Q3 2020 Alpine Income Property Trust Inc Earnings Call

October 22, 2020

Good morning, and welcome to the Alpine income property Trust third quarter earnings Conference call.

Operator: Good morning, and Welcome to the Alpine Income Property Trust Q3 Earnings Conference Call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your telephone keypad. To withdraw your question, please press star then two. Please note this event is being recorded. I would now like to turn the conference over to John Albright, President and CEO. Please go ahead.

All participants will be in listen only mode.

Should you need assistance. Please signal a conference specialist by pressing the star key followed by zero.

After todays presentation, there will be an opportunity to ask questions.

To ask a question you May press Star then one on your telephone keypad.

To withdraw your question. Please press Star then too.

Please note. This event is being recorded I would now.

I would now like to turn the conference over to John Albright, President and CEO. Please go ahead.

Thank you operator, good morning, everyone and thank you for joining us today for the Alpine income property Trust third quarter 2020 operating results conference call I am.

John Albright: Thank you, operator. Good morning, everyone, and thank you for joining us today for the Alpine Income Property Trust Q3 2020 Operating Results Conference Call. I am pleased to have Matt Partridge, our new Chief Financial Officer, joining me this morning. Before we begin, I'll turn it over to Matt to provide the customary disclosures regarding today's call. Matt?

I am pleased to have Matt Partridge, our new Chief Financial Officer, joining me this morning before.

Before we begin alternate over to Matt to provide a customary disclosures regarding today's call Matt.

Matt Partridge: Thanks, John. I'd like to remind everyone that many of our comments today are considered forward-looking statements under federal securities law. The company's actual future results may differ significantly from the matters discussed in these forward-looking statements, and we undertake no duty to update these statements. Factors and risks that could cause actual results to differ materially from expectations are disclosed from time to time in greater detail in the company's Form 10-K, Form 10-Q, and other SEC filings. You can find our SEC reports and our earnings release, which contain reconciliations of non-GAAP financial measures we use on our website at alpinereit.com. With that, I will now turn the call back over to John.

I would like to remind everyone that many of our comments today are considered forward looking statements under federal Securities laws.

Companys actual future results may differ significantly from the matters discussed in these forward looking statements.

No duty to update these days.

Factors and risks that could cause actual results to differ materially from <unk>.

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Our disclosed from time to time in greater detail in the company's form 10-K.

Form 10-Q, and other SEC filings.

And you see reports and our earnings release, which contain reconciliations of non-GAAP financial measures, we use on our website at <unk> Dot com.

I will now turn the call back over to John.

John Albright: Thanks, Matt. It was an active Q3 for Alpine as we work to achieve 100% contractual base rent collection rate for each of the three months within the quarter. With the Q2 negotiations largely behind us, we were able to refocus on actively growing the company in the Q3 by executing our targeted acquisition strategy of investing in income-producing properties exhibiting strong real estate fundamentals leased to high-quality tenants. In the Q3, we invested in 15 properties in 5 states for $23.9 million and average weighted going-in cap rate of approximately 6.8%. Notably, 100% of the acquired annualized base rent is from Dollar General and Advance Auto Parts, both investment-grade rated tenants, and the weighted average lease term of the Q3 investments was 13 years at the time of acquisition.

Thanks, Matt.

The third quarter for alpine as we work to achieve 100% contractual base rent collection rate for each of the three month within the quarter, which.

With the Q2 negotiations largely behind US we were able to refocus on actively growing the company in the third quarter by executing our targeted acquisition strategy of investing in income producing properties exhibiting strong real estate fundamentals leads to high quality tenants.

Third quarter, we invested in 15 properties in five states for $23.9 million and average weighted going in cap rate of approximately 6.8%.

Notably 100% of the acquired annualized base rent is from dollar general can advance auto parts, both investment grade rated tenants and a weighted average lease term other third quarter investment was 13 years at the time of acquisition.

John Albright: In addition to our Q3 acquisition activity, we also sold our Outback Steakhouse in Charlottesville, Virginia, for a price of $5.1 million. This represented a 5.75 cap rate on in-place net operating income, which we believe when coupled with the going-in cap rate of our acquisitions and their associated investment-grade credit, is highly accretive to our portfolio on a risk-adjusted basis. Year-to-date, we've acquired 26 properties for approximately $99.3 million at a weighted average going-in cap rate of 6.9%. We're particularly excited that our acquisitions this year were comprised primarily of new credits in high-performing sectors. Specifically, through the first nine months of 2020, we've selectively invested in five new retail sectors and notably increased our concentration in grocery, convenience store, dollar store, and auto parts sectors, which all provide excellent incremental diversification.

