Alpine Income Property Trust, Inc. Q4 FY2024 earnings call

The fourth quarter was a strong finish for 2024. AFFO was $0.74 per diluted share for the year, up 17%, and the common dividend was raised. In 2024, 12 properties were acquired, including investment-grade tenants, WALT increased to 8.7 years, 51% of ABR from investment-grade tenants. Three commercial loans were originated, totaling $134.7 million investments with an average yield of 8.7%. $62 million of property was sold to optimize the portfolio. In 2025, the barbell investment strategy continues. Party City's lease in Oceanside, NY and Cinemark's non-renewal in Reno are short-term earnings headwinds. In 2024, shares were issued under ATM program, net proceeds raised, leverage optimized, debt interest rate fixed over 80%, and liquidity was $95 million at year-end.

For the fourth quarter, total revenue was $13.8 million, including lease income of $11.5 million and interest income from commercial loans of $2.2 million. FFO and AFFO for the quarter were both $0.44 per diluted share, representing growth of 19% and 16% respectively over the comparable quarter of the prior year. For the full year, total revenue was $52.2 million, including lease income of $46 million and interest income from commercial loans of $5.8 million. FFO for the year was $1.73 per diluted share, representing 18% growth over the prior year, and AFFO was $1.74 per diluted share, representing 17% growth over the prior year. During the fourth quarter, the company acquired six properties for $50.5 million at a weighted average cash cap rate of 7.6%. The full-year acquisition activity was twelve properties at a weighted average cash cap rate of 8.2%. During the year, three commercial loans were originated for $31.1 million at a weighted average yield of 10.7%. The company sold $62 million of property at an average cap rate of 6.9% during the year. For 2025, the investment strategy is a barbell approach, investing in investment-grade rated tenants for stable cash flows and seeking higher-yielding opportunities for growth and diversification, and selectively originating commercial loans.

Initial earnings guidance for full-year 2025 is a range of $1.70 to $1.73 per diluted share for both FFO and AFFO. Assumes Party City and Reno theater will impact FFO and AFFO per share by approximately $0.08. If planned property acquisitions and loan originations are executed timely, could be at the high end or exceed the range. Investment volume for 2025 is expected to be $50 million to $80 million, dispositions $20 million to $30 million, and weighted average shares outstanding 16 million to 16.5 million.

Party City has one lease in its portfolio in Oceanside, NY, which will be a short-term earnings headwind until leased or sold. Cinemark did not renew its lease for the theater in Reno in late 2024, and the property was under contract to be sold but the buyer had an unanticipated event preventing closing, so focusing on selling and redeploying capital will be a short-term earnings headwind.

Q: You decreased your Walgreens exposure in the quarter. Should we expect a further paring down of this tenant type, and in general, what is the comfortable level of exposure for you there?

A: Yeah. We have another one kind of in the pipeline negotiations, but we're really kind of trying to time it with acquisitions. These properties are, you know, even though it's a challenge sort of credit and story, there is a market for these, so we're trying to pair them up with acquisitions. But probably another one, you know, coming out possibly in the quarter.

Q: Within your investment outlook for 2025, can you provide any color on maybe your appetite for acquisitions versus construction loans? And what would make you more constructive on one lever versus the other in 2025?

A: Yeah. So as I've talked before in the past, we really like some of the loan opportunities we see because you're really getting an enhanced credit, you know, for instance, you know, the public anchored sort of out parcel developments with a, you know, buffer of equity beneath you as a developer, has a lot of equity in the projects. And the LTVs are certainly obviously lower than if you went out and bought these assets. And, of course, the yields are higher than owning them. So we really like the opportunity as the capital markets are still constrained for developers. And I would say that we are seeing a very active pipeline on both the loan side, as well as the acquisitions, the acquisitions, the more of the core acquisition side. So we're seeing robust sort of opportunities on both sides. So I could see it's gonna be fifty-fifty on that sort of investment program.

Q: You have four commercial loans maturing in 2025, and I wanted to ask you what you expect.

