Good morning, everyone and welcome to the Alpine Income Property Trust Third Quarter 2021 Earnings Conference Call. At this time, I’d like to turn the conference call over to John Albright, President and CEO. Sir, please go ahead..

Good morning, everyone and thank you for joining us today for the Alpine Income Property Trust third 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 and you can find our SEC reports in 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. This was another solid quarter of execution as we found a number of attractive acquisition opportunities in the market and made progress on several notable initiatives.

We continued our consistent acquisition pace during the quarter, acquiring $55.4 million of high-quality net lease properties at a weighted average going in cap rate of 6.8%.

We closed on a new $80 million term loan with initial fixed rate of 1.83%, with existing and new banking relationships to give us additional liquidity to fund our investment activities for the balance of 2021 and 2022.

And I am excited to announce that we entered into a new store development lease with a well-known national grocer to develop a store on an undeveloped parcel at one of our existing properties in Jacksonville, Florida.

Our acquisition activities in the quarter were once again focused on well-located properties exhibit strong real estate fundamentals that are occupied by high-quality national brands operating in well-performing retail sectors. During the quarter, we acquired 19 properties spread across 12 different states, 6 of which are new to our portfolio.

Our new acquisitions include 14 tenants operating in 12 sectors and we made a concerted effort to increase our exposure to existing high-performing tenants in our portfolio such as 7-Eleven, Walmart, At Home, Hobby Lobby, Advanced Auto Parts, Dollar Tree and Family Dollar.

We also added a number of high quality tenants, which we think add excellent tenant diversity and credit quality and include notable brands such as O’Reilly Auto Parts, Harbor Freight, Valero, Tractor Supply and Camping World.

Year-to-date, we have acquired 42 net leased properties for nearly $159 million at a weighted average going in cap rate of 7.2% and a weighted average remaining lease term at acquisition of 8 years.

Our portfolio continues to be 100% tame and the properties continue to be 100% occupied and as of the end of the quarter consisted of 89 properties totaling 2.7 million square feet with tenants operating in 25 sectors within 28 states.

Our top tenants include Wells Fargo, Hilton Grand Vacations, At Home, Hobby Lobby, Dollar General, Walmart and Walgreens. As we have drawn the portfolio, we have been able to meaningfully increase diversity of our tenants, geographic and sector exposures.

And since the beginning of the year, we have nearly doubled the number of properties and the number of tenants in the portfolio. We have now diversified to a point that we no longer have a tenant exposure above 10% and our largest sector exposures below 13%.

Both of which are trends we expect to continue as we execute on our disposition plans and grow the overall portfolio. Speaking of our disposition efforts, we continue to work towards the sale of our office properties to position the company as 100% retail focused.

We are currently under contract to sell the Hilton Grand Vacations properties and we are in the process of discussions with interested parties to sell the Wells Fargo property in Hillsboro, Oregon.

While we do expect the disposition of these properties to be partially dilutive to our earnings, we anticipate we will have similar metrics regarding our investment grade tenant and credit rated retail exposure following the sale and redeployment of the disposition proceeds.

Increased portfolio diversity by replacing these properties with a number of new tenants sector exposures in geographic locations in a better weighted average lease term given that the office properties of the combined remaining weighted average lease term of approximately 4.5 years.

I will also highlight that we did sell our Outback Steakhouse in Huntersville, North Carolina during the third quarter for 5.5 exit cap rate, which we believe as reference point as to the quality of our portfolio.

With that, I will now turn the call over to Matt to talk about our performance in the quarter, capital markets activities and increased guidance..

Thanks, John. Total revenues for the third quarter of 2021 increased 60% over the third quarter of 2020 to $8.2 million.

General and administrative expenses as a percentage of revenues, which include the management fee of our external managers CTO Realty growth decreased by more than 270 basis points when compared to the second quarter of 2021 and by more than 500 basis points when compared year-over-year to the third quarter of 2020 continuing our improving organizational scale.

For the third quarter of 2021, those funds from operations and adjusted funds from operations were $4.8 million or $0.37 per share. FFO and AFFO per share growth in the third quarter of 2021 were 5.7% and 8.8% respectively when compared to the third quarter of 2020.

