Q4 2022 Alpine Income Property Trust Inc Earnings Call

February 10, 2023

The conference will begin shortly to raise and lower Johan during Q.

Good day, ladies and gentlemen, and thank you for standing by welcome to the Alpine fourth quarter 2022 earnings Conference 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 one on your telephone keypad.

Joining us today are Mr. Matt Partridge, Chief Financial Officer, and Mr. John Albright Chief Executive Officer at this time I would like to turn the conference over to Mr. Matt Partridge, Sir please begin.

Good morning, everyone and thank you for joining us today for the Alpine income property Trust fourth quarter and year end 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 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.

You can find our SEC report earnings release, and most recent investor presentation, which contain reconciliations of non-GAAP financial measures. We use on our website at alpine re dot com with that I'll now turn the call over to John .

Matt we had a nice finish to the year as we continued to execute on our accretive asset recycling program reduce leverage and improve the overall quality of our retail net lease portfolio our acquisitions during the quarter emphasized high quality investment grade rated tenants, demonstrating strong operating trends and well performing sectors such as the <unk>.

Suri home improvement sporting goods and dollar stores.

In total during the fourth quarter, we acquired seven properties for just under $42 million at a weighted average cap rate of seven 4% and a weighted average remaining lease term of eight two years, notably 100% of the acquired rents come from tenants with an investment grade rating, including the first home depot and our portfolio.

As well as family dollar dollar tree.

Sporting goods than Walmart.

For the full year 2022, we acquired 51 retail net lease properties for just over $187 million at a weighted average going in cap rate of seven 1% and a weighted average remaining lease term at acquisition of eight seven years, 77% of the rents we acquired during the year were from tenants with investment grade credit.

And more than half of the ramp acquired are in Msas with over 1 million people.

While we did see cap rates move higher as we made our way through 2022, we've seen a decrease in the number of assets listed for sale in the market to start 2023, which is contributing.

Leading to a higher are tighter bid ask spread.

Sellers with high quality properties in strong markets within in demand tenants or sectors have maintain conviction in their pricing expectations and we are starting to see buyers be more aggressive as they look to put capital to work to start the year.

This is resulting in cap rates, either holding from where they were a few months ago, which is in spite of the higher interest rates or in the case of investment grade rated tenants and smaller price point assets, we're starting to see cap rates compressed because those assets are more easily finance at better terms offer a hedge against continued inflation and provides.

At the risk adjusted returns in a relatively volatile macroeconomic environment.

On the disposition front, we sold five properties for a total disposition volume of $31 million at a weighted average exit cap rate of six 5% generating total gains of $6.6 million.

The dispositions include properties leased to Freddy's frozen custard big lots Rite aid and Harris Teeter.

These sales and the subsequent redeployment in nearly 100 basis point net investment spread during the quarter allowed us to drive a better return on equity while moving out of some of the assets, where we felt we had incremental risk. The proceeds also provided us with attractively priced capital to put to work in the acquisition market that resulted in a higher yield and increase.

Investment grade rated tenant exposure.

Year to date, we've sold 16 properties for approximately $155 million and a.

Weighted average exit cap rate of six 5% or five 9% when removing the impact of our last remaining office property was sold during the second quarter.

These sales during the year generated gains of $34 million and because we started this asset recycling process back in April we've been able to maximize the value of the sold properties, even as interest rates moved against us.

As of the end of the year. Our portfolio consisted of 148 properties totaling $3 7 million square feet with tenants operating in 26 sectors within 34 states.

Occupancy did tick lower and below a 100% for the first time as a result of a vacant out parcel we acquired as part of our property acquisition in the fourth quarter.

Scribed no value to the vacant property at acquisition, but we're cautious cautiously optimistic we can lease the asset to drive organic rent growth within the existing portfolio.

Since our last earnings call in mid October Dick's Sporting goods is now our number two tenant joining Walgreens family dollar dollar tree lows and dollar general is our top five tenants all of whom carry investment grade ratings.

We entered 2023 with 54% of our total annualized base rents coming from tenants or the parent of a tenant with a breadth of investment grade credit rating, which we anticipate will grow throughout the year as we continue to recycle out of non investment grade rated tenants and into high quality industry, leading retailers.

With balance sheet positioned to outperform in nearly any economic environment, we're hopeful that as our portfolio metrics start to better parallel are higher valuation multiple peers, we'll see an uptick in our own stock valuation, reflecting the continuous refinement of our portfolio our stocks increase liquidity a derisk balance.

<unk> and consistency of execution as we've continued to drive attractive returns on equity for the benefit of all of our shareholders.

Matt will outline the details of our 2023 guidance in a moment, but it's important to note that we do plan to continue our opportunistic approach to asset recycling. We've identified a number of properties that we think will garner strong pricing in the market as a result of the quality of the underlying real estate, allowing us to continue to generate attractive net investment.

