Attached files

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EX-32.2 - EX-32.2 - Alpine Income Property Trust, Inc.pine-20200930ex32242ae43.htm
EX-32.1 - EX-32.1 - Alpine Income Property Trust, Inc.pine-20200930ex3214582ed.htm
EX-31.2 - EX-31.2 - Alpine Income Property Trust, Inc.pine-20200930ex312781b48.htm
EX-31.1 - EX-31.1 - Alpine Income Property Trust, Inc.pine-20200930ex311d3dc0f.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549


FORM 10-Q


QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2020

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                      to                    

Commission file number 001-39143


ALPINE INCOME PROPERTY TRUST, INC.

(Exact name of registrant as specified in its charter)


Maryland

    

84-2769895

(State or other jurisdiction of

(I.R.S. Employer

incorporation or organization)

Identification No.)

1140 N. Williamson Blvd., Suite 140

Daytona Beach, Florida

32114

(Address of principal executive offices)

(Zip Code)

(386) 274-2202

(Registrant’s telephone number, including area code)

N/A

(Former name, former address and former fiscal year, if changed since last report)


Securities registered pursuant to Section 12(b) of the Act:

Title of each class:

    

Trading Symbol

    

Name of each exchange on which registered:

COMMON STOCK, $0.01 PAR VALUE

PINE

NYSE

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.   Yes  ☒    No  ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).   Yes  ☒    No  ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large Accelerated Filer

Accelerated Filer

Non-accelerated Filer

  

Smaller Reporting Company

Emerging Growth Company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☒

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).   Yes  ☐    No  ☒

The number of shares of the registrant’s common stock outstanding on October 23, 2020 was 7,458,755.


INDEX

Page

    

No.

PART I—FINANCIAL INFORMATION

Item 1.     Financial Statements

3

Consolidated Balance Sheets – September 30, 2020 (Unaudited) and December 31, 2019

3

Consolidated and Combined Statements of Operations – Three and nine months ended September 30, 2020 and 2019 (Unaudited)

4

Consolidated and Combined Statements of Comprehensive Income – Three and nine months ended September 30, 2020 and 2019 (Unaudited)

5

Consolidated and Combined Statements of Stockholders’ Equity – Three and nine months ended September 30, 2020 and 2019 (Unaudited)

6

Consolidated and Combined Statements of Cash Flows – Nine months ended September 30, 2020 and 2019 (Unaudited)

7

Notes to Consolidated and Combined Financial Statements (Unaudited)

9

Item 2.     Management’s Discussion and Analysis of Financial Condition and Results of Operations

30

Item 3. Quantitative and Qualitative Disclosures About Market Risk

43

Item 4.     Controls and Procedures

43

PART II—OTHER INFORMATION

44

Item 1.     Legal Proceedings

44

Item 1A.  Risk Factors

44

Item 2.     Unregistered Sales of Equity Securities and Use of Proceeds

49

Item 3.     Defaults Upon Senior Securities

49

Item 4.     Mine Safety Disclosures

49

Item 5.     Other Information

49

Item 6.     Exhibits

50

SIGNATURES

51

2


PART I—FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

ALPINE INCOME PROPERTY TRUST, INC.

CONSOLIDATED BALANCE SHEETS

As of

(Unaudited)
September 30,
2020

    

December 31,
2019

ASSETS

Real Estate:

Land, at cost

$

78,623,631

$

54,386,511

Building and Improvements, at cost

131,761,540

74,070,181

Total Real Estate, at cost

210,385,171

128,456,692

Less, Accumulated Depreciation

(4,717,615)

(416,235)

Real Estate—Net

205,667,556

128,040,457

Cash and Cash Equivalents

1,885,906

12,341,978

Intangible Lease Assets—Net

35,007,647

22,357,633

Straight-Line Rent Adjustment

1,735,570

68,016

Deferred Expenses

577,272

Other Assets

1,372,908

787,317

Total Assets

$

245,669,587

$

164,172,673

LIABILITIES AND EQUITY

Liabilities:

Accounts Payable, Accrued Expenses, and Other Liabilities

$

2,892,550

$

1,471,722

Prepaid Rent and Deferred Revenue

1,131,678

87,481

Intangible Lease Liabilities—Net

2,910,877

1,908,193

Long-Term Debt

87,853,998

Total Liabilities

94,789,103

3,467,396

Commitments and Contingencies

Equity:

Alpine Income Property Trust, Inc. Stockholders' Equity:

Preferred Stock, $0.01 par value per share, 100 million shares authorized, no shares issued and outstanding as of September 30, 2020 and December 31, 2019, respectively

Common Stock, $0.01 par value per share, 500 million shares authorized, 7,455,281 shares issued and outstanding as of September 30, 2020 and 7,902,737 shares issued and outstanding December 31, 2019

79,115

79,027

Additional Paid-in Capital

133,105,087

137,947,575

Dividends in Excess of Net Income

(4,992,404)

(497,508)

Accumulated Other Comprehensive Loss

(618,563)

Stockholders' Equity

127,573,235

137,529,094

Noncontrolling Interest

23,307,249

23,176,183

Total Equity

150,880,484

160,705,277

Total Liabilities and Equity

$

245,669,587

$

164,172,673

The accompanying notes are an integral part of these consolidated and combined financial statements.

3


ALPINE INCOME PROPERTY TRUST, INC.

CONSOLIDATED AND COMBINED STATEMENTS OF OPERATIONS

(Unaudited)

Three Months Ended

Nine Months Ended

September 30, 2020

September 30, 2019

September 30, 2020

September 30, 2019

The Company

Predecessor

The Company

Predecessor

Revenues:

Lease Income

$

5,100,803

$

3,379,595

$

13,862,514

$

9,426,482

Total Revenues

5,100,803

3,379,595

13,862,514

9,426,482

Operating Expenses:

Real Estate Expenses

553,482

386,965

1,703,955

1,138,539

General and Administrative Expenses

1,119,807

564,251

3,535,608

1,415,330

Depreciation and Amortization

2,694,778

1,429,640

7,003,602

3,946,794

Total Operating Expenses

4,368,067

2,380,856

12,243,165

6,500,663

Gain on Disposition of Assets

287,375

287,375

Net Income from Operations

1,020,111

998,739

1,906,724

2,925,819

Interest Expense

384,360

976,648

Net Income

635,751

998,739

930,076

2,925,819

Less: Net Income Attributable to Noncontrolling Interest

(89,648)

(131,066)

Net Income Attributable to Alpine Income Property Trust, Inc.

$

546,103

$

998,739

$

799,010

$

2,925,819

Per Common Share Data:

Net Income Attributable to Alpine Income Property Trust, Inc.

Basic

$

0.07

N/A

$

0.10

N/A

Diluted

$

0.06

N/A

$

0.09

N/A

Weighted Average Number of Common Shares:

Basic

7,455,281

N/A

7,632,660

N/A

Diluted

8,679,135

N/A

8,856,514

N/A

Dividends Declared and Paid

$

0.20

N/A

$

0.60

N/A

The accompanying notes are an integral part of these consolidated and combined financial statements.

4


ALPINE INCOME PROPERTY TRUST, INC.

CONSOLIDATED AND COMBINED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)

Three Months Ended

Nine Months Ended

September 30, 2020

    

September 30, 2019

September 30, 2020

    

September 30, 2019

The Company

Predecessor

The Company

Predecessor

Net Income Attributable to Alpine Income Property Trust, Inc.

