Alpine Income Property Trust (NYSE:PINE) is a real estate investment trust (REIT) with a market cap of just $200 million, which is much smaller than what I usually go with when buying any stock. I generally prefer diversified names as well, and this REIT is focused on retail properties. In other words, I just broke some of my own big rules to buy Alpine. I didn't make that choice lightly, though. Here are the three reasons for this uncharacteristic move.

1. Big and slow vs. small and fast

I own W.P. Carey (NYSE:WPC), one of the largest and most diversified (sector-wise and geographically) net lease REITs around. I also owned VEREIT, which was just bought by Realty Income (NYSE:O), creating a huge net lease REIT with heavy exposure to retail properties, a little bit of industrial, and a growing foreign presence. I'm fond of the net lease approach in which these landlords own single-tenant properties while the tenant is responsible for most of the operating costs. Generally, it's a low-risk approach.

A person drawing a rising line over a bar chart that is going up.

Image source: Getty Images.

The only problem is that W.P. Carey ($14.5 billion market cap) and Realty Income ($28 billion) are both lumbering giants, which means slow and steady growth. That's not bad, per se, but I felt as if adding a growth-oriented REIT focused on the net lease market would help solidify my portfolio. Alpine went public in late 2019 (more on this in a second) with a portfolio of just 20 properties; as of the third quarter of 2021, it had almost 90. It is clearly growing fast.

2. Enter the crucible

One of the things I like to see is a company that has faced adversity, which was one of my big concerns about STORE Capital for a while. That net lease REIT went public during a bull market and didn't face serious headwinds until 2020's pandemic. Alpine didn't get so lucky. It went public in late 2019, just months before a major economic setback. However, it came through the period in relative stride, with no major problems collecting rents. It also continued to expand its portfolio throughout the pandemic year.

It would have been helpful for investors had Alpine had a longer track record to examine from before the coronavirus pandemic hit. However, it's impossible to suggest that management hasn't had to deal with adversity. So, I consider the leadership team tested. I won't feel as confident in the next downturn as I will with W.P. Carey or Realty Income, but I also won't be quite as concerned as I would with a REIT that had only operated during good markets.

PINE Dividend Yield Chart

PINE Dividend Yield data by YCharts

3. Playing in a different market

The other factor that interests me about Alpine is that because of its small size, it isn't competing with the net lease industry's larger players. It can take the time to find and buy small, one-off properties that can give a significant boost to its top and bottom lines. The competition for these properties tends to be local, private investors who don't have the same access to capital as a publicly traded REIT. That gives Alpine a leg up as it builds its portfolio and means that it's really working in a completely different market segment from giants like W.P. Carey and Realty Income.

In addition, Alpine doesn't have legacy assets in markets that may be mature or experiencing weakness from local economic decline or falling population. It can, literally, focus on markets that are strong today. In fact, nearly half of its rents come from high growth states, including Texas, Florida, and Arizona. 

Nothing is perfect

So, I bought Alpine Income Property Trust as a way to add some growth to my net lease exposure, taking comfort in the REIT's small size, the market test it endured in 2020, and that it occupies a different niche than the giant net lease REITs I own. It now offers a generous 5.5% dividend yield that's already backed by four increases. And it is priced at a discount compared to bigger players, largely thanks to its small size and brief track record. So, both value and income investors might want to take a look.

That said, it is externally managed by CTO Realty Growth (NYSE: CTO) and is in the middle of selling two office assets that account for about 18% of its rents. The plan is to internalize management once Alpine gets enough scale. But until then, that will require paying attention to potential conflicts of interest. For example, the manager's compensation is based on "total equity" and, according to Alpine's annual report, that could be increased by dilutive stock sales. I'm confident that the REIT will use the cash from the office sales to invest in retail assets, with a modest 70% funds from operations (FFO) payout ratio giving it ample room to support the dividend through the process. Still, there's uncertainty here that has to be monitored. 

All in, this is no slam dunk investment for me, and that makes me a bit nervous. But I'm willing to watch closely as Alpine executes its growth plans and, hopefully, becomes a more important part of my portfolio as it does.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.