Q3 2021 Alpine Income Property Trust Inc Earnings Call

October 22, 2021

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Operator 2: Good morning, everyone, and welcome to the Alpine Income Property Trust Q3 2021 Earnings Conference Call. All participants will be in a 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 and then one. To withdraw your questions, you may press star and two. Please also note today's event is being recorded. At this time, I'd like to turn the conference call over to John Albright, President and CEO. Sir, please go ahead.

Operator: Good morning, everyone, and welcome to the Alpine Income Property Trust Q3 2021 Earnings Conference Call. All participants will be in a 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 and then one. To withdraw your questions, you may press star and two. Please also note today's event is being recorded. At this time, I'd like to turn the conference call over to John Albright, President and CEO. Sir, please go ahead.

Good morning, everyone and welcome to the Alpine income property Trust third quarter 2021 earnings conference call.

All participants will be in a 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 and then one to withdraw your question you May Press Star then two please.

Also note todays event is being recorded.

At this time I'd like to turn.

The conference call over to John Albright, President and CEO.

Sir Please go ahead.

John Albright: Good morning, everyone, and thank you for joining us today for the Alpine Income Property Trust Q3 2021 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.

Good morning, everyone and thank you for joining us today for the Alpine income property Trust third quarter 2021 operating results conference call.

With me is Matt Partridge, our chief.

Officer before we begin I'll turn it over to Matt to provide the customary disclosures regarding today's call Matt. 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.

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'll now turn the call back over to John.

Financially 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 and you can find our SEC reports and our earnings release, which contain reconciliations.

And these four of non-GAAP financial measures, we use on our website at alpine REIT Dot com.

I'll now turn the call back over to John.

John Albright: Thanks, Matt. This was another solid quarter of execution as we found a number of attractive acquisition opportunities in the market and made progress on several notable initiatives. We continued our consistent acquisition pace during the quarter, acquiring $55.4 million of high quality net lease properties at a weighted average going-in cap rate of 6.8%. We closed on a new $80 million term loan with initial fixed rate of 1.83% with existing and new banking relationships to give us additional liquidity to fund our investment activities for the balance of 2021 and 2022. I'm excited to announce that we entered into a new store development lease with a well-known national grocer to develop a store on an undeveloped parcel at one of our existing properties in Jacksonville, Florida.

Thanks, Matt This was another solid quarter of execution as we found a number of attractive acquisition opportunities in the market and made progress on several notable initiatives we continued our consistent.

Consistent acquisition pace during the quarter acquiring $55 $4 million of high quality net lease properties at a weighted average going in cap rate of six 8%. We closed on a new $80 million term loan with initial fixed rate of 183% with existing and new banking relationships to give us additional.

<unk> liquidity to fund our investment activities for the balance of two 2021 and 2022.

And I am excited to announce that we entered into a new store development lease with a well known national grocer to develop a store on an undeveloped parcel.

One of our existing properties in Jacksonville, Florida.

John Albright: Our acquisition activities in the quarter were once again focused on well-located properties that exhibit strong real estate fundamentals that are occupied by high-quality national brands operating in well-performing retail sectors. During the quarter, we acquired 19 properties spread across 12 different states, 6 of which are new to our portfolio. Our new acquisitions included 14 tenants operating in 12 sectors, and we made a concerted effort to increase our exposure to existing high-performing tenants in our portfolio, such as 7-Eleven, Walmart, At Home, Hobby Lobby, Advance Auto Parts, Dollar Tree, and Family Dollar. We also added a number of high-quality tenants, which we think add excellent tenant diversity and credit quality and include notable brands such as O'Reilly Auto Parts, Harbor Freight, Valero, Tractor Supply, and Camping World.

<unk> our acquisition activities in the quarter were once again focus on well located properties exhibit strong real estate fundamentals that are occupied by high quality national brands operating and well performing retail sectors. During the quarter. We acquired 19 properties spread across 12 different states six of which are new to our.

Polio.

Our new acquisitions included 14 tenants operating in <unk> sectors, and we've made a concerted effort to increase our exposure to existing high performing tenants in our portfolio, such as 711 and Walmart at home hobby lobby advance auto parts dollar tree and family dollar.

Our portfolio also added a number of high quality tenants, which we think add excellent tenant diversity and credit quality and include notable brands such as O'reilly auto parts Harbor freight.

Tractor supply in camping world.

John Albright: Year to date, we've acquired 42 net lease properties for nearly $159 million at a weighted average going in cap rate of 7.2% and a weighted average remaining lease term at acquisition of 8 years. Our portfolio continues to be 100% paying and the properties continue to be 100% occupied. As of the end of the quarter, it consisted of 89 properties totaling 2.7 million sq ft, with tenants operating in 25 sectors within 28 states. Our top tenants include Wells Fargo, Hilton Grand Vacations, At Home, Hobby Lobby, Dollar General, Walmart, and Walgreens. As we've grown the portfolio, we've been able to meaningfully increase the diversity of our tenant geographic and sector exposures. Since the beginning of the year, we've nearly doubled the number of properties and number of tenants in the portfolio.

Year to date, we've acquired 42 net lease properties.

We only have $159 million at a weighted average going in cap cap rate of seven 2% and a weighted average remaining lease term and acquisition of eight years or.

Our portfolio continues to be 100% pain in the properties continue to be 100% occupied and as of the end of the quarter consist.

As for new 89 properties totaling $2 7 million square feet with tenants operating in 25 sectors within 28 states.

Our top tenants include Wells Fargo Hilton Grand Vacations at home hobby lobby dollar general Walmart and Walgreens as we broaden the portfolio we've.

That is to meaningfully increase the diversity of our tenant.

Geographic and sector exposures.

The beginning of the year, we nearly doubled the number of properties a number of tenants in our portfolio.

