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. [Operator Instructions] After today's presentation, there will be an opportunity to ask questions. [Operator Instructions] 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. 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 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 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 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, inevitably approximately 68% of our annualized base rent is located in the top 10 ULI, top 25 markets. While the additions to our portfolio in the quarter were retail properties, as we indicated with our focus, we are certainly pleased to have our two largest properties representing 34% of our portfolio lease to office tenants, given the impact of 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. And as a result, we terminated approximately $35 million in pending acquisitions. And we withdrew our guidance for 2020. We're hopeful that the disruptions to the economy and our tenants businesses, specifically, 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, 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 which unique to are 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, which enabled 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 for approximately $30 million providing us currently with approximately $50 million dollars of liquidity.Regarding the credit facility, also note that…

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 with the severe dislocation in the equity markets being given a significant discount of our stock price. To our view of 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 returned 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. [Operator Instructions] 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 needs some sort of rent deferral, or are some of those just for lack of a better word, form letters that have come that you probably won't give any deferment?

Yes, thanks, Barry.

Yes

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 kind of economic animals as anyone else. And so if we can make our position better than that's, 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 all kinds of different scenarios. So obviously, the lease extension would be something high up on our list. If they want a defer rate 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 kind of had – had moved in it was not favorable to kind of push forward, or was this more – look, we want to rein in the horns and kind of hoard cash at this particular moment?

A little bit of both. I mean, clearly putting something under contract before the pandemic and lockdowns. Clearly, there needs to be a reprice adjustment. We didn't even – we didn't go that route as far as talking about repricing. We just said, who knows? How far this economic, collapse go?So, just a lot of the 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 and so we've – that's more of a conservative posture and not wanting to buy assets, just to buy assets when there may be better opportunities and 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 the [audio gap] throughout 2020. As long as, we're kind of in this environment forever, how long, is it safe to say, look, to kind of hold our dividend flat in here, until we can kind of 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 chance that we're negotiating with and see how May is and in reassessed. But, clearly, the company has the capital. And it's just a matter of how the cash flows look. And so, 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.

Make 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 savings measures. So can you discuss if they have thought some form of rent relief and just your outlook on kind of 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. Obviously, as you can tell, their market cap and their liquidity is certainly sufficient.And these office assets we have with them where their lessee is our critical assets or mission critical. And so, we again, it's kind of like an embedded question, we may negotiate with them, but it's only to -- 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 just maybe elaborate on the extent there's discussions with tenants that paid April rent. But are looking at deferring future rent or looking at other accommodations moving forward? I mean, is there a bucket or a percentage, John, that you would think about, hey, you got your April rent check, but depending upon the duration, you kind of view this as at risk component of that, kind of that 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, maybe more directly, would you and the board look at potentially levering up modestly to continue to maintain the dividend, 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?

Well, I mean, I think it's really -- the board is going to look at all those sort of alternatives. But I would say they even -- when you say levering up, is because the cash flows, even from one of our tenants, which is, Wells Fargo, they're just -- there not -- even if a lot of these tenants didn't pay, you have -- it's not a huge amount on the dividend side. But, of course, we want to be prudent and have appropriate cash flow versus dividend.And so, I think, its just kind of a discussion that the board will have later in May to make that determination. But I would say that, paying the dividend our company, our size is not a large amount.

Okay. So, it sounds like if -- I take those comments -- it sounds like there's a willingness where even if the payout ratio for a quarter or two exceed a 100%, there might be some willingness just to kind of establish that track record to continue to maintain the dividend. But again, obviously the situation is evolving. So, 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 month problem.

Okay. That's helpful. And then going -- just kind of sticking with capital allocation, share repurchases, $5 million buyback in place, just maybe talk about the willingness or capacity just in context of your borrowings and things like that to maybe 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 it was a ridiculous price, and clearly the best capital allocation is buying back the stock at these implied cap rates and discount NAV and all that kind of stuff. 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 just 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 -- and kind of a scenario where if call it the remaining 25% of tenants that there is no deferral agreement with and there's no April rent?How would that -- what was the borrowing base look like? If you call it the 25% of the tenants just don't pay and you run into that kind of 60-day pass due situation, recognizing that there's some moving pieces here right because the properties that were acquired during the quarter and in the borrowing base, is there a way to just kind of quantify or think about that in that scenario?

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 probably not the measured way to look at it, but first things first is other assets that would replace them. You could also, if you -- when 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, but using your scenario, if they went six days past, 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, I think for me, if all 25% were for some reason fall off, the first thing we’d been looking to do is backfill it with the acquired assets.

Got it. So, it sounds like you feel that even in a more severe scenario where the borrowing base would remain around that $80 million number, $80 to $90 million number where maybe you don't get the full capacity, but you don't necessarily seeing given the moving piece of data being able to bring in some recently acquired assets, you don't necessarily seeing 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, Kevin.

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 or previously, previous acquisition gains have since been withdrawn but just over $100 million. And I'm curious, what your thoughts are on obviously, you have the liquidity right now, but looking to preserve liquidity. So how do you judge the idea of preserving that liquidity versus continuing to look out and acquire assets?

Thanks. Obviously, as you 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 locations that would really look great with our portfolio or fit well with our portfolio.So we have no problem of being in the market right now. And we are looking at opportunities, but just we're going to be patient because we think there will be something dislocation, there'll be some buyers, the private rates probably 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, so there's not a huge pipeline of more 1031 money. So once that buyer pool goes away, evaporates, we think the cap rates will be interesting for high quality properties.

Okay. That's helpful. And then in – earlier this year, the bulk if not all of the external growth pipeline, the deals you were looking at were retail assets. And I think now that we've gone through two months of this, obviously, the office and industrial exposure just in terms of the general U.S. have been paying more in rent than the retail category.And so, I'm curious if you're now considering looking at some more offices, because it's actually viewed as a little bit more defensive here in this current environment. And if you think there is going to be any opportunities there on the office side?

I’ll answer the latter, for sure, there's going to be opportunity on the office side, and to answer your former question, definitely we would consider office, because as you mentioned, that has held up very well, strong component of our portfolio and hopefully investors will see that as a big plus for our company. So we’d definitely keep an eye out for those special situations where office meets all the criteria, great location, great tenant, long-term lease. But we do have -- still looking at some of the retail. I would say that the retail that we're looking at are tenants who have been opened during this whole time period. So you have had the survivors in the world of whether it's -- just necessary retail, that sort of thing. So that's kind of where our outlook is right now.

And my final question is, are there any categories within -- in terms of industry type within the portfolio today that longer term you're concerned about the long-term health of that that specific category, not necessarily retailer?

Yeah, I mean, look, I think, some of the tenants that we have, as far as casual dining, theater, you won't see us acquiring more of that. And I think that will have -- I think they'll have their challenges, obviously, not all of its going to go away. Luckily 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 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. And you may now disconnect.