Our AFFO in the second quarter was positively impacted by approximately $23,000 from the repayment of deferred rent related to the previously disclosed rent deferral agreements.

We only have one tenant making repayments under a previously agreed to rent deferral agreement related to the COVID-19 pandemic and these payments are scheduled to occur through the second quarter of 2022.

Year-to-date FFO was $1.15 per share and AFFO was $1.18 per share, representing year-over-year per share growth of 34% and 71% respectively when compared to the first 9 months of 2020. For the third quarter of 2021, the company paid a cash dividend of $0.255 per share on September 30 to stockholders of record on September 9.

This represents a quarterly payout ratio of 69% of FFO per share and AFFO per share and an annualized yield of approximately 5.4%. Our third quarter dividend marks the fifth dividend increase by the company since its IPO in late 2019, our fourth consecutive increase in a more than 2% increase over our second quarter 2021 quarterly dividend.

Year-to-date through the first three quarters of 2021, the company has paid $0.745 per share in cash dividends. These dividends represent a year-to-date cash payout ratio of 65% of FFO per share and 63% of AFFO per share. We anticipate announcing our quarterly cash common stock dividend for the fourth quarter towards the end of November.

As John referenced at the beginning of his prepared remarks, we completed a new $80 million term loan on September 30 at an initial interest rate of 1.83%, which we use to reduce the outstanding balance of our revolving unsecured credit facility, extend our debt maturity profile, and bring in three new banking partners.

As with our first term loan earlier in the year, this new term loan helps broaden our access to capital and lock in longer term debt at an attractive rate. The new $80 million unsecured term loan has the term of more than 5 years with a maturity date in January 2027.

We now have more than $130 million of liquidity from cash and undrawn revolver capacity to some future acquisitions, which is in addition to the proceeds expected from the office property sales discussed earlier. Given the current and prospective liquidity of the company, we were not active on our ATM equity program during the third quarter.

However, as we previously announced, we did issue an additional 55,000 OP units to close out our inaugural OP unit transaction and acquire one remaining property that was part of a 10-property diversified portfolio. The OP unit issuance was completed at $18.85 per share the same per share value as the previously issued 425,000 OP units.

Total debt as of September 30 was $191.5 million and total cash and restricted cash was $7.3 million. Net debt and total enterprise value at quarter end was approximately 44%, while our net debt to pro forma EBITDA was approximately 6.9x.

Heading towards the end of 2021 and as we prepare for 2022, our balance sheet continues to be well positioned to execute on our acquisition pipeline and support our future operating activities.

In consideration of our capital markets activities, third quarter performance and other assumptions specific to the fourth quarter, we did increase our 2021 full year FFO and AFFO guidance. For the full year of 2021, our FFO guidance is now $1.47 to $1.50 per diluted share and AFFO guidance is now $1.48 to $1.51 per diluted share.

With that, I want to thank our shareholders, banking relationships and other business partners for the continued support. And I’ll turn the call back over to John for his closing remarks..

Thanks, Matt. We are about a month away from our 2-year anniversary as a public company and I am excited about the progress we have made in that relatively short period of time. We built a high-quality portfolio, delivered consistent execution, meaningfully grown our dividend during these first 2 years.

While we have a lot of work ahead of us, I am confident we will be able to continue to execute our disciplined investment strategy and drive further value for our shareholders. Thank you all for your time and support. At this time, we will open it up for questions.

Operator?.

Our first question today comes from Rob Stevenson from Janney. Please go ahead with your question..

Hi, good morning guys.

John, how should we thinking about the timing of the sale of the office assets is, is the Hilton given that it’s under contract? Is that likely to be end of fourth quarter or are these both likely to sort of drift into the first quarter?.

Yes, so thanks, Rob. So, Hilton definitely will be scheduled to close before the end of the year under the contract terms. Wells Fargo would be one that, could be into the year but could be kind of first part of next year. Wells is a little bit more complicated, because there is redevelopment potential in different sectors.

