CTO Realty Growth's Strategic Leasing Success in Albuquerque: A Model for REIT Resilience in a High-Inflation Environment

In an era marked by persistent inflationary pressures, real estate investment trusts (REITs) have increasingly become a focal point for income-seeking investors seeking stable returns. CTO Realty Growth (CTO) has emerged as a standout performer, particularly through its strategic leasing initiatives in Albuquerque, New Mexico. By securing long-term, investment-grade tenant leases and maintaining disciplined portfolio management, CTO has demonstrated a blueprint for REIT resilience that aligns with macroeconomic realities. This analysis explores how CTO's approach in Albuquerque and its broader portfolio strategies position it as a high-conviction REIT in today's market.

Albuquerque: A Case Study in Strategic Leasing

CTO's 212,000-square-foot office property in Albuquerque is fully leased to two investment-grade tenants: Fidelity and the State of New Mexico. The State of New Mexico's lease, which expanded from 44,000 to 98,000 square feet under a 10-year agreement with two 5-year renewal options, exemplifies CTO's focus on long-dated, stable cash flows. Meanwhile, Fidelity's lease, set to expire in November 2028 with two 5-year options, ensures continuity in a high-credit-quality tenant relationship.

The financial implications of these leases are equally compelling. The State of New Mexico's rent is expected to commence in mid-2026, with CTO projecting a 9% annualized base rent growth for the property. This growth trajectory is critical in a high-inflation environment, where predictable rent escalations help offset rising costs. By locking in long-term commitments with tenants like Fidelity and the State of New Mexico, CTO mitigates vacancy risks and ensures a steady revenue stream, even as broader economic uncertainties persist.

Portfolio Management: Discipline and Diversification

CTO's success in Albuquerque is part of a broader strategy to transform its portfolio into a high-growth, multi-tenant retail-focused asset base. From 2019 to 2025, the company increased its total square footage from 1.8 million to 5.3 million and boosted annualized base rent from $27.6 million to $101.7 million. This transformation has been driven by disciplined acquisitions in high-income markets and a focus on properties with repositioning potential.

The results of this strategy are evident in CTO's leasing performance. In Q2 2025, the company achieved 22% leasing spreads on comparable leases, while Q1 2025 saw a 37.2% cash rent spread on 109,000 square feet. These figures far exceed industry benchmarks for REITs in high-inflation environments, where average same-store net operating income (SS NOI) growth in 2025 has hovered around 2.7%. CTO's ability to command such spreads underscores its competitive advantage in markets where demand for retail and office space remains robust.

Financial Resilience and Balance Sheet Strength

CTO's financial discipline further reinforces its resilience. As of March 2025, the company reported $138.4 million in liquidity and reaffirmed its full-year guidance for Core FFO and AFFO per diluted share. This liquidity provides flexibility to pursue accretive acquisitions or navigate economic downturns. Additionally, CTO's recent $150 million term loan at a 4.2% fixed interest rate demonstrates its access to capital at favorable terms, a critical factor in maintaining financial stability during periods of rising interest rates.

The company's dividend yield of 8.4% also positions it as an attractive option for income investors. With a growing enterprise value of a $1.3 billion by mid-2025, CTO has balanced growth with shareholder returns, a rare combination in today's market.

Industry Context and Competitive Positioning

CTO's performance outpaces many industry peers, particularly in Core FFO and AFFO metrics. For instance, Core FFO per diluted share reached 0.45 in Q2 2025 and $0.48 in Q3 2025, reflecting strong operational efficiency. This is especially notable given that sectors with long-term leases, such as traditional office REITs, often struggle to adjust rents during inflationary periods. CTO's focus on multi-tenant retail properties, which now account for 95% of its annual base rent, provides a buffer against sector-specific risks.

Moreover, CTO's signed-not-open (SNO) pipeline, representing $5.5 million in future annual base rent as of Q3 2025, highlights its ability to sustain growth. This pipeline, equivalent to 5.3% of in-place annual cash base rent, ensures a steady flow of revenue even as existing leases mature.

Conclusion: A High-Conviction REIT for the Inflationary Era

CTO Realty Growth's strategic leasing success in Albuquerque and its disciplined portfolio management practices offer a compelling model for REIT resilience. By securing long-term, investment-grade leases and focusing on high-growth markets, CTO has insulated itself from the volatility of a high-inflation environment. Its financial strength, coupled with a robust SNO pipeline and superior leasing spreads, positions it as a high-conviction investment for both income and growth-oriented investors.

As the real estate market continues to navigate macroeconomic headwinds, CTO's approach serves as a testament to the power of strategic foresight and operational discipline. For those seeking a REIT that can thrive in challenging conditions, CTO's story is one worth watching-and investing in.