Good day! Welcome to the Alpine Income Property Trust's conference call for the Second Quarter 2024 operating results. All participants are currently in listen-only mode. After the presentation, there will be a question-and-answer session. This call is being recorded. I will now hand it over to John Albright, President and CEO. Please proceed.

Good morning, everyone, and thank you for joining us today for the Alpine Income Property Trust, second quarter 2024 operating results conference call. I am pleased to have Phil Mays, our new Chief Financial Officer, joining me this morning. Before we begin, I will turn it over to Phil to provide customary disclosures regarding today's call. Phil?

Thanks John. 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 files. 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 alpinereit.com. With that, I will turn the call back over to John.

Thanks Phil. We are pleased that our successful asset recycling and investments in higher-yielding quality loans have delivered a strong quarter and led to an increase in our earnings guidance. On the asset recycling front during the quarter, we acquired a $14.6 million property leased to investment-grade tenants Best Buy and Golf Galaxy, which was an accretive yield to the disposition of two properties leased to Festival Foods and Hobby Lobby for a disposition volume of $6.6 million and a blended exit cap rate of 7% for the sold properties. Further, we are beginning to see investment opportunities in the market that we plan to take advantage of and continue recycling at accretive yields. On the loan investment front, we originated a $6.1 million first mortgage investment, of which $4.6 million was funded during the quarter. The initial yield on this investment was 11.5%, and it was to provide funding toward the four-pad retail development anchored by Wawa in a growing sub-market of Cincinnati, Ohio. During the quarter, we also sold a $13.6 million A-1 participation interest in our $23.4 million portfolio loan secured by 39 properties that we originated in November of 2023. As part of the transaction, the loan was rated by an independent rating agency, whereby it received an A- rating. This sale frees up capital for additional quality, high-yielding loan investments. Including both property and structured investments, year-to-date through June 30, 2024, the company has made total investments of $28.9 million at a weighted average initial investment yield of 9.8%, while our disposition activities totaled $20.2 million at a weighted average exit yield of 7.7%. As of quarter-end, our portfolio was 99% occupied and consisted of 137 properties totaling 3.8 million square feet, with tenants operating in 23 sectors within 34 states. Our top tenants remain unchanged from our first quarter earnings call in April, with Best Buy making it into our top five tenants after our recent acquisition. Furthermore, we're actively reducing our Walgreens exposure and currently have two Walgreens in the sales process. All of our top five tenants carry investment-grade credit ratings, and we ended the quarter with 67% of our total annualized base rents coming from tenants with an investment-grade credit rating, an increase of 400 basis points from this time last year. From a valuation perspective, we are currently trading well above an implied 8% cap rate on our real estate portfolio and at a meaningful discount to our book value of approximately $18 per share. Additionally, we have one of the highest dividend yields in our peer group, along with a healthy free cash flow and strong AFFO per share growth projected for 2024. Simply put, Alpine shares are a great value today. Lastly, given our strong earnings during the first half of the year, we have increased our full FFO and AFFO guidance by $0.07 per share or 4.6% at the low end and $0.06 a share or 3.8% at the high end. With that, I'll turn the call over to Phil to talk about our second quarter performance, balance sheet, and guidance.

