# Alpine Income Property Trust, Inc.: Form 10-Q for the period ended Sep 30, 2023

- Company: [Alpine Income Property Trust, Inc.](/companies/pine.md) (CIK 1786117)
- Form: 10-Q
- Filed: 2023-10-19
- Accepted by EDGAR: Oct 19, 2023, 16:25 ET
- Period: 2023-09-30
- Accession: 0001558370-23-016543
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/1786117/000155837023016543/pine-20230930x10q.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/1786117/000155837023016543/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2023-09-30.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2023-07-01 to 2023-09-30 | $11.6m | us-gaap:Revenues |
| Revenue | 9 months, 2023-01-01 to 2023-09-30 | $34.1m | us-gaap:Revenues |
| Operating income | 3 months, 2023-07-01 to 2023-09-30 | $1.4m | us-gaap:OperatingIncomeLoss |
| Operating income | 9 months, 2023-01-01 to 2023-09-30 | $10.2m | us-gaap:OperatingIncomeLoss |
| Net income | 3 months, 2023-07-01 to 2023-09-30 | −$837.0k | us-gaap:NetIncomeLoss |
| Net income | 9 months, 2023-01-01 to 2023-09-30 | $2.6m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2023-07-01 to 2023-09-30 | −$0.05 | us-gaap:EarningsPerShareDiluted |
| Diluted EPS | 9 months, 2023-01-01 to 2023-09-30 | $0.16 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2023-07-01 to 2023-09-30 | −$0.06 | us-gaap:EarningsPerShareBasic |
| Basic EPS | 9 months, 2023-01-01 to 2023-09-30 | $0.18 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2023-07-01 to 2023-09-30 | 15,649,688 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Diluted shares (weighted) | 9 months, 2023-01-01 to 2023-09-30 | 15,705,268 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 9 months, 2023-01-01 to 2023-09-30 | $18.7m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Dividends paid | 9 months, 2023-01-01 to 2023-09-30 | $13.0m | us-gaap:PaymentsOfDividendsCommonStock |
| Share repurchases | 9 months, 2023-01-01 to 2023-09-30 | $5.1m | us-gaap:PaymentsForRepurchaseOfCommonStock |
| Cash and equivalents | at 2023-09-30 | $6.3m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Total assets | at 2023-09-30 | $557.7m | us-gaap:Assets |
| Total liabilities | at 2023-09-30 | $261.8m | us-gaap:Liabilities |
| Long-term debt | at 2023-09-30 | $249.1m | us-gaap:LongTermDebt |
| Shareholders' equity | at 2023-09-30 | $263.2m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 32,715 characters.

*When we refer to “we,” “us,” “our,” or “the Company,” we mean Alpine Income Property Trust, Inc. and its consolidated subsidiaries. References to “Notes to Financial Statements” refer to the Notes to the Consolidated Financial Statements of Alpine Income Property Trust, Inc. included in this Quarterly Report on Form 10-Q. Some of the comments we make in this section are forward-looking statements within the meaning of the federal securities laws. For a complete discussion of forward-looking statements, see the section below entitled “Special Note Regarding Forward-Looking Statements.” Certain factors that could cause actual results or events to differ materially from those the Company anticipates or projects are described in “Item 1A. Risk Factors” of the Company’s Annual Report on Form 10-K for the year ended December 31, 2022 and of this Quarterly Report on Form 10-Q.*

### Special Note Regarding Forward-Looking Statements

This Report contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995 (set forth in Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)). The words “believe,” “estimate,” “expect,” “intend,” “anticipate,” “will,” “could,” “may,” “should,” “plan,” “potential,” “predict,” “forecast,” “project,” and similar expressions and variations thereof identify certain of such forward-looking statements, which speak only as of the dates on which they were made. Forward-looking statements are made based upon management’s expectations and beliefs concerning future developments and their potential effect upon the Company. There can be no assurance that future developments will be in accordance with management’s expectations or that the effect of future developments on the Company will be those anticipated by management.

Because forward-looking statements relate to the future, by their nature, they are subject to inherent uncertainties, risks and changes in circumstances that are difficult to predict. These risks and uncertainties include, but are not limited to, the strength of the real estate market; the impact of a prolonged recession or downturn in economic conditions; our ability to successfully execute acquisition or development strategies; credit risk associated with us investing in commercial loans and investments; any loss of key management personnel; changes in local, regional, national and global economic conditions affecting the real estate development business and properties, including unstable macroeconomic conditions due to, among other things, geopolitical conflicts, inflation, rising interest rates, and distress in the banking sector; the impact of competitive real estate activity; the loss of any major property tenants; the ultimate geographic spread, severity and duration of pandemics, actions that may be taken by governmental authorities to contain or address the impact of such pandemics, and the potential negative impacts of such pandemics on the global economy and our financial condition and results of operations; and the availability of capital. These risks and uncertainties may cause our actual future results to be materially different than those expressed in our forward-looking statements.

See “Item 1A. Risk Factors” of the Company’s Annual Report on Form 10-K for the year ended December 31, 2022 and of this Quarterly Report on Form 10-Q for further discussion of these risks, as well as additional risks and uncertainties that could cause actual results or events to differ materially from those described in the Company’s forward-looking statements. Given these risks and uncertainties, readers are cautioned not to place undue reliance on such statements, which speak only as of the date of this Quarterly Report on Form 10-Q. The Company undertakes no obligation to publicly release any revisions to these forward-looking statements that may be made to reflect events or circumstances after the date of this Quarterly Report on Form 10-Q.

