CTO Realty Growth: A High-Yield High-Growth Opportunity

CTO Realty Growth, Inc. (CTO) has positioned itself as a compelling investment opportunity in the real estate sector, combining a robust dividend yield with strategic growth initiatives. As a REIT focused on retail-driven properties in high-growth markets, CTO’s portfolio of 24 assets—including 19 retail centers, four mixed-use developments, and one office property—reflects a deliberate focus on locations with strong demographic trends and tenant demand. Recent financial results and strategic moves underscore its potential, though risks inherent to the real estate sector remain.

Financial Performance: Resilience Amid Headwinds

In Q1 2025, CTO reported a $0.01 per share net income (down 95% year-over-year), driven by non-recurring expenses. However, its core metrics—Core FFO of $0.46 per share and AFFO of $0.49 per share—reveal a more nuanced picture. While both metrics dipped slightly compared to the prior year, same-property NOI rose 2.4% to $17.1 million, buoyed by a 93.8% leased occupancy rate. Leasing activity further highlights resilience: new leases were signed at a 37.2% rent premium, with average rents climbing from $17.47 to $23.97 per square foot.

The balance sheet remains stable, with $138.4 million in liquidity (including an $130 million undrawn credit facility) and a manageable net debt/EBITDA ratio of 6.6x. The recent settlement of convertible notes, which reduced debt by $35.2 million through equity conversions and cash payments, further strengthens its capital structure.

Strategic Acquisitions: Fueling Growth

CTO’s acquisition strategy in 2025 has been both disciplined and impactful. The $79.8 million purchase of Ashley Park in Georgia—a 559,000-square-foot lifestyle center with a 8.0–8.5% cap rate—aligns with its focus on high-traffic, anchor-driven properties. Similarly, West Broad Village (Glen Allen, Virginia), with its upscale tenant mix (Whole Foods, REI) and affluent trade area, and Shops at Legacy North (Plano, Texas), a mixed-use asset near Fortune 500 companies, exemplify its pursuit of markets with strong income growth and population trends.

The company’s 2025 outlook targets $100–200 million in acquisitions at initial yields of 8.0–8.5%, suggesting continued expansion into high-return opportunities. Management’s reaffirmation of AFFO guidance of $1.93–1.98 per share post-Q1 results signals confidence in its ability to execute this strategy.

Dividend Policy: High Yield, High Risk?

CTO’s dividend stands out: it paid $0.38 per share in Q1, representing 82.6% of Core FFO and 77.6% of AFFO. While this high payout ratio ensures attractive income for investors, it leaves limited room for reinvestment or buffer against earnings volatility. The decline in FFO and AFFO (4.2% and 5.8% YoY, respectively) underscores the need for cautious optimism. Should occupancy rates dip or same-property NOI growth stall, the dividend’s sustainability could come into question.

Risks and Considerations

Despite its strengths, CTO faces notable risks. The net debt/enterprise value ratio of 44.8% and fixed charge coverage of 2.9x suggest vulnerability to rising interest rates or economic downturns. Additionally, the company’s exposure to retail and office sectors—still recovering from pandemic disruptions—poses tenant default risks. Management has acknowledged these challenges, emphasizing cost management (G&A expenses capped at $17.5–18.0 million) and conservative leverage targets.

Conclusion: A Balanced Bet on High-Yield Real Estate

CTO Realty Growth presents a compelling case for income-oriented investors seeking a dividend yield of ~4.5% (based on Q1 2025 AFFO) alongside growth potential from accretive acquisitions. Its portfolio of well-located assets, such as Ashley Park and Legacy North, and its disciplined capital allocation—evidenced by the 37.2% rent premium on new leases—support its growth narrative. However, the high payout ratio and economic risks necessitate a cautious approach.

Investors should weigh CTO’s reaffirmed AFFO guidance of $1.93–1.98 per share against its valuation metrics, including its P/FFO ratio and debt metrics. For those willing to accept moderate risk, CTO offers a rare blend of income and growth in a sector where stability is prized. Yet, with same-property NOI growth at just 2.4% YoY and macroeconomic uncertainties looming, this remains a stock best held in a diversified portfolio.

In sum, CTO Realty Growth is a high-yield, high-growth play—but one that demands close monitoring of its execution on acquisitions, occupancy trends, and debt management.