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spk07: Good day and thank you for standing by. Welcome to the Alpine Income Property Trust Fourth Quarter 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 this session, you will need to press star 1-1 on your telephone. You will then hear an automated message advising you your hand is raised. To withdraw your question, please press star 1-1 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Matt Partridge, Chief Financial Officer. Please go ahead.
spk11: Good morning, everyone, and thank you for joining us today for the Alpine Income Property Trust's fourth quarter and full year 2023 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 release, and most recent investor presentation, which contain reconciliations of our non-GAAP financial measures we use, on our website at alpineread.com. I'll now turn the call over to John for his prepared remarks.
spk09: Thanks, Matt, and good morning, everyone. As we look back at our execution in 2023, we continue to emphasize the value-focused asset recycling program we implemented nearly two years ago. This program has allowed us to reposition our portfolio into higher quality credits that de-risk our cash flows and provided the liquidity needed for our opportunistic share repurchases and strong yielding first mortgage investments. Within the fourth quarter, the majority of our investment activity was concentrated in these first mortgage investments and share repurchases. And we believe these investment opportunities provide attractive risk adjusted returns compared to other opportunities available in the market. During the quarter, we originated nearly $31 million of first mortgage loan investments and acquired two single tenant net lease properties for $3 million. The initial yield on our loan investments was 9.2% and the cash cap rate of our property acquisitions was 7.3%. Our largest investment was a low leverage $24 million first mortgage secured by 41 retail properties. In conjunction with the loan, we entered into a fee sharing agreement with CTO Realty Growth, our external manager. This fee-sharing agreement allows us to receive a share of the asset management disposition and leasing fees related to CTO's management. The other loan investment we made during the quarter was a first mortgage to provide $6.8 million of funding towards the purchase and development of a five-acre project anchored by Wawa and McDonald's in a growing sub-market of Nashville, Tennessee. While we intend for our loan investments to remain a relatively small component of our overall asset base and strategy, they do provide future purchase options for our acquisition pipeline and serve as catalysts for our future partnership opportunities with sponsors, and we believe they offer compelling risk-adjusted yields supported by strong tenant credits and well-capitalized sponsors. On the acquisition front, we've acquired two newly built properties leased to Dollar Tree Family Dollar as we saw fewer attractive core investment opportunities due to reluctant sellers. And finally, as it relates to our common stock buybacks, we repurchased $9.5 million of our common stock at an average price of just over $16 per share during the fourth quarter. The implied cap rate of these repurchases was above 8%, which is significantly above the cap rates for comparable fee simple property investments available in the market, especially considering 65% of our annualized base rent comes from tenants with an investment grade credit rating and our stock pays nearly a 6.9% dividend yield at $16 per share. For the full year of 2023, we acquired 14 net lease properties for $83 million at a 7.4% cash cap rate and originated three first mortgage investments totaling just under $39 million of funding commitments at the initial yield of 9.1%. Over 66% of the acquired base rents from the property acquisitions in 2023 come from tenants with investment grade credit rating. On the disposition side of things, during the full year 2023, we sold 24 properties for $108 million that awaited the average exit cap rate of 6.3%, generating gains of 9.3 million. Overall for the year, our net investment spread, which is the difference between our investment yields and disposition yields, averaged 159 basis points. So even with limited access to the capital markets and the increase in interest rates over the past 18 months, we're still driving positive increases in cash flow through our asset recycling strategy. From our portfolio makeup perspective, Matt will outline more of the specifics with his prepared remarks, but given we are coming up on our five-year anniversary later this year, I wanted to take a moment to highlight the progress we've made in transitioning our portfolio through our asset recycling strategy. Since inception of the company, we've recycled nearly $600 million of capital as we've accretively sold off primarily office assets and properties occupied by non-credit tenants and reinvested the proceeds at positive net investment spreads. As a result, we've taken our office exposure from 43% to 0%, increased our exposure to investment grade rated tenants from 36% to 65%, increased per share quarterly dividend by more than 37%, and our top tenant list, which includes the likes of industry leaders such as Walgreens, Lowe's, Dick's Sporting Goods, Dollar Tree, Family Dollar, Dollar General, Walmart, Best Buy, Hobby Lobby, and Home Depot now compares favorably to many of our peers that trade at significantly better valuations. From a valuation perspective, we're currently trading well above an implied 8% cap rate on our real estate portfolio and at a significant discount to our book value of $18.36 per share. Additionally, we have strong AFFO per share growth projected for 2024, and our loan investments provide a natural deleveraging opportunity over the next 24 months. To put it bluntly, we're a great value today, and we look forward to maximizing that value for our shareholders. Now I'll turn the call over to Matt to discuss our portfolio makeup, quarterly results, balance sheet, and 2024 guidance.
