Q4 2020 Alpine Income Property Trust Inc Earnings Call

February 12, 2021

Good morning, and welcome to the Alpine income property Trust fourth quarter and full year earnings conference call.

Operator 2: Good morning, and welcome to the Alpine Income Property Trust Q4 and full year 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.

Operator: Good morning, and welcome to the Alpine Income Property Trust Q4 and full year 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 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.

Good morning, everyone and thank you for joining us today for the Alpine income property Trust fourth quarter and year end 2020 operating results Conference call with me is Matt Partridge, Our Chief Financial Officer before we begin I will turn it over to match provide the customary disclosures regarding today's call Matt Thanks, John I'd like to remind.

John Albright: Good morning, everyone, and thank you for joining us today for the Alpine Income Property Trust Q4 and year-end 2020 operating results conference call. With me is Matt Partridge, our Chief Financial Officer. Before we begin, I'll turn it over to Matt to provide the 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 turn the call back over to John.

Everyone that many of the comments today are considered forward looking statements under federal Securities law. The company's actual future results may differ significantly from the matters discussed on these forward looking statements and we undertake no duty to update these statements factors and risks that could cause actual results could differ materially from expectations are.

Close from time to time in greater detail on the Companys 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 alpine <unk> dot com with that I will turn the call back over to John Thanks, Matt.

John Albright: Thanks, Matt. In our first full operating year, 2020 was filled with unprecedented challenges and a number of notable achievements for us here at Pine. We had a significant Q4 capping off a very strong first year despite the challenged macro environment, highlighted by outstanding rent collections, strong dividend growth, and beating our full-year acquisition guidance. In the Q4, we invested in three properties in Texas, Arizona, and Washington State for $17.4 million at a weighted average cap rate of 7%. For the second quarter in a row, 100% of our acquired rent from investment-grade tenants where we continue to add exposure to Dollar General and Walgreens, while also adding Kohl's to our portfolio's high-quality list of tenants. The weighted average lease term of our Q4 investments was nearly 10 years at the time of acquisition.

In our first full operating year 2020 was filled with unprecedented challenges on a number of notable achievements for us here at pine.

So that's kind of fourth quarter capping off a very strong first year. Despite the challenged macro environment highlighted by outstanding rent collections strong dividend growth and beating our full year acquisition guidance in the fourth quarter, we invested in three properties in Texas, Arizona, and Washington State for $17 4 million.

On a weighted average cap rate of seven per cent for the second quarter in a row of 100% of our acquired rent from investment grade tenants, where we continue to add exposure to dollar general and Walgreens, while also adding coals to our portfolio of high quality list of tenants the.

Weighted average lease term of our fourth quarter investments was nearly 10 years at the time of the acquisition.

John Albright: For the full year 2020, we acquired 29 properties for $116.6 million at a weighted average cap rate of 6.9%, performing towards the top end of our cap rate guidance and exceeding our acquisition volume guidance. Taking a step back and looking at the acquisitions we made throughout the year, we were able to invest in a mix of industry-leading tenant credits and high-quality real estate, whose performance throughout the pandemic demonstrated the attractiveness and long-term viability of operational success at the various locations. We added exposure to 10 sectors in 2020, including the grocery, convenience store, dollar store, automotive parts, consumer electronics, home furnishings, entertainment, pharmacy, general merchandise, and QSR sectors, with 76% of acquired annualized base rent focused on the better-performing grocery, general merchandise, dollar stores, and convenience stores.

For the full year 2020, we acquired 29 properties for $116 6 million at a weighted average cap rate of six 9% performing towards the top end of our cap rate guidance of exceeding our acquisition volume guidance taken.

Taking a step back and looking at the acquisitions, we made throughout the year, we're able to invest in the mix of industry, leading tenant credits in high quality real estate, whose performance throughout the pandemic demonstrated the attractiveness of long term viability of operational success at the various locations.

The exposure to 10 sectors in 2020, including the grocery convenience store dollar store automotive the parts consumer electronics home furnishings Entertainment pharmacy general merchandise ex U S are sectors, where 76% of the acquired annualized base rent and focus on the better performance.

Grocery and general merchandise dollar stores and convenience stores over 60% of the rent. The acquired during 2020 was concentrated investment grade rated tenants, including best in class operators, such as dollar general.

John Albright: Over 60% of the rent acquired during 2020 was concentrated in investment-grade rated tenants, including best-in-class operators such as Dollar General, Walmart, 7-Eleven, Kohl's, and Walgreens. In the 28% of acquired rents associated with non-rated tenants, 61% was related to Hobby Lobby, who has maintained an excellent credit profile and sector-leading operations in spite of the challenges many tenants have faced during the pandemic. Our acquisitions during the year were spread across 23 markets in 13 states, with notable emphasis on Texas, where nearly 20% of our 2020 acquired base rent was concentrated and where we are seeing business and population trends that suggest attractive shifts in medium and long-term demographics.

Walmart seven of 11, Kohl's and Walgreens and the 28% of acquired ramps associated with non rated tenants.

61% was related to the hobby lobby, who has maintained an excellent credit profile and sector, leading operations in spite of the challenges many hands of face during the pandemic.

Our acquisitions during the year were spread across 23 markets in 13 states with notable emphasis on Texas, where nearly 20% of our 2020 acquired base rate, Wisconsin traded.

Where we are seeing business and population transit suggests attractive shifts in medium and long term demographics of.

John Albright: Of the 23 markets where we made acquisitions, 80% of the rent is within the top 10 markets, which include larger MSAs such as Austin, Boston, Phoenix, Jacksonville, and Dallas. In addition to our acquisition activity throughout the year, we sold an Outback Steakhouse in Virginia for a 5.75 cash cap rate in September for a gain of $300,000, which we believe is not one-off, but representative of the valuation data point regarding the quality of our assets in our portfolio and the attractiveness of the underlying real estate and the ongoing stability of the net lease transaction market.

