Q4 2021 Alpine Income Property Trust Inc Earnings Call

February 11, 2022

Operator: Today's conference is scheduled to begin shortly. Please continue to stand by. Thank you for your patience. Again, today's conference is scheduled to begin shortly. Please continue to stand by.

Today's conference is scheduled to begin shortly. Please continue to standby. Thank you for your patience. Again today's conference is scheduled to begin shortly. Please continue to standby.

[music].

John Albright: Good morning, everyone, and thank you for joining us today for the Alpine Income Property Trust Q4 and year-end 2021 operating results conference call. With me is Matthew 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 fourth quarter and year-end 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.

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

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 alpinere.com.

With that, I will now turn the call back over to John.

John Albright: Thanks, Matt. We capped off a record-setting year for the company with our strongest quarter ever of acquisition volume, acquiring more than $100 million of well-located, high-quality net lease properties at a weighted average going-in cap rate of 6.2%. The success we had growing the organization in 2021 allowed us to generate the highest total shareholder return of any of our public company peers. We meaningfully beat our Q4 and full year guidance, increased our quarterly cash dividend by nearly 23% year over year, and dramatically improved our cost of capital. During Q4, we acquired 26 properties spread across 11 different states and 17 markets, with Houston being the largest market we invested in during the quarter.

John Albright: Thanks, Matt. We capped off a record-setting year for the company with our strongest quarter ever of acquisition volume, acquiring more than $100 million of well-located, high-quality net lease properties at a weighted average going-in cap rate of 6.2%. The success we had growing the organization in 2021 allowed us to generate the highest total shareholder return of any of our public company peers. We meaningfully beat our Q4 and full year guidance, increased our quarterly cash dividend by nearly 23% year over year, and dramatically improved our cost of capital. During the Q4, we acquired 26 properties spread across 11 different states and 17 markets, with Houston being the largest market we invested in during the quarter.

Thanks, Matt. We capped off a record-setting year for the company with our strongest quarter ever acquisition volume acquiring more than $100 million of well-located high-quality net lease properties at a weighted average going in cap rate of 6.2%.

The success we had in the organization in 2021 allowed us to generate the highest total shareholder return of any of our public company peers.

Our fourth quarter and full-year guidance increased our quarterly cash dividend by nearly 23% year over year.

Dramatically improved our cost of capital.

During the fourth quarter, we acquired 26 properties spread across 11 different states in 17 markets with Houston being the largest market we've invested in during the quarter.

John Albright: More than half of the acquired rents during Q4 came from MSAs with over 1 million people, and approximately half of the acquired rents were in the Urban Land Institute's top 25 markets for 2022. Our new acquisitions included 19 tenants, 9 of which were new tenants to the growing portfolio, operating in 12 sectors. Most notably, we had the unique opportunity to purchase a portfolio of ground lease properties in Houston. The ground lease transaction resulted in 34% of the acquired rents in Q4 coming from the ground lease properties, where the tenant has invested in the improvements, and we own the land. The ground lease structure is a superior investment because it provides an extra layer of protection due to the tenant's investment in the improvements, making the tenant much more likely to operate in the location over the long term.

John Albright: More than half of the acquired rents during Q4 came from MSAs with over a million people, and approximately half of the acquired rents were in the Urban Land Institute's top 25 markets for 2022. Our new acquisitions included 19 tenants, nine of which were new tenants to the growing portfolio, operating in 12 sectors. Most notably, we had the unique opportunity to purchase a portfolio of ground lease properties in Houston. The ground lease transaction resulted in 34% of the acquired rents in Q4 coming from the ground lease properties, where the tenant has invested in the improvements, and we own the land. The ground lease structure is a superior investment because it provides an extra layer of protection due to the tenant's investment in the improvements, making the tenant much more likely to operate in the location over the long term.

More than half of the acquired rents during the fourth quarter came from [inaudible] with over 1 million people in approximately half of acquired rents were in the urban land Institute top 25 markets for 2022.

Our new acquisitions included 19 tennant, nine of which were new tenants to the growing portfolio operating a 12 sectors. Most notably we had the unique opportunity to purchase a portfolio ground lease properties in Houston.

The ground lease transactions resulted in 34% of acquired rents in the fourth quarter.

Coming from the ground lease properties.

Where the tenant has invested in improvements so we own the land.

The ground lease structure superior investment because it provides an extra layer of protection due to the tenant's investment and improvements, making the tenant much more likely to operate in a low patient over the long term.

John Albright: Those improvements then revert to us if the tenant ever leaves or at the end of the lease term, which results in a higher overall residual value for our investment. As I previously mentioned, the portfolio of ground leases we purchased is all in the Houston market and has strong macro fundamentals. While the ground lease portfolio did bring our average cap rate down in Q4, this is a special opportunity to invest in the asset with excellent risk-adjusted returns. I'll stress that this quarter was unique and therefore we anticipate a higher average cap rate on our investments for Q1 2022, more in line with what you saw from us during the first three quarters of 2021.

Those improvements been referred to us if the tenant ever leaves or at the end of the lease term, which results in a higher overall residual value for our investment.

As I previously mentioned, the portfolio of ground leases we purchase are all in the Houston market and has a strong macro fundamental, while the ground lease portfolio did bring our average cap rate on the fourth quarter. This is a special opportunity to invest in the asset.

With excellent risk adjusted returns.

I will stress at this quarter was unique and therefore, we anticipate a higher average cap rate on our investments for the first quarter of 2022.

More in line with what you saw from us during the first three quarters of 2021.

John Albright: For the full year of 2021, we more than doubled our portfolio through acquisition of 68 net lease retail properties for just over $260 million at a weighted average going in cap rate of 6.8% and a weighted average remaining lease term at acquisition of 8.1 years. Throughout the year, we acquired a number of new tenants into our portfolio, including our first Lowe's, Academy Sports, Burlington, Camping World, Tractor Supply, Harris Teeter, and O'Reilly Auto Parts, just to name a few. When we take a step back and look at the markets where we acquired properties throughout the year, they included some of the strongest in the United States, including Houston, Dallas, Charlotte, Atlanta, Seattle, Washington, DC, Phoenix, and Orlando.

John Albright: For the first, for the full year of 2021, we more than doubled our portfolio through acquisition of 68 net lease retail properties for just over $260 million at a weighted average going in cap rate of 6.8% and a weighted average remaining lease term at acquisition of 8.1 years. Throughout the year, we acquired a number of new tenants into our portfolio, including our first Lowe's, Academy Sports, Burlington, Camping World, Tractor Supply, Harris Teeter, and O'Reilly Auto Parts, just to name a few. When we take a step back and look at the markets where we acquired properties throughout the year, they included some of the strongest in the United States, including Houston, Dallas, Charlotte, Atlanta, Seattle, Washington, DC, Phoenix, and Orlando.

For the full year of 2021, we more than doubled our portfolio through acquisition 68 net lease retail properties.

We project over $260 million at a weighted average going in cap rate of 6.8% and a weighted average remaining lease term and acquisition of 8.1 years.

Throughout the year, we acquired a number of new tenants into our portfolio.

Excluding our [inaudible], Burlington, Camping World, tractor supply Harris Teeter, and O'Reilly auto parts just to name a few.

<unk> boards, Burlington camping World tractor supply Harris, Teeter, and O'reilly auto parts just to name a few.

When we take a step back and look at the markets where we acquired properties throughout the year.

They included some of the strongest in the United States, including Houston, Dallas, Charlotte, Atlanta, Seattle, Washington, DC, Phoenix and Orlando.

John Albright: With the attractive locations of our assets and rents that we believe are below market and our 2021 execution in a good representation of our overall investment strategy, where we look to combine excellent real estate fundamentals with well-performing retailers in sectors that mitigate the near-term risk, but preserve upside through long-term residual value. At the end of the year, our portfolio was once again 100% occupied and consisted of 113 properties totaling 3.3 million square feet, with tenants operating in 26 sectors within 32 states. Our top tenants include Wells Fargo, At Home, Hobby Lobby, Academy Sports, Dollar General, Walmart, Walgreens, and Lowe's. The largest change to our top tenant list came from the sale of our Hilton Grand Vacations properties.

With the practice locations of our assets and brands that we believe are below market and our 2021 execution is a good representation of our overall investment strategy, where we look to combine excellent real estate fundamentals with well-performing retailers in the sectors that mitigate the near term risk, but preserve upside through long term residual value.

At the end of the year, our portfolio was once again, 100% occupied and consisted of 113 properties totaling 3.3 million square feet with tenants operating in 26 sectors within 32 states.

Our top tenants include Wells Fargo at home hobby lobby academies borrowers are general Walmart Walgreens and Lowe's.