John Albright: We've now diversified to a point that we no longer have a tenant exposure above 10%, and our largest sector exposure is below 13%, both of which are trends we expect to continue as we execute on our disposition plans and grow the overall portfolio. Speaking of our disposition efforts, we continue to work towards the sale of our office properties to position the company as 100% retail focused. We are currently under contract to sell the Hilton Grand Vacations properties, and we are in the process of discussions with interested parties to sell the Wells Fargo property in Hillsboro, Oregon.

We've now diversified to the point that we no longer have a tenant exposure of about 10% and our largest sector exposures below 13%.

Been able both of which are trends, we expect to continue as we execute on our disposition plans in and grow the overall portfolio.

Speaking of our disposition efforts, we continue to work towards the sale of our office properties to position. The company is 100% retail focused we're currently under contract to sell the Hilton Grand vacations.

<unk> properties and we are in the process of discussions with interested parties to sell the wells Fargo property in Hillsboro, Oregon.

John Albright: While we do expect the disposition of these properties to be partially dilutive to our earnings, we anticipate we'll have similar metrics regarding our investment grade tenant and credit-rated retail exposure following the sale and redeployment of the disposition proceeds. Increased portfolio diversity by replacing these properties with a number of new tenants, sector exposures in geographic locations in a better weighted average lease term, given that the office properties have a combined remaining weighted average lease term of approximately 4.5 years. I'll also highlight that we did sell our Outback Steakhouse in Huntersville, North Carolina, during Q3 for a 5.5 exit cap rate, which we believe is a reference point as to the quality of our portfolio. With that, I'll now turn the call over to Matt to talk about our performance in the quarter, capital markets activities, and increased guidance.

While we do expect the disposition of these properties to be partially dilutive to our earnings. We anticipate we will have similar metrics regarding our investment grade tenants and credit rating.

<unk> per retail exposure following a sell and redeployment of the disposition proceeds.

Increased portfolio diversity by replacing these properties with a number of new tenants sector exposures in geographic locations.

And a better weighted average lease term given that they are office properties have a combined remaining.

Average lease term of approximately four five years.

I'll also highlight that we did sell our outback steakhouse and hundreds Bill North Carolina during the third quarter four of five and a half exit cap rate, which we believe is a reference point as to the quality of our portfolio with that I'll now turn the call over to Matt to.

Weighed on our performance in the quarter capital markets activities and increased guidance. Thanks.

Matt Partridge: Thanks, John. Total revenues for Q3 2021 increased 60% over Q3 2020 to $8.2 million. General and administrative expenses as a percentage of revenues, which include the management fee of our external manager, CTO Realty Growth, decreased by more than 270 basis points when compared to Q2 2021, and by more than 500 basis points when compared year over year to Q3 2020, continuing our improving organizational scale. For Q3 2021, both funds from operations and adjusted funds from operations were $4.8 million or $0.37 per share. FFO and AFFO per share growth in Q3 2021 were 5.7% and 8.8% respectively when compared to Q3 2020.

Thanks, John total revenues for the third quarter of 2021 increased 60% over the third quarter of 2020 to $8 2 million general and administrative expenses as a percentage of revenues, which include the management fee of our external managers.

Talk about royalty growth decreased by more than 270 basis points when compared to the second quarter of 2021.

And by more than 500 basis points, when compared year over year to the third quarter of 2020, continuing our improving organizational scale.

For the third quarter of 2021, both funds from operations and adjusted funds from operations.

CTO $4 8 million or <unk> 37 per share.

<unk> and <unk> per share growth in the third quarter of 2021 were five 7% and eight 8%, respectively, when compared to the third quarter of 2020.

Matt Partridge: Our AFFO in Q2 was positively impacted by approximately $23,000 from the repayment of deferred rent related to the previously disclosed rent deferral agreements. We only have one tenant making repayments under a previously agreed to rent deferral agreement related to the COVID-19 pandemic, and these payments are scheduled to occur through Q2 of 2022. Year to date, FFO was $1.15 per share, and AFFO was $1.18 per share, representing year-over-year per share growth of 34% and 71% respectively when compared to the first nine months of 2020. For Q3 of 2021, the company paid a cash dividend of $0.255 per share on 30 September to stockholders of record on 9 September.

Our <unk> in the second quarter was positively impacted by approximately $23000 from the repayment of deferred rent.

<unk> related to the previously disclosed rent deferral agreements.

We only have one tenant making repayments under our previously agreed to rent deferral agreement related to the COVID-19 pandemic.

These payments are scheduled to occur through the second quarter of 2022.

Year to date <unk> was $1 15 per share and <unk> was $1 18.

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Representing year over year per share growth of 34% and 71%, respectively when compared to the first nine months of 2020.

For the third quarter of 2021, the company paid a cash dividend of $25.05 per share on September 30 to stockholders of record on September nine this represents a quarterly payout.

Matt Partridge: This represents a quarterly payout ratio of 69% of FFO per share and AFFO per share and an annualized yield of approximately 5.4%. Our Q3 dividend marks the fifth dividend increase by the company since its IPO in late 2019, our fourth consecutive increase, and a more than 2% increase over our Q2 2021 quarterly dividend. Year to date, through the first three quarters of 2021, the company has paid $0.745 per share in cash dividends. These dividends represent a year-to-date cash payout ratio of 65% of FFO per share and 63% of AFFO per share. We anticipate announcing our quarterly cash common stock dividend for Q4 towards the end of November.

For sure you are 69% of <unk> per share and <unk> per share and an annualized yield of approximately five 4%.

Our third quarter dividend marks the fifth dividend increased by the company since its IPO in late 2019, our fourth consecutive increase in our more than 2% increase over our second quarter 2021 quarterly dividend.

