Alexander & Baldwin Inc. Q1 2023 Earnings Call
With me today for our earnings call are <unk>, Chief Executive Officer, Chris Benjamin.
<unk> and Chief operating Officer, Lance Parker, and our Chief Financial Officer Clayton chunk.
The company has decided to forgo a presentation this quarter during our call. Please refer to our Q1 2023 supplemental information available on our website.
Investors Dot Alexander Baldwin Dot com.
Before we commence please note that statements in this call that are not historical facts are forward looking statements within the meaning of the private Securities Litigation Reform Act of 1095.
They involve a number of risks and uncertainties that could cause actual results to differ materially from those contemplated by the relevant forward looking statements.
These forward looking statements include but are not limited to statements regarding possible or assumed future results of operations business strategies growth opportunities and competitive positions.
Such forward looking statements speak only as to the date of the statements were made and are not guarantees of future performance.
Forward looking statements are subject to a number of risks uncertainties assumptions and other factors that could cause actual results and the timing of certain events to differ materially from those expressed in or implied by the forward looking statements.
These factors include but are not limited to prevailing market conditions and other factors related to the company's REIT status and the company's business results of operations liquidity and financial condition and the evaluation of alternatives by the company related to its materials <unk> construction business.
As well as other factors discussed in the company's most recent Form 10-K Form 10-Q, and other filings with the SEC. The information in this call should be evaluated in light of these important risk factors, we do not undertake any obligation to update the company's forward looking statements.
Management.
Referring to non-GAAP financial measures during our call today. Please refer to our statement regarding the use of these non-GAAP measures and reconciliations included in our first quarter 2023 supplements.
Chris will open up today's call you will then turn the call over to Lance for an update on our real estate operations, and then Clayton will discuss financial matters.
Chris will return for some closing remarks, where upon we will open it up for your questions with that let me turn it over to Chris.
Thanks, Steve and good afternoon to our listeners.
Our first quarter results reflect a great start to the year for <unk> commercial real estate business.
Our high quality retail industrial and ground lease assets again produced strong results continuing the trends we saw last year.
Lance and Clayton will provide more details on our first quarter performance, but let me provide a few highlights.
Commercial real estate revenue grew three 5% year over year, and our same store NOI increased by two 2%.
During the quarter, we signed 49 leases for over 139000 square feet.
And achieved blended leasing spreads of seven 4%.
We ended the quarter with leased occupancy of 93, 9% down slightly from the prior year quarter. As a result of an expected industrial and move out our retail portfolio occupancy was up 50 basis points over the prior year ending the quarter at 93, 6%.
These results reflect the quality and strength of our diversified portfolio and the solid efforts of our team.
Our performance also benefited from a strong local economy.
Hawaii added nearly 20000 jobs over the past 12 months, an increase of almost 4%.
Non farm wages increased three 8% in March 2023, as compared to the prior year.
And unemployment at the end of March was three 5%.
Both the construction and tourism sectors are helping fuel this growth with hotel and residential construction projects and tourism spend year to date through March 2023 exceeding the same period in 2019.
As we've said before our portfolio is generally community based and less dependent on tourist activity, but tourism does support the state's overall economy.
Turning to growth we closed on the off market acquisition of a 33000 square foot industrial asset earlier this week and we continue to elevate sorry, we continue to evaluate.
Other external growth opportunities.
As we've discussed in the past changes in the financial markets and higher interest rates of widening bid ask spreads, but we remain disciplined and believe our relationships deep market knowledge and balance sheet strength will help us source opportunities that are accretive to long term value creation.
In addition to external opportunities, we continue to grow organically through development and redevelopment.
We completed the first phase of our refresh at Monroe on marketplace and remain on track to complete the entire project in the third quarter.
We expect our investment.
In that center will improve the visitor experience leading to increased tenant demand and base rents over time.
We see additional value add opportunities within our portfolio and expect to have more projects to announce in the future.
The process of marketing Grace continues, but we are unable to provide more specific update today I should note that <unk> got off to a slow start to the year due to project commencement delays and a very rainy quarter, but our April tons paved exceeded the entire first quarter. So we've got good momentum now.
Now I'll turn the call over to Lance Lance.
Thank you, Chris and Aloha everyone.
Our portfolio continued to perform well in the first quarter.
CRB revenue was up three 5% in the first quarter compared to last year.
The increase from the year ago quarter reflects the strength of our tenants and portfolio driven by higher base rent.