### OVERVIEW

Alpine Income Property Trust, Inc. is a Maryland corporation that conducts its operations so as to qualify as a REIT for U.S. federal income tax purposes. Substantially all of the operations are conducted through our Operating Partnership.

We seek to acquire, own and operate primarily freestanding, commercial retail real estate properties located in the United States primarily leased pursuant to long-term net leases. We target tenants in industries that we believe are favorably impacted by macroeconomic trends that support consumer spending, stable and growing employment, and positive consumer sentiment, as well as tenants in industries that have demonstrated resistance to the impact of the e-commerce retail sector or who use a physical presence as a component of their omnichannel strategy. We also seek to invest in properties that are net leased to tenants that we believe have attractive credit characteristics, stable operating histories, healthy rent coverage levels, are well-located within their respective markets and/or have rents at-or-below market rent levels. Furthermore, we believe that the size of our company allows us, for at least the near term, to focus our investment activities on the acquisition of single properties or smaller portfolios of properties that represent a transaction size that most of our publicly-traded net lease REIT peers will not pursue on a consistent basis.

Our strategy for investing in income-producing properties is focused on factors including, but not limited to, long-term real estate fundamentals, including those markets experiencing significant economic growth. We employ a methodology for evaluating targeted investments in income-producing properties which includes an evaluation of: (i) the attributes of the real estate (e.g., location, market demographics, comparable properties in the market, etc.); (ii) an evaluation of the existing tenant(s) (e.g., credit-worthiness, property level sales, tenant rent levels compared to the market, etc.); (iii) other market-specific conditions (e.g., tenant industry, job and population growth in the market, local economy, etc.); and (iv) considerations relating to the Company’s business and strategy (e.g., strategic fit of the asset type, property management needs, alignment with the Company’s structure, etc.).

During the nine months ended September 30, 2023, the Company acquired 12 properties for total acquisition volume of $79.9 million, or $81.2 million including capitalized acquisition costs. During the nine months ended September 30, 2023, the Company sold 22 properties for an aggregate sales price of $99.6 million, generating aggregate gains on sale of $7.8 million.

As of September 30, 2023, we owned 138 properties with an aggregate gross leasable area of 3.9 million square feet, located in 35 states, with a weighted average remaining lease term of 7.1 years. Our portfolio was 99.1% leased as of September 30, 2023. We may also acquire or originate commercial loans and investments associated with commercial real estate located in the United States. Our investments in commercial loans are generally secured by real estate or the borrower’s pledge of its ownership interest in an entity that owns real estate. During the three months ended September 30, 2023, the Company originated a construction loan secured by the property and improvements to be constructed thereon for a 33-acre Wawa-anchored land development project in Greenwood, Indiana for $7.8 million. The construction loan matures on July 25, 2025, bears a fixed interest rate of 8.50% that increases to 9.25% on July 25, 2024, and requires payments of interest only prior to maturity. Funding of the loan will occur as the borrower completes the underlying construction. As of September 30, 2023, the Company has disbursed $6.9 million to the borrower.

The Company has no employees and is externally managed by Alpine Income Property Manager, LLC, a Delaware limited liability company and a wholly owned subsidiary of CTO (our “Manager”). CTO is a Maryland corporation that is a publicly traded diversified REIT and the sole member of our Manager.

### COMPARISON OF THE THREE MONTHS ENDED SEPTEMBER 30, 2023 AND 2022

The following presents the Company’s results of operations for the three months ended September 30, 2023, as compared to the three months ended September 30, 2022 (in thousands):

| ​ ​ ​ Revenues: | ​ ​ ​ ​ | ​ ​ Three Months Ended September 30, 2023 ​ ​ | ​ ​ ​ | ​ ​ September 30, 2022 ​ ​ | ​ ​ ​ ​ | ​ ​ ​ $ Variance ​ ​ | ​ ​ ​ | ​ % Variance ​ |
| --- | --- | --- | --- | --- | --- | --- | --- | ---: |
| Lease Income | ​ | $11,447 | ​ | $11,520 | ​ | $(73) | ​ | (0.6)% |
| Interest Income from Commercial Loans and Investments | ​ | ​ 112 | ​ | ​ — | ​ | ​ 112 | ​ | 100.0% |
| Total Revenues | ​ | ​ 11,559 | ​ | ​ 11,520 | ​ | ​ 39 | ​ | 0.3% |
| Operating Expenses: | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ |
| Real Estate Expenses | ​ | ​ 1,722 | ​ | ​ 1,816 | ​ | ​ (94) | ​ | (5.2)% |
| General and Administrative Expenses | ​ | ​ 1,652 | ​ | ​ 1,460 | ​ | ​ 192 | ​ | 13.2% |
| Provision for Impairment | ​ | ​ 2,864 | ​ | ​ — | ​ | ​ 2,864 | ​ | 100.0% |
| Depreciation and Amortization | ​ | ​ 6,528 | ​ | ​ 5,866 | ​ | ​ 662 | ​ | 11.3% |
| Total Operating Expenses | ​ | ​ 12,766 | ​ | ​ 9,142 | ​ | ​ 3,624 | ​ | 39.6% |
| Gain on Disposition of Assets | ​ | ​ 2,586 | ​ | ​ 11,611 | ​ | ​ (9,025) | ​ | (77.7)% |
| Loss on Extinguishment of Debt | ​ | ​ — | ​ | ​ (284) | ​ | ​ 284 | ​ | 100.0% |
| Net Income from Operations | ​ | ​ 1,379 | ​ | ​ 13,705 | ​ | ​ (12,326) | ​ | (89.9)% |
| Investment and Other Income | ​ | ​ 125 | ​ | ​ 9 | ​ | ​ 116 | ​ | 1288.9% |
| Interest Expense | ​ | ​ (2,443) | ​ | ​ (2,544) | ​ | ​ (101) | ​ | (4.0)% |
| Net Income (Loss) | ​ | ​ (939) | ​ | ​ 11,170 | ​ | ​ (12,109) | ​ | (108.4)% |
| Less: Net (Income) Loss Attributable to Noncontrolling Interest | ​ | ​ 102 | ​ | ​ (1,400) | ​ | ​ 1,502 | ​ | 107.3% |
| Net Income (Loss) Attributable to Alpine Income Property Trust, Inc. | ​ | $(837) | ​ | $9,770 | ​ | $(10,607) | ​ | (108.6)% |

