Executive Summary / Key Takeaways

• CTO Realty Growth is strategically repositioning its portfolio in high-growth Sun Belt markets, leveraging robust leasing activity and a significant mark-to-market opportunity in anchor spaces to drive future earnings.
• The company's signed-not-open (SNO) pipeline of $5.5 million in annual base rent is a strong tailwind, with 76% expected to be recognized in 2026 and 100% by 2027, signaling meaningful FFO growth.
• Recent financial maneuvers, including $150 million in term loan financings and common stock repurchases, have strengthened liquidity and demonstrate management's confidence in the company's undervalued equity.
• CTO's data-driven investment methodology and regional market expertise serve as key differentiators, enabling it to identify and execute value-add acquisitions and re-leasing strategies effectively in a competitive landscape.
• Despite ongoing macroeconomic uncertainties and a class-action lawsuit regarding dividend sustainability, the company's raised 2025 guidance and disciplined capital allocation strategy point to a compelling long-term investment thesis.

The Strategic Blueprint: Sun Belt Focus and Value Creation

CTO Realty Growth, Inc. (CTO) operates as a self-managed equity REIT, strategically focused on owning, managing, and repositioning high-quality retail and mixed-use properties across the United States. The company's core strategy centers on faster-growing, business-friendly markets in the Sun Belt, characterized by favorable tax policies, robust job and population growth, and strong retail demand. This deliberate geographic focus underpins CTO's investment methodology, which meticulously evaluates real estate attributes, tenant creditworthiness, local economic conditions, and strategic fit, including the potential for 1031 like-kind exchanges.

The company's journey has been marked by significant transformations, including its election to be taxed as a REIT in 2020 and the strategic spin-off of Alpine Income Property Trust, Inc. (PINE). This relationship with PINE, formalized through an exclusivity and right of first offer (ROFO) agreement, has sharpened CTO's focus on multi-tenant, primarily retail-oriented properties, while PINE concentrates on single-tenant net lease assets. This division of labor allows CTO to concentrate on its strengths in managing and re-leasing complex multi-tenant centers.

In a competitive real estate landscape, CTO distinguishes itself not through proprietary technology in the traditional sense, but through its sophisticated, data-driven investment methodology and operational efficiencies. This "technological" approach involves rigorous underwriting, detailed market analysis, and proactive asset management to identify properties with embedded value and lease-up potential. For instance, the acquisition of Ashley Park for $79.8 million was driven by its below-market rents and a basis significantly below replacement costs, highlighting CTO's ability to identify and capitalize on mispriced assets. This analytical rigor provides a tangible benefit by enabling more informed acquisition decisions, potentially leading to higher risk-adjusted returns and a stronger competitive moat against less analytically driven investors. The company's ability to quickly re-lease anchor spaces and achieve substantial rent spreads further demonstrates the effectiveness of its operational execution and market insight.

The competitive environment for income property acquisitions is intense, with CTO acknowledging a "highly competitive market" where "more established entities or other investors may be able to compete more effectively." Larger diversified REITs like Realty Income Corporation (O) and W. P. Carey Inc. (WPC), with their broader national and international footprints, often possess greater scale and bargaining power. Realty Income, known for its vast portfolio of single-tenant net lease properties, benefits from a well-established brand and extensive geographic presence. W. P. Carey, with its focus on diversified net lease properties across industrial, warehouse, and retail, leverages global expansion and industrial asset expertise. EastGroup Properties, Inc. (EGP), specializing in industrial properties in Sun Belt markets, capitalizes on strong industrial demand.

Against these larger players, CTO's strength lies in its regional focus and operational agility. Its concentrated presence in specific high-growth U.S. markets allows for deeper local market knowledge and potentially faster adaptation to regional trends, offering a qualitative advantage in operational execution. While CTO may not match the sheer scale or global reach of some competitors, its diversified portfolio across various property types provides risk mitigation, potentially leading to more stable operational performance in fluctuating markets. The company's strategy of recycling capital from stabilized assets into value-add, higher-growth opportunities further enhances its competitive positioning, allowing it to generate attractive yields.

Performance and Strategic Execution

CTO's financial performance in the first nine months of 2025 reflects the successful execution of its growth and value-add strategies. Total revenue for the three months ended September 30, 2025, increased to $37.80 million, up from $31.80 million in the comparable prior-year period. This 18.70% increase was primarily fueled by income from recent property acquisitions and stronger same-store revenue. For the nine months ended September 30, 2025, total revenue surged by 25.30% to $111.20 million, compared to $88.80 million in the prior year.

The Income Properties segment, the largest contributor, saw revenues rise by 17.20% to $33.44 million in Q3 2025 and by 24.60% to $98.49 million for the nine-month period. Operating income from this segment increased by $3.50 million in Q3 2025, driven by increased rent revenues from net investments and robust leasing activity. Same-property NOI also demonstrated strength, increasing by 2.3% in Q3 2025, notably at Beaver Creek with Onelife Fitness and through strong small shop leasing at West Broad Village, Plaza at Rockwall, and Ashford Lane.

