Q4 2023 Alexander & Baldwin Inc Earnings Call
Good day, and welcome to the fourth quarter and full year 2023, Alexander <unk> Baldwin earnings Conference call. All participants are being written only mode you don't need it.
Unknown Executive: Good day, and welcome to the fourth quarter and full year 2023 Alexander & Baldwin earnings conference call. All participants will be in listen-only mode.
Unknown Executive: Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask questions, you may press star one on the touchtone phone.
Unknown Executive: To withdraw your question, please press star two. I would now like to turn the conference over to Steve Swett, investor relations. Please go ahead.
Steve Swett: Thank you. Aloha, and welcome to Alexander & Baldwin's fourth quarter and full year 2023 earnings conference. With me today are A&B's Chief Executive Officer, Lance Parker, and Chief Financial Officer, Clayton Chun. We are also joined by Kit Millan, Senior Vice President of Asset Management, who is available to participate in the Q&A portion of the call. During our call, please refer to our fourth quarter 2023 supplemental information available on our website at investors.alexanderbaldwin.com and on YouTube. Before we commence, please note that statements in this presentation that are not historical facts are forward-looking statements. Within the meaning of the Private Securities Litigation Reform Act of 1995, they involve a number of risks and uncertainties that could cause actual results to differ materially from those contemplated by the relevant forward-looking
Steve Swett: 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 of the date the statements were made and are not guaranteed as to 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 core status and the company's business, the evaluation of alternatives by the company related to its non-core assets and business, and the risk The information in this presentation should be evaluated in light of these important risk factors.
Companies, we've status and the company's business evaluation of alternatives by the company related to its noncore assets and business and the risk factors discussed in the company's most recent Form 10-K Form 10-Q, and other filings with the SEC information. This presentation should be evaluated in light of these important risk factors, we do not undertake any obligation to update.
Steve Swett: We do not undertake any obligation to update these forward-looking statements. Management will be 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 2023 Fourth Quarter Supplemental Information and Earnings Press Release. Lance will open up today's presentation with an overview of the quarter and year, provide an update on our real estate operations, and then Clayton will discuss financial matters. Lance will return for some closing remarks, whereupon we will open it up for your questions. Now, I'll turn the call over to Lance.
Forward looking statements.
Management will be 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 are included in our 2023 fourth quarter supplemental information and earnings press release mass will open up today's presentation with an overview of the quarter and year provide an update on our real estate athlete opera.
<unk> and Clinton will discuss financial matters.
Will return for some closing remarks, where upon we will open it up for your questions now I'll turn the call over to Lance.
Thanks, Steve and Aloha everyone.
Lance K. Parker: Thanks, Steve, and aloha, everyone. I'm pleased to say that 2023 ended on a high note. Our high-quality CRE portfolio of retail, industrial, and ground-lease assets performed well. In the fourth quarter, total NOI growth was 4.7%, and we achieved same-store NOI growth of 4.3%. Same store NOI growth, excluding collections of previously reserved amounts, was 4.8%, or FFO was $21 million, or 29 cents per share. Same store leased occupancy at year end was $95.5 million. 100 basis points higher than the third quarter.
I am pleased to say that 2023 ended on a high note our high quality CRE portfolio retail industrial and ground lease assets performed well in.
In the fourth quarter total NOI growth was four 7% we achieved same store NOI growth of four 3%.
Same store NOI growth excluding collections of previously reserved amounts was four 8%.
Or F F OHL was $21 million or 29 cents per share.
Same store leased occupancy at year end was 95, 5% 100 basis points higher than the third quarter.
Lance K. Parker: Same store economic occupancy at year end was also up 100 basis points from the last quarter to 93.8%. We also executed 50 leases in our improved property portfolio for approximately 114,000 square feet and achieved blended spreads of 7.8 percent. Spreads for New Leases were 11.4%, and spreads for Renewal Leases were 7. For the year, total CRE-NOI growth was 4.7%.
Same store economic occupancy at year end was also up 100 basis points from the last quarter to 93, 8%.
We also executed 50 leases and our improved property portfolio for approximately 114000 square feet.
And achieved blended spreads of seven 8% with spreads for new leases at 11, 4% and spreads for renewal leases at 7%.
For the year total CRE NOI growth was four 7%.
Lance K. Parker: On our last call, we revised our annual guidance up, and we ended the year exceeding those metrics. Same-store NOI growth of 4.3%. Same-store NOI growth, excluding collections of previously reserved amounts, 6.8%. And core FFO for the year was $85.3 million, or $1.17 per share. We executed 233 leases in our improved property portfolio and had six ground lease renewals.
On our last call, we revised our annual guidance up and we ended the year exceeding those metrics.
With same store NOI growth of four 3%.
Same store NOI growth, excluding collections of previously reserved amounts.
Of six 8%.
And core <unk> for the year was $85 3 million or $1 17 per share.
We executed 233 leases in our improved property portfolio and had six ground lease renewals.
Lance K. Parker: Leases in our improved property portfolio covered approximately 624,000 square feet, with blended spreads of 7.7%, spreads for new leases at 8%, and spreads for renewal leases at 7.6. Renewals in our ground lease portfolio resulted in blended leasing spreads of 37.8%, driven primarily by the renewal at Windward City Shopping Center earlier in the year.
Leases and our improved property portfolio covered approximately 624000 square feet.
With blended spreads of seven 7% spreads for new leases at 8%.
And spreads for renewal leases for renewal leases at seven 6%.
Renewals in our ground lease portfolio resulted in blended leasing spreads of 37, 8% driven primarily by the renewal when rich City shopping center earlier in the year.
Lance K. Parker: The spread between leased and economic occupancy was 170 basis points, and the annualized base rent attributable to these S&O leases was $2.8 million of ABR, or 2% of portfolio NOI. During the fourth quarter, we also completed a number of strategic objectives that position us well for the long term. We began permitting for a 30,000 square foot, 32 clear height warehouse and distribution center at Maui Business Park.