In addition to our third quarter acquisition activity, we also sold or Outback Steakhouse in Charlottesville, Virginia for a price of $5.1 million. This represented a 5.75 cap rate on in place net operating income, which we believe when coupled with the going in cap rate of our acquisitions and their associated investment grade credit.

It is highly accretive to our portfolio on a risk adjusted basis you're.

Year to date, we've acquired 26 properties for approximately $99.3 million at a weighted average going in cap rate of 6.9% were particularly excited.

We are particularly excited that our acquisitions. This year were comprised primarily of new credits in high performing sectors.

Specifically through the first nine months of 2020, we selectively invested in five new retail sectors, and notably increased our concentration in grocery convenience store dollar store and auto parts sectors, which all provide excellent incremental diversification. These.

John Albright: These investments have also provided an opportunity to partner with 10 new retail tenants, including sector leading operators such as Walmart, 7-Eleven, and Dollar General, the three of which make up approximately 18% of our annualized base rent, with Walmart and Dollar General now representing two of our top five tenants. Additionally, even though we've more than doubled the number of assets in our portfolio through Q1, Q2, Q3 of the year, we've been able to maintain outsized portfolio level of exposure to top-tier markets, as evidenced by nearly 2/3 of our annualized base rents coming from 10 of the ULI's top 30 markets for 2021.

These investments have also provide an opportunity to partner with 10, new retail tenants, including a sector, leading operators such as Walmart 711, and dollar general three of which make up approximately 18% of our annualized base rent with Walmart and dollar general now representing two of our top five tenants it.

Finally, even though we've more than doubled the number of assets in our portfolio through the first three quarters of the year.

We've been able to maintain outsized portfolio level of exposure to top tier markets as evidenced by nearly two thirds of our annualized base rents coming from 10 other utilize top 30 markets for 2021.

John Albright: As of the end of Q3, our portfolio was 100% occupied and consisted of 45 income properties comprised of nearly 1.5 million sq ft of rentable space located in 17 states, with all 5 of our top tenants serving as leaders in their respective industries. As we look forward into Q4 and beyond, there remains considerable uncertainty regarding the underlying economy and its impact on the operational performance of our existing and prospective tenants. However, I'm very happy to say we have received 100% of the contractual base rents for October. In combination with our previously announced transaction activities and our evolving acquisition pipeline, we have increased our acquisition guidance to $110 million from $105 million. We've increased the midpoint of our previously provided FFO and AFFO guidance.

As of the end of the third quarter. Our portfolio is 100% occupied and consisted of 45 income properties comprised of nearly 1.5 million square feet of rentable space located in 17 states with all five of our top 10 AD serving as leaders in their respective industries.

As we look forward into the fourth quarter and beyond there remains considerable uncertainty regarding the underlying economy and its impact on the operational performance of our existing and prospective tenants. However, I'm very happy to say, we have received 100% of the contractual base rents for October and in combination with our previously announced transaction activities.

And our evolving acquisition pipeline, we have increased our acquisition guidance to 110 million from 105 million. We've increased the midpoint of our previously provided FFO and AFFO guidance with that I'll now turn over the call to Matt to discuss our financial results and balance sheet activities.

John Albright: With that, I'll now turn over the call to Matt to discuss our financial results and balance sheet activities.

Matt Partridge: Thanks, John. As John referenced, the company experienced excellent rent collection results during Q3, collecting 100% of contractual base rents in each of the three months. Thanks to proactive portfolio management and the resulting strong rent collection trend, we reported total revenues of $5.1 million during the quarter. I'll remind everyone that the 100% collection rate represents rents that were contractually due in each respective month and include the effects of rent deferrals or abatements agreed to prior to the rent payment date. Comparatively, rent collected during Q3 was on average approximately 5% less per month than what would have been due prior to entering into COVID-19 related amendments. We anticipate 100% repayment of deferred rent by the end of 2021.

Thanks, John John referenced the company experienced excellent right collection results during the third quarter collecting 100% of contractual base rents and each of the three month.

Thanks to proactive portfolio management, and the resulting strong recollection trend, we reported total revenues of $5.1 million during the quarter.

I'll remind everyone that the 100% collection rate represents rents there were contractually due in each respective month and include the effects of rent deferrals or abatement agreed to prior to the rent payment date.

Thirdly rent collected during the third quarter was on average approximately 5% less per month than what would have been due in prior to entering into COVID-19 related and then we.

Anticipate 100% repayment of deferred rent by the end of 2021.

Matt Partridge: For Q3 2020, funds from operations were $3 million or $0.35 per share, and adjusted funds from operations were $2.9 million or $0.34 per share. As announced during Q2, AFFO was previously impacted by $625,000 from the previously mentioned rent deferral agreements. As those rent deferrals are repaid in subsequent periods, we will experience a positive impact to our AFFO in the periods of repayment. For Q3 2020, we received just over $86,000 of scheduled rent deferral repayments, which positively impacted our Q3 AFFO. General and administrative expenses in Q3, inclusive of the company's management fee, totaled $1.1 million, which was down 271 basis points as a percentage of revenue from Q2 2020.

