CTO Realty's Q4 2025 Performance: A Strong Finish

Key Takeaways

• CTO Realty Growth delivered a strong Q4 2025, marked by record occupancy and robust leasing, setting a positive tone for its 7.2% Core FFO growth outlook in 2026.
• The REIT's strategy to invest $100 million to $200 million in shopping centers at 8% to 8.5% initial yields, coupled with its 7.6% dividend yield, positions it as an attractive income play.
• While a discounted valuation and Sun Belt focus offer a compelling narrative, investors must weigh the high dividend payout ratio and potential interest rate sensitivity against its disciplined capital allocation.

CTO Realty's Q4 2025 Performance: A Strong Finish?

CTO Realty Growth (NYSE: CTO) concluded 2025 with a "robust" fourth quarter, as management highlighted, signaling a period of operational strength and strategic execution. The company reported a significant rebound, moving from prior-year losses to a net income attributable to common stockholders of $2.58 million for the full year. This performance was underpinned by record leased occupancy reaching 95.9% at year-end, demonstrating strong demand for its retail properties.

The fourth quarter itself saw Core FFO of $15.8 million, or $0.49 per diluted share, contributing to a full-year Core FFO of $60.5 million, or $1.87 per diluted share. This solid financial footing was further bolstered by active capital deployment throughout 2025, including the $65.2 million Pompano acquisition and a total of $166 million in investments at an approximate 9% yield. Such strategic acquisitions underscore CTO's commitment to expanding its income-producing asset base.

Leasing activity remained a key driver, with 189,000 square feet signed in Q4 alone, boasting an impressive 31% cash rent increase on comparable deals. For the full year, CTO signed 671,000 square feet, securing a 24% cash rent increase. This aggressive leasing, particularly in re-tenanting vacant anchor spaces, is expected to yield a positive cash rent spread of approximately 60%, which is at the high end of management's target range. The company also ended the year with a healthy $167 million of liquidity, including $149 million available under its revolver, providing ample financial flexibility.

Furthermore, CTO demonstrated prudent capital management by repurchasing $9.3 million of common stock in 2025 at a weighted average price of $16.27 per share. This move, including $5 million bought back early in Q4 at $16.26 per share, reflects management's confidence in the company's intrinsic value and its commitment to returning capital to shareholders. The net debt to EBITDA ratio also improved to 6.4x at quarter-end, down from 6.7x in Q3, indicating a strengthening balance sheet.

What Does CTO's 2026 Guidance Signal for Investors?

CTO Realty Growth has issued initial full-year 2026 guidance that signals continued growth and a clear strategic direction for investors. The company projects Core FFO per diluted share to range from $1.98 to $2.03, representing a 7.2% growth at the midpoint compared to 2025. Adjusted Funds From Operations (AFFO) per diluted share are anticipated to be between $2.11 and $2.16, an 8.4% increase at the midpoint, highlighting management's confidence in recurring cash flow generation.

These projections are built upon several key assumptions. CTO plans for an investment volume of $100 million to $200 million in 2026, including structured investments, targeting a weighted average initial yield of 8% to 8.5%. This disciplined approach to capital deployment, focusing on high-yield opportunities, is central to its growth strategy. The company's ability to source deals at these attractive yields will be crucial for achieving its FFO targets.

Another significant assumption is the expected shopping center same-property Net Operating Income (NOI) growth of 3.5% to 4.5%. This growth is largely anticipated to improve throughout the year, driven by the "Signed, Not Open" (SNO) pipeline. This pipeline, valued at $6.1 million at year-end 2025 and representing approximately 5.8% of annual cash base rents, is expected to ramp up, with nearly half recognized in 2026 and fully online by 2027. This deferred revenue stream provides a visible runway for future NOI expansion.

Management also guided for General and Administrative (G&A) expenses to be between $19.5 million and $20 million for 2026, indicating continued cost discipline. With only $17.8 million of debt maturing in 2026, CTO has improved its maturity ladder management, reducing near-term refinancing risks. This combination of strategic investments, strong leasing momentum, and prudent financial management forms the backbone of CTO's optimistic 2026 outlook.

Is CTO's Shopping Center Strategy a Winning Bet in Today's Market?

CTO Realty Growth's investment strategy is laser-focused on acquiring, owning, and managing open-air shopping centers in higher-growth markets across the Southeast and Southwest, particularly within the Sun Belt. This geographic concentration is a deliberate choice, targeting regions characterized by robust population growth and above-average household incomes. Such markets offer a natural hedge against broader retail sector headwinds, enabling CTO to command premium rents and drive consistent same-property NOI growth.

The company prioritizes lifestyle and power centers over grocery-anchored centers, a strategic decision based on perceived superior return profiles and market opportunities. This focus allows CTO to capitalize on evolving consumer preferences for experiential retail and convenience. For instance, the acquisition of Pompano Citi Centre and other properties in high-growth areas like Atlanta and South Florida, with weighted average initial cash yields of 8.7%, exemplifies this targeted approach.

A key element of CTO's operational success is its ability to re-tenant vacant anchor spaces effectively. Management has made "material progress" on anchor backfills, resolving seven anchors totaling 177,000 square feet and signing a 48,000 square foot national tenant. This proactive management of its portfolio not only maintains high occupancy but also drives significant cash rent increases, as evidenced by the expected ~60% positive cash rent spread on resolved anchor spaces.

