Earnings call transcript: CTO Realty Growth Q2 2025 misses EPS forecast

CTO Realty Growth, a $560.55 million market cap company offering an attractive 8.66% dividend yield, reported its second-quarter 2025 earnings, revealing a significant earnings miss with an EPS of -0.77 compared to the forecasted -0.03. Despite this, the company exceeded revenue expectations, posting 37.64 million dollars against the anticipated 36.4 million dollars. In the immediate aftermath, CTO’s stock price fell by 2.51% to close at 17.55 dollars, although it saw a slight recovery in premarket trading. InvestingPro analysis suggests the stock is currently undervalued, with additional insights available through 8 key ProTips.

Key Takeaways

• CTO Realty Growth’s EPS significantly missed expectations.
• Revenue surpassed forecasts by 3.41%.
• Stock price dropped by 2.51% post-earnings release.
• Strong leasing activity with 227,000 sq ft of new leases signed.
• Positive outlook with potential Q4 2025 and 2026 earnings lift.

Company Performance

CTO Realty Growth demonstrated robust leasing activity and strategic tenant replacements, contributing to a solid operational performance. The company signed 227,000 square feet of new leases and maintained a high occupancy rate of 90.2%. The focus on shopping centers in business-friendly markets in the Southeast and Southwest U.S. continues to drive tenant interest and leasing fundamentals.

Financial Highlights

• Revenue: 37.64 million dollars, up from the forecasted 36.4 million dollars.
• Earnings per share: -0.77 dollars, missing the forecast of -0.03 dollars.
• Core FFO: 14.7 million dollars, an increase of 4.3 million dollars from the previous year.
• Core FFO per share: 0.45 dollars, consistent with the prior year.
• Net debt to EBITDA improved to 6.9x from 7.5x a year ago.

Earnings vs. Forecast

CTO Realty Growth’s EPS of -0.77 fell short of the forecasted -0.03, marking a significant deviation. The EPS surprise was a substantial -2466.67%. In contrast, revenue outperformed expectations with a surprise of 3.41%, reflecting strong operational execution despite the earnings miss.

Market Reaction

Following the earnings announcement, CTO’s stock price declined by 2.51%, closing at 17.55 dollars. This movement reflects investor concerns over the significant earnings miss. With a beta of 0.54, the stock historically shows lower volatility than the market. The stock showed resilience in premarket trading, rising by 0.63% to 17.66 dollars, suggesting a cautious optimism about the company’s future prospects. Analysts maintain a positive outlook, with price targets ranging from $20 to $23. Get detailed valuation analysis and more insights with a InvestingPro subscription.

Outlook & Guidance

Looking ahead, CTO Realty Growth maintains a positive outlook, projecting a full-year 2025 Core FFO between 1.80 and 1.86 dollars per share and AFFO between 1.93 and 1.98 dollars per share. The company anticipates an earnings lift in Q4 2025 and 2026, driven by strategic leasing and potential acquisitions. Access the comprehensive Pro Research Report and detailed financial analysis for CTO Realty Growth, along with 1,400+ other stocks, exclusively on InvestingPro.

Executive Commentary

CEO John Albright expressed optimism about leasing activities, stating, "We’re pleasantly surprised at the strength of leasing, and the tenants that we’re talking about are kind of household names, so good credits." He also highlighted the opportunity in lease rollovers, saying, "We’re not really concerned about lease rollover, because it’s more opportunity if unexpectedly tenants do not stay in the spaces."

Risks and Challenges

• Earnings volatility due to significant EPS miss.
• Potential impact of macroeconomic conditions on leasing demand.
• Dependency on tenant replacements and leasing spread to drive revenue growth.
• High net debt to EBITDA ratio, despite improvements.
• Competitive pressures in the real estate market.

Q&A

During the earnings call, analysts questioned the company’s strategy regarding the Fidelity office property downsizing and its impact on future earnings. The management confirmed ongoing lease negotiations for most of the remaining vacancies and discussed potential term loan financing in the upcoming quarters.

