CTO Realty Growth (CTO) Q1 2025: Anchor Re-Leasing Drives 80% Rent Spreads, Setting Up 2026 NOI Upside
CTO Realty Growth’s Q1 2025 results spotlighted a robust leasing environment, with exceptional anchor re-leasing spreads and disciplined capital deployment defining the quarter. Management’s ability to execute on value-add acquisitions and recycle capital, paired with proactive balance sheet moves, positions CTO for a multi-year earnings tailwind as new leases and pipeline rents commence in the back half of 2025 and beyond.
Summary
- Anchor Re-Leasing Momentum: High-visibility on 40 to 60 percent cash leasing spreads from anchor box turnarounds.
- Balance Sheet Optimization: Debt refinancing and convertible note retirement lower near-term risk and boost liquidity.
- Back-Half Weighted Growth: Lease commencements and investment activity set up a stronger second half and 2026 earnings lift.
Performance Analysis
CTO advanced its value-add retail strategy in Q1, acquiring Ashley Park, a 559,000 square foot open-air center in metro Atlanta, for $79.8 million. The asset was purchased at a cap rate near the high end of guidance, with significant embedded upside from below-market rents and lease-up of approximately 40,000 square feet of vacancy. Notably, about 200,000 square feet of shop space is currently leased below market, half of which has no contractual renewal options, giving CTO flexibility to drive future rent increases.
Leasing activity was a standout, with 112,000 square feet of new, renewal, and extension leases signed at rents averaging $24.14 per square foot—nearly 25 percent above the portfolio average. Two anchor box leases alone drove an 80 percent spread, validating management’s thesis on bankruptcy-driven mark-to-market opportunities. Portfolio occupancy ended at 91 percent, with a signed-not-open pipeline representing 4 percent of cash rents, heavily weighted to the second half of the year. On the capital side, CTO refinanced $100 million of floating-rate debt with five-year swaps, reducing interest costs by roughly 100 basis points, and retired $51 million in convertible notes, eliminating all 2025 maturities.
- Anchor Box Leasing Drives Rent Growth: Two large anchor leases delivered over 80 percent rent spreads, with management expecting 40 to 60 percent cash spreads across the broader anchor re-leasing program.
- Acquisition Pipeline Remains Active: Management sees a strong pipeline in the Southeast and Southwest, with capital recycling and potential asset sales supporting future investment.
- Balance Sheet Flexibility: Net debt to EBITDA rose to 6.6x post-acquisition but remains a full turn lower than a year ago, with $140 million in liquidity and no maturities for the rest of 2025.
While per-share core FFO dipped slightly due to downtime on anchor spaces and lower leverage, the combination of pipeline rent commencements and mark-to-market leasing sets up a visible earnings acceleration into 2026.
Executive Commentary
"Ashley Park has many of the attributes we look for in acquisitions, including lease up potential, in-place below market rents, and a basis significantly below replacement costs... Our releasing outlook for these anchor spaces remains positive, and we still expect to achieve a positive cash leasing spread of 40% to 60% in total."
John, CEO
"We executed two SOFR swaps, fixing SOFR for $100 million of principal at a weighted average rate of 3.32% for five years... This strategic approach permitted us to generally settle the face amount of these notes in cash and the premium in shares."
Phil, CFO
Strategic Positioning
1. Anchor Box Re-Leasing as NOI Engine
CTO’s approach to anchor box vacancies—triggered by recent tenant bankruptcies— is central to its near-term growth. Management is executing on a high-confidence plan to re-lease 10 anchor spaces, with two already signed, two more near completion, and active negotiations on the rest. The company projects 40 to 60 percent cash leasing spreads, and Q1’s two new anchor leases exceeded even the high end of that range. This mark-to-market process is expected to drive a material step-up in net operating income (NOI), particularly as leases commence over the next 12 months.
2. Value-Add Acquisitions and Embedded Rent Upside
The Ashley Park acquisition exemplifies CTO’s focus on buying below replacement cost with in-place rents well below market, creating multiple levers for value creation. Management highlighted that over 200,000 square feet of shop space at Ashley Park is leased at below-market rates, with significant near-term rollover potential. Additionally, light-touch capital expenditure (CapEx) and the potential sale of outparcels could further enhance returns, pushing acquisition yields toward double digits.
