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

Thanks. I want to point out that a number of the remarks we're making today qualify as forward-looking statements according to federal securities law. Results the company actually achieves down the road could vary substantially from what gets covered in those forward-looking statements, and we're not taking on any obligation to revise them. The factors and risks capable of making actual results diverge materially from what we expect get spelled out periodically in more detail within the company's Form 10-Ks, Form 10-Q, and other SEC filings. Our SEC reports, earnings release, and the latest investor presentation, which includes reconciliations of the non-GAAP financial measures we rely on, are available on our website at www.alpinereit.com. Having said that, I'll hand things over to John.

Thank you, Phil. For Alpine Income Property Trust, Inc., the fourth quarter capped off a really strong 2024, and we carried out every part of our business plan effectively. Turning to earnings: for the year, AFFO came in at $0.74 per diluted share, which is growth of 17%. That strong earnings growth, together with free cash flow, let us boost our common dividend yet again, to a new quarterly rate of $0.285, effective the first quarter of 2025. With this new annualized dividend of $1.14, Alpine Income Property Trust, Inc. has now raised its annual dividend every year since its IPO in November of 2019, all while still offering shareholders an appealing dividend yield with solid coverage. What's fueling our earnings growth is a successful quarter and a year of investment activity. In the fourth quarter, we bought six properties for $50.5 million, at a weighted average cash cap rate of 7.6%. That takes our full-year acquisition activity to twelve, at a weighted average cash cap rate of 8.2%. Our 2024 acquisitions included investment-grade rated Best Buy, Dick's Sporting Goods, and Lowe's, plus three beachfront restaurants, which increased our Walt to 8.7 years from seven years at the start of the year. In addition, we finished the year with 51% of our ABR coming from investment-grade rated tenants. To supplement our 2024 property acquisitions, we originated three commercial loans over the year totaling $31.1 million, at a weighted average yield of 10.7%. If you combine loan originations and property acquisitions, we completed $134.7 million in total investments during 2024, at an average yield of 8.7%. Also, over the year, we successfully pruned the portfolio by selling $62 million of property at an average cap rate of 6.9%; those dispositions were a strategic effort to improve the diverse and reduced risk, and they included three Walgreens, which moved Walgreens from our largest tenant in terms of ABR to our fourth largest tenant. Notably, triple B rated DICK'S Sporting Goods and triple B plus rated Lowe's are now our two largest tenants, each representing 10% of ABR. On top of that, we were able to reinvest net proceeds from those dispositions into new acquisitions at a positive yield spread. Looking ahead to 2025, we're continuing our investment strategy, using a barbell approach when it comes to property acquisitions. On one side, we'll invest in investment-grade rated tenants to deliver consistent and stable cash flows, while on the other side, we'll pursue higher-yielding opportunities that provide growth and diversification. We'll also keep augmenting and complementing our property investments by selectively originating commercial loans. Phil will go over 2025 earnings guidance, but I do want to flag a couple of related items. First, as you know, Party City filed for bankruptcy. Alpine Income Property Trust, Inc. does have one Party City lease in its portfolio. That lease is for a property located in Oceanside, New York, on Long Island. This property sits in a highly sought-after, heavily populated area, which gives us several options for either leasing it out or putting it on the market. Also, Cinemark chose not to extend the lease on our Reno theater in late 2024. We saw that coming and even had a contract in place to sell the property. That said, something unexpected came up for the buyer, so the deal never closed. Because of that, our attention is now on getting this asset sold and putting that capital back to work; until it's leased or sold and those proceeds are reinvested, these two items will weigh on near-term earnings. Looking forward, we see a strong and busy set of opportunities throughout the tenant base, and we're staying committed to carrying out our strategy to deliver for clients and investors. With that, I'll hand the call over to Phil.

