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spk01: Thank you for your patience. Again, today's conference is scheduled to begin shortly. Please continue to stand by. Thank you. Thank you. Thank you. Thank you.
spk08: Good morning, everyone, and thank you for joining us today for the Alpine Income Property Trust Fourth Quarter and Year-End 2021 Operating Results Conference Call. With me is Matt Partridge, our Chief Financial Officer. Before we begin, I'll turn it over to Matt to provide the customary disclosures regarding today's call. Matt?
spk06: Thanks, John. I'd like to remind everyone that many of our comments today are considered forward-looking statements under federal securities law. The company's actual future results may differ significantly from the matters discussed in these forward-looking statements, and we undertake no duty to update these statements. Factors and risks that could cause actual results to differ materially from expectations are disclosed from time to time in greater detail in the company's Form 10-K, Form 10-Q, and other SEC filings. You can find our SEC reports and our earnings release, which contain reconciliations of non-GAAP financial measures we use, on our website at alpineread.com. With that, I will now turn the call back over to John.
spk08: Thanks, Matt. We capped off a record-setting year for the company with our strongest quarter error of acquisition volume, acquiring more than $100 million of well-located, high-quality net lease properties at a weighted average going-in cap rate of 6.2%. The success we had growing the organization in 2021 allowed us to generate the highest total shareholder return of any of our public company peers. We've meaningfully beat our fourth quarter in full-year guidance. increased our quarterly cash dividend by nearly 23% year over year, and dramatically improved our cost of capital. During the fourth quarter, we acquired 26 properties spread across 11 different states and 17 markets, with Houston being the largest market we invested in during the quarter. More than half of the acquired rents during the fourth quarter came from MSAs, with over a million people and approximately half of the acquired rents were in the Urban Land Institute's top 25 markets for 2022. Our new acquisitions included 19 tenants, nine of which were new tenants to the growing portfolio operating at 12 sectors. And most notably, we had the unique opportunity to purchase a portfolio ground lease properties in Houston. The ground lease transaction resulted in 34% of the acquired rents in the fourth quarter coming from the ground lease properties where the tenant has invested in the improvements and we own the land. The ground lease structure is a superior investment because it provides an extra layer of protection due to the tenant's investment in the improvements, making the tenant much more likely to operate in the location over the long term. Those improvements then revert to us if the tenant ever leaves or at the end of the lease term, which results in a higher overall residual value for our investment. As I previously mentioned, the portfolio of ground leases we purchased are all in the Houston market and has a strong macro fundamentals. While the ground lease portfolio did bring our average cap rate down in the fourth quarter, this is a special opportunity to invest in the asset with excellent risk adjusted returns. I'll stress that this quarter was unique and therefore we anticipate a higher average cap rate on our investments for the first quarter of 2022. more in line with what you saw from us during the first three quarters of 2021. For the full year of 2021, we more than doubled our portfolio through acquisition of 68 net lease retail properties for just over $260 million and a weighted average going in cap rate of 6.8% and a weighted average remaining lease term at acquisition of 8.1 years. Throughout the year, we acquired a number of new tenants into our portfolio, including our first Lowe's, Academy Sports, Burlington, Camping World, Tractor Supply, Harris Teeter, and O'Reilly Auto Parts, just to name a few. When we take a step back and look at the markets where we acquired properties throughout the year, They included some of the strongest in the United States, including Houston, Dallas, Charlotte, Atlanta, Seattle, Washington, D.C., Phoenix, and Orlando. With the attractive locations of our assets and rents that we believe are below market in our 2021 execution and a good representation of our overall investment strategy, where we look to combine excellent real estate fundamentals with well-performing retailers and sectors that mitigate the near-term risk but preserve upside through long-term investments. residual value. At the end of the year, our portfolio was once again 100% occupied and consisted of 113 properties totaling 3.3 million square feet with tenants operating in 26 sectors within 32 states. Our top tenants include Wells Fargo, At Home, Hobby Lobby, Academy Sports, Dollar General, Walmart, Walgreens, and Lowe's. The largest change to our top tenant list came from the sale of our Hilton Grand Vacations properties. This sale generated a true cash gain of over $7 million and a book value gain of more than $9 million, helping improve our overall book value by $0.70 per share. With the Hilton sale complete, the Wells Fargo property in Hillsboro, Oregon, is the sole remaining office asset in the portfolio. We are in active discussions with interested parties, and we have included this property sale in our 2022 disposition guidance, which will help fund our acquisition activity for the year. For 2022, we'll continue to execute our real estate-focused investment strategy, where our side affords us the opportunity to be nimble and acquire high-quality acquisitions in a competitive but fragmented net lease transaction market. With that, now let's turn the call over to Matt.