The largest change to our top tenant list came from the sale of our Hilton Grand Vacations properties. This L generated a true cash gain of over $7 million and book value gain at more than $9 million, helping to improve our overall book value by 70 cents per share.

John Albright: This sale generated a true cash gain of over $7 million and a book value gain of more than $9 million, helping improve our overall book value by $0.70 per share. With the Hilton sale complete, the Wells Fargo property in Hillsboro, Oregon, is the sole remaining office asset in the portfolio. We are in active discussions with interested parties, and we have included this property sale in our 2022 disposition guidance, which will help fund our acquisition activity for the year. For 2022, we'll continue to execute our real estate focused investment strategy, where our size affords us the opportunity to be nimble and acquire high-quality acquisitions in a competitive but fragmented net lease transaction market. With that, now let's turn the call over to Matt.

With the Hilton sale complete, the Wells Fargo property in Hillsboro, Oregon is the sole remaining office asset in the portfolio. We are in active discussions with interested parties and we have included this property sale in our 2022 decision values, which will help fund our acquisition activity for the year.

For 2022, we will continue to execute our real estate focused investments for LNG, where our sides affords us the opportunity to be nimble and acquire high-quality acquisitions in a competitive but fragmented net lease transaction market. With that, now ill turn the call over to Matt.

Matthew Partridge: Thanks, John. As John mentioned earlier, our portfolio remains 100% occupied, and our tenants have performed very well, paying 100% of their contractual base rents in Q4 and throughout the entire year, including all of their scheduled COVID-related deferral repayments. For Q4 of 2021, FFO was $0.42 per share, a $0.05 per share increase over Q3, and AFFO was $0.41 per share, which was a $0.04 per share increase from Q3. For the full year, FFO was $1.58 per share, representing a 28% increase over 2020, and AFFO was $1.59 per share, which was a 53% increase over 2020.

Thanks, John. As John mentioned earlier, our portfolio remains 100% occupied and our tenants have performed very well paying 100% of their contractual base rent in the fourth quarter and throughout the entire year, including all of their scheduled COVID-19 related deferral repayments.

For the fourth quarter of 2021, FFO was 42 cents per share.

A 5 cents per share increase over the third quarter and FFO was 41 cents per share, which was a 4 cents per share increase from the third quarter. For the full year, FFO was $1.58 per share representing a 28% increase over 2020, and FFO was $1.59 per share, which was a 53% increase over 2020.

Matthew Partridge: Our AFFO for the full year was positively impacted by $430,000 of repaid rent related to previously disclosed COVID-19 rent deferral agreements. As we disclosed last quarter, we have one remaining tenant making repayments under a previously agreed to rent deferral agreement, and these payments of $22,000 per quarter are scheduled to occur through Q2 2022. General and administrative expenses for the year, which includes the $3.2 million of management fees to our external manager, totaled $5 million. This was a year-over-year increase of 7.9%, which was meaningfully offset by our revenue growth of more than 56%.

Our AFFO for the full year was positively impacted by $430,000 of repaid rent related to previously disclosed COVID-19 rent deferral agreements and as we disclosed last quarter. We have one remaining tenant making repayments under our previously agreed to rent deferral agreements and these payments of $22,000 per quarter.

Scheduled to occur through the second quarter of 2022.

General and administrative expenses for the year, which includes the $3.2 million of management fees to our external manager totaled $5 million. This was a year over year increase of 7.9%, which was meaningfully offset by revenue growth of more than 56%. G&A as a percentage of revenues in 2021 was $16.7.

Matthew Partridge: G&A as a percentage of revenues in 2021 was 16.7%, a year-over-year decrease of more than 750 basis points, which compares very favorably to a number of our small cap net lease peers and continues to reflect our improving organizational scale and efficiency. As has been the case in each quarter of 2021, our growth allowed us to increase our cash dividend in Q4 by nearly 6% to $0.27 per share. FFO and AFFO Q4 payout ratios were very healthy at 64% and 66% respectively, and we currently have a strong annualized yield of approximately 5.6%.

A year over year decrease of more than 750 basis points, which compares very favorably to a number of our small cap net lease peers and continues to reflect our improving organizational scale and efficiency.

As has been the case in each quarter of 2021, our growth allowed us to increase our cash dividend in the fourth quarter by nearly 6% to 27 cents per share.

FFO and AFFO fourth-quarter payout ratios were very healthy at 64% and 66% respectively and we currently have a strong annualized yield of approximately 5.6%.

Matthew Partridge: Our Q4 dividend marked the sixth dividend increase by the company since its IPO in late 2019, our fifth consecutive increase in as many quarters, and a 23% increase over our Q4 2020 quarterly dividend. We anticipate announcing our regular quarterly cash dividend for Q1 2022 towards the end of February. Turning to our capital markets activities in the balance sheet, 2021 was a very busy year. We nearly doubled the size of the company, sourcing $250 million of debt and equity through a combination of term loans, loan assumptions, ATM issuance, and our inaugural follow-on offering and OP Unit issuance. During Q4, we issued 152,000 shares of common stock through our ATM program for total net proceeds of $2.8 million.

Our fourth-quarter dividend marked the sixth dividend increased by the company since its IPO in late 2019, our fifth consecutive increase in as many quarters and a 23% increase over our fourth quarter 2020 quarterly dividend.

We anticipate announcing our regular quarterly cash dividend for the first quarter of 2022 towards the end of February.

Turning to our capital markets activities and the balance sheet. 2021 was very busy year, we nearly doubled the size of the company sourcing $250 million of debt and equity through a combination of term loans loan assumptions ATM issuance and our inaugural follow on offering in LP unit issuance during the fourth quarter, we issued 152,000 shares of common.

Stock through our ATM program for total net proceeds of $2.8 million and year to date in 2022, we have issued 213,000 shares of common stock through our ATM program at an average price of $19.98 per share for total net proceeds of $4.2 million.

Matthew Partridge: Year to date in 2022, we have issued 213,000 shares of common stock through our ATM program at an average price of $19.98 per share for total net proceeds of $4.2 million. We ended the year with net debt to total enterprise value of just under 50%, net debt to pro forma EBITDA of 8.1x, and a very healthy fixed charge coverage ratio of 6.2x, which is one of the strongest in the net lease sector. With no debt maturities other than our revolving credit facility until 2026, year-end liquidity from revolver availability and available cash on the balance sheet of $60 million, and anticipated future proceeds from disposition activities, we believe we have adequate liquidity to fund our projected acquisition activities for the near future.

We ended the year with net debt to total enterprise value of just under 50% net debt to pro forma EBITDA of 8.1 time and a very healthy fixed charge coverage ratio of 6.2 times, which is one of the strongest in the net lease sector.

With no debt maturities other than our revolving credit facility until 2026, year-end liquidity from revolver availability and available cash on the balance sheet of $60 million and anticipated future proceeds from disposition activities. We believe we have adequate liquidity to fund our projected acquisition activities for the near future.

Matthew Partridge: As we look out into 2022, we did provide initial guidance in our press release last night. This guidance relies on a number of significant assumptions, including but not limited to our ability to raise funds for investment at a reasonable cost of capital, our ability to acquire and sell assets at reasonable valuations in support of broader capital markets, and an overall stable economy. We begin 2022 with portfolio-wide in-place annualized straight-line base rent of $36.9 million, or $35.7 million of in-place annualized cash-based rent. Our full year 2022 FFO guidance range is $1.53 per share to $1.58 per share, and our full year 2022 AFFO guidance range is $1.51 per share to $1.56 per share.

As we look out into 2022, we did provide initial guidance in our press release last night. This guidance relies on a number of significant assumptions, including but not limited to our ability to raise funds for investment at a reasonable cost of capital.

Our ability to acquire and sell assets at reasonable valuations and supported broader capital markets and an overall stable economy.

We began 2022 with portfolio-wide in place annualized straight-line base rent of $36.9 million or $35.7 million of in place annualized cash base rent.

Our full year 2022 FFO guidance range is

<unk> guidance range is one.

$1.53 per share to $1.58 per share and our full-year 2022, AFFO guidance range is $1.51 per share to $1.56 per share.

Matthew Partridge: As I previously mentioned, our 2021 AFFO per share results included the positive effects of $430,000 of COVID rent deferral repayments. With those COVID rent deferral repayments having largely run their course, in 2022, they are anticipated to total just $45,000. While the year-over-year changes do create some noise in our AFFO per share comparisons from 2020 to 2021 and from 2021 to 2022, they do not impact year-over-year comparisons for FFO because we continued to straight-line the contractual rents during the repayment period instead of moving to a cash-based revenue recognition approach for those impacted tenants. Our 2022 per share guidance does assume some delevering of the balance sheet when compared to our year-end 2021 credit metrics, both from a forecast dispositions and from our projected capital markets activities.

