Q4 2023 Alpine Income Property Trust Inc Earnings Call
Participants
Matthew Partridge; Chief Financial Officer, Senior Vice President, Treasurer; Alpine Income Property Trust Inc
John Albright; President, Chief Executive Officer, Director; Alpine Income Property Trust Inc
Robert Stevenson; Analyst; Janney Montgomery Scott LLC
Wesley Golladay; Analyst; Robert W. Baird & Co., Inc.
Matthew Erdner; Analyst; Jones Trading
RJ Milligan; Analyst; Raymond James
Anthony Hau; Analyst; Truist Securities
Craig Kucera; Analyst; B. Riley Securities
Presentation
Operator
Good day and thank you for standing by, and welcome PRETTY Trust Fourth Quarter Earnings Conference Call. All participants are in a listen-only mode. After the speakers' presentation, there will be a question and answer session question. During the session you will need to press star one one on your telephone. You will then hear an automated message. Advising you your hand is raised your question, please press star one one. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Matt Partridge, Chief Financial. Please go.
Matthew Partridge
Good morning, everyone, and thank you for joining us today for the Alpine Income Property Trust Fourth Quarter and Full Year 2023 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 our non-GAAP financial measures we use on our website at Alpine ri.com. I'll now turn the call over to John for his prepared remarks.
John Albright
Thanks, Matt, and good morning, everyone. As we look back at our execution in 2023, we continued to emphasize the value focus, asset recycling program we implemented nearly two years ago. This program has allowed us to reposition our portfolio into higher quality credits that derisk our cash flows and provided the liquidity needed for our opportunistic share repurchases and strong yielding first mortgage investments. Within the fourth quarter, the majority of our investment activity was concentrated in the first mortgage investments in share repurchases, and we believe these investment opportunities provide attractive risk-adjusted returns compared to other opportunities available in the market.
During the quarter, we originated nearly $31 million of first mortgage loan investments and acquired two single tenant net lease properties for $3 million. The initial yield on our loan investments was 9.2%, and the cash cap rate of our property acquisitions was 7.3%, our largest investment with a low leverage $24 million first mortgage secured by 41 retail properties. In conjunction with a loan we entered into a fee sharing agreement with CTO Realty Growth, our external manager. This fee sharing agreement allows us to receive a share of the asset management disposition and leasing fees related to CTO.'s management.
The other loan investments we made during the quarter were the first mortgage to provide $6.8 million in funding towards the purchase and development of a five acre project anchored by Wal-Mart and McDonald's in a growing submarket of Nashville, Tennessee. While we intend for our loan investments to remain a relatively small component of our overall asset base and strategy. They do provide future purchase options for our acquisition pipeline and serve as a catalyst for our future partnership opportunities with the sponsors, and we believe they offer compelling risk-adjusted yields supported by strong tenant credits and well-capitalized sponsors.
On the acquisition front, we acquired two newly built properties leased to Dollar Tree Family Dollar as we saw fewer attractive core investment opportunities due to reluctant sellers.
And finally, as it relates to our common stock buybacks, we repurchased $9.5 million of our common stock at an average price of just over $16 per share during the fourth quarter. The implied cap rate of these repurchases was above 8%, which is significantly above the cap rates for comparable fee-simple property investments available in that market, especially considering 65% of our annualized base rent comes from tenants with an investment grade credit rating in our stock pays nearly a 6.9% dividend yield at $16 per share.
For the full year 2023, we acquired 14 net lease properties for a $3 million and a 7.4% cash cap rate in originated first mortgage investments totaling just under $39 million of funding commitments at the initial yield of 9.1% over 66% of the acquired base rents from the property acquisitions in 2023 come from Tenet with investment grade credit rating on the disposition side of things during the full year 2023 we sold 24 properties for $108 million at a weighted average exit cap rate of 6.3%, generating gains of $9.3 million. Overall for the year, our net investment spread, which is different between our investment yields and disposition yields, averaged 159 basis points. So even with limited access to the capital markets and the increase in interest rates over the past 18 months, we're still driving positive increases in cash flow through our asset recycling strategy.