<unk> on the redeployment of the proceeds.

Ill now turn the call over to Matt to talk about our performance in the quarter and the year as well as our capital markets activities improved balance sheet in 2023 guidance. Thanks, John starting with our top line performance total revenues grew 22% in the fourth quarter and 50% for the year when compared to the equivalent periods in 2021.

Reflecting the benefit of accretive asset recycling and higher net investment spreads.

<unk> and administrative expenses for the year, which includes $3 $8 million of management fees to our external manager totaled $5 8 million.

G&A as a percentage of total revenues in 2022 was 12, 8% the year over year decrease of nearly 400 basis points.

We anticipate 2023 general and administrative expenses before the management fee to be approximately $2 1 million.

The current annual run rate for the management fee before any assumed new equity issuance in 2023 is just under $4 3 million.

<unk> in the quarter was 37 per share representing an 11, 9% decrease compared to the fourth quarter of 2021 in Q4 2022, <unk> was <unk> 41 per share, which remained unchanged from the fourth quarter of 2021.

The decrease in <unk> and differential to <unk> was driven by a $443000 extinguishment of debt charge relating to the defeasance and associated write off of unamortized loan costs of our $30 million fixed property secured mortgage.

For the full year <unk> was $1 73 per share and <unk> was $1 77 per share representing a year over year per share growth of nine 5% and 11, 3%, respectively when compared to the full year of 2021.

Similar to the fourth quarter the decrease in <unk> and differential to <unk> was driven by $727000 of extinguishment of debt charges relating to the defeasance and associated write off.

Unamortized loan costs for the $30 million fixed property secured mortgage and for the termination and recast of our unsecured revolving credit facility that occurred in the third quarter.

As previously announced the company paid a fourth quarter cash dividend on December 30 of $27 five per share representing one 9% year over year increase when compared to the company's Q4 2021 cash dividend.

Current annualized yield of approximately five 4%.

Overall, we increased our regular common stock cash dividend by seven 4% in 2022, while still maintaining a conservative <unk> payout ratio.

Our fourth quarter, <unk>, and <unk> payout ratios remained very efficient at 74% and 67%, respectively, and we anticipate announcing our regular quarterly common stock cash dividend for the first quarter of 2023 towards the end of February .

Turning to the balance sheet, we made good progress reducing leverage closer to our long term target.

We ended the year with net debt to total enterprise value of 47% net debt to pro forma EBITDA at seven one times and we continue to maintain a very healthy fixed charge coverage ratio of three seven times.

During the fourth quarter, we sold nearly one 5 million shares through our ATM program for total net proceeds of $27 $4 million and during the full year 2022, we sold one 9 million shares through our ATM program for total net proceeds of $36 million.

As I mentioned earlier in December we did the fees the loan secured mortgage on our balance sheet net.

But if he has an allowed us to unencumbered the properties that secured the mortgage of which we sold four of the six properties. Shortly thereafter.

Following the secured mortgage payoff our balance sheet is now completely unsecured.

Subsequent to year end, we entered into a $50 million forward starting interest rate swap that commences in March to fixed so for our outstanding revolving credit facility balance effectively eliminating our remaining go forward floating interest rate exposure.

As of today, we have no debt maturities until 2026, no floating interest rate exposure and ample capacity on our revolving credit facility to complement our accretive asset recycling program.

For 2023 of the initial guidance in our press release last night reflects the confidence we have in our in the quality of our portfolio, while taking a reasonably cautious approach to the broader macroeconomic environment and underlying volatility in the capital markets.

Our 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 continued operational and financial strength of our tenants.

We began 2023 with portfolio wide in place annualized straight line base rent of $40 million 400000, and in place annualized cash base rent of 39.900 million.

Our full year 2023, <unk> guidance range is $1 50 to $1 55 per share and our full year 2023, <unk> guidance range is $1 50 to $2 57 per share.

Our 2023 guidance for acquisition activity is $100 to $150 million of retail net lease properties, which is subject to reasonable market conditions and we believe these acquisitions will occur at a similar or better blended yield to our 2022 full year acquisition cap rates.

For dispositions, we're projecting to sell between $25 million and $50 million of properties that are similar blended yield or better to our 2022 full year disposition cap rate and with that I'll now pass it back to John for his closing remarks. Thanks, Matt during 2022, we deliver the second highest total shareholder return in our peer group. So as we now fully transitioned.

In 2023 Im excited about the opportunities we have in front of us and our support.

We have received from our shareholders our.

Our nimble size evolving portfolio derisked balance sheet and opportunistic approach to investing are all drivers of momentum to help us execute in 2023 and beyond I want to thank our team for all their hard work at that and at this time, we will open it up for questions operator.

Ladies and gentlemen, if you have a question or comment at this time. Please press star one one on your telephone keypad.

If your question has been answered or you wish to remove yourself from the queue simply press star one one again.