For the third quarter of 2020 funds from operations were $3 million or 35 cents per share and adjusted funds from operations were $2.9 million or 34 cents per share.

As announced during the second quarter asset that was previously impacted by $625000.

The previously mentioned retro agreements as a threat deferrals are repaid in subsequent periods.

Let's turn to the positive impact to our episode in the period the repayment.

For the third quarter of 2020 received just over $86000 in scheduled rent deferral repayments, which positively impacted our third quarter here, though.

General and administrative expenses in the third quarter inclusive of the company's management the old one.

$1.1 million, which was down 271 basis points as a percentage of revenue from the second quarter 2020, we believe.

Matt Partridge: We believe this trend will continue as we realize more economies of scale through the execution of our investment strategy. As previously announced, the company paid a $0.20 Q3 cash dividend on 30 September 2020 to stockholders of record on 15 September 2020. This represented a quarterly payout ratio of 57% of FFO per share and 59% of AFFO per share. Part of our dividend policy, we believe in providing a reliable and consistent dividend to our shareholders. In consideration of this strategy and the underlying growth of the company, our board of directors has approved and the company has declared a $0.22 dividend to be paid on 31 December 2020 to stockholders of record at the close of business on 15 December 2020.

We believe this trend will continue as we realize more economies of scale to the execution of our investment strategy.

As previously announced the company paid a 20 cents third quarter cash dividend on September thirtyth to stockholders of record on September 15.

This represented a quarterly payout ratio of 57% FFO per share and 59% AFFO per share.

Part of our dividend policy, we believe in providing a reliable and consistent dividend to our shareholders.

Consideration of the strategy on the underlying growth of the company.

Board of directors approved and the company has declared a 22 cents dividend to be paid on December 31st 2028 to stockholders of record at the close of business on December 15, 2020. This fall.

Matt Partridge: This Q4 cash dividend represents a 10% increase over the company's previous quarterly dividend at an annualized yield of approximately 6.1%. Now turning to the balance sheet. Total debt outstanding as of 30 September was $88.3 million, and total cash on hand was $1.9 million. Net debt to total enterprise value at quarter end was approximately 39%, while our fixed charge coverage ratio for the quarter was approximately 9 times. We announced just a few days ago, we expanded our revolving credit facility from $100 million to $150 million through the addition of two new banking relationships.

This fourth quarter cash dividend represents a 10% increase over the company's previous quarterly dividend at an annualized yield of approximately 6.1%.

Now turning to the balance sheet total debt outstanding as of September Thirtyth was $88.3 million and total cash on hand was $1.9 million.

That's the total enterprise value at quarter end was approximately 39%, while our fixed charge coverage ratio for the quarter was approximately nine times.

As we announced just a few days ago, we extended our revolving credit facility from $109 to $150 million. The addition of two new banking relationships.

Matt Partridge: With no debt maturities until 2023, of which there is a one-year extension option that could take that maturity to 2024, and the 50% increase to the revolving credit facility, we're in a very good liquidity position to drive earnings growth as we execute our growth strategy. With that, I'll now turn the call back over to John for a summary of the quarter and his closing remarks.

And with no debt maturities until 2023 of which there is a one year extension option that could take that maturity of 2024, and a 50% increase to the revolving credit facility were at a very good liquidity position to drive earnings growth as we execute our growth strategy.

John Albright: Thanks, Matt. In advance of the Q&A, I'd like to summarize some of the highlights, particularly since we've made some meaningful strides operationally in our growth as an organization. As previously noted, we have achieved 100% rent collection rate for the past four months, including this first month of Q4. We continue to build on the momentum in the transaction market, acquiring only investment-grade tenants during Q3, which is going to further strengthen our growing portfolio and create tangible economies of scale. Consistent execution has allowed us to increase our full year guidance and increase the cash dividend for Q4 by 10% quarter-over-quarter to a yield of approximately 6.1%. With the expansion of our credit facility, we have ample liquidity to execute on our disciplined investment strategy and drive outsize per share earnings growth.

With that I'll now turn the call back over to John for a summary of the quarter and closing remarks, thanks, Matt in advance of the queue and I would like to summarize some of the highlights, particularly sense. We've made some meaningful strides operationally and our growth as an organization. As previously noted we have achieved a 100% rent collection rate for the past four months.

Including this first month of the fourth quarter, we continue to build on the momentum in the transaction market acquiring only investment grade tenants during the third quarter, which is going to further strengthen our growing portfolio and create tangible economies of scale.

