Ben Reynolds and the editorial team at Sure Dividend have just launched a new monthly advisory service entitled Top 10 REITs. Here, we continue a 5-part series that counts down their initial five favorite REITs.
Real estate investment trusts — or REITs, for short — can be fantastic securities for generating meaningful portfolio income. REITs widely offer higher dividend yields than the average stock.
The Top 10 REITs service ranks more than 110 REITs every month and analyzes the Top 10 REIT buys with 4%+ yields based on expected total returns and safety.
Read Top REITs Part 1: Four Corners Property Trust here…
Read Top REITs Part 2: CareTrust REIT here…
Alpine Income Property Trust (PINE) — our 3rd top-ranked REIT — is a real estate investment trust (REIT) that owns and operates a high-quality portfolio of commercial net lease properties.
Its portfolio consists of 71 net leased retail and office properties located in 49 markets in 22 states. It was formed as recently as August of 2019, has no employees, and is externally managed by Alpine Income Property Manager. The manager is owned by the publicly traded trust CTO Realty Growth (CTO), which also owns 22.3% of Alpine’s common stock.
In the second quarter, total revenues grew 44% over last year’s quarter thanks to the trust’s acquisition spree since its inception. In the first half of the year, the trust acquired 23 income properties for a combined purchase price of $103.2 million. Thanks to economies of scale and lower total costs after its manager’s fees, adjusted funds from operations (AFFO) per share grew by a massive 144%, to $3.9 million.
At the end of the quarter, the trust’s Weighted-Average Remaining Lease Term was 8.0 years and was 100% occupied. For the full year, management expects AFFO/share of $1.38 to $1.48. We expect AFFO/share at the higher end of this range, given the trust’s explosive results.
Despite the pandemic, Alpine has raised its dividend 22% this year and thus it is offering a 5.3% dividend yield. Interest coverage ratio is low, at 1.7. However, given the healthy payout ratio of 68%, the reliable cash flows backed by multi-year leases and growth potential, the dividend should be considered safe in the absence of a prolonged crisis.
A large portion of rental income comes from solid tenants. Wells Fargo (WFC), Hilton Hotels (HLT), and Dollar General (DG) comprise 11%, 9%, and 7% of total rental income for Alpine, respectively.
As Alpine Income Property Trust was formed in 2019, it does not have a historical track record. However, its financials have been growing at a very rapid pace quarter after quarter. The trust has achieved approximately 150% accretive portfolio growth since its inception.
Its current growth drivers include its acquisition spree, which takes place at extremely low-cost financing (Alpine just borrowed $60 million with a 5-year term at just 2.16%), as well as rent escalations. About 45% of its annualized base rent is subject to rent escalations.
While the trust’s ongoing growth trajectory points towards high growth ahead, we have assumed 7.0% growth of AFFO per share over the next five years, just to be on the safe side, given the short history of the trust.
Based on expected 2021 FFO per share of $1.48, the REIT trades for a price-to-FFO ratio of just over 12.6. Our fair value estimate for this trust is a price-to-FFO ratio (P/FFO) of 12.6. A contracting P/FFO multiple could reduce shareholder returns by 0.1% per year over the next five years.
Moreover, we expect annual growth of FFO per share of 7.0%, while the REIT has a 5.3% dividend yield. We expect total annual returns of 11.6% per year over the next five years.
