John Massocca

John Massocca asked about the expected yield on Alpine's 2026 investment volume and the anticipated mix between structured and net lease investments. He also inquired about current cap rates for net lease properties, comparing a recent 8.5% acquisition to target rates for investment-grade properties. Lastly, he asked if there are opportunities for more participation interest sales on other structured loans beyond the Austin investment.

Answer

CFO Philip Mays indicated that about $25-$30 million of the 2026 investment volume would come from the loan side, with the balance from properties, and yields are expected to be similar to past performance. President and CEO John Albright noted that cap rates for quality investment-grade properties remain tight but Alpine targets strong real estate in MSAs with shorter leases and high renewal likelihood for higher yields. John Albright stated they could sell more participation interests but prefer to hold them, with Austin being the primary contemplation currently, done as an accommodation.

John Massocca asked about the expected yield on Alpine's 2026 investment volume and the implied mix between structured and net lease investments. He also inquired about current cap rates for net lease properties, comparing a recent 8.5% acquisition to target rates for investment-grade properties. Finally, he asked about opportunities for additional participation interest sales on other structured loans beyond Austin.

Answer

CFO Philip Mays indicated that approximately $25 million to $30 million of the guidance would come from the loan side, with the balance from properties, and that the current book's rate is a good estimate for the year. President and CEO John Albright noted that yields are not dissimilar to the past, with no market tightening due to Alpine's flexibility. He explained that investment-grade property cap rates would be lower than the recent Aspen acquisition, similar to previous Sam's Club purchases, focusing on strong real estate in major MSAs with shorter leases but high renewal likelihood. John Albright stated that while they could sell more participation interests, they prefer to hold the loans, with current contemplation for sales primarily for Austin as an accommodation.

John Massocca inquired if the current level of loan investment activity represents a maximum desired balance or if Alpine Income Property Trust is evolving into a mixed loan/net lease REIT, and why the loan amount for Cornerstone Exchange saw a significant increase.

Answer

CEO John Albright indicated that loan activity could increase further, becoming a more permanent fixture due to repeat customers, flexibility, speed, and higher yields compared to generic net lease properties, with right of first refusal on asset acquisitions. He explained the Cornerstone Exchange loan increase was due to additional signed leases, as the company only loans on developments with signed leases.

John Massocca questioned whether the current level of loan investment activity represents a maximum balance or if Alpine Income Property Trust is evolving into a more permanent mixed loan/net lease REIT, and inquired about the significant increase in the loan amount for the Cornerstone Exchange project.

Answer

CEO John Albright indicated that loan activity could potentially increase further, emphasizing that it has become a more permanent fixture of the investment strategy due to repeat customers, flexibility, speed, and the ability to achieve higher yields compared to generic net lease properties. He attributed the increase in the Cornerstone Exchange loan to additional signed leases and the subsequent growth of the development.

John Massocca from B. Riley Financial questioned the risk of early repayments in the loan portfolio, the expected timing of new investments, and whether guidance includes conservatism related to the At Home bankruptcy.

Answer

John Albright, President & CEO, stated that early loan repayments are unlikely as they are inefficient for sponsors. Philip Mays, SVP, CFO & Treasurer, confirmed new investments are expected later in the year and that no specific negative impact from At Home is baked into guidance, as they expect to continue collecting rent.

John Massocca sought to clarify if the company's guidance includes any resolution for the vacant Reno theater and Party City assets. He also asked about the LTV on the 'at home' seller financing and for more detail on the fungibility and location of the Germfree Labs property.

Answer

Philip Mays, an executive, stated that guidance assumes zero rent from the vacant assets, but their potential sale is included in the high end of disposition guidance. John Albright, an executive, specified the 'at home' financing was at ~65% LTV and that the Germfree Labs property is a highly fungible industrial asset in Central Florida, acquired at an attractive basis.

John Massocca from B. Riley Securities questioned the 2025 acquisition guidance, asking how much is visible in the pipeline versus theoretical, given it's lower than 2024's volume despite positive commentary. He also asked about expected yields, credit loss assumptions, and the cause of a quarterly increase in real estate expenses.

Answer

CEO John Albright clarified that a 'fair amount' of the guidance is already under negotiation but remains conservative due to the lumpy nature of deals. He noted acquisition yields are steady to higher, while structured finance yields may have compressed slightly. CFO Philip Mays confirmed a small general credit loss reserve is in guidance. John Albright attributed the higher real estate expense to the Reno theater lease expiring in November.

John Massocca from B. Riley Securities asked about the expected split between mortgage and net lease investments for the rest of the year, typical cap rates on non-investment grade acquisitions, the strategy around investment-grade exposure, and the significance of the new Florida restaurant assets to the tenant's overall business.

Answer

Executive John Albright estimated remaining investments would be roughly one-third loan investments and two-thirds core properties. He stated they target cap rates of 7.5% and higher for non-investment grade assets but would consider dipping into the 6% range to opportunistically add a high-quality tenant like Lowe's back to the portfolio. He described their approach to investment-grade exposure as 'agnostic' but opportunistic. He also estimated the three new restaurant assets represent about 20-25% of the tenant's (Crabbys) total business.

John Massocca questioned the performance of RMR's on-balance-sheet multifamily assets relative to expectations, seeking to understand if the outperformance was market-driven (Sun Belt) or property-specific. He also asked for a detailed explanation of the projected decrease in Adjusted Net Income from Q1 2026 to Q2 2026, including tax and depreciation impacts. Additionally, he inquired about RMR's appetite for loan investments and long-term credit strategy after selling balance sheet loans to Seven Hills, and the timeline for fully raising capital for the multifamily fund and moving assets off RMR's balance sheet.

