Q2 2025 Alexander & Baldwin Inc Earnings Call
Operator: At this time, all lines are in listen-only mode.
Operator: Following the presentation, we will conduct a question-and-answer session. If at any time during this call you require immediate assistance, please press star 0 for the operator.
Operator: This call is being recorded on Thursday, July 24, 2025.
Operator: And I would now like to turn the conference over to Shane Mensch. Thank you. Please go ahead. Thank you, operator.
Good afternoon, ladies and gentlemen. And welcome to the Alexander and Baldwin, second quarter earnings call at this time. Online, sir, in less than only mode following the presentation, we will conduct a question in answer session. If at any time during this, call, we require immediate assistance, please press star zero for the operator. This call is being recorded on Thursday July 24th 2025 and I would now like to turn the conference over to Shane men. Thank you, please. Go ahead.
Shane Mensch: Aloha and welcome to Alexander & Baldwin's second quarter 2025 earnings conference. My name is Shane Mensch, and I'm a leasing manager at Alexander & Baldwin. With me today are A&B's Chief Executive Officer, Lance Parker, and Chief Financial Officer, Clayton Chun.
Since the operator Aloha and welcome to Alexander in Baldwin's second quarter, 2025 earnings conference call.
My name is Shane Mensch and I'm a leasing manager at Alexander in Baldwin.
Shane Mensch: 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 second quarter 2025 financial presentation available on our website at investors.alexanderandbaldwin.com backslash event.
With me today, our ambz chief executive officer, Lance, Parker and Chief Financial Officer. Clayton Chun.
Speaker Change: We are also joined by kit Milan. 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 second quarter 2025 Financial presentation available on our website at investors. Alexander in baldwin.com back events.
Shane Mensch: Before we commence, please note that the statements in this presentation are not historical facts and are forward-looking statements within the meaning of Private Securities Litigation Reform Act of 1995. and are involved in a number of risks and uncertainties that could cause actual results to differ materially from those contemplated by the relevant, forward-looking statement. 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 of the statements were made and are not guarantees of future performance.
Speaker Change: Before we commence, please note that the statements in this presentation are not historical facts and our forward-looking statements within the meaning of private Securities. Litigation Reform, Act of 1995.
Speaker Change: and are in a number of risks, and uncertainties that could cause actual results to differ materially from those contemplated, by the relevant forward-looking statements,
Speaker Change: These 4 are looking statements include but are not limited to statements regarding possible or assumed future results of operations.
Speaker Change: Business strategies growth opportunities and competitive positions.
Speaker Change: Such forward-looking statements speak only as of the date of the statements were made.
Shane Mensch: Forward-looking statements are subject to a number of risks, uncertainties, assumptions, and other factors that could cause actual results and timing of certain events to differ materially from those expressed in the implied by the forward-looking statement. These factors include, but are not limited to, prevailing market conditions, other factors related to a company's REIT status, and the company's business, the evaluation of alternatives by the company related to its remaining legacy assets, and the risk factors discussed in Part 1, Item 1A of the company's most recent Form 10-K under Heading Risk Factor. Form 10-Q and other filings with the Securities and Exchange Commission.
Speaker Change: And are not guarantees of future performance.
Speaker Change: Forward-looking statements are subject to a number of risks, uncertainties assumptions and other factors that could cause actual results and timing of a certain events to to differ materially from those expressed in the implied by the forward-looking statements.
These factors include but are not limited to prevailing market. Conditions other factors related to companies reach status and the company's business, the evaluation of Alternatives by the company related to its remaining Legacy assets. And the risk factors discussed in part 1 item 1, a of the, company's most recent form, 10 K, under heading risk factors.
Speaker Change: Form 10 q and other filings with the Securities and Exchange Commission.
Shane Mensch: The information in this presentation shall be evaluated in light of these important risk factors. We do not undertake any obligation to update the company's forward-looking statement.
The information in this presentation, shall be evaluated in light of these important risk factors.
Speaker Change: We do not undertake any obligation to update the company's forward-looking statements.
Shane Mensch: Management will be referring to non-GAAP financial measures during today's call. Please refer to our statement regarding the use of non-GAP measures and the reconciliations included in our second quarter 2025 supplemental information and presentation material.
Speaker Change: Management will be referring to non-gaap financial measures during today's call.
Speaker Change: Please refer to our statement regarding the use of non-gaap measures and the reconciliations included in our second quarter 2025, supplemental information and presentation materials.
Shane Mensch: Lance will start today's presentation with a highlight of our accomplishments and CRE results, then hand it over to Clayton for a discussion on financial matters. To close, Lance will return to make some final remarks, and we will open up for your questions.
Lance Parker: With that, let me turn it over the call to Thank you, Shane. Great job. And aloha to everyone joining us today.
Speaker Change: Lance will start today's presentation with a highlight of our accomplishments and CRA results. Then hand it over to Clayton for a discussion on financial matters. To close. Lance will return to make some final remarks and we will open up for your questions.
Speaker Change: With that, let me turn it over to the call to Lance.
Lance Parker: I am pleased to say that our portfolio delivered strong results in the second quarter, and the team continued progress in the three priorities for 2025 that I laid out in the beginning of the year, improving our CRE portfolio performance, internal and external growth, and streamlining our business and cost structure. We achieved same-store NOI growth of 5.3% for the quarter, driven primarily by a 140-basis point improvement in same-store economic occupancy. From a growth perspective, we continued construction at our Build-a-Suit on Maui with an anticipated completion date in the first quarter of 2026. We expect annual NOI uplift of $1 million when it is complete.
Speaker Change: Thank you, Shane. Great job, and Aloha to everyone joining us today.
Lance: I am pleased to say that our portfolio delivered strong results in the second quarter and the team continued progress in the 3 priorities, for 2025 that I laid out in the beginning of the year.
Improving our CRA portfolio performance.
Internal and external growth.
Lance: And streamlining our business and cost structure.
