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spk00: The conference will begin shortly. To raise your hand during Q&A, you can dial star 1. Good day and thank you for standing by. Welcome to the Alpine Income Property Trust second quarter 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 1 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, Senior Vice President, Chief Financial Officer, and Treasurer. Please go ahead.
spk02: Good morning, everyone, and thank you for joining us today for the Alpine Income Property Trust Second 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. 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, earnings reliefs, and most recent investor presentations in which contain reconciliations of non-GAAP financial measures we use on our website at alpinereit.com. With that, I'll now turn the call over to John.
spk03: Thanks, Matt, and good morning, everyone. As we've discussed during our first quarter earnings call, we believe we will have an opportunity to acquire high-quality property at more favorable pricing in the back half of the year as the rising interest rate environment, challenged debt markets, and volatile macroeconomics backdrop puts upward pressure on cap rates. As a result, we emphasized capital recycling in the second quarter where we locked in attractive pricing on our asset dispositions and then redeployed the proceeds into better risk-adjusted opportunities with stronger tenant credits and more favorable cap rates. During the quarter, we sold $73 million of properties at a blended cap rate of 7.1%, generating gains on sale of $15.6 million, or $1.15 per share. This includes the previously announced sale of our loan remaining office property that generated a gain of $7 million. If we remove the office property from our disposition statistics, we sold $34 million of retail assets at a blended cap rate of 5.8%, generating more than $8.5 million of gains. Given that office investments are no longer part of our portfolio, we think the retail-only execution is a more relevant mark to market of our portfolio and highlights the excellent quality of our real estate we've been able to acquire over two and a half years. The retail property dispositions were largely focused on non-rated or below investment grade tenants where we had elevated exposure to both the tenant and the sectors in which they operate. The sold properties were leased to Sportsman's Warehouse, At Home, Hobby Lobby, and Cheddar's Scratch Kitchen. allowing us to reduce concentrations in the sporting goods, home furnishing, general merchandise, and casual dining sectors. On the acquisition front, we've emphasized discount and value-oriented retailers that should benefit from consumers becoming more price conscious as they look to maximize their buying power as they grapple with significant inflation pressures and rising costs of capital. During the quarter, we acquired 19 properties located in nine states, leased to industry-leading operators such as Best Buy, Little Caesars, LA Fitness, Dollar General, Harbor Freight, Dollar Tree, and Family Dollar. Our second quarter acquisitions were purchased at a weighted average cap rate of just over 7%, resulting in a very attractive net investment spread relative to the 5.8% cap rate on our retail property dispositions. Year-to-date, we've acquired 35 net lease properties for $109 million at a weighted average going-in cash cap rate of 6.9% and a weighted average remaining lease term at acquisition of 9.4 years. Subsequent to the end of the quarter, we sold our Scarbles Car Wash in Jacksonville, Florida for a 4.8% cap rate and we have invested the remaining disposition proceeds that were on our balance sheet in the form of 1031 restricted cash into a property leased to Lowe's. Today, our portfolio consists of 143 properties totaling 3.4 million square feet with tenants operating in 26 sectors in 35 states. Taking into account these third quarter transactions, our top three tenants are now Walgreens, Lowe's, and Dollar General. which all have investment grade credit ratings. With all of the ins and outs related to our year-to-date transaction activity, our 100% retail portfolio is now much more comparable to our peers who currently have much higher valuation multiples. As we continue to sell at low cap rates and reinvest at higher yields, we're confident we'll be able to incrementally de-lever our balance sheet improve our overall property metrics, and drive higher quality FFO and AFFO per share. I'll now let Matt talk about our performance in the quarter, capital market activities, and increased guidance.