Answer

EVP and COO Matt Jordan confirmed strong operational results for the five value-add residential communities in the Sun Belt, attributing outperformance to successful capital improvements, a 70% resident retention rate, and nearly 5% rent growth for existing tenants, driven by the team's deep market knowledge. EVP and CFO Matthew Brown outlined Q2 2026 headwinds: wind-down of AlerisLife contract, sale of RMR's loan portfolio, lower construction management fees, reduced management fees from DHC and SVC debt paydowns, and annual trustee share grants, with an expected tax rate increase. President and CEO Adam Portnoy stated that credit is a growth engine, with Seven Hills mortgage REIT expected to be active in 2026, deploying over $200 million; RMR has no plans for additional balance sheet loans. He emphasized that raising capital for the multifamily fund is the top priority, aiming for completion within fiscal year 2026 (by September 30th).

John Massocca inquired about the performance of RMR Group's on-balance-sheet multifamily assets, asking if their outperformance relative to expectations was due to broader Sun Belt market strength or property-specific factors. He also sought clarification on the drivers behind the projected sequential decrease in adjusted net income for Q2 2026 and the long-term strategy for loan investments following the sale of on-balance-sheet loans to Seven Hills. Finally, he asked for a timeline for fully raising capital for the multifamily fund and moving assets off RMR's balance sheet.

Answer

EVP and COO Matt Jordan attributed the strong performance of the value-add residential communities in the Sun Belt to RMR's team's deep market knowledge and ability to identify unique opportunities, rather than just broad market strength. EVP and CFO Matt Brown detailed the expected decrease in Q2 2026 adjusted net income, citing the wind-down of AlerisLife fees, sale of loan assets, lower construction management fees, impact of DHC and SVC debt paydowns on management fees, and annual trustee share grants. President and CEO Adam Portnoy stated that lending is a growth engine, with future loan investments primarily channeled through Seven Hills, and no plans for additional loans on RMR's balance sheet. Portnoy also emphasized an "ASAP" timeline for funding the multifamily vehicle and transferring assets, targeting completion within fiscal year 2026.

John Massocca of B. Riley Financial questioned the stability of the RMR Residential revenue contribution, the required portfolio size for its retail investments before launching a fund, and whether RMR plans to create additional investment platforms. He also asked for confirmation that the potential incentive fee calculation assumes the maximum payout from DHC and ILPT.

Answer

CFO Matthew Jordan stated that RMR has good visibility into its residential portfolio and does not foresee significant asset sales in the next 9-12 months, supporting a stable AUM and revenue run-rate. President and CEO Adam Portnoy estimated the on-balance-sheet retail portfolio would need to grow to about $100 million in equity, a process expected to take multiple quarters, before a capital raise. He confirmed RMR is focused on its three seeded strategies (residential, credit, retail) but could expand the model to other sectors in the future. He also affirmed that the potential incentive fee calculation is based on the maximum fee from DHC and ILPT.

John Massocca asked what potential private capital partners are looking for in the macro environment before deploying capital and the expected timeline for a recovery in fundraising. He also questioned if RMR might increase its on-balance sheet investments given LP appetite, the target size of the value-add shopping center portfolio, and whether the $100 million target is a pipeline or under contract. Lastly, he sought clarification on whether the construction supervision revenue forecast already accounts for planned asset dispositions at DHC and SVC.

Answer

President and CEO Adam Portnoy responded that private capital partners are seeking higher, mid-to-high teen returns, which aligns with RMR's pivot to value-add strategies. He noted that while the fundraising environment is challenging, investors are still active, and a more stable interest rate outlook should spur allocations. CFO Matt Jordan stated that while more on-balance sheet investment is possible, the key to growth is raising third-party capital. Adam Portnoy clarified the value-add retail portfolio target is approximately $100 million, which is a pipeline number, with only the initial $21 million acquisition closed. Finally, Matt Jordan confirmed the construction revenue guidance is all-inclusive and already accounts for planned dispositions and related spending changes.

John Massocca of B. Riley Securities inquired about the likelihood of drawing on the new $100 million credit facility in 2025, the expected future mix between residential JV deals and on-balance-sheet seed investments, and the anticipated timeline for launching the new credit and residential funds.

Answer

President and CEO Adam Portnoy estimated a less than 50% chance of drawing on the revolver in fiscal 2025, stating it was established for flexibility to accelerate seed investments if opportunities arise. He expects the vast majority of future residential investments to be in a JV structure, though one or two could be on-balance-sheet to seed a future fund. Portnoy projected that launching these funds is likely a 2026 event, with the necessary groundwork being laid throughout fiscal 2025.

John Massocca asked if the industrial assets house consumer-facing businesses or are part of a tenant's internal supply chain, and how rent coverage is calculated for the latter. He also inquired if the size of a private equity sponsor matters for credit underwriting, especially given current uncertainties in PE capital raising and liquidity, and if there's a difference in underwriting smaller regional versus bigger brand-name private equity operators.

Answer

President and CEO Peter Mavoides explained that industrial assets are typically outdoor storage yards for service-based operators, with rent coverage based on site revenue and profitability. He acknowledged that revenue/profitability might be less tethered than a retail box but stressed the essential nature of these sites and high switching costs. He noted a wide range of businesses, some with direct sales, some internal. On private equity sponsors, Mr. Mavoides stated they prioritize underwriting real estate and unit-level profitability, then corporate credit, remaining agnostic to the equity source. He emphasized owning good real estate with appropriate basis and lease structure. He added that there are good and bad operators of all sizes, and while bigger operators might use more leverage, it's all part of the credit underwriting process.

John Massocca from B. Riley Financial asked about the expected cadence of transaction volume for Q3, given the low quarter-to-date figure, and inquired about the potential for raising debt in the second half of the year.

