Good day, and welcome to the Alpine Income Property Trust Q3 2024 Earnings Call. At this time, all participants are in listen-only mode. After the speaker's presentation, there will be a question-and-answer session. Instructions will be given at that time. As a reminder, this call may be recorded. I would like to turn the call over to John Albright, President and CEO. Please go ahead.

Good morning, everyone. And thank you for joining us today for Alpine Income Property Trust third quarter 2024 conference call. Before we begin, I'll 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 filings. You can find our SEC reports, earnings release, and most recent investor presentation, which contain reconciliations of the non-GAAP financial measures we use, on our website at www.alpinereit.com. With that, I will turn the call back to John.

Thanks, Phil. We are very pleased with our third quarter results across all aspects of our strategy. As we successfully continued accretive asset recycling, originated a high-yielding loan, raised our quarterly dividend, reduced our Walgreens exposure, and lengthened our weighted average lease term. These combined efforts resulted in another quarter of strong earnings growth, reduced leverage, and enabled us to again raise full-year earnings and investment guidance. Beginning with property acquisitions. During the quarter, we acquired four net lease properties for $37.5 million at a weighted average initial cap rate of 8.8%. Three of these properties, all located in the Greater Tampa Bay area, were purchased for $31.4 million as a sale-leaseback transaction with a subsidiary of Beachside Hospitality Group. The leases for these properties have a lease term of 30 years and include 2% annual escalations. While these properties did sustain some damage during Hurricane Helene and Milton, the operator expects to have them open and operating again toward the end of the year or the first part of next year. Further, our leases require robust insurance requirements, and these properties have more than adequate insurance coverage. Accordingly, we do not expect to have any material interruption in collecting rent from these properties due to the recent hurricanes. Additionally, in September, we purchased and amended a first mortgage construction loan secured by a Publix-anchored shopping center in Charlotte, North Carolina. The current loan commitment is for $17.8 million, of which $10 million was funded at closing, and has an initial yield of 10.25%. On the disposition front, we sold eight properties during the quarter for $48.6 million at a weighted average cash cap rate of 6.8%. These sales generated aggregate gains of $3.4 million and included two Walgreens locations, as well as properties leased to Hobby Lobby, Lowe's, Chick-fil-A, Tractor Supply, and Long John Silver’s. As previously disclosed, we are actively reducing our exposure to Walgreens, and with the sale of the two Walgreens during the quarter, Walgreens has dropped from our largest tenant concentration to the second largest. Additionally, given the attractive locations of our remaining Walgreens assets, we expect to continue reducing our exposure for them to continue moving down our tenant concentration list. Overall for the quarter, our $55 million of investment activity, including both acquisitions and structured investments, generated a weighted average yield of 9.2%, a positive spread of 240 basis points to the 6.8% weighted average cap rate on dispositions completed. As a result of our strategic asset recycling efforts, the investment-grade rate at Dick's is now our largest tenant at 11% of ABR, and the Beachside Hospitality Group is now our third largest. Notably, over 52% of our ABR is still derived from investment-grade tenants, and we have increased our weighted average lease term to 8.8 years. Regarding our investment strategy going forward, we continue to see attractive opportunities across the tenant landscape, including higher yielding investments. Accordingly, while we continue to invest in attractive investment-grade opportunities, we are also comfortable allocating additional capital to more accretive opportunities given the attractive risk-adjusted yields. We expect our investment activity will result in a barbell approach with longer-term investment-grade activity balanced by investments in higher yielding and more accretive assets. Now turning to the loan investment front. At the end of the quarter, our loan portfolio had an aggregate outstanding balance of $43.2 million at a weighted average yield of 10.4%. Generally, we target our structured investment portfolio to be about 10% of the total asset value, but this will scale up or down to some extent depending on the quality of the opportunities we see. As we are currently seeing a lot of opportunities to originate high-quality, high-yielding loans secured by real estate, this portfolio is likely to scale up a bit in the near-term future. One quick balance sheet note. During the quarter, we were also pleased to opportunistically access the equity capital markets utilizing the company's common ATM program, raising the net proceeds to $11.1 million. Phil will discuss our balance sheet and earnings in more detail and provide our increased outlook for the remainder of the year. However, before turning the call over to Phil, I wanted to take a moment on behalf of all here at the company to send our best wishes to the many impacted by the recent severe weather and our hope for them to have a speedy recovery. And with that, I'll turn the call over to Phil.

