Alpine Income Property Trust, Inc. (PINE) Earnings Call Transcript & Summary

Thanks, operator. Hello everyone, and thanks for joining the call today as we go over Alpine Income Property Trust's operating results for the quarter that closed on March 31, 2020. I'm John Albright, and I serve as the company's President & CEO. Joining me here are Mark Patten, who is our CFO, and Dan Smith, our General Counsel and Corporate Secretary. In just a bit, Mark and I will walk through what our first quarter financial results look like. To get us started, I'll hand things over to Mark so he can give you the usual disclosures about what we'll be saying today, along with a few notes on how the call will be structured.

Appreciate it, John. Morning to all of you. On today's call, we're going to deliver some remarks that federal securities law might treat as forward-looking statements. What the company actually achieves down the road could vary substantially from what gets covered in those forward-looking statements, and we might not put out provisions updating those forward-looking statements so they capture anything that shifts once they've been spoken. The factors and risks capable of making actual results diverge materially from what we expect get disclosed periodically, in richer detail, within the company's SEC filings and in the earnings release we put out yesterday evening. Let me point out that our Q1 2020 investor presentation was filed yesterday evening and can now be found on our website. That investor presentation carries extra information you might find helpful and which we might refer to over the course of this call. With that said, I'll hand things back to John.

Thank you, Mark. It goes without saying that the past 2 months represent an exceptional period in this nation's history, and definitely within the brief timeline of our organization. Before COVID-19 became a pandemic, our efforts on the acquisition front had surpassed what we had projected, since we acquired 9 single-tenant net leased retail properties, investing roughly $47 million, with a weighted average going in cap rate of 7.1%. Those 9 properties carried a weighted average lease term of 11.5 years. As the quarter closed, our holdings total 29 properties encompassing more than 1 million square feet of rentable space across 13 states, and unavoidably about 68% of our annualized base rent sits within the top 10 ULI, top 25 markets. Although what we added to our portfolio during the quarter were retail properties, consistent with the focus we have described, we are definitely glad that our 2 biggest properties, which make up 34% of our portfolio, are leased to office tenants, considering how the governmental reaction to the COVID-19 pandemic has affected retail tenants. Regarding what we will acquire going forward, when the COVID-19 pandemic began, we determined it was wise to adopt a more defensive stance until the uncertainties brought about by the pandemic could be lessened; consequently, we canceled pending acquisitions worth about $35 million. We also pulled our guidance for 2020. We hold hope that the turmoil affecting the economy, and particularly our tenants' businesses, will fade before long. I will offer further insight into the steps we have taken in reaction to the COVID-19 outbreak. However, let me first pass things to Mark so he can point out several aspects of our first quarter operating results and give an overview of our balance sheet activities.

Thank you, John. As John pointed out, we enjoyed a strong first quarter when it came to acquisition activity. The arrival of the COVID-19 pandemic during the latter part of the quarter affected how we performed in that period, and I'll get into that shortly. As our release stated, total revenue came in at roughly $4.2 million for the quarter, FFO was about $2 million, or around $0.22 per share, and AFFO was roughly $1.8 million, or about $0.20 per share. Our operating results took a hit from expensing roughly $83,000 in fuel costs, which came about because of the termination of the $75 million worth of acquisitions that John brought up. We also saw G&A costs come in above what we had anticipated, driven by recognition of about $288,000 tied to the audit services for our 2019 annual audit. Because of the brief stub period in 2019 following our IPO, most of that year's audit work took place during the first quarter, so the expense ran a bit higher than we had projected. While we anticipate that going forward, this expense will be recognized more quickly across an annual period, this particular situation we believe is unique to us coming out of our IPO. Finally, interest expense ran higher by roughly $19,000, which comes from our $20 million draw on a credit facility in mid-March. That draw related to the more defensive stance John referenced, and it allowed us to further shore up our liquidity given the uncertainty around the COVID-19 pandemic. Turning to our liquidity position, on top of the $20 million we drew near the end of the quarter, our borrowing capacity under the credit facility sits at about $30 million, giving us roughly $50 million dollars of liquidity at present. On the credit facility, please also note that right after the quarter closed, we put an interest rate swap in place on $50 million of our credit facility balance, locking the rate at 48 bps across five years, which essentially places us in a 1.83% to 2.43% range on our rate for half of our credit facility. The rate swap takes effect at the end of this month. We're quite happy with how this swap was executed. Finally, I'd like to walk through where our portfolio currently stands regarding collections of April 2020 rent and our work with tenants as they grapple with the effects of the COVID-19 pandemic and the government-mandated essentially shutdown of the economy. As of Friday last week, we've collected 62% of our April 2020 rent. When it comes to the other 38%, we've come to terms with tenants regarding 13% of that amount, mostly permitting them to postpone rent payments — usually the monthly rent for Q2 of 2020 — with those postponed sums to be paid back proportionally later in 2020. As for the other 25% out of that 38%, negotiations with tenants are ongoing, or we're taking other steps, standing our ground, and we expect to finalize those deals in the next few weeks. I should also note that out of our 29 properties, 24 have stayed open — whether completely open or operating in a modified or limited fashion ever since the pandemic began; those 24 properties account for roughly 78% of our AVR. At this point, I'll hand things back to John.