Lance: From a growth perspective, we continue to construction at our bill to suit on Molly with an anticipated, completion date in the first quarter of 2026.
Lance Parker: And thanks to Shane, we were able to execute another build-to-suit for a 91,000 square foot building at Komohana Industrial Park on West O'ahu, and began pre-construction work for that asset, along with another adjacent warehouse. We expect to place the buildings into service in the fourth quarter of 2026 and achieve $2.8 million annual NOI when they are stabilized in the first quarter of 2027. These projects will increase our GLA by more than 150,000 square feet when completed. The transaction market in Hawaii is also starting to open up and the team is busy. While completing a deal ultimately depends on pricing, we are seeing a number of exciting acquisition opportunities.
Lance: We expect annual noi uplift of $1 million when it is complete.
Shane: And thanks to Shane. We were able to execute another bill to suit for a 91,000 square foot building at komohana industrial park on West aahu and began pre-construction work for that asset along with another adjacent Warehouse,
Shane: we expect to place the buildings in the service, in the fourth quarter of 2026 and Achieve 2.8 million annual noi, when they are stabilized in the first quarter of 2027,
Shane: These projects will increase our GLA by more than 150,000 square feet. When complete
Shane: The transaction Market in Hawaii, is also starting to open up and the team is busy.
Lance Parker: And finally, we resolved various legacy operations or obligations in our land operations segment. Turning to our second quarter CRE highlights, we executed 52 leases in our improved property portfolio representing approximately 184,000 square feet of GLA and $6.1 million of ABR. Our blended leasing spreads remain strong at 6.8% on a comparable basis. Our leased occupancy was 95.8%, up 40 basis points sequentially and 190 basis points compared to the second quarter of last year. Economic occupancy at quarter end was 94.8%, up 90 basis points from last quarter and 200 basis points from the same period last year.
Shane: While completing a deal. Ultimately depends on pricing. We are seeing a number of exciting acquisition opportunities.
Shane: And finally, we resolved various Legacy operations or obligations in our land operations segment.
Shane: Turning to our second quarter. See highlights, we executed 52 leases in our improved property portfolio.
Shane: representing approximately 184,000 Square, ft of gla and 6.1 million of ABR,
Shane: Our Blended leasing spreads remained, strong at 6.8% on a comparable basis.
Shane: Our least occupancy was 95.8% up 40 basis points, sequentially and 190 basis points compared to the second quarter of last year.
Lance Parker: S&O at Quarter End was $5.8 million and includes $3.1 million related to our two Build-A-Suit projects and over $700,000 for our ground lease at Maui Business Park.
Economic occupancy, a quarter end was 94.8% up, 90 basis points from last quarter and 200 basis points from the same period last year.
Lance Parker: From where I sit today, I will say that I am confident in our portfolio performance, encouraged about our growth prospects, and pleased with our streamlining efforts. As a result, we are raising our 2025 guidance.
Shane: Sno at quarter, end was 5.8 million and includes 3.1 million related to our 2, build a suit projects, and over 700,000 dollars for our ground lease at Maui Business Park.
Clayton Chun: With that, I'll turn the call over to Clayton to discuss financial results and our improved outlook. Clayton? Thanks, Lance, and aloha, everyone. Our portfolio continued its strong performance in the second quarter, generating $33.6 million of NOI and growing 6.3% over the same period last year. The results were driven by the 5.3% same-store NOI growth that Lance mentioned earlier, reflecting the impact of higher year-over-year occupancy. The Strong Portfolio performance in turn carried through to the bottom line, where we reported Q2. Sierra Incorporated related FFO per share of $0.29 A 3.6% increase from the same quarter last year.
Shane: From where I sit today. I will say that I am confident in our portfolio performance. Encouraged about our growth prospects and pleased with our streamlining efforts. As a result. We are raising our 2025 guidance.
Shane: With that, I'll I'll turn the call over to Clayton to discuss Financial results. And our improved Outlook Clayton
Clayton: Thanks, Lance and Aloha everyone.
Clayton: Our portfolio continued its strong performance. In the second quarter generating 33.6 million of noi and growing 6.3% over the same period last year.
Speaker Change: The results were driven by the 5.3% same store. Noi growth, at Lance mentioned earlier reflecting the impact of higher year-over-year occupancy.
Speaker Change: The strong portfolio performance in turn carried through to the bottom line where we reported Q2.
Speaker Change: CRA incorporate related ffo per share of 29 cents.
Clayton Chun: Included in the $0.29 is a penny of non-cash, straight-line rent adjustments related to one of our ground lease assets where we're taking back the improvements. FFO for the total company was $0.48 per share for the second quarter, or $0.20 higher than Q2 of last year. In addition to the $0.29 from CIRI and corporate previously mentioned, FFO for the second quarter included $0.19 from land operations. The earnings from land operations were primarily driven from the resolution of legacy obligations, a sale of agricultural zone land, and joint venture income. As a result of the activity during the quarter, we've made further progress on simplifying our carrying costs in land operations, resulting in our annual run rate decreasing from a range of $4 to $5 million to $3.75 million to $4.5 million.
Speaker Change: A 3.6% increase from the same quarter last year.
Speaker Change: Included in the 29. Cents is a penny of non-cash straight line rent adjustments related to 1 of our ground lease assets where we're taking back the improvements.
Speaker Change: Ffo for the total company was 48 cents per share for the second quarter or 20 cents higher than Q2 of last year.
Speaker Change: In addition to the 29 cents from Sierra, Inn corporate previously mentioned ffo for the second quarter included, 19 cents from Land operations.
Speaker Change: The earnings from Land operations were primarily driven from the resolution of Legacy obligations a sale of agricultural Zone land.
And joint venture income.
Speaker Change: As a result of the activity during the quarter, we've made further progress on simplifying. Our caring costs in land operations, resulting in our annual run rate, decreasing from a range of 4 to 5 million to 3.75, million to 4 and 1.5 million.