spk06: Thanks, John. As John mentioned earlier, our portfolio remains 100% occupied and our tenants have performed very well, paying 100% of their contractual-based rents in the fourth quarter and throughout the entire year, including all of their scheduled COVID-related deferral repayments. For the fourth quarter of 2021, FFO was 42 cents per share, a 5 cents per share increase over the third quarter, and AFFO was 41 cents per share, which was a 4 cents per share increase from the third quarter. For the full year, FFO was $1.58 per share, representing a 28% increase over 2020, and AFFO was $1.59 per share, which was a 53% increase over 2020. Our AFFO for the full year was positively impacted by $430,000 of repaid rent related to previously disclosed COVID-19 rent deferral agreements, and as we disclosed last quarter, we have one remaining tenant making repayments under a previously agreed-to rent deferral agreement, and these payments of $22,000 per quarter are scheduled to occur through the second quarter of 2022. General and administrative expenses for the year, which includes the $3.2 million of management fees to our external manager, totaled $5 million. This was a year-over-year increase of 7.9%, which was meaningfully offset by our revenue growth of more than 56%. G&A has a percentage of revenues in 2021 with 16.7%, a year-over-year decrease of more than 750 basis points, which compares very favorably to a number of our small cabinet lease peers and continues to reflect our improving organizational scale and efficiency. As has been the case in each quarter of 2021, our growth allowed us to increase our cash dividend in the fourth quarter by nearly 6% to 27 cents per share. FFO and AFFO fourth quarter payout ratios were very healthy at 64% and 66% respectively, and we currently have a strong annualized yield of approximately 5.6%. Our fourth quarter dividend marked the sixth dividend increase by the company since its IPO in late 2019, our fifth consecutive increase in as many quarters, and a 23% increase over our fourth quarter 2020 quarterly dividend. We anticipate announcing our regular quarterly cash dividend for the first quarter of 2022 towards the end of February. Turning to our capital markets activities in the balance sheet, 2021 was a very busy year. We nearly doubled the size of the company, sourcing $250 million of debt and equity through a combination of term loans, loan assumptions, ATM issuance, and our inaugural follow-on offering and OP unit issuance. During the fourth quarter, we issued 152,000 shares of common stock through our ATM program, for total net proceeds of $2.8 million. And year-to-date in 2022, we have issued 213,000 shares of common stock through our ATM program at an average price of $19.98 per share, for total net proceeds of $4.2 million. We ended the year with net debt to total enterprise value of just under 50%, net debt to pro forma EBITDA of 8.1 times, and a very healthy fixed charge coverage ratio of 6.2 times, which is one of the strongest in the net lease sector. With no debt maturities other than our revolving credit facility until 2026, year-end liquidity from revolver availability and available cash on the balance sheet of $60 million, and anticipated future proceeds from disposition activities, we believe we have adequate liquidity to fund our projected acquisition activities for the near future. As we look out into 2022, we did provide initial guidance in our press release last night. This guidance relies on a number of significant assumptions, including but not limited to our ability to raise funds for investment at a reasonable cost of capital, our ability to acquire and sell assets at reasonable valuations, and support of broader capital markets and an overall stable economy. We begin 2022 with portfolio-wide in-place annualized straight-line base rent of $36.9 million, or $35.7 million of in-place annualized cash-based rent. Our full year 2022 FFO guidance range is $1.53 per share to $1.58 per share, and our full year 2022 AFFO guidance range is $1.51 per share to $1.56 per share. As I previously mentioned, our 2021 AFFO per share results included the positive effects of $430,000 of COVID rent deferral repayments, and with those COVID rent deferral repayments having largely run their course, In 2022, they are anticipated to total just $45,000. While the year-over-year changes do create some noise in our FFO per share comparisons from 2020 to 2021, and from 2021 to 2022, they do not impact year-over-year comparisons for FFO because we continue to straight-line the contractual rents during the repayment period instead of moving to a cash-based revenue recognition approach for those impacted tenants. Our 2022 per-share guidance does assume some delevering of the balance sheet when