CTO Realty Growth (CTO) Q3 2025: $5.5M S&O Pipeline Sets Up 2026 Cash Flow Surge
Leasing momentum and a $5.5 million signed-not-open (S&O) rent pipeline are positioning CTO Realty Growth for a step-change in earnings power through 2026. Strategic anchor backfills, asset recycling, and disciplined capital allocation underpin near-term deleveraging, while management signals continued focus on maximizing shareholder value via opportunistic buybacks. With over 75% of the S&O pipeline expected to commence in 2026, investors should watch for an inflection in cash flow and further asset repositioning.
Summary
- Anchor Backfill Momentum: Six of ten anchor vacancies now leased, with substantial rent spread upside in progress.
- Liquidity and Capital Recycling: Term loan refinancing and asset sales provide dry powder for targeted acquisitions and buybacks.
- 2026 Cash Flow Inflection: S&O pipeline conversion will drive a material earnings ramp as new tenants open.
Performance Analysis
CTO Realty Growth delivered another quarter of operational strength, with leasing activity at the core of results. The company executed 143,000 square feet of new and renewed leases in Q3, including 125,000 square feet of comparable leases at a healthy 10.3% rent spread. Year-to-date, 482,000 square feet of leasing has been completed, with a robust 21.7% weighted average rent spread, reinforcing the company’s ability to drive incremental value from its portfolio.
Same property net operating income (NOI) increased 2.3% in the quarter, propelled by anchor replacements at properties like Beaver Creek and strong small shop leasing at multiple centers. The company’s $5.5 million S&O pipeline now represents 5.3% of annual cash base rent, with 76% of this pipeline set to commence in 2026. This staged revenue ramp creates clear visibility into next year’s earnings growth trajectory.
- Leasing-Driven NOI Growth: Anchor and small shop leasing at key assets continues to deliver above-average rent spreads.
- Balance Sheet Deleveraging: Net debt to EBITDA improved to 6.7x, with further improvement expected as S&O tenants commence rent.
- Buyback Activity: $9.3 million of shares repurchased at deep discounts to NAV, signaling management’s conviction in intrinsic value.
While per-share FFO was flat year-over-year due to prior deleveraging, the underlying earnings power is set to accelerate as the S&O pipeline converts and anchor backfills stabilize occupancy.
Executive Commentary
"We are encouraged by the rental upside and value creation these six leases represent and expect the new tenants to increase foot traffic relative to the former tenants. Furthermore, we remain on target to achieve our goal of positive cash leasing spread of 40% to 60% across these 10 anchor spaces."
John Albright, President and Chief Executive Officer
"Reflecting this quarter's balance sheet activity, we ended the quarter with net debt to EBITDA of 6.7 times, a slight improvement from 6.9 times at the end of the second quarter. Further, we anticipate additional deleveraging as we successfully release our vacant anchor boxes and tenants in our sign-not-open pipeline commence paying rent."
Philip Mays, Chief Financial Officer
Strategic Positioning
1. Anchor Backfill and Rent Spread Execution
CTO’s multi-year focus on backfilling anchor vacancies is bearing fruit. Six of ten anchor boxes have been leased, with the company targeting a 40% to 60% cash rent spread over prior tenants. This is a key lever for driving both near-term NOI and long-term portfolio value. The remaining four anchor vacancies are in active negotiations, and management expects further progress in the coming quarters.
2. Signed-Not-Open Pipeline as Earnings Catalyst
The $5.5 million S&O pipeline, representing 5.3% of annual cash base rent, is a major forward earnings driver. Management projects 76% of this pipeline will commence in 2026, with full contribution by 2027. The Shops at Legacy, a Dallas mixed-use center, alone contributes nearly $1 million to this pipeline via recently signed co-working and private club leases, which will enhance property vibrancy and tenant mix.
3. Asset Recycling and Capital Allocation Discipline
CTO continues to pursue a value-add strategy, recycling capital from stabilized, lower-growth assets into higher-yielding, growth-oriented properties. The pending South Florida shopping center acquisition will be initially funded via the revolver, then ultimately by asset sales. Management also remains opportunistic with share buybacks, citing the current stock price as a “double discount” to intrinsic value.
