Alexander & Baldwin at Nareit REITweek: Hawaii-Focused Strategy

On Tuesday, June 3, 2025, Alexander & Baldwin (NYSE:ALEX) presented at the Nareit REITweek: 2025 Investor Conference, offering insights into their Hawaii-exclusive strategy. Led by President and CEO Lance Parker and CFO Clayton Chun, the company highlighted its strong market position and unique investment thesis while addressing challenges such as zoning and development costs.

Key Takeaways

• Alexander & Baldwin focuses exclusively on the Hawaiian market, leveraging high barriers to entry and geographic isolation.
• The company’s portfolio is predominantly retail, with significant industrial and ground lease components.
• Strong leasing numbers were reported, with overall occupancy at 95.4% for Q1.
• The company aims for a net debt to adjusted EBITDA ratio of 5-6 times, with current leverage at 3.6 times.
• Tourism and government spending are stable, contributing significantly to Hawaii’s GDP.

Financial Results

• Net Operating Income (NOI) Breakdown:

- Retail: 66.6%

- Industrial: 18%

- Ground Leases: 17%

- Office: 3-4%

• Occupancy Rates:

- Overall: 95.4% in Q1

- Retail: 95.2% in Q1

• Debt and Liquidity:

- Net debt to adjusted EBITDA ratio: 3.6 times

- Total liquidity: Over $300 million

- Long-term leverage target: 5-6 times

• Dividend Policy:

- Current dividend yield: 5%

- Payout target: 100% of re-taxable income

Operational Updates

• Leasing and Portfolio Strategy:

- Expecting additional occupancy gains of 100-150 basis points soon.

- Repositioning or selling office assets to reinvest in more profitable opportunities.

• Industrial Development:

- Maui Business Park: 75-year ground lease executed, 24 developable acres remaining.

- Komohana Industrial Park: 30,000 sq ft industrial building under construction, with 91,000 sq ft pre-leased to Lowe’s.

• Land Operations:

- Exploring disposal of 3,000 acres of non-strategic agricultural and conservation land.

• Sustainability Initiatives:

- Partnership for rooftop solar facilities development.

Future Outlook

• Growth Opportunities:

- Retail: Focus on acquisitions and redevelopment, targeting national retailers.

- Industrial: Leverage tight market conditions and support retail logistics.

• Dividend Growth:

- Aim for sustainable dividend growth driven by FFO growth from development and acquisitions.

• Strategic Challenges:

- Addressing zoning and development hurdles due to limited land and high construction costs.

Q&A Highlights

• Economic Impact:

- Tourism remains stable, with visitor counts up 3.2% year-to-date compared to 2024.

- Government spending, especially federal defense funding, is stable.

• Development Challenges:

- Difficulties with zoning and entitlement processes, coupled with high shipping and labor costs.

For further details, please refer to the full transcript below.

Full transcript - Nareit REITweek: 2025 Investor Conference:

Rob Stevenson, Real Estate Equity Research Team, Janney Montgomery Scott: Good morning, everyone. My name is Rob Stevenson. I run the real estate equity research team at Janney Montgomery Scott. This is the 09:30AM session with Diversified Hawaiian REIT Alexander Baldwin, ticker ALEX. We have several members of the management team here today.

So why don’t I turn it over to them? We can talk about the company, and then we’ll take questions at the end of the session. With that, it’s my pleasure to turn it over to Lance Parker, Alexander Baldwin’s President and CEO, to introduce both the company as well as his management team. Lance?

Lance Parker, President and CEO, Alexander Baldwin: Rob, good morning and good morning to all of you. First off, thank you for agreeing to moderate today’s session and also thank you very much for the coverage. We really appreciate the work that you do to help spread the word about Alex. So Alex is a 155 year old company that converted to a REIT in 2017. We exclusively focus in the state of Hawaii, and I’ll talk a little bit more about why that investment thesis.

