Good morning, and welcome to the Alpine Income Property Trust Second Quarter 2020 Conference Call. All participants will be in a listen-only mode. [Operator Instructions]. Please note this event is being recorded. I would now like to turn the conference over to 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 June 30, 2020. My name is John Albright, President and CEO of the company. On the call with me is, Mark Patten, our Chief Financial Officer and Dan Smith, our General Counsel and Corporate Secretary. Mark and I will review the details of our second quarter and six months 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 our call today, we may make certain statements that may be considered to be forward-looking statements under Federal Securities Law. Company's actual future results may differ significantly from the matters discussed in these forward looking statements. And 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 Q2 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 With that, I'll turn it back over to John.

Thanks Mark. Much like all of our rate peers, the latter part of Q1 2020 and much of Q2 were spent focused on working with our tenants to navigate the impact of COVID-19 pandemic. While we certainly believe, we've addressed these issues that we needed to as evidenced by our collection of 89% of July rent and the resolution of all, but one tenant issue. We recognize that the uncertainty surrounding the recent developments associated with the pandemic and the potential for future dislocation still remains. As we discussed in our first quarter call, our acquisition activity during the quarter was ahead of our expectations, but we suspended those efforts at the onset of the COVID-19 pandemic. We're pleased to have been able to restart our investment activities in the latter part of the second quarter with a focus towards credit and quality. We completed the purchase of two single-tenant retail properties in June, one property that is leased to Walmart outside of Lansing, Michigan, which we acquired for approximately $20.6 million and that has 6.6 years remaining on the lease. And the other property which is leased to Hobby Lobby in Asheville, North Carolina, which were acquired for approximately $8 million and has 11.2 years remaining on the lease. We completed these two acquisitions at a weighted average going and cap rate of 6.7%. As of the end of the quarter, our portfolio consists of 31 properties with over 1.3 million square feet of rentable space, located in 14 states and notably, approximately, 61% of our annualized base rent is located in 10 of the ULI top 25 markets. In addition, our portfolio is now 70% retail and 30% office, which is comprised of one office property leased to Wells Fargo and two properties leased to Hilton Grand Vacations. Our three office properties remained steady performers during these challenging times. But we've certainly please to add another Hobby Lobby to our portfolio and our first Walmart. We're hopeful that the economy and our tenants business will continue to improve and the dislocation caused by the COVID pandemic will soon be in our rearview mirror. I'll provide some additional perspective on the results and activities in a moment. But first, I'll turn it over to Mark to highlight a few elements of our second quarter operating results and some of our balance sheet activities.

Thanks, John. As John mentioned, we've finished the quarter with two terrific acquisitions and our collection experience continued on a significant upward swing with very strong collections in June and particularly in July. As our release noted, we achieved total revenue of approximately $4.6 million for the quarter, an increase of 10% from Q1 and bringing our year-to-date total revenue to approximately $8.8 million. And our FFO was approximately $2.6 million for the quarter, or approximately $0.29 per share, which is an increase of more than $500,000 for Q1 or 26%, and a per share increase of nearly 32%. Our AFFO was approximately 1.4 million, or approximately $0.16 per share, which is a decrease from Q1 of approximately $439,000. Our AFFO was adversely impacted by approximately $625,000 of deferred rent, relating to arrangements with tenants stemming from the resolution of the COVID-19 impact. We expect that as we receive the deferred rent payments, this impact will be alleviated entirely. Our G&A also trended favorably compared to the first quarter, decreasing by approximately $152,000, or nearly 12%, which is primarily due to a $211,000 decrease in audit tax fees, as the first quarter included the recognition of approximately $288,000 related to the 2019 annual audit. Lastly, our interest expense was higher by about $94,000 over the first quarter expense, totaling $343,000 for the second quarter, which reflects the higher outstanding balance on our credit facility, which is attributable to our borrowings late in the first quarter, relating to the COVID-19 pandemic, and also the draws we made late in the second quarter to fund the acquisition of the properties leased to Walmart, and Hobby Lobby that John noted earlier. In terms of our liquidity position, our borrowing capacity on the credit facility stands at approximately $30 million. Regarding the credit facility, I'll also note that we are working with our lending group to potentially access some portion of the $50 million accordion feature to help facilitate our continued acquisition efforts. Lastly, I wanted to review the current status of our portfolio in terms of collections for the three months in the second quarter and the month of July. Steven and his team have done an incredible job working with our tenants, as they have dealt with the impact of the COVID-19 pandemic, which for some remains ongoing. As of Friday last week, our collections in July stood at 89%, with just 2% of our rent unresolved, which relates to the property lease to Old Time Pottery in Jacksonville, Florida. We expect July collections to increase to approximately 94% for the end of the month, as we wrap up agreements with LA Fitness. Our June collection stood at 83%, which was up from 74% and 75% in May and April, respectively. I’ll also mentioned that 28 of our 31 properties are open, either fully open or open under modified or limited operations. Those 28 properties represent approximately 90% of our AVR. Now, I'll turn it back over to John.