$

546,103

$

998,739

$

799,010

$

2,925,819

Other Comprehensive Income (Loss)

Cash Flow Hedging Derivative - Interest Rate Swap

28,319

(618,563)

Total Other Comprehensive Income (Loss)

28,319

(618,563)

Total Comprehensive Income (Loss)

$

574,422

$

998,739

$

180,447

$

2,925,819

The accompanying notes are an integral part of these consolidated and combined financial statements.

5


ALPINE INCOME PROPERTY TRUST, INC.

CONSOLIDATED AND COMBINED STATEMENTS OF STOCKHOLDERS’ EQUITY

(Unaudited)

For the three months ended September 30, 2020:

    

Predecessor Equity

    

Common Stock at Par

    

Additional Paid-in Capital

    

Dividends in Excess of Net Income

Accumulated Other Comprehensive Loss

    

Stockholders' Equity

    

Noncontrolling Interest

    

Total Equity

The Company

Balance July 1, 2020

$

$

79,081

$

133,037,076

$

(3,802,680)

$

(646,882)

$

128,666,595

$

23,217,601

$

151,884,196

Net Income

546,103

546,103

89,648

635,751

Stock Issuance to Directors

34

68,011

68,045

68,045

Cash Dividend ($0.20 per share)

(1,735,827)

(1,735,827)

(1,735,827)

Other Comprehensive Income

28,319

28,319

28,319

Balance September 30, 2020

$

$

79,115

$

133,105,087

$

(4,992,404)

$

(618,563)

$

127,573,235

$

23,307,249

$

150,880,484

For the three months ended September 30, 2019:

    

Predecessor Equity

    

Common Stock at Par

    

Additional Paid-in Capital

    

Dividends in Excess of Net Income

    

Accumulated Other Comprehensive Loss

Stockholders' Equity

    

Noncontrolling Interest

    

Total Equity

Predecessor

Balance July 1, 2019

$

141,550,624

$

$

$

$

$

141,550,624

$

$

141,550,624

Net Income

998,739

998,739

998,739

Stock Compensation Expense from CTO Realty Growth, Inc.

166,778

166,778

166,778

Net Transactions with CTO Realty Growth, Inc.

4,861,774

4,861,774

4,861,774

Balance September 30, 2019

$

147,577,915

$

$

$

$

$

147,577,915

$

$

147,577,915

For the nine months ended September 30, 2020:

    

Predecessor Equity

    

Common Stock at Par

    

Additional Paid-in Capital

    

Dividends in Excess of Net Income

Accumulated Other Comprehensive Loss

    

Stockholders' Equity

    

Noncontrolling Interest

    

Total Equity

The Company

Balance January 1, 2020

$

$

79,027

$

137,947,575

$

(497,508)

$

$

137,529,094

$

23,176,183

$

160,705,277

Net Income

799,010

799,010

131,066

930,076

Stock Repurchase

(5,013,684)

(5,013,684)

(5,013,684)

Stock Issuance to Directors

88

171,196

171,284

171,284

Cash Dividend ($0.60 per share)

(5,293,906)

(5,293,906)

(5,293,906)

Other Comprehensive Loss

(618,563)

(618,563)

(618,563)

Balance September 30, 2020

$

$

79,115

$

133,105,087

$

(4,992,404)

$

(618,563)

$

127,573,235

$

23,307,249

$

150,880,484

For the nine months ended September 30, 2019:

    

Predecessor Equity

    

Common Stock at Par

    

Additional Paid-in Capital

    

Dividends in Excess of Net Income

    

Accumulated Other Comprehensive Loss

Stockholders' Equity

    

Noncontrolling Interest

    

Total Equity

Predecessor

Balance January 1, 2019

$

124,189,096

$

$

$

$

$

124,189,096

$

$

124,189,096

Net Income

2,925,819

2,925,819

2,925,819

Stock Compensation Expense from CTO Realty Growth, Inc.

438,603

438,603

438,603

Net Transactions with CTO Realty Growth, Inc.

20,024,397

20,024,397

20,024,397

Balance September 30, 2019

$

147,577,915

$

$

$

$

$

147,577,915

$

$

147,577,915

The accompanying notes are an integral part of these consolidated and combined financial statements.

6


ALPINE INCOME PROPERTY TRUST, INC.

CONSOLIDATED AND COMBINED STATEMENTS OF CASH FLOWS

(Unaudited)

Nine Months Ended

September 30, 2020

September 30, 2019

The Company

Predecessor

Cash Flow from Operating Activities:

Net Income

$

930,076

$

2,925,819

Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities:

Depreciation and Amortization

7,003,602

3,946,794

Amortization of Intangible Assets and Liabilities to Lease Income

(76,853)

(193,018)

Loan Cost Amortization Included in Interest Expense

132,327

Amortization of Deferred Expenses to Lease Income

226,823

Gain on Disposition of Property, Plant, and Equipment

(287,375)

Non-Cash Compensation

171,284

438,603

Decrease (Increase) in Assets:

Straight-Line Rent Adjustment

(1,236,699)

(335,982)

COVID-19 Deferred Rent

(538,351)

Deferred Expenses

(411)

Other Assets

(589,098)

(92,413)

Increase (Decrease) in Liabilities:

Accounts Payable, Accrued Expenses, and Other Liabilities

802,265

119,645

Prepaid Rent and Deferred Revenue

1,044,197

(7,216)

Net Cash Provided By Operating Activities

7,355,375

7,028,644

Cash Flow from Investing Activities:

Acquisition of Real Estate

(100,735,751)

(27,001,032)

Proceeds from Disposition of Property, Plant, and Equipment

4,932,951

Net Cash Used In Investing Activities

(95,802,800)

(27,001,032)

Cash Flow from Financing Activities:

Draws on Credit Facility

95,000,000

Payments on Credit Facility

(6,691,146)

Repurchase of Common Stock

(5,013,684)

Net Transactions with CTO Realty Growth, Inc.

20,024,397

Cash Paid for Loan Fees

(9,911)

Dividends Paid

(5,293,906)

Net Cash Provided By Financing Activities

77,991,353

20,024,397

Net Increase (Decrease) in Cash

(10,456,072)

52,009

Cash, Beginning of Period

12,341,978

8,258

Cash, End of Period

$

1,885,906

$

60,267

The accompanying notes are an integral part of these consolidated and combined financial statements.

7


ALPINE INCOME PROPERTY TRUST, INC.

CONSOLIDATED AND COMBINED STATEMENTS OF CASH FLOWS (Continued)

(Unaudited)

Supplemental Disclosure of Cash Flows:

Interest totaling approximately $809,000 was paid during the nine months ended September 30, 2020. No interest was paid during the nine months ended September 30, 2019. No interest was capitalized during the nine months ended September 30, 2020 or 2019.

During April 2020, the Company entered into an Interest Rate Swap (hereinafter defined in Note 10, “Interest Rate Swap”) agreement to hedge cash flows tied to changes in the underlying floating interest rate tied to London Interbank Offered Rate (“LIBOR”) for $50 million of the outstanding balance on the Credit Facility as discussed in Note 9, “Long-Term Debt.” During the nine months ended September 30, 2020, the Interest Rate Swap value decreased by approximately $619,000. This non-cash transaction is reflected as an increase in accounts payable, accrued expenses, and other liabilities and as a decrease in accumulated other comprehensive loss on the accompanying consolidated balance sheets as of September 30, 2020.