Full transcript - CTO Realty Growth Inc (CTO) Q2 2025:

Conference Operator: Good day, and thank you for standing by. Welcome to CTO Second Quarter twenty twenty five Earnings Conference Call. At this time, all participants are in a listen only mode. After the speakers’ presentation, there will be a question and answer session. Please be advised that today’s conference is being recorded.

I would now like to turn the conference over to your speaker for today, Jenna McKinley. Please go ahead.

Jenna McKinley, Investor Relations, CTO Realty Growth: Good morning, everyone, and thank you for joining us today for the CTO Realty Growth second quarter twenty twenty five operating results conference call. Participating on the call this morning are John Albright, President and CEO Philip Mays, CFO and other members of the executive team that will be available to answer questions during the call. I would like to remind everyone that many of our comments today are considered forward looking statements under federal securities laws. The company’s actual future results may differ significantly from the matters discussed in these forward looking statements, and we undertake no duty to update these statements. Factors and risks that could cause actual results to differ materially from expectations are disclosed from time to time in greater detail in the company’s Form 10 ks, Form 10 Q, and other SEC filings.

You can find our SEC reports, earnings release, supplemental, and most recent investor presentation on our website at ctoreit.com. With that, I will turn the call over to John.

John Albright, President and CEO, CTO Realty Growth: Thanks, Jenna. Once again, we delivered another quarter of strong operating results, driven by continued leasing momentum. During this quarter, we signed approximately 227,000 square feet of new leases, renewals and extensions, and average cash base rent of $25.43 per square foot, including 190,000 square feet of comparable leases at a 22% cash rent spread. Year to date, we have now completed 339,000 square feet of leasing, including 299,000 square feet of comparable leasing at a 27% cash rent spread. Given the robust leasing fundamentals at our shopping centers located in faster growing business friendly MSAs within the Southeast and Southwest, we’re making considerable progress regarding the unique mark to market opportunity on the 10 anchor spaces we have been discussing.

With Party City and Joann’s having wound down their operations and vacating in the second quarter, we now have full control of all 10 of these spaces. Furthermore, because of our proactive leasing efforts, six of the 10 anchor spaces are resolved with new leases executed for five of them, and one of the leases assigned. The new anchors include Burlington, two Boot Barns, Bassett Furniture, Slick City Action Park, and Bob’s Discount Furniture, all concepts that will drive more foot traffic compared to the former tenants that we’re replacing. Additionally, we are in active lease negotiations for the remaining four anchor spaces and look forward to announcing additional leases upon execution. Overall, we remain on target to achieve a positive cash leasing spread of 40% to 60% in total for these 10 anchor spaces.

Notably, with our leasing activity this quarter, our signed not open pipeline now stands at $4,600,000 representing a 4.6 percent of in place cash rents. This pipeline of completed leasing along with anticipated leasing for the remaining four anchor spaces, will provide the company with earnings tailwinds going into 2026. Further, we’re continuing to see strong leasing momentum from high quality retailers and are excited about ongoing lease negotiations. One last leasing note. Our property portfolio consisting of 5,300,000 square feet was 93.9% leased and 90.2% occupied at the end of the quarter.

On the investment front, we remain disciplined in our underwriting of both property acquisitions and structured investments, and currently have a healthy pipeline of potential acquisitions. Specifically, we have one shopping center on our sites. This asset is located in one of our core target markets and has a value add attributes that align with our leasing and operating strengths, providing the opportunity to acquire the asset at an attractive yield and create additional long term value. We are optimistic about getting this asset under contract and we’ll provide an update next quarter. Additionally, as previously mentioned, we are considering recycling some of our stabilized assets, which could be a part of the funding for future acquisitions.

Now I’d like to briefly discuss the exciting progress taking place at three of our properties. Starting with Carolina Pavilion, a 694,000 square foot regional power center located in Charlotte, North Carolina that we acquired in August 2024. Since acquisition, Ulta, Sierra Trading, and Academy Sports have all opened at this center, significantly increasing its vibrancy. Additionally, this property includes four of the 10 anchor spaces I discussed earlier. All four of these were identified in underwriting as value add opportunities having significantly below market rent.

