Alpine Income Property Trust - Earnings Call - Q4 2024

Executive Summary

• Delivered Q4 2024 FFO and AFFO of $0.44 per diluted share (up 19% and 16% YoY, respectively, per management), on total revenue of $13.79M; GAAP diluted EPS was $(0.06), reflecting impairment and loss on disposition items.
• Full-year 2024 FFO/AFFO per diluted share were $1.73/$1.74, up 18%/17% YoY, supported by $134.7M of total investments at an 8.7% yield and $75.6M of dispositions at a 7.1% cap rate.
• Initiated 2025 guidance: FFO and AFFO per diluted share of $1.70–$1.73, with $50–$80M of investments and $20–$30M of dispositions; guidance embeds an ~$0.08/share headwind from a Party City bankruptcy-related vacancy and a Reno theater non-renewal.
• Capital updates: Dividend raised to $0.285 for Q1 2025 (from $0.280) and new $10M share repurchase authorization announced post-quarter; net debt/Pro Forma Adjusted EBITDA at 7.4x with $95.1M of liquidity at year-end.

What Went Well and What Went Wrong

• What Went Well

  • Executed accretive recycling: $134.7M of investments at 8.7% yield and $75.6M of dispositions at 7.1% cap rate; reduced Walgreens exposure and increased WALT to 8.7 years.
  • Earnings and dividend growth: AFFO per share up 17% in 2024, enabling another dividend increase to $0.285 for Q1 2025; management highlighted a “strong finish to an excellent 2024”.
  • Strengthening tenant mix: Investment-grade ABR at 51%, with DICK’S and Lowe’s now top tenants (each 10% of ABR), supporting portfolio quality and diversification.

• What Went Wrong

  • GAAP loss in Q4: Diluted EPS of $(0.06) driven by impairment and loss on disposition; real estate expenses ticked up QoQ due to the Reno theater lease expiry in November.
  • Vacancy headwinds: 2025 guidance assumes an ~$0.08/share drag from a Party City bankruptcy-related vacancy and the non-renewed Reno theater until resolved/redeployed.
  • Leverage elevated: Net debt/Pro Forma Adjusted EBITDA at 7.4x (vs. 6.9x in Q3) despite liquidity of $95.1M; management intends to balance growth and leverage with ongoing recycling and ATM flexibility.

Transcript

Operator (participant)

Good day, and thank you for standing by. Welcome to the Alpine Q4 Year-In 2024 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 11 on your telephone. You will then hear an automated message advising you your hand is raised. To withdraw your question, please press star 11 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, CFO Philip Mays. Please proceed.

Philip Mays (CFO)

Thank you. I would like to remind everyone that 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 reports, earnings release, and most recent investor presentation, which contains reconciliations of the non-GAAP financial measures we use, on our website at www.alpinerethe.com. With that, I will turn the call over to John.

John Albright (President and CEO)

Thanks, Phil. The fourth quarter was a strong finish to an excellent 2024 for Pine, as we executed successfully on all areas of the business plan. Starting with earnings, we achieved AFFO of $1.74 per diluted share for the year, representing growth of 17%. This robust growth in earnings, along with free cash flow, permitted us to once again raise our common dividend to a new quarterly rate of $0.285 effective the first quarter of 2025. This new annualized dividend of $1.14 continues Pine's achievement of increasing its annual dividend each year since its IPO in November of 2019, while continuing to provide shareholders an attractive, well-covered dividend yield. Driving our earnings growth is a successful quarter and a year of investment activity. During the fourth quarter, we acquired six properties for $50.5 million at a weighted average cash cap rate of 7.6%.

This brings our full year acquisition activity to 12 properties for $103.6 million at a weighted average cash cap rate of 8.2%. Our 2024 acquisitions included investment-grade rated Best Buy, Dick's Sporting Goods, and Lowe's, along with three beachfront restaurants, increasing our WALT to 8.7 years from seven years at the beginning of the year. Further, we ended the year with 51% of our ABR attributable to investment-grade rated tenants. Supplementing our 2024 property acquisitions, we originated three commercial loans during the year for $31.1 million at a weighted average yield of 10.7%. Taking loan originations and property acquisitions together, we successfully completed $134.7 million of total investments during 2024 at an average yield of 8.7%. Additionally, during the year, we successfully pruned our portfolio, selling $62 million of property at an average cap rate of 6.9%.