Clayton Chun: G&A was approximately $7 million for the quarter, reflecting a 3.3% decrease as compared to the same period last year. For the full year, we continue to expect GNA to range from flat to a penny per share lower as compared to 2024.
GNA was approximately 7 million for the quarter, reflecting a 3.3%, decrease as compared to the same period last year.
Speaker Change: For the full year, we continue to expect GNA range from Platte to a penny per share lower as compared to 2024.
Clayton Chun: Turning Toward Balance Sheet and Liquidity At quarter end, we had total liquidity of over $300 million, and our net debt to adjusted EBITDA ratio stood at 3.3 times. Approximately 95% of our debt was at fixed rates and our weighted average interest rate was 4.67%. We paid a second quarter dividend of 22.5 cents per share on July 9th, and our board declared a third quarter dividend of 22.5 cents payable on October 7th.
Speaker Change: Turning to our balance sheet and liquidity.
Speaker Change: at quarter end, we had total liquidity of over $300 million and our net debt to adjust the debit, though, ratio stood, at 3.3 times,
Approximately 95% of our debt was that fixed rates and are weighted average. Interest rate was 4.67%.
Since July 9th.
And our board declared a third quarter dividend of 22, 1/2 cents payable on October 7th.
Clayton Chun: We are raising our guidance as follows. We now expect same-store NOI to be within the range of 3.4% to 3.8%, an increase of 80 basis points at the midpoint when compared to the previous guidance range. CRE and corporate FFO is expected to be within the range of $1.12 per share to $1.16 per share. Finally, we expect total FFO of $1.35 to $1.40 per share up about $0.18 per share at the midpoint from our previous guidance. We feel good about the remainder of the year and expect the portfolio to continue performing at a high level. However, we expect a lower same-store NOI growth rate in the third quarter due to strong Q3 results in 2024.
Speaker Change: We are raising our guidance as follows.
Speaker Change: We now expect same store noi to be within the range of 3.4% to 3.8% an increase of 80 basis points at the midpoint when compared to the previous guidance range.
Speaker Change: Siri and corporate ffo is expected to be within the range of a dollar 12 per share to 1.16 per share.
Finally, we expect total ffo of a $135 to $1.40 per share up.
Speaker Change: About 18 cents per share at the midpoint from our previous guidance.
Lance Parker: With that, I will turn the call over to Lance for his closing remarks. Thanks, Clayton. Our portfolio performed well this quarter, in large part to the quality of our assets and the strength and experience of our team.
Speaker Change: We feel good about the remainder of the year and expect the portfolio to continue performing at a high level. However, we expect a lower same store. Noi growth rate in the third quarter due to strong Q3 results in 2024
Lance: With that, I will turn the call over to Lance for his closing remarks.
Thanks Clayton.
Lance Parker: I am excited about our future outlook. We continue to see healthy demand for our existing portfolio, are actively adding to our industrial asset base with our current developments, and I continue to be optimistic about future acquisitions.
Lance: Our portfolio performed. Well this quarter in large part to the quality of our assets and the strength and experience of our team.
Lance Parker: With that, I'll turn the call over to questions. Thank you.
Lance: I am excited about our future outlook. We continue to see healthy demand for our existing portfolio, are actively adding to our industrial asset base with our current developments. And I continue to be optimistic about future acquisitions.
Lance: With that, I'll turn the call over to questions.
Operator: Ladies and gentlemen, we will now begin the question and answer session. Should you have a question, please press star 4 by the 1 on your telephone keypad. You will hear a prompt that your hand has been raised, and should you wish to cancel your request, please press star 4 by the 2. If you are using a speakerphone, please lift the handset before pressing any key. One moment, please, for your first question.
Lance: Thank you, ladies and gentlemen, we will now begin the question and answer session. Should you have a question please? Press star 4 by the 1, on your telephone keypad. You will hear a prompt that your hand has been raised. And should you wish to cancel your request? Please press star 4 to do, if you're using a speaker phone, please, leave the handset. Before pressing any Keys 1 moment, please for your first question.
Gaurav Mehta: And your first question comes from the line of Gaurav Mehta from Alliance Global Partners, please go ahead. Yes, thank you. I want to go back to your comments about improvement in the transaction market. I was hoping if you could provide some color on what you are seeing and where you think the opportunity is.
Lance: And your first question comes from the line of Gass meta from Alliance Global Partners. Please go ahead.
Gass meta: Yep. Uh thank you. I want to go back to your um comments about Improvement in the transaction Market. I was hoping if you could provide some color on what you are seeing and where you're seeing the opportunities,
Lance Parker: Hey, Gaurav. This is Lance. Good afternoon. Thanks for joining the call. Yeah, I'll start by saying that we're just, you know, consistent with remarks in prior quarters. I feel like the market is starting to open up. We're seeing more opportunities at the top of the funnel. And I wouldn't say that there's any sort of specifics in terms of deal profile. It's really across asset classes. So as we noted last quarter, you know, we did have a penny of FFO per share in our guidance. We've already hit that for the year. So while I am optimistic that we'll be able to place additional capital before year-end, I don't think it'll have any material earnings impact for 2025.
Gass meta: Hey growth, this is Lance, good afternoon. Thanks for joining the call. Um, yeah, I'll start by saying that we're just, um, you know, consistent with remarks in Prior quarters. I feel like the market is starting to open up. We're seeing more opportunities at the top of the funnel.
Gaurav Mehta: Thank you.
Gass meta: And I wouldn't say that there's any sort of specifics in terms of deal profile, it's really across acid classes. Um, so as as we noted last quarter, you know, we did have a penny of ffo per share in our guidance, we've already hit that for the year. So while I am optimistic that we'll be able to to place additional Capital before year end. I don't think it'll have any material earnings impact for for 2025.