Thank you, Mark. To wrap up the comments we had prepared, I want to recap several steps we've taken in reaction to the outbreak — a number of which we've already referenced. As Mark noted, we hold roughly $15 million in liquidity, which includes the $20 million drawn on our credit facility plus the remaining available capacity. That leaves us well positioned and reinforces the defensive stance we've adopted amid this stretch of market uncertainty. Our stock did not escape the sharp dislocation seen across equity markets, as our share price was handed a substantial discount relative to our assessment of the company's NAV. Because of that, in March our Board signed off on a $5 million stock buyback, and as of April 24th we have used close to $4 million of that program to buy about 350,500 shares at an average price of $10.77. To finish, I'd like to voice our heartfelt wish that our shareholders, friends and colleagues are all doing well and stay that way through this difficult moment in our nation's history. We continue to believe the effects of the COVID-19 pandemic will fade before long and that the strength of the U.S. economy will come back for the good of our candidates and our shareholders. That brings our prepared remarks to a close. Operator, at this point I'd like to begin taking questions.

Great, thanks, guys. Looking at that 25% of tenants you're sort of in talks with, is a rent deferral needed by every one of them, or are some of those — for want of a better phrase — just form letters that have arrived and you probably won't grant any deferment for?

Yes, thanks, Barry.

Yes

Everyone is certainly able to cover the rent. What we're dealing with is really a kind of bargaining process, and our stance is that nothing gets our agreement unless there's something in it for us. So we're economic animals just like anybody else. And so when there's a way for us to improve our position, then that's, that's great, but if tenants simply want rent pushed off with nothing else offered, then taking the default path is perfectly acceptable to us.

Okay, so is that essentially a combination of extending and merging together?

I'd say there are many possible variations. Clearly, getting the lease extended ranks pretty high among our priorities. Should they prefer a postponed rate while paying an extra charge, something like an interest rate, we're open to exploring that. So really, it spans every option.

Got it, got it. Moving over to those deals you'd been lining up, was the reason you pulled back that the pricing had shifted and no longer made sense to proceed, or was it more about deciding to pull back and sit on cash right now?

A bit of each, honestly. Obviously, if you sign a deal prior to the pandemic and the lockdowns, an adjustment to the price is clearly needed; we never even went down the path of discussing a reprice. We simply asked ourselves, who really knows how far this economic collapse will run? So it was largely a matter of taking the more cautious approach — let's terminate the pipeline, pause, we understood tenants would run into trouble, and we had no idea how wide or how severe that would get, so that's been a more conservative stance, plus not wanting to acquire properties merely for the sake of acquiring them when improved chances may show up later on.

Right. No, that definitely makes sense. So, given that previous question, when I look at the dividend and, I suppose, the < > for all of 2020 — provided we're sort of stuck in this situation indefinitely — how long would it be reasonable to say, hey, let's just keep our dividend unchanged right here, until we can sort of return to acquisition mode? Is that a reasonable way to think about your dividend?

Yeah, I mean, look, we're going to hold off and see sort of how things turn out with the opportunity we're currently in talks over, and see how May goes and then reassess; but, obviously, the company does have the capital. And it's simply a question of what the cash flows end up looking like. So the board will essentially make that call after observing another stretch of 30 days of activity here, and see where we stand and see where the world stands.

Does that track? Many thanks, everyone. I appreciate it.

Thank you, Barry.

Hi there, and good morning. Thanks for taking the call. My first question concerns how long office rents can hold up going forward. More specifically, Hilton Grand Vacations has come out with certain cost-cutting steps. So could you talk about whether they've considered any kind of relief on rent, and also share your view on the office portion of your portfolio looking ahead?

Of course. They did make their April payment, clearly. Still, it wouldn't be far-fetched to think that everybody is seeking something. As you're surely able to see, their market cap along with their liquidity is definitely adequate. And the office properties we hold with them, where they are the lessee, are critical assets for us, or mission critical. So, once again, this is somewhat of an embedded question — we might enter negotiations with them, yet only if doing so lets us strengthen our position. So that's roughly where things stand with Hilton.

All right. So perhaps beyond only the Hilton Grand Vacations portion of what we own, could you expand a bit on how far talks have gone with renters who came through with April payment, yet who are now considering pushing off later rent or seeking alternative arrangements going forward? In other words, John, is there some category or share that you'd frame as, look, you received that April rent check, but based on how long this lasts, you'd treat it as a piece carrying risk within that roughly 60% and above that did in fact pay for April?

Yes. Apart from Hilton, clearly a bigger tenant for us, there are hardly any such renters who actually paid April. I'd like to just talk it through.