Consistent execution has allowed us to increase our full year guidance increase the cash dividend for the fourth quarter by 10% quarter over quarter to a yield of approximately 6.1%.

And when the expansion of our credit facility, we have ample liquidity to execute on our disciplined investment strategy and drive outside per share earnings growth.

John Albright: In summary, I want to thank our shareholders for their continued support and congratulate our team on their successes within the quarter. At this time, we'll open it up for questions. Operator?

In summary, I want to thank our shareholders for their continued support and congratulate our team on their successes within the quarter at this time, we'll open it up for questions operator.

Operator 2: We will now begin the question-and-answer session. To ask a question, you may press Star then one on your touchtone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press Star then two. At this time, we will pause momentarily to assemble our roster. Our first question comes from Barry Oxford of D.A. Davidson. Please go ahead.

Operator: We will now begin the question-and-answer session. To ask a question, you may press Star then one on your touchtone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press Star then two. At this time, we will pause momentarily to assemble our roster. Our first question comes from Barry Oxford of D.A. Davidson. Please go ahead.

We will now begin the question and answer session to ask.

A question you May Press Star then one on your Touchtone phone.

If you are using a speakerphone please pick up your handset before pressing the keys.

To withdraw your question. Please press Star then too.

At this time, we will pause momentarily to assemble our roster.

And our first question comes from Barry Oxford of D.A. Davidson. Please go ahead.

Barry Oxford: Great. Thanks, guys. If you could give me and us on the phone a little more color on your acquisition pipeline, you know, maybe as far as you know, dollar amount of how much you've looked at or and where you are as far as maybe getting close to letter of intent, you know, to the extent that you can.

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Oh, great. Thanks, guys. If you could give it a b in the us on the phone a little more color on your acquisition pipeline.

Acquisition pipeline. It you know maybe as far as you you know dollar amount of how much you've looked at or well and where you are as far as maybe getting close to a letter of intent or you know to the extent that you can't.

John Albright: Sure. Thanks, Barry.

Barry Oxford: Yeah.

John Albright: Look, the acquisition pipeline is pretty strong. We're in some sort of negotiation for, you know, an amount that's more than our guidance, thinking that some may not fully come into negotiation or might something happen within due diligence. We're very comfortable with what we're seeing in front of us as far as high quality credits and good locations.

Sure. Thanks, Barry Yeah look the the acquisition pipeline is pretty strong we have we're in some sort of negotiation for.

Amount, that's a more than our guidance.

Thinking that some may not fully come into negotiation or that myself that something might happen with and due diligence. So we were very comfortable with what we're seeing in front of us as far as high quality Oh credits in good locations.

Barry Oxford: Would you expect to be able to do roughly somewhat close in 2021 in acquisitions that you did in 2020? You know, considering that Q2 was a little light.

Would you expect to be able to do roughly.

What close in 2021 in acquisitions that you did in 2020, you know considering that to Q was a little light.

John Albright: Of course, that, you know, given that, you know, our track record and what we've been able to accomplish so far this year, we're highly confident that, you know, the success this year and obviously, given the pandemic, can be replicated or even more.

Hi, <unk>.

Course that given that you are our track record and what we've been able to accomplish so far this year.

We're highly confident that they the success this year and and obviously given the pandemic can be replicated or are even more.

Barry Oxford: Right. Perfect. No, appreciate that. Turning to the balance sheet, you know, you guys are, you know, in stellar position, you know, by any metrics. At what point would be the outside range of which you would want to lift debt to? You can speak to it from any metric that you want, fixed income, debt to EBITDA or debt to market cap, however you wanna kind of, whatever kind of metric you wanna look at.

Right perfect now appreciate appreciate that.

Turning to the balance sheet.

But you know you guys are you know, it's still our position you know by by any metrics, but at what point would be the outside range of which he would want to lift a debt to when you can speak to it from any metric that you want to fixed income or debt to EBITDA or debt to market cap ever.

John Albright: Yeah, I'll let Matt kind of discuss that point.

How you want to kind of whatever kind of metric you want to look at.

Barry Oxford: Great. Thanks, Matt.

Matt Partridge: Hey, Barry.

Barry Oxford: Yeah.

Matt Partridge: You know, I don't wanna put a ceiling on it, but during the roadshow, the company told investors that they wanted to run a long-term average somewhere around 6x net debt to EBITDA. You know, we're approaching that level, but obviously we may be comfortable going above and certainly operating below that. That's intended to be a longer term average. I think for us, it's gonna depend on the opportunities in front of us.

Yeah, I'll, let Matt kind of discuss that point great great. Thanks.

You know.

No.

I don't want to put a ceiling on it but during the road show the company told investors that they wanted to to run a long term average somewhere around six times net debt to EBITDA.

