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Table of Contents

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, 2021

OR

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 14, 2021 was 11,303,142.

Table of Contents

INDEX

Page

    

No.

PART I—FINANCIAL INFORMATION

Item 1.     Financial Statements

3

Consolidated Balance Sheets – September 30, 2021 (Unaudited) and December 31, 2020

3

Consolidated Statements of Operations – Three and nine months ended September 30, 2021 and 2020 (Unaudited)

4

Consolidated Statements of Comprehensive Income – Three and nine months ended September 30, 2021 and 2020 (Unaudited)

5

Consolidated Statements of Stockholders’ Equity – Three and nine months ended September 30, 2021 and 2020 (Unaudited)

6

Consolidated Statements of Cash Flows – Nine months ended September 30, 2021 and 2020 (Unaudited)

7

Notes to Consolidated Financial Statements (Unaudited)

9

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

29

Item 3. Quantitative and Qualitative Disclosures About Market Risk

38

Item 4.     Controls and Procedures

38

PART II—OTHER INFORMATION

38

Item 1.     Legal Proceedings

38

Item 1A.  Risk Factors

38

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

41

Item 3.     Defaults Upon Senior Securities

41

Item 4.     Mine Safety Disclosures

41

Item 5.     Other Information

41

Item 6.     Exhibits

42

SIGNATURES

43

2

Table of Contents

PART I—FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

ALPINE INCOME PROPERTY TRUST, INC.

CONSOLIDATED BALANCE SHEETS

(In thousands, except share and per share data)

As of

(Unaudited) September 30, 2021

    

December 31, 2020

ASSETS

Real Estate:

Land, at cost

$

133,329

$

83,210

Building and Improvements, at cost

231,328

142,679

Total Real Estate, at cost

364,657

225,889

Less, Accumulated Depreciation

(13,249)

(6,550)

Real Estate—Net

351,408

219,339

Cash and Cash Equivalents

6,706

1,894

Restricted Cash

600

Intangible Lease Assets—Net

52,685

36,881

Straight-Line Rent Adjustment

2,013

2,045

Other Assets

2,909

2,081

Total Assets

$

416,321

$

262,240

LIABILITIES AND EQUITY

Liabilities:

Accounts Payable, Accrued Expenses, and Other Liabilities

$

2,393

$

1,984

Prepaid Rent and Deferred Revenue

1,334

1,055

Intangible Lease Liabilities—Net

4,998

3,299

Long-Term Debt

190,195

106,809

Total Liabilities

198,920

113,147

Commitments and Contingencies—See Note 15

Equity:

Preferred Stock, $0.01 par value per share, 100 million shares authorized, no shares issued and outstanding as of September 30, 2021 and December 31, 2020

Common Stock, $0.01 par value per share, 500 million shares authorized, 11,299,548 shares issued and outstanding as of September 30, 2021 and 7,458,755 shares issued and outstanding as of December 31, 2020

113

75

Additional Paid-in Capital

198,019

132,878

Dividends in Excess of Net Income

(11,652)

(5,713)

Accumulated Other Comprehensive Income (Loss)

328

(481)

Stockholders' Equity

186,808

126,759

Noncontrolling Interest

30,593

22,334

Total Equity

217,401

149,093

Total Liabilities and Equity

$

416,321

$

262,240

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

3

Table of Contents

ALPINE INCOME PROPERTY TRUST, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited, in thousands, except share, per share and dividend data)

Three Months Ended

Nine Months Ended

September 30, 2021

September 30, 2020

September 30, 2021

September 30, 2020

Revenues:

Lease Income

$

8,171

$

5,101

$

20,658

$

13,863

Total Revenues

8,171

5,101

20,658

13,863

Operating Expenses:

Real Estate Expenses

914

555

2,389

1,705

General and Administrative Expenses

1,371

1,119

3,687

3,535

Depreciation and Amortization

4,308

2,694

10,914

7,003

Total Operating Expenses

6,593

4,368

16,990

12,243

Gain on Disposition of Assets

544

287

544

287

Net Income from Operations

2,122

1,020

4,212

1,907

Interest Expense

1,066

384

2,299

977

Net Income

1,056

636

1,913

930

Less: Net Income Attributable to Noncontrolling Interest

(138)

(90)

(251)

(131)

Net Income Attributable to Alpine Income Property Trust, Inc.

$

918

$

546

$

1,662

$

799

Per Common Share Data:

Net Income Attributable to Alpine Income Property Trust, Inc.

