CTO Realty Growth Inc., incorporated in 2020 as a REIT and headquartered in Winter Park, FL, mainly owns and manages a portfolio of retail and mixed-use properties in Sunbelt regions.
The company has a strong dividend yield that appears sustainable, and the shares are trading at a discount to NAV at best and at their fair value at worst. CTO’s portfolio is well-diversified for its size, leverage is not too high, and the maturities are well-laddered.
Given these factors, CTO Realty presents a compelling investment opportunity for dividend portfolios.
Business & Portfolio
CTO Realty traces its roots back to 1902, originally owning about 2 million acres of timberland in Florida. It transitioned to a publicly traded REIT in 2020, focusing on income properties. The company’s portfolio now consists of 20 properties, aggregating 3.9 million square feet across eight states.
These properties are located in diverse and well-populated markets, with a substantial portion of the portfolio comprising grocery-anchored properties (22% of ABR) and retail power centers (39% of ABR).
This diversification is critical in mitigating risks associated with the retail sector, especially given the ongoing shift towards e-commerce.
Leverage & Liquidity
As of the last quarter, CTO’s leverage was reasonable, with almost 60% of its assets funded with debt. The company’s debt/EBITDA ratio stood at 9.42x, and the weighted average interest rate on its debt was 4.52%. Additionally, CTO had an interest coverage ratio of 2.95x.
The company has access to a $300 million credit facility, with $209.5 million outstanding, leaving $90.5 million available for withdrawal. Importantly, there are no debt maturities for this year, and the following years do not pose significant refinancing risks.
Performance
CTO has demonstrated impressive growth in recent quarters. Comparing the last quarterly figures annualized with the average figures of the past three fiscal years, the company has achieved notable growth:
- Rental Revenue Growth: 36.67%
- Cash NOI Growth: 45.39%
- AFFO Growth: 36.14%
Year-over-year growth metrics also show robust performance:
- Rental Revenue: $24.6 million (9.77% YoY growth)
- Same-Store NOI: $15.1 million (6.03% YoY growth)
- AFFO/Share: $0.50 (19.05% YoY growth)
Occupancy remains healthy at 94.3%, reflecting a 100 bps YoY increase.
Dividend & Valuation
CTO currently pays a quarterly dividend of $0.38 per share, resulting in a forward yield of 8.73%. Management has guided for $1.74 to $1.82 AFFO per diluted share for this year, implying a payout ratio of 87.35% using the lower end of this range.
The company’s dividend payment history shows consistency, and its AFFO yield of 10% further underscores the attractive valuation.
CTO trades at a P/FFO multiple of 10.63x, which is below the average of its larger retail REIT peers:
- SPG: 11.74x
- O: 12.65x
- KIM: 11.77x
- REG: 14.76x
- FRT: 14.9x
- Average: 12.74x
CTO’s implied cap rate of 6.93% aligns with the average cap rate for retail assets forecasted for 2024, indicating fair valuation. However, if interest rates decrease, retail cap rates could drop to around 5%, potentially pushing NAV per share to approximately $30, reflecting a discount of over 40%.
Risks
Despite the attractive valuation, there are risks to consider. The current undervaluation might persist if the market does not recognize the value of CTO’s expanding business.
Additionally, with 35% of rental revenue coming from properties in Atlanta, any adverse population or employment trends in this market could negatively impact CTO’s financial performance.
Verdict
CTO Realty Growth, Inc. offers a strong dividend profile, good performance, well-scheduled maturities, and an attractive valuation.
These factors make it a compelling addition to a dividend portfolio, providing not only a high yield but also a potential margin of safety due to its undervaluation.
DISCLAIMER
You should read and understand this disclaimer in its entirety before joining or viewing the website or email/blog list of SmallCapStocks.com (the “Publisher”). The information (collectively the “Advertisement”) disseminated by email, text or other method by the Publisher including this publication is a paid commercial advertisement and should not be relied upon for making an investment decision or any other purpose. The Publisher is engaged in the business of marketing and advertising the securities of publicly traded companies in exchange for compensation. The track record, gains, upside, and/or losses mentioned in the Advertisement, if any, should not be considered as true or accurate or be the basis for an investment. The Publisher does not verify the accuracy or completeness of any information included in the Advertisement. While the Publisher does not charge for the SMS service, standard carrier message and data rates may apply. To unsubscribe from receiving promotional text messages to your phone sent via an autodialer, using your phone reply to the sender’s phone number with the word STOP or HELP for help.
The Advertisement is not a solicitation or recommendation to buy securities of the advertised company. An offer to buy or sell securities can be made only by a disclosure document that complies with applicable securities laws and only in the states or other jurisdictions in which the security is eligible for sale. The Advertisement is not a disclosure document. The Advertisement is only a favorable snapshot of unverified information about the advertised company. An investor considering purchasing the securities, should always do so only with the assistance of his legal, tax and investment advisors. Investors should review with his or her investment advisor, tax advisor or attorney, if and to the extent available, any information concerning a potential investment at the web sites of the U.S. Securities and Exchange Commission (the "SEC") at www.sec.gov; the Financial Industry Regulatory Authority (the "FINRA") at www.FINRA.org, and relevant State Securities Administrator website and the OTC Markets website at www.otcmarkets.com. The Publisher cautions investors to read the SEC advisory to investors concerning Internet Stock Fraud at www.sec.gov/consumer/cyberfr.htm, as well as related information published by the FINRA on how to invest carefully. Investors are responsible for verifying all information in the Advertisement. As an advertiser, we do not verify any information we publish. The Advertisement should not be considered true or complete.
The Publisher does not offer investment advice or analysis, and the Publisher further urges you to consult your own independent tax, business, financial and investment advisors concerning any investment you make in securities particularly those quoted on the OTC Markets. Investing in securities is highly speculative and carries an extremely high degree of risk. You could lose your entire investment if you invest in any company mentioned in the Advertisement. You acknowledge that we are not an investment advisory service, a broker-dealer or an investment adviser and we are not qualified to act as such. You acknowledge that you will consult with your own independent, tax, financial and/or legal advisers regarding any decisions as to any company mentioned here. We have not determined if the Advertisement is accurate, correct or truthful. The Advertisement is compiled from publicly available information, which include, but are not limited to, no cost online research, magazines, newspapers, reports filed with the SEC or information furnished by way of press releases. Because all information relied upon by us in preparing an advertisement about an issuer comes from a public source, it is not reliable, and you should not assume it is accurate or complete.
By your subscription to our profiles, the viewing of this profile and/or use of our website, you have agreed and acknowledged the terms of our full disclaimer and privacy policy which can be viewed at the following link: www.SmallCapStocks.com/Disclaimer and www.SmallCapStocks.com/Privacy-Policy
By accepting the Advertisement, you agree and acknowledge that any hyperlinks to the website of (1) a client company, (2) the party issuing or preparing the information for the company, or (3) other information contained in the Advertisement is provided only for your reference and convenience. The advertiser is not responsible for the accuracy or reliability of these external sites, nor is it responsible for the content, opinions, products or other materials on external sites or information sources. If you use, act upon or make decisions in reliance on information contained in any disseminated report/release or any hyperlink, you do so at your own risk and agree to hold us, our officers, directors, shareholders, affiliates and agents harmless. You acknowledge that you are not relying on the Publisher, and we are not liable for, any actions taken by you based on any information contained in any disseminated email or hyperlink.
Faith is an enthusiastic freelancer and regular contributor to numerous finance blogs, creating valuable pieces to educate individuals on finance and fintech options. As a skilled writer, Faith has created content for diverse industries—if it exists, she’s likely written about it!
