Good day, ladies and gentlemen, thank you for standing by. Welcome to the Alpine fourth quarter 2022 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 the session, you will need to press star one one on your telephone keypad. Joining us today are Mr. Matt Partridge, Chief Financial Officer, and Mr. John Albright, Chief Executive Officer. At this time, I would like to turn the conference over to Mr. Matt Partridge. Sir, please begin.
Good morning, everyone, and thank you for joining us today for the Alpine Income Property Trust fourth quarter and year-end 2022 operating results conference call. With me today is our CEO and President, John Albright. Before we begin, I'd like to remind everyone that many of our comments today are considered forward-looking statements under federal securities law. The company's actual future results may differ significantly from the matters discussed in these forward-looking statements, and we undertake no duty to update these statements. Factors and risks that could cause actual results to differ materially from expectations are disclosed from time to time in greater detail in the company's Form 10-K, Form 10-Q, and other SEC filings. You can find our SEC reports, earnings release, and most recent investor presentation, which contain reconciliations of non-GAAP financial measures we use on our website at alpinereit.com.
With that, I'll now turn the call over to John.
Thanks, Matt. We had a nice finish to the year as we continued to execute on our accretive asset recycling program, reduce leverage, and improve the overall quality of our retail net lease portfolio. Our acquisitions during the quarter emphasized high-quality investment-grade-rated tenants, demonstrating strong operating trends in well-performing sectors such as grocery, home improvement, sporting goods, and dollar stores. In total, during the fourth quarter, we acquired seven properties for just under $42 million at a weighted average cap rate of 7.4% and a weighted average remaining lease term of 8.2 years. Notably, 100% of the acquired rents come from tenants with an investment-grade rating, including the first The Home Depot in our portfolio, as well as Family Dollar Tree, DICK'S Sporting Goods, and Walmart.
For the full year of 2022, we acquired 51 retail net lease properties for just over $187 million at a weighted average going-in cap rate of 7.1% and a weighted average remaining lease term at acquisition of 8.7 years. 77% of the rents we acquired during the year were from tenants with an investment-grade credit rating, and more than half of the rents acquired are in MSAs with over 1 million people. While we did see cap rates move higher as we made our way through 2022, we've seen a decrease in the number of assets listed for sale in the market to start 2023, which is contributing to a higher or tighter bid-ask spread.
Sellers with high-quality properties and strong markets within in-demand tenants and sectors have maintained conviction in their pricing expectations, and we're starting to see buyers be more aggressive as they look to put capital to work to start the year. This is resulting in cap rates either holding from where they were a few months ago, which is in spite of the higher interest rates, or in the case of investment grade-rated tenants and smaller price point assets, we're starting to see cap rates compress because those assets are more easily financed at better terms, offer a hedge against continued inflation, and provide solid risk-adjusted returns in a relatively volatile macroeconomic environment. On the disposition front, we sold five properties for a total disposition volume of $31 million at a weighted average exit cap rate of 6.5%, generating total gains of $6.6 million.
The dispositions include properties leased to Freddy's Frozen Custard, Big Lots, Rite Aid, and Harris Teeter. These sales and the subsequent redeployment at nearly a 100 basis point net investment spread during the quarter allowed us to drive a better return on equity while moving out of some of the assets where we felt we had incremental risk. The proceeds also provided us with attractively priced capital to put to work in the acquisition market that resulted in a higher yield and increased investment-grade rated tenant exposure. Year to date, we've sold 16 properties for approximately $155 million at a weighted average exit cap rate of 6.5%, or 5.9% when removing the impact of our last remaining office property we sold during the second quarter.
These sales during the year generated gains of $34 million. Because we started this asset recycling process back in April, we've been able to maximize the value of the sold properties even as interest rates moved against us. As of the end of the year, our portfolio consisted of 148 properties totaling 3.7 million sq ft, with tenants operating in 26 sectors within 34 states. Occupancy did tick lower, below 100% for the first time as a result of a vacant out parcel we acquired as part of a property acquisition in the fourth quarter. We ascribed no value to this vacant property at acquisition. We're cautiously optimistic we can lease the asset to drive organic rent growth within the existing portfolio.
Since our last earnings call in mid-October, DICK'S Sporting Goods is now our number two tenant, joining Walgreens, Family Dollar , Dollar Tree, Lowe's, and Dollar General as our top five tenants, all of whom carry investment-grade ratings.