spk11: Thanks, John. As of the end of the year, our portfolio consisted of 138 properties totaling 3.8 million square feet with tenants operating in 23 sectors within 35 states. And as John mentioned, 65% of our annualized base rent or ABR now comes from tenants or the parent of tenants who have an investment grade credit rating. The portfolio continues to be 99% occupied and our top tenants remain largely unchanged. However, we do anticipate occupancy increasing over the coming months as we have signed or are in the process of signing multiple leases related to the vacant properties. Fourth quarter 2023 FFO was $0.37 per share, unchanged when compared to the fourth quarter of 2022, and fourth quarter 2023 AFFO was $0.38 per share, representing a 7.3% decrease over the fourth quarter of 2022. Our quarterly results were most notably impacted by one-time expenses related to tenant credit loss and bankruptcy, primarily attributable to the 7 Valero branded Mountain Express properties that we discussed during our third quarter conference call, as well as the timing of investments and dispositions. These items were partially offset by regular rent increases within the owned portfolio, attractive net investment spreads from asset recycling program, increased interest income from cash and restricted cash on balance sheet, and lower interest expense driven by year-over-year effects of previously completed interest rate hedges. Our general and administrative expenses for the quarter totaled $1.5 million, which includes the $1.1 million management fee to our external manager. Our G&A increased 4.5% year over year, largely a result of higher state and local taxes and increases to the management fee driven by our net equity capital markets activities over the past 12 months. The current annual run rate for our management fee before any assumed new equity issuances or repurchases is $4.2 million. For the full year, FFO was $1.47 per share and AFFO was $1.49 per share, representing year-over-year per share decreases of 15% and 16% respectively when compared to the full year of 2022. As previously announced, the company paid a fourth quarter cash dividend of 27.5 cents per share, representing a current annualized yield of more than 7%, and our fourth quarter FFO and AFFO payout ratios remained fairly consistent at 74% and 72% respectively. We anticipate announcing our regular quarterly cash common stock dividend for the first quarter of 2024 towards the end of February. From an equity capital markets perspective, we continue to be active during the quarter on our board-approved $15 million share repurchase program. We're purchasing nearly 595,000 shares of our common stock for a total cost of $9.5 million at an average price of $16.01 per share. In 2023, we repurchased nearly 900,000 shares of our common stock for a total cost of $14.6 million at an average price of $16.23 per share. And in January, we did complete the remainder of the $15 million share repurchase program. We ended the quarter with net debt to total enterprise value of 51%, net debt to pro forma EBITDA of 7.7 times, and our fixed charge coverage ratio is a healthy 3.5 times. The balance sheet is well stabilized with no debt maturities until 2026, and total liquidity at quarter end through cash, restricted cash, and undrawn revolver commitments was more than $187 million. In our press release last night, initial guidance for 2024 reflects our confidence in the portfolio's quality, the year-over-year benefits from the asset recycling John referenced, increased fee revenue from our fee-sharing agreement with CTO, and what we believe is a reasonably cautious stance regarding our current access to capital, expected activity in the transactions market, and broader economic environment. We begin 2024 with portfolio-wide in-place annualized straight-line-based rent and in-place annualized cash-based rent of $38.8 million and a run rate annualized interest income from loan investments of $3.2 million. Our full-year 2024 FFO guidance range is $1.51 to $1.56 per share, And our full year 2024 AFFO guidance range is $1.53 to $1.58 per share. Our 2024 guidance for investment activity is $50 million to $80 million of investments contingent on reasonable market conditions. And our investments guidance does include the potential for additional loan investments. Our 2024 dispositions guidance is to sell between $50 million and $80 million of properties We are currently assuming approximately 75 to 100 basis points of net investment spread between our investment yields and our disposition yields. And finally, we are forecasting our weighted average share count for 2024 to be approximately 14.9 million shares, and this does incorporate the effects of completing the remaining portion of the $15 million share repurchase program I referenced earlier. We appreciate everyone joining the call today, and we'll now open it up for questions. Operator?
spk07: Thank you. And as a reminder, if you would like to ask a question, please press star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press star 11 again. One moment while we compile our Q&A roster. And our first question is going to come from the line of Rob Stevenson with Jamie Montgomery Scott. Your line is open. Please go ahead.
spk12: Good morning, guys. Matt, just to follow up on one of your latter comments, is the five-cent guidance range, is that just acquisition and dispositions that slide between there? Is there something else notable that would push you down to the 151 or up to the 156, or conversely, the AFO range?
spk11: Yes. Morning, Rob. Part of it is the acquisition and disposition timing, and then the other component that could move that around a little bit is whether or not we get loan repayments. most specifically for the $24 million loan where that is intended to be a liquidated portfolio. And so that could cause interest income to be reduced over the period of the year.
spk12: Okay. And what is the, you know, the latest in terms of the Mountain Express stuff? Is that, you know, going to wind up being, you know, some of the sales this year? Is that you know, all going to be re-tenanted, some of it? How are you guys looking at that at this point?
spk11: Yeah, so we're in active discussions with a number of operators. We've got two leases signed on two of the locations. We're working on three more, and then we're in preliminary discussions on the other two. We're still anticipating selling them, just given our focus on publicly traded or publicly rated tenants, but... you know, with active discussions to have all of that leased in the near to medium term.
spk12: Okay. And how, you know, when you take, when you guys take a look at the portfolio, how much of it is likely disposition candidates at this point versus, you know, only if you found something that was an extremely compelling buy? I mean, are you pretty much done with the recycling of the majority of the assets unless somebody comes in and makes a very strong offer? Is there still the bottom 25% of the portfolio is likely to be sold going forward? How are you guys thinking about where this portfolio is versus where you'd want it if you started with a clean sheet of paper?
spk09: Yeah, I think it's a little bit of a barbell. We still have some really low cap rate properties that we may decide to monetize and recycle into higher cap rates. and then always continuing to upgrade the portfolio as a whole by selling off the bottom part of the portfolio like the Mountain Express. So we'll work to basically continue to upgrade the portfolio even stronger. So we have two levers there on the bottom and some of the super high quality.