Year to date through the first three quarters of 2021. The company has paid $74.05 per share in cash dividends. These dividends representing year to date cash payout ratio of 65% of <unk> per share and 63% of F O for sure.

We anticipate announcing our quarterly cash common stock dividend for the fourth quarter towards the end of November.

Matt Partridge: As John referenced at the beginning of his prepared remarks, we completed a new $80 million term loan on 30 September at an initial interest rate of 1.83%, which we used to reduce the outstanding balance of our revolving unsecured credit facility, extend our debt maturity profile, and bring in three new banking partners. As with our first term loan earlier in the year, this new term loan helps broaden our access to capital and lock in longer term debt at an attractive rate. The new $80 million unsecured term loan has a term of more than five years with a maturity date in January 2027. We now have more than $130 million of liquidity from cash and undrawn revolver capacity from future acquisitions, which is in addition to the proceeds expected from the office property sales discussed earlier.

<unk>, it's John referenced at the beginning of his prepared remarks, we completed a new $80 million term loan on September 30th an initial interest rate of 183%, which we used to reduce the outstanding balance of our revolving unsecured credit facility.

Extend our debt maturity profile and bring in three new banking partners as with our first term loan earlier.

We are in the year. This new term loan helps broaden our access to capital and lock in longer term debt at an attractive rate.

New $80 million unsecured term loan has a term of more than five years with a maturity date in January 2027, and.

We now have more than $130 million of liquidity from cash and Undrawn revolver capacity to fund future acquisitions.

<unk>, which is in addition to the proceeds expected from the office property sales discussed earlier.

Matt Partridge: Given the current and prospective liquidity of the company, we were not active on our ATM equity program during Q3. However, as we previously announced, we did issue an additional 55,000 OP units to close out our inaugural OP unit transaction and acquire one remaining property that was part of a 10-property diversified portfolio. The OP unit issuance was completed at $18.85 per share, the same per share value as the previously issued 425,000 OP units. Total debt as of September 30 was $191.5 million, and total cash and restricted cash was $7.3 million. Net debt to total enterprise value at quarter end was approximately 44%, while our net debt to pro forma EBITDA was approximately 6.9 times.

Given the current and prospective liquidity of the company we were not active on our ATM equity program during the third quarter.

However, as we previously announced we did issue an additional 55000 op units to closeout, our inaugural LP unit transaction and.

And acquire one remaining property that was part of a 10 property diversified portfolio.

The OE unit issuance was completed at $18 85 per share the same per share values. The previously issued 425000 units.

Total debt as of September 30 was $191 5 million in total.

Cash and restricted cash was $7 3 million net.

Net debt to total enterprise value at quarter end was approximately 44%, while our net debt to pro forma EBITDA was approximately six nine times.

Matt Partridge: Heading towards the end of 2021 and as we prepare for 2022, our balance sheet continues to be well positioned to execute on our acquisition pipeline and support our future operating activities. In consideration of our capital markets activities, Q3 performance, and other assumptions specific to Q4, we did increase our 2021 full year FFO and AFFO guidance. For the full year of 2021, our FFO guidance is now $1.47 to $1.50 per diluted share, and AFFO guidance is now $1.48 to $1.51 per diluted share. With that, I want to thank our shareholders, banking relationships, and other business partners for their continued support, and I'll turn the call back over to John for his closing remarks.

Matt Partridge: Heading towards the end of 2021 and as we prepare for 2022, our balance sheet continues to be well positioned to execute on our acquisition pipeline and support our future operating activities. In consideration of our capital markets activities, Q3 performance, and other assumptions specific to Q4, we did increase our 2021 full year FFO and AFFO guidance. For the full year of 2021, our FFO guidance is now $1.47 to 1.50 per diluted share, and AFFO guidance is now $1.48 to 1.51 per diluted share. With that, I want to thank our shareholders, banking relationships, and other business partners for their continued support, and I'll turn the call back over to John for his closing remarks.

Heading towards the end of 2021 and as we prepare for 2022, our balance sheet continues to be well positioned to execute on our acquisition pipeline and support our future operating act.

Yeah.

In consideration of our capital markets activities third quarter performance and other assumptions specific to the fourth quarter. We did increase our 2021 full year <unk> guidance.

For the full year of 2021, our <unk> guidance is now $1 47 to $1 50 per diluted share and <unk> guidance.

Activities now $1 48 to $1 51 per diluted share.

With that I want to thank our shareholders banking relationships and other business partners for their continued support and I'll turn the call back over to John for his closing remarks.

John Albright: Thanks, Matt. We are about 1 month away from our 2-year anniversary as a public company, and I'm excited about the progress we've made in that relatively short period of time. We've built a high-quality portfolio, delivered consistent execution, meaningfully grown our dividend during these first 2 years. While we have a lot of work ahead of us, I'm confident we will be able to continue to execute our disciplined investment strategy and drive further value for our shareholders. Thank you all for your time and support. At this time, we'll open it up for questions. Operator?

Thanks, Matt.

We are about a month away from our two year anniversary as a public company and I'm excited about the progress we've made.

Guidance in that relatively short period of time.

We build a high quality portfolio delivered consistent execution meaningfully grown our dividend. During these first two years, while we have a lot of work ahead of us I'm confident we will be able to continue to execute our disciplined investment strategy and drive further value for our shareholders.

<unk>. Thank you all for your time and support at this time, we will open it up for questions operator.

Operator 2: Ladies and gentlemen, at this time, we'll begin the question and answer session. To ask a question, you may press star and then one using a touchtone telephone. If you are using a speakerphone, we do ask that you please pick up your handset before pressing the keys. To withdraw your questions, you may press star and two. Once again, that is star and then one to ask a question. We'll pause momentarily to assemble the roster. Our first question today comes from Rob Stevenson from Janney. Please go ahead with your question.

