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Earnings call: CTO Realty Growth reports strong Q4 and full year results



© Reuters.

CTO Realty Growth (NYSE: CTO) has announced robust financial outcomes for both the fourth quarter and the full year of 2023, showcasing a significant increase in core funds from operations (FFO) and adjusted funds from operations (AFFO) per share.

The company’s leasing activities and property sales have contributed to a positive outlook for the upcoming year, with expectations of continued growth in core FFO and AFFO, as well as an increase in same-property net operating income (NOI) and leased occupancy rates.

Key Takeaways

  • CTO Realty Growth achieved a 41% growth in core FFO and AFFO per share.
  • Tenant retention and property level NOI exceeded expectations.
  • The company completed nearly 100,000 square feet of new leases, renewals, options, and extensions.
  • Occupancy rates modestly increased to 90.3% by year-end.
  • Six properties were sold for $64 million in Q4, totaling nine properties for $87 million for the full year.
  • $80 million was invested in retail properties and land in 2023.
  • 2024 guidance predicts core FFO between $1.56 and $1.64, and AFFO between $1.70 and $1.78 per diluted share.
  • Expected end-of-year 2024 leased occupancy rates are between 95% and 96%.
  • Same-property NOI is projected to grow between 2% and 4% in 2024.
  • A Q1 2024 dividend of $0.38 per share was declared, with an annualized yield of around 9.2%.

Company Outlook

  • CTO Realty Growth forecasts a strong performance in 2024, with potential for a milestone year in 2025.
  • Investment activities are anticipated to be between $100 million and $150 million.
  • Disposition guidance assumes asset sales of $75 million to $125 million.
  • No additional share issuances or repurchases are planned.

Bearish Highlights

  • The company maintains credit loss reserves of 75 to 100 basis points of property level revenue.
  • The SNO pipeline represents over 6% of the current portfolio’s cash base rent.

Bullish Highlights

  • The new office asset in Mesa del Sol is drawing contractor interest, boosted by government infrastructure spending and Netflix (NASDAQ:) studio construction.
  • The AMC theaters are performing well, with prime locations that offer flexibility for tenant replacement if needed.
  • Broad-based cash rent increase in the Employees portfolio suggests potential for higher rates on expiring leases.


  • The company’s net debt to total enterprise value stood at 51%, with a net debt to pro forma EBITDA of 7.6 times.

Q&A Highlights

  • CTO Realty Growth is prioritizing acquisitions in the second half of the year, focusing on core acquisitions of larger format retail properties.
  • The disposition guidance range excludes the payoff of seller financing on Sable Pavilion.
  • The company is open to stock buybacks, but acquisitions are currently the focus, driven by 1031 exchanges.
  • A new group of customers was chosen for their spending outlook, with a strong belief in the easy replacement if the arrangement doesn’t work out.

CTO Realty Growth’s earnings call reflected a company on a solid growth trajectory, underpinned by strategic property investments and sales. With a clear plan for 2024 and beyond, the company is poised to build on its successes, leveraging market opportunities and maintaining financial discipline.

InvestingPro Insights

CTO Realty Growth’s (NYSE: CTO) latest financial report indicates a robust performance, and the InvestingPro data and tips provide deeper insights into the company’s fiscal health and market position. Here’s what the real-time metrics and expert analysis reveal:

InvestingPro Data:

  • The company’s market capitalization stands at a solid $392.76M.
  • Revenue growth over the last twelve months as of Q4 2023 is impressive at 32.55%, reflecting the company’s successful expansion efforts.
  • CTO Realty Growth offers a substantial dividend yield of 8.83%, showcasing its commitment to returning value to shareholders.

InvestingPro Tips:

  • Analysts have recognized the company’s potential for sales growth in the current year, supporting CTO Realty Growth’s positive outlook for 2024.
  • With a history of maintaining dividend payments for 49 consecutive years, the company demonstrates both financial stability and reliability.