spk12: Okay. Okay. And then how are you guys thinking, obviously, given your size, adding even one new tenant or one new industry moves the needle for you guys still. But how are you guys thinking about tenant and industry concentrations going forward? I think a lot of people ask questions about Walgreens at 12% and dollar stores, which you just added a couple of this morning. quarter at 14. Do you keep acquiring dollar stores? Would you take that up to 20%? And Walgreens, is that a disposition candidate at some point to lower that down below 12% exposure? How are you guys thinking about that sort of concentration?
spk09: Yeah, so good question. So we're definitely going to look to lower the Walgreens exposure over time. We're not in a mad rush, but also hunting for more Walmarts, Lowe's, not at home, but Home Depot's, and upgrading the portfolio there and getting those credits higher up on the list. But it's just like it's difficult to find the right ones, but we'll continue to pursue them and upgrading the portfolio that way.
spk12: And then what about dollar stores? What's your appetite to continue taking that up?
spk09: Yeah, we're not going to. I don't think you'll see us active on the dollar store acquisition side.
spk12: Okay. And then just a couple of data ones. What were the two assets that you guys sold during the quarter?
spk11: Yeah, one was a convenience store branded as a BP, and the other one was a two-tenant property. It was a Baumgars, which used to be – I'm sorry. It was a Baumgars, which is similar to a Tractor Supply, and then a – No, I got the VP. I'm drawing a blank on the other one, Rob. Sorry. But it was the minimalist piece of the overall puzzle.
spk12: Okay. And then last one for me, data-wise. Did the board reauthorize a new share repurchase plan? And if so, what was the size of that?
spk09: You know, we would basically, you know, have had that in our announcement if they had. So we'll monitor kind of, you know, what goes on there and kind of reflect if things change.
spk12: Okay. Thanks, guys. Appreciate the time. Have a good weekend. Thank you. You too.
spk07: Thank you. And one moment as we move on to our next question. And our next question is going to come from the line of Wesley Galladay with Baird. Your line is open. Please go ahead.
spk13: Hey, good morning, guys. Just a question on the investment guidance. Does that include the buybacks? And at $15 a share, would buybacks be the top priority for the use of capital?
spk11: So, a good question, Wes, morning. It does not include any buyback activity. That would be in addition to the investment guidance. And... I mean, at $15 a share, we're obviously well over an 8% implied cap rate. So I think that's certainly something that we'll have a discussion with the board about in terms of a potential new program.
spk13: Okay. And then, Matt, you talked about signing some leases. And I'm just kind of curious, what do you have in guidance for assuming rent from the lease and other properties?
spk10: We have the two that we've signed so far, and that's it.
spk13: Okay. I guess we're trying to build the model and then to build dispositions of our model. I guess, what is the total upside in rent? Obviously, you're going to sell them, but we need to get it in the model and then monetize the assets. So how much, I guess, from the current run rate, how much upside do you have in the rent from releasing the assets?
spk11: Yeah. So the current run rate includes the two we've signed. I would say for now, assume nothing. And then obviously, as those come to fruition, we'll report them, right? We're We're called two months away from doing this again, and so we'll provide another update then and update the numbers then.
spk13: Okay, and then last one for me. What do you have for assumed leverage throughout the year, and how does that impact your borrowing base based on looking at the spread?
spk11: Yeah, so we're assuming there's some slight delevering. Based on sort of the forecast and guidance, we should end the year closer to seven times that debt to EBITDA, which should benefit the interest rate spread going into 2025. Okay, thanks.
spk06: Thanks.
spk07: Thank you. And one moment as we move on to our next question. And our next question is going to come from the line of Matthew Ertner with Jones Trading. Your line is open. Please go ahead.
spk05: Hey, guys. Good morning. Thanks for taking the question. So the loans look like they provide some pretty solid risk-adjusted returns. Are you seeing these more than acquisitions, dispositions at the moment? And if so, is there a certain amount of capital that you guys would be comfortable allocating to the strategy? I know that you don't want to do this kind of off the bat, but I guess what would you be comfortable getting up to for this two-year period?
spk09: I mean, I think you're seeing us on the top level of kind of where we want to be on the loans. So what you'll see is really loans either paying down or we're selling off pieces of the loan to do new loans. So I don't think you're going to see the portfolio of loans get any larger.
spk05: Gotcha. Thank you. In terms of the transaction market, what do you think you need to see for it to really get going again? Is it Fed rate cuts or money coming off of the sidelines? What do you guys think in there?
spk09: I think we're starting to see a little bit more activity now. I think people have been hanging on for a rate cut in the higher interest costs as debt's rolling over is starting to bite a little bit more. And so people are just kind of making harder decisions now about selling assets that they don't really want to sell, but it makes a lot of sense given high debt costs and so forth. So I'm pretty much of the optimistic camp that as rates seem to be further out as far as rate cuts, you're seeing more activity on the transaction market. Awesome. Thanks for taking the questions. Thank you.
spk07: Thank you. And one moment as we move on to our next question. And our next question is going to come from the line of RJ Milligan with Raymond James. Your line is open. Please go ahead.
spk02: Hey, good morning, guys. Most of my questions have been asked and answered. I'm just curious, John, on Walgreens, I think it's a split rated in terms of credit rating. Just can you talk about how you feel about that specific credit and maybe exposure to pharmacies in general, given what we've been seeing in the industry?