Lance Parker: Second question, I want to ask you on the comparable leasing spread, the 6.8%, which seems like lower than what you guys did last few quarters. Can you provide some color on the spread? Sure. I'd say in general, I was really pleased with the least activity. Just in total deal volume, we had a really strong quarter on ABR. GLA was slightly lower, but in line with prior quarters. And I would say really the difference is we just didn't have any major outliers in terms of individual drivers that drove the spread one way or the other. You know, we had some opportunities in prior quarters that gave us the benefit of a bit of a bump.
Speaker Change: Okay, second question, I want to ask you on the comparable leasing spreads at 6.8% which seems like lower than what you guys did last few quarters. Can you provide some color on the spreads?
Gaurav Mehta: But overall, we still remain very optimistic about the performance of the leasing. Okay, thank you.
Sure. Um, I say in general, I was really pleased with the lease activity just in total deal volume. We had a really strong quarter on ABR. Uh GLA was slightly lower, but in line with with prior quarters and I would say, really, the difference is, um, we just didn't have any major outliers in terms of individual drivers, that drove the spread 1 way or the other. You know, we had some opportunities in Prior quarters, uh, that gave us the benefit of a bit of a bump, um, but overall we still remain, you know, very optimistic about the
Speaker Change: Performance of the, the leasing.
Gaurav Mehta: That's all I have.
Okay, thank you. That's all I had.
Rob Stevenson: Thank you and your next question comes from the line of Rob Stevenson from Janie, please go ahead. Good afternoon, guys. Lance, can you talk about where there's potentially below market lease expirations coming up over the next six to 12 months that could continue this same store growth role that you guys have been on recently? I, you know, I wouldn't point to anything. Thanks for the question. Good to hear from you. I would say I wouldn't point to anything specifically in terms of real mark to market opportunities in the portfolio per se, I would ascribe really the growth that we're seeing just the fundamentals in the market in terms of retail performance.
Speaker Change: Thank you. And your next question comes from the line of props Stevenson from Janie. Please go ahead.
Stevenson: Uh, good afternoon guys. Um Lance can you talk about where there's potentially below? Uh Market lease expirations coming up over the next 6 to 12 months, they could continue this uh same store growth role that you guys have been on recently.
Stevenson: Uh, I, you know, I wouldn't point to anything but well first. Hey, Rob. Uh, thanks for the question. Good to hear from you. I, I would say I wouldn't Point anything specifically, in terms of real.
Lance Parker: You know, job growth here has been led by retail from 2025 over 2024. From a tenant perspective, we continue to see strong sales. Foot traffic is up year to date. And so it's really the fundamentals that continue to drive that. We, of course, do have some individual opportunities embedded in the portfolio. We'll take advantage of that, but that's really not what's driving the spread. Okay, and then you guys have put out the ABR from sign not open leases at $5.8 million as of the end of June. How much of that are you expecting to get over the back half of 2025 versus stuff that comes in in 26 and 27?
Stevenson: Foot traffic is up, year-two date. And so it's really the fundamentals that continue to drive that we of course, do have, you know, some individual opportunities embedded in the portfolio and we'll take advantage of that. But that's really not. Not what's driving the spreads.
Stevenson: Okay and then um you guys have put out the AVR from sign. Not open leases at 5.8 million as of the end of June. Um, how much of that are you expecting to get over the back half of 2025 versus stuff that comes in in 26 and 27?
Rob Stevenson: So I'll start with maybe a general comment and then maybe ask Clayton if we've got the actual breakdown for back half of 2025. You know, the S&O, we did add a couple of our build-to-suits on the industrial side into that S&O pipeline. So the first is the 30,000 square foot at Maui Business Park, which we anticipate will go economic in Q1 of 2026, so no 2025 impact there. The other that we just added was the Lowe's build-to-suit here on Oahu. That won't go economic in all likelihood until maybe early 2027, potentially late 2026, so no 2025 impact there.
Lance Parker: And Clayton, do you have any insight into 2025 opportunities? So we didn't lay out specifically the S&O and when that comes online for purposes of our income, but in general, what happens with the S&O pipeline is that we expect that to occur over the next 12 to 18 months that these eventually make their way into our NOI and FFO. Okay.
So I'll start with maybe a general comment and then maybe ask Clayton, if we've got the actual breakdown for back half of 2025, uh, you know, the Sno, we did add a couple of our build the suits, on the industrial side uh, into that Sno pipeline. So the first is the 30,000 square foot at Maui Business Park, which we, uh anticipate will go economic in q1 of 2026. So, no, 2025 impact. Their the other that we just added was the lows, build a suit here on a wahoo, um, that won't go economic in all likelihood until maybe early 2027 potentially late 2026. So no 2025 impact there. And, um, clean. We have any insight into 2025 opportunities, so we didn't play out specifically the Sno and when that, when that comes online for purposes of our income. But in general, what
what happens with the Sno pipeline is that we expect that to occur over the next 12 to 18 months that that these uh,
Stevenson: eventually make their way into our no info.
Rob Stevenson: And then lastly, if I remember correctly, there's a large Sam's Club TI. Is that still going to, you know, impact second half AFFO to a meaningful extent? How should we be thinking about that as we model the back half of this year?
Stevenson: Okay, and then lastly, um, is if I remember correctly, there's a large Sam's Club TI, is that still? Um, going to, you know, impact second, half afo to a meaningful extent, how should we be thinking about that as we model the back half of this year?
Clayton Chun: Yeah, I'll take that, Rob, Clayton, again. So we do have that large TI that that will be paid out. And so that is expected to occur sometime in the third quarter. For purposes of your modeling and AFFO, however, it is not considered our recurring maintenance capex. And so that should not be factored into how you calculate the AFFO. Okay, so it's stuff that you'll fund, that'll come out of cash, but won't go through AFFO? Correct.
Stevenson: Yeah, I'll take that Rob. This is Clayton again. Um, so we do have that large, uh, TI that that will be paid out. And so that is expected to occur. Uh, sometime in the third quarter, for purposes of your modeling and affo, however, it is not, uh, considered or recurring maintenance capex and so that should not be, uh, factored into how you calculate the affo.