My name is Lance Parker. I’m the president and CEO. I’ve been with the company now for over twenty years and two years as the president and CEO. To my left is Clayton Chun, our chief financial officer and executive vice president, and sitting down over there is Jordan Hino, our director of investor relations. I think at least domestically, we probably hold the record for longest travel to be here, so we’re really excited and appreciate the time.

So let me just speak a little bit more about the company before I turn it back over to you, Rob. I gave just a brief description of the history, but the reality is because we focus exclusively in Hawaii, we are asset class diverse. We subscribe to the theory that Hawaii is a very unique market, 2,500 miles away from the West Coast, geographically isolated that prevents or presents extremely high barriers to entry. That’s really the backbone for our thesis is taking advantage of what we believe is a fundamental supply demand imbalance that runs across all asset classes. Our current portfolio is made up predominantly of retail, strip retail, needs based grocery anchored that represents about two thirds of our net operating income.

We also have an industrial portfolio that has a lot of synergies with our retailers that represents about 18% of our net operating income. 17% is in ground leases, so we can talk a little bit about that later. And then just a small smidge about three to 4% of NOI in what I would describe as a non strategic asset class and that’s office for us.

Rob Stevenson, Real Estate Equity Research Team, Janney Montgomery Scott: Great. I think that the that’s probably a good place to start. So two thirds retail, 16% roughly each industrial and ground leases and just a smidge 2.5% of office here. Can you talk about where you see the best growth opportunities

Lance Parker, President and CEO, Alexander Baldwin: So I’d say on the retail side in the short term, we believe fundamentals in the state are still strong. We think about tenant demand, the spreads that we’ve been able to achieve, not just last quarter, but consistently over the quarters, We feel very good about the retail. We’ll certainly expand more in that either on the acquisition side or through the redevelopment of existing assets. I would say in the longer term, one of the things that we really like about the Hawaii marketplace is the fact that almost a third of the nation’s largest retailers by sales volume do not have physical presence in the state. So whether it’s specialty grocer, whether it’s QSR concepts, big box, we could go down a list and name specific tenants, but we think in the long term, that’s opportunity for us to bring additional tenant presence into the state.

And then on the industrial side, it is one of the tightest industrial markets in the country. Vacancy rate for the Island Of Oahu in q one was 1.2%. That is not an anomaly. It is historically one of the tightest markets in the country. And so we’re starting to see, based on the retail demand that I just described, a lot of synergies with needing logistical support for that retail.

Again, we’re 2,500 miles west of the West Coast. There are no dedicated distribution centers like you have in other Mainland markets. 85% of all the goods that are consumed in the state of Hawaii come by boat. So it does create logistical challenges for tenants and that in turn creates opportunity for us. Okay.

Rob Stevenson, Real Estate Equity Research Team, Janney Montgomery Scott: In terms of the, I guess, the Avis portfolio, it’s a very small piece. What are your plans there? And is that office likely to be office for the foreseeable future? Is there some other higher and better use at some point for that? Is that something that you guys would do?

Or is that something that you would sell to somebody else to let them do that? How should we be thinking about that little slice of the portfolio going forward?

Lance Parker, President and CEO, Alexander Baldwin: I would start with sort of a general response to that question by saying we view our office assets as non strategic. And so there are a number of different ways that we can create more strategic opportunities, whether it’s through repositioning of the assets, whether it’s through disposition of the assets and recycling of that capital into things that are more accretive or at a very minimum more strategic. And the reality is we’ll look to do all of that. So it is just, as you mentioned, a very small portion of our portfolio. Three of the four assets are suburban office on the island of Maui, and we’re actually going to be taking those assets to market to explore what those options are.

And so I would say to the extent that we’re successful on sort of the least intensive would be recycling of capital and the most intensive maybe some sort of reuse.

Rob Stevenson, Real Estate Equity Research Team, Janney Montgomery Scott: Okay. You guys have posted some strong leasing numbers of late and your overall occupancy remains very high. Can you talk about the opportunities within the existing portfolio over the next few years? And are there certain types of new tenants that you’re looking to bring to Hawaii? Are you looking to do more with existing tenants?