spk09: Yeah, I mean, look, clearly, you know, their company and the headlines, you know, the properties we have are very good locations. And, you know, obviously with new management at Walgreens and cutting the dividend and selling off some divisions, you know, they're going to become a healthier credit, obviously. And so, you know, the good news is our locations, even if you found another tenant, there's a lot of tenant demand out there for locations. I was with a developer recently. two days ago, who's a prolific developer of all kinds of various retailers, and he can't build a box for less than $330 these days. So you're going to see tenants being very active in taking over other tenant spaces. So I think the backdrop is that there's a lot of tenant demand out there if you had some issues with particular boxes. So it's all about basis. And I think, you know, with our basis trading at $127 a square foot along the whole portfolio, we got a lot of room there. So, we're not kind of having sleepless nights over Walgreens, but we will be, you know, pruning the exposure for sure.
spk08: Great. Thanks. That's it for me. Great. Thanks, RJ.
spk07: Thank you. And one moment as we move on to our next question. And our next question comes from the line of Anthony Howe with Truist Securities. Your line is open. Please go ahead.
spk04: Good morning, guys. Thanks for your question. So in 2023, you guys are doing all the right things, right? Completing numerous initiatives to close the valuation gap. But the market is not rewarding for those actions. So what other levers can you pull to close the gap this year while reducing leverage? And how do you balance between leverage, buying a backstop, and growing that equity float?
spk09: Yeah, I mean, look, if the stock continues to trade at these massive discounts to NAV and high implied cap rates and high dividend yield, clearly we'll look to buy more stock because we're going to be accreting NAV and really giving shareholders a strong total return, basically, synopsis. And so, you know, if you look at kind of where we're trading versus the comps, which, you know, you know it better than we do, you know, we're trying to kind of give a value proposition to shareholders and say, why would you take a higher, you know, basis risk and lower implied cap rate when you can have the same exposure to IG at much higher cap rate? lower valuation, higher dividend yield. So the value proposition is there. We'll try our best to communicate it, but if the market is not taking it, then we'll look to buy back more shares and sell down assets to keep the leverage neutral. So it's pretty easy. It's not rocket science. We've been through this many times and feel like we have good opportunities out there. And so, um, so we'll just kind of keep, uh, you know, working through it.
spk04: So I feel like that's like a catch 22, right? Because, you know, I think one of the main reasons why investors are not rewarding those actions because the liquidity of a stock is, it's free, you know, it's pretty limited, right. Compared to other triple nets. So how do you balance between like buying back stock and like keeping that liquidity for investors?
spk09: Yeah, I mean, we can't really, you know, we can't basically give investors everything. I mean, investors obviously want everything. But look, you know, we're able to buy, what, almost a million shares on our buyback. And as you know, the buyback programs are very problematic. I mean, we can't basically buy back at certain times of days. We can't buy back with certain percentage of volume as shares are trading. And we certainly are price sensitive. So even with all those parameters, we're able to buy a million shares relatively easy. So investors can buy the shares. They just basically, you know, they just probably have a hard, fast rule that, hey, if you're trading below some certain amount of shares per day, we can't touch you kind of thing. So, but you can buy the shares. I mean, we've demonstrated that. So it's for, you know, more of the value investors seem to kind of latch on, which, you know, more long-term holding sort of investors, you know, seem to understand the value proposition. Okay. Thank you. Thank you.
spk07: Thank you. And one moment as we move on to our next question. And our next question comes from the line of John Massacza with B. Riley. Your line is open. Please go ahead.
spk03: Good morning. Morning. So a quick question on the disposition guidance. I mean, should we assume that some repayment of some of these mortgage investments is in that guidance today? And maybe just kind of roughly, what are you kind of expecting to get repaid this year?
spk11: Yeah, good question, John. Morning. There's a limited amount of repayment related to the $24 million loan that we were interested in in the fourth quarter, starting really in the third quarter. But we're talking, call it 10% over the balance of the back half of 2024, so not a meaningful amount. We think that'll probably ramp up when we get into 2025 and hopefully into a different industry environment and a more efficient transaction environment.
spk03: Okay. And I guess maybe what are kind of the variables out in the external world that could change that kind of view or could cause that to be different than guidance? I mean, essentially, as we think about kind of an uncertain rate world, does that impact that or is it all just based on execution in terms of selling down the assets in that collateral pool?
spk11: Yeah, I think it's both. I mean, for that specific collateral pool, I think it's a more active transaction environment with pricing that the borrower deems to be appropriate, but then on the other two loans, those are development loans where once the tenant gets open and operating, I think it's either a refinancing opportunity for the borrower, so obviously the interest rate environment would have an influence on that, or it's, again, an efficient transaction market where they feel like they can sell it at the appropriate price.
spk03: And then maybe a bigger picture on kind of guidance, the investments and dispositions at the midpoint obviously kind of balance each other out. Is there any expectation in your mind of a difference in timing between deploying capital and kind of capital recycling over the course of the year?
spk11: I mean, certainly there will be. We're assuming that all sort of balances itself out over the years. Sometimes we sell ahead of buying, and sometimes we buy ahead of selling. But guidance assumes it's a relatively balanced approach.
spk03: Okay. And on the balance sheet, you know, the revolver is a little bit over the amount you have swapped, but it kind of seems like it matches the amount in the loan pool. Is it kind of fair to assume that's free-floating? at least over the kind of intermediate term?
spk11: Yeah, I think you can assume that that's going to float, and then as these loans get repaid, we'll evaluate what the redeployment options are in the market, and that evaluation will include potentially paying down that floating rate debt.
spk03: Okay. That's it for me. Thank you very much.
spk11: Thanks, John.