Investors should note that while the company is trading at a high earnings multiple, it has shown the ability to consistently reward its shareholders through dividends. For those interested in a more comprehensive analysis, InvestingPro offers additional tips that could help you make more informed decisions. To get an extra 10% off a yearly or biyearly Pro and Pro+ subscription, use the coupon code PRONEWS24. There are 5 more InvestingPro Tips available for CTO Realty Growth, which you can access through the dedicated page on the InvestingPro platform.

Full transcript – Consolidated-Tomoka Land (CTO) Q4 2023:

Operator: Good day, and thank you for standing by. Welcome to the CTO Realty Growth Fourth Quarter 2023 Earnings 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] Please be advised that today’s conference is being recorded. I’d now like to hand the conference over to your host today, Matt Partridge, Chief Financial Officer. Please go ahead.

Matthew Partridge: Good morning, everyone. Thank you for joining us for the CTO Realty Growth Fourth Quarter and Full Year 2023 Operation 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 other SEC filings. You can find our SEC reports, earnings release, quarterly supplemental and those recent investor presentation on our website at With that, I’ll now turn the call over to John.

John Albright: Thanks, Matt, and good morning, everyone. We had a terrific fourth quarter of execution in nearly all aspects of our business, resulting in core FFO and AFFO per share growth of 41%, which was meaningfully ahead of our expectations and consensus estimates. Our strong fourth quarter drove a significant beat above the top end of our previously provided full year guidance, fueled by fourth quarter same-property NOI growth of 4.7%, better-than-expected tenant retention and property level NOI at some of our more recently acquired properties that are not included in our same-property statistics. Continued strength in leasing, where we generated comparable rent spreads of nearly 18% during the quarter and 7.5% for the year and beneficial timing related to the flurry of dispositions we had to finish 2023. Overall, I’m pleased with the way our team executed as we worked our way back from some unexpected tenant departures early last year. I’m happy to say we’re continuing to see that positive momentum carry forward into the first quarter of 2024, where we’ve had a very strong couple of months. The supply-demand balance that many people have highlighted as a multiyear tailwind for retail helped drive our strong leasing activity during the quarter. This is evidenced by our signing of nearly 100,000 square feet of new leases renewals, options and extensions, an average rent of $32.66 per square foot. To put that into perspective, this per square foot value for the fourth quarter was at least 23% higher than the average rents achieved in the first, second or third quarters of 2023. In addition to our ability to push rates, quality of leasing during the fourth quarter was relatively widespread with the collection at Foresight and West Broad Village, seeing the most activity and more than half of the rents coming from leading brands such as REI, Fidelity, UBS, Ford (NYSE:)’s Garage and J.Crew. Our 18% comparable growth in new cash base rents versus expiring