### Lease Income and Real Estate Expenses

Revenue from our property operations during the three months ended September 30, 2023 and 2022, totaled $11.4 million and $11.5 million, respectively. The $0.1 million decrease in both lease income and real estate expenses is attributable to lower variable lease payments as a result of lower operating expenses.

### Commercial Loans and Investments

Interest income from commercial loans and investments totaled $0.1 million for the three months ended September 30, 2023. The income is attributable to a construction loan originated by the Company during the three months ended September 30, 2023. There were no commercial loans and investments generating interest income during the three months ended September 30, 2022.

### General and Administrative Expenses

The following table represents the Company’s general and administrative expenses for the three months ended September 30, 2023, as compared to the three months ended September 30, 2022 (in thousands):

| ​ ​ ​ | ​ ​ ​ | ​ ​ Three Months Ended September 30, 2023 | ​ ​ | ​ ​ September 30, 2022 | ​ ​ ​ | ​ ​ ​ ​ $ Variance | ​ ​ ​ | ​ ​ % Variance |
| --- | --- | --- | --- | --- | --- | --- | --- | ---: |
| Management Fee to Manager | ​ | $1,095 | ​ | $951 | **​** | $144 | ​ | 15.1% |
| Director Stock Compensation Expense | ​ | ​ 79 | ​ | ​ 79 | **​** | ​ — | ​ | 0.0% |
| Director & Officer Insurance Expense | ​ | ​ 62 | ​ | ​ 95 | ​ | ​ (33) | ​ | (34.7)% |
| Additional General and Administrative Expense | ​ | ​ 416 | ​ | ​ 335 | ​ | ​ 81 | ​ | 24.2% |
| Total General and Administrative Expenses | ​ | $1,652 | ​ | $1,460 | ​ | $192 | ​ | 13.2% |

General and administrative expenses totaled $1.7 million and $1.5 million during the three months ended September 30, 2023 and 2022, respectively. The $0.2 million increase is attributable to increased activity in states with franchise fees, which led to an increase in state tax expense of $0.1 million, and growth in the Company’s equity base, which led to increased management fee expenses of $0.1 million.

### Provision for Impairment

During the three months ended September 30, 2023, the Company recorded a $2.9 million impairment charge representing the provision for losses related to our income properties as further described in Note 7, “Provision for Impairment”. There were no impairment charges on the Company’s income property portfolio during the three months ended September 30, 2022.

### Depreciation and Amortization

Depreciation and amortization expense totaled $6.5 million and $5.8 million during the three months ended September 30, 2023 and 2022, respectively. The $0.7 million increase in the depreciation and amortization expense is reflective of the Company’s expanded property portfolio.

### Gain on Disposition of Assets

During the three months ended September 30, 2023, the Company sold eight properties for an aggregate sales price of $20.6 million, generating aggregate gains on sale of $2.6 million. During the three months ended September 30, 2022, the Company sold six properties for an aggregate sales price of $50.5 million, generating aggregate gains on sale of $11.6 million.

### Loss on Extinguishment of Debt

Simultaneous with the Company entering into the 2022 Amended and Restated Credit Agreement, the Company’s then-existing revolving credit facility (the “Prior Revolving Credit Facility”) was terminated, which resulted in $0.3 million of unamortized deferred financing costs written off during the three months ended September 30, 2022 with no such expense during the three months ended September 30, 2023.

### Investment and Other Income

Investment and other income totaled $0.1 million and less than $0.1 million during the three months ended September 30, 2023 and 2022, respectively. The increase is attributable to higher interest rates on bank deposits.

### Interest Expense

Interest expense totaled $2.4 million and $2.5 million during the three months ended September 30, 2023 and 2022, respectively. The $0.1 million decrease in interest expense is attributable to the lower average outstanding debt balance during the three months ended September 30, 2023. The impact of the lower average outstanding debt balance was partially offset by an overall increase in interest rates underlying the Company’s previously variable rate debt, which was entirely fixed as of March 1, 2023. The overall decrease in the Company’s long-term debt is primarily the result of paying down the outstanding debt balance through a combination of proceeds from stock issuances and funds from operations.

### Net Income

Net loss totaled $0.8 million and net income totaled $9.8 million during the three months ended September 30, 2023 and 2022, respectively. The $10.6 million decrease in net income is attributable to the factors described above, most notably the decrease in the gain on disposition of assets of $9.0 million.