spk07: Thank you. This concludes today's question and answer session. This also concludes today's conference call. Thank you for participating. You may now disconnect. Music Thank you. Thank you. Bye. Good day and thank you for standing by. Welcome to the Alpine Income Property Trust Fourth Quarter 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 this session, you will need to press star 1-1 on your telephone. You will then hear an automated message advising you your hand is raised. To withdraw your question, please press star 1-1 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Matt Partridge, Chief Financial Officer. Please go ahead.
spk11: Good morning, everyone, and thank you for joining us today for the Alpine Income Property Trust's fourth quarter and full year 2023 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 release, and most recent investor presentation, which contain reconciliations of our non-GAAP financial measures we use, on our website at alpineread.com. I'll now turn the call over to John for his prepared remarks.
spk09: Thanks, Matt, and good morning, everyone. As we look back at our execution in 2023, we continue to emphasize the value-focused asset recycling program we implemented nearly two years ago. This program has allowed us to reposition our portfolio into higher quality credits that de-risk our cash flows and provided the liquidity needed for our opportunistic share repurchases and strong yielding first mortgage investments. Within the fourth quarter, the majority of our investment activity was concentrated in these first mortgage investments and share repurchases. And we believe these investment opportunities provide attractive risk adjusted returns compared to other opportunities available in the market. During the quarter, we originated nearly $31 million of first mortgage loan investments and acquired two single tenant net lease properties for $3 million. The initial yield on our loan investments was 9.2% and the cash cap rate of our property acquisitions was 7.3%. Our largest investment was a low leverage $24 million first mortgage secured by 41 retail properties. In conjunction with the loan, we entered into a fee sharing agreement with CTO Realty Growth, our external manager. This fee-sharing agreement allows us to receive a share of the asset management disposition and leasing fees related to CTO's management. The other loan investment we made during the quarter was a first mortgage to provide $6.8 million of funding towards the purchase and development of a five-acre project anchored by Wawa and McDonald's in a growing sub-market of Nashville, Tennessee. While we intend for our loan investments to remain a relatively small component of our overall asset base and strategy, they do provide future purchase options for our acquisition pipeline and serve as catalysts for our future partnership opportunities with sponsors, and we believe they offer compelling risk-adjusted yields supported by strong tenant credits and well-capitalized sponsors. On the acquisition front, we've acquired two newly built properties leased to Dollar Tree Family Dollar as we saw fewer attractive core investment opportunities due to reluctant sellers. And finally, as it relates to our common stock buybacks, we repurchased $9.5 million of our common stock at an average price of just over $16 per share during the fourth quarter. The implied cap rate of these repurchases was above 8%, which is significantly above the cap rates for comparable fee simple property investments available in the market, especially considering 65% of our annualized base rent comes from tenants with an investment grade credit rating and our stock pays nearly a 6.9% dividend yield at $16 per share. For the full year of 2023, we acquired 14 net lease properties for $83 million at a 7.4% cash cap rate and originated three first mortgage investments totaling just under $39 million of funding commitments at the initial yield of 9.1%. Over 66% of the acquired base rents from the property acquisitions in 2023 come from tenants with investment grade credit rating. On the disposition side of things, during the full year 2023, we sold 24 properties for $108 million at a weighted average exit cap rate of 6.3%, generating gains of 9.3 million. Overall for the year, our net investment spread, which is the difference between our investment yields and disposition yields, averaged 159 basis points. So even with limited access to the capital markets and the increase in interest rates over the past 18 months, we're still driving positive increases in cash flow through our asset recycling strategy. From our portfolio makeup perspective, Matt will outline more of the specifics with his prepared remarks, but given we are coming up on our five-year anniversary later this year, I wanted to take a moment to highlight the progress we've made in transitioning our portfolio through our asset recycling strategy. Since inception of the company, we've recycled nearly $600 million of capital as we've accretively sold off primarily office assets and properties occupied not by non-credit tenants and reinvested the proceeds of positive net investment spreads. As a result, we've taken our office exposure from 43% to 0%, increased our exposure to investment grade rated tenants from 36% to 65%, increased per share quarterly dividend by more than 37%, and our top tenant list, which includes the likes of industry leaders such as Walgreens, Lowe's, Dick's Sporting Goods, Dollar Tree, Family Dollar, Dollar General, Walmart, Best Buy, Hobby Lobby, and Home Depot now compares favorably to many of our peers that trade at significantly better valuations. From a valuation perspective, we're currently trading well above an implied 8% cap rate on our real estate portfolio and at a significant discount to our book value of $18.36 per share. Additionally, we have strong AFFO per share growth projected for 2024, and our loan investments provide a natural deleveraging opportunity over the next 24 months. To put it bluntly, we're a great value today, and we look forward to maximizing that value for our shareholders. Now I'll turn the call over to Matt to discuss our portfolio makeup, quarterly results, balance sheet, and 2024 guidance.