compared to our year-end 2021 credit metrics, both from a forecasted dispositions and from our projected capital markets activities. While the ebbs and flows of leverage do impact period-to-period growth metrics for Pine, we have maintained that a long-term focus on risk-adjusted returns drive the best long-term value for our shareholders. On the transaction front, we expect to acquire between $200 million and $250 million of retail net lease properties during 2022, and subject to market conditions, we believe these acquisitions will occur at a similar blended yield to our 2021 full-year acquisition cap rates. Our transaction volume guidance and anticipated cap rates do not include the potential grocery development site at our existing property in Jacksonville, Florida, which we disclosed in the third quarter and is still subject to finalizing customary due diligence and approvals. And finally, our guidance does assume we sell between $40 and $50 million of assets throughout the year, including, as John mentioned earlier, the loan remaining office property leased to Wells Fargo in Hillsborough, Oregon. Given the lease with Wells Fargo has less than four years remaining, we expect our portfolio's weighted average lease term to meaningfully improve after we sell this property and redeploy the proceeds. With that, I want to thank our shareholders and business partners for their strong support in 2021, and we look forward to continued success in 2022. I'll now turn the call back over to John for his closing remarks.
spk08: Thanks, Matt. 2021 was a strong year of growth for Pine, and we are excited to be entering 2022 with such a high-quality portfolio with no meaningful near-term lease maturities and robust acquisition pipeline. All of our momentum to the end of 2021 has continued with a fast start in 2022 and and that momentum will be a strong tailwind as we execute our real estate focus strategy and seek to drive further value for our shareholders. I want to congratulate our team on a record-setting year, and thank you to our shareholders for their support. At this time, we'll open it up for questions.
spk01: Thank you. If you have a question at this time, please press star, then 1 on your telephone. If your question has been answered or you wish to remove yourself from the queue, please press the pound key. And our first question comes from the line of RJ Milligan with Raymond James. Your line is open. Please go ahead.
spk10: Hey, good morning, guys. A couple questions. I wanted to start out with the acquisition guidance. You guys did $260 million in 2021, calling for $225 million, slight decline in 2022. I'm just curious what's sort of driving that and what's your visibility over the next couple quarters in terms of acquisition volume, and what potentially could we see to get to the higher end of that range by the end of 2022?
spk08: Yeah, thanks, RJ. So, I mean, the visibility looks really good as far as the pipeline. I think we're just basically hedging our bets here a little bit in that, obviously, we're in a kind of choppy macro market, capital markets, and who knows where things go. Maybe there's a war in Europe and everything, so I think we're just not saying we're slamming on the pedal to the metal and doing acquisitions just to do them, so we're just being a little bit careful. We're optimistic that obviously we'd like to do more, but it's all obviously dependent on capital markets and so forth. I'm not as concerned about pipeline and the ability to find high quality at good yield. It's just a little bit more concerned about the backdrop. That makes sense.
spk10: And then, Matt, in your opening comments, you talked about leverage just over eight times at the end of the quarter, and obviously that bounces around depending on capital markets activity. assuming obviously the dispositions or planned dispositions are factored in there. But can you just talk about how you expect leverage to trend, you know, as we go through the year and sort of on a longer-term basis?
spk06: Yeah. Thanks, RJ. I think the good news is that we've got more liquidity in the stock over the last few months, and we've been able to execute on the ATM to start the year pretty efficiently. So, I think you can assume we'll probably be active on the ATM to match fund transactions throughout the quarter going forward. And then within guidance, you know, our guidance sort of assumes we're going to be plus or minus that seven times range at the end of the year. So there is some delevering in there. And obviously we gave some indication on what we thought the share issuance would look like with the range that we provided. So there certainly will be some delevering and we'll be efficient on the ATM. And then to John's point, we'll see how the capital markets evolve.