Operator: Ladies and gentlemen, at this time, we'll begin the question and answer session. To ask a question, you may press star and then one using a touchtone telephone. If you are using a speakerphone, we do ask that you please pick up your handset before pressing the keys. To withdraw your questions, you may press star and two. Once again, that is star and then one to ask a question. We'll pause momentarily to assemble the roster. Our first question today comes from Rob Stevenson from Janney. Please go ahead with your question.

Ladies and gentlemen at this time, we'll begin the question and answer session.

To ask a question you May press Star and then one using a touchtone telephone if you are using a speakerphone with USA. Please pick up your handset before pressing the keys.

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The majority of the questions you May press star and two.

Once again that is signed and one to ask a question.

Pause momentarily to assemble the roster.

Our first question today comes from Rob Stevenson from Janney. Please go ahead with your question.

Rob Stevenson: Good morning, guys. John, how should we be thinking about the timing of the sale of the office assets? You know, is the Hilton, given that it's under contract, likely to be end of Q4, or are these both likely to sort of drift into Q1?

Good.

Thank guys.

John.

How should we be thinking about the timing of the sale of the office assets as.

As the Hilton given its under contract is that likely to be.

In the fourth quarter are these both likely to sort of drift into the first quarter quarter.

John Albright: Yeah. Thanks, Rob. Hilton definitely would be scheduled to close before the end of the year on the contract terms. Wells Fargo would be one that, you know, could be end of the year, but could be kind of first part of next year. Wells is a little bit more complicated because there's redevelopment potential in different sectors, and so people are really digging in on the redevelopment side. It's, you know, everything's fairly easy about the property and the lease, but everyone's looking at the redevelopment potential.

Yeah. So thanks, Rob.

Good morning, and definitely would be scheduled to close before the end of the year under the contract terms.

Wells Fargo would be one that could be end of the year, but could be kind of first part of next year.

Wells is a little bit more.

Complicated because there is redevelopment potential.

Hill in different sectors, and so people are really digging in on that.

The redevelopment side.

So it's everything's fairly easy about the property and the lease but everyone's looking at the redevelopment.

Redevelopment potential.

Rob Stevenson: Okay. I guess on that same thing, Matt, I mean, given that, you know, that there's gonna wind up being some dilution here, I mean, in your guidance, when are you assuming that Hilton closes? Is that, like, basically the tail end of Q4, so that doesn't really have any material impact on Q4 or like early December? How is that sort of factored into your guidance?

And then I guess on that same thing, Matt I mean, given.

Tension that.

That there is going to wind up being some dilution here in your guidance.

Are you assuming that the Hilton closes is that like basically the tail end of the fourth quarter. So it doesn't really have any material impact on the fourth quarter or like early December how is that sort of factored into your guidance.

Matt Partridge: Yeah. Our guidance contemplates a late November, early December close.

Matt Partridge: Yeah. Our guidance contemplates a late November, early December close. We'll get about two out of the three months of cash flow off of it.

Our guidance contemplates the late November early December close so okay, we'll get about two out of three months of cash flow off of it.

Matt Partridge: Okay.

Matt Partridge: We'll get about two out of the three months of cash flow off of it.

Rob Stevenson: Then basically assuming that you're gonna get almost all of the cash flow off of Wells?

And then basically assuming that you're going to get almost all of the cash flow off of wells 12, correct. Okay.

Matt Partridge: Correct.

Rob Stevenson: Okay. In terms of the acquisition pipeline that you're looking at today, how big is that? Is there any meaningful tenant exposures in that pipeline? You know, anyone that would immediately jump into your top ten or where the exposure goes from de minimis at 1% or 2% up to 10% or anything like that?

In terms of the acquisition pipeline that Youre looking at today.

Because that and then is there any meaningful tenant exposures in that pipeline any one that would immediately jump into your top 10 or where the exposure goes from de minimis at one or 2% up to 10% or anything like that.

John Albright: There's nothing lumpy about the pipeline. You know, the pipeline is fairly strong and we want to be you know, because of, in the whole industry, the real estate industry, as you know, there's a crunch for year-end closings because of the fear out there on 1031 federal government taxes. That's causing an incredible amount of transaction volume cramming into the end of the year. We're trying to get in front of that wave as much as we can. As far as the composition, there's nothing kind of abnormal about kind of what you've been seeing. As we add new credits and diversify more, it'll just be more of the same.

No theres nothing lumpy about the.

Pipeline.

The pipeline.

It is fairly strong and we want to be.

Because of it.

In the whole industry, the real estate industry as you know.

There is a crunch for year end closings because of the fear out there on a 10 31 federal government taxes, and so that's causing.

Is incredible amount of transaction volume cramming into the end of the year. So we're trying to get in front of that wave as much as we can but as far as the composition. There is no nothing kind of abnormal about kind of what you've been seeing is as we add new credits and diversify more.

Or it will just be more of the same.

Rob Stevenson: Okay. Assuming you know that Wells Fargo and Hilton are gone at year-end, then that would mean that At Home and Hobby Lobby would jump up to be your top two tenants at probably roughly somewhere around 8.5% of annualized base rent. Am I thinking about that correctly?

So assuming that wells and Hilton are gone at year end, then that would mean that at home and hobby lobby would jump up to be your top two tenants at probably roughly somewhere around 88, 5% of annualized base rent and my thinking about that correctly correctly I mean as we.

John Albright: I mean, as we stand right now, but I wouldn't be surprised if something else jumped up, if we added on to another credit that just, you know, because we're so small, those things kind of move around fairly easy.

More right now, but I wouldn't be surprised if if something else jumped up if we added onto to another credit that just.