Thanks, Mark. In closing our prepared remarks, I'd like to summarize some of the highlights of the quarter. We were not only pleased to restart our acquisition activity late in the quarter, that we're particularly pleased with the quality of the acquisition of a Walmart property and another Hobby Lobby property. We also note that we reintroduce guidance for the full year 2020, including our expected full year, FFO and AFFO estimates, which reflect our expectations of the impact of the COVID-19 pandemic, assuming no major setbacks in the near term. We also indicated that we hope to achieve total acquisitions of approximately $105 million, which we hope is attainable given that we've completed nearly $76 million in acquisitions through the end of the second quarter. We also completed $5 million of the buyback program in the second quarter. As we said previously, we felt this was an appropriate allocation of capital given the severe dislocation in the equity markets brought on by the COVID-19 pandemic, which resulted in our stock trading and notable discount to our view as a company's NAV. I would like to thank Mark as this is his last earnings call with us and wish him well in his new endeavors with Essential Properties. We have already started a search for a new CFO and have had discussions with several candidates. We hope to identify a candidate in the third quarter. In closing, we'd like to express our sincere hope that our shareholders friend and colleagues remain well 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 U.S. economy will return for the benefit of our tenants and our shareholders. That concludes our prepared remarks. At this time, we'll open it up for questions. Operator?

Thank you. We will now begin the question-and-answer session. [Operator Instruction]…

Thank you, Operator. Just one note I would like to make a clarification. In our prepared remarks, we mentioned that we collected 89% of contractual base rent and as most of the folks on the phone will notice in our earnings release, we're up to 94%. And that's based on receiving a payment from LA Fitness that knocked us up to 94%. That is a adjustment from our prepared remarks. Thank you.

Thank you, sir. And our first question today will come from Barry Oxford with D.A. Davidson. Please go ahead, sir.

Great. Thanks, guys. First off, I think you guys have done a great job -- managing collections through this environment. When you are offering deferrals, what type of package does that look like, is that three months and then you've kind of divided by 12 and they start making it up between now and halfway through next year, is that how it's working? And also in relation to the AFFO, should we be ratcheting up kind of the cash component of the rent deferrals that were there as we kind of unwind that in the same – kind of in the same manner and same timeframe?

Yeah. Thanks, Barry.

Yeah.

So go ahead.

No, no, no, I just said, yes.

So the rent deferrals, there are all kinds of different negotiations that go on there. But it's easy to -- or it's a good assumption that a basic ask from a tenant has been and there's a kind of going on, when was the early side of the pandemic when folks didn't know, when things are going to get reopened. But the initial kind of ask generically was, hey, give us three months, and we'll pay it over the next 12 months. It's safe to say that, we didn't agree to very many of those that we -- any kind of deferment and re-spread of the rent happened in a tighter timeframe and much lumpier, and lot of it really happens at the back half of this year. So, now that lot of the tenants have reopened, and their businesses are getting more re-established, certainly, we're not hearing anything more from tenants at this point. We did actually, just to give you a point of reference, we had, we were on in negotiations with a tenant about structuring re-spread of rent of deferment. And while we're having those negotiations, they ended up paying all their rent. And so that happened when one half of the house didn’t really, when talking to the other half, the real estate department was trying to negotiate something. And the finance department, I guess decided to pay the rent. So, anyway that -- hopefully that gives you a little bit of flavour for what the negotiations were like. But the bulk of the deferred rent is being paid in the back half of this year.

Okay. That helps. That helps. Has Hilton requested anything?

