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Alpine Income Property Trust (NYSE:PINE) is a real estate investment trust (REIT) with a market value of only $200 million, which is much lower than the market value when I usually buy any stock. I also generally like diversified names. This REIT focuses on retail properties. In other words, I just violated some of my big rules to buy Alpine. However, I did not make this choice lightly. Here are three reasons for this unusual behavior.

I own WP Carey (NYSE: WPC), which is one of the largest and most diverse (from an industry and geographic perspective) net lease REIT. I also own VEREIT, which has just been acquired by Realty Income (NYSE: O), creating a huge net lease REIT with great exposure to retail properties, a little bit of industry, and more and more foreign presence mouth. I like the net lease approach where these landlords own single-tenant properties and the tenants are responsible for most of the operating costs. Generally speaking, this is a low-risk method.

The only problem is that WP Carey (market value of $14.5 billion) and Realty Income ($28 billion) are both bulky giants, which means slow and steady growth. This is not bad in itself, but I think it seems that adding a growth REIT focused on the net lease market will help strengthen my portfolio. Alpine went public at the end of 2019 (more on that later), and its portfolio has only 20 properties; as of the third quarter of 2021, it is close to 90. It is clearly growing rapidly.

One thing I like to see is a company facing adversity. This is one of my biggest concerns about STORE Capital for some time. The net lease REIT was listed during the bull market, and it will not face serious headwinds until the 2020 pandemic. Alpine is not so lucky. It went public at the end of 2019, just a few months before the major setback in the economy. However, it passed this period relatively quickly, and there were no major problems in collecting rent. It also continued to expand its portfolio throughout the pandemic year.

If Alpine has a longer record to check before the coronavirus pandemic, it will be very helpful for investors. However, it is impossible to say that management does not have to deal with adversity. So, I think the leadership team has been tested. I will not be as confident about the next downturn as I was with WP Carey or Realty Income, but I will not be as worried as I am with a REIT that only operates during a good market period.

PINE dividend yield data provided by YCharts

Another factor I am interested in Alpine is that due to its small size, it will not compete with the larger players in the net leasing industry. It may take time to find and buy small one-off properties, which can significantly increase their income and profits. The competitors of these assets are often local private investors, who cannot obtain capital like publicly traded REITs. This gives Alpine the upper hand in building its investment portfolio, which means it does play a role in a market segment that is completely different from giants such as WP Carey and Realty Income.

In addition, Alpine has no legacy assets in a market that may be mature or weak due to local economic recession or population decline. Literally, it can focus on today's strong market. In fact, nearly half of its rents come from high-growth states, including Texas, Florida and Arizona. 

Therefore, I purchased Alpine Income Property Trust as a way to increase my net lease risk exposure, the small scale of REITs, the market test it has withstood in 2020, and its niche market that is different from giant net lease REITs I feel so relieved that I have it. It now offers a generous 5.5% dividend yield and has been supported by four increases. Compared to larger players, its price is discounted, mainly due to its small size and short record. Therefore, both value investors and income investors may want to take a look.

In other words, it is externally managed by CTO Realty Growth (NYSE: CTO) and is selling two office assets that account for approximately 18% of its rent. The plan is to internalize management after Alpine has gained sufficient scale. But until then, this will require attention to potential conflicts of interest. For example, the salary of a manager is based on "total equity", which can be increased by diluting stock sales according to Alpine's annual report. I believe that REIT will use the cash from office sales to invest in retail assets, and the FFO payout ratio is 70%, so that it has enough room to support dividends throughout the process. Nevertheless, there is still uncertainty here and must be monitored. 

All in all, this is not a slam dunk investment for me, which makes me a little nervous. But I am willing to pay close attention to Alpine's execution of its growth plan and hope that it will become a more important part of my portfolio.

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