How should we be thinking about that?

Lance Parker, President and CEO, Alexander Baldwin: So our overall occupancy for the portfolio across all asset classes in our improved properties was 95.4 for Q1. In the retail segment, it was 95.2%. I would say my perspective on retail at 95% plus, I view that as sort of a stabilized occupancy, where it’s a nice balance of having good occupancy, but creating some room for additional pushing of rents. We probably have within our existing portfolio, call it another 100 to 150 basis points of occupancy potential just based on a couple of vacancies that we have that we’re actively looking at backfilling. So I think there’s some near term opportunity there and we’ve been very successful predominantly on the retail, but across all asset classes with our leasing spreads to your point over the last few quarters.

Okay.

Rob Stevenson, Real Estate Equity Research Team, Janney Montgomery Scott: You guys recently announced a seventy five year ground lease at your Maui Business Park to self storage developer and then in the last few days build to suit redevelopment project at I’m going to butcher this Komohana? Perfect. Industrial Park on Oahu. Could you talk about those deals and the opportunities you have going forward at Maui Business Park and on Oahu?

Lance Parker, President and CEO, Alexander Baldwin: Yeah. No. We’re really excited about both of those transactions and I’ll start by maybe taking a broader lens to the opportunity set and I mentioned earlier high barriers to entry. So by design, only 4% of all the land in the state of Hawaii is allowed for urban use. So I’m not sure how many people out there have actually been to the state, but if you think about the tropical paradise that gets marketed, that is by design.

And that inherently is what creates the supply demand imbalance for us. And so part of the history of Alex is we used to own, when I started with the company, north of 90,000 acres in the state. We were the the state’s fourth largest private landowner. We’ve whittled that down to about 3,000 acres now of what we view as non strategic agricultural and conservation land. But the learn or the lesson in that process was that taking lands through a very lengthy, expensive, and somewhat controversial entitlement process can be challenging.

And so we really focus on things that are entitled, things that have off-site infrastructure already there. And so the two assets that you mentioned, one is Maui Business Park. We own 24 developable remaining acres in a business park that we developed, fully infrastructure for commercial and industrial use, fully off-site infrastructure. We were successful in taking what was a buyer of five acres, converting that to a seventy five year ground lease where we can get long term income with annual increases. So FFO accretive day one, great NOI generation.

And I think there are additional opportunities within that Maui Business Park portfolio for the for us to do that or quite frankly just to build. We’re currently under construction on a 30,000 square foot industrial building within that business park on a build to suit to a national tenant, very similar to the the characteristics I described where you’ve got retailers driving industrial demand, and we’re at the intersection trying to take advantage of that. And then on Oahu, Komohana, and it was a great pronunciation, Rob. We’ve got 50 acres there. Most of it under covered land plays, but we do have some acreage coming available.

And when it does, we’ll take advantage of it. We’re building a 21,000 square feet there, 91,000 of which we preleased to Lowe’s. Again, same tenant dynamic retailer needing industrial demand, we were there one of the few people with entitled land to be able to solve that solution. Right. Or solve that problem I should say.

Rob Stevenson, Real Estate Equity Research Team, Janney Montgomery Scott: You know, you made mention of it at the beginning of this question, the last question, but it’s gotten progressively smaller over the years, but Alexander Baldwin still sells land and does other transaction in your land operations segment. What remaining opportunities are there in that segment? And, you know, when should investors expect you guys to monetize those opportunities over the next few years?

Lance Parker, President and CEO, Alexander Baldwin: So we are focused on operating and growing our core CRE business. That being said, we do still have the land operations reporting segment. It is important because there is opportunity embedded in there. It also creates a little bit a drag just in terms of operational expenses. So it remains a priority.

I can’t put a timeline on it, but what I can say is I mentioned 3,000 acres that sits in the asset side. We will take advantage opportunistically dispose of those assets to generate income. I would also say on the liability side, we have a number of liabilities that are reserved, fully reserved on our balance sheet as a result of prior transactions to get rid of and sort of simplify our legacy business. Would also say there’s probably opportunities on the balance sheet side in terms of getting better outcomes than our what currently reserved.

