When we refer to "we," "us," "our," or "the Company," we meanCTO Realty Growth, Inc. and its consolidated subsidiaries. References to "Notes to Financial Statements" refer to the Notes to the Consolidated Financial Statements ofCTO Realty Growth, Inc. included in this Quarterly Report on Form 10-Q.
Forward Looking Statements
Statements contained in this Quarterly Report on Form 10-Q that are not historical facts are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Also, when the Company uses any of the words "anticipate," "assume," "believe," "estimate," "expect," "intend," or similar expressions, the Company is making forward-looking statements. Management believes the expectations reflected in such forward-looking statements are based upon present expectations and reasonable assumptions. However, the Company's actual results could differ materially from those set forth in the forward-looking statements. Further, forward-looking statements speak only as of the date they are made, and the Company undertakes no obligation to update or revise such forward-looking statements to reflect changed assumptions, the occurrence of unanticipated events or changes to future operating results over time, unless required by law.
The risks and uncertainties that could cause our actual results to differ materially from those presented in our forward-looking statements, include, but are not limited to, the following:
? we are subject to risks related to the ownership of commercial real estate that
could affect the performance and value of our properties;
our business is dependent upon our tenants successfully operating their
? businesses, and their failure to do so could materially and adversely affect
us;
competition that traditional retail tenants face from e-commerce retail sales,
? or the integration of brick and mortar stores with e-commerce retail operators,
could adversely affect our business;
we operate in a highly competitive market for the acquisition of income
? properties and more established entities or other investors may be able to
compete more effectively for acquisition opportunities than we can;
? the loss of revenues from our income property portfolio or certain tenants
would adversely impact our results of operations and cash flows;
our revenues include receipt of management fees and potentially incentive fees
? derived from our provision of management services to Alpine Income Property
assets, or PINE could substantially reduce our revenues;
there are various potential conflicts of interest in our relationship with
? PINE, including our executive officers and/or directors who are also officers
and/or directors of PINE, which could result in decisions that are not in the
best interest of our stockholders;
a prolonged downturn in economic conditions could adversely impact our
? business, particularly with regard to our ability to maintain revenues from our
income-producing assets;
? a part of our investment strategy is focused on investing in commercial loan
and master lease investments which may involve credit risk;
? we may suffer losses when a borrower defaults on a loan and the value of the
underlying collateral is less than the amount due;
? the Company’s real estate investments are generally illiquid;
if we are not successful in utilizing the like-kind exchange structure in
? deploying the proceeds from dispositions of income properties, or our like-kind
exchange transactions are disqualified, we could incur significant taxes and
our results of operations and cash flows could be adversely impacted;
the Company may be unable to obtain debt or equity capital on favorable terms,
? if at all, or additional borrowings may impact our liquidity or ability to
monetize any assets securing such borrowings;
? servicing our debt requires a significant amount of cash, and we may not have
sufficient cash flow from our business to service or pay our debt;
? our operations and properties could be adversely affected in the event of
natural disasters, pandemics, or other significant disruptions;
we may encounter environmental problems which require remediation or the
? incurrence of significant costs to resolve, which could adversely impact our
financial condition, results of operations, and cash flows;
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failure to remain qualified as real estate investment trust (“REIT”) for
? federal income tax purposes would cause us to be taxed a regular corporation,
which would substantially reduce funds available for distribution to
stockholders;
? the risk that the REIT requirements could limit our financial flexibility;
? our limited experience operating as a REIT;
? our ability to pay dividends consistent with the REIT requirements, and
expectations as to timing and amounts of such dividends;
? the ability of our board of directors (the “Board”) to revoke our REIT status
without stockholder approval;
? our exposure to changes in
changes to the REIT requirements; and
an epidemic or pandemic (such as the outbreak and worldwide spread of the novel
coronavirus (the “COVID-19 Pandemic”)), and the measures that international,
federal, state and local governments, agencies, law enforcement and/or health
? authorities implement to address it, may precipitate or materially exacerbate
one or more of the above-mentioned and/or other risks and may significantly
disrupt or prevent us from operating our business in the ordinary course for an
extended period.
The Company describes the risks and uncertainties that could cause actual results and events to differ materially in "Risk Factors" (Part II, Item 1A of this Quarterly Report on Form 10-Q and Part I, Item 1A of our Annual Report on Form 10-K for the year endedDecember 31, 2021 ), "Quantitative and Qualitative Disclosures about Market Risk" (Part I, Item 3 of this Quarterly Report on Form 10-Q), and "Management's Discussion and Analysis of Financial Conditions and Results of Operations" (Part I, Item 2 of this Quarterly Report on Form 10-Q).
