Alpine Income Property Trust, Inc.

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.

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.alpineread.com. With that, I will turn the call over to John.

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 28.5 cents 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, 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 walls to 8.7 years from seven years of beginning of the year. Further, we ended the year with 51% of our ABR attributable assets 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 AVR 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 AVR. 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-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 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're 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 Pines investors. With that, I'll turn the call over to Phil.

Thanks, John. Beginning with financial results, total revenue was $13.8 million for the quarter, including lease income $11.5 million and interest income from commercial loans of $2.2 million. FFO and AFFO for the quarter were both 44 cents 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. Dragging 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 and 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 at 7.4 times compared to 7.7 times 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 the interest rate 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 ASFO 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 flows. Finally, turning to guidance for 2025. Our initial earning guidance for the full year of 2025 is a range-privileged share of $1.70 to $1.73 for both FFO and AFFO. Key assumptions reflected in our initial guidance include investment volume of $50 million to $80 million, dispositions of $20 million to $30 million, and weighted average shares outstanding of $16 million to $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.

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. And our first question is going to come from the line of Michael Goldsmith with UBS. Your line is open. Please go ahead.

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 pairing down of this tenant type and in general with a comfortable level of exposure for you there?

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. And so these properties are, you know, 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, but they're probably another one, you know, coming out and possibly in the quarter.

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

Yeah, so 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 public's anchored sort of out parcel developments with a buffer of equity beneath you as a developer has a lot of equity in the projects and The LTVs are certainly obviously lower than if you went out and bought these assets. And of course, the yields are higher than owning them. So we really like the opportunity as the capital markets are still constrained for developers. And I would say that we are seeing a very active pipeline on both The loan side, as well as the acquisitions, more of the core acquisition side. So we're seeing robust sort of opportunities on both sides. So I could see us kind of being 50-50 on that sort of investment program.

Got it. Thanks so much.

Thank you.

Thank you. One moment as we move on to our next question. Our next question comes from the line of Guha Avmeta with,

alliance global partners your line is open please go ahead yeah thank you good morning i i wanted to follow follow up on the commercial loan uh opportunity uh you have four commercial loans maturing in 2025 and i wanted to ask you what your expectations were yeah so we do have four maturing um i think one will actually probably pay off three will probably extend

And we don't think there'll be any problem as John talked about with our robust pipeline of loans here replacing the one of them that will likely pay off. And they'll likely pay off mid-year and we're pretty confident we'll replace that. So don't expect the balance to come down. Expect it to kind of stay where it's at and maybe grow towards the latter part of the year.

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

On selling which property? Buy. So I think, you know, the pipeline is probably the strongest we've seen this time of year in the five years we've been doing this. And so we're pretty optimistic. But as you know, you know, the deals, you know, could fall through. But I would expect sort of more of the activity to happen at the end of the first quarter.

Okay, thank you.

Thank you.

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

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?

Yeah, so 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. You know, I would say the sandbar isn't at max capacity yet as they're You know, it's really a lot. They do a lot of weddings and so forth, but sort of just now getting into season. But everything's trending to either the same or better than pre-hurricane. Unfortunately for the market, you know, some of the competition has not come back online. So they are kind of the only game in town. So anyway, it looks they're pretty excited kind of about their positioning.

All right. And they had insurance, business interruption insurance, to be able to pay you for anything that is missing at this point, right? Correct. Okay. And then 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?

No, and we're being proactive on things that, you know, kind of the watch list sort of tenants, for instance, at home, we're very active in discussing about selling a couple of those. So, you know, the The theater deal, obviously, last fall, we had it under contract. And unfortunately, there was a health issue with the buyer. So that really kind of messed up our plans that should have been sold last year. And so we had to restart with that. And so we're 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. And so we clearly see the benefits of monetizing those sooner rather than later, and so we may do that.

Okay. And then 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? And is that something that you'll look to match any dispositions there to acquisitions as well?

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. And the reason there's, you know, more activity on them than you may think because of the size, as you mentioned, is that, remember, you know, 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, you know, redevelopment of any of this sort of product is, you know, closer to $300 a square foot these days with land. So, you know, these are unique opportunities for investors, developers, tenants, and people understand that.

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

No, I imagine most things will be a pretty even run rate quarterly, you know, over the year, nothing lumpy. And GNA, as I noted, you know, our management fee, given the fact 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. But I think most things will be generally an even run rate over the year. And just absent the timing of acquisitions and dispositions, but no unusual one-time fees or kind of lumpy things that you need to worry about.

Okay. Thanks, guys. Have a great weekend. Thank you, too.

Thank you. And 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.

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

So it's basically averaging out close to the 8% cap rate range. As you saw in the fourth quarter, we did dive down for quality where we picked up the lows to really show the market that we're the only net lease REIT with a DICS or lows in the top five, maybe in the top 10 credits. So trying to show the market that if you want sort of a diversification of investment, you know, 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. And so really striving to get that story told. So, but in general, besides, you know, diving down and picking up a quality lows, with a long duration, you know, we're kind of trending to the eight cap range.

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

Yeah, absolutely. I think hopefully some of these deals happen, and I think you'll be impressed with the quality and the yield. Awesome. Great. Thank you, guys. Thank you.

Thank you. And one moment for our next question. And our next question comes from the line of Alex Egan with Bayer. Your line is open. Please go ahead.

Hi. Good morning, and thank you for taking my question. So you've already mentioned with the party city and the sign mark that you have offers potentially. Are you planning on selling them or releasing them and Did you potentially talk about the impact on valuation?

Yeah, so we have leasing opportunity as well. And certainly the best execution would be to lease and then sell. But that would take the whole year, really, to have that execution. And realizing how finicky the investor market is, as far as stock investors, feel like having the money and put it redeploying earlier is probably going to be more prudent and pay off for our shareholders. And so that's 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.

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

We got a little bit, but we really, you know, we could have taken more, but we, you know, obviously felt bad about the circumstances and really some escrow back that we didn't need to. But given the extreme nature of the health issue, we did that. All right. Thank you. Thank you.

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

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? And I'm just kind of asking that in the context of $80 million at the top end of the range is significantly less than he 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. So just kind of trying to circle that square, if you will.

Yeah, no, that's a good point. So 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. And then 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. And so 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.

Okay. That's helpful. And then 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?

I would say that the yields on the structured finance investments have maybe come down slightly. And then 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.

Okay. And then, you know, on guidance again, Any credit loss kind of baked into that number beyond, you know, the two vacancies you called out specifically?

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

Okay. And then last kind of detail one for you, Phil. You know, 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?

Yep. The Reno lease expired in November, and it kind of kicked up primarily due to that. Okay. That's it for me. Thank you very much.

Thank you.

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

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?

So, yeah, so it's about $100 million outstanding on the revolver. As you mentioned, half is swapped and $50 million is not swapped. We might consider, you know, if the balance starts to get up a little higher, you know, just it kind of depends on how the timing of acquisitions and dispositions lay out. You know, we want to always have some flexibility there, Craig, to be able to pay down the line rates. And when it's swapped, then you're just sitting on the cash earning nothing. So, you know, if it gets, if it continues to get up a little higher, we'll probably look at swapping. Or we may opportunistically do it, right, if there's a dip in rates. We might consider doing it a little earlier. 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?

Yeah, I mean, there's definitely going to be some assets like Walgreens and maybe at homes that will be at yields that are the same or higher than what we're acquiring. So you won't see that accretive recycling. But, you know, with regards to Party City and And as a 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. Okay, great. Thanks. Thank you.

Thank you. And 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.