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

Thanks. On this morning's call with me are John Albright, our President and Chief Executive Officer, Philip Mays, our Chief Financial Officer, plus other executives, all of whom can take questions while we're on the line. A reminder: under federal securities laws, a great many of the remarks we make today count as forward-looking statements. It's possible the company's actual future results will end up differing substantially from what these forward-looking statements describe, and we have no obligation to revise them. The factors and risks capable of making actual results diverge materially from what we expect get disclosed periodically, in more detail, in 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; so with that, I'll hand the call to John.

Thanks, Jenna, and good morning to you all. We're happy to share that we delivered yet another robust quarter, marked by a 32% rise in AFFO per diluted share versus the comparable quarter a year ago, along with roughly $77 million in total investment activity at a blended initial yield of 8.7%. Thanks to this activity, annualized base rent for our property portfolio reached $50 million as of quarter end, with 55% of that tied to tenants carrying investment-grade ratings, while our commercial loan portfolio stayed right at our target level of 20% of total undepreciated asset value. Turning first to property acquisitions, we picked up three properties this quarter for $36.6 million, at a weighted average initial cap rate of 7.4% and a weighted average remaining lease term of 9.2 years. Among these were a three-property portfolio leased to Aldi, HomeGoods, and Petco, plus two properties that are ground leased to Lowe's and Alamo Drafthouse, the latter a subsidiary of A+ rated Sony Group Corporation. These purchases gave a meaningful boost to the credit quality of our portfolio. The share of ABR coming from investment-grade rated tenants rose from 50% to 55%, fueled by acquisition activity that was 84% investment grade. As of quarter end, four of our five largest tenants — Lowe's, Dick's Sporting Goods, Walmart, and Alamo Drafthouse — now carry investment-grade ratings. More broadly, at quarter end our property portfolio was made up of 128 properties spanning 4.5 million square feet in 31 states, with 99.5% occupancy and a WALT of 9.2 years. Shifting to our commercial loan investments, this quarter we originated a new $40 million first mortgage loan, with $6.2 million funded during the quarter at an initial yield of 10%. That loan is secured by a 24 acre, 55,000 sq ft anchored retail development, and it follows the grocery shadow anchored development loan we originated back in the first quarter. Additionally, this quarter we received full repayment of $8 million in commercial loans that had carried a weighted average yield of 8%, which lets us recycle that capital into investments with higher yields. Given this activity, at quarter end our commercial loan portfolio was composed of 13 loans with an outstanding face amount of $167 million, at a weighted average coupon rate, including PIK interest, of 13.2%. Our loan portfolio continues to sit at our targeted level of roughly 20% of the company's total undepreciated asset value, which complements our property portfolio and lifts the overall yield we earn on total assets. That said, as we've noted before, the timing of fundings and repayments can make the loan portfolio's relative size fluctuate from one quarter to the next. With the investment activity we completed this quarter and a strong pipeline of opportunities, we took the chance to utilize our ATM programs to raise capital. Our pipeline still holds appealing opportunities, among them high quality properties net leased to investment-grade rated tenants that would improve our portfolio's credit metrics, as well as attractive loans to replace maturities. Finally, given our earnings growth and the taxable income outlook for the company, our board has approved a 6.7% raise in our quarterly common dividend, bringing it to $0.32 per share, effective starting in the third quarter of 2026. Set against our AFFO for the second quarter of 2026, this fresh rate for the regular quarterly common dividend works out to a payout ratio of 55% — fairly low. On top of that, for the full year we are lifting the bottom end of the guidance we gave for both FFO and AFFO, and Phil will walk everyone through those specifics afterward; so with that, I'll hand things over to Phil.