Answer

COO Max Jenkins advised not to read into the slow start, attributing it to summer seasonality and confirming a strong pipeline of ~$290M. CFO Mark Patten reiterated that the bond market is their preferred long-term debt source and their strong liquidity allows them to be opportunistic about timing a potential issuance in the second half of 2025.

John Massocca asked if the mentioned cap rate compression is already being seen in current deals or is a more theoretical future view. He also questioned if any Zips Car Wash properties were included in the Q4 dispositions and what drove the broader carwash sales in the quarter.

Answer

CEO Peter Mavoides confirmed they are currently 'living' the cap rate compression, with deals in the pipeline reflecting mid-to-high 7% cap rates negotiated in late 2024. He stated that no Zips properties were sold in Q4, as assets with imminent credit issues become illiquid. He explained the Q4 carwash sales were driven by a dual purpose: to create breathing room below their 15% industry cap and to proactively sell assets they no longer wished to own for the long term.

John Massocca asked for tangible signs of increased competition, the primary drivers for tenant financing needs, and the performance of the restaurant portfolio amid industry pressures.

Answer

CEO Peter Mavoides described competition as a dynamic 'overall sense' from deal negotiations, fluctuating with interest rates and spreads. He confirmed tenant financing demand is overwhelmingly for growth (M&A and development), not refinancing. For restaurants, he noted that while top-line sales are pressured, margin expansion from moderating costs is providing a buffer, leading to flattish or slightly down rent coverage.

The analyst inquired about the specifics of the planned $20 million in asset dispositions, the company's strategy for addressing the upcoming maturity of its line of credit, how the revised guidance impacts EBITDA, and recent trends in transient performance for the third quarter.

Answer

The company stated that pricing for the asset sales will be at significant multiples of parking income but did not specify the number of properties. They are confident in managing the credit line maturity through refinancing and asset sales. Regarding EBITDA, they highlighted the company's operating leverage and cost controls. For Q3, they noted that while Q2 transient performance improved over Q1, they did not have July data available yet but are optimistic about the positive impact from the conclusion of construction projects.

John Massocca of B. Riley Securities inquired about the specifics of the $20 million in planned asset dispositions, the company's strategy for addressing its upcoming line of credit maturity, how the updated guidance would flow through to EBITDA, and current transient performance trends in the third quarter.

Answer

Executive Chairman Manuel Chavez stated that pricing for the dispositions would be at significant multiples of parking income, similar to 2024 sales, but did not specify the number of properties. CEO Stephanie Hogue expressed confidence in working with their lender to manage the credit line maturity through refinancing or asset sales. Hogue also highlighted the company's operating leverage, noting that G&A is largely fixed, which benefits EBITDA as revenue grows. Regarding Q3 trends, she stated that July data was not yet available.

John Massocca inquired about the duration of Q1 headwinds, the nature of operating expenses, the specific outlook for the underperforming Detroit asset, and the timeline for debt refinancing.

Answer

Executive Manuel Chavez stated that headwinds from the Cincinnati convention center and other construction projects are expected to resolve by year-end or early next year. President Stephanie Hogue clarified that while security costs are up, some Q1 operating expenses were one-time in nature and full-year guidance remains on track. Regarding the Detroit asset, Mr. Chavez explained it has troughed faster than expected, which is a precursor to redevelopment, and he anticipates it is close to its bottom. Ms. Hogue added that the company is actively working on refinancing its debt to gain more flexibility for its asset rotation strategy, with more details expected later in the year.

The analyst asked about the specifics of the 36-month property capital recycling plan, including the expected volume and cadence of dispositions. He also inquired about plans for the line of credit, the impact of the Detroit property on 2025 guidance, and the RevPas growth assumptions baked into the guidance.

Answer

The company plans to reposition its portfolio by selling non-core assets to developers, aiming to have 1/3 under contract by the end of 2025. The disruption from the Detroit property is already factored into 2025 guidance, with significant upside expected post-redevelopment (2028-2030). The line of credit is being evaluated, with more information expected next quarter. RevPas growth is expected to be in line with revenue growth, driven primarily by utilization rather than rate increases.

John Massocca of B. Riley Securities inquired about the ongoing impact of California's Sustainable Groundwater Management Act (SGMA), the potential revenue floor provided by crop insurance for the operated properties, and the company's target liquidity level given its new operational component.

Answer

EVP Bill Reiman and CEO David Gladstone detailed their proactive strategy for SGMA, which involves investing in water infrastructure and storage to ensure water security, making their portfolio one of the best-prepared. CFO Lewis Parrish stated that crop insurance would cover their approximately $25 million investment in the crops and likely provide a small profit in a worst-case scenario. Parrish also confirmed the company aims to maintain at least $50 million in liquidity, which is well-covered by its current $150 million in available funds and $170 million in unpledged properties.

John Massocca of B. Riley Securities inquired about the ongoing impact of California's SGMA regulations on the portfolio, the potential revenue floor provided by crop insurance for the operated properties, and the company's target liquidity levels given its new operational component.

Answer

EVP Bill Reiman and CEO David Gladstone detailed their proactive strategy to mitigate SGMA risk by investing heavily in water storage infrastructure, which they believe gives their portfolio a significant advantage and supports property values. CFO Lewis Parrish stated that in a worst-case scenario, crop insurance would cover the approximately $25 million invested in growing the crops and could provide a small profit. Parrish also confirmed the company has about $150 million in available liquidity and aims to maintain a minimum of $50 million in availability to cover operating needs and debt service.

John Massocca of B. Riley Securities questioned the ongoing impact of California's SGMA regulations, the potential revenue floor provided by crop insurance for operated properties, and the company's target liquidity levels given its new operating component.

