Alexander & Baldwin: Capitalized On A Strong Hawaiian Market In 2022

Maridav

Alexander & Baldwin (NYSE:ALEX), aliases A&B arsenic is much commonly known, is simply a premier commercialized existent property institution based retired of nan State of Hawaii. They person a agelong history operating connected nan islands and are nan proprietor of nan largest grocery-anchored, vicinity shopping halfway portfolio successful nan state.

Their geographic beingness connected nan land concatenation is simply a competitory advantage owed to nan important barriers to introduction for competing companies and nan importantly supply-constrained outlook of abstraction conducive to development.

In summation to their commercialized existent property ("CRE") portfolio, which chiefly includes unit and business plus classes, arsenic good as, to a lesser extent, offices, A&B has a sizeable portfolio of onshore holdings, which are monetized done onshore sales.

YTD, shares are small changed. But they are down complete 3% since a prior update and besides down astir 13% complete the past 1 year.

Seeking Alpha - Basic Trading Data Of A&B

In 2022, nan institution reported beardown results that exceeded nan precocious extremity of expectations. In addition, they raised their dividend 3 times, while besides opportunistically repurchasing shares astatine little trading levels. Based connected nan existent outlook and existent pricing, ALEX banal appears reasonably valued. Though a coagulated semipermanent clasp for existing shareholders, others whitethorn find amended worth elsewhere.

Recent Earnings and Current Portfolio Metrics

In December 2022, successful relationship pinch efforts to monetize and dispose of Grace Pacific (“Grace”), A&B reclassified Grace arsenic a discontinued operation. As such, nan assets and liabilities associated pinch nan disposal group are now classified arsenic “held for sale” connected their equilibrium sheet, while nan financial results of nan portion are classified wrong nan discontinued operations conception of nan income statement.

Furthermore, nan Materials and Construction (“M&C”) conception was eliminated successful conjunction pinch nan reclassification.

The company’s reportable segments now dwell simply of CRE, which represents 80% of full operating revenues, and their Land Operations.

Q4FY22 Investor Supplement - Quarterly And Annual Summary Of Operating Revenues By Segment

Overall, operating revenues successful nan CRE conception grew 7.5% YOY. This translated into maturation successful halfway costs from operations (“FFO”)/share of 17.7% to $1.13/share. The summation stemmed successful portion connected maturation successful same-store nett operating income (“NOI”) of 6%.

From a quarterly perspective, CRE operating revenues were up 4.8% successful Q4 connected same-store NOI maturation of 1.1%. It is worthy noting that location was astir 140 ground points (“bps”) of headwind attributable to little reserve recoveries. In nan existent period, for example, astir +$500K of full revenues were attributable to anterior play recoveries. This compares to +$900K successful nan aforesaid play past year.

On nan leasing front, A&B executed connected 130K SF of abstraction during nan quarter, achieving spreads of 3.2% and 5.7% connected caller and renewed signings, respectively. On a blended basis, spreads were 5.5%. This is improved from nan blended 4.2% reported past quarter.

For nan year, they completed 778K SF of signings astatine a blended dispersed of 4.4%.

Q4FY22 Investor Supplement - Leasing Summary By Quarter

The robust leasing measurement contributed to a 70bps uptick successful leased occupancy to 95%. And advancement successful getting tenants commenced connected their signings contributed to a 140bps summation successful economical occupancy to 93.6%.

Within nan individual plus classes, offices weighed connected wide occupancy levels, down 330bps and 230bps connected a leased and economical occupancy basis, respectively. While nan diminution is notable, nan concerns are constricted owed to nan truth that offices correspond little than 5% of their full NOI. More promising is nan spot successful their business assets, which correspond astir 17% of full NOI, and were up 140bps successful leased occupancy.

Q4FY22 Investor Supplement - Comparative Summary Of Leased And Economic Occupancy

Looking ahead, A&B sees halfway FFO successful a scope of $1.08/share to $1.13/share. This would beryllium down from 2022 connected nan debased extremity of nan scope and level connected nan precocious end. The much challenging comparable situation to 2022 arsenic it relates to reserve reversals is 1 headwind to 2023 growth, arsenic is higher G&A-related expenses relating to their precocious announced management transition. Combined, nan 2 factors effect halfway FFO by $0.07/share.

Liquidity and Debt Profile

A&B benefits from a modestly levered equilibrium sheet. At December 31, nett indebtedness arsenic a aggregate of consolidated adjusted EBITDA stood astatine conscionable 2.7x. This is down from 3.3x past year. Excluding their onshore operations and Grace, nan aggregate was 2 turns higher, astatine 4.7x, which is accordant pinch expectations.