Again, if you have a question or comment at this time. Please press star one one.

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

Okay.

Our first question or comment comes from the line of Gaurav Mehta from E. F. Hutton group Mr. Mehta. Your line is open.

Mr. <unk>, you may need to mute your phone.

Okay. Thanks, Good morning, I wanted to ask you on your comments about Capex compression that you guys mentioned for.

Investment grade properties over last few months can you maybe provide some more color on what youre seeing and what you're expecting for investment grade asset cap rates.

Yes, so there is not.

So there is not a.

<unk> <unk>.

Inventory out there so people that have good quality.

Assets with good credits.

They're holding onto their price, they're not breaking price so because theres not a lot of inventory out there your high net worth your $10 31 people are basically engaging at the price point that the sellers.

We are willing to part with the asset. So you are seeing that cap rates are definitely not expanding and we'd just say they are kind of coming back down.

It feels like a following the 10 year or something that cap rates have come back in.

<unk> optimistic that.

We'll get some really good buying opportunities, but so far.

It's pretty strong market, if you have the right credits.

Okay.

Question on leverage pro forma debt to EBIT at six six times.

That ratio to remain at current levels or do you expect that to go up as you look to finance our acquisitions for 2023.

Yeah, I think we'd like to keep it in that general range, but it's going to move around just the function of the size of the company alright, It doesn't take a lot to move it up and down.

So we'll see how the stock performs and we'll see where the buying opportunities are in <unk>.

And where the cost of debt is and we will respond and allocate capital accordingly.

Okay. Thank you.

Thanks, Greg.

Thank you. Our next question or comment comes from the line of Rob Stevenson from Janney Corporation. Mr. Stevenson. Your line is now open.

Todd how are you thinking about sporting goods given the <unk> acquisition is it just a credit on <unk> or is there something that you guys are seeing in the sporting goods.

Vertical that has you excited about growth over the next few years.

Yes.

We've always been very impressed with how well <unk> performs.

Stores that we own and the ones that we've looked at acquiring and Theyre just like such a strong operator that it seems like they're kind of the category killer and so it seems like there. There we are a strong company performance really radiates from probably locations. So we're just really comfortable with that.

With that particular operator.

Okay, and how much more is there in the portfolio today that you would want to sell barring some out of the blue.

Below which your cap rate expectation would wind up being for that particular asset.

Yes, I mean, we're seeing basically were getting inquiries on properties that were not in the market to sell.

And obviously, we have our price point, where we will sell anything as long as we can.

10 31 issue.

And so basically we are seeing some really good attractive recycling candidates that we didn't really expect for this year. We didn't think we would sell them but.

It looks like the pricing out there is better than we would have thought on the sell side. So so I expect to be.

Be somewhat active again here.

Caused more of the second quarter, Okay, and then Matt in your guidance what type of spread are you assuming on cap rates between the acquisitions and the dispositions for the year.

Yes, I think it will it'll probably be consistent with what we did in 2022 so call it.

100 basis points plus or minus.

Alright, guys. Thanks, I appreciate the time.

Zero.

Thank you. Our next question or comment comes from the line of RJ Milligan from Raymond James Mr. Milligan. Your line is now open.

Hey, Good morning, guys. John I, just wanted to revisit your comments on sort of the cap rate compression for investment grade.

I'm just curious what terms you're seeing out there from the lenders to lend on that that type of investment.

It's really high net worth all cash there is no there is no lender involvement and where we're seeing.

The activity taking place right now so whether it's a smaller asset.

That it's really a 10 31 and there is no lender need.

<unk> high net worth just very comfortable with the stability of net lease and.

There's no problem on pricing, they just want to place the capital and with particular credits and relocations.

So I guess for your comments, it's more a function of the lack of available product in that sort of keeping cap rates relatively low.

The question is if we were to see volume increase would you expect.

Cap rates to maybe expand a little bit.

Yes definitely.

Youre, absolutely right because theres not inventory out there if you had a forced seller out there of assets our portfolio of our motivated seller I think you would see cap rates expand a bit because that's what we're all waiting for is opportunities to deploy it at higher yields and so if people know.

That they have to sell.

Youre not going to basically be very aggressive that's kind of what we're all waiting for so yes. If all of a sudden saw a lot more activity happen I think cap rates would expand a bit.

That's helpful and then Matt a question on the guidance for the outstanding share Count, obviously implies a little bit more equity through the year, how should we think about the cadence of that.

Yes, so with the pro forma leverage the guard mentioned earlier.

Our investor presentation.

You can see we did a little bit of activity on the ATM to start the year before we went into blackout.

So a good chunk of that implied equity in the guidance has already been issued the balance of that amount I would expect to be more back end weighted.

I think that would track transaction activity.

Within the guidance as well.

