Alpine Income Property Trust Inc. (NYSE:PINE), a newly organized REIT, launched an IPO last week which has debuted with a strong start. The company initially priced its IPO at $19 a share, at the lower end of its planned price range, and raised $143 million according to Renaissance Capital. Since then, the share price has fallen slightly to $18.65 after the end of Monday’s trading, and the company now has a market cap of about $147 million with 7.9 million outstanding shares.
The REIT sector has done well in 2019, with Simon Bowler of Seeking Alpha noting that the REIT sector has had a return of nearly 30% over the first ten months of 2019. But while this may suggest that this is a good time to invest in a new REIT, Alpine does not have much to distinguish itself from more established competitors and faces some small challenges.
The Property Portfolio
Alpine Income is a new company created in 2019. Consolidated-Tomoka Land Co. (NYSE:CTO) spun the new company off so that it can focus on multi-tenant commercial buildings while Alpine focuses on single-tenant commercial properties. CTO gave Alpine an initial portfolio of 20 properties spread across the United States. CTO still has 29 single-tenant properties according to Alpine’s SEC filing, and must offer Alpine the first right of purchase if they wish to sell any of those properties.
Alpine argues that this initial portfolio of 20 properties, promises a steady income and will keep companies like Yeah! Local busy. None of the existing leases will expire before January 31, 2024, and the properties are in small but increasingly popular cities such as Portland, Phoenix, and multiple cities in North Carolina. But while Alpine may claim that its portfolio is diversified, it should be pointed that two of its 20 properties, one held by Wells Fargo (NYSE:WFC) and the other by Hilton Grand Vacations (NYSE:HGV), account for almost 40% of its annualized base rent of $12.5 million.
And as a new REIT IPO, Alpine also argues that it has a strong capacity for growth. Unlike far too many subsidiary IPOs, Alpine states that it “will have no outstanding debt” after this offering. Furthermore, the company is evaluating acquisition opportunities of other single-tenant commercial properties with an aggregate purchase price of approximately $337.2 million. And as long as the U.S. population and economy continue to increase, so too will the demand for commercial real estate.
Standing Out from the Competition
So Alpine Income is in a good position to grow and offer dividends for some time in a booming economy. While that is good, the problem is that is true for practically any other REIT out there. And there is not enough here to make this new company truly stand out, especially when one looks at its finances.
First, Alpine can point to the fact that its historical revenue has risen since 2017, from $8.8 million in the first three quarters of 2018 to $9.4 million in the 2019 3Q. But some of its other numbers are more concerning. Net income declined in the 2019 3Q, FFO stayed largely flat, and AFFO only rose by 6%. While Alpine could have growth and profitability potential if it continues to acquire more properties, that potential has not been realized yet.
Furthermore, Alpine’s distribution policy is a major concern. The company states that it will have “an annualized distribution rate of approximately 4.2%” based on the IPO price of $19, which means an annualized distribution of about 80 cents. This “will represent approximately 93.0% of our estimated cash available for distribution.” By comparison, EPR Properties (NYSE:EPR) has a dividend yield of over 6% and you can find other REITs which offer better rates. As a new REIT, Alpine should be the company offering higher rates as it lacks a solid history.
And on a final note, there is Alpine’s leadership to consider. As Alpine is a subsidiary of CTO, CTO’s leaders will become the new leaders of Alpine. Alpine and CTO CEO John Albright has led CTO since 2011, and CTO has risen in value by 18% over the past five years. This is comparable in growth to the Schwab and Vanguard REIT ETFs, and the Daytona Beach News-Journal observed that Albright has restructured the company from a local Daytona real estate company to one which has invested in properties throughout the United States.
Good but not good enough
Alpine is not a bad REIT. Its lack of debt, good leadership, its potential for growth which should improve its diversification, and its improving financial numbers indicates that investors should be able to draw a steady income by investing in this company. And as far as IPOs go, a REIT like this is a better choice than the endless tech IPOs that promise high growth, no profits, and will crash and burn over the long term.
But a new REIT should have higher yields than its competitors to attract investors wary of a lack of history, and instead Alpine has lower yields. If the stock falls to $15 or maybe $16, then its percentages and yields will be worth the lower price. REITs are a good investment for now, but investors should look at more established companies or ETFs.