Real estate has been one of my favorite sectors for most of my more-than-three-decade career. One of my favorites names for 2024 is CTO Realty Growth (CTO). It owns a portfolio of high-quality retail properties in markets with high population growth and above-average income levels, writes Tim Melvin, editor of The 20% Letter.
Over the years, I have met thousands of wealthy individuals from all walks of life, and 90% of them (at least) have invested in real estate besides their primary (and secondary) residences. Although technology is giving it a run for the money, real estate has still created more millionaires than any other asset class.
CTO Realty owns 23 properties concentrated in the southeastern and southwestern United States. These areas have attracted significant population growth since the early days of the pandemic, and the surge of people moving to the Sunbelt regions shows no signs of slowing. It also owns a significant interest in and manages Alpine Income Property Trust (PINE), a publicly traded REIT that owns net lease retail properties in the United States.
CTO’s properties are open-air shopping centers featuring anchor tenants, such as grocery stores that are internet-resistant and essential to daily living. Anchors include upscale grocers like Publix, Whole Foods, and Sprouts Markets. Tenants also include high-performing stores like Best Buy, Academy Sports, Barnes and Noble, and entertainment and dining locations.
The properties owned by Alpine Income are single-tenant properties, including companies like Walmart, Dollar General, Walgreens, CVS, 7/11, and Dicks Sporting Goods.
CTO Realty Growth shares are undervalued at their recent price. The shares trade at a single-digit multiple of funds from operations and yielded over 9.5%.
Given the high quality of the properties and the demographics of the locations it serves, I expect CTO Realty Growth to be a compounding machine that delivers a combination of cash dividends and capital appreciation for a long time.