8


NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (UNAUDITED)

NOTE 1. BUSINESS AND ORGANIZATION

BUSINESS

Alpine Income Property Trust, Inc. (the “Company” or “PINE”) is a real estate company that owns and operates a high-quality portfolio of single-tenant commercial properties. The terms “us,” “we,” “our,” and “the Company” as used in this report refer to Alpine Income Property Trust, Inc. together with our consolidated subsidiaries.

 

Our portfolio consists of 45 single-tenant, primarily net leased retail and office properties located in 32 markets in 17 states. All of the properties in our portfolio are subject to long-term, primarily triple-net leases, which generally require the tenant to pay all of the property operating expenses such as real estate taxes, insurance, assessments and other governmental fees, utilities, repairs and maintenance and certain capital expenditures.

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 Realty Growth, Inc. (our “Manager”). CTO Realty Growth, Inc. (NYSE American: CTO) is a Florida corporation that is a publicly traded, diversified real estate operating company and the sole member of our Manager (“CTO”).

COVID-19 PANDEMIC

In March 2020, the World Health Organization declared the outbreak of the novel coronavirus as a pandemic (the “COVID-19 Pandemic”), which has spread throughout the United States. The spread of the COVID-19 Pandemic has continued to cause significant volatility in the U.S. and international markets, and in many industries, business activity has experienced periods of almost complete shutdown. There continues to be uncertainty around the duration and severity of business disruptions related to the COVID-19 Pandemic, as well as its impact on the U.S. economy and international economies.

The Company collected 100% of the Contractual Base Rent due for the three months ended September 30, 2020. Contractual Base Rent (“CBR”) represents the amount owed to the Company under the current terms of its lease agreements. The Company has previously agreed to defer or abate certain CBRs in exchange for additional lease term or other lease enhancing additions that equated to approximately 6% of contractual rents. Additionally, the portfolio remains 100% occupied as of September 30, 2020. In general, the repayment of the deferred CBR began in the third quarter of 2020, with ratable payments continuing, in some cases, through the end of 2021. The Company has not yet reached an agreement with a tenant responsible for approximately 2% of CBR due during the three months ended June 30, 2020, however, this tenant has made 100% of its CBR payments due for the three months ended September 30, 2020. See Note 17, “Subsequent Events” for the Company’s disclosure related to October 2020 rent collections.

An assessment of the current or identifiable potential financial and operational impacts on the Company as a result of the COVID-19 Pandemic are as follows:

When the pandemic was declared, given the uncertainties created by the COVID-19 Pandemic and the impact on the capital markets, the U.S. economy, and PINE’s tenants, the Company temporarily suspended its activities directed at identifying additional acquisition opportunities. Towards the end of the second quarter of 2020, the Company reached agreements with tenants for rent deferrals and abatements and the Company completed the acquisition of two properties for an aggregate purchase price of approximately $28.6 million. During the third quarter of 2020, the Company completed the acquisition of fifteen properties for an aggregate purchase price of approximately $23.9 million, for total year-to-date acquisitions of approximately $99.3 million.

As a result of the outbreak of the COVID-19 Pandemic, the federal government and the State of Florida issued orders encouraging everyone to remain at their residence and not go into work. In response to these orders and in the best interest of our Manager’s employees and our directors, our Manager implemented significant preventative

9


measures to ensure the health and safety of its employees and our Board of Directors (the “Board”), including: conducting all meetings of our Board and Committees of the Board telephonically or via a visual conferencing service, permitting its employees to work from home at their election, enforcing appropriate social distancing practices in our Manager’s office, encouraging its employees to wash their hands often and use face masks and providing hand sanitizer and other disinfectant products throughout their office, requiring its employees who do not feel well, in any capacity, to stay at home, and requiring all third-party delivery services (e.g. mail, food delivery, etc.) to complete their service outside the front door of its offices. Our Manager also offered COVID-19 testing to its employees in our Manager’s office to ensure a safe working environment.

ORGANIZATION

 

The Company is a Maryland corporation that was formed on August 19, 2019. On November 26, 2019, the Company closed its initial public offering (“IPO”) of shares of its common stock (the “Offering”) as well as a concurrent private placement of shares of common stock to CTO. Net proceeds from the Offering and the concurrent CTO Private Placement (defined below) were used to purchase 15 single-tenant properties from CTO. Additionally, CTO contributed to Alpine Income Property OP, LP, the Company’s operating partnership (the “Operating Partnership”), five additional single-tenant properties in exchange for operating partnership units (“OP Units”).

The price per share paid in the Offering and the concurrent private placement was $19.00 (the “IPO Price”). The Offering raised $142.5 million in gross proceeds from the issuance of 7,500,000 shares of our common stock. We also raised $7.5 million from the concurrent private placement to CTO from the issuance of 394,737 shares of our common stock (“CTO Private Placement”). Included in the $142.5 million Offering was CTO’s purchase of 421,053 shares of our common stock for $8.0 million, representing a cash investment by CTO of $15.5 million. Approximately $125.9 million of proceeds from the Offering were utilized to acquire 15 properties in our initial portfolio. The remaining five properties in our initial portfolio were contributed by CTO in exchange for 1,223,854 OP Units of the Operating Partnership for a value of approximately $23.3 million based on the IPO Price. The Company incurred a total of approximately $12.0 million of transaction costs, which included underwriting fees of approximately $9.4 million. Upon completion of the Offering, the concurrent CTO Private Placement, and the other transactions executed at the time of our listing on the New York Stock Exchange (the “NYSE”) under the symbol “PINE” (collectively defined as the “Formation Transactions”), CTO owned approximately 22.3% of our outstanding common stock (assuming the OP Units issued to CTO in the Formation Transactions are exchanged for shares of our common stock on a one-for-one basis).

We conduct the substantial majority of our operations through the Operating Partnership. Our wholly owned subsidiary, Alpine Income Property GP, LLC (“PINE GP”), is the sole general partner of the Operating Partnership. Substantially all of our assets are held by, and our operations are conducted through, the Operating Partnership. As of September 30, 2020, we have a total ownership interest in the Operating Partnership of approximately 85.9%, with CTO holding, directly and indirectly, a 14.1% ownership interest in the Operating Partnership. Our interest in the Operating Partnership generally entitles us to share in cash distributions from, and in the profits and losses of, the Operating Partnership in proportion to our percentage ownership. We, through PINE GP, generally have the exclusive power under the partnership agreement to manage and conduct the business and affairs of the Operating Partnership, subject to certain approval and voting rights of the limited partners. Our Board manages our business and affairs.

 

The Company has elected to be taxed as a real estate investment trust (“REIT”) for U.S. federal income tax purposes under the Internal Revenue Code of 1986, as amended (the “Internal Revenue Code”) commencing with its short taxable year beginning on November 26, 2019 and ending on December 31, 2019. To qualify as a REIT, the Company must meet certain organizational and operational requirements, including a requirement to distribute at least 90% of the Company’s annual REIT taxable income, without regard to the dividends paid deduction or net capital gain, to its stockholders (which is computed and which does not necessarily equal net income as calculated in accordance with generally accepted accounting principles). As a REIT, the Company is generally not subject to U.S. federal corporate income tax to the extent of its distributions to stockholders. If the Company fails to qualify as a REIT in any taxable year, the Company will be subject to U.S. federal income tax on its taxable income at regular corporate rates and generally will not be permitted to qualify for treatment as a REIT for the four taxable years following the year during which qualification is lost unless the Internal Revenue Service grants the Company relief under certain statutory provisions. Such an event could materially adversely affect the Company’s net income and net cash available for distribution to stockholders. Even if the Company

10


qualifies for taxation as a REIT, the Company may be subject to state and local taxes on its income and property and federal income and excise taxes on its undistributed income.

