Earnings Call Transcript
Alpine Income Property Trust, Inc. (PINE)
Earnings Call Transcript - PINE Q4 2025
Operator, Operator
Good day, and thank you for standing by. Welcome to the Alpine Q4 Year-end 2025 Earnings Call. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Jenna McKinney, Finance Director. Please go ahead.
Jenna McKinney, Finance Director
Thank you. Joining me and participating on the call this morning are John Albright, President and CEO; Philip Mays, CFO; and other members of the executive team who will be available to answer questions during the call. As a reminder, many of our comments today 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 Albright, President and CEO
Thank you, Jenna, and good morning, everyone. We are pleased to report a strong fourth quarter highlighted by 22.7% growth in AFFO per common share and $142.1 million of investments to complete an annual record of $277.7 million of investments for 2025. This record annual investment volume drove 8.6% growth in AFFO per common share for the full year 2025. Beyond investment volume, we successfully executed all areas of our business plan during the year. Specifically, as it relates to property acquisitions, during the fourth quarter, we acquired 8 properties for approximately $40 million at a weighted average initial cash cap rate of 6.9%. For the full year, we acquired 13 properties for $100.6 million at a weighted average initial cap rate of 7.4%. Notably, these acquisitions represent our strategic barbell approach to acquisitions. It included investment-grade rated tenants such as Lowe's and Walmart, plus higher-yielding property investments like the headquarters and manufacturing facility for Germ-Free Labs. Alongside this 2025 acquisition activity in the fourth quarter, we also continued to successfully execute our strategic recycling plan, selling 9 non-core properties for $38.4 million at a weighted average exit cap rate of 7.7%, bringing property disposition volume for the full year 2025 to $72.8 million, consisting of $67.4 million of income-producing properties at a weighted average exit cap rate of 8% and $5.3 million related to vacant properties. As a result of this combined 2025 property portfolio activity, 51% of our ABR is now generated from investment-grade-rated tenants. Notably, Lowe's, Dick's Sporting Goods, and Walmart are now all within the top 5 tenants, collectively representing 29% of our ABR. Further, Walgreens currently represents 4% of ABR and has fallen to our ninth tenant with only 5 remaining locations in our portfolio. More broadly, at year-end, our property portfolio consisted of 127 properties, totaling 4.3 million square feet across 32 states with a WALT of 8.4 years and 99.5% occupancy. Now moving to the exciting growth in our commercial loan portfolio. As a result of our long-standing reputation and deep industry relationships, we continue to see and capitalize on compelling opportunities to originate high-yielding commercial loans with quality sponsors at attractive risk-adjusted returns. During the fourth quarter, we originated 5 commercial loan investments and amended one commercial loan totaling a combined $102.3 million of commitments at a weighted average initial coupon of 13.5%, bringing our full year to $177 million of commercial loan originations at a weighted average initial coupon of 12%, including paid-in-kind interest when applicable. The high-quality real estate projects underlying these loans are located in major MSAs, supported by strong sponsors and have been many years in the making, and we are excited to be a part of these projects. Additionally, during the fourth quarter, we sold a $10 million senior interest in our previously announced commercial loan secured by a luxury residential development located in the Austin, Texas metropolitan area. This sale reduced concentration in one of our largest commercial loans. From time to time, we will likely consider additional sales of senior interest in larger loan investments to efficiently manage diversification while enhancing the yield of our net interest. At year-end, our net commercial loan portfolio was approximately $129.8 million, up from $48 million at the beginning of the year highlighting the significant scale and momentum captured by our platform during the past year. Additionally, we are targeting our commercial loan portfolio to generally run at approximately 20% of our total undepreciated asset value complementing our property portfolio investments and increasing our overall yield on our total assets, although timing of funding and repayments of loan investments may vary quarter-to-quarter. Combined, completed property acquisitions and loan originations were approximately $142.1 million for the fourth quarter at a weighted average initial yield of 11.7% and $277.7 million for the full year at a weighted average initial yield of 10.3%. The $277.7 million of investments completed was our most productive year in our company's history. To support this level of investment activity, we've not only generated capital through strategic asset sales but also opportunistically accessed the capital markets. In November, we issued $50 million of a new Series A preferred stock with an 8% coupon. Additionally, late in the fourth quarter of 2025, early in the first quarter of 2026, we utilized both our common ATM and the Series A preferred ATM programs, raising a combined $18.3 million of equity. Lastly, as we look to 2026, we're excited about the outlook for the company. We believe our investment activity, equity raises, and recent debt refinancings, for which Phil will provide more details, have positioned the company well as we start the new year. Further, our Board recently decided to increase our quarterly common dividend per share by 5.3% to $0.30 per share beginning in the first quarter of this year. And with that, I will turn the call over to Phil.
