Alpine Income Property Trust, Inc. current report, 21 November 2019

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Alpine Income Property Trust, Inc. — Form 8-K Summary

Reporting context: Form 8-K dated November 21, 2019, reporting the company’s IPO, formation transactions, organizational arrangements and related financing. The filing states that the IPO and related transactions closed November 26, 2019, although the report was signed December 3, 2019.

Business Context and Formation

  • Alpine Income Property Trust is a newly formed Maryland REIT focused on primarily single-tenant, net-leased retail and office properties.
  • The initial portfolio comprised 20 properties in 15 markets across 10 states.
  • The company acquired the portfolio from Consolidated-Tomoka Land Co. and certain subsidiaries for approximately $125.9 million in cash and 1,223,854 OP Units.
  • The IPO issued 7,500,000 common shares, with an underwriters’ option for up to 1,125,000 additional shares.
  • Concurrently, CTO purchased 394,737 shares at $19.00 per share, or $7.5 million, without placement fees or underwriting discounts.
  • The company initially owned approximately 86.6% of the Operating Partnership.

Financial Metrics, Liquidity and Debt

  • The filing does not provide operating revenue, net income, funds from operations, adjusted funds from operations, cash flow, margins, dividends, asset value or per-share financial results for a comparable period.
  • The company entered into a senior unsecured revolving credit facility with initial commitments of up to $100 million.
  • The facility has a four-year term, with a potential one-year extension, and an accordion feature that could increase availability by an additional $50 million subject to conditions and lender commitments.
  • Borrowings bear interest at 30-day LIBOR plus 135 to 195 basis points, depending on leverage as defined in the credit agreement.
  • The facility includes customary restrictions and financial maintenance covenants. The filing does not state the amount drawn at closing.

Material Changes and Key Agreements

  • The company completed its transition from formation-stage entity to publicly traded REIT, with common stock listed on the New York Stock Exchange under the symbol PINE.
  • OP Unit holders may generally redeem their units for cash or, at the company’s election, common stock on a one-for-one basis beginning one year after issuance.
  • The company entered into a registration rights agreement with CTO covering resale of the private placement shares and certain related shares.
  • The company entered into an external management agreement with Alpine Income Property Manager, LLC, a wholly owned CTO subsidiary.
  • The base management fee is 0.375% per quarter of “total equity,” equivalent to a 1.5% annual rate, payable in cash.
  • The manager may receive an annual incentive fee equal to 15% of stockholder-return outperformance above an 8% cumulative annual hurdle, subject to the agreement’s high-water-mark provisions.
  • The management agreement has an initial five-year term and generally provides for a termination fee equal to three times specified average annual base and incentive fees, except in certain circumstances.
  • The company entered into an exclusivity and right-of-first-offer agreement with CTO covering specified single-tenant, net-leased acquisition and disposition opportunities.

Risks, Contingencies and Unusual Items

  • A tax protection agreement covers approximately $9.1 million of protected built-in gain on contributed properties and other assets.
  • If covered properties are disposed of in taxable transactions within 10 years of the IPO closing, indemnification obligations could result in aggregate payments of up to approximately $3.1 million, subject to stated exceptions.
  • The company is externally managed and will pay management fees and certain reimbursable expenses to an affiliate of CTO, creating potential conflicts of interest.
  • During the initial five-year management term, the company generally may not terminate the manager except for cause.
  • The company must maintain REIT qualification and avoid becoming subject to registration under the Investment Company Act under its investment guidelines.
  • The company authorized 768,269 shares for issuance under its 2019 equity incentive plans and granted 2,000 restricted shares to each of four non-employee directors.

Governance and Organizational Matters

  • Four non-employee directors were elected effective November 22, 2019. Andrew C. Richardson became board chair and audit committee chair.
  • The company filed amended and restated articles of incorporation and adopted amended and restated bylaws effective November 21, 2019.
  • Indemnification agreements were entered into with directors and executive officers.

Most Important Facts to Verify

  • Confirm the final IPO share count, including whether the underwriters exercised any portion of their 1,125,000-share option, and the resulting gross and net proceeds.
  • Verify the amount, if any, drawn under the $100 million revolving credit facility at closing and the applicable covenant headroom.
  • Review the initial portfolio’s property-level rent, occupancy, lease expirations, tenant concentrations and valuation.
  • Assess the economic impact of the external management fee, incentive fee, expense reimbursements and termination provisions.
  • Evaluate the potential tax indemnity exposure of up to approximately $3.1 million and the properties subject to the tax protection agreement.
  • Confirm the company’s initial dividend policy and subsequent operating results, which are not provided in this filing.