Appreciate that, John. Let's start with the financials. Total revenue for the quarter came in at $20 million, which consisted of $12.6 million in lease income plus $7.3 million of interest income from commercial loan investments. FFO per diluted share for the quarter landed at $0.57, while AFFO per diluted share was $0.58 — that works out to roughly 30% and 32% growth, respectively, compared with the same quarter a year ago. Worth flagging that the quarter's results contained about $300,000 of other income tied to a non-refundable deposit we got when a contract to sell an At Home to an end user was terminated. At Home had signaled they intended to renew their lease, so the buyer chose to walk away from the deal. Turning to the six months ended June 30th, total revenue reached $38.4 million, made up of $25.2 million in lease income and $13.1 million in interest income from commercial loans. FFO and AFFO per diluted share were $1.10 and $1.11, respectively — growth of 25% and 26% versus the comparable stretch of the prior year. The earnings growth for both the quarter and year to date came mainly from our investment activity, especially the expansion of our commercial loan portfolio, which we grew to roughly 20% of undepreciated asset value over the last year. Now on to capital markets activity. Throughout the quarter, we kept making opportunistic use of both of our ATM programs. Through our common stock ATM program, we issued about 1.1 million shares at a weighted average gross price of $19.31 per share, generating net proceeds of $21.7 million. Through our Series A preferred ATM program, we issued roughly 156,000 shares at a weighted average gross price of $25.18 per share, bringing in net proceeds of $3.9 million. Year to date, the combined net proceeds we've raised under these programs total $61.7 million. At the close of the quarter, common shares and units outstanding came to approximately 18,819,000, with preferred shares at approximately 2,426,000. Given our investment activity and equity issuance, we finished the quarter with net debt to pro forma adjusted EBITDA of 6.4x — an improvement from 6.6x last quarter and 6.7x at the start of the year. As of quarter end, debt outstanding stood at $369.5 million with a weighted average interest rate of 4.38%, factoring in our in-place swaps. Counting cash on hand, available liquidity at quarter end was about $83 million. Also, after the recast of our credit facility earlier this year, nothing on our debt comes due until 2029. One reminder on interest expense: as we've previously disclosed, $100 million of SOFR swaps at 2.05% tied to our 2029 term loan matured in May, and we replaced them with swaps that fix SOFR at 3.36% for the remaining term. On the property portfolio side, we closed the quarter with annualized straight-line base rent of $50 million. As a reminder, the portfolio holds four properties picked up through sale leaseback transactions, plus the Alamo Drafthouse in Denver that we acquired this quarter, which counts as a sales-type lease. Even though those five properties qualify as real estate under both tax and legal rules, GAAP says we have to treat them as financings. Taken together, they account for roughly 12.6% of our straight-line ABR — that's $6.3 million — and about 10.6% of annualized in-place cash base rent, which comes to $5.1 million, and those cash payments show up as interest income instead of lease income. You'll find a supplemental table in our quarterly earnings press release that lays out the details of our commercial loan portfolio and the interest earnings tied to it. On the common dividend side, we paid $0.30 per share in quarterly cash dividends during the quarter. As John mentioned, the board has approved a third-quarter common dividend of $0.32 per share, which works out to a 6.7% increase, plus a quarterly cash dividend of $0.50 per share on our 8% Series A preferred stock. Moving on to guidance: for the full year of 2026, we're raising the low end of our outlook, which gives us a new FFO range of $2.10-$2.13 per diluted share and a new AFFO range of $2.12-$2.15 per diluted share. Our assumption for investment volume stays the same at $170 million-$200 million; on dispositions, though, we're bringing our expectations down to a new range of $20 million-$40 million, versus the prior range of $30 million-$60 million. Also, given the equity we issued during the quarter, the prospective quarterly run rate on our base management fee now sits at just over $1.4 million a quarter. I want to point out that no incentive management fee has ever been paid, and none of it is baked into our guidance. Alpine's management agreement allows for an incentive fee that could be earned depending on total shareholder return across the full calendar year, figured using the full year dividend and the last 10-day VWAP for the calendar year. So if any incentive fee is earned, it gets recorded in the final quarter of the year. For more detail on our management fees, including the incentive management fee, please see our filings. Operator, let's open the call to questions.

Morning, and thanks. To kick things off, you brought up the loan portfolio being close to that 20% cap on total assets. How are you thinking about your appetite moving forward when it comes to going past that 20% if you see genuinely appealing lending opportunities, or should we anticipate that most new investments will actually come from net lease real estate? And on that front, how would you plan to fund it? Does that come more from dispositions, or how are you thinking about generating value on the net lease real estate side?

Yeah, thanks, Jay. Sitting in front of us in the pipeline is a decent amount of net lease investments, and hopefully all of those come to fruition, or a good portion of them. When it comes to lending, there's one we're evaluating, but nothing much after that. You won't see the loan portfolio exceed 20%. Should it happen, it's purely a timing matter; it goes past 20%, we've got some payoffs on the way, and we do have some payoffs on the way. As we expand, maybe the loan book drops under 20%. Regarding how we finance the acquisitions, clearly we might have some sales on the horizon, but really it's through our line. Phil can probably speak to that a bit more.

Jay, when it comes to funding these acquisitions, we're going to start with our credit facility and then potentially mix in some divestitures, and if it makes sense, we could also layer on some preferred or common equity. At the outset, it's going to be the revolver that we draw on to complete them.

All right, thank you for that. One more question from my end. Regarding the disposition side, you lowered and revised that guidance, and it appears no dispositions occurred during this quarter. I'm just wondering whether there has been some sort of strategic change in the way you're considering particular assets or tenants that you might have originally leaned toward selling off, or whether this simply mirrors the broader transaction market perhaps not being where you'd like it to be so you can sell at full value. I recognize you've already put in considerable effort to bring the portfolio to a point where you believe it's genuinely healthy. I'm just wondering what drove the dynamics behind anticipating fewer dispositions.

It's somewhat more a matter of timing when it comes to tenants who have shown interest in extending their lease term; we'd like to complete an extension or a lease renewal that gives you that improved cap rate valuation; essentially it's about getting the properties into a stronger position so that you can draw out additional value.

Okay. I'll hold it there. Thank you.

Sure.

Morning. Appreciate you fielding this. It looks as though there were certain one-off items plus a few shifting components affecting the AFFO run rate between Q2 and perhaps Q3. Phil, could you take us through what the comparable AFFO run rate would look like relative to what you posted, accounting for the non-cash item or that single payment tied to the sale, plus the hedges — essentially, how does the run rate AFFO shift as we move ahead?

