Earnings Call Transcript - PINE Q2 2025

Operator, Operator

Good day, and thank you for standing by. Welcome to the Alpine Q2 2025 Earnings Conference Call. After the speaker's presentation, there will be a question-and-answer session. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Jenna McKinney. Please go ahead.

Jenna McKinney, Speaker

Thank you. Joining me in participating on the call this morning are John Albright, President and CEO; Philip Mays, CFO; and other members of the executive team that will be available to answer questions during the call. As a reminder, many of our comments are considered forward-looking statements under Federal Securities Laws. 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 over to John.

John P. Albright, President and CEO

Thank you, Jenna, and good morning, everyone. We are pleased to report FFO per share growth of 2.3% in the quarter and 4.8% year-to-date compared to the same period last year. This earnings growth was driven by our investment activity over the last year. We remain focused on our Barbell investment strategy involving higher-yielding acquisitions supported by quality tenants and solid real estate fundamentals, with select investment-grade tenants to maintain a diversified and balanced portfolio that delivers favorable risk-adjusted returns. Maintaining discipline and adhering to our underwriting criteria, we did not complete any additional property acquisitions this quarter, following a busy first quarter in which we closed $39.7 million of property acquisitions at a weighted average initial yield of 8.6%. However, we are actively pursuing multiple interesting investment opportunities and anticipate some closings in the second half of the year. Turning to property dispositions during the quarter, we sold 5 net lease properties for $16.5 million at a weighted average exit cap of 7.9%. These sales included two Walgreens, a Dollar Tree, Verizon, and Old-Time Pottery. We have now reduced our Walgreens exposure over the past year by 100 basis points to 7% of ABR and have moved it from our largest tenant concentration a year ago to currently our fifth largest. Further, we continue to make progress on our recently vacated properties. The theater in Reno is under contract to be sold, and we are actively negotiating the potential sale of our Long Island property, previously leased by Party City. On the commercial loan front, this quarter, we provided seller financing in conjunction with our Old Time Pottery disposition and originated one first mortgage loan. Combined, these loans totaled $6.6 million and were fully funded at closing with a weighted average initial yield of 9.8%. This brings our year-to-date loan closings to $46.2 million with a weighted average initial yield of 9.1%. The ability to originate select commercial loans is another tool at our disposal to further diversify our income stream and deploy capital at attractive returns. Furthermore, the lending relationships we have cultivated are generating some unique loan investment opportunities. We are actively underwriting several high-yielding loans backed by high-quality sponsors with strong credit metrics and real estate fundamentals and expect one or two of these transactions to close in the back half of the year. Moving to our property portfolio, as of quarter end, our portfolio consists of 129 properties totaling 3.9 million square feet across 34 states and was 98.2% occupied. Our top two tenants are Investment Grade, DICK's Sporting Goods and Lowe's, which together represent 20% of the portfolio ABR. More broadly, 51% of our portfolio ABR is derived from investment-grade rated tenants. Notably, our weighted average remaining lease term now stands at 8.9 years, up from 6.6 years just a year ago. Lastly, a couple of specific tenant updates. Bass Pro Shops completed its full renovation of approximately 66,000 square foot building located on 9 acres in Minnesota. This property, formerly leased to Camping World, was assigned to Bass Pro Shops, and we amended the lease to a new 20-year initial lease term, which commenced upon their opening in mid-May. Additionally, At Home filed for bankruptcy in June. However, both of our properties leased to At Home paid rent in July, and neither were on the initial closure list. With that, I will turn the call over to Phil.