As I previously mentioned, our 2021 AFFO per share results included the positive effects of $430,000 of COVID rent deferral repayments and with those COVID rent deferral repayments, having largely run their course in 2022 their anticipated total just $45,000.

While the year over year changes do create some noise in our AFFO per share comparisons from 2020 to 2021 and from 2021 to 2022, they do not impact year over year comparisons for FFO, because we continue to straight line the contractual rents during the repayment period instead of moving to a cash-based revenue recognition approach for those impacted tenants.

Our 2022 per share guidance does assume some delevering of the balance sheet when compared to our year end 2021 credit metrics, both from a forecasted dispositions and from our projected capital markets activities.

Matthew Partridge: While the ebbs and flows of leverage do impact period to period growth metrics for PINE, we have maintained that a long-term focus on risk-adjusted returns drive the best long-term value for our shareholders. On the transaction front, we expect to acquire between $200 million and $250 million of retail net lease properties during 2022. Subject to market conditions, we believe these acquisitions will occur at a similar blended yield to our 2021 full year acquisition cap rates. Our transaction volume guidance and anticipated cap rates do not include the potential grocery development site at our existing property in Jacksonville, Florida, which we disclosed in Q3 and is still subject to finalizing customary due diligence and approvals.

While the ebbs and flows of leverage do impact period to period growth metrics for pine, we have maintained that a long term focus on risk adjusted returns drive the best long term value for our shareholders on the transaction front, we expect to acquire between $200 million and $250 million of retail net lease properties during 2022 and subject to market conditions.

We believe these acquisitions will occur at a similar blended yield to our 2021 full year acquisition cap rates.

Our transaction volume guidance and anticipated cap rates do not include the potential grocery development site at our existing property in Jacksonville, Florida, which we disclosed in the third quarter and is still subject to finalizing customary due diligence and approvals and finally, our guidance does assume we sell between $40 and $50 million of assets throughout the year, including as John mentioned earlier.

Matthew Partridge: Finally, our guidance does assume we sell between $40 and 50 million of assets throughout the year, including, as John mentioned earlier, the lone remaining office property leased to Wells Fargo in Hillsboro, Oregon. Given the lease with Wells Fargo has less than four years remaining, we expect our portfolio's weighted average lease term to meaningfully improve after we sell this property and redeploy the proceeds. With that, I wanna thank our shareholders and business partners for their strong support in 2021, and we look forward to continued success in 2022. I'll now turn the call back over to John for his closing remarks.

The lone remaining office property leased to Wells Fargo in Hillsboro, Oregon. Given the lease with Wells Fargo has less than four years remaining we expect our portfolio's weighted average lease term to meaningfully improve after we sell this property and redeploy the proceeds.

With that, I want to thank our shareholders and business partners for their strong support in 2021, and we look forward to continued success in 2022. I will now turn the call back over to John for his closing remarks.

John Albright: Thanks, Matt. 2021 was a strong year of growth for Pine, and we're excited to be entering 2022 with such a high-quality portfolio with no meaningful near-term lease maturities and robust acquisition pipeline. All of our momentum to the end of 2021 has continued with a fast start in 2022, and that momentum will be a strong tailwind as we execute our real estate-focused strategy and seek to drive further value for our shareholders. I want to congratulate our team on a record-setting year, and thank you to our shareholders for their support. At this time, we'll open it up for questions.

Thanks, Matt. 2021 was a strong year of growth pine and we're excited to be entering 2022 with such a high-quality portfolio with no meaningful near term lease maturities and robust acquisition pipeline. All of our momentum to the end of 2021 has continued with a fast start in 2022.

And that momentum will be a strong tailwind as we execute our real estate focus strategy and seek to drive further value for our shareholders.

I want to congratulate our team on a record-setting year and thank you to our shareholders for their support and at this time, we'll open it up for questions.

Operator: Thank you. If you have a question at this time, please press star then one on your telephone. If your question has been answered or you wish to remove yourself from the queue, please press the pound key. Our first question comes from the line of RJ Milligan with Raymond James. Your line is open. Please go ahead.

Thank you. If you have a question at this time. Please press star then one on your telephone. If a question has been answered or you wish to remove yourself from the queue. Please press the pound key.

And our first question comes from the line of RJ Milligan with Raymond James. Your line is open. Please go ahead.

RJ Milligan: Hey, good morning, guys. Couple questions. I wanted to start out with the acquisition guidance. You guys said $260 million in 2021, calling for $225 million, slight decline in 2022. I'm just curious what's sort of driving that and what's your visibility over the next couple quarters in terms of acquisition volume? You know, what potentially could we see to get to the higher end of that range by the end of 2022?

Hey. Good morning, guys, couple questions. So I wanted to start out with the acquisition guidance.

I guess the $260 million in 2021, calling for 225 million slight decline in 2022. I'm just curious what's sort of driving that and what's your visibility over the next couple of quarters in terms of acquisition volume.

Acquisition.

And what potentially could we see that get to the higher end of that range.

By the end of 2022.

John Albright: Yeah. Thanks, RJ. I mean, the visibility looks really good as far as the pipeline. I think we're just basically, you know, hedging our bets here a little bit in that, you know, obviously we're in a kind of a choppy macro market, capital markets and, you know, who knows where things go. Maybe there's a war in Europe and everything. I think we're just not saying we're slamming on the pedal to the metal and doing acquisitions, you know, just to do them. We're just being a little bit careful. We're optimistic that, you know, obviously we'd like to do more, but it's all obviously dependent on capital markets and so forth.

Yes. Thanks, RJ.

I mean, the visibility looks really good as far as the pipeline.

I think we're just basically hedging our bets here a little bit in that obviously, we're in a kind of a choppy.

Pro market capital markets.

Who knows where things go, maybe there's a war in Europe and everything. So I think where it is not the same whereas slamming on the pedal to the metal in doing acquisitions.

Just to do them. So we're just being a little bit careful. We're optimistic that.

Obviously, we'd like to do more but it is all obviously dependent on capital markets and so forth I'm not as concerned about pipeline and the ability to find high quality and good at good yield.

John Albright: I'm not as concerned about pipeline and ability to find high quality and good at good yield. It's just a little bit more concerned about the backdrop.

Just a little bit more concerned about the backdrop.

RJ Milligan: Got it. That makes sense. Matt, in your opening comments, you talked about leverage, just over 8 times at the end of the quarter, and obviously that bounces around depending on, you know, capital markets activity. Assuming obviously the dispositions or planned dispositions are factored in there, but can you just talk about how you expect leverage to trend, you know, as we go through the year and sort of on a longer term basis?

And then that.

In Europe in your comments you talked about leverage just over eight times at the end of the.

Quarter, and obviously that bounces around.

Depending on capital market's activity.

I'm assuming obviously the dispositions or claimed dispositions are factored in there, but can you just talk about how you expect leverage to [change] as

We go through the year and sort of on a longer term basis.

Matthew Partridge: Yeah. Thanks, RJ. I think the good news is that we've got more liquidity in the stock over the last few months, and we've been able to execute on the ATM to start the year pretty efficiently. I think you can assume we'll probably be active on the ATM to match fund transactions throughout the quarter going forward. Within guidance, you know, our guidance sort of assumes we're gonna be ± that 7x range at the end of the year. There is some delevering in there. Obviously we gave some indication on what we thought the share issuance would look like with the range that we provided. There certainly will be some delevering, and we'll be efficient on the ATM. To John's point, we'll see how the capital markets evolve.

Thanks, RJ. I think.

The good news is that we've got more liquidity in the stock over the last few months.

And we've been able to execute on the ATM to start the year pretty efficiently. So I think you can assume we'll probably be active on the ATM to match fund transactions throughout the quarter going forward.

And then within guidance our guidance sort of assumes we're going to be plus or minus that seven times range at the end of the year. So there is some de-levering in there.

And obviously, we gave some indication on.

What we thought the share issuance would look like with the range that we provided.

There certainly will be some delevering and we'll be efficient on the ATM and then to John's point, we will see how the capital markets evolve.

RJ Milligan: Thanks. Then my last question, just to make it a little bit more broad. John Albright, you talked about, you know, the expectations for cap rates to sort of remain the same in terms of 2022 versus 2021. Can you just talk about what you're seeing out there in the market in terms of cap rates? Has any of this, you know, macro headwinds that we've seen over the past couple weeks, has that impacted pricing or the availability of product?

Thanks, and then my last question, just maybe a little bit more broad.

John, you talked about the expectations for cap rates to sort of remain the same in terms of.

Expectations for cap rates to sort of remain the same in terms of.

