Alpine Income Property Trust, Inc. — Q2 2020 Form 10-Q
Reporting period: Three and six months ended June 30, 2020. The company owns single-tenant retail and office properties and is externally managed by a subsidiary of CTO Realty Growth. Comparisons with 2019 are to the predecessor’s carved-out results before PINE’s November 2019 formation and IPO; they are not fully comparable to the company’s 2020 results.
Business context and portfolio
- At June 30, PINE owned 31 properties in 21 markets across 14 states, totaling approximately 1.35 million square feet. The portfolio was 100% occupied, with an approximately 8.5-year weighted-average remaining lease term; no lease expirations were scheduled before January 31, 2024.
- Twenty-nine properties, representing approximately 86% of annualized base rent, were triple-net leased. During the first half, PINE acquired 11 properties for approximately $75.4 million in purchase price, or about $76.0 million including capitalized acquisition costs.
Financial results and liquidity
| Metric | Q2 2020 | Q2 2019 predecessor | First half 2020 | First half 2019 predecessor |
|---|---|---|---|---|
| Lease revenue | $4.59 million | $3.09 million | $8.76 million | $6.05 million |
| Operating income | $623,000 | $1.05 million | $887,000 | $1.93 million |
| Net income | $280,000 | $1.05 million | $294,000 | $1.93 million |
| Net income attributable to PINE | $240,000 | $1.05 million | $253,000 | $1.93 million |
| FFO | $2.57 million | $2.37 million | $4.60 million | $4.44 million |
| AFFO | $1.37 million | $2.42 million | $3.18 million | $4.52 million |
- Q2 basic and diluted earnings per share were $0.03. FFO and AFFO per diluted share were $0.29 and $0.16, respectively. For the first half, those non-GAAP per-share measures were $0.51 and $0.35.
- Revenue rose year over year, reflecting acquisitions and the periods being compared. Net income was lower, which management attributed primarily to higher actual public-company general and administrative costs versus predecessor expense allocations—not a decline in income directly attributable to the predecessor portfolio. Q2 G&A was $1.13 million versus $342,000; first-half G&A was $2.42 million versus $851,000. The filing cautions that the predecessor comparison is not like-for-like.
- Operating cash flow was $3.55 million in the first half, versus $4.29 million in the prior-year period. Investing cash outflow was $76.09 million, principally for acquisitions. Financing cash inflow was $61.42 million, including $70 million of credit-facility draws; PINE also spent $5.01 million on share repurchases and paid $3.56 million in dividends.
- At June 30, total assets were $227.30 million, cash was $1.23 million, and equity was $151.88 million. Debt was $70 million face value ($69.51 million net of unamortized loan costs), up from zero at year-end 2019. The revolving facility matures in November 2023; its weighted-average rate was 1.74%. A swap fixed the LIBOR component on $50 million at 0.48% plus the applicable spread. Remaining availability was $30 million, based on borrowing-base assets. PINE reported compliance with all debt covenants.
- Cash dividends declared and paid were $0.20 per share for Q2 and $0.40 for the first half. The board-approved $5 million repurchase program was completed: 456,237 shares were repurchased at an average $11.02 per share.
COVID-19, outlook, risks and other notable items
- For Q2 contractual base rent, PINE reported collecting approximately 81%; 8% was deferred and 9% abated. Approximately 2% remained subject to an unresolved tenant agreement. Deferred repayments generally were expected to begin in Q3 2020, with some continuing through 2021. For July, as of August 3, the company had collected 94%; 4% was deferred and 2% abated under executed agreements.
- PINE temporarily suspended acquisition sourcing and withdrew its previous 2020 guidance, including an acquisition target of up to $120 million. Near quarter-end, it resumed acquisitions and reintroduced full-year investment guidance of $105 million. This is investment guidance, not earnings or FFO guidance. Management said it expected sufficient liquidity for operations, capital needs and debt service over the next 12 months, citing cash, operating cash flow and facility availability.
- COVID-19 uncertainty, tenant closures and financial distress, rent collection and lease concessions, access to capital, and potential economic weakness were identified as material risks. The portfolio also has tenant and geographic concentrations; Wells Fargo and Hilton Grand Vacations represented approximately 21% and 14% of first-half revenue, respectively.
- The company recorded a $647,000 unrealized loss on its interest-rate swap in other comprehensive loss. It reported no material expected effect from routine legal proceedings, no off-balance-sheet arrangements, and no remaining commitment for the Hilton Grand Vacations roof project.
- Disclosure controls were reported effective as of June 30, 2020, with no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Whether rent collections, deferred-rent repayment and tenant credit conditions improved after the reported July update, especially for the unresolved Q2 tenant.
- Progress toward the $105 million 2020 investment target and the funding, pricing and expected returns of any acquisitions.
- Facility availability and covenant headroom as property values and borrowing-base eligibility change; also review the amended tangible-net-worth covenant.
- Whether AFFO and operating cash generation support the dividend, particularly given first-half AFFO of $3.18 million and dividends paid of $3.56 million.
- Tenant concentration, acquisition-related intangible amortization, and ongoing related-party management fees and potential conflicts with CTO.