spk02: Thanks, John. Operationally, our portfolio remains 100% occupied, and with nearly 85% of our rents coming from publicly rated or publicly traded companies, we have excellent visibility into our tenants' corporate-level operating trends, in credit metrics, which have remained strong throughout the year. Second quarter 2022 FFO was $0.47 per share, a $0.09 per share, or 23.7% increase compared to the second quarter of 2021. Second quarter 2022 AFFO was also $0.47 per share, an $0.08 per share, or 20.5% increase over the second quarter of 2021. Year-to-date, FFO was $0.97 per share and AFFO was $0.95 per share, representing a year-over-year per share growth of 23% and 16%, respectively, when compared to the first six months of 2021. Our general and administrative expenses for the quarter, which includes the $948,000 management fee to our external manager, totaled $1.5 million. This was a year-over-year increase of 15%, largely driven by increases to our management fee from our second half of 2021 and year-to-date 2022 equity capital markets activities and was positively offset by second quarter year-over-year revenue growth of 71%. G&A as a percentage of revenues in the second quarter was down to 13.1%, down from 13.3% in the first quarter, and a year-over-year decrease of approximately 640 basis points. In the second quarter of 2022, the company paid a cash dividend of $0.27 per share, representing an 8% year-over-year increase over the company's Q2 2021 cash dividend and a current annualized yield of approximately 6%. Second quarter FFO and AFFO payout ratios were very healthy at 57%, and we anticipate announcing our regular quarterly cash dividend for the third quarter towards the end of August. During the second quarter, we issued 87,000 shares of common stock through our ATM program for total net proceeds of 1.6 million at an average issuance price of $19.09 per share. We ended the quarter with net debt to total enterprise value of 54%, net debt to pro forma EBITDA of 8.3 times, which was down a half a turn from the end of the first quarter, and we continue to maintain a very healthy fixed charge coverage ratio of nearly five times. While we do anticipate a broader market economic slowdown in the back half of the year, we did increase our full-year FFO and AFFO per share guidance. Our prior guidance assumed more deleveraging in the second quarter than materialized, which is driving a lower projected weighted average share count for the year, offset by further increases to our interest rate assumptions to account for a steepening of the yield curve. We've brought down the top end of our acquisition guidance to account for the second quarter results, and we're meaningfully increasing our disposition guidance to reflect continued confidence in our ability to sell assets and retract evaluations, allowing us to generate positive net investment spreads on the redeployment of proceeds. We begin the third quarter of 2022 with portfolio-wide in-place annualized straight-line-based rent of $39.6 million and in-place annualized cash-based rent of $38.7 million. These values are before the sale of the Scrubbles Car Wash and acquisition of the Lowe's that occurred in July that John referenced earlier. We now expect to acquire between $215 million and $235 million of retail net lease properties during 2022. which is subject to market conditions and for which we still believe acquisitions will occur at a similar or better blended yield than our 2021 full-year acquisition cap rates. As we look to match funder acquisition activity through accrued capital recycling, our disposition guidance has been increased by $50 million at the low end to $125 million and $75 million at the high end to $175 million. Our full-year 2022 FFO and AFFO guidance ranges were increased by 5% at the low and high end, with the weighted average share count for the year being lowered by 1 million shares at the low end and 2 million shares at the high end. 2022 FFO is now projected to be between $1.60 and $1.65 per share, and our full year 2022 AFFO guidance range was increased to $1.58 to $1.63 per share. I'll now pass it back to John for his closing remarks.
spk03: Thanks, Matt. The liquidity of our assets, attractiveness of our real estate, transparency and performance of our tenants, and the stability of our cash flows have us well positioned. We've built what we believe is the highest quality real estate-focused portfolio in the public net lease sector. The quality of these assets is bearing itself out in the valuation we've been able to achieve with our property sales, and we're confident our portfolio will continue to perform well, even in the volatile broader economic environment. 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.
spk00: As a reminder, to ask a question, you will need to press star 1 on your telephone. Please stand by while we compile the Q&A roster. Our first question comes from Matthew Ertner with Jones Trading. You may begin.
spk07: Hey, guys. Congrats on a good quarter. Filling in for Jason Stewart this morning. So in terms of rent escalation, what's the visibility? I know last quarter you guys said about 50% of the portfolio can be increased 75 to 125 basis points. Is it still kind of in that range, or is it trending towards the lower side given the macro environment?