spk11: Thanks, John. As of the end of the year, our portfolio consisted of 138 properties totaling 3.8 million square feet with tenants operating in 23 sectors within 35 states. And as John mentioned, 65% of our annualized base rent or ABR now comes from tenants or the parent of tenants who have an investment grade credit rating. The portfolio continues to be 99% occupied and our top tenants remain largely unchanged. However, we do anticipate occupancy increasing over the coming months we have signed or in the process of signing multiple leases related to the vacant properties. Fourth quarter 2023 FFO was 37 cents per share unchanged when compared to the fourth quarter of 2022 and fourth quarter 2023 AFFO was 38 cents per share representing a 7.3 percent decrease over the fourth quarter of 2022. Our quarterly results were most notably impacted by one-time expenses related to tenant credit loss and bankruptcy primarily attributable to the Southern Valero branded Mountain Express properties that we discussed during our third quarter conference call, as well as the timing of investments and dispositions. These items were partially offset by regular rent increases within the owned portfolio, attractive net investment spreads from asset recycling program, increased interest income from cash and restricted cash on balance sheet, and lower interest expense driven by year-over-year effects of previously completed interest rate hedges. Our general and administrative expenses for the quarter totaled $1.5 million, which includes the $1.1 million management fee to our external manager. Our G&A increased 4.5% year-over-year, largely a result of higher state and local taxes and increases to the management fee driven by our net equity capital markets activities over the past 12 months. The current annual run rate for our management fee before any assumed new equity issuances or repurchases is $4.2 million. For the full year, FFO was $1.47 per share and AFFO was $1.49 per share, representing year-over-year per share decreases of 15% and 16% respectively when compared to the full year of 2022. As previously announced, the company paid a fourth quarter cash dividend of 27.5 cents per share, representing a current annualized yield of more than 7%, and our fourth quarter FFO and AFFO payout ratios remained fairly consistent at 74% and 72% respectively. We anticipate announcing our regular quarterly cash common stock dividend for the first quarter of 2024 towards the end of February. From an equity capital markets perspective, we continue to be active during the quarter on our board approved $15 million share repurchase program. We're purchasing nearly 595,000 shares of our common stock for a total cost of $9.5 million at an average price of $16.01 per share. In 2023, we repurchased nearly 900,000 shares of our common stock for a total cost of $14.6 million at an average price of $16.23 per share. And in January, we did complete the remainder of the $15 million share repurchase program. We ended the quarter with net debt to total enterprise value of 51%, net debt to pro forma EBITDA of 7.7 times, and our fixed charge coverage ratio is a healthy 3.5 times. The balance sheet is well stabilized with no debt maturities until 2026, and total liquidity at quarter end through cash, restricted cash, and undrawn revolver commitments was more than $187 million. In our press release last night, initial guidance for 2024 reflects our confidence in the portfolio's quality, the year-over-year benefits from the asset recycling John referenced, increased fee revenue from our fee sharing agreement with CTO, and what we believe is a reasonably cautious stance regarding our current access to capital, expected activity in the transactions market, and broader economic environment. We begin 2024 with portfolio-wide in-place annualized straight-line-based rent and in-place annualized cash-based rent of $38.8 million and a run rate annualized interest income from loan investments of $3.2 million. Our full-year 2024 FFO guidance range is $1.51 to $1.56 per share, And our full year 2024 AFFO guidance range is $1.53 to $1.58 per share. Our 2024 guidance for investment activity is $50 million to $80 million of investments contingent on reasonable market conditions. And our investments guidance does include the potential for additional loan investments. Our 2024 dispositions guidance is to sell between $50 million and $80 million of properties and we are currently assuming approximately 75 to 100 basis points of net investment spread between our investment yields and our disposition yields. And finally, we are forecasting our weighted average share count for 2024 to be approximately 14.9 million shares, and this does incorporate the effects of completing the remaining portion of the $15 million share repurchase program I referenced earlier. We appreciate everyone joining the call today, and we'll now open it up for questions. Operator?
spk07: Thank you. And as a reminder, if you would like to ask a question, please press star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press star 11 again. One moment while we compile our Q&A roster. And our first question is going to come from the line of Rob Stevenson with Jamie Montgomery Scott. Your line is open. Please go ahead.
spk12: Good morning, guys. Matt, just to follow up on one of your latter comments, is the five-cent guidance range, is that just acquisition and dispositions that slide between there? Is there something else notable that would push you down to the 151 or up to the 156 or conversely the AFO range?
spk11: Yes. Morning, Rob. Part of it is the acquisition and disposition timing. And then the other component that could move that around a little bit is whether or not we get loan repayments. most specifically for the $24 million loan where that is intended to be a liquidated portfolio. And so that could cause interest income to be reduced over the period of the year.
spk12: Okay. And what is the, you know, the latest in terms of the Mountain Express stuff? Is that, you know, going to wind up being, you know, some of the sales this year? Is that... You know, all going to be re-tenanted, some of it. How are you guys looking at that at this point?
spk11: Yeah, so we're in active discussions with a number of operators. We've got two leases signed on two of the locations. We're working on three more. And then we're in preliminary discussions on the other two. We're still anticipating selling them, just given our focus on publicly traded or publicly rated tenants. But... you know, with active discussions to have all of that leased in the near to medium term.
spk12: Okay. And how, you know, when you take, when you guys take a look at the portfolio, how much of it is likely disposition candidates at this point versus, you know, only if you found something that was an extremely compelling buy? I mean, are you pretty much done with the recycling of the majority of the assets unless somebody comes in and makes a very strong offer? Is there still the bottom 25% of the portfolios likely to be sold going forward? How are you guys thinking about where this portfolio is versus where you'd want it if you started with a clean sheet of paper?
spk09: Yeah, I think it's a little bit of a barbell. We still have some really low cap rate properties that we may decide to monetize and recycle into higher cap rates. and then always continuing to upgrade the portfolio as a whole by selling off the bottom part of the portfolio like the Mountain Express. So we'll work to basically continue to upgrade the portfolio even stronger. So we have two levers there on the bottom and some of the super high quality.
