Q3 2022 Alpine Income Property Trust Inc Earnings Call

October 21, 2022

Yes.

The conference will begin shortly to raise your hand during Q&A you can dial star one one.

[music].

Operator 2: Good day, and thank you for standing by. Welcome to the Alpine Q3 2022 Earnings Call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star one one on your telephone. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Matt Partridge, Chief Financial Officer. Please go ahead.

Operator: Good day, and thank you for standing by. Welcome to the Alpine Q3 2022 Earnings Call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star one one on your telephone. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Matt Partridge, Chief Financial Officer. Please go ahead.

Good day.

And thank you for standing by welcome to the Alpine third quarter of 2022 earnings call.

At this time all participants are in a listen only mode.

After the speaker's presentation, there will be a question and answer session.

I'll ask a question. During this session you will need to press star one one on your telephone.

Be advised that today's conference is being recorded I would now.

I'd like to hand, the conference over to your Speaker today, Matt Partridge, Chief Financial Officer. Please go ahead.

Yeah.

Matt Partridge: Good morning, everyone, and thank you for joining us today for the Alpine Income Property Trust Q3 2022 Operating Results Conference Call. With me today is our CEO and President, John Albright. Before we begin, 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 the 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, earnings release, and most recent investor presentation, which contain reconciliations of non-GAAP financial measures we use on our website at alpinereit.com.

Good morning, everyone and thank you for joining us today for the Alpine income property Trust third quarter 2022 operating results conference call with me today is our CEO and President John Albright before we begin I'd like to remind everyone that many of our comments today are considered forward looking statements under federal Securities law.

Matt Partridge: 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 the 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, earnings release, and most recent investor presentation, which contain reconciliations of non-GAAP financial measures we use on our website at alpinereit.com.

Sure.

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 the 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 earnings release, and most recent investor presentation, which contain reconciliations of non-GAAP financial measures, we use on our west.

Matt Partridge: With that, I'll now turn the call over to John.

Got it alpine REIT dot com with that I'll now turn the call over to John Thanks, Matt and good morning, everyone. We had a solid third quarter as we continued to improve the quality of our earnings by executing our accretive capital recycling strategy and meaningfully de risking our balance sheet during the quarter, we sold six net lease properties for.

John Albright: Thanks, Matt, and good morning, everyone. We had a solid Q3 as we continued to improve the quality of our earnings by executing our accretive capital recycling strategy and meaningfully de-risking our balance sheet. During the quarter, we sold six net lease properties for a total disposition volume of $50.5 million, generating total gains of $11.6 million at a weighted average exit cap of 5.5%. The dispositions included properties leased to Scrubbles Car Wash, The Container Store, 7-Eleven, Kohl's, and Jo-Ann Fabrics. These sales allowed us to reduce our exposure to low-quality tenant credits and correspondingly reinvest the proceeds into predominantly investment-grade tenants.

Total disposition volume of $50 5 million generating total gains of $11 6 million at a weighted average exit cap of five 5%.

John Albright: The dispositions included properties leased to Scrubbles Car Wash, The Container Store, 7-Eleven, Kohl's, and Jo-Ann Fabrics. These sales allowed us to reduce our exposure to low-quality tenant credits and correspondingly reinvest the proceeds into predominantly investment-grade tenants.

The dispositions included properties leased to scrub old Carwash.

Container store 711, Kohl's and Joann fabrics.

These sales allowed us to reduce our exposure to low quality tenant credits.

Correspondingly reinvest the proceeds into predominantly investment grade tenants year to date, we sold 11 properties for just over $123 million at a weighted average exit cap rate of six 5%.

John Albright: Year to date, we've sold 11 properties for just over $123 million at a weighted average exit cap rate of 6.5%, or 5.6% when removing the impact of the sole remaining office property we sold in Q2. The market for net lease assets remained strong through Q3 and our buyer pool has been diverse. We sold properties to family offices, and other public and private REITs, and high net worth individuals, and we continue to evaluate attractive disposition opportunities as we work our way into Q4. We plan to continue our opportunistic approach to capital recycling as we look to generate attractive net investment spreads and pay down debt.

Our five 6% when removing the impact of the sole remaining office property, we sold in the second quarter.

Market for net lease assets remained strong through the third quarter and our buyer poll has been diverse we sold properties to family offices, and other public and private Reits and high net worth individuals and we continue to evaluate attractive disposition opportunities as we work our way into the fourth quarter.

John Albright: We plan to continue our opportunistic approach to capital recycling as we look to generate attractive net investment spreads and pay down debt.

We plan to continue our opportunistic approach to capital recycling as we look to generate attractive net investment spreads and pay down debt.

John Albright: Our acquisitions in the quarter were weighted towards high-quality national tenants exhibiting strong operating trends while also opportunistically layering in well-located assets at values below replacement costs. In total, during the quarter, we acquired 9 properties located in 8 states that have a weighted average lease term of 7.5 years at a weighted average cash cap rate of 7.1%. More than 75% of the acquired rents come from tenants with an investment-grade credit rating, including Lowe's, Family Dollar Tree, and DICK'S Sporting Goods. Year to date, we've acquired 44 net lease properties for just over $145 million at a weighted average going in cash cap rate of 7% and a weighted average remaining lease term at acquisition of 8.9 years.

