Good day, and welcome to the Alpine Income Property Trust Quarter One 2020 Earnings Conference Call. All participants will be in a listen-only mode. After today's presentation, there will be an opportunity to ask questions. Please note this event is being recorded. I would now like to turn the conference over to Mr. John Albright, President and CEO. Please go ahead.

Thank you, operator. Good morning, and welcome to today's conference call to review the operating results of Alpine Income Property Trust for the quarter ended March 31, 2020. My name is John Albright, President & CEO of the company. On the call with me is Mark Patten, our CFO; and Dan Smith, our General Counsel and Corporate Secretary. Mark and I will review the details of our first quarter financial results in a moment. First, I'll turn it over to Mark to provide you with the customary disclosures regarding our comments on this call today and a few points regarding the format of our call.

Thanks, John. Good morning, everyone. During the call today, we'll make certain statements that may be considered to be 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. We may not release provisions to these forward-looking statements to reflect changes after the statements were made. 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 filings with the SEC in our earnings release issued last night. Let me note that we filed our Q1 2020 investor presentation last night, which is now available on our website. Our investor presentation provides additional information you may find useful and that we may reference during this call. With that, I'll turn it back over to John.

Thanks, Mark. Needless to say, the last two months have been an extraordinary time in our country's history and certainly in the short history of our company. Prior to the onset of the COVID-19 pandemic, our acquisition activities were ahead of our expectations, as we purchased nine single-tenant net leased retail properties, deploying approximately $47 million, weighted average going in cap rate at 7.1%. The weighted average lease term of these nine properties was 11.5 years. At the end of the quarter, our portfolio consists of 29 properties with over 1 million square feet of rentable space located in 13 states, with approximately 68% of our annualized base rent located in the top 10 ULI, top 25 markets. While the additions to our portfolio in the quarter were retail properties, we are certainly pleased to have our two largest properties, representing 34% of our portfolio, leased to office tenants, given the impact the governmental response to the COVID-19 pandemic has had on the retail tenants. In terms of our future acquisition activities, at the onset of the COVID-19 pandemic, we felt it was prudent to take a more defensive posture until the uncertainties created by the pandemic were reduced. As a result, we terminated approximately $35 million in pending acquisitions and withdrew our guidance for 2020. We're hopeful that the disruptions to the economy and our tenants' businesses will soon subside. I'll provide some additional perspective on actions we have taken in response to the COVID-19 outbreak. But first, I'll turn it over to Mark to highlight a few elements of our first quarter operating results and summarize our balance sheet activities.

Thanks, John. As John mentioned, we had a productive first quarter in terms of our acquisition activity. The onset of the COVID-19 pandemic in the back half of the quarter impacted our operating results for the quarter, which I'll mention in a moment. As our release noted, our total revenue for the quarter was approximately $4.2 million, our FFO was approximately $2 million or approximately $0.22 per share, and our AFFO was approximately $1.8 million or approximately $0.20 per share. Our operating results were impacted by our expensing of approximately $83,000 of fuel costs, which were the result of the termination of the $75 million worth of acquisitions that John mentioned. We also had higher than expected G&A costs due to the recognition of approximately $288,000 of costs associated with the audit services related to our 2019 annual audit. Given the short stub period in 2019 subsequent to our IPO, the majority of that audit work for that year occurred in the first quarter, so the expense was a bit larger than we expected. While we expect going forward, this expense will be recognized more rapidly over the course of an annual period, this particular circumstance we think is unique to our coming up from our IPO. Lastly, our interest expense was higher by about $19,000, which stems from our draw of $20 million in a credit facility in mid-March, which was in connection with our more defensive posture that John mentioned, enabling us to further solidify our liquidity due to the uncertainty surrounding the COVID-19 pandemic. In terms of our liquidity position, in addition to the $20 million that we drew towards the end of the quarter, our borrowing capacity on the credit facility stands at approximately $30 million, providing us currently with approximately $50 million of liquidity. Regarding the credit facility, also note that just after the quarter close, we executed an interest rate swap on $50 million of our credit facility balance, fixing the rate at 48 basis points over five years, which puts us basically at a 1.83% to 2.43% range on the rate of half of our credit facility. The rate swap goes into effect at the end of this month. We're very pleased with the execution on this swap. Lastly, I wanted to review the current status for our portfolio in terms of collections of April 2020 rent and our efforts in working with tenants as they contend with the impact of the COVID-19 pandemic and the government-mandated shutdown of the economy. As of Friday last week, we've collected 62% of our April 2020 rent. Of the remaining 38%, we reached an agreement with tenants on 13% of that total, generally allowing for rent deferral, typically of monthly rent in the second quarter of 2020, with repayment of the deferred amounts rateably in the latter part of 2020. For the remaining 25% of that 38%, we’re in active negotiations with tenants or otherwise holding firm and hope to have those agreements ironed out during the coming weeks. I’ll also mention that 24 of our 29 properties remained open, either fully open or opened under modified or limited operations since the onset of the pandemic. Those 24 properties represent approximately 78% of our AVR.