Stevenson: Okay, so it's stuff that you'll fund, that'll come out of cash, but won't go through affo.
Clayton Chun: Okay, and what is the yeah, go ahead. What is the rough dollar amount there that we're talking about? It's about 20 million dollars. Okay. So what we typically incorporate into, for adjustments for AFFO, it would be adding in maintenance, recurring maintenance cap bets. And so this is, this is atypical. Okay. All right.
Correct.
Stevenson: Okay, so what is the
Speaker Change: Yeah, go ahead. What is the rough dollar amount there that we're talking about?
Speaker Change: It's about 20 million.
Okay.
So, what we typically incorporate into, uh, or adjustments for afo? It it would be adding in maintenance, recurring maintenance, capex. And so this is, uh, this is atypical,
Speaker Change: It's okay.
Rob Stevenson: Thanks, guys. Appreciate the time this afternoon. Thanks, Gaurav. Thanks.
Speaker Change: All right, thanks guys. Appreciate the time this afternoon.
Speaker Change: Thanks.
Operator: Thank you.
Mitch Germain: And your next question comes from the line of Mitch Germain from Citizens Capital Market. Please go ahead. Thank you, and congrats on the quarter, guys. Thanks, Rich. He obviously has a termination agreement with MyPono. I'm pretty comfortable with that, but I'm curious.
Speaker Change: This question comes from the line of me.
From Citizens Capital Market, please go ahead.
Speaker Change: Uh, thank you and congrats on the quarter guys. Um, thanks,
Speaker Change: Lance you obviously had the termination agreement with my Pono and
Lance Parker: if there are any more of these kind of legacy issues that could continue to transpire over the course of the next couple of years. Well, I'd start with maybe just a brief comment on Mahi Pono and just kind of reinforce that, from our perspective, this is a really good outcome. It provides certainty, allowed us to reduce the balance sheet exposure, and the payments over time will have a meaningful impact to us from a cash perspective. But as we've talked about, whether it was Mahi Pono-specific or other legacy obligations, we do feel comfortable that we're fully reserved in the balance sheet.
Speaker Change: I don't I I I'm pretty comfortable with that but I'm curious.
if there are any more of these kind of Legacy issues that
Speaker Change: Could continue to transpire over the course of the next couple years.
Speaker Change: Well, I'd start with maybe um, just a brief comment on Mahi Pono and just kind of reinforce it from our perspective. This is a a really good outcome, you know. It provides certainty allowed us to reduce the balance sheet exposure and the payments over time. Um we'll have a meaningful impact to us from a cash perspective.
Lance Parker: And so that was kind of first and foremost and important to us. And so as you look at the balance sheet specific to land ops, we do still have some liabilities associated with that operating segment. And I will say that, you know, while we don't expect anything material in the near term, that's why we always kind of say that it's kind of hard to guide to it.
Speaker Change: But as we've talked about whether it was, Mahi Pono specific or other Legacy obligations. Uh, we do feel comfortable that we're fully reserved in the balance sheet and so um that was kind of first and foremost an important to us
and so, as you look at the balance sheet, specific to land Ops, we do still have some liabilities associated with that, uh, operating segments and I will say that, you know, while we don't
Mitch Germain: It is important to us, both from an asset disposition perspective, as well as a liability mitigation perspective, that we continue to clean up that portion of the business. Great, that's super helpful.
Expect anything material in the near term. Um, so I we always kind of say that it's kind of hard to guide to it. It is important to us. Both from an asset disposition perspective, as well. As a liability mitigation perspective that we continue to clean up that portion of the business.
Lance Parker: I'm curious, obviously you've talked about a lot of opportunities that are starting to come up, and I recognize that you I am curious about the competitive landscape in the market with regards to the investment sales and are you seeing a return from some of your competition or are they still somewhat on the sidelines? No, part of the reason we have the Hawaii focused investment thesis is because we fundamentally believe in the long term value creation of Hawaii real estate. I don't think we're the only ones that share that perspective. So I will say that there is active capital in addition to us looking to source opportunities in the islands.
Speaker Change: that you
Speaker Change: Um, Source, a number of your deals direct. But, um, I am curious about the competitive landscape in the market with regards to the investment sales and have you, are you seeing a return from some of your competition or are they still somewhat on the sidelines?
No, there is um.
Speaker Change: We part of the reason we have, the Hawaii focused investment thesis is because we fundamentally fundamentally believe in the long term value creation of what you real estate. I don't think we're the only ones that share that perspective.
Lance Parker: To your point, it is why we have a dedicated team and we continue to work our relationships and try to find those opportunities off market to be more competitive. And then I would say just as a reminder, when we think about our competitive landscape, it's some of those smaller deals that we compete typically against local buyers where we think our platform and our balance sheet strength give us an advantage. And then on the larger deals, it's really our local knowledge and understanding their real estate that sets us apart. And then in the middle range, if you don't call it the 70 to 100 million dollar or so, sometimes there's a little bit less competition in that size range.
So I will say that there is active capital in addition to us, looking to Source opportunities in the islands to your point, it is why we have a dedicated team and we continue to work our relationships and try to find those opportunities off Market to be more competitive.
Lance Parker: And that's typically where we like to play. But yeah, it does remain a competitive market here in Hawaii.
Speaker Change: And then, I would say, just as a reminder, when we think about our competitive landscape, it's, you know, some of those smaller deals, um, that we compete typically against local buyers, where we think are are platform, and our balance sheet strength. Give us an, you know, sort of a, an advantage. And then on the larger deals, um, it's really our local knowledge and understanding their real estate. That sets us apart and then in the middle range, if you don't call it the 70 to 100 million dollar. Or so, um, sometimes there's a little bit less competition in that size range. And that's, you know, typically where we like to play
Mitch Germain: gotcha.
Clayton Chun: And then last one for me, same store, obviously year to date, you're still tracking significantly ahead of where your revised guidance is. What's the dynamic for the back half of the year that could create some sort of deceleration?