Thanks John. First, it's a privilege to join the team here at Alpine. I've only been here a few weeks, but it is clear that management and the board do not sit still and are constantly working to increase shareholder value. As the new CFO, I will endeavor to do the same. Today, I will briefly highlight our earnings, balance sheet, and guidance, and then open the call to questions. Beginning with financial results, FFO and AFFO were both $0.43 per share for the quarter. This represents an increase of $0.06 per share or 16% over the second quarter of 2023. The growth in our earnings was driven by interest income from our loan portfolio, along with the previous asset recycling. Additionally, other revenue for this quarter includes $100,000 of non-recurring leasing commissions related to the 39 properties securing our $23.4 million portfolio loan. Our G&A for the quarter was $1.6 million. This is consistent with G&A for both the prior quarter and the second quarter of last year. As a reminder, G&A primarily consists of our external management fee, which was $1 million for the quarter. During the quarter, the company paid a cash dividend of $0.275 per share. Our dividend is well covered and this represents an AFFO payout ratio of 64%. We do aim to pay out 100% of our taxable income each year, and consistent with past practice, we will announce towards the end of August our quarterly dividend amount for the third quarter. Moving to the balance sheet, we ended the quarter with net debt to enterprise value of 53%, net debt to EBITDA of 7.4x, and a fixed charge coverage ratio of 30.4x. Additionally, we ended the quarter with $185 million in liquidity, and we have no debt maturities until 2026. One final balance sheet note, as John discussed, we sold a $13.6 million A-1 participation interest in our $23.4 million portfolio loan. As required by GAAP, we will continue to report the full amount of this loan receivable on our balance sheet with a separate liability line item for the $13.6 million participation in it. Furthermore, interest income will continue to be recorded on the full loan amount with interest expense, including an offsetting amount for the participation interest sold. With regards to guidance, we are increasing our full year 2024 outlook to the new FFO guidance range of $1.58 to $1.62 per share, and a new AFFO guidance range of $1.60 to $1.64 per share. This represents a 4.2% increase at the midpoint of these ranges. The acquisition and disposition assumption underlying our guidance remains unchanged at a range of $50 million to $80 million for each. Lastly, a couple of quick modeling notes. We begin the third quarter with in-place annualized straight-line base rent of $39.8 million and $39.5 million of in-place annualized cash base rent. Our annualized interest income currently has a run rate of $4.3 million, which as previously discussed is now offset by approximately $1.1 million of additional interest expense associated with the loan participation sale. With that, operator, please open the line for questions.

Thank you. Our first question comes from Gaurav Mehta with Alliance Global Partners. Your line is open.

Thank you. Good morning. I wanted to ask you some color on what you are seeing in the transaction market for net-lease properties.

Yeah. So, we're seeing still some very good buyer interest for smaller net-lease properties, kind of $5 million and below. It's still a very active market and not a lot of dislocations. Larger properties aren't moving as much. There's a little bit more activity than last quarter, for sure. We are seeing opportunities where people need capital, want to sell properties, or need some financing, but it's a much better environment now than it was last quarter.

Okay. I also wanted to ask you on the acquisition that was completed in the second quarter, the lease term on the acquisition was lower than your weighted average lease term. I wanted to get some color on the lease term. Is that something you plan to pursue going forward?

Yeah. We mentioned in our investor presentation that we are going to look to increase our weighted average lease term as we move from here. That property that we bought has investment-grade credit tenants, lease rates at or below market in a location where there's no supply. So, the tenants aren't doing well; they don't have the opportunity to move and find another available site, and the disruption might not make sense. So, we have a very high confidence that they are going to renew and discussions with them as the stores do well and are the right size. So definitely, as you know, that's been our strategy: to pick up high-quality property, that higher yields with a strong conviction that they are going to renew. But knowing that in the context of the public markets, we will work on increasing our weighted average lease length.

Okay. Thank you. That's all I have.

Thanks.

Thank you. Our next question comes from RJ Milligan with Raymond James. Your line is open.

Hey, good morning, guys. John, you mentioned that you are looking to, I think you have two Walgreens under contract to dispose. Just curious what the lease expiration schedule looks for your Walgreens exposure? If there's any short-term releasing risk.

Yeah. So, our average weighted average lease length of the Walgreens is about eight years. So we have a longer duration there with the Walgreens, and that obviously gives us a better opportunity to sell the properties at reasonable cap rates. So, obviously mentioning that we have two in the sales process and we'll start working through some others that are really good locations and look to actively bring down Walgreens from the number one position. So, I feel like we'll definitely make some good headway for the rest of the year on doing that.