spk10: Thanks. And then my last question, just to make it a little bit more broad, John, you talked about, you know, the expectations for cap rates to sort of remain the same in terms of 22 versus 21. Can you just talk about what you're seeing out there in the market in terms of cap rates? And has any of this, you know, macro headwinds that we've seen over the past couple weeks, has that impacted pricing or the availability of product?
spk08: We have not seen it as far as the pricing get better as a buyer. It's held fairly steady right now. We are being a little bit more picky as far as not looking to bidding a little wide to see if there is some loosening in the market. So far, we haven't seen it. We're optimistic that we'll be able to to pick off some things at more attractive prices. But we're finding good acquisition properties at good yields for us, but we're seeing whether we can do a little bit better. But we have not seen the pricing change in the market. There's just so much capital still out there. I think a lot of people are looking at this as far as going in for the inflation hedge. So you're hearing dialogue from the brokerage market that there is capital going to the safety of this type of asset for the obvious reasons. So we're competing with that. So last year was the 1031 scramble. Everyone's worried about that. And now it's the inflation scramble. So we'll keep monitoring it and keep pursuing things. Thanks, guys. Appreciate it. Thank you.
spk01: Thank you. And our next question comes from the line of Michael Gorman with BTIG. Your line is open. Please go ahead.
spk09: Yeah, thanks. Good morning, guys. John, just sticking with the acquisition market for a bit, obviously, you know, still see some strength there. Can you just talk about are you seeing any kind of divergence in opportunities, whether it's amongst geographies or the different kind of retail property types that you're looking at?
spk08: Yeah, so I think as a backdrop, as we're working on the sale of Wells Fargo, we want to make sure we curate a very strong top 10 tenant list. And so we're working hard to kind of keep on impressing you with the quality of our portfolio. And so I think you're going to see us pursuing some really good credits that will make itself up to the higher end of the ledger with regards to tenant concentration. We're very excited that we're seeing some good acquisition opportunities in good markets that will help us formulate even a stronger tenant backdrop. It's really all across sectors and locations, but I would say we're pleasantly surprised to get some of the locations we're getting. For instance, the Houston acquisition that happened in the fourth quarter, when we did that ground lease portfolio, we were really happy to get that portfolio at that type of pricing level. With that kind of quality, it just kind of reinforces the quality of our whole portfolio that we were able to source something like that. And that was totally unexpected and a terrific acquisition for us and for the company. So hopefully we can do more of those going forward.
spk09: That's great. And maybe kind of transitioning off of that with the quality that you just talked about, your presentation has some new disclosures in it talking about demographics. It's not something that often comes up a lot in net lease. I'm just curious, as you focus on kind of the quality of the actual real estate itself, is that something that's getting priced into the market or is this a situation where not a lot of the other bidders are looking at the underlying real estate demographics and maybe you can pick up what we would call better quality real estate at the same pricing as another location?
spk08: Yeah, I mean, look, I mean, we're trying to force the conversation because obviously our portfolio is super strong compared to maybe other folks. And so it's certainly not getting priced into our stock. I mean, you know the multiple we're trading at on the low side. But if you look through the portfolio in the demographics and locations, we certainly should be trading higher just based on the quality. And so we're trying to draw out that fact pattern so people, as they look at investing in different net lease rate companies, that they'll say, okay, I can pick up Alpine at a very low multiple, higher dividend yield, and a much better quality real estate portfolio in strong markets. We're very focused on that where, you know, obviously Houston's our largest market now. You know, obviously incredible macro tailwinds for Houston with oil and so forth. And so, you know, very much a strong growing economy. We did a John Burns study two years ago and basically said, you know, giving John Burns basically different criteria as, you know, what cities – with major airports, big universities, who has the highest job growth, population growth, and actually Houston came on top. And this is when oil was at like $20 a barrel, which was a little bit shocking to us. And in digging deeper with John Burns on it, a lot of it had to do with being a business-friendly city. It's all about growth. And so, you know, look, Houston probably won't be the top one forever. But it just shows you kind of how we look at it really going with a macro backdrop and then really strong real estate within our acquisitions.