From our portfolio makeup perspective, Matt, will outline more of the specifics with his prepared remarks. But given we are coming up on our five year anniversary later this year, I wanted to take a moment to highlight the progress we've made in transitioning our portfolio through our asset recycling strategy. Since inception of the Company, we've recycled nearly $600 million of capital as we've accretively sold off primarily office assets and properties occupied not by non credit tenants and reinvested the proceeds at positive net investment spreads. As a result, we've taken our office exposure from 43% to 0%. Increase. Our exposure to investment grade rated tenants from 36% to 65%, increased per-share quarterly dividend by more than 37%. And our top tenant list, which includes the likes of the industry leaders such as Walgreens, Lowe's, Dick's Sporting, good Dollar Tree, Family, dollar dollar, general Walmart, Best Buy Hobby Lobby in Home Depot now compared favorably to many of our peers that trade at significantly better valuations. From a valuation perspective, we're currently trading well above an implied 8% cap rate on our real estate portfolio. At a significant discount to our book value of $18.36 per share. Additionally, we have strong AFFO per share growth projected for 2024 in our low and that loan investments provide a natural deleveraging opportunity over the next 24 months. To put it bluntly, we're a great value today, and we look forward to maximizing that value for our shareholders.
Now I'll turn the call over to Matt to discuss our portfolio makeup, quarterly results, balance sheet and 2024 guidance section.
Matthew Partridge
As of the end of the year, our portfolio consisted of 138 properties totaling 3.8 million square feet with tenants operating in 23 sectors within 35 states. And as John mentioned 65% of our annualized base rent or ABR now comes from tenants are the parent of tenants who have an investment grade credit rating. The portfolio continues to be 99% occupied and our top tenants remain largely unchanged. However, we do anticipate occupancy increasing over the coming months as we have signed or in the process of signing multiple leases related to the vacant properties. Fourth quarter 2023 FFO was $0.37 per share, unchanged when compared to the fourth quarter of 2022. In Q4 2023, AFFO was $0.38 per share, representing a 7.3% decrease over the fourth quarter of 2022. Our quarterly results were most notably impacted by one-time expenses related to tenant credit loss and bankruptcy, primarily attributable to the seven Valero branded Mountain Express properties that we discussed during our third quarter conference call, as well as the timing of investments and dispositions. These items were partially offset by regular rent increases within the owned portfolio, attractive net investment spreads from asset recycling program, increased interest income from cash and restricted cash on balance sheet and lower interest expense driven by year-over-year effects of previously completed interest rate hedges.
Our general and administrative expenses for the quarter totaled $1.5 million which includes the $1.1 million management fee to our external manager. Our G&A increased 4.5% year over year, largely a result of higher state and local taxes and increases to the management fee driven by our net equity capital markets activities over the past 12 months. The current annual run rate for our management fee before any assumed new equity issuances or repurchases is $4.2 million.
For the full year, FFO was $1.47 per share and AFFO was $1.49 per share representing year over year per share decreases of 15% and 16% respectively, when compared to the full year of 2022. As previously announced, the Company paid a fourth quarter cash dividend of $27.5 per share, representing a current annualized yield of more than 7%. And our fourth quarter FFO and AFFO payout ratios remained fairly consistent at 74%, 72%, respectively. We anticipate announcing our regular quarterly cash common stock dividend for the first quarter of 2024 towards the end of February from an equity capital markets perspective, we continue to be active during the quarter on our Board approved a $15 million share repurchase program, repurchasing nearly 595,000 shares of our common stock for a total cost of $9.5 million at an average price of $16.1 per share. In 2023, we repurchased nearly 900,000 shares of our common stock for total costs for a total cost of $14.6 million at an average price of $16.23 per share and in January, we did complete the remainder of the $15 million share repurchase program. We ended the quarter with net debt to total enterprise value of 51%. Net debt to pro forma EBITDA of 7.7 times and our fixed charge coverage ratio was a healthy 3.5 times the balance sheet as well stabilized with no debt maturities until 2026 and total liquidity at quarter end through cash, restricted cash and undrawn revolver commitments was more than $187 million. And our press release last night. Initial guidance for 2024 reflects our confidence in the portfolio's quality. The year-over-year benefits from the asset recycling John referenced increased fee revenue from our fee sharing agreement with CTO. and what we believe is a reasonably cautious stance regarding our current access to capital expected activity in the transactions market and broader economic environment.
As we begin 2024 with portfolio-wide in-place annualized straight-line base rent and in-place annualized cash base rent of $38.8 million and a run rate annualized interest income from loan investments of $3.2 million. Our full year 2024 FFO guidance range is $1.51 to $1.56 per share, and our full year 2024 FFO guidance range is $1.53 to $1.58 per share for 2024. Guidance for investment activity is $50 million to $80 million of investments contingent on reasonable market conditions, and our investments guidance does include the potential for additional loan investments.
Our 2024 dispositions guidance is to sell between $50 million to $80 million properties. And we are currently assuming approximately 75 basis points to 100 basis points net investment spread between our investment yields and our disposition yields.
