Good morning, everyone, and welcome to the Alpine Income Property Trust Third 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 Please also note today's event is being recorded. 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 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 ks, Form 10 Q and other SEC filings, and 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'll 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 $55,400,000 of high quality net lease properties at a weighted average going in cap We closed on a new $80,000,000 term loan with initial fixed rate of 1.83 percent with existing and new banking relationships to give us additional liquidity to fund our investment activities for the balance of 2020 1 2022. And I'm excited to announce that we entered into a new store development lease with a well known national grocer Our acquisition activities in the quarter were once again focused on well located properties that 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 included 14 tenants operating in 12 secondtors, and we made a concerted effort to increase our exposure to existing high performing tenants in our portfolio, such as 711, 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've acquired 42 net leased properties for nearly $159,000,000 At a weighted average going in cap rate of 7.2% and a weighted average remaining lease term and acquisition of 8 years. Our portfolio continues to be 100% paying and the properties continue to be 100% occupied, And as of the end of the quarter, it consisted of 89 properties totaling 2,700,000 square feet with tenants operating in 25 secondtors within 28 states. Our top tenants include Wells Fargo, Hilton Grain Vacations, At Home, Hobby Lobby, Dollar General, Walmart and Walgreens.
As we've grown the portfolio, we've been able to meaningfully increase the diversity of our tenant, geographic and sector exposures. And since the beginning of the year, we've nearly doubled the number of properties and the number of tenants in the portfolio. We've now diversified to a point that we no longer have a tenant exposure above 10% and our largest sector exposure is 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 We are currently under contract to sell the Hilton Grand Vacation Properties and we are in the process 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'll have similar metrics regarding our investment grade tenant and credit rated retail exposures following 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 have I'll also highlight that we did sell our Outback Steakhouse in Huntersville, North Carolina during the Q3 for a 5.5 percent exit cap rate, which we believe is a reference point as to the quality of our portfolio. With that, I'll 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 Q3 of 2021 increased 60% over the Q3 of 2020 to $8,200,000 General and administrative expenses as a percentage of revenues, which include the management fee of our external manager, CTO Realty Growth, decreased by more than 2 70 basis points when compared to the Q2 of 2021 and by more than 500 basis points when compared year over year to the Q3 of 20 Continuing our improving organizational scale. For the Q3 of 2021, both funds from operations and adjusted funds from operations were $4,800,000 or $0.37 per share. FFO and AFFO per share growth in the Q3 of 2021 were 5.7% and 8.8%, respectively, when compared to the Q3 of 2020. Our AFFO in the 2nd 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-nineteen pandemic, and these payments are scheduled to occur through the Q2 of 2022. Year to date, FFO was 1 point per share and AFFO was $1.18 per share, representing year over year per share growth of 34% 71 respectively when compared to the 1st 9 months of 2020. For the Q3 of 2021, the company paid a cash dividend of $0.255 per share On September 30, the stockholders of record on September 9. This represents a quarterly payout ratio of 69% of FFO per share and AFFO per Sure. And an annualized yield of approximately 5.4%.
Our 3rd quarter dividend marks the 5th dividend increase by the company since IPO in late 2019, our 4th consecutive increase and a more than 2% increase over our Q2 2021 quarterly dividend. Year to date through the 1st 3 quarters of 2021, the company has paid $0.745 per share in cash dividends. These dividends represent a year to date cash 4th quarter towards the end of November. As John referenced at the beginning of his prepared remarks, we completed a new $80,000,000 term loan on September 30 at an initial interest rate of 1.83%, which we used to reduce the outstanding balance of our revolving unsecured credit facility, Extend our debt maturity profile and bring in 3 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 $80,000,000 unsecured term loan has determined more than 5 years with a maturity date in January 2027. We now have more than $130,000,000 of liquidity from cash and undrawn revolver capacity on future acquisitions, which is in addition to the proceeds expected from the office property sales discussed earlier. Given the current perspective liquidity of the company, we were not active on our ATM equity program during the Q3. 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 420 Total debt as of September 30 was $191,500,000 and Total cash and restricted cash was $7,300,000 Net debt to total enterprise value at quarter end was approximately 44%, while our net debt to pro form a EBITDA was 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 And support our future operating activities.
In consideration of our capital markets activities, 3rd quarter performance And other assumptions specific to the Q4, 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 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'm excited about the progress we've made in that relatively short period of time. We've built a high quality portfolio, Delivered consistent execution, meaningfully grown our dividend during these 1st 2 years. While we have a lot of work ahead of us, I'm confident we will be able to continue to execute our disciplined investment strategy and drive further value for our shareholders.