Speaker Change: But um yeah, it it does remain a competitive uh competitive market here in Hawaii.
Got you and then last 1 for me, same store. Um obviously year to date, you're still tracking significantly ahead of where your revised guidance is.
Speaker Change: Uh, you know, what's the dynamic, for the back half of the year that could create some sort of deceleration?
Clayton Chun: I'll take that. Hi Mitch, it's Clayton. Our portfolio delivered solid results in the first half of the year where we produced year-to-date same-store NOI growth of 4.7%, and that's inclusive of the 5.3 Q2 performance. But as I mentioned in the prepared remarks, we are feeling good about the second half of the year. We expect the portfolio to continue to produce at a high level. It's just that when we look at the expected NOI growth for the third quarter, the math requires us to take into account the Q3 2024 strong performance that we had, and that incorporated some favorable renewal that included retroactive rent and the favorable property tax appeal that was incorporated into that Q3 2024 result.
Speaker Change: I'll take that. I mentioned Clayton. Yeah. So the portfolio.
Speaker Change: our portfolio delivered solid results in the first half of the Year where we uh,
Speaker Change: We produce year-to-date same store in AI growth of 4.7% and that's inclusive of the 5.3, uh, Q2 performance. But as I mentioned, in the prepared remarks, uh, we are feeling good about the second half of the year. We expect the portfolio to continue, uh, to produce at a high level. It's just that when we look at the expected, noi growth for the third quarter,
Clayton Chun: So it's really just a function of that. When you look at the fourth quarter, we're expecting the same-store NOI growth rate to be more in line with what we saw for the first half of the year. Thank you.
Speaker Change: The math requires us to take into account, the Q3 2024, strong performance that we had, and that incorporated some uh favorable renewal that uh, included retroactive rent and and uh, the favorable property tax appeal, that was incorporated into that Q3 2020, 24 result. So it's really just a function of that. Uh, when you look at the fourth quarter, we're expecting the same story. Noi growth rate to be more in line with what we
Speaker Change: We saw for the first half of the year.
Speaker Change: Thank you.
Thank you.
Operator: Once again, should you have a question, please press star or byte 1 on your telephone keypad.
Alexander Goldfarb: And your next question comes from the line of Alexander Goldfarb from Piper Sandler. Please go ahead. Hey, I think it's still good morning out there. Just a few questions. First, I just want to go back to Rob's question on that Sam's Club, the $20 million. You guys are excluding it from AFFO, but it doesn't sound like this is a first-generation improvement. It sounds like this is a normal leasing work letter as part of a renewal or something like that. So et cetera, that come in from time to time. I mean, Torino had one a number of years ago.
Speaker Change: Thank you. Once again, should you have a question please press. Start call by 1 on your telephone keypad and your next question comes from the line of Alexander Gould Park from Piper Sandler, please go ahead.
Alexander Goldfarb: I mean, the office guys have them constantly.
Alexander Goldfarb: So I just want to understand why you guys would exclude this, unless it literally is like first-gen space.
Speaker Change: Hey, uh, I think it's still good morning out there. Uh, just a few questions first. I just want to go back to Rob's, uh, question on that Sam's Club, the 20 million. Uh, you guys were excluding it from afo is but it doesn't sound like this is a first generation Improvement. It sounds like this is a normal leasing you know work letter as part of a renewal or something like that. So can you just clarify because afo? I mean a lot of companies have outsized TI or Etc that come in from time to time. I mean Torino had 1 a number of years ago. I mean the office guys have them constantly so I'm just want to understand why you guys would exclude this unless it literally is like firstg space.
Clayton Chun: Hi, Alex. It's Clayton. Yeah, I'll start off. And really, what the way that we think about the Sam's Club TI is it was really in connection with a with a long term extension of of that lease. And so it's atypical for us as part of how our, our, our maintenance capex typically runs.
Speaker Change: Hi Alex. It's Clayton. Um yeah I'll start off and um really what the way that we think about the Sam's Club TI is it was really in connection with the with the long-term extension of of that lease. And so it's atypical for us as part of how our our, uh, our maintenance
Alexander Goldfarb: And so as a result, we deemed that for purposes of our AFFO computation to be non-recurring in nature and so as a result we don't have that factored into that that calculation but I do recognize the fact that look when you when you try to compare AFFOs across different companies people have different interpretations and that's just the way that we we looked at it Yeah, but it's a cost to do in business, like it shouldn't be excluded. That's not representative. It's not a one-time thing, because this could happen next year in a few years. And as I say, other companies, you know, have these outsized items, you know, the street understands that it may not be every quarter, we get that.
Speaker Change: Capex, typically runs. And so as a result, we deemed that for purposes of our affo, computation to be um,
Speaker Change: Uh, non-recurring in nature. And so as a result, we don't have that.
Speaker Change: Factored into that that calculation. But I do recognize the fact that look when you when you try to, uh, compare afos across different companies, people have different interpretations and that's just the way that we we looked at it.
Lance Parker: But, you know, large TIs are part of operating real estate, especially large format real estate that has a lengthy lease. Yeah, I would just say Alex from certainly from a business perspective, I acknowledge that perspective. And that's kind of how we viewed it. I mean, Sam's Club is our largest individual tenant within our portfolio. And we did what we thought was the right thing to do from a business perspective and taking them long and creating stable occupancy at Pearl Highland Center. But to Clayton's point, you know, just maybe a disparity in practice, but we certainly appreciate your perspective.
Speaker Change: It's a cost to do in business, like it shouldn't be excluded, that's not representative. Uh, it's not a 1-time thing because this could happen next year in a few years. And as I say other companies, you know, have these outsized items, you know, the street understands, that it may not be every quarter, we get that but, you know, large TI's are part of operating real estate, especially large format real estate. That has a a lengthy lease.