Basic

$

0.08

$

0.07

$

0.18

$

0.10

Diluted

$

0.07

$

0.06

$

0.16

$

0.09

Weighted Average Number of Common Shares:

Basic

11,299,548

7,455,281

9,253,090

7,632,660

Diluted

12,996,503

8,679,135

10,637,934

8,856,514

Dividends Declared and Paid

$

0.255

$

0.20

$

0.745

$

0.60

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

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ALPINE INCOME PROPERTY TRUST, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited, in thousands)

Three Months Ended

Nine Months Ended

September 30, 2021

    

September 30, 2020

September 30, 2021

    

September 30, 2020

Net Income Attributable to Alpine Income Property Trust, Inc.

$

918

$

546

$

1,662

$

799

Other Comprehensive Income (Loss)

Cash Flow Hedging Derivative - Interest Rate Swaps

148

28

809

(619)

Total Other Comprehensive Income (Loss)

148

28

809

(619)

Total Comprehensive Income

$

1,066

$

574

$

2,471

$

180

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

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ALPINE INCOME PROPERTY TRUST, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(Unaudited, in thousands, except per share data)

For the three months ended September 30, 2021:

    

Common Stock at Par

    

Additional Paid-in Capital

    

Dividends in Excess of Net Income

Accumulated Other Comprehensive Income (Loss)

    

Stockholders' Equity

    

Noncontrolling Interest

    

Total Equity

Balance July 1, 2021

$

113

$

197,978

$

(9,689)

$

180

$

188,582

$

29,858

$

218,440

Net Income

918

918

138

1,056

Stock Issuance to Directors

79

79

79

Stock Issuance, Net of Equity Issuance Costs

(38)

(38)

(38)

Operating Units Issued

1,031

1,031

Cash Dividend ($0.255 per share)

(2,881)

(2,881)

(434)

(3,315)

Other Comprehensive Income

148

148

148

Balance September 30, 2021

$

113

$

198,019

$

(11,652)

$

328

$

186,808

$

30,593

$

217,401

For the three months ended September 30, 2020:

Common Stock at Par

    

Additional Paid-in Capital

    

Dividends in Excess of Net Income

    

Accumulated Other Comprehensive Income (Loss)

Stockholders' Equity

    

Noncontrolling Interest

    

Total Equity

Balance July 1, 2020

    

$

79

$

133,038

$

(3,313)

$

(647)

$

129,157

$

22,727

$

151,884

Net Income

546

546

90

636

Stock Issuance to Directors

68

68

68

Cash Dividend ($0.20 per share)

(1,492)

(1,492)

(244)

(1,736)

Other Comprehensive Income

28

28

28

Balance September 30, 2020

$

79

$

133,106

$

(4,259)

$

(619)

$

128,307

$

22,573

$

150,880

For the nine months ended September 30, 2021:

Common Stock at Par

    

Additional Paid-in Capital

    

Dividends in Excess of Net Income

Accumulated Other Comprehensive Income (Loss)

    

Stockholders' Equity

    

Noncontrolling Interest

    

Total Equity

Balance January 1, 2021

    

$

75

$

132,878

$

(5,713)

$

(481)

$

126,759

$

22,334

$

149,093

Net Income

1,662

1,662

251

1,913

Stock Issuance to Directors

218

218

218

Stock Issuance, Net of Equity Issuance Costs

38

64,923

64,961

64,961

Operating Units Issued

9,041

9,041

Cash Dividend ($0.745 per share)

(7,601)

(7,601)

(1,033)

(8,634)

Other Comprehensive Income

809

809

809

Balance September 30, 2021

$

113

$

198,019

$

(11,652)

$

328

$

186,808

$

30,593

$

217,401

For the nine months ended September 30, 2020:

    

Common Stock at Par

    

Additional Paid-in Capital

    

Dividends in Excess of Net Income

    

Accumulated Other Comprehensive Income (Loss)

Stockholders' Equity

    

Noncontrolling Interest

    

Total Equity

Balance January 1, 2020

$

79

$

137,948

$

(498)

$

$

137,529

$

23,176

$

160,705

Net Income

799

799

131

930

Stock Repurchase

(5,013)

(5,013)

(5,013)

Stock Issuance to Directors

171

171

171

Cash Dividend ($0.60 per share)

(4,560)

(4,560)

(734)

(5,294)

Other Comprehensive Loss

(619)

(619)

(619)

Balance September 30, 2020

$

79

$

133,106

$

(4,259)

