Alpine Income Property Trust, Inc. — Q1 2022 Form 10-Q
Reporting period: Three months ended March 31, 2022; compared with the three months ended March 31, 2021, unless otherwise noted. PINE is an externally managed REIT focused on commercial net-lease properties, primarily under triple-net leases. At quarter-end it owned 129 properties across 84 markets in 35 states; the portfolio was 100% occupied, comprised 3.5 million square feet, and had a 7.8-year weighted-average remaining lease term.
Financial performance and condition
- Revenue: Lease income was $10.8 million, up 83.3% from $5.9 million. Management attributed the increase primarily to acquisitions.
- Profit and margins: Operating income was $2.6 million versus $1.1 million; operating margin was approximately 24.1% versus 18.1%. Net income was $0.9 million versus $0.5 million. Net income attributable to PINE was $0.8 million, or $0.07 basic and $0.06 diluted per share, compared with $0.4 million, or $0.06 basic and $0.05 diluted per share. Attributable net margin was approximately 7.5% in both periods.
- Expenses: Operating expenses rose 69.9% to $8.2 million. Depreciation and amortization increased to $5.7 million from $3.1 million, while interest expense rose to $1.7 million from $0.6 million, reflecting the larger property portfolio and higher average debt.
- REIT operating measures: FFO was $6.6 million, or $0.49 per diluted share, versus $3.7 million, or $0.42. AFFO was $6.5 million, or $0.48 per diluted share, versus $3.9 million, or $0.44. These are non-GAAP measures and are not substitutes for GAAP earnings or operating cash flow.
- Cash flow: Operating cash flow was $6.1 million, up from $3.8 million. Real estate acquisitions used $66.1 million; financing activities provided $53.4 million. Cash, cash equivalents and restricted cash declined $6.6 million during the quarter to $2.9 million.
- Liquidity and debt: Total assets were $568.7 million and total liabilities $330.6 million at March 31, 2022. Debt had a $320.0 million face value ($318.8 million carrying value), including $150.0 million drawn on the $150.0 million revolving facility; the stated weighted-average rate was 2.35%. The company reported compliance with all debt covenants. Cash and cash equivalents were $2.2 million, plus $0.7 million restricted cash.
- Dividends and equity: PINE paid $0.27 per share on common stock and OP units, up from $0.24. It raised $6.1 million net through its ATM program by issuing 314,671 shares at a weighted-average $19.65 per share.
Material changes and transactions
- PINE acquired 16 properties for a combined purchase price of $65.5 million (total cost including capitalized acquisition costs: $66.0 million). The properties were in 12 states, leased to seven tenants, and had a 9.0-year weighted-average remaining lease term at acquisition. In Q1 2021, it acquired five properties for a combined $21.9 million.
- Real estate at cost increased to $503.9 million from $444.4 million at year-end 2021; long-term debt carrying value rose to $318.8 million from $267.7 million.
- After quarter-end, on April 14, 2022, PINE drew $40.0 million and $20.0 million under accordion features on its 2026 and 2027 term loans, respectively, and used the $60.0 million proceeds to reduce the revolving facility balance.
- Also on April 14, PINE sold a Portland, Oregon property leased to Wells Fargo for $38.8 million, reporting a $7.0 million gain. Proceeds were used in a reverse 1031 like-kind exchange transaction.
- Other comprehensive income included a $6.8 million unrealized gain on interest-rate swaps, compared with $0.7 million in Q1 2021. This gain was recorded in other comprehensive income, not net income.
Outlook, risks and other items
- Outlook: The filing gives no specific earnings or acquisition guidance. Management said it expected sufficient liquidity for operations, capital needs and debt service over the next 12 months and foreseeable future, citing operating cash flow, cash, asset-sale proceeds, remaining ATM capacity and borrowing capacity. Management intends to continue acquiring net-leased properties. The filing’s liquidity discussion cites $79.8 million of remaining 2020 ATM capacity and $60.0 million of available facility capacity, while also reporting that the facility was fully drawn at quarter-end and subsequently paid down by $60.0 million; investors should distinguish quarter-end from post-quarter-end availability.
- Risks: The filing identifies exposure to economic and real estate market conditions, tenant losses, acquisition execution, capital availability, and pandemic-related effects. Interest-rate exposure is partly hedged: swaps covered the $60.0 million 2026 term loan and $80.0 million 2027 term loan, and were reported 100% effective for the quarter. Texas represented 19% of portfolio square footage. No tenant exceeded 10% of revenue in Q1 2022; Wells Fargo and Hilton Grand Vacations represented 14% and 11%, respectively, in Q1 2021.
- Contingencies and governance: PINE reported no pending or threatened legal proceeding believed likely to have a material adverse effect and no material change to the risk factors in its 2021 Form 10-K. It is externally managed by a CTO Realty Growth subsidiary, creating related-party and potential time-allocation conflicts; management fees were $0.9 million versus $0.6 million. Disclosure controls were reported effective, with no material change in internal control over financial reporting.
Important facts for investors to verify
- Tenant credit quality, rent collections and lease rollover exposure, including the concentration in Texas.
- Returns and financing of the 16 Q1 acquisitions, and the effect of ATM share issuance and OP units on per-share results.
- Post-quarter debt balances, actual remaining revolver availability, covenant headroom and refinancing needs, especially the revolving facility’s November 2023 maturity.
- Liquidity assumptions, including the timing and use of reverse 1031 sale proceeds and the availability of ATM capacity.
- Related-party management fees, CTO property transactions and the governance implications of external management.
- The distinction between GAAP earnings, cash flow, FFO and AFFO, and the non-cash nature of the swap-related comprehensive income gain.