rents is going to help push same-store NOI in 2024 and even more so in 2025. When we’ll get the full benefit of some of the larger leases signed on acquired vacancy, when we lapped over the natural timing disruption. For the full year, the quality of our locations, strong demographics and targeted lease-up strategies allowed us to sign nearly 0.5 million square feet of leases resulting in our signed, but not open pipeline totaling more than 6% of the portfolio cash-based rent and it’s growing. We ended the year with a modest increase to occupancy, finishing at 90.3% and leased occupancy increased to 93.3%, both of which are a testament to our leasing activity given that we’ve largely been selling 100% occupied assets. During the fourth quarter, we sold 6 properties or $64 million at a weighted average exit cap rate of 7.8%. These dispositions included a community shopping center in Fort Worth, Texas, a small format retail property in Henderson, Nevada, three single-tenant retail outparcels at our Crossroads Town Center in Chandler, Arizona, and one of our two remaining single-tenant office properties. For the full year, we sold nine properties for $87 million at a weighted average exit cap rate of 7.5% and generated total gains of sales of $6.6 million. On the investments front, it was a relatively quiet period. However, throughout 2023, we invested $80 million into four retail properties and one land parcel and originated two first mortgage investments totaling $30 million. In aggregate, we’ve invested in a blended going-in cash yield of 7.7%, which is notably above our 2023 disposition cap rate that was negatively impacted by the higher exit cap rates on two office property sales. As we close the book on 2023 and shift our focus on 2024, I’m very excited about some of the recent activity in our portfolio and the investment opportunities we’re seeing in the market. From a transaction perspective, we are under contract with a nonrefundable deposit to sell our mixed-use property in Santa Fe, New Mexico for $20 million. We anticipate this sale will close before the end of the quarter, and the proceeds from this sale, combined with restricted cash and seller financing proceeds from the most recent office sales give us dry powder to acquire larger format retail properties that are more core to our strategy. To put some context around the early 2024 positive momentum, Politan Row and established food hall experience in Atlanta and culinary dropout a well-known Sam Fox restaurant concept, both opened at Ashford (NYSE:) Lane this month. In Fogo de Chão just opened last week to a very strong reception at West Broad Village in Richmond. Together, just these three tenants combined for approximately $1.4 million in annual base rent. In addition, just in the past week, we signed a ground lease on the undeveloped 10 acres we purchased less than six months ago that is adjacent to the collection at Foresight. In the same week, we sold our remaining non-income producing subsurface interest for gross proceeds of $5 million, which we intend to tax efficiently redeploy into an investment acquisition. With that, I’ll let Matt highlight our portfolio, go into details about 2023 financial results and provide some more specifics regarding our 2024 guidance, and then we’ll open it up for questions. Matt?

