Alpine Income Property Trust, Inc. — Q3 2021 Form 10-Q
Business context and reporting period. This quarterly report covers the three and nine months ended September 30, 2021. Alpine Income Property Trust is an externally managed REIT focused on commercial net-lease properties. At quarter-end, it owned 89 retail and office properties across 62 markets in 28 states; the portfolio was 100% occupied, with a 7.8-year weighted-average remaining lease term.
Financial performance and position
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Lease revenue | $8.17 million | $5.10 million | $20.66 million | $13.86 million |
| Net income | $1.06 million | $0.64 million | $1.91 million | $0.93 million |
| Net income attributable to Alpine | $0.92 million | $0.55 million | $1.66 million | $0.80 million |
| Diluted EPS | $0.07 | $0.06 | $0.16 | $0.09 |
| FFO / diluted share | $0.37 | $0.35 | $1.15 | $0.86 |
| AFFO / diluted share | $0.37 | $0.34 | $1.18 | $0.69 |
Q3 GAAP net margin was approximately 12.9%, compared with 12.5% in Q3 2020. For the nine-month periods, it was approximately 9.3% versus 6.7%. FFO and AFFO are non-GAAP measures and are not substitutes for operating cash flow or net income.
- Cash flow: Nine-month operating cash flow was $13.1 million, versus $7.4 million. Investing activities used $117.3 million, mainly for property acquisitions; financing activities provided $109.6 million. Cash and restricted cash totaled $7.3 million at September 30, 2021.
- Debt and liquidity: Debt was $191.5 million at face value ($190.2 million carrying value), versus $106.8 million at year-end 2020. The weighted-average stated rate was 2.30%; interest-rate swaps fixed benchmark rates on the $60 million 2026 term loan and $80 million 2027 term loan, plus applicable spreads. The company reported $128.5 million available on its $150 million revolving facility and compliance with all debt covenants. No principal payments were scheduled before 2023.
- Equity and distributions: June follow-on offering net proceeds were $54.3 million; nine-month ATM sales generated $10.9 million net. Dividends declared and paid were $0.255 per share in Q3 and $0.745 per share year to date.
Material changes versus the prior comparable period
- Revenue rose 60.2% in Q3 and 49.0% year to date, primarily reflecting portfolio growth. The company acquired 42 properties during the first nine months for a combined purchase price of $158.7 million; 26 were acquired in the comparable 2020 period for $99.3 million.
- Year-to-date net income attributable to Alpine more than doubled to $1.66 million. Higher revenue and a $0.5 million property-sale gain contributed, partly offset by higher depreciation and amortization and interest expense.
- Interest expense increased to $2.30 million for the nine months, from $0.98 million, as average debt rose to fund acquisitions. At quarter-end, debt included $21.5 million drawn on the credit facility, $60 million and $80 million term loans, and a $30 million assumed mortgage.
- The company disposed of one property in July for $3.8 million, recording a $0.5 million gain. It also issued 3.22 million shares in a follow-on offering and OP units as partial consideration for acquisitions.
Outlook, risks, and unusual items
- Management said cash on hand, operating cash flow, and available credit should be sufficient for operations, capital requirements, maintenance, and debt service over the next 12 months and foreseeable future. No numerical earnings or acquisition guidance was provided.
- Management intends to continue acquiring net-leased properties, using equity and borrowing capacity to grow the portfolio and seek stable cash flows and risk-adjusted returns.
- COVID-19-related rent deferrals or abatements agreed in 2020 were being repaid; some repayments could continue through mid-2022. The filing cites continued uncertainty from the pandemic and its variants.
- Notable risks include tenant credit and lease renewal/re-leasing, acquisition execution and pricing, access to debt and equity capital, leverage and interest rates, and potential property compliance or development costs. Wells Fargo represented 13% of nine-month 2021 revenue, a significant tenant concentration.
- The company is externally managed by a CTO Realty Growth subsidiary. The filing describes potential conflicts of interest in the management and affiliate relationships. No material adverse pending or threatened legal proceedings were reported, and no reportable subsequent events were disclosed through October 21, 2021.
Important facts for investors to verify
- Whether rent collections and repayments of deferred COVID-19 rent remain on schedule, including amounts potentially due through mid-2022.
- Tenant exposure and lease rollover, especially Wells Fargo’s 13% contribution to nine-month revenue and the portfolio’s 7.8-year average remaining lease term.
- Acquisition returns and funding mix, given the 42-property expansion, higher debt, equity issuance, and related dilution.
- Debt covenant headroom, variable-rate exposure, swap coverage and terms, and the capacity available under the revolving facility.
- Dividend coverage against AFFO and operating cash flow; REIT distribution requirements are based on taxable income, not GAAP net income.