Good day, and thank you for standing by. Welcome to the CTO Realty Growth fourth quarter and year-end 2021 earnings call. At this time, all participants are in listen-only mode. After the speaker's presentation, there will be a question-and-answer session. To ask a question during the session, you'll need to press star, then one on your telephone keypad. Please be advised today's conference may be recorded. If you require operator assistance during the call, please press star, then zero. I'd now like to hand the conference over to Matt Partridge, Chief Financial Officer.
Good morning, everyone, and thank you for joining us today for the CTO Realty Growth fourth quarter and year-end 2021 operating results conference call. With me 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, and supplemental information on our website at ctoreit.com. With that, I will now turn the call over to John.
Thanks, Matt. In our first full year as a REIT, we made tremendous progress refining our portfolio and executing on our retail-focused investment strategy. Closed out the year with a number of grocery anchored traditional retail and mixed use acquisitions in highly desirable markets, strong leasing activity, opportunistic single tenant dispositions, and the sale of the remaining assets in our land joint venture. The final monetization of the land completes our exit from the landowning business, which spanned over 110 years.
As we reflect on our more recent activities of 2021 and the impact of those activities we have on the future, I am very pleased with the advances we have made to further improve our high quality portfolio and how we position CTO to drive outsized AFFO growth through a combination of organic and external opportunities. Drilling down into our fourth quarter activities, we had a record acquisition quarter, acquiring nearly $140 million of property as we redeployed the proceeds generated from our third and fourth quarter dispositions and a new term loan we completed in November. For the year, we acquired nearly $250 million of assets at an initial yield of 7.2%.
The eight acquisitions are located in strong submarkets of some of the most in-demand cities in the United States, including Raleigh, Dallas, Atlanta, Santa Fe, Las Vegas, Salt Lake City, and Orlando. Some of these acquisitions will drive future growth through repositioning opportunities, and some provide strong, stable in-place cash flows to support our attractive 7% dividend yield. In all instances, we expect leasing demand, property cash flows, and residual value of the real estate to continue to benefit from our market's robust population growth and their business-friendly operating environments.
On the disposition front, we sold 15 properties in 2021, 14 of which were single tenant assets for a total disposition volume of $162 million. The weighted average exit cap rate was 6%, generating a combined gain on sale of more than $28 million and representing more than 120 basis points of net investment spread between our weighted average acquisition cap rate and our weighted average disposition cap rate.
Operationally, we ended the quarter with economic occupancy of nearly 89% and lease occupancy of more than 92%, reflecting the significant progress we've made in executing on our repositioning plan at Ashford Lane and the incremental gains across a number of our properties in our portfolio. During the fourth quarter, we signed new leases at an average rent of more than $41/ sq ft. Most of the new leases were at Ashford Lane, Atlanta, where we are currently under construction on the Lawn, which we expect to be completed in late spring or early summer.
Of our renewals and extensions during the quarter, we experienced more than 15% growth in comparable new per square foot lease rates, demonstrating our ability to realize higher rents when the expiring leases have no remaining contractual options. The impact of our leasing gains on our portfolio same store NOI is going to be significant for 2022 and 2023, and we're looking forward to reporting these more traditional retail metrics beginning in the first quarter.
Just at Ashford Lane alone, we're scheduled to have Superica, The Hall, Brown Bag Seafood, Paris Baguette, Wholesum Juice Bar, Jeni's Ice Cream, Hawkers, Grana, and Sweetgreen all open their doors for business in 2022, transforming the property into a dining destination and driving increased foot traffic for the property's other retail tenants. As we think about the upcoming year, we'll continue to concentrate our efforts on high quality, well-located retail and mixed use acquisition opportunities. The acquisition activity will drive our disposition efforts as we focus on selling our remaining office properties and completing our portfolio shift to retail and mixed use. With that, I'll now turn the call back over to Matt.
Thanks, John. As John noted, 2021 was an excellent year of progress for CTO as we made significant financial and operational strides and executed on a transformation of our portfolio. We ended the year with 22 properties comprised of approximately 2.7 million sq ft of rentable space located in 10 states and 16 markets. Our top market is now Atlanta, where we acquired a newly constructed Sprouts-anchored center just down the road from Simon's Mall of Georgia. Our other top five markets include Jacksonville, Dallas, Raleigh, and Phoenix, all of which are experiencing excellent demographic trends and have strong multi-year catalysts for growth.
