Good day, and welcome to the Alpine Income Property Trust Second Quarter 2021 Earnings Conference Call. All participants will be in a listen-only mode. . After today’s presentation, there will be an opportunity to ask questions. . Please note, this event is being recorded. I would now like to turn the conference over to John Albright. Please go ahead..

Good morning, everyone and thank you for joining us today for the Alpine Income Property Trust second quarter 2021 operating results conference call. With me is Matt Partridge, our Chief Financial Officer. Before we began, 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 and our earnings release, which contain reconciliations of non-GAAP financial measures we use on our website at alpinereit.com. With that, I will now turn the call back over to John..

Thanks, Matt. After starting the year with a solid first quarter, we experienced an acceleration across all aspects of our business during the second quarter, which represented our most active quarter since our IPO in late 2019.

Most notably, we achieved record investment activity in the quarter with our acquisition of 18 high-quality retail net lease properties for $81 million at a weighted-average going-in cash cap rate of 7.3%. We also completed our first follow-on equity offering, which provided clarity regarding the funding of our active pipeline.

The offering was comprised of existing and new banking partners, and it was well supported by our existing shareholders and new institutional and retail investors. And finally, we closed on our inaugural operating partnership Unit transaction, which provided us with an additional source of attractive equity.

These achievements were a product of hard work and resourcefulness of our team and the support we received from our transaction and operating capital partners, for which we are very appreciative.

On a transaction front, more so than any quarter-to-date, the second quarter demonstrated our ability to grow our high-quality portfolio by executing on a mix of opportunities sourced from multiple relationships.

Of the 18 properties we acquired in the quarter, 7 were related to our previously announced agreements to acquire a set of high-quality properties from our external manager, CTO Realty Growth.

9 properties were in the form of a diversified retail portfolio that we sourced on a direct basis from a private owner, which was partially funded by the previously mentioned OP Unit transaction and 2 assets were obtained through longstanding relationships within the investment sales community.

These sources are representative of the ingenuity and creativity of our team and platform, and I do anticipate future acquisition opportunities from each of these relationships going forward. .

Thanks, John. Operationally, we had another terrific quarter, continuing to collect 100% of contractual base rents, including collecting the last meaningful portions of our COVID-19 deferred rent repayments. Total revenues for the second quarter of 2021 were $6.6 million, a 44% increase over the second quarter of 2020.

General and administrative expenses, which include the management fees to our external manager, CTO Realty Growth, decreased by more than 500 basis points to 19.5% and compared year-over-year to the second quarter of 2020, continuing our trend of improving organizational scale.

For the second quarter of 2021, funds from operations were $3.8 million or $0.38 per share and adjusted funds from operations were $3.9 million or $0.39 per share. FFO and AFFO per share growth in the second quarter of 2021 were 31% and 144% respectively when compared to the second quarter of 2020.

Our AFFO in the second quarter was positively impacted by approximately $114,000 from the repayment of deferrals related to the previously mentioned rent deferral agreements. Going forward, we have one remaining tenant making prepayments under previously agreed to rent deferral agreement related to the COVID-19 pandemic.

These scheduled payments are anticipated to be approximately $22,000 per quarter through the second quarter of 2022. Year-to-date, FFO was $0.79 per share, and AFFO was $0.82 per share, representing year-over-year per share growth of 55% and 134%, respectively, when compared to the first six months of 2020.

For the second quarter of 2021, the company paid a cash dividend of $0.25 per share on June 30 to stockholders of record on March 21. This represents a quarterly payout ratio of 66% of FFO per share and 64% of AFFO per share, and an annualized yield of approximately 5%.

Our second quarter dividend marks the fourth dividend increased by the company since its IPO in late 2019, and a more than 4% increase over our first quarter 2021 quarterly dividend. Year-to-date, through the first two quarters of 2021, the company has paid $0.49 per share in cash dividends.

These dividends represent a year-to-date cash payout ratio of 62% of FFO per share and 60% of AFFO per share. As we noted in yesterday's press release, the company is revising its practice of declaring a quarterly cash common stock dividend concurrent with its quarterly earnings.

We instead anticipate announcing our quarterly cash common stock dividend for the third quarter of 2021 and for future quarters in the second month of each respective quarter. .

Thanks, Matt. We've accomplished a number of key milestones in the second quarter with our follow-on offering, increasing the acquisition activity and other capital markets and transaction activities.

Our high-quality portfolio continues to perform well, and we expect that to only continue as we maintain our focus on the disciplined execution of our investment strategy. All of these are positive incremental steps in the company's evolution and we look forward to taking more positive steps in the quarters to come.

I want to thank our shareholders for the continued support and congratulate our team on all of their accomplishments. At this time, we'll open it up for questions.

Operator?.

. And the first question comes from Rob Stevenson with Janney. .

John, can you talk a little bit about sort of timing and expectations for the office assets.