OVERVIEW
We are a publicly traded, primarily retail-focused, REIT that was founded in 1910. We own and manage, sometimes utilizing third-party property management companies, 21 commercial real estate properties in nine states inthe United States . As ofJune 30, 2022 , we owned seven single-tenant and 14 multi-tenant income-producing properties comprising 2.8 million square feet of gross leasable space.
In addition to our income property portfolio, as of
Management Services:
? A fee-based management business that is engaged in managing PINE, see Note 5,
“Related Party Management Services Business”.
Commercial Loan and Master Lease Investments:
A portfolio of five commercial loan investments, one commercial property, which
? is included in the 21 commercial real estate properties above, whose lease is
classified as commercial loan investment, and one preferred equity investment
which is classified as a commercial loan investment.
Real Estate Operations:
A portfolio of subsurface mineral interests associated with approximately
? 356,000 surface acres in 19 counties in the
Interests”); and
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
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
certain regulatory permits for property development (the “
Prior to the Interest Purchase (defined in Note 7, “Investment in Joint
Ventures”) completed on
interest in the entity that owns the
Our business also includes our investment in PINE. As ofJune 30, 2022 , the fair value of our investment totaled$38.5 million , or 15.8% of PINE's outstanding equity, including the units of limited partnership interest ("OP Units") we hold inAlpine Income Property OP, LP (the "PINE Operating Partnership "), which are redeemable for cash, based upon the value of an equivalent number of shares of PINE common stock at the time of the redemption, or shares of PINE 40
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common stock on a one-for-one basis, at PINE's election. Our investment in PINE generates investment income through the dividends distributed by PINE. In addition to the dividends we receive from PINE, our 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 our 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. Our 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 we believe are experiencing economic growth. We employ a methodology for evaluating targeted investments in income-producing properties which includes an evaluation of: (i) the attributes of the real estate (e.g. location, market demographics, comparable properties in the market, etc.); (ii) an evaluation of the existing tenant(s) (e.g. credit-worthiness, property level sales, tenant rent levels compared to the market, etc.); (iii) other market-specific conditions (e.g. tenant industry, job and population growth in the market, local economy, etc.); and (iv) considerations relating to the Company's business and strategy (e.g., strategic fit of the asset type, property management needs, ability to transact in a tax-efficient manner for the benefit of our shareholders, etc.). We believe investment in income-producing assets provides attractive opportunities for generally stable cash flows and increased returns over the long run through potential capital appreciation. Our focus on acquiring income-producing investments includes a continual review of our existing income property portfolio to identify opportunities to recycle our 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. We sold two single-tenant income properties, one of which was classified as a commercial loan investment due to tenant repurchase options, during the six months endedJune 30, 2022 . As a result of entering into the Exclusivity and Right of First Offer Agreement with PINE (the "ROFO Agreement") which generally prevents us from investing in single-tenant net lease income properties, our income property investment strategy is focused on multi-tenant, primarily retail-oriented, properties. We may pursue this strategy by monetizing certain of our single-tenant properties, and should we do so, we would seek to utilize the 1031 like-kind exchange structure to preserve the tax-deferred gain on the original transaction(s) that pertains to the replacement asset. Our current portfolio of seven single-tenant income properties generates$9.1 million of revenues from annualized straight-line base lease payments and had a weighted average remaining lease term of 6.3 years as ofJune 30, 2022 . Our current portfolio of 14 multi-tenant properties generates$45.8 million of revenue from annualized straight-line base lease payments and had a weighted average remaining lease term of 6.7 years as ofJune 30, 2022 .
COMPARISON OF THE THREE MONTHS ENDED
Revenue
Total revenue for the three months ended
Three Months Ended
Operating Segment June 30, 2022 June 30, 2021 $ Variance % Variance
Income Properties $ 16,367 $ 11,574 $ 4,793 41.4%
Management Services 948 752 196 26.1%
Commercial Loans and Investments 1,290 709
581 81.9% Real Estate Operations 858 1,248 (390) (31.3)% Total Revenue$ 19,463 $ 14,283 $ 5,180 36.3% Total revenue for the three months endedJune 30, 2022 increased to$19.5 million , compared to$14.3 million during the three months endedJune 30, 2021 . The increase in total revenue is primarily attributable to increased income produced by the Company's recent income property acquisitions versus that of properties disposed of by the Company during the comparative period, in addition to the increased management fee income from PINE and increased income from 41
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commercial loans and investments. These increases were offset by decreased revenue from real estate operations due to fewer sales of Subsurface Interests, as further described below.