spk06: Hey, Mike, the other thing I would add is in the net lease space, a lot of times people focus on the tenant quality, which is important. But when you see us acquire assets that maybe have a tenant that isn't as strong as you would typically see us acquire assets, it's usually because we see a lot of value in the real estate, and that's where we're finding some unique opportunities in the market where maybe it's being priced off the type of tenant that's there, and the quality of the real estate and the ability to mark those markets, mark those rents to market gives us an opportunity for longer-term residual value.
spk09: Right, right, right. So there's a different opportunity there because other people aren't looking at it the same way. That makes sense. Last question just on the amount of capital in the space. Just as you're out there looking at acquisitions, what kind of competition are you coming across? Is there still a lot of the 1031 money out there that maybe isn't non-economic? I'm just trying to get a sense for... There could be a lot of capital out there, but how economically sensitive is it? How rate sensitive is it? Is the market going to move in concert with rates here, or is there going to be a stickiness where maybe it's a six, nine-month lag if we get a more significant move up in rates, but the capital doesn't necessarily care because it's got other motivations?
spk08: Yeah, good question. So we're seeing less of that right now on these smaller acquisitions where that's being 1031 driven. I think a lot of that happened at the end of the year. I think now you're seeing more on the individual size, on these smaller transactions, people are buying more allocation of capital rather than 1031 driven. So I don't see cap rates just some sort of frenzy getting very tight because there's a feeding frenzy with regards to 1031 money. But, I mean, you do see that in, you know, call it a Chick-fil-A ground lease. I mean, that stuff trades at, you know, crazy low cap rates. But, you know, we're not seeing it kind of across the board. You know, say, you know, on the larger institutions, you know, they're obviously not focused on this type of product, but we are seeing on larger acquisitions that there are, you know, deep institutional capital that is chasing. So we're kind of in the in-between zone, which is perfect for us, where we're more competing with smaller players, and that's where we're picking up a lot better yield and high quality. If we were going down to the McDonald's ground lease, that would be really difficult for us to transact on. And if we were going into the $300 million type acquisition range, that would be really tough to compete on. So this in-between zone is actually kind of the sweet spot.
spk09: Okay, great. Thanks for your time, guys.
spk08: Thank you.
spk01: Thank you. And our next question comes from the line of Rob Stevenson with Jannie. Your line is open. Please go ahead.
spk07: Good morning, guys. John, what's the right way to think about the fourth quarter acquisitions X the ground leases? Were the cap rate on that consistent with the 6.8 in the third quarter that you did and the 6.8 for the full year? Was there something in terms of the quality that brought that down in addition to the, you know, plus or minus 5% cap rate on the ground leases?
spk08: Yeah, really the ground leases kind of drove in the cap rate. And as we mentioned in the intro, that we expect cap rates to be higher than our fourth quarter average. So, yeah, that was a little bit of a one-off, if you will, that did that. So we're being picky going forward and elevate that.
spk07: All right, but there wasn't anything from outside of the ground leases that sort of, you know, skewed the two-thirds of the non-ground lease acquisitions away from a sort of high sixes, low sevens sort of cap rate in the fourth quarter. There's no market pressure that's pulling that down inherently.
spk08: Correct.
spk07: Okay. And then what are the characteristics of the dispositions beyond Wells Fargo? What makes those assets ripe to sell in 2022 for you guys?
spk08: Well, you just gave me the fat pitch, so I appreciate that. But we are getting kind of reverse inquiry on assets that we bought not too long ago where someone just feels like they have to own it. And so we we'll put a price on it and say, look, if you want to own it at this price, we're happy to sell it to you. I mean, we like the asset, we like the credit, but there's a price for everything. So that's really driving it is really some inbounds on things that we've recently purchased. So even with Alpine Music Theater opening up for their summer concerts, I got a couple of calls on that not too long ago. So Anyway, so that's a little bit of that guidance.