Thanks. That's helpful. And just given the recent recovery in some of the net lease stocks, I'm curious how that changes your cost of capital equation and the outlook for the rest of the year in terms of, right now, I think you're set to be per guidance, sort of a net neutral in terms of acquisitions and dispositions. And I'm curious if – where do we need to see Alpine Stock go to, to get to a net acquirer position?

Yeah. I mean look, we're finding, as I mentioned, good opportunities, and we still – given that we do want to sell Walgreens down, you know that's a good source of capital to redeploy. We don't necessarily need the public markets to grow. Obviously, we'd love the public markets to be supportive for growth, but we're going to be patient and see whether that basically happens for us. So, we'll keep on trying to put points on the board here and obviously stream some good successes here, and we feel that as much as the broad markets are supportive, that will come for us. But we don't need to depend on it to be somewhat of a net acquirer, and so that's kind of where we are right now.

Great. That's it for me. Thanks for the color.

Thank you.

Thank you. Our next question comes from Rob Stevenson with Janney Montgomery Scott, LLC.

Hi. Good morning. John, just to follow up on the Walgreens, given the issues of the fact that a lot of people want to reduce their Walgreens exposure, who are the prospective buyers of these properties these days? Are these just local buyers that want the eight to 10 years of investment-grade tenant? Are these guys looking to do something else if Walgreens doesn't renew? How would you characterize the potential buyer pool of Walgreens assets today?

Yeah Rob, you basically answered it. It’s all of the above. We have – again, looking at our demographics of our total portfolio, you can summarize that we have really good locations. So, you have 1031 buyers who are basically saying, okay, I got Walgreens, good credit for a good lease length in a market that's dynamic, growing. No one's building anything, and you are buying it below replacement costs. And then we've had situations where tenants want the Walgreens box and will basically say, I can probably negotiate maybe an early termination with Walgreens, even though we don't have any indications they are closing the store, but there's a little bit of that situation where tenants want to get a hold of a big corner. So, it's all of the above.

Okay. And then to your comments on extending it, there's a little over four and a half years left on the Best Buy and Golf Galaxy leases. Any sense of where these properties rank within the overall profitability scale of these retailers? And have you guys already had conversations with them about extension?

Yeah. I mean look, we talked to them when we bought the property, and they basically decided the properties are doing – on those locations are doing very well for them. And so, certainly we can go in there and negotiate some sort of early extension, but it's a little early for them and for us, and so at the appropriate time, we'll definitely discuss that with them. Usually, we'd like to wait for them to want to refresh the store and maybe provide some capital to basically get a longer lease term and a return on that capital. So, there's no – yes, we don't feel like there's a rush to do anything. Where they are located has very strong demographics, so the market should even be better in the next couple of years.

Okay. And then these assets are obviously big boxes. How are you thinking about the overall portfolio mix going forward in terms of smaller boxes versus bigger boxes, or is it just all opportunity-driven at this point for you guys?

It is opportunity-driven, but we're seeing more opportunity, as I might have mentioned before, on the larger boxes, given that you're not really talking about the smaller 1031 buyers, so the arbitrage is much greater. In the smaller properties, we're seeing cap rates with even though the interest rates are coming down, cap rates being extremely supportive of selling the properties. And so, we'll take advantage of that cost of capital selling at very low cap rates and buying where there's value opportunity, so we kind of like that. But I mean, we'll be in general opportunistic, but we're seeing more opportunities on the larger ticket items.

Okay. And then last one for me, how should we be thinking about the second half earnings? Is there anything that's non-recurring this quarter to next or any drags that you expect in the back half of the year? If I look at either the $0.84 of FFO that you guys have done year-to-date or the $0.43 in the second quarter, both of those run rates are well above where the $1.59 to $1.62 guidance range is. What's the drag or what's the non-recurring that needs to come out of these numbers when we're thinking about the back half of the year?