These dispositions reflected a strategic effort to improve the diversification of our cash flow and reduce risk and included three Walgreens, moving Walgreens from our largest tenant in terms of ABR to our fourth-largest tenant. Notably, triple B rated Dick's Sporting Goods and triple B plus rated Lowe's are now our two largest tenants, each representing 10% of ABR. Additionally, we were able to reinvest net proceeds from these dispositions into new acquisitions at a positive yield spread. As we look to 2025, we continue our investment strategy, employing a barbell approach with regards to property acquisitions. On one side, we will invest in investment-grade rated tenants to provide consistent and stable cash flows, while on the other side, we will seek higher yielding opportunities to provide growth and diversification. Additionally, we will continue to augment and complement our property investments by selectively originating commercial loans.

Phil will discuss the 2025 earnings guidance, but I do want to make note of a couple of related items. First, as you are aware, Party City filed for bankruptcy. PINE does have one Party City lease in its portfolio. This lease is for a property located in Oceanside, New York, on Long Island. The densely populated and desirable location of this property will provide us with multiple alternatives to release or sell it. Second, in late 2024, Cinemark did not renew its lease for our theater in Reno. We are anticipating that this and had this property under contract to be sold. However, the buyer had an unanticipated event that prevented closing. Accordingly, we are now focused on selling this asset and redeploying the capital. These two matters will be short-term earnings headwinds until lease are sold and the proceeds redeployed.

As we look ahead, we see an active and attractive pipeline of opportunities across the tenant landscape and remain focused on executing our strategy to deliver for PINE investors. With that, I'll turn the call over to Phil.

Philip Mays (CFO)

Thanks, John. Beginning with financial results, total revenue was $13.8 million for the quarter, including lease income of $11.5 million and interest income from commercial loans of $2.2 million. FFO and AFFO for the quarter were both $0.44 per diluted share, representing growth of 19% and 16% respectively over the comparable quarter of the prior year. For the full year, total revenue was $52.2 million, including lease income of $46 million and interest income from commercial loans of $5.8 million. FFO for the year was $1.73 per diluted share, representing 18% growth over the prior year, and AFFO was $1.74 per diluted share, representing 17% growth over the prior year. Driving this earnings growth for the quarter and the year was the investment activity John discussed, along with prudent and disciplined capital management.

During the fourth quarter, we issued approximately 436,000 common shares under our ATM program at a weighted average price of $17.98 per share, generating $7.7 million in net proceeds. For the full year of 2024, we issued 1.1 million common shares under our ATM program at a weighted average price per share of $18.04, generating $18.8 million in net proceeds. Notably, and of equal importance, during 2023 and into the first quarter of 2024, the company opportunistically repurchased 0.9 million common shares for $15.4 million at an average price of $16.26, which is $1.78 below our weighted average issuance price in 2024. Our 2024 ATM activity and net issuance of over 1 million shares allowed us to both grow and reduce leverage. Specifically, we ended the year with net debt to EBITDA of 7.4x compared to 7.7x at the beginning of the year.

As a reminder, we have no debt maturing until 2026, after which our debt maturities are well staggered, and we have utilized SOFR rate swaps to fix interest rates on over 80% of our debt, resulting in a weighted average interest rate of 4.1% at year-end. Further, we had $95 million of liquidity, consisting of approximately $5 million of available cash and $90 million available under our revolving credit facility. In addition, with current in-place commitments, the available capacity of our revolving credit facility can expand an additional $50 million as we acquire properties, providing total potential liquidity of approximately $150 million. During the fourth quarter, we paid a quarterly cash dividend of $0.28 per common share to our stockholders of record on December 12, 2024. This represents a healthy AFFO payout ratio of 64%.

As discussed earlier, our board of directors recently approved increasing our quarterly dividend to $0.285 effective in the first quarter of 2025. After this increase, our dividend remains well covered and supported by free cash flow. Finally, turning to guidance for 2025, our initial earning guidance for the full year of 2025 is a range per diluted share of $1.70-$1.73 for both FFO and AFFO. Key assumptions reflected in our initial guidance include investment volume of $50 million-$80 million, dispositions of $20 million-$30 million, and weighted average shares outstanding of 16 million-16.5 million. With regards to Party City bankruptcy and the vacant theater in Reno, our guidance at this time assumes they will impact 2025 FFO and AFFO per share by approximately $0.08.

However, if there is an assumption of the Party City lease and we timely execute on planned property acquisitions and loan originations, we could be on the high end of our range or exceed it. One last note, the annual run rate for our external management fee is now $4.5 million, reflecting the full impact of the $7.7 million of net equity proceeds raised in the fourth quarter. With that, operator, please open the line for questions.