The spread between leased and economic occupancy was 170 basis points.
Annualized base rent attributable to these ethanol leases was $2.8 million of ABR or 2% of portfolio NOI.
During the fourth quarter. We also completed a number of strategic objectives that position us well for the long term.
We began permitting for 30000 square foot 32 clear height warehouse and distribution center at Maui business Park.
Lance K. Parker: This space is pre-leased to a national tenant, and construction is anticipated to begin in the second half of 2024. We expect to realize $1 million of ABR when the asset becomes profitable. We also went live with our 460 kilowatt rooftop photovoltaic system at Kaka'ako Commerce.
Space is pre leased to a national tenant and construction is anticipated to begin in the second half of 2024.
We expect to realize $1 million of ABR, when the asset becomes economic.
We also went live with our 460 kilowatt rooftop photovoltaic system at Kaka Aqua Commerce Center.
Lance K. Parker: This is the second rooftop PV system in our portfolio and follows the successful installation of our first system at Pearl Highlands last year, which provided about $675,000 of incremental NOI in 2023. We are in various stages of rollout at other centers in our portfolio and look forward to sharing more as additional systems are brought online. Most notably, we completed the sale of Grace Pacific through two transactions for a combined $60 million. The sale of Grace Pacific is significant for three reasons.
This is the second rooftop PV system in our portfolio and follows the successful installation of our first system at Pearl Highlands Center last year, which provided about $675000 of incremental NOI in 2023.
We are in various stages of rollout at other centers in our portfolio and look forward to sharing more as additional systems are brought online.
Most notably we completed the sale of great specific through two transactions for a combined $60 million.
The sale of Grace is significant for three reasons.
Lance K. Parker: First, we can focus on growing our commercial real estate portfolio. Second, we can fully utilize the strengths of our balance sheet to fund these growth initiatives. And finally, we can simplify our reporting metrics. These accomplishments in the fourth quarter add to our achievements from earlier in the year. Including our off-market acquisition of Ka'omi Loop Industrial, a 33,000 sq. ft. property, in the second quarter and the completion of our Manoa Marketplace refresh in the third quarter. Our portfolio of primarily grocery-anchored neighborhood centers continues to benefit from the economic environment here in Hawaii. Unemployment was 2.9% at the end of 2020.
First we can focus on growing our commercial real estate portfolio.
Second we can fully utilize the strength of our balance sheet to fund these growth initiatives.
Finally, we can simplify our reporting metrics.
These accomplishments in the fourth quarter add to our achievements from earlier in the year.
<unk>, our off market acquisition of Omi loop industrial a 13th out 33000 square foot property in the second quarter and the completion of our Minoa marketplace refresh in the third quarter.
Our portfolio of primarily grocery anchored neighborhood centers continues to benefit from the economic environment here in Hawaii.
Unemployment was two 9% at the euro at the end of 2023, improving 80 basis points from a year earlier and lower than the national average of three 7%.
Lance K. Parker: Improving 80 basis points from a year earlier and lower than the national average of 3.7%, there were 9.6 million statewide visitors in 2023, up from $9.2 million in 2022 and 93% of pre-pandemic levels. Visitors from the mainland U.S. exceeded pre-pandemic levels but were down slightly compared to 2022. There were 573,000 visitors from Japan in 2023, nearly three times higher than 2022, but still only about a third of pre-pandemic levels.
There were $9 6 million statewide visitors in 2023.
Up from $9 2 million in 2022.
93% of pre pandemic levels.
Visitors from the mainland U S exceeded pre pandemic levels, but were down slightly compared to 2022.
There were 573000 visitors from Japan in 2023, nearly three times higher than 2022, but still only about a third of pre pandemic levels.
We have often said that our grocery anchored portfolio benefits from but it's not dependent on tourism. This.
Lance K. Parker: We have often said that our grocery-anchored portfolio benefits from, but is not dependent on, tourism. This has proven true with the Maui wildfires where visitor arrivals were down in four of the five, four of the last five months in 2023 compared to 2022. But our tenant sales have remained stable.
This has proven true with the Maui wildfires were visitor arrivals were down in four of the five four of the last five months in 2023 compared to 2022, but our tenant sales sales have remained stable.
Now I'll turn the call over to Clayton for financial details Clayton.
Clayton K. Y. Chun: And now I'll turn the call over to Clayton for financial. Clayton, thanks, Lance, and aloha, everyone. Starting with our consolidated metrics for the fourth quarter of 2022. The net loss available to shareholders was $3.5 million or $0.05 per diluted share.
Thanks, Lance and Aloha everyone.
Starting with our consolidated metrics for the fourth quarter of 2023.
Net loss available to shareholders was three and a half million dollars or five cents per diluted share.
Income from continuing operations available to shareholders was $8 5 million or 12 cents per share.
<unk> was $19 $9 million or 27 cents per diluted share.
Clayton K. Y. Chun: Income from continuing operations available to shareholders was $8.5 million, or $0.12 per share. FFO was $19.9 million, or 27 cents per diluted share. Our FFO was $21 million, or 29 cents per diluted share. However, each of these metrics for the fourth quarter of 2023 benefited from collections of amounts reserved in previous years, of approximately $400,000, or a penny per diluted share, for comparative purposes in the fourth quarter of 2022. Collections of Amounts Reserved in Previous Years was $500,000 or a penny per diluted share. For the full year net income available to shareholders, $29.7 million or 41 cents per diluted share. Income from continuing operations available to shareholders was $40.7 million, or $0.56 per diluted share. FFO was $79.4 million, or $1.09 per diluted share, and core FFO was $85.3 million, or $1.17 per diluted share.
<unk> was $21 million or 29 cents per diluted share.
