESS The Company provides fee-based management services, primarily to Alpine Income Property Trust, Inc. (PINE), with Q1 2024 management fee revenue from PINE at $1.0 million, slightly down YoY - Management fee income is recognized over time as services are performed, primarily from managing PINE[100][101] Management Fee Revenue from PINE (in thousands) | Metric | Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 | | :---------------------- | :-------------------------------- | :-------------------------------- | | Management Fee Revenue | $1,000 | $1,100 | | Dividend Income | $600 | $600 | - The Company holds 15.7% of PINE's outstanding equity, totaling $35.6 million as of March 31, 2024[105][120] - New Portfolio Management Agreement and Subsurface Management Agreement generated less than $0.1 million each in Q1 2024[112][114] NOTE 6. REAL ESTATE OPERATIONS Real estate operations include land and development costs and mitigation credits, with Q1 2024 sales of Subsurface Interests for $5.0 million (a $4.5 million gain) and mitigation credits for $1.0 million (a $0.2 million gain) - The Company sold its remaining 352,000 acres of Subsurface Interests for $5.0 million, generating a $4.5 million gain in Q1 2024[115] - 7.5 mitigation credits were sold for $1.0 million in Q1 2024, resulting in a $0.2 million gain[119] Land and Development Costs (in thousands) | Metric | March 31, 2024 | December 31, 2023 | | :------------------------- | :------------- | :---------------- | | Land and Development Costs | $358 | $358 | | Subsurface Interests | $— | $373 | | Total | $358 | $731 | NOTE 7. INVESTMENT SECURITIES This note details the Company's $35.6 million investment in PINE securities (15.7% of outstanding shares) as of March 31, 2024, accounted for at fair value, with changes recognized in operations - The Company's investment in PINE securities totals $35.6 million (15.7% of PINE's outstanding shares) as of March 31, 2024, and is accounted for at fair value[120] Available-for-Sale Securities (in thousands) | Metric | March 31, 2024 | December 31, 2023 | | :-------------------------------------- | :------------- | :---------------- | | Total Equity Securities (Fair Value) | $35,643 | $39,445 | | Unrealized Losses in Investment Income | $(8,092) | $(4,290) | - Unrealized non-cash losses on the investment in PINE were $3.8 million in Q1 2024 and $4.9 million in Q1 2023 due to decreases in PINE's stock price[167] NOTE 8. FAIR VALUE OF FINANCIAL INSTRUMENTS This note provides fair value measurements for financial instruments, including cash, restricted cash, commercial loans, long-term debt, and interest rate swaps, categorized by Level 1, 2, and 3 inputs Fair Value of Financial Instruments (in thousands) | Metric | March 31, 2024 Carrying Value | March 31, 2024 Estimated Fair Value | December 31, 2023 Carrying Value | December 31, 2023 Estimated Fair Value | | :------------------------------------- | :---------------------------- | :---------------------------------- | :------------------------------- | :----------------------------------- | | Cash and Cash Equivalents - Level 1 | $6,760 | $6,760 | $10,214 | $10,214 | | Restricted Cash - Level 1 | $8,057 | $8,057 | $7,605 | $7,605 | | Commercial Loans and Investments - Level 2 | $66,552 | $68,156 | $61,849 | $63,261 | | Long-Term Debt - Level 2 | $542,020 | $523,310 | $495,370 | $473,807 | Fair Value of Cash Flow Hedges (Level 2 Inputs, in thousands) | Hedged Item | March 31, 2024 Fair Value | December 31, 2023 Fair Value | | :------------------------------------ | :------------------------ | :--------------------------- | | 2026 Term Loan Interest Rate Swaps | $3,491 | $2,813 | | 2027 Term Loan Interest Rate Swaps | $7,170 | $5,759 | | 2028 Term Loan Interest Rate Swaps | $372 | $(1,994) | | Credit Facility Interest Rate Swaps | $3,371 | $313 | NOTE 9. INTANGIBLE ASSETS AND LIABILITIES This note details intangible assets and liabilities, primarily related to leases, with net intangible lease assets increasing to $101.039 million and net amortization of $5.007 million for Q1 2024 Intangible Assets and Liabilities (in thousands) | Metric | March 31, 2024 | December 31, 2023 | | :-------------------------------------- | :------------- | :---------------- | | Sub-total Intangible Lease Assets—Net | $101,039 | $97,109 | | Sub-total Intangible