Furthermore, CTO employs a disciplined capital recycling strategy. This involves actively managing its portfolio by selling lower-yielding assets and reinvesting the proceeds into higher-yielding opportunities. For example, the sale of a Dallas property at a low-5% exit cash cap rate, with proceeds used to fund a Florida acquisition, is a textbook example of this strategy. This approach enhances immediate earnings accretion and optimizes the overall portfolio's return profile, demonstrating a sophisticated approach to asset management beyond simple buy-and-hold.

How Does CTO's Valuation and Dividend Stack Up Against Peers?

CTO Realty Growth currently trades at $19.89 per share, reflecting a +3.67% gain today and sitting within its $15.07 – $20.54 52-week range. With a market capitalization of $644.0 million, the company presents an interesting valuation picture. Its P/E ratio stands at 76.85, which appears high on a trailing basis, largely due to a low TTM EPS of $0.26. However, for REITs, Funds From Operations (FFO) and Adjusted Funds From Operations (AFFO) are more relevant metrics, and the forward guidance of $1.98-$2.03 Core FFO for 2026 offers a different perspective.

The company's P/B ratio of 1.13 suggests it trades slightly above its book value of $17.63 per share, which is often considered reasonable for a REIT with a growing portfolio. Compared to the broader Real Estate sector's average P/E of 54.7, CTO's trailing P/E is elevated, but its forward FFO multiple would likely be more competitive. Analyst consensus provides a "Buy" rating with a median price target of $21.00, indicating a modest upside from current levels.

For income-focused investors, CTO's dividend yield is a significant draw, currently standing at 7.6% based on a quarterly dividend of $0.38 per share. This yield dwarfs many of its peers and the broader market. However, the TTM dividend payout ratio of 675.5% raises a red flag, suggesting that the current dividend is not fully covered by trailing earnings. While FFO and AFFO are better indicators for REIT dividend sustainability, the high payout ratio against EPS warrants careful consideration.

CTO's financial health is supported by a conservative leverage profile, with net debt to EBITDA at 6.4x at quarter-end, an improvement from the previous quarter. The company's ROIC of 30.4% is impressive, indicating efficient capital deployment. Despite the high dividend payout ratio on an EPS basis, the company's strong FCF yield of 11.7% and disciplined capital allocation, including a 25-year history of paying an annual dividend, provide some reassurance regarding the sustainability of its distributions.

What Are the Key Risks and Opportunities for CTO Investors?

Investing in CTO Realty Growth, like any REIT, comes with its own set of risks and opportunities that investors must carefully consider. A primary risk factor is interest rate sensitivity. As interest rates rise, the cost of borrowing for REITs increases, potentially impacting profitability and the ability to fund new acquisitions at attractive yields. Higher rates can also make fixed-income alternatives more appealing, potentially drawing capital away from high-yield equities like CTO.

Another significant risk stems from the evolving retail environment, particularly the ongoing competition from e-commerce. While CTO focuses on open-air shopping centers in resilient Sun Belt markets, a prolonged downturn in consumer spending or a continued shift towards online retail could adversely affect tenant sales, occupancy levels, and rental income. The company's 10-K explicitly mentions these challenges, highlighting the need for tenants to adapt and for CTO to meet their evolving space requirements.

Key Risks to Watch:

• Interest Rate Fluctuations: Sustained high interest rates could pressure borrowing costs and property valuations.
• E-commerce Competition: Despite a focus on experiential retail, a broad economic downturn or accelerated e-commerce shift could impact tenant performance.
• Tenant Credit Quality: While anchored by national tenants, a severe economic contraction could test the resilience of leases and lead to defaults.

On the opportunity side, CTO's strategic focus on high-growth Sun Belt markets provides a strong demographic tailwind. These regions continue to attract population and business migration, driving demand for retail space. The company's emphasis on lifestyle and power centers, which are often more resilient to e-commerce pressures due to their convenience and experiential offerings, positions it well within the retail sector.

Key Opportunities:

• Sun Belt Growth: Continued population and economic expansion in its target markets will drive demand and rental growth.
• Disciplined Capital Allocation: The ability to recycle capital from lower-yielding assets into higher-yielding acquisitions at 8-8.5% initial yields can drive accretive growth.
• "Signed, Not Open" Pipeline: The $6.1 million SNO pipeline, largely coming online by 2027, offers a clear path to accelerating NOI and FFO growth.
• Anchor Re-tenanting: Successfully re-leasing vacant anchor spaces at ~60% positive cash rent spreads provides a significant boost to property income.

The company's disciplined capital allocation, including its structured investment program that delivered a 10.7% initial cash yield last year, demonstrates a versatile toolkit for capturing premium returns. Its conservative leverage profile and long-standing dividend history further underscore a commitment to shareholder value. For patient investors, the current valuation, which some analysts suggest is at a discount to peers, combined with a high yield, presents a compelling value proposition if management continues to execute its strategy effectively.

CTO Realty Growth presents a compelling case for income-focused investors, balancing a high dividend yield with a clear growth strategy in resilient retail segments. The company's strong Q4 2025 performance and optimistic 2026 guidance, driven by strategic acquisitions and robust leasing, underscore its operational momentum. While the high dividend payout ratio warrants scrutiny, CTO's disciplined capital allocation and focus on high-growth Sun Belt markets provide a solid foundation for future value creation. Investors should monitor interest rate trends and the successful execution of its "Signed, Not Open" pipeline to fully realize the potential of this niche REIT.

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