Matthew Partridge: Thanks, John. We ended the year with 20 properties totaling 3.7 million square feet of leasable space in eight states and 12 markets. Our portfolio continues to be concentrated in some of the fastest-growing areas of the Sunbelt with Atlanta and Dallas now representing 50% of our annualized base rent, and the majority of our other markets are in higher growth population states such as Texas, Florida, Arizona and North Carolina. Recent disposition activities have allowed us to decrease the stand-alone office exposure in our portfolio to less than 5% at year-end 2023, compared to 10% at year-end 2022. And our top tenant list continues to increase in quality with Whole Foods, Publix, Dick’s Sporting Goods (NYSE:), Darden Restaurants (NYSE:), Best Buy (NYSE:), T.J. Maxx Home Goods, AMC, Fidelity and [indiscernible] all solidified as top 10 tenants. Our earnings for the fourth quarter of 2023 surpassed expectations with core FFO per share demonstrating its fourth consecutive quarter of acceleration coming in at $0.48 per share, representing a 41.2% increase compared to the fourth quarter of 2022 and fourth quarter 2023 AFFO was $0.52 per share representing a 40.5% increase over the fourth quarter of 2022. Q4 core FFO and AFFO year-over-year comparisons benefited from better tenant retention, higher rents and better NOI flow-through at many of our recently acquired properties. A 4.7% increase in same-property NOI, most notably driven by strong percentage rents at our Daytona Beach restaurants and the full year benefits from the repositioning and lease-up of Ashford Lane, lease termination payments related to tenants, who previously vacated, increased interest income from the makeup and size of our structured investments portfolio, and growth in management fees and dividend income. The strength in our results was partially offset by higher interest expense and increased income taxes as well as the full year effects of our December 2022 common equity raise. For the year, core FFO was $1.77 per share and AFFO was $1.91 per share, representing a year-over-year per share growth of 2% and 4%, respectively, when compared to 2022. After accounting for the impact of the 3-for-1 stock split in 2022, AFFO per share in 2023 represents an all-time record year for the company since it converted to a REIT in 2020. As we previously announced, the company paid a fourth quarter regular cash dividend of $0.38 per share in December, resulting in a Q4 2023 AFFO payout ratio of 73% and earlier this week, the company declared its first quarter 2024 regular common stock cash dividend of $0.38 per share, which is payable on March 28 to shareholders of record on March 14. This is the company’s 48th consecutive year of declaring a common dividend and the $0.38 per share represents a very attractive current annualized yield of approximately 9.2%. During the fourth quarter, we maintained our opportunistic approach to capital allocation, repurchasing more than 14,000 shares of our Series A Preferred Stock at an average price of $18.40 per share. This represents a 26% discount to liquidation preference, and we also repurchased over 62,000 shares of our common stock at an average price of $15.72 per share, which has an effective annualized yield on cost of 9.7%. As part of our approach to balance sheet and interest rate management, we entered into a new $50 million forward starting interest rate swap agreement to fix SOFR at an average fixed swap rate of 3.85% for the period between February 2024 and January 2028. This locks in nearly all of our remaining variable interest rate exposure on our balance sheet at a current all-in fixed rate of 5.45%, which is approximately 150 basis points below the current floating interest rate. We ended the year with net debt to total enterprise value of 51% and our net debt to pro forma EBITDA improved quarter-over-quarter to 7.6 times. With the more than $150 million of total liquidity from available cash, restricted cash and undrawn revolver commitments as well as the anticipated proceeds from our Santa Fe property sale, we’re well positioned to be opportunistic in the transactions market this year. Turning to our 2024 guidance, we expect core FFO to be between $1.56 to $1.64 per diluted share, and AFFO is forecasted to be between $1.70 and $1.78 per diluted share. We’re anticipating investment activity between $100 million and $150 million at a weighted average initial investment yield of 7.75% to 8.25% and our disposition guidance assumes $75 million to $125 million of asset sales at a weighted average exit cap rate between 7.5% and 8.25%. Our assumptions for 2024, which conservatively contemplates cash flow disruption related to the timing of our dispositions and investments also includes very strong lease-up assumptions for the current portfolio. Before taking into account our transaction activities, we’re projecting leased occupancy to be between 95% and 96% by year-end, implying gains of approximately 200 to 300 basis points during the year, which would be a strong tailwind for 2025. Same-property NOI in 2024 is forecasted to increase between 2% to 4%, which is most materially impacted by the loss rent from WeWork in 2024 and our expectation that there will be timing disruption between when some of our known lease expirations occur and when the replacement tenants rent commence. Both of these drags in 2024 are expected to reverse and provide incremental growth in 2025. As part of our guidance assumptions, we’ve maintained credit loss reserves between 75 and 100 basis points of property level revenue, which is consistent with our historical run rate, and we’re not currently projecting any additional share issuances or repurchases. And finally, as John mentioned, our signed but not open, our SNO pipeline continues to grow, representing $4.5 million of incremental future-based rent or more than 6% of our current portfolio’s cash base rent. Combined with the positive leasing momentum, potential upside to our guidance from the timing of transactions from the long-term benefits of our asset management and technology initiatives, we’re setting the stage for a strong 2024 and the potential for a milestone year in 2025. With that, I’ll now turn it back over to the operator to open the line for questions.

