Participants

John Albright; President, Chief Executive Officer, Director; Alpine Income Property Trust Inc

Philip Mays; Senior Vice President, Chief Financial Officer and Treasurer; Alpine Income Property Trust Inc

Michael Goldsmith; Analyst; UBS

RJ Milligan; Analyst; Raymond James Financial Inc

Wesley Golladay; Senior Research Analyst; Robert W. Baird & Co Inc

Rob Stevenson; Analyst; Janney Montgomery Scott LLC

Matthew Erdner; Analyst; JonesTrading Institutional Services LLC

John Massocca; Analyst; B. Riley Securities

Craig Kucera; Analyst; Lucid Capital Markets LLC

Presentation

Operator

Good day, and welcome to Alpine Income Property Trust Q3 2024 earnings call. (Operator Instructions) As a reminder, this call may be recorded. I would now like to turn the call over to John Albright, President and CEO. Please go ahead.

John Albright

Good morning, everyone, and thank you for joining us today for Alpine Income Property Trust third-quarter 2024 conference call. Before we begin, I'll turn it over to Phil to provide customary disclosures regarding today's call. Phil?

Philip Mays

Thanks, John. I would like to remind everyone that many of our comments today are considered forward-looking statements under federal securities law. The company's actual future results may differ significantly from the matters discussed in these forward-looking statements, and we undertake no duty to update these statements.
Factors and risks that could cause actual results to differ materially from expectations are disclosed from time to time in greater detail in the company's Form 10-K, Form 10-Q and other SEC filings. You can find our SEC reports, earnings release and most recent investor presentation, which contain reconciliations of the non-GAAP financial measures we use on our website at www.alplinereit.com. With that, I will turn the call back to John.

John Albright

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

Philip Mays

Thanks, John. Beginning with financial results. FFO was $0.45 per diluted share for the quarter, an increase of 22% compared to the $0.37 reported in the third quarter of 2023. AFFO was $0.44 per diluted share for the quarter, an increase of 16% compared to the $0.38 reported in the third quarter of 2023. Total revenue was $13.5 million for the quarter, including lease income of $11.7 million and interest income from commercial loans of $1.7 million.
There are two notable accounting matters that may have caused loan interest income to be higher than some of you anticipated and lease income to be lower than anticipated. First, the three properties acquired this quarter through a sale-leaseback transaction. These properties constitute real estate for both legal and tax purposes. And consequently, we include them in our property portfolio statistics. However, because of tenant purchase options, GAAP requires this transaction to be treated as a financing.
Second, as discussed last quarter, we sold an A1 participation interest in our portfolio loan, and GAAP also requires this transaction to be reported as a financing. If you exclude these two items from our commercial loan investments, they totaled $43.2 million outstanding at quarter end, consistent with the amount John discussed earlier, whereas our GAAP balance sheet reflects loan investments of $86.6 million.
While the GAAP reporting for these matters may cause some line item classification differences, it does not have any significant impact on FFO or AFFO. Now moving to the balance sheet. During the quarter, we utilized our common equity ATM program to issue approximately 620,000 shares at a weighted average share price of $18.09 per share, resulting in total net proceeds of $11.1 million.
As a result of this equity raise, along with the increase in our earnings from accretive asset recycling and growing commercial loan portfolio, we were able to incrementally improve leverage, ending the quarter with net debt to EBITDA of 6.9 times compared to the 7.4 times reported last quarter. Further, we currently have approximately $80 million of liquidity and no debt maturing until 2026.
With regard to our common dividend, given our increased earnings and forward outlook, we raised our quarterly common dividend from $0.275 per share to $0.28 per share. Our dividend remains well covered, as this represents a healthy AFFO payout ratio of 64%. Lastly, with regards to guidance.
We are raising our full-year 2024 outlook to an FFO range of $1.67 to $1.69 per share and an AFFO range of $1.69 to $1.71 per share. We have now closed $84 million of investments and $69 million of dispositions, inclusive of both property and structured investment activity. Accordingly, we are increasing our investment guidance to a range of $100 million to $110 million and nearing our disposition to a range of $70 million to $75 million. With that, operator, open the line for questions.

Question and Answer Session

Operator

(Operator Instructions)
Michael Goldsmith, UBS.

Michael Goldsmith

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

John Albright

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

Michael Goldsmith

Got it. And then my second question is related to the sale leaseback of the properties in Tampa. Can you provide a little bit more color on the insurance arrangement, many of these restaurants are closed right now. So it's just providing some more detail there.
And then separately, while these have increased the lot of the portfolio has also reduced the investment-grade percentage. So can you just talk about how you're thinking about kind of those 2 offsetting factors as you continue to build out the portfolio? Thanks.