Each of these metrics for the fourth quarter of 2023 benefited from collections of amounts reserved in previous years of approximately $400000 or a penny per diluted share.
For comparative purposes in the fourth quarter of 2020 to.
Collections of amounts reserved in previous years.
It was $500000 or a penny per diluted share.
For the full year net income available to shareholders was $29 $7 million or <unk> 41 per diluted share.
Income from continuing operations available to shareholders was $47 million or 56 cents per diluted share.
F F Boe was $79 $4 million.
Or a dollar nine per diluted share and core <unk> was $85 3 million.
Or $1 17 per diluted share.
Our full year results were impacted by collections of amounts reserved in prior years of $2 $1 million or <unk> <unk> per diluted share in 2023, compared to $4 7 million or six cents per diluted share in 2022.
Clayton K. Y. Chun: Our full-year results were impacted by collections of amounts reserved in prior years of $2.1 million, or $0.03 per diluted share, in 2023, compared to $4.7 million, or 6 cents per diluted share, in 2022. For additional details on our results and comparisons to prior periods in 2022, please see our earnings release and supplemental information packet. Turning to the land operation, Just a Deep Adobe was $6.3 million in the fourth quarter of 2020, which compares to $10.7 million in the same quarter of 2022. The change was due primarily to lower sales of unimproved property in the fourth quarter of 2023 as compared to the year before.
For additional details on our results and comparisons to prior periods in 2022. Please.
Please see our earnings release and supplemental information package.
Turning to land operations, adjusted EBITDA was $6 $3 million in the fourth quarter of 2023, which compares to $10 $7 million in the same quarter of 2022.
The change was due primarily to lower sales of unimproved property in the fourth quarter of 2023 as compared to the year before.
Full year land operations, adjusted EBITDA was $10 $8 million in 2023 compared to $67 million in 2022.
The higher land operations adjusted EBITA in 2022 is due primarily to the gain recognized related to the mcbrien sale that occurred in 2022.
Clayton K. Y. Chun: Full year, planned operations adjusted EBITDA is $10.8 million in 2023 compared to $67 million in 2022. The higher land operations adjusted EBITDA in 2022 is due primarily to the gain recognized related to the McBride sale that occurred in 2022. Turning to GNA, for the fourth quarter of 2023, GNA expenses were $7.8 million, compared to $8.2 million in the fourth quarter of 2022. Full year 2023 GNA was $34 million compared to $35.9 million in 2022. The reduction in GNA for the fourth quarter and full year is due primarily to lower personnel-related expenses.
Turning to G&A for the fourth quarter of 2023, G&A expenses were $7 $8 million compared to $8 $2 million in the fourth quarter of 2022.
Full year, 2023, G&A was $34 million compared to $35 $9 million in 2022.
The reduction in G&A for the fourth quarter and full year is due primarily to lower personnel related expenses and it reflects our continued focus on streamlining our overhead as we simplify the company.
We reported a loss from discontinued operations of $11.7 million in the fourth quarter of 2023 <unk>.
Clayton K. Y. Chun: And it reflects our continued focus on streamlining our overhead as we've simplified the business. We reported a loss from discontinued operations of $11.7 million in the fourth quarter of 2023, primarily related to Grace Pacific, which was sold in November. Turning to our balance sheet and liquidity metrics, at quarter end, total debt outstanding was $464 million, and we had total liquidity of $477 million, made up of approximately $14 million in cash.
Primarily related to Grace Pacific, which was sold in November.
Turning to our balance sheet and liquidity metrics at quarter end total debt outstanding was $464 million and we had total liquidity of $477 million made up of approximately $14 million in cash and $463 million.
Available on our revolving credit facility.
Approximately 92% of our debt is fixed rate.
Net debt to trailing 12 months consolidated adjusted EBITDA.
Clayton K. Y. Chun: 463 million, available on our revolving credit facility. Approximately 92% of our debt is at fixed rates. Net debt to trailing 12 months consolidated adjusted EBITDA was 4.2 times, compared to 2.7 times in 2022. As a reminder, the 2022 metric included non-recurring income related to the McBride Sale Transact. We have 58 million in debt that's secured by our Lalani Village asset, which matures this. To address this, we intend to refinance the mortgage with an unsecured fixed-rate note. We will provide more information as details are finalized. During the quarter, we repurchased approximately 90,000 shares of stock at an average price of $16.34 per share. For the full year, we repurchased 181,000 shares at an average price of $16.53 per share.
Was four two times compared to two seven times in 2022.
As a reminder, the 2022 metric included nonrecurring income related to the Mcbride sale transaction.
We have $58 million of debt, that's secured by our Leilani village asset, which matures. This me.
To address this we intend to refinance the mortgage with an unsecured fixed rate note.
We will provide more information as details are finalized.
During the quarter, we repurchased approximately 90000 shares of stock at an average price of $16 34 per share.
But the full year, we repurchased 181000 shares at an average price of $16 53 per share.
With respect to our dividend.
Clayton K. Y. Chun: With respect to our dividend, we paid a fourth quarter dividend of 22.25 cents per share on January 8th. And our board declared a first quarter dividend of 22 and a quarter cents per share that is payable on April 5th. Before I turn to guidance, as Lance mentioned, with the sale of GRACE, we are simplifying our reporting metrics. We will continue to guide Same Store NOI and Same Store NOI, although excluding collections of previously reserved amounts.
We paid a fourth quarter dividend.
Of 22, and a quarter cents per share on January eight and our board declared a first quarter dividend.
22, and a quarter cents per share that is payable on April 5th.
Before I turn to guidance as Lance mentioned with the sale of Grace, we are simplifying our reporting metrics.
We will continue to guide to the same store NOI and same store NOI, excluding collections of previously reserved amounts.