Lease Liabilities—Net | $(14,353) | $(10,441) | | Total Intangible Assets and Liabilities—Net | $86,686 | $86,668 | Net Amortization of Intangible Assets and Liabilities (in thousands) | Metric | Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 | | :-------------------------------------- | :-------------------------------- | :-------------------------------- | | Amortization Expense | $4,533 | $4,391 | | Accretion to Income Properties Revenue | $474 | $679 | | Net Amortization | $5,007 | $5,070 | - The weighted average amortization period for total intangible assets and liabilities was 6.0 years and 5.6 years, respectively, as of March 31, 2024[129] NOTE 10. PROVISION FOR IMPAIRMENT This note addresses impairment assessments for long-lived assets and commercial loans, with no income property impairment in Q1 2024, but $0.05 million in credit loss impairment charges for commercial loans - No impairment charges were recorded on income property portfolio in Q1 2024 or Q1 2023[132][193] - Impairment charges for credit losses on commercial loans and investments were $0.05 million in Q1 2024, down from $0.5 million in Q1 2023[134][193] NOTE 11. OTHER ASSETS This note provides a breakdown of other assets, including tenant receivables, straight-line rent adjustments, leasing commissions, cash flow hedge assets, and infrastructure receivables, totaling $37.964 million at March 31, 2024 Other Assets (in thousands) | Metric | March 31, 2024 | December 31, 2023 | | :---------------------------------------------- | :------------- | :---------------- | | Income Property Tenant Receivables, Net | $4,620 | $4,568 | | Income Property Straight-line Rent Adjustment | $6,591 | $6,033 | | Cash Flow Hedge - Interest Rate Swap | $15,954 | $11,770 | | Due from Alpine Income Property Trust, Inc. | $1,395 | $1,395 | | Total Other Assets | $37,964 | $34,953 | - Cash Flow Hedge - Interest Rate Swap asset increased significantly from $11.770 million to $15.954 million[139] NOTE 12. EQUITY This note details equity activities, including a $500.0 million shelf registration, a $150.0 million ATM program (with $2.1 million net proceeds from Q1 2024 sales), and Series A Preferred Stock issuance - The Company has a $500.0 million shelf registration statement (2022 Registration Statement) for potential future equity and debt offerings[141] - Under the $150.0 million 2022 ATM Program, 125,857 common shares were sold in Q1 2024 for $2.1 million net proceeds, with $135.6 million remaining availability[144][178] - The 6.375% Series A Cumulative Redeemable Preferred Stock, issued in 2021, has no maturity date and ranks senior to common stock[145][146] NOTE 13. COMMON STOCK AND EARNINGS PER SHARE This note details common stock, dividends, and EPS calculations, with Q1 2024 basic EPS at $0.21 (up from $(0.32)) and diluted EPS at $0.20 (up from $(0.32)), including dilutive 2025 Convertible Senior Notes Dividends Declared and Paid (in thousands, except per share data) | Metric | Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 | | :-------------------------------- | :-------------------------------- | :-------------------------------- | | Series A Preferred Stock Dividends| $1,187 | $1,195 | | Series A Preferred Stock Per Share| $0.40 | $0.40 | | Common Stock Dividends | $8,601 | $8,658 | | Common Stock Per Share | $0.38 | $0.38 | Basic and Diluted Earnings Per Share (in thousands, except per share data) | Metric | March 31, 2024 | March 31, 2023 | | :---------------------------------------------- | :------------- | :------------- | | Net Income (Loss) Attributable to Common Stockholders, Used in Basic EPS | $4,655 | $(7,188) | | Basic EPS | $0.21 | $(0.32) | | Diluted EPS | $0.20 | $(0.32) | | Weighted Average Shares Outstanding, Diluted | 26,057,652 | 22,704,829 | - Diluted EPS for Q1 2024 includes 3.5 million potentially dilutive shares from the 2025 Notes using the if-converted method, which were anti-dilutive in Q1 2023[187][363] NOTE 14. SHARE REPURCHASES This note details common and preferred stock repurchase programs, with 40,726 common shares repurchased for $0.7 million in Q1 2024 under the December 2023 program, leaving $4.3 million available - The Company repurchased 40,726 common shares for $0.7 million (average $16.28/share) in Q1 2024 under the December 2023 $5.0 Million Common Stock Repurchase