Of these four spaces, two have already been leased, and we are in active lease negotiations for the other two spaces. After capturing the upside on these four anchor spaces, we expect to achieve an unlevered double digit yield on this property. Moving to the Plaza At Rockwall, a 446000 square foot center located in the desirable suburb of Dallas, Texas. Late last year, Staples’ lease at the center expired with no remaining contractual options. Staples wanted to stay at the center, but we received strong tenant interest and ultimately signed a lease with Barnes and Noble.

Barnes and Noble is on schedule to open their new format here in the fall. Additionally, the center includes a former space leased to Joann’s before they vacated in the second quarter. Our proactive leasing efforts also enabled us to execute a timely lease with Boot Barn, which is working hard to get open prior to year end. Similar to Carolina Pavilion, these spaces were identified as having significantly below market rent and upside in our underwriting, and combined we are achieving 86% cash rent spread on them. Now to our last significant non core asset, a 210,000 square foot office property located in Albuquerque, New Mexico.

This asset is currently fully leased and occupied by Fidelity. However, we are finalizing the lease amendment to reduce Fidelity’s space to approximately half the building around the November. Their lease on the remaining space has an initial maturity of 2028 with two five year extensions. This amendment provides us with the opportunity to sign a new ten year lease with the state of New Mexico, which will backfill a majority of the space vacated by Fidelity. Accordingly, this property will soon have two credit tenants and a longer weighted lease term, increasing both its value and marketability.

Again, we are pleased with our leasing activity and progress as we begin to realize the embedded upside in our assets. And with that, I will now hand the call over

Philip Mays, CFO, CTO Realty Growth: to Phil. Thanks, John. On this call, I will discuss our balance sheet, earnings results and full year 2025 guidance. Starting with the balance sheet. This quarter, as previously disclosed, we fully settled our 3.875% convertible notes, which had an outstanding balance of approximately $51,000,000 and a stated maturity of 04/15/2025.

These notes were partially settled slightly part of maturity with a series of privately negotiated transactions with certain note holders for a combination of cash and newly issued common shares and the remaining principal balance was settled with cash on the maturity date. Ultimately, the convertible notes were retired in full for approximately $71,100,000 consisting of $50,100,000 of cash and $21,000,000 of common equity. This repayment did result in an extinguishment of debt charge of approximately $20,400,000 and consistent with past practice and our definition of non GAAP measures, it was excluded from our computation of both core FFO and AFFO. After settlement of our convertible notes, we ended the quarter with $606,800,000 of debt, of which just $74,000,000 or 12% is subject to floating interest rates based on SOFR. As you may recall from our prior earnings call, when interest rates temporarily dropped in April in connection with the initial tariff announcements, we executed SOFR swaps, fixing SOFR for $100,000,000 of principal at a weighted average rate of 3.32% for five years effective April 30.

These swaps were applied to borrowings outstanding on our revolving credit facility, reducing our floating rate exposure and the applicable interest rate on $100,000,000 by nearly 100 basis points to just under 5% based on our current leverage and pricing tier. We ended the quarter with almost $85,000,000 of liquidity consisting of $76,000,000 available under our revolving credit facility and approximately $9,000,000 in cash available for use. Similar to last year, we will look to close a new term loan towards the end of the third quarter or early in the fourth quarter and use the proceeds to reduce the outstanding balance on our revolving credit facility and increase liquidity. One last balance sheet note, we ended the quarter with net debt to EBITDA of 6.9 times, an improvement from 7.5 times from a year ago, but up a bit from 6.3 times at the beginning of the year. The change from the beginning of the year was due to two items.

First, the approximately $80,000,000 acquisition of Ashley Park in the first quarter and second, the earnings associated with the 10 acres that vacated between last year and the second quarter that John discussed. Accordingly, as these anchors and other tenants in our sign out pipeline open and commence paying rent, it will assist in deleveraging. Moving on to operating results. Core FFO was $14,700,000 for the quarter, a $4,300,000 increase compared to $10,300,000 in the comparable quarter of the prior year. On a per share basis, core FFO was $0.45 for the quarter, consistent with the comparable quarter of the prior year.

