Alpine Income Property Trust Inc (PINE) 2021 Q1 法說會逐字稿

Good day, and welcome to Alpine Income Property Trust first-quarter 2021 earnings conference call. (Operator Instructions) Please note this event is being recorded.

I would like to turn the conference over to John Albright, President and CEO. Please go ahead.

Good morning, everyone, and thank you for joining us today for the Alpine Income Property Trust first-quarter 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?

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 in our earnings release, which contains reconciliations of non-GAAP financial measures we use, on our website at alpinereit.com.

With that, I'll turn the call back over to John.

Thanks, Matt. I'm pleased to report we had a solid start to the year with strong investment activity in the first quarter, acquiring five properties for nearly $22 million and entering into our first transaction agreements with CTO since our IPO to acquire seven single-tenant net lease properties for $56 million. Our strong start also saw us continue our trend of collecting 100% of our contractual base rents and the continued growth of our quarterly dividend, which we increased for the third quarter in a row with our Q2 dividend announcement earlier this week.

More specifically, as it relates to our acquisitions activity, we invested in five properties in Texas, Ohio, and New Mexico for $21.9 million at a weighted average cap rate of 8.2% and with a weighted average remaining lease term of 9.2 years at the time of acquisition. Our acquisitions were a combination of increasing exposure to existing well performing credits such as At Home and Dollar General as well as adding a few new names to our tenant roster, such as Sportsman Warehouse.

As we went through our underwriting process for each property, our due diligence suggests very strong tenant operations when compared within the broader market and throughout the existing chains nationally at the Ohio and New Mexico properties. And we believe this implied tenant strength, combined with their locations along highly trafficked retail thoroughfares, solid demographics, and our ability to acquire at a reasonable cost basis and rent basis present very attractive risk-adjusted opportunities for us to strategically grow our portfolio.

As of the end of the quarter, our growing portfolio was 100% occupied, consisted of 53 properties in 19 states, totaling 1.8 million square feet with top tenants that included Wells Fargo, Hilton Grand Vacations, Hobby Lobby, Dollar General, At Home, Walmart, and Walgreens. We are very confident in the quality of our assets of our two top tenants, Wells Fargo and Hilton Grand Vacations occupied. But as we announced in yesterday's press release, we are going to explore the sale of these office properties as we migrate towards a 100% retail-focused portfolio.

We have a robust pipeline, and the proceeds from these potential sales would be redeployed into retail acquisitions, further growing our high-quality retail portfolio and simplifying the overall investment strategy. We look forward to providing updates on this process as we head into the summer and start receiving market feedback.

And lastly, as we announced earlier in the month, and as I alluded to at the beginning of our prepared remarks, we have entered into agreements to acquire seven high-quality single-tenant net lease properties from CTO for $56 million at a weighted average cap rate of just under 7.2%. These are two transactions, one of which is Burlington in a growing and fairly dense area of Dallas-Fort Worth metro area; and the second is a six-property portfolio with assets in major metro markets that include Charlotte, Houston, Phoenix, Washington DC, Seattle, and Orlando.

The properties are net leased to tenants that include Lowe's, Walgreens, Big Lots, Rite Aid, and Harris Teeter, with Lowe's representing the largest asset of the group. The six-property portfolio has more than 60% of its rent coming from investment-grade tenants, and the collective transactions represent an excellent opportunity for us to further diversify our growing portfolio with a number of high-quality properties that we know very well.

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

Thanks, John. I'll start by highlighting our strong portfolio performance in the first quarter and into the second quarter, where we collected 100% of contractual base rents for each of the first four months of the year. We're no longer experiencing any of the effects of deferred rent as the rent deferrals we previously agreed to have all run their course.

Our contractual base rents and the associated collection statistics do include repayments of previously deferred rent. And while we reported 100% collected for each of the four months, I'm pleased to say we've had certain circumstances where we've had tenants pay for their deferred rents earlier than anticipated or required.