Philip R. Mays, CFO

Thanks, John. Beginning with financial results, for the quarter, total revenue was $14.9 million, including lease income of $12 million and interest income from commercial loans of $2.7 million. FFO and AFFO for the quarter were both $0.44 per diluted share, representing 2.3% growth over the comparable quarter of the prior year. Year-to-date, total revenue was $29.1 million, including lease income of $23.8 million and interest income from commercial loans at $5 million. FFO and AFFO year-to-date were both $0.88 per share, representing 4.8% and 3.5% growth, respectively, over the comparable period of the prior year. Consistent with the prior quarter, given the relatively attractive valuation of PINE's common shares, we continue to opportunistically repurchase shares. During this quarter, we repurchased approximately 273,000 common shares for $4.3 million at an average price of $15.81 per share. Year-to-date, we have now repurchased approximately 546,000 shares for $8.8 million at an average price of $15.07 per share. Regarding our common dividend, as previously announced, during the first quarter, we increased our quarterly cash dividend to $0.285 per share and maintained that rate in the second quarter, providing a current attractive dividend yield of close to 8%. Even with this increase, our dividend remains well covered at approximately an AFFO payout ratio of 65%. Moving to the balance sheet, we ended the quarter with net debt to pro forma adjusted EBITDA at 8.1x and $57 million of liquidity, consisting of approximately $9 million of cash available for use and $48 million available under our revolving credit facility. However, with in-place bank commitments, the available capacity of our revolving credit facility can expand an additional $49 million as we acquire properties, providing total potential liquidity of almost $100 million. A quick note on the $2.8 million of noncash impairment charges recorded this quarter. This amount includes noncash impairment charges related to our two largest vacant properties, a theater located in Reno and a former Party City located in Long Island. Given the interesting investment opportunities we are seeing, we have determined it's more likely we will simply sell these properties and redeploy the proceeds as opposed to incurring the interim carrying costs and capital that would be required to retain and re-lease them. We ended the quarter with portfolio-wide in-place annual base rent of $45.3 million on a straight-line basis. As a reminder, this includes approximately $3.8 million of straight-line rent related to 3 single-tenant restaurant properties acquired in 2024 through sale-leaseback transactions. Under GAAP, these specific sale-leaseback transactions are accounted for as financing. Accordingly, we are currently recognizing on an annual basis approximately $2.6 million of GAAP interest income in our statement of operations as opposed to $3.8 million of straight-line rent income from these properties. Now turning to guidance, we are reaffirming both our FFO and AFFO guidance range of $1.74 to $1.77 per diluted share for the full year of 2025. The assumptions underlying our guidance remain largely unchanged, except for investment volume, which we are increasing by $30 million to a new range of $100 million to $130 million for the year. A final note about earnings: A few days after quarter end, our construction loan for a public land development in Charlotte, North Carolina, with an outstanding balance of $25.5 million and a yield of 9.5% was fully repaid. Accordingly, our interest income from commercial loans will decrease until either draws on existing loans and/or new loans are funded. With that, operator, please open the call to questions.

Operator, Operator

Our first question is from Matthew Erdner with JonesTrading.

Matthew Erdner, Analyst

With the given increase to the investment guidance and the opportunities that you mentioned within the loan book, how should we look at investments for the remainder of the year? Is it still along those 50-50 lines between properties and loans? Any help there would be great.

John P. Albright, President and CEO

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

Matthew Erdner, Analyst

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

John P. Albright, President and CEO

Yes. Just like Phil had mentioned, as far as the public loan in Charlotte, that basically paid off and went to pay down the facility. We're working really hard to sell the Party City and the theater in Reno, and of course, that would go to pay down the facility as well. But as we see these structured finance investments, we'll make those. And if we need to, we'll either sell off something or sell an asset and just keep the leverage reasonable.

Operator, Operator

Our next question is going to come from the line of R.J. Milligan with Raymond James.

Richard Jon Milligan, Analyst

Two questions for Phil. Just curious what the payoff of the public loan in July is going to be the quarterly AFFO impact on that.

Philip R. Mays, CFO

Yes, R.J. So with $25.5 million, it was really 9.5%. They'll go to pay down the line, the variable portion of the line, which is around 6%. So it's around a 300 basis point a little more spread, impacting a couple hundred grand a quarter.

Richard Jon Milligan, Analyst

Okay. Phil, I have a second question regarding the current market conditions for PINE in terms of issuing term loans, especially since we've seen several other REITs doing so. What are your thoughts on this?

Philip R. Mays, CFO

Yes. So the PINE we are going to do a 5-year term loan now with the banks and swap it would be around $5 million, all in?