Program[216][349] - $4.3 million remained available under the December 2023 Common Stock Repurchase Program as of March 31, 2024[216][342] - No Series A Preferred Stock was repurchased in Q1 2024 or Q1 2023 under the $3.0 million Series A Preferred Stock Repurchase Program[217] NOTE 15. LONG-TERM DEBT This note provides a comprehensive overview of the Company's long-term debt, including its Credit Facility, mortgage notes, and convertible senior notes, totaling $543.334 million outstanding as of March 31, 2024 Outstanding Indebtedness (Face Value, in thousands) | Debt Type | Face Value | Maturity Date | Interest Rate | | :---------------------------------------- | :--------- | :------------ | :------------ | | Credit Facility | $209,500 | January 2027 | SOFR + 0.10% + [1.25% - 2.20%] | | 2026 Term Loan | $65,000 | March 2026 | SOFR + 0.10% + [1.25% - 2.20%] | | 2027 Term Loan | $100,000 | January 2027 | SOFR + 0.10% + [1.25% - 2.20%] | | 2028 Term Loan | $100,000 | January 2028 | SOFR + 0.10% + [1.20% - 2.15%] | | 3.875% Convertible Senior Notes due 2025 | $51,034 | April 2025 | 3.875% | | Mortgage Note Payable | $17,800 | August 2026 | 4.060% | | Total Long-Term Face Value Debt | $543,334 | | | - The Credit Facility had a $209.5 million balance outstanding and $90.5 million undrawn commitment as of March 31, 2024[197][225] Interest Expense (in thousands) | Metric | Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 | | :-------------------------------------- | :-------------------------------- | :-------------------------------- | | Interest Expense | $5,233 | $4,352 | | Amortization of Deferred Financing Costs| $256 | $241 | | Amortization of Discount on Convertible Notes | $40 | $39 | | Total Interest Expense | $5,529 | $4,632 | - Total interest expense increased by $0.9 million YoY, primarily due to a higher outstanding balance on the Credit Facility[169] NOTE 16. INTEREST RATE SWAPS The Company uses interest rate swap agreements to hedge against fluctuating interest rates on its variable-rate debt, which were 100% effective in Q1 2024 and Q1 2023, with fair value changes in accumulated other comprehensive income - Interest rate swaps are used to hedge against variable interest rate risk on debt, including the Credit Facility and term loans[258] - All interest rate agreements were 100% effective during Q1 2024 and Q1 2023, with fair value changes recorded in accumulated other comprehensive income[258] Interest Rate Swap Agreements Fair Value (in thousands) | Hedged Item | Fair Value as of March 31, 2024 | | :---------------- | :------------------------------ | | 2026 Term Loan | $2,862, $1,066, $(437) | | 2027 Term Loan | $7,717, $(547) | | 2028 Term Loan | $474, $464, $(566) | | Credit Facility | $1,540, $1,036, $451, $344 | NOTE 17. ACCRUED AND OTHER LIABILITIES This note details accrued and other liabilities, including property taxes, tenant improvements, construction costs, interest, environmental reserves, and cash flow hedge liabilities, totaling $14.541 million at March 31, 2024 Accrued and Other Liabilities (in thousands) | Metric | March 31, 2024 | December 31, 2023 | | :-------------------------------------- | :------------- | :---------------- | | Accrued Property Taxes | $2,973 | $2,090 | | Reserve for Tenant Improvements | $1,295 | $1,168 | | Accrued Construction Costs | $450 | $1,170 | | Accrued Interest | $1,330 | $773 | | Cash Flow Hedge - Interest Rate Swaps | $1,550 | $4,879 | | Total Accrued and Other Liabilities | $14,541 | $18,373 | - Cash Flow Hedge - Interest Rate Swaps liability decreased significantly from $4.879 million to $1.550 million[260] NOTE 18. DEFERRED REVENUE This note outlines deferred revenue components, primarily prepaid rent, interest reserves from commercial loans, and tenant contributions, totaling $5.290 million at March 31, 2024 Deferred Revenue (in thousands) | Metric | March 31, 2024 | December 31, 2023 | | :-------------------------------------- | :------------- | :---------------- | | Prepaid Rent | $3,291 | $3,723 | | Interest Reserve from Commercial Loans and Investments | $1,279 | $744 | | Tenant Contributions | $720 | $733 | | Total Deferred Revenue | $5,290 | $5,200 | - Interest reserves from commercial loans and investments increased from $0.744 million to $1.279 million[238] NOTE 19. STOCK-BASED COMPENSATION This note