Executive Summary / Key Takeaways

• CTO Realty Growth is executing a focused strategy as a retail-centric REIT, capitalizing on high-growth markets in the Southeast and Southwest U.S. through value-add acquisitions and aggressive re-leasing initiatives.
• Recent financial performance demonstrates robust revenue growth in its core Income Properties and Commercial Loans segments, driven by strategic acquisitions and successful leasing, despite a temporary net income impact from debt extinguishment costs.
• A significant earnings tailwind is anticipated in 2026 from the $4.6 million "signed not open" leasing pipeline and the re-tenanting of 10 anchor spaces, projected to yield 40-60% cash rent spreads.
• The company maintains a disciplined approach to capital management, improving its net debt to EBITDA to 6.9x and enhancing liquidity, while planning further term loans to support its $100-$200 million investment guidance for 2025.
• While CTO does not highlight proprietary technological differentiation, its competitive edge lies in regional market expertise and strategic partnerships, which enable targeted acquisitions and efficient asset management in its chosen high-demand geographies.

The Evolution of a Focused Retail REIT

CTO Realty Growth, Inc. has undergone a significant strategic transformation, evolving from a diversified holding company into a self-managed equity REIT primarily focused on high-quality retail and mixed-use properties. This pivotal shift began with the IPO of Alpine Income Property Trust (PINE) in 2019, which not only generated substantial capital but also established a new fee-based management business, diversifying CTO's revenue streams. The company further solidified its new identity by electing REIT taxation status in December 2020, fundamentally reshaping its financial and operational structure.

This strategic pivot has concentrated CTO's efforts on faster-growing, business-friendly markets in the Southeast and Southwest United States. These regions are characterized by accommodative tax policies, outsized job and population growth, and retail demand that outstrips supply. As of June 30, 2025, CTO's portfolio spans 24 commercial real estate properties across seven states, encompassing 5.3 million square feet of gross leasable space. The company's investment methodology is rigorous, evaluating real estate attributes, tenant creditworthiness, market-specific conditions, and strategic fit, all aimed at generating stable cash flows and long-term capital appreciation.

Operational Excellence and Strategic Adaptability

CTO's operational strategy is deeply rooted in its regional market expertise, which provides a tangible competitive advantage. This localized knowledge often translates into higher occupancy rates and superior margins through strong tenant relationships and an understanding of regional tax advantages. For instance, operating costs per unit can be 5-10% lower in Florida due to regional incentives, countering the scale advantages of larger, more diversified competitors. Furthermore, CTO's strategic partnership with Alpine Income Property Trust (PINE) offers co-investment opportunities and access to niche markets, potentially leading to 5-10% higher revenue per property in growth areas and 10% lower acquisition costs compared to some rivals.

While CTO does not highlight proprietary technological differentiation in the same vein as some larger peers, who invest more heavily in digital leasing and AI-driven property management platforms (e.g., National Retail Properties (NNN) invests 4% of revenue in tech-driven property management compared to CTO's 2%), CTO's strategic adaptability and focus on value-add acquisitions serve as its operational moat. The company's ability to identify and execute on properties with below-market rents and significant re-leasing upside, such as Ashley Park and Carolina Pavilion, demonstrates a hands-on, asset-level approach to value creation. This strategic focus allows CTO to generate substantial returns by actively repositioning properties rather than relying solely on technological efficiencies.

Unlocking Embedded Value: The Re-leasing Renaissance

A central theme of CTO's current strategy is its aggressive pursuit of embedded value within its portfolio, particularly through re-leasing efforts. The company has proactively addressed vacancies stemming from recent retailer bankruptcies, regaining full control of 10 anchor spaces previously occupied by tenants like Party City and JOANN's. This proactive management is critical, as these spaces were leased at significantly below-market rents.

CTO has already resolved six of these 10 spaces, with new leases executed for five and one signed. New anchors, including Burlington (BURL), Boot Barn (BOOT), Bassett Furniture (BSET), Slick City Action Park, and Bob's Discount Furniture, are expected to significantly increase foot traffic and enhance the vibrancy of these centers. For example, the Plaza at Rockwall saw an 86% cash rent spread on re-leased spaces. Management anticipates achieving a "positive cash leasing spread of 40% to 60% in total for these 10 anchor spaces," a substantial uplift in revenue. While the rent commencement for these new tenants is largely expected in 2026 due to build-out times (typically around a year), this strategic patience for higher-quality, often investment-grade, tenants is expected to provide strong earnings tailwinds.

The company's "signed not open" leasing pipeline, standing at $4.6 million as of June 30, 2025, represents 4.6% of in-place cash rents. This pipeline, combined with the anchor re-leasing opportunities, is projected to become "more noticeable as we move through the fourth quarter of the year" and will provide a "strong tailwind going into 2026." This indicates a deliberate strategy to absorb a temporary earnings drag in 2025 for a more significant, higher-quality income stream in the subsequent year.