Operator, Operator

Our next question is going to come from the line of Michael Goldsmith with UBS.

Michael Goldsmith, Analyst

Just first on Walgreens, you continue to pare down your exposure there. So can you just talk a little bit about what the market is like for Walgreens as well as At Home? Who are the potential buyers? What sort of cap rates are we looking at there and just the overall level of interest in box from those 2 tenants?

John P. Albright, President and CEO

Thanks, Michael. Yes. So in general, the market is fairly active. As we see reasonable pricing, we will keep moving through the Walgreens, and we're actually working on a couple more sales. The pricing, of course, depends on location and your lease term, but the cap rates can be anywhere from high 7s to early 10s or 11s, depending on location and quality. We're seeing a lot of high net worth individuals buying Walgreens and saying they will take the rest of the term and get a good yield. They're not really worried about knowing who will backfill it just knowing that on a macro sense, it's a good investment. So, the market is quite active on the Walgreens side; regarding At Home, you're seeing users that want to take down these big box positions. Most of At Homes are low rent payers. So a lot of these are in the money as far as market rates versus what At Home is paying. As big boxes become less available, there is a fair amount of interest in those locations.

Michael Goldsmith, Analyst

No, John, that was particularly helpful. And just as a follow-up, you've got the loan repaid. There was a bit of a slower deployment of capital quarter after a busy first quarter. And so just as you think about how you want to allocate your capital going forward, it sounds like the pipeline is building and acquisitions will be a focus going forward. Can you talk about the balance between all the different options as well as reducing leverage?

John P. Albright, President and CEO

Yes, sure. We are seeing more opportunities, very interesting opportunities, good sponsors. Unfortunately, the deals are taking a little longer. We didn't get one in the quarter that we were hopeful for, but hopefully, this quarter will. We'll keep selling through some of the credits that we don't like going forward and maybe sell a little and pay down debt. As Phil mentioned on the loan repayment, there's going to be a slight hit to earnings. But given that we're such a low multiple stock, we're not worried about managing that. We just want to do the right thing, and we are very optimistic about the acquisitions and loan investments in front of us, which we think will be accretive to the company, and eventually reflected in the stock price. We hope to be fairly active this quarter, so we're excited about the opportunities we see.

Operator, Operator

Our next question is going to come from the line of Wesley Golladay with Baird.

Wesley Keith Golladay, Analyst

Can we look at the At Homes, the ones that you have currently operating? Would those be better productivity sites for them? Do you have any insight into that?

John P. Albright, President and CEO

Yes. They are good locations. We don't expect them to reject these whatsoever. They have good operations, so we can monitor it, but so far, so good.

Wesley Keith Golladay, Analyst

Okay. And then how does the watchlist look going forward after At Home?

John P. Albright, President and CEO

We have been very proactive in the last couple of years in pruning through different credits. There isn't really anything that keeps us up at night.

Wesley Keith Golladay, Analyst

Okay. And then you mentioned looking to sell the two vacant assets. Would those both be in the held-for-sale bucket and any insight into how much negative NOI from those assets, what would the drag be?

John P. Albright, President and CEO

I can let Phil talk about the accounting of that.

Philip R. Mays, CFO

Neither of them are classified as held for sale. I was just on the call kind of giving you a heads-up that we're likely to just avoid the carrying costs and move on with the interesting investment opportunities we're seeing. There's not a big negative drag on those, just property management and insurance, so not substantial.

Operator, Operator

Our next question is going to come from Gaurav Mehta with Alliance Global Partners.

Gaurav Mehta, Analyst

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

John P. Albright, President and CEO

We're definitely doing the Barbell approach, as we mentioned in the call that we're looking for investment-grade, longer duration leases or at least good locations where we think we can do an extension after acquiring a property. We're pursuing on both sides, and we feel like we'll get something done this quarter. In general, we're going for higher quality on the acquisition side to couple that with the loan investment side.

Gaurav Mehta, Analyst

Okay. And then a second question on the balance sheet. Your leverage was 8.1x as of 2Q. Can you provide some more color on how you think about the leverage and where you guys are targeting that number?