Answer

EVP Bill Reiman and CEO David Gladstone detailed a proactive strategy to mitigate SGMA risks through infrastructure investment and water banking, noting their portfolio's water security is among the best. CFO Lewis Parrish explained that crop insurance would cover the ~$25 million investment in the crops and likely provide a small profit in a worst-case scenario. Parrish also confirmed the company has ~$150 million in available liquidity and aims to maintain at least $50 million in availability.

John Massocca asked about the company's strategy for handling the Series D preferred stock maturing in early 2026, its plans for its banked groundwater assets, and whether the transaction market for California permanent crops is showing signs of loosening.

Answer

Lewis Parrish (executive) and David Gladstone (executive) outlined several options for the $60 million preferred stock, including using cash from potential farm sales or refinancing, though they noted current refinancing costs are high. Regarding water assets, Gladstone expressed confidence in their current supply, stating the bigger concern is high interest rates. He also commented that while some crop prices have improved, the farm transaction market remains stalled by the high cost of capital, despite many distressed properties being available.

John Massocca of B. Riley Securities inquired if the fourth-quarter property operating expense level is a reliable run rate for 2025, asked for the NOI impact from dispositions completed in Q1 2025, and questioned what percentage of the California portfolio is now under the new crop-share lease structure. He also followed up on the decision to cease publishing NAV, asking if it would be provided on a different cadence or stopped entirely.

Answer

CFO Lewis Parrish stated he expects operating expenses to decrease from Q4 levels, citing the sale of problematic Michigan farms and non-recurring catch-up tax payments. He quantified the annual NOI impact from Q1 '25 sales at approximately $1.5 million to $1.7 million and later clarified that the hybrid-structure farms represent about 15% of the California portfolio's value. Regarding NAV, Executive David Gladstone explained the decision was driven by the high cost (around $300,000 annually) and unreliability of appraisals, indicating the company would re-evaluate its reporting approach.

John Massocca from B. Riley Securities asked about the financial impact of selling the Michigan blueberry farms, specifically whether they were an NOI drag. He also sought to clarify the components of the $20 million rent structure change and inquired about signs of stabilization in the California permanent crop transaction market.

Answer

Executive Lewis Parrish confirmed the Michigan farms were a significant NOI drag, costing about $125,000 quarterly plus interest, and that the sale proceeds would cover the associated debt. He clarified the $20 million swing in rent structure is tied to four pistachio and wine grape farms and will shift revenue from fixed base rent to back-end loaded participation rent in 2025 and 2026. Regarding the market, CEO David Gladstone noted that low prices for nuts and grapes have hurt farm values, while Parrish added that water access remains the key driver of value in California.

Asked about the strategic possibility of marketing the entire company for sale, how the company balances accretive growth versus achieving scale, and the potential risks associated with the KB Homes land sale transaction.

Answer

The company is aware of the significant gap between its stock price and its appraised value and would consider an offer that closes that gap, but will not actively solicit a sale. The primary focus is on increasing intrinsic value through smart execution rather than pursuing scale for its own sake. The delay in the KB Homes deal is viewed as bureaucratic and logistical, not a fundamental risk to the transaction closing.

John Massocca of B. Riley Financial questioned if Motive would consider marketing itself for sale given the stock's discount to NAV, and how the company balances the need for scale against the current cost of capital for acquisitions. He also asked about the risk of the KB Homes deal failing.

Answer

CEO Aaron Halfacre acknowledged the significant gap between the share price and appraised value but stated they are not actively soliciting a sale to avoid predatory offers. He affirmed their duty is to close the value gap for shareholders and they would listen to a definitive offer. Regarding the KB Homes deal, Halfacre and CFO Ray Pacini explained the delay is bureaucratic and they are confident it will close, secured by $1.7 million in hard money.

John Massocca from B. Riley Financial asked about plans to address the outstanding balance on the revolving credit facility, trends in cap rates for office asset dispositions, and the drivers of elevated variable rental revenue.

Answer

CFO Gary Gerson outlined several options for the revolver balance, including using ATM equity proceeds, refinancing into a term loan, or a potential private placement. President Buzz Cooper noted that recent office sales occurred at cap rates that were accretive for recycling capital into industrial assets. Gerson clarified that the variable rental revenue was seasonal and not influenced by any significant one-time items in the quarter.

John Massocca of B. Riley Securities asked for details on post-quarter-end dispositions, the size of the non-core portfolio, the leasing status of the Austin office property, and whether government policy changes are making light manufacturing more attractive than warehouse distribution.

Answer

President Buzz Cooper explained that one disposition was an industrial property where the tenant exercised a purchase option, and the other was a non-core office asset. He noted that while office occupancy is over 93%, some assets like call centers are targeted for sale. On the Austin property, he mentioned tracking several requirements and RFPs. He affirmed a strong preference for light manufacturing, which aligns with their long-held onshoring and reshoring investment thesis.

John Massocca questioned if the recent private placement is the expected funding model going forward and if its pricing is indicative of the current market. He also asked for details on Q4 leasing activity and the company's CapEx expectations for 2025.

Answer

CFO Gary Gerson confirmed that while not the primary financing mode, the company intends to continue with private placements if the market is willing. President Arthur 'Buzz' Cooper added that Q4 leasing involved both office and industrial assets with positive rent increases. He characterized 2025 CapEx as manageable and largely 'positive,' as it's tied to renewals that drive higher rents.

John Massocca asked about the drivers behind the quarterly increase in CapEx and leasing commissions, the status of the final 2024 lease expiration, the outlook for 2025 expirations, and the current competitive environment from smaller private equity buyers.

Answer

President Arthur Cooper attributed the CapEx and commission spike to a large, highly accretive re-tenanting of an asset in Lehigh Valley. He confirmed the 2024 expiration is covered by a new tenant who is expected to exercise a purchase option in early 2025. For 2025, he detailed active discussions and plans for the four expiring properties, noting a mix of office and industrial assets. He also observed that smaller PE firms are becoming more active, though still somewhat cautious, which is increasing sale-leaseback opportunities.