The 23 markets, where we made the acquisitions 80 per cent of the Rand is within the top 10 markets, which include larger msas, such as the Austin, Boston, Phoenix, Jacksonville and Dallas.

In addition to our acquisition activity throughout the year, we sold an outback Steakhouse in Virginia for a 575 cash cap rate in September for a gain of 300000, which we believe is not one off the representative of the valuation data point regarding the quality of our assets in our portfolio and the attractiveness.

So the underlying real estate and the ongoing stability of the net lease transaction market.

As of the end of the year of our growing portfolio was 100% occupied.

John Albright: As of the end of the year, our growing portfolio was 100% occupied, consisted of 48 properties in 18 states, totaling 1.6 million sq ft, with top tenants that included Wells Fargo, Hilton, Hobby Lobby, Dollar General, Walmart, and Walgreens, all of which are leaders in their respective industries. We continue to favor tenants where we can efficiently monitor corporate-level stability and financial performance. As of the end of 2020, more than 80% of our rent comes from tenants who are publicly traded, and 83% of our annualized base rents comes from publicly rated tenants, giving us outstanding transparency into the corporate credit profiles of our tenants. Within the portfolio, I'm excited to announce that through negotiations with Old Time Pottery during their restructuring, we have gained control of an outparcel within the parking field in Jacksonville, Florida.

The 48 properties in 18 states totaling one 6 million square feet with top tenants that include the Wells Fargo Hilton hobby lobby dollar general Walmart the Walgreens all of which are leaders in their respective industries. We continue to favor tenants, where we can efficiently monitor of corporate level of stability and financial.

On performance.

As of the end of 2020 more than 80% of our rent comes from tenants, who are publicly traded and 83 per cent of our annualized base rent comes from publicly rated tenants given us the outstanding transparency into the corporate credit profiles of our tenants.

Within the portfolio I'm excited to announce that through negotiations with the old time pottery. During the restructuring we have gained control of an out parcel within the parking filled in Jacksonville, Florida. Our team has been working with the number of potential operators of buyers and we believe we will have signed ground lease or a contract to sell the out parcel by Q.

John Albright: Our team has been working with a number of potential operators and buyers, and we believe we will have signed ground lease or a contract to sell the outparcel by Q1 2021 earnings call. Based on our ongoing conversations, we believe the value of the parcel will generate at least $60,000 of ground rent or a sales price of $1 million, which will be highly accretive to our original investment in the asset. While ground leases have not historically been a significant portion of our portfolio, we currently have 2.4% of the rents coming from ground leased properties. We do anticipate maintaining or increasing our exposure to this lease structure, as we believe there is potential for better tenant stability when the tenant makes meaningful investments in the improvements of the asset.

One 'twenty 'twenty one earnings call based on our ongoing conversations we believe the value of the parcel will generate at least $60000 of the ground rent or sales price of $1 million, which will be highly accretive to our original investment in the asset.

While the ground leases have not historically been a significant portion of our portfolio. We currently have two four per cent of the rents coming from ground lease properties, we do anticipate maintaining or increasing our exposure to this lease structure. Yes. We believe there is potential for better tenants stability when the tenant makes a meaningful investments and the improvements of the asset.

Shifting to 2021 were now a month in the half into the new year and we are encouraged by some of the positive data points related to a rebound in business activity and the progress being made to combat the ongoing pandemic.

John Albright: Shifting to 2021, we are now a month and a half into the new year, and we are encouraged by some of the positive data points related to a rebounding business activity and progress being made to combat the ongoing pandemic. However, we do believe uncertainty remains regarding the operational performance of our existing and prospective tenants. That said, we will maintain our targeted approach to acquisitions, focusing on strong operators in sectors that have exhibited stable operating trends, where we see long-term tenant demand being driven by the quality of the underlying real estate fundamentals, and of which our data-driven underwriting suggests stability and value.

We do believe uncertainty remains regarding the operational performance of our existing and prospective tenants.

We will maintain our targeted approach to acquisitions focusing on strong operators of the sectors that have exhibited stable operating trends, where we see long term tenant demand being driven by the quality of the underlying real estate fundamentals and of <unk>.

Which are data driven underwriting is just stability and value.

John Albright: With our portfolio's positive operating trends, continued conviction in our ability to effectively execute our investment strategy, and the anticipation of continued economic improvement, all serving as a central set of assumptions for our future performance, we have announced 2021 FFO and AFFO guidance, both of which imply per share growth that should be towards the top end of the net lease REIT and broader REIT sectors, and for which Matt will outline in more detail later in these prepared remarks. Finally, I'm very excited about our recent announcement that PINE has expanded its board of directors to six members with the addition of Rachel Elias Wein.

With our portfolio of positive operating trends continued conviction in our ability to effectively execute our investment strategy and the anticipation of continued economic improvement all serving as the central set of assumptions for our future performance, We've announced 'twenty 'twenty, one <unk> on <unk> guidance both of which.

<unk> per share growth that should be towards the top end of the net lease REIT and broader REIT sectors.

For which Matt will outline in more detail later in these prepared remarks.

And finally I'm very excited about our recent announcement of the Pine has expanded its board of directors to six members with the addition of Rachel Elias when Rachel has had an illustrious career focused on consumer trends digital adoption in commercial real estate, where she has advised companies such as Kroger Publix of the number of public rates sort of revised.

John Albright: Rachel has had an illustrious career focused on consumer trends, digital adoption in commercial real estate, where she has advised companies such as Kroger, Publix, and a number of public REITs through her advisory firm, WeinPlus. Prior to founding WeinPlus, Rachel served as a development executive with The Sembler Company and a senior associate with EY Real Estate Advisory Services. Rachel brings to us a unique perspective having advised both owners and operators on many relevant issues, and I think many of you listening have probably run into her at various ULI and ICSC events where has a very active presence. Needless to say, we are looking forward to benefiting from her position on the Alpine board. With that, I'll turn the call over to Matt to discuss our financial results and balance sheet activities.