spk12: Okay. And then how are you guys thinking, obviously, given your size, adding even one new tenant or one new industry moves the needle for you guys still. But how are you guys thinking about tenant and industry concentrations going forward? And I'm I think a lot of people ask questions about Walgreens at 12% and dollar stores, which you just added a couple this quarter at 14%. Do you keep acquiring dollar stores? Would you take that up to 20%? And Walgreens, is that a disposition candidate at some point to lower that down below 12% exposure? How are you guys thinking about that? that sort of concentration?
spk09: Yeah, so good question. So we're definitely going to, you know, look to lower the Walgreens exposure over time. We're not in a mad rush. But also hunting for more Walmarts, Lowe's, not at home, but Home Depot's, and, you know, upgrading the portfolio there and getting those credits higher up on the list. Um, you know, but it's just like, it's, it's difficult to find the right ones, but we'll continue to pursue them and, and upgrading the portfolio that way.
spk12: And then what about dollar stores? What's your appetite to continue taking that up?
spk09: Yeah, we're not going to, I don't think you'll see us active on the dollar store acquisition side.
spk12: Okay. And then just a couple of, uh, data ones. Um, what were the two assets that you guys sold during the quarter?
spk11: Yeah, one was a convenience store branded as a BP, and the other one was a two-tenant property. It was a Baumgars, which is similar to a Tractor Supply, and then a... No, I got the BP. I'm drawing a blank on the other one, Rob. Sorry. But it was the minimalist piece of the overall puzzle.
spk12: Okay. And then last one for me, data-wise. Did the board reauthorize a new share repurchase plan?
spk09: And if so, what was the size of that? We would basically have had that in our announcement if they had. So we'll monitor kind of what goes on there and kind of reflect if things change.
spk12: Okay. Thanks, guys. Appreciate the time. Have a good weekend. Thanks, Rob. Thank you. You too.
spk07: Thank you. And one moment as we move on to our next question. And our next question is going to come from the line of Wesley Galladay with Baird. Your line is open. Please go ahead.
spk13: Hey, good morning, guys. Just a question on the investment guidance. Does that include the buybacks? And at $15 a share, would buybacks be the top priority for the use of capital?
spk11: So a good question last morning. It does not include any buyback activity. That would be in addition to the investment guidance. And I mean, at $15 a share, we're obviously well over an 8% implied cap rate. So I think that's certainly something that we'll have a discussion with the board about in terms of a potential new program.
spk13: Okay, and then, Matt, you talked about signing some leases, and I'm just kind of curious, what do you have in guidance for assuming rent from the lease and other properties?
spk10: We have the two that we've signed so far, and that's it.
spk13: Okay. I guess we're trying to build the model and then to build dispositions in our model. I guess, what is the total upside in rent? Obviously, you're going to sell them, but we need to get it in the model and then monetize the assets. So how much, I guess, from the current run rate, how much upside do you have in the rent from releasing the assets?
spk11: Yeah. So the current run rate includes the two we've signed. I would say for now, assume nothing. And then obviously, as those come to fruition, we'll report them, right? We're We're called two months away from doing this again, and so we'll provide another update then and update the numbers then.
spk13: Okay, and then last one for me. What do you have for assumed leverage throughout the year, and how does that impact your borrowing base based on looking at the spread?
spk11: Yeah, so we're assuming there's some slightly levering. Based on sort of the forecast and guidance, we should end the year closer to seven times that debt-to-EBITDA, which should benefit the interest rate spread going into 2025. Okay, thanks.
spk06: Thank you.
spk07: Thank you. And one moment as we move on to our next question. And our next question is going to come from the line of Matthew Ertner with Jones Trading. Your line is open. Please go ahead.
spk05: Hey, guys. Good morning. Thanks for taking the question. So the loans look like they provide some pretty solid risk-adjusted returns. Are you seeing these more than acquisitions, dispositions at the moment? And if so, is there a certain amount of capital that you guys would be comfortable allocating to the strategy? I know that you don't want to do this kind of off the bat, but I guess what would you be comfortable getting up to for this two-year period?
spk09: I mean, I think you're seeing us on the top level of kind of where we want to be on the loans. So what you'll see is really loans either paying down or we're selling off pieces of the loan to do new loans. So I don't think you're going to see the portfolio of loans get any larger. Gotcha.
spk05: Thank you. In terms of the transaction market, what do you think you need to see for it to really get going again? Is it Fed rate cuts or money coming off of the sidelines? What do you guys think in there?
spk09: I think we're starting to see a little bit more activity now. I think people have been hanging on for a rate cut in the higher interest costs as debt's rolling over is starting to bite a little bit more. And so people are just kind of making harder decisions now about selling assets that they don't really want to sell, but it makes a lot of sense given high debt costs and so forth. So I'm pretty much of the optimistic camp that as rates seem to be further out as far as rate cuts, you're seeing more activity on the transaction market. Awesome. Thanks for taking the questions. Thank you.
spk07: Thank you. And one moment as we move on to our next question. And our next question is going to come from the line of RJ Milligan with Raymond James. Your line is open. Please go ahead.
spk02: Hey, good morning, guys. Most of my questions have been asked and answered. I'm just curious, John, on Walgreens, I think it's a split rated in terms of credit rating. Just can you talk about how you feel about that specific credit and maybe exposure to pharmacies in general, given what we've been seeing in the industry?
