10-Q: CTO Realty Growth Reports Q2 Net Loss Amid Debt Extinguishment, Revenue Growth in Core Segments

CTO Realty Growth, Inc. reported a significant net loss for the second quarter and first half of 2025, primarily driven by a one-time debt extinguishment loss, despite strong revenue growth in its income properties and commercial loans segments.

Summary

• Net loss attributable to the company was $23.4 million for Q2 2025, a significant decline from net income of $1.2 million in Q2 2024.
• For the six months ended June 30, 2025, net loss attributable to the company was $21.2 million, compared to net income of $7.0 million for the same period in 2024.
• Total revenues increased by 30.5% to $37.6 million in Q2 2025, up from $28.8 million in Q2 2024, driven by income property acquisitions and commercial loan growth.
• Income properties revenue grew 29.0% to $33.4 million in Q2 2025, and 28.8% to $65.0 million for the six months ended June 30, 2025.
• Interest income from commercial loans and investments surged 109.3% to $3.0 million in Q2 2025 and 114.1% to $6.0 million for the six months ended June 30, 2025.
• A $20.4 million loss on extinguishment of debt was incurred in Q2 2025 due to the settlement of $51.0 million in 2025 Notes.
• Unrealized non-cash losses on the investment in Alpine Income Property Trust, Inc. (PINE) totaled $4.7 million in Q2 2025 and $4.9 million for the six months ended June 30, 2025.
• Cash flow from operating activities increased to $32.2 million for the six months ended June 30, 2025, up from $24.6 million in the prior year period.
• Acquired Ashley Park, a multi-tenant income property in Newnan, GA, for $80.0 million during the first half of 2025.
• No income properties were disposed of during the first half of 2025, contrasting with $24.5 million in disposition proceeds received in the prior year period.
• The company has $216.5 million remaining availability under its 2024 ATM Program and $76.0 million undrawn commitment under its $300.0 million Credit Facility as of June 30, 2025.
• Committed to fund $17.6 million in capital improvements and $29.6 million for a construction loan (Whole Foods Market development in Forsyth County, GA).

Sentiment

Score: 5

Explanation: The sentiment is mixed. While the company reported a significant net loss due to a one-time debt extinguishment and unrealized investment losses, its core operational revenues (income properties, commercial loans) showed strong growth. Key REIT metrics like Core FFO and AFFO (total) increased, indicating underlying operational health, though per-share values slightly declined due to increased share count. The liquidity position appears stable, and recent tax law changes are favorable for REITs. The one-time nature of the debt loss and the non-cash nature of the investment loss mitigate the negative impact on long-term operational outlook.

Positives

• Total revenues increased by 30.5% in Q2 2025 and 28.9% for the six months ended June 30, 2025, driven by strong performance in income properties and commercial loans.
• Income properties revenue grew significantly by 29.0% in Q2 2025 and 28.8% for the six months ended June 30, 2025, reflecting portfolio growth and leasing activity.
• Interest income from commercial loans and investments more than doubled, increasing by 109.3% in Q2 2025 and 114.1% for the six months ended June 30, 2025, due to portfolio expansion.
• Cash flows provided by operating activities increased by $7.6 million to $32.2 million for the six months ended June 30, 2025.
• Core Funds From Operations (Core FFO) attributable to common stockholders increased to $29.1 million for the six months ended June 30, 2025, up from $21.1 million in the prior year.
• Adjusted Funds From Operations (AFFO) attributable to common stockholders increased to $30.8 million for the six months ended June 30, 2025, up from $22.7 million in the prior year.
• The company maintains significant liquidity with $216.5 million available under its 2024 ATM Program and $76.0 million undrawn on its Credit Facility.
• The 'One Big Beautiful Bill Act' (OBBBA) signed on July 4, 2025, includes favorable tax changes for REITs, such as increasing the TRS asset test limitation to 25% and making the 20% deduction for qualified REIT dividends permanent.