$

(619)

$

128,307

$

22,573

$

150,880

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

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ALPINE INCOME PROPERTY TRUST, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited, in thousands)

Nine Months Ended

September 30, 2021

September 30, 2020

Cash Flow from Operating Activities:

Net Income

$

1,913

$

930

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

Depreciation and Amortization

10,914

7,003

Amortization of Intangible Lease Assets and Liabilities to Lease Income

(168)

(78)

Amortization of Deferred Financing Costs to Interest Expense

236

133

Gain on Disposition of Assets

(544)

(287)

Non-Cash Compensation

231

201

Decrease (Increase) in Assets:

Straight-Line Rent Adjustment

(393)

(1,237)

COVID-19 Rent Repayments

408

(538)

Other Assets

(654)

(589)

Increase (Decrease) in Liabilities:

Accounts Payable, Accrued Expenses, and Other Liabilities

869

774

Prepaid Rent and Deferred Revenue

278

1,044

Net Cash Provided By Operating Activities

13,090

7,356

Cash Flow from Investing Activities:

Acquisition of Real Estate, Including Capitalized Expenditures

(120,961)

(100,736)

Proceeds from Disposition of Assets

3,653

4,933

Net Cash Used In Investing Activities

(117,308)

(95,803)

Cash Flow from Financing Activities:

Proceeds from Long-Term Debt

217,121

95,000

Payments on Long-Term Debt

(162,431)

(6,692)

Cash Paid for Loan Fees

(1,387)

(10)

Repurchase of Common Stock

(5,013)

Proceeds From Stock Issuance, net

64,961

Dividends Paid

(8,634)

(5,294)

Net Cash Provided By Financing Activities

109,630

77,991

Net Increase (Decrease) in Cash and Cash Equivalents

5,412

(10,456)

Cash and Cash Equivalents, Beginning of Period

1,894

12,342

Cash and Cash Equivalents, End of Period

$

7,306

$

1,886

Reconciliation of Cash to the Consolidated Balance Sheets:

Cash and Cash Equivalents

$

6,706

$

1,886

Restricted Cash

600

Total Cash

$

7,306

$

1,886

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

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ALPINE INCOME PROPERTY TRUST, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)

(Unaudited, in thousands)

Nine Months Ended

September 30, 2021

September 30, 2020

Supplemental Disclosure of Cash Flow Information:

Cash Paid for Interest

$

2,030

$

809

Supplemental Disclosure of Non-Cash Investing and Financing Activities:

Unrealized Gain (Loss) on Cash Flow Hedge

$

809

$

(619)

Operating Units Issued in Exchange for Real Estate

$

9,041

$

Assumption of Mortgage Note Payable

$

30,000

$

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

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NOTES TO CONSOLIDATED 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 commercial net lease 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 89 net leased retail and office properties located in 62 markets in 28 states. The properties in our portfolio are primarily subject to long-term, 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: CTO) is a Maryland corporation that is a publicly traded diversified REIT and the sole member of our Manager (“CTO”).

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 properties from CTO. Additionally, CTO contributed to Alpine Income Property OP, LP, the Company’s operating partnership (the “Operating Partnership”), five additional 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 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. A total of $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 for a value of $23.3 million based on the IPO Price. The Company incurred a total of $12.0 million of transaction costs, which included underwriting fees of $9.4 million. Upon completion of the Offering, the 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 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, and substantially all of our assets are held by, the Operating Partnership. Our wholly owned subsidiary, Alpine Income Property GP, LLC (“PINE GP”), is the sole general partner of the Operating Partnership. As of September 30, 2021, we have a total ownership interest in the Operating Partnership of 86.9%, with CTO holding, directly and indirectly, a 9.4% ownership interest in the Operating Partnership. The remaining 3.7% ownership interest is held by an unrelated third party in connection with the issuance of 479,640 OP Units valued at $9.0 million in the aggregate, or $18.85 per unit, based on the Company’s trailing ten day average closing share price. The issuance of 479,640 OP Units includes (i) 424,951 OP Units issued as partial consideration for the portfolio of nine net lease properties acquired on June 30, 2021 and (ii) 54,689 OP Units issued in connection with the acquisition of one net lease property on July 12, 2021 (see Note 3, “Income Property Portfolio”). 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

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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 of Directors (the “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”). 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 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.

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 and its variants have 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 and its variants, as well as their impact on the U.S. economy and international economies.