4. Balance Sheet Management and Deleveraging
Recent term loan refinancing extended maturities and locked in favorable rates, reducing 2026 debt maturities to just $17.8 million. With $170 million in liquidity and S&O-driven rent growth, CTO is positioned for further deleveraging as new tenants open and pay rent.
5. Selective Growth and Risk Management
Management is cautious on new investments, focusing on deals that align with leasing and operating strengths. Structured finance opportunities are currently more attractive at affiliate Pine, with less need for CTO to pursue them given the rebound in the CMBS market for shopping centers. Tenant credit risk remains stable, with no material changes to the watch list this quarter.
Key Considerations
This quarter’s results highlight CTO’s ability to drive organic growth through proactive leasing and disciplined capital allocation, while maintaining a conservative balance sheet and opportunistic approach to both acquisitions and buybacks.
Key Considerations:
- S&O Pipeline Conversion: The timing and successful opening of S&O tenants will be the primary driver of 2026 cash flow acceleration.
- Anchor Lease-Up Progress: Remaining anchor vacancies, especially the 40,000-square-foot box at Carolina Pavilion, represent both risk and upside depending on lease execution speed and rent spreads.
- Asset Recycling Execution: Timely asset sales are required to fund new acquisitions and support continued deleveraging.
- Buyback Flexibility: Credit facility covenants may limit the pace of buybacks, but management remains committed to repurchasing shares at current discounts.
- Tenant Improvement Spend: Elevated TI allowances in Q3 and Q4 reflect the anchor leasing push, but may pressure near-term free cash flow.
Risks
The primary risks for CTO center on the pace and success of anchor backfills, S&O tenant openings, and the ability to recycle assets at attractive valuations. Delays in S&O commencements or tenant buildouts could push back projected cash flow growth. Rising interest rates or a weakening leasing environment could also pressure asset values and increase refinancing costs. While tenant credit risk appears stable, any deterioration among large anchors could impact occupancy and rent collections.
Forward Outlook
For Q4 2025, CTO guided to:
- Elevated tenant improvement spend, consistent with Q3, as anchors complete buildouts.
- Continued progress on anchor backfills and S&O pipeline conversion.
For full-year 2025, management raised guidance:
- Core FFO: $1.84 to $1.87 per diluted share (up from $1.80 to $1.86)
- AFFO: $1.96 to $1.99 per diluted share (up from $1.93 to $1.98)
Management highlighted several factors that will influence results:
- Ramp of S&O pipeline, with ~$4 million of new rent recognized in 2026 and full $5.5 million in 2027
- Asset recycling to fund new acquisitions and further deleveraging
Takeaways
CTO’s leasing-driven growth and S&O pipeline provide clear visibility into a step-change in earnings power for 2026 and beyond. Balance sheet flexibility and disciplined capital allocation underpin the company’s ability to pursue value-add opportunities while returning capital to shareholders.
- Leasing Pipeline Execution: Anchor and small shop leasing remains the key driver of near-term NOI and long-term value creation, with S&O conversion to cash rent as the next catalyst.
- Capital Allocation Discipline: Opportunistic buybacks and asset recycling reflect management’s focus on maximizing shareholder value at current valuation discounts.
- 2026 Inflection: Investors should monitor the timing and execution of S&O tenant openings and anchor backfills, as these will determine the pace of earnings and balance sheet improvement over the next 12-18 months.
Conclusion
CTO Realty Growth’s Q3 results underscore the company’s ability to drive organic growth through leasing, while maintaining a flexible and disciplined approach to capital allocation. With a robust S&O pipeline and anchor backfills setting up a material earnings ramp in 2026, the business is positioned for improved cash flow and further deleveraging.
Industry Read-Through
CTO’s experience highlights ongoing demand for well-located retail and mixed-use centers, with leasing spreads and anchor backfills driving NOI growth even as the broader retail landscape evolves. The rebound in CMBS lending for shopping centers is reducing the need for structured finance, while asset recycling and disciplined acquisition strategies are increasingly central for public REITs seeking growth and capital efficiency. Peers with significant S&O pipelines or anchor vacancy exposure should be watched closely for similar inflections in cash flow and asset values as leasing markets remain active but selective.