Thanks, Mark. In closing of our prepared remarks, I'd like to summarize some of the actions we have taken in response to the outbreak, a few that we've mentioned already. As Mark mentioned, we have approximately $15 million of liquidity, including the $20 million drawn on our credit facility in the remaining available capacity. This puts us in a strong position and supports our defensive posture during this period of uncertainty in the market. Our stock was not spared from the severe dislocation in the equity markets, given a significant discount of our stock price. In our view, the company's NAV, our board approved a $5 million stock buyback in March, and through April 24th, we have utilized nearly $4 million of the program to acquire approximately 350,500 shares at an average price of $10.77. In closing, I'd like to express our sincere hope that our shareholders, friends, and colleagues are all well and remain so during this challenging time in our nation’s history. We remain optimistic that the impact of the COVID-19 pandemic will soon dissipate and the strength of the U.S. economy will return for the benefit of our candidates and our shareholders. That concludes our prepared remarks. At this time, operator, I'd like to open up for questions.

Thank you. We will now begin the question-and-answer session. Our first question today will come from Barry Oxford with D.A. Davidson. Please go ahead.

Great. Thanks, guys. When you look at the 25% of the tenants that you're kind of in negotiation with, do all of them need some sort of rent deferral, or are some of those just form letters that have come that you probably won't give any deferment?

Yes, thanks, Barry. Definitely everyone can pay the rent. It's more of a form of negotiation and we're taking the approach that we will agree to something only if we get something out of it. So, we're economic animals as anyone else. And so if we can make our position better, then that's terrific, but if tenants are just strictly looking for rent deferral without anything then we're fine with going the default route.

Right. So it's something along the lines of a blend and extend type of thing?

I mean, there are all kinds of different scenarios. Obviously, the lease extension would be something high up on our list. If they want a deferment and pay a penalty rate, kind of an interest rate, we'll look at that. So, it's kind of all across the board.

Right, right. Switching gears to the acquisitions that you had in the pipeline, did you withdraw from that pipeline because you felt that pricing had moved in and was not favorable to push forward, or was this more to rein in the horns and hoard cash at this particular moment?

A little bit of both. I mean, clearly, we put something under contract before the pandemic and lockdowns. Clearly, there needs to be a reprice adjustment. We didn't even go that route as far as talking about repricing. We just said, who knows how far this economic collapse will go? So, just a lot of more conservative nature, let's kill off the pipeline, hold back. We knew that tenants were going to have issues, and so we didn't know how broad that would be or how deep, so we took a more conservative posture and didn't want to buy assets just to buy assets when there may be better opportunities down the road.

Right. No, that absolutely makes sense. Then in light of that last question is, when I'm looking at the dividend and I guess throughout 2020, as long as we're kind of in this environment forever, how long is it safe to say to hold our dividend flat here, until we can get back into acquisition mode? Is that a fair way to look at your dividend?

Yes, I mean, look, we'll wait and see kind of how we end up with the tenants that we're negotiating with and see how May is and reassess. But, clearly, the company has the capital, and it's just a matter of how the cash flows look. The board will basically determine that after seeing another call of 30 days of activity here and see where we are and see where the world is.

Makes sense. Thanks a lot, guys. Appreciate it.

Thanks, Barry.

Our next question will come from Calvin Sullivan with Raymond James. Please go ahead.

Hey, good morning. Thank you. First question for me is just on the durability of office rents moving forward. Specifically, Hilton Grand Vacations has announced some cost-saving measures. Can you discuss if they have sought some form of rent relief and just your outlook on the office component of your portfolio going forward?

Sure, obviously, they paid April. But, it wouldn’t be outlandish to assume that everyone's looking for something. Their market cap and liquidity are certainly sufficient. These office assets we have with them are critical assets or mission critical. We may negotiate with them, but it's only if we can enhance our position. So, that's kind of where we are with Hilton.

Okay. So, I guess, maybe moving past just the Hilton Grand Vacations part of the portfolio, can you elaborate on the extent of discussions with tenants that paid April rent but are looking at deferring future rent or looking at other accommodations moving forward? Is there a bucket or a percentage, John, that you would think about regarding the 60% plus that actually paid April?

Yeah. Outside of Hilton, which is obviously a larger tenant with us, there's very little of those types of tenants that paid April. I want to just have a discussion.

Okay. That's helpful. So, moving back to the dividend and recognizing there's a lot of uncertainty in the current environment. I guess, more directly, would you and the board look at potentially leveraging up modestly to continue to maintain the dividend at the current run rate, or if the operating cash flows aren't there, would you look to reset the dividend to align with operating cash flows?

The board will consider various alternatives. Even when discussing leveraging, the cash flows from some of our tenants, like Wells Fargo, are not significant. Even if several tenants didn’t pay, the impact on our dividend is minimal. However, we want to be cautious and ensure that cash flow aligns with the dividend. This will be a topic for discussion at the board meeting in May to make a decision. I believe that maintaining the dividend for our company may not involve a large amount.