details stock-based compensation plans, with total expense of $1.387 million in Q1 2024, and 100,391 performance shares and 107,191 restricted shares granted Total Cost of Share-Based Plans Charged Against Income (in thousands) | Metric | Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 | | :-------------------------------------- | :-------------------------------- | :-------------------------------- | | Total Cost of Share-Based Plans | $1,387 | $1,072 | - In Q1 2024, 100,391 performance shares and 107,191 restricted shares were granted[241][291] - Unrecognized compensation cost for performance share awards was $2.6 million (2.2 years remaining weighted average period) and for restricted share awards was $2.9 million (2.1 years remaining weighted average period) as of March 31, 2024[263][292] NOTE 20. INCOME TAXES This note explains the Company's REIT tax status from December 31, 2020, requiring 90% taxable income distribution, with non-REIT operations held in Taxable REIT Subsidiaries (TRSs) subject to corporate income tax - The Company elected REIT status for U.S. federal income tax purposes starting December 31, 2020, requiring distribution of at least 90% of taxable income[295][360] - Non-REIT assets and operations are held in TRSs, which are subject to corporate income tax. As of January 1, 2024, the Company consolidated its TRSs into a single entity[295][80] - The Company uses 1031 Exchanges or other deferred tax structures to mitigate built-in gain tax liability on asset sales within the 5-year post-REIT conversion period[297] NOTE 21. COMMITMENTS AND CONTINGENCIES This note addresses legal proceedings, which are not expected to materially affect financial condition, and $17.019 million in remaining capital improvement commitments expected within twelve months - The Company does not expect current legal proceedings to have a material effect on its financial condition or results of operations[271][340] Contractual Commitments – Capital Expenditures (in thousands) | Metric | As of March 31, 2024 | | :------------------------- | :------------------- | | Total Commitment | $21,227 | | Less Amount Funded | $(4,208) | | Remaining Commitment | $17,019 | - Remaining commitment of $17.019 million for capital improvements is expected to be completed within twelve months[179][301] NOTE 22. BUSINESS SEGMENT DATA This note provides financial data by business segment, with income properties being the largest, accounting for 90% of identifiable assets and 87.5% of consolidated revenues in Q1 2024 - The Company operates in four primary business segments: income properties, management services, commercial loans and investments, and real estate operations[300] - Income properties accounted for 90% of identifiable assets and 87.5% of consolidated revenues in Q1 2024[300] Segment Revenues and Operating Income (in thousands) | Segment | Q1 2024 Revenues | Q1 2023 Revenues | Q1 2024 Operating Income | Q1 2023 Operating Income | | :----------------------------- | :--------------- | :--------------- | :----------------------- | :----------------------- | | Income Properties | $24,623 | $22,432 | $17,870 | $15,279 | | Management Fee Income | $1,105 | $1,098 | $1,105 | $1,098 | | Interest Income From Commercial Loans and Investments | $1,351 | $795 | $1,351 | $795 | | Real Estate Operations | $1,048 | $392 | $229 | $307 | | Total Revenues | $28,127 | $24,717 | | | | Total Operating Income | | | $14,523 | $2,957 | NOTE 23. SUBSEQUENT EVENTS This note discloses subsequent events evaluated through May 2, 2024, including a follow-on public offering of 1,718,417 Series A Preferred Stock shares on April 11, 2024, generating $33.1 million in net proceeds - Subsequent events were evaluated through May 2, 2024[325] - On April 11, 2024, the Company completed a public offering of 1,718,417 Series A Preferred Stock shares, yielding $33.1 million in net proceeds[358] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on the Company's financial condition and results of operations for Q1 2024, covering forward-looking statements, business overview, segment comparisons, liquidity, non-U.S. GAAP measures, and critical accounting estimates Forward-Looking Statements - The report contains forward-looking statements based on present expectations and assumptions, subject to material differences from actual