Income Properties Revenue and operating income from our income property operations totaled$16.4 million and$11.6 million , respectively, during the three months endedJune 30, 2022 , compared to total revenue and operating income of$11.6 million and$8.8 million , respectively, for the three months endedJune 30, 2021 . The direct costs of revenues for our income property operations totaled$4.8 million and$2.8 million for the three months endedJune 30, 2022 and 2021, respectively. The increase in revenues of$4.8 million , or 41.4%, during the three months endedJune 30, 2022 is primarily related to the overall growth of the Company's income property portfolio, as well as the timing of acquisitions versus dispositions. The increase in operating income from our income property operations reflects increased rent revenues, offset by an increase of$2.0 million in our direct costs of revenues which is also related to the overall growth of the Company's income property portfolio.
Management Services
Revenue from our management services from PINE totaled$0.9 million during the three months endedJune 30, 2022 . Revenue from our management services totaled$0.8 million during the three months endedJune 30, 2021 , including$0.7 million and$0.03 million earned from PINE and the Land JV, respectively.
Commercial Loans and Investments
Interest income from our commercial loans and investments totaled$1.3 million and$0.7 million during the three months endedJune 30, 2022 and 2021, respectively. The increase is due to increased income from the investments made during the three months endedJune 30, 2022 , including two construction loans and theWatters Creek Investment , as defined in Note 4. "Commercial Loans and Investments", which were partially offset by decreased income from one commercial property which was sold during the first quarter of 2022 which was accounted for as a commercial loan investment due to future repurchase rights.
Real Estate Operations
During the three months endedJune 30, 2022 , operating income from real estate operations was$0.6 million on revenues totaling$0.9 million . During the three months endedJune 30, 2021 , operating income from real estate operations was$0.7 million on revenues totaling$1.2 million . The total decrease in operating income was$0.1 million of which$0.2 million of the decrease was due to fewer Subsurface Interest sales. This$0.2 million decrease was partially offset by the Company's sale of 1.96 mitigation credits for an aggregate sales price of$0.2 million and related cost of sales of$0.1 million during the three months endedJune 30, 2022 , with no such mitigation credit sales during the three months endedJune 30, 2021 .
General and Administrative Expenses
Total general and administrative expenses for the three months endedJune 30, 2022 is presented in the following summary and indicates the changes as compared to the three months endedJune 30, 2021 (in thousands): Three Months
Ended
General and Administrative Expenses June 30, 2022 June 30, 2021 $ Variance % Variance Recurring General and Administrative Expenses $ 1,971 $ 1,861$ 110 5.9% Non-Cash Stock Compensation 705 742 (37) (5.0)% REIT Conversion and Other Non-Recurring Items - 62 (62) (100.0)% Total General and Administrative Expenses $ 2,676 $
2,665$ 11 0.4% 42 Table of Contents
Depreciation and Amortization
Depreciation and amortization totaled$6.7 million and$5.0 million during the three months endedJune 30, 2022 and 2021, respectively. The increase of$1.7 million is primarily due to the overall growth in the Company's income property portfolio.
Gains (Losses) and Impairment Charges
2022 Dispositions. No income properties were sold during the three months ended
2021 Dispositions. During the three months endedJune 30, 2021 , the Company sold eight income properties, including (i)Burlington , a single-tenant income property located inNorth Richland Hills, Texas for$11.5 million resulting in a$0.1 million gain, (ii) Staples, a single-tenant income property located inSarasota, Florida for$4.7 million resulting in a$0.7 million gain, and (iii) the CMBS Portfolio, sold to PINE, consisting of six single-tenant income properties for$44.5 million resulting in a$3.9 million gain. The sale of the properties reflect a total disposition volume of$60.7 million , resulting in aggregate gains of$4.7 million . Impairment Charges. There were no impairment charges on the Company's undeveloped land holdings, or its income property portfolio during the three months endedJune 30, 2022 and 2021. The$16.5 million impairment charge, net of the$4.1 million related income tax benefit, recognized during the three months endedJune 30, 2021 was related to the Company's previously held retained interest in the Land JV as a result of the estimated proceeds to be received in connection with the contract entered into withTimberline Acquisition Partners , an affiliate ofTimberline Real Estate Partners ("Timberline"). The sale to Timberline closed onDecember 10, 2021 .
Investment and Other Income (Loss)
During the three months endedJune 30, 2022 , the closing stock price of PINE decreased by$0.88 per share, with a closing price of$17.92 onJune 30, 2022 . During the three months endedJune 30, 2021 , the closing stock price of PINE increased by$1.66 per share, with a closing price of$19.02 onJune 30, 2021 . The change in stock price resulted in an unrealized, non-cash gain (loss) on the Company's investment in PINE of($1.8) million and$3.4 million which is included in investment and other income (loss) in the consolidated statements of operations for the three months endedJune 30, 2022 and 2021, respectively.