We enter 2023 with 54% of our total annualized base rents coming from tenants or the parent of a tenant with investment-grade credit rating, which we anticipate will grow throughout the year as we continue to recycle out of non-investment grade-rated tenants and into high-quality, industry-leading retailers with balance sheets positioned to outperform in nearly any economic environment. We're hopeful that as our portfolio metrics start to better parallel our higher valuation multiple peers, we'll see an uptick in our own stock valuation, reflecting the continuous refinement of our portfolio, our stock's increased liquidity, a de-risked balance sheet, and consistency of execution as we've continued to drive attractive returns on equity for the benefit of all of our shareholders. Matt will outline the details of our 2023 guidance in a moment. It's important to note that we do plan to continue our opportunistic approach to asset recycling.
We've identified a number of properties that we think will garner strong pricing in the market as a result of the quality of the underlying real estate, allowing us to continue to generate attractive net investment spreads on the redeployment of the proceeds. I'll now turn the call over to Matt to talk about our performance in the quarter and the year, as well as our capital markets activities, improved balance sheet in 2023 guidance.
Thanks, John Albright. Starting with our top-line performance, total revenues grew 22% in the fourth quarter and 50% for the year when compared to the equivalent periods in 2021, reflecting the benefit of accretive asset recycling and higher net investment spreads. General and administrative expenses for the year, which includes $3.8 million of management fees to our external manager, total $5.8 million. G&A, as a percentage of total revenues in 2022, was 12.8%, a year-over-year decrease of nearly 400 basis points. We anticipate 2023 general and administrative expenses before the management fee to be approximately $2.1 million. The current annual run rate for the management fee before any assumed new equity issuance in 2023 is just under $4.3 million.
FFO in the quarter was $0.37 per share, representing an 11.9% decrease compared to the fourth quarter of 2021. In Q4 2022, AFFO was $0.41 per share, which remained unchanged from the fourth quarter of 2021. The decrease in FFO and differential to AFFO was driven by a $443,000 extinguishment of debt charge relating to the defeasance and associated write-off of unamortized loan costs of our $30 million fixed property secured mortgage. For the full year, FFO was $1.73 per share, and AFFO was $1.77 per share, representing a year-over-year per share growth of 9.5% and 11.3% respectively when compared to the full year of 2021.
Similar to the fourth quarter, the decrease in FFO and differential to AFFO was driven by $727,000 of extinguishment of debt charges relating to the defeasance and associated write-off of unamortized loan costs for the $30 million fixed property secured mortgage and for the termination and recast of our unsecured revolving credit facility that occurred in the third quarter. As previously announced, the company paid a fourth quarter cash dividend on December 30th of $0.275 per share, representing 1.9% year-over-year increase when compared to the company's Q4 2021 cash dividend and a current annualized yield of approximately 5.4%. Overall, we increased our regular common stock cash dividend by 7.4% in 2022, while still maintaining a conservative FFO and AFFO payout ratio.
Our fourth quarter FFO and AFFO payout ratios remain very efficient at 74% and 67% respectively. We anticipate announcing our regular quarterly common stock cash dividend for the first quarter of 2023 towards the end of February. Turning to the balance sheet, we made good progress reducing leverage closer to our long-term target. We ended the year with net debt to total enterprise value of 47%, net debt to pro forma EBITDA of 7.1x, and we continue to maintain a very healthy fixed charge coverage ratio of 3.7x. During the fourth quarter, we sold nearly 1.5 million shares through our ATM program for total net proceeds of $27.4 million.
During the full year 2022, we sold 1.9 million shares through our ATM program for total net proceeds of $36 million. As I mentioned earlier, in December, we did defease the loan-secured mortgage on our balance sheet. The defeasance allowed us to unencumber the properties that secured the mortgage, of which we sold four of the six properties shortly thereafter. Following the secured mortgage payoff, our balance sheet is now completely unsecured. Subsequent to year-end, we entered into a $50 million forward-starting interest rate swap that commences in March to fix SOFR for our outstanding revolving credit facility balance, effectively eliminating our remaining go-forward floating interest rate exposure. As of today, we have no debt maturities until 2026, no floating interest rate exposure, and ample capacity on our revolving credit facility to complement our accretive asset recycling program.
For 2023, the initial guidance in our press release last night reflects the confidence we have in the quality of our portfolio while taking a reasonably cautious approach to the broader macroeconomic environment and underlying volatility in the capital markets. Our guidance relies on a number of significant assumptions, including but not limited to our ability to raise funds for investment at a reasonable cost of capital, our ability to acquire and sell assets at reasonable valuations, and continued operational and financial strength of our tenants. We begin 2023 with portfolio-wide in-place annualized straight-line base rent of $40,400,000 and in-place annualized cash base rent of $39,900,000.