A: Yes. So we do have four maturing. I think one will actually probably pay off, three will probably extend. And we don't think there'll be any problem, as John talked about, with our robust pipeline of loans here replacing the one that will likely pay off. And they'll likely pay off midyear, and we're pretty confident we'll replace that. So don't expect the balance to come down. Expect it to kinda stay where it's at and maybe grow towards the latter part of the year.

Q: Can you provide some color on the expected timing on when you guys are planning to sell and acquire properties in the year?

A: On equity. So I think, you know, the pipeline is probably the strongest we've seen this time of year in the five years we've been doing this. And so we're pretty optimistic. But as you know, you know, the deals could fall through. But I would expect sort of, you know, more of the activity to happen at the end of the first quarter.

Q: John, are the beachside group assets back to their full capacity after the storm damage? And is their revenue back to where you guys underwrote it at the initial deal?

A: Yeah. So we were actually out there last week, and they are all open and performing. And some are performing better than pre-hurricane. With new equipment, more efficient kitchens as they had the opportunity to reconfigure where they wanted to. You know, I would say that the Sandbar isn't at max capacity yet as they're, you know, it's really a lot they do a lot of weddings and so forth, but we're just now getting into season. But everything's trending to either the same or better than pre-hurricane, unfortunately. For the market, you know, some of the competition has not come back online, so they are kind of the only game in town. So anyway, it looks they're pretty excited kind of about their positioning.

Q: You and Phil talked about the Party City and the Cinemark. Beyond those two assets, is there any other locations that you expect to be vacant at some point in 2025 or early 2026?

A: At this point? No. And we're being proactive on things that, you know, you know, kind of the watch list sort of tenants, for instance, at home, we're very how you know, selling a couple of those. So you know, the theater deal, obviously, last fall, we had it under contract, and, unfortunately, there's a health issue with the buyer. So that really kind of messed up our plans, that that should have been sold last year. And so we had to restart with that. So we do have active offers on both the Party City and the theater. We're trying to be, you know, trying to get the best price possible, but we certainly will see the benefits if we decide to sell it earlier and have that capital put into production by either, you know, paying down the debt or making an acquisition or investment. And so we clearly see the benefits of monetizing those sooner rather than later, and so we may do that.

Q: You talked earlier about there being a market for Walgreens today. Is there really a market for at home assets these days given their size and their credit rating? And is that something that you'll look to match any dispositions there to acquisitions as well?

A: Yeah. I mean, we'll go ahead and we won't sort of because they are a little bit lumpier, we won't match it up with acquisitions. We'll the buyer ready to buy it, then we'll move through the process with them. And the reason there's, you know, more activity on them than you may think because of the size, as you mentioned, is that remember, you know, these are on large parcels with a lot of parking and a large configuration. At a very low basis and you just can't find that anymore. I mean, you know, redevelopment of any of this sort of product is, you know, so these are unique opportunities for investors, developers, tenants, and people understand that.

Q: But in terms of the income statement, anything in 2025 looking to be either abnormally high line items, abnormally high or low, excluding revenue and interest expense depending on what you guys do from a buy and sell and financing standpoint. Anything in G&A or anything that's gonna wind up being otherwise lumpy or extraordinary that you're anticipating in 2025?

A: No. I imagine most things will be a pretty even run rate. Quarterly, you know, over the year. Not nothing lumpy in G&A as I noted. Yeah. Our management fee given the fact to all the equity went out the door in the fourth quarter is now four and a half on an annual basis. That assumes we don't issue any more equity, but that's the current run rate. But I think most things will be, you know, generally an even run rate over the year. And just, you know, absent, you know, the timing of acquisitions and dispositions, but no unusual one-time fees or kind of lumpy things that you need to worry about.

Q: you know, and kind of where pricing is there right now given, you know, the higher for longer outlook. You know, it seems like pricing has held pretty steady, you know, over the past couple of quarters. But, you know, when you strip out the loans, know, what is your going in cap rate, you know, on these acquisitions for kind of the past couple of quarters?