The Company earned dividend income from the investment in PINE of
and
Interest Expense
Interest expense totaled$2.3 million and$2.4 million for the three months endedJune 30, 2022 and 2021, respectively. The decrease of$0.1 million resulted primarily from (i) the net decrease in long-term debt outstanding under the Company's Credit Facility during the three months endedJune 30, 2022 as compared to the same period in 2021, which is primarily driven by the use of proceeds received from the Series A Preferred Stock offering, (ii) the disposition of the CMBS Portfolio under which the buyer assumed a$30.0 million fixed-rate mortgage note, and (iii) the repurchase of$11.4 million aggregate principal amount of 2025 Notes. These decreases in debt were partially offset by increases in debt related to (i) the$17.8 million mortgage loan assumed in connection with the acquisition ofPrice Plaza and (ii) the$100.0 million 2027 Term Loan.
Net Income (Loss) Attributable to the Company
Net income attributable to the Company totaled$1.2 million during the three months endedJune 30, 2022 as compared to a net loss of$3.7 million during the three months endedJune 30, 2021 . The increase in net income is attributable to the factors described above. 43 Table of Contents
COMPARISON OF THE SIX MONTHS ENDED
Revenue
Total revenue for the six months endedJune 30, 2022 is presented in the following summary and indicates the changes as compared to the six months endedJune 30, 2021 (in thousands): Six Months Ended Operating Segment June 30, 2022 June 30, 2021 $ Variance % Variance Income Properties$ 31,535 $ 23,023 $ 8,512 37.0% Management Services 1,884 1,421 463 32.6%
Commercial Loans and Investments 2,008 1,410
598 42.4% Real Estate Operations 1,246 3,141 (1,895) (60.3)% Total Revenue$ 36,673 $ 28,995 $ 7,678 26.5% Total revenue for the six months endedJune 30, 2022 increased to$36.7 million , compared to$29.0 million during the six months endedJune 30, 2021 . The increase in total revenue is primarily attributable to increased income produced by the Company's recent income property acquisitions versus that of properties disposed of by the Company during the comparative period, in addition to the increased management fee income from PINE and increased income from commercial loans and investments. These increases were offset by decreased revenue from real estate operations due to fewer sales of Subsurface Interests, as further described below. Income Properties Revenue and operating income from our income property operations totaled$31.5 million and$22.7 million , respectively, during the six months endedJune 30, 2022 , compared to total revenue and operating income of$23.0 million and$17.3 million , respectively, for the six months endedJune 30, 2021 . The direct costs of revenues for our income property operations totaled$8.8 million and$5.7 million for the six months endedJune 30, 2022 and 2021, respectively. The increase in revenues of$8.5 million , or 37.0%, during the six months endedJune 30, 2022 is primarily related to the overall growth of the Company's income property portfolio, as well as the timing of acquisitions versus dispositions. The increase in operating income from our income property operations reflects increased rent revenues, offset by an increase of$3.1 million in our direct costs of revenues which is also related to the overall growth of the Company's income property portfolio. Management Services
Revenue from our management services from PINE totaled$1.9 million during the six months endedJune 30, 2022 . Revenue from our management services totaled$1.4 million during the six months endedJune 30, 2021 , including$1.4 million and$0.06 million earned from PINE and the Land JV, respectively.
Commercial Loans and Investments
Interest income from our commercial loans and investments totaled$2.0 million and$1.4 million during the six months endedJune 30, 2022 and 2021, respectively. The increase is due to increased income from the investments made during the three and six months endedJune 30, 2022 , including three construction loans and theWatters Creek Investment , as defined in Note 4. "Commercial Loans and Investments", which were partially offset by decreased income from one commercial property which was sold during the first quarter of 2022, which was accounted for as a commercial loan investment due to future repurchase rights.
Real Estate Operations
During the six months endedJune 30, 2022 , operating income from real estate operations was$0.9 million on revenues totaling$1.2 million . During the six months endedJune 30, 2021 , operating income from real estate operations was$2.5 million on revenues totaling$3.1 million . The total decrease in operating income was$1.6 million , of which$1.7 million of the decrease was due to fewer Subsurface Interest sales. This$1.7 million decrease was partially offset by the Company's sale of 1.96 mitigation credits for an aggregate sales price of$0.2 million and related cost of sales of$0.1 44
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million during the six months ended
General and Administrative Expenses
Total general and administrative expenses for the six months endedJune 30, 2022 is presented in the following summary and indicates the changes as compared to the six months endedJune 30, 2021 (in thousands): Six Months Ended General and Administrative Expenses June 30, 2022 June 30, 2021 $ Variance % Variance Recurring General and Administrative Expenses $ 4,108 $ 3,942$ 166 4.2% Non-Cash Stock Compensation 1,611 1,700 (89) (5.2)% REIT Conversion and Other Non-Recurring Items - 155 (155) (100.0)% Total General and Administrative Expenses $ 5,719 $
5.797
Depreciation and Amortization
Depreciation and amortization totaled$13.1 million and$9.9 million during the six months endedJune 30, 2022 and 2021, respectively. The increase of$3.2 million is primarily due to the overall growth in the Company's income property portfolio.