NOTE 2. BASIS OF PRESENTATION AND PRINCIPLES OF CONSOLIDATION

BASIS OF PRESENTATION

 

For the periods prior to November 26, 2019, the accompanying combined financial statements of Alpine Income Property Trust, Inc. Predecessor (the “Predecessor”) do not represent the financial position and results of operations of one legal entity, but rather a combination of entities under common control that have been “carved out” from CTO’s consolidated financial statements. Historically, financial statements of the Predecessor have not been prepared as it has not operated separately from CTO. These combined financial statements reflect the revenues and expenses of the Predecessor and include certain material assets and liabilities of CTO that are specifically identifiable and generated through, or associated with, an in-place net lease, which have been reflected at CTO’s historical basis.

 

For periods subsequent to November 26, 2019, the accompanying consolidated financial statements represent the consolidated statements of PINE together with our consolidated subsidiaries. As a result of the Company’s acquisitions of the initial portfolio from CTO, the consolidated financial statements subsequent to November 26, 2019 are presented on a new basis of accounting pursuant to Accounting Standards Codification (“ASC”) 805-10, Business Combinations.

 The accompanying unaudited consolidated and combined financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). These unaudited consolidated and combined financial statements do not include all of the information and notes required by accounting principles generally accepted in the United States of America (“GAAP”) for complete financial statements, and should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended December 31, 2019, which provides a more complete understanding of the Company’s accounting policies, financial position, operating results, business properties, and other matters. The unaudited consolidated and combined financial statements reflect all adjustments which are, in the opinion of management, necessary to present fairly the financial position of the Company and the results of operations for the interim periods. The results of operations for the three and nine months ended September 30, 2020 are not necessarily indicative of results to be expected for the year ending December 31, 2020.

The combined financial statements for the periods prior to November 26, 2019 include an allocation of general and administrative expenses to the Predecessor from CTO. In addition, general and administrative expenses include an allocation of the costs of certain CTO corporate functions, including executive oversight, treasury, finance, human resources, tax compliance and planning, internal audit, financial reporting, information technology, and investor relations. General and administrative expenses (including stock-based compensation) for periods prior to November 26, 2019 represent a pro rata allocation of costs from CTO based on the revenues of the Predecessor as a percentage of CTO’s total revenue. The Company believes the allocation methodology for general and administrative expenses for periods prior to November 26, 2019 is reasonable. However, the allocated general and administrative expense presented in our combined statements of operations for periods prior to November 26, 2019 does not necessarily reflect what our general and administrative expenses will be as a stand-alone public company for reporting periods subsequent to November 26, 2019. Additionally, most of the Predecessor entities included in CTO’s financial statements did not have separately established bank accounts for the periods presented, and most cash transactions were historically transacted through bank accounts owned by CTO. The combined statements of cash flows for the periods presented were prepared as if operating, investing, and financing transactions had been transacted through separate bank accounts of the Predecessor. The combined financial statements include, on a carve-out basis, the historical balance sheets, statements of operations, and cash flows attributed to the Predecessor.

11


PRINCIPLES OF CONSOLIDATION

 

For periods subsequent to November 26, 2019, the consolidated financial statements include the accounts of the Company, its wholly owned subsidiaries, and other entities in which we have a controlling interest. All inter-company balances and transactions have been eliminated in the consolidated financial statements. For periods prior to November 26, 2019, the combined financial statements include, on a carve-out basis, the historical balance sheets, statements of operations, and cash flows of the Predecessor.

NOTE 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS

 

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period presented. Actual results could differ from those estimates.

 

Among other factors, fluctuating market conditions that can exist in the national real estate markets and the volatility and uncertainty in the financial and credit markets make it possible that the estimates and assumptions, most notably those related to PINE’s investment in income properties, could change materially due to continued volatility in the real estate and financial markets, or as a result of a significant dislocation in those markets.

REAL ESTATE

 

The Company’s real estate assets are primarily comprised of the income properties in its portfolio, and are stated at cost, less accumulated depreciation and amortization. Such income properties are depreciated on a straight-line basis over their estimated useful lives. Renewals and betterments are capitalized to the applicable income property accounts. The cost of maintenance and repairs is expensed as incurred. The cost of property retired or otherwise disposed of, and the related accumulated depreciation or amortization, are removed from the accounts, and any resulting gain or loss is recorded in the statement of operations. The amount of depreciation of real estate, exclusive of amortization related to intangible assets, recognized for the three and nine months ended September 30, 2020 was approximately $1.7 million and $4.4 million, respectively. The amount of depreciation of real estate, exclusive of amortization related to intangible assets, recognized for the three and nine months ended September 30, 2019 was approximately $946,000 and $2.6 million, respectively.

LONG-LIVED ASSETS

 

The Company follows Financial Accounting Standards Board (“FASB”) ASC Topic 360-10, Property, Plant, and Equipment in conducting its impairment analyses. The Company reviews the recoverability of long-lived assets, primarily real estate, for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Examples of situations considered to be triggering events include: a substantial decline in operating cash flows during the period, a current or projected loss from operations, an income property not fully leased or leased at rates that are less than current market rates, and any other quantitative or qualitative events deemed significant by management. Long-lived assets are evaluated for impairment by using an undiscounted cash flow approach, which considers future estimated capital expenditures. Impairment of long-lived assets is measured at fair value less cost to sell.

PURCHASE ACCOUNTING FOR ACQUISITIONS OF REAL ESTATE SUBJECT TO A LEASE

 

Upon acquisition of real estate, the Company determines whether the transaction is a business combination, which is accounted for under the acquisition method, or an acquisition of assets. For both types of transactions, the Company recognizes and measures identifiable assets acquired, liabilities assumed and any noncontrolling interests in the acquiree based on their relative fair values. For business combinations, the Company recognizes and measures goodwill or gain from a bargain purchase, if applicable, and acquisition-related costs in the periods in which the costs are incurred. For acquisitions of assets, acquisition-related costs are capitalized on the Company's consolidated balance sheets. If the

12


Company acquires real estate and simultaneously enters into a new lease of the real estate, the acquisition will be accounted for as an asset acquisition.

 

In accordance with ASC 805-10, Business Combinations, 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.

 

The fair value of the tangible assets of an acquired leased property is determined by valuing the property as if it were vacant, and the “as-if-vacant” value is then allocated to land, building and tenant improvements based on the determination of the fair values of these assets.

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 (using an interest rate which reflects the risks associated with the leases acquired) of the difference between (i) the contractual amounts to be paid pursuant to the in-place leases, and (ii) management’s estimate of fair market lease rates for the corresponding in-place leases, measured over a period equal to the remaining term of the lease, including the probability of renewal periods. The capitalized above-market lease values are amortized as a reduction of rental income over the remaining terms of the respective leases. The capitalized below-market lease values are amortized as an increase to rental income over the initial term unless management believes that it is likely that the tenant will renew the lease upon expiration, in which case both the Company and the Predecessor amortize the value attributable to the renewal over the renewal period.