Thanks, John. Beginning with financial results. FFO was $0.45 per diluted share for the quarter, an increase of 22% compared to the $0.37 reported in the third quarter of 2023. AFFO was $0.44 per diluted share for the quarter, an increase of 16% compared to the $0.38 reported in the third quarter of 2023. Total revenue was $13.5 million for the quarter, including lease income of $11.7 million and interest income from commercial loans of $1.7 million. There are two notable accounting matters that may have caused loan interest income to be higher than some of you anticipated and lease income to be lower than anticipated. First, the three properties acquired this quarter through a sale-leaseback transaction. These properties constitute real estate for both legal and tax purposes, and consequently, we include them in our property portfolio statistics. However, because the tenants have purchase options, GAAP requires this transaction to be treated as a financing. Second, as discussed last quarter, we sold an A-1 participation interest in our portfolio loan, and GAAP also requires this transaction to be reported as a financing. If you exclude these two items from our commercial loan investment, they total $43.2 million outstanding at quarter end, consistent with the amount John discussed earlier, whereas our GAAP balance sheet reflects loan investments of $86.6 million. While the GAAP reporting for these matters may cause some line item classification differences, it does not have any significant impact on FFO or AFFO. Now moving to the balance sheet. During the quarter, we utilized our common equity ATM program to issue approximately 620,000 shares at a weighted average share price of $18.09 per share, resulting in total net proceeds of $11.1 million. As a result of this equity raise, along with the increase in our earnings from accretive asset recycling and growing commercial loan portfolio, we were able to incrementally improve leverage, ending the quarter with net debt to EBITDA of 6.9 times compared to the 7.4 times reported last quarter. Further, we currently have approximately $80 million of liquidity and no debt maturing until 2026. With regard to our common dividend, given our increased earnings and forward outlook, we raised our quarterly common dividend from $0.275 per share to $0.28 per share. Our dividend remains well covered as this represents a healthy AFFO payout ratio of 64%. Lastly, with regard to the guidance. We are raising our full year 2024 outlook to an FFO range of $1.67 to $1.69 per share and an AFFO range of $1.69 to $1.71 per share. We have now closed $84 million of investments and $69 million of dispositions inclusive of both property and structured investment activity. Accordingly, we are increasing our investment guidance to a range of $100 million to $110 million and nearing our disposition to a range of $70 million to $75 million. With that operator, open up the line for questions.

Thank you. Our first question comes from Michael Goldsmith with UBS. Your line is open.

Good morning, and thanks a lot for taking my questions. Transaction activity picked up pretty materially from the first quarter and the second quarter. Can you just talk a little bit about the transaction environment? What you are seeing out there, is the increased activity reflective of just a more liquid environment overall?

Yeah, thanks Michael. Yeah, definitely the liquidity environment has improved. So you are seeing more folks that have wanted to sell assets, going ahead and coming to market and moving through that sort of strategy, and so there are more opportunities out there. We're bidding on more acquisitions and finding assets that we like and the risk-reward. And so we're very pleased to see the environment be much more improved as far as opportunities, both on core acquisitions and on some loan investments.

Got it. And then my second question is related to the sale-leaseback of the properties in Tampa. Can you provide a little bit more color on the insurance arrangement? Many of these restaurants are closed right now. So just providing some more detail there. And then separately, while these have increased the wealth of the portfolio, it's also reduced the investment grade percentage. So can you just talk about how you are thinking about kind of those two offsetting factors as you continue to build out the portfolio? Thanks.