Clayton K. Y. Chun: But we will no longer report or guide to CORE FFO in 2024. 4FFO was meant to reflect our series business and general corporate performance. But with grace sold and land operations transactions expected to be less impactful than in the past, we believe FFO is more reflective of the company's operating results as a focused commercial real estate company going forward. We will also begin reporting and guiding to AFFO. So with that being said,
But we will no longer report or guide to core <unk> in 2024.
<unk> was meant to reflect our CRE business and general corporate performance, but.
But with graceful and land operations transaction is expected to be less impactful than in the past. We believe <unk> is more reflective of the company's operating results as a focused commercial real estate company going forward.
We will also begin reporting and guiding to <unk>.
So with that being said.
Clayton K. Y. Chun: We expect same-store NOI growth in the range of 1 to 2 percent and Same Store NOI growth, excluding collections of previously reserved amounts, of 2-3%. We are guiding to FFO in the range of $0.95 per share to $1.05 per share and AFFO in the range of $0.80 to $0.90 per share. While we are not providing quarterly guidance, our quarterly metrics may vary due to the timing of certain items, including land operations activity. Our 2024 guidance incorporates the following key assumptions. With respect to same-store NOI, it should be noted that we are not expecting any significant fair market value resets of leases in our ground lease portfolio during 2024, as was the case in previous years. Our guidance also reflects lower NOI at our non-strategic office assets, primarily from Tenant Blue Valley.
We expect same store NOI growth in the range of 1% to 2%.
Same store NOI growth, excluding collections of previously reserved amounts of 2% to 3%.
We are guiding to <unk> in the range of 95 per share to $1 five per share and a F. F O in the range of 80 to 90 per share.
While we are not providing quarterly guidance on a quarterly metrics may vary due to the timing of certain items, including land operations activities.
Our 2024 guidance incorporates the following key assumptions.
With respect to same store NOI. It should be noted that we are not expecting any significant fair market value resets of leases in our ground lease portfolio. During 2024 as was the case in previous years.
Our guidance also reflects lower NOI at our non strategic office assets, primarily from tenant move outs.
Clayton K. Y. Chun: While we cannot provide more information at this time, we believe the short-term decrease in office-related NOI resulting from dependent move-outs will enable us to reposition these assets for higher and better use going forward. And last, a comment on our FFO guidance. In 2023, our FFO of $1.09 per share included 15 cents of FFO attributed to land operations, primarily reflecting the margin on landfills completed during 2023, and 94 cents of FFO that related to commercial real estate. For 2024, we expect the composition of our total company FFO to primarily reflect our commercial real estate business, with that portion of FFO growing from 94 cents per share in 2023 to between $0.99 per With that, I will turn the call over to Lance for his closing remarks. Thanks, Clayton.
While we cannot provide more information at this time, we believe the short term decrease in office related NOI, resulting from tenant move outs will enable us to reposition these assets for higher and better use going forward.
And lastly, a comment on our <unk> guidance.
In 2023 or <unk> of $1 nine per share included <unk> <unk> attributed to land operations primarily.
Reflecting the margin on land sales completed during 2023.
And 94 cents of <unk> that related to.
Two commercial real estate.
For 2024, we expect the composition of our total company <unk>.
Two primarily reflect our commercial real estate business.
In which we anticipate that portion of <unk> growing from 94 per share in 2023.
To between 99 cents per share and $1 four per share in 2024, reflecting a growth rate of <unk>.
5% to 11%.
With that I will turn the call over to Lance for his closing remarks.
Thanks Clayton.
Lance K. Parker: The fourth quarter again demonstrated the strength of our outstanding team and the quality of our retail, industrial, and ground lease assets. We are excited about focusing on growing our commercial real estate portfolio and are well positioned to do so. We will be pursuing internal development and redevelopment opportunities, like our industrial build-to-suit at Maui Business Park. And importantly, our investments team is engaging with local real estate owners to source external opportunities.
The fourth quarter again demonstrated the strength of our outstanding team and the quality of our retail industrial and ground lease assets.
We are excited about focusing on growing our commercial real estate portfolio and are well positioned to do so.
We will be pursuing internal development and redevelopment opportunities like our industrial build to suit at Maui business Park and.
And importantly, our investments team is engaging with local real estate owners to source external opportunities.
Unknown Executive: And our balance sheet provides us with the liquidity needed to support these efforts. With that, we'll now open the call to questions. Thank you. To ask a question, you may press star 1 on your touchpad phone. If you are using a speakerphone, please pick up your headset before pressing the keys.
And our balance sheet provides us with the liquidity needed to support these efforts.
With that we'll now open the call up to questions.
Thank you.
I will begin the question and answer session to ask a question you May press Star one wondering if that's not fun.
Using a speakerphone please pick up your handset before pressing the key to withdraw your question. Please press star two.
Robert Chapman Stevenson: To withdraw your question, please press star 2. Our first question comes from Rob Stevenson with Dainese. Please proceed. Good afternoon, guys.
Our first question comes from Rob Stevenson with Janney. Please proceed.
Hi, good afternoon guys.
Clayton K. Y. Chun: Just Clayton, a question on the earnings guidance. If I look at sort of the midpoint of the guidance implying sort of 25 cents-ish, what is the main difference between that and the 27 that you posted in the fourth quarter, the Grace Pacific and the other sales coming out? Is there anything operationally that, you know, whether or not it's the lower NOI from the office assets or anything else that you're expecting to sort of, you know, be a drag on, you know, sort of core property NOI or FFO in 24 at this point? Hi Rob.
Just.
A question on the you know the.
The earnings guidance, if I look at sort of the midpoint of the guidance, implying sort of 25% ish is the main difference between that and the 27 that you posted in the fourth quarter the great specific and the other sales coming out is there anything operationally.
Whether or not it's the lower NOI from the office assets or anything else that youre expecting to sort of be.
Be a drag on sort of core property.
