Real Estate Investment Trust CTO Realty Growth (CTO) has announced they will sell 3 million additional shares of their currently outstanding 6.375% perpetual preferred (CTO-A) which closed today at $20.62/share for a current yield of 7.73%–shares are tumbling after market now at $20.06. This issue originally was for 3 million shares. All terms of the new shares will be the same as the original shares.
The preliminary prospectus for the new issuance of shares can be read here.
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Term pricing sheet is out for supplement. Appears to be scaled down to 1.5 million shares trying to be shoved out the door at $20. I bought 300 at $19.88 premarket. May buy more, or not, depends.
https://www.sec.gov/Archives/edgar/data/23795/000110465924043438/tm2411072d1_fwp.htm
Getting bored Grid ? Good for a quick flip. I had looked at them over the past 3 months for an investment in the Pr A but didn’t like all the buying and selling they were doing with assets. Think there is more stable REIT preferred out there.
Everything is a potential flip, Charles. Some I am more sanguine on just holding, ha. Yes, more of flip here, with 8% being the threshold. Had a couple great couple buck flips in short order this week, so on to the next one. Im not a real reit guy by nature anyways, but will give this a spin for a while.
Actually if I was a serious holder, I think what they have been doing is actually derisking and streamlining. Lowered office profile, sold off sub surface mineral rights, cleaned up revolver, staggered debt maturities, etc.
I believe their assets are fine. They are one of the lower quality retail center public REITs, but that’s good enough considering the fundamentals for strip retail is very solid given years of anemic supply and a strong consumer.
My main concern relates to a buyout with a bad actor that orphans the prefs. Not saying it’s likely..
There is some Change of Control protection in the prospectus that includes the stock price in the formula. I couldn’t do the math to determine the prices where the conversion is triggered but it would still result in a price below par. I chalked it up as a math problem too hard for me!
I got this response from the former CFO a few months ago.
Is the conversion ratio still 0.9406?
No. The Share Cap has been adjusted to account for the Company’s 3-for-1 stock split that was completed in 2022. As a result, the Share Cap is now 2.8218 as opposed to the original 0.9406 that was shown in the pro supp when the Series A offering was completed in 2021.
Can you also provide an example of how the conversion ratio is used in a formula?
It is difficult to provide an example in a vacuum because the calculation would be dependent on the facts and circumstances at the time of a hypothetical future change of control. An example of the facts and circumstances influencing the example would be the timing of when the hypothetical future change of control occurs, because the timing would impact the amount of accrued and unpaid dividends.
Obviously, these facts and circumstances are difficult to predict and beyond our control. That said, I can tell you that the purpose of the Share Cap is to establish a maximum number of shares of common stock that could be issued upon a conversion of the Series A Preferred Stock in connection with a change of control.
Put another way, if at the time of the change of control, the sum of:
(x) the $25.00 liquidation preference per share of Series A Preferred Stock to be converted, plus;
(y) the amount of any accrued and unpaid dividends up to, but excluding, the Change of Control Conversion Date (unless the Change of Control Conversion Date is after a Dividend Record Date and prior to the corresponding Dividend Payment Date, in which case no additional amount for such accrued and unpaid dividends will be included in such sum)
Divided by (ii) the Common Stock Price is more than 2.8218, then 2.8218 shares of Common Stock would be issued in exchange for each share of Series A Preferred Stock that is converted (assuming there are no further changes to the Share Cap). If the sum referred to above is less than 2.8218, then the result of the calculation is the number of shares of Common Stock that would be issued (i.e. something less than 2.8218 shares).
Thanks for posting Grid.
Hmmm, this is a strange one as that’s a high cost of capital when retail cap rates are around 7.5%.
I also wasn’t able to get fully comfortable with the pref protection in a takeover situation. Their protections were vague.
Looks like they are going to use the proceeds to pay down their Credit Agreement which was drawn to pay acquisitions. They just bought a center for 68 million and sold one for 20 million. The C-Ag is floating and tied to SOFR+ plus a base. I thought the rate was reasonable, and likely eventually headed down, but they may want to reload their credit line in case something else comes up.
“We intend to use the net proceeds from this offering…(for general corporate purposes including)…repayment of debt, including amounts outstanding under the Credit Agreement.”
“Borrowings under the Credit Agreement were primarily incurred to fund acquisitions.”
Adding some intrigue – the CFO departed a month ago, for other opportunities.
JMO. DYODD.