3. Capital Structure and Liquidity Management
CTO’s proactive balance sheet management— swapping floating-rate debt for fixed and retiring convertible notes—reduces interest expense and removes refinancing risk for 2025. The company ended the quarter with $140 million in liquidity, providing ample flexibility to fund new investments and lease-up CapEx without immediate asset sales. Management also flagged potential asset recycling, including the planned sale of its last office property, to further support growth investments.
4. Leasing Pipeline and Timing of Earnings Ramp
The signed-not-open lease pipeline stands at $4 million in annual base rent, or 4 percent of current cash rents, with rent commencements heavily weighted to the second half of 2025. This, combined with the anchor re-leasing cadence, will drive a sequential ramp in earnings into late 2025 and 2026, as new tenants begin paying rent and CapEx is deployed efficiently.
Key Considerations
CTO’s Q1 2025 results reinforce its differentiated strategy in open-air retail, but investors should weigh several factors as the company executes through a dynamic leasing and capital markets environment.
Key Considerations:
- Leasing Spread Durability: Anchor box re-leasing is delivering exceptional spreads, but sustaining this level as the program matures will depend on continued tenant demand and execution.
- CapEx Allocation Discipline: Management expects $9 to $12 million in total CapEx for anchor re-leasing, with most spend and rent commencements occurring over the next year.
- Asset Recycling Optionality: The planned sale of CTO’s remaining office property and potential for additional dispositions provides a funding backstop for new investments.
- Market Supply and Competition: Management noted more properties coming to market, increasing competition for acquisitions and requiring disciplined underwriting to maintain yield targets.
- Interest Rate and Tariff Uncertainty: While the recent rate environment allowed for opportunistic swaps, ongoing macro volatility and tariff risks could impact tenant health and transaction markets.
Risks
Execution risk remains around the timing and economics of anchor box re-leasing, especially if tenant build-outs or market demand slow. Rising competition for new acquisitions could compress yields, while macro headwinds—such as tariff uncertainty and interest rate volatility—may affect tenant performance or capital costs. Although management has mitigated near-term debt maturities, leverage remains elevated post-acquisition, requiring careful monitoring as the investment cycle progresses.
Forward Outlook
For Q2 and the remainder of 2025, CTO guided to:
- Full-year core FFO per share of $1.80 to $1.86
- Full-year AFFO per share of $1.93 to $1.98
Management emphasized:
- Lease commencements and anchor re-leasing will be weighted to the second half, with NOI growth accelerating into 2026.
- Acquisition activity is expected to continue, supported by liquidity and potential asset sales, with a focus on value-add retail centers in growth markets.
Takeaways
CTO’s Q1 performance validates its anchor box re-leasing and value-add acquisition strategy, positioning the company for a visible earnings ramp as new leases commence. The balance sheet is well managed, with no near-term maturities and ample liquidity, though leverage is elevated post-acquisition.
- Anchor Leasing as a Growth Catalyst: 80 percent-plus rent spreads on anchor re-leasing provide a high-confidence NOI growth vector as leases commence over the next year.
- Capital Flexibility Supports Investment: Debt swaps and asset recycling create headroom for new acquisitions and CapEx, while mitigating refinancing risk.
- Monitor Execution and Macro Backdrop: Investors should track the pace of lease commencements, CapEx deployment, and acquisition yields amid a competitive and uncertain macro environment.
Conclusion
CTO Realty Growth’s Q1 2025 results showcase a company executing on high-spread leasing and disciplined capital allocation, with a visible pipeline of value creation into 2026. Investors should focus on the timing of rent commencements and the sustainability of acquisition yields as key drivers of forward returns.
Industry Read-Through
CTO’s results signal a robust environment for open-air retail landlords with value-add skillsets, as tenant demand and limited new supply support strong leasing spreads and rent growth. The ability to mark anchor boxes to market following bankruptcies is a tailwind that may benefit peers with similar exposure. However, the competitive landscape for acquisitions is intensifying, and disciplined underwriting will be critical as capital flows back into the sector. The proactive approach to balance sheet management and capital recycling seen here is increasingly a differentiator for retail REITs navigating macro volatility and evolving tenant needs.