Yeah Rob, it's Phil. I think anytime you are talking about earnings per share, you got to keep in context that just the 150,000 represents $0.01 of FFO, so a small amount can move the needle here. With that said, the current quarter did have, as I mentioned in my remarks, $200,000 non-recurring leasing commissions. And PINE received the management and leasing commissions for managing the 39 properties that underlie the portfolio loan, and there was an unusually large amount of leasing commissions from that this quarter. So, there was about $200,000 non-recurring in the current quarter. And then I think you got to keep in mind just transaction timing, which falls into a couple of buckets, right, one with our properties and one with our loan portfolios. With properties, acquisitions and dispositions could very well lead the acquisitions, and that would be diluted. And look, we've got the line of credits largely swapped out, so if that were to happen, we may not – we can't really pay down the line all the way because we've got $50 million on the swap, so there could be a temporary time where we're sitting on some cash before we redeploy it. And with the loan portfolio in particular, the portfolio loan right, that buyer, that borrower is selling those properties or wants to sell those properties and repay the loan, so you could have some time in there. So I think between the one-time item this quarter and then just largely transaction timing, you have a relatively small amount that can quickly move the needle.

Okay, that's helpful. Thanks guys and have a great weekend.

You too. Thanks.

Thank you. Our next question comes from Wesley Golladay with Baird. Your line is open.

Hey, good morning to everyone. When you look to make a future loan investment, are you looking to sell parts of it like you did with the A-1 deal?

No. Selling the A-1 deal just freed up some capital because we are restricted from how much we can do in the loan investments. And so that allowed us to do another loan in the quarter. We still have the opportunity now to do roughly $20 million additional loan investments, and so we're being patient and picky. But that was really – I don't see us doing that unless we had some sort of larger loan opportunity, but I don't expect that.

Okay, how are you thinking about your exposure to Family Dollar? What happens to the dual-branded stores if the brand is sold? And were your stores originally Family Dollar for the dual-branded ones?

I'll let Steven Greathouse join us, our Chief Investment Officer, and let him speak to that.

Hey Wes. Yeah, I mean, most of what we bought are new, so we have plenty of lease term on them, and really when we're looking at these in underwriting, it's more of a credit play, so right now our portfolio is sitting fine, and then we'll look to potentially reduce exposure, but that means we won't be buying any more of them. So we kind of like where we're sitting right now in the portfolio.

Okay, thanks everyone.

Thank you.

Thank you. Our next question comes from Matthew Erdner with Jones Trading. Your line is open.

Hey, good morning guys. Phil, welcome to the team. So what kind of drives the acquisition activity towards the higher end of your guidance? Because right now you are a little over half, but what kind of takes those numbers towards that higher range?

We're seeing some, as I mentioned, it's a good opportunity to, you know, obviously see things that seem to be due diligence in execution, so we feel very comfortable that we'll definitely meet expectations there. We obviously have a second half of the year to work with, so we have plenty of opportunities. So we're happy with what we see and I think we'll be able to execute it and deliver.

Yeah, that's good to know. And then I guess how comfortable are you taking the credit facility up? Are you guys comfortable where it is and kind of want to start taking it down?

No, we're comfortable with where it is. As far as on the leverage side, we have a nice, strong free cash flow, and given it's a small company, it doesn't take much to bring it down, so we're comfortable with where it is. But as I mentioned, we have some very, in-the-money swaps, so you wouldn't want to take it down beyond where we have certain levels of swaps.

Yeah, that's helpful. Thanks guys.

Thank you.

Thank you. And our last question comes from John Massocca with B. Riley Securities. Your line is open.

Good morning.

Morning.

So with regards to the loan investment, what is the long-term outlook for that portion of the portfolio? Is the thought to replace exposure here as loans are repaid or should that kind of wind down over time, especially if we're in a more kind of normalized interest rate environment?