Negatives

• Reported a net loss attributable to the company of $23.4 million in Q2 2025, a substantial decrease from net income of $1.2 million in Q2 2024.
• Incurred a significant one-time loss on extinguishment of debt of $20.4 million in Q2 2025 related to the settlement of 2025 Notes.
• Experienced unrealized non-cash losses of $4.7 million in Q2 2025 and $4.9 million for the six months ended June 30, 2025, on its investment in PINE due to a decrease in PINE's stock price.
• Basic and diluted net loss per common share increased to $0.77 in Q2 2025 from $0.03 in Q2 2024, and to $0.78 for the six months ended June 30, 2025, from net income of $0.17 in the prior year.
• FFO attributable to common stockholders decreased to a loss of $5.5 million in Q2 2025 from a gain of $10.1 million in Q2 2024, and to $9.4 million for the six months ended June 30, 2025, from $20.4 million in the prior year.
• FFO per common share (diluted) decreased to a loss of $0.17 in Q2 2025 from a gain of $0.44 in Q2 2024, and to $0.29 for the six months ended June 30, 2025, from $0.90 in the prior year.
• Cash flows used in investing activities increased by $47.7 million for the six months ended June 30, 2025, primarily due to reduced proceeds from asset dispositions compared to the prior year.
• Real Estate Operations segment ceased generating revenue in 2025 as all related assets were sold in 2024.

Risks

• Subject to risks related to the ownership of commercial real estate that could affect property performance and value.
• Business is dependent upon tenants successfully operating their businesses, and their failure could adversely affect the company.
• Competition from e-commerce retail sales could adversely affect the business of traditional retail tenants.
• Operates in a highly competitive market for the acquisition of income properties, potentially facing more effective competition from established entities.
• May be unable to successfully execute on asset acquisitions or dispositions.
• Loss of revenues from the income property portfolio or certain tenants would adversely impact results of operations and cash flows.
• Revenues include management fees from Alpine Income Property Trust, Inc. (PINE), and the loss, failure, or decline in PINE's business or assets could substantially reduce revenues.
• Potential conflicts of interest exist in the relationship with PINE, including shared executive officers and directors, which could lead to decisions not in the best interest of stockholders.
• A prolonged downturn in economic conditions could adversely impact the business, particularly the ability to maintain revenues from income-producing assets.
• Investment strategy includes commercial loans and investments, which involve credit risk or the risk of borrower default.
• May suffer losses if a borrower defaults on a loan and the value of the underlying collateral is less than the amount due.
• Real estate investments are generally illiquid.
• Failure to successfully utilize Section 1031 like-kind exchange structures or disqualification of such transactions could result in significant taxes.
• May be unable to obtain debt or equity capital on favorable terms, or additional borrowings may impact liquidity.
• Servicing debt requires a significant amount of cash, and there may not be sufficient cash flow to service or pay debt.
• Operations and properties could be adversely affected by natural disasters, pandemics, or other significant disruptions.
• May encounter environmental problems requiring remediation or significant costs.
• Failure to remain qualified as a REIT for U.S. federal income tax purposes would result in taxation as a regular corporation, substantially reducing funds for distribution.
• REIT requirements could limit financial flexibility.
• Limited experience operating as a REIT.
• Ability to pay dividends consistent with REIT requirements and expectations regarding timing and amounts.
• The board of directors has the ability to revoke REIT status without stockholder approval.
• Exposure to changes in U.S. federal and state income tax laws, including REIT requirements.
• General business and economic conditions, including unstable macroeconomic conditions due to political unrest, economic uncertainty, terrorism, war, inflation, higher interest rates, tariffs, international trade policies, and distress in the banking sector.
• An epidemic or pandemic, and related government measures, may precipitate or materially exacerbate risks and significantly disrupt business operations.

Future Outlook

The company expects to have sufficient liquidity to fund operations, capital requirements, maintenance, and debt service over the next twelve months and into the foreseeable future, utilizing cash on hand, cash flow from operations, and available credit facilities. Management's focus is to continue diversifying the portfolio by redeploying proceeds from like-kind exchange transactions and using the Credit Facility to acquire income-producing properties in faster-growing, business-friendly markets. The company's guidance for 2025 investments in income-producing properties, including structured investments, ranges from $100.0 million to $200.0 million. Future dispositions of income properties are expected to qualify under the like-kind exchange deferred-tax structure. Recent tax law changes (OBBBA) are expected to increase the REIT asset test limitation on TRS securities to 25% and make the 20% deduction for qualified REIT dividends permanent, which are favorable for REITs.