 

The aggregate value of other acquired intangible assets, consisting of in-place leases, is measured by the excess of (i) the purchase price paid for a property after adjusting existing in-place leases to market rental rates over (ii) the estimated fair value of the property as-if-vacant, determined as set forth above. The value of in-place leases and leasing costs, exclusive of the value of above-market and below-market in-place leases, is amortized to expense over the remaining non-cancelable periods of the respective leases. If a lease were to be terminated prior to its stated expiration, all unamortized amounts relating to that lease would be written off. The value of tenant relationships is reviewed on individual transactions to determine if future value was derived from the acquisition.

 

INCOME PROPERTY LEASE REVENUE

 

The rental arrangements associated with the Company’s income property portfolio are classified as operating leases. The Company recognizes lease income on these properties on a straight-line basis over the term of the lease. Accordingly, contractual lease payment increases are recognized evenly over the term of the lease. The periodic difference between lease income recognized under this method and contractual lease payment terms (i.e., straight-line rent) is recorded as a deferred operating lease receivable and is included in straight-line rent adjustment on the accompanying consolidated  balance sheets.

 

The collectability of tenant receivables and straight-line rent adjustments is determined based on, among other things, the aging of the tenant receivable, management’s evaluation of credit risk associated with the tenant and industry of the tenant, and a review of specifically identified accounts using judgment. As of September 30, 2020 and December 31, 2019, no allowance for doubtful accounts was required.

 

SALES TAX

 

Sales tax collected on lease payments is recognized as a liability in the accompanying consolidated balance sheets when collected. The liability is reduced at the time payment is remitted to the applicable taxing authority.

 

13


CASH AND CASH EQUIVALENTS

 

Cash and cash equivalents include cash on hand, bank demand accounts, and money market accounts having original maturities of 90 days or less. The Company’s bank balances as of September 30, 2020 and December 31, 2019 include certain amounts over the Federal Deposit Insurance Corporation limits. The carrying value of cash and cash equivalents is reported at Level 1 in the fair value hierarchy, which represents valuation based upon quoted prices in active markets for identical assets or liabilities.

DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGING ACTIVITY

Effective April 30, 2020, in conjunction with the variable-rate Credit Facility (hereinafter defined in Note 9, “Long-Term Debt”), the Company entered into an Interest Rate Swap to fix the interest rate on $50 million of the outstanding Credit Facility balance (the “Interest Rate Swap”). The Company accounts for its cash flow hedging derivative in accordance with FASB ASC Topic 815-20, Derivatives and Hedging. Depending upon the Interest Rate Swap’s value at each balance sheet date, the derivative is included in either other assets or accounts payable, accrued expenses, and other liabilities on the consolidated balance sheet at its fair value. On the date the Interest Rate Swap was entered into, the Company designated the derivative as a hedge of the variability of cash flows to be paid related to the recognized long-term debt liabilities.

The Company formally documented the relationship between the hedging instrument and the hedged item, as well as its risk-management objective and strategy for undertaking the hedge transaction. At the Interest Rate Swap’s inception, the Company formally assessed whether the derivative that is used in hedging the transaction is highly effective in offsetting changes in cash flows of the hedged item, and we will continue to do so on an ongoing basis. As the terms of the Interest Rate Swap and the associated debt are identical, the hedging instrument qualifies for the shortcut method, therefore, it is assumed that there is no hedge ineffectiveness throughout the entire term of the hedging instrument.

Changes in fair value of the hedging instrument that are highly effective and designated and qualified as cash-flow hedge are recorded in other comprehensive income and loss until earnings are affected by the variability in cash flows of the designated hedged item.

FAIR VALUE OF FINANCIAL INSTRUMENTS

The carrying amounts of the Company’s financial assets and liabilities including cash and cash equivalents, accounts receivable, accounts payable, and accrued expenses and other liabilities at September 30, 2020 and December 31, 2019, approximate fair value because of the short maturity of these instruments. The carrying value of the Credit Facility approximates current market rates for revolving credit arrangements with similar risks and maturities.

FAIR VALUE MEASUREMENTS

The Company’s estimates of fair value of financial and non-financial assets and liabilities is based on the framework established by GAAP. The framework specifies a hierarchy of valuation inputs which was established to increase consistency, clarity and comparability in fair value measurements and related disclosures. GAAP describes a fair value hierarchy based upon three levels of inputs that may be used to measure fair value, two of which are considered observable and one that is considered unobservable. The following describes the three levels:

Level 1 – Valuation is based upon quoted prices in active markets for identical assets or liabilities.

Level 2 – Valuation is based upon inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

14


Level 3 – Valuation is generated from model-based techniques that use at least one significant assumption not observable in the market. These unobservable assumptions reflect estimates of assumptions that market participants would use in pricing the asset or liability. Valuation techniques include option pricing models, discounted cash flow models and similar techniques.

EARNINGS PER COMMON SHARE

 

Basic earnings per common share is computed by dividing net income attributable to the Company for the period by the weighted average number of shares outstanding for the period. Diluted earnings per common share is based on the assumption that the OP Units issued to CTO in the Formation Transactions are exchanged for shares of our common stock on a one-for-one basis.

INCOME TAXES

 

The Company has elected to be taxed as a REIT for U.S. federal income tax purposes under the Internal Revenue Code commencing with its short taxable year beginning on November 26, 2019 and ending on December 31, 2019. The Company believes that, commencing with such short taxable year, it has been organized and has operated in such a manner as to qualify for taxation as a REIT under the U.S. federal income tax laws. The Company intends to continue to operate in such a manner. As a REIT, the Company will be subject to U.S. federal and state income taxation at corporate rates on its net taxable income; the Company, however, may claim a deduction for the amount of dividends paid to its stockholders. Amounts distributed as dividends by the Company will be subject to taxation at the stockholder level only. While the Company must distribute at least 90% of its REIT taxable income, determined without regard to the dividends paid deduction and excluding any net capital gain, to qualify as a REIT, the Company intends to distribute all of its net taxable income. The Company is allowed certain other non-cash deductions or adjustments, such as depreciation expense, when computing its REIT taxable income and distribution requirement. These deductions permit the Company to reduce its dividend payout requirement under U.S. federal income tax laws. Certain states may impose minimum franchise taxes. The Company may form one or more taxable REIT subsidiaries (“TRSs”), which will be subject to applicable U.S. federal, state and local corporate income tax on their taxable income. For the periods presented, the Company did not have any TRSs that would be subject to taxation.

STOCK-BASED COMPENSATION

 

The Company adopted the Individual Equity Incentive Plan (the “Individual Plan”) and the Manager Equity Incentive Plan (the “Manager Plan”), which are collectively referred to herein as the Equity Incentive Plans. The purpose of the Equity Incentive Plans is to provide equity incentive opportunities to members of the Manager’s management team and employees who perform services for the Company, the Company’s independent directors, advisers, consultants and other personnel, either individually or via grants of incentive equity to the Manager. The Equity Incentive Plans provide for grants of stock options, stock appreciation rights (“SARs”), stock awards, restricted stock units, cash awards, dividend equivalent rights, other equity-based awards, including long-term incentive plan units, and incentive awards. The Individual Plan is intended to provide a means through which the Company’s directors, officers, employees, consultants and advisors of the Company and its affiliates, as well as employees of the Manager and its affiliates who are providing services to the Company and its affiliates, can acquire and maintain an equity interest in the Company or be paid incentive compensation. The Manager Plan is intended to provide a means through which the Manager and its affiliates can acquire and maintain an equity interest in the Company, thereby strengthening their commitment to the welfare of the Company and aligning their interests with those of the Company’s stockholders.