Rob Stevenson, Real Estate Equity Research Team, Janney Montgomery Scott: Okay. One of the things that I think my team has struggled with over the years is coming up with a good peer group to compare you against, right? Is it you’re only Hawaii, you’re diversified, we tend to group you with other diversified names given lack of alternatives. How do you guys think about how the closest peers set is and what names you sort of internally benchmark yourselves against when people are looking out there to compare you either on evaluation or an operating metrics basis? How should people be thinking about that?

Lance Parker, President and CEO, Alexander Baldwin: Faith, do

Rob Stevenson, Real Estate Equity Research Team, Janney Montgomery Scott: you want

Clayton Chun, Chief Financial Officer and Executive Vice President, Alexander Baldwin: to take that? Sure. Yes, thanks for the question. As Lance was mentioning, a key tenant to our investor pitch is that we are geographically focused, but asset class diversified And specializing in the Hawaii market, believe that we’re able to generate above market returns to our portfolio. So to that end, we do benchmark ourselves against other diversified REITs.

It should be noted that internally the benchmarking it does incorporate retail and industrial sectors given that those two asset classes they make up the majority of our portfolio. So as Lance has mentioned in two thirds of our NOI is generated by retail, which is primarily grocery anchored, and then we have about 16% or so that’s coming from industrial. And so, it’s incorporating a combination of the different types of companies within those various asset classes.

Lance Parker, President and CEO, Alexander Baldwin: I’ll just add a little bit of extra commentary to that. It can be a challenge for investors, I know it’s a challenge for you and quite frankly Rob, I think it’s why it’s so important, we are so appreciative of the relationship to try to shed some light on the Alex story. We view this as a definite advantage for investors with our differentiated investment thesis but it is different And so there are no real clean comps from a company perspective. I would also say that the same holds true on the real estate side. I think it’s one of the things that people can take a little bit or need a little bit more time to appreciate is that historically cap rates valuations on Hawaii outperform other markets and so if you look whether it’s just from a company FFO performance or if you look at the value of the underlying real estate, I think there’s typically a larger disconnect relative to us you may see against other companies.

Clayton Chun, Chief Financial Officer and Executive Vice President, Alexander Baldwin: Okay.

Rob Stevenson, Real Estate Equity Research Team, Janney Montgomery Scott: Clayton, how should investors be thinking about the funding of the business? What types of debt do you primarily utilize? What are your debt metrics today? And how do you think about where you want to operate the business in terms of the various ratios?

Clayton Chun, Chief Financial Officer and Executive Vice President, Alexander Baldwin: Yeah, so maybe I’ll start by saying the balance sheet remains a core strength of the company. From a leverage perspective, we ended the first quarter with a net debt to adjusted EBITDA ratio of 3.6 times and total liquidity of over $300,000,000 And so from a leverage perspective, our target, our long term target is to be within the range of five to six times. So clearly there’s quite a bit of head room for us to be able to utilize the balance sheet not just to fund the day to day operations, but to also fund our growth opportunities that Lance was describing. In terms of debt itself, our preference would be to go down the unsecured path, all things being equal, just because it provides more flexibility. But at the end of the day, we’re going to consider the different options that are available to us including what the pricing is on that.

My

Rob Stevenson, Real Estate Equity Research Team, Janney Montgomery Scott: guess is that there’s probably a few yield oriented investors in the audience out there. You guys have a 5% common dividend and a fairly low payout ratio, at least on our estimated AFFO. Can you talk about the board’s dividend policy and what investors should expect over time in terms of dividend increases and where you guys have been historically there?

Clayton Chun, Chief Financial Officer and Executive Vice President, Alexander Baldwin: Yeah, so the board targets a payout of 100% of our re taxable income What I’d like to note is that the company has consistently been or has been a consistent dividend payer through the years. Since converting to a REIT, we’ve paid dividends every year and so that’s reflecting the fact that we have generated FFO. I think that from an overall position, we’re positioned to provide a stable dividend and through our development, redevelopment acquisition opportunities, I think that we’re going to be in a position to grow our FFO in a sustainable way over the long term. And in turn that will allow for us to provide some stable long term growth on the dividend front as well.

