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

Thanks. On this morning's call with me are President and CEO John Albright, CFO Philip Mays, and additional executive team members who will be on hand to take questions. Please note that a number of our remarks here fall under the definition of forward-looking statements according to Federal Securities Laws. Results the company actually achieves in the future could vary substantially from what these forward-looking statements describe, and we have no obligation to revise them. Risks and factors that might lead actual results to diverge materially from what we expect get disclosed periodically in more detail within the company's Form 10-K, Form 10-Q and other SEC filings. Our SEC reports, earnings release and latest investor presentation, which include reconciliations of the non-GAAP financial measures we use, are available on our website at www.alpinereit.com. Having said that, I'll hand the call over to John.

I appreciate that, Jenna, and good morning to all of you. We're happy to share that FFO per share rose 2.3% for the quarter and 4.8% on a year-to-date basis versus the comparable period a year earlier. The growth in earnings came about because of the investments we made over the prior year. Our Barbell investment strategy remains our focus — that means higher-yielding acquisitions backed by quality tenants and solid real estate fundamentals, along with select investment-grade tenants, so that we keep a diversified and balanced portfolio delivering attractive risk-adjusted returns. Staying disciplined and sticking to our underwriting criteria, we didn't close any further property acquisitions during this quarter, after a busy first quarter when we closed $39.7 million of property acquisitions at a weighted average initial yield of 8.6%. That said, we're actively chasing multiple interesting investment opportunities and expect some to close in the second half of the year. Moving to property dispositions, in the quarter we sold 5 net lease properties for $16.5 million at a weighted average exit cap of 7.9%. Those sales included two Walgreens, a Dollar Tree, Verizon, and Old-Time Pottery; over the past year we've now cut our Walgreens exposure by 100 basis points to 7% of ABR, and it has gone from our largest tenant concentration a year ago to our fifth largest today. Beyond that, we keep making headway on the properties that were recently vacated. The theater of Reno is under contract to be sold, and we're actively negotiating a possible sale of our Long Island property that Party City previously leased. On the commercial loan side, during this quarter we provided seller financing alongside our Old Time Pottery disposition and originated one first mortgage loan. Together, those loans came to $6.6 million and were fully funded at closing at a weighted average initial yield of 9.8%. That takes our year-to-date loan closings to $46.2 million at a weighted average initial yield of 9.1%. Being able to originate select commercial loans is one more tool we can use to further diversify our income stream and put capital to work at attractive returns. What's more, the lending relationships we've built are producing some unique loan investment opportunities; we're actively underwriting several high-yielding loans backed by high-quality sponsors with strong credit metrics and real estate fundamentals, and we expect one or two of these transactions to close in the back half of the year. Now to our property portfolio. At quarter end, our portfolio is made up of 129 properties totaling 3.9 million square feet across 34 states, and it was 98.2% occupied. Our top two tenants are Investment Grade, DICK's Sporting Goods and Lowe's, which together account for 20% of the portfolio ABR. More broadly, 51% of our portfolio ABR comes from investment-grade rated tenants. Notably, our weighted average remaining lease term now sits at 8.9 years, up from 6.6 years just a year ago. Finally, a couple of specific tenant updates. Bass Pro Shops finished its full renovation of roughly a 66,000 square foot building situated on 9 acres in Minnesota. That location, which Camping World used to rent, got handed over to Bass Pro Shops, and the lease got revised into a fresh initial term of 20 years, starting when they opened in the middle of May. On top of that, At Home went into bankruptcy during June. Even so, rent for July came in from both of the properties we lease to At Home, and neither one appeared on the first shutdown roster. Having said that, I'll hand things over to Phil.

