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Investing.com -- CTO Realty Growth (NYSE:CTO) stock fell 3.7% following a short report from Wolfpack Research that accused the company of misleading investors about its dividend sustainability.
The report alleges that CTO, which focuses on acquiring and managing shopping centers, has failed to generate sufficient cash to cover both recurring capital expenditures and dividends since becoming a REIT in 2021. According to Wolfpack, the company has relied on share dilution to address a $38 million dividend shortfall from 2021 to 2024, increasing shares outstanding by 70% since December 2022.
Wolfpack Research claims CTO uses a "manipulative definition" of Adjusted Funds From Operation (AFFO) that excludes recurring capital expenditures, unlike its shopping center REIT peers. The report states this metric is used not only to attract investors but also to determine 70% of management’s performance pay.
The short seller’s report also alleges that CTO used a "sham loan" to conceal the failure of a top tenant at its Ashford (NYSE:AINC) Lane property. According to Wolfpack, this tenant stopped paying rent in November 2022, with an affiliate and its owner declaring bankruptcy in early 2023, yet CTO did not impair the loan.
Wolfpack predicts imminent further dilution, noting CTO has just $8.4 million in cash while facing quarterly dividends of $14 million and average recurring capital expenditures of $5.7 million per quarter, along with approximately $12 million in additional planned capital expenditures.
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