We're approaching that level, but obviously, we may be comfortable going above the naco certainly operating below that that's intended to be a longer term average. So I think for us it's going to it's going to depend on the opportunities in front of us.

Barry Oxford: Right. Great. Great. Thanks, guys. That's all for me.

John Albright: Thank you.

Matt Partridge: Thanks.

Right great.

Great great.

Operator 2: Our next question will come from Rob Stevenson of Janney. Please go ahead.

Operator: Our next question will come from Rob Stevenson of Janney. Please go ahead.

Thanks, guys. That's all from me.

Again.

Rob Stevenson: Good morning, guys. John, beyond the Outback, what is the level of assets in the portfolio today that you may wanna sell over the next few years? You know, are some of those, you think, more attractive to ten thirty-one buyers who might be even more motivated to pay more and close deals by year-end to provide you with better pricing?

Our next question will come from Rob Stevenson of Janney. Please go ahead.

Good morning, guys John.

John beyond the Outback waters the level of assets in the portfolio today that you may want to sell over the next few years and you know what are some of those you think more attractive to 10, 31 buyers who might be even more motivated to pay more and close deals by year end to provide you with better pricing.

John Albright: Yeah, I mean, thanks for the question. I mean, look, we intentionally, you know, took that property out to market because I think there's a disconnect, and you know, there still is a disconnect on our stock price, relative to implied cap rate and the asset base we have. So I think shareholders probably didn't appreciate that. You know, you look at casual dining, and certainly we've been challenged during this pandemic, but we knew on the ground that, you know, there's still a very strong investor appetite for those type of assets. So we almost took that asset out and to demonstrate the strength of the portfolio and the strength of the investor universe.

Yeah, I mean, thanks for the question I mean look we we are intentionally you know took that property out to market because I think there's a disconnect between and you know it's still as a disconnect on our stock price relative to implied cap rate and the asset base. We have so I think shareholders probably.

They didn't appreciate that you know you look at casual dining and certainly they've been challenged during this pandemic, but we knew on the ground that you know there is still a very strong investor appetite for those type of assets. So we were almost took that asset out and to demonstrate the strength of the portfolio and the.

John Albright: that was highly accretive to sell a casual dining, you know, sector, credit and basically be able to redeploy that into a higher credit, longer lease, sort of, investment. In a roundabout way, we could certainly do a lot more of that if we wanted to. We don't have plans to at this point.

The the strength of the Investor Universe, and so that was a highly accretive to sell a casual dining.

Yes sector credit and basically be able to redeploy that into a higher credit longer lease sort of a investment so.

Rob Stevenson: Okay. Sort of feeding into that and, you know, piggybacking off of Barry's question. The guidance implies about $10 million of acquisitions in Q4. You guys just increased the capacity on the line to give you additional, you know, room there. When you think about the leverage levels that Matt was talking about, how are you thinking about financing the next $50 million of acquisitions, especially with the stock at 14 and change? Do you look at preferred? Do you target more asset sales? Can you give us a glimpse into the conversations you and the board are having regarding funding the company's growth over the next few quarters?

In a roundabout way, we could certainly do a lot more of that if we wanted to we don't have plans to at this point.

Okay, and then sort of feeding into that and you know piggy backing off of Barrys question. So the guidance implies about $10 million of acquisition in the fourth quarter you guys. Just increased the capacity on the line to give you additional.

No room, there, but when you think about the leverage levels that Matt was talking about how are you thinking about financing. The next 50 million of acquisitions, especially with the stock at 14 and change do you look at preferred do you target more asset sales you give us a glimpse into the conversations you and the board are having regarding funding the company's growth.

John Albright: Yeah, certainly there's different opportunities, if you will, but we're certainly not going to, you know, lever this thing up or don't have plans to lever this thing up with the capacity we have. It's just nice to have the capacity. You know, if we did seize a unique investment opportunity, we certainly could take it down and then do what we just did with the casual dining, sell some very low cap rate investments and keep working the portfolio if the stock was not performing. There are different opportunities for us or different flexible options. You know, we don't have the intention of just, you know, doing all the leverage and just sitting back.

Both over the next few quarters.

Yeah, certainly, there's there's different or opportunities if you will but we're certainly not going to lever. This thing up or don't have plans to lever the thing up with the capacity. We have it's just nice to have the capacity.

You know if we did see a unique investment opportunity, we certainly could take it down and then and then do what we just did with a casual dining sell some very low cap rate investments and you keep working to portfolio if if the stock.

Was not performing or so so there are different opportunities for us are different flexible options.

John Albright: We'll look at, you know, kind of different opportunities as that time comes about.

But yeah, we don't have the intention of just doing all of the.

Rob Stevenson: Okay. Thanks, guys. Appreciate it.