### COMPARISON OF THE NINE MONTHS ENDED SEPTEMBER 30, 2023 AND 2022

The following presents the Company’s results of operations for the nine months ended September 30, 2023, as compared to the nine months ended September 30, 2022 (in thousands):

| ​ ​ ​ Revenues: | ​ ​ ​ ​ | ​ ​ Nine Months Ended September 30, 2023 ​ ​ | ​ ​ ​ | ​ ​ September 30, 2022 ​ ​ | ​ ​ ​ ​ | ​ ​ ​ $ Variance ​ ​ | ​ ​ ​ | ​ % Variance ​ |
| --- | --- | --- | --- | --- | --- | --- | --- | ---: |
| Lease Income | ​ | $33,951 | ​ | $33,599 | ​ | $352 | ​ | 1.0% |
| Interest Income from Commercial Loans and Investments | ​ | ​ 112 | ​ | ​ — | ​ | ​ 112 | ​ | 100.0% |
| Total Revenues | ​ | ​ 34,063 | ​ | ​ 33,599 | ​ | ​ 464 | ​ | 1.4% |
| Operating Expenses: | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ |
| Real Estate Expenses | ​ | ​ 4,731 | ​ | ​ 4,193 | ​ | ​ 538 | ​ | 12.8% |
| General and Administrative Expenses | ​ | ​ 4,823 | ​ | ​ 4,370 | ​ | ​ 453 | ​ | 10.4% |
| Provision for Impairment | ​ | ​ 2,864 | ​ | ​ — | ​ | ​ 2,864 | ​ | 100.0% |
| Depreciation and Amortization | ​ | ​ 19,286 | ​ | ​ 17,232 | ​ | ​ 2,054 | ​ | 11.9% |
| Total Operating Expenses | ​ | ​ 31,704 | ​ | ​ 25,795 | ​ | ​ 5,909 | ​ | 22.9% |
| Gain on Disposition of Assets | ​ | ​ 7,782 | ​ | ​ 27,248 | ​ | ​ (19,466) | ​ | (71.4)% |
| Gain (Loss) on Extinguishment of Debt | ​ | ​ 23 | ​ | ​ (284) | ​ | ​ 307 | ​ | 108.1% |
| Net Income from Operations | ​ | ​ 10,164 | ​ | ​ 34,768 | ​ | ​ (24,604) | ​ | (70.8)% |
| Investment and Other Income | ​ | ​ 226 | ​ | ​ 9 | ​ | ​ 217 | ​ | 2411.1% |
| Interest Expense | ​ | ​ (7,494) | ​ | ​ (6,347) | ​ | ​ 1,147 | ​ | 18.1% |
| Net Income | ​ | ​ 2,896 | ​ | ​ 28,430 | ​ | ​ (25,534) | ​ | (89.8)% |
| Less: Net Income Attributable to Noncontrolling Interest | ​ | ​ (314) | ​ | ​ (3,572) | ​ | ​ 3,258 | ​ | 91.2% |
| Net Income Attributable to Alpine Income Property Trust, Inc. | ​ | $2,582 | ​ | $24,858 | ​ | $(22,276) | ​ | (89.6)% |

### Lease Income and Real Estate Expenses

Revenue from our property operations during the nine months ended September 30, 2023 and 2022, totaled $34.0 million and $33.6 million, respectively. The $0.4 million increase in revenues is reflective of the Company’s volume of property acquisitions during the nine months ended September 30, 2023 and the year ended December 31, 2022, partially offset by property sales, during the same period. Real estate expenses totaled $4.7 million and $4.2 million for the nine months ended September 30, 2023 and 2022, respectively. The $0.5 million increase in real estate expenses is attributable to the Company’s property portfolio being subject to more expenses reimbursable by tenants.

### Commercial Loans and Investments

Interest income from commercial loans and investments totaled $0.1 million for the nine months ended September 30, 2023. The income is attributable to a construction loan originated by the Company during the nine months ended September 30, 2023. There were no commercial loans and investments generating interest income during the nine months ended September 30, 2022.

### General and Administrative Expenses

The following table represents the Company’s general and administrative expenses for the nine months ended September 30, 2023, as compared to the nine months ended September 30, 2022 (in thousands):

| ​ ​ ​ | ​ ​ ​ | ​ ​ Nine Months Ended September 30, 2023 | ​ ​ | ​ ​ September 30, 2022 | ​ ​ ​ | ​ ​ ​ ​ $ Variance | ​ ​ ​ | ​ ​ % Variance |
| --- | --- | --- | --- | --- | --- | --- | --- | ---: |
| Management Fee to Manager | ​ | $3,294 | ​ | $2,835 | **​** | $459 | ​ | 16.2% |
| Director Stock Compensation Expense | ​ | ​ 238 | ​ | ​ 236 | **​** | ​ 2 | ​ | 0.8% |
| Director & Officer Insurance Expense | ​ | ​ 187 | ​ | ​ 287 | ​ | ​ (100) | ​ | (34.8)% |
| Additional General and Administrative Expense | ​ | ​ 1,104 | ​ | ​ 1,012 | ​ | ​ 92 | ​ | 9.1% |
| Total General and Administrative Expenses | ​ | $4,823 | ​ | $4,370 | ​ | $453 | ​ | 10.4% |

General and administrative expenses totaled $4.8 million and $4.4 million during the nine months ended September 30, 2023 and 2022, respectively. The $0.4 million increase is attributable to growth in the Company’s equity base, which led to increased management fee expenses of $0.4 million.

### Provision for Impairment

During the nine months ended September 30, 2023, the Company recorded a $2.9 million impairment charge representing the provision for losses related to our income properties as further described in Note 7, “Provision for Impairment”. There were no impairment charges on the Company’s income property portfolio during the nine months ended September 30, 2022.

