Alpine Income Property Trust, Inc. — Q3 2022 Form 10-Q
Reporting period: Three and nine months ended September 30, 2022. Unless stated otherwise, financial amounts below are in millions of dollars.
Business context
Alpine owns and operates U.S. commercial net-lease properties, primarily under long-term triple-net leases. At quarter-end, its portfolio comprised 146 properties in 104 markets across 35 states, was 100% occupied, and had a 7.7-year weighted-average remaining lease term based on annualized base rent. The company is externally managed by a subsidiary of CTO Realty Growth.
Financial performance and liquidity
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Lease revenue | $11.5 | $8.2 | $33.6 | $20.7 |
| Net income | $11.2 | $1.1 | $28.4 | $1.9 |
| Net income attributable to Alpine | $9.8 | $0.9 | $24.9 | $1.7 |
| Interest expense | $2.5 | $1.1 | $6.3 | $2.3 |
| FFO | $5.4 | $4.8 | $18.4 | $12.3 |
| AFFO | $5.7 | $4.8 | $18.5 | $12.5 |
- Q3 lease revenue rose 41.1% year over year; nine-month revenue rose 62.7%, primarily reflecting acquisitions, partly offset by property sales. Operating expenses also increased with portfolio growth.
- Reported earnings benefited substantially from property-sale gains: $11.6 million in Q3 and $27.2 million year to date, versus $0.5 million in the comparable 2021 periods. Q3 diluted EPS was $0.72; diluted FFO and AFFO per share were $0.40 and $0.42, respectively.
- Nine-month operating cash flow was $17.6 million, compared with $13.1 million in 2021. Investing cash flow was negative $26.9 million and financing cash flow was positive $15.9 million. Cash and restricted cash totaled $16.2 million, including $12.3 million restricted.
- At September 30, debt had $288.0 million face value ($286.5 million carrying value), a 3.73% weighted-average stated rate, and no principal scheduled before 2026. Cash was $3.8 million excluding restricted cash. The $250 million revolving facility had $58 million drawn and $192 million available. The company reported compliance with debt covenants.
- Total assets were $565.6 million and total equity was $267.8 million. The quarterly common dividend was $0.275 per share, up from $0.255 a year earlier.
Material changes and unusual items
- During the first nine months, Alpine acquired 44 properties for a $145.7 million purchase price and sold 11 properties for $123.3 million, recognizing $27.2 million in aggregate gains. In Q3, it sold six properties for $50.5 million.
- Interest expense increased as average debt and variable borrowing rates rose. On September 30, the company replaced its prior revolving facility with a new $250 million facility, maturing in January 2027, with a one-year extension option and an accordion feature subject to a $750 million aggregate cap. The refinancing produced a $0.3 million debt-extinguishment loss.
- Interest-rate swaps hedge the $200 million term-loan balances; the filing reports the swaps were 100% effective during the periods. Their fair value contributed $13.8 million of nine-month other comprehensive income.
- Management reported no material change in the risk factors from the 2021 Form 10-K. The filing identifies economic and real-estate market weakness, tenant losses, capital availability, and execution of acquisition plans among risks. No material adverse pending or threatened legal proceedings were reported.
Outlook and management commentary
Management provided no specific earnings or acquisition guidance. It stated that expected liquidity was sufficient for operations, capital needs, and debt service over the next 12 months and foreseeable future, citing operating cash flow, cash, asset-sale proceeds through the 1031 exchange structure, remaining ATM capacity of $77.3 million, and $192.0 million of revolving-facility availability. Management intends to continue investing in net-leased properties. The October 5, 2022 amendment to the 2026 term loan added covenant changes and sustainability-linked pricing, effective September 30.
Important facts for investors to verify
- How much of earnings growth reflects recurring property operations versus the $27.2 million of year-to-date disposition gains; compare GAAP results with FFO and AFFO.
- Acquisition and disposition economics, including the effect of portfolio turnover on future rent and cash flow.
- Exposure to variable interest rates, swap coverage and terms, and compliance with credit-agreement covenants.
- Availability and restrictions on cash, remaining ATM capacity, and the execution and reinvestment of 1031 exchange proceeds.
- Tenant credit quality and geographic concentration, including that 20% of portfolio square footage was in Texas.