And then do you expect for that transaction activity is or do you expect a mismatch in terms of dispositions versus acquisitions or do you think will be pretty equally times throughout the year I think from John's comments you.

You can probably expect us to be a little bit more active on the disposition side in the second quarter and there'll be a good match funding from that perspective than the balance of the the acquisitions, it's probably back end weighted to the second half of the year.

Great Thats it from me guys. Thank you.

Thank you.

Next question or comment comes from the line of Matthew <unk> from Jones trading Mr. <unk>. Your line is now open.

Hey, yes, Matthew on for Jason are there any specific regions throughout the country, where cap rates are expanding or kind of holding steady rather than compressing or is it kind of compression all around.

Yes, I would say, it's I don't think there is a geographic area that is exhibiting something different than really the national wave.

I don't see a particular area that's expanding maybe maybe some of the areas that are lower growth like as far as in Oregon, or California, as maybe people that just don't have a bigger as big a buyer pool.

But but it's pretty steady all across.

Gotcha and then following that up last one for me is there any specific industry that you guys are targeting or is it just investment grade tenants that you are trying to recycle it.

It's definitely obviously investment grade leads leads the way, but they're.

It won't be really on the entertainment side I guess, it will be more traditional staples.

Sort of assets good consistent industries.

Awesome. Thank you guys.

Thank you.

Our next question or comment comes from the line of Michael Gorman from <unk>. Mr. Gorman. Your line is now open.

Yes. Thanks, Good morning, John I was wondering if you could just spend a little bit more time talking about the acquisition market I know you've talked about the investment grade cap rates.

We've heard from some others that maybe there is also some differentiation within the specific sectors.

Are you seeing that play out as well too that theres more stratification between the sectors, even if they're both investment grade tenants and then I know you've talked previously before about seeing opportunities and shorter duration leases or assets with maybe some more near term role is that still out there as well or is that starting to get priced out too.

Yes.

It's getting.

There hasnt been really any any gap out in that kind of pricing for the shorter duration.

In there I wouldn't say, it's on the shorter duration is not compressing more.

The one thing I will say is we've got to think about the on the inventory side. The merchant builders are not active as active building new stores.

So youre not getting that inventory first of all the lender.

<unk> for construction is tougher obviously rates don't make the pro forma is look as good as they used to be and then.

Obviously, the construction costs are still it's still elevated theyre not going up further, but theyre not coming down like everyone had hoped so.

So that kind of.

It talks about the construction cost of these assets on a per square foot basis.

<unk>.

The older product with low rents very attractive as far as the basis Youre able to buy these assets and so thats why youre seeing a lot of capital come into these.

These properties, whether they're on the shorter duration because the basis is so attractive.

Got it got it that's helpful and then Matt maybe just quickly on your side.

What are you seeing in terms of.

The debt market. So the Optionality for you all you don't have any near term maturities no exposure to floating rate debt, but if you did start to see a pickup in maybe investment pipeline opportunities.

How are you thinking about the debt markets here, what are the attractive products that would be available to you or in terms of would you be able to put on swaps at this point to keep fixed rate or would it most likely need to be variable rate on the line.

I think certainly there is an appetite for swaps and the bank market and so I think we can continue to sort of match fix acquisitions.

Whether that's on the line or a new term loan or some other piece of that we can we can maintain the fixed approach on.

On the interest rate side in terms of capital available.

Has it been as much of a run off of People's balance sheets, and so I think everybody in the real estate banking market is expecting some capacity to open up here into the second and third quarter, which should allow for longer duration term loans.

And better match funding with assets to pick up it's been pretty tight to start the year.

For us.

We've historically access the term loan bank market, we're getting to a size, where the private placement market as more and more attractive.

So I think both of those areas, where you could see us add incremental longer duration debt.

Okay, great. Thanks, guys.

Thanks, Mike.

Thank you. Our next question or comment comes from the line of Wes Golladay from RW Baird. Mr. Golladay. Your line is now open.

Hey, Good morning can you hear me yes.

Yes.

Okay great.

Seen any op unit deals out there.

There is there are certainly.

I would say there have been discussions.

But whether it's.

Not the right kind of purchase price for us. So there's folks that would like to take op units, but I think the bid ask on the assets too wide.

Okay, and then you.

You, obviously articulated some dispositions planned for this year, but the cost of capital has been improving so I'm curious how do you balance incremental dispositions versus scaling the business in light of the 400 basis points of improved efficiency. This year.

For 2020, yes, well on the disposition side, where we're using that capital to buy additional assets. So it's not we're not shrinking for sure. We're just taking advantage of upgrading the portfolio and accretive recycling.

But other than that we're definitely looking to to to grow beyond just the recycling and so we're we're actively pursuing those opportunities.

Okay, and then one for Matt I think the six six times debt to EBITDA at what point does it start to benefit you on having a lower spread on your floating rate debt and then you did mentioned maybe doing some more fixed rate debt would there be a point, where you are potentially over swaps and maybe along floating rate.