spk02: Hey, Matt, it's Matt. Good to hear from you. In general, I think the 75 to 125 is a good range. It's going to depend year to year on what lease is rolling over. I don't think that range has changed with the transaction activity, so I think that's a good run rate going forward.
spk07: Awesome. And then another one on dispositions, are you guys still looking to rotate out of the low credits? kind of tenants and then roll those into better opportunities going forward?
spk03: Yeah, I think you can expect us to do more of the same here moving forward. So we have quite a bit more opportunity to keep on generating some really healthy gains on some properties at low cap rates and then recycle that into higher cap rates and higher quality tenants.
spk07: Gotcha. So are you still kind of seeing the cap rates in that 5.5%, 6% range on dispositions?
spk03: Yeah, I mean, it's been amazing. We thought maybe we'd see a little bit more expansion on the cap rates, but on the smaller property sales, you're really seeing a lot of high net worth and some institutional investors buying these properties at cap rates that really haven't changed too much from six months ago. So So we're still seeing a good opportunity to recycle here.
spk07: Gotcha. And then are those in specific locations or is it just kind of depends?
spk03: No, not anything locational. It's really where do we see ability to get really some incredible low cap rate executions or are there opportunities to get a decent cap rate execution, but selling off a lower credit sort of tenant, which is just improving the portfolio going forward. So we'll do kind of the barbell effect. We'll sell properties with really low cap rates, but then we'll sell some of the lower credits and improve the portfolio. And in that mixture, we'll still have a very
spk00: attractive disposition cap rate and then a recycling opportunity and a higher credit awesome thank you thank you our next question comes from anthony howell with truist guys anthony your line is open good morning guys
spk05: Hey, John, so the high end of the disposition guidance represents a third of the current portfolio. If getting the portfolio to a pristine state doesn't close the valuation gap that you hope for by year end or early next year, what is the next step for Pine? Is a strategic alternative that is something that the board needs to explore?
spk03: Look, we have, as mentioned, more to go. Yeah, if we get this into an extremely pristine condition and we're still trading kind of where we're trading, of course. I mean, we'll explore those alternatives because it makes no sense to just try to keep going if we're not really connecting with investors. We have a lot of great value investors. but folks that need bigger companies aren't showing a lot of appreciation for the portfolio value, if you will. So we're trading at discounts NAV, and if we keep on creating a better and better portfolio, of course we would look at those sort of scenarios.
spk05: And is there a timeline that you guys would give yourself? No, we're not.
spk03: I think it will be self-evident after a couple quarters of more recycling and improving the portfolio. If you look at our slide deck investor presentation, we're the lowest multiple. If you look at our credit composition, we have the same credit composition as the highest multiple companies out there. We have better locations. Given a small company, you can do that. So if we don't resonate with people that you're able to buy this portfolio at 159 a foot and the peer average is 250 a foot and our implied cap rate is seven and the others are whatever's in your model, then it's clear we need to kind of look at other alternatives. how much more can you how much more disposition can you guys do after this year because you know 175 the high end represents a third of the portfolio yeah i don't i don't think you know there would be a ton more than beyond that i think that you know we're we're going for the low hanging fruit and it won't cut into the core for sure so um this is really trimming around the edges uh even though it's a third of the portfolio just trimming around the edges and showing all the embedded profit in these properties. And so, look, it resonates with the value folks. And obviously, we had awesome performance last year and fairly decent performance this year. So it's not like we don't have any unhappy investors. People would like to see it move to a better multiple, which we share that. But we think we can get there by keep on showing, you know, look at our top three tenants now, you know, after buying the lows. I mean, you know, you just do the comparison and it's kind of, you know, kind of hits you right in the forehead, you know.
spk05: Yeah. Thanks, guys. Thanks.
spk00: Our next question is, It comes from Rob Stevenson. Rob Stevenson, your line is open.
spk04: Good morning, guys. Is At Home and Hobby Lobby now off the top ten tenants with the sale, or did you own multiple locations of those?
spk02: They're still in the top ten. They've moved towards the bottom end of the top ten, but we own multiple locations.
spk04: Okay. Okay. And then the lows, was that a ground lease or sort of building and land? What was the remaining lease term there, and what type of cap rate did you guys buy that at?