Well, I don't want to go through specifically on each tenant, but I'll just say generically on, someone like Hilton that, it's safe to assume that, we -- and I mentioned this in earlier earnings call that, tenants, a lot of tenants were asking. And we were happy to give proposals that would advance our interests, if you will, that would be a better economic deal for us. And so, for someone like Hilton, we would certainly give them some options to be helpful and good client relationships and good relationship with our tenants. And it's safe to assume that, they thought they're better off just with the current rents. And doing some, sort of, structure with us that we felt would be better for our shareholders.

Okay. That makes sense. And then, last question, switching gears, when you guys are looking at the acquisition, pipeline and product that is out there in the marketplace? Is it less today, because the sellers are pulling back, or are you guys still looking at a fair amount of product? Just as you were, let's just say the beginning of the year.

Yeah. I would say, there's -- I would say there's maybe not as much product. But much more interested sellers, counterparties. So, there's less buyers out there, which is good for us. And the product that's out there on the market is looking to be sold versus just seeing what they could get, not as much interest in as much interest in selling. And then in fact, what we're seeing a lot lately are properties that we saw before and either passed on, or made a bid on, and the seller didn't transact with us, or didn't show interest. Buyers are now coming back around saying, okay, the seller really would like to sell this property. So, that's good. So we're seeing more interest on the seller part. If you're in the market for sale, you want to get it sold.

Right, perfect. That's definitely makes sense. All right, thanks guys.

Thank you.

And our next question will come from Rob Stevenson with Janney. Please go ahead.

Hi. Good morning, guys. John, can you talk about what's going on operationally with the Old Time Pottery location given that they're not paying and they're not in deferral, are they open? Are they a bankruptcy candidate? Is there some rationale while they're -- why they're at least not entering into a deferral agreement with you guys?

So, they are in bankruptcy, but they are open and we did receive a payment from them. And so we have been in discussions with them, they would like to keep the location. And we have been basically talking with them about what that looks like. So they didn't reject the lease. And as you know, they need to start paying them -- they have started paying, so that's good. And the rent there is very low rent, that's why we were attracted to the property, only paying $4.50 a square foot and market is well above that. Not quite double, but pretty close. So, anyway, it's a profitable location for them. They didn't reject it. And we're negotiating with them.

And from the standpoint, do they need all I think that's the facilities like 84,000 square feet. I mean, is it a downsize candidate and reapportion or do they still want basically all the square footage there?

Yes. That's a good size for them. So it's not like they need – actually, it'd be beneficial for us if they wanted only half of it, because we could then subdivide and get better rents, and they could pay more and we could then get better rents from another user next to them, but actually they require them out square footage.

Okay. And then you’re talking about what the trend is on the abatement and abatement discussions, mean is when we hit August here all things being equal are we getting to the point where the abatements are essentially going to be gone? I mean, how do you guys look at that versus just the deferral piece?

I mean, we don't see that we're going to do lease right now, we don't see that we're going to go through this routine again. As you know, most of our tenants are publicly traded and some of the tenants that maybe we were worried about, if you look At Home and Container Store, they've had quite a rally in their stocks. And so, I think they're all in better shape or feeling better or have more avenues for liquidity. So I don't feel like we're going to go through this routine unless something dramatic happens in the global market or national market again. So I think we're in pretty good shape right now.

Okay. And then last one for me. How's the Board thinking about dividend increases? And what metrics are they using? I mean, you've got to reported AFFO, which deducts out the deferral amount, you've got a normalized AFFO type of number that you could be looking at which is what it is with the deferrals repaid over the remainder of this year. How are they looking at various metrics in order to determine whether or not to continue to pump the dividend? Hold it here for a while until things shake out? What are those discussions like at the Board level these days?

Yes. I mean, I think as we are growing the company and with the expectations that we're going to have some more high quality acquisitions happen at sometime in the third quarter, I think, we obviously look at the dividend every quarter and obviously happy to announce another $0.20 dividend. But that was the expectation for the first year, as we grow the company that I think the dividend would be held at this level, depending on how the portfolio performs and acquisitions perform. But I think that as we add acquisitions, you can assume that there's going to be more of an upward movement to the dividend. But, as you know, in this last quarter, we had pulled down on our credit line, just to be proactive. We’re carrying kind of that negative arbitrage and we had a lot of cash on the balance sheet and we're paying interest on that cash. And it was only until, fairly recently that we deploy that capital. So now we’re back to very accretive income streams coming into the company. So, to really answer your questions is, once we have some more acquisitions and the cash flow is building, we hope to kind of revisit that and hopefully there's some upward movement in the dividend.