Philip Mays, CFO
Thanks, John. Beginning with a quick summary of financial results. For the fourth quarter, total revenue was $16.9 million, including lease income of $12.7 million and interest income from commercial loan investments of $4 million. Both FFO and AFFO attributable to common stockholders for the quarter were $0.54 per diluted share, representing 22.7% growth over the comparable quarter of the prior year. For the full year, total revenue was $60.5 million, including lease income of $48.7 million and interest income from commercial loan investments of $11.4 million. FFO and AFFO attributable to common stockholders were $1.88 and $1.89 per diluted share, respectively, representing approximately 8.6% growth over the prior year. Earnings growth for the quarter and the year was primarily driven by the investment activity John discussed, combined with disciplined balance sheet management. Moving to the balance sheet. Similar to our investment activity, we had a significant amount of capital markets activity in the fourth quarter of 2025 and early in the first quarter of 2026. First, on November 12, we completed a public offering of 2 million shares of Series A preferred stock at a price of $25 per share with an 8% coupon. This preferred offering resulted in $50 million of gross proceeds before deducting the underwriting discount and other operating expenses, with net proceeds totaling $48.1 million. We supplemented the preferred offering proceeds with a modest amount of issuance under both our Series A preferred and common equity ATM programs. Beginning with our preferred ATM program. From late fourth quarter to early in the first quarter of 2026, we issued just over 116,000 shares of our Series A preferred stock at a weighted average price of $24.92 per share for total net proceeds of approximately $2.8 million. Likewise, during this time, under our common stock ATM program, we issued just over 918,000 shares at a weighted average price of $17.13 for total net proceeds of approximately $15.5 million. Additionally, earlier this week, we closed a new unsecured credit facility and completely recast the company's unsecured debt. The new credit facility consists of a $250 million revolving credit facility with an initial term of 4 years with two 6-month extension options, a $100 million 3-year term loan, and a $100 million 5-year term loan. The proceeds from the new credit facility were used to fully repay and retire the company's prior revolving credit facility and term loans, resulting in the company now having no debt maturities for 3 years. Further, pricing for borrowings under the new credit facility improved by 10 to 15 basis points, and it provides for more flexibility and borrowing capacity related to our commercial loan investments. Please see our recent press release related to this credit facility for more details. We ended the year with net debt to pro forma adjusted EBITDA of 6.7x compared to 7.4x at the beginning of the year. Additionally, we had $65.8 million of liquidity, consisting of approximately $25.3 million of cash available for use and $40.6 million available under our revolving credit facility. However, with in-place bank commitments, the availability under our revolving credit facility can expand by an additional $31.4 million as we acquire properties and fund commercial loans providing for total potential liquidity of $97.3 million at year-end. Summarizing our investments at year-end, our property portfolio had an annualized base rent of $46.2 million on a straight-line basis and our net commercial loan portfolio had loans with an aggregate face amount of $129.8 million at a weighted average coupon rate of 12.4%. One additional note regarding our commercial loan portfolio. Two loan investments totaling $7.2 million at year-end with a weighted average coupon rate of approximately 11.5% were repaid in January of 2026. Additionally, as we noted previously, our property portfolio includes approximately $3.8 million of ABR related to 3 single-tenant restaurant properties acquired in 2024 through a sale-leaseback transaction. Although these properties constitute real estate for both legal and tax purposes, GAAP requires them to be accounted for as a financing. Accordingly, current annual cash payments of approximately $2.8 million are reflected as interest income rather than lease income. To provide more information about this matter and our commercial loan program, we have added additional disclosures to our press release including the supplemental table providing details for both the loan portfolio and related interest earnings. We hope you find this additional information helpful in understanding our investments. Now