Our acquisitions in the quarter were weighted waited towards high quality national tenants exhibiting strong operating trends, while also opportunistically layering in well located assets at values below replacement cost.

In total during the quarter, we acquired nine properties located in eight states that have a weighted average lease term of seven five years at a weighted average cash cap rate of seven 1%.

John Albright: More than 75% of the acquired rents come from tenants with an investment-grade credit rating, including Lowe's, Family Dollar Tree, and DICK'S Sporting Goods. Year to date, we've acquired 44 net lease properties for just over $145 million at a weighted average going in cash cap rate of 7% and a weighted average remaining lease term at acquisition of 8.9 years.

More than 75% of the acquired rents coming from tenants with an investment grade credit rating, including Lowe's family dollar dollar tree and Dick's sporting goods.

Year to date, we have acquired 44 net lease properties for just over a $145 million at a weighted average going in cash cap rate of 7% and a weighted average remaining lease term at acquisition of eight nine years.

John Albright: Coming into Q4, we owned 146 properties totaling 3.4 million sq ft with tenants operating in 26 sectors within 35 states. Of note, Lowe's is now our number three tenant, joining Walgreens, Family Dollar Tree, Dollar General, Walmart, and Best Buy as investment-grade tenants in our top 10 tenant list. While our disposition activities naturally require some reinvestment, we are taking a judicious approach to acquisitions given the market volatility and deterioration in our cost of capital as a result of higher interest rates and lower stock price. While this is obviously not specific to our company, our approach has been and will continue to be focused on maximizing value for our shareholders while actively managing risks.

Coming into the fourth quarter, we owned 146 properties totaling $3 4 million square feet with tenants operating in 26 sectors within 35 states.

Loews is now our number three Turner, joining Walgreens family dollar dollar tree dollar General Walmart and best buy as investment grade tenants in our top 10 tenant list.

John Albright: While our disposition activities naturally require some reinvestment, we are taking a judicious approach to acquisitions given the market volatility and deterioration in our cost of capital as a result of higher interest rates and lower stock price. While this is obviously not specific to our company, our approach has been and will continue to be focused on maximizing value for our shareholders while actively managing risks.

While our disposition activities naturally require some reinvestment we are taking a judicious approach to acquisitions, given the market volatility and deterioration in our cost of capital as a result of higher interest rates and lower stock price.

This is obviously not specific to our company. Our approach has been and will continue to be focused on maximizing value for our shareholders while actively managing risk.

John Albright: As we communicated in April during our Q1 earnings call, we anticipated upward pressure on cap rates as rising interest rates have not only impacted investment returns, but also liquidity in the market. We started to see a notable shift in tone in September after the Labor Day holiday as cap rates began to drift upwards. We believe this is an opportunity as we exercise patience and position ourselves to drive attractive spreads between our acquisitions and dispositions through active portfolio management. I'll now turn the call over to Matt to talk about our Q3 performance, balance sheet, and capital market activities, and revised guidance.

As we communicated in April during our first quarter earnings call, we anticipated upward pressure on cap rates as rising interest rates have not only impact the investment turns but also liquidity in the market.

We started to see a notable shift in tone in September after the labor day holiday as cap rates began to drift upwards. We believe this is an opportunity as we exercised patience and position ourselves to drive attractive spread between our acquisitions and dispositions through active portfolio management.

John Albright: We believe this is an opportunity as we exercise patience and position ourselves to drive attractive spreads between our acquisitions and dispositions through active portfolio management. I'll now turn the call over to Matt to talk about our Q3 performance, balance sheet, and capital market activities, and revised guidance.

I'll now turn the call over to Matt to talk about our third quarter performance balance sheet and capital market activities and revised guidance. Thanks.

Matt Partridge: Thanks, John. Our portfolio continues to perform very well. It was 100% occupied at quarter end, and we collected 100% of our contractual base rents during the quarter. We grew Q3 2022 total revenues by more than 40% as compared to the prior year period. While our general and administrative expenses for the quarter increased by 6.5%, G&A, as a percentage of revenue, decreased by more than 400 basis points, reflecting the efficiency of our growth. As John previously mentioned, our disposition efforts generated substantial gains on sale totaling $11.6 million. These gains and our team's ability to transact in a quickly evolving market speaks to the attractiveness of the real estate they've been able to aggregate and the implied value of our existing portfolio.

Thanks, John our portfolio continues to perform very well it was 100% occupied at quarter end and we collected 100% of our contractual base rent during the quarter.

Grew Q3, 2022 total revenues by more than 40% as compared to the prior year period, and while our general and administrative expenses for the quarter increased by six 5% G&A as a percentage of revenues decreased by more than 400 basis points, reflecting the efficiency of our growth.

Matt Partridge: While our general and administrative expenses for the quarter increased by 6.5%, G&A, as a percentage of revenue, decreased by more than 400 basis points, reflecting the efficiency of our growth. As John previously mentioned, our disposition efforts generated substantial gains on sale totaling $11.6 million. These gains and our team's ability to transact in a quickly evolving market speaks to the attractiveness of the real estate they've been able to aggregate and the implied value of our existing portfolio.

As John previously mentioned, our disposition efforts generated substantial gains on sale totaling $11 6 million. These gains in our team's ability to transact in a quickly evolving market speaks to the attractiveness of the real estate <unk> been able to aggregate and the implied value of our existing portfolio.