'22 versus '21. Can you just talk about what you're seeing out there in the market in terms of cap rates? And is any of this macro

Headwinds that we've seen over the past couple of weeks.

Has that impacted pricing or the availability of product?

Availability of product.

John Albright: We have not seen it as far as the pricing get better as a buyer. It's held fairly steady right now. You know, we are being a little bit more picky as far as, you know, not looking to bidding a little wide to see if there is some loosening in the market. So far we haven't seen it. We're optimistic that, you know, we'll be able to pick off some things at more attractive prices. But we're finding, you know, good acquisition properties at good yields for us, but we're seeing whether we can do a little bit better. We have not seen the pricing change in the market. There's just so much capital still out there.

We have not seen it as far as the pricing get better as a buyer.

As far as the pricing get better as a buyer.

It's held fairly steady right now.

We are being a little bit more picky as far as not looking to

We're bidding a little wide.

To see if there is some loosening in the market.

So far we haven't seen it. We're optimistic that we'll be able to.

To pick off some things at more attractive prices, but we're finding good.

Acquisition properties at good yields for us, but we're seeing whether we can do a little bit better, but we have not seen the pricing change in the market. There is so much capital still out there I think a lot of people are looking at this as far as going in for the inflation hedge so you're you're hearing dialogue from

Properties at good yields for us, but where we're seeing whether we can do a little bit better, but we have not seen the pricing change in the market. There is so much capital still out there I think a lot of people are looking at this as far as going in for the inflation hedge so you're you're hearing dialogue from the.

John Albright: I think a lot of people are looking at this as far as going in for the inflation hedge. You're, you know, hearing dialogue from the brokerage market that, you know, there is capital, you know, going to, you know, the safety of this type of asset for the obvious reasons. We're competing with that. You know, last year was the 1031 scramble. Everyone's worried about that, and now it's the inflation scramble. We'll keep monitoring it and keep pursuing things.

The brokerage market that there is capital.

Going to the safety of this type of asset for the obvious reasons.

So we're competing with that though last year.

The 1031 scramble, everyone's worried about that. And now it's the inflation scramble. So we'll keep monitoring it and keep pursuing things.

RJ Milligan: Thanks, guys. Appreciate it.

Thanks, guys. I appreciate it.

John Albright: Thank you.

Operator: Thank you. Our next question comes from the line of Michael Gorman with BTIG. Your line is open. Please go ahead.

Thank you.

Thank you and our next question comes from the line of Michael Gorman with BTIG. Your line is open. Please go ahead.

Michael Gorman: Yeah, thanks. Good morning, guys. John, just sticking with the acquisition market for a bit, obviously, you know, still see some strength there. Can you just talk about, are you seeing any kind of divergence in opportunities, whether it's amongst geographies or the different kind of retail property types that you're looking at?

Yeah. Thanks. Good morning, guys, John just sticking with the acquisition market for a bit obviously.

We still see some strength there.

Can you just talk about are you seeing any kind of divergence in opportunities, whether it's amongst geographies or the different kind of retail property types that you're looking at?

John Albright: Yeah. You know, I think, you know, as a backdrop, you know, as we're working on the sale of Wells Fargo, we want to make sure we curate a very strong, you know, top 10 tenant list. We're working hard to kind of, you know, keep on impressing you with the quality of our portfolio. I think you're gonna see us, you know, pursuing some really good credits that will make itself up to the higher into the leaderboard with regards to tenant concentration. We're very excited that we're seeing some good acquisition opportunities in good markets that will help us kind of formulate even a stronger tenant backdrop.

Yes, so I think, as a backdrop.

As a backdrop.

As we're working on the sale of Wells Fargo, we want to make sure we curate a very strong.

Top 10 tenant list.

So we're working hard to kind of.

Keep on impressing you.

With the quality of our portfolio. And so I think you're going to see us pursuing some really good credits that will make itself up to the higher.

End of the ledger on with regards to tenant concentration and so we're.

Very excited that we're seeing some good acquisition opportunities in good markets.

That will help us kind of formulate even a stronger tenant backdrop. So it's really all across.

John Albright: It's really all across sectors and locations. I would say we're pleasantly surprised to get some of the locations we're getting. Like, you know, for instance, the Houston acquisition that happened in the Q4 when we did that ground lease portfolio, we were really happy to get that portfolio at that type of pricing with that kind of quality. It just kind of reinforces the quality of our whole portfolio that we were able to source something like that. That was totally unexpected and a terrific acquisition for us and for the company. Hopefully we can do more of those going forward.

Sectors and locations, but I would say we are pleasantly surprised to get some of the locations we're getting like for instance, the Houston acquisition that happened in the fourth quarter. When we did those that ground lease portfolio, we were really.

<unk>.

Surprised to get some of the locations we're getting like for instance, the Houston acquisition that happened in the fourth quarter. When we did those that ground lease portfolio, we were really.

Really happy to get that portfolio at that type of pricing, with that kind of quality.

It just kind of reinforces the quality of our whole portfolio that we're able to source something like that and that was totally unexpected and terrific acquisition for us and for the company. So hopefully we can do more of those going forward.

Michael Gorman: That's great. Maybe kind of transitioning off of that with the quality that you just talked about, you know, your presentation has some new disclosures in it talking about demographics. It's not something that often comes up a lot in net lease. I'm just curious, as you focus on kind of the quality of the actual real estate itself, is that something that's getting priced into the market, or is this a situation where not a lot of the other bidders are looking at the underlying real estate demographics, and maybe you can pick up what we would call better quality real estate at the same pricing as another location?

That's great and maybe kind of transitioning off of that with the quality that you just talked about.

Your presentation at some new disclosures and I'm talking about demographics, it's not something that often comes up a lot and at least so I'm just curious as you focus on kind of the quality of the actual real estate itself.

Is that something that's getting priced into the market or is this a situation where not a lot of the other bidders are looking at the underlying real estate demographics? And maybe you can pick up with what we would call better quality real estate at the same pricing.

As another location.

John Albright: Yeah. I mean, look, I mean, we're trying to force the conversation because obviously our portfolio is super strong compared to maybe other folks. It's certainly not getting priced into our stock. I mean, you know, the multiple we're trading at is on the low side. If you look through the portfolio and the demographics and the locations, you know, we certainly should be trading higher just based on the quality.

Yes, I mean look, I mean we're trying to force the conversation because obviously, our portfolio is super strong compared to.

Maybe other folks and so it's certainly not getting priced into our stock I mean, we're the.

The multiple we're trading at.

On the low side. And so but if you look through the portfolio and the demographics and locations.

We certainly should be trading higher just based on the quality and so we're trying to draw out those.

John Albright: We're trying to draw out those that fact pattern so people, as they look at investing in different net lease REIT companies, that they'll say, "Okay, I can pick up Alpine at a very low multiple, higher dividend yield in a much better quality real estate portfolio in strong markets." We're very focused on that, where, you know, obviously Houston's our largest market now, you know, obviously incredible macro tailwinds for Houston with oil and so forth. You know, very much a strong growing economy.

The fact pattern.

So people as they look at investing in.

Different net lease REIT companies that they will say, okay, I can pick up alpine at a very low multiple higher dividend yield and a much better quality real estate portfolio and strong market. So we're very.

Focused on that we're obviously Houston is our largest market now.

Obviously, incredible macro tailwind for Houston with oil and so forth.

And so very much a strong growing economy, we did a John Burns study two years ago in and basically I said.

Very much a strong growing economy, we did a John Burns study two years ago in and basically I said.

John Albright: We did a John Burns study 2 years ago and basically said, you know, giving John Burns basically different criteria, you know, what cities with major airports, big universities, who has the highest job growth, population growth, and actually Houston came on top, and this is when oil was at, like, $20 a barrel, which was a little bit shocking to us. In digging deeper with John Burns on it, you know, is a little bit, a lot of it had to do with being a business-friendly city. It's all about growth.

Giving John Burns basically different criteria, what cities with major airports, big universities.

Who has the highest job growth population growth and actually Huston came on top of this is when oil is at like $20 a barrel, which was a little bit shocking to us.

And digging deeper with John Burns on it. A lot of it had to do with being a business-friendly city.

<unk> a lot of it had to do with being a business friendly.

It is all about growth and so so look, Houston probably won't be the top one for forever, but it just shows you kind of how we look at it.

John Albright: You know, look, Houston probably won't be the top one forever, but it just shows you kind of, you know, how we look at it, really going with a macro backdrop and then really strong real estate within our acquisitions.

Really going with macro backdrop, and then really strong real estate within our acquisitions. Hey, Mike. The other thing I would add is on the net lease space a lot of times people focus on the tenant quality, which is important but when you see us acquire assets that.

