CTO Realty Growth, Inc. (CTO) is a publicly traded, 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 faster growing, business-friendly markets. With a diverse portfolio of 22 commercial real estate properties across seven states, CTO has strategically positioned itself to capitalize on the robust economic conditions in its target markets.
Company Background and History
Founded in 1920 and headquartered in Winter Park, Florida, CTO Realty Growth has a rich history spanning over a century. The company’s journey has been marked by significant transformations, including its election to be taxed as a REIT for U.S. federal income tax purposes in 2020. This strategic shift allowed CTO to focus on income-producing real estate assets, marking a departure from its previous involvement in various real estate-related activities such as land development, mitigation banking, and subsurface mineral rights.
Throughout its history, CTO has demonstrated resilience in the face of industry challenges. The rise of e-commerce and its impact on traditional retail tenants prompted the company to reposition its portfolio, investing in multi-tenant, primarily retail-oriented properties in faster growing markets. This adaptive strategy has enabled CTO to maintain stable cash flows and increase returns through capital appreciation. Additionally, the company has successfully navigated volatile financial and credit markets by maintaining a strong balance sheet, utilizing diverse financing sources, and strategically deploying capital through acquisitions, structured investments, and asset dispositions.
Portfolio and Business Segments
CTO’s evolution has resulted in a diversified real estate company with a portfolio that extends beyond income-producing properties. The firm operates in four primary business segments: income properties, management services, commercial loans and investments, and real estate operations.
The income properties segment is the largest part of CTO’s business, accounting for 89.3% of the company’s identifiable assets as of September 30, 2024. This segment focuses on owning and managing income-producing commercial real estate properties, primarily multi-tenant retail and mixed-use properties located in growth markets. As of September 30, 2024, CTO owned and managed 22 commercial properties comprising 4.6 million square feet of gross leasable space across seven states. During the first nine months of 2024, the income properties segment generated $79.03 million in revenue, up 12.3% compared to the same period in 2023, and $56.40 million in operating income, an increase of 13.9%.
In addition to its core income property business, CTO maintains a commercial loans and investments segment, which contributed $4.41 million in interest income during the first nine months of 2024, up 48.6% year-over-year. This portfolio of four commercial loan investments and two preferred equity investments provides CTO with further diversification and the opportunity to capitalize on attractive risk-adjusted returns. The commercial loans and investments represented 8.8% of CTO’s identifiable assets as of September 30, 2024.
The company’s management services segment, which includes the management of Alpine Income Property Trust (PINE) and various other asset management agreements, generated $3.36 million in fee income during the first nine months of 2024, up 2.0% compared to the same period in 2023. This segment represented 1.2% of the company’s identifiable assets as of September 30, 2024. CTO’s relationship with PINE, in which it holds a 15.3% equity stake, further enhances the firm’s diversification and exposure to the net lease sector.
CTO’s real estate operations segment includes revenue from the sale of subsurface mineral interests and mitigation credits. During the first nine months of 2024, this segment generated $1.98 million in revenue, down 23.9% from the prior year period due to the company selling its remaining mitigation credits and subsurface mineral interests during 2024. As of September 30, 2024, the real estate operations segment represented 0.1% of the company’s identifiable assets.
Financial Performance
CTO’s financial performance has been strong, with the company reporting Core Funds from Operations (Core FFO) of $0.50 per diluted share and Adjusted Funds from Operations (AFFO) of $0.51 per diluted share for the third quarter of 2024, representing year-over-year growth of 6.4% and 6.3%, respectively. This performance was driven by the company’s successful leasing and investment activities, as well as continued operational efficiencies.
For the most recent fiscal year (2023), CTO reported revenue of $109.12 million, net income of $5.53 million, and operating cash flow (OCF) of $46.42 million. In the most recent quarter (Q3 2024), the company achieved revenue of $31.805 million, net income of $6.227 million, and OCF of $21.193 million. The company reported a 12.0% increase in total revenue compared to Q3 2023, driven by growth in income property operations, management services, and commercial loans and investments. Net income increased significantly from $2.69 million in Q3 2023 to $6.23 million in Q3 2024, primarily due to higher investment and other income.
During the first nine months of 2024, CTO invested $274 million in income properties and structured investments at a weighted average yield of 9.1%. This investment activity has been primarily funded through a combination of equity raises, including $125.7 million in net proceeds from the company’s common stock at-the-market (ATM) program, and debt financing, such as a $100 million unsecured term loan with an initial fixed interest rate of 4.68%.
CTO’s same-property NOI growth was 6.3% for the quarter, and the company’s signed but not open pipeline of leases stands at $6.5 million in future rents, which is over 7% of their current in-place cash base rent.
Liquidity and Balance Sheet
CTO’s balance sheet remains strong, with a net debt to EBITDA ratio of 6.4x as of September 30, 2024, down from 7.4x in the prior quarter. The company’s liquidity position has also been bolstered, with over $200 million in available borrowing capacity under its revolving credit facility as of the end of the third quarter.
As of September 30, 2024, the company had $8.17 million in cash and cash equivalents, and $205 million in undrawn capacity under its $300 million revolving credit facility. The company’s debt-to-equity ratio stands at 0.88, with a current ratio and quick ratio both at 8.17.
Future Outlook
Looking ahead, CTO has provided full-year 2024 guidance, raising its Core FFO range to $1.83 to $1.87 per diluted share and its AFFO range to $1.96 to $2.00 per diluted share. This guidance reflects the company’s continued investment and operational momentum, as well as its ability to effectively navigate the evolving market landscape.
CTO has also increased its investment guidance to a new range of $300 million to $350 million, up from the previous guidance. This demonstrates the company’s confidence in its ability to source and execute accretive investments in its target markets.
Despite the challenges posed by macroeconomic headwinds, such as rising interest rates and inflationary pressures, CTO has demonstrated its resilience and ability to deliver consistent financial performance. The company’s focus on strategically located, high-quality properties, coupled with its diversified investment approach and prudent capital management, position CTO well for future growth and value creation.
Conclusion
In conclusion, CTO Realty Growth is a well-positioned REIT that has successfully navigated the real estate landscape, delivering strong financial results and positioning itself for continued success. With its diversified portfolio across four business segments, strategic investments, and prudent financial management, CTO is poised to capitalize on the opportunities within its target markets and provide attractive returns to its shareholders. The company’s focus on high-quality retail and mixed-use properties in growth markets, particularly in the Southeast and Southwest regions of the United States, aligns well with broader trends in the commercial real estate sector. As CTO continues to execute its growth strategy and maintain operational excellence, it remains an attractive investment option in the REIT space.
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