Matt Partridge: Q3 2022 FFO was $0.40 per share, representing an 8.1% increase compared to Q3 2021. Third quarter 2022 AFFO was $0.42 per share, representing a 13.5% increase over Q3 2021. Year to date, FFO is $1.36 per share and AFFO is $1.37 per share, representing year-over-year per share growth of 18.3% and 16.1% respectively when compared to the first nine months of 2021. Our FFO was negatively impacted by our write-off of $284,000 of unamortized financing costs related to our prior revolving credit facility.

<unk> third quarter 2020 to <unk> 40 per share representing an eight 1% increase compared to the third quarter of 2021 and third quarter 2022, <unk> was <unk> 42 per share representing a 13, 5% increase over the third quarter of 2021.

Year to date <unk> was $1 36 per share and <unk> was $1 37 per share representing year over year per share growth of 18, 3% and 16, 1%, respectively when compared to the first nine months of 2021.

Our <unk> was negatively impacted by a write off of $284000 of unamortized financing costs related to our prior revolving credit facility. Our prior facility, which was set to expire in 2023 was terminated in conjunction with our origination of a new $250 million revolving credit facility, which included a $100 million increase.

Matt Partridge: Our prior facility, which was set to expire in 2023, was terminated in conjunction with our origination of a new $250 million revolving credit facility, which included a $100 million increase compared to our prior revolver. Our new revolving credit facility also includes certain changes in terms and covenants, as well as improved pricing at the lower end of our leverage-based pricing grid, a sustainability-linked pricing component that reduces the applicable interest rate margin if the company meets certain sustainability performance targets, and a new maturity date of January 2027. I would like to acknowledge and thank all of our banking partners for their support and efficient execution in what has been a very busy financing market.

Compared to our prior revolver.

Matt Partridge: Our new revolving credit facility also includes certain changes in terms and covenants, as well as improved pricing at the lower end of our leverage-based pricing grid, a sustainability-linked pricing component that reduces the applicable interest rate margin if the company meets certain sustainability performance targets, and a new maturity date of January 2027. I would like to acknowledge and thank all of our banking partners for their support and efficient execution in what has been a very busy financing market.

Our new revolving credit facility also includes certain changes in terms and covenants as well as improved pricing at the lower end of our leverage based pricing grid. The sustainability linked pricing component that reduces the applicable interest rate margin if the company needs certain sustainability performance targets and a new maturity date of January 2027.

Like to acknowledge and thank all of our banking partners for their support and efficient execution in what has been a very busy financing market.

Matt Partridge: Additionally, as we recently announced in our corporate update, we entered into interest rate swaps for the previously unhedged portions of our 2026 and 2027 term loans, fixing SOFR over the remaining life of the term loans. As a result of our new revolving credit facility's extended maturity date and our new interest rate swaps, we have no debt maturing until 2026, and the only floating rate exposure on our balance sheet is related to our revolving credit facility balance. We ended the quarter with net debt to total enterprise value of 55%, net debt to pro forma EBITDA of 8.3x, and we continue to maintain a very healthy fixed charge coverage ratio of 4.4x.

Additionally, as we recently announced and our corporate update we entered into interest rate swaps for the previously unhedged portions of our 2026 and 2027 term loans fixing silver over the remaining life of the term loans.

Matt Partridge: As a result of our new revolving credit facility's extended maturity date and our new interest rate swaps, we have no debt maturing until 2026, and the only floating rate exposure on our balance sheet is related to our revolving credit facility balance. We ended the quarter with net debt to total enterprise value of 55%, net debt to pro forma EBITDA of 8.3x, and we continue to maintain a very healthy fixed charge coverage ratio of 4.4x.

As a result of our new revolving credit facilities and extended maturity date, and our new interest rate swaps, we have no debt maturing until 2026, and the only floating rate exposure on our balance sheet is related to our revolving credit facility balance.

We ended the quarter with net debt to total enterprise value of 55% net debt to pro forma EBITDA of $8 three times and we continue to maintain a very healthy fixed charge coverage ratio of four four times.

Matt Partridge: Overall, we have ample liquidity to be opportunistic in this volatile market, and we continue to make positive strides to improve our balance sheet while maintaining strong earnings growth and driving efficient free cash flow. As previously announced, the company paid a Q3 cash dividend on 30 September of $0.275 per share, representing a 7.8% year-over-year increase when compared to the company's Q3 2021 cash dividend and a current annualized yield of approximately 6.5%. Our Q3 FFO and AFFO payout ratios remain very strong at 69% and 65% respectively. We anticipate announcing our regular quarterly cash common stock dividend for Q4 towards the end of November.

Overall, we had ample liquidity to be opportunistic in this volatile market and we continue to make positive strides to improve our balance sheet, while maintaining strong earnings growth and driving efficient free cash flow.

As previously announced the company paid a third quarter cash dividend on September 30 of.

27, five per share representing a seven 8% year over year increase when compared to the Companys Q3, 2021 cash dividend and our current annualized yield of approximately six 5%.

Matt Partridge: Our Q3 FFO and AFFO payout ratios remain very strong at 69% and 65% respectively. We anticipate announcing our regular quarterly cash common stock dividend for Q4 towards the end of November.

Our third quarter, <unk> and <unk> payout ratios remained very strong at 69% and 65% respectively.