Operator (participant)

Thank you. As a reminder, to ask a question, please press star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press star 11 again. One moment while we compile our Q&A roster. Our first question is going to come from the line of Michael Goldsmith with UBS. Your line is open. Please go ahead.

Kathryn Graves (Equity Research Scientific Associate)

Great. This is Catherine Graves on for Michael Goldsmith. Thank you for taking my question. My first is you decreased your Walgreens exposure in the quarter. Should we expect a further paring down of this tenant type and, in general, what's a comfortable level of exposure for you there?

John Albright (President and CEO)

Yeah, thanks. We have another one kind of in the pipeline to sell as far as negotiations, but we're really kind of trying to time it with acquisitions. These properties are, even though it's a challenge sort of credit and story, there is a market for these, so we're trying to pair them up with acquisitions. There'll probably be another one coming out possibly in the quarter.

Kathryn Graves (Equity Research Scientific Associate)

Got it. Thank you. My second question, within your investment outlook for 2025, can you provide any color on maybe your appetite for acquisitions versus construction loans? What would make you more constructive on one lever versus the other in 2025?

John Albright (President and CEO)

Yeah. As I've talked before in the past, we really like some of the loan opportunities we see because you're really getting an enhanced credit. For instance, the Publix-anchored sort of outparcel developments with a buffer of equity beneath you as a developer has a lot of equity in the projects. The LTVs are certainly obviously lower than if you went out and bought these assets. Of course, the yields are higher than owning them. We really like the opportunity as the capital markets are still constrained for developers. I would say that we are seeing a very active pipeline on both the loan side as well as the acquisitions, the more of the core acquisition side. We are seeing robust sort of opportunities on both sides. I could see us kind of being 50/50 on that sort of investment program.

Kathryn Graves (Equity Research Scientific Associate)

Got it. Thanks so much.

John Albright (President and CEO)

Thank you.

Operator (participant)

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

Gaurav Mehta (Managing Director, Senior Equity Research Analyst)

Yeah. Thank you. Good morning. I wanted to follow up on the commercial loan opportunity. You have four commercial loans maturing in 2025, and I wanted to ask you what your expectations were.

Philip Mays (CFO)

Yeah. We do have four maturing. I think one will actually probably pay off. Three will probably extend. We do not think there will be any problem, as John talked about, with our robust pipeline of loans here replacing the one of them that will likely pay off. They will likely pay off mid-year, and we are pretty confident we will replace that. Do not expect the balance to come down. Expect it to kind of stay where it is at and maybe grow towards the latter part of the year.

Gaurav Mehta (Managing Director, Senior Equity Research Analyst)

Okay. Second question on the acquisition disposition guidance, can you provide some color on the expected timing on when you guys are planning to sell and acquire properties in the year?

John Albright (President and CEO)

On selling which properties?

Gaurav Mehta (Managing Director, Senior Equity Research Analyst)

Buying.

John Albright (President and CEO)

On acquisition. I think the pipeline is probably the strongest we've seen this time of year in the five years we've been doing this. We are pretty optimistic. As you know, the deals could fall through, but I would expect more of the activity to happen at the end of the first quarter.

Gaurav Mehta (Managing Director, Senior Equity Research Analyst)

Okay. Thank you.

John Albright (President and CEO)

Thank you.

Operator (participant)

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

Rob Stevenson (Managing Director, Head of Real Estate Research)

Good morning, guys. John, are the Beachside Group assets back to their full capacity after the storm damage, and is their revenue back to where you guys underwrote it at the initial deal?

John Albright (President and CEO)

Yeah. We were actually out there last week, and they are all open and performing, and some are performing better than pre-hurricane with new equipment, more efficient kitchens as they had the opportunity to reconfigure where they wanted to. I would say the sandbar isn't at max capacity yet as they do a lot of weddings and so forth, but we are just now getting into season. Everything is trending to either the same or better than pre-hurricane. Unfortunately, for the market, some of the competition has not come back online. They are kind of the only game in town. They are pretty excited about their positioning.

Rob Stevenson (Managing Director, Head of Real Estate Research)

All right. They had insurance, business interruption insurance, to be able to pay you for anything that is missing at this point, right?

John Albright (President and CEO)

Correct.

Rob Stevenson (Managing Director, Head of Real Estate Research)

Okay. You and Phil talked about the Party City and the Cinemark. Beyond those two assets, are there any other locations that you expect to be vacant at some point in 2025 or early 2026 at this point?

