On Friday, B.Riley maintained its Buy rating on CTO Realty Group (NYSE: CTO), with a steady price target of $22.50. The firm’s analysis indicates that the real estate investment trust (REIT)’s recent capital market activities provide a more solid foundation for the upcoming third quarter of 2024 earnings expectations.

CTO Realty preannounced its investment and capital markets activity for the quarter, which included the issuance of 6.9 million shares at $18.63 each, resulting in net proceeds of $125.7 million, and the establishment of a new five-year $100 million term loan.

The capital raised through the equity issuance, while slightly dilutive to earlier estimates, has positively impacted the company’s leverage by reducing it to levels more favored by investors. This reduction in leverage is expected to enhance CTO Realty’s valuation.

Furthermore, the capital raising has extended the REIT’s liquidity, which is crucial for future investments. During the third quarter, CTO Realty completed $191.3 million in investments compared to $18.0 million in dispositions.

Looking ahead to fiscal year 2025, B.Riley sees potential catalysts for CTO Realty, including future investments driven by the REIT’s improved cost of capital and a 9.1% average yield on year-to-date investment activity in 2024.

Operationally, the firm is also anticipating updates on timelines for value-adding projects and efforts to close the gap between physical and leased occupancy, which could lead to an additional $5.7 million in cash annual base rent.

CTO Realty’s current valuation indicates an implied capitalization rate of 8.1% and a discount on 2024 and 2025 estimated core funds from operations (FFO) per share of 31.9% and 33.1%, respectively when compared to its shopping center peers.

This underpins B.Riley’s reiteration of the Buy rating and $22.50 price target for CTO Realty’s shares.

InvestingPro Insights

CTO Realty Group’s financial metrics and recent market performance align with B.Riley’s positive outlook. According to InvestingPro data, the company’s revenue growth stands at 19.62% over the last twelve months, with a robust EBITDA growth of 27.49% in the same period. This strong top-line and operational performance supports the potential for future investments highlighted in the analyst report.

InvestingPro Tips reveal that CTO Realty Group has maintained dividend payments for 49 consecutive years, underscoring its commitment to shareholder returns. This is further evidenced by the current dividend yield of 7.71%, which is particularly attractive in the current market environment. The company’s ability to sustain such dividends while pursuing growth initiatives speaks to its financial stability and management’s confidence in future cash flows.

Another relevant InvestingPro Tip indicates that CTO’s liquid assets exceed short-term obligations, which aligns with the improved liquidity position mentioned in the article following the recent capital raising activities. This strong liquidity profile positions the company well for the future investments and value-adding projects discussed by B.Riley.

For investors seeking a more comprehensive analysis, InvestingPro offers 8 additional tips that could provide further insights into CTO Realty Group’s investment potential.

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