results due to various risks and uncertainties[326] - Key risks include those related to commercial real estate ownership, tenant performance, e-commerce competition, acquisition challenges, revenue loss, management fees from PINE, conflicts of interest with PINE, economic downturns, credit risk in commercial loans, illiquidity of real estate investments, 1031 exchange effectiveness, capital access, debt servicing, natural disasters, and maintaining REIT qualification[326][308] OVERVIEW - CTO Realty Growth, Inc. is a self-managed equity REIT focused on high-quality retail and mixed-use properties in growth markets, pursuing investment through fee simple ownership, commercial loans, and preferred equity[309] - The investment strategy emphasizes long-term real estate fundamentals, target markets with strong demographics, and evaluation of property attributes, tenant creditworthiness, and market conditions[313] - The Company's portfolio includes 14 multi-tenant properties ($75.0 million annualized revenue, 5.2 years weighted average lease term) and 6 single-tenant properties ($5.6 million annualized revenue, 6.0 years weighted average lease term) as of March 31, 2024[314] - The investment strategy is focused on multi-tenant, primarily retail-oriented, properties due to the ROFO Agreement with PINE, which generally prevents investment in single-tenant net lease properties[333] COMPARISON OF THE THREE MONTHS ENDED MARCH 31, 2024 AND 2023 Revenue Total Revenue by Operating Segment (in thousands) | Operating Segment | March 31, 2024 | March 31, 2023 | Variance | % Variance | | :-------------------------------- | :------------- | :------------- | :------- | :--------- | | Income Properties | $24,623 | $22,432 | $2,191 | 9.8% | | Management Services | $1,105 | $1,098 | $7 | 0.6% | | Commercial Loans and Investments | $1,351 | $795 | $556 | 69.9% | | Real Estate Operations | $1,048 | $392 | $656 | 167.3% | | Total Revenue | $28,127 | $24,717 | $3,410 | 13.8% | - Total revenue increased by $3.4 million (13.8%) YoY, primarily due to increased income from recent income property acquisitions, commercial loans, and mitigation credit sales[316] Income Properties - Income property revenues increased by $2.2 million (9.8%) to $24.6 million in Q1 2024, driven by portfolio growth and acquisition timing[318] - Operating income from income properties increased by $2.6 million to $17.9 million, reflecting higher rent revenues and a $0.4 million decrease in direct costs[318] Management Services - Management fee revenue from PINE decreased slightly to $1.0 million in Q1 2024 from $1.1 million in Q1 2023 due to a decrease in PINE's total equity[319] - New Portfolio Management and Subsurface Management Agreements each contributed less than $0.1 million in revenue in Q1 2024[319] Commercial Loans and Investments - Interest income from commercial loans and investments increased by $0.6 million (69.9%) to $1.4 million in Q1 2024, primarily due to new loan originations in late 2023 and Q1 2024[151][317] Real Estate Operations - Operating income from real estate operations decreased to $0.2 million in Q1 2024 from $0.3 million in Q1 2023, despite higher revenues[152] - Mitigation credit sales revenue increased by $0.9 million YoY, partially offset by a $0.2 million reduction in subsurface sales revenue[152] General and Administrative Expenses General and Administrative Expenses (in thousands) | Metric | March 31, 2024 | March 31, 2023 | Variance | % Variance | | :-------------------------------------- | :------------- | :------------- | :------- | :--------- | | Recurring General and Administrative Expenses | $2,829 | $2,655 | $174 | 6.6% | | Non-Cash Stock Compensation | $1,387 | $1,072 | $315 | 29.4% | | Total General and Administrative Expenses | $4,216 | $3,727 | $489 | 13.1% | - Total general and administrative expenses increased by $0.489 million (13.1%) YoY, mainly due to higher employee count from increased managed income property assets and increased non-employee director compensation[189][211] Depreciation and Amortization - Depreciation and amortization increased by $0.6 million to $10.9 million in Q1 2024, reflecting the overall growth of the Company's income property portfolio[190] Gain on Disposition of Assets and Provision for Impairment - In Q1 2024, the Company recognized a $4.6 million gain