Appreciate that, John. We'll begin on the numbers side. For the quarter, our top line landed at $14.9 million, split between $12 million of lease income and $2.7 million of interest income generated by commercial loans. Both FFO and AFFO finished at $0.44 per diluted share during that period, up 2.3% versus the prior-year quarter. Looking at the first part of the year overall, revenue totaled $29.1 million, consisting of $23.8 million from leases plus $5 million in commercial loan interest. Year-to-date FFO and AFFO each stood at $0.88 per share, marking gains of 4.8% and 3.5%, respectively, against the equivalent stretch last year. Since PINE's common stock is priced fairly appealingly—same as we did during the prior quarter—we keep repurchasing shares whenever chances come up. During this quarter, about 273,000 common shares were bought back by us, costing $4.3 million, which works out to an average of $15.81 each; and so far this year, we've acquired roughly 546,000 shares in total for $8.8 million, averaging $15.07 apiece. Turning to the common dividend, as was announced earlier, our quarterly cash payout was increased to $0.285 per share during the first quarter and held steady at that amount through the second quarter, leaving us with an appealing dividend yield right now of nearly 8%. Despite that bump, the dividend remains solidly covered — our AFFO payout ratio sits at roughly 65%. Turning to the balance sheet: when the quarter ended, net debt to pro forma adjusted EBITDA stood at 8.1x, and we had $57 million of liquidity. That figure breaks down as about $9 million in cash we can put to use plus $48 million accessible through our revolving credit facility. Keep in mind, though, that thanks to bank commitments already in place, the borrowing room on that revolver can expand by an additional $49 million whenever we buy properties — meaning our total potential liquidity comes to nearly $100 million. One brief point about the $2.8 million in noncash impairment charges booked during the quarter. That figure takes in noncash impairment charges for the two biggest empty properties we hold: a Reno movie theater and a Long Island location that Party City previously occupied. Because we're finding such appealing investment opportunities, we've concluded that selling these properties and putting the money to work elsewhere is the more probable path, as opposed to taking on the interim carrying costs and capital required to keep them and find new tenants. At the close of the quarter, in-place annual base rent across the portfolio came to $45.3 million on a straight-line basis. Keep in mind that this figure contains roughly $3.8 million of straight-line rent from 3 single-tenant restaurant properties that were acquired in 2024 via sale-leaseback transactions. GAAP requires us to treat these particular sale-leaseback transactions as financing. Right now, in our statement of operations, we're booking roughly $2.6 million annually in GAAP interest income from these properties, whereas straight-line rent income from them comes to $3.8 million. That brings us to guidance. For the full year of 2025, we are reaffirming our FFO and AFFO guidance range of $1.74 to $1.77 per diluted share. Our guidance assumptions are largely unchanged, with investment volume being the one exception — that figure is going up by $30 million, putting it in a range of $100 million to $130 million for the year. That's all I have on earnings. We're only a handful of days beyond quarter-end, and a construction loan we held on a public land development project in Charlotte, North Carolina — it had $25.5 million still outstanding and was yielding 9.5% — has now been fully paid off. As a result, unless we start seeing draws against loans currently on our books, or we close and fund new loans, the interest income we earn from commercial loans will decline; and given that, operator, let's open the line for questions.

Since you've increased the investment guidance and mentioned the opportunities in the loan book, what's the right way to think about investments for the remainder of the year? Does it still break down roughly evenly, 50 to 50, between properties and loans? Any insight would be helpful.

John, apologies, I'm in an airport with a lot of noise, but I'll take the first part. At the moment, we're seeing quite a bit of activity on both the acquisition side and the loan side, though I'd say the structured loan investment activity appears closer to getting done than acquisitions are. So we're hopeful that in the next 60 days, we're going to have some activity here on the structured loan investments that we're very excited about. On the acquisition side, we're pursuing things, but it's pretty competitive, as you know. And so less sure about the timing of those investments.

Understood, that's useful. And following up on that point, when these loans come in and get repaid, I realize there aren't any maturities left for the rest of the year; but if some early payoffs did happen, should we assume the money would go toward reducing the credit facility instead of being reinvested.

Yes. Like Phil said, regarding the public loan in Charlotte, it essentially got repaid and was used to pay down the facility. We're putting in a lot of effort to sell the Party City and the theater in Reno. And naturally, that would also go toward paying down the facility; but when we look at these structured finance investments, we'll pursue them. And if necessary, we'll either divest something or sell an asset and simply keep the leverage reasonable.

I have a couple of things for Phil. I'm just wondering, regarding that public payoff in July, how will quarterly AFFO be affected by it?

Sure, R.J. So it came to $25.5 million, which was actually 9.5%. That money will be used to reduce the line, specifically the variable piece of the line, and that's roughly 6%. So the spread is a little over 300 basis points, and the impact is a couple of hundred grand each quarter — just sort of opening, a somewhat larger figure opening per quarter.

All right. Then, Phil, my next question relates to — a number of other REITs have been observed going out to issue debt or secure term loans. What I'd like to know is where you believe the market stands right now for PINE when it comes to completing the term loan.

Sure. Regarding PINE, at present we intend to arrange a term loan with a duration of 5 years alongside the banks, and if swapped, the total would come to roughly $5 million?

First off, regarding Walgreens, you're still reducing your exposure there. Could you share a bit about the current state of the market for both Walgreens and At Home? Who might step in as buyers? What cap rates should we expect, and how much interest exists overall in these boxes from those 2 tenants?