Management Comments

• We believe we will have sufficient liquidity to fund our operations, capital requirements, maintenance, and debt service requirements over the next twelve months and into the foreseeable future.
• Management's focus is to continue our strategy to diversify our portfolio by redeploying proceeds from like-kind exchange transactions and utilizing our Credit Facility to increase our portfolio of income-producing properties, providing stabilized cash flows with strong risk-adjusted returns primarily in larger metropolitan areas and growth markets.

Industry Context

CTO Realty Growth operates as an equity REIT focused on retail and mixed-use properties, primarily in high-growth, business-friendly U.S. markets. The company's strategy to acquire multi-tenant, retail-oriented properties aligns with a broader industry trend of focusing on resilient retail formats and locations that can withstand e-commerce competition. Its investment in commercial loans and preferred equity also reflects a diversified approach to real estate investment beyond direct property ownership. The recent tax law changes (OBBBA) are generally favorable for the REIT industry, potentially increasing flexibility for TRS investments and providing long-term certainty for dividend deductions, which could enhance investor appeal for REITs.

Legal Proceedings

• The company may be a party to certain legal proceedings incidental to the normal course of its business, but does not expect them to have a material effect on financial condition or results of operations.

Related Party Transactions

• The company provides management services to Alpine Income Property Trust, Inc. (PINE) and holds an investment in PINE, representing 15.4% of PINE's outstanding equity.
• The company has an Exclusivity and Right of First Offer Agreement (ROFO Agreement) with PINE, which generally prevents it from investing in single-tenant net lease income properties.
• The company has a revenue sharing agreement with PINE related to fees earned under the Portfolio Management Agreement attributable to single-tenant properties.

Stakeholder Impact

• Shareholders: Impacted by the net loss, FFO/AFFO per share decline, common and preferred stock dividends, and common stock repurchase program.
• Employees: Impacted by higher employee count and increases in compensation.
• Customers (Tenants): Affected by leasing activity, lease terms, and property management services.
• Creditors: Impacted by the company's debt levels, interest expense, and compliance with debt covenants.
• Investment Professionals: Provided with detailed financial metrics (FFO, Core FFO, AFFO) for performance comparison and analysis.

Next Steps

• Continue to operate as a publicly traded, self-managed equity REIT, focusing on ownership, management, and repositioning of high-quality retail and mixed-use properties.
• Pursue investment strategy by investing primarily through fee simple ownership of properties, commercial loans, and preferred equity.
• Fund future acquisitions utilizing cash on hand, cash from operations, proceeds from 1031 like-kind exchanges, borrowings on the Credit Facility, and additional financing sources.
• Continue to diversify the portfolio by redeploying proceeds from like-kind exchange transactions and utilizing the Credit Facility to increase the portfolio of income-producing properties.
• Manage the existing portfolio of 24 commercial real estate properties, comprising 5.3 million square feet of gross leasable space.
• Continue fee-based management business for Alpine Income Property Trust, Inc. (PINE) and other portfolios (Portfolio Management Agreement, Subsurface Management Agreement).
• Fund committed capital improvements totaling $17.6 million, generally expected to be completed within twelve months.
• Fund the unfunded portion of the Whole Foods Market construction loan, totaling $29.6 million.

Key Dates

Recommendation

The filing presents a mixed financial picture. While the company reported a significant net loss due to a one-time debt extinguishment and unrealized investment losses, its core operational segments (income properties and commercial loans) demonstrated strong revenue growth. Key REIT performance indicators like total Core FFO and AFFO increased, suggesting underlying operational strength, although per-share metrics saw a slight decline due to increased share count. The company maintains adequate liquidity and has a clear strategy for future investments and capital management. The one-time nature of the debt loss and the non-cash nature of the investment loss suggest these may not reflect ongoing operational issues. However, the per-share dilution and the overall net loss warrant caution. A 'hold' recommendation is appropriate as the positive operational trends are balanced by the reported net loss and per-share dilution, requiring further monitoring of future performance and capital deployment.

Keywords

REIT, Real Estate Investment Trust, Commercial Real Estate, Retail Properties, Mixed-Use Properties, Income Properties, Commercial Loans, Preferred Equity, Property Management, SEC Filing, 10-Q, Financial Results, Debt Extinguishment, Acquisitions, Dividends, Funds From Operations, FFO, Core FFO, AFFO, Liquidity, Capital Resources, Risk Factors, Corporate Governance, Tax Law Changes