Because we're so small those things kind of move around fairly easy Okay. And then last one for me John you guys increased the dividend by half a penny or two 2% how much did the pending sale of the office assets.

Rob Stevenson: Okay. Last one for me, John. You guys increased the dividend by half a penny or 2%. How much did the pending sale of the office assets and the dilution there influence increase? In other words, if you weren't gonna have the dilution from the office sales on a temporary basis, would this dividend increase likely have been higher? Or is the board sort of thinking that given where you are today and the payout ratios, that a 2% increase is how we should be thinking about things going forward on the dividend?

Standard dilution there.

Fluence increase in other words, if you weren't going to have the dilution from the office sales on a temporary basis would this dividend increase likely been higher or is the board sort of thinking that given where you are today and the payout ratios that are 2% ish increase is how we should be thinking about things going forward on the dividend.

John Albright: Yeah. I think you can see that, you know, incrementally moving it up and, you know, given our low payout ratio, of course, it'll have that natural pressure to go up. You know, that's the way I would think about it, not anything, you know, dramatic change from the office building side.

Is that something that you can see that.

Incrementally moving it up and you know given our low payout ratio of course, it will be have that natural pressure to go up but.

That's the way I would think about it not anything dramatic change from from the office buildings on okay. Thank you guys. Thank you guys. Thank.

Rob Stevenson: Okay. Thank you, guys.

John Albright: Thank you.

Yeah.

Operator 2: Our next question comes from Wesley Golladay from Baird. Please go with your question.

Operator: Our next question comes from Wesley Golladay from Baird. Please go with your question.

Our next question comes from Wes Golladay from Baird. Please go ahead with your question.

Wesley Golladay: Hey. Good morning, guys. Can you talk about if there's any other outparcel development opportunities in the portfolio? Is this particular one you're doing this quarter related to the Old Time Pottery?

Good morning, guys can you talk about if theres any other out parcel development opportunities in the portfolio and is this particularly when you're doing this quarter related to the old time pottery.

John Albright: Yes, it is related to Old Time Pottery. Look, I'm sure there's other opportunities in the portfolio. That one really, you know, because of kind of during COVID and when Old Time Pottery went into bankruptcy, we kind of went into, you know, became a little bit more forward-thinking on that particular asset and engaged brokers and that's the outcome. Given that, you know, everything else in our portfolio is obviously paying now, you know, there's not any kind of redevelopment, you know, analysis we're doing right now. I'm sure there are other opportunities.

Yes, it is related to old time pottery.

Yeah.

Look I'm sure there is other opportunities in the in the portfolio that that one really.

<unk>.

Because of kind of during COVID-19 and when old time pottery went through bankruptcy, we kind of went into.

Became a little bit more forward thinking.

In that particular asset and engage brokers and that's that's the outcome so given that.

Everything else in our portfolio is obviously pain now there is not any kind of redevelopment.

Analysis, we're doing right now so so I'm sure there are other opportunities.

John Albright: I mean, that's how come, you know, our focus has been on really good real estate, and we love it when we're buying large parcels that have one store where there is that optionality in the future, but not right now.

On that is how come you know our focus has been on really good real estate and we we love. It when there is it were buying large parcels that have one store where they are there is that optionality in the future, but not right now.

Wesley Golladay: Got it. When you look at that Wells Fargo potential redevelopment, is that maybe an out parcel development or is that redeveloping the existing asset?

Got it and then when you look at that Wells Fargo potential redevelopment is that maybe.

And out parcel development or is that redevelopment of the existing asset.

John Albright: No, it would be the entire site. It's a large site in Hillsboro. Hillsboro is a very strong market, especially with COVID, everyone leaving Portland coming into this market. You have Intel with a Fab 52 plant, you have Nike's headquarters. Not only from the residential side, from, you know, intensive multifamily side, but you're seeing data centers. I mean, Hillsboro is one of the markets in the data center world that there's power supply right now. Other data center markets, power supply is very limited. You're seeing, you know, all kinds of different uses of potential.

It would be the entire site. So it's a large site in Hillsboro.

Hillsboro is a very strong market, especially with COVID-19, everyone, leaving Portland coming into this market you have.

Intel with the Fab five plan Nike's.

I mean, there so not only from the residential side from intense of multifamily side, but youre seeing data centers I mean, Hillsboro is one of the markets in the data center World that there is there is power supply right now.

Other data center markets power supply is very limited.

Headquartered so so you're seeing all kinds of different.

Users potential.

Wesley Golladay: Got it. We're trying to calibrate our models for next year. I mean, can you help us in any way on the, I guess, expected cap rate for the office assets total? You may be under contract with one, you can't disclose it, I get that. If we were to blend the two, how should we think about modeling the cap rate for dispositions of the office?

Got it and then we're trying to calibrate our models for next year. So I mean can you help us in any way on the I guess expected cap rate for the office assets total and he may have been under contract with one you can't disclose that.

<unk> were to blend the two how should we think about modeling the cap rate for dispositions of the office.

John Albright: You know, it's somewhat consistent with how we talked about this when we kind of started the process, you know, that the cap rates are kind of in the 7s. Whether it's, you know, kind of low-mid or, you know, even mid-high or whatever, you know, it depends. The one thing you gotta think about is we're, you know, retaining the properties a little longer and have a lot of, you know, cash flow coming from it. You know, that would basically be, I would say, you know, mid-7s would be kind of a good measure to kind of think about the properties.

It's somewhat consistent with how we've talked about this when we kind of started the process.

That the cap rates are kind of in the in the sevens, whether it's kind of a low mid or.

Even mid.

But may or whatever.

It depends but the one thing you think about it is we were retaining the property a little longer and have a lot of cash.

Cash flow coming from it.

So that that would basically be I would say.

