Alpine Income Property Trust - Earnings Call - Q2 2025

Executive Summary

• Revenue grew 19.0% year over year to $14.86M and increased 4.6% sequentially; Q2 beat S&P Global consensus revenue by ~$0.39M, driven by higher interest income from commercial loans ($2.74M) and stable lease income ($12.02M).*
• GAAP diluted EPS was a loss of $0.12, below S&P Global consensus (−$0.03) due to $2.8M of non-cash impairment on two vacant assets and higher interest expense; FFO/AFFO were $0.44, modestly above/in-line with consensus and up 2.3% YoY.*
• Guidance: FY25 FFO/AFFO reaffirmed at $1.74–$1.77; investment volume guidance raised to $100–$130M (from $70–$100M in Q1) with dispositions maintained at $50–$70M; dividend held at $0.285/share, ~65% payout.
• Capital recycling and tenant de-risking continued: five property dispositions ($16.5M, 7.9% exit cap), Walgreens exposure reduced to ~7% of ABR and moved to fifth-largest tenant; WALT extended to 8.9 years.
• Subsequent event: $25.5M Publix land development loan repaid on July 2; management expects a roughly “just over 1 cent per quarter” temporary drag until redeployment, a near-term earnings headwind but leverage-proactive.

What Went Well and What Went Wrong

What Went Well

• Accretive capital recycling with improving portfolio quality: sold five properties at a 7.9% exit cap; Walgreens concentration cut to fifth largest tenant (~7% ABR) and WALT extended to 8.9 years (“up from 6.6 a year ago”).
• Consistent earnings power: FFO and AFFO were both $0.44 per diluted share (+2.3% YoY), supported by $2.74M interest income from loans and steady lease income.
• Dividend coverage and shareholder returns: dividend maintained at $0.285/share with ~65% FFO/AFFO payout, and 273K shares repurchased in Q2 (546K YTD); CFO emphasized an “attractive dividend yield close to 8%” and disciplined buybacks.

Quote: “We continued to effectively execute our strategy focused on accretive capital recycling and have supplemented it with opportunistic common stock repurchases during the first half of the year” — John P. Albright, CEO.

What Went Wrong

• GAAP EPS miss: Q2 GAAP diluted EPS −$0.12 (vs consensus −$0.03), driven by $2.803M impairment on two largest vacant assets (Reno theater, Long Island Party City) and higher interest expense ($4.32M).*
• Elevated leverage: Net debt/Pro Forma Adjusted EBITDA was 8.1x; management aims to sell assets/pay down revolver, but buybacks and investment pace can pressure leverage temporarily.
• Slower property acquisition activity in Q2 (no new property acquisitions; only $6.6M of loans) amid competitive market; pipeline skewed near term to structured loans.

Transcript

Speaker 6

Thank you for standing by. Welcome to the Alpine Income Property Trust Q2 2025 earnings conference call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during this session, you will need to press star one-one on your telephone. You will then hear an automated message advising you your hand is raised. To withdraw your question, please press star one-one again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Jenna McKinney. Please go ahead.

Speaker 0

Thank you. Joining me in participating on the call this morning are John Albright, President and CEO, Philip Mays, CFO, and other members of the executive team that will be available to answer questions during the call. As a reminder, many of our comments today are considered forward-looking statements under Federal Securities Law. The company's actual future results may differ significantly from the matters discussed in these forward-looking statements, and we undertake no duty to update these statements. Factors and risks that could cause actual results to differ materially from expectations are disclosed from time to time in greater detail in the company's Form 10-K, Form 10-Q, and other SEC filings. You can find our SEC report, earnings release, and most recent investor presentation, which contain reconciliations of the non-GAAP financial measure, FFO, on our website at www.alpinere.com. With that, I will turn the call over to John.

