Credit Rating For The Unrated (Part 12): CTO Realty Growth

CTO Realty Growth's 6.375% Series A cumulative preferred stock (CTO.PR.A) is highlighted as a compelling income-focused investment, currently yielding 7.49% with a robust change of control clause. The underlying company, a retail-focused REIT, also shows attractive common stock valuation metrics, including a forward P/FFO of 9.38 and an 8.78% dividend yield. While credit analysis suggests moderate risk in the Ba2-Ba3 range, the preferred offering's yield and features position it as a notable opportunity for investors seeking stable income.

Analysis

CTO Realty Growth's 6.375% Series A cumulative preferred stock (CTO.PR.A) is presented as a compelling instrument for income-focused investors, offering a current yield of 7.49%. This is supported by a robust change of control clause, providing a degree of investor protection. The underlying real estate investment trust, CTO Realty Growth (CTO), demonstrates attractive valuation metrics, including a forward Price-to-Funds-From-Operations (P/FFO) of 9.38 and a high common dividend yield of 8.78%, suggesting the common equity is also valued favorably. A credit analysis based on Moody's methodology places the company's creditworthiness in the Ba2-Ba3 range, which signifies moderate credit risk. This risk level is a critical consideration that balances the high yield offered by both the preferred and common shares, positioning the securities as a higher-yield opportunity rather than a low-risk fixed-income alternative.

Key Decisions for Investors

• Income-oriented investors should evaluate the CTO.PR.A preferred stock for its high 7.49% yield and cumulative feature, which could be attractive in a diversified income portfolio.
• Investors must weigh the attractive yield against the company's moderate credit risk, as indicated by its Ba2-Ba3 equivalent rating, and position size accordingly.
• Consider the relative value between the preferred stock's 7.49% yield and the common stock's 8.78% dividend yield, as the common equity may offer a higher return for those willing to assume greater risk and forgo the preferred's seniority in the capital structure.