spk07: Okay. And then last one for me. Matt, what was the, you know, how should we think about the rough timing of the fourth quarter acquisitions? Sort of mid-quarter? Was it a lot of, you know, late December waiting? How much of the, call it 1.6 million of NOI was included in that 42 cents of FFO acquisition?
spk06: Yeah, I'd say the majority of it occurred in December. It wasn't all in the last week or anything, but it was certainly back half-weighted within the quarter.
spk07: Okay. So X dispositions, your run weight is actually higher than that 42 at this point?
spk06: Correct.
spk07: Okay. Thanks, guys. Appreciate the time. Thank you.
spk01: Thank you, and our next question comes from the line of Barry Oxford with Collier's International. Your line is open. Please go ahead. Barry, your phone may be on mute.
spk00: It was on mute. Thank you so much. Thanks, guys, for taking the question. Getting back to the capital structure and paying down some of the debt in 22 and utilizing the ATM, your share count does go up a fair amount. Can you guys get to that share count just via the ATM? Do you think there's enough liquidity there? Or look, at some point during the year, we'd probably do a follow-on.
spk06: I mean, I think it's to be determined. The liquidity, like I said, has improved quite a bit over the last few months. And far be it for me to project how that's going to trend going forward. But if it continues to improve, I think it's feasible that we could do that amount off the ATM, but I'm not going to sit here and tell you one way or the other that that's the way that we've assumed it's going to happen. We're going to maintain flexibility in terms of how we execute on that.
spk00: So you've got a couple of models with a couple of different scenarios in them.
spk06: We do.
spk00: Got it. All right. Most of the other questions have been answered. Thanks so much, guys. Thanks, Barry. Yep.
spk01: Thank you. And our next question comes from the line of Anthony Howe with Truro Securities. Your line is open. Please go ahead.
spk11: Good morning, guys. Thanks for taking my question. Just one quick question on ground lease. What's the lease structure on those Houston ground lease?
spk08: I mean, the lease structure is basically that obviously we own the ground, the tenant owns the sticks and bricks, and we have a long-term ground lease, and there's escalations along the way in different forms, so it's really a traditional, nothing special about it, but we love it because obviously you're in a very asset-protected position with residual upside, so it's kind of a you know, a lot of optionality for us as a holder of the ground.
spk11: And what's the rent escalation in those ground lease again? Are they like, you know, 5% over five years?
spk06: It varies. Some of them are annual escalations. Some are 5% or 10% every five years. Some of them are flat with escalations in the options. So it depends on the tenant.
spk11: Gotcha. And what's your appetite to buy more ground leases in this environment?
spk08: I mean, look, we'll buy them if it's set up, you know, if we're getting paid a little bit higher than where this would be traded normally, if a portfolio discount kind of arises and that's what happened with the portfolio we had. So just hypothetically, let's say we had a $50 million ground lease portfolio opportunity. We may buy it, but then sell off, retail out some of them to retain some of the ground leases at a much higher yield than you'd be able to manufacture. So we may do something like that to make sure we're not compromising our cap rate. I don't expect to see a lot of that because obviously there's a lot of buyer interest for ground leases, but we certainly keep an eye out for it.
spk11: Gotcha. And this is my last question. John, what's your philosophy on issuing equity to reduce leverage and growing the size of the portfolio and earnings growth if the stock price stays the same?
spk08: So, you know, I think you see it's interesting looking back at some of it. Let's just take a step back and look at the highest FFO multiple net lease readout there right now. I think it's NetStreet. And Alpine was outperforming NetStreet until they got a lot larger, and then all of a sudden they took off. And I think everyone realizes it in this market that we need to get a little bigger to kind of get that traction on the cost of capital. I think we've come a long way for sure. And so we don't need to really do a lot in the capital markets as we modify the portfolio to be best in class. So once we have Wells Fargo sold and we have that capital to deploy in acquisitions and we have those acquisitions come through and you look and see our our tenant list, and it's very strong. It's going to be very self-evident to everyone that, hey, this is the place to be. Look at the yield that Alpine's priced at. Look at the FFO multiple. So we're very cautious on the capital markets until we get good cost of capital. But we know that as we get larger, a lot of people look at it as like, okay, as we get larger, there's more liquidity. We're de-risking. and that's all good. But we're careful with it, and we kind of monitor it. But I know we're obviously a very attractive stock given where we're valued, so I think our shareholders are getting paid to wait for that transformation to happen. Okay, thanks, guys. Thank you.