John P. Albright, President and CEO

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

Gaurav Mehta, Analyst

Okay. And then lastly on the Walgreens, you've brought down the exposure. So where do you think that target number is for you guys as far as how much ABR you're getting from Walgreens?

Philip R. Mays, CFO

At the end of the quarter, Walgreens is down to about 7%. I think it's actually just a little under like 6.6%, 6.7% of ABR is where it currently stands. Target, I think we'd like to get it down below 5%.

Operator, Operator

Our next question is going to come from the line of Craig Kucera with Lucid Capital Markets.

Craig Gerald Kucera, Analyst

John, I think earlier this year, you were seeing some compression on structured finance yields versus last year. Is that still the situation today?

John P. Albright, President and CEO

Most interesting thing. We think that the banks would be back at it and it would be competitive. But all of a sudden, talking to very high-quality sponsors with very high-quality projects, the banks are shrinking again, at least for the activities that these folks are taking on. We're seeing yields being as good or even better in certain situations. Luckily, we're back to a target-rich environment.

Craig Gerald Kucera, Analyst

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

Philip R. Mays, CFO

Yes. We did get the $25 million back. I think just with the interesting opportunities we're seeing, particularly on the loan side, we think later in the year we can get that redeployed, which was the real reason for the pickup.

Craig Gerald Kucera, Analyst

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

Philip R. Mays, CFO

Yes, there was. The rent rolled up about $40,000, $50,000 a quarter per month and almost $0.5 million a year. Additionally, the remaining lease term that was left on that assignment was less than 10 years, and now it is 20 years.

Operator, Operator

Our next question is going to come from the line of John Massocca with B. Riley Securities.

John James Massocca, Analyst

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

John P. Albright, President and CEO

You're not going to see as many early repayments because it's inefficient for the sponsors. Our loans are fairly short duration. They're mainly looking to sell these assets. If interest rates drop, I wouldn't expect any sort of mass early payoffs.

John James Massocca, Analyst

Okay. That's understandable. And then as you think about the timing of investments, given the increase in investment volume guidance, should we expect the delta between what's currently in guidance and what was in guidance 1Q earnings to close late in the year? I'm just trying to circle the square of the increase in investment volume guidance and the fact that AFFO guidance stayed flat.

John P. Albright, President and CEO

Yes, I would say that.

Philip R. Mays, CFO

We expect that to kind of get deployed later in the year.

John James Massocca, Analyst

And is there anything in the guidance in 2Q versus 1Q, anything baked in there in terms of additional conservatism around At Home? I know the two assets you have thus far retained, but are you factoring in something as this bankruptcy process is ongoing?

Philip R. Mays, CFO

Both of the At Homes were not on the list for closure. Both paid July rent and we generally expect to collect rent for the remainder of the year. There's nothing specific in there. However, it is one of the reasons I can give a range because unexpected things can happen. But at this point in time, we fully expect to get paid on our At Homes.

Operator, Operator

Our next question comes from the line of Rob Stevenson with Janney Montgomery Scott.

Robert Chapman Stevenson, Analyst

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

Philip R. Mays, CFO

That's correct. That's just properties on the disposition side.

Robert Chapman Stevenson, Analyst

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

John P. Albright, President and CEO

That certainly could be a possibility, but we are seeing good investments that are accretive to the company rather than shrinking the company. We're seeing really good investment opportunities, which will make the enterprise worth more. You won't see us rapidly selling just to buy back stock. As we're selling assets, we're being patient about it, not engaging in fire sales, just taking our time with it unless we see a big acquisition happen, then we would want to speed that up.

Robert Chapman Stevenson, Analyst

Okay. And then, Phil, other than the drag between the yield on the public loan versus the repayment of debt associated with that, is there anything else that will be a headwind in the back half of this year earnings-wise as we think about the quarterly progression?

Philip R. Mays, CFO

No, nothing overly specific. The repayment of the loan will be the only identified drag. Other than that, it will depend on the timing of acquisitions and dispositions.

Operator, Operator

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