Our first question today comes from Rob Stevenson from Janney. Please go ahead with your question.
Good morning, guys. John, how should we be thinking about the timing of the Sale of the office assets is the Hilton given that it's under contract, is that likely to be end of 4th quarter or are these both likely to sort of drift into the first
Yes. So thanks, Rob. So Hilton definitely would be scheduled to close before the end of the year under the contract terms. Wells Fargo would be one that could be end of the year, but could be kind of 1st part of next year. Well, it's a little bit more complicated because there's redevelopment potential in different Sectors and so people are really digging in on the redevelopment side.
So it's everything's Fairly easy about the property and the lease, but everyone's looking at the redevelopment potential.
Okay. And then I guess on that same thing, Matt, I mean given that there's going to wind up being some dilution here, I mean in your guidance, When are you assuming that Hilton closes? Is that like basically the tail end of the 4th quarter, so that doesn't really have any material impact On the Q4 or like early December, how is that sort of factored into your guidance?
Yes, our guidance comes in place till late November, early December close.
So we'll get about 2 out of
the 3 months of cash flow off of it.
And then basically assuming that you're going to get almost all of the cash flow off of Wells?
Correct.
Okay. In terms of the acquisition pipeline that you're looking at today, how big is that? And then is there any meaningful tenant exposures In that pipeline, anyone that would immediately jump into your top 10 or where the exposure goes from de minimis at 1% or 2% up to 10% or anything like that?
No, there's nothing lumpy about the pipeline. The pipeline is fairly And we want to be because of in the whole industry, the real estate industry, as you know, there's a crunch For year end closings because of the fear out there on tenthirty one federal government taxes. And so that's Causing an incredible amount of transaction volume cramming into the end of the year. So we're trying to get in front of that wave As much as we can. But as far as the composition, there's no nothing kind of abnormal about kind of what you've 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 mean that At Home and Hobby Lobby would jump up 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 wouldn't be surprised if something else jumped up, if we added on to another credit that just Because we're so small, those things kind of move around fairly easy.
Okay. And then last one for me, John, you guys increased the dividend by 0.0 $0.01 or 2%. How much did the pending sale of the office assets and the dilution there influence increase? In other words, if you weren't going to have the dilution 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% -ish increase 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 building side.
Okay. Thank you, guys. Thank you, guys. Thank you.
Our next question comes from Wes Golladay from Baird. Please go ahead with your question.
Hey, good morning guys. Can you talk about if there's any other outpartial development opportunities in the portfolio? And is this particular one you're doing this Quarter related to the Old Time Pottery?
Yes, it is related to Old Time Pottery. And look, I'm Sure. There's other opportunities in the portfolio. That one really Because of kind of during COVID and when Old Time Pottery went into bankruptcy, we kind of went into became a little bit We're forward thinking on that particular asset and engaged brokers and that's the outcome. So given that Everything else in our portfolio is obviously paying now.
There's not any kind of redevelopment analysis we're doing right now. So, I'm 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's we're 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 outparcel development or is that redeveloping the existing asset?
No, it would be the entire site. So it's a large site in Hillsboro. Hillsboro is a very strong market, especially with Everyone leaving Portland coming into this market. You have Intel with a Fab 5 plan. You have Nike's headquarters.
So Not only from the residential side, from intensive multifamily side, but you're seeing data centers. I I mean, Hillsboro is one of the markets in the data center world that there's power supply right now. Other data center markets, power Why? It's very limited. So you're seeing all kinds of different uses of potential.
Got it. And we're trying to calibrate our models for next year. So I mean, can you help us in any way on the, I guess, expected cap rate For the office assets total, you may be under contract with 1, you can't disclose it, I get that. But if we were to blend the 2, how should we think about modeling the cap rate for
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 you have to think about is we were retaining the property a little longer and have a lot of cash flow coming from it. So that would basically be, I would say, in the 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 R. J. Milligan from Raymond James. Please go ahead with your question.
J. Milligan:] Hey, good morning, guys. So Cap rates ticked down a little bit in the quarter. Obviously, we've been hearing that there's just been compression across the sector. And John, I was just wondering if you could give us sort of an update as to what you're seeing in the market more broadly and then expectations for activity in the 4th quarter as we look into 2.
And then in the Q4, do you expect the normal rush that we've seen historically as sellers look to get transactions done before the end of the year?
