Investments In Atlanta And Tampa Will Expand Retail Footprint In Coming Years

Key Takeaways

• Strategic investments in retail properties in high-demand areas are expected to drive revenue and yield through property portfolio expansion.
  
• Increased leasing activity and re-leasing efforts, targeting better rent terms, should enhance future revenue and improve net margins.
  
• High leverage and anticipated financial obligations pose risks to margins and earnings amid potentially rising interest rates and delayed returns on investments.

Catalysts

A publicly traded real estate investment trust that owns and operates a portfolio of high-quality, retail-based properties located primarily in higher growth markets in the United States.

• CTO Realty Growth's investment in retail properties and structured investments in target markets such as the Southeast and Southwest regions, including new acquisitions in high-demand areas like Atlanta and Tampa, is expected to enhance revenue through increased property portfolios and attractive yields.
  
• The company's significant increase in leasing activity, with positive cash lease spreads and a robust leasing pipeline, suggests strong future revenue growth as new leases commence, particularly weighted towards the second half of 2025 and fully by 2026.
  
• Re-leasing efforts for spaces previously occupied by bankrupt retailers are expected to yield potential rent increases of 40% to 60%, promising substantial revenue growth and improving net margins in 2026 as new tenants start paying rent.
  
• Expansion plans involving the undeveloped land adjacent to existing holdings, expected to contribute to earnings by late 2026, indicate future revenue and earnings growth through increased occupancy and property development.
  
• The completion of the ATM program and improved leverage and liquidity position support continued growth and acquisition activities, which could potentially boost earnings through strategic investments and reduced interest expenses over time.

CTO Realty Growth Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming CTO Realty Growth's revenue will grow by 12.8% annually over the next 3 years.
• Analysts are not forecasting that CTO Realty Growth will become profitable in next 3 years. To represent the Analyst Price Target as a Future PE Valuation we will estimate CTO Realty Growth's profit margin will increase from -7.1% to the average US REITs industry of 8.5% in 3 years.
• If CTO Realty Growth's profit margin were to converge on the industry average, you could expect earnings to reach $15.1 million (and earnings per share of $0.39) by about March 2028, up from $-8.8 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 71.5x on those 2028 earnings, up from -69.7x today. This future PE is greater than the current PE for the US REITs industry at 29.3x.
• Analysts expect the number of shares outstanding to grow by 7.0% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.84%, as per the Simply Wall St company report.

CTO Realty Growth Future Earnings Per Share Growth

Risks

• The company's high leverage, indicated by net debt to EBITDA of 6.3x, despite improvement, could pose financial risk and impact earnings if interest rates rise or financial conditions tighten.
  
• The settlement of convertible notes is expected to cost approximately $0.05 per share in 2025, affecting net margins and earnings due to cash outflows and re-financing at potentially higher rates.
  
• Vacancies from recent retailer bankruptcies, despite re-leasing prospects, will impact revenues with rent commencement for new tenants only expected in 2026.
  
• Investment in properties requires significant capital expenditures ($9 million to $12 million for re-leasing), which might lower cash flows and net margins temporarily.
  
• The current leasing and acquisition environment may not yield quick returns, as evidenced by expected delays in structured investments and potential for slower-than-anticipated growth, impacting revenue and earnings visibility in the near term.

Valuation

• The analysts have a consensus price target of $22.143 for CTO Realty Growth based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $24.0, and the most bearish reporting a price target of just $19.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $178.7 million, earnings will come to $15.1 million, and it would be trading on a PE ratio of 71.5x, assuming you use a discount rate of 7.8%.
  
• Given the current share price of $19.21, the analyst price target of $22.14 is 13.2% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.