Alpine Income Property Trust, Inc. — Q3 2023 Form 10-Q
Reporting period: Three and nine months ended September 30, 2023. PINE is an externally managed REIT focused primarily on U.S. commercial net-lease properties. At quarter-end it owned 138 properties across 35 states, totaling 3.9 million square feet; the portfolio was 99.1% leased with a 7.1-year weighted-average remaining lease term.
Financial performance
| Metric | Q3 2023 | Q3 2022 | Nine months 2023 | Nine months 2022 |
|---|---|---|---|---|
| Total revenue | $11.6 million | $11.5 million | $34.1 million | $33.6 million |
| Net income (loss) attributable to PINE | $(0.8) million | $9.8 million | $2.6 million | $24.9 million |
| Diluted EPS | $(0.05) | $0.72 | $0.16 | $1.84 |
| FFO per diluted share | $0.37 | $0.40 | $1.10 | $1.36 |
| AFFO per diluted share | $0.38 | $0.42 | $1.11 | $1.37 |
Q3 lease income was nearly flat year over year; nine-month lease income increased 1.0%. Q3 operating expenses rose 39.6%, including a $2.9 million impairment and higher depreciation and amortization. The Q3 loss also reflected lower property-sale gains: $2.6 million versus $11.6 million a year earlier. For the first nine months, property-sale gains fell to $7.8 million from $27.2 million, the main factor in the decline in net income. Interest expense for the nine-month period rose 18.1% to $7.5 million.
Operating cash flow for the first nine months was $18.7 million, compared with $17.6 million in 2022. Investing activities provided $9.7 million, versus $26.9 million used in the prior-year period, as property sales exceeded acquisitions. Financing activities used $24.0 million. Cash and restricted cash totaled $17.4 million at September 30, including $6.3 million unrestricted cash and $11.2 million restricted cash.
Balance sheet, capital allocation and portfolio activity
- Total assets were $557.7 million, down from $573.4 million at December 31, 2022. Real estate, net, was $451.6 million.
- Debt was $250.0 million at face value ($249.1 million carrying value), down from $268.3 million face value at year-end 2022. Debt consisted of a $50 million revolver balance and $200 million of term loans. The weighted-average stated rate was 3.36%; interest-rate swaps fixed rates on the disclosed balances. All debt covenants were met.
- The $250 million revolver had $200 million of undrawn capacity. Management also cited $109.5 million of remaining availability under the ATM program. Restricted cash included $10.6 million in escrow for reinvestment through like-kind exchanges.
- PINE acquired 12 properties for $79.9 million (or $81.2 million including capitalized acquisition costs) and sold 22 properties for $99.6 million in the first nine months. Seven properties were classified as held for sale at quarter-end.
- The company originated a construction loan for a Wawa-anchored Indiana development: $7.8 million commitment, of which $6.9 million had been funded. It bears 8.50% interest, increasing to 9.25% in July 2024, and matures in July 2025.
- Quarterly dividends were $0.275 per share. PINE repurchased 280,332 shares for $4.7 million in Q3; aggregate 2023 repurchases through September totaled $5.1 million. It raised $12.4 million net through ATM share sales during the first nine months.
Material changes, outlook and risks
The $2.9 million impairment concerned seven properties leased to a tenant that filed for bankruptcy; the leases were rejected in August 2023. PINE recorded the charge using estimated sale prices in executed letters of intent, less carrying value and estimated selling costs. Walgreens accounted for 11% of nine-month revenue, creating tenant concentration exposure.
Management stated it expects liquidity to be sufficient for operations, capital needs, maintenance and debt service over the next twelve months and into the foreseeable future, citing cash, operating cash flow, expected asset-sale proceeds, ATM capacity and revolver availability. No specific earnings or FFO guidance was provided. Management intends to continue investing in net-lease properties using capital raised, sale proceeds and borrowing capacity.
Disclosed risks include economic and real-estate market weakness, inflation and higher interest rates, tenant loss, capital availability, and execution of acquisitions. The new construction-loan strategy adds borrower, completion, collateral-value and foreclosure risks. PINE also identifies potential conflicts arising from its external manager’s affiliation with CTO Realty Growth. The filing reports no pending or threatened legal proceedings believed likely to have a material adverse effect and no off-balance-sheet arrangements.
Investor facts to verify
- Whether the seven bankrupt-tenant properties are sold near the prices assumed in the impairment estimate, and whether any additional costs or losses arise.
- Occupancy, tenant credit quality and concentration, particularly Walgreens’ 11% contribution to nine-month revenue.
- Actual cash available for uses: $11.2 million of the $17.4 million cash-and-restricted-cash total was restricted.
- Debt costs, swap coverage, covenant headroom and refinancing requirements as the $100 million 2026 term loan and $150 million of 2027-maturity debt approach maturity.
- Operating cash flow and AFFO relative to the $0.275 quarterly dividend, and the impact of continued share issuance or repurchases on per-share results.
- Progress and credit performance of the construction loan, including the remaining $0.9 million commitment and project completion.