Very firm Wayne plus.

Prior to founding Wayne plus Rachel served as the development executive with the simpler company the senior associate with Ian why real estate advisory practice.

Rachel brings to us of unique perspective, being having the buys both owners and operators on many relevant issues and I think many of you listening have probably run into her of various you lie in Ics the events, where she is it has the very active presence.

Let's just say we are looking forward to benefiting from her position on the alpine bored with that ill turn the call over to Matt to discuss our financial results and balance sheet activities.

Matt Partridge: Thanks, John. As John referenced, the quality of our assets and stability of our tenants resulted in excellent rent collections during Q4 of 2020 and for the first two months of 2021, where we collected 100% of contractual base rents for each month. Total revenues for Q4 of 2020 were $5.4 million, and total revenues for the full year of 2020 were $19.2 million. The calculation of the payment percentage of contractual base rents includes the required repayments of previously deferred rent. I'll remind everyone that 100% collection rate represents rents that were contractually due in each respective month and include the positive and negative effects of rent deferrals or abatements agreed to prior to the rent payment date.

John as John referenced the quality of our assets the stability of our tenants resulted in excellent rent collections.

During the fourth quarter of 2020 on for the first two months of 2021, where we collected 100 per cent of contractual base rent for each month total revenues for the fourth quarter of 2020 were $5 4 million. The total revenues for the full year of 2020 were $19 2 million.

The calculation of the payment percentage of contractual base rent includes the required repayments of previously deferred rent and I'll remind everyone that 100 per cent collection rate represents rents that were contractually due in each respective months and include the positive and negative effects of rent deferrals or abatements agreed to prior to the rent payment date.

Matt Partridge: When comparing our rent collections to what would have been due if we had not entered into COVID-19 related amendments, rent collected during Q4, excluding the repayments of previously deferred rents, was on average approximately 3.8% less per month. However, I'm pleased to say that December was the final month for which the company expects to experience a negative impact to rents from COVID-related abatements and deferrals. For Q4 2020, funds from operations were $3.2 million or $0.36 per share, and adjusted funds from operations were $3.1 million or $0.36 per share. Our AFFO in Q4 was positively impacted by approximately $160,000 from the net impact of previously agreed to deferrals and repayments of deferrals related to the previously mentioned rent deferral agreements.

When comparing our rent collections to what would've been due if we had not entered into COVID-19 related amendments rent collected during the fourth quarter. Excluding the repayments of previously deferred rents was on average approximately three 8% less per month. However, I'm pleased to say that December was the final month for which the company expects to experience the negative impact.

To rents from Covid related abatements and deferrals.

For the fourth quarter of 2020 funds from operations were $3 2 million or <unk> 36 per share and adjusted funds from operations were $3 1 million of 36 per share on <unk> in the fourth quarter was positively impacted by approximately $160000 from the net impact of previously agreed to deferrals on repayments of deferrals relate.

To the previously mentioned rent deferral agreements.

Matt Partridge: We expect to experience a continued positive impact to our AFFO in future periods related to the scheduled repayments of previously deferred rent. For the full year of 2020, funds from operations were $10.8 million or $1.23 per share, and adjusted funds from operations were $9.2 million or $1.04 per share, with AFFO being negatively impacted by approximately $287,000 from the net impact of previously agreed to abatements, deferrals, and repayments of deferred rent. As previously announced, the company paid a cash dividend for the Q4 of $0.22 per share on December 31 to stockholders of record on December 15. This represented a quarterly payout ratio of 60% of FFO per share and 62% of AFFO per share.

We expect to experience the continued positive impact.

<unk> in future periods related to the scheduled repayments of previously deferred rent.

For the full year of 2020 funds from operations were $10 8 million or $1 23 per share and adjusted funds from operations were $9 2 million or $1.04 per share with <unk> being negatively impacted by approximately $287000 from the net impact of previously agreed to abatements deferrals and repayments of deferred rent.

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As previously announced the company paid a cash dividend for the fourth quarter of 22 per share on December 31 of the stockholders of record on December 15.

This represented a quarterly payout ratio of 60 per cent of <unk> per share and 62% of <unk> per share.

Matt Partridge: The company paid cash dividends for the full year of 2020 of $0.82 per share, which represented the payout ratio of 67% of FFO per share and 79% of AFFO per share. As highlighted in yesterday's press release, our board of directors has approved and the company has declared a Q1 cash dividend of $0.24 per share to be paid on 31 March 2021 to stockholders of record as of the close of business on 22 March 2021. This Q1 cash dividend represents a 9.1% increase over the company's previous quarterly dividend and a year-over-year increase of 20% when compared to the company's Q1 of 2020 cash dividend.

The company paid cash dividends for the full year of 2020, the 82 per share, which represented the payout ratio of 67% of <unk> per share and 79% of <unk> per share.

As highlighted in yesterday's press release, our board of Directors has approved and the company has declared a first quarter cash dividend of 24 per share to be paid on March 31, 2021 to stockholders of record as of the close of business on March 22021.

This first quarter cash dividend represents a nine 1% increase over the company's previous quarterly dividend and of year over year increase of 20% when compared to the company's first quarter of 2020 cash dividend of <unk>.

Matt Partridge: The Q1 2021 $0.24 cash dividend represents an annualized yield of approximately 5.4% and was set by the board in consideration of our previously communicated policy of providing a consistent and reliable cash dividend to our shareholders. As John mentioned, we provided 2021 FFO and AFFO guidance within our release yesterday. This guidance includes a number of significant assumptions, including, but not limited to, acquisition and disposition volume, associated yields, outside capital, continued improvement in the broader economy, and timing related to a number of these items. For the full year of 2021, FFO guidance is $1.50 to $1.70 per diluted share, and AFFO guidance is $1.45 to $1.65 per diluted share.

