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

Good morning, everyone. Joining me on today's call are our President and Chief Executive Officer, John Albright, our Chief Financial Officer, Philip Mays, and other members of the executive team, all of whom will be available to answer your questions later in the call. I'd like to remind everyone that some of what we say today qualifies as forward-looking statements under federal securities laws. The company's actual future results could differ materially from what these forward-looking statements describe, and we assume no obligation to revise them. You can find a more detailed discussion of the factors and risks that might cause actual results to deviate materially from our expectations in the company's Form 10-K, Form 10-Q, and other SEC filings, which we disclose from time to time. You can locate our SEC filings, the earnings announcement, and our latest investor deck—which include reconciliations for the non-GAAP metrics we reference—on our site, www.alpinereit.com. Having said that, I'll now hand things over to John.

Thanks, Jenna, and good morning to all. We're happy to share results for yet another robust quarter, one marked by AFFO per share rising 4.5% versus the comparable period a year ago, along with substantial investment activity both while the quarter was underway and soon after it closed. In our view, that activity has laid the groundwork for ongoing earnings growth over the rest of 2025 and on into 2026. Let me begin with what we invested in. While the quarter was underway, we picked up 2 properties ground leased to Lowe's, paying $21.1 million, at a weighted average initial cap rate of 6% and a weighted average lease term, or WALT, of 11.6 years. Investment-grade rated Lowe's now stands as our biggest tenant by AVR, moving ahead of investment-grade rated DICK'S Sporting Goods, which has slipped to #2. Through the third quarter, so far this year, property acquisitions came to $60.8 million, at a weighted average initial cap rate of 7.7% and a WALT of 13.6 years. Turning to property sales during the quarter, we disposed of 3 assets for $6.2 million, among them an Advance Auto Parts, our vacant theater arena, and a vacant property formerly leased to a convenience store. So far this year, disposition volume through September 30 reached $34.3 million, of which $29 million, excluding vacant properties, was sold at a weighted average exit cap rate of 8.4%. At the close of the quarter, our property portfolio stood at 128 properties, totaling 4.1 million square feet, spread across 34 states, with occupancy of roughly 99.4%, 48% of ABR coming from investment-grade rated tenants, and a WALT of 8.7 years. Beyond that, following the quarter's end, we bought a four-property portfolio for $3.8 million, at a weighted average initial cap rate of 8.4%, and we went nonrefundable on a sales contract covering 1 of our 8 remaining Walgreens for $5.5 million. Now let me turn to our loan investments. Thanks to our long-term reputation and deep relationships, we keep spotting and acting on compelling chances to originate high-yielding, quality loans with strong sponsors at attractive risk-adjusted returns. While the quarter was underway, we originated 2 loans and 1 upsized loan, together totaling $28.6 million, at a weighted average initial yield of 10.6%. That included a first mortgage loan for industrial redevelopment, plus a seller financing note tied to the sale of our former theater in Reno. So far this year, through September 30, we originated $74.8 million of commitments for loan investments, at a weighted average initial cash yield of 9.9%. Also, as our earnings release discloses, we have originated 3 loans since the quarter closed. Most notably, a first mortgage loan secured by luxury residential development in the Austin, Texas metropolitan area. Under that loan agreement, we funded $14.1 million at closing in connection with a Phase 1 loan carrying a total commitment of $29.5 million. The loan agreement further provides for a Phase II loan with a commitment of up to $31.8 million, with all additional funding contingent on the borrower meeting certain conditions. At present, we expect to fund the remainder of the Phase 1 loan by year-end, and the Phase II loan in early 2026. For the entire 36-month term, this loan starts out carrying interest of 17%, which includes 4% paid-in-kind interest, then it decreases to 16% during months 7 through 12, and 14% from then on. Repayment happens as collateralized home lots get sold, and those sales are expected to kick off as soon as late 2025; like every loan we make, this one is, in our view, secured by solid real estate with a high-quality sponsor behind it. With our bigger loans, institutional parties frequently show interest in buying a senior tranche, and right now we expect to take part in a piece of that out to shrink our net hold while boosting yield further. To wrap up, we think the investment deals we've done lately, in both property and loan positions, set Pine up for continued growth for the rest of 2025 and on into 2026; with that, I'll hand the call to Phil.

