CTO Realty Growth(US:CTO)2025-07-30 14:00Financial Data and Key Metrics Changes - The company reported core FFO of $14.7 million for the quarter, an increase of $4.3 million compared to $10.3 million in the same quarter of the previous year [15] - Core FFO per share remained consistent at $0.45 despite the increase in total core FFO, primarily due to a reduction in leverage [15] - The company ended the quarter with net debt to EBITDA of 6.9 times, an improvement from 7.5 times a year ago, but an increase from 6.3 times at the beginning of the year [14] Business Line Data and Key Metrics Changes - The company signed approximately 227,000 square feet of new leases, renewals, and extensions during the quarter, with an average cash base rent of $25.43 per square foot [4] - Year to date, the company completed 339,000 square feet of leasing, including 299,000 square feet of comparable leasing at a 27% cash rent spread [4] - The property portfolio was 93.9% leased and 90.2% occupied at the end of the quarter [6] Market Data and Key Metrics Changes - The company is experiencing strong leasing momentum in business-friendly MSAs within the Southeast and Southwest [4] - The signed not open pipeline stands at $4.6 million, representing 4.6% of in-place cash rents, which is expected to provide earnings tailwinds going into 2026 [6] Company Strategy and Development Direction - The company remains disciplined in underwriting property acquisitions and has a healthy pipeline of potential acquisitions [7] - The company is considering recycling some of its stabilized assets to fund future acquisitions [7] - The company is focused on capturing upside in its properties by addressing below-market rents and enhancing tenant quality [8][10] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about ongoing lease negotiations and the potential for additional leases to be announced [5] - The company is not concerned about lease rollover risks, viewing them as opportunities due to low embedded lease rates [36] - Management reaffirmed full-year 2025 guidance for core FFO of $1.80 to $1.86 and AFFO of $1.93 to $1.98, indicating that earnings lift from the leasing pipeline will become more noticeable in the fourth quarter [16] Other Important Information - The company fully settled its 3.875% convertible notes, resulting in an extinguishment of debt charge of approximately $20.4 million [13] - The company ended the quarter with $606.8 million of debt, with only $74 million or 12% subject to floating interest rates [14] Q&A Session Summary Question: Can you provide more details on the Fidelity office property and the State of New Mexico lease? - Management explained that Fidelity is downsizing, and the State of New Mexico is moving in due to high demand for modern space, which is expected to monetize the asset effectively [18][19] Question: Will leverage increase if the shopping center acquisition goes through? - Management indicated that leverage may increase in the near term but plans to recycle some assets to mitigate this [20] Question: Are there any dispositions included in the guidance? - Management confirmed that there are no dispositions in the current guidance [21] Question: Are the Fidelity and State of New Mexico leases second or third quarter leases? - Management clarified that the State of New Mexico lease was signed in the second quarter, while the Fidelity downsizing is still being finalized [26][27] Question: What is the status of leasing activity in the third quarter? - Management stated that they are negotiating leases for the majority of remaining vacancies and expect significant activity in the next sixty days [29] Question: What are the risks associated with the 94% turnover expected next year? - Management expressed confidence in the embedded lease rates and did not foresee significant rollover risks [36] Question: Will there be a lease termination fee from Fidelity? - Management confirmed that Fidelity will make a payment for downsizing, which will be blended into their rent [48] Question: How will the rent change with the new tenants? - Management indicated that there will not be a roll down in rent, although there may be some downtime during the transition [49] Question: Will the term loan financing be related to the shopping center acquisition? - Management noted that the timing of the term loan may not align perfectly with the acquisition but does not foresee any concerns regarding financing [51]