First quarter 'twenty 'twenty, one 'twenty four set cash dividend represents an annualized yield of approximately $5 four per cent and was set by the board in consideration of our previously communicated policy of providing a consistent and reliable cash dividends to our shareholders.

As John mentioned, we provided 2021, <unk> and <unk> guidance within our release yesterday.

This guidance includes the number of significant assumptions, including but not limited to acquisition and disposition volume associated yields outside capital continued improvement in the broader economy and timing related to a number of these items for the full year of 2021, <unk> guidance is $1 50 to $1.70 per diluted share it.

<unk> guidance is $1 45 to $1 65.

For diluted share.

Matt Partridge: Based on the full year of 2020 results communicated in yesterday's press release and summarized in today's prepared remarks, our 2021 FFO and AFFO guidance suggests FFO per share growth of approximately 22% to 38% over 2020, and AFFO per share growth of approximately 40% to 58% over 2020. Turning to the balance sheet, total debt outstanding as of December 31, 2020 was $106.8 million, and total cash on hand was $1.9 million. Net debt to total enterprise value at quarter end was approximately 45%, while our net debt to EBITDA was approximately 7.2x. As previously announced, we expanded our revolving credit facility during Q4 from $100 million to $150 million through the addition of two new banking relationships.

Based on the full year 2020 results communicated in yesterday's press release and summarized in today's prepared remarks, our 2021, <unk> and <unk> guidance suggests the <unk> per share growth of approximately 22% the 38% over 2020.

And the <unk> per share growth of approximately 40% to 58% over 2020.

Turning to the balance sheet total debt outstanding as of December 31, 2020 was $106 8 million and total cash on hand was one 9 million net debt to total enterprise value at quarter end was approximately 45% on that day.

Debt to EBITDA was approximately seven two times.

As previously announced we extended our revolving credit facility during the fourth quarter from $100 million to $150 million through the addition of two new banking relationships. So we continue to be on a strong position with no debt maturities until late 2023 and more than $40 million of availability on the credit facility at year end.

Matt Partridge: We continue to be in a strong position with no debt maturities until late 2023 and more than $40 million of availability on the credit facility at year-end. With that, I'll turn the call back over to John for his closing remarks.

With that I'll turn the call back over to John for his closing remarks, thanks, Matt as evidenced by the execution of our investment strategy since the IPO strong portfolio performance in 2021 guidance. We're excited about our accomplishments and looking forward to what the future holds for alpine I want to thank our shareholders for their continued support and congratulate our team.

John Albright: Thanks, Matt. As evidenced by the execution of our investment strategy since the IPO, strong portfolio performance in 2021 guidance, we are excited about our accomplishments and looking forward to what the future holds for Alpine. I want to thank our shareholders for their continued support and congratulate our team on a terrific year. At this time, we'll open it up for questions. Operator?

On a terrific year at this time, we'll open it up for questions operator.

We will now begin the question and answer session to ask a question you May Press Star then one on your Touchtone phone.

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

If youre 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.

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

Great. Thanks, John if you could give me a little color on the acquisition pipeline.

Barry Oxford: Great, thanks. John, if you could give me a little color on the acquisition pipeline as it relates to the type of tenants that you're currently looking at right now. I know you don't wanna mention a specific tenant, but if you could give me the kinda types of tenants that are currently kind of in that pipeline.

As it relates to the type of tenants.

That you're currently looking at right now I know you don't want to mention a specific tenant, but if you could give me the kind of types of and it's a debt are currently kind of in that pipeline.

Yes, Thanks Barry.

John Albright: Yeah, thanks, Barry. The pipeline includes a variety of tenants who we don't presently have in ownership, so it'd be great on the diversity. They're, you know, well-known tenants with, you know, very substantial operations. I don't wanna probably go too much into kinda categories, but, you know, whether the companies are dominant in their sector or the real estate that we're looking at is so strong and a strong performing store and operations for a tenant that we feel very confident that even if this operation didn't work in the future, that the real estate will be very strong for another operator.

So the pipeline.

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The various amount of tenants, who we don't presently have in ownership so it'd be great on the diversity of.

They're well known tenants with very substantial operations. So I don't want to probably go too much into kind of categories, but you know whether the the companies are dominant in the sector or the real estate that we're looking at is so strong and our strong performing.

Store on operations for 10 net debt.

We feel very confident that even if this operation didn't work in the future of that the real estate will be very strong for another operator, so it's a little bit of a mix of the good news is it's a mix of tenants that we don't have presently in the in the ownership okay, great great and when you guys are competing.

John Albright: It's a little bit of a mix, but the good news is it's a mix of tenants that we don't have presently in the ownership.

Barry Oxford: Okay, great. When you guys are competing for these acquisitions, is the environment more competitive now today than maybe it was previously? What are you seeing? Are there any different types of buyers that are showing up at the table than what you have typically seen?

For these acquisitions.

Is the environment more competitive now today than maybe it was the previously what what are you seeing and then are there any different types of buyers that are showing up.

At the table than what you had typically seen.

Yes, I would say that for the really favored.

John Albright: Yeah, I would say that for the really you know favored type of 1031 tenant property, you're seeing really a lot of competition and cap rates compressing, you know, whether it's you know a grocery store with you know 20 years or something like that, you're gonna see some unusually low cap rates than traditional. There is a flock to quality and strength and durability.

Favored type of a 10 31 tenant.

<unk>, you're seeing really a lot of competition and cap rates are compressing.

Whether it's a grocery store with the O 20 years or something like that youre going to see some unusually low cap rates than traditional.

So there is a flow.

<unk> two <unk>.

On quality.

Its strength and durability, but were on what we're looking for we're finding our pockets and we're finding the yeah.

John Albright: What we're looking for, you know, we're finding our pockets, and we're finding really a good attraction as far as different opportunities that, you know, we're looking at potential opportunities where the real estate's very strong, tenant may have just renewed and, but it's just too big for the mom-and-pop 1031 capital. You know, we're just, it's a lot of one-off type transactions where we can focus on it really quick and execute really quick, so before it gets too far out into the competition.