Our portfolio was 88.5% occupied and 92.6% leased at year-end. As John highlighted, we had strong leasing spreads in the quarter. Our overall comparable blended spreads were up 12.3% when compared to expiring rents, with increases of 15.5% for options and renewals and 6.4% for new leases. Because we've acquired a number of properties over the past two years with meaningful amounts of existing vacancy, we exclude from these calculations new leases that were signed for space that has been vacant since our acquisition.
With a transformed portfolio that better reflects the go-forward asset strategy, we do plan to report same-store occupancy and net operating income metrics beginning in the first quarter of 2022, and we've expanded our supplemental disclosure that is available on our website to provide additional industry standard information. For the fourth quarter, NAREIT FFO was $0.60 per share, core FFO was $1.07 per share, and adjusted FFO was $1.23 per share. We started to report core FFO to adjust for one-time financing transactions, any future mark-to-market adjustments, and certain amortization that is transactional in nature but not currently permitted within the NAREIT FFO calculation.
Our 2021 core FFO results directly align to our previously provided 2021 FFO guidance. As we noted in our earnings release yesterday, our 2022 core FFO guidance accounts for these potential future adjustments. For the year, 2021 NAREIT FFO was $3.35 per share, and core FFO was $3.93 per share, which was an $0.08 per share beat at the top end of our guidance range. Our 2021 AFFO was $4.36 per share and represents a $0.16 per share beat at the top end of our AFFO guidance range.
As previously announced in November, the company paid a fourth-quarter regular common stock cash dividend of $1 per share on December 30th. Earlier this week, we announced an 8% increase for our first quarter 2022 regular common stock cash dividend, which will be paid on March 31st to shareholders of record on March 10th. Our new first quarter common stock dividend of $1.08 per share represents an annualized yield of approximately 7% and an 86% implied annualized cash payout ratio based on the midpoint of our 2022 AFFO per share guidance. As of year-end 2021, we had total cash and restricted cash of $31 million and total long-term debt outstanding of $283 million.
Net debt to total enterprise value at quarter end was approximately 36%, and our net debt to EBITDA was 6.1 . We were active in a number of different aspects in the capital markets during the fourth quarter, with the most notable transactions including entering into a new $100 million term loan in November, repurchasing nearly $11 million of our 2025 senior convertible notes, repurchasing more than 40,000 shares of our common stock at an average price of $54.48 per share. While modest in dollar value, we did purchase 8,000 shares of PINE stock at an average price of $17.65 per share, as we continue to believe there is significant unrealized value embedded in our PINE ownership.
As part of the earnings release yesterday, we did release anticipated transaction and earnings guidance for 2022. Our guidance relies on a number of significant assumptions, including but not limited to our ability to raise funds for investment at reasonable cost of capital, our ability to acquire and sell assets at acceptable valuations, and an overall stable economy that supports our underlying tenants. We expect to invest between $200 million-$250 million in properties at a blended investment yield of 6.25%-6.75%.
Our transaction volume and investment yields take into account the increasingly competitive acquisition environment and also assume some structured investments in the form of preferred equity or development loans that allow us to gain an interest in assets we would otherwise like to own, and where we can potentially obtain a higher yield and a shadow pipeline of opportunities through right of first refusal or right of first offer options within the loan or preferred equity agreement. Our dispositions guidance assumes $40 million-$70 million of asset sales at a blended exit cap rate between 6.5% and 7.5%.
As John noted, we expect to focus our disposition efforts on our remaining non-core single-tenant and office properties, which will continue to move our portfolio towards a pure-play multi-tenant retail and mixed-use strategy. Our full year 2022 core FFO guidance range is $4.30-$4.55 per share, and our full year 2022 AFFO guidance range is $4.90-$5.15 per share. The midpoint of our AFFO guidance implies 15% year-over-year growth, which is driving our recently increased dividend and is also significantly improving the overall coverage of our dividend as we look to maximize free cash flow. Overall, 2022 is shaping up to be another strong year of growth as we capitalize on our momentum from 2021. We appreciate the support provided by our shareholders and business partners, and we look forward to continued success. I'll now turn the call back over to John for his closing remarks.
Thanks, Matt. We're very proud to have delivered 57% total shareholder return in 2021. Part of our outperformance was from our stock being re-rated in our first year as a REIT, which is still a meaningful future opportunity given that very limited current REIT-dedicated shareholder and index ownership. We think a large part of our outperformance is from the market recognizing our efforts and success throughout the year as we continued our portfolio repositioning process and executed on our business strategy. For 2022, we provided guidance that has the top end of the range poised to deliver 18% AFFO per share growth.