Rob Stevenson, Real Estate Equity Research Team, Janney Montgomery Scott: Okay. Why don’t we stop there for a few minutes and see if there’s any questions out of the audience for the management team here?

Lance Parker, President and CEO, Alexander Baldwin: Was everyone able to hear the question just about the whole economy in general? I’ll touch on the two specific things that you asked about. First, tourism which is important. We don’t have a tourism category per se as we think about the collection or the input into Hawaii GDP, but I will say if we were to aggregate different sectors, it represents about 20%, so a meaningful part of GDP. You know, everyone kind of thinks of Hawaii as being a tourism dependent state.

I would say that the economy is much more diversified but it is an important leg. And so I would, you know, today say I would view our tourism market as stable. We’ve got data through the April and I think visitor counts is typically a good proxy for the health of the tourism industry. So I would say that year to date, and I’ve got the numbers written right here, up 3.2% compared to 2024 year to date numbers. That is still slightly below 2019 COVID pre pandemic levels.

2019 is an important date to to bench against, not just because it was pre COVID, but it also represented the all time high watermark in terms of visitor counts to the state. That being said, there has been a little bit of shift in terms of the makeup of the visitors. So down slightly, Japan, while up for April, down about 3% year to date. They’re an important category of our visitor component. They are back to about fifty percent of pre COVID numbers, typically growing year over year in a good clip.

And so representing from our perspective a little bit more headroom on the tourism numbers. Canada, maybe not surprising, down 6% year to date consistent with the April numbers, but all of that backfilled and then some by the domestic visitor primarily from from The US West Coast. And then moving on to government spending, another important sort of leg to the stool of of our GDP makeup. Similar, about 20% of total GDP dollars comes from government spending, about half of that on the federal side. So one thing that I will say, I’d I’d use the same word to describe federal funding, may seem a little counterintuitive given today’s backdrop, I would say it’s it’s stable.

And the reason I say that is the majority of Hawaii’s federal funding actually comes through the fence spending and despite across the board defense cuts, Hawaii plays a very strategic location for US Armed Forces with the location of Indo Patcom, the headquarters that represents geographically about half of the world including China. So, strategic and although DOD has announced sort of 8% across the board spending cuts, they have specifically cited Hawaii and IndoPatcom as not being subject to those cuts. I think if anything, there’s a little bit more stability on on the federal side. And then I think there was a third Hawaiian Hawaiian Electric. So probably better a better question for HEICO, which is or HEI, which is their ticker symbol.

What I will say is that through both settlement and recent legislation that has passed within just a couple of weeks, I think there’s a lot more stability around Hawaiian Electric both for the past and the exposure that they have financially and then quite frankly going forward in terms of just wildfire or other issues that may come up and how to deal with it going forward. It it would, but quite frankly, don’t think we need more clarity from the Hawaiian Electric. You know, we’ve got two interesting dynamics much like the supply demand imbalance I talked about on the real estate side. We have the highest electricity rates in the country and we also have some of the most abundant natural resources available. And so that that dynamic is really what led us to to start to go deeper into the photovoltaic rooftop systems.

I don’t know if you wanna spend a minute maybe touching on those structures, Clayton.

Clayton Chun, Chief Financial Officer and Executive Vice President, Alexander Baldwin: Yeah. So we’ve actually partnered with the bank just given the fact that we’re structured as a REIT. The bank is able to harvest some of the tax attributes that come along with with these rooftop solar facilities that we develop. And so effectively how we’ve structured it is we have a lease with the bank itself who is the actual owner of the facility up through five years at which point in time we have a buyout right which we intend to do so. Frankly, just given the interest rate environment, these rooftop solar projects have been some of the most accretive capital opportunities that we’ve come across.