Yes, so with the six six times.

A 15 basis point benefit to our spread on the revolver and the term loans.

Going forward it resets every quarter, so it'll take a little bit of time to get the benefit there once we head into the second quarter, but it certainly helps.

On the longer duration debt swap that we did was a five year swaps, so if and when we do.

Our new term loan.

Effectively match up with that new term loan.

Whether we go farther out on the swap rates to.

To further hedge out I think that will depend on where where interest rates are and what kind of duration is available on the on the debt origination side.

Okay, great. Thanks, everyone. Thanks.

Thanks, a lot. Thank you.

Okay.

Our next question or comment comes from the line of Mr. Craig Sarah from B Riley. Your line is now open Sir.

Yeah, Hey, good morning, guys.

Most of mine have been answered, but I wanted to ask you about your lease rollover I think historically you haven't had much.

And the portfolio, but you are starting to see a pick up here a little bit in 'twenty three and certainly in 'twenty. Four are you having any discussions at this point on extensions and I just would be curious about any thoughts you have on lease explorations over the next year or two.

Yes.

Thanks, Craig and we have had.

Extension discussions, we're actually seeing some tenants with explorations of couple of years away try to come in early.

To get get something for an early extension and a lot of those locations were comfortable basically waiting until the renewal.

And but if theres an opportunity to do something with the tenants on.

Multiple assets, we're certainly open to those discussions so so yes, we're obviously.

In tenant discussions about renewals and early renewals.

Okay, Great. That's all for me. Thank you.

Thank you I'm showing no additional questions in the queue at this time I would like to turn the conference back over to Mr. Albrecht for any closing remarks.

Thank you very much for attending the call and look forward to talking to you after.

Thanks, everyone.

Ladies and gentlemen, thank you for participating in today's conference. This concludes the program you may now disconnect everyone have a wonderful day speakers standby.

The conference will begin shortly.

Lower Johan during Q&A, you can dial one one.

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One one on your telephone keypad, joining us today are Mr. Matt Partridge, Chief Financial Officer, and Mr. John Albright Chief Executive Officer at this time I would like to turn the conference over to Mr. Matt Partridge, Sir please begin.

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.

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.

Our SEC report earnings release, and most recent investor presentation, which contain reconciliations of non-GAAP financial measures. We use on our website at alpine <unk> dot com with that I'll now turn the call over to John Thanks, Matt We had at <unk>.

<unk> finished the year as we continued to execute on our accretive asset recycling program reduce leverage and improve the overall quality of our retail net lease portfolio our acquisitions during the quarter emphasized high quality investment grade rated tenants, demonstrating strong operating trends and well performing sectors, such as grocery home improvement.

<unk> sporting goods and dollar stores.

<unk> as well as family dollar dollar tree, Dick's sporting goods and Walmart.

Full year 2022, we acquired 51 retail net lease properties for just over $187 million at a weighted average going in cap rate of seven 1% and a weighted average remaining lease term at acquisition of eight seven years, 77% of the rents we acquired during the year were from tenants with investment grade credit.

<unk> and more than half of the ramped acquired are in Msas with over 1 million people.

While we did see cap rates move higher as we made our way through 2022, we've seen a decrease in the number of assets listed for sale in the market to start 2023, which is contributing to a higher are tighter bid ask spread.

Sellers with high quality properties in strong markets within in demand tenants or sectors have maintain conviction in their pricing expectations. We're starting to see buyers be more aggressive as they look to put capital to work to start the year.

Solid risk adjusted returns in a relatively volatile macroeconomic environment.

On the disposition front, we sold five properties for a total disposition volume of $31 million at a weighted average exit cap rate of six 5% generating total gains of $6.6 million.

The dispositions include properties leased to Freddy's frozen custard big lots Rite aid and Harris Teeter.

Sales in the subsequent redeployment in nearly 100 basis point net investment spread during the quarter allowed us to drive a better return on equity while moving out of some of the assets, where we felt we had incremental risk.

Proceeds also provided us with attractively priced capital to put to work in the acquisition market that resulted in a higher yield and increase investment grade rated tenant exposure year.

Year to date, we've sold 16 properties for approximately $155 million and a weighted average exit cap rate of six 5% or five 9% when removing the impact of our last remaining office property was sold during the second quarter.

As of the end of the year. Our portfolio consisted of 148 properties totaling $3 7 million square feet with tenants operating in 26 sectors within 34 States aka.

Occupancy did tick lower and below a 100% for the first time as a result of a vacant out parcel we acquired as part of our property acquisition in the fourth quarter.

Scribed no value to the vacant property at acquisition, but we're cautious cautiously optimistic we can lease the asset to drive organic rent growth within the existing portfolio.