Doing all the leverage and just sitting back. So so we'll look at you know kind of different opportunities as as that time comes about.

John Albright: Thank you.

Operator 2: Our next question comes from Craig Kucera of B. Riley Securities. Please go ahead.

Operator: Our next question comes from Craig Kucera of B. Riley Securities. Please go ahead.

Okay. Thanks, guys appreciate it.

Thank you.

Craig Kucera: Hey, good morning, guys. Matt, welcome aboard.

Our next question comes from Craig Kucera of B. Riley Securities. Please go ahead.

Matt Partridge: Thanks, Craig.

Craig Kucera: First off, I wanna talk about the Dollar Generals you acquired this quarter. Can you tell us what was so compelling about going so significantly to that tenant here in Q3?

Hey, good morning, guys and Matt welcome aboard.

Thanks, Craig.

First off I want to talk about the dollar generals you acquired this quarter can you tell us what was so compelling about going so that's significantly to that tenet here in the third quarter.

John Albright: I mean, look, that credit is, you know, very strong credit, very successful operator. You know, that's a growing business done very well during the pandemic. You know, it turns into, you know, it's a very necessity-driven credit that we like a lot. If we see more, you know, good opportunities with a good lease length, we don't mind having more of that credit into the company. I wouldn't expect, you know, a whole lot more of them. You know, certainly, you know, a great company and we're very excited to have it on board.

I mean look guys that backed credit as you very strong credit very successful operator.

You know that's a growing business has done very well during the pandemic and you know it is yeah. It turns into you know, it's a very necessity driven a credit that we liked a lot. So if we see more good opportunities whether good lease length, we don't mind.

More of that credit and into the company I wouldn't expect Oh, no whole lot more of them.

Craig Kucera: Okay, great. Can you give us some color on the leases with Dollar General that were executed this quarter? You know, is there any sort of guarantee or support at the corporate level?

Yeah, certainly you know a great company and we're very excited to have it on board.

Okay, Great and can you give us some.

John Albright: Well, certainly it's a corporate credit, so, you know, we're getting it to the mothership, so, we certainly wouldn't be buying it if we didn't get the full credit.

And can you give us some color on the leases are with dollar general that were executed this quarter is there any sort of guarantee or support at the corporate level.

Craig Kucera: Okay, great. John, I feel like earlier in the pandemic, given the performance of the office assets versus retail, you had mentioned that, you know, you might even look to add to office because it had performed so well. But kind of what are your current thoughts today? Are you still thinking that way, or are you more tilted in your pipeline and thoughts towards retail?

Well certainly that's a corporate credit so we're getting to the mother ship. So we certainly wouldn't be buying it if we didn't didn't get the full credit.

Okay, Great and John I feel like earlier in the pandemic given the performance of the office assets versus retail you had.

I mentioned that you might even look to to add to office because it had performed so well what kind of what are your current thoughts today are you still thinking that way are you more tilted in your pipeline and thoughts towards retail.

John Albright: Yeah, the pipeline's 100% retail at the moment. We do keep you know looking or you know open to office acquisitions if something really made sense. You know, the high quality single tenant office that we've looked at you know are still being priced you know below our acquisition kind of guidance. It's you know we're still open to it, and it's gotta be you know a special situation for us. Right now the pipeline is retail.

Yeah, the pipeline a 100% retail at the moment, we do keep looking are you know open to office acquisitions, if something really a mate.

Make sense. So you know that the high high quality single tenant office that we've looked at.

You know are still being priced below.

Below are a acquisition kind of guidance. So so its yeah, we're still open to it and it's got to be you know a special situation for us.

Craig Kucera: Got it. Wanted to circle back to the dividend. I'm sure investors appreciated the 10% increase, which I think based on this quarter's AFFO is about a 65% payout of AFFO. How is the board thinking about payout ratios going forward? Was this sort of an initial step in the direction of raising the dividend to, you know, maybe a higher level of recurring cash flow? Or is 65% sort of how investors should think about the dividend going forward?

But right now the pipelines retail.

Got it one of the.

Wanted to circle back to the dividend I'm sure investors appreciated that the 10% increase which I think based on this quarter's they I thought it was about a 65% payout of AFFO. How how is the board thinking about payout ratios going forward was this sort of an initial step in the direction of raising the dividend two you know maybe a higher level of recurring cash flow.

Matt Partridge: Yeah, Craig, it's Matt. In conversations with the board, I think the long-term target's somewhere between 75% and 85% of AFFO. Obviously, we have intentions to grow the portfolio, and so retaining cash flow for that is certainly top of mind. But the increase for Q4, you know, was a step towards that longer term payout ratio. As we continue to grow, we'll continue to evaluate where the dividend is.