Thank you, John. Starting off with our financial results: during Q3, we brought in total revenue of $14.6 million, which was made up of $12.1 million in lease income plus $2.3 million in interest income from loan investments. For the quarter, FFO and AFFO each came to $0.46 per diluted share, which amounts to growth of 2.2% and 4.5%, respectively, compared with the same quarter a year earlier. On a year-to-date basis through September 30, total revenue reached $43.6 million, comprising $36 million of lease income and $7.4 million of interest income from loan investments. FFO and AFFO were each $1.34 per share, reflecting growth of 3.9% and 3.1%, respectively, versus the comparable period last year. On the subject of our common dividend, as we previously announced, we declared and paid a quarterly cash dividend of $0.285 during the quarter. That dividend equates to an annualized yield of roughly 8.25% and continues to be well covered, with an AFFO payout ratio of approximately 62% for Q3. Switching to the balance sheet: we finished the quarter with net debt to pro forma adjusted EBITDA of 7.7x, along with $61 million of liquidity, which consisted of about $1.2 million in cash available for use and $60.2 million accessible under our revolving credit facility. That said, thanks to in-place bank commitments, the available capacity under our revolving credit facility can grow by another $31.3 million as we acquire properties, which gives us total potential liquidity exceeding $90 million. As for our property portfolio, we closed the quarter with annualized base rent of $46.3 million on a straight-line basis. As mentioned previously, that figure includes roughly $3.8 million of ABR tied to 3 single-tenant restaurant properties that were acquired in 2024 via a sales leaseback transaction. Under GAAP, these particular sales leaseback transactions are being accounted for as financings. As a result, the current annual cash payments of approximately $2.9 million show up as interest income in our statement of operations rather than as lease income. Given how much loan activity has occurred since quarter end, let me give a current update. As of today, our loan portfolio, which reflects the activity John discussed along with some other recent activity, stands at approximately $94 million with a weighted average interest rate of 11.5%. Importantly, within that amount, roughly $21 million at a weighted average rate of 10.4% is set to mature in 2026; we presently anticipate using proceeds from those 2026 maturities, the sale of a senior tranche of 1 or more loan investments, property dispositions, and existing capacity under our revolving credit facility in order to fund loan commitments. One brief note: the $1.9 million impairment charge recorded this quarter relates to Walgreens, which is currently under contract to be sold. Now to guidance. Because of our recent elevated investment activity, we are raising both our FFO and AFFO outlook for the full year of 2025 to a new range of $1.82 to $1.85 per diluted share, up from the previous range of $1.74 to $1.77 per diluted share; with that, operator, please open the call to questions.

There's been a great deal of investing going on, both in the quarter itself and after it closed. So could you give us some insight into your approach to financing all of that?

Michael, John here. Thanks. Well, as you're aware, we've had a lot on our plate when it comes to recycling. So part of the funding will come from selling assets as we continue raising the credit quality of our portfolio. Beyond that, a small portion comes from our loans reaching maturity. And then essentially a bit will be net growth, since we expect further sales, so there's somewhat of a balance on each side.

Understood. Then regarding all that lending volume, the returns you're getting are quite attractive, I suppose. The flip side, though, is that it may create unevenness across quarters when those notes mature. So could you share your approach to handling those maturities and making sure AFFO stays relatively stable?

Sure. That's a fair question. When this lending initiative was launched roughly 3 years back, one concern raised was that you wouldn't be able to swap out those loans at the same rates. Yet here we are. We're accomplishing it through pre-existing relationships without any real effort. So as additional chances arise, one component of the funding approach Phil brought up involves offloading senior tranches of those loans. These loans are quite small in size, and abundant capital is available. That means plenty of possibilities exist. So I wouldn't say I'm concerned about swapping these out or seeing earnings decline, since these represent one-off types of situations. A robust pipeline of very high-quality assets and sponsorships is what we're observing.

Understood. Well, if you're achieving this without much effort — I can't wait to see the results once you actually try. Only joking. Thanks a lot, and best of luck during the fourth quarter.

John, given what's happened lately in residential development, I believe you have a loan in Industrial. Could you share your perspective on other property types and whether you'll keep chasing deals beyond retail?

Yes. This isn't intentional — we're simply coming across distinctive chances involving exceptionally solid sponsors and exceptionally solid assets. That industrial asset in Fremont, outside San Francisco, was originally a retail property that the sponsor is essentially repositioning for industrial use, which is the higher and best use. Consequently, one element of our underwriting there is that if we ever needed to foreclose, roughly 50% of the acquisition could remain retail and still function on our basis. So, addressing your question, we will definitely remain more concentrated on the retail side. However, should we encounter distinctive chances within that brief duration, we have no objection to pursuing them.

Alright, that helps. And then, Phil, you mentioned a few places the money will come from in the coming year — certain loan maturities, possible asset sales. Is it fair to assume those funds get put back to work? Or do those proceeds go toward reducing debt and bringing leverage down?

A mix of the two, though I'd say the first priority is redeploying into many of the loans that were completed not long ago, R.J. The maturities returning from the '26 loans will — what we're doing is essentially putting that capital back out there a bit ahead of schedule, with the new loans being issued first. Those fresh loans come out first; so a good portion simply gets recycled into that; however, at the edges, you might notice leverage declining somewhat.

Regarding that high-end housing project in Austin, could you explain what made you feel at ease with providing the loan, and which point of construction it has reached right now?

Sure. If you recall where CTO began and my arrival 14 years back, we possessed 14,000 acres in the Daytona Beach area that needed selling. That background gave us deep knowledge of building and selling residential lots. As for this particular project's position, it's essentially near the end of handing over lots, and in fact some lot transactions will begin next week. So we're stepping in during a later phase rather than an early one.

Great. And regarding that loan, what portion are you aiming to sell?

We'd likely aim to sell as much as 50% of it. That really hinges on how quickly the proceeds return. So it might be lower, but it could be as much as 50%.

Then, shifting topics somewhat, regarding the empty properties disposed of during the quarter, what amount must be taken out of the operating costs you are still bearing?