John Massocca from B. Riley Financial sought further detail on the 2025 guidance, asking if achieving it was contingent on home sales. He also questioned the drivers behind the home sales margin compression and the timing of expected positive impacts from HUD initiatives.

Answer

President and CEO Samuel Landy stated the low end of guidance is achievable through rental income growth alone, with accelerated sales providing upside. EVP and COO Brett Taft explained that the sales margin compression was a deliberate strategy to build momentum at new expansions, with margins expected to increase as communities fill. Samuel Landy expressed strong optimism that positive HUD policy changes would begin to materialize as early as September 2025.

John Massocca sought to clarify the mechanics of GSE financing on communities with rental homes, asking about the impact on loan-to-value. He also inquired about the timing of upcoming refinancings and the expected quarterly cadence for adding 800 new rental homes.

Answer

EVP and CFO Anna Chew confirmed that communities with rentals can receive GSE debt, but the loan value is based only on the site rent income, not the value of the home, resulting in a lower LTV on that component. She also stated refinancings may occur in tranches. EVP and COO Brett Taft explained that the addition of 800 rental homes will ramp up significantly in the stronger second and third quarters to meet the full-year target.

John Massocca asked for the expected stabilized return on the current acquisition pipeline and inquired about any changes in bad debt expense. He also questioned the outlook for headline occupancy given the continuous addition of new homes and how future acquisitions would be split between the balance sheet and joint ventures. Finally, he requested an update on the company's single-family housing development pipeline.

Answer

EVP & COO Brett Taft projected a stabilized yield of 6.5% to 7% on the acquisition pipeline over five years. EVP & CFO Anna Chew confirmed that bad debt remains stable at approximately 1%. Brett Taft expects same-property occupancy to continue rising but noted that overall occupancy could be diluted by new value-add acquisitions. President & CEO Samuel Landy explained that JVs are used for development and turnaround deals to avoid diluting FFO per share. Executive Craig Koster provided an update on a potential JV with a national homebuilder to develop 131 acres in New Jersey for luxury single-family homes.

John Massocca inquired about the drivers behind management's increased optimism for external growth, the company's current thinking on leverage levels, and whether self-storage development could become a standalone business.

Answer

President and CEO Samuel Landy and Chairman Eugene Landy attributed the optimism to a lower cost of capital and a long-term investment horizon that allows them to see value others miss. Regarding leverage, Samuel Landy noted debt is currently minimal and future capital strategy will be flexible, utilizing debt, equity, and refinancing proceeds as conditions warrant. He clarified that self-storage will remain a necessary accessory use to enhance their communities, not a standalone focus, as the company is committed to providing affordable housing.

John Massocca of B. Riley Securities inquired about the timeline for accelerating net lease investments, the closing certainty of the major hotel dispositions, the company's proximity to its debt service coverage covenant, and whether sale pricing met prior expectations.

Answer

President & CEO Christopher Bilotto stated that a ramp-up in net lease acquisitions would be assessed next year after the company focuses on deleveraging. He confirmed the hotel sales are on a "normal course" to close by year-end with no remaining contingencies. CFO & Treasurer Brian Donley detailed that SVC was at 1.49x on its 1.5x debt service coverage covenant and is taking steps like debt redemption to gain relief. Bilotto also confirmed they were "very pleased" with the sale pricing, noting a nearly 16x multiple on the largest tranche.

John Massocca asked for details on the property types of the recent net lease acquisitions, the rationale for using a variable funding note for financing, whether more equity could be extracted from the portfolio, and if the disposed hotels would retain the Sonesta flag.

Answer

President and CEO Christopher Bilotto specified that the acquired net lease properties included a car wash and a casual dining concept, with the pipeline consisting mainly of QSR, casual dining, a grocer, and a fitness concept. He also confirmed the plan is for the disposed hotels to retain Sonesta franchise agreements. CFO Brian Donley explained the variable funding note was a cost-effective way to tap into the increased equity of the properties within the ABS Master Trust. While that facility is sized for now, he noted that SVC has other unencumbered net lease properties that could be used for future financing.

John Massocca of B. Riley Financial inquired about the strategy for using joint ventures to fund growth, specifically asking about the Heitman JV's recent activity level. He also asked for details on the expected financial impact and timing of the lease-up at the East Orange property.

Answer

CEO Mark Decker affirmed the company's interest in growing its JV with Heitman, attributing the pace of activity to a disciplined and selective investment approach by both parties. CFO Robert Kiernan detailed that the East Orange property's previous ABR was about $1.2-$1.3 million and is now at 40% occupancy, approaching a cash flow break-even point. Decker added that future cash flow from East Orange and the Christus lease will help offset higher interest costs from the upcoming refinancing.

John Massocca inquired about the potential to channel deal flow into the Heitman joint venture, sought an update on re-leasing former Steward assets, and asked about any macro or government policy trends impacting tenant health.

Answer

Chief Investment Officer Alfonzo Leon confirmed they are actively pursuing opportunities for the Heitman JV. Chief Financial Officer Bob Kiernan provided an update on the small former Steward assets, expressing optimism for re-leasing them by June 30. CEO Jeffrey Busch highlighted the portfolio's resilience, noting its recession-proof nature and strong rent collection during the pandemic, which underscores the stability of its Medicare-focused tenant base.

John Massocca from B. Riley Financial asked about the cause for higher non-reimbursed real estate expenses, whether it signals a preference for leasing over sales, and the comfort level with future five-year debt issuances.

