CTO Realty Growth's Q3 2025: Contradictions Emerge on Capital Recycling, Leasing Momentum, and CapEx Allocation

Guidance:

• Raised full-year 2025 core FFO guidance to $1.84–$1.87 per diluted share (from $1.80–$1.86).
• Raised full-year 2025 AFFO guidance to $1.96–$1.99 per diluted share (from $1.93–$1.98).
• Signed-not-open (SNO) pipeline of $5.5M (~5.3% of ABR): ~75–76% (~$4M) expected recognized in 2026 and 100% in 2027.
• Targeting positive cash leasing spread of 40%–60% across 10 vacant anchor spaces.
• Expect to close South Florida acquisition before year-end; initially funded via revolver then by asset recycling.
• Liquidity approx $170M with net debt/EBITDA 6.7x and anticipated deleveraging as leases commence.

Business Commentary:

* Leasing Activity and Growth: - CTO Realty Growth reported 482,000 square feet of overall leasing activity, including 424,000 square feet of comparable leasing at a weighted average base rent spread of 21.7% for the first nine months of 2025. - This growth was driven by strong leasing performance, particularly in the third quarter with 143,000 square feet of new retail leases and renewals, which represented a 21.7% spread.

• Financial Performance and Debt Reduction:
• The company's net debt to EBITDA ratio improved to 6.7x, from 6.9x in the previous quarter.

• This improvement was due to successful leasing, re-leasing of vacant anchor spaces, and the repurchase of common stock.

• Signed-Not-Open (SNO) Pipeline and Future Earnings:

• CTO's SNO pipeline stands at $5.5 million, representing approximately 5.3% of annual cash base rents in place as of quarter end.

• The pipeline positions the company for meaningful earnings growth, with around 76% of the anticipated ABR from SNO expected to be recognized in 2026 and 100% in 2027.

• South Florida Acquisition and Capital Allocation:

• CTO signed an agreement to acquire a shopping center in South Florida and plans to close the transaction by year-end.
• The acquisition will be funded by recycling an asset around year-end, enhancing liquidity and demonstrating the company's strategic focus on high-return investments.

Sentiment Analysis:

Overall Tone: Positive

• Management highlighted "another quarter of strong operating performance" driven by leasing, raised full-year core FFO and AFFO guidance, cited a $5.5M signed-not-open pipeline positioning the company for "meaningful earnings growth," and reported $170M of liquidity and improving net debt/EBITDA (6.7x vs 6.9x).

Q&A:

• Question from Robert Stevenson (Janney Montgomery Scott LLC): Phil, what's the pro forma debt-to-EBITDA look like once you complete the Florida acquisition and sell the existing asset and the near-term signed but not commenced leases start to drive revenue?
  Response: Florida will be parked on the revolver and ultimately funded by asset recycling and should not materially change debt/EBITDA; the SNO pipeline coming online would reduce leverage by roughly 0.5x.

• Question from Robert Stevenson (Janney Montgomery Scott LLC): What is the timing of the bulk of that revenue? Are you going to see any material amount in the fourth quarter? Is that a first or second quarter '26 event? How should we be thinking of that when we play around with our models in terms of when the bulk of that $5-plus million starts hitting revenue?
  Response: Pipeline begins in early 2026: ~$5.5M total with ~75% (~$4M) in 2026, ramping ~ $0.5M Q1, $1M Q2, $1M Q3 and $1.5M Q4; full $5.5M recognized in 2027.

• Question from Robert Stevenson (Janney Montgomery Scott LLC): Where is your most significant vacancy today that's not either under contract, letter of intent or pretty far down the road where you still have some work to do? Where is the opportunity for you guys, right now?
  Response: Largest vacancy is a 40,000 sq ft box at Carolina Pavilion; exploring splitting it or leasing whole box; small remaining vacancy at Shops at Legacy.

• Question from Robert Stevenson (Janney Montgomery Scott LLC): You've got about $45 million of structured investments that have maturity dates in the first part of '26. When you take a look at those today, are those likely to be redeemed around that point in time? Or are those likely to be extended? How are you guys thinking about that as the preferred -- I think it's Watters Creek and Founders Square?
  Response: Founders Square will pay off; Watters Creek may either extend or pay off depending on their capitalization plans.