Really good.

No.

Traction as far as different opportunities that we're looking at.

The potential opportunities, where the real estate is very strong.

The tenant may of just renewed and but it's just too big for the mom and pop 10, 31 capital and.

We're just it's there's a lot of one off type transactions, where we can kind of be.

We can focus on it really quick and execute really quick so before it kind of gets too far out into the competition.

Barry Oxford: Okay, great. That makes sense. Then John, just lastly, you touched on the ground lease, and that you wanted to do a little more of that. Can you give me a sense of how deep that market is and, you know, maybe how much volume you're looking at right now?

Okay, Great that makes sense and then John just lastly, you touched on the ground lease and debt.

You wanted to do a little more of that can you give me a sense of how deep that market is and maybe how much volume you're looking at right now right now well obviously, the you know the ground lease kind of category of such a favored sector. So we wanted day, we never had highlighted it before that we own these ground lease.

John Albright: Well, obviously, you know, the ground lease kind of category is such a favored sector. We wanted to. We never had highlighted it before that we own these ground leases, but given that, you know, people are looking at companies that are trading at incredible multiples, we decided we definitely need to highlight that we have ground leases in our portfolio, and we're looking at acquisitions with ground leases, but it's not an unusual structure for us to execute on, whether it's an origination or an acquisition. So we're just gonna. You're gonna see us highlighting it more in the future.

But given that the.

People are looking at companies are trading the incredible multiples, we decided we definitely need to highlight that we have ground leases in our portfolio and we're looking at acquisitions with ground leases, but it is not unusual structure for us to execute on whether it's an origination or an acquisition. So we're just getting your interest.

As highlighted it more in the future.

Barry Oxford: Okay, great. Thanks so much, guys, and good quarter.

Okay, great. Thanks, so much guys and good quarter per quarter.

John Albright: Thank you.

Thank you.

The next question comes from Rob Stevenson of Janney. Please go ahead.

Operator 2: The next question comes from Rob Stevenson of Janney. Please go ahead.

Operator: The next question comes from Rob Stevenson of Janney. Please go ahead.

Rob Stevenson: Good morning, guys. Matt, the guidance, what level of acquisitions beyond the $4.5 million that you've done thus far in Q1 is that based on?

Good morning, guys.

The guidance.

What's the level of acquisitions beyond the four and a half million that you've done thus far in the first quarter is that based on the baseline yeah.

Matt Partridge: Yeah. Rob, obviously there's a lot of assumptions in the guidance, and given the size of the company and the fluid nature of a lot of those assumptions, timing probably being the most impactful. We're not gonna disclose specifics, so I'm not gonna outline what the volume assumptions are because it varies based on the low end and the high end. You can expect us to be pretty active this year on the acquisitions front.

Obviously, theres a lot of assumptions in the guidance and given the size of the company and the fluid nature of a lot of those assumptions timing probably being the most impactful we're not going to disclose specifics.

I'm not going to outline what the volume assumptions are because it varies based on the low end and the high end, but you can expect us to be pretty active this year on the acquisitions from.

Rob Stevenson: Okay. I guess the other question on that would wind up being, like, how are you guys thinking about capital raising at this point with, given your cash position? You still got debt capacity, et cetera, but you know, the stock price is up. You know, it's obviously a strong market for preferred as well. How are you guys sort of thinking about the equity side of the capital equation, at least here early in 2021?

Okay, then I guess the other question on that would wind up being like how are you guys thinking about capital raising at this point with given your cash position you still got debt capacity et cetera, but the stock prices.

It's obviously a strong market for preferred as well how are you guys sort of thinking about the equity side of the the capital equation.

At least here early in the 'twenty 'twenty, one 'twenty 'twenty one yes, obviously the stock has done pretty well over the last 30 days.

Matt Partridge: Yeah, obviously the stock's done pretty well over the last 30 days. Yesterday, probably the best day for the company, from a stock price performance standpoint. You know, we're focused on driving risk-adjusted returns. To John's point on the acquisitions pipeline, we've got a lot of good opportunities we're looking at, and so we're trying to find opportunities that are high quality, that are additive to the portfolio, and then we'll evaluate the right capital to fund those transactions as they materialize.

Yesterday.

Probably the best day for the company.

From a stock price performance standpoint.

We're focused on driving risk adjusted returns.

The John's point on the acquisitions pipeline, we've got a lot of good opportunities, we're looking at and so where we're trying to find opportunities that are high quality of that are additive to the portfolio and then we'll evaluate the right capital to fund those transactions as they materialize.

Rob Stevenson: Okay. John, how high of an exposure to Dollar General do you feel comfortable with? You guys have done a bunch of those over the last few quarters. You know, is there sort of an upper limit. Obviously, the Wells and the Hilton stuff you inherited at the beginning of the company. But I mean, from the standpoint of adding incremental Dollar Generals, is there an upper limit that you and the board feel comfortable with before you say, "Hey, I need to diversify," even if it's within other dollar store operators or within that merchandise category?

Okay.

John.

But exposure the job dollar general do you feel comfortable with these guys have done a bunch of those over the last few quarters.

Is there a sort of upper limit as you're obviously the wells in the.

Hilton stuff you inherited.

At the beginning of the company, but I mean from the standpoint of adding incremental dollar generals is there of upper limit that you and the board feel comfortable with before you say, hey, I need to diversify even if it's within other dollar store operators or within the merchandise category category.

John Albright: Yeah. You know, I think it's safe to say that, as you mentioned, we've done a lot of Dollar Generals as of late, but I think that's kind of the end of it for now. As we grow the company, we certainly like that operator. I mean, they're very strong as you can get almost in as far as the credit and their performance. We have long leases, and so we like the exposure definitely. You can see. You'll probably see going forward this year that exposure will go down as we grow the portfolio with other credits.