A total of 684,494 shares of our common stock have been authorized for issuance under the Equity Incentive Plans. If an award granted under the Equity Incentive Plans expires, is forfeited or terminates, the shares of common stock subject to any portion of the award that expires, is forfeited or terminates without having been exercised or paid, as the case may be, will again become available for the issuance of additional awards. Shares of stock (i) surrendered or withheld in payment of the exercise price or taxes related to an award and (ii) covered by a SAR (without regard to the number of shares actually issued upon the exercise of such SAR) will not again be available for award under the Equity Incentive Plans. Unless previously terminated by the Board, no new award may be granted under the Equity Incentive Plans after November 18, 2029. The maximum aggregate compensation, including cash compensation and the grant date fair value of

15


awards granted under the Individual Plan, to a non-employee director will not exceed $300,000 in any single calendar year.

 Compensation cost is recognized on a straight-line basis over the vesting period and is included in general and administrative expenses in the Company’s consolidated and combined statements of operations. Award forfeitures, if any, are accounted for in the period in which they occur.

For the periods prior to November 26, 2019, Predecessor’s stock-based compensation expense, included in general and administrative expenses in the consolidated and combined statements of operations for the three and nine months ended September 30, 2019, reflected an allocation of a portion of the stock compensation expense of CTO for the applicable period.

 

CONCENTRATION OF CREDIT RISK

 

Certain of the tenants in the portfolio of 45 single-tenant properties accounted for more than 10% of total revenues during the nine months ended September 30, 2020 and 2019.

 

During the nine months ended September 30, 2020, the properties leased to Wells Fargo Bank, NA and Hilton Grand Vacations represented approximately 20% and 13% of total revenues, respectively. During the nine months ended September 30, 2019, the properties leased to Wells Fargo Bank, NA and Hilton Grand Vacations represented approximately 26% and 17% of total revenues, respectively.

 

As of September 30, 2020 and December 31, 2019, approximately 19% and 29%, respectively, of the Company’s real estate portfolio, based on square footage, was located in the State of Florida. As of September 30, 2020 and December 31, 2019, approximately 14% and 24%, respectively, of the Company’s real estate portfolio, based on square footage, was located in the State of Oregon. Additionally, as of September 30, 2020, individually more than 10% of the Company’s real estate portfolio, based on square footage, was located in the States of  North Carolina and Michigan. As of December 31, 2019, individually more than 10% of the Company’s real estate portfolio, based on square footage, was located in the States of Georgia and North Carolina. Uncertainty of the duration of a prolonged real estate and economic downturn could in any or all of these geographic areas have an adverse impact on the Company’s real estate values.

RECENTLY ISSUED ACCOUNTING STANDARDS

 

Lease Modifications. In April 2020, the FASB issued interpretive guidance relating to the accounting for lease concessions provided as a result of the COVID-19 Pandemic. In this guidance, entities can elect not to apply lease modification accounting with respect to such lease concessions and, instead, treat the concession as if it was a part of the existing contract. This guidance is only applicable to lease concessions related to the COVID-19 Pandemic that do not result in a substantial increase in the rights of the lessor or the obligations of the lessee. As of and for the nine months ended September 30, 2020, the Company elected to not apply lease modification accounting with respect to rent deferrals as the concessions were related to COVID-19 and there was not a substantial increase in the lessor’s rights under the lease agreement. Accordingly, for leases in which deferred rent agreements were reached, the Company has continued to account for the lease by recognizing the normal straight-line rental income and as the deferred rents are repaid by the tenant, the straight-line receivable will be reduced. The portion of the straight-line adjustment related to COVID-19 concessions has been reflected separately in the Company’s statement of cash flows for the nine months ended September 30, 2020. With respect to rent abatement agreements, lease modification accounting applies as an extended term was a part of such agreements, accordingly the Company re-calculated straight-line rental income for such leases to recognize over the new lease term.

ASC Topic 842, Leases. In February 2016, the FASB issued Accounting Standards Update (“ASU”)  2016-02, which requires entities to recognize assets and liabilities that arise from financing and operating leases and to classify those finance and operating lease payments in the financing or operating sections, respectively, of the statement of cash flows pursuant to FASB ASC Topic 842, Leases. The amendments in this update are effective for annual reporting periods beginning after December 15, 2018.

16


During the Company’s and Predecessor’s evaluation of FASB ASC Topic 842, Leases, the following practical expedients and accounting policies with respect to ASC 842 were elected and/or adopted effective January 1, 2019:

 

The Company, as lessor, will not reassess (i) whether any expired or existing contracts are or contain leases (ii) lease classification for any expired or existing leases or (iii) initial direct costs for any expired or existing leases.

The Company, as lessor, will not separate nonlease components from lease components and, instead, will account for each separate lease component and the nonlease components associated with that lease as a single component if the nonlease components otherwise would be accounted for under ASC Topic 606, Revenue from Contracts with Customers. The primary reason for this election is related to instances where common area maintenance is, or may be, a component of base rent within a lease agreement.

NOTE 4. INCOME PROPERTY PORTFOLIO

As of September 30, 2020, the Company’s income property portfolio consisted of 45 single-tenant properties with total square footage of approximately 1.5 million.

Leasing revenue consists of long-term rental revenue from retail and office income properties, which is recognized as earned, using the straight-line method over the life of each lease.

The components of leasing revenue are as follows:

Three Months Ended

    

Nine Months Ended

September 30, 2020

September 30, 2019

September 30, 2020

September 30, 2019

The Company
($000's)

Predecessor
($000's)

The Company
($000's)

Predecessor
($000's)

Leasing Revenue

Lease Payments

$

4,721

$

3,171

$

12,762

$

8,827

Variable Lease Payments

380

209

1,101

599

Total Leasing Revenue

$

5,101

$

3,380

$

13,863

$

9,426

Minimum Future Rental Receipts. Minimum future rental receipts under non-cancelable operating leases, excluding percentage rent and other lease payments that are not fixed and determinable, having remaining terms in excess of one year subsequent to September 30, 2020, are summarized as follows:  

 

Year Ending December 31,

    

Amounts
($000's)

Remainder of 2020

$

4,638

2021

19,753

2022

19,454

2023

19,488

2024

19,002

2025 and thereafter (cumulative)

86,309

Total

$

168,644

See Note 3, “Summary of Significant Accounting Policies” for the accounting treatment of potential lease modifications associated with tenant rent relief requests due to the COVID-19 Pandemic and Note 1, “Business and Organization” for the amount of such rent relief.

17


 2020 Activity. During the nine months ended September 30, 2020, the Company acquired twenty six single-tenant income properties for a purchase price of approximately $99.3 million, or an acquisition cost of approximately $100.3 million including capitalized acquisition costs. Of the total acquisition cost, approximately $25.8 million was allocated to land, approximately $59.7 million was allocated to buildings and improvements, approximately $16.1 million was allocated to intangible assets pertaining to the in-place lease value, leasing fees, and above market lease value, and approximately $1.3 million was allocated to intangible liabilities for the below market lease value. The weighted average amortization period for the intangible assets and liabilities was approximately 10.2 years at acquisition. 