Financial Performance and Capital Discipline

CTO's financial performance in the first half of 2025 reflects its growth strategy. Total revenue for the three months ended June 30, 2025, increased by 30.5% year-over-year to $37.64 million, and by 28.9% to $73.45 million for the six-month period. Despite this robust top-line growth, the company reported a net loss attributable to the company of $23.42 million for Q2 2025 and $21.16 million for the six months ended June 30, 2025. This was primarily due to a significant $20.4 million loss on the extinguishment of debt related to the full settlement of its $51 million 3.875% convertible notes, which matured in April 2025. This charge, however, is excluded from non-GAAP measures like Core FFO and AFFO, which provide a clearer picture of operational performance. Core FFO for Q2 2025 increased to $14.7 million from $10.3 million in the prior year, maintaining a per-share figure of $0.45.

This growth was primarily driven by its Income Properties segment, which saw revenues increase by 29.0% and 28.8% for the respective periods, and its Commercial Loans and Investments segment, which surged by 109.3% and 114.1%. The Management Services segment also contributed with an 8.5% revenue increase for the six-month period. The Real Estate Operations segment, having sold its underlying assets in 2024, no longer contributes revenue.

CTO has also demonstrated disciplined capital management. Post-convertible note settlement, total debt stands at $606.8 million, with only 12% subject to floating interest rates, largely mitigated by SOFR swaps. Net debt to EBITDA improved to 6.9x from 7.5x a year ago, although it saw a slight increase from 6.3x at the start of the year due to the $80 million Ashley Park acquisition and the temporary earnings impact from vacated anchor spaces. The company ended Q2 2025 with $85 million in liquidity, including $76 million available on its revolving credit facility, and plans to secure a new term loan in late Q3 or early Q4 to further enhance liquidity and reduce revolving credit balances.

Competitive Landscape and Strategic Positioning

CTO operates in a competitive REIT landscape, facing larger, more established players like Realty Income (O), National Retail Properties (NNN), and Spirit Realty Capital (SRC). While CTO holds an estimated 1-2% aggregate market share, trailing competitors like Realty Income (O) (5-7%), its strategy is not to compete on sheer scale but on targeted market penetration and value creation.

Quantitatively, CTO's revenue growth of 10% in 2024 lagged Realty Income's (O) 22% and NNN's 15%. Its operating margins of 60% are also generally lower than peers (e.g., Realty Income (O) at 75%, NNN at 70%), indicating less efficiency in cost management at scale. Similarly, its FFO per share ($1.80) and ROE (3.5%) are lower than those of its larger competitors. However, CTO's debt-to-equity ratio of 40% is comparable to or better than NNN (45%) and SRC (50%), indicating a relatively sound balance sheet within its peer group.

CTO's competitive advantage lies in its deep regional market expertise, particularly in the Southeast and Southwest. This allows it to identify and acquire properties like Ashley Park at an attractive basis ($140 per square foot), significantly below replacement costs, and with substantial embedded value. The company's ability to execute on re-leasing opportunities, as demonstrated by the 40-60% cash rent spreads on anchor spaces, is a testament to its operational strength in these specific markets. While larger competitors may have faster acquisition cycles or lower acquisition costs per unit due to scale, CTO's targeted approach aims for higher yields and greater value creation at the property level. The company also benefits from the strong inflow of pension and sovereign capital into the shopping center space, which validates its investment focus.

Outlook and Risks

CTO has reaffirmed its full-year 2025 guidance, projecting Core FFO between $1.80 and $1.86 per share and AFFO between $1.93 and $1.98 per share. This outlook incorporates a $0.10 per share impact in 2025 related to the downtime and re-leasing of the 10 anchor spaces, with the full earnings benefit expected in 2026. The company's investment guidance for 2025 remains at $100 million to $200 million, focusing on income-producing properties and structured investments. Management anticipates closing one or two acquisitions in the near term, funded by existing liquidity and future term loans.

Key risks include interest rate fluctuations, though CTO mitigates this through interest rate swaps, with only 12% of its debt currently subject to floating rates. The company also faces general economic conditions, with some softness noted in the restaurant sector, which it actively monitors. A notable criticism highlighted in a recent Forbes article pointed to CTO's "False Dividend Stocks" classification, citing a historical free cash flow deficit funded by increased debt and shareholder dilution. While the company's operating cash flow remains positive, investors should monitor its ability to generate sufficient free cash flow to cover dividends and fund growth without relying on external capital or increasing leverage. However, management's focus on unlocking embedded value through re-leasing and strategic acquisitions aims to address these concerns by driving future FFO and AFFO growth.

Conclusion

CTO Realty Growth is executing a compelling growth narrative, strategically repositioning itself as a focused retail REIT in dynamic, high-growth markets. The company's ability to identify and capitalize on value-add acquisitions, coupled with its aggressive and successful re-leasing efforts on vacated anchor spaces, forms the bedrock of its future earnings growth. While short-term financial metrics may be impacted by one-time costs and re-leasing downtime, the significant mark-to-market opportunity embedded within its portfolio is poised to drive substantial FFO and AFFO accretion in 2026.

Despite not relying on proprietary technological moats, CTO's deep regional expertise and disciplined capital management provide a strong competitive foundation. The company's strategic focus on high-quality assets in supply-constrained markets, combined with its proactive approach to asset management, positions it to continue generating attractive risk-adjusted returns. For discerning investors, CTO represents an opportunity to participate in a growth story driven by fundamental real estate value creation and a clear roadmap to enhanced shareholder returns, with a keen eye on operational execution and capital efficiency.