Answer

EVP & CFO Vincent Chao explained the higher expenses are due to a slower resolution of certain vacancies as the company prioritizes higher long-term value over immediate leasing. President and CEO Stephen Horn confirmed this can lead to higher near-term carry costs. Chao reiterated that shorter-term debt is a tool for asset-liability management.

John Massocca from B. Riley Securities inquired about the drivers behind the recent high levels of lease termination income, the early performance of new tenants in re-leased furniture stores, and the re-tenanting strategy for the remaining vacant restaurant properties.

Answer

CFO Vincent Chao explained the $8.2M Q1 fee was unusually high and driven by one tenant, but noted such fees are a recurring, albeit unpredictable, part of active portfolio management. CEO Stephen Horn added that new tenants in former furniture stores are performing very well initially and that vacant restaurant sites are attracting strong interest from car washes, convenience stores, and QSRs, with redevelopment as a key option.

John Massocca asked about the outlook for 2025 lease expirations and how much of NNN's investment pipeline depends on M&A activity among its relationship tenants. He also inquired about the timing of potential percentage rent from the re-leased Frisch's assets.

Answer

CFO Kevin Habicht stated that 2025 lease expirations are not expected to have adverse outcomes, with a concentration in solid-performing convenience stores. CEO Stephen Horn explained that while M&A is picking up, their pipeline is not dependent on it, as tenants also grow through self-development. Habicht added that percentage rent from the re-leased Frisch's properties should begin to ramp up in the second half of 2025, as the new leases commence on May 1.

John Massocca asked if Frisch's 50% rent payment in Q3 was a new development. He also questioned if the uptick in guided real estate expenses was tied to the troubled tenants and what was driving the unusually high lease termination income for the year.

Answer

CFO Kevin B. Habicht confirmed the partial rent from Frisch's was new in Q3, as they paid in full in Q2. He also affirmed the connection between higher potential rent loss and higher property expense assumptions. Executive Stephen Horn explained that the high lease termination income is a result of active portfolio management, where NNN works with tenants to exit leases, often with a backfill tenant or buyer already identified, thereby strengthening the overall portfolio.

John Massocca of B. Riley Financial inquired about several key areas, including the presence of one-time financial items in Q2 2025, the drivers behind the reduced CapEx guidance, the status of the asset disposition pipeline beyond current agreements, the reasons for the relative outperformance of Five Star-managed properties, and the expected trajectory of occupancy growth through year-end.

Answer

CFO & Treasurer Matthew Brown confirmed a minor one-time benefit in Q2 but noted it was less material than in Q1. Vice President Anthony Paula attributed the lower CapEx guidance to dispositions and timing. President & CEO Chris Bilotto detailed that the current $280 million in agreements represents the bulk of the disposition plan, with only minor sales expected thereafter. Bilotto also explained that Five Star's outperformance stems from operational improvements, capital investments, and favorable property locations. He clarified that occupancy is expected to build gradually, not in a 'hockey stick' fashion, toward the year-end target.

John Massocca of B. Riley asked for details on the flat sequential SHOP property operating expenses, factors influencing the reaffirmed CapEx guidance, and the expected pricing and timing for upcoming debt financing aimed at addressing the 2026 zero-coupon bonds.

Answer

CFO and Treasurer Matthew Brown noted that while SHOP expenses were sequentially flat, they are expected to trend higher for the full year, and mentioned insurance premium savings as a factor. Vice President Anthony Paula stated that CapEx is weighted to the second half of the year, justifying the reaffirmed guidance. Regarding debt, Brown estimated a sub-7% rate for future secured financing and targeted Q4 for execution, after dispositions. President and CEO Christopher Bilotto added that asset sales will significantly reduce the amount of financing required.

John Massocca of B. Riley Securities inquired about the variability of the new financing rate, whether 2025 guidance accounts for weather events, the profile of buyers for assets being sold, and the potential for additional agency financing.

Answer

Matthew Brown, CFO and Treasurer, confirmed the interest rate on the new financing could fluctuate with market rates before closing. He stated that guidance does not include assumptions for unpredictable weather events. Brown described the buyer base for dispositions as a mix of operators, private equity, and regional groups, who generally arrange their own financing. He also affirmed that DHC anticipates opportunities for additional agency financing after the current round is complete.

John Massocca questioned how much of the same-store growth guidance is already secured by signed leases versus being dependent on future leasing activity. He also asked about trends in leasing spreads and the company's comfort level with short-term leverage if acquisition and disposition timing misaligns.

Answer

CFO Scott Hogan clarified that the forecast assumes normal leasing activity. CEO Dave Holeman added that same-store NOI growth naturally trails leasing activity, and they are bullish on future results based on recent remerchandising. Hogan noted that while renewal spreads were slightly lower, they came with reduced TI costs, and new lease spreads exceeded 40%. Holeman affirmed a commitment to strengthening the balance sheet while growing earnings and stated that acquisitions are not contingent on dispositions closing first, as they have access to their credit facility.

John Massocca inquired about the pro-forma occupancy rate including signed-but-not-opened leases, the portfolio's tenant mix between services and hard goods, and clarification on its Dollar Tree exposure.

Answer

CEO David Holeman estimated that occupancy would be roughly flat quarter-over-quarter if the new leases at Terravita were included. Both Holeman and President & COO Christine J. Mastandrea confirmed that the portfolio is heavily weighted towards service-based tenants, with less than 15% of space dedicated to hard goods, mitigating tariff risks. Mastandrea also clarified that the company's exposure is to true Dollar Tree stores, not Family Dollar.

John Massocca of B. Riley inquired about the target leverage range for 2025, any impact from recent retailer bankruptcies, the amount of non-recurring G&A related to Pillarstone, and the reasoning behind the forecast for lease termination fees in 2025.