spk01: Thank you. And our next question comes from the line of Craig Kucera with B Riley Securities. Your line is open. Please go ahead.
spk03: Hey, good morning, guys. I wanted to circle back to the Wells Fargo sale. I think last quarter you mentioned that there was some consideration from residential redevelopers. First of all, is that potentially driving better pricing than we would have seen maybe six months ago given the interest in the sector? And second, can you handicap when you think that might close given activity?
spk08: Yeah, so the residential part of it certainly played a very large role in the interest. And so I would say that the buyer interest, the quality of the buyer interest is very strong because of the residential play and because of, as you mentioned, that sector is very strong and great market backdrop for it and a lot of players. So that certainly helped quite a bit. And with regards to timing, you know, that's kind of a second quarter expectation on a, on a close.
spk03: Got it. And I, and I feel like last quarter, as far as considerations regarding overall office asset sales, you were thinking kind of maybe in the mid sevens, is that, is that maybe tightening given the increased interest from some of these residential developers?
spk08: No, I wouldn't say that because you have to remember Wells Fargo has a certain amount of time left on their lease, almost five years, and they have renewal options. So a developer has to kind of wait to kind of get to that development opportunity. And so it just factors into their overall yield expectations. So I wouldn't say that the pricing got tight because of that. With regards to having the lease in place, you had to have a big enough player that could live off the yield and so forth. Got it.
spk03: Shifting gears, I noted you added Sportsman's Warehouse here in the fourth quarter. I'm curious as to whether or not those purchases occurred before the canceled merger with Bass Pro, and did that impact your underwriting at all?
spk08: They did happen before they canceled, but, you know, we got very comfortable with the acquisition. We were more concerned, to be honest with you, that the merger may have a situation where they close some of the sportsmen because there's some sort of overlap. Now, obviously, that's gone away, but we got comfortable because in talking to the sportsman folks, these particular stores are very strong operations and do very well. Obviously, the company, given that they got a $50 million termination fee, And they have no debt. They're in a very strong position. So I expect in looking at their investor presentation that they're going to be growing the company further now as a standalone. So to answer your question, we bought it before the canceled merger, but we had more concern with the merger than we do now. Okay, great.
spk03: Just thinking about your lease expirations, it looks like a few of the purchases you made in the fourth quarter were shorter-term leases. You now have some expiring in 2022, a little bit more in 2023. Do you recall whether or not those leases were priced at market, or are there any opportunities maybe for increases to market?
spk08: Most, if not all, I'll let Matt answer, but I don't think I've seen a renewal where it's flat, so the expectation is they're going to have escalations.
spk06: Yeah, most of them, Craig, over the next few years have escalations at the renewal options, and just given the rise in inflation, I think it's going to be a lot harder for tenants to relocate in a specific market because you know, the cost of occupancy is going up. And to make that change, they're going to get repriced to where rents are in the market at that time. And so, you know, we feel pretty good about the stickiness of the tenants.
spk03: Great. And one more for me that kind of dovetails with my final question. Can you give us a sense after this round of acquisitions here in the fourth quarter of sort of what the breakout is from a rent escalation perspective? What's what percentage is flat versus fixed versus maybe any CPI sprinkled in there as well?
spk06: Yeah, very few have CPI. It's not as relevant in the more institutional net lease space, right, because most of our tenants, almost three-fourths, are publicly traded. You know, in terms of what's flat and what's annual and what's other, about half the leases are flat and about half have contractual rent increases. The one thing I would highlight is with our weighted average lease term being a little bit lower than the peers, we're set to benefit from the rent increases that come in the options, which are typically between 5% and 10%. So even though we might have some flat leases in the portfolio, as those flat leases come up for renewal at the end of the primary lease term, we should benefit from additional rent growth going forward through those option increases.
spk03: Okay. Thanks. I appreciate the cover. Thanks, Craig.