Speaker 5

Thank you, Jen. And good morning, everyone. We are pleased to report FFO per share growth of 2.3% in the quarter and 4.8% year to date compared to the same period last year. This earnings growth was driven by our investment activity over the last year. We remain focused on our Bar-Bell investment strategy, pairing higher yielding acquisitions supported by quality tenants and solid real estate fundamentals with select investment-grade tenants to maintain a diversified and balanced portfolio that delivers favorable risk-adjusted returns. Maintaining discipline and adhering to our underwriting criteria, we did not complete any additional property acquisitions this quarter following a busy first quarter in which we closed $39.7 million in property acquisitions at a weighted average initial yield of 8.6%. However, we are actively pursuing multiple interesting investment opportunities and anticipate some closing in the second half of the year.

Turning to property dispositions during the quarter, we sold five net lease properties for $16.5 million at a weighted average exit cap of 7.9%. These sales included two Walgreens, a Dollar Tree, Verizon, and Old Time Pottery. We have now reduced our Walgreens exposure over the past year by 500 basis points to 7% of ABR, and have moved it from our largest tenant concentration a year ago to currently our fifth largest. Further, we continue to make progress on our recently vacated properties. The theater in Reno is under contract to be sold, and we are actively negotiating the potential sale of our Long Island property previously leased by Party City. On the commercial loan front, this quarter we provided seller financing in conjunction with our Old Time Pottery disposition and originated one first mortgage loan.

Combined, these loans total $6.6 million and were fully funded at closing with a weighted average initial yield of 9.8%. This brings our year-to-date loan closings to $46.2 million with a weighted average initial yield of 9.1%. The ability to originate select commercial loans is another tool at our disposal to further diversify our income stream and deploy capital at attractive returns. Further, the lending relationships we have cultivated are generating some unique loan investment opportunities. We are actively underwriting several high-yielding loans backed by high-quality sponsors with strong credit metrics and real estate fundamentals and expect one or two of these transactions to close in the back half of the year. Moving to our property portfolio, as of the quarter end, our portfolio consists of 129 properties selling 3.9 million square feet across 34 states and with 98.2% occupied.

Our top two tenants are investment-grade sporting goods and loans that together represent 20% of the portfolio ABR. More broadly, 51% of our portfolio ABR is derived from investment-grade rated tenants. Notably, our weighted average remaining lease term now stands at 8.9 years, up from 6.6 years just a year ago. Lastly, a couple of specific tenant updates. Bass Pro Shops completed its full renovation of approximately 66,000 square foot building located on nine acres in Minnesota. This property formerly leased to Camping World was assigned to Bass Pro Shops, and we amended the lease to a new 20-year initial lease term, which commenced upon their opening in mid-May. Additionally, At Home filed for bankruptcy in June. However, both of our properties leased to At Home paid rent in July, and neither were on the initial closure list. With that, I'll turn the call over to Phil.

Speaker 2

Thanks, John. Beginning with financial results, for the quarter, total revenue was $14.9 million, including lease income of $12 million and interest income from commercial loans of $2.7 million. FFO and FFO for the quarter were both $0.44 per diluted share, representing 2.3% growth over the comparable quarter of the prior year. Year-to-date total revenue was $29.1 million, including lease income of $23.8 million and interest income from commercial loans of $5 million. FFO and FFO year-to-date were both $0.88 per share, representing 4.8% and 3.5% growth respectively over the comparable period of the prior year. Consistent with the prior quarter, given the relative attractive valuation of common shares, we continue to opportunistically repurchase shares.

During this quarter, we repurchased approximately 273,000 common shares for $4.3 million at an average price of $15.81 per share, and year-to-date we have now repurchased approximately 546,000 shares for $8.8 million at an average price of $15.07 per share. With regards to our common dividend, as previously announced during the first quarter, we increased our quarterly cash dividend to $0.285 per share and maintained that rate in the second quarter, providing a current attractive dividend yield close to 8%. Even with this increase, our dividend remains well covered at approximately an FFO/KL ratio of 65%. Moving to the balance sheet, we ended the quarter with net debt to pro forma adjusted EBITDA at 8.1 times and $57 million of liquidity, consisting of approximately $9 million cash available for use and $48 million available under our revolving credit facility.