John Albright

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

Michael Goldsmith

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

John Albright

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

Michael Goldsmith

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

Operator

RJ Milligan, Raymond James.

RJ Milligan

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

John Albright

Sure. So the average lease duration, RJ, is 7.6 years. The nearest coming up in 6 years. And we have a lot of these on the market, and we're getting active bids. We're being selective. If we have a larger acquisition to do, we may push through a couple more. But we're getting good bids because of the locations we have in the lease duration. And obviously, you saw Walgreens had a bit of a lift this week from good earnings.
So it's a very manageable portfolio. It's only 11. But obviously, given our small size, it kind of sticks out a bit. But as you can tell, given that we sold two and we have bids on additional two, it doesn't take much to get this off the top 10, if we really wanted to. But it would be nice to match it up with an acquisition.

RJ Milligan

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

John Albright

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

RJ Milligan

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

Operator

Wesley Golladay, Baird.

Wesley Golladay

Hey, good morning guys. Just sticking with the tenant file. Any plans to reduce exposure to the dollar stores?

John Albright

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

Wesley Golladay

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

John Albright

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

Wesley Golladay

Okay. That sounds good. The presentation of the press release indicated the end of period rent was $41.5 million. Can you clarify that as a cash rent number? And does that include the Campus properties?

John Albright

I'll let Phil answer that one.

Philip Mays

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

Wesley Golladay

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

Philip Mays

I think we're okay with a little floating rate there. Obviously, depending on the capital markets, we might look to utilize the ATM again. But we have $280 million of debt, $200 million fixed rate. We got $80 million floating. That rate is coming down. So we're okay with a little floating rate exposure there.

Wesley Golladay

Okay. Thanks everyone.

Operator

Rob Stevenson, Janney Montgomery Scott.

Rob Stevenson

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

John Albright

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

Rob Stevenson

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

John Albright

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

Rob Stevenson

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

John Albright

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

Rob Stevenson

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

John Albright

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

Rob Stevenson

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

Philip Mays

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

Rob Stevenson

Okay. But the -- neither the three restaurants that are being treated as a financing transaction nor the sale, that should continue to impact on a quarter -- that line item on a quarterly basis, similarly going forward, right? Is it there isn't any fall off or step-ups with that? It's just the incremental $10 million of deployment and the timing from the $10 million that you did deploy in the third quarter, right?

Philip Mays

Yeah, generally correct. Just keep in mind that the sale leaseback, there's not a full quarter in there. So it will be a little higher next time. So the amount kind of coming through interest income, if you will, related to that is close to $700,000 on a full run rate going forward.

Rob Stevenson

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

Operator

Matthew Erdner, Jones Trading.

Matthew Erdner

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

John Albright

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

Matthew Erdner

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

John Albright

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

Matthew Erdner

Great. Thank you guys.

Operator

John Massocca, B. Riley Securities.

John Massocca

Good morning. Sorry if I missed this earlier in the call. But as we think of the kind of remaining investments kind of implied in guidance for the rest of the year, what's kind of the split between mortgages and net leasing acquisitions?

John Albright

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

John Massocca

Okay. That's very helpful. And then in terms of kind of cap rate, I mean, the Beachside Hospitality portfolio was kind of its own thing. So maybe backing that out. You seem like the cap rate on the Golf Galaxy was like in the high 7s. I mean, is that typical of what you're seeing in the market today?

John Albright

Well, for what we're looking at, we're targeting predominantly 7.5% caps and above. but we may see an opportunity to bring in investment-grade exposure, maybe find a Lowe's to replace the Lowe's we had. So we wouldn't mind -- we wouldn't be opposed to dipping down to 6s to bring our Lowe's exposure back up. So it's a little bit of kind of as Phil mentioned earlier, barbell, but that's roughly what we're seeing is on the straight up acquisition side, noninvestment grade kind of in the 7.5% and above.

John Massocca

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

John Albright

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

John Massocca

Okay. And then last one for me. In terms of the three assets in Florida, you bought in the quarter or in -- the restaurant assets in Florida, you bought in the quarter, how big a percentage of Crabbys business are those? And I guess, what was kind of the hurricane creates some disruption in terms of metrics. But what was kind of the trailing coverage on those assets, rent covered?

John Albright

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

John Massocca

Okay. And in terms of the size of the overall portfolio for them as an operator?

John Albright

Well, they're 11%, Phil, as far as they're in our credit stats, they're 11%.

John Massocca

I mean, that (multiple speakers)

John Albright

I would say there it's about 25%, maybe 20%.

John Massocca

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

Operator

Craig Kucera, Lucid Capital Markets.

Craig Kucera

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

John Albright

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

Craig Kucera

Okay. Great. Thanks.

Operator

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