Mid sevens would be kind of a good measure to kind of.

Think about the properties.

Wesley Golladay: Got it. Thanks a lot, guys.

Got it thanks, a lot guys.

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

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

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

RJ Milligan: Hey, good morning, guys. Cap rates ticked down a little bit in the quarter. Obviously, we've been hearing that there's just been compression across the sector. John, I was just wondering if you could give us sort of an update as to what you're seeing in the market more broadly, and then expectations for activity in Q4 as we look into 2022. In Q4, do you expect the normal rush that we've seen historically as sellers look to get transactions done before the end of the year?

Hey, good morning, guys, so cap rates ticked down a little bit in the quarter, obviously, we've been hearing that.

Theres just been compression across.

<unk> and John just wondering if you could give us sort of an update as to what youre seeing in the market more broadly and then expectations for activity in the fourth quarter as we look into 'twenty two and then in the fourth quarter you expect a normal rush that we've seen historically as sellers look to get transactions done before the end of the year.

John Albright: Yeah. I mean, definitely there's a lot of, you know, capital pursuing these acquisitions. You can assume that, you know, that's being borne out by the lower cap rate somewhat. You know, that would obviously mean, you know, the portfolio that we have here as demonstrated by selling an Outback in North Carolina at a 5.5 cap, you know, we would never have been a buyer of that at a 5.5 cap. We're also seeing the opportunity to sell a certain property like that.

So I mean definitely there is a lot of.

Capital pursuing these acquisitions so.

You can assume that that's been borne out by the the lower cap rate somewhat.

That would obviously mean.

The portfolio that we have here.

You have demonstrated by selling an outback in North Carolina, and a five and a half cap.

We would never been a buyer of that at a five five cap. So we're we're also seeing the opportunity to to.

Sell a certain property like that.

John Albright: You know, I would say that, you know, as we focus, we're pleasantly surprised that we're able to find opportunities, you know, good quality tenants, good quality locations, without giving up too much on the cap rate side. I wouldn't say, you know, after this last quarter, I wouldn't say that the cap rates are gonna move down from what we just blended to. I think we're seeing something somewhat consistent. I think really to your question of, you know, the amount of volume on acquisition side, I think if you're a seller of assets, you know, it's almost getting too late to have a closing by the end of the year, given just the infrastructure on title companies, survey, environmental, property condition reports.

But I would say that.

As we focus where we.

We're pleasantly surprised that we're able to find opportunities good quality tenants good quality locations without giving up too much on the cap rate side, So youre not I won't say after.

This last quarter I wouldn't say that the cap rates are going to move down from.

From what we just blended too.

I think we're seeing something somewhat consistent and I think I think really to your question of.

The amount of volume on acquisition side, I think if you're a seller of assets.

Yeah, it's almost getting too late to have a closing by the end of the year given just.

The infrastructure on title companies survey environmental.

Pretty condition reports, so I think youre going to see that a lot of things are going to move into the first quarter just as the industry.

John Albright: I think you're gonna see that a lot of things are gonna move into Q1 just as an industry observation.

Observation.

RJ Milligan: Already for the year, I think close to $160 million of acquisitions, which should put you over $200 million for the year. Obviously, there was a big Q2 of this year. Is there anything or any reason why that can't be replicated next year? Are there concerns about cap rate compression or just? I know you can't give guidance, but I'm just trying to think of what were the components in this year that may prevent you from doing the same volumes in 2022.

And then so already for the year.

I think close to $160 million of acquisitions.

Which would should put you over $200 million for the year.

And then obviously there was a big second quarter.

Of this year is there anything or any reason why that can't be replicated next year is there.

Are there concerns about cap rate compression.

<unk> or just and I know you can't give guidance, but I'm just trying to think of what were the components. In this year that may not that may prevent you from doing the same volumes in 'twenty two.

John Albright: No, I think we're pretty bullish about next year. I think the pressure on the competition will probably relax a bit after the new year. I'm pretty confident we'll be able to do the same or more of volume for next year.

No I think I think we're pretty pretty bullish about next year I think.

I think the pressure on on the competition will probably relax.

Relax a bit after the new year.

And I'm pretty confident we'll be able to to do the same or not more.

<unk> for next year.

RJ Milligan: Okay. My last question is for Matt on the leverage levels ending the quarter at 6.9. Can you just talk about how you expect that to trend, Q4 and as we get into 2022?

Okay. My last question is for Matt on the leverage levels ending the quarter at six nine can you just talk about how you expect that to trend.

Fourth quarter and as we get into 'twenty two.

Yeah, I mean, obviously, we've been pretty consistent in saying over the long run we want to be closer to that six times net debt to EBITDA level from a leverage perspective.

Matt Partridge: Yeah. I mean, obviously we've been pretty consistent in saying over the long run, we wanna be closer to that 6x net debt to EBITDA level from a leverage perspective. We ended at 6.9, as you noted, which we're comfortable at. The fixed charge coverage ratio 7x. On a run rate, it's about 6x. There's really no pressure from a cash flow perspective. As we've talked about, the leverage will move around as we lever up and raise capital and bring it back down.

We ended up at six nine as you noted, which we're comfortable at the fixed charge coverage ratio seven.

Often times on a run rate, it's about six times so.

There's really no pressure from a cash flow perspective, and as we've talked about the leverage will move around as we lever up and raise capital and bring it back down.

RJ Milligan: Okay, great. Thanks, guys.

Okay, great. Thanks, guys.

John Albright: Thanks.

Matt Partridge: Thank you.

Thank you.

Operator 2: Our next question comes from Michael Gorman from BTIG. Please go ahead with your question.

Operator: Our next question comes from Michael Gorman from BTIG. Please go ahead with your question.