from selling a mixed-use income property for $20.0 million and a $4.5 million gain from selling Subsurface Interests for $5.0 million[192] - Impairment charges for credit losses on commercial loans and investments decreased to $0.05 million in Q1 2024 from $0.5 million in Q1 2023[193] Investment and Other Income (Loss) - Unrealized non-cash losses on the investment in PINE were $3.8 million in Q1 2024 and $4.9 million in Q1 2023 due to decreases in PINE's stock price[167] - Dividend income from the investment in PINE remained stable at $0.6 million in both Q1 2024 and Q1 2023[168] Interest Expense - Interest expense increased by $0.9 million to $5.5 million in Q1 2024, primarily due to a higher outstanding balance on the Company's Credit Facility[169] Net Income (Loss) Attributable to the Company - Net income attributable to the Company significantly increased by $11.8 million, from a loss of $6.0 million in Q1 2023 to a gain of $5.8 million in Q1 2024, mainly driven by $9.2 million in gains on asset dispositions[170] LIQUIDITY AND CAPITAL RESOURCES - Cash and cash equivalents totaled $6.8 million, and restricted cash totaled $8.1 million at March 31, 2024[171] - Net cash provided by operating activities increased by $2.4 million to $11.7 million in Q1 2024, driven by income property portfolio growth and commercial loans and investments[172] - Net cash used in investing activities increased by $26.4 million to $52.0 million in Q1 2024, primarily due to increased income property acquisition activity[195][196] - Net cash provided by financing activities increased by $33.6 million to $37.2 million in Q1 2024, mainly from increased net debt activity and common stock issuance[175] - The Company expects to fund 2024 investments ($100.0 million to $150.0 million) using cash on hand, operations, 1031 like-kind exchanges, Credit Facility borrowings, and additional financing[177] - As of March 31, 2024, the Company had $135.6 million available under the 2022 ATM Program and $90.5 million undrawn commitment under the $300.0 million Credit Facility[153][197] Non-U.S. GAAP Financial Measures The Company discloses non-U.S. GAAP financial measures: FFO, Core FFO, and AFFO, widely used in the REIT industry for performance comparison and better assessment of operating performance - The Company discloses non-U.S. GAAP financial measures: Funds From Operations (FFO), Core Funds From Operations (Core FFO), and Adjusted Funds From Operations (AFFO), which are widely used in the REIT industry for performance comparison[159] - FFO is defined by NAREIT, excluding real estate depreciation/amortization and net gains/losses on sales. Core FFO and AFFO include further adjustments for non-cash items to better assess operating performance[185] Non-U.S. GAAP Measures Attributable to Common Stockholders (in thousands, except per share data) | Metric | Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 | | :-------------------------------------- | :-------------------------------- | :-------------------------------- | | FFO Attributable to Common Stockholders | $10,797 | $8,188 | | FFO Attributable to Common Stockholders per Common Diluted Share | $0.41 | $0.36 | | Core FFO Attributable to Common Stockholders | $10,737 | $8,867 | | Core FFO Attributable to Common Stockholders per Common Diluted Share | $0.48 | $0.39 | | AFFO Attributable to Common Stockholders | $11,648 | $9,863 | | AFFO Attributable to Common Stockholders per Common Diluted Share | $0.52 | $0.43 | - FFO, Core FFO, and AFFO per diluted common share all increased YoY, indicating improved operating performance[186] CRITICAL ACCOUNTING ESTIMATES This note identifies Purchase Accounting for Acquisitions of Real Estate Subject to a Lease as the most significant critical accounting estimate, involving fair value allocation to tangible and intangible assets/liabilities - The most significant critical accounting estimate is Purchase Accounting for Acquisitions of Real Estate Subject to a Lease, involving fair value allocation to tangible and intangible assets/liabilities[150] - Assumptions for fair value allocation are based on market information, including replacement cost, land values, and discounted cash flow models, and are subject to uncertainty[150] - Acquisitions subject to this estimate totaled $71.0 million in Q1 2024 and $3.3 million in