Gains (Losses) and Impairment Charges
2022 Dispositions. During the six months endedJune 30, 2022 , the Company sold two income properties, including (i) Party City, a single-tenant income property located inOceanside, New York for$6.9 million resulting in a$0.06 million loss and (ii) theCarpenter Hotel ground lease, a single-tenant income property located inAustin, Texas for$17.1 million resulting in a$0.2 million loss. 2021 Dispositions. During the six months endedJune 30, 2021 , the Company disposed of one multi-tenant income property and nine single-tenant income properties, including (i) World of Beer/Fuzzy's Taco Shop , a multi-tenant income property located inBrandon, Florida for$2.3 million resulting in a$0.6 million gain, (ii)Moe's Southwest Grill , a single-tenant income property located inJacksonville, Florida for$2.5 million resulting in a$0.1 million gain, (iii)Burlington , a single-tenant income property located inNorth Richland Hills, Texas for$11.5 million resulting in a$0.1 million gain, (iv) Staples, a single-tenant income property located inSarasota, Florida for$4.7 million resulting in a$0.7 million gain, and (v) the CMBS Portfolio, sold to PINE, consisting of six single-tenant income properties for$44.5 million resulting in a$3.9 million gain. The sale of the properties reflect a total disposition volume of$65.5 million , resulting in aggregate gains of$5.3 million . Impairment Charges. There were no impairment charges on the Company's undeveloped land holdings, or its income property portfolio during the six months endedJune 30, 2022 and 2021. The$16.5 million impairment charge, net of the$4.1 million related income tax benefit, recognized during the six months endedJune 30, 2021 was related to the Company's previously held retained interest in the Land JV as a result of the estimated proceeds to be received in connection with the contract entered into withTimberline Acquisition Partners , an affiliate ofTimberline Real Estate Partners ("Timberline"). The sale to Timberline closed onDecember 10, 2021 .
Investment and Other Income (Loss)
During the six months endedJune 30, 2022 , the closing stock price of PINE decreased by$2.12 per share, with a closing price of$17.92 onJune 30, 2022 . During the six months endedJune 30, 2021 , the closing stock price of PINE increased by$4.03 per share, with a closing price of$19.02 onJune 30, 2021 . The change in stock price resulted in an unrealized, non-cash gain (loss) on the Company's investment in PINE of($4.3) million and$8.2 million which is included in investment and other income (loss) in the consolidated statements of operations for the six months endedJune 30, 2022 and 2021, respectively.
The Company earned dividend income from the investment in PINE of
and
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Interest Expense
Interest expense totaled $4.2 million and $4.9 million for the six months ended
June 30, 2022 and 2021, respectively. The decrease of $0.7 resulted primarily
from (i) the net decrease in long-term debt outstanding under the Company's
Credit Facility during the six months ended June 30, 2022 as compared to the
same period in 2021, which is primarily driven by the use of proceeds received
from the Series A Preferred Stock offering, (ii) the payoff of the Company's
$23.2 million variable-rate mortgage note, (iii) the disposition of the CMBS
Portfolio under which the buyer assumed a $30.0 million fixed-rate mortgage
note, and (iv) the repurchase of $11.4 million aggregate principal amount of
2025 Notes. These decreases in debt were partially offset by increases in debt
related to (i) the $17.8 million mortgage loan assumed in connection with the
acquisition of Price Plaza and (ii) the $100.0 million 2027 Term Loan.