Matthew Partridge: Mike, the other thing I would add is, you know, in the net lease space, a lot of times people focus on the tenant quality, which is important. When you see us acquire assets that maybe have a tenant that isn't as strong as you would typically see us acquire, it's usually because we see a lot of value in the real estate, and that's where we're finding some unique opportunities in the market, where maybe it's being priced off the type of tenant that's there and the quality of the real estate and the ability to mark those rents to market, gives us an opportunity for longer term residual value.

And then maybe you have a tenant that isn't as strong as you would typically see us acquire.

It's usually because we see a lot of value in the real estate and that's where we're finding some unique opportunities in the market, where maybe it's being priced off that type of tenant that's there and the quality of the real estate and the ability to market those markets. Mark those rents to market.

It gives us an opportunity for longer-term residual value.

Michael Gorman: Right. There's a different opportunity there because other people aren't looking at it the same way. That makes sense. Last question just on the amount of capital in the space. Just as you're out there looking at acquisitions, what kind of competition are you coming across? Is there still a lot of the 1031 money out there that maybe isn't non-economic? I'm just trying to get a sense for there could be a lot of capital out there, but how economically sensitive is it? How rate-sensitive is it? Like, is the market gonna move in concert with rates here, or is there gonna be a stickiness where maybe it's the 6- to 9-month lag if we get a more significant move up in rates, but the capital doesn't necessarily care, because it's got other motivations?

Right right right. So there is a different opportunity there because other people aren't looking at it the same way. That makes sense.

Last question just on the amount of capital in the space.

Just as you're out there looking at acquisitions.

Yes.

What kind of competition are you coming across? Is there still a lot of the 10 31 money out there that maybe isn't non-economic? I'm just trying to get a sense for.

There could be a lot of capital out there, but how economically sensitive is it how rate sensitive as it.

Is the market kind of move in concert with rates here? Or is it going to be a stickiness, where maybe it's a six to nine-month lag if we get a significant more significant move up in rates, but the capital doesn't necessarily care?

Because it's got other motivations.

John Albright: Yeah. Good question. We're seeing less of that right now on these smaller acquisitions where it's being Ten-thirty-one driven. I think a lot of that happened at the end of the year. I think now you're seeing more on the individual side, on these smaller transactions, you know, people are buying more allocation of capital rather than Ten-thirty-one driven. I don't see, you know, cap rates just some sort of frenzy getting tight, very tight because there's a feeding frenzy with regards to Ten-thirty-one money. I mean, you do see that in, you know, call it a Chick-fil-A ground lease. I mean, that stuff trades at, you know, crazy low cap rates. You know, we're not seeing it kind of across the board.

Good question. So we're seeing less of that right now on these smaller acquisitions, where that's being 10 31 driven. I think a lot of that happened at the end of the year I think now you're seeing more.

On the individual size on these smaller transactions.

People are buying more allocation of capital rather than 10, 31, driven so I don't see cap rates just.

Some sort of frenzy getting tightening of very tight because there's there is.

Feeding frenzy with regards to 10 31 money.

I mean you do see that in call it a chick fil a ground lease.

That stock trades at crazy low cap rates.

But we're not seeing it kind of across the board and I will say.

John Albright: I'll say, you know, on the larger institutions, you know, they're obviously not focused on this type of product. We are seeing on larger acquisitions, there, you know, deep institutional capital that is chasing. We're kind of in the in-between zone, which is perfect for us, where we're more competing with smaller players, and that's where we're picking up a lot better yield in high quality. If we were going, you know, down to the McDonald's ground lease, that would be really difficult for us to transact on. If we were going into the $300 million type acquisition range, that would be really tough to compete on. This in-between zone is actually kind of the sweet spot.

On the larger institutions.

The larger institutions.

They are obviously not focused on this type of product, but we are seeing on larger acquisitions.

Deep institutional capital.

That is chasing so we're kind of in that in-between zone, which is perfect for us.

We're more competing with smaller players and that's where we're picking up a lot better yield.

And high quality, if we were going.

Down to the Mcdonalds ground lease that would be really difficult for us to transact on if we're going into the $300 million type acquisition range that would be really tough to compete on so those in-between zone is actually kind of the sweet spot.

Michael Gorman: Okay, great. Thanks for your time, guys.

Okay, great. Thanks for your time guys.

John Albright: Thank you.

Operator: Thank you. Our next question comes from the line of Rob Stevenson with Janney. Your line is open. Please go ahead.

Thank you.

Thank you and our next question comes from the line of Rob Stevenson with Janney. Your line is open. Please go ahead.

Rob Stevenson: Good morning, guys. John Albright, what's the right way to think about the Q4 acquisitions ex the ground leases? Were the cap rate on that consistent with the 6-8 in the Q3 that you did and the 6-8 for the full year? Was there something in terms of the quality that brought that down in addition to the, you know, ±5% cap rate on the ground leases?

Hey, good morning, guys. John, what's the right way to think about the fourth quarter acquisitions ex the ground leases? Were the cap rate on that consistent with the six to eight in the third quarter that you did in the six to eight for the full year?

Was there something in terms of the quality that brought that down in addition to the plus or minus 5% cap rate on the ground leases?

John Albright: Yeah. Really, the ground leases kind of drove the cap rate. As we mentioned in the intro that we expect cap rates to be higher than our Q4 average. You know, that was a little bit of a, you know, one-off, if you will, that did that. We're being, you know, picky going forward and elevate that.

Yes, it really the ground leases kind of drove in the cap rate and as we mentioned in the intro

that we expect.

Cap rates to be higher than our fourth quarter average.

So.

That was a little bit of one-off if you will that did that so we're being picky going forward and elevate that.

Rob Stevenson: All right. There wasn't anything from outside of the ground leases that sort of, you know, skewed the two-thirds of the non-ground lease acquisitions away from a sort of high sixes, low seven sort of cap rate in Q4.

But there wasn't anything from outside of the ground lease is it sort of.

Skewed the two-thirds of the non-ground lease acquisitions away from sort of high sixes low seven cap rate in the fourth quarter. There's no market pressure that's pulling that down inherently.

John Albright: Right.

Rob Stevenson: There's no market pressure that's pulling that down inherently.

John Albright: There wasn't any. Correct.

Rob Stevenson: Okay. What are the characteristics of the dispositions beyond Wells Fargo? What makes those assets ripe to sell, you know, in 2022 for you guys?

Correct.

And then what are the characteristics of the dispositions beyond Wells Fargo? What makes those

Assets right to sell in 2022 for you guys. You just gave me the fat pitch. So I appreciate that.

John Albright: Well, that was. You just gave me the fat pitch, so I appreciate that. We are getting kind of reverse inquiry on assets that we bought not too long ago, where someone just feels like they have to own it. We will put a price on it and say, "Look, if you want to own it at this price, we're happy to sell it to you." I mean, we like the asset, we like the credit, but, you know, there's a price for everything. That's really driving it, really some inbounds on things that we've recently purchased. You know, even with Alpine Valley Music Theatre opening up for the summer concerts, I got, you know, a couple of calls on that, you know, not too long ago.

We are getting kind of reverse inquiry on assets that we bought and then not too long ago, where someone just feels like they have to own it and so we will put a price on it and say look if you want one of those price we're happy to sell it to you I mean, we like the asset we like credit, but there is a price for everything so.

And that's really driving it is really some inbounds on things that we've recently purchased.

So even with Alpine music theater opening up for this summer concerts, I got a couple of calls on that not too long ago.

Alpine music theater opening up for this summer concerts I got a couple of calls on that not too long ago. So.

John Albright: Anyway, that's a little bit of that guidance.

Anyway, so that's a little bit of that guidance.

Rob Stevenson: Okay. Last one for me. Matt, what was the, you know, how should we think about the rough timing of the Q4 acquisitions, sort of mid-quarter? Was it a lot of, you know, late December weighting? How much of the, call it $1.6 million of NOI, was included in that $0.42 of FFO we should be thinking about?

Okay, and then last one for me, Matt, what was the.

How should we think about the rough timing of the fourth quarter acquisitions? Sort of mid-quarter was a lot of

Fourth quarter acquisitions sort of mid quarter was a lot of <unk>.

Late December weighting how much of the call it $1.6 million of NOI was included in that 42 cents of FFO?

Matthew Partridge: Yeah. I'd say the majority of it occurred in December. It wasn't all in the last week or anything, but it was certainly back half weighted within the quarter.

Yes, the majority of it occurred in December, it wasn't all in the last week or anything.

Certainly back half weighted within the quarter.

Rob Stevenson: Okay. Ex-acquisitions, ex-dispositions, your runway is actually higher than that 42 at this point?

So ex dispositions your runway it is actually higher than that 42 at this point.

Matthew Partridge: Correct.

Rob Stevenson: Okay. Thanks, guys. Appreciate the time.

