NOTE 1. BUSINESS AND ORGANIZATION

BUSINESS

Alpine Income Property Trust, Inc. (the “Company” or “PINE”) is a newly organized 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 29 single-tenant, primarily net leased retail and office properties located in 19 markets in 13 states. Twenty seven of the 29 properties in our portfolio, representing approximately 85% of our portfolio’s annualized base rent (as of March 31, 2020), are leased on a triple-net basis.

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 Consolidated-Tomoka Land Co. (our “Manager”). Consolidated-Tomoka Land Co. (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 agency of the United Nations, responsible for international public health, 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 caused significant volatility in the U.S. and international markets and, in many industries, business activity has virtually shut down entirely. There is significant 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. As a result, the Company is not yet able to determine the full impact of the COVID-19 Pandemic on its operations and therefore, the potential as to whether or not such impact will be material.

Our results of operations and cash flows for the three months ended March 31, 2020 were not materially impacted by the COVID-19 Pandemic. An assessment of the current or identifiable potential financial and operational impacts on the Company subsequent to March 31, 2020 as a result of the COVID-19 Pandemic are as follows:

Of the 29 income properties in the Company’s portfolio, 24 properties have remained open since the onset of the COVID-19 Pandemic, with 11 of those properties operating on a limited basis. The 24 properties represent approximately 78% of our annualized base rent.

The Company was contacted by certain of its tenants who are seeking rent relief through possible deferrals or other potential modifications of lease terms, beginning with the April 2020 rent. Tenants seeking rent relief for April 2020 represented approximately 38% of the Company’s annualized base rent as of March 31, 2020. Of the tenants that have not paid rent for April 2020, approximately 34%, representing approximately 13% of the Company’s total April rent, have reached an agreement on either a deferral arrangement or other accommodation. In all instances, the Company is not relinquishing any of its contractual rights under its lease agreements.

The Company believes certain of the programs available under the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) may provide tenants with the ability to obtain proceeds from loans provided by the federal government which could provide liquidity that would allow the tenant to pay its near-term rent. However, no assurances can be given that the tenants will seek to access or will receive funds from these programs or will be able to use the proceeds to pay their rent in the near-term or otherwise.

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. In connection with that decision, the Company believed it prudent and necessary to withdraw its previously provided guidance for the full year of 2020, including its targeted level of acquisitions totaling up to $120 million. The Company has not provided any updated guidance. The Company notes, however, that depending upon the duration and severity of the COVID-19 Pandemic, the Company could ultimately reach the targeted level of acquisitions in 2020, although no assurances can be made regarding the likelihood or timing of attaining that level of acquisitions, and should such targets be reached, the timing of such would have an applicable impact on full year results of operations, and the related performance measurements of Funds From Operations (“FFO”) and Adjusted Funds From Operations (“AFFO”).

Given uncertainty surrounding the depth, duration, and geographic impact of the COVID-19 Pandemic, as a precautionary measure intended to support the Company’s liquidity, the Company, in March 2020, drew $20 million of available capacity on its $100 million senior unsecured revolving Credit Facility (hereinafter defined in Note 8, “Long-Term Debt”). As a result, the Company, as of March 31, 2020, has approximately $22 million in cash on hand with approximately $57 million outstanding on the Credit Facility. Just prior to the $20 million in draws in March 2020, the Company had approximately $2 million in cash, as approximately $10.3 million of the $12.3 million in cash as of December 31, 2019 had been utilized for both general corporate and working capital purposes, as well as property acquisitions subsequent to December 31, 2019.

The total borrowing capacity on the Credit Facility, based on the assets currently in the borrowing base, is approximately $87 million, and as such the Company has the ability to draw an additional $30 million on the Credit Facility. Subsequent to March 31, 2020, if we were to add the first quarter 2020 acquisitions to the borrowing base, we anticipate that the total borrowing base will increase the borrowing capacity to the $100 million commitment on the Credit Facility. Pursuant to the terms of the Credit Facility, any property in the borrowing base with a tenant that is more than 60 days past due on its contractual rent obligations would be automatically removed from the borrowing base and the Company’s borrowing capacity would be reduced. The Company believes that where the Company and its tenants have agreed to lease modifications pertaining to rent, such as the deferral of current rent to be paid later in 2020, under the terms of the Credit Facility, such tenant would not be past due on its rental obligation if it adheres to such modification, and thus any of the Company’s applicable properties would not be required to be removed from the borrowing base.

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 measures to ensure the health and safety of its employees and our Board of Directors (the “Board”), including: i) 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, enforcement of appropriate social distancing practices in our Manager’s office, encouraging its employees to wash their hands often and providing hand sanitizer 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.

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 March 31, 2020, we have a total ownership interest in the Operating Partnership of approximately 86.6%, with CTO holding, directly and indirectly, a 13.4% 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 of directors manages our business and affairs.

The Company intends to elect to be taxed as a real estate investment trust (“REIT”) for U.S. federal income tax purposes commencing with its short taxable year beginning on November 26, 2019 and ending on December 31, 2019 upon the filing of our tax return for such taxable year, which will be filed on or before its due date. 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 will generally not be 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.