Lower or is 65% sort of how investors should think about the dividend going forward.

Hey, Craig its Matt in conversations with the board I think the long term target somewhere between 75 and 85% of Africa. So obviously, we have intentions to grow the portfolio and retaining cash left for that is certainly top of mind, but.

The increase for Q4.

Craig Kucera: Okay, great. Wanted to circle up on Hilton Grand Vacations. I think last week they announced that they've been laying a healthy amount of people off. Had there been any discussions with them regarding downsizing space from you? Or are they, you know, any color there would be great.

With a step towards that longer term payout ratio and and as we continue to grow we will continue to evaluate where the dividend is.

Okay great.

I wanted to circle up on Hilton Grand Vacations, I think last week, they announced that they have been laying a healthy amount of people off I had there been any discussions with them regarding downsizings space from you or they you know.

John Albright: Yeah. Yeah, thanks for the question. You know, Hilton Grand Vacations obviously has announced corporate layoffs and at their properties, their timeshare properties. We feel like we're in very good position with regards to the two buildings that we have with them in that they had expanded outside of our buildings next door in more expensive office space and shorter lease duration. We've already been, you know, we've had discussions and heard that, you know, they, the plan is that they'll consolidate some of those operations into our buildings. Out of their office space in Orlando, we're the cheapest cost to them and probably the most efficient. We're a single story office buildings where they're the only tenant.

Any color there would be great.

Yeah, Yeah. Thanks for the question so.

Hilton Grand Vacations, obviously has announced a corporate layoffs and and at their properties or timeshare properties, where we feel like we're in very good position with regards to the two buildings that we have with them and that they had expanded outside of our buildings.

Buildings next door and more expensive office space and shorter lease duration.

So we've already been you know move had discussions and and heard that you know they the plan as that bill consolidate some.

Some of those operations into our buildings so out of their office space in Orlando, where are the cheapest cost to them and probably the most efficient way.

John Albright: If you think about this kind of COVID world, they don't have to get in an elevator with other tenants and that sort of thing. Their other spaces that they have in other buildings are multi-story buildings with other tenants. This gives them the security of and the efficiency of being in our building. We're very confident kind of where we are with them. You know, the rent that they're paying us is less than their other occupancies.

We're a single storey office buildings, where there the only tenant and so if you think about this kind of Cove and world. They don't have to get enough elevator with other tenants and that sort of thing and there are other spaces that they have in other buildings are multi storey buildings with other tenants. So this gives them.

The security of and the efficiency of being in our building. So we're we're very confident or kind of where we are with them and also the rent that they are paying us is less than a they are there other occupancy.

Craig Kucera: Got it. Just one more from me. You know, as we stand here in October, you've got about 2% of rent that's being abated or deferred. Can you give us any color on, you know, the categories that are still having a little bit of trouble getting rent worked out here and sort of your outlook in heading into 2021?

Got it and.

And just one more for me you know as we stand here in October you got about 2% of rent that's being abated or deferred can you give us any color on the key.

Matt Partridge: Yeah, Craig. We're collecting 100% of existing obligations, but obviously that's post-deferral agreements. The areas where we've received deferral agreements or entered into them is the entertainment space, specifically with the theaters in Alpine. With those deferrals, though, we've been able to enhance the length of the lease and also gotten some income participation rights as part of those agreements. We feel like at this point we're in a pretty good place, especially with all October rents being paid.

The categories that are still you are you still having a little bit of trouble getting getting rent worked out here and sort of your outlook and heading into 2021.

Yeah, Craig so.

We're collecting 100% of existing obligations, but obviously that post deferral agreement.

The areas, where weve received deferral agreements are entered into them is a entertainment space specifically with the theaters.

And alpine.

With those deferrals, though.

We've been able to enhance the life of the lease and also gotten some.

Craig Kucera: Okay. Thanks, I appreciate it.

Income participation rights as part of those agreements. So we felt like we feel like at this point, we're in a pretty good.

Matt Partridge: Thanks.

Operator 2: Our next question comes from RJ Milligan of Raymond James. Please go ahead.

Operator: Our next question comes from RJ Milligan of Raymond James. Please go ahead.

Good place, especially with all October rents being paid.

RJ Milligan: Hey, good morning. Matt, I just wanted to touch back on the 5% that sort of from pre-COVID levels, that's either in deferrals or abatements. Just curious, as we look into 2021, what's the expectation to recover, or how much do you expect to recover as we move into 2021 of that bucket?

Okay. Thanks appreciate it.

Thanks.

Our next question comes from RJ Milligan of Raymond James. Please go ahead.

Hey, good morning, So Matt I, just wanted to touch back on the 5% that sort.

Sort of from pre Kobin levels that.