And our next question comes from Michael Gorman from <unk>. Please go ahead with your question.

Michael Gorman: Yeah, thanks. Good morning, guys. A lot of my questions have been answered. John, I was wondering if you could just talk about, I think you've mentioned in the past seeing some opportunities in the acquisition markets, taking some shorter lease duration and being comfortable with that. I'm just wondering if you're seeing any shifts with some of the inflation talk, if there's more competition at that shorter end of the lease duration where there may be some resets coming sooner rather than later. Is there more competition in that property type, in that product type than you've seen in the past?

Yeah. Thanks, good morning, guys.

A lot of my questions have been answered, but John I was wondering if you could just talk about I think you've mentioned in the past seeing some opportunities in the acquisition markets, taking some shorter lease duration and being comfortable with that and I'm just wondering if you're seeing.

It shifts with some of the inflation talk if there's more competition.

At that shorter end of the lease duration, where there may be some resets coming sooner rather than later is there more competition in that property type.

And that product.

Yes, there definitely is more competition there.

John Albright: Yeah, there definitely is more competition there. I mean, that definitely is, to me, the sweet spot where you wanna be with inflation and all those kind of pressures. You wanna have an opportunity to have that tenant kinda come up for renewal. We've been seeing this all across the real estate industry, as you guys know very well, that you know, you can't build these properties for the basis we've been buying them. The tenants over the years have basically been able to get a fairly good deal on the rental rate that can't be replicated. The stickiness of the tenants to the properties, I think, with the inflation factors and construction costs and labor, is just more enhanced.

Definitely it was to.

To me the sweet spot, where you want to be with the inflation.

And all of those kind of pressures that you don't want to you want to have an opportunity to to have that tenant kind of come up for renewal we've been.

<unk> been seeing Thats all across the real estate industry as you as you guys know very well that you can't build.

Seeing any properties for the basis, we've been buying them.

And the tenants over the years have basically been able to get a fairly good deal on the rental rate that can't be replicated.

So the stickiness of the tenants to the properties I think with the inflation factors in construction costs and labor.

<unk>.

More enhanced so that is to us definitely the sweet spot.

John Albright: That is to us, definitely the sweet spot. Because a lot of the buyers are still, you know, maybe mom and pop with leverage, they still really can't compete with the shorter duration because they need efficient leverage. Yes, there is a little bit more competition, but it's not like, it's still not a good opportunity.

And because a lot of the buyers are.

Are still maybe mom and pop with leverage.

They still really can't.

Can't compete with the shorter duration because they need it.

Efficient leverage.

So we're not as so there yes, there is a little bit more competition, but it's not like a it's it's.

Still not a good opportunity.

Michael Gorman: Okay, great. Maybe sort of a similar vein, when you think about inflation pressures and maybe some of the shortages that we've heard about, how did you approach the build-to-suit opportunity in Jacksonville in terms of underwriting it, in terms of laying out the contracts with the tenants? How is that structured when you think about building in this type of environment?

Okay, Great and then maybe.

Sort of a similar vein when you think about inflation pressures and maybe some of the shortages that we've heard about how did you approach that.

Build to suit opportunity.

So in.

In Jacksonville in terms of underwriting it in terms of laying out the contracts with the tenants how is that structured.

When you think about building in this type of environment.

John Albright: Yeah. The structure is such that, you know, that if we don't get the building costs in line, guaranteed max and so forth, you know, we can get out of the deal. There's protection there. We certainly wouldn't bind ourselves to some sort of lease and delivery without making sure that the cost equation isn't nailed down.

Yes so.

So the structure is such that.

That if we don't.

Get the building costs in line guaranteed Max and so forth, we can get out of the deal.

So there is protection there so we certainly went in.

Bind ourselves to some sort of lease and delivery without making sure that the cost equation isn't nailed down.

Michael Gorman: Okay, great. Just last one for me. Matt, on the capital structure side, obviously, you mentioned with the asset sales, you know, a lot of equity coming into the balance sheet over the next couple of quarters. How do you balance, you know, the funds coming in, and obviously the need to redeploy that, with also the, you know, tapping the equity markets and the ancillary benefits that come in from just increasing the market cap and increasing the average daily volume? How should we think about your approach to the equity markets as you go through these asset sales?

Okay, Great and then just last one for me Matt on the capital structure side, Obviously, you mentioned with the asset sales.

A lot of equity coming into the balance sheet over the next couple of quarters, how do you balance.

The funds coming in and obviously the need to redeploy that with also the tapping the equity markets and the ancillary benefit.

They come in from just increasing the market cap and increasing the average daily volume.

How should we think about your approach to the equity markets as you go through these asset sales.

Matt Partridge: Yeah. I mean, in general, obviously, we wanna grow the equity market cap and create more liquidity for the shareholders and more float. I think everybody would like to see that. We wanna be opportunistic with the stock. We're very sensitive to making sure that we are a good steward of capital for our existing shareholders, while still trying to balance out bringing in new shareholders and increasing the demand for the stock. We try to strike a balance there. Obviously, we have the ATM, which helps us be pretty efficient in terms of accessing those equity capital markets on a matched funding basis. I'd say that's how we generally think about it, but we're gonna try to be opportunistic and try to balance both constituencies on the equity side.

Yes, I mean in general obviously, we want to grow the equity market cap and create more liquidity for shareholders more flow.

I think everybody would like.

See that we want to be opportunistic with stock.

Very sensitive to making sure that we.

Good steward of capital for our existing shareholders, while still trying to balance out, bringing in new shareholders and increasing the demand for the stock. So we try to strike a balance there obviously, we have the ATM, which which helps us be pretty.

Efficient in terms of accessing the equity capital markets on a match funding basis.

So I'd say, that's how we generally think about it but we're going to try to be opportunistic and try to balance both of.