Yeah. Phil here. The two biggest unoccupied sites we hold are the Reno theater, which got sold, carrying a yearly expense run rate of roughly $400,000; and the remaining large one is the old Party City, which likewise runs near $400,000 yearly. So, should you annualize the present quarter, an additional roughly $400,000 per year will drop off once Party City is disposed of.

And Party City didn't get sold during this quarter, that...

It didn't. Reno was sold during the quarter. That sale happened early on in the quarter. So essentially the entire effect of that shows up; however, Party City hasn't been sold at this point.

Alright. Two empty properties were disposed of during the quarter. So is the remaining one simply insignificant?

Yeah, there was a small — what we have — Reno and Party City are the 2 biggest of those. We've got a handful; we had ex-convenience stores that are truly tiny. One got sold in the quarter, 2 remain. Combined, they don't even reach $100,000 on a yearly run rate. So they're quite small and marginal.

When you talk about the disposition guidance, does that cover the big loan interest sale you might do, or do dispositions in the guidance refer only to properties?

Rob, if we did it, it isn't — it would land at the top end, or go past the top end, should it close before the year is out. Pinpointing when it happens is a bit tough on any given day. It might be right before the year ends, or it might be slightly after the year ends. Should it take place ahead of year-end, that would leave us at the top end, or above the top end, of guidance on the disposition side.

All right. Yet you'd put that in the disposition category? All right.

When it comes to loans tied to properties, we've typically recorded those as dispositions; and looking at the guidance, we sort of introduced a specific line item—a small bucket—when we included year-to-date actuals, and one line covered loan sales, displaying 0, simply to make it clearer that we do in fact regard that as a disposition, though should loan 1 come through, we'd likely end up slightly above our high end.

All right. The thing that prompted my question is this: when I compare what's been invested and what's been sold off so far this year against your guidance, it kind of suggests somewhere between $50 million and $65 million of net investments during Q4. From the Publix and Verizon repayments, you're getting roughly $27.5 million. So I'm just attempting to work out how that gets financed, particularly with the stock price where it sits. John, I'm not sure whether you'd be at ease issuing equity at this point, or if you folks would simply draw on the line, but I was kind of wondering how you're viewing that incremental piece and where leverage tops out in Q4 if you choose to fund some of those net investments through the line.

Yeah. So before — then I can — I'll have John respond. Regarding the investments, we obviously book the entire amount for the properties. And when it comes to loans, we book the origination or the amount initially committed. So as of now, including all the later activity on investments, we're at nearly $200 million; and out of that $130 million, $135 million consists of loans, Rob, though just 72 have been funded to this point. Also, in the guidance, we placed brackets around the loan figure partly to make clear — since it's a great question — how much of the loans has been funded year-to-date; so not all of it will fund, because by year-end the loans won't be fully funded.

All right. So the final net figure would end up below that roughly $50 million to $65 million you're suggesting, right, since that amount takes in the entire value.

Correct. What I'm saying is that as much as $50 million, $60 million within that could consist of loans that haven't been funded.

All right. That's useful, since it had appeared as though that leverage would top out at a rather larger figure if you folks handled the whole thing on the line?

Yeah, yeah; so as much as $50 million to $60 million within that total might be tied to loans, sitting unfunded by year-end. And beyond that, you might likewise see something like an A note sale before the year closes, which would do more to ease that burden on the funding.

All right. Then, John, I suppose what remains in the property portfolio that you're looking to offload? I mean, does this amount to clearing out whatever is left over? Is it reducing some of those dollar-related holdings? When you consider dispositions, both for Q4 and for 2026, how are you approaching it — what do you expect you'll end up selling, and where does the market stand for those kinds of assets right now?

Yeah. So, as we went over earlier, we've still got a number of Walgreens that we are absolutely working through, and when it comes to dollar stores, as you pointed out, that's certainly going to be an area where we cut back. Beyond that, there are others — we've disposed of Advance Auto Parts and similar things at Tractor Supply, so those kinds of assets will keep grinding along, so to speak, as long as we're seeing favorable pricing. So really, it's about leveraging that to reinvest into some of the high-credit tenants we added during this quarter, Lowe's and others like that. So you'll see us staying busy as the year wraps up, consistently bringing in some truly top-tier credits, and we're excited about how this company will look beginning next year.

And so, I suppose with the Lowe's deal, did that come about opportunistically? Or, from where you sit, will future property purchases lean more toward tenants with stronger credit and essentially investment grade or better? Or do you still intend to buy things throughout the spectrum on a property-by-property basis?

Yeah; as for the Lowe's, that one was off market. A relationship made it happen. We'd looked at those assets a couple of years back, and they got pulled off the market; so having them in our portfolio makes us extremely excited. Regarding — so you'll see more of the big box type assets with high-quality credit coming in. You probably won't see us actively buying a generic Tractor Supply. Obviously, we don't have car washes. So that distinction — no car wash in the portfolio — is something we like. So we feel we're set up pretty strong to kind of offer investors something a little bit different, and getting the Lowe's and DICK'S into the top 5 just gives investors an exposure that they can't get at other locations?