Okay. So, it sounds like based on those comments, there's a willingness that even if the payout ratio for a quarter or two exceeds 100%, there might be some willingness just to establish that track record to continue to maintain the dividend. But again, obviously, the situation is evolving. Is that a fair takeaway?

Yes, that's fair to say if the skies are clearing and things are getting better and we just have this moment in time, I don't think we're going to do something drastic just to meet a couple of months' problem.

Okay. That's helpful. And then going, just kind of sticking with capital allocation, you have a $5 million buyback in place. Just maybe talk about the willingness or capacity to move beyond the $5 million buyback moving forward?

Yes, I think really when it was a little bit more of a moment in time, or we hope it's a moment in time where the stock was at a ridiculous price, and clearly the best capital allocation is buying back the stock at these implied cap rates and discount NAV. So, I wouldn't say that that's going to be programmatic going forward unless for some reason things revert back.

Okay. And one more for me and I'll turn it over, but just Mark, as far as all the borrowing-based commentary in the press release, is there a way to think about what that borrowing base would be reduced down to if the remaining 25% of tenants that there is no deferral agreement with and they don’t pay their April rent? How would that borrowing base look like?

I mean, there's a way to think about it. I think that's probably since that's the most extreme. My first reaction to it would be that we've got nine assets that we've acquired that are yet to be put onto the borrowing base, so I could offer that 25% if you take the extreme. Although I do think the extreme is not the measured way to look at it, first things first is other assets that would replace them. If we resume acquisition activity in earnest, I think that's another way to buffer that. But I think the other thing we tried to point out, using your scenario, if they went six days past due, do they come off? So, you try real hard not to have that occur, and you've got a couple of different levers to do it. Again, for me, if all 25% were, for some reason, to fall off, the first thing we've been looking to do is backfill it with the acquired assets.

Got it. So it sounds like you feel that even in a severe scenario where the borrowing base would remain around that $80 million number, $80 to $90 million number, where you may not get the full capacity, you don't necessarily see, given the moving pieces of data from the recently acquired assets, a dramatic reduction in the borrowing base relative to what it was at quarter end. Is that a fair takeaway from this?

Yeah. That's right. Yeah.

Okay. I'll turn it over and jump back in queue. Thanks, guys.

Thanks, Calvin.

Our next question will come from RJ Milligan with Baird. Please go ahead.

Hey, good morning, guys. In the press release, you mentioned that depending on the duration and magnitude of the current shutdown and what's likely to be the ensuing recession, that there's still a possibility to hit acquisition guidance for the year, which has since been withdrawn but was previously over $100 million. I'm curious about your thoughts on this. Obviously, you have the liquidity right now, but how do you judge the idea of preserving that liquidity versus continuing to look out and acquire assets?

Thanks. Obviously, as you mentioned, we have plenty of capacity and liquidity. So we don’t – given that it feels like things are opening up a bit, we're certainly looking at acquisitions and pursuing opportunities, really trying to find where we can really get some phenomenal properties or locations that would really look great with our portfolio or fit well with our portfolio. We have no problem being in the market right now. We are looking at opportunities, but we're going to be patient because we think there will be some dislocation, there will be some buyers; the private rates will probably adjust around the market. The 1031 market is kind of getting taken care of as far as what's out there with 1031 buyers. Once those buyers have satisfied their 1031 needs, the buyer pool will evaporate. We think the cap rates will be interesting for high-quality properties.

Okay. That’s helpful. And then, earlier this year, the bulk if not all of the external growth pipeline, the deals you were looking at were retail assets. Now that we've gone through two months of this, and given that office and industrial exposure seem to be paying more in rent, I’m curious if you’re considering looking at some more office, since it seems to be viewed as a little bit more defensive here in the current environment. Do you think there will be opportunities in that area?

For sure, there's going to be opportunity on the office side, and regarding your earlier question, definitely we would consider office, because that has held up very well and is a strong component of our portfolio. Hopefully, investors will see that as a big plus for our company. So we’ll definitely keep an eye out for those special situations where office meets all the criteria: great location, great tenant, long-term lease. But we’re still looking at some of the retail. I would say that the retail that we're looking at are tenants who have remained open during this whole time period, so you have the survivors in the necessary retail world and so forth. That’s kind of where our outlook is right now.

And my final question is, are there any categories within your portfolio today that you're concerned about long-term health of that specific category, not necessarily retail?

Yeah, I mean, look, I think some of the tenants that we have in casual dining and theaters, you won't see us acquiring more of that. I think that those sectors will have their challenges. Luckily, with the locations and the basis of the properties we have, we're going to be fine, but we're not looking to get into a sector that may have more challenges in the future, so you can see us moving away from those sectors.

Great. Thanks, guys.

Thanks, RJ.

This will conclude today's question-and-answer session, as well as today's conference. Thank you for attending today's presentation. You may now disconnect.