Correct. Okay. Thanks, guys, appreciate the time.

John Albright: Thank you.

Operator: Thanks. Our next question comes from the line of Barry Oxford with Colliers Securities. Your line is open. Please go ahead. Barry, your phone may be on mute.

Thank you.

Thank you and our next question comes from the line of.

Barry Oxford with Colliers International. Your line is open. Please go ahead.

Yeah.

Barry, your phone may be on mute.

Barry Oxford: It was on mute. Thank you so much. Thanks, guys, for taking the question. Getting back to the capital structure, and paying down some of the debt in 2022, and utilizing the ATM, your share count does go up, you know, a fair amount. Can you guys get to that share count just via the ATM? You think there's enough liquidity there? Or look, at some point during the year, we'd probably do a follow on.

It was on mute. Thank you so much.

Thanks guys for taking the question. Getting back to the capital structure.

And paying down some of the debt in '22 and utilizing the ATM. Your share count does go up a fair amount.

Utilizing the ATM your share count does go up.

A fair amount.

Can you guys get to that share count just via the ATM? You think there is enough liquidity there or look at some point during the year, we'd probably do a follow on.

Matthew Partridge: I mean, I think it's to be determined. The liquidity, like I said, has improved quite a bit over the last few months. Far be it for me to project how that's gonna trend going forward. If it continues to improve, I think it's feasible that we could do that amount off the ATM. I'm not gonna sit here and tell you one way or the other, that that's the way that we've assumed it's gonna happen. We're gonna maintain flexibility in terms of how we execute on that.

I mean I think it's to be determined.

It's to be determined.

The liquidity like I said has improved quite a bit over the last few months.

Far be it for me to project how that's going to trend going forward, but if it continues to improve I think it's feasible that we could do that amount off the ATM, but I'm not going to sit here and tell you one way or the other.

That that's the way that we've we've assumed it's going to happen.

<unk>.

We're going to maintain flexibility in terms of how we execute on that.

Barry Oxford: You got a couple models with a couple different scenarios in them.

So you got a couple of models with a couple of different scenarios in them.

Matthew Partridge: We do.

Barry Oxford: Got it. All right. Most of the other questions have been answered. Thanks so much, guys.

We do.

Got it, alright.

Most of the other questions have been answered. Thanks so much, guys.

Matthew Partridge: Thanks, Barry.

John Albright: Thank you.

Barry Oxford: Yep.

Thanks, Barry.

Operator: Thank you. Our next question comes from the line of Anthony Hau with Truist Securities. Your line is open. Please go ahead.

Yes.

Thank you and our next question comes from the line of Anthony [Hau] with Truist Securities. Your line is open. Please go ahead.

Anthony Hau: Good morning, guys. Thanks for taking my question. Just one quick question on ground lease. What's the lease structure on those Houston ground lease?

Good morning, guys. Thanks for taking my question.

Just one quick question on ground lease. What's the lease structure on those Houston ground lease?

John Albright: I mean, the lease structure is, you know, basically that obviously we own the ground. The tenant owns the sticks and bricks, and we have a long-term ground lease. There's escalations along the way in different forms. It's really a traditional, nothing special about it. But you know, we love it because obviously you're in a very asset protected position with residual upside. It's kind of a, you know, a lot of optionality for us as a holder of the ground.

Yes.

I mean the lease structures is, basically that obviously, we own the ground.

Basically that obviously, we own the ground.

The tennant owns the sticks and bricks and we have a long term ground lease.

And there's escalations along the way in different forms. So it's really a traditional nothing special about it but we love it because obviously you are in a very asset protected position.

With residual upside so it's kind of a lot of optionality for us as a holder of the ground.

A lot of Optionality for us as as a holder of the ground.

Anthony Hau: What's the rent escalation in those ground lease again? Are they like, you know, 5% over 5 years?

And what's the rent escalation and in those ground lease again are they like 5% over five years?

Matthew Partridge: It varies. Some of them are annual escalations. Some are 5 or 10% every 5 years. Some of them are flat with escalations in the options. It depends on the tenant.

It varies. Some of them are annual escalation. Some are 5% or 10% every five years.

Some of them are flat with escalations in the options so it depends on the tenant.

Anthony Hau: Gotcha. What's your appetite to buy more ground leases in this environment?

Got it. And what's your appetite to buy more ground leases in this environment?

And what's your appetite to buy more ground leases and this windows environment.

John Albright: I mean, look, we'll buy them if, you know, it's set up, you know, as if we're getting paid a little bit higher than where this would be traded, normally, if a portfolio discount kind of arises, and that's what happened with the portfolio we had. You know, just hypothetically, let's say we had a $50 million ground lease portfolio opportunity, we may buy it, but then sell off, retail out some of them to retain some of the ground leases at a much higher yield than you'd be able to manufacture. We may do something like that to make sure we're not compromising our cap rate.

I mean look we'll buy them if it's set up.

<unk>.

It set up.

If we're getting paid a little bit higher than where this with this will be traded normally if a portfolio discount kind of a horizon. And that's what happened with the portfolio we had.

So just hypothetically, let's say we had a $50 million ground lease portfolio opportunity, we may buy it but then sell off retail out some of them to retain.

Just hypothetically, let's say, we had a $50 million our ground lease portfolio opportunity, we may buy it but then sell off retail out some of them to retain.

Some of the ground leases at a much higher yield than you'd be able to manufacture. So we may do something like that to make sure we're not compromising our cap rate.

John Albright: You know, I don't expect to see a lot of that because obviously, there's a lot of buyer interest for ground leases. We'll certainly keep an eye out for it.

So but.

But I don't expect to see a lot of that because obviously, there's a lot of buyer interest for ground leases.

But certainly, we certainly keep an eye out for.

Anthony Hau: Gotcha. This is like my last question. John, what's your philosophy on issuing equity to reduce leverage and growing the size of the portfolio and earnings growth if, you know, the stock price stay the same?

Got it and just my last question. John, what's your philosophy on issuing equity to reduce leverage and growing the size of the portfolio and earnings growth if the stock price stays the same?

John What's your philosophy on issuing equity to reduce leverage and growing the size of the portfolio and earnings growth.

The stock price stays the same.

John Albright: You know, I think you see, you know, it's interesting looking back at some of. Let's just take a step back and look at the highest FFO multiple, net lease REIT out there right now. I think it's NETSTREIT. Alpine was outperforming NETSTREIT until they got a lot larger, and then all of a sudden they took off. I think everyone realizes it in this market that we need to get a little bigger to kind of get that traction on the cost of capital. I think we've come a long way for sure. We don't need to really do a lot in the capital markets as we modify the portfolio to be, you know, best in class.

Yes.

So I think you see, it's interesting looking back at some of it. Let's just take a step back and look at the highest FFO multiple net lease REIT out there right now. I think it's [necessary.]

Step back and look at the highest.

<unk> multiple net lease REIT out there right now I think it's necessary.

And Alpine was outperforming [Netstreit] until they got a lot larger and then all of sudden they took off. And I think everyone realizes it in this market that we need to get a little bigger to kind of get that traction on the cost of capital. I think we've come a long way for sure.

So we don't need to really do a lot in the capital markets as we modify the portfolio to be best in class. So once we have Wells Fargo sold and we have that capital to deploy in acquisitions and we have those acquisitions come through and you look and see our

John Albright: Once we have Wells Fargo sold and we have that capital to deploy in acquisitions, and we have those acquisitions come through and you look and see our tenant list, and it's very strong, it's gonna be very self-evident to everyone that, hey, this is the place to be. We're, you know, look at the yield that Alpine's priced at, look at the FFO multiple. We're very, you know, cautious on the capital markets until we get, you know, good cost of capital. We know that as we get larger, a lot of people look at it as like, okay, as we get larger, there's more liquidity, we're de-risking, and that's all good. We're careful with it and we kinda monitor it.

Tenant list and it's very strong. It's going to be very self-evident to everyone that hey, this is the place to be or look at the yield that Alpine's price at. Look at the FFO multiple so we're very cautious on the capital markets until we get good cost of capital, but we know that as we get larger.

Price that look at the <unk> multiple so we're very.

Cautious on the capital markets until we get.

Good cost of capital, but we know that as we get larger.

A lot of people look at it is like okay, as we get larger, there's more liquidity or derisking and that's all good.

But we're careful with it.

John Albright: I know, you know, we're, you know, obviously very attractive stock given where we're valued. I think our shareholders are getting paid to wait for that transformation to happen.

We kind of monitor it.

John Albright: I know, you know, we're, you know, obviously very attractive stock given where we're valued. I think our shareholders are getting paid to wait for that transformation to happen.

No.