Operator: [Operator Instructions] Our first question comes from the line of Floris Van Dijkum with Compass Point.

Floris van Dijkum: Hi. Good morning, guys. Thanks for taking my question. John, obviously, you guys got a lot of things moving and we’re happy. I think investors are probably happy to see you get rid of some of that office exposure, which appears to be unloved in the markets today. Maybe if you could talk a little bit about your other initiatives that you’ve been doing, including bringing the property management in-house that I believe, in Atlanta, are there steps underway to do the same thing in Dallas and what kind of uplift could investors expect going forward from these kinds of initiatives?

John Albright: Yes. Thanks, Floris. I’ll let Matt talk about the uplift. But as far as structure, we do have an expanding team in Atlanta and has been very successful and beneficial to us, having people on the ground and a lot of efficiencies there, and especially just people with an owner’s eye on our properties there. And given that we’ve had all these restaurant openings with Politan Food Hall has just opened, Culinary Dropout just open. It’s just some really been critical to have people there on the ground and very helpful. And with regards to Dallas, we’re starting a little bit of that process. We don’t have quite as large a presence there as in Atlanta, but you could see that sort of opportunity as well down the road.

Matthew Partridge: Hi, Floris, it’s Matt. From an uplift perspective, I think Atlanta probably provides at least $0.01 to $0.02 a share, and that’s without a more focused team probably getting some economies of scale in terms of bidding out cohesive contracts for the entire portfolio in the market. So there’s probably upside to that $0.01 to $0.02.

Floris van Dijkum: Thanks. And maybe if I could follow through as well. The SNO pipeline, it’s — I think you indicated it’s $4.5 million of ABR, around 6% of your ABR. When is the timing of that coming online? And — does that includes — presumably that does not include the backfills for WeWork or the theater in North Carolina. But if you can give us a little bit more color on the timing and also in those two particular spaces what’s happening on backfilling those?

Matthew Partridge: Yes. I’ll give a little bit of color on the timing, I’ll let John talk about the backfill on WeWork and Regal. So timing-wise, Politan Row, Culinary Dropout and Fogo de Chão that John mentioned all opened this past couple of weeks. That’s about 30% of the pipeline. The rest of it probably is late Q3, 4Q weighted. So it will have a disproportionate benefit to 2025 versus 2024.

John Albright: And as regards on where we are with particular tenants. So on Regal theater we’ve had — we’ve been going back and forth to two different tenants, and we’re basically there with a tenant. So you should see that kind of in motion very soon. And so that’s nice to get that backfill and get going. But remember, the process on all of these, especially on larger tenants to get open is really running a year. We try to do better and shorten that. Obviously, it’s really up to the tenant with getting permit drawings, but it’s the approval process. In certain jurisdictions just take a while, as you probably have heard, across the campus of other companies. With regards to WeWork, we’ve had this year, we’ve had several tours with tenants. So there’s a couple of tenants out there for the full space. There’s a couple of tenants there for half the space or one-third of the space. So we’re very anxious to get a lead. And so our brokers know that. And so we won’t let a deal die over small issues. So we’re aggressively pursuing tenants in the market.

Matthew Partridge: And Floris, just to piggyback on that, you are correct. Neither of those spaces are in our SNO pipeline today.

Floris van Dijkum: Got it. So maybe just a follow-up on the retenanting because, again, that theoretically should have fairly high re-leasing costs, particularly if you’re splitting a box as you might end with or a box, I should say, the space with WeWork space there. Is it safe to assume that’s going to cost potentially up to $100 a square foot to re-tenant that space?

John Albright: Definitely, that could be in the realm. I think we talked about this on conference call — earnings call six months ago, maybe nine months ago, when we were negotiating with a fitness tenant that wanted the whole space, and that would have been north of 100. But I would say 100 is very safe on traditional office space. And if you do something more special, it will be higher than that, but that’s a safe assumption.

Floris van Dijkum: And would that be safe to make that assumption for the Regal space as well?

John Albright: It’s not quite as high as WeWork, but it’s a little bit shy of that.

Floris van Dijkum: Okay. Thanks. That’s it from me for now.

John Albright: Sure.

Operator: Our next question will come from the line of Rob Stevenson with Janney Montgomery Scott.

Robert Stevenson: Good morning, guys. Is the Regal retenanting a theater or is that a different concept?

John Albright: So there — it’s a different concept. There has been theater interest, but it’s a different concept.

Robert Stevenson: Okay. Is that going to take longer than a year, if you’re converting a theater or some other use given the slope floors and all of that sort of stuff?

John Albright: It should take a year, it would take a year because of permitting — but if you didn’t have permitting, it would not take a year.

Robert Stevenson: Okay. That’s helpful. And then, Matt, the $4.5 million that you talked about coming online in 2024. Is that all on stuff that was not open in the fourth quarter? Or does that include stuff that may have opened in December, but didn’t pay a full quarter’s worth of rent?