Speaker Change: Yeah, I would just say Alex from certainly from a, a business perspective. Um, I acknowledge that. And that's kind of how we view viewed, it. I mean, Sam's Club is our largest individual tenant within our portfolio, and we did what we thought was the right thing to do from a business perspective and taking them long and, um, creating stable occupancy at Pro Highland Center. Uh, but to Clayton's point, you know, just a, maybe a disparity in practice, but we certainly appreciate your perspective.
Alexander Goldfarb: Yep.
Speaker Change: Okay. I mean it's something that yeah as I and kudos to Rob for asking that but uh yeah, that is it's not non-recurring that is recurring. Second question is on your guidance, you did improve the same store but the ffo guidance for the real estate, part of the business only came up a penny at the bottom end, so given the improved same store guidance. Why don't we see more of this blowing through to the CRA ffo guidance range?
Clayton Chun: So, Alex, the difference is primarily driven by the non-cash straight line adjustment that I mentioned in the prepared remarks. And so really what that related to was a lease, a ground lease in which we're taking back the improvements. And so as a result, you had some straight line rent adjustment that flows through FFO, but it doesn't affect NOI. And when you exclude that CRE and corporate FFO would have been a penny higher. on both ends of the guidance. So we would have gotten to a range of $1.13 to $1.17, so about $1.15 at the midpoint.
Speaker Change: Yep. So Alex, the difference is primarily driven by the non-cash street line adjustment that I mentioned in the prepared remarks
Speaker Change: And so really what that related to was a lease a ground lease in which we're taking back the improvements and so as a result you had some Street line rent uh adjustment that flows through ffo but it doesn't affect noi. And when you exclude that uh CRA and corporate ffo would have been a penny higher. Um
Speaker Change: On both ends of the guidance. So we would have uh, gotten to a range of uh 1.13 to 1.17
Clayton Chun: So I think that's what will reconcile that delta that you're looking at. Okay, cool. Yes, sir.
Speaker Change: So about a buck 15 at the midpoint so I think that's what what we'll uh reconcile that that Delta that you're looking at.
Speaker Change: Okay, cool. And I would just add
Lance Parker: Now, if I could just add a remark to that, Alex. You know, obviously, the straight line is non-cash. So it's a non-cash impact and accounting one for us. But more importantly, we've already executed leases to backfill two thirds of that space. So from a business operations perspective, we're. We're feeling good about that going long term.
Speaker Change: Oh yes, sir.
Speaker Change: No, if I could just add a remark to that Alex. Um,
Speaker Change: You know, obviously the straight line is non-cash. So it's a non-cash impact and accounting 1 for us, but more importantly, um, we've already executed leases to backfill 2/3 of that space. So from a business operations perspective um,
Speaker Change: where we're feeling good about the, um,
Alexander Goldfarb: Okay, and just the final question, here in New York, some discussion of, you know, foreign tourists dropping off and impacting, you know, some of the some of the more touristy, you know, areas. Obviously for you guys, I don't think the Japanese tourists ever recovered from the pre-pandemic levels, but, and I realize that you guys are local, not tourists, but still Hawaii is driven in part by tourism.
Speaker Change: That going long term.
Speaker Change: Okay. And just the final question here in New York. Uh, some discussion of, you know, foreign tourists dropping off impacting, you know, some of the some of the more touristy, uh, you know, areas.
Lance Parker: Are you seeing any negative impact of foreign tourists that would ripple through the economy or whatever is going on on the foreign tourist side of the leisure, if you will, is not sufficient to really impact the Hawaii, the economic growth of the state overall? So specific to tourism, Alex. I'd say the tourism numbers that we have through May are still strong. For the month of May, we're up 1% total visitation numbers, and then year-to-date, we're up 2.8%. Now, to your point, that continues to be led by U.S. West Coast, which is up pretty materially year-to-date over 5%, and we are seeing a slight decline in the Japanese visitors year-to-date and month compared to 2024, and then maybe more importantly, Canadian, which was down about 8% for May and down a little bit over 6% year-to-date.
Speaker Change: Obviously, for you guys, I don't think the Japanese tourists ever recovered from the pre-pandemic levels, but and I realize that you guys are local, not tourists, but still Hawaii is driven in part by tourism. Are you seeing any negative impact of foreign tourists? That would Ripple through the economy, or whatever is going on on the forest on the foreign tourist side of the Leisure, if you will is not sufficient to really, uh impact, you know, the Hawaii, uh the the economic growth of the state overall.
Speaker Change: So specific to tourism Alex. Um,
Speaker Change: I'd say the the tourism numbers that we have through May.
Are are still strong. Um, for the month of May we're up 1% total um total visitation numbers and then year to date, we're up 2.8%.
Speaker Change: Now to your point that continues to be led by us West Coast, which is up pretty, um, pretty materially year to date over 5%. And we are seeing, um, a slight decline in the Japanese visitors a year to date and months compared to 2024. And then maybe more importantly Canadian, which was down about 8%
Alexander Goldfarb: So we've been able to more than sort of make up for that just with West Coast, and East Coast domestic visitors are also up year-to-date and for the month. Okay, thank you. Thank you.
Speaker Change: Sent for me and down a little bit over 6% year to date. Um,
Speaker Change: But we've been able to, to more than sort of make up for that just with West Coast and East Coast. Domestic visitors are also up here to dating for the month.
Speaker Change: Okay, thank you.
Michael Madison: And your next question comes from the line of Michael Madison from CDoT Company. Please go ahead. Congratulations on a great quarter, you guys. Coming to my questions, you paid down about $24 million in debt last quarter that left you with debt standing at 3.3 times EBITDA.
Michael Madison: Thank you. And your next question comes from the line of Michael Madison from Co Company. Please go ahead.
Michael Madison: Congratulations on a great quarter, you guys.
Michael Madison: Thank you.
Clayton Chun: Do you foresee continuing to pay down debt that aggressively, and do you have a target level for debt to EBITDA rate?
Michael Madison: Um, coming to my questions. Um, you paid down about 24 million in debt, last quarter that left you uh with debt standing at 3.3 times IBA,
Michael Madison: do you foresee continuing to pay down debt that aggressively and do you have a Target level for debt to keep it to our ratio?