<unk> was up two 2% year over year and same store NOI was up two 2%.
In the first quarter of 2023, there was approximately $680000 of prior period reserve recovery.
<unk> to $2 million in the same quarter of 2022.
One $3 million difference represents about 490 basis points of NOI growth.
Overall leased occupancy and same store leased occupancy at quarter end were 93, 9% a decrease of 60 basis points from 12 months earlier.
Same store retail leased occupancy was up 50 basis points to 93, 6%.
Same store industrial leased occupancy was down 290 basis points to 95, 1%, primarily due to an expected tenant move out at <unk> Commerce Center.
Same store economic occupancy at quarter end was 92, 4% up 40 basis points from 12 months earlier.
Same store retail economic occupancy was up 200 basis points to 91, 7%.
And same store industrial economic occupancy was down 280 basis points to 94, 5%.
Annualized based rent attributable to signed but not opened for <unk> leases at quarter end was $2 3 million.
We executed 49 leases for approximately 139000 square feet during the first quarter and.
And achieved blended spreads of seven 4%.
With spreads for industrial leases at 10, 2% and spreads for retail leases at 6%.
This activity included <unk>.
11 leases related to properties in Kailua, including <unk> Park shopping center totaling approximately 24000 square feet and.
And three leases at <unk> village totaling approximately 32000 square feet.
We are pleased with the continued robust pace of leasing activity and we have a strong pipeline of active deals in prospects that support a solid outlook.
With regard to growth as Chris mentioned, we just closed on the off market acquisition of an industrial asset located on Oahu for $9 5 million at a going in cap rate of five 6%.
Building is 33000 square feet in size with 24 foot warehouse clear height and dock high loading.
And is located in the growing industrial Submarket of Cop late for the majority of our other industrial assets are located.
The transaction was structured as a sale leaseback to a local water bottling and storage operator on a 10 year lease that includes 3% annual increases.
Our investment team continues pursuing acquisition opportunities that are complementary to our current portfolio.
In the meantime, we have continued focus on internal growth opportunities, including development and redevelopment, where we can better control investment timing and yields.
Significant refresh of Minoa marketplace is progressing at this well located property the only grocery anchored neighborhood center in the Manila area.
We remain on track to complete this renovation in the third quarter.
I'll now turn the call over to <unk> for financial details Clayton. Thanks.
Thanks, Lance and Aloha, everyone, starting with our consolidated metrics for the first quarter. We reported income from continuing operations available to shareholders of $9 5 million or <unk> 13 per diluted share.
Turning to <unk> first.
First quarter, <unk> was $18 6 million or <unk> 26 cents per diluted share.
<unk> was $21 2 million or <unk> 29 per diluted share.
As Lance mentioned earlier each of these metrics for the first quarter of 2023 benefited from collections of previously reserved amounts of approximately $680000.
Or a penny per diluted share that compares to $2 million.
<unk> or <unk> <unk> per diluted share in the first quarter of 2022.
For additional details on our results, including comparisons to the first quarter of 2022, please see our earnings release and supplemental information package.
Let me now turn to our commercial real estate segment.
For the first quarter CRE revenues increased three 5% or.
Our $1 $6 million over the prior year quarter to $47 9 million.
This increase from a year ago quarter reflects the strength of our tenant portfolio driven by higher base rent.
CRE same store NOI increased by two 2% or $600000 to $30 4 million compared.
Compared to the same period last year.
As I mentioned earlier, the first quarter of 2023 benefited from reserve reversals of approximately $680000 as compared to $2 million in the first quarter of 2022.
Excluding the impact of collections of previously reserved amounts same store NOI growth would have been seven 1%.
Adjusted EBITDA in Orlando Operation segment was essentially flat in the first quarter of 2023.
Her two positive adjusted EBITDA of $4 6 million in the first quarter of 2022.
The reduction was driven primarily.
By a reduction in loss sales at Maui business Park as compared to last year.
Partially offset by the gain on the sale of our legacy trucking and storage business in the first quarter of 2023.
For the first quarter of 2023, G&A expenses were $8 7 million compared.
Compared to $8 8 million in the first quarter of 2022.
As noted previously we expect 2023 G&A to be slightly elevated for the full year due to <unk>.
Management transition related costs.
With regard to Grace Pacific, we incurred a $4 $2 million loss in the first quarter.