Okay. One more actually, when you look -- the stuff that you're looking at acquisition-wise for the back half of this year, is that like -- your guidance range for cap rate is 6.7% to 7.5%, the second quarter stuff with a Hobby Lobby and the Walmart was at the low end of that sort of spectrum, given the quality. Are you guys still going to be trending more likely towards the quality -- the higher quality end of the spectrum and that’s the lower part of the cap rate spectrum on second half 2020 acquisitions, or you're going to start mixing back in other stuff as well?

No, I think you'll see that, obviously the 2020 acquisitions, as you mentioned, the blend formed out of the whole year, that 6.93%. But the recent ones were a little bit shy of that more in the 6, 7 range. I would say that, you're probably going to see more in that that 6, 7-ish range. But the way we've thought about it is that, when we set up the company, went public, we were expecting some of the acquisitions be more than that 7%. But now we've switched gears to higher quality. But remember, when we started out, we were thinking our debt costs would be closer to 4%. Now, we've locked in a rate that's below 2%. So our spread is actually higher. So, we think that's a great trade off. We're able to buy higher quality at a good cap rate and we have a much more favorable debt costs and so, that spread differential is stronger now than before.

Okay. Thanks, guys. Appreciate it.

Sure.

And our next question will come from RJ Milligan with Baird. Please, go ahead.

Hey, good morning guys. Guidance for acquisitions calls for another $30 million for the rest of the year, which is, John, as you pointed out, that same amount that you just did in the last part of June. So, I guess, one, do you think you can do more than the $30 million? And, two, if you could or did, how would you fund it?

Thanks. Yeah. So, I mean, look, we're ambitious folks. And if we see more opportunity, we would love to basically do better than that. So, we're looking very hard. There are lots of acquisitions and feel comfortable, obviously, with the $30 million. So, if we had the good fortune to find good assets and could do more, we will find a way to do more, where we have obviously a line up to $100 million, but you know, we have an accordion feature. And there may be discussions about bringing more banks into our credit facility to basically accommodate that growth.

Okay, that's helpful. And then the office exposure obviously a positive through the pandemic a lot more uncertainty with retail. As you acquire more retail, obviously, that office mix will decrease. But can you just talk about how you feel about the office exposure going forward on a longer term basis, especially given the work from home trends that we're seeing?

Sure. So, I think, you're right, the office performed very well for our portfolio. And so if we saw a particular opportunity in the office side that fit well on a portfolio, we would not hesitate to bring that into the portfolio. And -- but I think on the work from home aspect, totally get you -- get that, but there are some sectors that you can't work from home, whether it is defense industry, whether it's particular healthcare. So, we are looking at different office or keeping our eye out for different office aspects where it's a critical facility mission-critical, kind of like the Hilton-MetroWest properties, where they -- one of the buildings houses their IT. And so, in the Wells Fargo in Hillsborough is out in the burbs, where I think you're going to see that trend. And actually, Wells Fargo had a division leave downtown to fill that location in Hillsborough. So, I think you're going to see that trend where big companies move some of their operations out of the urban centers, save rents, be closer to people's homes, less disruption, unless people don't want to be in high-rise elevator buildings and so forth all things that we all know about that -- if that's helpful, that's kind of how we're approaching things.

That is. And just one last question and this is longer terms, there's obviously been some winners and some losers just in terms of categories through the pandemic. Just curious what you think -- how you think cap rates will shake out over the long-term over the next 12 to 24 months for -- the winners and sort of the ones that are struggling coming out of this?

Yes, I'll answer it in a different way. I think the one aspect I think we all need to be looking at -- I know that every couple of years you hear this, where Congress is going to relook at certain tax aspects of real estate, but obviously, presidential candidate has mentioned that they're going to look at 1031 tax-free exchanges. If they did something dramatic there, you're going to see cap rates expand dramatically for the very core type of net lease space that we've seen in the market, like for instance, McDonald's ground lease may trade at a three and three quarters cap rate. If you get rid of 1031 tax-free exchanges, it probably goes up at least 100 basis points, I'm guessing. So I think that's probably one to look out for to see if there's any kind of movement there. As far as cap rates on what we're seeing, I do think, there is a flock to higher quality, so you're not going to see cap rates move too much on the Walmarts of the world are seven wonders of the world. But for the lower cap rate or higher risk type of tenants, the cap rates are expanding. So, we're not looking at those opportunities where tenants operations have been shutdown. But those cap rates or have widened out in probably will stay state-wide and maybe even widen out further.