Matthew Partridge: Yes. That’s going to be a combination of both. But primarily, it’s going to be stuff that has not come online yet.

Robert Stevenson: Okay. But that includes whatever adjustment we need to get to a pro forma for any leases that started paying rent in December and things like that. I think, that’s included in that $4.5 billion?

Matthew Partridge: That’s right.

Robert Stevenson: Okay. Perfect. And then any material known move-outs in 2024 or early 2025 at this point?

Matthew Partridge: Just Regal is the only known move out, and that will be late March, early April.

Robert Stevenson: Okay. And then how are you guys thinking about the Fidelity asset in New Mexico? I mean, given where that’s yielding in 100% occupied versus the market for office assets and being able to replace that NOI at some point?

John Albright: Yes. So I would think about it — well, Rob, what would be more your concern, so I can kind of address it appropriately.

Robert Stevenson: Well, first of all, it’s not a great market for office assets, but that’s a single-tenant asset, which has been a little bit better in the marketplace with an A quality credit tenants. But also, is it — what are you looking at if you’re having to — if you decide to sell that at some point here in 2024, what are you looking at as a likely sort of cap rate spread? Are you going to — is that going to wind up being 150, 200 basis points wide of where you can redeploy the proceeds, et cetera. So both — what do you see as the market for that as well as how are you thinking about replacing that NOI going forward?

John Albright: Yes. Okay. So I was actually out there this last week. And the market in just getting real granular here for you. So since our last office asset. I hope you don’t mind. But — so as you know, it’s in the Mesa del Sol master-planned community right by the Sandia National Labs, it’s by the Kirkland Air Force Base. So as the government is spending a lot of money on both of those big infrastructure, you’re getting a lot of contractor interest in the Albuquerque area, and they want to be as close as possible and Mesa del Sol is the place to be. Netflix is still spending $1 billion. They’re under construction for additional movie studios. It’s basically a seven iron from the Fidelity campus. And as we talk about the Fidelity building, is two-story building with two separate buildings that could be separated and so it’s the only office building in that whole complex. There’s 1,000 lots under construction for homes. There’s multifamily under construction for homes. There’s a planned hotel in the Mesa del Sol that’s going to maybe two homes. There are two hotels for especially for the Netflix business. You have a solar manufacturer that’s going to build a complex, a facility right across the street from Fidelity and you have an Australian helium energy company that is basically coming into Mesa del Sol. So with that aspect, the market is getting better and better for the Fidelity building. Having said that, we’re in discussions with Fidelity about doing maybe an extension with the lease, where it can be a lot more marketable and a lot more valuable to us on a sale basis. And then based on that sort of monetization, we feel like it will be easy to replace, call it, income neutral to where we could sell that building. If we had to sell it now and just like come [indiscernible] water to sell it, it would be a little bit not as accretive or basically a loss of income as you replace the capital, but it wouldn’t be anything crazy because — the building is a Class A building built by Forest City, and it’s in a growing area and no one’s going to build an office building, as you know, and there’s a lot of people coming into Albuquerque for the big government kind of contractors and new energy, kind of the clean energy sort of tenants. So sorry if that was a little bit too long for you.

Robert Stevenson: No, no, that was helpful. And then I guess my last question regarding tenants. If you were to dispose of Fidelity, AMC becomes your top tenant, how does that — those assets look today? Is it with whatever data you’re getting and seeing food traffic on Friday, Saturday nights, et cetera, are those theaters back to doing pretty well? Are they still weak? Is it more or less dependent on the how quickly more blockbusters get released? How are you guys thinking about those theater assets?