<unk> remains in discontinued operations as we work to complete the disposition of the entity.
Turning to our balance sheet and liquidity metrics.
At March 31, 2023 total debt outstanding was $479 2 million and we had total liquidity of $472 6 million made up of approximately $10 7 million in cash.
And $461 $9 million available on our revolving line of credit facility.
At quarter end net debt to trailing 12 months consolidated adjusted EBITDA was three times.
Or five times, when excluding land operations and MSC.
Our debt to total market capitalization stood at 25, 9% at quarter end.
We paid our first quarter dividend of <unk> 22 per share on April 4th and our board recently declared a second quarter dividend of 22 per share that is payable on July 5th.
We are pleased with our results and are maintaining the guidance that we provided in February of <unk> within the range of $1 eight to $1 13.
Per diluted share same store NOI growth within the range of <unk>.
2% to 4%.
And same store NOI growth, excluding prior year reserve reversals within a range of five to six 5%.
With that I'll turn the call over for Chris for his closing remarks.
Thanks Clayton.
First quarter again distributed demonstrated the quality of our commercial real estate portfolio.
With strong occupancy and solid growth, which is a credit to our outstanding team as.
As I look ahead, I believe our business focus strong balance sheet and deep Hawaii ties our strengths that will fuel <unk> growth and success as a commercial real estate company.
As you know I'm retiring on June 30, and I want to again congratulate Lance on his pending and well deserved promotion to CEO on July one.
I am very excited for the future of A&P under his leadership and I look forward to seeing many of you on the road and at ICSC in May and at NAREIT in New York in June with Lance and Clayton.
On a personal note. This is my 78th and final earnings call. I believe my parents have listened to every one of them and they are listening today. So I want to thank them for their support and say happy birthday Tomorrow to my mom.
With that we'll open the call for your questions.
We will now begin the question and answer session.
To ask a question you May press Star then one on your telephone keypad.
If youre using a speakerphone please pick up your handset before pressing the keys and to withdraw question you May Press Star then two.
At this time, we will take our first question.
Our first question will come from Alexander Goldfarb with Piper Sandler. Please go ahead with your question.
Hey, good morning, good morning out there first Chris Congrats on.
On your farewell op earnings call and congrats Lance for taken over next time.
And just so CHRISTUS parents know they could star one and ask their sand some tough questions like we do.
I wanted to.
So let me just have a few questions here.
First.
Clayton I didn't see any update and guidance in the release, maybe I missed it but was there any.
Change in guidance.
No we are maintaining our guidance that we provided in February and so I had mentioned that on this on the script, but bottom line is no change.
Okay.
<unk> question is.
Bigger.
Bigger picture.
And certainly we all saw that when we were out in Hawaii for the Investor week, a number of weeks ago last month I guess it was.
Certainly there seems to be a population shift after the pandemic you had a lot of people who came to the island and then ended up staying and certainly it's been a conducive environment.
Relative to the West Coast, if you will.
Has that shift in population and the new arrivals has that.
<unk>, how retailers are thinking about their presence on the island and maybe accelerating plans to open up more stores or bring more concepts are just changing.
How they think about product mix given that it seems like.
Ben.
Fair number of west coasters at least to a comment made the Hawaii their home.
Which probably have some different shopping habits then.
People, who have lived in Hawaii their whole lives.
Hey, Alex it's Lance.
We certainly have had an influx of west coast visitors when you look at our visitor arrivals over.
The pandemic period I'm not sure that that is translated entirely into actual population increases, but that being said.
I will say that retail interest in the state continues to be high.
As we've discussed in the past when you look at the performance of many of the retailers that are here coupled with the fact that many of our top performing retailers in the country don't have physical presence here. It is something that we continue to see in terms of interest and it's something we continue to pursue as part of our growth strategy.
Having shopping centers on all of the four major islands, and really being able to promote a one stop shop concept for any one new coming to the islands and of course, we've been able to demonstrate that with tenants like Ulta Chick Fil a most recently sonic and I will say with ICSC coming up in a couple of weeks.
Clayton, Chris myself as well as Jordan brand, our head of leasing will be there and we look forward to sharing our story and having good meaningful discussions with prospective tenants.
But in other words Lance youre not since the pandemic and you had people who came there and whatever you are not seeing an acceleration of retail like basically its still the same pace. When they you guys go to do your presentations to the retailers about either first to the market or expanding those pace of conversations havent sped up.
