CTO Realty Growth, Inc. (NYSE: CTO): A Diversified REIT Navigating the Evolving Retail Landscape

Published on November 17, 2024 | Ticker: CTO

CTO Realty Growth, Inc. 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 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.

Company History and Evolution

The company's roots trace back to 1910, when it was incorporated in Florida as Consolidated Tomoka Land Company. For over a century, the company focused on the ownership and management of timberlands, citrus groves, and other real estate assets in Florida. In the early 2000s, CTO Realty Growth began transitioning its business strategy to focus more on the ownership and management of commercial income-producing properties. This strategic shift culminated in the company's name change to CTO Realty Growth, Inc. in 2021, reflecting its new identity as a commercial REIT. Over the past two decades, the company has built a diversified portfolio of retail, office, and mixed-use properties, primarily located in fast-growing markets in the southeastern and southwestern United States. To address challenges such as the impacts of the Great Recession and the rise of e-commerce on traditional retail real estate, CTO Realty Growth has focused on strengthening its tenant base, repositioning underperforming assets, and diversifying its portfolio beyond single-tenant retail. The company has also expanded into other real estate-related investments, such as commercial loans and preferred equity, to further diversify its income streams.

Portfolio and Business Segments

As of September 30, 2024, CTO Realty Growth owns and manages, sometimes utilizing third-party property management companies, 22 commercial real estate properties in seven states in the United States, comprising 4.6 million square feet of gross leasable area. In addition to its income property portfolio, the company's business includes a fee-based management services segment, a commercial loans and investments portfolio, and a real estate operations segment.

The company's management services segment is engaged in managing Alpine Income Property Trust, Inc. (PINE) as well as a portfolio of assets pursuant to a portfolio management agreement and a subsurface mineral interests management agreement. As of September 30, 2024, CTO Realty Growth owns, in the aggregate and on a fully diluted basis, 2.36 million shares of PINE, or 15.3% of PINE's total shares outstanding, including 1.2 million OP Units, which are redeemable for cash or shares of PINE common stock.

CTO Realty Growth's commercial loans and investments portfolio consists of four commercial loan investments and two preferred equity investments as of September 30, 2024. The company's real estate operations segment previously included revenues from the sale of mitigation credits and subsurface mineral interests, but the company has now disposed of all of its remaining mitigation credits and subsurface mineral interests.

Financials

Financially, CTO Realty Growth has exhibited a strong balance sheet and liquidity position. As of September 30, 2024, the company had $8.2 million in cash and cash equivalents, $1.7 million in restricted cash, and $205 million in undrawn capacity under its $300 million revolving credit facility. The company's net debt to EBITDA ratio stood at 6.4x, a full turn lower than the prior quarter. Additionally, the company has been active in the capital markets, raising $125.7 million in net proceeds through its common stock at-the-market (ATM) program during the third quarter of 2024.

In terms of financial performance, CTO Realty Growth reported net income attributable to the company of $13.3 million for the nine months ended September 30, 2024, compared to $1.5 million in the same period of the prior year. The company's core funds from operations (Core FFO) and adjusted funds from operations (AFFO) for the nine months ended September 30, 2024 were $1.43 and $1.52 per diluted share, respectively, representing year-over-year growth of 11.7% and 9.4%, respectively.

For the most recent fiscal year (2023), CTO Realty Growth reported revenue of $109.12 million, net income of $5.53 million, and operating cash flow of $46.42 million. In the most recent quarter (Q3 2024), the company achieved revenue of $31.80 million, representing a year-over-year growth of 11.7%, and net income of $6.23 million. The increase in revenue was primarily due to increased income from the company's recent income property acquisitions compared to properties disposed of in the prior year period, as well as higher same-store revenues. The increase in net income was driven by the overall growth in the income property portfolio as well as higher investment and other income.

Liquidity

Looking ahead, CTO Realty Growth has raised its full-year 2024 guidance, now expecting core FFO in the range of $1.83 to $1.87 per diluted share and AFFO in the range of $1.96 to $2.00 per diluted share. The company has also increased its investment guidance for 2024 to a range of $300 million to $350 million, including both property acquisitions and structured investments.