John Albright (President and CEO)

No. We're being proactive on things that are kind of the watch list sort of tenants, for instance, At Home. We're very active in discussing about selling a couple of those. The theater deal, obviously, last fall, we had it under contract, and unfortunately, there was a health issue with the buyer. That really kind of messed up our plans. That should have been sold last year. We had to restart with that. We do have active offers on both the Party City and the theater. We're trying to get the best price possible, but we certainly will see the benefits if we decide to sell it earlier and have that capital put into production by either paying down the debt or making an acquisition or investment. We clearly see the benefits of monetizing those sooner rather than later.

We may do that.

Rob Stevenson (Managing Director, Head of Real Estate Research)

Okay. You mentioned At Home. That was my last question. You talked earlier about there being a market for Walgreens today. Is there really a market for At Home assets these days given their size and their credit rating? Is that something that you'll look to match any dispositions there to acquisitions as well?

John Albright (President and CEO)

Yeah. I mean, we'll go ahead and we won't sort of, because they are a little bit lumpier, we won't match it up with acquisitions. The buyer is ready to buy it, then we'll move through the process with them. The reason there's more activity on them than you may think because of the size, as you mentioned, is that, remember, these are on large parcels with a lot of parking and a large configuration at a very low basis, and you just can't find that anymore. I mean, redevelopment of any of this sort of product is closer to $300 a sq ft these days with land. These are unique opportunities for investors, developers, tenants, and people understand that.

Rob Stevenson (Managing Director, Head of Real Estate Research)

Okay. I guess one last question for Phil. You gave guidance in terms of the numbers and the investments and dispositions. In terms of the income statement, anything in 2025 looking to be either abnormally high line items, abnormally high or low, excluding revenue and interest expense, depending on what you guys do from a buy and sell and financing standpoint? Anything in G&A or anything that's going to wind up being otherwise lumpy or extraordinary that you're anticipating in 2025?

Philip Mays (CFO)

No. I imagine most things will be a pretty even run rate quarterly over the year. Nothing lumpy in G&A. As I noted, our management fee, given the effect to all the equity that went out the door in the fourth quarter, is now four and a half on an annual basis. That assumes we don't issue any more equity, but that's the current run rate. I think most things will be generally an even run rate over the year. It just absent the timing of acquisitions and dispositions, no unusual one-time fees or kind of lumpy things that you need to worry about.

Rob Stevenson (Managing Director, Head of Real Estate Research)

Okay. Thanks, guys. Have a great weekend.

John Albright (President and CEO)

Thanks. You too.

Operator (participant)

Thank you. One moment for our next question. Our next question comes from the line of Matthew Erdner with Jones Trading. Your line is open. Please go ahead.

Matthew Erdner (Director, Specialty Finance & Real Estate Equity Research)

Hey. Good morning, guys. Thanks for taking the question. I'd like to talk about cap rates a little bit and kind of where pricing is there right now, given the higher for longer outlook. It seems like pricing has held pretty steady over the past couple of quarters. When you strip out the loans, what is your going-in cap rate on these acquisitions for kind of the past couple of quarters?

John Albright (President and CEO)

It's basically averaging out close to the 8% cap rate range. As you saw us in the last in the fourth quarter, we did dive down for quality where we picked up a Lowe's to really show the market that we're the only net lease REIT with a Dick's or a Lowe's in the top five, maybe even the top 10 credit. Trying to show the market that if you want sort of a diversification of investment, we're really the only sort of net lease REIT that you can kind of get exposure to different credits. Everyone else seems to have the same sort of credit profiles. Really striving to get that story told. In general, besides diving down and picking up a quality Lowe's with a long duration, we're kind of trending to the 8% cap range.

Matthew Erdner (Director, Specialty Finance & Real Estate Equity Research)

Gotcha. That's helpful. Because you guys didn't provide any guidance there, should we expect kind of the same plan in 2025, strong credit, and then the loans, obviously, to boost the yield there?

John Albright (President and CEO)

Yeah. Absolutely. I think hopefully some of these deals happen, and I think you'll be impressed with the quality and the yield.

Matthew Erdner (Director, Specialty Finance & Real Estate Equity Research)

Awesome. Great. Thank you, guys.

John Albright (President and CEO)

Thank you.

Operator (participant)

Thank you. One moment for our next question. Our next question comes from the line of Alec Fegan with Bayer. Your line is open. Please go ahead.

Alec Fegan (Analyst)

Hi. Good morning, and thank you for taking my question. You have already mentioned with the Party City and the Cinemark that you have offers potentially. Are you planning on selling them or releasing them? Could you potentially talk about the impact on valuation?

