CTO Realty Closes Sale Of Texas Property For $3.4M; Street Sees 57% Upside

CTO Realty Growth on Dec. 29 announced the closing of the sale of a property located in Austin, Texas for $3.4 million representing an in-place capitalization rate of 5.8%. Shares of the REIT lost 2.1% at the close on Tuesday.

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CTO Realty’s (CTO) Austin property was leased to Outback Steakhouse. The company also disclosed a summary of its 2020 transaction activity. In commercial real estate, a capitalization rate (or cap rate) is a formula used to evaluate the potential investor property return.

“The proceeds generated by these most recent asset sales will help fuel the execution of our investment strategy in 2021, where we’ll continue to focus on building a best-in-class diversified real estate portfolio that delivers meaningful cash flow and supports our strong dividend,” said CTO Realty Growth CEO John P. Albright.

The company now has $26.7 million of proceeds held in 1031 restricted cash accounts upon the sale. Like-kind or 1031 exchange is a tax-deferred transaction that permits the disposal of an asset and the acquisition of another similar asset without generating a capital gains tax liability from the sale of the first asset.

During 2020, CTO completed the acquisition of four income properties for $185 million, at a weighted average investment yield of 7.8%. It also finalized the sale of 12 properties for $86.5 million at a weighted average investment yield of 5.2%.

Land sales completed by the venture formed when CTO sold its controlling interest in the entity that owned the company’s remaining land portfolio, of which the company had a retained interest (Land JV) amounted to $65 million in 2020.

Total transaction activity for 2020 including income property acquisitions and dispositions, and vacant land sales of the Land JV, amounted to $336 million.

CTO on Oct. 28 reported Q3 revenue growth of 29% year-on-year to $14.57 million, beating Street estimates by $1.57 million. The Q3 net loss per share of $0.33 missed analysts estimates by $0.59. Revenue growth was primarily attributable to recent income property acquisitions, commercial loan investments, and revenue from management fee income, according to CTO.

In reaction to the company’s “noisy” Q3 results, B. Riley Securities analyst Craig Kucera lowered the price target on the stock from $74 to $67 on Nov. 2 and reiterated a Buy rating. The new price target still implies 72.3% upside potential.

Overall, the rest of the Street has a cautiously optimistic outlook on the stock. The Moderate Buy analyst consensus is based on 2 unanimous Buys. (See CTO stock analysis on TipRanks)

With shares, down 34% year-to-date, the average price target stands at $61 and implies close to 57% upside potential at current levels.