Business Overview and History

CTO Realty Growth, Inc. (CTO) is a self-managed equity real estate investment trust (REIT) that focuses on the ownership, management, and repositioning of high-quality retail and mixed-use properties located primarily in what it believes to be faster-growing, business-friendly markets exhibiting accommodative business tax policies, outsized relative job and population growth, and where retail demand exceeds supply.

CTO Realty Growth was originally founded in 1900 as the Consolidated-Tomoka Land Company, a land development company based in Florida. For much of its history, the company was engaged in land ownership and development activities. In the late 2000s, CTO faced significant challenges during the financial crisis and recession, which led to a decline in land values and development activity. The company had to write down the value of its land holdings and implement cost-cutting measures to weather the downturn.

In 2019, CTO took a major step towards transforming its business model by selling a portfolio of 15 properties to Alpine Income Property Trust, Inc. (PINE) as part of PINE's initial public offering. This transaction allowed CTO to shift towards a more stable, income-oriented REIT model. Later that year, the company entered into an exclusivity and right of first offer agreement with PINE, further aligning the two companies' strategies.

In 2020, the company elected to be taxed as a REIT and underwent a rebranding to become CTO Realty Growth, shifting its focus to the ownership and management of income-producing commercial real estate properties. This strategic pivot marked a new phase in the company's long history, positioning it for growth and stability as a diversified real estate investment trust.

Today, CTO Realty Growth owns and manages a portfolio of 23 commercial real estate properties spanning 4.7 million square feet across 7 states, primarily in the Southeast and Southwest regions of the United States. The company's portfolio consists of 17 multi-tenant retail properties and 6 single-tenant net lease properties. CTO has a diverse tenant base, with no single tenant accounting for more than 10% of its total revenues.

In addition to its core income property operations, CTO Realty Growth also generates fee-based revenue from managing Alpine Income Property Trust (PINE), a publicly traded REIT, as well as income from a portfolio of commercial loans and investments. The company's investment in PINE, which owns 14.8% of PINE's outstanding equity, also provides dividend income.

Financial Performance and Ratios

CTO Realty Growth has demonstrated strong financial performance in recent years. For the full year 2024, the company reported total revenues of $124.5 million, a 14.1% increase from 2023. Net income for 2024 was a loss of $2.0 million, compared to net income of $5.5 million in 2023. This decline was primarily due to increased depreciation and amortization expenses, as well as a $0.7 million impairment charge related to the company's commercial loan and investment portfolio.

The company's core funds from operations (Core FFO), a key metric for REITs, grew 6% year-over-year to $1.88 per share in 2024. Adjusted funds from operations (AFFO), which adjusts for non-cash items, increased 6.3% to $1.93 per share. These strong FFO and AFFO figures demonstrate CTO's ability to generate reliable cash flow from its diversified portfolio of income-producing properties.

For the most recent quarter (Q4 2024), CTO reported revenue of $35.7 million and a net loss of $17.1 million. The company's operating cash flow for the full year 2024 was $69.4 million, which was also its free cash flow.

Liquidity

CTO's balance sheet remains healthy, with a debt-to-EBITDA ratio of 6.3x as of the end of 2024, down from 7.4x a year earlier. The company ended the year with $222 million in available liquidity, providing ample flexibility to pursue accretive acquisition and investment opportunities.

As of December 31, 2024, CTO had $17.4 million in cash and a debt-to-equity ratio of 0.87. The company has a $300 million revolving credit facility, of which $213 million was undrawn at year-end. CTO's current ratio and quick ratio both stand at 2.44, indicating strong short-term liquidity.

Operational Highlights and Outlook

In 2024, CTO Realty Growth was active on the acquisition front, deploying $227 million to acquire five multi-tenant retail properties, one building within an existing multi-tenant property, and a vacant land parcel. These investments increased the company's portfolio by 1 million square feet, or 26%, to 4.7 million square feet. The weighted average initial cash yield on these acquisitions was 9.3%.