NOI or <unk> in 24 at this point.
Hey, Rob Thanks.
Robert Chapman Stevenson: Thanks for the question. And so, with respect to our guidance around FFO, what that's conveying is the fact that we have continued growth in our commercial real estate business. The main difference between 2023 and our guidance for 2024 relates to land operations.
Thanks for the question, so with respect to our guidance around <unk>.
What what that's conveying is the fact that we have.
<unk> growth in our commercial real estate business.
The main difference between 2023, and our guidance for 2024 pertains to land operations and so that's where we had.
Clayton K. Y. Chun: And so that's where we had some margin that was generated in 2023 for the various land sale transactions. And so looking forward into this 2024 year, we're expecting that margin impact to be less so. Okay, that's helpful. And then, you know, when you're taking a look at the lease expirations, whatever you guys have, you know, gotten to the final stages are completed thus far in 24 here, and the stuff that you're in negotiations on, how is that looking versus the sort of, you know, call it almost 8% leasing spreads in the portfolio in 23? Are you expecting that 24 is going to be, you know, similarly strong?
Some some margin that was generated in 2023 for the various.
Land sale transactions and so looking forward into this 2024 year, we're expecting that that margin impact to be to be less so.
Okay.
That's helpful and then.
When you were taking a look at the lease explorations whatever you guys have.
Got into the final stages of completed thus far in 'twenty four here.
And the stuff that you're in negotiations on how is that looking versus the sort of <unk>.
At almost 8% leasing spreads in the portfolio in 'twenty three are you expecting the 'twenty four is gonna be similarly strong is there you know.
Robert Chapman Stevenson: Is there, you know, anything, you know, either property mix or above-market leases or anything that would pull that down or push it up? How should we be thinking about the 24 leasing spreads? Hey, Rob. It's Lance.
Anything you know either property mix or above market leases or anything that would pull that down or push it up how should we be thinking about the the 24 leasing spreads.
Hey, Rob It's Lance let me maybe not.
Lance K. Parker: Let me maybe not quite answer the question before I turn it over to Kit to give you sort of the details you were looking for. The one thing I did want to say just on the lease role and expirations, you know, we were very deliberate in sort of laddering out our role in terms of looking at the portfolio. So one thing that I did want to highlight that may not jump off the page in the supplement is that we're feeling pretty good really over the next five to six years about having sort of a smooth expiration. And with that Kit, maybe you can provide some insight into how we're thinking about spreads. Sure.
Not quite answered the question before I turn it over to kit to give you. The details you were looking for the one thing I did want to say just on lease roll.
In exploration, we we were very deliberate in sort of.
Latter wring out our role in terms of looking at the portfolio. So one thing that I did want to highlight that may not jump off the page in the supplement as we're feeling pretty good really over the next five to six years about having sort of a smooth exploration and with that kit. Maybe you can provide some insight into how we're thinking about spreads sure. So what I can say is that the year.
Kit Millan: So, what I can say is that the year has started off strong in 2024. We've seen consistent demand across all retail categories, still strong interest from QSRs, community services like vet clinics, dental services, etc. So we expected another very solid leasing year overall. In terms of spreads, it's very difficult to project exactly what is going to happen in 2024, but what we've seen recently has been consistent with what we produced last year. Okay, and then last one for me. What can you guys talk a little bit more about what you guys are seeing in terms of potential assets, either being privately negotiated and available for sale, or being marketed for sale on the islands that you might be interested in? Are you expecting to at least see a greater volume of potential property acquisitions coming across your desk this year? You know, is it tight?
Has started off strong in 2024, we've seen consistent demand across all retail categories still strong interest from <unk> community services like vet clinics dental services et cetera, and so we expect another very solid leasing year overall in terms of spreads.
It's very difficult to project exactly what is going to happen in 2024, but.
What we've seen recently has been consistent with what we produced last year.
Okay, and then last one for me.
What are you guys can you talk a little bit more about what you guys are seeing in terms of potential assets either.
Being privately negotiated and available for sale and or being marketed for sale on the islands.
That you might be interested in is you know.
Are you expecting to at least see greater volume of potential property acquisitions coming across your desk. This year.
Is it tight is it is the debt market.
Robert Chapman Stevenson: Is it you know, are the debt markets, you know, equally impacting transactions out there as they are on the mainland? Can you just give a little bit of an overview of what you're seeing and the sort of impediments to deal transactions at this point? Sure. I'll start by saying that, to the extent that some of those questions were yes or no type questions, yes to all of them.
Equally is impacting transactions out there as it is on the mainland can you just give a little bit of the overview of what youre seeing in the sort of impediments to deal transactions at this point.
Sure.
I'll start by saying that to the extent that some of those questions were yes, or no type questions, yes to all of them.
Lance K. Parker: So, you know, the market remains challenged. I mean, from a marketing perspective, we're not seeing a lot of deals. Capital markets are still impacting pricing with some dislocation in terms of what sellers are expecting versus what we think assets should be trading for. Now, that said, the reality is the majority of our acquisitions are typically done off. And so for that reason, and the fact that, now with simplification behind us, the sale of Grace last year was a big milestone. We had some of our resources dedicated to completing that, but we have now turned everyone loose and are really looking to find and source these off-market opportunities within the state. And so, simply as a result of that, I would expect to see more.
So the market remains challenged I mean from a marketing perspective, we're not seeing a lot of deals.
Capital markets is still impacting pricing with some dislocation in terms of what sellers are expecting versus what we think our assets should be trading for now that said the reality is the majority of our acquisitions are typically done off market.
And so.
For that reason and the fact that now with simplification behind us the sale of Grace last year was a big milestone and we had some of our resources dedicated to completing that we have now turned everyone loose and really looking to to find and source. These off market opportunities within the state and so simply as a result of.
That I would expect to see more deal flow.