The single-tenant net lease income properties acquired during the nine months ended September 30, 2020 are described below:

Tenant Description

Property Location

Date of Acquisition

Property Square-Feet

Purchase Price

Remaining Lease Term at Acquisition Date (in years)

7-Eleven

Austin, TX

1/13/2020

6,400

$

5,762,416

15.0

7-Eleven (1)

Georgetown, TX

1/13/2020

7,726

4,300,474

15.0

Conn's HomePlus

Hurst, TX

1/10/2020

37,957

6,100,000

11.6

Lehigh Gas Wholesale Services, Inc.

Highland Heights, KY

2/03/2020

2,578

4,250,000

10.8

American Multi-Cinema, Inc.

Tyngsborough, MA

2/19/2020

39,474

7,055,000

10.1

Hobby Lobby

Tulsa, OK

2/28/2020

84,180

12,486,334

10.8

Long John Silver's

Tulsa, OK

2/28/2020

3,000

263,666

N/A

Old Time Pottery

Orange Park, FL

2/28/2020

84,180

6,311,702

10.4

Freddy's Frozen Custard

Orange Park, FL

2/28/2020

3,200

303,298

6.8

Hobby Lobby

Arden, NC

6/24/2020

55,000

7,986,753

11.2

Walmart

Howell, MI

6/30/2020

214,172

20,590,000

6.6

Advanced Auto Parts

Severn, MD

9/14/2020

6,876

2,588,491

14.5

Dollar General

Heuvelton, NY

9/14/2020

9,342

1,461,580

12.1

Dollar General

Winthrop, NY

9/14/2020

9,167

1,588,975

11.0

Dollar General

Salem, NY

9/14/2020

9,199

1,484,824

13.0

Dollar General

Harrisville, NY

9/14/2020

9,309

1,466,305

13.3

Dollar General

Newtonsville, OH

9/14/2020

9,290

1,164,116

9.7

Dollar General

Hammond, NY

9/14/2020

9,219

1,383,938

12.3

Dollar General

Barker, NY

9/14/2020

9,275

1,438,956

13.2

Dollar General

Chazy, NY

9/14/2020

9,277

1,672,816

11.0

Dollar General

Milford, ME

9/21/2020

9,128

1,605,840

13.1

Dollar General

Limestone, ME

9/21/2020

9,167

1,455,766

13.1

Dollar General

Bingham, ME

9/21/2020

9,345

1,522,453

13.1

Dollar General

Willis, TX

9/23/2020

9,138

1,774,233

14.9

Dollar General

Somerville, TX

9/23/2020

9,252

1,472,062

14.8

Dollar General

Odessa, TX

9/30/2020

9,127

1,792,349

14.8

Total / Weighted Average

673,978

$

99,282,347

10.8


(1)Cash rent has not yet commenced on this lease, although control of the property has been transferred to the tenant. Cash rent on this property is expected to commence following the completion of certain tenant improvements. See Note 16, “Commitments and Contingencies” for further disclosure.

On September 25, 2020, the Company sold its single-tenant income property, classified as held for sale as of June 30, 2020, leased to Outback Steakhouse located in Charlottesville, Virginia, for a sales price of approximately $5.1 million, reflecting an exit cap rate of approximately 5.8%. The Company’s gain on the sale was approximately $287,000, or $0.03 per diluted share.

2019 Predecessor Activity. During the nine months ended September 30, 2019, the Predecessor acquired five single-tenant net lease income properties for an aggregate purchase price of approximately $26.8 million, or an aggregate acquisition cost of approximately $27.0 million including capitalized acquisition costs. Of the total acquisition cost, approximately $10.0 million was allocated to land, approximately $13.8 million was allocated to buildings and improvements, approximately $3.6 million was allocated to intangible assets pertaining to the in-place lease value, leasing fees, and above market lease value, and approximately $0.4 million was allocated to intangible liabilities for the below

18


market lease value. The weighted average amortization period for the intangible assets and liabilities was approximately 10.6 years at acquisition.

The single-tenant net lease income properties acquired during the nine months ended September 30, 2019 are described below:

Tenant Description

Property Location

Date of Acquisition

Property Square-Feet

Purchase Price

Remaining Lease Term at Acquisition Date (in years)

Hobby Lobby

Winston-Salem, NC

5/16/2019

55,000

$

8,075,000

10.9

Walgreens

Birmingham, AL

6/05/2019

14,516

5,500,000

9.8

Family Dollar

Lynn, MA

6/07/2019

9,228

2,100,000

4.8

Walgreens

Albany, GA

6/21/2019

14,770

3,634,000

13.6

Live Nation Entertainment, Inc.

East Troy, WI

8/30/2019

N/A

(1)

7,500,000

10.6

Total / Weighted Average

93,514

$

26,809,000

10.4


(1)The Alpine Valley Music Theatre, leased to Live Nation Entertainment, Inc., is an entertainment venue consisting of a two-sided, open-air, 7,500-seat pavilion; an outdoor amphitheater with a capacity for 37,000; and over 150 acres of green space.

There were no income properties disposed of during the nine months ended September 30, 2019.

NOTE 5. FAIR VALUE OF FINANCIAL INSTRUMENTS

The following table presents the carrying value and estimated fair value of the Company’s financial instruments at September 30, 2020 and December 31, 2019:

September 30, 2020

December 31, 2019

    

Carrying
Value

    

Estimated Fair Value

    

Carrying
Value

    

Estimated Fair Value

Cash and Cash Equivalents - Level 1

$

1,885,906

$

1,885,906

$

12,341,978

$

12,341,978

Long-Term Debt - Level 2

$

87,853,998

$

87,853,998

$

$

The estimated fair values are not necessarily indicative of the amount the Company could realize on disposition of the financial instruments. The use of different market assumptions or estimation methodologies could have a material effect on the estimated fair value amounts.

The following table presents the fair value of assets measured on a recurring basis by Level as of September 30, 2020. There were no assets or liabilities measured on a recurring basis by Level as of December 31, 2019.

Fair Value at Reporting Date Using

Quoted Prices in

Significant

Active Markets

Significant Other

Unobservable

for Identical

Observable Inputs

Inputs

    

9/30/2020

    

Assets (Level 1)

    

(Level 2)

    

(Level 3)

Interest Rate Swap

$

(618,563)

$

$

(618,563)

$

19


NOTE 6. INTANGIBLE ASSETS AND LIABILITIES

Intangible assets and liabilities consist 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 fair values. Intangible assets and liabilities consisted of the following as of September 30, 2020 and December 31, 2019:

As of

September 30, 2020

December 31, 2019

Intangible Lease Assets:

Value of In-Place Leases

$

25,104,956

$

14,479,323

Value of Above Market In-Place Leases

2,186,801

1,625,325

Value of Intangible Leasing Costs

10,795,962

6,544,079

Sub-total Intangible Lease Assets

38,087,719

22,648,727

Accumulated Amortization

(3,080,072)

(291,094)

Sub-total Intangible Lease Assets—Net

35,007,647

22,357,633

Intangible Lease Liabilities:

Value of Below Market In-Place Leases

(3,189,862)

(1,933,416)

Sub-total Intangible Lease Liabilities

(3,189,862)

(1,933,416)

Accumulated Amortization

278,985

25,223

Sub-total Intangible Lease Liabilities—Net

(2,910,877)