Yeah, I mean, if we get into more of a normalized, I would call it rather than interest rate environment, a normalized banking market, that's really what's causing the opportunity. And if you don't, the banks are tapped out. They are not willing to lend further in the real estate as they work their books down. They are stuck with a lot of loans that aren't paying off in the department sector and industrial. Those are really hard to refinance now given where they were, and so that's where the real opportunity is. But we expect that at some point to wind down and be with more of a, obviously fully a net lease kind of ownership interest, but we're taking advantage of the market as we see it right now. We don't see it getting better on the credit availability side. And so again, finding really high-quality properties that we would not be able to purchase because the cap rates would be way inside of where we have an interest in basically being able to loan money at double digits on levered first mortgage positions at lower basis than we'd be able to buy the properties is just fantastic, and so we'll keep being selective and investing there. But eventually things will level out, but we don't see it anytime soon.

Okay. And I know most of those loans are kind of shorter duration in nature. But as interest rates shift here, are there any kind of prepayment options for those counterparties?

They can prepay, but they would make holes. So we didn't do all this effort to just get a loan prepaid in six months. On average duration, this is roughly 18 months. And so yeah, they can pay early, but we would have a make-all provision. Most likely these borrowers aren't going to go through the efforts of refinancing just to save a certain amount for such a short duration. They just have bigger fish to fry, if you will.

And then you talked a bit about the Walgreens and where the demand for potential sales is coming. I mean, how is that translating maybe broad strokes for the whole Walgreens transaction market into cap rate? I mean, where are kind of the cap rate ranges for those types of assets?

Yeah, I mean, I'm not kind of going to give you cap rates. I mean, once we start closing on some of the HLC, but I will say that what we're seeing is really, it's more localized about the location, not as much about the credit. And so it's not someone just saying, I don't need to go see the property because I'm buying the property for this duration of the Walgreens spread and so here's my cap rate. It's more, I will never be able to basically buy this corner for this basis, and they are willing to pay perhaps a higher cap rate than you might imagine. Now, there'll be certain situations where it will lean on the Walgreens credit and cap rate will be higher. So it's a little bit of a barbell effect where you get really good, strong locations where there's a lot of tenants who want to be at that location, and that cap rate will be lower, and it would basically be based on the strength of the location.

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

Great. Thank you.

Thank you. We have a question from Barry Oxford with Colliers International. Your line is open.

Great. Hey John, how are you doing?

Excellent.

My question revolves around the Walgreens and if they are getting out of a lease early, but who are the tenants that are kind of growing and that are kind of the natural tenants to replace a Walgreens? Because if people are more concerned about the location than they are about the duration, that's telling me that they want to have some certainty that if Walgreens walks away, and there’s a lease termination that they've got somebody that can backfill.

Yeah. I mean you have medical; it’s a good bond for urgent care and also restaurants that would scrape that. Small back-end which, as you know, are growing like crazy, raising pain to the world, that God knows how they are going to find the locations that they need to find to grow, even if you went to the grocery stores, the dollar stores, and that sort of thing. So, there's really quite a bit of that sort of demand because if you think about the Walgreens, it's on the corner; it's out front, mostly drive-thru, so there's a fair amount of interest there.

John, would you be a buyer of an asset where Walgreens is leaving just because you might have a tenant or two that you know would love that spot? And you could get a good deal on it because they are moving out.

Yeah, we're opportunistic in comparing locations and real estate focused. So we absolutely would buy a dark Walgreens if we knew we had a tenant in hand and we were going to pay handsomely for that sort of transaction. We haven't been really searching for that, but yeah, I mean, we're all about location. I mean, you could see us perhaps even hoping someone breaches that capital for that transaction, so it could be on that side of the equation as well.

Because it seems to me like the 1031 buyers would not be interested in that kind of deal.

No, I wouldn't come to that conclusion.

Yeah. Okay, that's all I have for today. Thanks guys.

All right. Thanks, Barry.

Thank you. This concludes the question-and-answer session. Thank you for your participation. You may now disconnect. Everyone, have a great day!