Total revenues for the first quarter of 2021 were $5.9 million, a 41% increase over the first quarter of 2020. And our general and administrative expenses, which include our management fee to CTO, decreased by 300 basis points from the fourth quarter of 2020 and more than 1,300 basis points when compared year over year to the first quarter of 2020, reflecting our quickly improving scale.

For the first quarter of 2021, funds from operations were $3.7 million or $0.42 per share, and adjusted funds from operations were $3.9 million or $0.44 per share. FFO and AFFO per-share growth in the first quarter of 2021 was 91% and 120% respectively, when compared to the first quarter of 2020, again, reflecting an increasing scale of the platform.

Our AFFO in the first quarter was positively impacted by approximately $271,000 from the repayment of deferrals related to the previously mentioned rent deferral agreements. We do expect to experience a continued positive impact to our AFFO in future periods of 2021 related to the scheduled repayments of previously deferred rent, although the first quarter of 2021 represents the largest quarter of repayments.

For the first quarter of 2021, the company paid a cash dividend of $0.24 per share on March 31 to stockholders of record on March 22. This represented a quarterly payout ratio of 57% of FFO per share and 55% of AFFO per share and more than a 9% increase over our fourth-quarter 2020 quarterly dividend. As we highlighted in yesterday's press release, our Board of Directors has approved and the company has declared a second quarter cash dividend of $0.25 per share to be paid on June 30, 2021, to stockholders of record as of the close of business on June 21, 2021.

Our second-quarter cash dividend represents a 4.2% increase over the company's first-quarter dividend and a year-over-year increase of 25% when compared to the second quarter of 2020. The second-quarter 2021 cash dividend represents an annualized yield of approximately 5.4% and set by the Board in consideration of our previously communicated policy of providing a consistent and reliable cash dividend to our shareholders.

Our 2021 full-year FFO and AFFO guidance, which we reaffirmed in yesterday's release, includes a number of significant assumptions, including but not limited to acquisition and disposition volume, associated yields, outside capital, and continued improvement in the broader economy and timing related to a number of these items. For the full-year 2021, our FFO guidance remains $1.50 to $1.70 per diluted share, and AFFO guidance continues to be $1.45 to $1.65 per diluted share.

Turning to the balance sheet, total debt outstanding as of March 31, 2021, was $119.3 million, and total cash on hand was $1.5 million. Net debt to total enterprise value at quarter end was approximately 43%, and while our net debt to recurring EBITDA was approximately seven times.

As we previously noted, the six-property portfolio we're acquiring from CTO is subject to a $30 million CMBS loan assumption, and we're currently working through the special servicer process that Alpine assumed the loan. Our current estimate is that the loan assumption process and the acquisition of the six-property portfolio will occur in July, but we do expect the Burlington transaction to move at a much faster pace, likely closing in the next week or two.

And finally, the first quarter represented the first time we were active on our at-the-market or ATM equity program. As a growing company, our ATM program gives us another tool in our capital markets toolbox that can improve our access to capital, potentially increase liquidity of the stock, and serve as an efficient way to match fund our transactions.

In the first quarter of 2021, we issued 434,000 shares of common stock for total net proceeds of $7.8 million. These proceeds were used to fund a portion of our acquisitions in the quarter.

I'll now turn the call back over to John for his closing remarks.

Thanks, Matt. We're very excited about the momentum we have coming out of the first quarter, where we delivered triple-digit AFFO growth. Our third consecutive increase to our quarterly dividend demonstrated expanded access to the capital markets and have a strong pipeline that will continue to diversify our high-quality portfolio. I want to thank our shareholders for their continued support and congratulate our team on all of their accomplishments.

At this time, we'll open it up for questions. Operator?

(Operator Instructions) Michael Gorman, BTIG.

Yeah. Thanks. Good morning, guys. John, I wonder if you could just spend another minute talking about the office portfolio and what caused the change there as you think about the assets, whether it's just you're seeing better opportunities on the retail side, if you saw inbound interest in the assets. What brought on the discussion about the office portfolio?