And finally, we are forecasting our weighted average share count for 2024 to be approximately 14.9 million shares. And this does incorporate the effects of the of completing the remaining portion of the $15 million share repurchase program I referenced earlier. We appreciate everyone joining the call today, and we'll now open it up for questions.
Operator?
Question and Answer Session
Operator
Thank you. And as a reminder, if you would like to ask a question, please press star one one on your telephone and wait for your name. To Be Your question, please press star one when again one moment.
Well, CROSSTALK, our first question is going to come from the line of Rob Stevenson with Janney Montgomery Scott. Your line is open.
Robert Stevenson
Good morning, guys. Matt, just to follow up on one of your latter comment is the $0.05 guidance range. Is that just acquisition and dispositions that slide between there? Is there something else notable that would push you down to the $1.51 or up to the $1.56 or conversely the AFFO range?
Matthew Partridge
Yes, morning, Rob. Part of it is the acquisition and disposition timing and then the other component that could move that around a little bit is whether or not we get loan repayments specifically for the $24 million loan where that is intended to be a liquidated portfolio. And so that could cause interest income to be reduced over the period of the year.
Robert Stevenson
Okay. And what is the latest in terms of the Mountain Express stuff is that going to wind up being some of the sales this year? Is that all going to be retenanted some of it? How are you guys looking at that at this point?
Matthew Partridge
Yes. So we're in active discussions with a number of operators. We've got two leases signed on two of the locations. We're working on three more, and then we're in preliminary discussions on the other two, we're still anticipating selling them just given our focus on publicly traded or publicly rated tenants. But Tom, we're in active discussions to have all of that at least in the near to medium term.
Robert Stevenson
Okay. And come when you take when you guys take a look at the portfolio, how much of it is likely disposition candidates at this point versus, you know, only if you found something that was an extremely compelling buy? I mean, are you pretty much done with the recycling of the majority of the assets unless somebody comes and it makes a very strong offers are still, you know, the bottom 25% of the portfolio's likely to be sold, you know, going forward, how are you guys thinking about where this portfolio is versus where you'd wanted if you started with a clean sheet of paper?
John Albright
Yes, I think it's a little bit of a barbell and we still have some really low cap rate property that we may decide to monetize and recycle into higher cap rates. And then o always continuing to upgrade the portfolio as a whole by selling off the bottom part of the portfolio like the Mountain Express. So we'll we'll work to basically continue to upgrade the portfolio even stronger. But so we have two levers there on the bottom and some of the super high quality.
Robert Stevenson
Okay. And then how are you guys thinking, you know, obviously grow given your size, adding even one new tenant or one new industry moves the needle for you guys still. But how are you guys thinking about tenant and industry concentrations going forward? And I'm, you know, is that I think a lot of people ask questions about Walgreens at 12% and dollar stores, which we just added a couple of them quarter at 14%. Do you keep acquiring Dollar Stores is that not, you know, can you would you take that up to 20% and Walgreens? Is that a disposition candidate at some point to lower that down below 12% exposure how are you guys thinking about? That's sort of constantly
John Albright
So good question. So we're definitely going to look to lower the Walgreens exposure over time. We're not in a mad rush, but also hunting for more Walmart's low is that not at home, but the Home Depots and upgrading the portfolio there and getting those credits higher up on the list. But it's just like it's difficult to find the right ones, but we'll continue to pursue them and in upgrading the portfolio that way.
Robert Stevenson
And then what about dollar stores? What's your appetite to continue taking that up?
John Albright
Yes, we're not going to I don't think you'll see us active on a dollar store acquisitions on Boca.
Robert Stevenson
And then just Doug, a couple of data ones. What were the two assets that you guys sold during the quarter?
Matthew Partridge
Yes, one was a convenience store branded as a BP and the other one was a two tenant property it was a bond guards which used to be as for our I'm sorry, is the bond ours, which is similar to a Tractor Supply. And then a I'm looking now at the BP. I'm drawing a blank on the other one are up, sorry, but it is de minimus piece of the of the overall puzzle.
Robert Stevenson
Okay. And then last one for me. Data-wise, it did the Board reauthorized a new share repurchase plan. And if so, what was the size?
John Albright
We would basically have that in our announcement if they had. So we'll monitor kind of what goes on there and the kind of reflect if things change.
Robert Stevenson
Okay. Thanks, guys. Appreciate the time. Have a good weekend.
Operator
Thanks, Robbie, to you in one moment, as we move on to our question.
Next question is going to come from the line of Westleigh Golladay with Baird, your line of.
Wesley Golladay
Yes, hey, good morning, guys. Just a question on the investment guidance, does that include the buybacks and at $15 a share? Would buybacks be the top priority for use capital?