Lance K. Parker: And then I add, you know, on top of that, Rob, in addition to external growth prospects, we continue to mine the existing portfolio for internal growth opportunities, whether it's repositioning of our assets, you know. We were really pleased to get the build a suit at Maui Business Park over the line and start there, adding to photovoltaic, which is starting to actually, you know, add some meaningful NOI to our portfolio. So we're really looking to sort of fire on all cylinders when it comes to increasing the, Okay, thanks guys. I appreciate the time this evening. Our next question comes from Alexander Goldfarb with Piper Sandler. Hey, good morning morning out there.
And then okay.
On top of that Rob in addition to external growth prospects. We continue to mine the existing portfolio of four internal growth opportunities whether its repositioning of our assets. We were really pleased to get the build to suit at Maui business Park over the line and start there adding.
Adding to our photovoltaic which is starting to actually add some meaningful NOI to our portfolio. So we're really looking to sort of fire on all cylinders when it comes to increasing the portfolio.
Okay. Thanks, guys. Appreciate the time this evening.
Our next question comes from Alexander Goldfarb with Piper Sandler. Please proceed.
Hey, good morning, good morning out there.
Yes.
Alexander David Goldfarb: Yeah. Hey, so just a few questions here first on the guide. You know, we're looking at a midpoint of $1 for this year. It's below what, you know, we in the street were expecting. But in fairness, you know, the company was, you had a lot of stuff going on in the company, Grace, and other things that were going on historically. So now we have a sort of a pure play real estate company. Is the dollar sort of what you would consider the new baseline? Or is that impacted by anything this year that, you know, maybe, you know, not having the company hit on all cylinders, if you will? Hi Alex, and Clayton.
Hey, So just a few questions here first on the guidance you know, we're looking at a midpoint of $1 for this year, it's below what we and the street were expecting but in fairness. You know the company was you had a lot of stuff going on in the company Grace and other things that were going on historically now we have a sort of a.
The pure play.
Real estate company is the dollar sort of what you would consider the new baseline or is that impacted by anything. This year that you know may be you.
No.
Not having the company hit on all cylinders, if you will.
Hi, Alex Clayton.
I think the.
Clayton K. Y. Chun: I think the short answer to that is this is more reflective of commercial real estate and corporate going forward, whereas in years past, we did have a lot of noise in our FFO. And that was attributed to the various episodic sales that we had of non-core business. And so, as mentioned in the prepared remarks, 2024 is more reflective of just CRE in its entirety and not having the significant impact that land operations had. You're saying that land operations were masking some of the costs? masking some of the What I'm saying is that for FFO, it was a greater portion of the FFO. So the composition of our FFO did have more land operations in the past, whereas for 2024, that is not the case. Okay, and then you mentioned the office was a bit weak, obviously, but we all know what's going on there.
The short answer to that is this is more reflective of commercial real estate and corporate going forward, whereas in years past. There. We did have a lot of.
Noise in our <unk> and that was attributed to the various episodic.
<unk> sales that we had a noncore businesses and so as <unk> mentioned in the prepared remarks.
24 is more reflective of.
Just CRE in its entirety and not having the.
A significant impact.
Impact that land operations head.
So you are saying that land operations was masking some of the cost.
Masking some of the what I'm, saying is that for <unk>. It was a greater portion of the <unk>. So the composition of our <unk> did have more land operations in the past, whereas for 2024 that is not the case.
Okay, and then you mentioned office was a bit weak obviously, what we all know what's going on there, but you also mentioned.
Alexander David Goldfarb: But you also mentioned repurposing for higher and better, just a bit more on that, you know, is this like an office to resi conversion, like what Dougie is doing? Or are you thinking about knocking down buildings? Or what are you thinking about? How, you know, for the office, higher and better use?
Repurposing for higher and better just a bit more on that you know is this like an office to resi conversion like what.
Like what.
What what Doug is doing or are you thinking about knocking down buildings or what are you thinking about.
For office.
Higher and better use.
We are open to exploring different options, Alex So as you can.
Lance K. Parker: You know, we're open to exploring different options, Alex. So, you know, as you know, we've only got four office properties in our portfolio. One's here in Oahu, and three are in the neighborhood.
We've only got four office properties within our portfolio once here on Oahu and three are in the neighbor island of Maui.
Lance K. Parker: And so where you're seeing the softness both really in vacancy and where we were sort of signaling with NOI is coming from our three Maui assets, two in particular that sit on the same block. And that's where, you know, there will be an opportunity for us, whether it's through redevelopment, quite frankly, whether it's a capital recycling opportunity through a user scale, just given where we are with occupancy, I think there are a couple of different options that we're going to be exploring throughout 2020. Okay, so it's the three office assets on Maui. I guess to that point, we've had this discussion before, especially around Maui Business Park, where you guys have sold land rather than, you know, doing development. You know, if you keep selling, like selling offices and selling, you know, land parcels. It's obviously harder to grow,
And so where youre seeing the softness both really in vacancy and where we were sort of signaling with NOI is coming from our three Maui assets two in particular that sit on the same block and that's where.
There will be an opportunity for us whether it's through redevelopment.
Quite frankly, whether it's capital recycling opportunity through a user sale just given where we are with occupancy I think theres a couple of different options that we're going to be exploring throughout 2024.
Okay. So it's the three office assets.
<unk>.
On Maui.
I guess to that point, we've had this discussion before especially around.
<unk> business Park, where you guys have sold.
And rather than doing development.
If you keep selling like selling office and selling <unk>.
Land parcels.
It's obviously, it's harder to grow but sometimes the right decisions to sell rather than invest more capital and I get that as you think about the portfolio as it is now if you think about 100% being the current portfolio.
Alexander David Goldfarb: But sometimes the right decision is to sell rather than invest more capital. And I get that. As you think about the portfolio as it is now, you know, if you think about 100%, being the current portfolio, is it everything that you want? Or is there more beyond these three assets that you may see selling? And I'm just trying to think about, you know, the growth of the company going forward. Sure.