turning to our 2026 outlook. Our initial earnings guidance for the full year of 2026 is $2.07 to $2.11 for FFO per diluted common share and $2.09 to $2.13 for AFFO per diluted common share. Key assumptions reflected in our initial guidance include investment volume of $70 million to $100 million, and disposition volume of $30 million to $60 million. I do want to note that our 2026 guidance and growth in earnings reflect dispositions generally closing earlier than acquisitions. Furthermore, our revenue for 2025 included $221,000 in the fourth quarter and $525,000 for the full year related to fees we receive for managing and selling the third-party properties that supported our portfolio loan. During the fourth quarter of 2025, substantially all these third-party assets were sold and the portfolio loan was repaid in full. Accordingly, these fees will not be a significant source of revenue in 2026. One last note. As John discussed, the Board has increased our quarterly common dividend to $0.30 per share beginning in the first quarter of 2026. Even with this increase, our dividend remains well-covered. Specifically, this new quarterly common dividend rate represents just a 56% AFFO payout ratio computed on AFFO for the fourth quarter of 2025. With that, operator, please open the call to questions.
Operator, Operator
And our first question will be coming from Michael Goldsmith of UBS.
Michael Goldsmith, Analyst
First question on the loan portfolio. It looks like you set kind of an upward boundary of 20% of the portfolio. So can you just talk a little bit about how you came to setting it at that level? I guess, where the loan portfolio stands today relative to that and then just how much more you can do to kind of hit that max? And if you expect to hit that this year?
John Albright, President and CEO
Yes. Michael, this is John. I think that really on 20% I felt like that was a reasonable number, and I'm making it too large, of course. And something that obviously is complementary to the company and the business. So it's really not an incredibly magic number, but it's low enough where it's not a distraction to our investors and enough to be interesting investments for sure. And so I'll let Phil talk about kind of where we are. But as you could see from Phil's comments that we've already had a couple of loans repay. And so that will continue as we do find sources for new investments as well.
Philip Mays, CFO
Yes, Michael. So probably the easiest way to think about kind of where we stand in the runway is, John mentioned 20% of total undepreciated assets. So at the end of the year, that would have been $770 million, so 20%, $155 million, $160 million. The portfolio had $130 million or so outstanding. So kind of runway for another $25 million, $30 million on top of what's outstanding at the end of the year.
Michael Goldsmith, Analyst
And then my follow-up is you continue to reduce your exposure to some of the tenants that aren't in favor. Walgreens has moved considerably down the list, I guess, just where do you stand with that? Is there more work to do? Are you happy with where you're at? Just trying to get a sense of are we at the end of that activity? Or is there just a little bit more to do?
John Albright, President and CEO
Yes, there's definitely a little more to do, and we're actively on selling an additional Walgreens now. And so we'll continue chipping away at it, and it will be gone at some point. But now that we've gotten it way down the list we're not so super focused on it. We just want to take our time and find the right buyers and not just sell it, just to sell it. So we'll take the cash flow and be prudent about selling them, but we're working on continuing that sales process.
Operator, Operator
And our next question will be coming from Jay Kornreich of Cantor Fitzgerald.
Jay Kornreich, Analyst
I wanted to follow up on the initial question regarding the 20% threshold for loan investments. This has been a significant source of growth for you, particularly over the past year. Given that you've mentioned having room to increase beyond that threshold, have you considered going beyond the 20% mark? Is there any desire to do so as you look at opportunities for 2026?
John Albright, President and CEO
No, I don't think we should pursue that. While there is enough volume available, we prefer to focus on our primary sources of business, which are the net lease properties and core properties. This business has been excellent for us, as it strengthens our relationships with developers and tenants and offers future net lease investment opportunities. It's complementary to our core operations, but we want to avoid it becoming a distraction.