We entered 2023 with 54% of our total annualized base rents coming from tenants or the parent of a tenant with an investment grade credit rating, which we anticipate will grow throughout the year as we continue to recycle out of non investment grade rated tenants and into high quality industry, leading retailers.

Our balance sheet is positioned to outperform in nearly any economic environment, we're hopeful that as our portfolio metrics start to better parallel are higher valuation multiple peers, we'll see an uptick in our own stock valuation, reflecting the continuous refinement of our portfolio our stocks increased liquidity a derisk balance.

<unk> and consistency of execution as we've continued to drive attractive returns on equity for the benefit of all of our shareholders.

<unk> on the redeployment of the proceeds.

Reflecting the benefit of accretive asset recycling and higher net investment spreads.

<unk> and administrative expenses for the year, which includes $3 $8 million of management fees to our external manager totaled $5 8 million.

G&A as a percentage of total revenues in 2022 was 12, 8% the year over year decrease of nearly 400 basis points.

We anticipate 2023 general and administrative expenses before the management fee to be approximately $2 $1 million.

The current annual run rate for the management fee before any assumed new equity issuance in 2023 is just under $4 3 million.

For the full year <unk> was $1 73 per share and <unk> was $1 77 per share representing a year over year per share growth of nine 5% and 11, 3%, respectively when compared to the full year of 2021.

Similar to the fourth quarter the decrease in <unk> and differential to <unk> was driven by $727000 of extinguishment of debt charges relating to the defeasance and associated write off.

Unamortized loan costs for the $30 million fixed property secured mortgage and for the termination and recast of our unsecured revolving credit facility that occurred in the third quarter.

Overall, we increased our regular common stock cash dividend by seven 4% in 2022, while still maintaining a conservative <unk> payout ratio.

Turning to the balance sheet, we made good progress reducing leverage closer to our long term target.

<unk> ended the year with net debt to total enterprise value of 47% net debt to pro forma EBITDA at seven one times and we continue to maintain a very healthy fixed charge coverage ratio of three seven times.

As I mentioned earlier in December we did the fees the loan secured mortgage on our balance sheet. The defeasance allowed us to unencumbered the properties that secured the mortgage of which we sold four of the six properties. Shortly thereafter.

Following the secured mortgage pay off our balance sheet is now completely unsecured.

Subsequent to year end, we entered into a $50 million forward starting interest rate swap that commences in March to fixed so far for our outstanding revolving credit facility balance effectively eliminating our remaining go forward floating interest rate exposure.

As of today, we have no debt maturities until 2026, no floating interest rate exposure and ample capacity on our revolving credit facility to complement our accretive asset recycling program.

For 2023, the initial guidance in our press release last night reflects the confidence we have in our quality and the quality of our portfolio, while taking a reasonably cautious approach to the broader macroeconomic environment and underlying volatility in the capital markets.

We began 2023 with portfolio wide in place annualized straight line base rent of $40 million 400000, and in place annualized cost base rent of 39.900 million.

Our full year 2023, <unk> guidance range is $1 50 to $1 55 per share and our full year 2023, <unk> guidance range is $1 50 to $2 57 per share.

Our 2023 guidance for acquisition activity is $100 million to $150 million of retail net lease properties, which is subject to reasonable market conditions and we believe these acquisitions will occur at a similar or better blended yield to our 2022 full year acquisition cap rates.

For dispositions, we're projecting to sell between $25 million and $50 million of properties that are similar blended yield or better to our 2022 full year disposition cap rate and with that I'll now pass it back to John for his closing remarks, thanks, Matt during 'twenty two we deliver the second highest total shareholder return in our peer group. So as we now fully transitioned.

In 2023 Im excited about the opportunities we have in front of us and our support.

We've received from our shareholders our.

Ladies and gentlemen, if you have a question or comment at this time. Please press star one one on your telephone keypad.

If your question has been answered or you wish to remove yourself from the queue simply press star one one again.

Again, if you have a question or comment at this time. Please press star one one.

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

Okay.

Our first question or comment comes from the line of Gaurav Mehta from E. F. Hutton group Mr. Mehta. Your line is open.

Mr. <unk>, you may need to mute your phone.

Okay. Thanks, Good morning, I wanted to ask you on your comments about Capex compression that you guys mentioned for.

Investment grade property is over last few months can you maybe provide some more color on what youre seeing and what you're expecting for investment grade asset cap rates.

Yes, so there is not.

There is not a <unk>.

Or of.

Tori out there so people that have good quality.

Assets with good credits they are holding onto their price, they're not breaking price.

So because theres not a lot of inventory out there your high net worth $2 31 people are basically engaging at the price point that the sellers.

We are willing to part with the asset. So you are seeing that cap rates are definitely not expanding and.

We just say they are kind of coming back down.

Almost.

Feels like a following the 10 year or something that cap rates have come back and we are hopeful and optimistic that.

We'll get some really good buying opportunities, but so far.