And so people are really digging in on the redevelopment side. So, it’s – everything is fairly easy about the property and the lease, but everyone is looking at the redevelopment potential..

Okay.

And then I guess on that same thing, Matt, I mean, given that, that there is going to wind up being some dilution here mean in your guidance? What are you assuming that, that Hilton closes? Is that like, basically the tail end of the fourth quarter? So that doesn’t really have any material impact on the fourth quarter or like early December, how is that sort of factored into your guidance?.

Yes. Our guidance contemplates the late November early December close..

Okay..

So, we’ll get about 2 out of the 3 months of cash flow off of it..

And then basically, assuming that you are going to get almost all of the cash flow off of Wells?.

Correct..

Okay.

In terms of the acquisition pipeline that you are looking at today, how big is that? And then are there any meaningful tenant exposures in that pipeline, anyone that would immediately jump into your top 10 or whether exposure goes from de minimis at 1% or 2%, up to 10% or anything like that?.

No. There is nothing lumpy about the pipeline. The pipeline is fairly strong. And we want to be – because of in the whole industry, the real estate industry, as you know, there is a crunch for yearend closings because of the fear out there on 1031 federal government taxes.

And so that’s causing an incredible amount of transaction volume cramming into the end of the year. So we are trying to get in front of that wave as much as we can.

But as far as the composition and there is no – nothing kind of abnormal about kind of what you have been seeing as we add new credits and diversify more, it will just be more of the same..

Okay.

So assuming that Wells and Hilton are gone at year end, then that would be in that At Home and Hobby Lobby would jump off to be your top two tenants at probably roughly somewhere around 8%, 8.5% of annualized base rent, am I thinking about that correctly?.

I mean, as we stand right now, but I won’t be surprised if something else jumped up, if we added on to another credit that just because we are so small, those things kind of move around fairly easy..

Okay. And then last one for me, John, you guys increased the dividend by $0.005 or 2%, how much did the pending sale of the office assets and the delusion there, influence increase.

In other words, if you weren’t going to have the delusion from the office sales on a temporary basis, would this dividend increase likely have been higher or is the Board sort of thinking that given where you are today and the payout ratios, that a 2 percentage increase is how we should be thinking about things going forward on the dividend?.

Yes. I think you can see that incrementally moving it up. And given our low payout ratio, of course it will be – have that natural pressure to go up. But that’s the way I would think about it not anything dramatic change from the office buildings side..

Okay. Thank you, guys..

Thank you..

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

Hi, good morning guys.

Can you talk about if there is any other personal development opportunities in the portfolio and is this particular when you are doing this quarter related to the old time pottery?.

Yes. It is related to old time pottery. And look, I am sure there is other opportunities in the portfolio that that one really because of kind of during COVID and when old time pottery went bankruptcy, we kind of went to – became a little bit more forward thinking on that particular asset and engaged brokers and that’s the outcome.

So, given that everything else in our portfolio is obviously pain now, there is not any kind of redevelopment analysis we are doing right now. So, I am sure there are other opportunities.

I mean that’s how come our focus has been on really good real estate and we love it when there is – we are buying large parcels that have one store where there is that optionality in the future, but not right now..

Got it.

And then when you look at that Wells Fargo potential redevelopment, is that maybe an out parcel development? Was that redeveloping the existing asset?.

No, it would be the entire site. So, it’s a large site in Hillsborough. Hillsborough is very strong market, especially with COVID, everyone leaving Portland coming into this market. You have Intel with the Fab 5 plant. You have Nike’s headquarters.

So, not only from the residential side, from the intensive multifamily side, but you are seeing data centers. I mean Hillsborough is one of the markets in the data center world that there is power supply right now. Other data center markets, power supply is very limited. So, you are seeing all kinds of different uses of potential..

Got it. And we are trying to calibrate our models for next year. So, I mean can you help us in any way on the expected cap rate for the office assets total? You may be under contract with one you can’t disclose that.

But if we were to blend the two, how should we think about modeling the cap rate for dispositions of the office?.