Jay Kornreich, Analyst
I appreciate that. And then just one follow-up. You talked about some of the capital raising you did in the fourth quarter. And I guess I wanted to talk about the $10 million on the ATM that you adapt. And just curious about how you think about deploying more equity capital at these current stock prices I guess, assessing your cost of equity. I'm assuming that's really being more used for the higher-yield divestment loans. So just curious how you think about deal spreads relative to your cost of capital versus the investment loans, just how you target that and think about issuing more.
John Albright, President and CEO
Yes, we will be careful about it. However, as you noted, most of this is aimed at funding highly beneficial investments. Even though the stock price isn’t where we would prefer it to be, the calculations still make sense. Additionally, as we've observed with many companies, investors are currently more interested in those with greater liquidity and flexibility. Reflecting on our actions, we repurchased a significant amount of stock last year, and we are effectively reissuing some of those shares. This is not a situation of significant dilution; it's simply a cautious approach to financing these very valuable investments.
Operator, Operator
And our next question will be coming from Wesley Golladay of Baird.
Wesley Golladay, Analyst
Just a question on the dividend. You definitely raised it again. And when you think about that, is that mainly driven by the earnings growth that you have and having to pay out a dividend that's a little bit higher? And why not trying to retain more cash flow?
John Albright, President and CEO
Phil, I'll let you address that.
Philip Mays, CFO
Yes. So it was earnings growth but also just taxable income growth. So that kind of balanced the two. I didn't catch the last part of your question there, Wes.
Wesley Golladay, Analyst
Just seeing why basically increased because you had to pay it out just because you're issuing stock here, just why not just retain more cash flow versus raise the dividend?
Philip Mays, CFO
A lot of it's growth in taxable income. When you think about the loan portfolio, right, there's no depreciation that goes with that. So even though it's 20% of total assets and the properties make up more, there is no kind of tax cover or depreciation to go with it. So it does help drive taxable income up. So the raise was really just to kind of be where we need to be to pay out taxable income.
Wesley Golladay, Analyst
Got it. That makes sense. One question on the loan where you have the developer for the Phase I. Are you starting to see any lot sales there? And when can you expect to get repaid? And then a follow-up would be, would you expect the second loan to start funding before the first one starts paying off?
John Albright, President and CEO
Yes, the loan is beginning to be repaid as lot sales are occurring. The repayments are directed towards the senior participation we sold off. While the current loan will not be fully repaid by the time the second portion is funded, we anticipate that repayment activity will increase for us in late spring, primarily addressing the first mortgage participation first.
Wesley Golladay, Analyst
And then I guess when you look at your pipeline of potential loans, what are you seeing in there? I mean you have a big residential loan here. Do you have other sectors that you're looking at, does it diversify it a bit?
John Albright, President and CEO
Yes. So we're really pleased with the pipeline for sure. We're talking about more kind of grocery-anchored development and also investment-grade credit development with terrific tenants and new relationships. It's old relationships with new relationships for Pine. And so we're very excited as we continue to work on the pipeline. So more to come.
Operator, Operator
And our next question will come from R.J. Milligan of Raymond James.
R.J. Milligan, Analyst
Just wanted to follow up on the loan book. John, longer term, as some of these loans are paid off, do you expect to continue to redeploy that capital and maintain that 20% allocation over the next several years? Or do you expect that to come down over time?
John Albright, President and CEO
Thank you, RJ. We believe there is an opportunity to maintain that 20%. Our pipeline is currently very robust. As loans are paid off, we fully plan to reinvest that capital.
R.J. Milligan, Analyst
Got it. So this is a longer-term 20% allocation part of the Pine strategy?
John Albright, President and CEO
Correct.
R.J. Milligan, Analyst
Great. Phil, I wanted to ask about the fourth quarter. It was a significant number and exceeded expectations. I believe there might have been some one-time items in that quarter. Can you discuss those and explain how we can achieve a solid run rate as we move into the first quarter of this year?
Philip Mays, CFO
Yes, there are some one-time items included. A good way to view this is to look at our schedule, where the debt to EBITDA calculation includes a line for nonrecurring items, which totaled just over $300,000 for the quarter. This mainly consists of management fees I mentioned earlier that will no longer be applicable, along with prepayments from one of the loans that was paid off early, accounting for that amount. These are a few cents that won't happen again. Additionally, it's important to note that the fourth quarter doesn't bear the full weight of the outstanding prep and the associated management fees. So, when you consider the $0.54 and adjust for these items, it likely translates to a run rate of around $0.50 or $0.51 by the end of the quarter.