Matthew Partridge
So good question West morning. It does not include any buyback activity that would be in addition to the investment guidance. And I mean at $15 a share, we're obviously well over 8%, 8% implied cap rate.
So I think that's certainly something that we'll have a discussion with the Board about in terms of potential new program beginning
Wesley Golladay
and then know that you talked about no signing some leases and just kind of curious, would you have in guidance for assume rent from the leasing of the property?
Matthew Partridge
We have the two that we've signed so far and that's it.
Wesley Golladay
Okay. I guess we'll get kind of for to build the model and to build dispositions at our model. I guess what are the total upside in rent? Obviously you're going to sell them, but we need to put it, get it in the model and then exit the monetizing assets. So how much, I guess from the current run rate, how much upside do you have into rent from releasing the asset?
Matthew Partridge
Yes. So the current run rate includes the two wheeler side, I would say for now assume nothing. And then obviously, as this does come to fruition. We'll report them right where we're call it two months away from from doing this again. And so we'll provide another update and update the numbers then.
Wesley Golladay
Okay. And then last one for me. What do you have for assume leverage throughout the year? And how does that impact your borrowing base based looking at the spreads?
Matthew Partridge
Yes. So we're assuming there's some slight delevering. We'll based on sort of the forecast and guidance, we should end the year closer to 7 times net debt to EBITDA, which should benefit the interest rate spread going into 2025.
Wesley Golladay
Okay. Thanks.
Operator
Thank you. And one moment as we move on to our next. Yes. Our next question is going to come from the line of Matthew Gardener with Jones Trading. Your line is open. Please go.
Matthew Erdner
Hey, guys, good morning and thanks for taking the question. So the loans look like they provide some pretty solid risk-adjusted returns. Are you seeing these more than acquisitions, dispositions at the moment? And if so, is there a certain amount of capital that you guys would be comfortable allocating to the strategy and I know that that you don't want to do this kind of off the bat. But yes, I guess what would you be comfortable getting up to for this two year period.
John Albright
I mean, I think you're seeing us on the top level of kind of where we want to be on the loans. So you what you'll see is really loans either paying down or selling off pieces of loan too, to do new loans. So I don't think you're going to see the portfolio of loans get any larger.
Matthew Erdner
Got you. Thank you. And then in terms of the transaction market, what do you think you need to see for it to kind of really get going again? Is that, you know, Fed rate cuts are kind of money coming off of the sidelines. You note, what are you guys thinking there?
John Albright
So I think you're starting to see are we're starting to see a little bit more activity now, I think people have been hanging on for a rate cut and the higher interest costs as debt rolling over is starting to bite a little bit more and so people are just kind of making harder decisions now about selling assets that there don't really want to sell, but it makes a lot of sense given given the high debt costs and so forth. So I'm pretty much a feel of the optimistic camp that as rates seem to and the further out as far as rate cuts, you're seeing more activity on that transaction market.
Matthew Erdner
Awesome. Thanks for taking the questions. Thank you.
Operator
Thank you. And one moment as we move on to our next question. Our next question is going to come from the line of R.J. Milligan with Raymond James. Your line is open. Please go ahead.
RJ Milligan
Good morning, guys. Most of my questions have been asked and answered. I'm just curious on John, on Walgreens, I think it's a split rated in terms of credit rating. Just can you talk about how you feel about that specific credit and maybe exposure to pharmacies in general, given what we've been seeing the industry.
John Albright
Yes. I mean, look, clearly, either their company and the headlines of the properties we have are very good locations. And obviously with new management at Walgreens and pay the dividend and selling off in some divisions, you know, they're going to become a healthier credit, obviously. And so the good news is our locations even if you found another tenant, there's a lot of tenant demand out there for locations. I was with the developer two days ago, who is a prolific developer of all kinds of various retailers and you can't build a box for less than $300, $30 these days. So so you're going to see tenants being very active in taking over other tenant spaces. So I think the backdrop is that, yes, there's a lot of tenant demand out there if you had some issues with particular boxes. So it's all about basis. And I think, you know, with our basis trading at $127 a square foot along the the whole portfolio, we got a lot of room there. So we're not we're not kind of having sleepless nights or Walgreens, but we will be, you know, pruning the exposure for sure.
RJ Milligan
Great. Thanks. That's it for me.
John Albright
Great. Thanks, RJ.
Operator
Thank you. And one moment as we move on to our next question.
Our next question comes from the line of Anthony Howe with Truist Securities. Your line is open. Please go.