Yeah. So I think you could safe to say that we've.

We've got as you mentioned, we've done a lot of the dollar general's as of lately, but I think that's kind of the the end of it for now.

So as we grow the company we're certainly.

The we certainly like that you know that the operator I mean, they are very strong as you can get almost in the in as far as the credit and other performance and we have long leases and.

So we like it we like the exposure of definitely but you can see the you'll probably see going forward. This year that exposure will go down as we grow the portfolio with other credits.

Rob Stevenson: Okay. Last one for me, John. How much have you and the board sort of held back the dividend growth just to be prudent given COVID in the market environment versus if that had never really happened, how much more aggressive the dividend growth would have been over the last year?

Okay, and then last one from me John.

How much of you and the board sort of held back of the dividend growth just to be prudent given COVID-19 and the market environment versus if that had never really happened how much more aggressive the dividend growth would have been over the last year last year.

John Albright: Yeah, I mean, look, obviously there's room, as you can see, on the payout ratio for more growth, but we're, you know, just being, you know, conservative as we move it up. You know, certainly as we progress, it will move up, you know, given just what we have to pay out as a REIT for sure. We're just, you know, not kind of looking to, you know, increase it dramatically and pull it forward, just gonna be methodical about it.

Yeah, I mean look obviously, there's room as you can see on the payout ratio for more growth, but were you were just been.

The conservative as we as we move it up so.

Certainly as we progress it will move up.

Given just what we have to pay out of the rate for sure. So we're just we're.

We're not kind of looking to increase.

The increase it dramatically and pull it forward just going to be methodical about it.

Rob Stevenson: Matt, where are you with given the new payout, the new dividend level versus payout of taxable net earnings?

Matt where are you with the given the new pay of the new dividend level versus payout of taxable net earnings and net earnings yeah. So at the end of the year. We were you were just over 100% of taxable income obviously, we werent fully invested throughout 2020, so we had to grow on a little bit too to the.

Rob Stevenson: Matt, where are you with given the new payout, the new dividend level versus payout of taxable net earnings?

Matt Partridge: Yeah. At the end of the year, we were just over 100% of taxable income. Obviously, we weren't fully invested throughout 2020, so we had to grow in a little bit to the dividend. I think you can expect us to target around 100% of taxable income since free cash flow is our most efficient form of equity these days. With the existing guidance, to John's point, it's a pretty attractive payout ratio right now.

The dividend I think you can expect us to target of around 100% of taxable income.

Free cash flow is our most efficient form of equity of these days.

With the with the existing guidance to John's point, it's a pretty attractive payout ratio right now okay.

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

Okay. Thanks, guys I appreciate it.

John Albright: Thank you.

Thank you.

Matt Partridge: Thanks.

The next question comes from Michael Gorman of BT I G. Please go ahead.

Operator 2: The next question comes from Michael Gorman of BTIG. Please go ahead.

Operator: The next question comes from Michael Gorman of BTIG. Please go ahead.

Yeah. Thanks, Good morning, if I could just follow up on that one on the dividend.

Michael Gorman: Yeah, thanks. Good morning. If I could just follow up on that one on the dividend. You talked about the free cash flow as a source of equity. As you think about the payout ratio, you know, you definitely have plenty of room there, but how do you balance that? Or how do you think about balancing that, returning cash flow to shareholders versus having that source of equity to continue to fund your growth, in 2021? How do you strike that balance?

Talking about the free cash flow as the sore.

Of equity as you think about the payout ratio.

You know you definitely have plenty of room, there, but how do you balance that or how do you think about balancing that.

Returning cash flow to shareholders versus having that source of equity to continue to fund your growth in 2021, how do you strike that balance that balance.

Matt Partridge: It's a good question, Michael. You know, the board looks at it on a quarterly basis. Obviously, we have our own internal projections for the year and beyond this year, and we try to balance the growth with the payout ratios that we were talking about. I think for us, providing a consistent and predictable dividend is first and foremost for the shareholders, but a well-covered dividend given our size and growth profiles probably a pretty important consideration at this point for the board.

Yeah. So it's a good question Michael.

On the board looks at it on a quarterly basis, obviously, we have our own internal projections for the year end and beyond this year and we try to balance the growth with with the payout ratios that we were talking about.

For us providing a consistent and predictable dividend is first and foremost of the shareholders, but well covered debt dividend given our size and growth profile is probably a pretty important consideration at this point from the board.

Okay, Great and then John you talked about some of your market activity in 2020 and.

Michael Gorman: Okay, great. John, you talked about some of your market activity in 2020, and some of the concentrations and demographic trends that you're seeing. I just wonder if you've seen any cap rate moves or cap rate arbitrage between markets based on what happened in 2020. Have you seen cap rates move down in some of your target markets versus some of the more traditional, you know, coastal type markets? Have you seen any cap rate movement yet because of what happened in the pandemic?

Some of the concentrations and demographic trends that you're seeing and I just wonder if you have.

Any cap rate moves or cap rate arbitrage between markets based on what happened in 2020.

Have you seen cap rates move down in some of your target markets versus some of the more traditional.

The coastal type markets have you seen any cap rate movement, yet because of what happened in independent Mac.

John Albright: Yeah. I mean, I think you're seeing. You're not seeing as much, you know, cap rate improvement a little bit, but you're seeing a lot more buyers. Definitely, you know, investors have shifted the focus from kind of the Northeast or something like that, or even, you know. Look, California is still a strong market for capital, but definitely those California investors are now looking at showing up in Arizona and Texas and so forth. You're seeing more buyers, but not in the cap rates and not as much compression.

Yeah.

So youre not seeing as much cap rate improvement, a little bit, but youre seeing a lot more buyers.

So definitely you know investors have have shifted the focus of.

From kind of the northeast or something like that or even even California is still a strong market for capital, but definitely those California investors are now looking at the showing up in Arizona, and Texas and so forth. So so you're seeing more buyers, but not in the.

