PINE - NYSE

Good day, and thank you for standing by. Welcome to the Alpine Q2 2025 Earnings Conference Call. [Operator Instructions] After the speaker's presentation, there will be a question-and-answer session. [Operator Instructions] 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.

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 there 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.

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 occurring 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 closing in the second half of the year. Turning to property dispositions during the quarter, we sold 5 net lease properties for $16.5 million and 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 of 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. Further, 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 that 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 At Home paid rent in July and neither were on the initial closure list. With that, I'll turn the call over to Phil.

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 relative 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. And year-to-date, we have now repurchased approximately 546,000 shares for $8.8 million at an average price of $15.07 per share. With regards to our common dividend, as previously announced, during the first quarter, we increased our quarterly cash dividend to $0.285 per share and maintain 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 Instructions] Our first question is going to come from the line of Matthew Erdner with JonesTrading.

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

John, sorry, I'm at a loud airport, but I'll take the first part there. We're seeing right now pretty active on the both acquisition front 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, but it's pretty competitive, as you know. And so less sure about the timing of those investments.

Got it. That's helpful there. And then as a follow-up to that, 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.

Yes. I mean just like Phil had mentioned, as far as on 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.

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

Two questions for Phil. Just curious what the payoff the public payoff in July, what's going to be the quarterly AFFO impact on that? .

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, impact a couple of hundred grand a quarter, just kind of [ opening ] -- a little bit more number opening a quarter. .

Okay. And then, Phil, a second question is just in terms of -- we've seen quite a few other REITs to go out and issue debt or get term loans. I'm curious where you think the market is today for PINE in terms of doing the term loan.

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?

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

Just first on Walgreens, you continue to pair 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 boxes from those 2 tenants?

Thanks, Michael. Yes. So in general, the market is fairly active. So as we -- as we see reasonable pricing, we'll keep moving through the Walgreens, and we're actually working on a couple more sales, but the pricing, it just obviously depends on location, of course, and your lease term, but the cap rates can be anywhere from high 7s to early 10s or 11s, just depending on, again, location and quality. And we're seeing basically people that, a lot of high net worth people buying Walgreens and saying, okay, I'm going to take the rest of the term and get good yield and then it's a great location or a good location. And I know another tenant is going to want it because these are corners and drive-throughs. So they're not really worried about knowing exactly who's going to backfill it just knowing that on a macro sense, it's a good investment. So a fairly active market on the Walgreens side, on like At Homes, you're seeing users that want to get these big box positions. And as you know, 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. And so it's really, as big boxes become less available. There's a fair amount of people. Again, it's a good location, good market that people are interested in taking those down and either redeveloping them or their users that will take the box are split up. I hope that hope that's helpful.

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

Yes, sure. Look, we are seeing more opportunities, very interesting opportunities, good sponsors. And unfortunately, the deals are taking a little bit longer. So we didn't get one in the quarter. One, we are very hopeful to get in the quarter, but they're actually discussing with the tenant about expanding and it's going to take a little while for them to go through a real estate committee and all that kind of stuff. So -- so unfortunately, that didn't happen in the quarter, but hopefully, this quarter will. But -- and we'll keep on selling through some of the credits that we don't like going forward and maybe a little bit of selling assets and paying down debt, which as Phil mentioned on the loan repayment, there's obviously a little bit of hit to earnings. But given that we're such a low multiple stock, we're not worried about kind of 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 very accretive to the company, and we'll be eventually reflected in the stock price, we hope, but I think we'll be fairly active this quarter. So we're pretty excited by the opportunities that we see.

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

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?

Yes. So they are. So we don't expect them to reject these whatsoever. There have good operations, so good locations. So I don't see that. And actually, we have people that are more interested in than being gone than being there. So we'll monitor it, but so far, so good. .

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

After At Home. I mean, it's not -- we've been, as you know, very proactive in the last couple of years of pruning through different credits. And it's just really not very deep. We've kind of taken the hits where it's happened. So we're -- there's not really anything that kind of keeps us up at night, if you will.

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, I guess, probably have a little bit of negative NOI from those assets, what would the drag be? .

Sure. I'll let Phil talk about the accounting of that.

Yes. So 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 kind of more likely, I think, at this point to just avoid the carry cost and move on with the interesting investment opportunities we're seeing. There's not a big negative drag on those. It's just kind of the...

I mean you got real estate taxes insurer, property management. So it's not huge, but it's definitely not fine. So once those are sold and you're paying down your leverage, it's quickly accretive.

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

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

Yes. I mean 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 extended and blend after acquiring a property. And then basically coupling that with the kind of higher return yielding sort of investments. So we're pursuing on both sides, and we feel like we'll get something done here for sure this quarter. But that, in general, is like we're going for a higher quality on the acquisition side to couple that with the loan investment side.

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?

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

Okay. And then maybe lastly on the Walgreens. You obviously 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?

Phil.

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

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

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

No. 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 or said that the banks are shrinking again, at least for the activities that these folks are taking on. And so we're seeing yields being as good or even maybe better on some certain situations. So luckily, we're back to a target-rich environment. .

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 -- have you -- are you lifting like the total amount or the net amount by $30 million versus the prior guide?

Yes. So we did get the $25 million back. And I think just with the interesting opportunities we're seeing, in particular, on the loan side, we think later in the year, we can get that redeployed. And so -- that was kind of the real reason for the pickup.

Okay. Just wanted to double check there. And just 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?

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

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

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 kind of a significant thing here if interest rates were to decline, call it, in the next 6 to 12 months? .

Yes. You're not going to see as much early repayments, because it's really inefficient for the sponsors. Our loans are fairly short duration anyway. They're not going to go do a refi to save 200, 300 bps in spread. It's really they're looking to sell these assets primarily. So if interest rate drop, I wouldn't expect any sort of like mass payoff early payoffs. .

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

Yes, I would say that -- go ahead, Phil.

No, I would say, yes, we would expect that to kind of get deployed later in the year.

And is there anything -- as I think about guidance in 2Q versus 1Q, anything baked in there in terms of maybe additional conservatism around at home? Obviously, I know the two assets you have thus far retained. But are you kind of factoring in something as this kind of bankruptcy process is ongoing obviously probably going to get paid here for the next couple of months, but that could change in the back half of the year?

Both the At Homes, neither of them again, were on the list for closure. Both of them paid July rent, and we generally expect to collect rent for the remainder of the year. So there's nothing specific in there. But I mean 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.

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

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

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

Okay. Then John, given your comments about the difficult acquisition environment, these days. You 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 both lower debt and buyback stock? .

I think that certainly could be a possibility, but we are seeing good investments that are accretive to the company rather than shrinking the company. I think we're seeing some really good investment opportunities, which will make the enterprise worth more. So you won't see us rapidly selling just to buyback stock. As we're selling assets, we're being patient about it, not some sort of fire sales, so it's a little bit just kind of taking our time with it, unless we see a big acquisition happen and we really want to speed it up, which we would do that. .

Okay. And then, Phil, other than the -- I think you said it was a $0.01 drag between the yield on the public loan versus the repayment of debt associated with that. Anything other than that, that's a headwind in the back half of this year earnings-wise as we think about the quarterly progression and the investments being back half stacked? .

No, nothing overly specific. The repayment of loan will be the only really identified drag there. Other than that, look, Rob, it's just going to depend on the timing of acquisitions and dispositions and kind of which leads.