Sure. I think, as you know, during the pandemic, the office assets did terrific and was strong portfolio contribution. But it's become very apparent that investors view the office as a bit of a distraction. We get a lot of questions about the office.

And even though we're very comfortable with them, we think that selling them and using the capital to expand in the retail and becoming 100% retail should be a good contribution to the company. And we should help ourselves to narrow that multiple discount against the 100% retail peers in the net lease space. So even though we're comfortable with them, and they've done very well, we want to really become pure retail platform, and that become less of a distraction to investors.

No, great. That makes sense. And you all have been very disciplined with your capital raising, and I noticed that your discussion of the sale process maybe over the summer, lines up with one of the CTO transactions. Should we assume that you're going to run these in parallel where you're going to try to match fund the acquisition pipeline with the office sales? Or should we expect any kind of potential short-term dilution from the sale process?

I mean, I think, look, we'd love things to work out perfectly, but we're not going to not going to try to match everything up to being perfect. So there may be some sort of lag between a sale and acquisitions. But given the robust pipeline, I assume it will be fairly streamlined as far as a disposition and then acquisitions quickly thereafter.

Great. And then one last one for me on the retail side, now that we're more than a year into it, obviously, the portfolio is in great shape. As you're looking at either potential acquisitions or just industries in general, are you seeing any conversations about longer-term effects in some of the tenant categories from the pandemic that may change the way you think about those retail categories as a potential target going forward?

Yeah. So I mean, it's obviously quite interesting what the pandemic has done across the board. But most of our credits have actually gotten better. So if you look at our latest acquisition on At Home or Dollar Generals, I wish we bought At Home stock and not the real estate.

At Home is just on fire, the category. And Dollar Generals, we're lucky we're able to buy what we could buy because the cap rates have compressed quite dramatically in the last couple of months. So all of -- I mean, for the most part, all of our categories have been strengthened during the pandemic, and balance sheets are better and so forth.

Great. Thanks, guys. Appreciate it.

Thank you.

Rob Stevenson, Janney.

Good morning, guys. John, what's the rough book value of the office assets from the IPO?

I'll let Matt handle that one.

Yeah. Rob, the book value is pretty attractive. It's in the $60 million range. I don't have the exact numbers in front of me, but it's pretty attractive in terms of where market is -- where we think market is today versus book value.

Okay. Just trying to figure out what type of -- obviously, the market proceeds, if you were to sell, would wind up being in excess of that. So just trying to figure out what a source of funds would be.

And then if you exit the office space within PINE, does that open additional opportunities for CTO to acquire triple net office? Or is that, within that company, still not an asset class that you're going to move forward with?

Yeah. We wouldn't basically be targeting a CTO net lease office as much, just keep clear, defined lines.

Okay. And then after the transaction that you've announced, how many assets are there left at CTO that PINE would have a natural fit for strong interest in acquiring?

Well, the ones we announced are definitely the low-hanging fruit for Alpine. There are a couple of others at CTO, but they may be below the investment threshold as far as cap rates for Alpine. So I wouldn't think of it as having a lot of shadow pipeline at CTO, but there are a couple.

Okay. And then how are you feeling about movie theaters going forward? Presumably as the big movies start to roll out, and vaccinations continue, the operators would get back closer to normal operations level. Do you buy well-located assets at a discount to pre-pandemic prices over the next six months into that?

Do you look to sell what you own when the prices recover? Do you hold tight and maybe make a decision in a year or so when things really return to normal? How are you guys thinking about not only the movie theaters that you have, but also whether or not your appetite for acquiring or disposing of them in the future?

Yeah. We're not looking for new acquisitions in the theater space. I think the only thing that I could see us doing is maybe see an opportunity to buy a ground lease under well located, where you're talking about 15 acres that could be redeveloped. That may be something that we would see, but we haven't seen anything like that lately.

With regards to what we have, obviously, we're comfortable with what we have but probably would exit when the opportunity comes about. So that's how we're viewing the world.