It’s somewhat consistent with how we talked about this when we kind of started the process that the cap rates are kind of in the 7s, whether it’s kind of low, mid, or, even mid-high or whatever. It depends, but the one thing to think about is we are retaining the property a little longer and have a lot of cash flow coming from it.

So, that would basically be I would say mid-7s would be kind of a good measure to kind of think about the properties..

Got it. Thanks a lot, guys..

Our next question comes from RJ Milligan from Raymond James. Please go ahead with your question..

Hey, good morning, guys. So, cap rates stick down a little bit in the quarter. Obviously, we have been hearing that there has just been compression across this sector.

I am just wondering if you could give us sort of an update as to what you are seeing in the market more broadly and then expectations for activity in the fourth quarter as we look into ‘22.

And then in the fourth quarter, do you expect the normal rush that we have seen historically as sellers look to get transactions done before the end of the year?.

Yes. So, I mean definitely there is a lot of capital pursuing these acquisitions. So, you can assume that that’s been more now by the lower cap rates somewhat. That would obviously mean the portfolio that we have here as demonstrated by selling an Outback in North Carolina at $5.5 million cap.

We would never have been a buyer of that at a $5.5 million cap. So, we are also seeing the opportunity to sell certain property like that. But I would say that as we focus where we are pleasantly surprised that we are able to find opportunities, good quality tenants, good quality locations, without giving up too much on the cap rate side.

So, you are not – I wouldn’t say after the fourth – this last quarter, I wouldn’t say that the cap rates are going to move down from what we just blended to. I think we are seeing something somewhat consistent.

And I think really to your question of the amount of volume on acquisition side, I think if you are a seller of assets, it’s almost getting too late to have a closing by the end of the year, given just the infrastructure on title companies survey, environmental property condition reports.

So, I think you are going to see that a lot of things are going to move into the first quarter, just as an industry observation..

And then so already for the year, I think close to $160 million of acquisitions, which should put you over $200 million for the year is – and then obviously there was a big second quarter of this year.

Is there anything or any reason why that can’t be replicated next year? Is there – are there concerns about cap rate compression, or just and I know you can give guidance, but I am just trying to think of what were the components this year, that may not – that may prevent you from doing the same volumes in ‘22?.

I think we are pretty bullish about next year. I think the pressure on the competition will probably relax a bit after the New Year. And I am pretty confident we will be able to do the same or not more volume for next year..

Okay.

My last question is for Matt on the leverage levels ending the quarter at 6.9x, can you just talk about how you expect that to trend fourth quarter and as we get into ‘22?.

Yes. I mean obviously, we have been pretty consistent in saying over the long run we want to be closer to that 6x net debt to EBITDA level from a leverage perspective. We ended at 6.9x as you noted, which we are comfortable at. The fixed charge coverage ratio 7x, on a run rate it’s about 6x. So, there is really no pressure from a cash flow perspective.

And as we have talked about it, leverage will move around as we lever up and raise capital and bring it back down..

Okay, great. Thanks guys..

Thank you..

And our next question comes from Michael Gorman from BTIG. Please go ahead with your question..

Yes. Thanks. Good morning, guys. A lot of my questions have been answered. But John, I was wondering if you could just talk about I think you have mentioned in the past, seeing some opportunities in the acquisition markets, taking some shorter lease duration and being comfortable with that.

I am just wondering if you are seeing any shifts with some of the inflation talk, if there is more competition, at that shorter end of the lease duration, where there may be some resets coming sooner rather than later. Is there more competition in that property type or in that product type….

Yes. There definitely is more competition there. I mean that definitely is to me the sweet spot where you want to be with inflation and all those kind of pressures. You don’t want to – you want to have an opportunity to have that tenants kind of come up for renewal. And we have been seeing this all across the real estate industry.

As you guys know very well that you can’t build these properties for the basis we have been buying them. And the tenants over the years have had basically been able to get a fairly good deal on the rental rates that can’t be replicated.

So, the stickiness of the tenants to the properties, I think with the inflation factors and construction costs and labor is just more enhanced. So, that is just definitely the sweet spot. And because a lot of the buyers are still maybe mom and pop with leverage.