Answer

CFO J. Scott Hogan stated the ultimate leverage goal is the high 5x to low 6x range, with timing dependent on Pillarstone proceeds. COO Christine Mastandrea confirmed no exposure to recent bankruptcies like Party City, citing their strategic focus on smaller spaces. Mr. Hogan noted that about $1 million in Pillarstone-related G&A costs from 2024 is expected to recur in 2025 before tapering. He also explained that while a base level of termination fees is in guidance, the 2025 forecast is lower as fewer large terminations are currently on the radar.

John Massocca from B. Riley Securities asked for the reason behind the apparent conservatism in the Q4 same-store NOI growth forecast, the company's approach to external acquisitions, and the Board's thoughts on pursuing a formal strategic alternatives process.

Answer

CEO David Holeman and CFO J. Scott Hogan clarified that the Q4 forecast isn't due to a slowdown but reflects a comparison against a particularly strong Q4 2023. On acquisitions, Holeman emphasized a disciplined approach, using available liquidity only for accretive opportunities. Regarding strategic alternatives, he stated the Board continuously evaluates all options to maximize shareholder value and highlighted the positive feedback received for their strong FFO growth.

John Massocca asked about the factors influencing the timing of a potential refinancing for the $1.4 billion JV debt and the rationale for the timing of the recent wholly-owned portfolio refinancing. He also questioned if the GAAP leasing spreads in the Hawaiian portfolio were below target and requested an update on the lease-up of key vacant assets in Hawaii and Indiana.

Answer

CFO & Treasurer Tiffany Sy explained the recent refinancing was prioritized due to its higher interest rate, while they have more time on the JV loan. President & COO Yael Duffy added that the JV portfolio is nearly 100% occupied and operationally ready for a refi. Duffy clarified that lower Hawaiian renewal spreads were driven by smaller 'space leases' and that new lease rent roll-ups were very strong. She also noted increased prospect activity for the Indiana property but slow progress on the complex Hawaii land parcel.

John Massocca asked for clarification on one-time positive impacts to FFO in Q1 versus Q2, potential headwinds for Q2 guidance, the impact of global tariffs on tenant behavior, and the Hawaii portfolio's exposure to potential pullbacks in tourism.

Answer

CFO and Treasurer Tiffany Sy clarified that Q1 had a $0.02 one-time benefit to FFO, while Q2 guidance includes a $0.01 benefit, with the low end of guidance accounting for unforeseen leasing changes or operating expenses. President and COO Yael Duffy stated that tariffs have positively impacted tenant retention, as uncertainty around construction costs discourages tenants from relocating. Duffy also asserted that the Hawaii portfolio has minimal exposure to tourism, as its tenants primarily serve the local economy, a fact demonstrated during COVID-related travel restrictions.

John Massocca of B. Riley Financial asked for the key drivers behind the quarterly decline in physical occupancy and the timing of the Staples-to-Barnes & Noble transition. He also sought details on the financial implications of the Fidelity lease amendment, including any termination fee and the resulting net rent, and inquired about the financing plan for a potential acquisition.

Answer

President & CEO John Albright attributed the occupancy dip to vacancies from national bankruptcies like Party City and Joann's. CFO Philip Mays specified the Staples vacancy will impact Q4 and that any payment from Fidelity will be amortized into future rent under GAAP, with no expected roll-down in net rent for the property. He also stated that a new term loan would likely be timed closely with any new acquisition to manage liquidity.

John Massocca of B. Riley Securities asked if recent tariff announcements have affected investment yields or cap rates, how the non-same-store portfolio is performing, and the expected timeline for realizing mark-to-market gains on recent acquisitions.

Answer

Executive John Albright reported that cap rates for retail centers have remained stable or compressed, unaffected by market events, due to strong investor demand. He described the non-same-store portfolio's NOI growth as positive, driven by rent roll-ups. He anticipates seeing significant mark-to-market impacts from recent acquisitions beginning in the middle of 2026.

John Massocca of B. Riley Securities asked how the $9-$12 million in CapEx for re-tenanting affects the 2025 outlook, the expected lease durations for replacement tenants, and if the re-leasing timeline is typical. He also inquired about the 2025 same-store NOI growth expectation without these vacancies and the mark-to-market outlook for 2025 expirations.

Answer

Executive Philip Mays explained the CapEx is incremental to the normal run rate. Executive John Albright stated the new leases would have 10-to-15-year terms and that the timeline is typical for securing higher-quality national tenants. Philip Mays noted that without the vacancies, 2025 same-store NOI growth would have been 2-3% instead of the guided 1%. For 2025 expirations, John Albright anticipates positive rent roll-ups in the 10% range.

John Massocca questioned the cap rate on the Jordan Landing disposition, the lease-up status of the former WeWork space, the impact of macroeconomic uncertainty on retailer demand, and the outlook for 2025 same-store NOI growth.

Answer

Executive John Albright explained the higher cap rate for Jordan Landing was driven by the 'at home' tenant situation. He clarified that the WeWork space is about one-third leased to a high-end social club, with plans to demise the rest for smaller tenants. Albright noted some softness in restaurant sales but strong demand for second-generation restaurant spaces. He deferred providing 2025 same-store NOI guidance until year-end, citing many positive moving parts.

John Massocca of B. Riley Securities inquired about the specific crop-type dynamics driving the divergence in the full-year outlook for variable payments and crop sales. He also sought details on the predictability and timeline of California's SIGMA water regulations and asked how the company plans to utilize its current cash balance, considering the upcoming need to repay preferred units.

Answer

Executive Chairman Paul Pittman explained that the outlook changes are a result of quarterly budget refinements as crop yields become clearer throughout the season. He detailed that the California water issues stem from the SIGMA law, which is about 75% implemented across local districts, and the write-downs were taken after final rules became clear for specific farms. Regarding the balance sheet, President and CEO Luca Fabbri described cash management as an ongoing optimization process, while Pittman added that the cash is currently earning a positive spread over the cost of the preferreds, making it accretive to hold.