• Question from Matthew Erdner (JonesTrading Institutional Services, LLC): Given where the stock is trading, are you guys going to continue to buy back shares down at this level?
  Response: Yes — will repurchase shares as permitted by credit covenants; management views CTO stock as the best investment at current valuations.

• Question from Matthew Erdner (JonesTrading Institutional Services, LLC): Do you guys have any restrictions on investing more into PINE? And if not, is that something that you guys are considering doing just given that that stock price is trading at similar multiples?
  Response: There is limited room to increase PINE ownership without breaching restrictions; opportunistic but current priority is repurchasing CTO shares.

• Question from Craig Kucera (Lucid Capital Markets, LLC): Are you seeing any pickup in potential loans that work for CTO? Or are property investments really more compelling right now?
  Response: Structured finance opportunities are more active at PINE; for CTO the CMBS recovery has made property investments more compelling and structured opportunities less prevalent.

• Question from Craig Kucera (Lucid Capital Markets, LLC): You have a decent amount of leases expiring here in the fourth quarter, I think about 3% of ABR, one is an anchor. Can you talk about your expectations there?
  Response: No material nonrenewal risk; many expirations are below-market tenants that represent upside opportunity to relet at higher rents.

• Question from Craig Kucera (Lucid Capital Markets, LLC): Congrats on the Shops at Legacy leasing. Can you give a sense of how additive that is to the signed-not-open pipeline?
  Response: Shops at Legacy accounts for roughly $1M of the $5.5M SNO pipeline (primarily the private members club and the recently signed co-working lease).

• Question from Craig Kucera (Lucid Capital Markets, LLC): Any change to the credit watch negative list? I know we've talked about maybe home goods or some of those things, but any change there?
  Response: No changes this quarter; overall credits have modestly improved.

• Question from Gaurav Mehta (Alliance Global Partners): You reported $0.5 million of nonrecurring this quarter and also raised your G&A guidance a little bit. Just want to get some color on what those items were.
  Response: Nonrecurring items were elevated (~$0.5M this quarter vs a ~ $250k run rate); G&A for Q4 expected to be similar to Q3 for modeling purposes.

• Question from Gaurav Mehta (Alliance Global Partners): Tenant improvement allowances were higher this quarter than the last few quarters. How should we think about that line item as you sign new leases?
  Response: TI varies with anchor move-ins; elevated this quarter due to Onelife (Beaver Creek), Boot Barn and Barnes (Rockwall); expect Q4 to remain elevated depending on timing of reimbursements.

• Question from Gaurav Mehta (Alliance Global Partners): On the asset recycling that you talked about to fund the acquisition — is that expected to happen this year or is that expected to happen next year?
  Response: Management expects recycling to occur by year-end but timing could slip; targeting end of year.

• Question from John Massocca (B. Riley Securities, Inc.): Of the $4M–$4.5M potential new base rent from anchor box re-leasing, how much is from the 6 leases you've closed versus contingent on the 4 you're negotiating?
  Response: The six completed anchor leases represent about $2.5M; the remaining four account for roughly $2M.

• Question from John Massocca (B. Riley Securities, Inc.): Anything else in the acquisition pipeline that might close in 2025 beyond the Florida shopping center you discussed?
  Response: Unlikely to close additional acquisitions in 2025 given timing constraints, though bids are outstanding; possible if a seller requires year-end close.

• Question from John Massocca (B. Riley Securities, Inc.): What's the acquisition environment look like for 2026 and how would you fund new investments? Any additional assets for recycling beyond those to fund the Florida deal?
  Response: Expect to recycle stabilized, lower-growth assets into higher-yield, value-add opportunities; have several candidate assets to sell and will match sales to desired acquisitions.

• Question from John Massocca (B. Riley Securities, Inc.): Do you think the Fidelity property or the New Mexico property is a potential candidate for capital recycling for the Florida acquisition or 2026 investments?
  Response: Fidelity is a clear candidate once lease with the state is settled — likely early 2026 for sale.

• Question from John Massocca (B. Riley Securities, Inc.): At Shops at Legacy, after the co-working tenant, what's the remaining square footage composition — small shop vs anchor?
  Response: Remaining space is primarily small-shop units with some former WeWork area; manageable inventory and management is being selective on tenants.

Contradiction Point 1

Disposition Plans and Capital Recycling

It involves potential asset sales and recycling plans, which affect the company's financial strategy and future growth prospects.