Thanks, Michael. Sure. Overall, the market's pretty active. So when we see sensible pricing, we'll continue working through the Walgreens, and we're actually in the middle of a few additional sales, though pricing clearly hinges on the location, obviously, and the lease term, but cap rates might range from high 7s to early 10s or 11s, again just based on location and quality. And what we're basically seeing is a lot of high net worth individuals purchasing Walgreens and thinking, all right, I'll take the remaining term and earn a solid yield, and then it's a great spot or a decent spot. And I realize another tenant will want it since these are corners and drive-throughs; so they aren't too concerned about pinpointing who will backfill it, just understanding on a macro level that it's a sound investment. So a pretty active market when it comes to Walgreens, and with At Homes, you're seeing users who want to secure these big box positions. And as you're aware, most At Homes pay low rent. So many of these are in the money when comparing market rates to what At Home pays. And so it's really, as big boxes grow scarcer. There's quite a few people. Again, if it's a good location, good market, folks are interested in taking those down and either redeveloping them or having users that will take the box split up. I hope that's useful.

No, John, that was especially useful. And as a quick follow-up, right? You had the loan paid back. Deployment of capital slowed somewhat in the quarter after a strong first quarter. And then you also repurchase shares. So when you consider how you'd like to allocate capital from here on, it sounds like the pipeline is growing, and the acquisitions are going to be — and loans will be a focus going forward. Can you discuss the balance among all the various options, along with bringing leverage down, and just how you're working through all of that?

Yes, sure. Look, we're seeing additional opportunities, quite interesting opportunities, solid sponsors. And sadly, the deals are taking somewhat longer; so we didn't get one during the quarter. One, we're quite hopeful to get during the quarter, but they're actually talking with the tenant about expanding, and it's going to take some time for them to go through a real estate committee and everything like that. So — so sadly, that didn't happen during the quarter, but hopefully, this quarter will. But — and we'll continue selling through some of the credits that we don't like going forward, and perhaps a bit of selling assets and paying down debt, which as Phil mentioned regarding the loan repayment, there's clearly a bit of a hit to earnings. But since we're such a low multiple stock, we're not concerned about kind of managing that. We simply want to do the right thing, and we're very optimistic about the acquisitions and loan investments in front of us, which we believe will be very accretive to the company, and we'll be eventually reflected in the stock price, we hope, but I think we'll be fairly active this quarter. So we're pretty excited by the opportunities that we see.

Could we examine the At Homes you're running right now? Would those sites deliver stronger productivity for them? Any perspective you can share on that?

Yes. That's right; we don't anticipate they'll turn these down at all. Operations there are solid, and the locations are solid; so I don't foresee that happening; and in fact, we've got folks who'd rather be away from there than on site. So we'll keep watching it, but up to now, things look good.

All right. So following At Home, what's the watch list going to look like?

Following At Home — well, it isn't — as you're aware, over the past 2 years we've been extremely proactive in trimming various credits; and honestly, it's simply not that deep. We've basically absorbed the blows wherever they came; so — nothing really is the sort of thing that would keep us awake at night, so to speak.

All right. And after that, you brought up that you're aiming to offload those 2 empty properties. Would both of them fall into the held-for-sale category, and can you give any sense of how much — I'd guess there's likely somewhat negative NOI coming from those properties — what sort of drag would that create?

Absolutely. I'll have Phil address the accounting side of it.

Right. So both of those aren't being reported as held for sale. What I was doing on this call was essentially giving everyone a heads up that, at this stage, I think we're more inclined to simply sidestep the carry cost and proceed toward the appealing investment opportunities that we're seeing. Those don't represent a significant negative drag. It's really just sort of the...

I mean, you've got property taxes, insurance, and management of the properties. So it isn't massive, but it certainly isn't negligible either; so as soon as those get sold and you're reducing your debt, the benefit adds up fast.

I'd like to revisit the M&A landscape and get a bit more detail about the types of assets you're going after. Is it investment-grade real estate with longer lease durations that you want, or would you say you're flexible about whatever opportunities the market presents?

Sure. As we said on this call, we're absolutely following the Barbell strategy — we want investment grade assets with longer duration leases, or at minimum strong locations where, once we've bought a property, we believe we can extend and blend; and then essentially pairing those with the higher return yielding kinds of investments. So we're chasing opportunities on both fronts, and we're confident we'll close something this quarter. Broadly speaking, though, that's the idea: on the acquisition side we're aiming for greater quality, pairing it with the loan investment side.