Are those under contract currently or are you still negotiating? Where are you in the process there, and what's the -- given your acquisition pipeline, what's your ability to backfill those in a relatively quickly fashion from the NOI with acquisitions?.

Sure. Thanks, Rob. So, we are trading paper on both of them with regards to, whether it's contract or LOI at the company. One is negotiated contract; one, we’re negotiating LOI. So, good activity there. So our expectation is, third quarter, perhaps early fourth quarter, on closing, we're not in a rush.

And so we want -- basically, almost gearing it towards the buyer, the best execution for us or the buyer kind of shakes out with the best execution. So, not trying to rush them. And then, with regards to the pipeline to replace those assets, the pipeline is very strong.

I mean, as you can see in the quarter, we did a fair amount of activity and that has just really built for the pipeline going forward..

And how should we be thinking about -- you guys have been doing reliably 7% plus cap rate on the retail assets.

What it looks like from a dilution accretion standpoint for trading that dollar value of office assets for that dollar value of retail assets?.

Yes. So, it will be a combination of IGE and non-IGE as far as where we acquire. And so obviously IGE type of assets probably will be slightly dilutive. And then, and then non-IGE would be basically be on top or accretive. So we're -- hopefully we'll manage through that very well. And then, the friction of that will be very much at all.

But we’re -- the pricing that we got or hopefully get on the properties is we think very strong and allows us to kind of make that transition to acquisitions that won't be too painful. .

Okay.

And then how are you thinking? I mean, I don't know, if you want to get into specifics about the OP Unit deal that you just did, but how are you thinking about trading that paper given where the stock price is? Is that something where, it's likely to, if you do additional OP Unit deals, there's going to be plus or minus a little bit from where the stock price is? Are you pricing that at a premium to, for the tax deferral nature of it, for the lockups beyond the sort of normal short-term stuff? How are you guys thinking about that currency?.

Yes, so the OP Unit deal we did was higher than where we did the follow-on offering and obviously didn't have as much as the cost nature of it. And so that was very accretive versus a follow on offering. So, as the stock price has built here, we expect any OP Unit issuance going forward will be in line with stock price.

And certainly, we're not looking to go down to where we did the last deal, which was a deal that we're very pleased with. The seller really wanted to be a partner with us on PINE and team to hold the stock forever.

And actually, we're hoping to do more transactions with them going forward, as they basically have a portfolio that they keep on kind of working, if you will, and we'll -- if there's something that works for us, and they want to do some OP Unit deals with a higher stock price, we're open to that.

But yes, I think this is a great transaction where we can go out and talk to other developers who have portfolios that we obviously offer a great solution for them, if they're looking for, to sell it, because partners want to sell and instead of rolling into another property they can take OP Units for -- with us and split it up that way as far as between the partnership.

So, it's a great tool to have and we're excited that we got one gun early on in our life. .

Okay.

And then are there any assets in -- any additional assets and CTO that PINE is likely to acquire this year?.

This year may not happen. There are some assets that could fit very well for Alpine, but there's some work to do as far as splitting them out of centers that CTO has. And so I wouldn't expect that to happen this year. .

Okay. And then last one for me.

Matt, any reason for the change in dividend timing other than to move it out of a crowded earnings period?.

That's really the only reason, we just wanted to get more in line with industry standard, which is closer to the payment date. So, absolutely no change in dividend policy. Obviously, we're not declaring one yet. So, I can't speak to what the Q3 dividend will be, but it's purely is a timing issue. .

The next question comes from Michael Gorman from BTIG. Please go ahead..

John, you talked about obviously, a lot of positive traction on the acquisition side of the business and a strong pipeline. If I recall, I think the guidance previously assumed about 150 million and you're certainly well on the way there.

How are you thinking about full-year acquisition targets as you look at the back half? I mean, obviously plenty of capital to put to work.

How are you thinking about that?.

Yes, so I mean, certainly the pipeline has built especially with the transactions we completed that’s led to further discussions about additional assets. And if you think about it, we're only in -- we're in less than half the states. And so we got plenty of territory to do acquisitions.

We're not even in California, so we've got a large playing field in front of us. And so we're very confident that what we've done in the first half can be replicated in the second half. And certainly, we have the capital now that we went into the pit stop and field up, and now we're -- we can basically take it through the end of the year. .

And Matt, just to be clear, does the new guidance range include any change to acquisition assumptions or is that -- are you still being conservative there?.

Just said, it is a pretty good assumption that we're going to -- the back half of the year should look similar from a volume perspective as the front half of the year. We didn't give formal guidance on acquisition volume, just FFO and AFFO per share, but that's how I would guide people. .

And then John, on the disposition going beyond the office assets, there's kind of one or two non-strategic that you're looking at there.

Can you just give a sense for maybe what you're looking at or seeing in those assets that makes you want to move them out of the portfolio and deploy capital elsewhere?.

Maybe you're talking about just the office or are you talking about any other particular properties?.

No, the ones beyond the office ones. .

