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Alpine Has Potential as an Inflation Hedge

A look at why I believe this REIT pick is best-in-class

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Apr 19, 2022
Summary
  • Alpine's inflation hedging abilities make it attractive.
  • Its anchor approach is proving to be profitable.
  • The asset looks undervalued but could be subject to abrupt downturns.
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Inflation is running red hot at 8.5%, and most assets are struggling, but there's an alternative for those seeking year-round active returns. Real Estate Investment Trusts, otherwise known as REITs, provide inflation protection because real estate rental income and appraisals historically tend to correlate with inflation. REITs are uncorrelated with stocks and are thus a great option to park cash right now, in my view. I especially like Alpine Income Property Trust (

PINE, Financial); here's why.

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Portfolio and performance

Having only been listed as a publically traded stock in 2019, Alpine is a relatively new REIT. The major attraction to Alpine is the nature of its portfolio, which uses an "anchor approach" that seeks high-profile tenants to occupy their retail space to lure in smaller tenants at premiums.

Below is a screenshot of the REIT's portfolio from one of its investor presentations, which illustrates the caliber of tenants it has. This has resulted in a 100% occupancy rate since its IPO in 2019 and a 29.8% rollover for the next decade.

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Source: Alpine's Investor Presentation

Another aspect to be bullish about is the REIT's "net lease " attribute, which means that the tenants generally bear most if not all the costs associated with the lease. This doesn't necessarily mean that top-line operating cash flows will be higher, but the adjusted funds from operations will generally be smoothed and more consistent.

Valuation

As a retail REIT, Alpine has the capacity to charge its tenants based on a percentage of sales in addition to their base payments. This adds tremendous value to its valuation over standard residential REITs and should always be considered when deciding which real estate asset to invest in.

Alpine boasts value in abundance. The REIT is undervalued relative to its adjusted funds from operations with a price-to-FFO ratio of only 11.60, which is 40.32% lower than its normalized average.

Furthermore, Alpine's dividend is attractive as well. The REIT has a forward dividend yield of 5.78% at a dividend growth ratio of 11.61%. It's a well-balanced asset that could yield investors gains into perpetuity, in my view.

Risks

The Carhart four-factor pricing model suggests that Alpine isn't a momentum play, which means that it could capitulate whenever inflation tapers down. Momentum is a useful market factor to consider as high momentum allows investors to buy in after recent gains; however, removing momentum from the equation exacerbates Alpine's risk profile.

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Source: Portfolio Visualizer

The bottom line

Alpine is the ultimate inflation play, in my opinion. The REIT holds a sound portfolio of real estate that could proliferate its total returns during this period of higher prices. The narrative from within the company is bright as well as insider buying is heating up, suggesting that high-quality financial performance is expected by the top brass.

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Disclosures

I/we have no positions in any stocks mentioned, and have no plans to buy any new positions in the stocks mentioned within the next 72 hours. Click for the complete disclosure
Rating:
4 / 5 (2 votes)
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