Our recently announced dividend increase provides a growing attractive yield with improved AFFO coverage. All of this is driven by our high quality portfolio that is based in some of the strongest markets in the United States. Finally, we did announce we are moving our headquarters to Winter Park, Florida. We continue to maintain our Daytona Beach office, but Winter Park is in a larger MSA that will give us access to a deeper employee pool as we look to grow our talented team. We appreciate all of your support. With that, we'll open up the questions. Operator?
If you would like to ask a question at this time, then the number one key on your touchpad telephone. To withdraw your question prress the pound key. Our first question comes from Rob Stevenson with Janney.
Good morning. John, you know, now that you've gotten rid of the land JV, what's the current plan for the subsurface rights portfolio? Matt, what else do you guys have that would be considered bad income for the REIT at this point going forward?
Hey, Rob. Good morning. It's John. So on the subsurface mineral rights, we've been selling lots of individual transactions to surface owners, whether someone owns, you know, a small piece of property or a large ranch. So we've been proactively reaching out to surface owners, and we have, you know, a fair amount of activity on that. They're kind of small dollar sizes, but that's the way we're going about it, is just granularly selling it off. Then also on the mitigation bank, we'll be selling credits throughout the year and look to try to sell the whole bank, which would bring in some capital for reinvesting in the income properties, but I'll let Matt talk about the accounting part of it.
Yeah. Thanks, John. Hey, Rob. On the bad income side, the biggest component of income that's flowing through the TRS is the management fee related to Alpine. There's nothing else that's really substantial in there other than that.
Okay. What are your leasing expectations for 2022 for the vacancy in the portfolio? I mean, most of your assets are 100% occupied, but you do have a few that are lower occupancy, redevelopment, etc. Any near-term leases that you guys, you know, feel confident are likely to be signed, and also any move-outs of size in 2022 on any of the currently occupied space?
Yeah. On the leasing side, the leasing activity is very robust, you know, especially at Ashford Lane, as we discussed. Some of that has to do with tenants that we can move out or have expiring leases. It may not be the leasing pure vacancy, but it's taking advantage of a lower rental rate tenant that might have to be leaving. There's lots of activity on leasing existing occupied space and vacancy.
One example I'll give you is we bought, as we mentioned in our press release, an empty building adjacent to Ashford Lane, and we're in discussions LOI lease negotiations with a tenant to take all of that. In Santa Fe, we have lots of active discussions going on some vacancy there. We're very optimistic on what we'll be able to do on that building throughout the year. In general, I would say that it's very robust leasing activity, and it has to do with taking advantage of tenants with low rents and vacancy.
Okay.
Rob, on the move-out side, I would say, you know, we've addressed more than half of the lease expirations in 2022, and the biggest one, we have a backfill tenant for. We're in pretty good shape there.
Okay. What was the cap rate on the Party City disposition to PINE?
Sorry, John, you wanna go ahead?
No, go ahead.
I was gonna say it was in the high sixes.
Okay. Last one for me. John, how does the board balance buying shares of PINE within CTO versus repurchasing CTO shares when the stocks are undervalued, given your unique knowledge of both companies? Obviously, you know, you've repurchased CTO shares. If you're gonna do it on a leverage-neutral basis, you know, you're only able to put $0.50 of every $1 to work or even less, you know, versus taking cash and buying PINE. How does that mechanics work inside the board when you know, view, you know, theoretically both companies as being undervalued? Where do you put your incremental dollar going forward in those situations?
Well, as you can see, you know, we were active on both fronts. It's basically when there's dislocation in either opportunity that we, you know, have certain levels where we say that we wanna invest more in either repurchasing CTO stock or buying PINE stock. It's really a function of the opportunity and having, you know, set levels where, you know, we have a, you know, interest in both. It's a little bit of a combination.
Okay. Thanks, guys. Appreciate the time.
Thank you.
Next question comes from Craig Kucera with B. Riley Securities.
Hey, good morning, guys. I wanna first start out with the guidance. Just to confirm, does the disposition guidance include any monetization of the mitigation credits or rights, or is that just sort of a mix of expected sales of, you know, single tenant, maybe some office properties.
That is just the single tenant and office properties. The mitigation credits or the mitigation bank or any subsurface would be in addition to the guidance.
Got it. Okay. It sounded like you've had some success kind of selling the subsurface on a one-off basis, but have you started marketing the mitigation credits as more of a bulk sale? I guess how is that going so far, or is that still TBD?