Consistency of core FFO on a per share basis despite the $4,300,000 growth in core FFO is primarily due to our reduction in leverage from a year ago. Now to guidance, we are reaffirming our full year 2025 per share outlook for core FFO of $1.8 to $1.86 and AFFO of $1.93 to $1.98 The assumptions underlying this outlook remain consistent with those previously provided. While we have completed a significant amount of leasing and build a $4,600,000 signed not open pipeline, it does take some time for tenants, particularly anchors to get open and commence paying rent. Accordingly, the related earnings lift from this pipeline will become more noticeable as it moves through the fourth quarter of the year. And with that operator, please open the line for questions.

Conference Operator: Thank you. And our first question will be coming from the line of Gaurav Mehta of Alliance Global Partners. Your line is open.

Gaurav Mehta, Analyst, Alliance Global Partners: Thank you. Good morning. I wanted to ask you around your comments around Fidelity office property where you mentioned they are vacating half of that and you have State of Mexico coming in. Can you provide some more color on on what happened with that property as far as Fidelity exiting half of that? And do you expect any CapEx associated with State of Mexico?

John Albright, President and CEO, CTO Realty Growth: Sure. So the building when Forest City built the building for Fidelity, it was built in two separate building structures, so Fidelity could have the flexibility to downsize and bring in another tenant. And that’s actually kind of what’s happening. Fidelity is going to pay us a payment for that downsizing, and then at the same time, we did get lucky that state of New Mexico had a very, very big demand for more modern space to bring some agencies out of some older facilities. And so they are extremely happy about locating here, and have moved very fast in this process.

And I wouldn’t be surprised if they take additional space in the future. So that’s going to allow us to monetize this asset probably late this year or early next year after we get everything settled down. But yeah, it’s been it’s going to be a good situation for us.

Gaurav Mehta, Analyst, Alliance Global Partners: Okay. Second question I have is around acquisition. I think you mentioned that you are looking at one shopping center for a potential acquisition. And if you would acquire that property, should we expect leverage to go up in the near term to fund that acquisition?

John Albright, President and CEO, CTO Realty Growth: Maybe in the near term. But as I mentioned, I think, last earnings, we are looking to recycle some assets. So we would not see the kind of leverage after recycling tick up at all.

Gaurav Mehta, Analyst, Alliance Global Partners: Okay. And then lastly, can you remind if you have any dispositions in your guidance?

Philip Mays, CFO, CTO Realty Growth: Yeah, there’s no dispositions in the current guidance.

Gaurav Mehta, Analyst, Alliance Global Partners: Okay, thank you. That’s all I had.

Philip Mays, CFO, CTO Realty Growth: Thank you.

Conference Operator: Thank you. One moment for the next question. And our next question will be coming from the line of Rob Stevenson of Janney Montgomery. Your line is open.

Rob Stevenson, Analyst, Janney Montgomery: Good morning, guys. Are the Fidelity and the State of New Mexico leases, are those second quarter leases or are those third quarter leases?

Philip Mays, CFO, CTO Realty Growth: The Fidelity is so we have an agreement with them to downsize. We’re still working through the exact square footage there. So it’s going to be approximately half, but just have to work through kind of the common areas and stuff like that, the lobby and all to make sure that it works for both tenants. So it’s not 100% finalized, but it’s substantially done and we do have an agreement in place. It’s just fine tuning the layout and the exact square footage.

What was the and then the state of New Mexico was signed and it was this quarter.

Rob Stevenson, Analyst, Janney Montgomery: Okay. So that was in the $226,000 in changes of leasing that you reported for It the second

Philip Mays, CFO, CTO Realty Growth: is not. If you look at our leasing spreads and all, that is just retail leases. We sporadically have some office leases here and there that aren’t just representative of the majority of our portfolio. And so as we disclose on that schedule, it does exclude those. So that was not in there.

Rob Stevenson, Analyst, Janney Montgomery: Okay. And then at this point, given that we’re a month into the third quarter, any significant leasing that you guys have signed thus far? And where does the signed not open pipeline sort of sit today versus the $4,600,000 at June 30?

