Alpine Income Property Trust (PINE 1.40%) has a tiny market cap of around $240 million. That makes it one of the smallest players in the net lease real estate investment trust (REIT) space. Meanwhile, it offers investors one of the highest dividend yields -- roughly 6.8% -- in its closest peer group.

There are negatives here, for sure, related to this stock and its current situation, but there are some positives, too. Here's a deeper dive into what you need to know.

The bad news

Alpine is a small net lease REIT, which means it doesn't get much attention on Wall Street. (Net leases require tenants to pay most of the operating costs of the properties they occupy.) Without big analyst firms talking about the stock, it just doesn't have the kind of following that larger peers like Realty Income (O 1.36%) or W.P. Carey have. And that often leads to a lower stock price.

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On top of this issue, Alpine is externally managed by CTO Realty Growth (CTO 0.88%). It was actually spun off from CTO Realty in 2019. Investors tend to favor internal management, which is another factor that keeps Alpine's price low and the dividend yield high. But it is important to note that CTO Realty owns 15% of Alpine's outstanding shares, so its interests are highly aligned with those of Alpine investors. In other words, this negative may not be nearly as bad as some expect.

Then there's the high yield and heavy debt load. REITs generally tap the capital markets for cash to invest in acquisitions. That's not a great option for Alpine today, so growth opportunities are limited. That's not good, either, though it is notable that the adjusted funds from operations (FFO) payout ratio is expected to be a solid 70% in 2023. That's better than the roughly 80% at Four Corners (FCPT 0.19%) and 75% at Realty Income. So the dividend doesn't appear to be at material risk despite the relatively high yield.

Doing the right thing

Given the above backdrop, you can see why investors might look askance at Alpine. But the end result is a net lease REIT with a relatively generous and well-covered yield and a low valuation. If Alpine can muddle through the dislocation being caused by rising interest rates, it could end up being a solid value play in the net lease space.

But the company isn't simply hunkering down and hoping for the best. It is still working to improve its business to the benefit of shareholders. There's really two things happening at one time.

The first level is the most obvious. Alpine is selling assets with lower-quality tenants when it can get good prices. It sold 10 properties in the first quarter of 2023 at fairly attractive prices. It is then going to use that cash to invest in newer properties with more desirable tenants. It is seeing opportunity on both sides here. 

Private investors have been looking to buy steady, high-yielding property. And developers that are being pinched by rising rates are being forced to sell properties so they can pay back the construction loans they have taken out. That means motivated buyers and distressed sellers, which should work out well for Alpine because it should result in a stronger portfolio with more investment-grade tenants.

The second level here is a bit more nuanced. Alpine knows full well that its shares are trading at a discount to its peers. While it is finding opportunities in the near term, in the long term management is aware that it has to do something about this disconnect. A quick way to close the gap would be to sell the company, which would likely result in a price premium being paid relative to its current valuation. The best way to accomplish that would be to create a portfolio of high-quality properties filled with high-quality tenants because it would make Alpine more attractive to a potential acquirer. If an acquisition never comes to pass, well, shareholders still win in the end because Alpine will have a stronger portfolio.

A value play in net lease

Investors focused on growth probably won't be interested in Alpine because its growth opportunities are limited today. But those with a value bias will likely find the relatively high yield and improving portfolio pretty attractive. And given the strong payout ratio, it seems like a worst-case scenario is the company ends up selling itself.