### Depreciation and Amortization

Depreciation and amortization expense totaled $19.3 million and $17.2 million during the nine months ended September 30, 2023 and 2022, respectively. The $2.1 million increase in the depreciation and amortization expense is reflective of the Company’s expanded property portfolio.

### Gain on Disposition of Assets

During the nine months ended September 30, 2023, the Company sold 22 properties for an aggregate sales price of $99.6 million, generating aggregate gains on sale of $7.8 million. During the nine months ended September 30, 2022, the Company sold 11 properties for an aggregate sales price of $123.3 million, generating aggregate gains on sale of $27.2 million.

### Gain (Loss) on Extinguishment of Debt

As a result of the termination of the Company’s Prior Revolving Credit Facility, $0.3 million of unamortized deferred financing costs were written off during the nine months ended September 30, 2022.

### Investment and Other Income

Investment and other income totaled $0.2 million and less than $0.1 million during the nine months ended September 30, 2023 and 2022, respectively. The increase is attributable to higher interest rates on bank deposits.

### Interest Expense

Interest expense totaled $7.5 million and $6.3 million during the nine months ended September 30, 2023 and 2022, respectively. The $1.2 million increase in interest expense is attributable to the overall increase in the interest rates underlying the Company’s previously variable rate debt, which was entirely fixed as of March 1, 2023. The impact of the overall rate increase was partially offset by a lower average outstanding debt balance during the nine months ended September 30, 2023. The overall decrease in the Company’s long-term debt is primarily the result of paying down the outstanding debt balance through a combination of proceeds from stock issuances and funds from operations.

### Net Income

Net income totaled $2.6 million and $24.9 million during the nine months ended September 30, 2023 and 2022, respectively. The $22.3 million decrease in net income is attributable to the factors described above, most notably the decrease in the gain on disposition of assets of $19.5 million.

### LIQUIDITY AND CAPITAL RESOURCES

Cash totaled $17.4 million as of September 30, 2023, including restricted cash of $11.2 million. See Note 2 “Summary of Significant Accounting Policies” under the heading Restricted Cash for the Company’s disclosure related to its restricted cash balance as of September 30, 2023.

*Long-Term Debt.* As of September 30, 2023, the Company had an outstanding balance of $50.0 million on the $250 million revolving Credit Facility. The Company also had $200.0 million in term loans outstanding as of September 30, 2023. See Note 11, “Long-Term Debt” for the Company’s disclosure related to its long-term debt balance at September 30, 2023.

*Acquisitions and Dispositions.* As further described in Note 3, “Property Portfolio,” during the nine months ended September 30, 2023, the Company acquired 12 properties for total acquisition volume of $79.9 million, or $81.2 million including capitalized acquisition costs, and sold 22 properties for an aggregate sales price of $99.6 million, generating aggregate gains on sale of $7.8 million.

*ATM Program.* During the nine months ended September 30, 2023, the Company sold 665,929 shares under the 2022 ATM Program for gross proceeds of $12.6 million at a weighted average price of $18.96 per share, generating net proceeds of $12.4 million.

*Capital Expenditures.* As of September 30, 2023, the Company had no commitments related to capital expenditures for the maintenance of fixed assets, such as land, buildings, and equipment. The Company is committed to fund the construction loan as described in Note 4, “Commercial Loans and Investments”. The unfunded portion of the construction loan totaled $0.9 million as of September 30, 2023.

We believe we will have sufficient liquidity to fund our operations, capital requirements, maintenance, and debt service requirements over the next twelve months and into the foreseeable future, with cash on hand, cash flow from our operations, proceeds from the completion of the sale of assets utilizing the reverse like-kind 1031 exchange structure, $109.5 million of availability remaining under the 2022 ATM Program, and $200.0 million of available capacity on the existing $250.0 million Credit Facility.

The Board and management consistently review the allocation of capital with the goal of providing the best long-term risk-adjusted returns for our stockholders. These reviews consider various alternatives, including increasing or decreasing regular dividends, repurchasing the Company’s securities, and retaining funds for reinvestment. Annually, the Board reviews our business plan and corporate strategies, and makes adjustments as circumstances warrant. Management’s focus is to continue our strategy of investing in net leased properties by utilizing capital that we raise, proceeds from recent property sales, and available borrowing capacity from the Credit Facility to increase our portfolio of income-producing properties, providing stabilized cash flows with strong risk-adjusted returns primarily in larger metropolitan areas and growth markets.

### Non-GAAP Financial Measures

Our reported results are presented in accordance with GAAP. We also disclose FFO and AFFO, both of which are non-GAAP financial measures. We believe these two non-GAAP financial measures are useful to investors because they are widely accepted industry measures used by analysts and investors to compare the operating performance of REITs.

FFO and AFFO do not represent cash generated from operating activities and are not necessarily indicative of cash available to fund cash requirements; accordingly, they should not be considered alternatives to net income as a performance measure or cash flows from operations as reported on our statement of cash flows as a liquidity measure and should be considered in addition to, and not in lieu of, GAAP financial measures.

We compute FFO in accordance with the definition adopted by the Board of Governors of the National Association of Real Estate Investment Trusts, or NAREIT. NAREIT defines FFO as GAAP net income or loss adjusted to exclude extraordinary items (as defined by GAAP), net gain or loss from sales of depreciable real estate assets, impairment write-downs associated with depreciable real estate assets and real estate related depreciation and amortization, including the pro rata share of such adjustments of unconsolidated subsidiaries. To derive AFFO, we modify the NAREIT computation of FFO to include other adjustments to GAAP net income related to non-cash revenues and expenses such as loss on extinguishment of debt, amortization of above- and below-market lease related intangibles, straight-line rental revenue, amortization of deferred financing costs, non-cash compensation, and other non-cash income or expense. Such items may cause short-term fluctuations in net income but have no impact on operating cash flows or long-term operating performance. We use AFFO as one measure of our performance when we formulate corporate goals.