Net Income (Loss) Attributable to the Company
Net income attributable to the Company totaled$1.4 million during the six months endedJune 30, 2022 as compared to net income of$4.1 million during the six months endedJune 30, 2021 . The decrease in net income is attributable to the factors described above.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents total
Our cash flows provided by operating activities totaled$22.4 million during the six months endedJune 30, 2022 , compared to cash flows provided by operating activities totaling$18.3 million for the six months endedJune 30, 2021 , an increase of$4.1 million . The increase of$4.1 million is primarily related to the increase in the cash flows provided by income properties, which is the result of the overall growth of the Company's income property portfolio. The cash flows provided by operating activities was also impacted by more cash flows from the Company's management fee income and interest income from commercial loans and investments, offset by the decrease in the Company's cash flows from real estate operations. Our cash flows used in investing activities totaled$54.4 million for the six months endedJune 30, 2022 , compared to cash flows used in investing activities of$80.5 million for the six months endedJune 30, 2021 , a decrease in cash outflows of$26.1 million . The decrease in cash used in investing activities is primarily related to$56.9 million less cash utilized to fund income property acquisitions, net of proceeds from income property dispositions, during the six months endedJune 30, 2022 . The$56.9 million reduction in cash outflows related to net income property acquisitions is largely offset by a$29.3 million increase in cash utilized to fund commercial loan and investments including three construction loans and theWatters Creek Investment , net of proceeds received from the sale of theCarpenter Hotel ground lease located inAustin, Texas , which was classified as a commercial loan investment due to future tenant repurchase rights. Our cash flows provided by financing activities totaled$34.9 million for the six months endedJune 30, 2022 , compared to cash flows provided by financing activities of$47.0 million for the six months endedJune 30, 2021 , a decrease in cash inflows of$12.1 million . The decrease of$12.1 million is primarily related to a$16.5 million decrease in cash flows provided by debt activity comprised of (i)$44.0 million of cash inflows related to the Company's net borrowings on long-term debt during the six months endedJune 30, 2022 less (ii)$60.5 million of cash inflows related to the Company's net borrowings on long-term debt during the six months endedJune 30, 2021 . The$16.5 million decrease in debt borrowings was offset by an increase in cash outflows of$3.8 million related to dividends paid during the six months endedJune 30, 2022 as compared to the same period in the prior year and an increase in cash outflows of$1.1 million of repurchases of the Company's common stock. Cash flows from financing activities also benefitted from cash inflows of$8.6 million of net proceeds received from the sale of 131,858 shares of the Company's common stock under the ATM Program during the six months endedJune 30, 2022 , with no such activity during the same period in 2021.
Long Term Debt. Ash or
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Acquisitions and Investments. As noted previously, the Company acquired one multi-tenant income property during the six months ended
The Company’s guidance for 2022 investments in income-producing properties totals between
Dispositions. During the six months endedJune 30, 2022 , the Company sold two single-tenant income properties for a total disposition volume of$24.0 million , one of which was classified as a commercial loan investment due to two tenant repurchase options, as further described in Note 3, "Income Properties ".
ATM Program. During the six months ended
Contractual Commitments – Expenditures.
The Company is committed to fund the following capital improvements. The improvements, which are related to several properties, are estimated to be generally completed within twelve months. These commitments, as of
As of June 30, 2022
Total Commitment (1) $ 23,792
Less Amount Funded (6,042)
Remaining Commitment $ 17,750
(1) Commitment includes tenant improvements, leasing commissions, rebranding, facility expansion and other capital improvements.
In addition, the Company is committed to fund the three construction loans as described in Note 4. Commercial Loans and Investments. The unfunded portion of the construction loans totaled$12.1 million as ofJune 30, 2022 .
Off-Balance Sheet Arrangements. none.
Other Matters. We believe we will have sufficient liquidity to fund our operations, capital requirements, maintenance, and debt service requirements over the next twelve months and into the foreseeable future, with cash on hand, cash flow from our operations,$141.3 million of availability remaining under the ATM Program, and$99.0 million undrawn commitment under the existing$210.0 million Credit Facility as ofJune 30, 2022 . Our Board and management consistently review the allocation of capital with the goal of providing the best long-term return for our stockholders. These reviews consider various alternatives, including increasing or decreasing regular dividends, repurchasing the Company's securities, and retaining funds for reinvestment. Annually, the Board reviews our business plan and corporate strategies, and makes adjustments as circumstances warrant. Management's focus is to continue our strategy to diversify our portfolio by redeploying proceeds from like-kind exchange transactions and utilizing our Credit Facility to increase our portfolio of income-producing properties, providing stabilized cash flows with strong risk-adjusted returns primarily in larger metropolitan areas and growth markets. We believe that we currently have a reasonable level of leverage. Our strategy is to utilize leverage, when appropriate and necessary, and proceeds from sales of income properties, the disposition or payoffs on our commercial loan and master lease investments, and certain transactions in our subsurface interests, to acquire income properties. We may also acquire or originate commercial loan and master lease investments, invest in securities of real estate companies, or make other shorter-term investments. Our targeted investment classes may include the following:
? Multi-tenant, primarily retail-oriented, properties in major metropolitan areas
and growth markets, typically stabilized;
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Single-tenant retail or other commercial, double or triple net leased,
? properties in major metropolitan areas and growth markets that are compliant
with our commitments under the PINE ROFO Agreement;
? Ground leases, whether purchased or originated by the Company, that are
compliant with our 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 Company 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.