Our full year 2023 FFO guidance range is $1.50-$1.55 per share, and our full year 2023 AFFO guidance range is $1.52-$1.57 per share. Our 2023 guidance for acquisition activity is $100 million-$150 million of retail net lease properties, which is subject to reasonable market conditions, and we believe these acquisitions will occur at a similar or better blended yield to our 2022 full-year acquisition cap rates. For dispositions, we're projecting to sell between $25 million and $50 million of properties at a similar blended yield or better to our 2022 full year disposition cap rate. With that, I'll now pass it back to John for his closing remarks.
Thanks, Matt. During 2022, we delivered the second highest total shareholder return in our peer group. As we now fully transition into 2023, I'm excited about the opportunities we have in front of us and the support we've received from our shareholders. Our nimble size, evolving portfolio, de-risked balance sheet, and opportunistic approach to investing are all drivers of momentum to help us execute in 2023 and beyond. I wanna thank our team for all their hard work at this. At this time, we'll open it up for questions. Operator?
Ladies and gentlemen, if you have a question or comment at this time, please press star one one on your telephone keypad. If your question has been answered or you wish to remove yourself from the queue, simply press star one one again. Again, if you have a question or comment at this time, please press star one one. Please stand by while we compile the Q&A roster. Our first question or comment comes from the line of Gaurav Mehta from EF Hutton Group. Mr. Mehta, your line is open. Mr. Mehta, you may need to unmute your phone.
Yeah, thanks. Good morning. I wanted to ask you on your comments about cap rate compression that you guys mentioned for investment-grade properties over the last few months. You know, can you maybe provide some more color on what you're seeing and what you're expecting for investment-grade asset cap rates?
Yeah. there's not, there's not a plethora of inventory out there. People that have good quality, assets with good credits, they're holding onto their price. They're not breaking price. Because there's not a lot of inventory out there, your high net worth, your 1031 people are basically engaging at the price points that the sellers, you know, are willing to part with the assets. You are seeing that cap rates are definitely not expanding. We just say they are kind of coming back down, you know, almost it feels like following the 10-year or something that, you know, cap rates have come back in. We are hopeful and optimistic that we'll get some really good buying opportunities.
So far, you know, it's pretty strong market if you have the right credits.
Okay. Second question on leverage. Your pro forma debt to EBITDA at 6.6 x. Do you expect that ratio to remain at current levels or do you expect that to go up as you look to finance your acquisitions for 2023?
Yeah. I think we'd like to keep it in that general range, but it's gonna move around just as a function of the size of the company, right? It doesn't take a lot to move it up and down. We'll see how the stock performs, and we'll see where the buying opportunities are and where the cost of debt is, and we'll respond and allocate capital accordingly.
Okay, thank you.
Thanks, Gaurav.
Thank you. Our next question or comment comes from the line of Rob Stevenson from Janney Corporation. Mr. Stevenson, your line is now open.
Thanks. John, how are you thinking about sporting goods given the DICK'S acquisition? Is it just the credit on DICK'S, or is there something that you guys are seeing in the sporting goods, vertical that, you know, that has you excited about growth over the next few years?
The, you know, we've always been very impressed with how well DICK'S performs in the stores that we own and the ones that we've looked at acquiring. They're just like such a strong operator that, you know, it seems like, you know, they're kind of the category killer. It seems like their, you know, strong company performance, you know, really radiates from these locations. We're just really comfortable with that particular operator.
Okay. How much more is there in the portfolio today that you'd wanna sell barring some out of the blue offer, that's, you know, below what your cap rate expectation would wind up being for that particular asset?
Yeah, I mean, we're seeing, you know, basically we're getting inquiries on properties that we're not even in the market to sell. You know, obviously, we have our price point where, you know, we'll sell anything as long as we can, you know, there's not a 1031 issue. Basically, you know, we are seeing some really good attractive recycling candidates that we didn't think we'd sell them. It looks like the pricing out there is better than we would've thought on the sell side. I expect, you know, to be, you know, somewhat active again here in the, you know, call it more the second quarter.
Okay. Then Matt, in your guidance, what type of spread are you assuming on cap rates between the acquisitions and the dispositions for the year?
Yeah, I think it'll probably be consistent with what we did in 2022. Call it, you know, 100 basis points ±.