Matt Partridge: Yeah. The way the deferral agreements were laid out, there was some slight repayment in Q3, which I talked about on the prepared remarks of $86,000. It's generally in that same range for Q4, and then it really ramps up in Q1 and Q2 of 2021. We expect all of the deferrals to be repaid through the balance of 2021.

Thats either in deferrals or abatements, just curious as we look into 2021, what's the expectation to recover or or how much do you expect to recover as we move into 2021 of that bucket.

Yes, so the way that it for all agreements were laid out there was some slight repayment in Q3, which I talked about on the prepared remarks of 86000.

It it's generally in that same range for Q4, and then it really ramps up in Q1, and Q2 of 2021 and so we expect all the deferrals to be repaid through the balance of 2021.

RJ Milligan: Okay, what's the mix between deferral and abatement in that 500 basis point bucket?

Matt Partridge: Yeah. The abatement piece is, depending on the month, between 2% and 1%. The abatement was only through the end of this year, and then that lease is through with the abatements, but otherwise everything else is deferrals.

Okay, and what's the mix between deferral and abatement in that five.

500 basis point bucket.

Yes, so the the abatement pieces, depending on the month its between two and 1% the patient was only through the end of this year and.

RJ Milligan: Okay. That makes sense. Then, you know, obviously 100% of the rents billed and collected for Q3. Just curious, John, if you have any thoughts on, you know, the longer term risk of potential fallout for those that have already paid rent but might be concerning going forward or what categories might be concerning going forward.

And then that lease.

It's through with the abatements, but otherwise everything else is deferrals.

Okay that makes sense and then you know I.

Just the 100% of the rents billed and collected for third quarter. Just curious John if you have any thoughts on the longer term risk of a potential fallout for those that are already paid rent, but might be concerned going forward or or what categories might be concerned going forward.

John Albright: I mean, look, the ones to really watch, I think, is really the theaters. We feel like we're in a good spot with them because obviously, for instance, if AMC, which we obviously only own one, you know, is a small deal. Let's say AMC, you know, goes bankrupt, you know, obviously they're gonna go through a process and look at rejecting and accepting, you know, certain leases. We feel like we're in a good spot with them because we, you know, just had come out of, you know, the COVID negotiations with them and they, you know, extended the lease and we got some percentage rent and so forth in addition to our base rent.

Yeah. So I mean look a the they were ones are really watch I think is really the theaters.

And we feel like we're in a good spot with them because obviously if a for instance of AMC, which we always say while on one hand, a small deal, but lets say and say you know goes bankrupt you know obviously, they're going to go through a process and and look at rejecting ethane.

Nothing you know certain leases, we feel like were I guess, Bob with them because we have just had come out of coven negotiations with them and they extended the lease and we got part percentage rent and so forth. In addition to our base rent and so if you look at at AMC.

John Albright: You look at AMC and, you know, they're paying us a very cheap rent and their operations, pre-COVID were very strong and it's in a market with, very little competition. We feel very strong that, you know, those type of properties are gonna, you know, basically be accepted through, bankruptcy if that happens. We feel like our exposure is not concerning versus, you know, if we had some sort of more urban, theater, let's say with, high labor costs, very expensive, rent, very expensive pass-throughs. I think that's where you're gonna see some real pain. We feel very comfortable with that. We stay on top of it. You know, that's kinda how we look at it right now.

And they're paying us a very cheap rent and their operations are pretty covidien were very strong and it's been a market with very little competition. So we feel very strong that you know those type of properties are going to be a base would you accept that through a bankruptcy if that happens.

And so we feel like our exposure is is not not concerning versus you know if we have some sort of more urban a theater or let's say with high labor costs are very expensive a rat very expensive pass throughs, I think that's where you're going to see some real pay.

RJ Milligan: Okay. Thanks, guys. That's all I had.

John Albright: Thank you.

Okay. So so we feel very comfortable with that we stay on top of it but.

Operator 2: This concludes our question and answer session. I would like to turn the conference back over to John Albright for any closing remarks.

Operator: This concludes our question and answer session. I would like to turn the conference back over to John Albright for any closing remarks.

Yeah, that's kind of how is how we look at it right now.

John Albright: Thank you for joining the call, and we look forward to talking to you throughout the quarter.

Okay. Thanks, guys, that's all I had.

Thank you.

This concludes our question and answer session I would like to turn the conference back over to John Albright for any closing remarks.

Operator 2: The conference has now concluded. Thank you for attending today's presentation, and you may now disconnect.

Operator: The conference has now concluded. Thank you for attending today's presentation, and you may now disconnect.

Thank you for joining the call and I look forward to talking to you throughout the quarter.

The conference is now concluded. Thank you for attending today's presentation and you may now disconnect.

Q3 2020 Alpine Income Property Trust Inc Earnings Call

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