Q3 2024 Earnings Summary
- Exceptional leasing performance: The company executed 23 new deals, the highest in a long time, indicating healthy demand for both retail in-line space and small bay industrial. This strong leasing activity resulted in higher rent spreads and reflects robust market demand.
- Active capital recycling and expansion of industrial portfolio: Alexander & Baldwin acquired an 81,500-square-foot industrial asset on Oahu for $29.7 million at a going-in cap rate of 5.4%, funded by the sale of Waipouli Town Center and other non-income-producing assets. The uptick in deal volume and a strong acquisition pipeline position the company for future growth.
- Focus on cost reduction and operational efficiencies: The company is implementing process improvements and simplification measures that have led to a reduction in G&A expenses. This ongoing focus on streamlining the cost structure contributes positively to financial performance.
- Expected vacancies and move-outs in Q4 are anticipated to negatively impact same-store NOI growth, leading to an implied slowdown in performance. Management acknowledged that their same-store NOI guidance for the fourth quarter incorporates vacancies of approximately 50,000 square feet in industrial and 13,000 square feet in office properties, and these vacancies are expected to continue into 2025.
- Uncertainty regarding future contributions from Land Operations, as management is not providing guidance for 2025. The company indicated that Land Operations are influenced by episodic land sales and they are not planning to exit this part of the business entirely, leading to potential unpredictability in earnings from this segment.
- Limited acquisition opportunities with no additional acquisitions expected for the remainder of the year. Management stated that their improved guidance does not contemplate any additional acquisitions, and while they are encouraged by the prospects, the acquisition pipeline remains challenging.
| Metric | Period | Previous Guidance | Current Guidance | Change |
|---|---|---|---|---|
FFO | FY 2024 | $1.17 to $1.26 per share | $1.27 to $1.35 per share | raised |
AFFO | FY 2024 | $0.99 to $1.08 per share | $1.05 to $1.12 per share | raised |
Same-Store NOI Growth (including reserve reversals) | FY 2024 | 1.25% to 2.25% | 1.75% to 2.75% | raised |
Same-Store NOI Growth (excluding reserve reversals) | FY 2024 | 2.1% to 3.1% | 2.25% to 3.15% | raised |
General and Administrative Expenses | FY 2024 | no prior guidance | $29 million to $30.5 million | no prior guidance |
Vacancy Expectations | Q4 2024 | no prior guidance | Approximately 50,000 square feet industrial and 13,000 square feet office | no prior guidance |
| Topic | Previous Mentions | Current Period | Trend |
|---|---|---|---|
Land Operations and sales | In Q4 2023, EBITDA was lower vs. 2022; under 4,000 acres remain, with proceeds targeted for CRE growth and debt repayment. In Q1 2024, sold 300+ acres, boosting FFO; reiterated episodic sales strategy. In Q2 2024, sold 81 acres, raised Land Ops FFO guidance. | In Q3 2024, $0.11 of FFO from Land Ops, supported by another 81-acre sale; not planning a full exit. | Bullish on continued monetization; no full exit signals ongoing FFO potential. |
Industrial leasing and expansions | Q4 2023 saw a 30,000 SF build-to-suit at Maui Business Park plus off-market acquisition. Q1 2024 highlighted low vacancy, new development, and about $1M in SNO. Q2 2024 showed tight market with vacancy up slightly and a build-to-suit in preconstruction. | Q3 2024 experienced 71 new leases totaling 182,000 SF with 15.3% blended spreads, plus an 81,500 SF Oahu industrial acquisition. | Stable demand and growth; industrial remains a key expansion area. |
Acquisition pipeline and environment | Q4 2023 faced limited marketed deals; leverages off-market strategy. Q1 2024 maintained an opportunistic approach, focused on Hawaii. Q2 2024 saw more opportunities as sellers reengaged, though pricing remained high. | Q3 2024 indicated increased deal flow, with a $29.7M industrial purchase; remains opportunistic across asset types. | Bullish on off-market deals; pipeline continues to improve. |
Cost reduction and operational efficiencies | Q4 2023 lowered G&A through streamlining. Q1 2024 G&A down 17.1% YoY; targeting further cuts. Q2 2024 G&A down 26.8%, reducing land carrying costs. | Q3 2024 G&A decreased 1.7%; 2024 G&A guidance further reduced. | Continued efforts to lower overhead; incremental efficiencies remain a priority. |
Office occupancy and move-outs | Q4 2023 saw softness in Maui offices, planning repositioning. Q1 2024 noted tenant move-outs impacting guidance. Q2 2024 provided no major concerns but little detail. | Q3 2024 requires backfilling 13,000 SF at Kahului; expects some downtime. | Bearish short-term on office demand; repositioning could improve longer term. |
Solar projects and alternative revenue streams | Q4 2023 cited photovoltaic projects adding meaningful NOI. Q2 2024 had five solar projects in development for $400–600K incremental NOI. Q1 2024 had no mention. | No mention in Q3 2024. | Not discussed this quarter; previous solar focus may still proceed but no new updates. |