What is the current acquisition environment like? How do you plan to fund new investments? Are there additional assets in the portfolio that could be targets for capital recycling beyond those funding the Florida acquisition? - John James Massocca (B. Riley Securities, Inc.)

2025Q3: We would expect to recycle assets to generate the proceeds that we'll use in the Florida acquisition as well as to add to the balance sheet overall and maintain leverage at or near 6 times. - John Albright(CEO)

Will acquiring the potential shopping center increase leverage in the near term? - Gaurav Mehta (Alliance Global Partners)

2025Q2: Everyone is aware of the 2 Fidelity properties that we own across the country, and because of the unique nature of those leases, those 2 assets are longer-term holds for us. - John Albright(CEO)

Contradiction Point 2

Leasing Activities and Market Conditions

It highlights differing perspectives on the strength of leasing activities and market conditions, which are crucial for understanding the company's growth trajectory and investor confidence.

What will the pro forma debt-to-EBITDA be after completing the Florida acquisition and selling the existing asset, and as pending leases begin generating revenue? - Robert Stevenson (Janney Montgomery Scott LLC)

2025Q3: The leasing momentum has been strong. And we continue to see good activity in the market, which has led to us increasing our guidance for this year. - John Albright(CEO)

Can you provide more details on the anchor tenant negotiations? Is recent volatility causing delays in retailer discussions? - RJ Milligan (Raymond James)

2025Q1: Despite recent tariff uncertainty, leasing activity has been consistent and strong. Tenants, both public and private, are moving forward with leasing decisions, with no significant backup or pause. - John Albright(CEO)

Contradiction Point 3

Impact of Re-leasing on 2025 Guidance

It involves changes in financial forecasts, specifically regarding the impact of re-leasing on 2025 guidance, which is critical for investor expectations.

What's the pro forma debt-to-EBITDA after completing the Florida acquisition, selling the existing asset, and the near-term signed but not commenced leases begin driving revenue? - Robert Stevenson (Janney Montgomery Scott LLC)

2025Q3: The SNO pipeline will start contributing to revenue at the beginning of next year. Approximately $4 million is expected to be recognized in 2026, growing throughout the year. - Philip Mays(CFO)

How will re-leasing impact 2025 guidance, with half of the effect in 2024 and the remaining in 2026? - Rob Stevenson (Janney Montgomery Scott)

2024Q4: The $0.10 per share impact on guidance includes regaining possession of all the spaces on Page 8 in Q1 2025, with the full impact moving into 2026. - Phil Mays(CFO)

Contradiction Point 4

CapEx Allocation for Re-leasing

It involves differences in the estimation of CapEx for re-leasing bankrupt tenant spaces, which affects operational costs and the company's financial outlook.

When will the majority of that revenue be recognized? Will there be a material amount in Q4? Is it Q1 or Q2 2026? How should we model when the bulk of the >$5M revenue begins contributing? - Robert Stevenson (Janney Montgomery Scott LLC)

2025Q3: The CapEx associated with re-leasing bankrupt tenant spaces is estimated to be $9 million to $12 million. - Phil Mays(CFO)

How much CapEx are you allocating to bankrupt tenant spaces currently being released or already under contract? - Rob Stevenson (Janney Montgomery Scott)

2025Q1: The CapEx associated with re-leasing bankrupt tenant spaces is estimated to be $9 million to $12 million. - Phil Mays(CFO)

Contradiction Point 5

Anchor Space Leasing and NOI Growth

It addresses differing perspectives on the impact of anchor space leasing progress and NOI growth, which are critical for understanding the company's operational and financial performance.

What will the pro forma debt-to-EBITDA be after completing the Florida acquisition, selling the existing asset, and the near-term signed but uncommenced leases generate revenue? - Robert Stevenson (Janney Montgomery Scott LLC)

2025Q3: We successfully re-let 220,000 square feet of anchor space at a weighted average base rent increase of 5%. - John Albright(CEO)

How is non-same store NOI growth trending in the portfolio? - John Massocca (B. Riley Securities)

2025Q1: We're seeing positive NOI growth in our acquisitions, with no resistance in raising rents. Tenants are willing to accept rent increases due to the favorable market conditions and the good backdrop of macroeconomic factors. - John Albright(CEO)