Q1 2023[150] Item 3. Quantitative and Qualitative Disclosures About Market Risk This section discusses the Company's exposure to market risks, primarily interest rate risk related to its variable-rate debt, mitigated by interest rate swap agreements, with a $0.6 million impact from a hypothetical 100 basis point interest rate change - The primary market risk is interest rate risk related to variable-rate debt, particularly the Credit Facility[338][339] - Interest rate swap agreements are utilized to hedge against fluctuating interest rates, minimizing exposure to changes in interest rates[339] - A hypothetical 100 basis point (1%) change in interest rates would impact financial position, results of operations, and cash flows by $0.6 million as of March 31, 2024[339] Item 4. Controls and Procedures This section confirms the effectiveness of the Company's disclosure controls and procedures as of March 31, 2024, with no material changes in internal control over financial reporting during Q1 2024 - The CEO and CFO concluded that the Company's disclosure controls and procedures were effective as of March 31, 2024[323] - No material changes in internal control over financial reporting occurred during the three months ended March 31, 2024[323] PART II—OTHER INFORMATION Item 1. Legal Proceedings This section states that the Company may be involved in legal proceedings incidental to its normal business operations, but these are not expected to have a material effect on its financial condition or results of operations - The Company may be party to legal proceedings in the normal course of business[340] - No material effect on financial condition or results of operations is expected from these legal proceedings[340] Item 1A. Risk Factors This section refers to the Company's Annual Report on Form 10-K for a comprehensive discussion of potential risks and uncertainties, with no material changes as of March 31, 2024 - For a discussion of potential risks and uncertainties, refer to the Company's Annual Report on Form 10-K for the year ended December 31, 2023[324] - As of March 31, 2024, there were no material changes in risk factors from those set forth in the 2023 Annual Report on Form 10-K[341] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds This section details the Company's common stock repurchase activity, with 40,726 shares repurchased for $0.7 million in Q1 2024 under the December 2023 program, leaving $4.3 million available Common Stock Repurchases (Three Months Ended March 31, 2024) | Period | Total Number of Shares Purchased | Average Price per Share | Maximum Dollar Value Remaining Under Program ($000's) | | :----------------------- | :------------------------------- | :---------------------- | :---------------------------------------------------- | | 1/1/2024 - 1/31/2024 | — | $— | $5,000 | | 2/1/2024 - 2/29/2024 | 40,726 | $16.28 | $4,337 | | 3/1/2024 - 3/31/2024 | — | $— | — | | Total | 40,726 | $16.28 | | - As of March 31, 2024, $4.3 million remained available under the December 2023 $5.0 Million Common Stock Repurchase Program[342] Item 3. Defaults Upon Senior Securities This section states that there are no defaults upon senior securities to report - Not applicable, implying no defaults upon senior securities[343] Item 4. Mine Safety Disclosures This section states that there are no mine safety disclosures to report - Not applicable, implying no mine safety disclosures[343] Item 5. Other Information This section states that there is no other information to report - Not applicable, implying no other information to report[343] Item 6. Exhibits This section lists the exhibits filed as part of the Quarterly Report on Form 10-Q, including articles of amendment, bylaws, specimen stock certificates, and certifications required by the Sarbanes-Oxley Act - Exhibits include organizational documents (Articles of Amendment, Bylaws), specimen stock certificates, and certifications (Section 302 and 906 of Sarbanes-Oxley Act)[344] - XBRL (eXtensible Business Reporting Language) documents are also included as exhibits for financial data tagging[344] SIGNATURES - The report is signed by John P. Albright, President and Chief Executive Officer, and Lisa M. Vorakoun, Senior Vice President and Chief Accounting Officer and Interim Chief Financial Officer and Treasurer, on May 2, 2024[355]