CTO Realty Growth Stock

CTO Realty Growth, Inc. operates as a retail-oriented, real estate investment trust (REIT).

The company owns and manages, sometimes utilizing third-party property management companies, 22 commercial real estate properties in 10 states in the United States. As of December 31, 2021, the company owned 9 single-tenant and 13 multi-tenant income-producing properties comprising 2.7 million square feet of gross leasable space.

In addition to the company’s income property portfolio, as of December 31, 2021, its business included the following:

Management Services

A fee-based management business that is engaged in managing Alpine Income Property Trust, Inc. (PINE).

Commercial Loan and Master Lease Investments

A portfolio of two commercial loan investments and two commercial properties, which are included in the 22 commercial real estate properties above, whose leases are classified as commercial loan and master lease investments.

Real Estate Operations

A portfolio of subsurface mineral interests associated with approximately 370,000 surface acres in 19 counties in the state of Florida (Subsurface Interests).

An inventory of historically owned mitigation credits, as well as mitigation credits produced by the company’s mitigation bank. The mitigation bank owns a 2,500 acre parcel of land in the western part of Daytona Beach, Florida, and pursuant to a mitigation plan approved by the applicable state and federal authorities, produces mitigation credits that are sold to developers of land in the Daytona Beach area for the purpose of enabling the developers to obtain certain regulatory permits for property development (the ‘Mitigation Bank’). Prior to the Interest Purchase completed on September 30, 2021, the company held a 30% retained interest in the entity that owns the Mitigation Bank.

On December 10, 2021, the entity that held approximately 1,600 acres of undeveloped land in Daytona Beach, Florida (the ‘Land JV’), of which the company previously held a 33.5% retained interest, completed the sale of all of its remaining land holdings to Timberline Acquisition Partners, LLC, an affiliate of Timberline Real Estate Partners (the ‘Land JV Sale’). As a result of the Land JV Sale and corresponding dissolution of the Land JV, the company no longer holds a retained interest in the Land JV as of December 31, 2021.

The company’s business also includes its investment in PINE. The company’s investment in PINE generates investment income through the dividends distributed by PINE. In addition to the dividends it receives from PINE, the company’s investment in PINE may benefit from any appreciation in PINE’s stock price, although no assurances can be provided that such appreciation will occur, the amount by which its investment will increase in value, or the timing thereof. Any dividends received from PINE are included in investment and other income (loss) on the accompanying consolidated statements of operations.

The company’s business plan going forward is primarily focused on investing in income-producing real estate, with a focus on multi-tenant, primarily retail-oriented, properties. It may also self-develop multi-tenant income properties, as it has done in the past. The company may also invest in commercial loans or similar financings secured by commercial real estate.

The company’s strategy is to utilize leverage, when appropriate and necessary, and potentially proceeds from the sale of income properties, the disposition or payoffs of its commercial loan and master lease investments, and certain transactions involving its Subsurface Interests, to acquire income properties.

The company’s targeted investment classes may include the following:

Multi-tenant, primarily retail-oriented, properties in major metropolitan areas and growth markets, typically stabilized;

Single-tenant retail or other commercial, double or triple net leased, properties in major metropolitan areas and growth markets that are compliant with the company’s commitments under the PINE ROFO Agreement (Exclusivity and Right of First Offer Agreement with PINE);

Ground leases, whether purchased or originated by the company, which are compliant with the company’s commitments under the ROFO Agreement;

Self-developed retail or other commercial properties;

Commercial loan and master lease investments, whether purchased or originated by the company, with loan terms of 1-10 years with strong risk-adjusted yields secured by property types to include hotel, retail, residential, land and industrial;

Select regional area investments using the company’s market knowledge and expertise to earn strong risk-adjusted yields; and

Real estate-related investment securities, including commercial mortgage-backed securities, preferred or common stock, and corporate bonds.

Segments

The company operates through four primary business segments: Income Properties, Management Services, Commercial Loan and Master Lease Investments, and Real Estate Operations.

Income Properties segment

This segment has pursued a strategy of investing in income-producing properties, when possible, by utilizing the proceeds from real estate transactions, including the disposition of income properties and non-income producing assets.

The company’s strategy for investing in income-producing properties is focused on factors, including but not limited to, long-term real estate fundamentals and target markets, including major markets or those markets experiencing significant economic growth.