Pretty strong market, if you have the right credits.

Okay.

Second question on leverage pro forma debt to EBIT at six six times.

Do you expect.

That ratio to remain at current levels or do you expect that to go up as you look to finance our acquisitions for 2023.

Yes, I think we'd like to keep it in that general range, but it's going to move around just the function of the size of the company alright. It doesn't take a lot to move it up and down so we will see how the stock performs and we will see where the buying opportunities are in.

And where the cost of debt is and we'll respond and allocate capital accordingly.

Okay. Thank you.

Thanks Scott.

Thank you. Our next question or comment comes from the line of Rob Stevenson from Janney Corporation. Mr. Stevenson. Your line is now open. Thank John how are you thinking about sporting goods given the <unk> acquisition is it just a credit on <unk> or is there something that you guys are seeing in the sporting goods.

Vertical that has you excited about growth over the next few years.

Yes.

We've always been very impressed with how well <unk> performs.

Stores that we own and the ones that we've looked at acquiring and Theyre just like such a strong operator that it seems like they're kind of the category killer and so it seems like there. There we are a strong company performance really radiates from from these locations. So we're just really comfortable with that.

With that particular operator.

Okay, and how much more is there in the portfolio today that you would want to sell barring some out of the blue offer.

Below what's your cap rate expectation would wind up being for that particular asset.

Yes, I mean, we're seeing basically were getting inquiries on properties that were not in the market to sell.

And obviously, we have our price point, where we will sell anything as long as we can.

10 31 issue.

And so.

Basically we are seeing some really good attractive recycling candidates that we didn't really expect for this year.

I didn't think we would sell them but.

It looks like the pricing out there is better than we would have thought on the sell side. So so I expect to be somewhat active again here.

Caused more of the second quarter, Okay, and then Matt in your guidance what type of spread are you assuming on cap rates between the acquisitions and the dispositions for the year.

Yes, I think it will it'll probably be consistent with what we did in 2022 so call it.

100 basis points plus or minus.

Alright, guys. Thanks, I appreciate the time.

Hey, Rob.

Thank you. Our next question or comment comes from the line of RJ Milligan from Raymond James Mr. Milligan. Your line is now open.

Hey, Good morning, guys. John I, just wanted to revisit your comments on sort of the cap rate compression for investment grade.

I'm just curious what terms you're seeing out there from the lenders to lend on that that type of investment.

It's really high net worth all cash there's no there's no lender involvement and where we're seeing.

The activity taking place right now.

Whether it's a smaller asset that it's really a 10 31 and there is no lender need.

<unk> high net worth just very comfortable with the stability of net lease and.

There's no problem on pricing, they just want to place that capital and with particular credits and locations.

So I guess for your comments, it's more a function of the lack of available product in that sort of keeping cap rates relatively low I guess the question is if we were to see volume increase would you expect.

Cap rates to maybe expand a little bit.

Yes definitely.

You are absolutely right because theres not inventory out there if you had a forced seller out there of assets our portfolio of our motivated seller I think you would see cap rates expand a bit because that's what we're all waiting for is opportunities to deploy it at higher yields and so if people know.

That they have to sell.

Youre not going to basically be very aggressive thats kind of what we're all waiting for so yes, if all of a sudden install a lot more activity happen I think the cap rates would expand a bit.

That's helpful and then Matt a question on the guidance for the outstanding share Count, obviously implies a little bit more equity through the year, how should we think about the cadence of that.

Yes, so with the pro forma leverage the guard mentioned earlier.

Our investor presentation.

You can see we did a little bit of activity on the ATM to start the year before we went into blackout.

So a good chunk of that implied equity in the guidance has already been issued the balance of that amount I would expect to be more backend weighted.

I think that would track transaction activity.

Within the guidance as well.

And then do you expect for that transaction activity is there do you expect a mismatch in terms of dispositions versus acquisitions or do you think will be pretty equally times throughout the year.

I think from John's comments you.

You can probably expect us to be a little bit more active on the disposition side in the second quarter and there'll be a good match funding from that perspective within the balance of the the acquisitions, it's probably back end weighted to the second half of the year.

Great Thats it from me guys. Thank you.

Thank you.

Thank you. Our next question or comment comes from the line of Matthew <unk> from Jones trading Mr. <unk>. Your line is now open.

Yes, I would say, it's I don't think there is a geographic area that that is exhibiting in something different than really the national the wave.

I don't see a particular area, that's expanding maybe maybe some of the areas that are lower growth.

As far as in Oregon, or California is.

Maybe people that just don't have a bigger as big a buyer pool.

But.

It's pretty steady all across.

Got you and then following that up.

Last one for me is there any specific industry that you guys are targeting or is it just investment grade tenants that you are trying to recycle it.

It's definitely obviously investment grade leads leads the way, but they're.

It won't be really on the entertainment side I guess, it will be more traditional staples.