Is it everything that you want or is there more beyond these three assets that you may see selling and I'm just trying to think about.
Growth of the company going forward.
Sure.
Lance K. Parker: You know, I think it's important to make sure that we get the message that we are a net buyer. So we want to grow the company. Now, that being said, as we look at various sources of capital, to the extent that, you know, there may be something to recycle into a significantly better return, we will certainly consider that relative to the cost of some of our other capital opportunities. But by all means, our goal is to be a net buyer and grower of the portfolio. Okay, and then just one final question. Appreciate the time.
I think it's important to make sure that.
We get the message that we are a net buyer. So we want to grow the company now that being said as we look at various sources of capital to the extent that there may be something to recycle into a significantly better return, we will certainly consider that relative to the cost of some of our other capital opportunities.
But by all means.
Our goal is to be a net buyer grower of the portfolio.
And then just the final question I appreciate the time.
I think a few years ago, you sold a property and I think there was some water.
Alexander David Goldfarb: I think a few years ago, you sold a property, and I think there was some water, you know, you didn't necessarily guarantee, but there was like a buyback or whatever, if the entity didn't get the zoning or the water access, or there was something like that, that was part of that sale. Just curious, you know, how that new owner is proceeding. And if you think that there's any chance that they won't be able to achieve their goals, in which case that property will come back to the company. I'm trying to think of specifically what you're referring to in terms of property coming back to the company. There was some asset that you sold, and the buyer, I think how you guys said that they, there was some guarantee, I think that they could get water rights, or some sort of rights on the project. And if they didn't, over a course of time, they could sell it back to you.
You you didn't necessarily guarantee but there was like a buyback or whatever the entity you didn't get the zoning or the water access or there was something like that that was part of that sale. Just curious you know how that.
New owners is proceeding and if you think there's any chance that they won't be able to achieve their goals in which case that property comes back to the company.
I'm trying to think of specifically, what you're referring to in terms of property coming back to the company or there were some assets that you sold and the buyer.
I think you guys said that.
There was some guarantee I think that they could get water rights or some sort of rights on the project and if they didnt over a course of time they could sell it back to you.
So we do have on the balance sheet. Some reserves that we have for certain obligations related to prior sales.
Lance K. Parker: So we, you know, we do have on the balance sheet some reserves that we have for certain obligations related to prior sales. And I'm assuming that that's probably what you're referring to. I guess, suffice it to say that we are, we feel like we are properly reserved from a balance sheet perspective for any potential outcome. Okay, thank you. Our next question comes from Mitchell Germain with Citizens JNP. Yeah, hi, how are you guys doing? The timing of the debt redemption, I guess you used the grace proceeds there, was that when you received them, was that like December? When should I kind of consider that it is occurring?
And I'm, assuming that that's probably what you're referring to I guess suffice it to say that we are we feel like we are properly reserved.
From a balance sheet perspective for for any potential outcomes.
Okay. Thank you.
Our next question comes from each of Jared Madden with citizens J M.
Yeah, Hi, how are you guys doing.
<unk>.
The timing of the debt redemption, I guess, she used to grace proceeds there.
Ed.
When you receive them is that like December when should I kind of consider that occurring.
So for the proceeds that we received from the Grace transaction.
Mitchell Bradley Germain: So for the proceeds that we received from the grace transaction, we had $45 million of cash that was received in December, and then in January of this year, there was $15 million that was repaid related to the promissory note. So all in, that was $60 million.
We had $45 million of cash that was received in December and then in January of this year.
There was $15 million debt was repaid related to the promissory note.
So all in that was the $60 million and.
So that was applied against net debt.
Clayton K. Y. Chun: So that was applied against net debt. So it paid the balance on the revolver. Is that the way you think about it? It did go down to, or it was applied towards the revolver.
So it paid the balance and the revolver is that the way to think about it.
It did go down to or it was applied towards the revolver Mitch.
Mitchell Bradley Germain: Okay, and so late December and then early January are the two assumptions we should make. So yes, 45 million in December, cash that we received at the time the deal was closed, and then 15 in January. [inaudible] I'm curious about the capital plan. I mean, the buyback was really tiny.
Okay and so late December and then early January of the two assumptions we should.
So yes $45 million in December was cash that we received at the time that deal was closed and then 15 in January.
Gotcha Gotcha Gotcha.
I'm curious about the capital plan I mean, the buyback was really tiny but.
Mitchell Bradley Germain: But, you know, obviously, given the pricing of some of the debt, I'm just curious about kind of your thoughts about going forward. If you have any potential land sales or any monetization is probably a good way to put it in your portfolio, how you're thinking about using those. Sure. So with respect to the remaining non-core lands that we have, it is a much smaller footprint than it was years ago. And so we're now at a point where there are under 4,000 acres of non-core land that we have remaining. And so we will be opportunistically monetizing. And so with the proceeds that do come in, our intent would be to eventually recycle that into CRE growth opportunities. But in the meanwhile, we would be applying it towards the repayment of any debt. Got it.
Obviously, given the pricing of some of the debt you know I'm just curious about kind of your thoughts about going forward. If you have any potential land sales or any monetization is probably a good way to put it in your portfolio, how you're thinking about using those proceeds.
Sure so with respect to the remaining noncore lands that we have it as a.
Much smaller footprint than it was years ago and so we're now at a point, where it's just under 4000 acres of noncore land that we have remaining and so we will be opportunistically monetizing.
And so with the proceeds that do come in.
Uh huh.
Our intent would be to eventually recycle that into CRE.
CRE growth opportunities, but in the Meanwhile, we would be applying it towards the repayment of any debt.
Got you and I guess I'm sticking with the balance sheet.