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

Matt Partridge: As we look towards the balance of the year, we've revised our full year 2022 guidance to account for our Q3 2022 results and revised expectations for our acquisition and disposition activities, capital markets transactions, the steepening of the yield curve, and other influential assumptions. We begin Q4 2022 with portfolio-wide in-place annualized straight-line base rent of $39.2 million and in-place annualized cash base rent of $38.6 million. Our full year 2022 FFO guidance range was increased by $0.13 at the low end and $0.10 at the high end, and our AFFO guidance range was increased by $0.16 at the low end and $0.13 at the high end.

As we look towards the balance of the year, we've revised our full year 2022 guidance to account for our Q3 2022 results and revised expectations for our acquisition and disposition activities capital markets transactions, the steepening of the yield curve and other influential assumptions.

Matt Partridge: We begin Q4 2022 with portfolio-wide in-place annualized straight-line base rent of $39.2 million and in-place annualized cash base rent of $38.6 million. Our full year 2022 FFO guidance range was increased by $0.13 at the low end and $0.10 at the high end, and our AFFO guidance range was increased by $0.16 at the low end and $0.13 at the high end.

We began the fourth quarter of 2022 with portfolio wide in place annualized straight line base rent of $39 2 million and in place annualized cash base rent of $38 6 million.

Our full year 2022, <unk> guidance range was increased by 13 cents at the low end and 10 cents at the high end and our <unk> guidance range was increased by 16 cents at the low end and 13% at the high end.

Matt Partridge: 2022 FFO is now projected to be between $1.73 and $1.75 per share, and our full year 2022 AFFO guidance range was increased to $1.74 to $1.76 per share. The weighted average share count for the year was lowered by 500,000 shares at the low end and 1 million shares at the high end, which removes the assumption of a meaningful equity issuance in 2022. We've brought down the top end of our acquisitions guidance to account for our Q3 results and the patience John alluded to earlier, and we're tightening the range of our disposition guidance, including raising the midpoint to reflect our revised expectations for asset sales through the end of the year. I'll now pass it back to John for his closing remarks.

2022, <unk> is now projected to be between $1 73, and $1 75 per share and our full year 2022, <unk> guidance range was increased to $1 74 to $1 76 per share the.

The weighted average share count for the year was lowered by <unk> 5 million shares at the low end and 1 million shares at the high end, which removes the assumption of a meaningful equity issuance in 2022.

Matt Partridge: We've brought down the top end of our acquisitions guidance to account for our Q3 results and the patience John alluded to earlier, and we're tightening the range of our disposition guidance, including raising the midpoint to reflect our revised expectations for asset sales through the end of the year. I'll now pass it back to John for his closing remarks.

We've brought down the top end of our acquisitions guidance to account for our third quarter results and the patients as John alluded to earlier and we are tightening the range of our disposition guidance, including raising the midpoint to reflect our revised expectations for asset sales through the end of the year ill now pass it back to John for his closing remarks, thanks, Matt as we approach our three year anniversary.

John Albright: Thanks, Matt. As we approach our three-year anniversary as a public company, I'm very pleased with the strong dividend growth we've delivered to our shareholders and the way we've been able to put together and consistently improve our portfolio, which is one of the highest quality collections of net lease assets in the industry. I'm confident our strong operational roadmap will enable us to outperform over the long run and as we continue to build a track record of success. We appreciate all of our team's hard work and continued support of our shareholders. At this time, we'll open it up for questions.

As a public company I am very pleased with our strong dividend growth that we've delivered to our shareholders in the way we've been able to put together and consistently improve our portfolio, which is one of the highest quality collections of net lease assets in the industry.

John Albright: I'm confident our strong operational roadmap will enable us to outperform over the long run and as we continue to build a track record of success. We appreciate all of our team's hard work and continued support of our shareholders. At this time, we'll open it up for questions.

I am confident our strong operational road map will enable us to outperform over the long run as we continue to build a track record of success.

We appreciate all of our teams hard work and continued support of our shareholders. At this time, we will open it up for questions.

Operator 2: Our first question comes from Rob Stevenson with Janney Montgomery Scott. Your line is now open.

Thank you as a reminder to ask a question at this time. Please press star one one on your telephone.

Please standby, while we compile the Q&A roster.

Operator: Our first question comes from Rob Stevenson with Janney Montgomery Scott. Your line is now open.

Our first question comes from Rob Stevenson with Janney Montgomery Scott. Your line is now open.

Rob Stevenson: Good morning, John. You talked about continuing to look for dispositions, but how are you guys looking at acquisitions in the current pricing environment and given your current cash position? Are you gonna be holding on tight and, you know, looking for the absolute best transactions? Or if stuff meets your transaction criteria, you still gonna be buying stuff here in the Q4?

Good morning, John how are you guys thinking you talked about.

You need to look for dispositions, but how are you guys looking at acquisitions in the current pricing environment and given your current cash position, you're going to be holding on tight and looking for the absolute best transactions or it's tough meet your transaction criteria, you're still going to be buying stuff here in the fourth quarter.

John Albright: Yeah, thanks, Rob. We're definitely still active in pursuing, but we're definitely bidding wide. We're kind of waiting for that, you know, fat pitch moment on some opportunities. We think that, you know, the stress in the system will get, you know, more pronounced at the end, you know, towards the end of the year. I think there'll be good opportunities. We're active, but we're not, you know, stretching to make a deal for sure.