Sort of assets good consistent industries.

Awesome. Thank you guys.

Thank you.

Thank you. Our next question or comment comes from the line of Michael Gorman from <unk>. Mr. Gorman. Your line is now open.

Yes. Thanks, Good morning, John I was wondering if you could just spend a little bit more time talking about the acquisition market I know you've talked about the investment grade cap rates.

We've heard from some others that maybe there is also some differentiation within the specific sectors.

Are you seeing that play out as well to you that theres more stratification between the sectors, even if they're both investment grade tenants and then I know you've talked previously before about seeing opportunities and shorter duration leases or assets with maybe some more near term role is that still out there as well or is that starting to get priced out too.

Yes, I mean thats getting.

There hasnt been really any any gap out in that kind of pricing for the shorter duration is hanging in there.

Wouldn't say, it's now on the shorter duration is not compressing more.

The one for the one thing I will say is we've got to think about the on the inventory side. The merchant builders are not active.

Active building new stores.

So youre not getting that inventory first of all the lender market for construction is tougher obviously rates don't make the pro forma is.

As good as they used to be and then.

Obviously, the construction costs are still it's still elevated theyre not going up further, but theyre not coming down like everyone had hoped so.

So that kind of talks about the construction cost of these assets on a per square foot basis makes the the older.

Product.

With low rents very attractive as far as the basis, you are able to buy these assets and so thats why youre seeing a lot of capital come into these.

These properties, whether they're on the shorter duration because the basis is so attractive.

Got it got it that's helpful and then Matt maybe just quickly on your side.

What are you seeing in terms of.

The debt markets and the Optionality for you all you don't have any near term maturities no exposure to floating rate debt, but if you did start to see a pickup in maybe investment pipeline opportunities.

I think certainly there is an appetite for swaps and the bank market and so I think we can continue to sort of match fix acquisition.

And whether that's on the line or a new term loan or some other piece of that we can we can maintain the fixed approach on.

On the interest rate side in terms of capital available.

Hasnt been as much of a run off of People's balance sheets, and so I think everybody in the real estate banking market is expecting some capacity to open up here into the second and third quarter, which should allow for longer duration term loans in.

And better match funding with assets to pick up it's been pretty tight to start the year.

For us.

We've historically access the term loan bank market, we're getting to a size, where the private placement market as more and more attractive.

So I think both of those areas, where you could see us add incremental longer duration debt.

Okay, great. Thanks, guys.

Thanks, Mike.

Thank you. Our next question or comment comes from the line of Wes Golladay from RW Baird. Mr. Golladay. Your line is now open.

Hey, Good morning can you hear me yes.

Yes.

Okay great.

I've seen any deals out there.

There are certainly.

I would say there have been discussions.

But whether it's not the right kind of purchase price for us. So there's folks that would like to take op units, but I think the bid ask on the assets too wide.

Okay, and then you.

For 2020, yes, well on the disposition side, where we're using that capital to buy additional assets. So it's not we're not shrinking for sure where the second advantage of upgrading the portfolio and accretive recycling.

But other than that we're definitely looking to to to grow beyond just the recycling and so we're we're actively pursuing those opportunities.

Yes, so with the six six times.

A 15 basis point benefit to our spread on the revolver and the term loans.

Going forward it resets every quarter, so it'll take a little bit of time to get the benefit there once we head into the second quarter, but it certainly helps.

On the longer duration debt swap that we did was a five year swaps, so if and when we do.

Our new term loan.

Effectively match up with that new term loan.

Whether we go farther out on the swap rates to.

To further hedge out I think that will depend on where where interest rates are and what kind of duration is available on the on the debt origination side.

Okay, great. Thanks, everyone. Thanks.

Thanks, a lot. Thank you.

Okay.

Our next question or comment comes from the line of Mr. Craig Sarah from B Riley. Your line is now open Sir.

Yeah, Hey, good morning, guys.

Most of mine have been answered, but I wanted to ask you about your lease rollover I think historically you haven't had much.

Yes.

Thanks, Craig and we have had.

Extension discussions, we're actually seeing some tenants with exploration is a couple of years away try to come in early.

To get get something for an early extension and a lot of those locations were comfortable basically waiting until the renewal.

And but if theres an opportunity to do something with the tenants on a multiple assets. We're certainly open to those discussions. So so yes, we're obviously.

In tenant discussions about renewals and early renewals.

Okay, Great. That's all for me. Thank you.

Thank you I'm showing no additional questions in the queue at this time I would like to turn the conference back over to Mr. Albrecht for any closing remarks.

Thank you very much for attending the call and look forward to talking to you after.

Thanks, everyone.

Ladies and gentlemen, thank you for participating in today's conference. This concludes the program you may now disconnect everyone have a wonderful day speakers standby.

Q4 2022 Alpine Income Property Trust Inc Earnings Call

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