John Albright, President and CEO, CTO Realty Growth: I mean, we’re working on a fair amount of leases. Again, actually, if you take all of our vacancy that’s remaining, we’re negotiating either LOIs or leases on majority of the remaining vacancy. So we’re just not there yet. I would say probably the next sixty days is kind of where things will be getting signed.

Rob Stevenson, Analyst, Janney Montgomery: Okay. And then you talked about potentially doing some dispositions. Basically, I think that the next or the first of the structured investments doesn’t come due until, I think there’s one in March and one in April. Any thoughts that those guys might pay off early? And or would you wind up selling any of the structured investments in lieu of stabilized assets?

John Albright, President and CEO, CTO Realty Growth: Yes. I mean, they could pay off early. I don’t really see them paying off anytime soon. And then we’re not really seeing any structured finance investments right now. We’re really seeing some good quality core acquisition opportunity.

They could monetize early if we wanted to or needed to, but I don’t see that happening.

Rob Stevenson, Analyst, Janney Montgomery: Okay. Thanks, guys. Appreciate the time this morning.

John Albright, President and CEO, CTO Realty Growth: Thank you. Thank

Conference Operator: you. One moment for the next question. And the next question will be coming from the line of Matthew Egler of Jones Trading. Your line is open.

Matthew Egler, Analyst, Jones Trading: Hey, good morning guys. Thanks for taking the question. So it seems like you’re still seeing a lot of strength on the leasing side. Could you kind of talk about how those processes go? And then with those kind of four that aren’t signed yet, that have multiple offers or maybe multiple tenants that want to go in, how you guys are kind of evaluating credit, and which tenant you guys want to go in that spot?

John Albright, President and CEO, CTO Realty Growth: Yeah, thanks for the question. I mean, we’re pleasantly surprised at the strength of leasing, and the tenants that we’re talking about are kind of household names, so good credits. I think where it becomes a little bit more challenging is we do have other tenants that are interested, and if you split a box and bring in two tenants, maybe you make more money, but it costs more money, takes a little longer. So it’s kind of high class problems. But we’re really going with more easier sort of solutions with credit, and it’ll be a little faster.

But having said that, nothing happens fast these days. Just a lot of on these lease negotiations have been taking quite a bit of time as these tenants have a pretty full deck of other leases that they’re working on as well. So it’s just the process is elongated these days, but the good news is we have a lot of good options on the leasing side. And as mentioned, given that out of our vacancy that we’re really talking to about almost 70% of it that we’re negotiating one form or the other, it’s great to see.

Matthew Egler, Analyst, Jones Trading: Yeah, that’s great. And then you mentioned there kind of the process with it taking long. And then kind of on that turnover with the 94% to be recognized next year, what do you see as risks that would cause less than 94% to be recognized in ’twenty six?

John Albright, President and CEO, CTO Realty Growth: The good news is, as you know, on our acquisitions, we’ve been buying properties with low embedded lease rates, so the mark to market is fairly opportunistic and would be terrific to have happen. So we’re not really concerned about lease rollover, because it’s more opportunity if unexpectedly tenants do not stay in the spaces. So it’s nothing that keeps us up at night, if you will.

Matthew Egler, Analyst, Jones Trading: Yeah, got it. And then one last quick one for me. Going to the structured investment book, on that construction loan, there’s only $29,000,000 or $29,600,000 in unfunded commitments. There’s no other additional unfunded portions on additional loans?

John Albright, President and CEO, CTO Realty Growth: Correct. And if look at our investor deck, we have a little bit of an updated photo of the Whole Foods anchored site there that we’re doing the construction loan at collection, which as mentioned before, that’s almost like a shadow acquisition pipeline for us because we have the right to acquire that and developer is building to sell. It’d be nice to have that option to buy that and bring that into collection. Yep, that’s great. Thank you, guys.

Thank you.

Conference Operator: Thank you. One moment for the next question. And the next question will be coming from the line of John Mocosa of B. Riley. Your line is open.

John Mocosa, Analyst, B. Riley: Good morning.