Yeah. So, regarding the restaurants, they really had more impact from the first storm Helene, and then the second storm Milton really didn't do much more damage. And so they are rapidly working to get those back open, and there'll probably be better news on that as far as it's happening in the next 30 days, rather than at the end of the year. And as far as insurance, there are two years of business interruption, and then there's full replacement insurance, and so we're in good shape and we're in contact with the operator. The good thing is the operator has a significant amount of restaurants throughout the state. The ones they have on the East Coast have been open. The ones they have in Clearwater opened really fast after the storm. And so they are busy getting these reopened, and they will be in pretty good shape because, unfortunately, there are some other people that probably won't be reopening as fast and so there's going to be less competition. So, there will be some pent-up demand for those restaurants. And as far as your question about weighted average life, basically, it is closer to nine years now than before. And we'll look to keep on increasing the weighted average lease term of our portfolio, but we're not going to let it be the tail that wags the dog. We can go to a lot of the tenants right now if we want to and quickly do lease extensions early, but they are going to want some sort of benefit as far as a reduced rate. And if you look at our portfolio, our basis is so low compared to our competitors and our lease rates are already so low that we would be giving away the store for no reason, but to satisfy Wall Street. So if we thought that we really had to do that, we could quickly go to tenants and do early extensions. But, that's been part of our strategy, is to take advantage of leases with maybe six or seven years left, to get a higher cap rate because they are great real estate and there are other tenants that would take over those spots. So that's always been the strategy, but we can definitely look to load up some more and extend the term when we see fit. But it's really been the opportunity to grab some really good real estate, really good yields, and having a little bit lower lease duration, but knowing that the rents below market and way below replacement cost basis, that's been kind of the strategy.

Very helpful. And if I can squeeze one more in. You talked about the loan portfolio being 10% of the overall portfolio, but at times like now, when there could be a little more activity there, you would take it higher. How high would you take it? And then inherently, with the loan portfolio, it adds a little bit more lumpiness to the earnings. So how do you go about managing that going forward? Thanks.

Yeah, so I think as Phil mentioned in his remarks that we're looking to not go above 10% of total enterprise value as far as our loan book, but we could, if we saw some opportunities. And as the loan book naturally pays off, that will come down. But given that we have some great relationships with these developers, and we're starting to do second transactions with them and third transactions with them, now that they know the process, and we have the loan docs, maybe we'll see situations where the deal we just did was a Publix-anchored shopping center in Charlotte with a chase pad site, a water motor pad site. So incredibly great credits, long duration leases, 20-year lease on Publix, 15 years or so on Chase. And so, the property is only nine months away from being finished, and they had a situation where construction costs have increased, and there's a gap basically between the first mortgage and what needs to be to complete it. We would love to own it, and this developer has other Publix sort of developments, and if that happens we're in the same sort of situation, we are here to help. And we have first right of refusal to buy the Publix and the Chase if the cap rates go above a certain level. So we'd love the opportunity. It’s great risk-adjusted yields and a great market. So we're going to wait it in if we see the opportunities. We are looking at one additional one, but it’s a couple of months away. But yeah, we like it, and it keeps us abreast of a lot of the merchant developers and it's great for the pipeline.

Thank you very much. Good luck in the fourth quarter.

Thank you.

Thanks.

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

Hey, good morning, guys. Obviously in the quarter, John, you took down your Walgreens exposure a little bit with some of the dispositions and now under 10%. I'm just curious how you feel about your current exposure to Walgreens and maybe you can give us some detail on the nearest lease term expiration for the Walgreens and average lease duration.

Sure. So the average lease duration RJ is 7.6 years. The nearest coming up is six years and we have a lot of these on the market and we're getting active bids. We're being selective. If we have a larger acquisition to do, we may push through a couple more, but we're getting good bids because of the locations we have and the lease duration, and obviously you saw Walgreens had a bit of a lift this week from good earnings. So it's a very manageable portfolio. It's only 11, but obviously, given our small size, it kind of sticks out a bit. But as you can tell, given that we sold two and we have bids on an additional two, it doesn't take much to get this off the top 10 if we really wanted to, but it would be nice to match it up with an acquisition.

Thanks. That’s helpful. And so more broadly, how do we think about the current macro environment and the potential impact on credit loss? And obviously, I know that you guys can't provide 2025 guidance, but as you are looking into 2025, what's your outlook for potential credit loss and just given the current macro environment?

Yeah, I mean really, our portfolio is in pretty good shape and we've been proactive early on selling things that could be issues. I would say the only one really is At Home, that clearly has a balance sheet issue, not an operations issue. And so I suspect that the lenders will negotiate something with the company that they are not going to harm their position. So I assume they'll work that out. But I would say if there's any sort of credit issue, I'd say At Home would be the one, but that's very low basis type properties and we can split up these big boxes and do leasing of smaller tenants to fill it up.

That's helpful. That's it for me. Thanks, guys.

Thanks.

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

Hey, good morning guys. Just sticking with the tenant front, any plans to reduce exposure to the dollar store?