Michael, the figure we posted this quarter was $0.58. A few revenue items in there are one-off in nature, and certain costs are only partly reflected — not yet fully baked in the way they'll be across the rest of the year. On the revenue line, if you look at our income statement, investment and other income stands out, and it's up roughly $300,000 for both the quarter and year to date. That came from a non-refundable deposit we were allowed to retain. We had an At Home property under contract for sale to an end user who intended to occupy the site. Once At Home came out of bankruptcy and signaled they'd be renewing their lease, that buyer walked away from the contract since they couldn't obtain the property in the manner they'd wanted, and we were permitted to keep their non-refundable deposit; the figure is $300,000, which isn't big in nominal terms, but on a per share basis it works out to roughly $0.02 of earnings. Beyond that, as you know and as I mentioned during our prior call, earlier this year we refinanced our debt and extended our term loans — one had originally been set to mature in May of this year, another in early next year — and we held swaps that at first matched up with those maturity dates. Once we extended those maturities, we arranged swaps for the remaining balance, and both transitioned from the original swaps into the new forward swaps. One of those took place this quarter on our 2029 term loan, moving up roughly 130 basis points. Another will occur near the end of January on our 2031 term loan, and it too will move up approximately 130, 140 basis points. On top of that, the only other item worth noting is that we issued equity during the quarter. Naturally, it's included in the quarter on a weighted average basis. Next quarter it will carry full weight; that also nudges our management fee up somewhat. If you take the present $0.58 and make adjustments for those three things, you land at roughly a new initial run rate of $0.52, which we then build upon through our investments and capital as we deploy it to bring it back up.

That's really useful. So, regarding the management fee, could you sort of walk through the pluses and minuses of issuing equity? Obviously, being in a position where you feel confident enough to issue equity is a strong sign. At the same time, there's the incentive angle since it pushes the management fee higher, and then there's potential dilution from the denominator as well.

I believe we've demonstrated previously that the management fee isn't what's steering things, since we repurchased a substantial amount of stock back when our share price had become really out of sync with NAV, and doing so brought our management fee down considerably. What matters is essentially making strong investments and generating earnings, and I think that's been evident. The returns have been outstanding, and even so, our FFO exceeds EPRT's while our share price sits $10, $11 below EPRT. I believe there's meaningful room ahead of us in terms of how we can generate additional alpha for our investors.

That answers my question. I appreciate it, sir.

Right; and Michael, one more point from me — when you consider businesses like ours, whose market caps are similar, G&A usually comes in around 12% or 13% of total revenue. Right now, ours sits nearer 10% of revenue. Given how big this company is, I'd call that a sensible burden.

I appreciate you clearing that up. Best of luck for the second half.

Very well. Thanks.

Hi, everyone. Good morning. I appreciate you taking my question. Could you discuss the investment guidance a bit and explain what might push it to that upper bound rather than the lower bound, as well as your thoughts on timing? Would acquisitions likely land late in this quarter or early in the next one?

Yes, regarding the quality of opportunities we're seeing, our pipeline looks quite healthy, and we're fairly advanced on a few deals. Actually, we expected certain acquisitions to close during the previous quarter, but they were delayed. My guess is we'll be busy this quarter, and I'm eager to share updates as things move forward. The pipeline is robust, and you won't need to wait very long for it.

Understood. Can you share some detail regarding the kinds of tenants that are now in your sights? For the properties this quarter, cap rates dropped somewhat. Looks like you added some strong credits there. What's the right way for us to frame the cap rate, plus what you'll be pursuing moving forward?

We remain concentrated on credits of a high quality sort. You're aware that our emphasis is on real estate rather than credit, though it just so happens that we locate solid locations paired with solid credits. My take is that cap rates will certainly land within the sevens; dipping under seven isn't necessary for us, yet from seven upward, so to speak, is roughly where we are identifying some attractive sorts of targets.

Understood. Fantastic. That covers everything on my end. Thanks, everyone.

Appreciate it.

Thank you.

Morning, everyone. John, was it mentioned that two of the deals closed during this quarter involved ground leases?

Regarding those ground leases, Phil, could you assist me with that?

Acquired this quarter was on a ground lease.

Right.

The remaining properties weren’t under ground leases, but the Lowe’s we picked up during the quarter was a ground lease.

All right. At this stage, is that the sole ground lease you hold, or does it represent something meaningful within the portfolio when measured as a share of ABR?

No, certainly we have additional ones. I mean, Lowe's — like Phil said — we own other Lowe's locations, and those sit on ground leases.

All right. Did the REIT regulations leave you with no choice but to raise the dividend, or was it simply a call the board reached right now? What lay behind that?

Honestly, the reason is purely the rise in taxable income that came with higher earnings; when we examine taxable income, we consider not only this year but also look ahead, since we want to be certain we're distributing all of our taxable income. The rise in taxable income is what caused it.

Alright, that covers everything on my end. Appreciate it. Enjoy the weekend.

Same to you.

Thanks, and good morning. I'd like to ask about your exposure to investment grade — it appears to have climbed to 55% during this quarter. Do you have any goal figure in mind for that exposure?