Yes. So, I mean, definitely, there's a lot of capital pursuing these acquisitions. So, You can assume that that's being borne out 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 a 5.5% cap, We would never have been a buyer of that at a 5.5% cap. So we're also seeing the opportunity to sell Property like that.
But I would say that as we focus, we're pleasantly surprised that we're able to find Opportunities, good quality tenants, good quality locations without giving up too much on the cap rate side. So you're not I wouldn't say after this last quarter, I wouldn't say that the cap rates are going to move down from what we just blended 2. I think we're seeing something somewhat consistent. And I think really to your question of The amount of volume on acquisition side, I think if you're 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 company survey, environmental property condition reports. So I think you're going to see that a lot of things are going to move into the Q1 just as an industry observation.
And then, so already for the year, I think close to $160,000,000 of acquisitions, Which should put you over $200,000,000 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 I know you can't give guidance, but I'm just trying to think of what were the components in this year that may not that may prevent you from doing the same volumes in 'twenty two?
No, I think we're pretty bullish about next year. I think the pressure on the competition will We'll probably relax a bit after the New Year, and I'm pretty confident we'll 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 6.9, can you just talk about how you expect that to trend 4th quarter and as we get into 2022?
Yes. I mean, obviously, we've been pretty consistent Over the long run, we want to be closer to that 6 times net debt to EBITDA level from a leverage perspective. We ended at 6.9 as you noted, which we're comfortable at. The fixed charge coverage ratio, 7 times on a run rate, It's about 6 times. So, there's really no pressure from a cash flow perspective.
And as we've talked about, the leverage will move around as we lever up and raise capital and bring it back down.
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've
mentioned in the past, But John, I was wondering if you could just talk about, I think you've mentioned in the past seeing some opportunities in the acquisition markets taking some shorter lease duration I'm being comfortable with that. I'm just wondering if you're seeing any shifts with some of the inflation talk, if there's 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,
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 tenant kind of come up for renewal, we've been seeing this all across the real estate industry, as you guys No very well that you can't build these properties for the basis we've been buying them. And the tenants over the years have Basically, we've been able to get a fairly good deal on the rental rate 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, it's 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're not so there yes, there is a little bit more competition, but it's Like it's still not a good opportunity.
Okay, great. And then maybe sort of a similar vein, when you think about Inflation pressures and maybe some of the shortages that we've 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 is that structured to when you think about building in this type of environment?
Yes. So the structure is such 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's 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 Tapping 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 market 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 float. I think everybody would like to see that. We want to be opportunistic with the stock. We're very sensitive to making sure that we are a good steward of capital for our existing shareholders, while still trying to balance out bringing in new And increasing the demand for the stock.
So we try to strike a balance there. Obviously, we have the ATM, which helps us be pretty efficient in terms of accessing those equity capital markets on a match funding basis.
So I'd say that's how
we generally think about it, but we're going to try to be And try to balance both constituencies on the equity side.
Okay, great. Thanks guys.
Thank you.
Our next question comes from Craig Kuehrer from B. Riley Securities. Please go ahead with your question.
Yes, thanks. Good morning, guys. Want to talk about the next 6 months or so. Can you talk about the pipeline that you're evaluating and sort of where you're seeing the best risk adjusted returns from a category perspective?
That's a good question. I mean, I think we're seeing really It's really a good risk adjusted returns based on a little bit of that shorter duration, where we're picking out Very strong real estate locations. I would say that we've bought even an unfavored Category that we wouldn't mind that category, that tenant kind of not renewing the sort of situation. So I'd say it's a little bit harder to kind of just say one category we're seeing better return opportunities in risk adjusted returns. I think it's just really Seeing making sure you're getting good real estate and whether the shorter lease duration is really driving that But look, 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'd only be involved if it is really to get at 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 So non investment maybe become less important when the economy is strengthening and you're looking a little bit more at the core real estate and maybe happy if a tenant leaves after
We'll 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 How meaningful that might be from an investment or cash flow perspective to Pine once that property is constructed?
Hey, Craig, it's Matt. I mean, we've disclosed that it's about a 23,000 square foot building. And so 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're taking the development risk.
So It should be pretty accretive to overall earnings on a run rate basis once we get it built.
Okay. I appreciate it.
Thanks. Thank
you. And ladies and gentlemen, at this time, I'm showing no additional questions. I'd like to turn the floor back over to the management team for any closing remarks. We do thank you for joining. You may now disconnect your lines.