Both constituencies in the equities on the equity side.

Michael Gorman: Okay, great. Thanks, guys.

Okay, great. Thanks, guys.

John Albright: Thank you.

Thank you.

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

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

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

Yeah. Thanks, Good morning, guys I wanted to talk about the next six months or so can you talk about the pipeline that youre evaluating and sort of where you're seeing the best risk adjusted returns from a category perspective.

Craig Kucera: Yeah, thanks. Good morning, guys. Wanna talk about the next six months or so. Can you talk about the pipeline that you're evaluating and sort of where you're seeing the best risk-adjusted returns from a category perspective?

Yeah.

John Albright: You know, that's a good question. I mean, I think we're seeing, you know, really, it's really good risk-adjusted returns based on a little bit of that shorter duration where we're picking out very strong real estate locations. You know, I would say that we've bought, you know, even an unfavored category that we wouldn't mind that category, you know, that tenant kind of not renewing, the sort of situation. I'd say it's a little bit harder to kinda just say one category we're seeing better return opportunities in risk-adjusted returns. I think it's just really, you know, seeing, you know, making sure you're getting good real estate and whether the shorter lease duration is really driving that opportunity for us.

Okay.

It's a good question I mean, I think we're seeing.

Really.

It's really a good risk adjusted returns based on a little bit of that shorter duration.

Where we're picking now.

Very strong real estate locations.

I would say that we've bought even.

Unfavored category.

That we wouldn't mind that category that tenant kind of not renewing those sort of situations. So I'd say, it's a little bit harder to kind of just say one category, we're seeing better better.

Return opportunities and risk adjusted returns I think is really.

Sin.

Seeing making sure youre getting good real estate.

And whether the shorter lease duration is really driving that opportunity for us but.

John Albright: You know, look, all the tenants, you know, seem to be doing very, very well. It's, you know, if certainly there was a category that, you know, isn't doing well, we'd only be involved if it is really to get at the real estate, kinda like the Old Time Pottery scenario.

Look all of the tenants.

Seem to be doing very very well.

And so it's.

Yeah.

Certainly there was a category that isn't doing well, we would only be involved if it was really to get at the real estate kind of like the old time pottery scenario.

Craig Kucera: Got it. Now, I guess then, does the concept of buying investment grade and maybe paying up for that a little bit more versus a non-investment maybe become less important when, you know, the economy is strengthening and you're looking a little bit more at the core real estate and maybe happy if a tenant leaves after a couple of years?

Got it I guess then.

Does the concept of buying investment grade and maybe paying.

Up for that a little bit more versus the non investment maybe become less important when the economy is strengthening and youre looking a little bit more core real estate and maybe happy if the tenant leaves after a couple of years.

John Albright: We'll still be involved in the investment grade side of it, to keep that ratio fairly decent because it's important for portfolio composition.

We will still be involved in the investment grade side of it to keep that debt.

Ratio.

Ratio fairly decent because it's important for our portfolio composition.

Craig Kucera: Okay. Fair enough. One more for me. Just going back to the development in Jacksonville, can you give us some metrics or some thoughts around maybe how meaningful that might be from an investment or cash flow perspective to Pine once that property is constructed?

Okay fair enough and one more for me.

Just going back to the development in Jacksonville can you give us some metrics or some thoughts around maybe how meaningful that might be from an investment in a cash flow perspective to pine wants that.

That property is constructed.

Matt Partridge: Hey, Craig, it's Matt. I mean, we've disclosed that it's about a 23,000 sq ft building. You know, it's a grocer. You can throw a per sq ft number on there and kinda triangulate to an overall value. I would say that you should expect us to be targeting some sort of spread above and beyond where it would trade in the market, obviously, because we're taking the development risk. It should be pretty accretive to overall earnings on a run rate basis once we get it built.

Hey, Craig it's Matt.

I mean, we've disclosed that it's about a 23000 square foot building.

So.

It's a gross it's aggressor. So you can throw a per square foot number on there and kind of triangulate to an overall value.

And then I would say that you should expect us to be targeting some sort of spread above and beyond where it would trade in the market. Obviously, because we're taking the development risk. So it should be pretty accretive to overall earnings on a run rate basis once we get a growth.

Craig Kucera: Okay. I appreciate it. Thanks.

Okay I appreciate it thanks.

John Albright: Thank you.

Matt Partridge: Thanks.

Thank you.

Operator 2: Once again, if you would like to ask a question, please press star and then one. To withdraw your questions, you may press star and two. Once again, that is star and then one to join the question queue. Ladies and gentlemen, at this time and showing no additional questions, I'd like to turn the floor back over to the management team for any closing remarks.

Operator: Once again, if you would like to ask a question, please press star and then one. To withdraw your questions, you may press star and two. Once again, that is star and then one to join the question queue. Ladies and gentlemen, at this time and showing no additional questions, I'd like to turn the floor back over to the management team for any closing remarks.

And once again, if you would like to ask a question. Please press star and then one to withdraw your question you May press star into once again that is fine and then wanted to join the question queue.

And ladies and gentlemen at this time in showing no additional questions.

I would like to turn the floor back over to the management team for any closing remarks.

John Albright: Thank you for joining us. I look forward to talking to you, during the quarter.

Thank you for joining us I look forward to talking to you during the quarter.

Operator 2: Ladies and gentlemen, with that, we'll conclude today's conference call. We do thank you for joining. You may now disconnect your lines.

And ladies and gentlemen, with that we'll conclude today's conference call. We do thank you for joining you may now disconnect your lines.

Operator: Ladies and gentlemen, with that, we'll conclude today's conference call. We do thank you for joining. You may now disconnect your lines.

Q3 2021 Alpine Income Property Trust Inc Earnings Call

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