Our investments in income-producing properties are typically subject to
long-term leases. For multi-tenant properties, each tenant typically pays its
proportionate share of the aforementioned operating expenses of the property,
although for such properties we typically incur additional costs for property
management services. Single-tenant leases are typically in the form of triple or
double net leases and ground leases. Triple-net leases generally require the
tenant to pay property operating expenses such as real estate taxes, insurance,
assessments and other governmental fees, utilities, repairs and maintenance, and
capital expenditures.
Non-U.S. GAAP Financial Measures
Our reported results are presented in accordance with accounting principles generally accepted inthe United States of America ("U.S. GAAP"). We also disclose Funds From Operations ("FFO"), Core Funds From Operations ("Core FFO"), and Adjusted Funds From Operations ("AFFO"), each of which are non-U.S. GAAP financial measures. We believe these non-U.S. GAAP financial measures are useful to investors because they are widely accepted industry measures used by analysts and investors to compare the operating performance of REITs. FFO, Core FFO, and AFFO do not represent cash generated from operating activities and are not necessarily indicative of cash available to fund cash requirements; accordingly, they should not be considered alternatives to net income as a performance measure or cash flows from operating activities as reported on our statement of cash flows as a liquidity measure and should be considered in addition to, and not in lieu of,U.S. GAAP financial measures. We compute FFO in accordance with the definition adopted by theBoard of Governors of theNational Association of Real Estate Investment Trusts , or NAREIT. NAREIT defines FFO asU.S. GAAP net income or loss adjusted to exclude extraordinary items (as defined byU.S. GAAP), net gain or loss from sales of depreciable real estate assets, impairment write-downs associated with depreciable real estate assets and real estate related depreciation and amortization, including the pro rata share of such adjustments of unconsolidated subsidiaries. The Company also excludes the gains or losses from sales of assets incidental to the primary business of the REIT which specifically include the sales of mitigation credits, impact fee credits, subsurface sales, and land sales, in addition to the mark-to-market of the Company's investment securities and interest related to the 2025 Notes, if the effect is dilutive. To derive Core FFO, we modify the NAREIT computation of FFO to include other adjustments toU.S. GAAP net income related to gains and losses recognized on the extinguishment of debt, amortization of above- and below-market lease related intangibles, and other unforecastable market- or transaction-driven non-cash items. To derive AFFO, we further modify the NAREIT computation of FFO and Core FFO to include other adjustments toU.S. GAAP net income related to non-cash revenues and expenses such as straight-line rental revenue, non-cash compensation, and other non-cash amortization, as well as adding back the interest related to the 2025 Notes, if the effect is dilutive. Such items may cause short-term fluctuations in net income but have no impact on operating cash flows or long-term operating performance. We use AFFO as one measure of our performance when we formulate corporate goals. FFO is used by management, investors and analysts to facilitate meaningful comparisons of operating performance between periods and among our peers primarily because it excludes the effect of real estate depreciation and amortization and net gains or losses on sales, which are based on historical costs and implicitly assume that the value of real estate diminishes predictably over time, rather than fluctuating based on existing market conditions. We believe that Core FFO and AFFO are additional useful supplemental measures for investors to consider because they will help them to better assess our operating performance without the distortions created by other non-cash revenues or expenses. FFO, Core FFO, and AFFO may not be comparable to similarly titled measures employed by other companies. 48
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Reconciliation of Non-U.S. GAAP Measures (in thousands, except share and dividend data): Three Months Ended Six Months Ended June 30, 2022 June 30, 2021 June 30, 2022 June 30, 2021 Net Income (Loss) Attributable to the Company $ 1,218$ (3,724) $ 1,420 $ 4,061 Add Back: Effect of Dilutive Interest Related to 2025 Notes (1) - - - - Net Income (Loss) Attributable to the Company, If-Converted $ 1,218$ (3,724) 1,420 4,061 Depreciation and Amortization of Real Estate 6,707 5,031 13,076 9,861 (Gains) Losses on Disposition of Assets - (4,732) 245 (5,440) Gains on Disposition of Other Assets (632) (748) (964) (2,575) Impairment Charges, Net - 12,474 - 12,474 Unrealized Loss (Gain) on Investment Securities 1,891 (3,386) 4,348 (8,220) Funds from Operations $ 9,184 $ 4,915$ 18,125 $ 10,161 Distributions to Preferred Stockholders (1,196) - (2,391) - Funds From Operations Attributable to Common Stockholders $ 7,988 $ 4,915$ 15,734 $ 10,161 Loss on Extinguishment of Debt - 641 - 641 Amortization of Intangibles to Lease Income 497 (338) 978 (734) Less: Effect of Dilutive Interest Related to 2025 Notes (1) - - - - Core Funds From Operations Attributable to Common Stockholders $ 8,485 $ 5,218$ 16,712 $ 10,068 Adjustments: Straight-Line Rent Adjustment (507) (490) (1,045) (1,175) COVID-19 Rent Repayments 26 434 53 654 Other Depreciation and Amortization (31) (150) (170) (374) Amortization of Loan Costs and Discount on Convertible Debt 212 478
