CTO Realty Growth (CTO) Q2 FY26 earnings call: guidance and Q&A

CTO Realty Growth demonstrated strong leasing momentum, executing 25 new leases, renewals, and extensions totaling 213,000 square feet in Q2 FY26. Comparable leases, representing 184,000 square feet, achieved a positive cash rent spread of 6%. Year-to-date, the company has completed 366,000 square feet of leasing with a 10% cash rent spread. This activity resulted in a total portfolio occupancy of 95.4% at quarter-end, a 150 basis point increase year-over-year. The signed-not-open pipeline stands at $6.3 million, representing approximately 5.8% of in-place annual cash base rent, providing a visible earnings tailwind into 2027.

The company continued its capital recycling strategy, acquiring Gallery on the Parkway, a 152,000 square foot retail power center in Dallas, Texas, for $53.3 million at an initial yield of 10.2%. Year-to-date investments totaled $234.2 million at a weighted average yield of 9.5%. On the disposition front, CTO sold $90.7 million of properties, including Mass & Yards in Atlanta and Granada Plaza in Tampa, at a weighted average exit cap rate of 6.7%. These transactions aim to move capital from lower cap rate, stabilized assets to higher-yielding opportunities.

CTO's structured investment platform remains a key complement to its strategy. During the quarter, the company originated two preferred equity investments totaling $96.4 million, generating a 12% initial cash yield. Post-quarter, a $37 million first mortgage investment was originated at a 9.75% initial cash yield. The pro forma structured investment portfolio now stands at approximately $222 million, representing 15% of undepreciated assets, with a weighted average yield of approximately 11.5%. Management views the current interest rate environment as creating more opportunities for this platform.

Shopping centers' same property NOI increased 10.1% for Q2 FY26 and 8.2% year-to-date (7% excluding non-recurring^📎 recovery benefits). This growth was primarily driven by new anchor tenant openings and leasing activity. However, management expects same property NOI growth to moderate in the second half of 2026 due to tougher comparable periods, as anchor leases from late 2025 will roll into the prior year comparable base, and bad debt expense is expected to normalize^📎 after an unusually low Q3 2025.

As of June 30th, CTO reported total debt of $660.8 million, with a weighted average interest rate of 4.6%. Total liquidity stood at $131.8 million, comprising $107 million of undrawn revolving credit facility commitments and $24.8 million cash on hand. The company issued 4.2 million common shares under its ATM program for net proceeds of $83.6 million in Q2, contributing to a reduction in leverage. Net debt to pro forma adjusted EBITDA decreased by 0.6 times from Q1 to 5.8 times, with further deleveraging expected as the signed-not-open pipeline commences rent payments.

CTO is actively working to resolve its remaining non-core assets and vacant anchor boxes. The Albuquerque, New Mexico office property, with 98,000 square feet fully leased to the State of New Mexico, is being prepared for market sale, expected by year-end 2026 or early 2027. Additionally, the company is under contract to sell a 76,500 square foot portion of Carolina Pavilion in Charlotte, consisting of two vacant anchor boxes, which will resolve all but one of the previously discussed vacant anchor spaces. The combined anchor leases and negotiations are expected to yield a positive lease spread of approximately 75%.