Mitchell Bradley Germain: And I guess I'm sticking with the balance sheet. You've got two tranches of debt coming due, two mortgages. Did you say both of them?
You've got two tranches of debt coming due to mortgages did you say both of them.
Mitchell Bradley Germain: We're going to be combined into an unsecured note. Is that the way to think about that? Now, so what I was referencing was, as you pointed out, we do have two mortgages, one that matures in May and the other that matures in December. And so what I was referencing was the earlier one.
We're going to be combined into a unsecured note is that the way to think about that.
No. So what I was referencing was so there is as you pointed out we do have two mortgages one that matures in may and the other that matures in December and so what I was referencing was the.
Earlier, one and so that was about $57 million.
Clayton K. Y. Chun: And so that was about 57 million. So with regard to the mortgage that's coming due in December, we're looking at a variety of options around what we want to do with it. And so we'll provide additional detail on that as it becomes available. Gotcha. Last one for me. Just speak, it seems like, you know, land contribution for the years kind of flat to, ish, to maybe a little bit of a drag. So what creates that drag on your numbers?
Okay. So until little later on then.
Yeah, So with regards to the mortgage that's coming due in December we're looking at a variety of options around what we want to do with it.
And so we will provide additional detail on that as it becomes available.
Got you last one for me.
Speak it seems like you know land.
<unk> contribution for the year is kind of flat.
Flat to.
Ish to maybe <unk>.
Little bit of a drag so what creates that drag.
To your numbers is it just additional.
Mitchell Bradley Germain: Is it just additional carrying expenses With no, Maybe just kind of talk over how you get, you know, a couple of pennies of decline from that for Metal. Mitch, you're on the right track. And so effectively, we do have carrying costs associated with these remaining, non-core assets that we have. And so to the extent that there is no land sale activity, then that would result in just those carrying costs being. Got you. Thank you. The next question comes from Brendan McCarthy with CWD. Please proceed. Hey, good afternoon, guys, and thanks for taking my question. Just to start off, just as a follow-up on an earlier question about the acquisition environment, it sounds like the market has kind of dried up a little bit, but are you seeing any distressed opportunities out there?
<unk> expenses.
With no.
Just maybe just kind of talk over how you get you know a couple of pennies of declined from that.
And therefore.
Mitch you are on the right track and so effectively we do have carrying costs associated with these remaining.
Noncore assets that we have.
And so to the extent that there is no land sale activity, then then that would.
Resulting in just those carrying costs being there.
Gotcha. Thank you.
Thank you.
Our next question comes from Brandon Mccarthy with Sidoti. Please proceed.
Hey, good afternoon, guys and thanks for taking my questions.
I'd like to start off I'm, just just as a follow up on the on an earlier question about the acquisition environment.
It sounds like obviously the market is kind of dried up a little bit but are you seeing any distressed opportunities out there and if so what.
Mitchell Bradley Germain: And if so, what asset classes are you seeing? Um, so maybe in reverse order, Brendan, I'd say, you know, there aren't a lot of distressed opportunities in the marketplace. But that being said, I'm not sure that I would necessarily characterize our market as drying up. I'd say, you know, it's typically been, you know, just on a relative basis to other US markets, you know, probably less marketing activity, which is typically why we view the fact that we're here and we have the relationships as a competitive advantage to us. It's not to say that we may not see some distress, but you know, we don't have a lot of these higher-leveraged, sort of larger office portfolios or other asset classes that may lead to more distress situations here.
Asset classes are you are you seeing them.
So maybe in reverse order Brennan I'd say.
There arent a lot of distressed opportunities in the marketplace.
But that being said I'm not sure that I would necessarily characterize our market is drawing up I'd say, it's typically been a just on a relative basis to other U S markets.
Less marketed activity, which is typically why.
We view the fact that we're here and we have the relationships.
Imperative advantage to us.
It's not to say that we may not see some distress, but we don't have a lot of these higher levered.
Sort of larger office portfolios or other asset classes that may lead to more distressed situations. Here then you may see in other areas.
Brendan Michael McCarthy: Got it, that's helpful. Just a quick question on a line item in the FFO portion of the statements here. I think I saw there was a $4.3 million abandonment development, or I'm sorry, $4.3 million cost related to... abandoned development. What was that from? So, hey, Brendan, it's Clayton.
Got it that's helpful.
Just a quick question on on a line item in the <unk> portion of the statements here I think I saw there was a $4 3 million dollar abandonment development.
Sorry for $3 million costs related to <unk>.
Abandon development.
What are what what was that from.
So hey, Brendan Clayton.
Clayton K. Y. Chun: What we did have was some non-cash charges during the quarter, and the item that you're thinking of as far as the abandonment of development costs was $2 million for the quarter. And so that was just effectively a non-cash charge as we were cleaning up our balance sheet. Got it. Thanks, Clayton. And one more from me just on the lower G&A expense for 2023. I know you mentioned that it was lower personnel expense, or lower staff, I believe. Was that just due to a lower headcount at the company? Yeah, so as we've been simplifying the company, we've been identifying ways in which we're able to also simplify our overall overhead. And so I think it's it's a reflection of that.
But we did have some noncash charges during the quarter and the.
The item that youre thinking of as far as the abandonment of development cost was.
It was $2 million for the quarter and so that was just effectively a noncash charge as we were.
Cleaning up our balance sheet.
Got it thanks.
And one more for me just on the lower G&A expense for 2023.
But I know you mentioned that was lower personnel expense or lower personnel. I believe was that just due to lower head count at the company.
Yeah, so as we've been simplifying the company we've been.
Identifying ways in which we're able to also simplify our overall overhead and so I think it's a reflection of that.
Okay.
Brendan Michael McCarthy: Okay. Thanks for that. That's all from me.
Got it thanks for the thanks for that that's all for me.
Again, it will have a question please press star one.
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