However, with input in paying commitments, the available capacity of our revolving credit facility can expand an additional $49 million as we acquire properties, providing total potential liquidity of almost $100 million. A quick note on the $2.8 million of non-cash impairment charges reported this quarter. This amount includes non-cash impairment charges related to our two largest vacant properties, a theater located in Reno and a former Party City located on Long Island. Given the interesting investment opportunities we are seeing, we have determined it is more likely we will simply sell these properties and redeploy the proceeds as opposed to incurring the interim carrying cost and capital that would be required to retain and release them. We ended the quarter with portfolio-wide in-place annual base rent of $45.3 million on a straight-line basis.

As a reminder, this includes approximately $3.8 million of straight-line rent related to three distinct legitimate restaurant properties acquired in 2024 through sale of leaseback transactions. Under GAAP, these specific sale of leaseback transactions are accounted for as financing. Accordingly, we are currently recognizing on an annual basis approximately $2.6 million of GAAP interest income in our segment of operations, as opposed to $3.8 million of straight-line rent income from these properties. Now turning to guidance, we are reaffirming both our FFO and FFO guidance range for $1.74 to $1.77 per diluted share for the full year of 2025. The assumptions underlying our guidance remain largely unchanged except for investment volume, which we are increasing by $30 million to a new range of $100 million to $130 million for the year. A final note about earnings.

A few days after quarter end, our construction loan for a Publix land development in Charlotte, North Carolina, with an outstanding balance of $25.5 million and a yield of 9.5%, was fully repaid. Accordingly, our interest income from commercial loans will decrease until the withdrawal of existing loans and/or new loans are funded. With that, operator, please open the call to questions.

Speaker 6

Thank you. As a reminder, to ask a question, please press star one-one on your telephone and wait for your name to be announced. To withdraw your question, please press star one-one again. One moment while we compile our Q&A roster. Our first question is going to come from the line of Matthew Edner with Jones Trading. Your line is open. Please go ahead.

Hey, good morning, guys. Thanks for taking the question. With the given increase to the investment guidance and the opportunities that you guys kind of mentioned within the loan book, how should we kind of look at investments for the remainder of the years? Is it still kind of along those 50/50 lines between properties and loans? Any help there would be great. Thank you.

Speaker 5

Hi, this is John. Sorry, I'm at a loud airport, but I'll take the first part there. We're seeing right now pretty active on both the acquisition front and loan front, but I would say that more of the structured loan investment activity seems to be closer to happening than the acquisitions. We're hopeful that in the next 60 days we're going to have some activity here on the structured loan investments that we're very excited about. On the acquisition side, we're pursuing things, but it's pretty competitive, as you know, and less sure about the timing of those investments.

Got it. That's helpful there. As a follow-up to that, you know, with these loans, as they kind of come in and pay off, I know that you don't have any maturities for the remainder of the year, you know, but if you were to experience any early payoffs, should we expect that those are going to go towards paying down the credit facility rather than, you know, reinvestment?

Yeah, I mean, just like Philip Mays had mentioned, as far as on the Publix loan in Charlotte, you know, that basically paid off and went to pay down the facility. We're working really hard to sell the Party City and the Century Theater in Reno, and of course that would go to pay down the facility as well. As we see these structured loan investments, we'll make those, and if we need to, we'll either sell off something or sell an asset and just keep the leverage reasonable.

Got it. Thank you, guys. I appreciate it.

Speaker 6

Thank you. One more moment as we move on to our next question. Our next question is going to come from the line of RJ Milligan with Raymond James. Your line is open. Please go ahead.

Hey, good morning, guys. Two questions for Phil. Just curious, with the payoff, the Publix payoff in July, what should be the, what's going to be the quarterly AFO impact on that?

Speaker 2

Yeah, RJ, it was $25.5 million. It was yielding 9.5%. It'll go ahead and pay down the line, the variable portion of the line, which is around six. So it's around a 300 basis point, a little more spread. Impacts a couple hundred grand a quarter, or just the kind of full penny, a little bit more than a full penny a quarter.