Helpful. Thank you, guys.

Thank you.

Next question will come from Michael Gorman with BTIG. Please go ahead.

Yeah, thanks. Good morning. John, I was just wondering following up on some of the acquisition discussion as you guys are looking at new opportunities and some of the changes that have gone on in the marketplace, maybe how that's impacted your underwriting process? What you're looking for in existing leases in terms of security or in terms of disclosure of tenant financials and maybe just the impact on your own internal underwriting process that the last three months has had?

Yeah, so the last three months have been really beneficial for us. In one respect, in really getting to know our tenants even better. Having the dialogue with directly with tenants as they have described what they're seeing in their operations, what they would like to see help with from our side. And so getting that lens with regards to how our particular locations are performing has been very beneficial. When you buy an asset, you're doing your regular underwriting, you're talking to people in a particular market, whether the developers and brokers and the tenants, and the tenants will say, yes, it’s a good store and stuff like that. And then, they're not giving you a lot of information, but you're trying to analyze it from all kinds of different variations. We'll talk to competitors and say, hey, what do you think about this location, has this tenant ever left? And that's always very helpful. And so what this has told us is that the strength of a lot of our locations, which we're obviously very happy with and that is going to help us. Now that we have good, even more connectivity with our tenants has helped us to look at other acquisition opportunities. And we'll know that when we look at acquisition opportunity and see what their dialogue with that landlord had been during the pandemic, we'll know whether that store that location has been strong or not. So, in a roundabout way, we know more about our customers now. And we know a lot more about what to look for in a successful location. And so I'd say that it's easier to assess now good location and a weak location than it was before.

Great, that's helpful. And then Mark, maybe just a quick housekeeping, obviously you have the COVID rent deferral adjustment on the AFFO side. Is there any other accounting adjustments that have been undertaken or any of the tenants on cash accounting or how are you guys thinking about maybe the straight line rent accruals for any of the tenants that were either under deferral or abatement, were there any changes there as well?

No, I wouldn't. We haven't had to encounter any, sort of, cash, accounting versions for any of the arrangements. So we haven't had to deal with that. And I'm not sure there’d be anything else that might fall into the category of unusual alterations or accounting issues.

Okay, fantastic. Thank you very much.

Thank you.

[Operator Instructions] Our next question comes from Craig Kucera with B. Riley FBR. Please go ahead.

Hi. Good morning, guys. I'm curious to hear about your discussions with your movie theater tenants. I know AMC pushed back opening up another couple of weeks this morning. I think, Cinemark is expecting a phase reopening, but just, sort of, curious what you're hearing from them?

Yeah. I would say that they weren't expecting to open up this month or next month, back when we negotiated our deals. I think, where the rubber meets the road is if they're not starting to open up in October, that would be, you know, if things aren't looking great for October then you could be having another discussion with them. But they didn't have any grand plans for late summer. They felt -- lease there, the way they are operating, that things are going to be shutdown until fall.

Got it. And, kind of, circling back to another tenant that I think has been closed at Alpine Valley, have they, kind of, what's the dialogue there?

Dialogue there has been great. They may look, if anything is going to come back on the concert side, it's going to be a large open air venue. And, obviously, Alpine Valley didn’t book anything in the winter in Wisconsin. So this year has been basically written-off. And so they're basically planning, obviously, they feel like next year, obviously, they don't open up until call it May, June. That next year is going to be a huge year, if hopefully knock on wood that we're past this pandemic and have some, sort of, vaccine that every act in the world is going to need a tour just to make money. I mean, I think there is -- they'll have a high class problem on their hands, because everyone's going to be booked next year.

Okay, great. That's it for me. Thanks.

Thank you.

Ladies and gentlemen, this concludes our question-and-answer session. I would like to turn the conference back over to John Albright for any closing remarks.

Thank you very much and look forward to discussing any further questions you may have. Thank you, operator.

Thank you, sir. This concludes today's call. Thank you for attending today's presentation. You may now disconnect.