Good day, ladies and gentlemen and thank you for standing by. Welcome to the CTO Realty Growth First Quarter 2022 Operating Results Conference Call. At this time, all participants are in a listen-only mode. After the speakers’ presentation, there will be a question and answer session. [Operator Instructions] At this time, I would like to turn the conference over to Mr. Matt Partridge.

Good morning, everyone, and thank you for joining us today for the CTO Realty Growth, First Quarter 2022 Operating Results Conference Call. With me today is our CEO and President, John Albright. Before we begin, I'd like to remind everyone that many of our comments today are considered forward-looking statements under federal securities law. The company's actual future results may differ significantly from the matters discussed in these forward-looking statements, and we undertake no duty to update these statements. Factors and risks that could cause actual results to differ materially from expectations are disclosed from time to time in greater detail in the company's Form 10-K, Form 10-Q, and SEC filings. You can find our SEC reports, earnings release, and supplemental disclosure package on our website at ctoreit.com. With that, I will now turn the call over to John.

Thanks, Matt. And good morning, everyone. We came into 2022 with a lot of opportunity and momentum from a very active 2021 and we’ve carried that momentum into the first quarter both transactionally and operationally. We acquired one new retail property in Houston, Texas, originated a new retail development loan for a project adjacent to one of our recent acquisitions, continued to recycle out of the properties in our remaining single tenant portfolio and we produced strong property NOI growth and leasing activity. On the acquisitions front, we acquired Price Plaza Shopping Center in Houston, Texas for $39.1 million. The property sits along Katy Freeway just up the road from Houston’s energy corridor and has a stable tenant base anchored by Ross, dd's DISCOUNTS, and Best Buy. Our dispositions in the quarter were once again centered on our single tenant net lease assets as we sold our Party City and Long Island and our Carpenter Ground lease in Austin, Texas whereby the lessee of the Carpenter Hotel exercised their contractual repurchase rights. Overall, the two dispositions were completed at a combined sales price of $24 million for a weighted average exit cap rate of 6%. To round out our transaction activities within the quarter, we originated an $80.7 million construction loan on Phase II of The Exchange at Gwinnett just outside of Atlanta near Simon’s Mall of Georgia. We purchased Phase I of the retail portion of the project this past December and as part of the Phase II funding commitment, we secured a right of first refusal on the property that gives us the future flexibility in our acquisition pipeline. Following the end of the quarter, we originated a $30 million preferred equity investment in Watters Creek, a grocery anchored retail property in Allen, Texas that is just at…

Thanks, Matt. While we are being disciplined in what seems to be an increasingly unpredictable market, I am optimistic we will continue to find opportunities for further growth. We made a lot of progress operationally and our 2022 guidance is reflecting that progress in the form of the strong earnings growth. As we look towards the back half of the year, at our lineup of tenant rent commencements, particularly at Ashford Lane, we are also optimistic about what our external and internal growth opportunities can provide for 2023. I look forward to providing additional updates on our portfolio and investment activity throughout the quarter and I want to thank all of our investors and partner for their continued support. With that, we’ll open it up for questions. Operator?

[Operator Instructions] Our first question or comment comes from the line of Rob Stevenson from Janney. Your line is open.

Good morning, guys. John, can you talk about the cap rate on the Price Plaza acquisition and a little bit about the current pipeline size, given the fact that you did that and it’s only about, call it a portion of the overall for the year is helping the pipeline is today or do you expect it to be mostly back-end weighted there?

Yes. So, the Price Plaza would come in the mid sevens and our pipeline is weighted kind of to the end of the year as we see a little bit of a pricing getting a little better on the multi-tenanted side. We are kind of taking our time. So, we’ve done enough and kind of picking our shots now.

Okay. And so, that’s what drove that cap rate change in the acquisition and disposition assumptions that spread between the multi-tenant and the single tenant stuff?

Yes. Hey, Rob, it’s Matt. Part of what drove the acquisition cap rate assumption was the Watters Creek deal that we announced in April, which was the preferred equity investment, which is yielding in the mid-eights. So that help drive the increase there and then, on the disposition side it was – it’s the low cap rate on the two sales in Q1.

Okay. And how are you guys thinking about using your capital today for acquisition of properties versus loans, et cetera? Is there a cap that you are going to sort of hold yourself to on the sort of mezz and loan side? Or is it just all based off of where you could deploy capital most accretively today?