Philip Mays, CFO, CTO Realty Growth: Good morning.

John Mocosa, Analyst, B. Riley: So as I think about the physical occupancy, the decline kind of quarter over quarter, Was there anything other than maybe some of the moving pieces around the re tenanting of the anchor boxes and the Staples to Barnes and Noble conversion that you called out that was driving that? Just any other color there would be helpful.

John Albright, President and CEO, CTO Realty Growth: No, it’s really what we’ve talked about for some time now. It’s all the usual suspects as far as that went bankrupt in the industry, Party City, Joann’s, Conn’s. So it’s really just dealing with big lots, dealing with those. So nothing out of the ordinary of what’s been talked about in the industry.

John Mocosa, Analyst, B. Riley: Was the Staples to Barnes and Noble conversion in those numbers, or was that a seamless transition or something that’s going to occur in like 3Q, 4Q?

Philip Mays, CFO, CTO Realty Growth: So this quarter, the real driver was Joann’s and Party City’s Party City left at the very beginning of the quarter. Joann’s kind of in the middle. The Staples, their lease goes till, I believe it is November. And so that will happen in the fourth quarter, John, where they will vacate. So the dip of 80 bps or so this quarter was largely Jo Ann’s and Party City.

John Mocosa, Analyst, B. Riley: And any kind of temporary loss of rent there as a transition to Barnes and Noble? Or is that something that because of the demand for that space because you had a tenant in place that it should be pretty seamless?

Philip Mays, CFO, CTO Realty Growth: There’ll be a little downtime towards the very end of this year or early next year, but it will not be an extended period of time.

John Mocosa, Analyst, B. Riley: Okay. And then I know we talked about the Fidelity leasing situation a decent amount. But just am I right in interpreting that in the negotiations are still ongoing. But am I right interpreting that there could be a potential lease termination fee paid to you as a result of this? And understanding you’re trying to close the asset at some point here in the coming quarters, is the rent that you’re getting from the building going to be relatively the same once you split it into two tenants?

Or is there any change in rent around reducing the size for Fidelity and bringing in the state of New Mexico?

Philip Mays, CFO, CTO Realty Growth: Yes. There’s two pieces there. Fidelity will make a payment to us, John. The way the accounting will likely work on that is it will just get blended in with their rent on their behalf that they maintain and keep for several years. So don’t expect to see like a pop to miscellaneous income or anything in the fourth quarter related to a big term fee and that is not baked into the guidance.

It’ll just generally kind of be the way GAAP will treat that, even though we’ll get a nice little cash payment in the fourth quarter is it’ll just blend it in with the rent on the remaining space over the remaining term. What was the other part of your question, the second part again?

John Mocosa, Analyst, B. Riley: And just what’s kind of the rent going to be going forward Those the rent there won’t

Philip Mays, CFO, CTO Realty Growth: be a roll down in rent there. They’ll just maybe be a little bit of downtime, but there will not be a roll down in rent.

John Mocosa, Analyst, B. Riley: And then lastly, on the potential shopping center acquisition you talked about, could we expect term loan financing to kind of come either before or maybe around that transaction? Do you view those kind of as being one in one? Or is that something where you feel comfortable taking more on the line? And I think you said 3Q, 4Q for executing on the term loan. But I just kind of was wondering how related financing might be to closing that transaction.

Philip Mays, CFO, CTO Realty Growth: Yes. I mean, the timing may not line up right on top of each other. But based on conversations we’ve had with our bank group, we don’t have any concerns about terming that out. So we’ll just want to make sure we get the best execution there that we can get. It would be great to kind of have it a similar timeline there to keep a little more liquidity on the line, but there could be just a little bit period of time there where the acquisition comes down before the new term loan and or disposition gets completed.

But there won’t be a large gap there.

John Mocosa, Analyst, B. Riley: That’s it for me. Thank you

John Albright, President and CEO, CTO Realty Growth: very much. Thank very much. Thank you. Thank you.

Conference Operator: And this does conclude today’s Q and A session, and it concludes today’s presentation. Thank you much so much for joining. You may all disconnect.

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