Contractual Base Rent (“CBR”) represents the amount owed to the Company under the current terms of its lease agreements. As a result of the COVID-19 Pandemic, during the year ended December 31, 2020, the Company agreed to defer or abate certain CBR in exchange for additional lease term or other lease enhancing additions. Repayments of the remaining balance of deferred CBR began in the third quarter of 2020, with payments continuing, in some cases, through mid-year 2022.

NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS

 

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“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.

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

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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

 Investments in real estate are carried at cost less accumulated depreciation and impairment losses, if any. The cost of investments in real estate reflects their purchase price or development cost. We evaluate each acquisition transaction to determine whether the acquired asset meets the definition of a business. Under Accounting Standards Update (“ASU”) 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business, an acquisition does not qualify as a business when there is no substantive process acquired or substantially all of the fair value is concentrated in a single identifiable asset or group of similar identifiable assets or the acquisition does not include a substantive process in the form of an acquired workforce or an acquired contract that cannot be replaced without significant cost, effort or delay. Transaction costs related to acquisitions that are asset acquisitions are capitalized as part of the cost basis of the acquired assets, while transaction costs for acquisitions that are deemed to be acquisitions of a business are expensed as incurred. Improvements and replacements are capitalized when they extend the useful life or improve the productive capacity of the asset. Costs of repairs and maintenance are expensed as incurred.

In accordance with FASB guidance, 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 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 the management believes that it is likely that the tenant will renew the lease upon expiration, in which case the Company amortizes the value attributable to the renewal over the renewal period. The value of in-place leases and leasing costs are 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.

 

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 Company’s leases provide for reimbursement from tenants for variable lease payments including common area maintenance, insurance, real estate taxes and other operating expenses. A portion of our variable lease payment revenue is estimated each period and is recognized as rental income in the period the recoverable costs are incurred and accrued.

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, 2021 and December 31, 2020, the Company had recorded an allowance for doubtful accounts of $0.1 million.

  

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, 2021 and December 31, 2020 include certain amounts over the Federal Deposit Insurance Corporation limits. The carrying value of cash and cash equivalents is

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reported at Level 1 in the fair value hierarchy, which represents valuation based upon quoted prices in active markets for identical assets or liabilities.

RESTRICTED CASH

Restricted cash totaled $0.6 million at September 30, 2021 which is being held in a capital replacement and leasing commissions reserve account in connection with our financing of six income properties.

DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGING ACTIVITY

Interest Rate Swaps. The Company accounts for its cash flow hedging derivatives in accordance with FASB ASC Topic 815-20, Derivatives and Hedging. Depending upon the hedge’s value at each balance sheet date, the derivatives are 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 each interest rate swap was entered into, the Company designated the derivatives as a hedge of the variability of cash flows to be paid related to the recognized long-term debt liabilities.

The Company documented the relationship between the hedging instruments and the hedged item, as well as its risk-management objective and strategy for undertaking the hedge transactions. At the hedges’ inception, the Company formally assessed whether the derivatives that are used in hedging the transactions are highly effective in offsetting changes in cash flows of the hedged items, and we will continue to do so on an ongoing basis. As the terms of the interest rate swaps and the associated debts are identical, both hedging instruments qualify for the shortcut method, therefore, it is assumed that there is no hedge ineffectiveness throughout the entire term of the hedging instruments.

Changes in fair value of the hedging instruments that are highly effective and designated and qualified as cash-flow hedges are recorded in other comprehensive income and loss, until earnings are affected by the variability in cash flows of the designated hedged items (see Note 9,  “Interest Rate Swaps”).

FAIR VALUE OF FINANCIAL INSTRUMENTS

The carrying amounts of the Company’s financial assets and liabilities including cash and cash equivalents, restricted cash, accounts receivable included in other assets, accounts payable, and accrued expenses and other liabilities at September 30, 2021 and December 31, 2020, approximate fair value because of the short maturity of these instruments. The carrying value of the Company’s Credit Facility, hereinafter defined, as of September 30, 2021 and December 31, 2020, approximates current market rates for revolving credit arrangements with similar risks and maturities. The Company estimates the fair value of its mortgage note payable and term loans based on incremental borrowing rates for similar types of borrowing arrangements with the same remaining maturity and on the discounted estimated future cash payments to be made for other debt. The discount rate used to calculate the fair value of debt approximates current lending rates for loans and assumes the debt is outstanding through maturity. Since such amounts are estimates that are based on limited available market information for similar transactions, which is a Level 2 non-recurring measurement, there can be no assurance that the disclosed value of any financial instrument could be realized by immediate settlement of the instrument.