FFO is used by management, investors and analysts to facilitate meaningful comparisons of operating performance between periods and among our peers primarily because it excludes the effect of real estate depreciation and amortization and net gains or losses on sales, which are based on historical costs and implicitly assume that the value of real estate diminishes predictably over time, rather than fluctuating based on existing market conditions. We believe that AFFO is an additional useful supplemental measure for investors to consider because it will help them to better assess our operating performance without the distortions created by other non-cash revenues or expenses. FFO and AFFO may not be comparable to similarly titled measures employed by other companies.

### Reconciliation of Non-GAAP Measures (in thousands, except share data):

| ​ ​ ​ | ​ ​ ​ | ​ ​ Three Months Ended September 30, 2023 | ​ ​ | ​ ​ September 30, 2022 | ​ ​ ​ | ​ ​ Nine Months Ended September 30, 2023 | ​ ​ | ​ ​ September 30, 2022 |
| --- | --- | --- | --- | --- | --- | --- | --- | --- |
| Net Income (Loss) | ​ | $(939) | ​ | $11,170 | ​ | $2,896 | ​ | $28,430 |
| Depreciation and Amortization | ​ | ​ 6,528 | ​ | ​ 5,866 | ​ | ​ 19,286 | ​ | ​ 17,232 |
| Provision for Impairment | ​ | ​ 2,864 | ​ | ​ — | ​ | ​ 2,864 | ​ | ​ — |
| Gain on Disposition of Assets | ​ | ​ (2,586) | ​ | ​ (11,611) | ​ | ​ (7,782) | ​ | ​ (27,248) |
| Funds From Operations | ​ | $5,867 | ​ | $5,425 | ​ | $17,264 | ​ | $18,414 |
| Adjustments: | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ |
| (Gain) Loss on Extinguishment of Debt | ​ | ​ — | ​ | ​ 284 | ​ | ​ (23) | ​ | ​ 284 |
| Amortization of Intangible Assets and Liabilities to Lease Income | ​ | ​ (110) | ​ | ​ (78) | ​ | ​ (299) | ​ | ​ (248) |
| Straight-Line Rent Adjustment | ​ | ​ (112) | ​ | ​ (209) | ​ | ​ (386) | ​ | ​ (737) |
| COVID-19 Rent Repayments | ​ | ​ — | ​ | ​ — | ​ | ​ — | ​ | ​ 45 |
| Non-Cash Compensation | ​ | ​ 79 | ​ | ​ 79 | ​ | ​ 238 | ​ | ​ 236 |
| Amortization of Deferred Financing Costs to Interest Expense | ​ | ​ 179 | ​ | ​ 150 | ​ | ​ 530 | ​ | ​ 407 |
| Other Non-Cash Expense | ​ | ​ 29 | ​ | ​ 25 | ​ | ​ 86 | ​ | ​ 72 |
| Adjusted Funds From Operations | ​ | $5,932 | ​ | $5,676 | ​ | $17,410 | ​ | $18,473 |
| ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ |
| Weighted Average Number of Common Shares: | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ |
| Basic | ​ | ​ 13,946,194 | ​ | ​ 11,888,171 | ​ | ​ 14,001,774 | ​ | ​ 11,799,151 |
| Diluted | ​ | ​ 15,649,688 | ​ | ​ 13,591,665 | ​ | ​ 15,705,268 | ​ | ​ 13,502,645 |

### Other Data (in thousands, except per share data):

| ​ ​ ​ | ​ ​ ​ | ​ ​ Three Months Ended September 30, 2023 | ​ ​ | ​ ​ September 30, 2022 | ​ ​ ​ | ​ ​ Nine Months Ended September 30, 2023 | ​ ​ | ​ ​ September 30, 2022 |
| --- | --- | ---: | --- | ---: | --- | ---: | --- | ---: |
| FFO | ​ | $5,867 | ​ | $5,425 | ​ | $17,264 | ​ | $18,414 |
| FFO per Diluted Share | ​ | $0.37 | ​ | $0.40 | ​ | $1.10 | ​ | $1.36 |
| ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ |
| AFFO | ​ | $5,932 | ​ | $5,676 | ​ | $17,410 | ​ | $18,473 |
| AFFO per Diluted Share | ​ | $0.38 | ​ | $0.42 | ​ | $1.11 | ​ | $1.37 |

### OFF-BALANCE SHEET ARRANGEMENTS

None.

### CRITICAL ACCOUNTING ESTIMATES

Critical accounting estimates include those estimates made in accordance with GAAP that involve a significant level of estimation uncertainty and have had or are reasonably likely to have a material impact on the Company’s financial condition or results of operations. Our most significant estimate is as follows:

*Purchase Accounting for Acquisitions of Real Estate Subject to a Lease.* As required by GAAP, the fair value of the real estate acquired with in-place leases is allocated to the acquired tangible assets, consisting of land, building and tenant improvements, and identified intangible assets and liabilities, consisting of the value of above-market and below-market leases, the value of in-place leases, and the value of leasing costs, based in each case on their relative fair values. In allocating the fair value of the identified intangible assets and liabilities of an acquired property, above-market and below-market in-place lease values are recorded as other assets or liabilities based on the present value. The assumptions underlying the allocation of relative fair values are based on market information including, but not limited to: (i) the estimate of replacement cost of improvements under the cost approach, (ii) the estimate of land values based on comparable sales under the sales comparison approach, and (iii) the estimate of future benefits determined by either a reasonable rate of return over a single year’s net cash flow, or a forecast of net cash flows projected over a reasonable investment horizon under the income capitalization approach. The underlying assumptions are subject to uncertainty and thus any changes to the allocation of fair value to each of the various line items within the Company’s consolidated balance sheets could have an impact on the Company’s financial condition as well as results of operations due to resulting changes in depreciation and amortization as a result of the fair value allocation. The acquisitions of real estate subject to this estimate totaled 12 properties for a combined purchase price of $79.9 million for the nine months ended September 30, 2023 and 44 properties for a combined purchase price of $145.7 million for the nine months ended September 30, 2022.