Yes, thanks, Rob.

We're definitely still active in pursuing but we're definitely bidding wide.

And we're kind of waiting for that fat pitch moment on some opportunities. So we think that.

The stress in the system will get more pronounced.

Towards the end of the year, So I think there'll be good.

Good opportunities that were so we're active but we're not stretching to make a deal for sure.

Rob Stevenson: Okay. The existing assets, is there any capital improvements contemplated in the H2 of this year into 2023 of any material note?

Okay, and then the existing assets is there any capital improvements.

<unk> in the back half of this year into 2023 of any material note.

John Albright: You know, on the Old Time Pottery piece, we have another retailer that looks like a much more favorable deal for us that we're working on. That would be kind of starting next year.

We just saw on the old time pottery piece, we have another retailer that it looks like a much more favorable deal for for us that we're working on so that but that would be kind of start next year.

Rob Stevenson: Okay, can you talk about the movie theater business, and if you're seeing anything change at the margins there?

Okay.

Then can you talk about the movie theater business, if youre seeing anything change at the margins there.

John Albright: You know, as you know, we only have two theaters. We're really, you know, working on the theater right now in Reno in redevelopment. You know, it's a fantastic site, as I mentioned on many calls when people ask about the theaters. It looks like, you know, we have a hotel developer very interested in the site. We're really working on alternative uses rather than having it as a theater, which should produce better economics for us. That's where we're spending time with that property. Then the other property, the AMC, we do have some buyer interest there, and we'll look to execute on it if it works out. You know, that will kind of be the theater solution for us.

So as you know we only have two theaters, we're really working on the theater right now in in Reno in redevelopment.

It's a fantastic side as I mentioned on many calls when people ask about the theaters and it looks like we.

Have a hotel.

Hotel developer very interested in the site. So we're really working on alternative uses rather than having into the theater, which should produce better economics for us. So that's where we're spending time with that property and then the other property at AMC.

John Albright: That's where we're spending time with that property. Then the other property, the AMC, we do have some buyer interest there, and we'll look to execute on it if it works out. You know, that will kind of be the theater solution for us.

We do have some buyer interest there and we will look to execute on it if it if it works out so that will kind of be the theater solution for us.

Rob Stevenson: If you go the hotel route on the one theater, is that something that you would keep, or is that something that once it's done, you know, is likely to be a disposition?

If you go the hotel route on the one theater is that something that you would.

Keep or is that something good once it's done is.

It is likely to be a disposition likely.

John Albright: Likely to be a disposition. There's a chance that it could be in the form of a ground lease. You wouldn't see a hotel development in our portfolio.

Likely to be a disposition there.

Jan said it could be in the form of a ground lease.

But we won't be you won't see a hotel development in our in our.

Rob Stevenson: Okay. Last one for me. Matt, given your comments about the dividend, where are you guys expected to be in terms of payout of taxable earnings at the current run rate?

In our portfolio.

Okay, and then last one for me Matt given your comments about the dividend where are you guys expected to be in terms of payout of taxable earnings at the current run rate.

Matt Partridge: We should be at 100% for 2022, and that's really how we plan to manage the dividend going forward.

We should be at 100% for 2022, and that's really how we plan to manage the dividend going forward.

Rob Stevenson: Okay. I mean, it's not like that you have a lot of room to not increase the dividend going forward if earnings grows then at that point.

Okay. So I mean, it's not it's not like that you have a lot of room to to not increase the dividend going forward. If earnings grows that's right. We're trying to manage to a 100% of taxable income and maximize free cash flow.

Matt Partridge: That's right. We're trying to manage to 100% of taxable income and maximize free cash flow.

Rob Stevenson: Okay. Thanks, guys. Appreciate the time. Have a good weekend.

Okay. Thanks, guys I appreciate the time and have a good weekend.

John Albright: Yeah, you too.

Matt Partridge: Sure.

Right.

Operator 2: Thank you. Our next question comes from the line of RJ Milligan with Raymond James. Your line is now open.

Operator: Thank you. Our next question comes from the line of RJ Milligan with Raymond James. Your line is now open.

Thank you.

Our next question comes from the line of RJ Milligan with Raymond James Your line is now open.

RJ Milligan: Hey, good morning, guys. I just wanted to follow up on Rob's question. You know, obviously, John, you're a little bit more cautious here given the lagging cap rates and your higher cost of capital. I'm curious if you think Alpine will do more dispositions versus acquisitions, say, over the next two quarters. How do you and Matt think about the trade-off between allocating disposition proceeds into acquisitions versus de-levering?

R.J. Milligan: Hey, good morning, guys. I just wanted to follow up on Rob's question. You know, obviously, John, you're a little bit more cautious here given the lagging cap rates and your higher cost of capital. I'm curious if you think Alpine will do more dispositions versus acquisitions, say, over the next two quarters. How do you and Matt think about the trade-off between allocating disposition proceeds into acquisitions versus de-levering?

Hey, good morning, guys I just wanted to follow up on Rob's question.

Obviously, John here, a little bit more cautious here given the lagging cap rates in your higher cost of capital, but I'm curious if you think pine, we'll do more dispositions versus acquisitions say over the next few quarters.