Operator, Operator
And our next question will be coming from Gaurav Mehta of Alliance Global Partners.
Gaurav Mehta, Analyst
I wanted to follow up on the balance sheet and wondering if you would comment on your leverage expectations in 2026?
Philip Mays, CFO
I mean we're pretty happy with where we currently stand. And we're in a nice pricing tier on our debt. So I think kind of where we're currently at is about where we expect it to run for the year. But obviously, that depends on the opportunities we see.
Gaurav Mehta, Analyst
Second follow-up on the investment opportunities. In the prepared remarks, you commented on a falling barbell approach in '26. Just wondering if you could comment on, I guess, the opportunities that you're seeing both on the investment and non-investment grade part of the portfolio for acquisitions?
John Albright, President and CEO
Yes. We're very excited about some of the opportunities we see on the net lease side, where we had the ability to possibly bring in new investment-grade credits further up into the top 5, top 10 tenancy. And so we're really focused on that. And so we have a good portfolio of opportunities that we're looking at right now. So pretty excited about the composition of the net lease portfolio this year.
Operator, Operator
Our next question will be coming from Jason Weaver of Jones Trading.
Jason Weaver, Analyst
Congrats on a big year in '25. First, on the acquisition and disposition guide, which is down a lot versus '25 with the capital base growing. Is there anything we can read into that, just taking from a point of conservatism? Is it some sort of hesitance about market conditions? Or is there something else that is out there?
John Albright, President and CEO
Yes. We just want to be really have a cadence that something we feel very, very comfortable hitting without having such a big number that you feel like you're forced into buying things that maybe you're not too excited about. So we just want to be real careful on curating a super strong portfolio and not being forced into more commodity assets.
Jason Weaver, Analyst
Got it. That's fair enough. And then next, I wonder if you can clue us into the expected funding mix on any new investments and as well as the unfunded commitments, whether that will be done with some combination of ATM draw versus credit facility drawdown. And sort of what mix thereof are you looking to target?
John Albright, President and CEO
I'll just kind of start off and let Phil dive deeper. But clearly, our mix in the past probably is somewhat reflective of what's going to be in the future. And that's still recycling, still selling down non-core sort of credits and using that for investments. And then obviously, we talked about a little bit of the loans naturally maturing and paying off. But then there'll be a mix of perhaps the ATM and the line, but keeping everything pretty modest.
Operator, Operator
And our next question will be coming from Craig Kucera of Lucid Capital Markets.
Craig Kucera, Analyst
Phil, you included the PIK interest earned in AFFO, and I understand that makes sense this quarter because there was hardly anything that wasn't collected in cash. Is that your expectation for the foreseeable future?
Philip Mays, CFO
Yes, I think we'll stick with that. What we also did, Craig, just to be clear on how much PIK is in there at the bottom of the table, we added a schedule that shows the cash interest and the PIK interest, and we'll continue to also include that. So you'll know exactly what is included. But just felt like that was an easier way to go.
Craig Kucera, Analyst
Yes. No, that was helpful. I did see that. changing gears in your discussions with your developers that still have unfunded commitments, do you expect those guys to pull down most of that capital in 2026? Or I know a lot of those loans mature later in '27 and even '28, but just some thoughts on that?
John Albright, President and CEO
Yes. We fully expect that those will be drawn down for sure. It's part of the project. And as the project gets going, that's fully kind of specified for those needs.
Craig Kucera, Analyst
And in the schedule of your commercial loans, you mentioned that Phase 2 in Austin has some conditions that are unmet. Can you give us some color on what that is and when you think those conditions might be met and the loan is funded?
John Albright, President and CEO
I'll let Phil answer that.
Philip Mays, CFO
Yes. So on the funding, probably 2Q. But keep in mind, as with the first phase, we sold off our participation of $10 million. So just kind of using round numbers. The first phase was $30 million. The second phase is $30 million. We sold off a participation already for $10 million. There's likely to be another sale on that. And so altogether, we might sell off another $10 million, $20 million, so the net hold might be closer to half. But yes, probably late first quarter, early second quarter for the second phase funding and simultaneously with that, we'll also probably have some participation out of 10 or 20, somewhere in that range.