The company also originated $104 million in commercial loans and investments during the year, including a $40.2 million construction loan for a Whole Foods-anchored development adjacent to CTO's existing Collection at Forsyth property in Georgia.

On the leasing front, CTO signed over 450,000 square feet of new leases, renewals, and extensions in 2024, with positive cash lease spreads of 23% on a comparable basis. The company's signed-not-open leasing pipeline represents nearly 6% of in-place cash rents, providing strong earnings visibility for 2025 and 2026.

Looking ahead, CTO Realty Growth's acquisition pipeline remains robust, and the company expects to close one or two additional acquisitions in the near term. The company has also made significant progress in re-tenanting spaces vacated by recent retailer bankruptcies, with potential re-leasing spreads of 40-60%. Combined with the company's signed-not-open leasing pipeline, these re-tenanting opportunities are expected to provide strong earnings growth tailwinds in 2026.

For 2025, CTO has provided guidance for core FFO in the range of $1.80 to $1.86 per share and AFFO between $1.93 and $1.98 per share. This guidance reflects the company's confidence in its ability to execute on its growth strategy while maintaining a strong balance sheet. The 2025 guidance includes a $0.05 per share impact due to the settlement of CTO's convertible notes for cash, resulting in rolling the low coupon rate of the convertible notes to CTO's higher revolving credit facility rate. Additionally, the guidance incorporates a $0.10 per share impact related to recent retailer bankruptcies and vacancies, as CTO expects to regain possession of these spaces around the end of the first quarter of 2025.

Business Segments

CTO Realty Growth operates in four primary business segments: income properties, management services, commercial loans and investments, and real estate operations.

The income properties segment is the core of CTO's business, accounting for 88% of the company's identifiable assets as of December 31, 2024, and 88.8% of consolidated revenues for the year. CTO's income property portfolio generated $110.6 million in leasing revenue in 2024, up from $96.7 million in 2023. The weighted average remaining lease term across the portfolio was 4.8 years for multi-tenant properties and 5.2 years for single-tenant properties as of the end of 2024.

The management services segment generated $4.6 million in fee income in 2024, up from $4.4 million in 2023. This segment includes fees from managing Alpine Income Property Trust (PINE), as well as from two additional management agreements - the Portfolio Management Agreement and the Subsurface Management Agreement.

The commercial loans and investments segment consisted of five commercial loan investments and two preferred equity investments as of December 31, 2024, with a total carrying value of $105.0 million. This segment generated $7.4 million in interest income in 2024, up from $4.1 million in 2023. The commercial loan investments have a weighted average interest rate of 10.4% and remaining terms ranging from 1-5 years.

The real estate operations segment includes revenue from the sale of mitigation credits and subsurface interests. In 2024, this segment generated $2.0 million in revenue, down from $4.0 million in 2023, as CTO completed the monetization of these non-core assets.

Geographic Distribution

CTO's property portfolio is concentrated in seven states, with the highest concentrations in Georgia (23% of gross leasable area), North Carolina (22%), Texas (19%), and Florida (19%). This geographic focus aligns with the company's strategy of investing in faster-growing, business-friendly markets with strong demographic trends.

Risks and Challenges

As with any real estate investment trust, CTO Realty Growth faces risks related to the performance and valuation of its underlying real estate assets. A prolonged economic downturn or changes in consumer preferences could negatively impact occupancy levels and rental rates across the company's portfolio. The REIT also faces competition from other real estate companies for acquisition opportunities in its target markets.

Additionally, CTO's reliance on management fees from its relationship with PINE introduces some risk, as the performance and growth of PINE could impact CTO's fee-based revenue. The company also has exposure to interest rate fluctuations through its debt financing, which could pressure its profitability and cash flows if rates continue to rise.

Overall, CTO Realty Growth appears to be a diversified REIT with a well-executed strategy focused on thriving Sunbelt markets. The company's strong operational and financial performance, healthy balance sheet, and visible growth pipeline position it well to continue creating value for shareholders in the years ahead.