John Albright (President and CEO)

Yeah. We have leasing opportunity as well. Certainly, the best-best execution would be to lease and then sell. That would take the whole year, really, to have that execution. Realizing how finicky the investor market is as far as stock investors feel, having the money and redeploying earlier is probably going to be more prudent and pay off for our shareholders. That is kind of so we do have optionality on both, whether we lease and hold or sell, but we're tending to gravitate towards the monetization.

Alec Fegan (Analyst)

With the buyers that pulled out because of health issues, was there any sort of termination income or one-time income that we should expect from that?

John Albright (President and CEO)

We got a little bit, but we really could have taken more, but we obviously felt bad about the circumstances and released some escrow back that we did not need to. Given the extreme nature of the health issue, we did that.

Alec Fegan (Analyst)

All right. Thank you.

John Albright (President and CEO)

Thank you.

Operator (participant)

Thank you. One moment as we move on to our next question. Our next question comes from the line of John Massocca with B. Riley Securities. Your line is open. Please go ahead.

John Massocca (Senior Research Analyst)

Good morning. Maybe digging in a little bit more on the acquisition guidance. I mean, how much of that is stuff you kind of visibly see in the pipeline today or is under kind of LOI, and how much is theoretical? I am just kind of asking that in the context of $80 million at the top end of the range is significantly less than you did last year, but you kind of were saying you felt the pipeline was stronger than it had been at any other point during this time of the year. Just kind of trying to circle that square, if you will.

John Albright (President and CEO)

Yeah. No, that's a good point. Because these investments are fairly lumpy, we are negotiating with a fair amount of the pipeline, but you just never know what's going to happen. On the theoretical, it's more we have identified assets that we're pursuing, but we don't know whether we'll win them at the yields that work for us. I would say it's what we have that we're negotiating, where terms have been really agreed upon, is a fair amount of the guidance.

John Massocca (Senior Research Analyst)

Okay. That's helpful. In terms of yields on those investments, I mean, is it going to be comparative to last year? I mean, has the cap rate market moved at all given some of the volatility in interest rates or macro uncertainty?

John Albright (President and CEO)

I would say that the yields on the structured finance investments have maybe come down slightly. The yields on the acquisitions have either been steady from what you've seen in the past or maybe even come up a little bit as far as higher yield.

John Massocca (Senior Research Analyst)

Okay. On guidance again, any credit loss kind of baked into that number beyond the two vacancies you called out specifically?

Philip Mays (CFO)

Yeah. I mean, we always keep a small general reserve in the forecast, but we don't see anything large that's looming right now.

John Massocca (Senior Research Analyst)

Okay. Last kind of detail one for you, Phil. Real estate expense kicked up a little bit quarter-over-quarter. Was that just reflecting the situation in Reno, or was there something else going on there?

Philip Mays (CFO)

Yep. The Reno lease expired in November, and it kind of kicked up primarily due to that.

John Massocca (Senior Research Analyst)

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

John Albright (President and CEO)

Thank you.

Operator (participant)

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

Craig Kucera (Managing Director, Equity Research)

Yeah. Thanks. Good morning, guys. Phil, about half of the revolver balance now is floating. Are you contemplating any swaps there, or are you likely to keep that floating?

Philip Mays (CFO)

Yeah. It is about $100 million outstanding on the revolver. As you mentioned, half is swapped and $50 million is not swapped. We might consider if the balance starts to get up a little higher. It just kind of depends on how the timing of acquisitions and dispositions lay out. We want to always have some flexibility there, Craig, to be able to pay down the line rate. When it is swapped, then you are just sitting on the cash earning nothing. If it continues to get up a little higher, we will probably look at swapping. We may opportunistically do it, right? If there is a dip in rates, we might consider doing it a little earlier.

Craig Kucera (Managing Director, Equity Research)

Got it. Just one more for me. I guess you guys have had a really good track record of getting a positive cap rate spread on your acquisitions and dispositions. Is that still anticipated this year, or does the fact that some of the assets you're looking to sell might need to be leased up to kind of maximize the value?

John Albright (President and CEO)

Yeah. I mean, there's definitely going to be some assets like the Walgreens and maybe At Home that will be at yields that are the same or higher than what we're acquiring. You won't see that accretive recycling. With regards to Party City and the theater, I mean, those are a fairly chunky amount of money for our small company that's obviously earning negative that once we get that redeployed, will be very accretive.

John Massocca (Senior Research Analyst)

Okay. Great. Thanks.

John Albright (President and CEO)

Thank you.

Operator (participant)

Thank you. This is going to conclude our question and answer session. Ladies and gentlemen, this is also going to conclude today's conference call. Thank you for participating, and you may now disconnect. Everyone, have a great day.