Anthony Hau
Good morning, guys. And thanks for your question. So in 2023, you guys are doing all the right things, right, completing numerous initiatives to close the valuation gap for the market. Now rewarding for those actions like So what other levers can you pull to close that gap this year while reducing leverage? And how do you balance between leverage buying back stock and growing that equity float?
John Albright
Yes. I mean, look, if the stock continues to trade at these massive discount to NAV and high implied cap rates and high dividend yield, clearly, we'll look to buy more stock because we're going to be accreting NAV and really giving shareholders a strong total return of basically a synopsis. And so if you look at kind of where we're trading versus the comps, which you know it better than we do. You know what we're trying to kind of give a value proposition to shareholder to say why would you take a higher basis risk and lower implied cap rate when you could have the same exposure to IG at much higher cap rate, lower valuation, higher dividend yield. So the value proposition is there. We'll be trying our best to communicate it, but the market has not taken it and then we'll look to buy back more shares and sell down assets to keep the leverage neutral. So it's pretty easy. It's not are not rocket science. We've been through this many times, and I feel like we have good opportunities out there. And so on so we'll DiskOnKey and working through.
Anthony Hau
It sounds like that's like attached to it, right? Because I think one of the main reasons why investors are not wanting those actions because the liquidity of the stock is free is pretty limited, right, compared to your other triple net. So how do you balance between like buying back stock and like keeping that liquidity for investors?
John Albright
Yes. I mean, we can't we can't really, you know, we can't basically give investors everything. I mean, investors obviously want everything. But look, we're able to buy what almost 1 million shares with our buyback. And as you know, the buyback programs are very problematic. And then we have we can't we can't basically buy back at certain times of days. We can't buy back with certain percentage of volume in the shares are trading and we certainly are price sensitive. So even with all those parameters, we're able to buy a million shares relatively easy. So investors can buy the share. They just basically just they would probably have a hard fast rule that, hey, if we are trading below a certain amount of shares per day. We can't touch you kind of thing. So but you can buy the shares. And I think we've demonstrated that. So it for more of the value investors seem to seem to kind of latch on which show you a more long term holding sort of investors seem to understand the value proposition.
RJ Milligan
Thank you.
John Albright
Thank you.
Operator
Thank you. And one moment as we move on to our next Quest.
And our next question comes from the line of John Massocca, B. Riley. Your line is open, please.
Craig Kucera
Good morning. Morning, Dan. So quick question on the disposition guidance. I mean, should we assume that some repayment of some of these mortgage investments is in that guidance today? And maybe just kind of roughly what are you kind of expecting to get repaid from this year?
Matthew Partridge
Yes, good question, John morning. There's a limited amount of repayment related to the $24 million loan that we originated in the fourth quarter, starting really in the third quarter, but we're talking call it 10% over the balance of the back half of 2024. So not a meaningful amount. We think that will probably ramp up when we get into 2025 and hopefully into a different interest-rate environment in a more efficient transaction environment.
Craig Kucera
That's and I can tell you what are some of the variables out in the external world that could change that and the view or can cause that to be different than guidance? I mean, essentially as we think about kind of an uncertain rate world, does that impact that or is it all just based on execution in terms of selling down the assets in that collateral pool?
Matthew Partridge
Yes, I think it's both. I mean for that specific collateral pool, I think it's a more active transaction environment with pricing that the borrower deems to be appropriate. But then on the other two loans. Those are the reserve development loans where once the tenant gets open and operating, I think it's either a refinancing opportunity from the borrower. So obviously, the interest rate environment would have an influence on that, or it's again, a more efficient transaction market where they feel like they can sell it at the appropriate price.
Craig Kucera
And then maybe bigger picture on on kind of guidance that the investments and dispositions at the midpoint, obviously kind of balance each other out. Is there any expectation in your mind of the difference in timing between deploying capital and kind of your capital recycling over the course of the year?
Matthew Partridge
I mean, certainly there will be we're assuming that all sort of balances itself out over the years. Sometimes we sell ahead of buying and sometimes we buy ahead of selling. But guidance assumes it's a relatively balanced approach.
Craig Kucera
Again, the balance sheet, no debt and the revolvers a little bit over the amount you have swapped, but it kind of seems like it matches the the amount and the loan pool, or is it kind of fair to assume that's free floating at least over the intermediate term?
Matthew Partridge
Yes, I think you're going to assume that that's going to flow and that as these loans get repaid will allow, we'll evaluate what the redeployment options are in the market and that evaluation will include potentially paying down that floating rate guess.
Craig Kucera
That's it for me. Thank you very much, Sasha.
Operator
Thank you.
This concludes today's question and answer session. This also concludes today's conference call. Thank you for participating. You may now disconnect.