They still really can’t compete with the shorter duration because they need efficient leverage. So, we are not – so there – yes, there is a little bit more competition. But it’s not like a – it’s still not a good opportunity..

Okay, great. And then maybe sort of a similar vein, when we think about inflation pressures and maybe some of the shortages that we have heard about, how did you approach the build to suit opportunity in Jacksonville in terms of underwriting it in terms of laying out the contracts with the tenants.

How has that structured to when you think about building in this type of environment?.

Yes. So, the structure is such that, that if we don’t get the building costs in line, guaranteed max and so forth, we can get out of the deal. So, there is protection there. So, we certainly wouldn’t bind ourselves to some sort of lease and delivery without making sure that the cost equation isn’t nailed down..

Okay, great. And then just last one for me. Matt, on the capital structure side, obviously, you mentioned with the asset sales, a lot of equity coming into the balance sheet over the next couple of quarters.

How do you balance the funds coming in and obviously the need to redeploy that with also the taping the equity markets and the ancillary benefits that come in from just increasing the market cap and increasing the average daily volume? How should we think about your approach to the equity markets as you go through these asset sales?.

Yes. I mean in general, obviously we want to grow the equity market cap and create more liquidity for the shareholders and more flow. I think everybody would like to see that. We want to be opportunistic with stock.

We are very sensitive to making sure that we are a good steward of capital for existing shareholders, while still trying to balance out bringing in new shareholders and increasing the demand for the stock. So, we try to strike a balance there.

Obviously, we have the ATM, which helps us to be pretty efficient in terms of accessing those equity capital markets on a match funding basis. So, I would say that’s how we generally think about it. But we are going to try to be opportunistic and try to balance both constituencies in the equities – on the equity side..

Okay, great. Thanks guys..

Thank you..

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

Yes. Thanks. Good morning, guys.

Want to talk about the next six months or so? Can you talk about the pipeline that you are evaluating and sort of where you are seeing the best risk adjusted returns from a category perspective?.

It’s a good question. I mean I think we are seeing really – it’s really a good risk adjusted returns based on a little bit of that shorter duration, where we are picking now very strong real estate locations. I would say that we have bought even un-favored category, that we wouldn’t mind that category.

That tenant is kind of not renewing that sort of situation. So, I would say it’s a little bit harder to kind of just say, one category, we are seeing better return opportunities in risk adjusted return. I think it’s just early.

Seeing and making sure you are getting good real estate and whether the shorter lease duration is really driving that opportunity for us. But like all the tenants seem to be doing very, very well. And so it’s certainly there was a category that isn’t doing well.

We would only be involved is really to get out the real estate kind of like the old time pottery scenario..

Got it.

I guess then does the concept of buying investment grade and maybe paying up for that a little bit more versus a non-investment maybe become less important when the economy is strengthening and you are looking a little bit more for real estate and maybe happy if a tenant leaves after a couple of years?.

We will still be involved in the investment grade side of it to keep that ratio fairly decent, because it’s important for portfolio composition..

Okay, fair enough.

And one more for me, just going back to the development in Jacksonville, can you give us some metrics or some thoughts around maybe how meaningful that might be from an investment or cash flow perspective to find one set of properties constructed?.

Hey, Craig, this is Matt. I mean we have disclosed that it’s about a 23,000 square foot building. And so it’s a grocery – it’s a grocer. So, you can throw a per square foot number on there and kind of triangulate to an overall value.

And then I would say that you should expect us to be targeting some sort of spread above and beyond where it would trade in the market obviously, because we are taking the development risk. So, this should be pretty accretive to overall earnings on a run-rate basis once we get a bill..

Okay, I appreciate it. Thanks..

Thank you..

Thanks..

Ladies and gentlemen, at this time I am showing no additional questions. I would like to turn the floor back over to the management team for any closing remarks..

Thank you for joining us. I look forward to talking to you during the quarter..

And ladies and gentlemen, what that we will conclude today’s conference call. Thank you for joining. You may now disconnect your lines..