Alpine Income Property Trust, Inc. — 2019 Form 10-K Summary
Business context and reporting period
Alpine Income Property Trust, Inc. is a newly organized, externally managed REIT focused on single-tenant commercial properties in the United States. The Company completed its IPO on November 26, 2019, selling 7.5 million common shares at $19.00 per share, and acquired its initial 20-property portfolio from Consolidated-Tomoka Land Co. (“CTO”).
The 2019 filing presents Successor results for November 26 through December 31, 2019, and Predecessor carve-out results for January 1 through November 25, 2019. Predecessor results are not fully comparable with Successor results because the Company became a separate public entity and recorded the initial portfolio at fair value under acquisition accounting.
- Portfolio: 20 single-tenant retail and office properties in 10 states and 15 markets.
- Occupancy: 100%; approximately 816,572 rentable square feet.
- Weighted-average remaining lease term: approximately 8.0 years; no leases expire before January 31, 2024.
- Annualized base rent: $13.25 million as of December 31, 2019.
- Approximately 81% of annualized base rent was from triple-net leases.
Financial performance and key metrics
| Metric | Successor period | Predecessor comparable information |
|---|---|---|
| Period | Nov. 26–Dec. 31, 2019 | Jan. 1–Nov. 25, 2019; full-year 2018 |
| Total revenue | $1.394 million | $11.837 million; $11.720 million |
| Real estate expenses | $0.373 million | $1.665 million; $1.620 million |
| General and administrative expenses | $0.339 million | $1.683 million; $1.184 million |
| Depreciation and amortization | $0.687 million | $4.859 million; $4.901 million |
| Net income attributable to Alpine | $(0.039) million | $3.631 million; $4.015 million |
| FFO | $0.642 million | $8.489 million; $8.916 million |
| AFFO | $0.806 million | $8.632 million; $8.771 million |
| Net cash from operating activities | $1.361 million | $7.545 million; $5.626 million |
The Successor period produced an operating loss of $3,983 and a net loss attributable to Alpine of $39,150. Results included $41,230 of interest expense, $254,230 of management fees, $216,102 of non-recurring acquisition costs included in the AFFO reconciliation, and $686,985 of depreciation and amortization. Basic and diluted earnings per share were reported as zero because of rounding.
At December 31, 2019, total assets were $164.2 million, including $128.0 million of net real estate and $12.3 million of cash. Total liabilities were $3.5 million and total equity was $160.7 million. The Company declared and paid a 2019 dividend of $0.058 per share, including distributions on OP Units.
Liquidity, debt, and capital resources
- The Company had no outstanding indebtedness at December 31, 2019.
- An unsecured $100 million revolving credit facility was entered into on November 26, 2019; availability was approximately $88.5 million based on the borrowing base.
- Borrowings would bear interest at 30-day LIBOR plus 135 to 195 basis points; the facility matures in November 2023 and includes a potential $50 million accordion feature, subject to conditions and lender approval.
- The Company was in compliance with debt covenants at year-end.
- Management stated that cash on hand, operating cash flow, and available credit capacity were sufficient for operations, capital requirements, maintenance, and debt service over the next twelve months and the foreseeable future.
- A remaining commitment of approximately $627,000 existed for a new roof at the Hilton Grand Vacations property.
Material changes versus prior comparable periods
- The Company transitioned from CTO’s predecessor portfolio to a separately capitalized public REIT following the IPO and formation transactions.
- The initial portfolio was recorded at fair value, increasing net real estate and intangible lease assets compared with the predecessor balance sheet.
- Cash increased to $12.3 million from $8,258 at December 31, 2018, primarily reflecting IPO and private-placement proceeds remaining after property acquisitions and transaction costs.
- General and administrative expenses changed materially because predecessor periods included allocated CTO corporate costs, while the Successor period included the new management fee and public-company expenses.
- Successor-period results are not suitable for a direct full-year comparison with 2018 because the Company operated for only 36 days and the predecessor financial statements were carve-out statements.
Guidance, outlook, management commentary, and unusual items
- Management targeted investments of up to approximately $120 million in income-producing properties during 2020.
- By February 21, 2020, the Company had acquired five additional single-tenant properties for approximately $27.6 million, including properties leased to 7-Eleven, Conn’s HomePlus, Lehigh Gas Wholesale Services, and American Multi-Cinema.
- The Company intends to continue acquiring primarily single-tenant, net-leased retail and office properties in major metropolitan areas and growth markets.
- The Company intends to elect REIT status beginning with its short taxable year ended December 31, 2019. REIT qualification requires, among other things, annual distribution of at least 90% of REIT taxable income.
- The Company is externally managed by a CTO subsidiary. The base management fee is 1.5% annually, calculated on defined total equity; an incentive fee may apply when total stockholder return exceeds an 8% cumulative annual hurdle, subject to a high-water mark.
- Key concentrations include Wells Fargo at approximately 23.7% of annualized base rent and Hilton Grand Vacations at approximately 18.9%. Approximately 57.4% of annualized base rent was generated by retail tenants, and approximately 63.7% came from unrated or non-investment-grade tenants.
- Principal risks include tenant default or bankruptcy, retail and e-commerce pressure, tenant and geographic concentration, interest-rate and refinancing risk, environmental and natural-disaster exposure, competition for acquisitions and tenants, related-party conflicts with CTO, and the risk of losing REIT status.
Most important facts for investors to verify
- Reconcile Successor and Predecessor results carefully; the reporting periods and accounting bases are different.
- Assess tenant concentration, particularly Wells Fargo, Hilton Grand Vacations, Walgreens, and LA Fitness, and review lease expiration and renewal terms.
- Verify the Company’s actual 2020 acquisition pace, funding sources, leverage, and use of the revolving credit facility.
- Review management-fee economics, termination provisions, CTO’s ownership and OP Unit interests, and the exclusivity and right-of-first-offer arrangements.
- Confirm REIT qualification, dividend requirements, and the sustainability of distributions relative to AFFO and operating cash flow.
- Evaluate the $627,000 Hilton Grand Vacations roof commitment and any future capital expenditures, environmental liabilities, or uninsured property risks.
- Review the auditor’s financial-statement opinion and note that no auditor attestation of internal control effectiveness was required because the Company was a newly public emerging growth company.