Okay. Phil, a second question is just in terms of we've seen quite a few other REITs go out and issue debt or get term loans. I'm curious where you think the market is today for Pine in terms of doing a term loan.

Yeah, so Alpine would go to do a five-year term loan now with the banks and swap it. It would be around 5%, all in.

Okay. I think that's it for me, guys.

Speaker 6

Thank you. One moment for our next question. Our next question is going to come from the line of Michael Goldsmith with UBS. Your line is open. Please go ahead.

Good morning. Thanks a lot for taking my questions. Just first on Walgreens, you continue to pare down your exposure there. Can you just talk a little bit about what the market is like for Walgreens as well as At Home? Who are the potential buyers? What sort of cap rates are we looking at there, and just the overall level of interest in boxes from those two tenants? Thanks.

Speaker 5

Thanks, Michael. Yeah, in general, the market is fairly active. As we see reasonable pricing, we'll keep moving through the Walgreens, and we're actually working on a couple more sales. The pricing just obviously depends on location, of course, and your lease term. The cap rates can be anywhere from high sevens to early tens or elevens, just depending on, again, location and quality. We're seeing basically people that, a lot of high net worth people buying Walgreens and saying, "Okay, I'm going to take the rest of the term and get good yield," and then it's a great location or a good location, and I know another tenant's going to want it because these are corners and drive-throughs, so they're not really worried about knowing exactly who's going to backfill it, just knowing that on a macro sense, it's a good investment.

A fairly active market on the Walgreens side. On At Home, you're seeing users that want to get these big box positions. As you know, most of the At Home are low rent payers. A lot of these are in the money as far as market rates versus what At Home's paying. It's really, as big boxes become less available, there's a fair amount of people, again, if it's a good location, good market, that people are interested in taking those down and either redeveloping them or they're users that will take the box or split up. I hope that's helpful.

No, John, that was particularly helpful. Thanks for that. Just as a follow-up, you got the loan repaid. It was a bit of a slower deployment of capital quarter after a busy first quarter. You were also a share repurchaser. As you think about how you want to allocate your capital going forward, it sounds like the pipeline is building and the acquisitions and loans will be a focus going forward, which is, can you talk about the balance between all the different options as well as reducing leverage and how you're thinking through all of that? Thank you.

Yeah, sure. Look, we are seeing more opportunities, very interesting opportunities, good sponsors, and unfortunately, the deals are taking a little bit longer. We didn't get one in the quarter. One, we were very hopeful to get in the quarter, but they're actually discussing with a tenant about expanding, and it's going to take a little while for them to go through a real estate committee and all that kind of stuff. Unfortunately, that didn't happen in the quarter, but hopefully this quarter it will. We'll keep on selling through some of the credits that we don't like going forward. Maybe a little bit of selling assets and paying down debt, which, as Phil mentioned on the loan repayment, there's obviously a little bit of hit to earnings, but given that we're such a low multiple stock, we're not worried about kind of managing that.

We just want to do the right thing. We are very optimistic about the acquisitions and loan investments in front of us, which we think will be very accretive to the company and will be eventually reflected in the stock price, we hope. I think we'll be fairly active this quarter. We're pretty excited about the opportunities that we see.

Thanks for that, John. Good luck in the back half and safe travels.

Thanks. Appreciate it.

Speaker 6

Thank you. One moment for our next question. Our next question is going to come from the line of Wesley Gallaudet with Baird. Your line is open. Please go ahead.

Hey, good morning, guys. Can we look at the At Home, the ones that you have currently operating? Would those be, you know, better productivity sites for them? Do you have any insight into that?

Speaker 5

Yeah, they are. We don't expect them to reject these whatsoever. They have good operations, good locations. We don't see that. Actually, we have people that are more interested in them being gone than being there. We'll monitor it, but so far, so good.

Okay. How does the watch list look going forward after At Home?

After At Home, it's not, you know, we've been, as you know, very proactive in the last couple of years of pruning through different credits. It's just really not very deep. We've kind of taken the hits where it's happened. There's not really anything that kind of keeps us up at night, if you will.