John Albright: Yes. So I guess I was taking a little bit of a tour around our portfolio last week. I was also in Atlanta and we talked with the manager of the AMC and Madison Yards. And Madison Yards is basically fourth or fifth in the whole Atlanta region for AMC. It’s doing very well, and that’s out of 15 to 17 theaters. And so they’ve had some really strong performances as far as films out there. And so they’re feeling really good about that theater. And if you look at that theater that’s like probably one of the last ones that was built in the AMC system. So it’s very new and appropriately sized. The AMC that we have at collection is probably second prime location within the collection property right along the highway, so it has visibility — and there — that market is basically on fire. And so it would be very easy and very economically advantage to us, if they want to leave because there’d be a lot of backfill interest with much better credit and possibly higher rent. So we’re — we feel very good about our exposure on the theater space right now. Anyway, that’s kind of a little bit of that backdrop.

Robert Stevenson: All right. That’s helpful. I appreciate the time, and have a great weekend.

John Albright: All right. Thank you, Rob.

Operator: Our next question will come from the line of Matthew Erdner with Jones Trading.

Matthew Erdner: So given the short-term loan — that looks like it’s going to be up kind of second half of the year. Are you expecting acquisitions to be in the second half of the year with dispositions kind of front loaded? And then also — what’s going to drive you to the higher range of that guidance towards the $150 million mark rather than the $100 million?

John Albright: Yes. So we basically have some acquisition activity going on right now. We hope to be kind of front ended, as you mentioned there. And so the timing could be on top of when the seller financing that we did for Sable gets monetized. And so that timing should match up fairly well. And so we have that going on, but I’ll let Matt talk about your other question.

Matthew Partridge: Yes, Matt, in terms of timing for transaction activity and to hit the top end of the range, like John said, we’re working on some stuff right now that would match fund some of the activity that has happened on the disposition side or what happened — but the rest of our guidance assumes that it’s pretty back-end weighted from an acquisition perspective. And so there is some timing drag between dispositions and acquisitions that comes through the guidance. And then as it relates to hitting the top end of that range, I think it’s going to be a function of finding good opportunities on the acquisition side. I think we feel pretty good about the liquidity of the assets that we would want to sell to match fund. So it’s really going to be opportunistic.

Matthew Erdner: Yes. Got you. And then can you talk about the opportunities that you’re currently seeing, whether it’s in markets where you’re already at or if you’re looking to expand into some new markets?

John Albright: A little bit of both. So finding opportunities within our markets and new markets.

Matthew Erdner: Got you. And then one last quick one for me. Do you know the cap rate on the acquisitions or the disposition, sorry, if you were to exclude the office transactions?

Matthew Partridge: I don’t have it off the top of my head, Matt, but it’s certainly inside of the blended cap rate given the more elevated cap rates on the two office dispositions.

Matthew Erdner: Got you. Thank you, guys.

Operator: Our next question will come from the line of John Massocca with B. Riley Securities.

John Massocca: Good morning.

John Albright: Good morning, John.

John Massocca: Can you hear me?

John Albright: Yes.

John Massocca: So maybe sticking with the theme of guidance and kind of the ranges in the investment activity, what could kind of cause you to be closer to the high end on the cap rate or the investment yield seen? And I guess, as you kind of contemplate that investment volume guidance, are there kind of some more of the structured investments you’ve been doing recently factored into that? Or is it kind of more typical equity investments in shopping center assets that would — that would be kind of making up the bulk of that guidance?

John Albright: Yes. We’re definitely looking at just right down the fairway as far as core sort of acquisitions of where the strategy is as far as buying larger format retail, where there’s different levers of increasing value with bringing in new tenancy, changing our tenancy, that sort of thing. And so we feel pretty good that we have our eyes on higher end of that guidance as far as cap rate without any structured finance investments. We don’t have any structured finance investments that we’re looking at right now.

John Massocca: Okay. And then with the employees portfolio, you kind of mentioned that the cash — give the increase in kind of cash rent was pretty broad-based. I mean, I guess, is that 17.9% level or somewhere around there, sustainable going forward as we look out into 2024? Or was that maybe an anomaly for specific leases that were renewed or put in place?