See Note 2, “Summary of Significant Accounting Policies”, for further discussion of the Company’s accounting estimates and policies.

## Market risk

As filed, 207 characters.

We are a smaller reporting company as defined in Item 10(f)(1) of Regulation S-K. As a result, pursuant to Item 305(e) of Regulation S-K, we are not required to provide the information required by this Item.

## Controls and procedures

As filed, 1,474 characters.

As of the end of the period covered by this report, an evaluation, as required by Rules 13(a)-15 and 15(d)-15 of the Securities Exchange Act of 1934 (the “Exchange Act”) was carried out under the supervision and with the participation of the Company’s management, including the Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), of the effectiveness of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) or 15d-15(e) of the Exchange Act). Based on that evaluation, the CEO and CFO have concluded that the design and operation of the Company’s disclosure controls and procedures are effective to ensure that information required to be disclosed by the Company in reports that it files or submits under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in SEC rules and forms, and to provide reasonable assurance that information required to be disclosed by the Company in such reports is accumulated and communicated to the Company’s management, including its CEO and CFO, as appropriate to allow timely decisions regarding required disclosure. There were no changes in the Company’s internal control over financial reporting (as defined in Rules 13a-15(f) or 15d-15(f) under the Exchange Act) during the three months ended September 30, 2023, that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

## Risk factors

As filed, 12,183 characters.

The following risk factors should be read in conjunction with the risk factors from those set forth under the heading Part I, “Item 1A. Risk Factors” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022 (the “Form 10-K”). The risks described below and in the Form 10-K are not the only risks facing the Company. Additional risks and uncertainties not currently known to the Company or that the Company currently deems to be immaterial also may materially adversely affect the Company.

***A part of our investment strategy is focused on investing in commercial loans and investments which may involve credit risk.***

We have invested in a single commercial loan secured by commercial real estate and may from time to time in the future opportunistically invest in additional commercial loans secured by commercial real estate or similar financings secured by real estate. Investments in commercial loans or similar financings of real estate involve credit risk with regard to the borrower, the borrower’s operations and the real estate that secures the financing. The credit risks include, but are not limited to, the ability of the borrower to execute their business plan and strategy, the ability of the borrower to sustain and/or improve the operating results generated by the collateral property, the ability of the borrower to continue as a going concern, and the risk associated with the market or industry in which the collateral property is utilized. Our evaluation of the investment opportunity in a mortgage loan or similar financing includes these elements of credit risk as well as other underwriting criteria and factors. Further, we may rely on third party resources to assist us in our investment evaluation process and otherwise in conducting customary due diligence. Our underwriting of the investment or our estimates of credit risk may not prove to be accurate, as actual results may vary from our estimates. In the event we underestimate the performance of the borrower and/or the underlying real estate which secures our commercial loan or financing, we may experience losses or unanticipated costs regarding our investment and our financial condition, results of operations, and cash flows may be adversely impacted.

***Our origination or acquisition of construction loans exposes us to an increased risk of loss.***

We may originate or acquire construction loans. If we fail to fund our entire commitment on a construction loan or if a borrower otherwise fails to complete the construction of a project, there could be adverse consequences associated with the loan, including, but not limited to: a loss of the value of the property securing the loan, especially if the borrower is unable to raise funds to complete construction from other sources; a borrower claim against us for failure to perform under the loan documents; increased costs to the borrower that the borrower is unable to pay; a bankruptcy filing by the borrower; and abandonment by the borrower of the collateral for the loan. A borrower default on a construction loan where the property has not achieved completion poses a greater risk than a conventional loan, as completion would be required before the property is able to generate revenue. The process of foreclosing on a property is time-consuming, and we may incur significant expense if we foreclose on a property securing a loan under these or other circumstances.

***Our investments in construction loans will require us to make estimates about the fair value of land improvements that may be challenged by the IRS.***

We have invested and may in the future invest in construction loans, the interest from which will be qualifying income for purposes of the REIT income tests, provided that the loan value of the real property securing the construction loan is equal to or greater than the highest outstanding principal amount of the construction loan during any taxable year. For purposes of construction loans, the loan value of the real property is the fair value of the land plus the reasonably estimated cost of the improvements or developments (other than personal property) that will secure the loan and that are to be constructed from the proceeds of the loan. There can be no assurance that the IRS would not challenge our estimate of the loan value of the real property.

