Q3 2022 Alexander & Baldwin Inc (Hawaii) Earnings Call

Same store NOI growth, excluding prior year reserve reversals is increased to 4% to 6% from our prior range of three 5% to five 5%.

With that I will turn the call over to Chris for his closing remarks.

Thank you Brett before I make my closing remarks, I want to acknowledge that this is Brett last call with AMB and Clayton Chun will become CFO on December one.

I want to thank Brett for his many contributions to A&P over the past three and a half years as we matured as a REIT and for his help in facilitating a smooth transition to Clayton.

As you've seen in the third quarter again demonstrated the quality and strength of our CRE portfolio.

With high occupancy and solid growth, we remain active in pursuit of growth opportunities that deepen our presence in the Hawaii market and that are complementary to our existing portfolio.

Market dislocations have historically played to our strengths.

Further we have commenced a process to sell grace.

I wanted to step back for a moment and review the significant and strategic transformation that we've accomplished over the past several years.

We sold all of our mainland commercial real estate that real estate assets, raising approximately $600 million to help transform <unk> into a pure play Hawaii commercial real estate company.

We deployed approximately $1 $1 billion into high quality commercial real estate assets in Hawaii, becoming the Premier commercial real estate company in the state and quadrupling, our Hawaii commercial real estate NOI over the past decade.

We converted to a REIT structure and built a world class team of CRE professionals, bringing all external functions in house and enhancing our operating and reporting systems.

We sold approximately $600 million of noncore assets.

Since 2016, including Maui AG land <unk>.

The co wildlands Mcbride.

And through those sales reduced our leverage by 60% over the past three and a half years and.

And we have the liquidity now to be opportunistic acquirers as we look ahead.

The sale of Grace will be the final step.

Some of these steps were painful in the short term, but eliminating unprofitable or non income producing assets from our company not only fueled our CRE portfolio growth, but simplified our company, allowing our team to focus on our core business and allowing us to meaningfully reduce leverage in G&A.

I want to thank our team for all their hard work and diligence through this process.

Going forward predictable and steady operating results and growth are in sight.

The Hawaii acquisition market is dynamic.

Our balance sheet and liquidity R.

Our our strength and as a company with a geographically focused portfolio of great assets. We believe we can attract a much broader array of investors in the future as we live out our mission as partners for Hawaii.

With that we'll now open the call for questions.

We will now begin the question and answer session.

To ask a question you May press Star then one on your telephone keypad.

Using a speakerphone please pick up your handset before pressing the keys.

Draw. Your question. Please press Star then two.

At this time, we will pause momentarily to assemble our roster.

First question comes from Connor Mitchell with Piper Sandler. Please go ahead.

If you look at.

All the tools that we have and all the investment opportunities, we have and with the market pulling.

Pulling back up late we did evaluate the merits of reinvesting in our stock now as Brett indicated it was a modest and as he characterized as a tactical investment.

Small amount of capital we think it was a good investment at a depressed price.

And we.

We will certainly keep that as an arrow in our quiver going forward, but it certainly does not as he said it does not signal any lack of confidence in our ability to.

To be making strategic investments into the commercial real estate portfolio.

So ill leave it there and then see if anyone wants to jump in on other thoughts related to.

Our investment process.

I would go ahead and add Conor this is lance.

Capital allocation, we think of it sort of on a risk adjusted basis and a menu of opportunities.

Chris and I, both use the word dynamic to describe.

The acquisition market right now and I think that where it's very appropriate obviously given rising interest rates.

Our view on the need as a result of that to get higher yield.

We're starting to see some signs of sellers appreciating that need as well as constrained.

Capital markets, specifically on the debt side.

We'll see some opportunities start to make some sense on the acquisition front, but it has been challenging just from a price discovery perspective.

And so really where we've been focusing on some of our internal growth opportunities that we feel are still very compelling.

Things like mono a marketplace, where we can get low to mid.

Teen type IRR returns on an unlevered basis.

Photovoltaic at Pearl Highlands, which gave us very compelling returns as.

As well as stock buyback to the extent, we get to a price where we think that is compelling as well so just.

Just having the balance sheet strength now to make those decisions and to deploy capital across all appropriate investment types I think we're well positioned to take advantage of the market.

Okay, Yeah, that's very helpful.

Another question I would just like to ask is.

Just some of the noncore items.

Land sales materials construction, how might we think about those moving forward with.