spk09: Yeah, I mean, look, clearly, you know, their company and the headlines, you know, the properties we have are very good locations. And, you know, obviously with new management at Walgreens and cutting the dividend and selling off some divisions, you know, they're going to become a healthier credit, obviously. And so, you know, the good news is our locations, even if you found another tenant, there's a lot of tenant demand out there for locations. I was with a developer. two days ago, who's a prolific developer of all kinds of various retailers, and he can't build a box for less than $330 these days. So you're going to see tenants being very active in taking over other tenant spaces. So I think the backdrop is that there's a lot of tenant demand out there if you had some issues with particular boxes. So it's all about basis. And I think with our basis trading at $127 a square foot along the whole portfolio, we got a lot of room there. So we're not kind of having sleepless nights over Walgreens, but we will be pruning the exposure for sure. Great.
spk08: Thanks. That's it for me. Great. Thanks, RJ.
spk07: Thank you. And one moment as we move on to our next question. And our next question comes from the line of Anthony Howe with Truist Securities. Your line is open. Please go ahead.
spk04: Good morning, guys. Thanks for your question. So in 2023, you guys started doing all the right things, right? Completing numerous initiatives to close the valuation gap. But the market is not rewarding for those actions. So what other leverage can you pull to close the gap this year while reducing leverage? And how do you balance between leverage, buying a backstop, and growing that equity float?
spk09: Yeah, I mean, look, if the stock continues to trade at these massive discounts to NAV and high implied cap rates and high dividend yield, clearly we'll look to buy more stock because we're going to be accreting NAV and really giving shareholders a strong total return, basically, synopsis. And so, you know, if you look at kind of where we're trading versus the comps, which, you know, you know it better than we do, you know, we're trying to kind of give a value proposition to shareholders and say, why would you take a higher, you know, basis risk and lower implied cap rate when you could have the same exposure to IG at much higher cap rate? lower valuation, higher dividend yield. So the value proposition is there. We'll try our best to communicate it, but if the market is not taking it, then we'll look to buy back more shares and sell down assets to keep the leverage neutral. So it's pretty easy. It's not rocket science. We've been through this many times and feel like we have good opportunities out there. And so, um, so we'll just kind of keep, uh, you know, working through it.
spk04: So I feel like that's like a catch 22, right? Because, you know, I think one of the main reasons why investors are not rewarding those actions because the liquidity of a stock is, it's free, you know, it's pretty limited, right. Compared to your other triple nets. So how do you balance between like buying back stock and like keeping that liquidity for investors?
spk09: Yeah, I mean, we can't, we can't really, you know, we can't basically give investors everything. I mean, investors obviously want everything, but look, you know, we're able to buy what almost a million shares with on our buyback. And as you know, the buyback programs are very problematic. I mean, we have, we can't, we can't basically buy back at certain times of days. We can't buy back with certain percentage of volume as shares are trading. And we certainly are price sensitive. So even with all those parameters, we're able to buy a million shares relatively easy. So investors can buy the shares. They just basically, you know, they just probably have a hard, fast rule that, hey, if you're trading below some certain amount of shares per day, we can't touch you kind of thing. So, but you can buy the shares. I mean, we've demonstrated that. So it's for, you know, more of the value investors seem to kind of latch on, which, you know, more long-term holding sort of investors, you know, seem to understand the value proposition. Okay. Thank you. Thank you.
spk07: Thank you. And one moment as we move on to our next question. And our next question comes from the line of John Massacza with B. Riley. Your line is open. Please go ahead.
spk03: Good morning. Morning. So a quick question on the disposition guidance. I mean, should we assume that some repayment of some of these mortgage investments is in that guidance today and maybe just kind of roughly what are you kind of expecting to get repaid this year?
spk11: Yeah, good question, John. Morning. There's a limited amount of repayment related to the $24 million loan that we were interested in in the fourth quarter, starting really in the third quarter. But we're talking, call it 10% over the balance of the back half of 2024, so not a meaningful amount. We think that'll probably ramp up when we get into 2025 and hopefully into a different industry environment and a more efficient transaction environment.
spk03: Okay. And I guess maybe what are kind of the variables out in the external world that could change that kind of view or could cause that to be different than guidance? I mean, essentially, as we think about kind of an uncertain rate world, does that impact that or is it all just based on execution in terms of selling down the assets in that collateral pool?
spk11: Yeah, I think it's both. I mean, for that specific collateral pool, I think it's a more active transaction environment with pricing that the borrower deems to be appropriate, but then on the other two loans, those are development loans where once the tenant gets open and operating, I think it's either a refinancing opportunity for the borrower, so obviously the interest rate environment would have an influence on that, or it's, again, an efficient transaction market where they feel like they can sell it at the appropriate price.
spk03: And then maybe a bigger picture on kind of guidance, the investments and dispositions at the midpoint obviously kind of balance each other out. Is there any expectation in your mind of a difference in timing between deploying capital and kind of capital recycling over the course of the year?
spk11: I mean, certainly there will be. We're assuming that all sort of balances itself out over the years. Sometimes we sell ahead of buying, and sometimes we buy ahead of selling. But guidance assumes it's a relatively balanced approach.
spk03: Okay. And on the balance sheet, you know, the revolver is a little bit over the amount you have swapped, but it kind of seems like it matches the amount in the loan pool. Is it kind of fair to assume that's free-floating? at least over the kind of intermediate term?
spk11: Yeah, I think you can assume that's going to float, and then as these loans get repaid, we'll evaluate what the redeployment options are in the market, and that evaluation will include potentially paying down that floating rate debt.
spk03: Okay. That's it for me. Thank you very much.
spk11: Thanks, John.
spk07: Thank you. This concludes today's question and answer session. This also concludes today's conference call. Thank you for participating. You may now disconnect.
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