You might think about the tradeoff between allocating disposition proceeds into acquisitions versus delevering.

John Albright: Yeah, thanks. We think that the activity on continuing to sell assets where it makes sense and recycling into higher yielding assets is a form of de-leveraging. However, on some non-1031 properties that we have, we would look to sell and just pay down the line. Both in our opinion, kind of, you know, de-levers, but we'll be a more direct de-lever on some non-1031 assets.

Yes. Thanks, so so we think that the activity on continuing to sell assets, where it makes sense and recycling into higher yielding assets as a form of deleveraging. However.

On some non 10 31 properties that we have we would look to sell and just pay down the line.

So both in our in our opinion kind of.

De levers, but will be a more a direct deal ever.

On some non 10 31 assets.

RJ Milligan: Got it. John, you described a couple of the buyers for some of the asset sales, but you sold six, which isn't a lot, and clearly a benefit of having a small portfolio. I'm just curious, could you do a lot more? Not that Alpine has to, given your size, but I guess I'm more asking about a read through to the broader market. Is there enough demand out there to do this recycling in size?

R.J. Milligan: Got it. John, you described a couple of the buyers for some of the asset sales, but you sold six, which isn't a lot, and clearly a benefit of having a small portfolio. I'm just curious, could you do a lot more? Not that Alpine has to, given your size, but I guess I'm more asking about a read through to the broader market. Is there enough demand out there to do this recycling in size?

Got it and then John you described a couple of the buyers for some of the asset sales.

But you sold six which isn't a lot and include the benefit of having a small portfolio.

Just curious could you do a lot more naphtha pie pass through given your size.

Yes, I'm more asking about a read through to the broader market is there enough demand out there to do this recycling and sides.

John Albright: There is on the smaller assets for sure. There is still a very active 1031 market. You know, it's just, it's time consuming, right? 'Cause every deal is a transaction, a contract, an LOI, and, you know, title and, you know, just. We've been, you know, doing it really more methodically rather than just, you know, everything's on the market kind of thing. The answer is yes, there is still a dynamic 1031 market. You know, some of our, you know, recent acquisitions or dispositions have happened from, you know, markets that are still very strong, like South Florida markets, where someone sold something at a low cap rate and they're buying multiple net lease properties.

There is on the smaller assets for sure.

There is still very active 10 31 market.

<unk>.

It's time consuming right because every every deal is a transaction a contract and LOI in title.

No.

So we've been doing it really more methodically rather than just everything is on the market kind of thing. So the answer is yes. There is still a dynamic 10 31 market.

John Albright: The answer is yes, there is still a dynamic 1031 market. You know, some of our, you know, recent acquisitions or dispositions have happened from, you know, markets that are still very strong, like South Florida markets, where someone sold something at a low cap rate and they're buying multiple net lease properties.

Some of our recent acquisition or dispositions.

Dispositions have happened from markets are still very strong lifestyle, Florida markets, where someone sold something at a low cap rate and they are buying multiple net lease properties.

John Albright: You know, whether they sold an apartment project or industrial at very low cap rate, and they're using that to buy, you know, five or six net lease type properties. The answer is yes. You know, I think it's kind of dissipating as the broader markets have less of that larger transaction stuff going on, but it's still there.

Whether they sell to.

Apartment project or industrial or very low cap rate and they're using that to buy five or six net lease type properties.

So the answer is yes, it's not I think it's kind of dissipating as the broader markets have less of that larger transaction stuff going on but it's still there.

RJ Milligan: Got it. My last question is, clearly, you guys were sort of ahead of the curve in the dispositions front, especially on the office side, and the portfolio's certainly improved in overall quality. I'm curious, you know, where there might be any credit issue concerns going forward, given some of the macro headwinds we have.

R.J. Milligan: Got it. My last question is, clearly, you guys were sort of ahead of the curve in the dispositions front, especially on the office side, and the portfolio's certainly improved in overall quality. I'm curious, you know, where there might be any credit issue concerns going forward, given some of the macro headwinds we have.

Got it and my last question is clearly you guys were.

Sort of ahead of the curve and the dispositions front, especially on the office side and the portfolio has certainly improved and overall quality, but curious.

Where there might be a credit issue concerns.

Going forward given some of the macro headwinds we have.

John Albright: Yeah, I mean, look, we obviously, on some of the dispositions, we certainly leaned into some of the credits that you could have that concern. We sold The Container Store, we sold Jo-Ann's. You know, looking at our portfolio now, you know, some of those weaker credits that you know that kind of like, let's just say we have one Party City, but it's in New York, in Oceanside, New York. It's like, you know, very infill located. When we bought it, we bought it, you know, knowing that, you know, it's below market rent and low per square foot versus kind of that market. It could be, you know, redeveloped into something else.

Yes, I mean look we obviously there is.

On some of the dispositions, we certainly leaned into some of the credits that you could have that concern. So we sold the container store resolved Joanne.

Looking at our portfolio now some of those weaker credits that.

That kind of and then like let's just say, we have one party city and but it's in.

In New York.

<unk> is like very infill located in when we bought it we bought it.

John Albright: When we bought it, we bought it, you know, knowing that, you know, it's below market rent and low per square foot versus kind of that market. It could be, you know, redeveloped into something else.

Knowing that as below market rents.

