Alpine Income Property Trust, Inc. — Q2 2022 Form 10-Q
Reporting period: Three and six months ended June 30, 2022. Financial amounts below are in U.S. dollars; “million” is abbreviated as “m.” PINE owns and operates U.S. commercial net-lease properties, primarily under long-term triple-net leases, and is externally managed by a CTO Realty Growth subsidiary.
Business context and portfolio
- At quarter-end, the portfolio comprised 143 properties across 98 markets in 35 states, totaling 3.3 million square feet. Properties were 100% occupied, with an 8.0-year weighted-average remaining lease term based on annualized base rent.
- During the first half, PINE acquired 35 properties for a combined purchase price of $109.1m and sold five properties for $72.8m. One additional property was classified as held for sale at June 30.
Financial performance and key metrics
- Q2 revenue: $11.28m, up 71.0% from $6.60m in Q2 2021. First-half revenue: $22.08m, up 76.8% from $12.49m. Management attributed growth primarily to acquisitions, partly offset by dispositions.
- Q2 attributable net income: $14.28m, versus $0.30m a year earlier; diluted EPS was $1.05 versus $0.03. First-half attributable net income was $15.09m versus $0.74m; diluted EPS was $1.12 versus $0.08. Results included $15.64m of gains on property sales in Q2; GAAP earnings growth therefore substantially reflects dispositions.
- REIT operating measures: Q2 FFO was $6.39m, or $0.47 per diluted share, versus $3.81m, or $0.38. Q2 AFFO was $6.35m, or $0.47 per diluted share, versus $3.89m, or $0.39. First-half FFO was $12.99m ($0.97 per diluted share) and AFFO was $12.80m ($0.95), compared with $7.46m ($0.79) and $7.74m ($0.82), respectively. These are non-GAAP measures and are not substitutes for operating cash flow or GAAP earnings.
- Costs and interest: Q2 operating expenses were $8.46m, up 51.8%; depreciation and amortization rose 64.4% to $5.69m. Q2 interest expense rose to $2.12m from $0.68m, which management attributed to higher average debt. GAAP net income margins are materially affected by the sale gain and should not be read as recurring property margins.
- Cash flow: First-half operating cash flow was $13.25m, versus $8.87m. Investing cash flow was a $38.62m outflow, including $110.06m of real estate acquisitions and $71.45m of disposition proceeds. Financing cash flow was a $33.43m inflow. Period-end cash and restricted cash totaled $17.56m, of which $15.13m was restricted.
- Debt and liquidity: June 30 debt was $302.5m at face value ($300.97m carrying value), versus $269.0m face value at December 31, 2021. Debt comprised $72.5m drawn on a $150m revolver, $200m of term loans, and a $30m mortgage. The reported weighted-average stated rate was 3.04%. PINE reported $77.5m of revolver capacity available and $78.2m remaining under its ATM program, and said it expected sufficient liquidity for the next 12 months and foreseeable future.
- Margins and distributions: The filing does not provide a clear recurring operating-margin figure. The common-stock and OP-unit dividend was $0.27 per share/unit for Q2 and $0.54 for the first half, compared with $0.25 and $0.49, respectively, in 2021.
Material changes versus the prior comparable period
- Revenue increased substantially as the portfolio expanded; PINE acquired 35 properties in the first half versus 23 in the first half of 2021. Higher portfolio-related real estate costs, depreciation, management fees, and interest expense accompanied the growth.
- Unlike the prior-year first half, PINE sold five properties in 2022, recognizing $15.64m in gains. FFO and AFFO provide additional context excluding the disposition gain, though both remain non-GAAP measures.
- Debt increased as acquisitions were funded. April 2022 amendments increased each term loan commitment by $40m for the 2026 loan and $20m for the 2027 loan, and transitioned their benchmark rates from LIBOR to SOFR. Interest-rate swaps hedged $60m of the 2026 loan and $80m of the 2027 loan.
- First-half ATM issuance generated $7.65m of net proceeds; shares outstanding increased to 11,863,589 at June 30 from 11,454,815 at year-end 2021.
Outlook, risks, contingencies, and unusual items
- No specific earnings or acquisition guidance was provided. Management said it plans to continue investing in net-leased properties, using capital raised and available borrowing capacity to grow the portfolio.
- Management’s liquidity outlook relies on operating cash flow, asset-sale proceeds using a reverse like-kind exchange structure, remaining ATM capacity, and revolver availability. $14.4m of restricted cash was held in escrow for reinvestment through like-kind exchanges.
- Interest-rate exposure remains relevant: the revolver is LIBOR-based, term loans are SOFR-based, and swaps cover only part of the term-loan balances. The filing reports compliance with all debt covenants at June 30.
- Disclosed risks include economic and real-estate downturns, tenant losses, capital availability, acquisition execution, competition, and pandemic-related effects. PINE reported no material changes to its previously disclosed risk factors and no pending or threatened legal proceedings believed likely to have a material adverse effect.
- Management identified acquisition purchase-price allocation as a significant accounting estimate. No reportable subsequent events were identified through July 21, 2022.
Important facts for investors to verify
- How much recurring earnings and cash flow are supported by leases, excluding the $15.64m property-sale gain, and how FFO/AFFO reconcile to cash generation.
- Whether the $14.4m of escrowed sale proceeds is reinvested on expected terms, and the returns and lease characteristics of the 35 acquired properties.
- Debt costs, benchmark-rate exposure, swap coverage, covenant headroom, and refinancing needs, particularly the revolver maturity in November 2023.
- Dividend coverage using recurring cash flow, and the effect of ATM issuance and OP units on per-share results and ownership dilution.
- Tenant credit quality and geographic concentration, including that Texas represented 21% of portfolio square footage.