spk01: Thank you. And our next question comes from the line of Jason Stewart with Jones Trading. Your line is open. Please go ahead.
spk05: Thanks, and good morning. I wanted to sort of loop back to the concept of capital outflowing from the broader economy and think about the way you're looking at disposition and acquisition cadence throughout the year and how that sort of comes back to that, I think, John, the first comment you made about activity there and flow of funds.
spk08: Yeah, I mean, so the pipeline we have is very strong for what we see in the quarter. And that's with being very selective. And so we hope that the backdrop, we are seeing it on larger assets where people are looking to monetize. And so we feel like there'll be more opportunities going forward. So, but we're not trying to kind of, you know, bring it all in the early part of the year. We want to be mindful that we might even have better opportunities. So, we're just kind of, you know, buying our time, but bringing in the acquisitions as we see good opportunities. And so, not trying to time the market one way or the other.
spk05: Gotcha. And aside from the Wells Fargo asset, on the disposition side, does that factor into your cadence of thought process for dispositions?
spk08: Yeah, outside of Wells Fargo, it really has to do with we're certainly not looking to sell some of these assets, but if someone just really wants to have it and being very aggressive on the pricing, we won't try to time that. We'll just sell it as that sort of interest formulates. So, you know, that one, we're not kind of picking our spots. If someone really wants to pay our number, we're happy to entertain selling assets.
spk05: Got it. Okay. Thanks for taking the questions. Appreciate it. Thank you.
spk01: Thank you. And our next question comes from the line of Wes Galladay with Baird. Your line is open. Please go ahead.
spk02: Hey, good morning, guys. I just want to go back to the, I guess, the building out of footprint and top MSAs. Can you, I guess, give us cover on how you see the renewal opportunity for the top MSA assets versus traditional net lease? Typically, we see those renew at flattish rates. Would this be, for the top MSAs, would it be more like the mid to high single digits that the shopping center companies produce on renewal?
spk06: Sorry, Wes, you kind of broke up there. What particularly are you looking for us to talk about related to the assets in the top MSAs?
spk02: Yeah, for the net lease that's in the top MSAs, typically what we see for the net lease companies would be renewals or flat after the annual escalations. But when you look at your portfolio, you have that emphasis on the top MSAs, and I'm just curious if the renewals there would be more like the shopping center companies where you may get that mid-single-digit renewal, maybe a high single-digit renewal.
spk06: Yeah, I think going back to my comment related to Craig's question, most of our leases, the vast majority of them, have 5% to 10% increases in the options. And so as we're continuing to see positive demographic trends in those top MSAs, right?
spk08: I mean, one thing we're kind of seeing is tenants looking to maybe do an early extension with us. because they know that they want to stay there and they don't want to necessarily pay the escalation. So they're coming to us and saying, hey, if we give you term now, will you kind of keep our rent flat? We get a lot of that. So it's a little bit of a dance that certainly if we roll out to a lease termination or expiration, there's that, as Matt said, 5% or 10% bump. but sometimes we'll be a little bit more risk averse and take an early extension. But anyway, does that help answer?
spk02: Yeah, I mean, I get that you guys have some that have the big pop, the ones that have the flat leases. I guess what I'm trying to get at is you have the ones that have the annual escalators, and a lot of net lease companies have those. And typically what we see is for the tenants that do renew, those typically renew at a kind of similar rate to the last rent you received. But being that you're in a more inflationary environment, you're in a top MSA, replacement costs are rising, for those ones that you do have the annual escalators, in there when you do come to renew, assuming there's no options, would that be more typically like a shopping center where you may get that 5% to 10% bump versus a state?
spk08: Yeah, most of them all have renewal options embedded. So there's not that one where they don't have any renewal option and you can basically get a mark-to-market.
spk02: Got it. That's what I was looking for. Thank you very much.
spk08: Yeah, sorry about that.
spk01: Thank you, and I'm showing no further questions at this time, and I would like to turn the conference back over to John Albright for any further remarks.
spk08: Thank you very much for attending the call, and look forward to talking with you going forward in this new year. Thank you.
spk01: This concludes today's conference call. Thank you for participating. You may now disconnect. Everyone, have a great day.
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