You know, very good question. They are just so small. They are like $800,000 a piece or $1 million a piece. And this really, we've just been focused more on the Walgreens side. But yes, the answer is we do have some of them on the market for sure. It just hasn't been a priority given that the Walgreens properties are more kind of $3 million to $4 million. So, that's really been the real push rather than the family dollar and dollar generals.

Okay. Can you give some background on the Tampa deal? How did that come about? How quickly were you able to close? And then I think you mentioned there was a purchase option. Can you talk about the timing on that and what the cap rate would be?

Sure. So the relationship with Crabby's, as you know, as CTO, we built two restaurants on the beach and we had, and this goes back seven years ago. We had an operator that didn't work out, that didn't perform. So we brought in Crabby to take over a different concept and they've done fabulously. They really know how to operate, and the sales have been very high performing. And so we've stayed in touch with them about other things we can do together, and they had a unique opportunity to purchase some real iconic restaurants over on the West Coast. They are very big, big-ticket sort of items as far as this restaurant group that they were purchasing, roughly $50 million in value. We came in at a low $30 million to buy the real estate sale lease back to them. They had a lot of equity in, and they can bring a lot of operating synergies to the properties. And then we structured it where after a certain amount of years, after six years, they have an option, not the obligation to buy out the lease, and that would be at an IRR that's basically double digits to us. So we love the real estate, love the yield, love the annual escalation. So worst case scenario in our minds is six years to get sold out at big numbers for us, for the shareholders.

Okay, that sounds good. The presentation of the press release indicated the end of period rent was $41.5 million. Can you clarify if that is a cash rent number and does that include the Tampa properties?

Yeah. Yeah, so that number is a GAAP number. The cash number is just a little lighter than that. It's not that different, it's like 39. But the number you are referring to is the GAAP number and a GAAP run rate.

Okay, fantastic, and then one last one for me. When you look at the balance and the capital markets, any plans for the fourth quarter? You do have a little bit floating on the line. Would you clear that out or get more swaps?

I think we're okay with a little floating right there. Obviously, depending on the capital markets, we might look to utilize the ATM again. But we have $280 million in debt, $200 million fixed rate. We got $80 million floating. That rate isn’t coming down. So we're okay with a little floating rate exposure there.

Okay, thanks everyone.

Thank you.

Thank you. Our next question comes from Rob Stevenson with Janney Montgomery Scott. Your line is open.

Good morning. John, beyond the Walgreens and maybe some of the dollar stores, how much of the portfolio today is stuff that you really want to sell over time?

It's really opportunistically selling at this point. So where we have an acquisition lined up, maybe the capital markets still are trading us at a big discount to what we think the company's worth. And so we may sell something that we would like to keep, but more of the recycling, Rob, as you've seen us in the past. So I would say we're kind of – everything I left is really muscle versus things that we'd like to discard, so not a lot beyond the Walgreens and dollar stores and that sort of thing.

Is that how you would characterize the low sale in the quarter?

The low sale was basically a group that had a 1031 need, could not find anything to buy in the market and were really desperate to acquire the property because they knew the property very well and they were very comfortable. So we were able to sell that at a premium price, just given their situation, not our desire.

Okay. And you've talked about the Walgreens exposure. How are you guys feeling about the Dick's exposure and the prospect of potentially taking it above the current 11%?

I don't think it's going to grow beyond 11%, unless there's some sort of unique opportunity, but then we might look to sell down property. So I wouldn't expect it to go above where it is right now.

Okay. And then the fourth quarter is typically big transaction volume in the triple net space in a normal year. Can you talk about the size of your funnel today and how that's looking today, given the interest rate cuts, the sort of buyers and sellers, and how we should be thinking about the next couple of quarters in terms of volume of transactions, etcetera.

Yeah, I mean really the funnel right now is kind of a plus or minus $200 million. They are rather chunky. So it's not a bunch of $5 million deals; it’s maybe a portfolio here and there. And so we're being picky as always, but it seems like as we do a transaction, there's always something else behind it coming to us. So we feel very good about the ability to take advantage of the market right, given that there is more capital out there, a lot more buyers, but the lending market is still constrained, and so we're trying to be aggressive here. It still feels like it's a good opportunity set for us.

Okay. And then Phil, when you look at roughly 1.7 of interest income from commercial loans and investments, you still got, I think almost $8 million to fund on the public stuff. How much else is in the portfolio today that's committed, but not yet funded, that we should be expecting to flow through there over the next couple of quarters?