Cap rates in the not as much compression.

Okay, Great and then I apologize if I missed it but you mentioned the unlocking of the ground lease which is obviously great value add.

Michael Gorman: Okay, great. I apologize if I missed it, but you mentioned unlocking the ground lease, which is obviously great value add. What was kind of the consideration on the other side in your conversations with the Pottery location, if you could share for them giving up that out parcel or giving up the rights to that out parcel?

What what was kind of the consideration on the other side of your conversations with with.

The part of relocation of if you could share for them, giving up that out parcel or giving up the rights of that of course.

John Albright: Yeah. They had gone through bankruptcy, and we had, you know, basically because of their lease default, the chance to just terminate them. That site that they had is very attractive, and they're paying a very low rent, and they have a very large parcel. For us, allowing them to come back into the lease, we got the out parcel approval from them so we can go out and execute on an out parcel, whether ground lease or a sale. We have several offers already in combination of a sale and a lease. It just shows the strength of the location that, you know, we have plenty of opportunity there.

Yes, they had a they had gone through a bankruptcy and we had basically because of the lease default we had the chance to to just terminate them.

And that site that they had is they are have is very attractive and they're paying a very low rent and they have a very large parcel.

And so for us are allowing them to come back into the lease we got the the out parcel.

Approval from them. So we can go out in the.

And execute on a on a L parcel, whether the ground lease or a sale and we have several.

<unk> offers already and combination of the sell in and the lease. So so it just shows the strength of the the location that we.

We have plenty of opportunity there. So we'll kind of try to pick the best we can as far as rent an incredible, but that's how it kind of shook out.

John Albright: We'll kind of try to pick the best we can as far as rent and credit, but that's how it kind of shook out.

That's great that sort of just letting the back in the lease okay.

Michael Gorman: That's great. Yeah, so just letting them back in the lease. Okay. Last one for me, just, Matt, I didn't see it in the release. Have you guys made any use of the ATM on a year-to-date basis, just looking at what's happened to the stock price?

And then last one from me.

Matt I didn't see it in the release have you have you guys made in the use of the ATM on the year to date basis, just looking at what's happened to the stock price right.

Matt Partridge: No, no, we haven't used the ATM year to date.

No we haven't used the ATM year to date.

Great. Thanks, guys.

Michael Gorman: Great. Thanks, guys.

Thank you.

John Albright: Thank you.

Operator 2: The next question comes from Wesley Golladay of Baird. Please go ahead.

Operator: The next question comes from Wesley Golladay of Baird. Please go ahead.

The next question comes from Wes Golladay of Baird. Please go ahead.

Wesley Golladay: Hey, good morning, guys. Did you guys mention how much you're gonna, I guess, benefit from the scheduled repayments this year from the deferred rent?

Good morning, guys.

You guys mentioned, how much you're going to get benefit from the scheduled repayments this year from the deferred rent.

Matt Partridge: Hey, Wes. No, that's a good question. If you look at the 2020 financials, we have a specific line item for COVID deferrals and repayments, which had a net impact of $378 thousand for 2020. We expect the impact for 2021 to be around +$400 thousand of repayments, which is, call it $0.05 upside on the current share count for AFFO on a relative basis.

No that's the that's.

The good question so.

If you look at the 2020.

Financials.

A specific line item for Covid.

Deferrals in repayments, which had a net impact of 378000 per 2020.

We expect the impact for 2021 to be around 400000 of repayments of the positive which is call it 5%.

Upside on the current share count per <unk> on a relative basis.

Got it thanks for that and then maybe you could talk about the I guess the long term plans with the the balance sheet of I know timing of the transaction has been the probably move the numbers. If you were to do on this year, but maybe just the big picture would you look to the bank loan market and if so what kind of rate did you borrow right alright.

Wesley Golladay: Got it. Thanks for that. Maybe you could talk about the, I guess, long-term plans with the balance sheet. I know timing of a transaction is gonna probably move the numbers, if you were to do one this year, but maybe just the big picture. Would you look to the bank loan market? If so, what kind of rate could you borrow at?

Matt Partridge: Yeah. Currently, we've obviously got over $40 million of availability on the facility, so no near-term needs. I think what you can expect us to do is probably term out through the banking relationships a term loan as we continue to grow the outstandings on the facility to stagger out the maturities. You know, we'll see how the other capital sources and uses materialize. I think for the foreseeable future, continuing to grow the banking relationships, grow the bank group, and term out the balance is the long-term strategy.

Yes so.

Currently we've obviously got over $40 million of availability on the facility. So no near term needs I think what you can expect us to do is probably term out through the through the banking relationships.

A term loan as we continue to grow the outstandings on the facilities the stagger out the maturities and then you know what.

See how how the other capital sources and uses materialize, but I think for the foreseeable future continuing to.

Grow the banking relationships grow the bank group and term out the balance is the long term strategy.

Wesley Golladay: Okay. Maybe one on acquisitions. I mean, are there any constraints outside of equity for the company? I mean, now that equity price has clearly rebounded, but I guess is there, you know, deal flow, would that be a potential constraint or resources at the company? Is there anything other than capital that would be holding you back?

And then maybe one on acquisitions I mean are there any constraints outside of equity for the company and we know that the equity prices clearly rebounded, but I guess is or what the deal flow would that'd be the potential constraint of it resources of the company is there anything other than capital.

That would be holding you back I mean look I mean, we're in we're in good shape I mean, we have a good pipeline in front of us and it's all about kind of executing and.

John Albright: Yeah. I mean, look, I mean, we're in good shape. I mean, we have a good pipeline in front of us, and it's all about kind of executing, and you know, we have kind of you know a team that's well structured. We brought in people last year. Everything's in good shape, and we're just you know really concentrating on executing on some acquisitions in Q1, and then we'll see kind of how things progress.

We have kind of.

Team that's C O.