Okay. All right, guys. Thanks. Appreciate the time.
Thank you, Rob.
Thank you. Our next question or comment comes from the line of RJ Milligan from Raymond James. Mr. Milligan, your line is now open.
Hey, good morning, guys. John, I just wanted to revisit your comments on sort of the cap rate compression for investment grade. I'm just curious, you know, what terms you're seeing out there from lenders to lend on that type of investment?
Yes, it's really, high net worth, all cash. There's no lender involvement in where we're seeing the activity taking place right now. Whether it's a smaller asset that, you know, it's really a 1031 and there's no lender need, or it's high net worth, just very comfortable with the stability of net lease. You know, there's no problem on pricing. They just wanna place the capital in with particular credits and locations.
I guess, per your comments, it's more a function of the lack of available product and that's sort of keeping cap rates relatively low. I guess the question is, if we were to see volume increase, would you expect, you know, cap rates to maybe expand a little bit?
Yeah, I would definitely, if you're absolutely right. It's because there's not inventory out there. If you had a forced seller out there of assets or portfolio or motivated seller, I think you would see cap rates expand a bit because, you know, what we're all waiting for is opportunities to deploy at, you know, higher yields. If people know that they have to sell, you're not gonna, you know, basically be, you know, very aggressive. That's kind of what we're all waiting for. Yes, if you all of a sudden saw a lot more activity happen, I think cap rates would expand a bit.
That's helpful. Then Matt, a question on the guidance for the outstanding share count obviously implies a little bit more equity through the year. How should we think about the cadence of that?
With the pro forma leverage that Gaurav mentioned earlier, and that's in our investor presentation, you can see we did a little bit of activity on the ATM to start the year before we went into blackout. A good chunk of that implied equity in the guidance has already been issued. The balance of that amount, I would expect to be more back-end weighted, and I think that would track transaction activity within the guidance as well.
Do you expect for that transaction activity, do you expect a mismatch in terms of dispositions versus acquisitions, or do you think they'll be pretty equally timed throughout the year?
I think from John's comments, you can probably expect us to be a little bit more active on the disposition side in the second quarter, and there'd be a good match funding from that perspective. The balance of the acquisitions is probably back-end weighted to the second half of the year.
Great. That's it for me, guys. Thank you.
Thank you.
Thank you. Our next question or comment comes from the line of Matthew Erdner from JonesTrading. Mr. Erdner, your line is now open.
Hey, guys. Matthew on for Jason. Are there any specific regions throughout the country where cap rates are expanding or kind of holding steady rather than compressing, or is it kind of compression all around?
I would say I don't think there's a geographic area that is exhibiting something different than really the national wave. I mean, I don't see a particular area that's expanding. Maybe some of the areas that, you know, are lower growth, like as far as in Oregons or Californias, you know, maybe people that just don't have as big a buyer pool. But it's pretty steady all across.
Gotcha. Following that up, last one from me. Is there any specific industry that you guys are targeting, or is it just investment-grade tenants that you're trying to recycle in?
It's definitely obviously investment grade, you know, kind of leads the way. There's, you know, it won't be really on the entertainment side, I guess. It'll be more your traditional staples, of sort of assets, you know, good, consistent industries.
Awesome. Thank you, guys.
Thank you.
Thank you. Our next question or comment comes from the line of Michael Gorman from BTIG. Mr. Gorman, your line is now open.
Yeah. Thanks. Good morning. John, I was wondering if you could just spend a little bit more time talking about the acquisition market. I know you've talked about the investment-grade cap rates. You know, we've heard from some others that maybe there's also some differentiation within the specific sectors. Are you seeing that play out as well too, that there's more stratification between the sectors, even if they're both investment-grade tenants? I know you've talked previously before about seeing opportunities in shorter duration leases, or assets with maybe some more near-term roll. Is that still out there as well, or is that starting to get priced out too?
Yeah, I mean, that's getting, you know. There hasn't been really any gap out in that kind of pricing for the shorter duration. It's hanging in there. I wouldn't say it's on the shorter duration. It's not compressing more. The one thing I will say is, you know, you gotta think about on the inventory side, the merchant builders are not as active building new stores. You're not getting that inventory. I mean, first of all, the lender market for construction, you know, is tougher obviously. You know, rates, you know, don't make the pro formas look as good as they used to be. Obviously the construction costs are still elevated. They're not going up further, but they're not coming down like everyone had hoped.