Yeah, we are not going to do a lot in the structured investments. We are only going to do it where these are assets that we would like to own. So you are basically investing at a better basis and higher yield in some respects. So, it often happens or maybe opportunity down the road. And so, these are deals that really have come to us versus our searching this kind of a program. So it allows us to kind of get exposure to really good real estate at better basis and have a better feel for what’s going on in different markets, as well as get a lot of visibility from these investments. But we obviously, the goal is to invest in ownership and we think there will be some of those opportunities later in the year.

Okay. Matt, how much was the occupancy gains worth to you guys FFO per share-wise in the first quarter? Because just trying to figure out where the big delta was versus the guidance. So if I think about the high end of the prior guidance range, it’s 455, that’s roughly 104 or $1.14 runrate and you guys did 131, 139. Do you guys didn’t have any big mineral right sales. I assume that you benefited from the fact that you didn’t issue many shares in the quarter. So you didn’t take dilution from that. But that’s still a sort of big gap to sort of bridge, I assume occupancy in the – the lack of share issue what was there. But was there other big pieces there that we should be aware of?

Yeah. We did had some nice pickups on some real estate tax appeals and then, obviously the interest rate environment is influencing the balance of the year from a guidance perspective. So we are being somewhat conservative on that front and the impact that has on the back half of the year’s impact overall full year guidance.

Okay. Because, I guess, the other reason why I ask is, the high end of your new range is for 80 or plus 20 per quarter, you already booked a $1.39 in the first quarter. And so, didn’t know how you got down to averaging essentially 114 per share in the remaining three quarters or anything close to that I mean obviously interest rates are probably some sort of a drag, but when think it’s a $0.10 or $0.20 a share drag on that, especially given the lack of dispositions.

Yeah, I would just say, part of it is the timing of dispositions versus the redeployment. As John mentioned, the acquisition volumes are expected to be back half of the year weighted whereas I think you can expect the dispositions to be more near term. And so there is a bit of a drag from that perspective. And then, we continue to move tenants out to be able to re-rate up on the per square foot side of things from a leasing perspective and so, there may be a little bit of drag related to that in the back half of the year as well.

Okay. Thanks guys. Appreciate the time.

Sure.

Thank you. Our next question or comment comes from the line of Jason Stewart from Jones Trading. Your line is open.

Hey guys. It’s [Indiscernible] on behalf of Jason. Thanks for taking the call. Just could you guys provide an update on the Mitigation Bank and the way that you guys are thinking about that right now and if the plan is to show kind of spin that out, get rid of that at some point?

Yeah, so, that is definitely the goal. We have – we are expecting some credit sales to happen in this quarter depending on development basically approvals on some of the buyers of those credits. So, if we are able to sell a kind of a block of credits and then they would guess that our pricing to sell the whole bank after we did that, because people aren’t kind of getting full value for credit sales. So, I would say, it’s more back of the year sort of execution, but we are at the goal for sure and love to monetize that, use that capital to reinvest in the core business and just obviously have accretive earnings based on selling that asset and reinvesting.

Awesome. Thanks. And then, I’ve noticed that, this year and next year is a combined 10% of the annualized base rent that – did you expect to put new tenants in that or is it going to be really sing the same tenants that you currently have in there?

It’s going to be a balance. I think we’ve got some good visibility into this year and I think we feel pretty good about the ability to either extend or have tenants exercise their options on a decent amount of what’s expiring, but we are as we just mentioned going to have some rollover where we think we can move those rents up with new tenants and backfill. So, it’s going to be a balance in the next year, same-store to think it’s going to be a blend.

Awesome. Sounds good. Thank you guys.

Thank you.

Thank you.

Our next question or comment comes from the line of Craig Kucera from B. Riley Securities. Your line is open.

Yeah, hi, good morning guys. Obviously, you had a pretty solid decent quarter, but I am curious as to what traffic has been here in the second quarter, whether you’ve seen any slowdown or shift in demand or traffic quarter-to-date?

Yeah, I mean, it’s a great question and I personally anticipate a slowdown, but we haven’t seen it yet. So, the leasing activity is still robust.