The loan portfolio is a little grossed up because the sales lease back transaction is treated as a financing. And then we have the participation sale that I talked about in my comments of about $13 million, that kind of grossed up the portfolio also. And when you net all that out, it's about $43 million currently outstanding. The commitments are for about $55 million. So a little over $10 million spread there between outstanding and the commitments.

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

Thanks to you too.

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

Hey, good morning guys. Thanks for taking the question. I noticed that quarter-over-quarter, the Florida exposure went up and Texas kind of went down. Can you talk about where you are seeing the most transaction activity and kind of where the sellers are popping up in the market?

Yeah, I wouldn't say it's any kind of geographic trend. It really just goes to the big states. There's a lot of stuff in California that's still priced pretty tight. We are seeing a fair amount in Texas and Florida. Those are favored sort of acquisitions for 1031 markets. So the pricing is sometimes challenging. So, I wouldn't say there's any kind of theme to one jurisdiction over the other, but you are just seeing it from more of the major states is where the predominance of the volume is coming from.

Yes, that's good to know. And then I'm glad you guys made it out mostly unscathed in Florida down there. But do you think that kind of presents an opportunity going forward with sellers kind of wanting to get out of those markets? Are you seeing anything like that starting to happen?

Yeah, I mean, we're not seeing it starting to happen, but we're certainly keeping our eyes out for those opportunities where maybe someone suffered some damage and really doesn't want to go through a restoration work or they are just kind of done with it, and we're – I don't – we don't see anything right now, but certainly keeping our eyes out for it and if there are unique circumstances.

Great. Thank you guys.

Thank you.

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

Good morning.

Good morning.

So, sorry if I missed this earlier in the call, but as we think of the remaining investments kind of implied in guidance for the rest of the year, what's kind of the split between mortgages and net lease acquisitions?

There's kind of, I would say, a mix of a third on the loan investment side and the balance being core properties.

Okay, that's very helpful. And then in terms of kind of cap rate, I mean, the Beachside Hospitality portfolio was just kind of its own thing. So maybe backing that out, it seemed like the cap rate on the Golf Galaxy was like in the high sevens. I mean, is that typical of what you are seeing in the market today?

Well, I mean for what we're looking at, we're targeting predominantly 7.5 caps and above, but we may see an opportunity to bring in investment grade exposure or maybe find a Lowe's to replace the Lowe's we had. So we wouldn't mind – we wouldn't be opposed to dipping down to the sixes to bring our Lowe's exposure back up. So it's a little bit of a kind of a barbell strategy. But that's roughly what we're seeing is on the straight-up acquisition side, non-investment grade, kind of in the 7.5 and above.

Okay, is that specific to Lowe's or given the non-investment grade exposure increased in the quarter due to the big portfolio transaction, are you looking systematically to kind of increase investment grade exposure again or are you kind of agnostic?

Agnostic a little bit. I mean, we like to have the exposure, but it doesn't seem like the market really appreciates it. So we're not going to get really wedded to it. But if opportunistically we can kind of put, as I mentioned, like a Lowe's back in, higher up in our credit stats, I think that would be helpful. So we'll look to do that, but not really married to it.

Okay, and then last one for me, in terms of the three assets in Florida you bought in the quarter, or the restaurant assets in Florida you bought in the quarter, how big a percentage of Crabby's business are those? And I guess what was kind of – the hurricane creates some disruption in terms of metrics, but what was kind of the trailing coverage on those assets, rent coverage?

Roughly where we were basically buying the real estate, it was like a 15% kind of yield to our basically valuation on their NOI.

Okay, and in terms of the size of the overall portfolio for them as an operator?

Oh, I would say they are about 25%, maybe 20%.

I really appreciate the color. That's it for me, thank you.

Great. Thanks.

Thank you. We have a question from Craig Kucera with Lucid Capital Markets. Your line is open.

Hey, good morning guys. I noticed your G&A had picked up a bit this quarter due to legal expenses. Was that just a function of the higher transaction volume during the quarter, or should we expect somewhat higher G&A going forward?

No, that was one time. It didn't have to do with the certain amount of acquisitions, but I mean, that was a little bit of it, but that was really more a one-time label.

Okay, great. Thanks.

Thank you.

Thank you. There are no further questions at this time. This does conclude the question-and-answer session. You may now disconnect. Everyone, have a great day.