446 953 Non-Cash Compensation 705 742 1,611 1,700 Non-Recurring G&A - 62 - 155 Adjusted Funds From Operations Attributable to Common Stockholders $ 8,890 $ 6,294 $
17,607
Weighted Average Number of Common Shares: Basic and Diluted (2) 6,004,178 5,898,280
5,956,798 5,888,735
Dividends Declared and Paid - Preferred Stock $ 0.40 $ - $ 0.80 $ - Dividends Declared and Paid - Common Stock $ 1.12 $ 1.00 $
2.20 $2.00
(1) As applicable, includes interest expense, amortization of discount, amortization of fees, and other changes in net income or loss that would result from the assumed conversion. For the three and six months endedJune 30 2022 , a total of$0.5 million and$1.1 million , respectively, was not included, as the impact of the 2025 Notes, if-converted, would be antidilutive to the net income of under$0.1 million and the net loss of$1.0 million , for the respective periods. (2) A total of 1.0 million shares representing the dilutive impact of the Company's 2025 Notes, upon adoption of ASU 2020-06 effectiveJanuary 1, 2022 , were not included in the computation of diluted net income (loss) attributable to common stockholders for the three and six months endedJune 30, 2022 because they were antidilutive to the net income of under$0.1 million and the net loss of$1.0 million , for the respective periods. 49
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Other Data (in thousands, except per share data):
Three Months Ended Six Months Ended
June 30, 2022 June 30, 2021 June 30, 2022 June 30, 2021
FFO Attributable to Common
Stockholders $ 7,988 $ 4,915 $ 15,734 $ 10,161
FFO Attributable to Common
Stockholders per Common Share -
Diluted $ 1.33 $
0.83 $2.64 $1.73
Core FFO Attributable to Common Stockholders $ 8,485 $ 5,218$ 16,712 $ 10,068 Core FFO Attributable to Common Stockholders per Common Share - Diluted (1) $ 1.41 $ 0.88 $ 2.81 $ 1.71 AFFO Attributable to Common Stockholders $ 8,890 $ 6,294$ 17,607 $ 11,981 AFFO Attributable to Common Stockholders per Common Share - Diluted (1) $ 1.48 $ 1.07 $ 2.96 $ 2.03 (1) A total of 1.0 million shares representing the dilutive impact of the 2025 Notes, upon adoption of ASU 2020-06 effectiveJanuary 1, 2022 , were not included in the computation of diluted net income (loss) attributable to common stockholders for the three and six months endedJune 30, 2022 because they were antidilutive to the net income of under$0.1 million and the net loss of$1.0 million , for the respective periods.
CRITICAL ACCOUNTING ESTIMATES
Critical accounting estimates include those estimates made in accordance withU.S. GAAP that involve a significant level of estimation uncertainty and have had or are reasonably likely to have a material impact on the Company's financial condition or results of operations. Our most significant estimate is as follows: Purchase Accounting for Acquisitions of Real Estate Subject to a Lease. As required byU.S. GAAP, the fair value of the real estate acquired with in-place leases is allocated to the acquired tangible assets, consisting of land, building and tenant improvements, and identified intangible assets and liabilities, consisting of the value of above-market and below-market leases, the value of in-place leases, and the value of leasing costs, based in each case on their relative fair values. In allocating the fair value of the identified intangible assets and liabilities of an acquired property, above-market and below-market in-place lease values are recorded as other assets or liabilities based on the present value. The assumptions underlying the allocation of relative fair values are based on market information including, but not limited to: (i) the estimate of replacement cost of improvements under the cost approach, (ii) the estimate of land values based on comparable sales under the sales comparison approach, and (iii) the estimate of future benefits determined by either a reasonable rate of return over a single year's net cash flow, or a forecast of net cash flows projected over a reasonable investment horizon under the income capitalization approach. The underlying assumptions are subject to uncertainty and thus any changes to the allocation of fair value to each of the various line items within the Company's consolidated balance sheets could have an impact on the Company's financial condition as well as results of operations due to resulting changes in depreciation and amortization as a result of the fair value allocation. The acquisitions of real estate subject to this estimate totaled one multi-tenant income property for a purchase price of$39.1 million for the six months endedJune 30, 2022 and three multi-tenant income properties for a combined purchase price of$111.0 million for the six months endedJune 30, 2021 .
See Note 2, “Summary of Significant Accounting Policies”, for further discussion of the Company’s accounting estimates and policies.
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