Clayton Chun: Hi, Michael, this is Clayton. So answering the last question first, our target leverage, we're trying to shoot for a range of five to six times net debt to adjust the EBITDA. So currently, where we stand at 3.3 as of the end of the second quarter, that's well below that target range. And so that kind of leads me into answering the first part of the question, which is, as we, to the extent that we have additional cash proceeds, whether that be from monetization of other assets and the like, our goal would be to effectively deploy that for growth capital purposes.
Clayton Chun: But, you know, it's really part of just overall how we look at capital allocation in general. And so, you know, we'll look at what's happening in the business and to the extent that there's opportunities to pay down debt, we may do that, but it's really looking at the totality of what's available out there. And that's how we would proceed with respect to that.
Hi, Michael, this is Clayton. Uh, so answering the last question first our, our Target leverage. We're we're trying to shoot for a range of 5 to 6 times. Net debt to adjust the debit, though. So currently, where we stand at 3.3, as of the end of the second quarter, that's well below that target range. Uh, and so that kind of leads me into answering the first part of the question, which is, uh, as we to the extent that we have additional, uh, cash proceeds, whether that be from monetization of of other assets and the like, uh, our goal would be to effectively deploy that for for, uh,
Michael Madison: growth Capital purposes, but
Michael Madison: but uh,
You know, it's really part of just overall how we look at Capital allocation and in general. And so, you know, we'll look at what's happening in the business and to the extent that there's opportunities, uh, to pay down debt. We may do that, but it's really looking at the totality of what's available out there and and, uh, and that's how that's how we would, uh, proceed with respect to that.
Kit Millan: Great, thank you. Earlier, you guys described that your tenants described foot traffic being up to date, your occupancy stats had improved a lot. Is there anything that makes you doubt the health of your tenants? Anything you're worried about?
Speaker Change: Great. Thank you. Um earlier, uh, you guys described that your tenants described foot traffic being up to year to date your occupancy stats, had improved a lot, is there anything that makes you doubt the health of your tenants? Anything you worried about
Kit Millan: Hello, this is Kit. I'll take this question. Obviously, we're paying very close attention to tenant health and focusing on customer traffic trends, tenant sales, collections, and of course, the economic environment is still uncertain. But really, there are no signs of slowing in our portfolio. Our parking lots are full. Customer traffic in Q2 was up 3.9%. Tenant sales have remained really strong. And we exceed our percent rent goal for both Q1 and Q2. And then collections overall have been very consistent with what we've been seeing for the past several quarters. So no signs of overall trouble.
Hello. This is Kent. I'll take this question. Um, obviously we're paying very close attention to tenant health and focusing on customer traffic Trends, tenant sales Collections. And of course, the economic environment is still uncertain, but really, there are no signs of slowing in our portfolio. Our parking lots are full customer traffic and Q2 was up 3.9%.
Speaker Change: Tenant sales, have remained really strong and we exceed our percent role percent. Rent goal for both q1 and Q2 and then collections overall have been very consistent with what we've been seeing for the past, several quarters.
Speaker Change: So no signs of overall trouble.
Kit Millan: Very good.
Lance Parker: Just regarding your build-to-suit operations, have tariffs had any impact on your construction costs? I would say that, you know, just overall inflation, quite frankly, has had impacts on our construction costs. And we've looked to sort of mitigate that risk, you know, as best we can. So to the extent that we can forward price materials, I think last quarter I cited an example with one of our build-a-suits, the Lowe's over in West O'ahu, where we forward priced steel before tariffs went into effect, and we were able to mitigate some of that cost inflation there. But it's something that we deal with, and, you know, whether it's through just being a little bit more conservative in our underwriting and carrying a larger contingency, or just reinforcing with the team that speed to execution is paramount.
Speaker Change: Very good.
Speaker Change: Um, just regarding your, uh, build to suit operations, um, have tariffs. Had any impact on your construction costs.
Speaker Change: Uh, I would say that, um, you know, just overall inflation, quite frankly, has had impacts on our construction costs and we look to sort of mitigate that risk, um, you know, as best we can. So, to the extent that we can forward price materials, I think last quarter, I cited, an example, with 1 of our build the suits the lows over in, um, in West Oahu, but we forward price deal before. Tariffs went into effect and we were able to mitigate some of that cost, uh, inflation there.
Lance Parker: That's really what we do to just try to keep the costs in check and be just more realistic about what those impacts are going to be.
Speaker Change: But it's something that we deal with and you know, whether it's through. Um just being a little bit more conservative in our underwriting and caring a larger contingency or just reinforcing with the team. Um, that speed to execution is Paramount. Um, that's really the the what we do to just try to keep the costs in check and be just more realistic about what those impacts are going to be.
Michael Madison: Well thank you for taking my questions and congratulations again on the quarter. Thanks, appreciate it.
Okay, great. Well thank you for taking my questions and congratulations again on the quarter.
Speaker Change: Thanks, appreciate it.
Operator: Thank you, and there are no further questions at this time.
Clayton Chun: I will now hand the call back to Mr. Clayton Chun for any closing remarks. Thank you, Operator, and thank you all for joining us today. If you have any follow-up questions... Please feel free to call us at 808-525-8475 or email us at InvestorRelations at abhi.com.
Speaker Change: Thank you. And there are no further questions at this time. I will now hand the call back to Mr. Clayton, Chan for any closing remarks,
Speaker Change: Thank you, operator, and thank you all for joining us today. If you have any follow-up questions.
Clayton Chun: Aloha and have a great day.
Speaker Change: Please feel free to call us at 808-525-8475 or email us at investor relations at abhi cam.
Speaker Change: Aloha and have a great day.
Operator: This concludes today's call. Thank you for participating.
Operator: You may all disconnect.
Speaker Change: This concludes today's call, thank you for participating. You may all disconnect.