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.

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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.

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.

CONCENTRATION OF RISK

 

Certain of the tenants in the portfolio of 89 properties accounted for more than 10% of total revenues during the nine months ended September 30, 2021 and 2020.

During the nine months ended September 30, 2021, the property leased to Wells Fargo Bank, NA represented 13% of total revenues. During the nine months ended September 30, 2020, the properties leased to Wells Fargo Bank, NA and Hilton Grand Vacations represented 20% and 13% of total revenues, respectively.

As of September 30, 2021 and December 31, 2020, based on square footage, 11% and 17%, respectively, of the Company’s real estate portfolio was located in the State of Florida and 11% and 15%, respectively, of the Company’s real estate portfolio was located in the State of North Carolina. Additionally, as of September 30, 2021, more than 10% of the Company’s real estate portfolio, based on square footage, was located in the State of Texas and more than 10% of the Company’s real estate portfolio was located in the States of Oregon and Michigan as of December 31, 2020.

RECLASSIFICATIONS

Certain items in the consolidated balance sheet as of December 31, 2020 have been reclassified to conform to the presentation as of September 30, 2021. Specifically, in the first quarter of 2021, the Company reclassified deferred financing costs, net of accumulated amortization, as a component of other assets on the accompanying consolidated balance sheet. Accordingly, deferred financing costs of $0.9 million, net of accumulated amortization of $0.2 million, were reclassified from long-term debt to other assets as of December 31, 2020. Additionally, in the third quarter of 2021, the Company increased non-cash compensation for the nine months ended September 30, 2020 by $0.03 million through a reclassification from accounts payable, accrued expenses, and other liabilities within operating activities on the accompanying consolidated statements of cash flows which is the result of timing related to the issuance of shares for director retainers.

NOTE 3. INCOME PROPERTY PORTFOLIO

As of September 30, 2021, the Company’s income property portfolio consisted of 89 properties with total square footage of 2.7 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 (in thousands):

Three Months Ended

    

Nine Months Ended

September 30, 2021

September 30, 2020

September 30, 2021

September 30, 2020

Lease Income

Lease Payments

$

7,418

$

4,721

$

18,850

$

12,762

Variable Lease Payments

753

380

1,808

1,101

Total Lease Income

$

8,171

$

5,101

$

20,658

$

13,863

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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, 2021, are summarized as follows (in thousands):  

 

Year Ending December 31,

    

Amounts

Remainder of 2021

$

8,167

2022

32,264

2023

32,181

2024

31,465

2025

30,467

2026 and thereafter (cumulative)

118,512

Total

$

253,056

 2021 Activity. During the nine months ended September 30, 2021, the Company acquired 42 income properties for a combined purchase price of $158.7 million, or an acquisition cost of $160.0 million including capitalized acquisition costs. Of the total acquisition cost, $52.1 million was allocated to land, $89.6 million was allocated to buildings and improvements, $20.5 million was allocated to intangible assets pertaining to the in-place lease value, leasing fees, and above market lease value, and $2.2 million was allocated to intangible liabilities for the below market lease value. The weighted average amortization period for the intangible assets and liabilities was 8.4 years at acquisition. 

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The leases attributable to the income properties acquired during the nine months ended September 30, 2021 are described below:

Description

Location

Date of Acquisition

Square-Feet

Purchase Price ($000's)

Remaining Lease Term at Acquisition Date (in years)

Dollar General

Cut and Shoot, TX

1/25/2021

9,096

$

1,727

14.8

Dollar General

Del Rio, TX

1/25/2021

9,219

1,403

14.0

Dollar General

Seguin, TX

1/25/2021

9,155

1,290

14.1

At Home

Canton, OH

3/09/2021

89,902

8,571

8.4

Pet Supplies Plus

Canton, OH

3/09/2021

8,400

1,135

6.6

Salon Lofts

Canton, OH

3/09/2021

4,000

694

7.0

Sportsman Warehouse

Albuquerque, NM

3/29/2021

48,974

7,100

8.4

Burlington Stores, Inc.

North Richland Hills, TX

4/23/2021

70,891

11,528

7.8

Academy Sports

Florence, SC

6/22/2021

58,410

7,650

7.7

Big Lots

Durant, OK

6/25/2021

36,794

1,836

5.5

Orscheln

Durant, OK

6/25/2021

37,965

2,017