FFO guidance and financial forecasting | Q4 2023 guided $0.95–$1.05; transition to AFFO in 2024. Q1 2024 raised FFO to $1.05–$1.16; land ops boosted guidance. Q2 2024 raised FFO to $1.17–$1.26; land sale impact. | Q3 2024 adjusted up to $1.27–$1.35, with $0.20–$0.24 from Land Ops; higher CRE/corporate FFO. | Bullish as guidance rises; consistent improvements driven by CRE and land earnings. |
Repositioning underperforming assets | Q4 2023 highlighted underperforming Maui offices, exploring redevelopment or capital recycling. Q1 2024 saw office repositioning after tenant exits. Q2 2024 had no mention. | Q3 2024 includes 50K SF industrial and 13K SF office to be repositioned after move-outs. | Ongoing strategy for office/industrial, indicating potential longer-term upside. |
Debt maturities and refinancing | Q4 2023 faced May \u201924 and Dec \u201924 mortgages; used Grace Pacific sale proceeds for revolver paydown. Q1 2024 tackled Laulani Village mortgage with an 8-year note; about 90% of debt fixed. Q2 2024 saw a new 6.09% private placement and use of rate swaps; effectively 100% fixed. | Q3 2024 will pay off Pearl Highlands mortgage using the revolver; recast revolver to 2028; now 97% fixed at 4.7%. | Proactive refinancing; fixed-rate strategy limits interest rate risk. |
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2025 Guidance and Land Operations
Q: How should we think about 2025 base operations and Land contributions?
A: Management is not providing guidance for 2025 at this time. They acknowledge that Land Operations are influenced by episodic land sales and have no current plans to exit that business entirely. There will continue to be Land Operations heading into 2025, potentially contributing to FFO. Monetizing land remains a priority to provide liquidity for reinvestment and to drive down the cost structure. -
ATM Usage and Capital Allocation
Q: How do you plan to utilize the ATM for financing?
A: The ATM is considered a tool in the company's capital allocation toolkit. They did not utilize it in Q3. Management will consider using the ATM when market opportunities arise and if the stock is trading at levels where it makes sense. -
Acquisition Pipeline and Market Outlook
Q: What does the acquisition pipeline look like today?
A: Management is encouraged by increased activity and is seeing a variety of opportunities across asset classes ,. They executed an 82,000 sq ft industrial deal in Q3. While improved guidance does not include additional acquisitions this year, they are optimistic about finding opportunities heading into next year. -
Expected Move-outs and Leasing Outlook
Q: Are there any significant move-outs impacting 2025?
A: No significant known move-outs for 2025. They anticipate about 10% roll from both GLA and ABR, including the three vacancies mentioned. The overall weighted average lease term is about 6 years, and management feels pretty good about 2025. -
Disposition of Waipouli Town Center
Q: Can you discuss the Waipouli Town Center sale and its impact?
A: The sale of the underperforming Waipouli Town Center was a unique opportunity to recycle capital into a strategic off-market industrial deal. This eliminated some expense drag from CAM leakage due to prior occupancy issues, reducing drag on the overall portfolio. -
FFO Clarity and Land Operations Impact
Q: How should we consider a clean FFO number for the quarter?
A: Management intentionally presents FFO bifurcated between CRE, Corporate, and Land Operations to recognize the episodic nature of land sales. By stripping out one-time FFO related to land sales, investors can focus on the consistent CRE and Corporate FFO going forward. -
SG&A Efficiency Improvements
Q: What drove the SG&A efficiency improvements for 2024?
A: G&A and overall cost structure remain a priority, focusing on process improvements and company simplification to lower run-rate G&A. Benefits are being realized from various cost categories, including personnel and consultants. -
Refinancing Pearl Highlands Mortgage
Q: Why did you use the revolver to refinance Pearl Highlands mortgage?
A: They evaluated options for the December-maturing mortgage and chose to utilize the revolver, leveraging a forward-starting interest rate swap with a notional amount of $73 million, effectively locking in an interest rate of 4.73%. This strategy aligns the revolver with the swap, providing comfort in refinancing. -
Legacy Joint Venture Impact
Q: Can you provide color on the legacy joint venture?
A: The joint venture is a passive investment made around 10 years ago, before converting to a REIT. It doesn't require significant management time and hasn't resulted in cash flow contributions. -
Rent Spreads and Leasing Performance
Q: Can you comment on higher rent spreads this quarter?
A: The leasing team had an exceptional quarter with 23 new deals, the highest in a long time, indicating healthy demand for retail in-line space and small bay industrial. The large spread was driven by a major anchor deal at Queens' Marketplace; excluding this and another retail deal, spreads were consistent with previous periods.