So we’ve to date installed it at a handful of our assets. Our intent is to roll it out throughout the portfolio and so we’re going through that process as we speak.

Rob Stevenson, Real Estate Equity Research Team, Janney Montgomery Scott: Other questions from the audience out there? I guess, can you talk a little bit about the zoning and development challenges of the islands? For instance, Target, Walmart wants to build another superstore on Maui or Oahu. How easy is it to find a location near population that you can drop 150,000 square foot store and parking lot into? And how tough is it to get that site approved?

And how much more expensive from materials given everything needs to be shipped? Is it gonna wind up being and you know, is there a good amount of labor available? How should we be thinking about the difficulties of construction on the island and what type of obstacles that provides and sort of barriers to entry for our competitors?

Lance Parker, President and CEO, Alexander Baldwin: So I’ll expand a little bit more on my earlier comments about the 24 developable acres that we have left in Maui Business Park as well as the 50 acres on Oahu. And I think that really sort of plays directly into that question. It’s it’s really difficult to find. You know, if you’re at a 50,000 square feet, let’s say, you know, a third coverage that requires, you know, probably a 10 to 12 acre site and there aren’t many of those that are just sitting available. They’re typically in master plan communities where expansion of the urban envelope has been allowed to occur.

We have a slide in our investor deck. I think we we call out seven to ten years, I think we probably need to update that, that’s probably optimistic by about half. I’m thinking of maybe two or three statewide sites that could accommodate that sort of requirement today and two of them, that entitlement process took twenty years and litigation that went all the way up to the Hawaii Supreme Court. So just thinking about, you know, again, sort of these high barriers to entry, it can be really, really difficult. More times than not, it’ll be reuse of existing assets that will have to be torn down.

And so we really don’t have the abundance of land. And then on the cost side, look, Hawaii is not a it is a there is a I’m gonna put it in air quotes sort of a tax of the fact that my earlier comment 85% of all of our goods get shipped in and so there is a cost associated with that. I would say for us, we acknowledge that and I can’t say that we necessarily can get it cheaper, but because we’re there, our management team lives in the state, born and raised, raised, born and raised, we better appreciate how to work through that environment to to get tenants to come over and be successful.

Rob Stevenson, Real Estate Equity Research Team, Janney Montgomery Scott: Okay. Think as we wrap up today, Lance, what’s the thirty second sound bite about the company that you’d like the audience to take away, think about when they’re back at their desk looking at the stock?

Lance Parker, President and CEO, Alexander Baldwin: So we talked about a lot of things this morning. I could go on for more than thirty seconds, but I will try to keep it to to one hand. So I would say first is our differentiated investment thesis. I think in a world where you’ve got close to 200 REITs that are very homogenous, having a differentiated story is something that can be important for investors particularly on the generalist side. I would say that what’s rooted in that unique investment thesis is strong market fundamentals in the state of Hawaii.

So just the inherent supply demand imbalance that we take advantage of. The third is it’s not just words. We’ve had proven performance. We converted to a REIT in 2017. If you look at our CAGR in terms of same store NOI growth of FFO growth, we have outperformed our peer set.

And then fourth and very importantly, I think it’s a good time to get into the stock. I talked about some of the challenges about valuation just in terms of our real estate and what that represents in terms of what our stock price from our perspective should be versus where it is today and the growth opportunities that we have internally as well as the market throwing externally, I think it’s a good entry point. And then just because, you know, that’s four, so I’ll sprinkle one in just like it’s Hawaii, who doesn’t love Hawaii? And there are worse places to go visit real estate, you know, I grew up in the industry where it’s real estate is local, you’ve got to kick the tires. It’s a great business right off to come to Hawaii, see our real estate and invest in a great company.

Rob Stevenson, Real Estate Equity Research Team, Janney Montgomery Scott: Alright, thank you gentlemen. That ends the 09:30 session with Alexander and Baldwin. Think management will be here for a few minutes if you wanna have any questions, etcetera, offhand. But thank you very much, everyone.

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