Maybe land sales.

Really slowing down to almost immaterial amount or maybe they still hold up for a little bit into 'twenty three.

Any any one off items and some of the non core.

Yes.

Some of the noncore business related items.

If you guys could give any.

As you might expect for that moving forward it to next year.

Yes. Thanks, Conor this is Chris again.

I think the reality is we want you to be thinking about those as little as possible and thats. The whole point of simplification, we want to get to the point, where all of our investors and our team are thinking about is commercial real estate and we feel like we're just on the doorstep of that reality and I think with.

The sale of Grace, which we certainly hope will.

What will happen.

In the relatively near term, we will be at a place where we really are just the commercial real estate company. Now you did point out that we still have some noncore assets, we have a relatively small certainly compared to where we were a few years ago, we have a relatively small amount of acreage.

That is noncore sort of former agricultural lands and yes, we will we will trickle some of those out we do have some sales that could take place. This year early next year theyre not going to be needle movers. They are not going to be anything close to the scale of what we had in 2018 sold quarter $1 billion of land and Theyre going to be.

Smaller chunks.

They are not going to be needle movers, they will help.

They'll help generate some cash that we can then redeploy into.

In the commercial real estate investments, so there'll be nice, but theyre not going to be needle movers and really I'm, hoping that within the next six months or so we're at a point, where we're talking almost exclusively about commercial real estate and theres not theres not a lot of.

I guess noise or other movement in our financials beyond that.

Yes, that's helpful and then I guess getting back to the core business you guys talked about the occupancy driving NOI growth.

I was just wondering how you guys might think about the balancing.

Increasing occupancy and then growing rents on top of that and where you might see occupancy. When you really think you can push rates.

Lance you want to take that.

Sure.

I think we're pleased with the performance of our portfolio from an occupancy standpoint, I would say Connor that there is opportunity.

Within the portfolio on what we've termed some strategic vacancies that still exist in the portfolio. So some larger spaces predominantly on the neighbor Islands, where we do have deal activity currently ongoing and.

And so that really would provide really bolt on opportunity to improve occupancy, particularly on the retail side, where these vacancies exist.

But also on the rent so I think that just speaks to our continued perspective and confidence in the market with regard to tenant interest.

So just in terms of deal flow coming in but particularly on some of our larger vacancies, so really viewing that as more of an opportunity.

In the near term.

Okay. So I guess, just one one more follow up quite a bit.

So in the near term you would see kind of the occupancy continue to drive the growth rather than pushing.

Pushing the rents correct.

I think that's a good way to sum it up yes currently.

Certainly on a relative basis okay.

Alright, Thats all for me. Thank you.

Thanks Scott.

Thanks, Ken.

The next question is from Wendy mom with Evercore. Please go ahead.

Yeah. Thank you for taking my question.

Jeff on the G&A expense, so you mentioned that.

In your within your expectations.

Okay, how should we think about that going forward.

For Q and maybe into 2023.

Got it alright.

But go.

Go ahead Brett.

Just going to say, we are not providing 23 guidance, but I think as we.

We've indicated it is in line, we kind of expect obviously once we would sell grace you'd see a significant reduction there.

But right now we're kind of trailing are tracking.

In line on a quarterly basis and would expect to you and the full year.

At least below last year's even so we're making slow but steady progress currently in and the biggest impact will be the sale of grace.

Okay, Thanks, and the floor for your current level.

Leverage level.

Relatively low compared to because I think arthur level.

Are you comfortable saying in mid range alright.

What's your targeted net debt to EBITDA range going forward.

And take that.

Hi, Wendy this is Clayton so our target is to have our net debt.

Adjusted EBITDA in the five to six times ratio and so where we stand today, we are in a good position on our balance sheet and we think that it's.

And enabling us to fund the growth opportunities as they arise.

Okay. That's helpful.

Sure.

Thanks Wendy.

This concludes our question and answer session.

I'd now like to turn the conference back over to Steve flat for any closing remarks.

Well just in case Steve.

Losses can then start.

Great. Yes, thanks, sorry, Okay. Thank you Debbie and thank you all for joining US today. If you have any follow up questions. Please feel free to call us at 8085 to $5 eight for seven five or E Mail us at Investor Relations at <unk> Dot Com Aloha and have a great day.

Yeah.

The conference has now concluded.

You may disconnect your lines. Thank you for joining.