spk02: Yeah, so it was not a ground lease, Rob. It was building and land. There was approximately 10 years remaining on the lease, and it was called a low to mid-sixes cap rate.
spk04: Okay. Okay. And I guess the question winds up being, is that indicative of where you want to be putting your money today? I mean, low to mid sixes for somebody like Lowe's versus what's your alternative if you go and deploy a similar dollar amount or a similar sized asset with somebody that's not investment grade? I mean, what are you getting if you were to buy an at-home or something like that today versus that type of a return on Lowe's?
spk03: Yeah, so Rob, I think it's, again, a little bit of the barbell. We'll definitely do more of the lowest type transactions where we see that opportunity. But we're not bashful about buying something that's a really junky credit if the property is a terrific property as far as alternatives and it's below market lease rate. Those have been really successful for us. And, you know, for instance, the at-home that we sold, you know, we bought that when at-home was not even, you know, the credit is now. And, you know, it just had so many alternative type of uses for the property. So it'll be a mixture.
spk04: Okay. And then, Matt, what was the, you know, the rough timing of the bulk of the second quarter dispositions? Did the dispositions come at the very end of the quarter?
spk02: Um, let's see here. No, I think they kind of, they were spread out throughout the quarter. I would say a couple hit towards the end. Um, but you know, you have the office sale that occurred in April, even before the Q1 earnings released. So it was pretty well spread out on average.
spk04: Okay. What is the annualized base rent in the portfolio today?
spk02: Um, after the acquisition of the lows, uh, the annualized base rent is 40.2 million.
spk04: Okay. Because I guess the question winds up being, you know, that I'm leading to is, you know, if the acquisitions, if the dispositions weren't, you know, at the very end, and, you know, you're sort of, you did have some sales, etc. But how, you know, how do you go from, is there anything abnormal about the back half of the year? to take you from call it a 47 in the second quarter. Obviously there's some impact of dispositions, but the high end of the guidance essentially implies something around 34, 35 cents for each of the last two quarters of the year. Is that the acceleration of dispositions? How do you get there just with what you've done year to date?
spk02: Yeah. So I think it's fair to assume that there's an acceleration of dispositions and we want to maximize cap rates that we can achieve in the market. And if we're assuming, which we've said, that there's going to be a slowdown in the back half of the year and an expansion of cap rates, we want to get those dispositions done sooner. And then on top of that, there is assumed equity raises in the guidance sort of end of Q3, beginning of Q4 to further de-lever. You know, the disposition guidance is a pretty wide range, and the share count, you know, does assume a decent amount of shares on average coming in towards the end of the year. So that's what's driving the lower sequential earnings per share.
spk04: Okay. And are we not likely to see any material level, certainly not as much as you did in the second quarter of acquisitions in the third quarter, that the acquisitions, when they happen, are more likely to be, you know, fourth quarter weighted then? So you're going to be a high net disposition third quarter and then a net acquirer in the fourth quarter?
spk02: Other than the lows, I would say that most of the acquisitions will probably occur towards the end of Q3, and then obviously we're firming up the pipeline for Q4, but we're assuming that they're going to be back-end weighted, which is usually how the transaction market works.
spk04: Okay. And then just finally, given that comment, what was the rough dollar amount or the dollar amount of the Lowe's transaction? How material? Was that, you know, $10 million, $20 million? What are we looking at?
spk02: It was $14 million. $14 million. Yeah.
spk04: All right. Perfect. Thanks, guys. Appreciate the time.
spk01: Thanks. Thanks, Rob.
spk00: Our next question comes from RJ Milligan with Raymond James. Your line is now open.
spk06: Hey, good morning, guys. Just one question. Most of my questions have been answered. But, Matt, in your comments, you talked about that incorporating guidance is sort of the expectation of a broader economic slowdown, which we've already started to see. But just curious, I mean, clearly you guys have been upgrading the portfolio, improving diversification, sort of preparing for this potential slowdown. And just curious if there are any categories you'd like to further reduce or any categories you've got on the watch list.
spk01: I'll take that, RJ.
