Alpine Income Property Trust, Inc. — Q3 2020 Form 10-Q
Reporting period: Three and nine months ended September 30, 2020. The filing compares 2020 results with the “Predecessor” periods, which reflect carve-out results under CTO Realty Growth before PINE’s November 2019 formation and IPO; those periods are not fully comparable.
Business context
PINE owns and operates single-tenant commercial properties, primarily under long-term triple-net leases. At quarter-end, its portfolio included 45 properties across 32 markets in 17 states, totaling approximately 1.5 million square feet. The portfolio was 100% occupied, with an 8.6-year weighted-average remaining lease term. PINE is externally managed by a CTO Realty Growth subsidiary and has elected REIT tax treatment.
Financial results and liquidity
| Metric | Q3 2020 | Q3 2019 predecessor | Nine months 2020 | Nine months 2019 predecessor |
|---|---|---|---|---|
| Lease revenue | $5.10 million | $3.38 million | $13.86 million | $9.43 million |
| Net income | $636,000 | $999,000 | $930,000 | $2.93 million |
| Net income attributable to PINE | $546,000 | $999,000 | $799,000 | $2.93 million |
| FFO | $3.04 million | $2.43 million | $7.65 million | $6.87 million |
| AFFO | $2.91 million | $2.49 million | $6.08 million | $7.01 million |
- Q3 diluted EPS was $0.06; nine-month diluted EPS was $0.09. FFO and AFFO per diluted share were $0.35 and $0.34 for Q3, and $0.86 and $0.69 for the nine months. FFO and AFFO are non-GAAP measures and are not substitutes for operating cash flow.
- Q3 operating expenses were $4.37 million, including $2.69 million of depreciation and amortization. Net income included a $287,000 gain on the sale of a property and $384,000 of interest expense.
- Nine-month cash provided by operating activities was $7.36 million, versus $7.03 million in the predecessor period. Investing activities used $95.80 million, primarily for property acquisitions; financing activities provided $77.99 million. Cash at September 30 was $1.89 million.
- At September 30, debt was $88.31 million face value ($87.85 million net carrying value), all under a revolving credit facility maturing in November 2023. The weighted-average stated rate was 1.69%; a swap fixed the base rate on $50 million at 0.48% plus the applicable spread. PINE reported compliance with debt covenants.
- The facility commitment was $100 million at September 30. An October 16 amendment increased capacity to $150 million, with a possible increase to $200 million subject to lender approval. Reported available capacity after the amendment was $46.5 million, limited by borrowing-base assets. Management said available liquidity was sufficient for operations and obligations over the next 12 months.
- Dividends declared and paid were $0.20 per share in Q3 and $0.60 per share for the nine months. PINE subsequently declared a Q4 dividend of $0.22 per share, a 10% increase from Q3.
Material changes versus the prior comparable period
- Revenue increased as the portfolio expanded; PINE acquired 26 properties in the first nine months for approximately $99.3 million, including 15 properties for approximately $23.9 million in Q3. The portfolio grew from the predecessor base, so period comparisons also reflect differing property counts and accounting bases.
- Higher depreciation and amortization and general and administrative expenses partly offset revenue growth. PINE also began incurring interest expense on acquisition-related facility borrowings; the predecessor period had no allocated interest expense.
- Nine-month net income attributable to PINE was lower than predecessor net income. Management cited higher operating costs, depreciation and amortization, and interest expense; the 2020 period also included a $287,000 property-sale gain.
- PINE repurchased 456,237 shares for approximately $5.0 million in the first half of 2020, completing its repurchase program. It sold an Outback Steakhouse property in September for approximately $5.1 million, recording a $287,000 gain.
Outlook, management commentary, and risks
- PINE collected 100% of contractual base rent due in Q3 and reported 100% collection for October as of October 30. The portfolio remained fully occupied. Prior COVID-19 rent deferrals or abatements affected approximately 6% of contractual rents; deferred-rent repayments generally began in Q3 and may continue through the end of 2021. An agreement remained unresolved with a tenant associated with approximately 2% of Q2 contractual base rent, although that tenant paid all Q3 rent due.
- Management temporarily suspended acquisition sourcing after the pandemic began, then resumed activity as conditions allowed. The company reported no formal earnings or operating guidance in this filing.
- COVID-19’s duration and economic effects remain uncertain. Risks include tenant financial distress or lease changes, reduced consumer spending, business closures, constraints on capital access, and lower property values. PINE also disclosed tenant and geographic concentration risks, interest-rate exposure, and potential conflicts arising from its external management and relationship with CTO.
- Four tenants each accounted for notable revenue exposure as a group: Wells Fargo and Hilton Grand Vacations represented approximately 20% and 13% of nine-month 2020 revenue, respectively. Legal proceedings were described as routine, with no expected material effect. No off-balance-sheet arrangements were reported.
Most important facts for investors to verify
- Whether rent collections remain strong and deferred rent is repaid as scheduled, particularly for the tenant with unresolved Q2 terms.
- Actual borrowing availability under the amended facility, covenant headroom, borrowing costs, and refinancing requirements at the 2023 maturity.
- Whether acquisitions generate cash returns sufficient to cover interest, operating costs, and dividends, given low reported cash balances and higher leverage.
- Tenant credit quality and concentration, including exposure to Wells Fargo, Hilton Grand Vacations, and pandemic-sensitive retail, entertainment, and service businesses.
- Dividend coverage using recurring cash flow measures; assess non-GAAP FFO/AFFO adjustments and the effects of straight-line rent, concessions, and non-cash items.
- Completion of the 7-Eleven Georgetown tenant improvements and commencement of cash rent, which PINE anticipated before year-end 2020.