It's still the normal.
Normal time timeframe our timeline.
Yes, I think Thats, a fair comment Alex I would say that those those conversations remain.
Sort of robust I wouldn't say that they are accelerated or increased in the amount of interest.
Okay and then the final question.
Chris.
So that you don't leave Lance, but the paving business is your goal by by year end that you guys will be out.
Whatever it takes or is this going to be your intent is to exit great. This year, but it may bleed into next year.
Just trying to get a sense.
Well, it's certainly our goal is to be out of the business. This year.
Yeah.
I don't know that I would say any whatever it takes I think that we're going to look to have the cleanest and best.
The transition that we can.
I remain confident that we will be able to get that done this year and.
As you know I think I will continue to support some of the simplification efforts over the second half of the year.
Even after I retire as CEO and it certainly would be our goal to get it done this year and I continue to expect that we will.
Can you just give us a sense of.
The the depths of bidders or just.
Anything that you can that gives us a sense of how it's going.
No. We're limited in what we can say because we are actively engaged with a particular bidder and we have to honor the exclusivity of that process.
Okay. It sounds good that's helpful listen thank you very much.
And our next question will come from Mitch Germain with JMP Securities. Please go ahead with your question.
Thanks for taking the question so.
Love to know more about the industrial move that I know you said, it's planned Q.
Curious about some of the activity that youre seeing to replace that tenant in the market right now.
Hey, Mitch at plants.
So yes that was the 25000 square foot tenant that had a natural expiration at the end of last year and it represents effectively a full floor at our Coco Aqua Commerce Center, which is our urban industrial multi <unk>.
Sorry industrial facility.
And it does have some specialized improvements.
That will probably have to modify for a new tenant, but I will say just given its location as well as <unk>.
Parking we've had a fair amount of interest.
So we remain positive that we will be able to backfill that and that's.
Thats really more just a sort of a single vacancy in the portfolio.
Close to a reflection of the portfolio as a whole or the market in general, which we still feel very confident about.
Lance do you think you'll be able to re let that at a higher rate.
Or because of the work you need to do it'll economics will kind of work its way neutral.
Yes, probably a little early to make the call on that Mitch, but hopefully we'll have some better insight.
In the next quarter that we can share.
Great.
I'm curious about your deal pipeline.
Obviously you.
You acquire across more than one asset class and so obviously you bought an asset this quarter is that more reflective of the types of deals that youre seeing or is it highly diversified in terms of what you're underwriting right now.
I'd say, it's a little diversified but consistent with the types of assets that we hold so retail industrial and ground leases.
I think this industrial building that we purchased.
Is.
It's sort of reflective of current market conditions in that this was a sale leaseback and so our investments team was able to.
Unlock the capital in this real estate for this company and have them able to redeploy that capital into the business.
And just given the financial markets conversations around liquidity. It was a good opportunity for them and certainly a good opportunity for us.
And then I'd further just reinforce the fact that we're here our local presence we have our relationships.
The team was able to source that opportunity off market. So thats really where we continue to focus on sourcing deals that makes sense and we are starting to see I'd say a deeper pipeline.
Great.
Last one from me, obviously, nothing that you need to worry about this year, but next year, you've got a couple of tranches of debt coming due in particular to mortgages is the goal.
To continue to unsecured balance sheet unencumbered assets.
How do you think that process plays out for you.
Yes, I mentioned this is Clayton.
Right.
We do have those two mortgages that are maturing.
Next year and so just.
Addressed your question our preference overall, all things being equal would be to have unsecured debt and that being said with respect to these two.
Mortgages, we have we entered into.
We're starting interest rate swaps in the fourth quarter and that enabled us to lock in.
At a blended interest rate of 486% and so our intention is to refi.
<unk> financial commenced the refinancing process starting later this year.
So we've had some good discussions with with.
Some of the banks and we are confident in our.
Our ability to get that done.
Great and Chris Best of luck on your future endeavors, it's been a pleasure knowing you. Thanks, a lot Mitch Thank you for the questions.
And this concludes our question and answer session.
I'd like to turn the conference back over to Steve Swett for any closing remarks.
Thank you operator, and thank you all for joining us today.
Do you have any follow up questions. Please feel free to call us at 8085 to $5 875 or E Mail us at Investor Relations at <unk> Dot Com Aloha and have a great day.
The conference has now concluded. Thank you for attending today's presentation. You may now disconnect your lines.