We're obviously, very attractive stock given where we're valued so I think our shareholders are getting paid to wait for that transformation to happen.

Anthony Hau: Okay. Thanks, guys.

Okay. Thanks, guys.

John Albright: Thank you.

Operator: Thank you. Our next question comes from the line of Craig Kucera with B. Riley Securities. Your line is open. Please go ahead.

Thank you.

Thank you and our next question comes from the line of Greg [inaudible] with B Riley Securities. Your line is open. Please go ahead.

Craig Kucera: Yeah. Hey, good morning, guys. I wanted to circle back to the Wells Fargo sale. I think last quarter you mentioned that there was some consideration from residential redevelopers. First of all, is that potentially driving better pricing than we would have seen maybe six months ago, given the interest in the sector? And second, sort of, you know, can you handicap when you think that might close given activity?

Hey. Good morning, guys I wanted to circle back to the Wells Fargo sale.

I think last quarter, you mentioned that there was some consideration from residential redevelopments.

First of all, is that potentially driving better pricing than we would've seen maybe six months ago, given the interest in the sector? And the second sort of can you handicap when you think that might close given activity?

John Albright: Yeah. The residential part of it certainly played a very large role in the interest. I would say that the buyer interest, the quality of the buyer interest is very strong, because of the residential play and because of, as you mentioned, the very, you know, that sector is very strong and great, you know, market backdrop for it and a lot of players. That certainly helped quite a bit. With regards to timing, you know, that's kind of a Q2 expectation on a close.

Yes, so the residential part of it certainly played a very large role in the interest. And so I would say that the buyer interest, the quality of the buyer interest is very strong because of the residential play and because as you mentioned.

The residential part of it certainly played a very large role in the interest and so I would I would say that the buyer interest the quality of the buyer interest is very strong because of the residential play in because as you mentioned.

That sector is very strong and great market backdrop for it and a lot of players so that certainly helped quite a bit.

That sector is very strong and great.

The market backdrop for it and a lot of players so that certainly helped quite a bit.

With regards to timing, that's kind of a second-quarter expectation on a close.

Craig Kucera: Got it. I feel like last quarter, as far as considerations regarding overall office asset sales, you were thinking kind of maybe in the mid-sevens. Is that maybe tightening given the increased interest from some of these residential developers?

Got it. And I feel like last quarter as far as considerations regarding overall office asset sales you were thinking.

Kind of maybe in the mid 7s, is that maybe tightening given the increased interest from some of these residential developers?

Some of these residential developers.

John Albright: No, I wouldn't say that because, you know, what you have to remember, you know, Wells Fargo has, you know, a certain amount of time left on their lease, you know, almost five years, and they have renewal options. You know, a developer has to kind of wait to kind of get to that development opportunity. It just factors into their overall yield expectations. I wouldn't say that the pricing got tight because of that with regards to having the lease in place. You know, you had to have a big enough player that could live off the yield and so forth.

No, I wouldn't say that because what, you have to remember Wells Fargo has a certain amount of time left on their lease, almost five years.

You have to remember.

Wells Fargo has.

Certain amount of time left on their lease almost five years.

And they have renewal options.

A developer has to kind of wait to kind of get to that development opportunity.

So it just factors into their overall yield expectations. So I won't say that the pricing got tight because of that with regards to having that. The lease in place. You have to have a big enough player that could live off the yield and so forth.

Lease in place.

Had to have.

Big enough player that could live off the yield and so forth.

Craig Kucera: Got it. Shifting gears, I know that you added Sportsman's Warehouse here in the Q4. I'm curious as to whether or not those purchases occurred before the canceled merger with Bass Pro, and did that impact your underwriting at all?

Got it.

Shifting gears. I noticed you added sportsman's warehouse here in the fourth quarter.

I am curious as to whether or not those purchases occurred before the canceled merger with bass pro and did that impact your underwriting at all.

John Albright: They did happen before the cancel, but, you know, we got very comfortable with the acquisition. We were more concerned, to be honest with you, that the merger may have a situation where they close some of the Sportsman's, because there's some sort of overlap. Now obviously that's gone away. We got comfortable because in talking to the Sportsman folks, you know, these particular stores are very strong operations and do very well. Obviously the company, given that they got a $50 million termination fee and they're, you know, they have no debt, they're in a very strong position. I expect in looking at their investor presentation that they're gonna be growing the company further now as a standalone.

They did happen before the cancelled.

We got very comfortable with the acquisition.

We're more concerned, to be honest with you, that the merger may have a situation where they closed some of the Sportsman's.

The merger May have a situation where they closed some of the sportsman's.

Because there is some sort of overlap and now obviously that's gone away.

But we got comfortable because in talking to the Sportsman folks, these particular stores are very strong. Operations and do very well.

Sportsman folks these particular stores are very strong.

Operations and do very well.

And obviously, the company given that they got a 50 million dollar termination fee.

And they have no debt. They're in a very strong position.

I expect in looking at their investor presentation that they're going to be growing the company further now as a standalone. So to answer your question is we bought it before the canceled merger, but we had more concern with the merger than we do now.

John Albright: To answer your question, we bought it before the canceled merger, but we had more concern with the merger than we do now.

Craig Kucera: Okay, great. Just thinking about your lease expirations, it looks like a few of the purchases you made in Q4 were shorter term leases. You now have some expiring in 2022, a little bit more in 2023. Do you recall whether or not those leases were priced at market, or are there any opportunities maybe for increases to market?

Okay, great.

Just thinking about your lease expirations. It looks like a few of the purchases you made in the fourth quarter were shorter-term leases.

You now have some expiring in '22, a little bit more in '23. Do you recall whether or not those leases were priced at market or are there any opportunities maybe for increases to market?

John Albright: Most, if not all, I'll let Matt answer, but you know, I don't think I've seen a renewal where it's flat. The expectation is they're gonna have escalations.

Most if not all, I'll let Matt answer .

I don't think I've seen a renewal where it's flat. So the expectation is they're going to have escalations. Yes, most of them Craig, over the next few years have escalation at the renewal options and just given the rise in inflation.

Matthew Partridge: Yeah. Most of them, Craig, over the next few years have escalations at the renewal options. Just given the rise in inflation, I think it's gonna be a lot harder for tenants to relocate in a specific market because, you know, the cost of occupancy is going up. To make that change, they're gonna get repriced to where rents are in the market at that time. You know, we feel pretty good about the stickiness of the tenants.

The ryzen inflation.

I think it's going to be a lot harder for tenants to relocate in a specific market because the cost of occupancy is going up and to make that change, they're going to get repriced to where rents are in the market at that time.

Where rents are in the market at that time.

So we feel pretty good about the stickiness of the tenants.

Craig Kucera: Great. One more for me that kind of dovetails with my final question. Can you give us a sense after this round of acquisitions here in Q4 of sort of what the breakout is from a rent escalation perspective? What percentage is flat versus fixed versus maybe any CPI sprinkled in there as well?

Great and one more from me that kind of dovetails with my final question.

Can you give us a sense after this round of acquisitions here in the fourth quarter of sort of what the breakout is from a rent escalation perspective? What percentage is flat versus fixed versus maybe any CPI sprinkled in there as well?

Matthew Partridge: Yeah. Very few have CPI. It's not as relevant in the more institutional net lease space, right? Because most of our tenants, almost three-fourths, are publicly traded. You know, in terms of what's flat and what's annual and what's other, about half the leases are flat and about half have contractual rent increases. The one thing I would highlight is with our weighted average lease term being a little bit lower than the peers, we're set to benefit from the rent increases that come in the options, which are typically between 5% and 10%. So even though we might have some flat leases in the portfolio, as those flat leases come up for renewal at the end of the primary lease term, we should benefit from additional rent growth going forward through those option increases.

Yes, very few have CPI.

It's not as relevant in the more institutional net lease space right because most of our tenants almost three fourths are publicly traded.

In terms of what flat, what's annual and what's other.

About half of the leases are flat and about half have contractual rent increases.

The one thing I would highlight is with our weighted average lease term being a little bit lower than the peers. We're set to benefit from the rent increases that come in the auctions, which are typically between 5% and 10%.

So even though we might have some flat leases in the portfolio flat leases come up for renewal at the end of the primary lease term, we should benefit from additional rent growth going forward through those option increases.

Craig Kucera: Okay, thanks. I appreciate the color.

Okay. Thanks, I appreciate the color.

Matthew Partridge: Thanks, Craig.

Thanks, Craig.

John Albright: Thank you. Our next question comes from the line of Jason Stewart with Jones Trading. Your line is open. Please go ahead.

Thank you and our next question comes from the line of Jason Stewart with Jones Trading. Your line is open. Please go ahead.