Yeah. I mean, we have people that are interested and have, you know, made offers and done some analysis. It's a little bit of a complicated, you know, investment, so a lot of folks aren't as knowledgeable about it, so we walk them through that. We have, you know, a price in mind and fairly optimistic that as we sell credits and the bank gets smaller, the price will come up to a level where we're interested in transacting. So anyway, it's been pretty active and it's a sector that people like. It's just really finding the right capital source for us.
Got it. Changing gears, appreciated seeing the increased disclosure on the leasing activity. I think you noted there's about a 400 basis point spread between what's leased and what's currently occupied. Can you give us a sense of when those tenants which have signed leases but haven't started paying rent will take economic occupancy? Is that, you know, somewhere mid-2022 or just any color there would be helpful.
Yeah. I'll start with that. You know, I would say that as you can imagine with everything you know going on in the macro markets as far as you know inflation, supply chains, labor and everything's taking a little longer. Tenants that we signed leases with have multiple locations that they're trying to open. So they're you know slotting in our openings within their larger platforms. So I would say you know kind of a mid-year to you know I would say June, July, August is really where the bulk of them will be coming in. And that could slip, I mean, because it's just you know hiring architects and contractors, and contractors are saying that they're not interested in doing this because they got bigger projects going on. It's just all a function of what you can imagine. I would say mid to, you know, mid-year and third quarter.
Okay. Fair enough. Just thinking about your investment pipeline, I guess you know, historically, you've done more mezzanine loans and loans, et cetera, and kind of got out of that business. I guess you know, should we expect to see a meaningful amount of those in 2022 as far as investments in preferred equity? I guess, sort of, you know, how are you thinking about that from a risk-adjusted return relative to, you know, sort of your investment pipeline outside on the property side?
Yeah, I mean, it's a good question, Craig, and that's why we wanted to highlight it. We are seeing opportunity. It's a little bit different this time on these structured investments than before. Before, you know, we were doing good risk-adjusted yields on properties that, you know, may or may not fit in our portfolio. Now we're looking at structured finance investments in properties that we'd love to have in our portfolio. For instance, you know, what we're seeing is that, let's say a developer has a project, they've gotten contractor bids come back. The bids are 30%-40% higher than budget. Rather than calling equity, that has a price to it, they're basically bridging the gap with us for a short duration.
We're seeing a fair amount of that sort of opportunity on assets that we really like. We're probably gonna get yields higher than if we were the equity, but it just won't be a long duration. You know, we're talking about, you know, one to three-year to five-year sort of duration. That keeps us really, you know, basically on top of assets that we'd like to own. It keeps us with relationships with, you know, developers or owners that we'd like to do more business with. We feel like, you know, it'll lead to transactions that will be kind of long-term equity properties for us in the future or could.
Okay, great. Just one more for me, kind of in the same vein. You know, 2022 looks like a pretty active year, again, on the external growth side. Can you give us a sense of kind of what your current pipeline is that you're working on and kind of what you see maybe closing in the you know, next three to six months, if you can?
Yeah, I mean, we do have a property in the pipeline that you know should close relatively soon, let's say next 30 days. We've been actively bidding literally on assets almost every week. We're not trying you know super hard to buy assets. The cap rates have come down quite a bit. We're hoping that you know some of the macro issues in the market will provide opportunity for us to buy at better yields. We're being you know prudent about the offers that we're putting out. The good news is there's a fair amount of assets that are on the market or coming to market. We're just picking our spots and, you know, we feel optimistic that we'll fill out the acquisition side, given what we're seeing coming to market.
Okay, great. Thanks, guys.
Thank you.
As a reminder, if you'd like to ask a question at this time, that is star, then one. Our next question comes from Jason Stewart with JonesTrading.
Hey, thanks. Good morning. I wanted to follow up on the macro environment and your comments around the acquisition and the competitive environment there. It sounds like rate volatility has not impacted people's acquisition appetite. Are you seeing new capital coming into the sector, or is this from existing players?
It's mainly from existing players that, you know, were on the sidelines during the pandemic and have, you know, basically said, "Okay, retail has done, you know, fairly well during the pandemic." People are coming back into the market and feel like they're, you know, underrepresented in their portfolio on retail. You're seeing a lot of capital as kind of a catch-up capital, I would say.