Okay. All right. And then from the standpoint, Matt, of maintaining the guidance, if you just basically do this quarter's level going forward, hold out all things static or whatever the number is that basically, it's almost at the top end of your guidance range.

I mean, how much of a dilution are you thinking might wind up happening in the near term from trading out-of-office assets into the retail assets? Or is it capital raise? What's the conservatism why guidance didn't move up given the strong first-quarter results?

It's a good question. So obviously, like we talked about in the last call, there's a lot of assumptions that go into the guidance. It's somewhat of a fluid set of assumptions, especially given the size. So I can't speak exactly to what the dilution would be on the office assets because we're pretty early in the process in terms of pricing, and timing obviously has a material impact for that.

We also have some capital assumptions in our models that went into guidance. So the timing of all of those, the price of where we raise capital all has a pretty significant influence in how guidance is impacted, which is why we chose to keep it where it was at last quarter given the strength of the first quarter.

Okay. Thanks, guys. Appreciate it.

Thanks, Rob.

Wes Golladay, Baird.

Hey. Good morning, guys. I just want to look at the potential office sales. Is there anything you can do ahead of time such as extend leases to enhance the value?

We could, but I mean, to me, in reality, the leases are long enough where that's not where the tenant's head is right now. So we haven't taken that approach. We've made the tenants aware, obviously of the process, so that could come about. But that's not something we're -- just because there's enough length on the leases that really that's not in the queue for the tenants to really consider at this point as they really deal with more near-term lease issues in their portfolio.

Got it. And for this quarter's acquisition, your cap rate north of an 8%. Can you talk about what drove that cap rate above 8% and how much competition you face for the assets?

Yeah. I think, look, we're very happy to find the assets we found and at the pricing, some of the assets we've followed even pre-pandemic. And when we saw how well like, for instance, Sportsman did during the pandemic and came out a whole lot stronger and now being merged into Cabela's Bass Pro, and it's right next to a Costco. So we are very fast to go back and pursue that acquisition.

The At Home (technical difficulty) very well. And when we saw that opportunity, we're just quick to pounce on it. And we hope to see more. We do have a strong portfolio or pipeline where we're seeing good activity.

And I guess, if we were to look at that -- into that pipeline right now, is it more the similar cap rates or more like last year's cap rates around the 7% range?

Yeah, more like last year. I mean, so I won't expect a lot of 8%, but I hope to find some more.

Got it. Thanks for taking the questions.

RJ Milligan, Raymond James.

Hey. Good morning, guys. Just curious for the office assets in terms of what you're thinking in terms of pricing on a cap rate basis and whether or not you expect to be able to recycle that capital accretively.

Yeah. I think it's a little too early to give that guidance. We're comfortable where we expect the properties to transition. As Matt said, it still looked very favorable, definitely on a book value basis to the shareholders. And I would say that if there is any kind of cap rate dilution, if you will, I'm sure we'll pick it up on lease length than being in pure retail. So anyway, so we'll give a little bit further guidance when we're a little bit further down the road.

Okay. That was all I had. Thanks, guys.

Thanks, RJ.

(Operator Instructions) Craig Kucera, B. Riley.

Hey. Good morning, guys. I may have missed this, but what was the size of the acquisition pipeline you're looking at outside of the assets coming over from CTO over the next quarter or so?

Look, we have, call it, $100 million to $200 million in the pipeline of things that we're actively pursuing. I know that's kind of a wide range, but some of them are closer as far as discussions, and some are more of in the competition mode.

Okay. Got it. And I feel like last quarter, you had a renegotiation with Old Time Pottery in Jacksonville and got an outparcel back, and we're going to try to either sell that or maybe get a ground lease. Is there any update on that?

Yeah. I wish I had about 100 of those because we were having a high-class problem as far as the dialogue with regards to that property. So just hang tight, and hopefully next quarter, we'll have some news.

Okay. Thanks. That's it for me.

This concludes our question-and-answer session. I would like to turn the conference back over to John Albright for any closing remarks.

Thank you for participating on the call, and we look forward to talking to you in the next couple of weeks.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.