Got it. And changing gears, you had originated the Waters Creek preferred investments. Can you give us a sense of what the origination fee was on that?

It’s 50 BPS and so it is not, not super material.

Got it. And just kind of circling back to the Mitigation Credits, I am not terribly familiar with that, but is that business is sensitive to changes in interest rates as perhaps the real estate investor or is that a little bit – is that less sensitive just given the nature of the business?

Yeah, it’s less sensitive to interest rates. It’s super sensitive to development activity. So as much as you would see if you saw development activity kind of drop off, it’s super sensitive to that. But it’s less sensitive to interest rates.

Got it. Just one more from me, you mentioned a lot of demand from food and beverage and I am curious just given the higher inflation cost they are facing and trying to pass on. Are you seeing any impacts to leasing negotiations or pushback on rents or things still holding up pretty well?

No, they are all enough pretty well. I just think the business so far for the F&B folks have been so strong. How they want to capture good sites more for long-term on their business plans. So it hasn’t disrupted their business plans yet. Yeah, if you think about it when we are negotiating now for a lease some of these things are going to take a year to build out and open. So, it’s really more long-term perspective from the tenant.

Got it. And just one more for me, just thinking about the structured investments I understand that you are not looking to do as many maybe the rest of the year after having kind of a robust first four months, but are you floating out the idea or is there any potential to do maybe a more of a CPI base type of investments or is that really just now what’s seen in the marketplace?

Yeah, we can do more about sulfur based, basically kind of a spread of that, more of a floating rate investment if you will. And so that really effectively kind of protects us and makes it kind of interesting. But again, some of these are such short duration that really for simplicity, we kind of price it in to the overall kind of fixed rate, because the investors are basically expecting to do their business plan and refi out our investment fairly short order. If there was something more of a five year duration, we certainly have more kind of bells and whistle to capture the CPI or interest rate risk.

Got it. Alright. Thanks guys.

Sure.

Thank you. [Operator Instructions] Our next question or comment comes from the line of Michael Gorman from BTIG. Your line is open.

Yeah, thanks. Good morning. John I wonder if you could just talk a little bit about underwriting in the acquisition market. I know you talked about maybe back-end loading the acquisition deal flow. And obviously there has been strong operating fundamentals in your own portfolio, but when you are approaching these new investments, how are you thinking about the trajectory of leasing your willingness to take on lease up risk at this point the economic cycle and just kind of how you are approaching that for the new investments?

Yeah, so we are not seeing there is much lease up risk deals. We actually prefer those, because it really knocks out your buyers who are using financing. And obviously those sort of buyers bring down the cap rates. So we do like the lease up opportunity risk how we want to phrase it just because it gets you better risk award. We are not seeing a lot of that. Most of the acquisition activity is more stabilized assets. And so, I would say that on the acquisition side, if we did something here in fair short order or what you have you, it would be more of a stabilized asset just because of that’s what we are seeing. But we are not afraid of the lease up risk given that what we are seeing in all of our properties and still robust tenant demand.

Okay, great. And then maybe I don’t know if this splitting hairs, but as you think about the acquisition opportunities that are out there, thinking about the back half weighting is that more about that you think the pricing in the market is going to change because of the interest rate volatility that we’ve seen or is it that the current underwriting in the market and current pricing in the market, you don’t see on that, you are getting priced out of deals. Is it more opportunistic waiting or is the market just too hot right now?

Yeah, good point. So, definitely the last couple months, we have been priced out. Now we are seeing cracks start with regards to buyers re-trading deals that we looked at, we are getting calls from brokers encouraging us to bid on assets when we didn’t bid the first round. So you are starting to see it. So it’s really back half weighting is really driven by – we expect pricing to get better for us. And we don’t want to push too much forward in buying assets with that possibility. Now, I will say that this environment may allow us to buy some high quality assets that you would never get a shot at buying in the market like four months ago. So, you may not pick up incredible pricing, but you will pick up incredible quality.

Great. That’s helpful. Thanks very much.

Sure.

Thank you. I am showing no additional questions in the queue at this time. I’d like to turn the conference back over to Mr. John for any closing comments.

Thank you very much for attending the call and we look forward to talking with you post the call. Thank you.

Ladies and gentlemen, thank you for participating in today’s conference. This concludes the program. You may now disconnect. Everyone have a wonderful day.