Matthew Partridge: Good question. I think on the 2024 leases expiring, there’s a pretty good opportunity to drive more rate. The average cash rent per square foot for the leases expiring in 2024 is $17.83, so that’s meaningfully below our average rent for the portfolio and obviously pretty significantly below our last 12 months of leasing activity, average rent. So I think there’ll be — there’ll continue to be a pretty substantial lift on a re-leasing effort. And then something that’s probably a little bit more specific to us in the space is the fact that we have been acquiring vacancy over the past few years. And so there’s a lot of runway to drive increased cash flow independent of the comparable lease spreads.

John Massocca: Okay. And then lastly, on the ground lease, can you maybe just provide a little more color on the counterparty there? What’s the likelihood that they in your mind that they would enact terminate the agreement during the feasibility period and utilize the purchase option. Just kind of any additional color there would be helpful?

John Albright: Sure. So the group that basically we signed the ground lease with the option to buy, they really wanted to buy the parcel, but from a timing perspective, that didn’t work for us. So we gave them the option after a year, where they could purchase the site. So that was definitely their preference was to buy the site. It’s — the group is well capitalized. It will be a very good draw and very complementary to collection. We’ll bring good customers with big spending sort of outlook. And so we’re very excited about it. If they drop out, we — it was a tough choice to go with this group. We had two other groups that were buying for it. And to be honest with you, the other groups would pay more, but we felt more comfortable with this use and the timing it would go faster than the other groups, but the other groups would pay more. So I have no problem, if these guys don’t make it or feel like it will be fairly easy to backfill that for sure.

John Massocca: And you might not be able to provide this, but just any kind of color of brackets in the purchase option and what that would kind of imply in terms of a return on your investment?

John Albright: Yes, the return will be very, very good for the shareholders. So it would be basically almost a double.

John Massocca: Okay. That’s very helpful, and that’s it for me. Thank you very much.

John Albright: Thanks, John.

Operator: Our next question will come from the line of R.J. Milligan with Raymond James.

R.J. Milligan: Hi. Good morning, guys. Just one question for me for the investment guidance for the year. The cap rates, $775 million to $825 million, I’m just curious, obviously, you’ve shown an appetite to buy back either common or preferred shares. And I’m curious with your stock trading in the 8% cap rate range or north of that. How do you feel about additional buybacks versus making more investments?

John Albright: Yes. Thanks, R.J. So remember, a lot of this acquisition is being driven by the recycling from — for instance, Santa Fe, that’s under contract for $20 million, the forward credit building that we sold that’s part of that money is in [1031] (ph) and then the seller financing of that will come through. So a lot of it is being driven by 1031 needs. And then the other part of it, as you’ve seen, we were very active in buying back shares at very interesting levels for shareholders. So it — so it wouldn’t be — we would not be using proceeds from asset sales to buy back stock. But certainly, we would look at other certain levers to buy back stock, if it got down to low levels again. For instance, we could sell some of our structured finance investments and use that. So we’re certainly not shy about buying back stock, when it becomes ridiculous in our opinion and interesting, but a lot of the acquisitions are going to happen because of the 1031 nature.

R.J. Milligan: That’s was it from me. Thanks, guys.

John Albright: Thanks.

Operator: [Operator Instructions] Our next question will come from the line of Michael Gorman with BTIG.

Michael Gorman: Yes. Thanks. Good morning. Just a quick question, Matt, on the disposition guidance range, does that include the payoff of the seller financing on Sable Pavilion? Or is that above and beyond the dispositions guidance?

Matthew Partridge: No, that would be above and beyond the disposition guidance.

Michael Gorman: Okay. Great. And the remaining two structured investments after that — do they — I know John just mentioned potentially selling, but do they also have any accelerated prepayment options associated with those?

John Albright: If they do, we have a make whole provision.

Michael Gorman: Okay. Great. Thanks so much.

John Albright: Thank you.

Operator: And that concludes today’s question-and-answer session. This concludes today’s conference call. Thank you for participating. You may now disconnect.

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