Okay. You mentioned looking to sell the two vacant assets. Would those both be in the held-for-sale bucket? Any insight into how much, I guess, probably have a little bit of negative NOI from those assets? What would the drag be?

Sure. I'll let Phil talk about the counting of that.

Speaker 2

Yeah. Neither of them are classified as held-for-sale. I was just on the call, kind of giving you a heads up that we're more likely, I think, at this point to just avoid the carry cost and move on with the interesting investment opportunities we're seeing. There's not a big negative drag on those. It's just kind of the.

Speaker 5

I mean, you got real estate taxes, insurance, property meds. It's not huge, but it's definitely not fun. Once those are sold, you know, and you're paying down your leverage, it's quickly accretive.

Yeah, okay. Thanks, guys.

Speaker 6

Thank you. One moment as we move on to our next question. Our next question is going to come from the line of Gurav Mehta with Alliance Global Partners. Your line is open. Please go ahead.

Thank you. Good morning. I wanted to go back to the acquisition market and wanted to get some more color on what kind of properties you're targeting. Are you looking for investment-grade properties with longer lease terms, or are you kind of open to what you're seeing in the market?

Speaker 5

Yeah, I mean, we're definitely doing the Bar-Bell approach, as we mentioned in the call, that we're looking for investment-grade, longer duration leases, or at least good locations where we think we can do an extend and blend after acquiring a property. Basically, coupling that with the kind of higher return yielding sort of investment, we're pursuing on both sides, and we feel like we'll get something done here for sure this quarter. That in general is like we're going for a higher quality on the acquisition side to couple that with the loan investment side.

Okay. The second question on the balance sheet, your leverage was 8.1 times as of 2Q. Can you provide some more color on how you think about the leverage and where you guys are targeting that number?

Yeah, I mean, as we're selling assets, that will come down, and it would have come down in the quarter if the loan payoff happened in the quarter, but it happened a day after. We can easily manage that on the leverage side. Obviously, buying back stock accretively, accretively on earnings and accretively on NAV, drives up the leverage a little bit, but it's the right thing to do. We have nice free cash flow, so we use that to keep leverage in check as well. Looking for the opportunities to make investments, that would basically tick up the leverage a little bit, but then quickly sell through the Walgreens to bring it back down. Just appropriately managing the balance sheet.

Okay. Lastly, on the Walgreens, you obviously brought down that exposure. Where do you think that target number is for you guys as far as how much ABR you're getting from Walgreens?

Speaker 2

Phil, at the end of the quarter, you're asking about Walgreens? Down to about seven. I think it's actually just a little under, like 6.6, 6.7, 6.7% of ABR is where it currently stands. Target, I think we'd like to get it down below 5%.

Okay, thank you. That's all I had.

Great. Thank you.

Speaker 6

Thank you. One moment as we move on to our next question. Our next question is going to come from the line of Craig Kusira with Lucid Capital Markets. Your line is open. Please go ahead.

Yeah, thanks. Good morning, guys. John, I think earlier this year you were seeing some compression on structured financial yields versus last year. Is that still the situation today?

Speaker 5

No. Most interesting thing, you would think that the banks would be back at it and it would be competitive, but all of a sudden, you know, talking to very high-quality sponsors with very high-quality projects, it's said that the banks are shrinking again, at least for the activities that these folks are taking on. We're seeing yields being as good or even maybe better in certain situations. Luckily, we're back to a target-rich environment.

Got it. That makes sense. Phil, I just want to go back to the guidance, particularly as it relates to the investment guidance, increasing $30 million. Is that basically just saying, "Hey, we got back, you know, $27, $28 million, and we're going to redeploy that," or are you lifting the total amount or the net amount by $30 million versus the prior guide?

Speaker 2

Yeah, we did get the $25 million back, and I think it's just with the interesting opportunities we're seeing, in particular on the loan side. We think later in the year, you know, we can get that redeployed. That was kind of the real reason to the takeoff.