John Massocca of B. Riley Securities inquired about the crop-specific drivers for the updated full-year guidance, the predictability and timeline of California's SIGMA water regulations, and the planned utilization of the company's significant cash balance.

Answer

Executive Chairman Paul Pittman explained that guidance updates are routine quarterly refinements based on observing actual crop conditions, not major shifts. He detailed that the California water issues stem from the SIGMA law's local implementation, which is about 75% complete, and that write-downs were taken after final rules emerged in specific districts. President and CEO Luca Fabbri described cash management as an ongoing optimization between buybacks and debt repayment. Pittman added that the cash is currently invested at a positive spread above the cost of the preferred units, making it profitable to hold.

John Massocca asked about the strategy of balancing stock buybacks against holding cash for land investments, the differing impact of tariff risks on row crops versus permanent crops, and the company's plans for its maturing Farmer Mac credit facility.

Answer

Executive Chairman Paul Pittman and executive Luca Fabbri responded. Pittman stated that with the stock trading at a significant discount to NAV, the company is more likely to prioritize stock buybacks over land acquisitions. He also explained that many specialty permanent crops could actually benefit from tariffs due to reduced import competition. Both Pittman and Fabbri confirmed they will likely renew the Farmer Mac facility to maintain liquidity and strategic flexibility.

John Massocca asked for details on an additional $20 million in dispositions that occurred alongside the larger announced portfolio sale. He also inquired about the company's remaining transaction capacity for the rest of the year and its plans for deploying the remaining cash proceeds from sales after debt paydowns and the special dividend.

Answer

Executive Chairman Paul Pittman explained the additional sales were of farms in Western Arkansas to a buyer focused on timber and carbon offsets. He noted that the company has the capacity for a few more transactions this year under its 7-transaction limit. Pittman confirmed the remaining cash is intended for stock buybacks after the blackout period, potential further debt repayments, and funding the special dividend.

John Massocca inquired about the strategic drivers for converting preferred stock to common equity and the potential for future conversions. He also asked about the planned refinancings, including potential interest rate savings, capital generation, and the preference for fixed versus floating rates. Additionally, he questioned other potential sources of capital, such as asset dispositions, and whether the company would consider a stock buyback.

Answer

CEO David Thompson explained that the preferred stock conversion aims to strengthen the balance sheet, improve cash flow, and align with the company's target capital structure. He noted that future conversions are under evaluation by the Board. Stephen Altebrando, Head of Portfolio Oversight, added that the refinancing strategy is shifting to a property-level focus to reduce enterprise risk and extend debt maturities, with some opportunity for rate savings. He confirmed the potential to free up capital and a preference for fixed-rate debt, with the exception of a floating-rate loan for the hotel renovation. Altebrando also stated that all assets are being evaluated for potential sale to raise capital, and that a stock buyback would only be considered after the current refinancing activities are complete.

John Massocca inquired about the strategic drivers for converting preferred stock to common equity and the likelihood of future conversions. He also asked about the specifics of planned asset refinancings, including potential interest rate savings, capital generation, and the mix of fixed versus floating rates. Additionally, he questioned other potential capital-raising activities, such as asset dispositions, and whether the company would consider a stock buyback.

Answer

CEO David Thompson explained that the preferred stock conversion is a strategic move to strengthen the balance sheet, improve cash flow, and better align with the company's target capital structure. He noted that future conversions remain under evaluation by the Board. Stephen Altebrando, Head of Portfolio Oversight, added that the refinancing strategy is shifting to property-level debt to lower enterprise risk and extend maturities, with an opportunity to free up capital. He confirmed that all assets are being evaluated for potential sale and that a stock buyback is a possibility that could be considered after the current refinancing initiatives are completed.

John Massocca inquired about the strategic drivers for converting preferred stock to common equity and the likelihood of future conversions. He also asked about the planned asset refinancings, including potential interest rate savings, capital generation, the mix of fixed versus floating rates, and other capital-raising activities like asset sales. Finally, he questioned the potential for a stock buyback program.

Answer

CEO David Thompson explained that the preferred stock conversion was a proactive measure to strengthen the balance sheet, improve cash flow, and align with the company's target capital structure. He noted future conversions remain an option for the Board to evaluate. Stephen Altebrando, Head of Portfolio Oversight, added that the refinancing strategy prioritizes shifting to lower-risk, property-level debt to extend maturities, with some opportunity for rate savings and freeing up capital. He specified that most refinancings would be fixed-rate, except for the hotel asset. Altebrando also confirmed that all assets are under review for potential sale and that a stock buyback could be considered after current refinancing initiatives are complete.

John Massocca from Ladenburg Thalmann inquired about the strategic drivers for converting preferred stock to common equity and the potential for future conversions, especially given the common stock's recent performance. He also asked about the planned refinancings, including potential interest rate savings, capital generation, the mix of fixed versus floating-rate debt, other capital-raising options like asset sales, and the possibility of a stock buyback.

Answer

CEO David Thompson explained the preferred stock conversion aims to strengthen the balance sheet, improve cash flow, and rebalance the capital structure towards the company's 40% common equity target. He stated that future conversions remain under evaluation by the Board. Stephen Altebrando, responsible for Portfolio Oversight, added that the refinancing strategy is shifting to the property level to reduce enterprise risk and extend debt maturities, with some opportunity for rate savings. He confirmed the refinancings could free up capital and would primarily be fixed-rate, except for the hotel. Altebrando also noted that all assets are being evaluated for potential sale and that considering a stock buyback is premature until the refinancing process is further along.