In order to comply with certain REIT requirements set forth in the
Internal Revenue Code of 1986, as amended (the “Code”), we hold
certain of our non-REIT assets and operations through taxable REIT
subsidiaries (“TRSs”) and subsidiaries of TRSs. A TRS is a
subsidiary of a REIT that is generally subject to U.S. federal
corporate income tax on its earnings. Net income from our TRSs
either will be retained by our TRSs and used to fund their
operations, or will be distributed to us, where it will either be
reinvested by us into our business or available for distribution to
our stockholders. However, distributions from our TRSs to us will
not produce qualifying income for purposes of the 75% gross income
test applicable to REITs and thus may be limited.
To qualify as a REIT, the Company must meet certain organizational
and operational requirements, including a requirement to distribute
at least 90% of the Company’s annual REIT taxable income, without
regard to the dividends paid deduction and excluding net capital
gain, to its stockholders (which is computed and which does not
necessarily equal net income as calculated in accordance with
generally accepted accounting principles). As a REIT, the Company
is generally not subject to U.S. federal corporate income tax to
the extent of its distributions to stockholders. If the Company
fails to qualify as a REIT in any taxable year, the Company will be
subject to U.S. federal income tax on its taxable income at regular
corporate rates and generally will not be permitted to qualify for
treatment as a REIT for the four taxable years following the year
during which qualification is lost unless the Internal Revenue
Service (“IRS”) grants the Company relief under certain statutory
provisions. Such an event could materially adversely affect the
Company’s net income and net cash available for distribution to
stockholders. Even if the Company qualifies for taxation as a REIT,
the Company may be subject to state and local taxes on its income
and property and federal income and excise taxes on its
undistributed income.
Merger
On January 29, 2021, in connection with the REIT conversion, the
Company completed the merger of CTO Realty Growth, Inc., a Florida
corporation (“CTO FL”), with and into CTO NEWCO REIT, Inc. (“CTO MD
”), a wholly owned subsidiary of CTO FL (the “Merger”) in order to
reincorporate in Maryland and facilitate its ongoing compliance
with the REIT requirements by ensuring that certain standard REIT
ownership limitations and transfer restrictions apply to CTO MD’s
capital stock.
As a result of the Merger, existing shares of CTO FL common stock
were automatically converted, on a one-for-one basis, into shares
of common stock of CTO MD. CTO MD is a corporation organized in the
state of Maryland and has been renamed “CTO Realty Growth, Inc.”
CTO MD’s charter includes certain standard REIT provisions,
including ownership limitations and transfer restrictions
applicable to the Company’s capital stock. See Note 14, “Equity”
for the Company’s disclosure related to the equity adjustments
recorded during the three months ended March 31, 2021 in connection
with the Merger.
In connection with the REIT conversion and the Merger, CTO FL
applied to list CTO MD’s common stock on the New York Stock
Exchange (the “NYSE”) under CTO FL’s ticker symbol, “CTO.”
This application was approved, and CTO MD’s common stock
began trading on the NYSE on February 1, 2021 under the ticker
symbol “CTO.”
COVID-19
Pandemic
In March 2020, the World Health Organization declared the outbreak
of the novel coronavirus as a pandemic (the “COVID-19 Pandemic”),
which has spread throughout the United States. The impact of the
COVID-19 Pandemic has evolved rapidly, with many jurisdictions
taking drastic measures to limit the spread of the virus by
instituting quarantines or lockdowns and imposing travel
restrictions. Such actions have created significant disruptions to
global supply chains, and adversely impacted several industries,
including airlines, hospitality, retail and the broader real estate
industry.
As a result of the approval of multiple COVID-19 vaccines for use
and the distribution of such vaccines among the general population,
a number of jurisdictions have reopened and loosened restrictions.
However, wide disparities in vaccination rates and continued
vaccine hesitancy, combined with the emergence of COVID-19 variants
and surges in COVID-19 cases, could trigger the reinstatement of
further restrictions. Such restrictions could include mandatory
business shut-downs, travel restrictions, reduced business
operations and social distancing requirements.
The future impact of the COVID-19 Pandemic on the real estate
industry and the Company’s financial condition and results of
operations is uncertain and cannot be predicted currently since it
depends on several factors beyond the control of the Company,
including, but not limited to: (i) the uncertainty surrounding the
severity and duration of the