spk03: So, I mean, we'll certainly reduce where it makes sense as far as whether it's you know, casual dining, that sort of sector. But, you know, the ones that we have are really, you know, terrific locations and the lease rates are very, you know, below market. And so, and actually we've had tenants come to us for early renewals and we've declined them. So it's really about the portfolio, kind of where they're located and case by case. So where there's a situation where it's maybe a little bit more tertiary location and a tenant that would be kind of something that would would be challenged during the recession. We'll certainly look to move through that sooner rather than later. But really, you know, we go through this quite often and, you know, we're in pretty good shape. So there's nothing that really stands out at us that we're not already kind of contemplating and working on. So, you'll probably see more of this, you know, next quarter as far as, you know, what we've addressed and at, you know, pretty good cap rates, we think. So, we're working on those.
spk02: Yeah, and RJ, just from a – sorry, I was going to say, from a targeted sector's perspective, I mean, we do like the off-price. We like the discount retailers, like the dollar stores. And obviously, we like the home improvement space, which has seen multiple years of tailwinds. So – I would say those are a few of the sectors where we're putting dollars to work.
spk06: Thanks. And then just as a follow-up, can you talk about sort of what you're seeing out there in terms of competition? Obviously, you commented that the disposition market is still pretty attractive in terms of finding some high-net-worth individuals, but obviously we've heard that a lot of the levered buyers have left the market just given the increased debt costs. And I'm just curious what you guys are seeing out there in terms of competition and sort of where do you think the market shakes out as we move into 2023 about the competitive landscape?
spk03: Yeah, we hope that, you know, it'd be better hunting where, you know, there'd be less competition, but actually the market is pretty strong. I mean, very strong if you consider the macro backdrop. So we are kind of where we're focusing a lot of attention as developers who may have debt that's going to be harder for them to roll over or they're acquiring properties and they want to sell off some pad sites because it's very challenging for them to get acquisition financing on the secured side. So that's where we're going to see more kind of opportunity to bring in great properties versus as far as the just general market is still very strong. So you're seeing a very efficient market. We were a little surprised. We thought there would be a little bit more disconnect.
spk06: Thank you, guys.
spk00: Thank you. As a reminder, to ask a question at this time, please press star then 1 on your touch-tone telephone. Our next question comes from Craig Cucera with B. Rowley Securities. Your line is now open.
spk06: Yeah, hey, good morning, guys. Looking at your top tenants list, there was some movement. Did you entirely exit exposure to any tenants in the second quarter from sales such as Sportsman Warehouse?
spk02: No, we still have one more sportsman's warehouse and we still continue to have exposure to Darden at home and Hobby Lobby.
spk06: Got it. And I guess, was this the last quarter, Matt, that you're expecting to receive any form of COVID repayment?
spk02: Yes, we have received all of the deferred rent repayment agreements that were put in place.
spk06: Great. And I'm just curious, you've had this out parcel you got, I believe, in Jacksonville that you were looking to potentially develop. Has the change in the economy changed any of the timing or sort of underwriting or considerations for that potential development?
spk03: Yeah, so that one, the tenant definitely still wants to be there, and we're still in conversations. Where we're not seeing any help is on construction costs. Construction costs are still elevated. And so it's really a conversation with the tenant that they need to pay more rent for us to get the yield we would want. And so that's an ongoing conversation, a very constructive conversation. They're trying to figure out how to value engineer it or just having a slightly higher rent to make it all work. So that's an ongoing conversation, but hopefully construction costs come down and kind of help us on that side as well.
spk06: Okay, great. Thanks, guys.
spk01: Thank you. Thanks, Craig.
spk00: Our next question comes from Mary Chris Oco with FactSet. Your line is now open.
spk01: Mary Chris, your line is now open. Please press the mute button.
spk00: And I'm currently showing no further questions at this time. I'd like to turn the call back for closing remarks.
spk03: Thank you, operator. Thank you, everyone, for attending today's call, and we look forward to following up with you post-call. Thank you.
spk00: This concludes today's conference call. Thank you for participating. You may now disconnect.
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