LOE per square foot versus kind of that that market. So it could be redeveloped into something else. So there is kind of a strategy behind the what if that tenant was no longer so.

John Albright: There's kind of a strategy behind, you know, the what if that tenant was no longer. You know, that's just one example. We keep on monitoring it, but, you know, so far so good. We'll keep, you know, an eye on all the credits.

<unk>.

That's just one example, but we keep on monitoring it but so far so good.

But we'll keep.

And I on all of the credits.

RJ Milligan: Thanks, Jason.

R.J. Milligan: Thanks, Jason.

Thanks, guys.

John Albright: Thank you.

Thank you.

Operator 2: Thank you. Our next question comes from the line of Jason Stewart with Jones Trading. Your line is now open.

Operator: Thank you. Our next question comes from the line of Jason Stewart with Jones Trading. Your line is now open.

Thank you.

Next question comes from the line of Jason Stewart with Jones trading your line is now open.

Jason Stewart: Thanks. John and Matt, do you guys see any opportunities for distressed investing yet, or is that something that's sort of to come still?

Okay.

Thanks.

John and Matt do you guys see any opportunities for distressed investing yet or is that something that's sort of to come still.

John Albright: Yeah, I think it's a little too early. We are kind of hearing the stress in the developers that are developing for these tenants on new store growth because construction costs are still fairly elevated, and interest rates and banks tightening. The developers are no longer having a comfortable spread on what they can build to and what they could sell. We are hearing that sort of stress, if you will. I think what's gonna happen is, for retailers that wanna keep on expanding, they're either gonna have to pay more rent or they're gonna have to take over the development themselves or something, 'cause I think it's gonna really, you know, the developers are just not gonna be able to make money that's worth the risk.

Yes, I think it's a little too early we are we're kind of hearing the stress in the developers that are developing for these tenants on new store growth because of construction costs are still fairly elevated interest rates and banks tightening the developers are no longer having a comfortable.

Brad on what they can build to and what they could sell and so we are hearing that sort of stress. If you will so I think what's going to happen is for retailers that want to keep on expanding they're either going to have to pay more rent.

John Albright: I think what's gonna happen is, for retailers that wanna keep on expanding, they're either gonna have to pay more rent or they're gonna have to take over the development themselves or something, 'cause I think it's gonna really, you know, the developers are just not gonna be able to make money that's worth the risk.

Or they're going to take over the development themselves or something because I think it's going to really.

The other developers is not going to be able to make money. That's worth the risk. So we are seeing some opportunities to maybe getting that offer opportunity zone as far as hell.

John Albright: We are seeing some opportunities to maybe, you know, get in that opportunity zone as far as helping developers on funding them for a development and then having the right to buy a property. It's too early right now, but it is heading that way.

Helping developers on.

On.

Funding them for a development than having the right to buy a property, but it's too early right now, but it is heading that way.

Jason Stewart: Yeah. What would be your expectation for where developers were underwriting in terms of cap rates and where they could probably exit today?

Yes.

What is your what would be your expectation for <unk>.

Developers, we are underwriting in terms of cap rates and where they could probably exit today.

John Albright: I mean, I think you're going from, you know, call it 200 basis spread to 100 basis spread, from what they can originate to what they can sell. That's just, you know, that's a thin margin.

I mean, I think youre going from call. It 200 basis spread to 100 basis spread from what they can originate to what they can sell and that's just.

Jason Stewart: Yeah. Okay. Thank you.

The thin margin.

Yeah, Okay. Thank you.

John Albright: Thank you.

Thank you.

Operator 2: Thank you. Our next question comes from the line of Craig Kucera with B. Riley Securities. Your line is now open.

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

Thank you.

Our next question comes from the line of Craig <unk> with Sarah with B Riley Securities. Your line is now open.

Craig Kucera: Yeah, thanks. Good morning, guys. You know, I know earlier in the year you thought cap rates would start to back up maybe a little earlier than they did. And from Q2 to Q3, I think it was about a 10 basis point increase. John, you mentioned in your commentary that you saw a real break in September. Can you talk about, you know, maybe where you saw things go in September versus, you know, maybe Q1 or Q2 of the year and kind of what you're seeing here in October as well?

Yes, thanks, good morning, guys.

I know earlier in the year, you thought cap rates would start to back up maybe a little earlier than they did in from second to third quarter. I think it was about a 10 basis point increase but John you mentioned in your in your commentary that you saw real break in September can you talk about maybe where you saw things go in September versus maybe the first or second.

Quarter of the year and kind of what Youre seeing here in October as well.

John Albright: Yeah. I'll give you kind of interesting, you know, tidbit, I guess. ICSC had the regional Orlando event about a month ago, maybe a little over a month ago, and it was incredibly happy talk. Everyone was, you know, very engaged, lots of activity, retailers, even some development, capital transactions, and it was just, you know, incredibly positive. Last week, we were in Atlanta for the Atlanta ICSC, and it was incredibly a downer. You know, everyone was pretty glum about the prospects. It really goes to the debt markets. You know, it was obvious by last week that, you know, there is no, you know, debt market available for projects.

Yes, I'll give you kind of.

Interesting Tidbit I guess, we had.

ICSC had their regional Orlando event about a month ago.

Maybe a little over a month ago and it was incredibly.

Happy talk everyone was very engaged lots of activity retailers.