The Commercial Loans and Investments segment also demonstrated strong growth, with interest income increasing by 94.60% to $3.14 million in Q3 2025 and by 106.90% to $9.12 million for the nine-month period. This growth is primarily due to the expansion of the loan portfolio and new originations. The Real Estate Operations segment, however, generated no revenue in 2025, as the company sold its remaining subsurface mineral interests and mitigation credits in 2024.

A significant operational highlight is CTO's progress in addressing anchor vacancies. The company has completed 482,000 square feet of overall leasing activity year-to-date through September 30, 2025, including 424,000 square feet of comparable leasing at a weighted average base rent spread of 21.7%. Six of the ten vacant anchor spaces, previously occupied by tenants with below-market rents, have been leased, with active negotiations for the remaining four. Management anticipates achieving a positive cash leasing spread of 40% to 60% across these spaces, which is expected to significantly increase foot traffic and drive long-term value. The Shops at Legacy, for example, saw a "meaningful inflection point" with a 30,000 square foot lease to a co-working operator and a 20,000 square foot private members-only social club, bringing its lease percentage to approximately 85%.

The company's signed-not-open (SNO) pipeline stands at $5.5 million in annual base rent, representing approximately 5.3% of annual cash base rents in place. This pipeline is a key earnings tailwind, with approximately 76% of the ABR from the SNO pipeline anticipated to be recognized in 2026 and 100% in 2027. The revenue from this pipeline is projected to ramp up throughout 2026, with about $0.5 million in Q1, $1 million in Q2, $1 million in Q3, and $1.5 million in Q4, totaling around $4 million for the year.

From a liquidity and capital management perspective, CTO has been proactive. As of September 30, 2025, the company had $170 million of liquidity, including $161 million available under its revolving credit facility and $9 million in cash. Just before the end of Q3 2025, CTO closed $150 million in term loan financings, comprising a new $125 million 2030 Term Loan and a $25 million upsizing of the 2029 Term Loan. These loans, initially fixed at approximately 4.2% using SOFR swap agreements, were used to retire a $65 million 2026 Term Loan and reduce the revolving credit facility balance. This leaves only $17.8 million of debt maturing in 2026. The company's net debt to EBITDA improved slightly to 6.7x at the end of Q3 2025 from 6.9x at Q2 2025, with further deleveraging expected from re-leasing efforts. CTO also repurchased $9.3 million of common stock, signaling management's view that the stock is undervalued.

Outlook, Guidance, and Risks

CTO Realty Growth has raised its full-year 2025 Core FFO guidance to a range of $1.84 to $1.87 per diluted share, up from the previous $1.80 to $1.86. The AFFO guidance was also increased to $1.96 to $1.99 per diluted share, from $1.93 to $1.98. This upward revision underscores management's confidence in the company's operational momentum and the anticipated contributions from its SNO pipeline and re-leased anchor spaces. The company expects to fund future acquisitions through a combination of cash on hand, operating cash flow, 1031 like-kind exchanges from dispositions, and its credit facility. An agreement to acquire a value-add shopping center in South Florida is expected to close by year-end 2025, initially funded by the credit facility and ultimately by asset recycling.

Despite the positive outlook, several risks warrant investor attention. The company's business is inherently dependent on the successful operations of its tenants and borrowers, and a failure on their part could adversely impact results. Competition from e-commerce continues to pose a challenge to traditional retail tenants. The real estate market for acquisitions remains highly competitive, potentially limiting opportunistic growth. Real estate investments are generally illiquid, and the inability to effectively utilize 1031 like-kind exchanges could result in significant tax liabilities. Macroeconomic conditions, including inflation, higher interest rates, and geopolitical uncertainties, could also impact the business. Furthermore, the company is exposed to interest rate risk, particularly from its variable-rate credit facility, with a hypothetical 100 basis point increase impacting financial results by $0.70 million as of September 30, 2025.

A notable concern for investors is the class action lawsuit filed against CTO Realty Growth, Inc. for alleged securities law violations, with claims that CTO's dividends were less sustainable than represented. An analyst from Forbes/Seeking Alpha labeled CTO a "False Dividend Stock," citing negative free cash flow and a significant "Dividend Deficit" over the past five years, arguing that dividends paid exceeded free cash flow. This perspective contrasts with management's stated dividend coverage and the company's continued dividend declarations.

Conclusion

CTO Realty Growth is executing a clear strategy to enhance shareholder value through focused investments in high-growth Sun Belt markets and proactive asset management. The company's ability to drive significant leasing spreads on vacant anchor spaces and cultivate a robust SNO pipeline positions it for substantial earnings growth in the coming years. Coupled with disciplined capital allocation, including strategic debt financings and share repurchases, CTO is actively strengthening its balance sheet and liquidity. While the competitive landscape and macroeconomic headwinds present ongoing challenges, CTO's regional expertise and data-driven approach to real estate investment provide a distinct advantage. The raised 2025 guidance and the anticipated contributions from its strategic initiatives underscore a compelling investment thesis, provided the company effectively manages its operational risks and addresses concerns regarding dividend sustainability.