(1,908,193)

Total Intangible Assets and Liabilities—Net

$

32,096,770

$

20,449,440

The following table reflects the net amortization of intangible assets and liabilities during the three and nine months ended September 30, 2020 and 2019:

 

Three Months Ended

Nine Months Ended

September 30, 2020

September 30, 2019

September 30, 2020

September 30, 2019

The Company

Predecessor

The Company

Predecessor

Depreciation and Amortization Expense

$

1,036,771

$

454,715

$

2,644,623

$

1,256,582

Increase to Income Properties Revenue

(28,679)

(68,106)

(76,853)

(193,018)

Net Amortization of Intangible Assets and Liabilities

$

1,008,092

$

386,609

$

2,567,770

$

1,063,564

The estimated future amortization expense (income) related to net intangible assets and liabilities is as follows:

 

Future Accretion

Net Future

Future

to Income

Amortization of

Amortization

Property

Intangible Assets

Year Ending December 31,

    

Expense

    

Revenue

    

and Liabilities

Remainder of 2020

$

1,094,053

$

(27,919)

$

1,066,134

2021

4,376,214

(111,676)

4,264,538

2022

4,376,214

(111,676)

4,264,538

2023

4,376,214

(111,676)

4,264,538

2024

4,145,681

(100,345)

4,045,336

2025 and thereafter

14,644,595

(452,909)

14,191,686

Total

$

33,012,971

$

(916,201)

$

32,096,770

As of September 30, 2020, the weighted average amortization period of both the total intangible assets and liabilities was approximately 9.1 years.

20


NOTE 7. OTHER ASSETS

Other assets consisted of the following:

 

As of

September 30, 2020

December 31, 2019

Tenant Receivables

$

189,122

$

Accrued Unbilled Tenant Receivables

576,203

Prepaid Insurance (1)

62,835

498,999

Deposits on Acquisitions

125,000

200,000

Prepaid and Deposits - Other

419,748

88,318

Total Other Assets

$

1,372,908

$

787,317


(1)As of September 30, 2020 and December 31, 2019, includes prepaid insurance for property, general liability, and director and officers.

NOTE 8. ACCOUNTS PAYABLE, ACCRUED EXPENSES, AND OTHER LIABILITIES

As of

September 30, 2020

December 31, 2019

Accounts Payable

$

274,574

$

462,524

Accrued Expenses

1,999,413

311,342

Dividend Payable (1)

70,984

Accrual for Tenant Improvement

626,872

Interest Rate Swap

618,563

Total Accounts Payable, Accrued Expenses, and Other Liabilities

$

2,892,550

$

1,471,722


(1)As of December 31, 2019, includes the dividends declared and payable of $0.058 per share on the 1,223,854 OP Units due to CTO.

NOTE 9. LONG-TERM DEBT

As of September 30, 2020, the Company’s outstanding indebtedness, at face value, was as follows:

 

Face Value Debt

Stated Interest Rate

Maturity Date

Credit Facility

$

88,308,854

30-Day LIBOR +
1.35% - 1.95%
(1)

November 2023

Total Debt/Weighted-Average Rate

$

88,308,854

1.69%


(1)Effective April 30, 2020, the Company utilized an Interest Rate Swap to achieve a fixed interest rate of 0.48% plus the applicable spread on approximately $50 million of the outstanding balance on the Credit Facility.

Credit Facility. On November 26, 2019, the Company and the Operating Partnership entered into a credit agreement (the “Credit Agreement”) with a group of lenders for a senior unsecured revolving credit facility (the “Credit Facility”) in the maximum aggregate initial original principal amount of up to $100 million and includes an accordion feature that may allow the Operating Partnership to increase the availability under the Credit Facility by an additional $50 million, subject to meeting specified requirements and obtaining additional commitments from lenders. BMO Capital Markets Corp. and Raymond James Bank, N.A. are joint lead arrangers and joint bookrunners, with Bank of Montreal (“BMO”) as administrative agent. The Credit Facility has a base term of four years, with the ability to extend the base term for one year. 

On October 16, 2020, the Company executed the second amendment to the Credit Facility (the “Second Amendment”), with the addition of two lenders, Huntington National Bank and Truist Bank, respectively. As a result of the Second Amendment, the Credit Facility has a total borrowing capacity of $150 million with the ability to increase that capacity up to $200 million during the term, utilizing an accordion feature, subject to lender approval.

21


Pursuant to the Credit Agreement, the indebtedness outstanding under the Credit Facility accrues at a rate ranging from the 30-day LIBOR plus 135 basis points to the 30-day LIBOR plus 195 basis points, based on the total balance outstanding under the Credit Facility as a percentage of the total asset value of the Operating Partnership, as defined in the Credit Agreement.

 The Operating Partnership is subject to customary restrictive covenants under the Credit Facility, including, but not limited to, limitations on the Operating Partnership’s ability to: (a) incur indebtedness; (b) make certain investments; (c) incur certain liens; (d) engage in certain affiliate transactions; and (e) engage in certain major transactions such as mergers. The Credit Facility also contains financial covenants covering the Operating Partnership, including but not limited to, tangible net worth and fixed charge coverage ratios. In addition, the Operating Partnership is subject to additional financial maintenance covenants as described in the Credit Agreement. On June 30, 2020, the Company and the Operating Partnership entered into the first amendment to the Credit Agreement with the lenders whereby the tangible net worth covenant was adjusted to be more reflective of market terms.

 

At September 30, 2020, the current commitment level under the Credit Facility was $100 million and the Company had an outstanding balance of $88.3 million. With the increase in the commitment level on October 16, 2020 to $150 million, the available borrowing capacity under the Credit Facility, which was limited based on the level of borrowing base assets, was $46.5 million.

Long-term debt as of September 30, 2020 and December 31, 2019 consisted of the following: 

September 30, 2020

December 31, 2019

    

Total

    

Due Within One Year

 

Total

    

Due Within One Year

Credit Facility

$

88,308,854

$

$

$

Loan Costs, net of accumulated amortization

(454,856)

Total Long-Term Debt

$

87,853,998

$

$

$

Payments applicable to reduction of principal amounts as of September 30, 2020 will be required as follows:

Year Ending December 31,

    

Amount

Remainder of 2020

$

2021

2022

2023

88,308,854

2024

2025 and thereafter

Total Long-Term Debt - Face Value

$

88,308,854

As of September 30, 2020, the Company’s long-term debt includes initial deferred financing costs of approximately $604,000, net of accumulated amortization, of approximately $149,000. These costs are amortized on a straight-line basis over the term of the Credit Facility and are included in interest expense in the Company’s accompanying consolidated and combined statements of operations. As of December 31, 2019, these costs were reflected as deferred expenses on the accompanying consolidated balance sheets as there was no outstanding debt as of December 31, 2019.

22


The following table reflects a summary of interest expense incurred and paid during the three and nine months ended September 30, 2020 and 2019:

Three Months Ended

Nine Months Ended

September 30, 2020

September 30, 2019

September 30, 2020

September 30, 2019

    

The Company
($000's)

    

Predecessor
($000's)

The Company
($000's)

    

Predecessor
($000's)

Interest Expense

$

340

$

$

845

$

Amortization of Loan Costs

44

132

Total Interest Expense

$

384

$

$

977

$

Total Interest Paid

$

308

$

$

809

$