Even some development.

Capital transactions and it was just.

Incredibly positive.

John Albright: Last week, we were in Atlanta for the Atlanta ICSC, and it was incredibly a downer. You know, everyone was pretty glum about the prospects. It really goes to the debt markets. You know, it was obvious by last week that, you know, there is no, you know, debt market available for projects.

And then last week, we were in Atlanta for Atlanta, ISC, ICSC and it was incredibly downer.

Everyone was pretty glum about the prospects is real and it really goes to the debt markets.

As is obvious by last week that there is no debt market available for projects and so is less on the on the leasing side and more on the capital needed to.

John Albright: It's less on the leasing side and more on the capital needed to acquire properties or, you know, do development. You know, that's just really translating into higher cap rates, less so for the net lease space, I will say. You know, that's more multi-tenanted kind of dynamics on that sort of talk. You know, on any kind of sizable transactions, the spreads are definitely widened out, more pronounced in the last, you know, 30 days for sure than 90 days. I think, you know, we expect that same trajectory. I don't think anyone expects it going back to the good old days, but anytime soon.

Acquire properties are.

Or do development. So so that's just really translating into higher cap rates less so for the net lease space I will say that thats more multi tenanted.

Kind of dynamics on that sort of talk but yes.

John Albright: You know, on any kind of sizable transactions, the spreads are definitely widened out, more pronounced in the last, you know, 30 days for sure than 90 days. I think, you know, we expect that same trajectory. I don't think anyone expects it going back to the good old days, but anytime soon.

On any kind of sizable transactions the spreads are definitely widened out more pronounced in the last 30.

30 days for sure than the 90 days. So I think I think we expect that same trajectory I don't think anyone expects it going back to the good old days, but.

John Albright: There is a little bit of standstill from people that like to sell some properties and still have an old price in mind. I think you just have kind of a shadow possible you know inventory out there of people that would like to transact and maybe at some point they do decide to break price and sell. It is you know creeping up for sure, but there's less transactions as well as sellers are sticking with some of their price expectations.

Anytime soon but there is there is a little bit standstill from people that like to sell some properties and still have an old price in mind. So I think you just have kind of a shadow.

Possible.

Inventory out there are people that would like to transact and maybe at some point they do decide to.

To break price and sell so so it is creeping up for sure, but there is less transactions as well as as sellers are sticking with some of their price expectations.

Craig Kucera: Got it. Are you seeing, when you're looking at sort of investment grade versus non-investment grade or any particular sectors where you're starting to see things becoming mispriced because of this change in the debt markets? Is it still pretty much all boats moving or sinking with the tide?

Got it and.

Are you seeing when youre looking at sort of investment grade versus non investment grade or any particular sectors, where youre starting to see things, becoming mispriced because of this change the debt markets or is it still pretty much.

All boats moving your thinking with the tide.

John Albright: Yeah. We're not looking as much for the non-investment grade anymore. I mean, you know, I think you probably saw our investor presentation that Matt put out. You know, if you look at where our multiple is and our portfolio of investment grade being almost 50%, and you look at the other net lease REITs who have the same investment grade exposure or higher, their multiples are much more than ours. That's kind of the angle we're going to, is continue that march to higher investment grade weighting. You know, so we're not really participating in the non-investment grade market unless there's a good story behind it. Yes, you can assume that the non-investment grade cap rates have moved higher faster than the investment grade.

Yes.

Not looking as much for the non investment grade anymore.

Thank you probably saw our investor presentation that <unk> put out.

If you look at where our multiple is in our portfolio of investment grade being almost 50% and you look at the much.

The other other net lease Reits who have.

At the same investment grade exposure are higher their multiples are much much more than ours and so that's kind of the angle, we're going to continue that march to higher investment grade.

John Albright: That's kind of the angle we're going to, is continue that march to higher investment grade weighting. You know, so we're not really participating in the non-investment grade market unless there's a good story behind it. Yes, you can assume that the non-investment grade cap rates have moved higher faster than the investment grade.

Waiting.

So we're not.

We're not really participating in the non investment grade market unless there's a good story behind it but yes. You can you can assume that the non investment grade cap rates are have moved higher faster than the investment grade.

Craig Kucera: Okay. Thanks for the color.

Okay. Thanks for the color. Thank.

John Albright: Thank you.

Thank you.

Operator 2: Thank you. I'm currently showing no further questions at this time. I turn the call back over to John Albright for closing remarks.

Operator: Thank you. I'm currently showing no further questions at this time. I turn the call back over to John Albright for closing remarks.

Thank you and I'm currently showing no further questions at this time I'd like to turn the call back over to John Albright for closing remarks.

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

Thank you very much for attending the call appreciate it.

Operator 2: This concludes today's conference call. Thank you for your participation. You may now disconnect.

Operator: This concludes today's conference call. Thank you for your participation. You may now disconnect.

This concludes today's conference call. Thank you for your participation you may now disconnect.

Operator 1: The conference will begin shortly. To raise your hand during Q&A, you can dial star one one.

Operator: The conference will begin shortly. To raise your hand during Q&A, you can dial star one one.

The conference will begin shortly to raise your hand during Q&A you can dial star one one.

[music].

Okay.

Yes.

Okay.

[music].

Q3 2022 Alpine Income Property Trust Inc Earnings Call

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