Thanks, John. To start with the financials, our revenue for the quarter came to $13.8 million in total, which included $11.5 million in lease income plus $2.2 million in interest income from commercial loans. For the quarter, FFO and AFFO each came in at $0.44 per diluted share, which works out to growth of 19% and 16%, respectively, compared with the same quarter a year earlier. On a full-year basis, revenue totaled $52.2 million, comprising $46 million in lease income and $5.8 million in interest income from commercial loans. FFO for the year landed at $1.73 per diluted share, up 18% from the prior year, while AFFO was $1.74 per diluted share, up 17% year over year. The investment activity John walked through, together with sensible and disciplined capital management, drove this earnings growth for both the quarter and the year. In the fourth quarter, we issued roughly 436,000 common shares through our ATM program at a weighted average price of $17.98 per share, which brought in $7.7 million in net proceeds. Across all of 2024, we issued 1.1 million common shares through our ATM program at a weighted average price per share of $18.04, bringing in $18.8 million in net proceeds. Importantly — and just as significant — during 2023 and into the first quarter of 2024, the company took advantage of opportunities to repurchase 0.9 million common shares for $15.4 million, at an average price of $16.26, which sits $1.78 below our weighted average issuance price in 2024. Thanks to our 2024 ATM activity and net issuance of more than 1 million shares, we were able to grow while also bringing leverage down. To be specific, we closed the year at 7.4 times net debt to EBITDA, versus 7.7 times at the start of the year. As a reminder, no debt comes due until 2026, and beyond that our maturities are nicely staggered; we've used a number of rate swaps to lock in the interest rate on over 80% of our debt, leaving us with a weighted average interest rate of 4.1% at year-end. On top of that, we had $95 million of liquidity, made up of about $5 million in available cash and $90 million available under our revolving credit facility. What's more, given current in-place commitments, our revolving credit facility's available capacity can grow by another $50 million as we acquire properties, which means total potential liquidity of roughly $150 million. In the fourth quarter, we paid a quarterly cash dividend of $0.28 per common share to stockholders of record on December 12, 2024; that reflects a solid AFFO payout ratio of 64%. As was mentioned earlier, our Board of Directors recently gave approval to raise our quarterly dividend to $0.285, starting in the first quarter of 2025. Even after that increase, our dividend stays well covered and supported by free cash flow. Last, let me turn to guidance for 2025. Our initial earnings guidance for the full year of 2025 is a per diluted share range of $1.70 to $1.73 for both FFO and AFFO. Our initial guidance rests on a few key assumptions: somewhere between $50 million and $80 million in investment volume, dispositions ranging from $20 million to $30 million, and weighted average shares outstanding of 16 million to 16.5 million. As for the Party City bankruptcy along with that empty theater in Reno, what we're assuming right now is that those two items will hit 2025 FFO and AFFO per share by roughly $0.08. That said, should the Party City lease get assumed, and should we move promptly on the acquisitions and loan originations we've planned, there's a possibility we land at the top of our range or even push past it. One final item: the external management fee's annual run rate now stands at $4.5 million, which captures the entire effect of the $7.7 million in net equity proceeds we raised during the fourth quarter. With that said, operator, the line is yours for questions.

Thanks; Catherine Graves here, filling in for Michael Goldsmith. I appreciate you fielding my question. First off, during the quarter you lowered your exposure to Walgreens. Should we anticipate additional trimming of that kind of tenant, and broadly speaking, what amount of exposure there do you consider comfortable?

Yes. Thank you. Yes. We've got one more that's sort of in the works and being negotiated, though we're truly attempting to align the timing with acquisitions. These assets are, you know, despite being a difficult credit situation and narrative, a market does exist for them, so we're looking to match them with acquisitions. Yet likely one more, you know, potentially emerging during the quarter.

Understood. Thanks. For my follow-up, regarding what you plan to invest in during 2025, could you shed some light on how you’re weighing acquisitions against construction loans? And what would tilt you toward favoring either option next year?

Sure. Like I’ve mentioned previously, certain lending possibilities appeal to us a lot, since you end up with stronger credit—for example, these developments anchored by publicly known tenants, in effect, outparcel projects, where there’s an equity cushion below you as the builder, meaning substantial equity is tied up in those ventures; plus the loan-to-value ratios are clearly below what you’d face purchasing those properties outright; and naturally, returns exceed what you’d get from holding them; so that kind of chance looks great to us while capital markets remain tight for builders. Also, I’d note we’re observing quite a busy pipeline when it comes to loans and also on the acquisition front—especially the more core type of acquisitions; thus, strong possibilities are showing up in both areas; so I’d imagine it ends up split evenly, 50-50, for that kind of investment plan.

Got it. Thanks so much.

Thank you.

Yeah. Thanks. Morning to you. I'd like to get a bit more detail regarding that commercial lending possibility. There are 4 commercial loans you've got coming due during 2025, so I'm curious to hear your outlook on them.