Okay. Just wanted to double-check there. Just one more for me. You've got the Bass Pro Shops lease taking occupancy here in the third quarter. Was there any lift in that lease or any change?

Yeah, there was. The rent rolled up about $40,000, $50,000 a quarter or month, and almost $500,000 a year.

Okay.

Additionally, the lease term that was remaining prior to that assignment was less than 10 years, and now it's 20 years.

Got it. Thanks.

Speaker 6

Thank you. One moment for our next question. Our next question is going to come from the line of John Masilka with B. Riley Securities. Your line is open. Please go ahead.

Morning, everyone. I'll be looking at the loan portfolio again. I know it wasn't a particularly early prepayment, but do any of the other loans have kind of early repayment options? Could that be kind of a significant thing here if interest rates were to decline in the next 6 to 12 months?

Speaker 5

Yeah, you're not going to see as much early repayments, because it's really inefficient for the sponsors. Our loans are fairly short duration anyway. They're not going to go do a refi to save 200, 300 bps in spread. It's really they're looking to sell these assets primarily. If interest rates drop, I wouldn't expect any sort of mass payoff, early payoffs.

Okay. That's understandable. As you think about the timing of investments, given the increase to the investment volume guidance, should we expect maybe the delta between what's currently in guidance and what was in guidance at the time of first quarter earnings to close really late in the year? I'm just trying to circle the square, if you will, of the increase in investment volume guidance and the fact that AFO guidance stayed flat.

Yeah, I would say that. Go ahead, Philip.

Speaker 2

No, I would say yeah, we would expect that to kind of get deployed later in the year.

Is there anything, you know, when I think about guidance in 2Q versus 1Q, anything baked in there in terms of maybe additional conservatism around At Home? Obviously, I know the two assets you have are thus far retained, but are you kind of factoring in something, you know, as this kind of bankruptcy process is ongoing that, you know, obviously, you're probably going to get paid here for the next couple of months, but that could change, you know, in the back half of the year?

Yeah, both of the At Home, neither of them are on the list for closure. Both of them paid July rent, and we generally expect to collect rent for the, you know, remainder of the year. There's nothing specific in there, but I mean, it is one of the reasons, right, to give a range is because, you know, unexpected things can happen. At this point in time, we really expect to get paid on our At Homes.

That's it for me. Thank you very much.

Speaker 6

Thank you. One moment for our next question. Our next question comes from the line of Rob Stevenson with Janney Montgomery Scott. Your line is open. Please go ahead.

Phil, the $50 to $70 million disposition guidance, that's just properties, that doesn't include loan repayments, does it?

That's correct.

Speaker 2

That's just properties on the disposition side.

Okay. John, given your comments about the difficult acquisition environment these days, you increased the investment guidance but left the dispositions the same. Why not look to sell more assets, especially with the stock trading at roughly an implied 10% cap rate, and use those proceeds to both lower debt and buy back stock?

Speaker 5

I think that certainly could be a possibility, but we are seeing good investments that are accretive to the company rather than shrinking the company. I think we're seeing some really good investment opportunities, which will make the enterprise worth more. I don't think you will see us rapidly selling just to buy back stock. As we're selling assets, we're being patient about it, not some sort of fire sale. It's a little bit just kind of taking our time with it unless we see a big acquisition happen and we really want to speed it up, which we would do.

Okay. Phil, other than the, I think you said it was a $0.01 drag between the yield on the Publix loan versus the repayment of debt associated with that, anything other than that that's a headwind in the back half of this year earnings-wise as we think about the quarterly progression and the investments being back half-stacked?

Speaker 2

No, nothing really specific. The repayment of loan will be the only really identified drag there. Other than that, with profit, it's just going to depend on the timing of acquisitions and dispositions.

Okay. All right. Thanks, guys. Have a good weekend.

Thanks. You too.

Speaker 6

Thank you. This concludes today's question and answer session. This also concludes today's conference call. Thank you for participating, and you may now disconnect. Everyone, have a great day.