Well structured we brought on people last year and so so everything's in good shape and we're just really concentrating on executing on some acquisitions in the first quarter and then we'll see kind of how things progress.

Great. Thanks for taking the questions.

Wesley Golladay: Great. Thanks for taking the questions.

John Albright: Thank you.

Thank you.

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

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

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

Hey, good morning, guys. Thanks for the color on the deferred rents.

Craig Kucera: Hey, good morning, guys. Thanks for the color on the deferred rent. Is that gonna be weighted more towards the H1 of 2021? I think that was the expectation last quarter. Does the activity in the Q4 make that a little bit more ratable throughout 2021?

Is that going to be weighted more towards the first half of 2021, I think that was the expectation last quarter or what does the activity in the fourth quarter make that a little bit more ratable throughout 2021.

Matt Partridge: No, that's a really good question, Craig. It will be weighted more towards Q1 and Q2. I think you can expect approximately half of that in Q1, and then it's a little bit more ratable throughout the rest of the year.

That's a really good question Craig it.

It will be weighted more towards the first and second quarter.

So I think you can expect approximately half of that in the first quarter and then it's a little bit more ratable throughout the rest of the year.

Okay great.

Craig Kucera: Okay, great. As far as the pipeline goes, you have the two large office assets. They performed very well during COVID. Are you looking at primarily retail, as you were, I think, in the kind of the H2 or of any office assets you're potentially looking at?

And as far as the pipeline goes are you have the two large office assets they performed very well during COVID-19.

Are you looking at primarily retail as you were I think in the kind of the second half of the year or of any on this assets youre potentially looking at.

Yeah. Thanks, Greg.

John Albright: Yeah. Thanks, Craig. Yeah, it's 100% retail. There's no office in the pipeline. We're mainly focused on retail.

Yeah, that's the 100% retail there's no office in the are in the pipeline.

But yeah, the word mainly our focus on retail.

Got it and then she'd become a larger company over time to the office assets potentially become sources of additional capital.

Craig Kucera: Got it. As you become a larger company over time, do the office assets potentially become sources of additional capital just to become more of a pure play in retail or are those better long-term holds?

Just to become more of a pure play and retail or do you want.

Are those better long term holds.

John Albright: No. I mean, look, it definitely could be that opportunity to become pure retail, but we know the value of, you know, those properties, so it would have to be. We'd have to execute on a sale there where we know that the value's being fully recognized by the buyer. So it's nothing that's gonna happen anytime soon, but could be in the future when things kind of stabilize in the macro market.

I mean look of definitely could be.

That opportunity to become a pure retail.

But we know of the value of.

The those properties. So it would have to be we'd have to execute on a sale there where we know that the.

On the values of being.

The fully recognized by the buyer. So it's nothing that's going to happen anytime soon.

But could it could be in the future when when things kind of stabilize in the in the macro market.

Got it and just circling back to capital I know you still have some some room on the line of credit 40, plus million sort of an opportunity here on the existing accordion feature there.

Craig Kucera: Got it. Just circling back to capital, I know you still have some room on the line of credit, you know, $40+ million. Is there an opportunity or an existing accordion feature there if you needed it?

Matt Partridge: Yeah, there is. When we expanded the facility in Q4, we also expanded the accordion to take it up to $200 million, obviously with additional commitments from the lender group.

Yes, there is.

Matt Partridge: Yeah, there is. When we expanded the facility in Q4, we also expanded the accordion to take it up to $200 million, obviously with additional commitments from the lender group.

When we expanded the facility in the fourth quarter. We also expanded the accordion to take it up to $200 million obviously.

Obviously with additional commitments from the letter of her.

Got it.

Craig Kucera: Got it. Okay. That's it for me. Thank you.

Okay. That's it from me thank you.

Matt Partridge: Thanks.

Great. Thank you.

John Albright: Great. Thank you.

Once again, if you have a question. Please press Star then one.

Operator 2: Once again, if you have a question, please press star then one. Our next question comes from RJ Milligan of Raymond James. Please go ahead.

Operator: Once again, if you have a question, please press star then one. Our next question comes from RJ Milligan of Raymond James. Please go ahead.

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

Hey, good morning, guys. Most of my questions have been answered, but I'm curious.

RJ Milligan: Hey, good morning, guys. Most of my questions have been answered, but I'm curious on the more captive pipeline through CTO. You know, how much do you expect to become available through CTO this year? How much do you expect to potentially source from that avenue?

On the more captive pipeline through CTO do you expect to how much do you expect to become available through CTO of this year, how much do you expect to potentially source from from that Avenue.

Yeah, I mean look there are some attractive assets at CTO and as CTO of.

John Albright: Yeah, I mean, look, there are some attractive assets at CTO, and as CTO continues to work through, you know, selling its single tenant type properties, we feel like there'll be some opportunity for sure for Alpine this year.

You know of continues to work through.

Selling is single tenant type properties, we feel like there'll be some some opportunity for sure for alpine this year.

Do you expect the mix of acquisitions say over the next two to three years to increase from CTO or or do you think that's going to be smaller.

RJ Milligan: Do you expect the mix of acquisitions, say, over the next 2 to 3 years to increase from CTO? Or do you think that's just gonna be a smaller portion of the overall total acquisition activity?

Smaller portion of the overall total acquisition activity.

John Albright: I would say that, you know, it's really in the next 18 months that you would see activity if there's good opportunity for Alpine to buy some attractive credits and cap rates. That'd probably be in the next 18 months.

I would say that it's really in the next 18 months that you would see.

The activity, if if theres good opportunity for alpine to to buy some attractive credits on cap rates. So the it'd probably be in the next 18 months.

Great. Thanks.

RJ Milligan: Great. That's it. Thanks, guys.

Thanks, guys.

John Albright: Thanks.

Thanks.

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: 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.

Thank you very much for attending the conference call.

John Albright: Thank you very much for attending the conference call.

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

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

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

Q4 2020 Alpine Income Property Trust Inc Earnings Call

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