***We may invest in fixed-rate loan investments, and an increase in interest rates may adversely affect the value of these investments, which could adversely impact our financial condition, results of operations and cash flows.***

Increases in interest rates may negatively affect the market value of our investments, particularly any fixed-rate commercial loans or other financings we have invested in. Generally, any fixed-rate commercial loans or other financings will be more negatively affected by rising interest rates than adjustable-rate assets. Reductions in the fair value of our investments could decrease the amounts we may borrow to purchase additional commercial loans or similar financing investments, which could impact our ability to increase our operating results and cash flows. Furthermore, if our borrowing costs are rising while our interest income is fixed for the fixed-rate investments, the spread between our borrowing costs and the fixed-rate we earn on the commercial loans or similar financing investments will contract or could become negative which would adversely impact our financial condition, results of operations, and cash flows.

***The commercial loans or similar financings we have acquired and may acquire in the future that are secured by commercial real estate typically depend on the ability of the property owner to generate income from operating the property. Failure to do so may result in delinquency and/or foreclosure.***

Commercial loans are secured by commercial property and are subject to risks of delinquency and foreclosure and therefore risk of loss. The ability of a borrower to repay a loan secured by an income-producing property typically is dependent primarily upon the successful operation of such property rather than upon the existence of independent income or assets of the borrower. If the net operating income of the property is reduced, the borrower’s ability to repay the loan may be impaired. In the event of any default under a commercial loan held directly by us, we will bear a risk of loss of principal to the extent of any deficiency between the value of the collateral and the principal and accrued interest of the commercial loan, which could have a material adverse effect on our financial condition, operating results and cash flows. In the event of the bankruptcy of a commercial loan borrower, the mortgage loan to such borrower will be deemed to be secured only to the extent of the value of the underlying collateral at the time of bankruptcy (as determined by the bankruptcy court), and the lien securing the loan will be subject to the avoidance powers of the bankruptcy trustee or debtor-in-possession to the extent the lien is unenforceable under state law. Foreclosure of a loan can be an expensive and lengthy process, which could have a substantial negative effect on our anticipated return on the foreclosed commercial loan. If the borrower is unable to repay a mortgage loan or similar financing, our inability to foreclose on the asset in a timely manner, and/or our inability to obtain value from reselling or otherwise disposing of the asset for an amount equal to our investment basis, would adversely impact our financial condition, results of operations, and cash flows.

***The activities or actions of a third-party servicer engaged to service our investment in a commercial loan or similar debt financing could adversely impact the value of our investment or our results of operations and cash flows.***

Any future investments in first mortgages or other debt financings secured by real estate may require a third-party servicer to service the loan on our behalf and/or on behalf of third parties who have invested in some portion of the debt financing. An intended or unintended breach by the servicer with regard to their servicing of the debt financing or in their contractual obligations and fiduciary duties to us or the other holders of the debt financing could adversely impact the value of our investment or our results of operations and cash flows.

***We may suffer losses when a borrower defaults on a loan and the value of the underlying collateral is less than the amount due.***

If a borrower defaults on a non-recourse loan, we will only have recourse to the real estate-related assets collateralizing the loan. If the underlying collateral value is less than the loan amount, we will suffer a loss. Conversely, commercial loans we invest in may be unsecured or be secured only by equity interests in the borrowing entities. These loans are subject to the risk that other lenders in the capital stack may be directly secured by the real estate assets of the borrower or may otherwise have a superior right to repayment. Upon a default, those collateralized lenders would have priority over us with respect to the proceeds of a sale of the underlying real estate. In such cases, we may lack control over the underlying asset collateralizing our loan or the underlying assets of the borrower before a default and, as a result, the value of the collateral may be reduced by acts or omissions by owners or managers of the assets.

Commercial loans we may invest in may be backed by individual or corporate guarantees from borrowers or their affiliates which guarantees are not secured. If the guarantees are not fully or partially secured, we typically rely on financial covenants from borrowers and guarantors which are designed to require the borrower or guarantor to maintain certain levels of creditworthiness. Should we not have recourse to specific collateral pledged to satisfy such guarantees or recourse loans, we will have recourse as an unsecured creditor only to the general assets of the borrower or guarantor, some or all of which may be pledged as collateral for other lenders. There can be no assurance that a borrower or guarantor will comply with its financial covenants, or that sufficient assets will be available to pay amounts owed to us under our loans and guarantees. Because of these factors, we may suffer additional losses which could have a material adverse effect on our financial condition, operating results and cash flows.

Upon a borrower bankruptcy, we may not have full recourse to the assets of the borrower to satisfy our loan. Additionally, in some instances, our loans may be subordinate to other debt of certain borrowers. If a borrower defaults on our loan or on debt senior to our loan, or a borrower files for bankruptcy, our loan will be satisfied only after the senior debt receives payment. Where debt senior to our loan exists, the presence of inter-creditor arrangements may limit our ability to amend our loan documents, assign our loans, accept prepayments, exercise our remedies (through “standstill” periods), and control decisions made in bankruptcy proceedings. Bankruptcy and borrower litigation can significantly increase collection costs and the time needed for us to acquire title to the underlying collateral (if applicable), during which time the collateral and/or a borrower’s financial condition may decline in value, causing us to suffer additional losses.

If the value of collateral underlying a loan declines, or interest rates increase during the term of a loan, a borrower may not be able to obtain the necessary funds to repay our loan at maturity through refinancing because the underlying property revenue cannot satisfy the debt service coverage requirements necessary to obtain new financing. If a borrower is unable to repay our loan at maturity, we could suffer additional loss which may adversely impact our financial condition, operating results and cash flows.

As a result of any of the above factors or events, the losses we may suffer could adversely impact our financial condition, results of operations and cash flows.

Filed Oct 19, 2023.
Source: SEC EDGAR, the filing index for accession 0001558370-23-016543. Last ingested by Listed: Nov 2, 2026, 06:59 ET. No prices; not investment advice.