During nan quarter, A&B sold complete 1K acres of noncore onshore and 1.1 acres astatine their Maui Business Park for full proceeds of astir +$20M. The income contributed to quarterly adjusted EBITDA of +$10.7M successful their Land Operations segment. This is down from past twelvemonth owed to a little measurement of income during nan existent quarter.

In summation to nan ongoing monetization of their onshore holdings, A&B will summation further proceeds from nan eventual waste of Grace, which is presently held-for-sale and is actively being marketed. Current marketplace conditions, however, are creating headwinds connected nan eventual timeline.

Looking ahead, A&B has astir +$35M successful contractual commitments pertaining to main payments connected their outstanding debt. They will besides request to salary astir +$20M successful liking complete nan adjacent 12 months and astir +$50M thereafter. Aside from these debt-related obligations, A&B expects to walk astir +$10M complete nan adjacent 12 months connected non-cancellable acquisition obligations, mostly relating to their ongoing redevelopment task astatine nan Manoa Marketplace.

2022 Form 10-K - Summary Of Debt Maturities By Year

From a liquidity standpoint, A&B is generating astir +$70M successful operating rate flows and is actively receipting costs from their ongoing onshore sales. Furthermore, they had astir +$520M successful full liquidity astatine twelvemonth end, comprised of readiness connected their revolving in installments installation and rate connected hand. Combined pinch a modestly laddered indebtedness ladder, A&B is improbable to person issues gathering immoderate of their existent aliases semipermanent obligations.

Dividend Safety

A&B raised their dividend 3 times during 2022, nan most recent being a 10% hike. Their quarterly payout complaint is now higher than nan $0.19/share they were paying conscionable anterior to nan commencement of nan COVID-19 pandemic.

Seeking Alpha - Recent Dividend Payout History

Presently, nan annualized dividend yields conscionable complete 4.5% astatine existent pricing. While this whitethorn not beryllium capable for astir income investors successful nan existent complaint environment, it does travel pinch nan assurance of safety.

On a guardant basis, nan payout was astir 80% of halfway FFO astatine nan debased extremity of nan scope and 78% astatine nan precocious end. This is mostly on-par pinch sector averages. Further hikes successful nan periods up are possible, but investors should statement that nan institution besides engages successful stock buybacks. For nan year, they repurchased astir +$7.3M of stock. While a positive, it does tie-up superior that could different beryllium directed towards nan dividend payout.

Final Thoughts

A&B turned successful afloat twelvemonth results that exceeded nan precocious extremity of their twice-increased guidance range. While guardant guidance for 2023 came successful level successful narration to 2022, it is still comfortably up of consensus estimates by astir $0.09/share from nan debased extremity of nan range.

The beardown operating results enabled A&B to summation their dividend 3 times during nan year, while besides giving them nan condemnation to opportunistically repurchase shares successful their communal stock; astir precocious astatine an mean value of $16.95/share.

Results person besides been supported successful portion by nan macroeconomic fundamentals successful nan Hawaiian market. Domestic visitation to nan islands, for example, exceeded pre-pandemic levels successful each period of 2022.

In addition, world visitation, though still down, has accrued to astir 50% of 2019 levels. While A&B’s operations are not straight impacted by visitation levels, accrued tourism to nan authorities serves arsenic a favorable people connected nan section economy, which sported an unemployment complaint of 3.2% successful December 2022. This is astir 30bps little than nan nationalist average.

The continued simplification of their business to much pure-play CRE is promising. And this is supported further by nan continued monetization of their existing onshore holdings. The destiny of Grace Pacific, however, which was reclassified successful Q4, remains uncertain. Though nan plus is being actively marketed, nan timeline is uncertain.

For investors seeking caller positioning, it whitethorn beryllium champion to hold until nan plus is sold. One tin past size up wherever nan proceeds are recycled into. Since their repurchasing activity earlier successful Q4, shares person tally up complete 10% from their mean buyback price. Further buybacks astatine these levels, therefore, look unlikely. While soul maturation opportunities exist, it whitethorn not beryllium capable to materially move nan stock value successful nan near-medium term. While nan banal remains a coagulated holding for existing shareholders, others whitethorn find amended worth elsewhere.

Focused chiefly connected companies pinch a clip tested business exemplary and a committedness to paying a dividend. Opinions are wished done comparative financial connection analysis, net coverage, and various valuation techniques. My occupation is successful accounting, and I americium a licensed CPA.