Craig Kucera, Analyst
Got it. So that's in the guidance then?
Philip Mays, CFO
Yes.
Craig Kucera, Analyst
Appreciate that. And I guess when that first phase was initially structured, I think it was 17% for like 6 months and then dropped to 16% for 6. Once you sold that participation interest it's now yielding north of 20%. Can you walk us through the math of how it adjusts net of the participation interest? Is there any change in the way that, that loan is going to roll down?
Philip Mays, CFO
The participation interest has a constant rate of 10%, and that hyperamortizes so that gets repaid first, and then we get repaid second. Is that helpful?
Craig Kucera, Analyst
Yes. I'll probably just circle back to you offline just to make sure I'm getting the math right. And finally, you did mention you amended the loan this quarter. Was that just a loan extension? Or can you just give us some additional color on that loan?
Philip Mays, CFO
Yes, it was just an extension.
Operator, Operator
Our next question will come from John Massocca of B. Riley Securities.
John Massocca, Analyst
So maybe just revisiting guidance a little bit. What are the expected yields on the investment volume that you're including in the guidance? Additionally, how do you anticipate the composition of that expected volume will be divided between structured investments and net lease investments?
Philip Mays, CFO
I think on the loan side, I talked earlier about the runway being $25 million to $30 million, and look, it could bounce around a little bit depending on when draws happen, when fundings happen and repayments. But out of that, out of the guidance, you should expect about that much to come from the loan side, and that will probably ramp up over the first half of the year. And then the balance of the guidance you can expect to be on the property side.
John Albright, President and CEO
The loan yields are quite similar to what we've experienced in the past. There's not really any tightening in the market, despite the significant amount of capital available. The structure's flexibility and our ability to quickly respond to opportunities allow us to achieve slightly higher rates.
Philip Mays, CFO
Yes. The rate at the end of the quarter is a decent rate to use for the balance of the year.
John Massocca, Analyst
And I guess on the net lease side, kind of where are you seeing cap rates today? I know you closed something subsequent to quarter end at an 8.5%. But is that maybe a little higher than what your target is in the market today? Or is that kind of indicative of what you can invest at?
John Albright, President and CEO
On the more investment-grade sort of properties that we've been looking at, that will be lower than what we just did on that acquisition in Aspen. But very similar to the Sam's Club we purchased and so forth. So I would say, on cap rate direction, certainly, for quality properties is still very tight. But a lot of the investments we have made in the past in the past 5 years, we'll look at really strong real estate, very strong MSAs and maybe have a shorter lease duration where the likelihood of a tenant renewing is very high because the rental rates they're paying are very, very low. So they're almost like covered land plays, and we can get those at obviously higher yields than if it was a fresh 15-year lease. And so that's where we like to play where we're picking up investment-grade credits in large MSAs that are paying well below market interest rates. And so those cap rates will still be similar to kind of what we did last year as well.
John Massocca, Analyst
I appreciate that information. You mentioned it regarding the Austin structured investment. Are there opportunities for additional participation interest sales on other structured loans in the portfolio or on other deals that might be considered in guidance?
John Albright, President and CEO
We could sell off a lot if we wanted to, but those are fantastic loans, and we would prefer to hold onto all of them. However, we will certainly sell senior participations to fund activity if necessary.
John Massocca, Analyst
I guess as it pertains to kind of like you're seeing the world today, it's often going to be primarily where that comes from?
John Albright, President and CEO
I'm sorry, I missed that last point. Can you say it one more time?
John Massocca, Analyst
You mentioned what you were expecting to achieve with the participation interest sales related to the Austin structured investment. Is that everything we are considering at this point?
John Albright, President and CEO
As we stand today, we're accommodating them by allowing early participation. Otherwise, we wouldn't consider selling that participation. However, we want to maintain a good relationship with our investors and keep their participation in case we decide to pursue another opportunity.
Operator, Operator
And this concludes today's program. Thank you for participating. You may now disconnect.