Right; 4 are indeed coming due. My guess is that a single one of them ends up being repaid, while the remaining 3 get extended. And as John mentioned, we see no issues at all, since we have a strong loan pipeline that should take the place of the one likely to be paid off; that payoff will most likely happen around the middle of the year, and we feel quite sure we can fill that gap. So the balance shouldn't decline. Our expectation is that it more or less holds steady and possibly increases as we move into the back half of the year.

All right. Then my second question is about the guidance for dispositions and acquisitions. Could you give us a bit more detail regarding the timing you expect — when do you plan to sell properties and buy properties during the year?

Regarding equity — I'd say the pipeline right now is likely the best we've ever had at this point in the year across the 5 years we've been at this. So we're fairly optimistic; that said, as you're aware, deals can always fall apart. Even so, my expectation would be that a greater share of the activity takes place toward the close of Q1.

Okay. Thank you.

Thank you.

Morning, everyone. John, after that storm damage, have the beachside group properties regained their maximum operating levels? Also, has their top line returned to the level you underwrote when the deal was first struck?

Yes. We actually visited last week, and every one of them is up and running and doing well — a few are even doing better than they did before the hurricane. They've got new equipment and more efficient kitchens, since they had the chance to reconfigure things the way they wanted. I'd say the Sandbar hasn't reached peak capacity yet, because, you know, they handle a huge amount of weddings and similar events, and we're only now entering season. Still, everything is trending either equal to or ahead of where it stood before the hurricane, unfortunately. As for the market, you know, a number of competitors haven't resumed operations, so they're basically the only option around. Anyway, it seems they're quite enthusiastic about how they're positioned.

All right. And at this stage, they carried business interruption coverage that would reimburse you for whatever was missing, is that right?

That's right.

All right. Then you and Phil discussed Party City as well as Cinemark. Apart from those 2 properties, are there any additional sites you anticipate being empty at some stage during 2025 or in the early part of 2026?

Right now? No. Plus we're taking a proactive stance regarding the ones that, well, you know, the tenants we're keeping an eye on, like, for example, at home, we're very, you know, offloading a few of those; so, you know, the theater deal, clearly, back in the fall, we had it signed up, and, sadly, a health problem came up for the buyer; therefore that truly, you know, threw a wrench into what we'd planned, since it ought to have been divested by the end of last year. As a result, we had to begin again on that. So we currently hold live bids for both Party City and the theater; we're attempting to be, you know, attempting to secure the highest price we can, yet we definitely will realize the upside if we choose to dispose of it sooner and get that capital working through either, you know, reducing the debt or completing an acquisition or an investment. And so we plainly recognize the advantages of turning those into cash sooner instead of later, and so we might proceed with that.

All right. Then you brought up the at-home piece. That was the final thing I had. Earlier you said a market exists for Walgreens right now. Given the size of those at-home assets and their credit rating, does a market truly exist for them at present? And will you try to pair up any sales there with purchases too?

Yes. What I mean is, we'll proceed, and since they're somewhat lumpier, we won't pair them against acquisitions; once a buyer is set to purchase, we'll then work through the steps alongside them. The reason you see, you know, greater activity around these than you might expect, given the size, as you pointed out, is that keep in mind, you know, they sit on big parcels featuring plenty of parking and a sizable configuration. The basis is extremely low, and that simply isn't available anymore. I mean, you know, redeveloping this kind of product is, you know, so for investors, developers, tenants, these represent distinctive chances, and folks get that.

All right, and I suppose that brings us to a final item for Phil. So you provided guidance regarding the figures, the investments, and the dispositions. However, when it comes to the income statement, is there anything in 2025 that appears likely to be either unusually elevated line items, unusually elevated or depressed, not counting revenue and interest expense, which hinge on your buy and sell activity and financing decisions. Is there anything in G&A, or anything else that will end up being uneven or out of the ordinary that you expect for 2025?

Nope. My expectation is that the majority of items will follow a fairly consistent run rate. On a quarterly basis, throughout the year. There's nothing uneven in G&A, as I mentioned. Right. Because all the equity was distributed during the fourth quarter, our management fee now stands at four and a half on an annual basis; that figure presumes no additional equity issuance, yet that represents the present run rate. Still, I believe the majority of items will be, as you know, broadly a consistent run rate across the year. And simply, as you know, barring, as you know, when acquisitions and dispositions occur, yet there are no strange one-time fees or sorts of uneven items that ought to concern you.

All right. Thanks, everyone. Enjoy the weekend.

Appreciate it. Same to you.