We're trying to stay out of the way of those people that are investing because they're a little bit behind on their portfolio allocations. Hopefully, that kinda gets, you know, gets basically taken up pretty soon, and we'll be able to buy a better yield. We're, you know, we're actively kind of pursuing all acquisitions, and we're learning lots about the players out there and where they're, you know, buying properties. You know, we're just kind of biding our time.
Got it. Okay. In terms of dispositions, is it your expectation that the rest of the single tenant net lease properties go to PINE, or are their required returns too high?
Yeah. I mean, there's a few that could go to PINE, but where we're seeing transactions take place, probably the cap rates will be lower than where PINE would have an interest.
Got it. Okay. I don't think we've touched on the Wells Office. If you could just give us a quick update, that'd be great.
You're talking about the Wells that PINE owns over in Hillsborough?
Yeah, just as it relates to the way you're just thinking about dispositions in terms of CTO and the office portfolio. You know, if it relates, that'd be awesome. Thank you.
You know, I'll just talk about CTO, given that we've given that update at PINE. At CTO, we do have, you know, as you know, three or four office assets that we want to sell, but we're trying to, you know, basically, match those up with acquisitions. The market is, you know, strong for the properties that we have, even on the multi-tenant side, property that we have in Jacksonville. We're very confident that we'll be able to transact on selling those assets. We're just finding the acquisition leg of it. As we are pursuing acquisitions, we plan on using part of that capital from selling the offices further down on the office side.
Great. Thank you.
Our next question comes from Michael Gorman with BTIG.
Yeah, thanks. Good morning, guys. John, I apologize if I missed it, but could you maybe just talk a little bit about as you continue to shift more towards the income producing assets kind of portfolio construction strategy as you think about, you know, potential value add assets versus in-place stable cash flows, what's your comfort level there in terms of the balance between them and, you know, occupancy upside versus in-place occupancy?
Yeah. I mean, you know, good question. I mean, look, given that we trade at such a low multiple, and we have such strong cash flow, and we're paying a very, you know, nice dividend yield, the market. You know, we like finding a vacancy where we can, you know, have outsized equity returns and not as concerned about having additional cash flow right off the bat. That allows us to look for assets where, you know, for instance, Santa Fe was a great example, where 66% occupied and a lot of low-hanging fruit. We like those a lot where we can buy, you know, way below replacement costs in good locations and with the robust leasing activity and tenant activity, we feel like we can do some good work there. But yeah, we...
Look, we are bidding on stabilized assets as well, but probably not gonna be as competitive given the capital out there chasing those sort of assets right now. I mean, you're seeing a lot of very low cap rates for very stabilized assets. We'd rather find something with a little bit of a vacancy that doesn't fit a lot of the other capital providers.
Okay, great. Then maybe just one on the dividend. Obviously, nice increase coming into the report here. Even with that, with the strong AFFO guidance, your payout ratio definitely goes down. But maybe. Can you just talk about the strategy about, you know, how much you think that's getting recognized in the marketplace versus retaining some excess cash flow here to fund the investment pipeline? You know, was that increase driven by necessity or just how you were thinking about the dividend increase here versus the cash flow?
I'll let Matt talk about that to help give you some background there.
Yeah, Mike, we're very focused on maximizing cash flow. When you see us do a dividend increase, it's largely to track to 100% payout of taxable income. We're not increasing it just to continue to increase the dividend for the sake of doing it. We're trying to be pretty efficient with retained cash flow. In terms of the market recognition, I think as we continue to improve the payout ratio, as you noted, you know, we're in the mid-80%s now for an AFFO payout ratio, which is much more palatable for people. I think we'll start to get more recognition for the dividend and the outsized yield that we're providing. Obviously coming into this year, it was more elevated, so I think that's a good step forward.
Okay, great. I guess maybe, Matt, just the way that we should think about it, is it right to think that the dividend will probably track AFFO growth from this point forward, or could we still see a little bit of a reduction in the payout ratio, or how should we think about dividend growth going forward?
Yeah. I would say with the status quo, you should assume it tracks the AFFO growth. Then if we raise additional capital and have a bit more of a depreciation shield on the deployment of that additional capital, you'll see the payout ratio come down as we continue to try to maximize cash flow.
Okay, great. Thanks very much, guys.
Thanks.
Thank you.
I'm showing no further questions in queue at this time. I'd like to turn the call back to John Albright for closing remarks.
Thank you very much for attending this call, and we look forward to talking with you throughout the quarter. Thank you.
This concludes today's conference call. Thank you for participating. You may now disconnect.