During the year ended December 31, 2021, the company acquired eight multi-tenant income properties. The weighted average amortization period for the intangible assets and liabilities was 6.8 years at acquisition.

During the year ended December 31, 2021, the company sold one multi-tenant income property and 14 single-tenant income properties.

The company’s portfolio of 9 single-tenant income properties had a weighted average remaining lease term of 25.3 years as of December 31, 2021. The company’s portfolio of 13 multi-tenant properties had a weighted average remaining lease term of 7.0 years as of December 31, 2021.

As part of the company’s overall strategy for investing in income-producing properties, it self-developed two single-tenant net lease restaurant properties on a six-acre beachfront parcel in Daytona Beach, Florida. The development was completed in January of 2018 and rent commenced from both tenants pursuant to their separate leases. On a limited basis, the company has acquired and may continue to selectively acquire other real estate, either vacant land or land with existing structures, which it would demolish and develop into additional income properties. The company’s investments in vacant land or land with existing structures would target opportunistic acquisitions of select sites, which may be distressed, with an objective of having short investment horizons. Should the company pursue such acquisitions, the company may seek to partner with developers to develop these sites rather than self-develop the properties.

The company’s focus on acquiring income-producing investments includes a continual review of its existing income property portfolio to identify opportunities to recycle the company’s capital through the sale of income properties based on, among other possible factors, the current or expected performance of the property and favorable market conditions. The company sold 14 single-tenant income properties, including four ground leases, and one multi-tenant income property during the year ended December 31, 2021.

As of December 31, 2021, the company owned 9 single-tenant and 13 multi-tenant income properties in 10 states.

Management Services segment

This segment’s business plan includes generating revenue from managing PINE. Pursuant to the management agreement with PINE, the company generates a base management fee equal to 1.5% of PINE’s total equity. Through December 31, 2021, the company also generated management fees as the Land JV manager.

Commercial Loan and Master Lease Investments segment

This segment’s investments in commercial loans or similar structured finance investments, such as mezzanine loans or other subordinated debt, have been and are expected to continue to be secured by real estate or the borrower’s pledge of its ownership interest in the entity that owns the real estate. The loans the company invests in or originates are for commercial real estate located in the United States and its territories, and are current or performing with either a fixed or floating rate. Some of these loans may be syndicated in either a pari-passu or senior/subordinated structure. Commercial first mortgage loans generally provide for a higher recovery rate due to their senior position in the underlying collateral. Commercial mezzanine loans are typically secured by a pledge of the borrower’s equity ownership in the underlying commercial real estate. Unlike a mortgage, a mezzanine loan is not secured by a lien on the property. An investor’s rights in a mezzanine loan are usually governed by an intercreditor agreement that provides holders with the rights to cure defaults and exercise control on certain decisions of any senior debt secured by the same commercial property.

Real Estate Operations segment

Daytona Beach Development

During the three months ended September 30, 2021, the company entered into a purchase and sale agreement to sell a six-acre parcel of land with existing structures in downtown Daytona Beach and other contiguous parcels (the ‘Daytona Beach Development’), which sale was completed on December 28, 2021. The Daytona Beach Development, representing a substantial portion of an entire city block in downtown Daytona Beach adjacent to International Speedway Boulevard, a major thoroughfare in Daytona Beach, was acquired by the company.

Subsurface Interests

As of December 31, 2021, the company owned 370,000 acres of Subsurface Interests. The company leases certain of the Subsurface Interests to mineral exploration firms for exploration. The company’s subsurface operations consist of revenue from the leasing of exploration rights and in some instances, additional revenues from royalties applicable to production from the leased acreage, which revenues are included within real estate operations in the consolidated statements of operations. During the year ended December 31, 2021, the company sold approximately 84,900 acres of subsurface oil, gas, and mineral rights.

During the year ended December 31, 2021, the company also received oil royalties from operating oil wells on 800 acres under a separate lease with a separate operator.

Tax Status

The company has elected to be taxed as a REIT under the Internal Revenue Code of 1986, as amended. As a result, the company is not subject to Federal or State income taxation at the corporate level to the extent it distributes annually approximately 90% of its REIT taxable income to its shareholders and satisfies certain other requirements.

History

The company was founded in 1902. It was formerly known as Consolidated-Tomoka Land Co. and changed its name to CTO Realty Growth, Inc. in 2020.