The company's liquidity position remains strong, with a debt-to-equity ratio of 0.88, cash of $8.17 million, and $205 million available under its $300 million revolving credit facility. CTO Realty Growth's current ratio and quick ratio both stand at 20.59, indicating a robust ability to meet short-term obligations.

Business Segments and Performance

CTO Realty Growth operates in four primary business segments:

1. Income Properties: This segment, which is the company's primary driver, generated $79.03 million in revenue and $56.40 million in operating income during the nine months ended September 30, 2024. It accounted for 89% of the company's identifiable assets and 89% of its consolidated revenues for this period.

2. Management Services: This segment earned $3.36 million in management fee income during the nine months ended September 30, 2024, primarily from managing Alpine Income Property Trust, Inc. (PINE) and other portfolio assets.

3. Commercial Loans and Investments: This segment generated $4.41 million in interest income during the nine months ended September 30, 2024, from its portfolio of four commercial loan investments and two preferred equity investments.

4. Real Estate Operations: This segment generated $1.98 million in revenue and $544,000 in operating income during the nine months ended September 30, 2024, primarily from the sale of remaining mitigation credits and subsurface mineral interests.

Outlook and Conclusion

CTO Realty Growth's strategy of investing in high-quality retail and mixed-use properties in faster growing markets, along with its diversified business model and strong financial position, position the company well to navigate the evolving retail landscape. The company's focus on the Southeast and Southwest regions of the United States, where it sees potential for continued growth, aligns with its strategy of targeting business-friendly markets with strong demographic trends.

The company's recent performance, including the 11.7% year-over-year revenue growth in the most recent quarter and the increase in full-year 2024 guidance, demonstrates its ability to execute its business plan effectively. The raised investment guidance for 2024 also suggests confidence in the company's ability to identify and capitalize on attractive opportunities in its target markets.

However, the company is not without its risks, including those related to the ownership of commercial real estate, competition in its target markets, and potential macroeconomic headwinds. The company's ability to maintain its strong occupancy rates, attract and retain quality tenants, and successfully integrate new acquisitions will be crucial to its continued success.

Investors should carefully consider CTO Realty Growth's history, financial performance, growth strategy, and risk factors when evaluating the company as a potential investment opportunity. The company's ability to execute its business plan and adapt to industry changes will be crucial in determining its future success. With its diversified portfolio, strong balance sheet, and focus on high-growth markets, CTO Realty Growth appears well-positioned to continue navigating the evolving retail landscape and delivering value to its shareholders.

You may be interested in...

ACRES Commercial Realty Corp. (NYSE:ACR): Navigating the Commercial Real Estate Landscape with Resilience

ACRES Commercial Realty Corp. (NYSE:ACR) is a Maryland-based real estate investment trust (REIT) that is primarily focused on originating, holding, and managing commercial real estate (CRE) mortgage loans and equity investments in commercial real estate properties through direct ownership and joint ventures. The company’s strategy is to provide its shareholders with total returns over time, including quarterly distributions and capital appreciation, while seeking to manage the risks associated with its investment strategies.

Cedar Realty Trust (CDR-PB): A Resilient Retail REIT Navigating an Evolving Landscape

Cedar Realty Trust, Inc. (NYSE: CDR-PB) is a fully-integrated real estate investment trust (REIT) that focuses on owning and operating income-producing retail properties, primarily grocery-anchored shopping centers, in the Northeast region of the United States. With a portfolio of 17 properties as of September 30, 2024, Cedar Realty Trust has established itself as a key player in the retail real estate sector, weathering industry challenges and positioning itself for future growth.

CTO Realty Growth, Inc. (CTO): A Diversified REIT Focused on Growth Markets

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.

Terreno Realty (TRNO): An Industrial REIT Capitalizing on Coastal Market Dominance

Business Overview and History: Terreno Realty Corporation (TRNO) is a leading industrial real estate investment trust (REIT) that has established a strong presence in six major coastal U.S. markets. With a focus on acquiring, owning, and operating high-quality industrial properties, Terreno has demonstrated its ability to generate consistent returns for its shareholders, even in the face of economic challenges.