Beyond. Well, we certainly are open to selling assets if we get premium pricing. And so it's really about where we can sell a certain credit where the market would think that the cap rate associated with that credit is a lot higher. So it really shows the strength of our portfolio with regards to the real estate.

And so when we announced it, you'll see kind of the rationale that we sold it at a price that we can reinvest those proceeds accretively, and you would think that obviously we're getting better credit as well, so not only accretively on a cap rate basis, but drifting up in credit as well.

So it's really taking advantage of the market where we're getting premium pricing for an asset that the stock market thinks is a higher cap rate. .

And then maybe just last one for me. John, it seems like there's -- you're seeing some opportunities and maybe some better pricing for assets where maybe there's a little bit less lease duration.

Can you just talk about how you think about that strategically, how you underwrite that from a credit perspective? And as you look at the portfolio, in total, kind of what's your comfort level with weighted average lease term?.

Yes. So we’re -- as you indicated, we're very comfortable on certain assets with very short lease durations. The store is doing strong numbers. The rent there is below market. Those are situations that we like a lot because for a retailer to change locations would be probably detrimental to the store operations over the profitability.

So we love those sort of equations, and we're not afraid to kind of keep burning down the lease term until it's a better time to go talk to the retailer regards to extending the lease.

So, it's all about the fundamentals, having very strong real estate, knowing where obviously the lease comps are with regards to comparable type properties, looking at the Placer data to find out where the sales are coming from with regards to location, the traffic, how that compares with the portfolio of that retailer, so that all goes into it.

But that's where we really find the best sort of kind of alpha, if you will, finding those shorter lease durations with higher cap rates in good locations where we know it's a very sticky location with regards to the tenant..

The next question comes from Wes Golladay with Baird. Please go ahead..

Just had a question on the deals that have no escalator, no annual escalators. Everyone is talking about CPI these days and it's going to be 2%, 3%, 4%. So I'm wondering if that's starting to make its way into the private market where people are shying away from these deals..

Yes. Look, it's a function of a lot of these credits. The IGE credits almost across the board have no lease escalations. So it's a little bit of a dance between the IGE exposure, which will have less of a bump in escalations and then the non-IGE, which you will pick up the lease escalation.

So, on a portfolio basis, it's basically 1% per year on the portfolio. But not seeing too much dialogue right now on CPI and so forth. I think people are still going to do fixed lease escalations for new leases. But that's kind of our kind of reaction to it..

Yes, Wes, just the other thing I would add is, from the conversation around the lease duration of our portfolio, we do get bumps when the tenants exercise their option. So, with our shorter lease duration, there is probably more implied growth near-term than maybe some other portfolios out there as a result of that..

And I appreciate that. I guess I was looking at more the angle of, maybe buyers that you're competing against to acquire these assets, maybe a few of them are showing up, because they're a little concerned about the escalators. It sounds like maybe people are just so focused on the IGE credit at this moment. They’re willing to look past the CPI.

Is that the correct read?.

Yes. I think that's right. I think the market is pretty competitive right now, especially for investment grade credit. So, I don't think the rent escalations are really having an impact on pricing for those types of assets..

Got it. And then we look at some of these shorter lease term deals that you're doing, looking at Advance Auto Parts this year, it was like less -- this quarter, less than four years remaining.

How soon will you look to get after those leases for renewal?.

Obviously, we know that the market kind of concerned about lease duration. So, we'd rather run it a little further closer to lease expiration to get a better deal for that negotiation rather than going too early. So, the answer to question is we're not in a rush.

But if we feel like it's important for portfolio dynamics, we could kind of start going through the portfolio and approaching some tenants..

. The next question comes from Craig Kucera with B. Riley Securities. Please go ahead..

Most of my have been answered. But want to follow up on the OP Unit transaction.

Are you finding any other parties out there that are looking to take OP Units in the pipeline? Or was that kind of a unique one-off with that party?.

I guess it's a little bit unique one off. We plan on when we have some time to be more reaching out to groups. We want to explain that transaction to holders of large amount of portfolio of net lease properties because we think it will be attractive.

But right now we're so busy dealing with inbound with regards to our acquisition pipeline, we really haven't had a chance to go out and market that transaction, because I think it's a win-win and certainly our counterparty on that transaction is well regarded family office and developer.

And so I think they'd be great to help communicate that from how they saw the transaction. So, definitely one that with we have some time to kind of get out there, we plan on speaking to groups and trying to do more of those type transactions..

Got it. And as far as dispositions, I think you had about 3 million held for sale. Of course we're looking for the office.

But do you think they'll be meaningful dispositions beyond sort of what's currently held for sale as well as the office?.

No, not meaningful, again, if -- only if the opportunity comes about and we're happy to demonstrate to the market the strength of the portfolio, in part with assets that we know that will be easy to accretively reinvest..

As we have no further questions, this concludes our question-and-answer session. I would now like to turn the conference back over to John Albright for any closing remarks..

Thank you very much for attending the call. .

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