A: So it's basically averaging out close to the 8% cap rate range. You know, as you saw, that's in the last in the fourth quarter. We did dive down for quality where we, you know, picked up a Lowe's to really show the market that, you know, we're the only net lease REIT with a DICK'S or Lowe's in the top five. Maybe even the top ten credit. So trying to show the market that if you want sort of a diversification of investment, we're really the only sort of net lease REIT that you can kind of get exposure to different credits. Everyone else seems to have the same sort of credit profiles. And so really striving to get that story told. So but in general, besides, you know, diving down and picking up a quality Lowe's, with a long duration, you know, we're kind of trending to the 8 cap range.

Q: Are you planning on selling them or releasing them and did you potentially talk about the impact on valuation?

A: Yeah. So we have leasing opportunity as well, and certainly, the best execution would be to lease and then sale. But that would take, you know, the whole year really to have that execution. And realizing how, you know, finicky the investor market is as far as stock investors, I feel like having the money and redeploying earlier is probably gonna be more prudent and pay off for our shareholders. And so that's kind of so we do have optionality on both whether we lease and hold or sell, but we're tending to gravitate towards the monetization.

Q: With the buyer that pulls out because of health issues, was there any sort of termination income or one-time income that we should expect from that?

A: Oh, we got a little bit, but we really we could have taken more, but we obviously felt bad about the circumstances and released some escrow back that we didn't need to. But given the extreme nature of the health issue, we did that.

Q: How much of that is stuff you kind of visibly see in the pipeline today or is under kind of LOI and how much is theoretical? And I'm just kind of asking that in the context of, you know, $80 million at the top end of the range is, you know, significantly less than you did last year, but you kind of were saying you felt the pipeline was stronger than it had been at any other point during this time of the year. So just kind of trying to circle that square, if you will.

A: Yeah. No. It's a good point. So because these investments are fairly long, we are negotiating with, you know, a fair amount of the pipeline. But you just never know what's gonna happen. And then on the theoretical is more we have identified assets that we're pursuing but we don't know whether we'll win them at the yields that work for us. And so I would say it's what we have that we're negotiating where terms have been agreed upon is a fair amount of the guidance.

Q: Is there any credit loss kind of baked into that number beyond, you know, the two vacancies you called out specifically?

A: Yeah. I mean, we always keep, you know, a small general reserve in the forecast. But, you know, we don't see anything large that's looming right now.

Q: Real estate expense kicked up a little bit quarter over quarter. Was that just for reflecting the situation in Reno or was there something else going on there?

A: Yep. The Reno lease expired in November, and it kind of kicked up primarily due to that.

Q: About half of the revolver balance now is floating. Are you contemplating any swaps there or are you likely to keep that floating?

A: So yeah. So it's about $100 million outstanding on the revolver. You know, as you mentioned, half is swapped and $50 million is not swapped. We might consider, you know, if the balance starts to get up a little higher, you know, just to kind of depends how the timing of acquisitions and dispositions lay out. You know, we won't always have some flexibility there, Craig, to be able to pay down the line. Right? And when it's swapped, then you're just sitting on the cash earning nothing. So you know, if it gets if it continues to get up a little higher, we'll probably look at swapping or we may opportunistically do it. Right? If there's a dip in rates, we might consider doing it a little earlier.

Q: You guys have had a really good track record of getting a positive cap rate spread on your acquisitions and dispositions, is that still anticipated this year, or does the fact that some of the assets you're looking to sell, you know, might need to be leased up to kind of maximize the value?

A: Yeah. I mean, there's definitely gonna be some assets, like, Walgreens and maybe at homes that will be at yields that are the same or higher than what we're acquiring. So you won't see that accretive recycling. But, you know, with regards to Party City and the theater. I mean, those are, you know, fairly chunky amount of money for our small company that's obviously earning negative that once we get that redeployed, we'll be, you know, very accretive.