You know, so that kind of, you know, talks about the construction costs of these assets on a per square foot basis makes the older product, with low rents, you know, very attractive as far as the basis you're able to buy these assets. That's why you're seeing a lot of capital come into these properties, whether they're on the shorter duration because the basis is so attractive.
Got it. Got it. That's helpful. Matt, maybe just quickly on your side. What are you seeing in terms of the debt markets or the optionality for you all? You don't have any near-term maturities, no exposure to floating rate debt. If you did start to see a pickup in maybe investment pipeline opportunities, you know, how are you thinking about the debt markets here? What are the attractive products that would be available to you, or in terms of, would you be able to put on swaps at this point to keep fixed rate or would it most likely need to be variable rate on the line?
You know, I think certainly there is an appetite for swaps in the bank market. I think we could continue to sort of match fix acquisitions, whether that's on the line or a new term loan or some other piece of debt, we can, we can maintain the fixed approach. On the interest rate side, in terms of capital available, you know, there hasn't been as much runoff of people's balance sheets. I think everybody in the, in the real estate banking market is expecting some capacity to open up here into the second and third quarter, which should, you know, allow for longer duration term loans and better match funding with assets to pick up. It's been pretty tight to start the year. For us, you know, we've historically accessed the term loan bank market.
We're getting to a size where the private placement market's more attractive. I think both of those areas is where you could see us add incremental longer duration debt.
Okay, great. Thanks, guys.
Thanks, Michael.
Thank you.
Thank you. Our next question or comment comes from the line of Wes Golladay from RW Baird. Mr. Golladay, your line is now open.
Hey, good morning. Can you hear me?
Yep.
Okay, great. hey, are you guys seeing any OP unit deals out there?
You know, there's certainly I would say there have been discussions, but, you know, whether it's not the right kind of purchase price for us. There's folks that would like to take OP units, but I think the bid ask on the assets are too wide.
Okay. You obviously articulated some dispositions planned for this year, but, you know, the cost of capital has been improving. I'm curious, how do you balance incremental dispositions versus scaling the business in light of the, you know, the 400 basis points of improved efficiency this year or in 2022?
Yeah. Well, on the disposition side, we're, you know, using that capital to buy additional assets. We're not shrinking for sure. You know, we're just taking advantage of upgrading the portfolio and accretive recycling. Other than that, we're definitely looking to grow beyond just the recycling. We're actively, you know, pursuing those opportunities.
Okay. One for Matt. I think the 6.6 x debt to EBITDA, at what point does this start to benefit you on having a lower spread on your floating rate debt? I know you did mention maybe doing some more fixed rate debt. Would there be a point where you are potentially over-swapped and maybe long floating rate?
Yeah. With the 6.6 x, you know, that's probably a 15 basis point benefit to our spread on the revolver and the term loans going forward. It resets every quarter, so it'll take a little bit of time to get the benefit there once we head into the second quarter, but it certainly helps. You know, on the longer duration debt, the swap that we did was a five year swap. So if and when we do a new term loan, it would effectively match up with that new term loan. Whether we go farther out on the swap rates to further hedge out, I think that'll depend on where interest rates are and what kind of duration is available on the debt origination side.
Great. Thanks, everyone.
Thanks, Wes.
Thank you.
Our next question or comment comes from the line of Mr. Craig Kucera from B. Riley. Your line is now open, sir.
Yeah. Hey, good morning, guys. Most of mine have been answered, but I wanted to ask about your lease rollover. I think historically, you haven't had much in the portfolio, but you are starting to see a pickup here a little bit in 2023 and certainly in 2024. Are you having any discussions at this point on extensions? I just would be curious about any thoughts you have on lease expirations over the next year or two.
Yeah. Thanks, Craig. You know, we have had extension discussions. We're actually seeing some tenants with expirations a couple years away try to come in early to get, you know, get something for an early extension. A lot of those locations we're comfortable, you know, basically waiting till the renewal. If there's an opportunity to do something with the tenants on multiple assets, we're certainly open to those discussions. Yes, we're obviously in tenant discussions about renewals and early renewals.
Okay, great. That's all for me. Thank you.
Thank you. I'm showing no additional questions in the queue at this time. I'd like to turn the conference back over to Mr. Albright for any closing remarks.
Thank you very much for attending the call and look forward to talking to you after.
Thanks, everyone.
Ladies and gentlemen, thank you for participating in today's conference. This concludes the program. You may now disconnect. Everyone, have a wonderful day.