Jason Stewart: Thanks. Good morning. I wanted to sort of loop back to the concept of capital outflowing from the broader economy and think about the way you're looking at disposition and acquisition cadence throughout the year and how that sort of comes back to that. I think, John, the first comment you made about activity there and flow of funds.

Thanks, and good morning.

I wanted to sort of look back to the concept of capital outflows from the broader economy and think about the way you're looking at disposition and acquisition cadence throughout the year. And how that sort of comes back to that. I think John, the first comment you made about activity there and from our funds.

John Albright: Yeah, I mean, so the pipeline we have is very strong for what we see in the quarter. That's with being, you know, very selective. We hope that, you know, the backdrop, you know, we are seeing it on larger assets where people are looking to monetize. We feel like there'll be more opportunities going forward. We're not trying to kind of, you know, bring it all in the early part of the year. We wanna be mindful that we might even have better opportunities. We're just kind of, you know, biding our time, but bringing in the acquisitions as we see good opportunities, not trying to time the market one way or the other.

Yes, I mean, so the pipeline we have is very strong for what we see in the quarter.

Very strong for what we see in the quarter.

And that's with being very selective and so we hope that the backdrop.

Very selective and so we hope that the backdrop.

We are seeing it on larger assets where people are looking to monetize and so we feel like there'll be more opportunities going forward.

Going forward.

So, but we're not trying to kind of bringing it all in the early part of the year, we ought to be mindful that we might even have better opportunities. So we're just kind of biding our time.

Bringing it all in the in the early part of the year, we ought to be.

And fold that we might even have better opportunities. So we're just kind of.

But bring in the acquisitions as we see good opportunities and so not trying to time the market one way or the other.

Jason Stewart: Gotcha. Aside from the Wells Fargo asset on the disposition side, does that factor into your cadence of thought process for dispositions?

Got you. And then aside from the Wells Fargo asset on the disposition side, does that factor into your cadence of thought process for dispositions?

John Albright: Yeah. And outside of Wells Fargo, it really, you know, has to do with, you know, we certainly not looking to sell some of these assets, but if someone just really wants to have it, you know, and being very aggressive on the pricing, we won't try to time that. We'll just, you know, sell it as that sort of interest formulates. That one, we're not kind of picking our spots. If someone really wants to pay our number, we're happy to entertain selling assets.

Outside of Wells Fargo. It really has to do with.

We're certainly not looking to sell some of these assets, but if someone just really wants to have it.

Wants to have it.

And being very aggressive on the pricing.

We won't try to time that. We will just sell it as a sort of interest [formulates.]

Formulates so.

That one we're not kind of are picking our spots of someone really wants to pay our number.

We're happy to entertain selling the assets.

Jason Stewart: Got it. Okay. Thanks for taking the questions. Appreciate it.

Got it, okay. Thanks for taking the question, I appreciate it. Thank you.

John Albright: Thank you.

Operator: Thank you. Our next question comes from the line of Wesley Golladay with Baird. Your line is open. Please go ahead.

Thank you and our next question comes from the line of Wes Golladay with Baird. Your line is open. Please go ahead.

Wesley Golladay: Hey. Good morning, guys. I just wanna go back to the, I guess, the building out of footprint and top MSAs. Can you, I guess, give us color on how you see the renewal opportunity for the top MSA assets versus traditional net lease? Typically, we see those renew at flattish rates. Would this be, let's put the top MSAs, would it be more like the mid to high single digits that the shopping center companies produce on renewal?

Hey. Good morning, guys. I just wanted to go back to the I guess, the [biggest footprint in top MSAs].

Can you give us color on how you see the renewal opportunity for the top MSA assets versus traditional net lease? Tpically when we see those we knew it flattish rates. Would this be for the top MSAs would be more like the mid to high single digits at the shopping center companies produce on renewal?

Matthew Partridge: Sorry, Wes, you kind of broke up there.

Sorry, you kind of broke up there.

Wesley Golladay: Yeah.

Matthew Partridge: What particularly are you looking for us to talk about related to the top assets in the top MSAs?

What particularly are you looking for us to talk about related to the top in the top MSAs? Yes, for the net leases and the top MSAs, just typically what you see for the net lease companies would be renewals or flat.

Wesley Golladay: Yeah. For the net lease that's in the top MSAs. Typically, what we see for the net lease companies would be renewals or flat, after the annual escalations. When you look at your portfolio, you have the emphasis on the top MSAs. I'm just curious if the renewals there would be more like the shopping center companies where you may get that mid-single digit renewal, maybe a high single digit renewal.

After the annual escalations, but when you look at your portfolio you have the emphasis on the top MSAs. And I'm just curious that the renewals there would be more like the shopping center companies, where you may get that mid-single-digit renewal, maybe a high single-digit renewal.

Matthew Partridge: Yeah. I think, going back to my comment related to Craig's question, you know, most of our leases, vast majority of them have 5% to 10% increases in the options. As we're continuing to see positive demographic trends in those top MSAs, right, I mean.

Yes, I think going back to my comment related to Craig's question.

Most of our leases, the vast majority of them have 5% to 10% increases in the options.

So as we're continuing to see positive demographic trends in those top MSAs.

John Albright: I mean, one thing we're kind of seeing is tenants looking to maybe do an early extension with us because they know that they wanna stay there and they don't wanna necessarily pay the escalation. So they're coming to us and saying, "Hey, if we give you term now, will you kinda keep our rent flat?" We get a lot of that. So it's a little bit of a dance that if we certainly roll out to a lease termination or expiration, there's that, as Matt said, 5% or 10% bump. You know, sometimes we'll be a little bit more risk averse and take an early extension. Anyway, I hope. Does that help answer?

Yes.

I mean one thing we have seen is tenants looking to maybe doing early extension with us because they know that they want to stay there and they don't want to necessarily pay the escalation that. So they are coming to us and saying hey, if we give you term now, will you kind of keep our rent flat? We get a lot of that so so it's a little bit of a dance that certainly if.

Two an early extension with us because they know that they want to stay there and they don't want to necessarily pay the escalation that so they are coming to us and saying Hey, if we give you term now will you kind of keep our rent flat, we get a lot of that so so it's a little bit of a dance that if we certainly if.

We rollout to a lease termination our expiration there is that, as Matt said, 5% to 10% bump, but sometimes it will be a little bit more risk-averse and take an early extension.

But anyway does that help answer?

Wesley Golladay: Yeah. I mean, I get that you guys have some that have the big pops, the ones that have the flat leases. I guess what I'm trying to get at is you have the ones that have the annual escalators, and a lot of net lease companies have those. Typically, what we see is for the tenants that do renew, those typically renew at a kind of similar rate to the last rent you received. Being that you're in a more inflationary environment, you're in a top MSA, replacement costs are rising. For those ones that you do have the annual escalators in there, when you do come to renew, assuming there's no options, would that be more typically like a shopping center where you may get that 5% to 10% bump versus a they say.

Yes, I mean I get that you guys had some that have the big Pops are the ones that have the flat leases. I guess, what I'm trying to get at is you have the ones that have the annual escalators and a lot of net lease companies have those. And typically what we see as the for the tenants that do renew those typically renew at a kind of similar rates over the last night, you received but being that you're in a more inflationary environment you are in the top end.

Let's say replacement costs are rising. For those ones that you do have the annual escalators.

In there when you do come to renew assuming there's no options, would that be more typically like a shopping center, where you may get that 5% to 10% drop versus. They stayed involved.

They stayed involved.

John Albright: Yeah. Most of them all have renewal options embedded, so there's not that one where they don't have any renewal option and you can basically get a mark-to-market.

Yes, most of them all have renewal options embedded so they're not that one where they don't have any renewal option, and you can basically get a mark to market.

Wesley Golladay: Got it. That's what I was looking for. Thank you very much.

Got it. That's what I was looking for. Thank you very much.

John Albright: Yeah. Sorry about that.

Sorry about that.

Wesley Golladay: No.

Operator: Thank you. I'm showing no further questions at this time, and I would like to turn the conference back over to John Albright for any further remarks.

Okay.

Thank you and I'm showing no further questions at this time. I would like to turn the conference back over to John Albright for any further remarks.

John Albright: Thank you very much for attending the call, and look forward to talking with you going forward in this new year. Thank you.

Thank you very much for attending the call and look forward to talking with you going forward in this new year. Thank you.

Operator: This concludes today's conference call. Thank you for participating. You may now disconnect. Everyone, have a great day.

This concludes today's conference call. Thank you for participating. You may now disconnect. Everyone, have a great day.

Okay.

[music].

Okay.

[music].

Okay.

Yeah.

[music].

Q4 2021 Alpine Income Property Trust Inc Earnings Call

Request a DemoDemo

PINE

Alpine Income Property Trust

Earnings